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More mixed signals from South Carolina Supreme Court on handling flat fees

The September 12, 2011 public reprimand issued by the South Carolina Supreme Court in In the Matter of Michael James Sarratt, 394 S.C. 209, 715 S.E.2d 337 (2011), perpetuates its opaque guidance on the proper handling of flat fees.

Sarratt handled some of his work on a flat fee basis.  Because he treated these fees as earned when received, he deposited them into his personal account rather than into his trust account.  On February 4, 2010, the Court placed Sarratt on interim suspension and appointed an attorney to protect his clients’ interests.  In the Matter of Sarratt, 387 S.C. 220, 692 S.E.2d 892 (2010).  During the process of returning files, several of his clients requested a refund, claiming he had not earned all the monies paid to him.  Per the opinion:

Respondent [Sarratt] did not have sufficient funds in his trust account to refund monies to these clients.  The attorney to protect clients’ interests spoke with respondent about these claims and respondent acknowledged that the clients were due refunds because he had not earned all of the monies paid to him at the time of his interim suspension.  Respondent has now reimbursed all clients who were owed the return of unearned legal fees at the time of his interim suspension.

It strikes me as obvious that Sarratt wouldn’t have sufficient funds in his trust account to reimburse these clients because he never deposited these funds into his trust account.  Further, if it was proper for him to deposit these flat fees into his personal account, it might have been an ethical violation for him to deposit these funds into his trust account.  Just last month, in In re Bentley, 393 S.C. 618, 714 S.E.2d 279 (2011), the Supreme Court disciplined an attorney, in part, for commingling personal funds in her trust account, which the Supreme Court has repeatedly indicated is a violation of Rule 1.15 of the South Carolina Rules of Professional Conduct.

If Sarratt’s flat fees were to be treated as earned upon being retained (subject to being refunded if he didn’t complete the work), the Supreme Court’s decision to reprimand him appears unjust.  After all, he refunded his unearned fees to his clients’ satisfaction.  If Sarratt’s flat fees were not earned upon being retained, the Supreme Court–for the second time within the past few months–declined to specifically proclaim this.  Instead, as in In the Matter of J. Cameron Halford, 392 S.C. 66, 708 S.E.2d 740 (2011), the Supreme Court imposed discipline on an attorney for depositing a flat fee into a personal account because the attorney stipulated that doing so was a violation of the Rules of Professional Conduct.

In both Sarratt and Halford, the Supreme Court imposed discipline for the handling of flat fees while declining “to set forth a categorical rule addressing flat fees.”  It’s almost as though the ODC and our Supreme Court are setting a trap for attorneys who are too readily stipulating to misconduct that the Supreme Court is unwilling to state is misconduct.  Perhaps it’s going to take some “ballsy” attorney to tell the ODC and the Supreme Court that depositing flat fees into the personal account is proper before the Supreme Court is actually forced to set forth rules addressing flat fees.

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