Hiding Things Brings Trouble: Assets, Evidence and a Court Order.

Hiding Assets

The case started for Washington State lawyer, Thomas McGrath when his wife, a chiropractor, started a fight with her ex-employee.  Forbes reports on his bad actions: first to represent his wife in a case where she lost a judgment of $500,000; and then to do improper asset protection in violation of the RPC.

Shifting assets when the case is going badly is a time honored tactic, but shifting a spouse’s asset through the office trust account in violation of Rule 1.15 is still a forbidden mixture of personal assets with clients’ assets.

Filing bankruptcy is not generally improper, but falsifying the Bankruptcy Petition is a federal felony and an ethical violation.

As Jay Atkisson, the Forbes columnist explains: “This case has nothing to do with legitimate asset protection planning, and everything to do with plain old fraud on creditors.”

What do you think the Washington State Supreme Court did to the husband lawyer, just trying to help his wife?

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Hiding Evidence on Facebook:

Matthew Murray was slow to advise his client about the eternal nature of electronic evidence. Murray’s client lost his wife and filed a wrongful death case.  Among the damages claimed was loss of love, affection and companionship.  After being asked to produce “screenshots” from his client’s Facebook account, Murray told his paralegal to make sure the account had been “cleaned up. ” The plaintiff-client’s photos disappeared from his Facebook wall, but the defense counsel already had 16 of them, including the one that showed him wearing a T-shirt that said “I ♥ hot moms” while holding a beer, soon after the wife’s death.  Since the suit was for the losses he suffered due to the wrongful death of the plaintiff’s wife as caused by the defendant, the photo was thought to be material to damages.

First, the trial court ordered the payment of defendant’s attorney fees against Murray and his client in the amount of $722,000 and slashed the jury’s $8.5M verdict. The VA Supreme Court reinstated the verdict, but allowed the attorney fees order to stand.

It also found Murray violated the RPC and entered a sanction: What would you have ordered?

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Hiding the Court Order?

A busy time for the Washington State Disciplinary Board.
And Tom Kamb was a busy lawyer. He had a criminal law practice, mostly DUI defense work. On the day of the problem, he had 20 case hearings set in the morning.  He got a plea on one case, which was submitted, and approved by the court.  He forgot to get the breath test suppressed, which appears to be a normal event, since suppression of the breath test protects the client’s driver’s license.

Kamb later had a hearing with the Dept. of Licensing’s ALJ about his client’s driver’s license, Kamb reported that he had gotten the breath test suppressed in the criminal charge.  Now he had to find a way to prove that.  Bad idea.  He asked for the closed file from the clerk, and penciled a note about the test being suppressed on the signed order. The now suspicious clerk refused to provide him with a certified copy of the newly forged order, and sent him to the prosecutor.  The prosecutor agreed to a retroactive suppression, not knowing that Kamb had lied to the DOL’s ALJ, and forged the court’s order.  When Kamb returned with the note from the prosecutor, the clerk sent him to the presiding judge who was not pleased.

The judge files disciplinary charges, and after the investigation by bar counsel, there was a finding of Kamb’s guilt on three counts:

Count 1 charge[d] Kamb with misrepresenting the existence of an order suppressing his client’s breath test to the hearing officer in violation of RPC

3.3(a)(1). Count 2 charge[d] Kamb with changing Judge Svaren’s order in violation of RPC 8.4(b ), 8.4( c), and 8.4( d). Count 3 charge[d] Kamb with violating RPC 1.3 which  requires a lawyer to act diligently and promptly, by failing to discuss suppression of the breath test with [prosecutor] Johnson before the DOL hearing.

Kamb challenged the Hearing Officer’s findings. The court found his version of facts lacked credibility.  The transcript of the ALJ’s hearing proved the timeline and his misstatement of facts about the existence of a court order that helped his client.

What did the WA Supreme Court do in this case?

Poll Results:

1. Washington Supreme Court disbarred the lawyer after 40+ years of practice – citing the filing of false filings and claims, and lack of remorse.

2. Murray got a five-year suspension from the practice of law.

3. The opinion cites as authority: “The American Bar Association’s Standards for Imposing Lawyer Sanctions (1991 & Supp. 1992)” as the guide for lawyer discipline in Washington State.   Kamb got disbarred.

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The Realtors’ Rule?; Aggression pays off in penalty; Automatic Reinstatement

Exonerated in a Discipline Case, and Good Explanation by the Court – a Two-fer

First it is good to see the Court side with a respondent on occasion. Robert Canada got a ruling in his favor, and on that gave a solid explanation of why. And while the court did not say so, exactly, it seems it implemented the Realtors’ Rule.

