Will Lawyers get in trouble blowing smoke?; Be careful what you share with an Inmate; 3-2 vote on an Agreed Discipline – what does that mean?

Good to see a Bar Association help out the member lawyers on difficult ethics issues. The King Co. Bar Assoc. in Washington State has asked for guidance from the State Supreme Court on how to handle a conflict in the drug laws. Marijuana use will soon be legal under WA state law, but the federal law has not changed. So is it unethical for a state licensed attorney to use dope? Is it unethical to advise companies on how to comply with the state law on selling dope?

There are other issues where state law and federal law are at odds in various states. Voting rights issues come up, gun possession issues, campaign finance, and abortion laws.  Are lawyers at risk for following state laws, and not federal laws?  Will drug laws be different?

Wait and see.

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When will lawyers learn to be careful when visiting inmates?

Lake County lawyer Carl Jones should have followed the rules about sharing information with a jailed client.  He could have sent the inmate’s girlfriend’s letter through the mail, but it would probably be read, and her promise to lie for the inmate at trial would have been found.

More importantly, he could have told the Disciplinary Commission the truth about the matter when first asked.  When he was later testifying he told a different story, and for that he got a suspension for six months, without automatic reinstatement.

Lawyers interactions with inmates are constitutionally protected, up to a point. The inmate is entitled to private conferences so that a legitimate defense can be presented to the court.  But because we have special privileges, we must be extra careful to follow the rules.  Jones is the second lawyer this year to get disciplined for an improper interaction with a prisoner-client.  Earlier this year this blog reported this story.A Google search found: “About 66,000 results (0.31 seconds)”  to that lawyer’s name – most for this event.

Be careful out there, or more especially, when you are visiting someone in there!

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Value of a Conditional Agreement for Discipline

Plea bargains are a way of life for criminal defense lawyers, and negotiated settlements are the rule for civil litigators, it makes sense to try to work out a disciplinary matter as well.  At least today, that is.

In the Matter of Noah Holcomb, Jr. is a case on point.  Holcomb’s opinion shows that he violated several pretty important rules, 1.15 (3 subsections as different violations) on safekeeping of client funds, commingling client and attorney funds; 8.4 fraudulent conduct (hiding cash from the IRS); 1.5 setting and honoring fee agreements, not charging unreasonable fees, 8.4 conversion, and four different A&D Rules on handling trust accounts.  In addition he neglected client files (Rule 1.3).

By the time the matter got to the Supreme Court he still had not made restitution, but — he had cooperated with the Disc. Comm.

The Court starts its discussion with the following:  “This Court has disbarred attorneys who committed the type of misconduct to which Respondent has admitted.”  The important part is next: “The discipline the Court would impose might have been more severe than proposed by the parties had this matter been submitted without the Commission’s agreement.”

Now the agreement did not result in a slap on the wrist – Holcomb got a three-year suspension, without automatic reinstatement – and the  strong language of warning that reinstatement could be hard to come by:

We note, however, that regardless of the date on which Respondent is eligible to petition for reinstatement, reinstatement is discretionary and requires clear and convincing evidence of the attorney’s remorse, rehabilitation, and fitness to practice law. See Admis. Disc. R. 23(4)(b). Moreover, the parties agree that restitution should be a condition for Respondent’s reinstatement. 

The vote to approve the outcome was an unusual 3-2 with Justices David and Rush dissenting with the comment: “believing the Respondent should be disbarred.”

It sounds unlikely that Holcomb will return to the practice, but he might. After reading the opinion, you might wonder, as I do, if we want him back in the profession.

Did the Commission go too light on Holcomb in order to get an agreement, and if so, why? Apparently three justices accepted the reason (assuming it was explained somewhere), although they did not include the reason in their rationale.  Will they accept that next time?  Is this opinion a shot across the Commission’s bow?

Or is it a shot across the bow of those attorneys who stand their ground?

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Telling the Client’s Story; Drinking, Twice?; Calculated Fraud?

Must be Tempting

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.

“Causing grief to clients” = slapdown by judge; Learn from your neighbor lawyers’ mistakes; attend your clients.

Fee Shifting is no Reason to Mishandle a Case

There are a number of statutes that allow for fee shifting, and we hear calls daily for “tort reform” that pushes that idea.  Here it caused all kinds of bad incentives, as pointed out in a 113 page trial court order on the Fee Petitions under USTA and/or ELA environmental laws. [My experience in front of Judge Goshorn in a few cases is that he is normally a judge who uses few words to make his points – this output is unlike his normal work.]

Judge Goshorn of Wells County was asked to approve fees for the plaintiffs’ lawyer in the amount of $676,986.11. He denied the request, mostly due to the conduct of the plaintiff’s counsel in the handling of the case.  Award to counsel $0. actually less, due to several contempt of court orders.

