IN Re: Kendall Redux

Kendall – Redux

The 2004 case of In Re Michael Kendall (see 3-24-04 entry) is a landmark case among Indiana’s legal fee cases.

Kendall’s law firm went bankrupt, and several clients’ fees could not be refunded, having been deposited into his general account. The issue was whether those funds should have been safe in a trust account. In a 13 page opinion. the Supreme Court expounded on the proper use of “flat fees” “non-refundable retainers” and how lawyers can protect their livelihoods.

The hearing officer had found violations of Rule 1.4 on communicating with clients, but on the big fee issues, Rules 1.5 & 1.15, found no violation.  The Disciplinary Commission appealed those findings, and the Supreme Court found there were violations of Rules 1.5, & 1.15. The court distinguished Kendall’s actions from those found in the In the Matter of Stanton case, when flat fees for criminal matters, deposited in the lawyer’s general account was permissible. Kendall deposited advance fees for hourly work in the lawyer’s general account.

FLAT FEES

The court’s discussion starts with a helpful paragraph:  Advance fee payments are subject to different requirements, depending upon the terms of the agreement between the lawyer and the client.  This discussion will distinguish between the advance fees charged by the respondent here (that were to be earned in the future at an agreed rate) and advance fees that are agreed to cover specific legal services regardless of length or complexity (fixed or “flat” fees). 

After the discussion the Court held: “We therefore hold that Prof. Cond. R. 1.15(a) generally requires the segregation of advance payments of attorney fees, as discussed below….  Except in the case of flat fees governed by Stanton, a lawyer’s failure to place advance payments of attorney fees in a separate account violates this rule.”

The per curiam opinion, authored by now Chief Justice Dickson, defined a “flat fee” that could be charged, and once collected placed in the firm’s general account, as follows: “As distinguished from a partial initial payment to be applied to fees for future legal services, a flat fee is a fixed fee that an attorney charges for all legal services in a particular matter, or for a particular discrete component of legal services.”

Are you paying attention reader? Flat fees can be charged and put in the general office account.  But they must qualify as flat fees.  And you must explain, accurately, how that works, so the client is not misled.

UNREASONABLE FEES = NON-REFUNDABLE RETAINERS?

Kendall’s other mistake was to use language in his fee agreement that must have been common (considering how often the issue arises), a provision that fees paid were non-refundable unless otherwise provided by law.  That language is a huge red-flag, and while the Supreme Court has not yet said the term “non-refundable retainer” is forbidden, they have not approved it in recent history when addressing the situation.  In Kendall they held that even though the Commission never proved he had taken and kept a non-refundable retainer, and never failed to resolve a retainer when he was discharged before the completion of the case, the Court  still found the fee agreement that included a threat that the fees paid could not be refunded was unreasonable and in violation of Rule 1.5.

In language that I still find confusing, the court said the following two things: 1) “In discussing [in Thonert] the nonrefundability provision, we observed: We do not hold that unrefundable retainers are per se unenforceable.  There are many circumstances where, for example, preclusion of other representations or guaranteed priority of access to an attorney’s advice may justify such an arrangement.  But here there is no evidence of, for example, any value received by the client or detriment incurred by the attorney in return for the nonrefundable provision, other than relatively routine legal services.  [Thonert] 682 N.E.2d at 524.  Where a retainer is thus justified, a lawyer would be well advised to explicitly include the basis for such non-refundability in the attorney-client agreement; and 2) We hold that the assertion in an attorney fee agreement that such advance payment is nonrefundable violates the requirement  of Prof. Cond. R. 1.5(a) that a lawyer’s fee “shall be reasonable.”

How clear is that? The non-refundable retainer fee may be permissible, but to say so in the fee agreement violates the reasonable fees requirement.

Word that part of your fee agreement carefully, yet make it clear for the average client.

And remember, even though the Court did not say it out loud, no fee is Non-Refundable.

CONCLUSION

Michael C. Kendall, in the face of other undisclosed charges recently filed by the Disciplinary Commission, tendered his resignation of his license to practice law. On Jan. 28, 2013 the Supreme Court accepted his resignation, and said that he may not apply for reinstatement for at least five years.

I don’t know Michael C. Kendall, but the 2004 opinion included the following paragraph: The hearing officer received significant evidence of Kendall’s professional reputation.  Several highly respected witnesses testified favorably for Kendall, praising his history of ethical practice, his integrity, his significant public service, and his strong dedication, care, and commitment to his clients’ cases.  The hearing officer recognized that Kendall “deserves sanction” but noted that the “accolades from the various witnesses were impressive and unchallenged,” and urged that “the penalty needs to be tempered by what seems to be the Respondent’s superior ethical history until this recent period.”  Findings at 23. 

