To have the Ohio Supreme Court choose Christmas Eve to suspend your license might make you think that the court believes there are greater punishments in store for Mark Anthony than a long term license suspension. The underlying problem was a gambling issue. The amount exceeded $118 000 for the lawyer, who was also the business manager of the Catholic Church in Lebanon, OH. The terms of suspension require full restitution to the church’s insurer of $128,000 before he can apply for reinstatement, plus establish a gambling addiction plan, and maintain the plan. The fact that he did not get disbarred prompted a dissent from 3 of the 7 justices. A similar, but distinguishable case of gambling prompted embezzlement had resulted in disbarment.
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Biglaw Pro Bono seems different
Lots of biglaw firms are having associates do pro bono work. That is a good thing, the young lawyers get experience, the clients get free legal services. Winston & Strawn is among the biggest of the Biglaw firms. A former juvenile prisoner sued the City of New York as a pro bono case. He claimed he was attacked by guards at Rikers Island, injured and not treated. The court referred the case to Winston & Strawn, who assigned an associate lawyer to handle the case.
A discovery issue broke out. The City did not respond to demands for information and for a witness for deposition. The city asked the court for a protective order, and W&S responded. The court found the city did not comply and that it was responsible for fees. W&S asked for $20,000 for 33 hours work. The senior associate billed at $620 an hour, three other associates billed from $390 to $570 per hour.
The magistrate found the motion and responses “very simple and straightforward” not requiring the expertise or efforts of four lawyers, and he disregarded hours billed for such issues as “preparation for filing” at 4.5 hours, and for issues in the case, but not germane to the discovery issues which could be billed.
The court set the rate for all lawyers on the case at $300 per hour and said no more than 12 hours could be charged.
** The firm in a statement said that W&S “generally donates fee awards in pro bono cases to public interest agencies after deducting for expenses.” That is a good Christmas thing to do.
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Good to be back after a couple decades?
Bill Drozda’s troubles started in 1991, when the Disciplinary Commission charged him with 10 counts of misconduct, then increased the number to 13. They all had to do with neglect of clients cases, and the consequences of such neglect. Drozda accepted an immediate and temporary suspension, which was finalized in 1995. After finding him guilty of all 13 counts the Supreme Court imposed a 3 year suspension, with credit for time served. As I calculate that, he had some work to do to clear up the record (pay costs, and now includes take the multistate ethics exam). Well he finally requested reinstatement last year, and the Court granted his return of license, 22 years after he lost it, as of Dec. 19, 2013.
Before his troubles he was a three term member of the Indiana General Assembly.
Legal writing experts tell lawyers to be careful with tone and expressions of disdain or dismissive attitudes towards opponents in motions and briefs. And lawyers understand (usually) that what might work in traffic court should not be tried in Federal Circuit Courts of Appeals. And lawyers who represent big clients, like State Farm Auto ought to expect extra scrutiny from courts and judges (mostly due to the respect courts often are suspected of giving to the biglaw lawyer types who represent the big companies.
Imagine what the discussion with General Counsel for State Farm was for the lawyers in Bennett v. State Farm earlier this week. The Sixth Circuit Court of Appeals (one level below the US Supreme Court in the judicial hierarchy) mocked the insurance company’s lawyers for their brief opposing the efforts of the Bennetts to get what they had coming from Mrs. Bennett being struck while walking her dog.
The opening sentence of the opinion states:
There are good reasons not to call an opponent’s
argument “ridiculous,” which is what State Farm calls Barbara Bennett’s principal argument here. The reasons include civility; the near-certainty that overstatement will only push the reader away (especially when, as here, the hyperbole begins on page one of the brief); and that, even where the record supports an extreme modifier, “the better practice is usually to lay out the facts and let the court reach its own conclusions.”[citations omitted] But herethe biggest reason is more simple: the argument that State Farm derides as ridiculous is instead correct. (emphasis is added).
Oops. That qualifies as a slapdown. Now we don’t know which lawyer of the team of Richard M. Garner or Gregory H. Collins, both Ohio lawyers, gets credit for the brief, but the other probably had an opportunity to say “maybe we ought to read our client’s insurance policy before we ask the court to ignore the definition plaintiff is asking for.”
