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Dicta From Desa: Flat wrong on flat fees

By DESA BALLARD, Special to Lawyers Weekly

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The incredible generosity of members of the South Carolina Bar continues to amaze me.

I am a member of the South Carolina Association of Ethics Counsel (SCAEC), the brainchild of my friend Steedley Bogan, who suggested about 10 years ago that those of us who defend lawyers in disciplinary proceedings should form an alliance to work together to improve the lawyer disciplinary system. Steedley created the legal framework to let us exist, and we were fairly active for a number of years.

Like other public agencies, the lines between those who prosecute and those who adjudicate had been too thin for comfort. The SCAEC argued to change that, and it changed. We won’t take credit for the change, but we hope we made a difference in being heard.

A need for advocacy arose again recently, when the South Carolina Supreme Court issued a disciplinary opinion involving a lawyer in a small practice and his handling of the trust account.     

    There was no dishonesty or intentional misconduct by the lawyer; the issues were the typical bookkeeping issues that trap many of us as we try to handle all of our obligations in the practice of law. But lurking in the opinion was some troublesome language about flat fees, which engenders debate when the issue arises in the context of professional discipline.

Fortunately, that doesn’t occur often. Unfortunately, the rules on the issue are far from clear.

The opinion was based on an agreement to discipline by consent, which includes stipulated facts. Thus, like most opinions in disciplinary cases, nothing was litigated. The facts and the violations of the Rules of Professional Conduct were stipulated.

“Other negative balances occurred when Respondent collected ‘flat fees’ …  and deposited them directly to his operating account. When respondent learned he was required to deposit all fees, including flat fees, into his trust account until the fees were actually earned …”  he changed his system.

A tidal wave hit and lawyers around the state were in shock. Flat fees have to go into the trust account? Since when? Well, since the court issued that opinion, that’s when.

But the opinion suggested, without citation of authority, that flat fees had always been required to go into the trust account and this was not a new rule. The opinion did not give any indication of what kind of flat fees were involved.

When contacted by the SCAEC, the lawyer involved said it was all kind of flat fees: criminal, domestic, real estate and others. Holy cow! There, in a seemingly innocuous opinion, was a dramatic change in the law of how to handle flat fees. All without reference to a prior case, a court rule, or any other precedent to support the change in the law.

An alert went out to the members of the SCAEC, and they responded. The lawyer involved had acted pro se in handling the grievance, so none of the members of the SCAEC had a dog in the fight. But all of them represent lawyers and wanted the rules to be clear.

The tidal wave of the opinion had caused chaos, particularly among the criminal defense bar, the members of which do a great deal work on flat fees, depositing them directly into the operating account as “earned” fees.

Before the time for rehearing expired, the SCAEC filed a petition with the Supreme Court asking to appear as amicus curiae to be heard on rehearing on that single issue: How do lawyers handle flat fees?

The Supreme Court had never defined or explained “flat fees” before issuing the opinion. Two prior disciplinary opinions had mentioned flat fees, with the same assumption that they must go into the trust account. One of the prior opinions urged that lawyers use caution in charging “special nonrefundable retainer” fees.

Language in a comment to Rule 1.5 and a portion of Rule 1.16 address “nonrefundable retainer fees.” But are “nonrefundable retainer fees” the same as “flat fees”?

The new opinion did not define “flat fees.” It did not distinguish funds paid to guarantee the availability of the lawyer, or fees paid to an attorney to move a client’s case to the top of the priority list, or fees for complete representation, regardless of how much (or little) time was necessary to the representation. Nothing was discussed about earned versus unearned fees. The opinion, citing an agreement to discipline by consent, simply assumed that flat fees must go into the trust account. It’s not that simple.

Much has been written about flat fees, nonrefundable retainer fees, and unbundled legal services. So much so, in fact, that the answer is as muddy as Lake Murray after a storm.

The SCAEC urged the Supreme Court to address the troublesome language in the opinion, or delete the language from the opinion altogether.

At the end of the day, the Supreme Court did the absolute best thing. It allowed the opinion to stand, but it added a footnote that expressly recognized that the issue of flat fees is “complex” and noted that the opinion is not intended to “set forth a categorical rule addressing ‘flat fees.'”

This is magnificent news for several reasons. The opinion does not stand for the proposition that flat fees must be deposited into a trust account, to be removed as earned. There is no precedent from the troublesome language in the opinion.

More than that, however, the Supreme Court noted that it accepted the stipulation “for purposes of honoring” the agreement to discipline. In other words, the court did not want the lawyer involved to become the poster child for litigation of this issue; the agreement was final.

    No, the question did not get answered. The flat fee issue is still unclear and extremely complex. But we now know that decisions in disciplinary cases based on agreements to discipline do not necessarily establish bright-line rules, because there has been no litigation of the issues.

My thanks go out to the members of the SCAEC. I am honored to know and practice with lawyers who fight for what is right. Practicing law is tough. We have to stick together.

Editor’s note: Ballard, a West Columbia attorney who practices with Ballard Watson Weissenstein, focuses her practice on representing lawyers and other professionals in licensing and disciplinary matters. Her column appears monthly.

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