Title: In the Matter of Kevin W. Marshall; and In the Matter of C. Jerome Smith

State: indiana

Issuer: Indiana Supreme Court

Document:

ATTORNEY FOR THE RESPONDENTS 
Terrance L. Smith 
Highland, Indiana 
 
 
ATTORNEYS FOR THE INDIANA SUPREME COURT  
DISCIPLINARY COMMISSION 
Donald R. Lundberg, Executive Secretary 
Robert C. Shook, Staff Attorney 
Indianapolis, Indiana 
 
______________________________________________________________________________ 
 
In the 
Indiana Supreme Court  
_________________________________ 
 
No. 45S00-0606-DI-218 
 
IN THE MATTER OF: 
 
 
 
 
 
 
 
 
 
KEVIN W. MARSHALL, 
 
 
 
 
 
 
 
 
Respondent. 
_________________________________ 
 
No. 45S00-0606-DI-219 
 
IN THE MATTER OF: 
 
 
 
 
 
 
 
 
 
C. JEROME SMITH, 
 
 
 
 
 
 
 
 
Respondent. 
 
_________________________________ 
 
Attorney Discipline Actions 
Hearing Officer Christina J. Miller 
_________________________________ 
 
 
March 11, 2009 
 
Per Curiam. 
This matter is before the Court on the report of the hearing officer appointed by this 
Court to hear evidence on the Indiana Supreme Court Disciplinary Commission's "Verified 
Complaint for Disciplinary Action" against each of the Respondents, Kevin W. Marshall ("Mar-
shall") and C. Jerome Smith ("Smith"), and on the post-hearing briefing by the parties.  Mar-
FILED
CLERK
of the supreme court,
court of appeals and
tax court
Mar 11 2009, 1:37 pm
 
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shall's 1987 admission to this state's bar and Smith's 1957 admission to this state's bar subject 
them to this Court's disciplinary jurisdiction.  See IND. CONST. art. 7, § 4.   
 
We find that Respondents Marshall and Smith engaged in attorney misconduct by failing 
to promptly pay a client the portion of a jury award to which the client was indisputably entitled.  
For this misconduct, we conclude that Respondents should receive a public reprimand.  We find 
the Commission has not met its burden of proof with respect to other charges of misconduct. 
 
Background 
 
Relevant events and procedural history.1  Respondents Marshall and Smith are partners in 
a firm known as Smith and Marshall ("Firm").  In 1999, a client ("Client") retained Marshall to 
bring suit against two insurance carriers who had denied Client' s claim for losses caused by a 
fire.  They executed a professional services contract ("First Contract") that required Client to pay 
a $3,000 initial payment against which the law firm would bill at the rate of $150 per hour.  
Additional services were to be billed at the same rate but no further payment was required if the 
lawsuit was unsuccessful (except expenses advanced by Marshall).     
 
Marshall arranged for a focus group to review the facts to be presented to the jury.  The 
focus group indicated they did not like Client as a witness and showed a verdict range between 
$0 and $300,999.2  Client rejected a final pre-trial settlement offer of $100,000.   
 
In light of the time and expenses already incurred and those anticipated for trial 
preparation, Marshall told Client in June 2004 (about six weeks before trial) that any verdict of 
less than $300,000 would be taken by attorney fees unless a change in the employment contract 
                                                 
1 To the extent there are factual disputes, the Court accepts the hearing officer's findings of fact.  We note 
that the issues on which the parties seek review are primarily issues of law.   
 
2 Members of the focus group described Client as arrogant, demanding, resentful, greedy, uncooperative, 
unreasonable, angry, and devious.   
 
 
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was made.3  Marshall sent Client a new contingent contract ("Replacement Contract") and a copy 
of the First Contract, and he advised Client to review them with whomever he chose, including 
any lawyer.  The Replacement Contract required Client to pay the Firm one-third of any gross 
recovery.  Although Client told Marshall he was not happy with changing contracts, he reviewed 
the Replacement Contract, discussed it with his girlfriend, and signed and returned it to Marshall 
on June 14, 2004.  
 
After the trial, the jury returned a verdict in favor of Client for $1,000,000.  On August 
13, 2004, Smith and Marshall deposited the insurance carriers' $1,000,000 check into the Firm's 
trust account.  Marshall sent Client a "Settlement Statement" outlining fees and expenses and the 
expected distribution of the funds.  The statement showed $562,235.62 owing to Client.  Client 
disputed the amount of attorney fees due the Law Firm, and Smith assumed responsibility for 
handling of the fee dispute.  Client requested payment of the $562,235.62 by a September 7, 
2004, letter to Marshall but received no payment at that time.  With the assistance of a Florida 
attorney, Client requested, among other things, Marshall's hourly billing statements.  The Firm 
did not provide such statements to Client.    
 
After Client filed suit against Smith and Marshall, the parties reached a settlement.  On 
January 21, 2005, Marshall paid $610,000 to Client.  The Firm received about $270,000 (plus 
expenses of about $11,000).  Eventually, the amount due to a "public adjuster" was resolved at 
$25,000, and Client received an additional $75,000. 
 