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Clients in dissolution cases can be difficult. they are going through a stressful time in their lives. They often have to deal with their lawyer, the spouse, the spouse’s lawyer, and maybe the kids. you expect them to lose their cool on occasion.
Lawyers are to be the professionals, even when our client is not dealing well with matters.as well as we want. Kokomo lawyer Dan May, a long time practitioner, forgot for a moment.
The details are sketchy, but include him shoving the client over the courtroom railing, a battery charge, a diversion agreement, and now a 60 days suspension with automatic reinstatement.
We appreciate our public officials in strange ways. We pay them less than they could make as practicing lawyers (at least that is the myth – see the SSF Conference Salary Survey report here from 2007). Then when a public official has a bad moment, we hold her to a higher standard.
Lori Hittle is a part-time deputy prosecutor in Howard County. She pleaded guilty to OVWI. Took her punishment in court, got a month suspension from her job without pay, and now gets a public reprimand. That is a bit more than the normal lawyer gets for such an offense, often getting a private reprimand with JLAP provisions.
But we hold public officials to a stricter standard.
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Finally, Paul Ogden update.
I have commented on the Ogden disciplinary case several times, like here, and here. Paul writes about it on his blog with more regularity than most would. Tuesday Ogden said that the Disciplinary Commission is seeking a one year suspension in his post here. He follows up with more commentary in Thursday’s post here.
I will let Paul Ogden speak for himself. The issues are complex, and important. As a lawyer, you need to think about them. If you are not a lawyer, you ought to consider where your rights to speak freely are if the lawyers lose their rights.
To know a juicy story, with sex, politics, and prominent people, and be forbidden to tell, is tough. It is such a temptation that the authorities wrote a rule especially for lawyers, to threaten us not to reveal confidential information. But Karl Rove is also a tempting target. And there is money in writing books, so they say.
It is tough to deal with one temptation, but two, or three all at the same time? Joseph Stork Smith, of Carmel, IN, did not handle the pressure well, apparently. He decided to write the book, name the names, and tell the sordid stories that he got from his legal client. Some have speculated on who the client is, but the Indiana Supreme Court in its Order did not name her. I respect that. And having read the opinion, it is pretty juicy writing for a per curiam decision.
Smith got a disbarment. End of the line for him. Started practice in 1976, so early he is in his early 60s most likely. Succumbed to temptations.
Maybe if he had not subtitled the book “Machiavelli’s Sexy Twin Sister”….
Once ought to be enough.
Allen County, IN Public Defender Mitchell Hicks, has seen the twice drunken arrestee too many times in the practice, he has to know better, but….“I screwed up,” he said.
A fight with a former client outside a bar… an unregistered gun… trouble. Arrested for a second alcohol offense, he took it like an adult (unlike so many defendants). Sentencing was as follows:
[Judge Fran] Gull ordered Hicks to serve 60 days at the Allen County Jail on the drunken driving charge but suspended 50 days of that sentence. She ordered him to serve 365 days on the charge of carrying a handgun without a license but suspended 275 days.
She then said he could serve his time in the county community corrections program and that his [driver’s] license will be suspended for 180 days.
100 days of home detention. No Disciplinary Action by the Indiana Supreme Court, yet.
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Biglaw lawyers ought to know!
Some firm names just ring out as BIGLAW, and among the biggest is Baker & McKinzie. Biglaw firms have lots of people around, and they suggest that lots of people provide good protection for their clients. When you get billed for 10 lawyers work on your business matter, you should have especially good protection from the harms that some solo or other errant lawyer might commit.
Not in the case of Martin Weisberg! He was sentenced to two years for committing “a calculate fraud and lies” to steal $1.3M from his securities clients.
The scheme was to put $30M of client’s money into a “trust account,” but he did not tell the clients that it was earning interest. Lawyers use interest free or IOLTA trust accounts for handling small amounts of money for clients, if the interest that would be earned is not worth the time to set up the account. The Rules co permit the earned interest be used for public purposes, instead of simply going to the bank. But when the amounts involved make it worth the time to open an interest earning trust account, the lawyer must do that. Weinberg put $1.3M earned interest in his pocket. That violates lots of laws, and lawyer rules. He got caught. The Sentencing Order included:
[T]wo years in prison,… three years of supervised release, 1,000 hours of community service, a $297,500 restitution order and a $250,000 forfeiture.
