Business Model Fraught With Peril For Indiana Lawyers

The Indiana Supreme Court has ordered a 30-day suspension with automatic reinstatement for misconduct arising from an attorney’s relationship with a Florida debt relief service business

The Commission filed a “Verified Complaint for Disciplinary Action” against Respondent on September 28, 2015, alleging numerous rule violations arising out of Respondent’s relationship with McCann Law Group, d/b/a Consumer Attorney Services, P.A. (“CAS”), a Florida corporation that purported to offer clients services relating to bankruptcy, mortgage modification, and foreclosure defense.

CAS advertised its services to consumers in Florida and elsewhere, including Indiana, and solicited local counsel in states other than Florida. Under the terms of CAS’s contractual arrangements with clients and local counsel, most client work was handled by central staff (including lawyers and nonlawyer assistants) in Florida, with local counsel’s involvement generally limited to aspects of the case requiring a local attorney’s services. In a typical case, prospective clients would discuss their options with a CAS intake paralegal and then enter into a representation agreement with CAS. CAS typically charged clients an upfront “nonrefundable” fee and, in many instances, ongoing monthly fees.

In 2012 Respondent signed agreements with CAS, first as an “associate” and later as a “partner,” under which Respondent would provide discrete services to CAS’s Indiana bankruptcy and foreclosure defense clients. CAS entered into similar agreements with other Indiana attorneys as well. Respondent received fixed sums for select services, sums that represented only a small fraction of the total fee charged to clients by CAS. As a “partner,” Respondent also received $25 for every case assigned to other CAS-associated attorneys in Indiana as well as minimum wage for 10-20 hours per week as “partner pay.”

Respondent’s role in these cases generally was as follows. A CAS paralegal would assign a case to Respondent after the client had signed a representation agreement with CAS. Respondent then would perform a “welcome call” to the client and explain that he would be the “boots in the trenches” for CAS, assisting the client either through mortgage modification services or foreclosure defense. In most instances though, Respondent’s sole objective was to get the mortgagee to agree to a modification. CAS’s business model contemplated that most document preparation and client communication would be performed by CAS staff in Florida. However, Respondent testified he reviewed all pleadings and made changes where warranted before signing and filing them, and he testified he made himself available to clients above and beyond the “welcome call” CAS paid him to make.

Note

We have examined CAS’s business model and arrangements with Indiana attorneys twice before. In Consumer Attorney Services, P.A. v. State, 71 N.E.3d 362 (Ind. 2017), we affirmed the denial of summary judgment for CAS and its principal member in a suit brought by our Attorney General, holding neither defendant was exempt from civil liability under various consumer protection statutes. In Matter of Jackson, 24 N.E.3d 419 (Ind. 2015), we approved agreed discipline for another CAS-associated Indiana attorney. The present case comes to us in a different posture than either of those cases though, and we confine our analysis today to the specific issues, evidence, and arguments now before us.

The court rejected some charges but found improper fee splitting

Reviewing de novo the record before us, we conclude that the evidence shows Respondent was not “in the same firm” as CAS for purposes of Rule 1.5(e). CAS’s agreements with clients and with local counsel assigned responsibility for most tasks to CAS central staff in Florida and generally limited local counsel’s responsibilities to only those tasks requiring a local counsel, provisions that seemingly would be unnecessary if CAS and its contracted local counsel were truly “in the same firm.” Further, Respondent’s “associate” agreement expressly identified and treated Respondent as an independent contractor. Under both that agreement and his subsequent “partner” agreement, he was paid small sums for discrete services, sums that amounted to a very small fraction of the amounts charged to the clients by CAS. Respondent maintained his own law firm (Wall Legal Services) throughout his relationship with CAS, and he used his own firm name and letterhead in legal pleadings and letters sent to clients and others in connection with CAS cases. While no one factor necessarily is dispositive, the evidence in its totality leads us to conclude Respondent and CAS were not “in the same firm.” Accordingly, we find that Respondent violated Rule 1.5(e)

And unreasonable fees

we readily conclude from the evidence that Respondent did assist CAS in charging an unreasonable fee. That Respondent was not aware of the precise amount billed to any client is immaterial in these circumstances. As Respondent acknowledged in his testimony, “nonrefundable” retainers generally are permissible in Indiana only to the extent they pay to reserve the attorney’s time and availability. See Matter of O’Farrell, 942 N.E.2d 799 (Ind. 2011). Respondent knew that CAS’s representation agreements called for clients to be charged about $1,200 as a nonrefundable retainer, which according to the agreements was to reserve local counsel’s time to review the file, and yet CAS paid Respondent only $75 to review the file and perform a “welcome call” for the client. Further, Respondent knew that CAS charged clients recurring monthly fees (usually between $400 to $1,300) that were not tied to the work being done on the client’s case. (Tr. at 90-96). Accordingly, we find Respondent assisted CAS in charging clients an unreasonable fee, in violation of Rules 8.4(a) and 1.5(a).

But not dishonesty

We have explored elsewhere in this opinion, and indeed on several other occasions, the perils of this type of business model. Reviewing this record de novo, however, we simply cannot conclude that Respondent’s conduct was dishonest or deceitful in the manner contemplated by Rule 8.4(c). Respondent’s involvement with CAS unquestionably was ill-advised in many respects, but the evidence shows Respondent’s actions were not done with the intent to deceive anyone or to generate quick fees with little work at the expense of his clients. Nor is there any evidence of persons being misled by Respondent’s identification as a “partner” on CAS’s website. Thus, we find no violation of Rule 8.4(c).

The court expressed particular concern about the aiding of unauthorized law practice.

Having reached this conclusion, it follows that Respondent assisted in the unauthorized practice of law. The observation we made with respect to a similar arrangement in Dilk holds equally true here: “Without the involvement of Respondent, the [company] could not have provided the services they offered to homeowners. Selling the assistance of an attorney to defend a foreclosure action was a necessary part of their business model.” Id. at 1265. We acknowledge Respondent’s testimony that he sometimes provided services for his CAS clients above and beyond what was minimally required of him under his agreements with CAS, and that he subjectively believed he was treating his CAS clients on a similar footing with his other clients. These factors mitigate, but do not excuse, Respondent’s misconduct. CAS was engaged in the unauthorized practice of law, and Respondent assisted in that endeavor. Accordingly, we find Respondent violated Rule 5.5(a). 

(Mike Frisch)