When is an Indiana flat-fee agreement reasonable, earned, and refundable?

Plain-English summary

Opinion 2-25 defines a flat fee as a fixed payment for all services in a matter or a specified component. Indiana treats the payment as earned on receipt for purposes of Rule 1.15, so it need not be placed in IOLTA. That accounting treatment does not eliminate Rule 1.5 reasonableness or Rule 1.16(d)'s duty to refund the unearned portion when the agreed service is not completed.

Rules 1.4 and 1.5(b) require a clear description of what the fee covers. A provision calling the fee nonrefundable without explaining the exception for failure to perform is unreasonable because it can deter the client from ending the representation. When the agreement broadly covers the entire proceeding, partial work does not earn the whole fee merely because recorded hours equal its amount.

Substantial performance can fully earn the fee when the agreement precisely identifies the service and the lawyer completes that bargain, such as filing a suppression motion and negotiating the contemplated plea agreement. Unforeseen work depends on the agreed scope, the intake information, and whether any fee renegotiation complies with Rule 1.8(a).

The opinion also addresses a surcharge for firm-owned artificial-intelligence software. A capital expense functioning like ordinary law-practice equipment or a library is overhead, not automatically a separate client charge. A different analysis may apply when the tool provides a distinct client benefit, the amount is reasonable, and the expense and use are disclosed and agreed to in advance.

In practice

Under this opinion, earned-on-receipt status answers where the flat fee may be deposited, not whether the lawyer can retain it after early termination. Retention depends on the agreement's clarity, reasonableness, scope, and the proportion or substantial completion of the promised service.

Common questions

Q: Must an Indiana flat fee be placed in IOLTA?

A: No. The opinion states that a true flat fee is earned on receipt for trust-account purposes and need not be segregated.

Q: Can the agreement say the fee is nonrefundable?

A: Only with the qualification identified by the opinion: the lawyer still refunds unearned fees when the agreed legal services are not performed.

Q: Do time entries prove the entire flat fee was earned?

A: Not by themselves. The opinion measures the value of completed work against the promised scope and rejects using hours alone to retain the whole fee after incomplete performance.

Q: When does substantial performance fully earn the fee?

A: When the agreement clearly defines the service and the lawyer completes that bargained-for service, even if the client later changes course.

Q: Can the firm add an AI surcharge to every flat fee?

A: The opinion treats a surcharge solely intended to recover a capital purchase as likely overhead. A separate charge requires a reasonable client-specific basis, disclosure, and agreement.

Background and rules framework

The opinion applies Indiana Rules 1.4, 1.5, 1.8(a), 1.15, and 1.16 to flat fees. Its hypotheticals address nonrefundable wording, early termination, substantial performance, unforeseen QDRO work, and AI software expenses.

Citations and references

Indiana Rules of Professional Conduct:

• Rules 1.4, 1.5(a), 1.5(b), 1.8(a), 1.15(a), 1.16(a), and 1.16(d)

Cases:

• In re Stanton, 492 N.E.2d 1056 (Ind. 1986) and 504 N.E.2d 1 (Ind. 1987), flat-fee refund and earned-on-receipt treatment
• In re Kendall, 804 N.E.2d 1152 (Ind. 2004), flat fees and incomplete performance
• In re O'Farrell, 942 N.E.2d 799 (Ind. 2011), advance fees and nonrefundable language
• In re Lauter, 933 N.E.2d 1258 (Ind. 2010), renegotiation under Rule 1.8(a)

Other opinions cited:

• ABA Formal Opinions 93-379 and 512

See also

• Indiana Advisory Op. 2-23: Fee Agreements and Disputes
• LSBA Public Op. 21-RPCC-22: Percentage Estate Fees
• OSB Ethics Op. 2025-205: Artificial Intelligence Tools

Source

• Landing page: Indiana attorney advisory opinions
• Original PDF: Opinion 2-25