I always wonder why if the finding is $1.3M in losses, the restitution and forfeiture together do not equal at least $1.3M – plus interest.
Corporate lawyers don’t get too much discipline press
Sometimes they deserve it, so they too, can stay off the radar of LawyersWithTroubles.
Ky. lawyer Ronald Hines was a corporate lawyer with Cody Properties, Inc. He worked there for years, Cody was the employer. Then trouble brewed in the corporate boardroom, and Hines took a side with one faction. In fact he filed a suit against some of the corporate officers, without the Board’s approval, and expressed his opinion that the Board was not properly elected. But he did not do it within the chain of command, or under the Rules of Professional Conduct.
He turned corporate files over to dissident shareholders, and objected to the LLC’s organizing papers that he had drafted to create the entity, calling them “fraudulent.” He got fired by the new management, but still continued to hold himself out as “counsel for the corporation.”
The Kentucky Supreme Court found violations or Rule 1.7 – Conflict of Interests, 1.13(a) – Duty of Loyalty with Organizational Clients, 1.4(a) Failure to Communicate with Client (the new officers he was fired by), 1.16 Duties Upon Termination of Representation, and 1.8 Duty of Confidentiality of Client Information.
The Court suspended Hines for 120 days for this series of violations. KY does not report the process of reinstatement in this Order.
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“I [heart] hot moms”
One thing about technology is the great evidence that is contained there. Clients do dumb things, and tell the world. Lawyers who help them “clean up the record” are doing even dumber (and more expensive) things as Virginia lawyer Matt Murray found out.
Fortunately for the client the VA Supreme Court upheld the $8.5M wrongful death verdict coming out of the tragic case, but Murray got tagged for a $542,000 legal fee sanction for advising the client to “clean up the Facebook pages” where, among other things, the deceased woman’s husband and plaintiff had a photo showing himself in a T-shirt that read “I love hot moms.” Murray thought that might hurt the case, so he had a paralegal instruct the husband to remove that photo, 15 others and some text. Because the husband had previously communicated with the adjuster through Facebook, the defendants knew of the materials.
Murray has been reported to DC for abusing the Rules of Professional Conduct, and is now under investigation. He is no longer actively practicing law.
BIGLAW lawyers live in a different world. One thought nothing of seeking $69,000 in reimbursements for cab fare, but forgot to first incur the $69,000 in fares. Lee Smolen, of the Chicago office of Chicago’s biggest law firm Sidley & Austin, not only got his cab fares paid, but also $50,000 in entertainment expenses “not incurred for legitimate firm purposes.”
Apparently the partners at S&A did not see the humor, fired him and submitted the theft to the IL disciplinary authorities.
But it did not faze his new firm, DLA Piper, with law offices in Chicago and around the world. It said that Lee had “learned from his experience” and will be a productive member of their team.
I had a good week leading up to and at the Indiana Solo and Small Firm Conference June 6-8 at French Lick Indiana. Kudos to Marc Matheny (also of the National SSF Conf. Board and the ABATECH Show Board) who chaired the conference this year and next.
Indiana’s conference was its largest yet, and I chaired the new series of courses called STAFF TRACK, which added to the knowledge and skills of law firm staff members.
His topic sentences are “The Troubling Big Picture; Group Stupidity; Lateral Incompetence; Institutional Ineptitude; and, Cognitive Dissonance” finding the focus of the leaders of the big firms as wrongheaded: When asked to identify their greatest challenges over the next 24 months, most managers cited “increasing revenue.” The rest of the list is, in order: new business, growth, profitability, management transition, cost management, and attracting talent. If you’re wondering where clients fit—other than as a source of revenue and profits in items one, two, and three—“client value” finished eighth.
He summarizes the report of the responses by 250 of the largest 800 firms, as follows:
•Managing partners know that change is coming and clients are demanding it, but firms aren’t revisiting their basic strategies or business models.