What is the Realtors’ Rule,  you ask?  When a realtor is trying to sell a property under listing, the seller cannot just walk away when there is a buyer.  The rule is if the real estate agent (I know Realtor® is a registered trademark of the NAR) produces a ready, willing and able buyer who makes a bona fide offer at or above the listing price (or a price the seller later sells for), the realtor has earned the full commission, and the fact that the seller refuses to complete the sale does not mean that the seller does not have to pay the realtor.

Canada offered to “get a plea” in a Class A Felony drug case in exchange for a fee of $10,000. That is what the client asked for, and what the lawyer agreed to do. He worked out a plea, the client was happy, and agreed that it was a good plea, then before entering the plea, the client changed lawyers “to get a better deal.”  New lawyer got the defendant the same deal that Canada had worked out. The client demanded a refund since Canada had not “earned the fee.”

There was a written fee agreement and the court looked it over carefully. The agreement contained the toxic words “fee is non-refundable” which is a big red flag for the Commission and the Court.  Here, although the court said there were qualifiers to the refund that were not appropriate in a flat fee agreement (possibility of preclusion of other representation and accessibility guaranteed), in this case, and because Canada had completed the task he agreed to perform, the fee was fully earned as the plea was obtained, even if the defendant did not accept it the first time. The red flag caused the review, but did not spell trouble – this time.

Canada estimated that he had spent 20 hours on the case, which did not seem to factor into the opinion.  In other words, as a flat fee case, the court did not retroactively do an hourly fee analysis (divide the fee by the hours to see if the resulting rate “shocked the consciences” of the judges. Nor should they.

Copy the following language, and imprint it on your minds, consciences, and the file folder where your form fee agreements rest:

Discussion: This Court has addressed fee agreements in Matter of O’Farrell, 942 N.E.2d 799 (Ind. 2011), Matter of Kendall, 804 N.E.2d 1152 (Ind. 2004), and Matter of Thonert, 682 N.E.2d 522 (Ind. 1997). Under the guidance provided by these opinions, we conclude that the fee Respondent charged in this case was a permissible flat fee (notwithstanding the fee agreement’s one sentence mentioning possible preclusion of other representation and guaranty of priority of access, which would have been more relevant if the fee were a general retainer). Moreover, the agreement properly advised Client that a refund was possible in the event of a failure to perform the agreed legal services. See Kendall, 804 N.E.2d at 1160. The hearing officer found the amount of the flat fee to be reasonable. We therefore find no infirmity with the fee agreement itself.

If you are looking into the use of flat fee agreements with clients (not to be confused with menu pricing agreements) pay close attention. I disagree that the preclusion issue or the guaranty of access are more properly for a general retainer, as taking a drug case often precludes other drug cases due to the conflict of interest rules, and guaranteed prompt access is always a premium item, and should not generally be given away. Nevertheless, it is a helpful opinion.

As one who tells lawyers never to use the words “fee” and “nonrefundable” in the same paragraph, let alone sentence, I partially retract that. But I still urge extreme caution. You may get the Canada treatment.

Mr. Canada, sorry you went through this, but your case improves the profession’s understanding on how to write flat fee agreements, and you were exonerated.  Thank you.

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 Big Time Aggressive Tactics Backfire Big Time

Gordon B. Dempsey takes no prisoners in litigation, at least in the cases where he is a party. The facts are pretty simple, buy an apartment building, don’t pay the payments, you get sued. In 2002 the foreclosure of his apartment building was ordered, and then his chapter 13 bankruptcy stayed the sale. The convoluted facts get worse, and you can read them here. Eventually, and after the parties “settled the suit” in 2008, Dempsey went on the attack again.

He seemed to have a concern with Jewish people, and with lawyers who might be Jewish. The court findings were:

… that Respondent violated these Indiana Professional Conduct Rules prohibiting the following misconduct:

3.1: Asserting a position for which there is no non-frivolous basis in law or fact.

4.4: Using means that have no substantial purpose other than to embarrass, delay, or burden a third person.

8.4(g): Engaging in conduct that was not legitimate advocacy, in a professional capacity, manifesting bias or prejudice based upon race, religion, and disability (mental condition).
The penalty section discusses Dempsey’s history of “unethical litigation practices” “virulent bigotry” as possibly enough of a reason for disbarment, but holds back from that.  He got a three-year suspension without automatic reinstatement.

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Automatic Reinstatement: What does it mean to get, or not get Automatic Reinstatement?

