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The Indiana Supreme Court Disciplinary Commission has issued an advisory opinion on lawyers’ obligations regarding fee agreements, refunds and disputes.
Advisory Opinion #2-23 — “Ethical Considerations about Getting Paid” — says lawyers should avoid provisions in their fee agreements that are “confusing and unenforceable.” The opinion also says lawyers have a duty to refund unearned fees when representation ends prematurely and should retain disputed fees in their trust accounts.
“Clear communication with the client about how fees will be and have been earned can significantly mitigate fee disputes,” the opinion says.
The commission said the following general rules should be considered:
- Nonrefundable fee provisions are generally prohibited, as they are unfair to and unenforceable against clients. As such, they should almost never be used and certainly should not be part of any regular fee agreement used by a lawyer.
- Funds that are not the lawyer’s should be immediately placed in a trust account.
- Except for nominal amounts, funds that do belong to the lawyer do not belong in the trust account.
- Disputed funds should remain in the trust account until disputes are resolved. This includes disputes between the lawyer and client over fees.
- Disputes about whether a lawyer’s fees are “reasonable” should be considered on a case-by-case basis and analyzed under Indiana Professional Conduct Rule 1.5(a). When creating a fee agreement for a client, a lawyer must consider the factors listed in Rule 1.5(a) to determine whether the fee is reasonable.
- If it is impossible to discern from the plain text of a written fee agreement how the ultimate fee will be calculated, then the fee is inherently unfair to clients.
- The commission encourages the continuation, if possible, of an attorney-client relationship after a grievance is filed, but a lawyer should never pass the costs of defense to grievances on to the client, nor should any quid pro quo be offered to withdraw a grievance.
In one hypothetical offered by the commission, a lawyer is representing a client in a civil lawsuit that settles for $15,000 in the client’s favor. The lawyer receives the settlement check and deposits it into a trust account.
The lawyer then sends the client a bill for $4,000 in legal fees, but the client disputes that amount and says they are only willing to pay $2,000. The lawyer doesn’t agree and sends the client a check for $11,000 and transfers the remaining $4,000 to an operating account.
The lawyer in that scenario violated Indiana Professional Conduct Rule 1.15(e), the opinion says, by transferring the disputed funds to an operating account.
Instead, the lawyer should have transferred the $2,000 in undisputed funds to the operating account and left the remaining $2,000 in the trust account until the dispute was resolved.
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