•Growth and profits finish far ahead of enhancing client value as most law firm leaders’ top concerns.
•Leaders view aggressive lateral hiring as critical to law firm growth, but when laterals don’t produce, most firms don’t do much about it.
•Succession planning is problematic because senior partners don’t want to relinquish compensation that is tied to their client billings.
•As senior leaders continue to pull up the equity partner ladder on the next generation, morale plummets and managing partners worry about the absence of midlevel talent to serve clients in the future.
Client Value comes in Eighth? (One commentator was surprised the clients made the top ten at Biglaw!) No wonder the mood at the SSF Conference was upbeat. Our “big” siblings at the Biglaw Firms are now leaving the good clients to those of us who care.
H/T Patrick Olmstead.
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More on Prenda Law.
A few weeks ago, I mentioned a federal judge is ticked-off at the Chicago law firm Prenda, that was pursuing copyright violations against folks it alleged had viewed internet pornography in violation of the copyright law. Tying the copyright violation with the fear of exposure for that private act, lots of folks were settling the claims, and others who did not do so prior to the suit quickly settled before court notices were out.
In the earlier reports the judge said from the bench that something was not right. Well now he has unloaded on the lawyers, with this Order of the Court. In an eleven page order he finds violations of Rule 11, (requiring lawyers to know the facts that they are alleging have some basis in fact) and acts of fraud upon the court. He orders the firm to pay $81,000+ to the Court in 14 days to repay the John Doe defendant in the order for costs and attorney fees. The judge doubled the fees requested by the lawyers, due to the egregious acts of the Prenda firm.
The judge also reports the two lawyers in his case to the Disciplinary Committee of the State of California, plus every other state where they practice, and every court, both state and federal, where the lawyers have cases pending. He says they suffer from a moral turpitude that should not infect the bar.
Just to top things off, he sends his report to the US Attorney’s office to consider RICO charges and to the IRS for investigation of every lawyer in the law firm.
Moral of the story: Federal Judges do not play games with scoundrels.
Some solid recommendations that went no place in the Indiana Legislature. What will the Supreme Court do? Will the Legislature do anything?
Is it all on WTHR 13 News to push the changes? I had a conversation on fees, ethics, and lawyer and judge discipline with Sandra Chapman this week. It will be interesting to follow this story.
Arthur J. Usher IV was a Bose partner when his troubles started, a Kreig DeVault partner when everything blew up, now he is out of BIGLAW, and out of the profession for a while.
In what sounds like the plot line of a cheap romance novel, Usher got focused on a woman at Bose, and went overboard in a really weird way. If you have the time you have to read the story here. Long story short, he got infatuated, rebuffed and went ballistic, trying to destroy “Jane Doe” and her career. He recruited his paralegal to help him further the campaign. He used fictitious emails to spread his bizarre tale, trying to cost Doe her career at Bose, and elsewhere.
His actions started in 2008, the opinion was issued May 17, 2013. I can only imagine the nearly 5 years of trouble that Jane Doe has put up with waiting on a resolution. There was a civil lawsuit, and it appears to have settled on the courthouse steps with “a payment of an undisclosed amount to [Doe]”. The Supreme Court did not allow that to take the place of the disciplinary process.
The Court found violations of Rules 3.3(a)(1) Candor to tribunal, false statements, 8.1(a) False statement Bar application or Disciplinary Process, 8.1(b) failure to disclose facts to correct, 8.4(a, b, c, & d) Misconduct of various stripes. The Court found for him, agreeing with the Hearing Officer, that his problem was with Jane Doe, and not with all women, which would have been a violation of 8.4(g)
The disciplinary ruling: For Respondent’s professional misconduct, the Court suspends Respondent from the practice of law in this state for a period of not less than three years, without automatic reinstatement, beginning June 28, 2013.
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A Chicago law firm, Prenda Law Inc., found a spot as innovative lawyers or scoundrels. A California federal judge decided that scoundrels fit, better than lawyers. A fight is going on. On one side is a self-professed millionaire copyright lawyer and his team, who have sued over 20,000 for illegally downloading pornography, the other a judge who says it is a scam and shakedown effort.