Disciplinary Commission staff lawyer Bob Shook, former prosecutor in Johnson County, explained the importance of getting automatic reinstatement at the Fulton County Bar Outing CLE a couple of years ago. Admission and Discipline Rule 23, § 4 covers reinstatement.  It says:

A person who has been suspended from the practice of law may petition for reinstatement when the term of suspension prescribed in the order of suspension has elapsed. … If costs have been imposed as part of an order of suspension or an order accepting an affidavit of resignation, those costs must be paid before a petition for reinstatement is filed.

 (b) A petition for reinstatement may be granted if the petitioner establishes by clear and convincing evidence before the disciplinary commission of this Court that:

(1) The petitioner desires in good faith to obtain restoration of his or her privilege to practice law;

(2) The petitioner has not practiced law in this State or attempted to do so since he or she was disciplined;

 (3) The petitioner has complied fully with the terms of the order for discipline;

 (4) The petitioner’s attitude towards the misconduct for which he or she was disciplined is one of genuine remorse;

 (5) The petitioner’s conduct since the discipline was imposed has been exemplary and above reproach;

 (6) The petitioner has a proper understanding of and attitude towards the standards that are imposed upon members of the bar and will conduct himself or herself in conformity with such standards;

 (7) The petitioner can safely be recommended to the legal profession, the courts and the public as a person fit to be consulted by others and to represent them and otherwise act in matters of trust and confidence, and in general to aid in the administration of justice as a member of the bar and an officer of the Courts;

 (8) The disability has been removed, if the discipline was imposed by reason of physical or mental illness or infirmity, or for use of or addiction to intoxicants or drugs;

 (9) The petitioner has taken the Multistate Professional Responsibility Examination (MPRE) within six (6) months before or after the date the petition for reinstatement is filed and passed with a scaled score of eighty (80) or above.

So, you have to show remorse, comply with the order, and take the MPRE and score an 80 or above.  That means you have to go back and seriously study ethics in detail.

According to what I recall Shook saying, the process for reinstatement usually will add about 9 months to the end of a suspension.  That means when you read disciplinary opinions found here, the words about reinstatement may mean the difference between functional disbarment and not.

 

 

IN Re: Kendall Redux

Kendall – Redux

The 2004 case of In Re Michael Kendall (see 3-24-04 entry) is a landmark case among Indiana’s legal fee cases.

Kendall’s law firm went bankrupt, and several clients’ fees could not be refunded, having been deposited into his general account. The issue was whether those funds should have been safe in a trust account. In a 13 page opinion. the Supreme Court expounded on the proper use of “flat fees” “non-refundable retainers” and how lawyers can protect their livelihoods.

The hearing officer had found violations of Rule 1.4 on communicating with clients, but on the big fee issues, Rules 1.5 & 1.15, found no violation.  The Disciplinary Commission appealed those findings, and the Supreme Court found there were violations of Rules 1.5, & 1.15. The court distinguished Kendall’s actions from those found in the In the Matter of Stanton case, when flat fees for criminal matters, deposited in the lawyer’s general account was permissible. Kendall deposited advance fees for hourly work in the lawyer’s general account.

FLAT FEES

The court’s discussion starts with a helpful paragraph:  Advance fee payments are subject to different requirements, depending upon the terms of the agreement between the lawyer and the client.  This discussion will distinguish between the advance fees charged by the respondent here (that were to be earned in the future at an agreed rate) and advance fees that are agreed to cover specific legal services regardless of length or complexity (fixed or “flat” fees). 

After the discussion the Court held: “We therefore hold that Prof. Cond. R. 1.15(a) generally requires the segregation of advance payments of attorney fees, as discussed below….  Except in the case of flat fees governed by Stanton, a lawyer’s failure to place advance payments of attorney fees in a separate account violates this rule.”

The per curiam opinion, authored by now Chief Justice Dickson, defined a “flat fee” that could be charged, and once collected placed in the firm’s general account, as follows: “As distinguished from a partial initial payment to be applied to fees for future legal services, a flat fee is a fixed fee that an attorney charges for all legal services in a particular matter, or for a particular discrete component of legal services.”

Are you paying attention reader? Flat fees can be charged and put in the general office account.  But they must qualify as flat fees.  And you must explain, accurately, how that works, so the client is not misled.

UNREASONABLE FEES = NON-REFUNDABLE RETAINERS?

Kendall’s other mistake was to use language in his fee agreement that must have been common (considering how often the issue arises), a provision that fees paid were non-refundable unless otherwise provided by law.  That language is a huge red-flag, and while the Supreme Court has not yet said the term “non-refundable retainer” is forbidden, they have not approved it in recent history when addressing the situation.  In Kendall they held that even though the Commission never proved he had taken and kept a non-refundable retainer, and never failed to resolve a retainer when he was discharged before the completion of the case, the Court  still found the fee agreement that included a threat that the fees paid could not be refunded was unreasonable and in violation of Rule 1.5.