A few years ago a friend of mine had some troubles, and got a reprimand. Folks tried to help, but a second round of complaints hit. He resigned his license to practice as a lawyer. It was right for him. I hope this was right for Kendall.

Good Use of Probation; So bad, so bad; Reciprocal Discipline imposed

Using Probation in Disciplinary Proceedings

Drugs and alcohol are problems for lawyers.  The evidence is clear that many problems come from addictions. The Indiana Supreme Court and Disciplinary Commission recognizes that reality with greater frequency.  Take Marla Muse’s case as an example. The facts are sketchy in the opinion, but they start with a plea of Guilty to Possession of Marijuana as a Class D Felony.

RPC Rule 8.4(b) states that “It is professional misconduct for a lawyer to: (b) commit a criminal act that reflects adversely on the lawyer’s … fitness…”  Ms. Muse agreed that she violated that standard.  The court’s sanction is as follows:

For Respondent’s professional misconduct, the Court suspends Respondent from the practice of law for a period of 180 days, beginning February 15, 2013, with 30 days actively served and the remainder stayed subject to completion of at least two years of probation. The Court incorporates by reference the terms and conditions of probation set forth in the parties’ Conditional Agreement, which include:(1) Respondent shall maintain complete abstinence from mind-altering drugs during her probation.(2) Respondent shall have no violations of the criminal law of this state or the Rules of Professional Conduct during her probation.(3) If Respondent violates her probation or the JLAP monitoring agreement, the Commission will petition to revoke her probation and request the balance of the stayed suspension be actively served without automatic reinstatement, and Respondent may be reinstated only through the procedures of Admission and Discipline Rule 23(4) and (18).

It seems that a period of probation, working with JLAP in a well monitored probation program will do more to protect the clients of Ms. Muse than any longer suspension and return to the profession without requiring some assistance.  *

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How bad can one lawyer get?
Amy McTeer had it bad for the guy. Amy was a criminal defense lawyer, who forgot that you want to be sure at the end of the case it is the client who goes to jail. She worked hard, and got him out of jail, the illegal way – she helped him escape. To compound matters she posted photos on Facebook of her out with the escapee. She was arrested in 2011 for these matters, and the Oklahoma Supremes finally accepted her resignation of her license.

The whole sordid story, drugs and troubles can be found here.

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Reciprocal Discipline

Did you realize that if you get busted in one state for ethical violations, it can carry over to other states where you are licensed?

Mark J. Hughes, a now former member of the Indiana Bar was disbarred in Arizona. The State Bar of Arizona reported:

In the matter of Mark J. A. Hughes, the Presiding Disciplinary Judge accepted a consent agreement between Hughes and the State Bar and ordered him disbarred.

In three cases, the State Bar charged that Hughes revealed information relating to the representation of a client without informed consent, engaged in conflicts of interest and failed to take steps to protect his client’s interests upon termination of representation. The State Bar also alleged that Hughes failed to maintain confidences and preserve the secrets of his client, engaged in unprofessional conduct, and made disparaging, offensive, and provocative comments and accusations about his client and client’s family members in their presence. Finally, the State Bar charged that Hughes engaged in the unauthorized practice of law while suspended. Hughes agreed not to contest any of the charges.

As a result of the consent agreement, the Presiding Disciplinary Judge issued an order on May 1, 2012, declaring Mark J. A. Hughes’ disbarment. Hughes must pay $1,202 for all costs and expenses associated with the State Bar of Arizona’s investigation.

The Indiana Supreme Court sent Hughes a Rule to Show Cause why similar treatment should not occur here in Indiana. The standard under the A&D Rule 23(28)(c) is that similar treatment should occur here. No reply as to why it should not.

* The author is a JLAP volunteer.

Zealous Representation?; Alabama joins Indiana on Group Coupon issue; Who is the client?

Zealous? Don’t Talk to me about Zealous! -1-

Wisner v. Laney is an important case on lawyer civility, but an opinion with a problem. First, the issue.  As stated in the opinion, counsel for both sides went over the line. Plaintiff’s counsel was ordered to apologize to the jury for comments about the defense counsel.