The judge said many things in 113 pages, none complimentary to Mark E. Shere, the lawyer for the plaintiffs in this case. A few direct slapdowns:

  • …Shere caused “untold grief and damage to [his] former clients”… [p.2]
  • “has been an impediment, not a facilitator, to the just resolution of this cause.” [p.2]
  • “this case has been extraordinarily and needlessly protracted…due to Mr. Shere’s fee agreement with his client.”  [p.3]
  • “… Shere drove this case off a cliff, leaving in his wake two bankrupt and divorced clients and a third client in financial trouble with its reputation sullied.” [p.5]

The judge was just getting warmed up.  He continued through 169 Findings of Fact and Conclusions of Law, never letting up on Shere.  On page 96 he found that the Fee Agreement Shere had with his clients violated Rule 1.8(i) of the Indiana Rules of Professional Conduct which states:

(i) A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client, except that the lawyer may:

(1)acquire a lien authorized by law to secure the lawyer’s fee or expenses; and

(2)contract with a client for a reasonable contingent fee in a civil case.

Judge Goshorn saw the fee agreement as giving Shere a stake in the case for clients Witt, to his favor and to the favor of co-client Hydrotech. He found that:

  • “… the driver of this litigation was recovery of the maximum amount of fees for Mr. Shere, not assisting the Witts.” [p.99]

But this was not a screed against plaintiffs’ lawyers, he gave some fees to lawyers who worked for Shere, ordering the payment to the Clerk, and the clerk to direct the fees to those lawyers. [p.113].

The judge did not feel particularly sorry for the defendants in the case either, denying their petition for fees from Shere or his clients. The Court found:

  • “This litigation was a caged grudge match [I like that word-picture offered by the judge] with both sides throwing punches. … The Court is concerned about the chilling effect an award of fees to defendants in a USTA or ELA action might have…” [p.111-2]

Shere gets nothing due to the way he tried the case, putting his interests above those of the client.

This case was also addressed by the Indiana Supreme Court in a March 21, 2012 opinion where Shere and his clients were held in contempt of court.  The Court, in  a 3-2 opinion agreed with the contempt finding, overturning a reversal by the Court of Appeals.

For some reason I suspect we may see another Supreme Court opinion coming out in the future concerning the actions taken by counsel in this case.

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Learn from your Neighbors*

One lesson that is important is for lawyers to learn from the mistakes of their neighbors. It is one of the reasons this blog exists. Elden Stoops, for example, should have learned from neighboring county lawyer Jeffrey Price‘s 2009 public reprimand.  The cases as described sound surprisingly similar.  Both lawyers filed family law matters, seeking emergency relief.  Both offered proposed Orders to the court granting the emergency relief their clients sought. Neither petition cited or certified the steps made to notify the opposing parties of the filing of the emergency filing, as required under Trial Rule 65(B).  Both courts set hearings and immediately granted the emergency relief. [Query, when can parties, and lawyers, count on judges reading pleadings and knowing the law on such things?]

Later the opposing parties were notified of the actions taken.

Unlike Price, who was charged with one offense, Stoops was charged and sanctioned for two offenses. The one above was for violating Rules 3.5(b) – ex parte communication with a judge; 8.4(d) & (f) conduct prejudicial to the administration of justice, and assisting a judicial officer in violation of rules of judicial conduct. Stoops second violation was a conflict of interest, when co-clients turned against each other, and he took the case of one of the former co-clients.

Public reprimand for his actions. He had a clean record, and the court accepted the idea that he was trying to protect children, were mitigating factors accepted by the court.

* A lawyer from my firm was involved in the Stoops case.

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Take Care of the Clients

Ron Weldy has been a frequent poster on the ISBA email discussion lists.  He should have been paying attention to his clients’ matters a bit better.  The Supreme Court recently suspended Weldy for 180 days, 90 to serve and one year probation.  From the six counts, there were issues of fee agreements, client communication, case management, and knowledge of the law were problems for the respondent.  The list of rule problems is lengthy:

Violations: The parties agree that Respondent violated these Indiana Professional Conduct Rules prohibiting the following misconduct:

1.2(a): Failure to abide by a client’s decision 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(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.

1.5(b): Failure to communicate the basis or rate of the fee for which a client will be responsible before or within a reasonable time after commencing the representation.

1.5(c): Failure to disclose to a client the method by which a contingent legal fee will be determined.

1.7(a)(2): Representing a client when the representation may be materially limited by the attorney’s own self-interest.

1.15(e): Failure to properly secure disputed property until the dispute is resolved.

1.16(a)(3): Continuing representation of a client after the lawyer is discharged.

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

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

3.3(a)(1): Knowingly making a false statement of fact or law to a tribunal.

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

8.4(d): Engaging in conduct prejudicial to the administration of justice.

This case is a good one to review before taking a weekend off.  Stay diligent, read the law. Be careful with your fee agreements

When you, a lawyer, are in trouble, hire a competent lawyer; NY Times on Billing Troubles Abound with Fraud Allegation; More on Fee issues – what is a “document review” billing entry worth?

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.

Billing troubles abound

Inflating the fees

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.
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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.

