The Indiana Supreme Court has publicly reprimanded a Hamilton County attorney for violating Indiana Professional Conduct Rule 1.5(a) by making agreements for and charging unreasonable fees.
The justices released a per curiam opinion Feb. 11, In the Matter of Heather McClure O'Farrell, No. 29S00-0902-DI-76, in which the majority chose the discipline based on Heather McClure O'Farrell’s lack of prior disciplinary history and her cooperation with the Disciplinary Commission. Chief Justice Randall T. Shepard and Justice Robert Rucker joined in a dissent to the sanction. Because O'Farrell’s lawyer indicated that she is unrepentant, the dissenting justices believe a period of suspension without automatic reinstatement should have been instituted to protect clients.
McClure & O’Farrell, where O'Farrell practices, uses an “Hourly Fee Contract” or a “Flat Fee Contract” most of the time when it represents a party in a family law matter. Both contracts contain a provision for a nonrefundable “engagement fee.” The Disciplinary Commission alleged that O'Farrell improperly charged two clients these nonrefundable engagement fees and didn’t refund unearned fees after the representations ended.
The justices examined the various types of fee arrangements and the nonrefundability of fees. O'Farrell argued that the nonrefundable fees she charged the two clients were justified because by representing these clients, the law firm couldn’t represent opposing parties and it required time that the firm could have otherwise devoted to other representations. But this would be true anytime an attorney is engaged by a client, the opinion said.
They determined that the fees at issue are flat fees for work to be performed. O'Farrell failed to tell her clients that the flat fee could be refundable upon the failure to perform the agreed legal services; instead, she told her clients the fee was nonrefundable even if the client-attorney relationship ended before the completion of the attorney’s representation.
“The presence of this contract provision, even if unenforceable, could chill the right of a client to terminate Respondent's services, believing the Law Firm would be entitled to keep the entire flat fee regardless of how much or how little work was done and the client would have to pay another attorney to finish the task. We conclude that Respondent violated Rule 1.5(a) by including an improper nonrefundability provision in her flat fee agreements,” said the opinion.
They also found she violated the rule by charging and collecting flat fees that were nonrefundable, regardless of the circumstances.
“The Court is mindful of the legitimate concern of attorneys that they will go through the initial steps of opening a case and beginning work for a new client, only to have that client discharge them and demand a refund of the entire initial payment as unearned. The solution, however, is not allowing attorneys to charge flat or advance fees upfront that are wholly nonrefundable regardless of the amount of services rendered,” wrote the justices.
They decided based on the record they weren’t able to hold that some amount of the flat fee must be returned in all cases in which the attorney-client relationship ends before the work contracted for is completed. They also were unable to determine how much, if anything, O'Farrell should have refunded to the two clients, so they found the Disciplinary Commission didn’t meets its burden of proof that she violated Rule 1.16(d).