Defense counsel still thought that the opponent went too far, and the trial court should have either called a mistrial or dismissed the case. That did not happen. As stated by Justice David, “Again, the trial court judge is in the best position to determine when enough is enough and whether or not the behavior of counsel would warrant a new trial.” and “we nonetheless express our displeasure with the conduct of counsel, particularly that of plaintiff’s counsel.” Also the court found: “Although plaintiff’s counsel’s behavior was most troubling, both attorneys should have acted in a manner more becoming of our profession.”

Now the problem: in the conclusion the court says: “The duty to zealously represent our clients is not a license to be unprofessional.”  In the 2004 amendments to the Indiana Rules of Professional Conduct the Supreme Court deleted the word and standard of “zealous” representation from the Preamble, in favor of an “effective advocate” standard. The ABA Model Rules still use the term “zealous” three times in the Preamble. Section 2 of the MRPC states in part: “As advocate, a lawyer  zealously asserts the client’s position under the rules of the  adversary system.” It is also found in Sections 8 & 9 of the MRPC.  One example of the change in Indiana’s Rule 8 is: “a lawyer can be a zealous an effective advocate”.

So now the court reintroduces the issue of zealous advocacy in the most recent “civility” opinions issued by the court. Was that intentional by the court, or a lapse to the language lawyers used a decade or more ago?

1. Bad take-off on the Jim Mora Playoffs speech from 2001

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GROUP COUPON OPINION SPREADS

Alabama State Bar’s ethics committee joined Indiana in banning lawyers from participating in daily deal coupon programs such as Groupon. An issue that has been ruled on by several states, first Indiana and now Alabama have found the deal plans contain too many “ethical landmines” to pass muster.

Indiana’s 2012 opinion was the first to take aim on the practice, calling it fraught with peril, and identifying eight Rules in the Indiana RPC, plus one guideline that were in peril with the proposal.  NY, NC and SC looked at fewer issues in approving the proposal.   The Legal Examiner in Alabama had an article that hit the highlights of that state committee’s ruling.

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WHO IS THE CLIENT?

Ethical questions to the ISBA Hotline panel are often explored in more detail by asking the caller “Who is your client?”  A recent Minn. case discussed in the Jan. Minn. Ethics Update takes that question a step further.

In Fredrikson & Byron v. Saliterman the law firm started working with the owner and CEO of “LOS” in an arbitration matter where LOS was one of the parties. Saliterman, the contact and CEO of LOS had separate legal counsel in the arbitration. He received LOS’s engagement letter, addressed to him, and it said, among other things, “Thank you for selecting F&B to represent you in the litigation matter concerning [LOS].”

When the matter was over, and LOS was insolvent, Saliterman was billed for the legal  fees due.  The question addressed by the trial and appellate courts was “Who was F&B’s client?” The appellate court decided that ambiguity in a fee agreement goes against the law firm, so F&B did not get paid.

The lesson?  Make sure your engagement letters identify, by name, the client, such as, “In this matter the firm of XYZ is representing only [client’s name].”  If you want a guarantor for payment, get a payment guaranty from the CEO in the CEO’s personal capacity, (or parent in a child’s matter) and not as the representative of the business entity.

Fraud is trouble; Theft from Child; Research Issues; Epic Trust Fund Breach

FRAUD LEADS TO TROUBLE
Indianapolis lawyer Paul J. Page has agreed to plead guilty for his scheme to defraud a bank. Hard to tell whether this is a business deal gone bad (which even by a lawyer is not a big concern of this blog) or a bad thing done in his role as a lawyer.

More interesting is all that is written about his friend and colleague, former Indy Prosecutor Carl Brizzi.  Too early to tell if Page’s fraud leads to Brizzi trouble, but I smell smoke in the air.

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ELKHART LAWYER STEALS FROM CHILD’S FUND

Juan Garcia Jr., an Elkhart In. lawyer has pleaded guilty to stealing the funds of a child, whose funds from a personal injury settlement were placed in trust with Garcia by the child’s guardian. When the guardian noticed some discrepancies, she met with Garcia who tried to bribe her to remain silent. The bribe money also came from the child’s funds. The guardian took the bribe money to the police, and the charges followed.

One interesting aspect is to read the subscribers’ comments to the news story on this case from the Elkhart Truth.

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UPDATE YOUR RESEARCH

The lesson from the Thul case out of ND IL federal court is to update your research.  Biglaw firm Skadden Arps lawyers filed Motion to Dismiss (as usual), but did not cite the recent (2012) 7th Cir. case on the basis for their motion. Trial judge went ballistic.  Their action he said “likely amounted to conduct sanctionable under FRCP 11(b)(2) and 28 USC 1927.”  The judge has set a hearing for Jan 17, but by today, Jan. 10,  all three lawyers from Skadden shall “show cause in writing … why they should not be sanctioned” in any of four ways set out in the opinion, and must “appear in person” for what sounds like a slap down by the judge.  Ouch.

