Breathing Space – IND lawyers and 1st Amendment Rights; Lawyers and Child Porn – Problem in CA; Rule 1.8(a) will be Enforced.

CONGRATULATIONS TO SUPREME COURT

Faced with a tough question about the interplay between the rights of a group of defendants to a fair trial, and the feelings of a trial court judge, when her possible bias is pointed out, the Court, in one of two disciplinary cases filed against the lawyers who were trying to protect their clients, under the Rules, found no violation of the Rules of Professional Conduct. This issue was raised here a couple weeks ago.

Thomas M. Dixon, of Osceola, outside of South Bend, together with David A. Wemhof, of South Bend, was accused of violating Rule 8.2(a) for the contents of his Motion for Recusal.   The Rule  says;  “A lawyer shall not make a statement that the lawyer knows to be false or with reckless disregard as to its truth or falsity concerning the qualifications or integrity of a judge.”  The Hearing Officer found a violation, and Dixon submitted that ruling to the full Court.  The Court in a 4-1 opinion held no violation occurred. 

The concern of lawyers in representing clients who fear a biased judge would have been palpable if the court said that an allegation of bias is proof of “a statement..false… concerning the qualifications or integrity of a judge.”  Rule 11 requires that the lawyer endorse the statements, but most are statements of opinion, most often the opinion of the litigant, who is the one with the right to a fair hearing.

In this case, the judge who was asked to recuse was also the judge who ruled on the request, and who filed the complaint.  And Dixon did good legal work here. The Court distinguishes this case from the Wilkens case of 2003, showing the efforts Dixon put into supporting the statements that were made about the need for the trial judge to recuse herself.

Good for the Court.  There are some limits on the authority of the Disciplinary Commission to protect judges from the rights of litigants through the attacks on their lawyers.

Let’s see if this portends any outcome in the Wemhof or Ogden cases now in the process.

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Child Porn, and other automatic disqualifiers 

Gary Grant, a Cal lawyer, was found by the ICE (Immigration and Customs Enforcement) to have used email to register for a PayPal account, in order to purchase and download child pornography.  With over 100,000 images deemed pornographic, ICE found 19 photos and one video of youths who appeared to be between the ages of 14-16.

Grant pleaded “innocent” but later admitted that a few photos of underage girls were downloaded, and promptly deleted.  Such a deletion does not remove the photo from the computer.  He pleaded guilty to one charge of felony possession, and the prosecutors dismissed two other charges: the sentence was 90 days served three years probation and sex registration for life.  Grant later violated his probation, and spent an additional 183 days in jail.

The Cal State Bar automatically suspended Grant’s license, pending hearing. The Bar Court trial judge recommended disbarment, but the Bar Review Department later recommended a suspension for a period. Bar Counsel appealed the recommendation to the state Supreme Court, which at this time has not ruled.

The question before the court is the “moral turpitude per se standard” California has for lawyers.  If a lawyer is convicted of a crime that qualifies as moral turpitude per se, the disciplinary proceedings are a summary disbarment.

The article on this in the California Lawyer (callawyer.com) describes the hearsay evidence problems, since the Bar Counsel did not have access to the images, but had a computer analyst “describe the images” she had viewed. The appeal is from the Review Department panel’s conclusion that felony possession of child pornography meets the moral turpitude per se standard.  As Grant was charged with having 2 out of 100,000 images that qualified, and there was no “proof that Grant sought out child pornographic images, displayed a sexual interest in children, or otherwise intended to harm a minor” according to Judge Catherine Purcell, and it was a case of first impression, the decision was for suspension.

The history of Cal discipline for child pornography cases is described in the article.  The conclusion, in the 18 cases since 2007, none of them have been summarily disbarred.  There have been 33 summary disbarment actions in the 2011-2013 period, most for forgery, grand theft or other frauds.

The question arises: What is the purpose of the Bar Disciplinary Process?  To punish bad people who hold licenses to practice, or to protect the public?

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AUTOMATIC FEE INCREASES ARE SUBJECT TO RULE 1.8(a)

Ellen Corcella started working on a case in 2009, with a written fee agreement providing for hourly fees of $175 per hour.  When the case concluded in 2011, she billed the clients more than 60 hours at her then rate of $200 per hours.  Client files grievance, she refunds the excess of $1580 and all is well, right?

Not quite.  During the representation, the Court found that Corcella changed the fee agreement twice. The first time to a contingent agreement, then to a blended contingent and hourly fee agreement.  At no time did she give the Rule 1.8(a) warning.*

Let’s go over this again.  If you change a fee agreement, written or not, that does, or may favor you as the lawyer, you must give a Rule 1.8(a) advisory to the client.  Tell the client to take time to obtain an independent professional legal opinion that the transaction is fair and reasonable to the client.  You also must determine that the modification is fair and reasonable, and is understood by the client.  Finally, get the approval of the change in writing.  Follow the rule, with due regard for that part of the Comment as applies.  See below.

*  Rule 1.8. Conflict of Interest: Current Clients: Specific Rules

(a)    A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:

(1)    the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client;

(2)    the client is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel on the transaction; and

(3)    the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and the lawyer’s role in the transaction, including whether the lawyer is representing the client in the transaction.

Comment 1 to Rule 1.8(a), in part:

…It does not apply to ordinary initial fee arrangements between client and lawyer, which are governed by Rule 1.5, although its requirements must be met when the lawyer accepts an interest in the client’s business or other nonmonetary property as payment of all or part of a fee. Paragraph (a) applies when a lawyer seeks to renegotiate the terms of the fee arrangement with the client after representation begins in order to reach a new agreement that is more advantageous to the lawyer than the initial fee arrangement…

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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.