Now the judge has reported the team to disciplinary groups, and to the federal prosecutors for RICO violations. He says the team identifies alleged copyright infringers by IP addresses, it then alleges that the download of porn occurred, in a demand letter that requests an amount “just below the cost of a bare-bones defense” to the suit, if the alleged infringer does not settle. Public embarrassment to a person’s reputation forces settlement, whether there was a violation or not. Hundreds of lawsuits were filed when payment did not come. These lawsuits are unraveling. At a recent hearing before the trial judge, the plaintiffs’ lawyers from Prenda took the Fifth Amendment, to avoid subjecting themselves to criminal prosecution. Not a good step in any case.
The lawyers who started representing Prenda have bailed out of the case, the appellate court is not telling the district judge to back off, One lawyer is alleged to have committed identity theft in getting a named party for the suits filed. Just a mess, as reported in AM LAW’s daily digest and Forbes.
h/t Patrick Olmstead.
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Two things: 1) PWP FB page: If you haven’t seen the recent FB page for the law firm Peterson Waggoner & Perkins, LLP you have missed the Run in a Dress for MS photo. Having fun, raising funds, and supporting family. https://www.facebook.com/PetersonWaggonerPerkinsLLP
2) Glitch: In starting this blog entry, the little finger on my right hand missed the Shift Key, hitting the Return Key. Somehow that published part of the title to the blog entry for this week. My apologies for filling in your mailbox/reader.
Can you believe this guy is [might once again be] a lawyer?
It is reportedly a heart stopping moment, you get a certified letter from the Disciplinary Commission inviting you to explain some complaint made against you. It has to be even more disconcerting when the Commission files, and serves you with its Verified Complaint; now you are past the informal opportunity to solve the problem.
The Best Practice is to hire a competent lawyer to help you at the first letter, but if you don’t, then hire one at the complaint stage – you failed to get yourself off, get help.
Before you go to lunch, find someone, call and set an appointment. Do not go out for the afternoon golf game. Save your license.
Jeffery Fetters had even been through the process before. In 2012 he started down a path he had previously walked in 2005. This time he did not read the A&D Rules that govern the disciplinary process. He misfiled his answer to the complaint. The misfiled answer did not meet the standards for an answer to a complaint. He apparently took the whole process lightly.
Just like he took the duty of effectively representing his client in the eviction process. He won the immediate eviction hearing, but did nothing after that, and eventually refused to talk to the client about the problems.
The court found the following violations:
The Court finds that Respondent violated these Indiana Professional Conduct Rules prohibiting the following misconduct:
1.2(a): Failure to abide by a client’s decisions concerning the objectives of representation.
1.3: Failure to act with reasonable diligence and promptness.
1.4(a)(3): Failure to keep a client reasonably informed about the status of a matter.
1.4(b): Failure to explain a matter to the extent reasonably necessary to permit a client to make informed decisions.
8.1(a): Knowingly making a false statement of material fact to the Disciplinary Commission in connection with a disciplinary matter.
Lots of failures there, and no effective way to answer the allegations because he did not follow the rules, or hire a competent lawyer to assist him.
What do you think the Court did? Answer is below.
DLA Piper in More Trouble
In March, I reported the biggest of the BIGLAW firms that may have gotten caught engaging in serious bill padding. And this was a billing problem of the magnitude of a $200,000 over-estimate, and it was as much as $675,000 in dispute. The NY Times article updating us on the value of the dispute now is here.
One rule of being a smart lawyer is to be real careful before deciding to “sue a client for fees.” It is on many of the “do not ever do this” lists right before “fool around with the staff, nobody will ever know,” and after “what is a small loan from the trust account going to hurt.” There are a lot of reasons, not to sue a client, and I will mention a couple illustrated by this case:
1 – you already created a litigation tiger and now you grabbed him by the tail. Clients going through a lawsuit are often seriously ticked off, and to then be sued by your lawyers, the people you put your trust in, really gets under most clients’ skin.
2 – if you sue your client, be sure that you don’t have a smoking gun in the file, or on the computer. That means you don’t have anything that suggests, let alone shows that you were padding the bill or committing malpractice or ethical violations, or anything else, anywhere in a letter, an email, an interoffice communication, or on a scratch pad. Discovery is getting good.