Just a reminder that the best daily blog for keeping up with legal issues in Indiana is still the Indiana Law Blog, written by Marcia Oddi.  I owe her my thanks for many of the cases I can give you a bit different look at.

I check ILB regularly, and so should you.

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BUYING TRUST ACCOUNT TROUBLES?
A trust account is a serious matter. Written about before here, it is not a personal checking account, not a place for your funds, not a line of credit for your office and not something to be taken lightly. You never want the Supreme Court to call your handling of your trust account an “ethical failure of epic proportions” as the Wisconsin court did for Joe Weigel.

The now former lawyer found out the hard way. It started with a seemingly innocent act. Weigel worked for a lawyer in Wisconsin, and eventually bought his practice (permitted under IN RPC 1.17) in 1999. While working there he “knew of a deficit in the trust account” but did not research that until after he and his new partners bought Alvin Eisenberg out.  He said he thought the problem was only $200-250 thousand. In reality, the deficit was near a million dollars. But he had bought the practice anyway.

He did not report Eisenberg to the WI Disciplinary Commission at the time that he worked there or when he bought the practice. When asked, Weigel responded, “I thought of it but just made a moral decision not to do that.”

Not the kind of “moral decisions” that lawyers should make. For 13 years Weigel juggled the books, borrowing from one client to pay another, or holding the funds due a third-party to pay someone in a different case. Finally his luck ran out, he got caught and now is out of the profession.

If you have a trust account problem, fix it immediately. This is a place where self-reporting with counsel at your side should be considered.

Happy New Year; New Rules; Be Honest; Tell Your Friends

NEW YEAR’S RESOLUTION.

I wish you and your staff a Happy New Year. If you read this blog I know you also read other blogs, and many of them have offered resolution suggestions for the new year. Here is mine.

I was at a closing last week and the seller asked if I had set any resolutions for 2013. My reply was “Work hard, and keep out of trouble.” Thinking about that later, I need to revise that first one to “Work smarter.” I have reached the age where working harder is not going to do it any longer. And the issues my clients have are not solved by working harder, so I must continue to work smarter.

Good luck to you and your clients, the kind of luck that comes from working smarter.

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NEW RULES (redux)

In the last post I suggested that we all read the new rules issued for 2013. Just in case you got too wrapped up in parties, parades and football, I thought I would remind you to take a look. Stay on top and be ready.  Your judge might be expecting that from you. Your client’s new lawyer will if pursuing a malpractice claim, for any reason.

Don’t forget the new Parenting Time Guideline changes go into effect on March 1, 2013 as well.

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BE HONEST AND EXPLAIN THE REAL BASIS FOR YOUR FEE

Finally a story out of Cincinnati. Kathleen Mezher offered a free consultation to  potential clients coming to her law office. Lots of lawyers do this. But do they follow her improper practice of billing for that time if the client signs up? Do they explain the fees kick in when the client signs up? Do you?

In this case, a potential client came in to discuss her mother’s estate. The meeting was advertised as a free consultation. The potential client showed up, discussed the proceedings with the associate lawyer Espohl and agreed to hire the firm. She then talked in more particulars about the estate proceedings, left some important papers and then waited. Three weeks later the client decided to go someplace else and asked for the papers to be returned. The client got her papers, and a bill for $375, of which $250 was charged for the “Attorney Client consultation” that had been identified as a freebie.

The event was called the “failure to communicate the basis of a fee and misleading communication about a fee” by the Ohio Supreme Court, violating Rules 1.5(b) and 7.1. Mezher and her associate Espohl both got public reprimands for their actions. The court opinion speaks in detail about the need to communicate to the client if a free consultation can turn into a client interview for which payment is required. Here the lawyers did not have a good policy for that change in circumstances, or adequately explain that policy to the clients.

Well worth the read, especially if you offer free consultations. 

Query: If your first engagement is a free consultation, then you start to charge a fee for that meeting, is that a change in fee arrangements that also requires a Rule 1.8 warning under Indiana’s more strict view?  What would the Disc. Comm. think? Do you want to be the test case?

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TELL YOUR FRIENDS

If you enjoy the information you get in this blog, please tell your friends, or better yet forward to you friends, the blog that is about those who might be Lawyers With Troubles. Maybe it will help a fellow lawyer avoid a problem.  They can go to the site www.lawyerswithtroubles.wordpress.com and sign up.