In language that I still find confusing, the court said the following two things: 1) “In discussing [in Thonert] the nonrefundability provision, we observed: We do not hold that unrefundable retainers are per se unenforceable.  There are many circumstances where, for example, preclusion of other representations or guaranteed priority of access to an attorney’s advice may justify such an arrangement.  But here there is no evidence of, for example, any value received by the client or detriment incurred by the attorney in return for the nonrefundable provision, other than relatively routine legal services.  [Thonert] 682 N.E.2d at 524.  Where a retainer is thus justified, a lawyer would be well advised to explicitly include the basis for such non-refundability in the attorney-client agreement; and 2) We hold that the assertion in an attorney fee agreement that such advance payment is nonrefundable violates the requirement  of Prof. Cond. R. 1.5(a) that a lawyer’s fee “shall be reasonable.”

How clear is that? The non-refundable retainer fee may be permissible, but to say so in the fee agreement violates the reasonable fees requirement.

Word that part of your fee agreement carefully, yet make it clear for the average client.

And remember, even though the Court did not say it out loud, no fee is Non-Refundable.

CONCLUSION

Michael C. Kendall, in the face of other undisclosed charges recently filed by the Disciplinary Commission, tendered his resignation of his license to practice law. On Jan. 28, 2013 the Supreme Court accepted his resignation, and said that he may not apply for reinstatement for at least five years.

I don’t know Michael C. Kendall, but the 2004 opinion included the following paragraph: The hearing officer received significant evidence of Kendall’s professional reputation.  Several highly respected witnesses testified favorably for Kendall, praising his history of ethical practice, his integrity, his significant public service, and his strong dedication, care, and commitment to his clients’ cases.  The hearing officer recognized that Kendall “deserves sanction” but noted that the “accolades from the various witnesses were impressive and unchallenged,” and urged that “the penalty needs to be tempered by what seems to be the Respondent’s superior ethical history until this recent period.”  Findings at 23. 

A few years ago a friend of mine had some troubles, and got a reprimand. Folks tried to help, but a second round of complaints hit. He resigned his license to practice as a lawyer. It was right for him. I hope this was right for Kendall.

New Rules for Lawyers and Judges: Living with the Rules; What is JLAP?

New Rules to Review

Six new sets of rules are going into effect for Indiana lawyers and judges on Jan. 1, 2013 based on a series of Ind. Supreme Court rulings issued in Sept.  The list of new 2013 orders (plus three effective July 1, 2012), if you have not seen them is here: http://www.in.gov/judiciary/2784.htm

It always pays to read the rules.

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Paying for Disclosure Violation

One hard fast rule in Bankruptcy Court is for the lawyer to disclose any interest, direct or indirect, in representations in the case.  In a recent bankruptcy case in Georgia, the lawyer was required to disclose any interest in any creditor of the bankrupt client before representing the client.  In this case the lawyer forgot to disclose that he and his wife were shareholders in a creditor bank, while her father had been bank president, board member and chair of the bank’s board, and to top it off, the lawyer’s former partner was general counsel to the bank.  Oops.

The opinion, as reported by the Business Reporting Committee, does a nice job of listing the five factors to used in determining if a disclosure misstatement is to be actionable, and here it clearly was an intentional misstatement of reality.  The court cut the law firm’s fees by $20,000 which should get these folks attention. And yours.

H/T Gregory Jordan for the link.

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What is JLAP?

One of the critical pieces of the legal system in Indiana was created in 1997, by adoption of Rule 31 of the Admission and Discipline Rules of the Supreme Court.

JLAP’s purpose “is assisting impaired members in recovery:” of all kinds.  It is designed to “provide assistance to judges, lawyers and law students who suffer from physical or mental disabilities that result from disease, chemical dependency, mental health problems or age that impair their ability to practice;…”

Terry Harrell is the extremely competent and compassionate Executive Director.  If you have questions about your situation, or the situation of a friend or colleague, you should review Rule 31 here and call JLAP for information and assistance.  The program has volunteers around the state, so you may get someone from nearby to provide assistance.

Of course the important thing is, if you or someone you know needs help, you should call. Today, or tomorrow. The impact of the call can be life saving, or might protect the rights and property of a client. Good faith calls get some qualified immunity under Section 9.  Call.  It is better than being required to report misconduct if you don’t call.