If you think your client owes you $675K, then the client probably has the resources to spend another $500K searching your database.
Another reason to use a smaller firm?
The Times quotes a “billing ethics professor” (I did not know we have ethics professors who specialize in billing matters – but now know why we do) in this paragraph:
In a survey of about 250 lawyers that Professor Ross conducted in 2007, more than half acknowledged that the prospect of billing extra time influenced their decision to perform pointless assignments, such as doing excessive legal research or extraneous document review. There is also the issue of “featherbedding,” he said, or throwing armies of bodies at every problem.
When your law firm does not have “armies of bodies” hanging around looking for something to do, the “featherbedding” issue is mooted to a great extent. And when your lawyer or small team of lawyers, that you know by name, are working on your matter, the thought of performing “pointless assignments” is not near as tempting as it might be if you are teaching a large class of first year lawyers the ways of research or the firm’s ethics of billing.
The most recent news in the case?
His [Victor’s] lawyer, Larry Hutcher at Davidoff Hutcher & Citron, amended the countersuit last week to include a fraud claim and a request for $22.5 million in punitive damages, a number representing 1 percent of DLA Piper’s reported revenue last year. (my emphasis)
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The other end of the Canada case.
Last week we discussed the Canada case, where the fees, though flat, were earned, and upon the client’s demand did not need to be returned. Octavia Snulligan did not understand that rule before Canada was decided.
She too requested a flat fee, but did not appear to do the work required, or at least she could not satisfy the client that she was doing the work that was expected. After five months she was fired, and the client wanted part of her retainer money back. Snulligan refused, and when she was asked for an invoice, she crafted one. She, like many lawyers do not keep time sheets, but she created one anyway, and showed 37.8 hours of work, in 32 entries. 28 of the entries were for “Document Review” without further explanation. The hearing officer, the commission and the Supreme Court were all unimpressed with the reconstructed time records.
So unimpressed that it was the most serious aggravating factor found. It was “calculated to mislead the Family, the Commission and the Hearing Officer” said the Supreme Court.
Snulligan got a retainer of $6,000 on a flat fee of $12,000. She had the case for five months and said she had worked it. The court said she failed to refund the unearned portion, which the hearing officer calculated as $5,000 in unearned fees of the $6,000 she had received.
The court goes out of its way to say that a “$12,000 total fee, or her collection of $6,000 of that fee before she was terminated would [not] have been unreasonable” if she had been able to complete the representation. But she did not, she was discharged and had not met the Realtor’s Rule of getting to the close before getting fired by the client.
Another good discussion on fee issues by the court, helping the bar to better understand where the line of good behavior ends before you get into bad behavior.
What do you think the Court did? Answer is below.
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Fetters got Six month suspension without automatic reinstatement [follow link to find out about automatic reinstatement], with a requirement for restitution for reinstatement.
Snulligan got a 30 day suspension without automatic reinstatement, but with a proviso that if she refunds the $5,000 in overcharged fees, she may petition for immediate reinstatement.
In NYC a law firm partner got sued for sexually harassing a junior lawyer in the firm. That happens and is hardly news anymore. What got the NY Times to react was – he not only denied it, but he filed a counterclaim. She says he had his way, against her will, several times and places. Her claim, she quits her job due to his actions, and sues him and the firm.
He comes firing back and gets headlines. He says he turned her down and called a cab to take her home after she suggested that “if he wanted, she would not say no!” He says she was spurned, and “Hell hath no fury…” This will be interesting to watch. Embedded in the Times article is the so-called “lurid complaint” and the counterclaim.
Indiana Sr. Judge and practicing lawyer
Lisa Traylor-Wolff is from near my office, and was the judge of the then two-county (Fulton-Pulaski) County Court before we asked the legislature to separate the courts in the 1990s. Several years ago the Pulaski County voters chose another to serve as judge, and she has been practicing since that election – probably 8-10 years ago. She has served as Senior Judge under the Administrative Rules, #5(B), since her return to private practice.
