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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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.