The Commission filed complaints against each Respondent, alleging violation of these 
Indiana Professional Conduct Rules (2004), prohibiting the following conduct: 
 Rule 1.8(a):  Entering into a business transaction with a client without fully 
disclosing the terms in writing, giving the client reasonable opportunity to seek 
independent counsel, and obtaining written consent from the client 
 
 Rule 1.15(b):  Failing to promptly disburse undisputed settlement funds to a client 
and failing to provide a full accounting to a client. 
 
                                                 
3 The hearing officer found that from 1999 through June 4, 2004, Marshall expended 2012.7 hours on the 
case, which would translate into fees of about $302,000 under the First Contract.    
 
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After a hearing, the hearing officer issued "Findings of Fact, Conclusions of Law, and 
Recommendation" in each case.  The Commission filed a petition for review by this Court in 
each case pursuant to Admission and Discipline Rule 23(15)(a).  Marshall filed a cross-petition 
for review. 
 
The hearing officer's conclusions of law regarding the Replacement Contract.  The 
Commission alleged Respondents violated Rule 1.8(a) (2004) by entering into the Replacement 
Contract with Client without fully disclosing the terms in writing, without giving Client 
reasonable opportunity to seek independent counsel, and without obtaining written consent from 
the client.  Resolving conflicting evidence on this issue, the hearing officer concluded 
Respondents did not violate this rule.  The Commission does not dispute this conclusion in its 
petitions for review.   
 
The hearing officer's conclusions of law regarding alleged failure to promptly release 
funds to Client.  The Commission alleged Respondents violated Rule 1.15(b) (2004) by failing to 
release to Client in August 2004 the amount they calculated was owed him ($562,235.62), 
waiting instead until January 2005 to pay him anything.   The hearing officer found no violation. 
The Commission challenges this conclusion in its petitions for review.  
 
The hearing officer's conclusions of law regarding alleged failure to give a full 
accounting.  The Commission alleged Respondents violated Rule 1.15(b) (2004) by failing to 
provide a full accounting to Client of Marshall's hourly billing records.  The hearing officer 
concluded Marshall (but not Smith) violated Rule 1.15 by not providing these records to Client.  
In his cross-petition for review, Marshall argues he committed no violation because Client was 
not entitled to these records.   
 
Discussion 
 
Obligation to promptly release funds owing to clients.  The version of Rule 1.15(b) in 
effect at the time of Respondents' alleged misconduct provided: 
 
 
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Upon receiving funds or other property in which the client or third person has an 
interest, a lawyer shall promptly notify the client or third person. Except as stated 
in this rule or otherwise permitted by law or by agreement with the client, a 
lawyer shall promptly deliver to the client or third person any funds or other 
property that the client is entitled to receive, and upon request by the client or 
third person, shall promptly render a full accounting regarding such property. 
 
Rule 1.15(b) (2004) (Emphasis added.)   These requirements are currently found in the same 
form in Rule 1.15(d).  Comment 3 to the 2004 version of the rule stated: 
The lawyer is not required to remit to the client, funds that the lawyer reasonably 
believes represent fees owed. However, a lawyer may not hold funds to coerce a 
client into accepting the lawyer's contention. The disputed portion of the funds 
must be kept in a trust account and the lawyer should suggest means for prompt 
resolution of the dispute, such as arbitration.  The undisputed portion of the 
funds shall be promptly distributed. 
 
(Emphasis added.)  Since 2004, the following provision has been added to Rule 1.15: 
When in the course of representation a lawyer is in possession of property in 
which two or more persons (one of whom may be the lawyer) claim interests, the 
property shall be kept separate by the lawyer until the dispute is resolved.  The 
lawyer shall promptly distribute all portions of the property as to which the 
interests are not in dispute. 
 
Rule 1.15(e) (emphasis added).  Thus, the essence of the final sentence of Comment 3 to the 
2004 version of the rule has been placed in the rule itself.   
 
Respondents argue they had no legal obligation to make a prompt partial payment to 
Client because the 2004 version of Rule 1.15 itself did not contain the requirement that the 
undisputed portion of funds held by attorneys be promptly distributed.  Rather, they argue, 
because this provision was just in a comment to the rule, it cannot serve as a basis for discipline.   
 
The preamble to the Professional Conduct Rules stated in 2004 and still states: 
 
Many of the Comments use the term "should."  Comments do not add 
obligations to the Rules but provide guidance for practicing in compliance 
with the Rules.  
 
. . . . 
 
 
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The Comment accompanying each Rule explains and illustrates the 
meaning and purpose of the Rule. . . .  The Comments are intended as guides to 
interpretation, but the text of each Rule is authoritative. 
 
Preamble, para. [14] and [21] (2009) (emphasis added).  Thus, although Comment 3 itself added 
no obligation on attorneys, it serves as a guide to interpreting the rule's requirement that "a 
lawyer shall promptly deliver to the client . . . any funds . . . that the client is entitled to receive." 
 