For this Traylor-Wolff gets a lifetime suspension from serving in any judicial capacity, and a one year suspension from the practice of law, with all but 45 days withheld, and two years of probation. Among the probation terms are working with JLAP; stay away from S.W. (is he the victim?); no violations of RPC; and pay costs.
Marion County Prosecutor goes after admitted and alleged bad lawyers
Terry Curry is going after bad guys, and as prosecutor that is his (and his office’s) job. Two recent targets are Indy lawyers David Rees and Steven Geller.
Rees is alleged to have stolen estate funds, after eight years of administration of the estate of his client there was about $400,000 unaccounted for. He also was charged with Obstruction of Justice for filing a false “final accounting” that claimed the missing money was still in the account.
According to the Prosecutor’s press release, Rees has admitted the theft of $270,549 of estate funds, agreed to plead guilty and could face up to eight years for the Class C and D felonies.
Geller was charged with the failure to file multiple Indiana tax returns, earning an Evasion of Tax charge as a Class D Felony. Expect the federal charges to follow.
BigLaw firm gets caught in mocking a client about the fees the firm is charging, and get sued. DLA Piper, the world’s largest law firm was representing a client, Mr. Victor, in a potential bankruptcy of one of his companies. The fees started and never quit. Victor asked about the size of the bills, and the number of new lawyers working on the case, the lead lawyers working the case started mocking him. “I hear we are 200k over our estimate – that’s Team DLA Piper” and “churn that bill, baby” emails made their way around the office.
Once DLA Piper filed suit for $675,000 in past due fees, Victor counter-sued for the “sweeping practice of overbilling.” He got the emails described in his discovery request, along with 250,000 pages of other stuff created in the case. Victor amended his complaint, added fraud and punitive damages request of $22.5M.
Don’t mock your clients, or overbill. And be careful even joking about billing in an email or other discoverable method.
**** Losing Half the Billing on a Big Case
The plaintiffs lawyers had a good deal, they thought. 12 law firms came together to file a class action suit against LivingSocial, a daily deal online marketing group. The issue was expired deals, a customer buys a deal, pays for it and the deal expires before it is used. The question is who gets the money?
46 lawyers worked on the case, and the lawyers and their paralegals racked up over 4,000 hours. The fee request was $3M. That is only $750 per hour across the board. LivingSocial did not object, but Federal Judge Ellen Huvelle in DC did the math, asked a bunch of questions and wrote a 39 page opinion that decided that the lawyers should not get that much money, and criticized lots of what they did and did not do.
Judgge Huvelle said they would have to make due with only $1.35M and leave the other $2.65M in the pot for the class members.
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How much is a name worth?
For Stan Chesley, he thought his name as a “the godfather of the modern class-action lawsuit” ought to get him something extra. His fee was only $20M on a $200M case. The phen-fen cases in KY are now notorious, and Chesley’s matter is not the worst. He got disbarred in KY (his home is Ohio, and what they do is yet to be determined) for an unreasonable fee in the case.
The Court said “his professed ignorance and lack of responsibility for any aspect of the litigation except showing up…” argued against a large fee. Also, the clients signed up for a 1/3 contingency, but the lawyers had charged 49%. Chesley was to get about $14M if he deserved any fee, but he still charged $20M.
Two lawyers in the case have gone to prison for swindling their clients out of $94M of the settlement funds. Their sentences – 20-25 years.
If you have been innovative over the past few years and started to accept credit card payments, and then posted them when required, directly to your IOLTA trust account (thanks Dan Reed and LawPay – a great ISBA member benefit) you better check your merchant account now.
Congress added Section 6050W to the code effective Jan 1, 2013. As reported in LawBizzCoo, a legal business blog, there is a new requirement that if the credit card processor’s information is not exactly as contained in the IRS’s file (i.e. name change of firm, new address) the processor must withhold 28% of each deposit processed by the credit card company, including funds deposited in IOLTA.
The Disciplinary Commission may start getting notices of bounced checks from banks (required under the rules allowing banks to hold IOLTA funds) and lawyers may start getting certified letters from the Commission. Those funds are not being mis-deposited, so you cannot just move them, they are held for potential taxes. You have to come up with the funds, and answer the grievance, in short order. Take a moment now and check your EIN letter and your Merchant Account Agreement. Fix it ASAP.
