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.

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“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

Corporate Lawyers have Troubles too; E-Discovery Issues; Reimbursements?

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.

Another article on this case by Sharon Nelson: http://tinyurl.com/l586f5k

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Reimbursements — I  need an expense for that?

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.

H/T John Conlon

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.

Ethics and Conflict Issues in Business Representation; Conour Questions –

BUSINESS ETHICS FOR LAWYERS

I will be doing a seminar on Feb. 28 for ICLEF, the legal education provider created by the Indiana State Bar Association in the 1970s to help get lawyers better prepared to handle their clients’ legal matters. Now a stand-alone not for profit corporation ICLEF is the leading provider of Continuing Legal Education in Indiana..

The seminar title is Developing and Representing the Business Entity, and my portion is Ethics in a Business Practice. We will be discussing the Rules of Professional Conduct, the Traps of working with businesses and the Remedies for lawyers and businesses if unethical events occur.

In focusing on the Rules of Professional Conduct, we will discuss recent cases in state and federal courts where the clients complained that their lawyer had jumped sides, and how the courts and lawyers handled that issue. Motions to Disqualify some of the biggest law firms you know will be reviewed, and we will review how the courts’ findings and orders, when presented with valid conflict issues protect the business or the lawyers.

We will also review other events that may prompt a client to think that the loyalty obligation discussed in comment 1 to Rule 1.7 has been violated.

Program chair, Jeffrey Nickloy (a lawyer I have sent clients to for complex issues) has brought together a faculty of some of the brightest lawyers in Indiana to present on various topics that day. The Business Law Section and the Ethics Committee of the ISBA will be well represented.

Registration materials are available here.

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Bill Conour

The Indianapolis Star had a long story about Bill Conour on Sunday, here.  I never worked with Bill, but you could not be a lawyer in the state for the past 30 years and not know about him, his practice, or his atrium.

I will do a more thorough analysis of his fall, his plea, and his resignation in a few weeks, but I would like a few comments about Bill from those of you who knew him, worked with him, did or did not get cheated by him.

I will say (treading carefully as a Maurer grad, talking about our friends and fellow IU law siblings at McKinney) that the first time I walked into the Inlow Hall atrium, and saw the decor, I overheard a comment (it has been years ago, maybe it was my comment) that “the decor looks like a 1950s prison cell block,” with the metal wrapped columns to the ceiling.  So long as it carries Bill Conour’s name (together with that of his ex-wife Jennifer), the image will fit.

Please share comments on Bill and his situation, if you will.