Report the Claim; Trust Account Abuse

Lawyer Messed Up Deal, Better Report

Koransky Bouwer & Poracky P.C. had an associate mess up. It ended up in Federal Court, then the 7th Cir. <here>.  Lots to put on the back of an associate.

The young associate filed a signed contract rather than send it to the parties as evidence that the deal was completed. The party not represented by the firm withdrew its acceptance before delivery of the contract to all parties, black letter law allows that. Client is justifiably upset.

While this is going on, the law firm that the associate works for, Koransky & Bouwer, renews its malpractice coverage with The Bar Plan, its professional liability carrier. In the process, there is a question that reads something like “are there any claims or potential claims in existence, now or before we renew?”  Firm, which knew about this problem, with one of the name partners being involved in the matter, said “no problem” [or words to that effect].

Client, not happy to have lost the contract sues the firm, who turns the complaint over to the PLP company.  It says something like “wait, from these dates and all, it appears you knew of this claim when you renewed your insurance, and you did not tell us.” Another black letter issue in the law is that a misstatement in an insurance application will void the application. So the Bar Plan says: “We have no duty to defend or pay for the claim!” K&B filed for declaratory judgment on that issue in ND Ind. federal court, the trial court said “sorry law firm, no coverage.” The 7th Circuit agreed.
Lesson? The quick response application often found in policy renewals is not your friend. Your duty to disclose still exists. Does that mean you must report every disgruntled client who might conceivably file a claim? This blog does not offer legal advice, but I recommend you read the underlying policy about when you need to submit a timely claim.

One lawyer has suggested that the insurance company should be required to show that it was prejudiced by the delay in the notice, but that is not the current state of the law, in this Circuit.

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Watch the Trust Account

Edguardo Martinez Suarez is a Hamilton County lawyer, with a pattern of trust account problems. In 2006 he bounced a trust account check, which automatically brought the Disciplinary Commission in via the rule of mandatory reporting of bounced trust checks by a bank holding an IOLTA account. Suarez said “it is a mistake” but could not show how the mistake occurred. In 2009 the Commission demanded a CPA audit of the account, but the CPA reported there was a lack of documents to allow for an audit.

With that, the Commission started an in-house audit. The Supreme Court characterized the findings as many “violations, which took place from 2006 through 2012, includ[ing] at least six instances of paying personal and business expenses from the trust account, 55 instances of disbursing funds in excess of the amount held in trust for each corresponding client, and making 14 cash withdrawals.”

Then to compound problems he committed another violation, keeping more than “a nominal balance of” personal funds commingled to protect the account. But the court, in reviewing the Agreed Stipulation with Suarez, found three good things: no prior discipline history; no selfish motive on Suarez’s part; and, no client lost any funds from his violations.

The parties agreed to a 60 day suspension, stayed with two years probation. For two years he must: 1) maintain his trust account in accordance with the Disciplinary Commission’s 51 page white paper on Trust Account Management: Handling Client and Third Party Funds most recently updated in March 2012; 2) Have the Trust Account monitored by a CPA approved by the Commission, and have quarterly reports made to the Commission; and, 3) Agree that a violation of probation will cause the 60 day suspension to go into effect, and there will be no automatic reinstatement after the suspension. Finally, at the end of probation Suarez will be required to petition for dismissal of the probation. Somehow he was not ordered into the CLE on trust account management.

Seems like an appropriate disposition, as no clients were harmed by the mistakes. Management of the trust account is one of the most critical skills an attorney with trust account duties must have. Failure there is a ticket to Discipline World, and it is tough to get out with your skin intact.

There are CLE courses on Trust Account management, the DC staff often are speakers. Indiana’s Solo and Small Firm Conference has done sessions on this in 2004 and 2007, and likely will do more. ISBA-CLE and ICLEF do sessions annually. A great book is out there by one of the ABA’s most successful writers, Jay Foonberg titled “The ABA Guide to Lawyer Trust Accounts” (my version is dated 1996.)

Protect yourself and your clients and your license. Review Rule 1.15 of the Rules of Professional Conduct, and Admission & Discipline Rule 23 Sec. 29-30, and Overdraft Rule 2.

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Win One, Still Trouble; Charge for That? Neglect of Client in several ways

This is a Win?
The lawyer got sued for malpractice for failure to talk client out of a litigation financing deal. The court ruled that he wins since the lawyer did not refer the client to the lender, did not recommend the use of a litigation financing  program, and did not offer an opinion supporting the deal with the lender when the client made the loan.

Elwin Francis suffered a personal injury. He filed suit, but found himself needing funds up front, So, he borrowed funds from Law Bucks, who submitted a lien for $96,000 on the settlement.

The law firm representing Mr. Francis settled the personal injury matter for $150,000, with consent, and when all the expenses were  paid, Mr. Francis got a check for $111. He did not think that was enough, so he sued his lawyers. [Apparently the client forgot the $$ he got from Law Bucks]. The NY court looked at the documents, at the duty that the lawyer took on in representing Mr. Francis, and at the facts to see if there was conflicting duties that extended to Law Bucks, and found there was no endorsement or contacts between the firm and Law Bucks.