The same will happen to your general account, but that will not automatically involve the DC. It may later, but your landlord will not appreciate the rent check bouncing.
I discussed this with my office manager and she has been on top of it for a while, thanks to AffiniPay (a/k/a LawPay and Dan Reed). Whether you are with LawPay or some other provider, it is your skin in the game. Make sure everything lines up as it should.
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Tax abuse schemes are serious! Up to $190M serious for one lawyer.
The IRS issued one of its worst ideas a few years ago, called the Circular 230 Disclosure. Good in theory, to require lawyers to warn clients and potential clients not to construe information in a letter or email as being tax advice from the author to engage in a tax scheme, unless that is the purpose of the letter. Now a majority of lawyers’ posts of recipes or sports commentary carries a long disclaimer at the end that no client lacking an MBA could understand, and that most posters do not understand, or they would not prize their every utterance so highly!
But, sometimes folks should avoid doing what lawyers like Donna Guerin did, and review the tax code before writing tax schemes.
Ms. Guerin wrote a scheme so good she and her co-author claimed that her law firm’s clients could save millions of dollars in taxes. And she was no fly-by-night lawyer. A partner in the once prestigious BIG law firm Jenkins & Gilchrist, she recently pleaded guilt to criminal tax fraud, will go to prison for 8 years and has agreed to a penalty and restitution of $190 Million. Her partner entered his plea early and only has to pay $1.6 Million.
For my lawyer friends, be careful with the indiscriminate use of the Circular 230 language, and for the lawyers who do tax work, go back and read Circular 230 in-depth. Then be careful.
**** Great fight, but Ice goes down.
Speaking last week on the Ethics of Developing and Representing Businesses, I was asked to discuss those lawyers who get disqualified from cases for overlooking and violating a Conflict of Interest. Rules 1.7 & 1.9 of the Indiana Rules of Professional Conduct are pretty clear when lawyers must not violate the pledge of loyalty we take to our clients (see Comment 1 to RPC 1.7). But lawyers continue to lose focus of their duty, often when one engagement is completed and a chance to earn a new fee surfaces in a “new” case.
I have had the call on the Ethics Hotline (facts changed to protect the calling lawyers) where a previous client went to a new lawyer, with a similar problem, and the same or similar issues. The old lawyer gets in the case, deciding that things have changed since the first time these folks met. Then that old lawyer just hates getting the call or letter saying “I think you have a conflict and need to get out of the case.” Take that call seriously!
One of Indy’s premiere big firms, Ice Miller was hired by Walter Berger, an employee of Emmis Broadcasting Co., to help him in a senior management employment contract in 2002. Emmis had suggested Ice Miller to Berger. In 2005 Berger renewed that contract with Emmis, then several months later left Emmis to go to work for CBS Radio, Inc. Emmis did not like that, hired their lawyers, Another of Indy’s top big firms, Barnes & Thornburg to sue CBS for hiring Berger, (USDC, So. IN, Case No. 1:06-cv-0920) then it discharged B&T and hired Ice Miller to represent it in the case.
Ice shows up in the suit, and CBS and Berger demand it get out of the case due to an alleged conflict of interest. Ice, showing an incredible amount of chutzpah, lashed back with several defenses and a couple of accusations (which to an outsider read like they were based on client confidences), including that there is no conflict because “it is clear” that Berger breached the Emmis contract. The facts and issues were well briefed by both sides (materials in the ICLEF book) and Federal Judge Larry J. McKinney wrote a great explanation of the tests and the considerations involved in a DQ motion, in his 14 page Order. It is available on Pacer, or through Westlaw($$$).
Bottom line, loyalty is paramount, the issues are looked at from the client’s POV, and while case dicta and commentary makes it sound tough for the clients to prevail, in reality it is hard for a lawyer to win on this issue. There are a few outlier cases, but from my study, the issue, once raised, should be seen in the practical light of “how much is it worth to fight this issue, plus the possible ethics complaint, if you win? Is there enough in the case to pay all that?” After looking at that, you should consider the option to prepare that Motion to Withdraw and have a talk with your now ex-client.
Lawyers with Troubles 