H/T John Conlon

Neglect gets 3 years; Lawyer arrested for fraud?; Report your Sex Offender Client? NY says no!

There must have been neglect, statement of proof in the opinion would be nice.

Louis Denney eventually had four DI cases filed, one for each year of 2008, 2009, 2010, and finally one in 2011 that did him in. Unfortunately the Order reads more like a CCS entry, so it is hard to tell what all Denney did. We are told that the Hearing Officer, Judge Jeff Todd issued a 56 page report, Denney appealed and was heard by the Supreme Court, and the court adopted that Report, but we just get a snippet of info on Counts 2,5,7 and 9. The court found violations of Rules 1.2(a), 1.3, 1.4(a) & (b), 1.5(a), 1.15(d), 1.16(a)(3) & (d), 3.1, 3.2, 3.4(c), 4.4(a), 5.4(a), 8.1(b) and 8.4(b).  Denney was a busy guy, and apparently  neglected many of his cases. He did fight the allegations and the Hearing Officer report, but the final order does not offer many details.

There is no link to the 56 page report, so what we know is that Denney: charged unreasonable fees, neglected client cases, failed to do the work for which he was hired, failed to communicate, refused to return unearned fees, disobeyed court orders for accountings, and made scandalous and irrelevant accusations against a judge when the judge refused a continuance, in an attempt to remove the judge from the case.

As a result he is suspended from the practice for three years without automatic reinstatement, and we know  that Justice Rucker would have approved a one year suspension, and Justice David would have disbarred Denney.

What we don’t know that would be educational for lawyers who review disciplinary matters is: How many total counts were found against the respondent; were any counts found for the respondent; what time frame was Denney committing violations, and did he continue to violate the duty to clients after the 2008 complaint (which resulted from his failure to respond to grievance), and was the 2008 issue (or the ’09 or ’10 issues) wrapped into the 2011 matters? Were any clients made whole during this matter or will the ISBA’s Client’s Financial Assistance Fund be involved, if the clients are aware of this benefit?

I imagine writing disciplinary opinions is difficult, but we could learn more if more information and judicial reasoning was put on display in the opinions that are issued. Especially after a well fought hearing.

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Lawyer Arrested for Benefits Fraud…

Shawn Donahue pleaded not guilty to fraud in Harrison County recently.  The Louisville Courier Journal’s story called it welfare fraud, but it appears to be unemployment compensation benefits at issue.

The allegations are that Donahue received UE benefits while still working for a couple local entities that were paying him for legal work. It is alleged that he failed to disclose the earnings. Donahue’s lawyer, Bart Betteau predicted that his client would be cleared of the charges.

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NY Opinion, Lawyer not required to Report Inaccurate reports by Sex Offender

Legal services lawyer is contacted by potential client PC, who is a registered sex offender.  Lawyer is asked to review an administrative filing, made under penalty of perjury, to a state agency. She does, and in confirming the information submitted determines that the allegation of being a felon is inadequate, because pc did not disclose the sex offender status of Level Three Rapist, and pc did not register as required by law, under his properly spelled name.  PC  did not appear for appointment, so Agency decided not to represent him further, but did not report the evidence it found to the agency.

Should lawyer have reported the findings to the state agency? NY Ethics Committee says No! (see Opinion 963) Rules of Professional Conduct # 1.6 deals with confidentiality of client communications, and if PC had not become a client, Rule 1.18 carries duties to prospective clients. The rub is that Rule 3.3 “Conduct before a Tribunal” puts duties to disclose confidential information on lawyers, if the situation meets the standards. Here it is a close call, but since the lawyer did not appear before the tribunal, but only reviewed information submitted to it, and the submission was not by the lawyer, the committee finds that “It would not make sense to require a lawyer to take reasonable remedial measures regarding proceedings before a tribunal in which the lawyer has never appeared on behalf of the client.”

But does the lawyer have to report the failure to register properly with the police?  Rule 1.6(b)(2) in NY and in Indiana, is a permissive rule.  “A lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary: (2) to prevent the client from committing a crime… and in furtherance of which the client has used or is using the lawyer’s services” (Ind. Rule).  NY’s Rule 1.6 does not have the “and in furtherance” language.  Indiana’s does which makes it even less likely that a disclosure would be appropriate even with the permissive disclosure language.

In NY the committee previously opined that past crimes cannot be revealed under this provision, only future crimes. Either way there is no mandatory disclosure, but a permissive disclosure in NY looks to be less risky than in Indiana, where there was no use of the lawyer’s services in furtherance of the misreporting.

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Jeffersonville INNS of Court meeting

Thursday March 21, Ted Waggoner will attend the Jeffersonville IN Inns of Court meeting at the invitation of Judge Terry Cody to speak on the Indiana Attorney Surrogate Rule, and its application to lawyers and law firms.  Ted chairs the Attorney Surrogate Rule Special Committee of the ISBA. 

Contact me for more information about this important rule.

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.