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.

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2 thoughts on “IN Re: Kendall Redux

  1. I am sure you are aware of In re Heather McClure in which the Court gave some more guidance on the two types of retainers and what is refundable.  

    “Types of fee arrangements. There are a variety of terms used to describe the types of fee arrangements between attorneys and clients. In this opinion, the following terms will be used for three common types of attorney fees: (1) a “flat fee” is a fixed charge for a particular representation, often paid in full at the beginning of the representation; (2) an “advance fee” is a payment made at the beginning of a representation against which charges for the representation are credited as they accrue, usually on an hourly basis;

    3 and (3) a “general retainer” is payment for an attorney’s availability, which is earned in full when paid before any work is done. 4 Regardless of the term used to describe a client’s initial payment, its type is determined by its purpose, i.e., what it is intended to purchase. When the purpose is to serve as an advance payment to the lawyer of fees the lawyer will earn in the future by doing work for the client, that payment is either a flat fee or advance fee. On the other hand, when the purpose is simply to pay for the lawyer’s availability to provide legal services as needed during a period of time, as opposed to payment for work not yet done, the fee is a general retainer. A general retainer acts as an option on the lawyer’s future services, often on a priority basis, and precludes the lawyer from undertaking representations that might conflict with representing the client. In some cases, the lawyer may need to turn down unrelated employment to ensure availability if the client calls for immediate assistance. Because this fee is not intended to pay for work, but merely for the lawyer’s availability, it is earned on payment and the attorney is entitled to the money even if no services are actually performed for the client, so long as the lawyer provides the bargained-for availability.5   . . . . The Law Firm’s fee agreements state that the engagement fee is “non-refundable and shall be deemed earned upon commencement of Attorney’s work on the case.” Stipulation of Facts, Exhibits A and B. However, “an attorney cannot treat a fee as ‘earned’ simply by labeling the fee ‘earned on receipt’ or referring to the fee as an ‘engagement retainer.'” Matter of Sather, 3 P.3d 403, 412 (Colo. 2000). “[I]t is the actual nature of the attorney-client relationship, not the label used, that will be determinative.”

     

     

  2. Wow. I wish they had called me to testify about Mike Kendall’s ethics and character. When I sued him for legal malpractice, it was hard to get an expert witness, because firms were lining up to take over all of the clients who had fired him.
    Mike was at one time a good guy who was interested in law but not very good at it. When he was overwhelmed by his limited abilities, he froze in place, everything came crashing down, and his clients too.

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