 
We hold that the text itself of 2004 version of the rule, as reinforced by Comment 3, 
required attorneys to promptly distribute undisputed portions of funds they held for clients or 
third parties.  This interpretation furthers a key client protection, expressed in the both the 2004 
and current comment 3 to Rule 1.15, that a lawyer may not hold funds to which a client is 
indisputably entitled to coerce the client into accepting the lawyer's contention in a dispute over 
attorney fees.4   
 
 
A similar issue was presented in Bennett v. NSR, Inc., 553 N.E.2d 881 (Ind. Ct. App. 
1990), in which an attorney moved to quash or modify a subpoena duces tecum requiring him to 
produce a former client's documents and records over which he asserted an attorney's retaining 
lien securing payment of his fees.  The Court of Appeals held the attorney "should be required to 
produce those documents and other personal property in his possession over which he claims a 
retaining lien, but only if the trial court in its discretion provides for adequate security for the 
payment of the fees [the client] owes him."  Id. at 883 (emphasis added).  Similarly, Respondents 
were required to turn over to Client the funds indisputably in excess of maximum amount needed 
to secure payment of attorney fees and other expenses.     
 
When Respondents received the $1,000,000 check, there were unresolved issues about its 
proper distribution, including which contract controlled how the attorney fees were to be 
calculated, the number of hours worked by Marshall and another attorney in the Firm (which 
would have been relevant if the First Contract, with its hourly rate component, controlled), and 
the amount of fees owing to the public adjuster.  When Marshall sent Client the Settlement 
                                                 
4 We do not suggest, however, that Respondents engaged in improper coercion in this particular case.  
The evidence indicates Respondents made good faith efforts to expedite resolution of the dispute and set-
tled for less fees than they believed they were due.   
 
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Statement in August 2004 showing $562,235.62 owing to Client, he used the Second Contract 
(which provided for a pure contingent fee) for the calculation.  Although it was possible that 
Client would have been entitled to less if the First Contract controlled, there seems to be no 
reason why Marshall could not have calculated and paid Client some amount to which Client 
would be entitled even if all disputes were resolved against him.  The Replacement Contract was 
signed just a few weeks prior to trial, and Marshall must have been keeping track of his hours for 
the four years the First Contract was in effect.  Marshall presumably could have estimated the 
maximum amount of hours he and the other attorney worked on the case.  With this estimate, 
plus estimates of maximum possible hours of the other attorney and the maximum possible fee 
for the public adjuster, Respondents could have calculated the minimum amount Client was 
indisputably due under either contract.  This amount may have been less than the $562,235.62 
shown on Settlement Statement, but it would have been clearly more than zero.  Respondents' 
failure to calculate and promptly pay the minimum amount due to Client violated Rule 1.15(b) 
(2004). 
 
Obligation to give a full accounting.  Although the hearing officer concluded that the 
Replacement Contract (providing for a pure contingent fee) was valid and found Marshall 
provided "many records" to Client, the hearing officer concluded Client had a right to the hourly 
billing statements for the period of over four years when the First Contract was in effect.   
 
There is little authority on the scope of an attorney's duty to produce documentation in 
complying with the duty to render a full accounting to a client.  The hearing officer concluded 
and we agree that the attorney's duty "includes a full accounting of the attorney's billing 
statements, including hours spent under hourly contracts."  Of course, when the parties are 
operating under a contingent fee agreement, billing statements would typically not include a tally 
of hours spent as this would be irrelevant to the fee calculation. 
 
Marshall kept hand-written notes of his hours, both before and after the Replacement 
Contract was executed, which were later transcribed.  Under the First Contract, his hours would 
have been relevant to calculating his fee.  After the Replacement Contract was executed, 
however, Marshall held a well-founded, good faith belief that his hourly billing records were 
 
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irrelevant to giving a full accounting to Client.  The Commission does not challenge the hearing 
officer's conclusion that Marshall did not act improperly with respect to the Replacement 
Contract.  Under these circumstances, we concluded that Marshall did not violate Professional 
Conduct Rule 1.15(b) by failing to provide a full accounting to Client. 
 
Discipline.  The hearing officer found Respondents acted in good faith and cooperated 
with the Commission.  The Commission does not suggest that either Respondent be suspended 
from practice.  The Court concludes a public reprimand is appropriate under the circumstances.   
 
Conclusion 
 
We find that Respondents violated Professional Conduct Rule 1.15(b) (2004) by failing 
to promptly release to Client funds indisputably owing to him.  For this misconduct, the Court 
imposes a public reprimand. 
 
The costs of this proceeding are assessed against Respondents equally.  The hearing 
officer appointed in this case is discharged. 
 
The Clerk of this Court is directed to give notice of this opinion to the hearing officer, to 
the parties or their respective attorneys, to all other entities entitled to notice under Admission 
and Discipline Rule 23(3)(d), and to Thomson/West for publication in the bound volumes of this 
Court's decisions. 
 
 
All Justices concur.