Getting sued by a client is trouble, but winning is good.

Lesson for us?  Stay out of endorsing a lender in a litigation financing program. You may become the guarantor.

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Charge for that?

Rule 1.8(j) has been around for a while. It is a pretty straightforward rule: “A lawyer shall not have sexual relations with a client unless a consensual sexual relationship existed between them when the client-lawyer relationship commenced.”  Pretty close to a “Thou shalt not ….” with fewer exceptions than the Rule on Hearsay.

Tom Lowe, a lawyer from Minnesota is old enough to have been around when the MN Supreme Court enacted that rule there.  Sexual relations rulings in ethics cases have been around for decades, and the Rule changes started popping up in several states in the late 1990s (IL 1997, Kan 1998). The no-sex Rule came about as a part of the McCrate Amendments to the Model ABA Rules of Professional Conduct in 2002. Indiana adopted the current Rule 1.8(j) on Sept. 30, 2004, as part of the comprehensive update of the RPC (at p. 39 of the Order)*

So Lowe not only violated that rule, but, to add insult to injury he added the time he spent with her (a family law client) while he breached the rule to her bill.  [insert your inappropriate hourly billing (or quarter-hour or one/tenth hour) or other time based billing quip at this spot – I am trying desperately to leave those and other puns out of the post.]

There are important reasons for the rule about sex with a client, and I am not making fun of those, but his billing for his time?  That reminds me of this song…

Lowe got an indefinite suspension of his license, with a minimum period of 15 months before he may apply for renewal. Well done MN.

* I chaired the ISBA subcommittee that reviewed the ABA proposals and led to the addition of 1.8(j) to the Indiana Rules of Professional Conduct. Thanks to my subcommittee.

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Client Neglect Stemming from Mental Health Issues

The front page of the Indiana Judges & Lawyers Assistance Program website states: Research has shown that lawyers may suffer from substance abuse and depression at a rate higher than the general population. Experience has shown that lawyers may be more reluctant than others to seek help for their own problems.

One of the critical consequences of mental health problems is the impact on our clients.  As stated by JLAP Ex. Dir. Terry Harrell: “When I hear that a good lawyer, with no history of neglecting clients, is not returning telephone calls — my radar goes up and I start looking for other signs of depression.” She shares statistics on the increased level of mental health problems that should cause every lawyer to take a slow look in the mirror. Women lawyers appear to have a 10% greater problem than the general female population, while male lawyers  reportedly suffer a problem with depression at a rate more than 200% of the general male population.

When lawyers neglect clients for any reason the clients often get upset. If there is not a good reason for the perceived neglect (such as, “I am in trial all month…”) and the client does not see a way to successfully get the lawyer’s attention, a complaint to the Disciplinary Commission may be their only recourse.

Several cases recently have highlighted the issue of mental health, and I will focus on one. This lawyer (I don’t need to name him) recently stipulated to the following facts: The misconduct includes neglecting clients’ cases, failing to do the work for which he was hired, failing to respond to clients’ requests for information, failing to inform clients of the status of their cases, failing to safeguard unearned fees by placing them in a trust account, and failing to completely refund unearned fees. Respondent knew he was suffering from depression and other health related issues that interfered with his ability to attend to his clients’ needs.”

The lawyer and the Commission agreed that these violations of the Rules occurred: “The parties agree that Respondent violated these Indiana Professional Conduct Rules prohibiting the following misconduct: Rule 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(a)(4): Failure to comply promptly with a client’s reasonable requests for information. 1.15(a): Failure to safeguard property of a client. 1.16(a)(2): Failure to withdraw from representation when the lawyer’s physical or mental condition materially impairs the lawyer’s ability to represent the client. 1.16(d): Failure to refund an unearned fee promptly upon termination of representation. 3.2: Failure to expedite litigation consistent with the interests of a client.”  That is quite a list.

There is the specific requirement under Rule 1.16(a)(2) that states the affirmative duty that a lawyer “shall not represent a client…if: (2) the lawyer’s physical or mental condition materially impairs the lawyer’s ability to represent the client.”

We need to talk about this situation more.  There was this previous post on Age Related Issues in the Law, but it did not tie the violation to 1.16(a)(2). Apparently we need to have more discussion about this.  There are 10,000 Baby Boomers hitting 65 every day. They are not all lawyers, but enough of them are for problems to show up..  65 is not the magic age where age related cognitive disorder hits, but it is one birthday closer to the issue showing up.

Mental illness extends far beyond age related disorder, and beyond depression, bi-polar disorder and other issues.  But it hits lawyers in greater numbers than the general population.  When it hits, all the suffering lawyer’s clients are affected. Be aware.

Hourly Billing leads to Suspension; How Much is Too Much?: Know the Battles to Fight

Billing is one of the toughest things lawyers do.

The legal field is struggling with the proper method of billing for legal services.  There are a number of ways, mostly broken down into the following styles: Contingency, Hourly, Value Pricing and some hybrids such as menu billing or flat fee billing.

