The Indiana Supreme Court has issued a short opinion on whether flat fees can be non-refundable. I have commented on the confused state of the law regarding this issue here and here. Also, I reported not too long ago that Tennessee and Minnesota have decided to allow non-refundable flat fees (here and here).
In the Indiana case, In the Matter of Heather McClure O'Farrell (available here), the court imposed discipline on an attorney for violating the rule that requires that fees be reasonable. Apparently, what made the fees unreasonable in this case was that they were non-refundable. But it is not as straightforward as that. The real problem was not that the fees were non-refundable, but that the attorney told the client they were non-refundable "no matter what."
In other words, the court suggests that a flat fee can be non-refundable as long as the task for which it pays is completed. What this means is that if the task is completed in less time than originally expected the attorney may keep the value of the time saved.
If the task is not completed, however, as when a client dismisses the attorney before the task is completed, the attorney must refund the portion of the fee that is "unearned."
On this last issue, the matter gets more complicated also since the court recognized that "we are not prepared to hold that some amount of a flat fee must be returned in all cases in which the attorney-client relationship ends before the work contracted for is completed."
In other words, there can be cases where the attorney may be justified to keep the fee even if the task is not completed.
So, are you keeping score? A flat fee can be non-refundable as long as there is nothing to refund; but if there is something to refund, it must be, unless there is a good reason not to. Easy.
And then, here is an interesting point. Given the specific facts of the question, the court found that there was no evidence to support the claim that the attorney had violated her duty to return unearned fees.
So, the attorney was disciplined for charging an unreasonable fee only that the fee was not unreasonable because it was non-refundable -since that is allowed - nor was it unreasonable because she did not refund it -since there was no evidence to prove that... Why was she disciplined for exactly then?
Thanks to the Legal Profession Blog for the update.