Want Fewer Troubles? See a small firm lawyer; Prenda Redux; Township Courts

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.

Why do I say if you want fewer troubles see a small firm lawyer? Last month AM LAW, a leading legal publisher came out with an article on the latest big law survey by Altman-Weil Co. on where the law and practice is headed.  Steve Harper, an author and blogger interpreted the AM LAW article here.

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.

H/T Vic Indiano

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Marion County Township Courts

More coming on this issue soon. Will the Legislature or Supreme Court do anything? I have recently had a chance to read the Small Claims Task Force Report: Report on the Marion County Small Claims Courts, authored by Court of Appeals Judges John Baker and Betty Barteau, Sr. Judge.

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.

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IOLTA UPDATE if you accept Credit Cards: Circular 230 Disclosure: CBS Radio v. Emmis = DQ:

Credit Cards and IOLTA – New Problem

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.

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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.

Stay Up on the Rules; Trust Account is for Client Funds; How Much is Take Home Anyway?

Ten New Rules
Indiana Supreme Court has amended ten of the Rules lawyers need to know effective Jan. 1, 2013.  You can review them here and realize that service of pleadings on fellow lawyers is now permissible through email, if agreed. PDF format becomes a standard, and several changes to the RPC, including Rule 5.5 on cross-state practice will go into effect.

If you don’t take the occasion to read the various rules that affect your profession, and you life as a lawyer, you have several days in the next two weeks to take that opportunity. Out of the office, often with a book in hand, you might choose to make that book (or tablet) the Rules of Court, and the link above to make sure you are reading the most current rules.

And for a kick, read the Administrative Rules (you may skip the details of Rule 7(d), 8(b), and App to Rule 1 – unless you are a judge) and the Admission and Discipline Rules, in addition to the RPC.  Finish by going back and reading Rule 22 of the A&D Rules. That is the Oath of Attorneys. You took that oath when you were admitted (you might have a copy on your wall someplace), and you would have repeated it if you attended an Indiana Bar Foundation Fellows dinner. At the dinner a Supreme Court Justice leads the crowd in a recitation of the Oath.  A good moment for all in attendance.

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YEAR END TRUST ACCOUNT ALERT

Year end temptations get to some lawyers, the temptation to leave earned funds in the trust account a few weeks longer to move income into next year.  You may want to read the opinion: In the Matter of Jacob Dunnick.

Dunnick was trying to avoid having an IRS lien enforced, and so he started operating his office general funds and paying his office bills out of his trust account. He wrote a check to the Commission for Continuing Legal Education out the funds in his trust account, and the Commission reported him under Rule 8.3. A couple of months later Dunnick bounced a check on the trust account, and under the IOLTA Rule (1.15), that is an automatic report to the DC from the depositor bank.

For playing with his trust funds like this, Dunnick gets a real 60 day suspension (six months, stayed, 60 days served, one year probation). He will need to work with a CPA to quarterly audit and report the trust account to the DC, and he must take the Trust Fund Management class.

Prior lawyer-clients of mine have reported that the Trust Fund Management class is quite worthwhile. If you are uncertain about the means and methods of handling the trust funds or other property that you obtain from your clients, you should keep an eye out for the class. Or you might buy and read the classical treatise on the issue “The ABA Guide to Lawyer Trust Accounts” available through Amazon or the ABA (where you will be surprised to find the price is about 1/2 the Amazon price, and there is $10 off if you belong to the LPM Section).

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Finances causing Troubles?

I ran across an interesting article on Inc.com’s website.  Maybe it fits your needs, maybe it does not, but I know many lawyers who suffer from the problem of inadequate fees, and I have spoken about the issue at the ISBA SSF Conference in years past.

“You Don’t Charge Enough. Here’s How to Fix That.” tackles a problem that affects many lawyers, we let the jokes and the reputation as sharks keep our fees too far below the value that our services provide to our clients. A worthwhile read before you set your office budget for 2013.

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And on that note, I want to wish you the best of the holidays.  As noted Indiana lawyer Derrick Wilson said “Make sure you wish the readers a Merry Christmas, Happy Hanukkah, Kwanzaa, Festivus or holiday of their choice.”  And so I do (once again, following the sage advice of Mr. Wilson…)