Each method has its critics, and the Indiana State Bar Association recently held a session at its Annual Meeting on “The Future of Legal Fees.”  MS lawyer and ABA bestselling author Mark Chinn was the presenter.  One fear expressed there was that Value Pricing fees could run afoul of ethics issues.

Any system of billing can run afoul of ethical issues. The primary breach is in the lawyer, not the system. “But lead me not into temptation…” Michael Murphy, a Massachusetts lawyer, learned the hard way.  He was a salary lawyer for an unnamed law firm.  On at least two cases he “knowingly spent more time than necessary” in order to increase his billables. He reviewed materials multiple times, often for hearings that had not been scheduled yet. He billed for time performing tasks that “should have been delegated” to lower cost lawyers at smaller billing rates. He billed for performing tasks that others had performed. Author John Conlon regularly writes about the problem for clients about misallocation of duties between higher priced lawyers and the lower priced associates or non-lawyer staff.

Murphy’s firm refunded the fees, and wrote off unpaid bills, but Murphy got a Year and A Day suspension.  Rumor has it that this kind of billing problem occurs with enough frequency that it should be discussed in biglaw and small firm settings, and forbidden by policy. The Mass. Court found the fees charged was a violation of Rules 1.5(a) and 8.4(c).

H/T Andy Perkins

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106 Paragraphs in the Ethics Complaint => Suspension

Illness does not give you a “Free Pass” card.  Kjell Engebretsen, a Boone County, IN lawyer appears to have struggled for years in representing his clients.  The battles may have had to do with depression or other illnesses, but were manifested in his refusal to do the clients’ legal work, or to cooperate with the Disciplinary Commission.

The charges included: neglecting clients’ cases, failing to do the work for which he was hired, failing to communicate with clients, failing to inform clients that medical problems would severely limit his ability to represent them, failing to inform clients of court orders and hearings, failing to appear at hearings and a pretrial conference, unilaterally terminating his representation of clients without protecting the clients’ interests, failing to refund unearned fees, and failing to cooperate with the Commission.

This is the fifth action against the respondent filed by the DC, and there may have been others not filed before the 2008 matter. At the time of this Order he was on two other suspensions (failure to pay costs, and non-cooperation with a show cause order), and did not respond to the charges filed here.

The Court found violations of the following Rules of Professional Conduct:

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(a)(4): Failure to comply promptly with a client’s reasonable requests for information.

1.4(b): Failure to explain a matter to the extent reasonably necessary to permit a client to make informed decisions.

1.16(d): Failure to protect a client’s interests upon termination of representation.

1.16(d): Failure to refund an unearned fee upon termination of representation.

3.2: Failure to expedite litigation consistent with the interests of a client.

8.1(b): Failure to respond in a timely manner to the Commission’s demands for information.

8.4(c): Engaging in conduct involving dishonesty, fraud, deceit or misrepresentation.

For all that, the result may surprise you.  Read the opinion, and J. David’s dissent.
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Pick your Battles Carefully, Especially When You get the Lede

Vikrant Pawar, a NYC lawyer had to file the suit. His honor apparently was tested by the allegation.  Then the slap-down hits.  As reported in the New York Law Journal [full story behind a paywall]:

“The charge of stealing a $6.95 order of chicken wings, hardly constitutes that of a serious crime,” Manhattan Supreme Court Justice Louis York wrote, holding that Vikrant Pawar had not made a sufficient case that the charge amounted to slander.

So an event that merited the attention of Pawar’s family and staff, and the owner of the Wings Shop, has now been made a record in the courts, and in the popular legal media.  Now we know he was accused of stealing chicken wings, and that the court does not find that charge to be an insult to his integrity.

Maybe the better resolution was to pay the tab, tip the waiter and stay quiet.  H/T Patrick Olmstead.

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If you see a story worth mentioning in the blog, please share at ted@peterson-waggoner.com

What is “Lawyers with Troubles” and why read it?

A new blog designed to share current information on lawyers who have some kinds of trouble. Trouble for lawyers comes in lots of ways. The biggest types of trouble are disciplinary proceedings, fee disputes, or slap-downs from a judge (often an event that leads to other troubles).

Special troubles hit law firms that need to be brought to the attention of the lawyers. Fee disputes with clients, Client Financial Assistance Fund payments, (when a lawyer has been found to have cheated a client or many clients, and fellow lawyers offer funds to help the victims), or bar exam issues that haunt many lawyers for years, even after passage are always of interest to lawyers.

Still other troubles occur inside the office, and can run the list that most small or midsized businesses suffer. Economic downturns, bad employee decisions, cash flow management hit law firms like other places. I won’t be talking about these unless they lead to other troubles.

Troubles will be highlighted, since lawyers are mostly a trainable group. If you see someone in trouble for something that you too are doing, you might catch on and quit before you find yourself in trouble. I hate to report on my friends.

If you like the idea, share this blog post with your friends and colleagues. It will be an occasional post, prompted by the actions of the lawyers involved. I will plan to share a comment and a link, and a Hat Tip to the source.

As an Indiana lawyer, the blog will focus on the troubles of Hoosier lawyers, but lessons can be learned from the troubles of other lawyers, so if they make news, we will report it.