Case Title: Columbus Bar Assn. v. Zauderer

Citation: 1997-Ohio-330

Docket Number: 19970867

State: ohio

Court: Ohio Supreme Court

Date: 1997-12-31T00:00:00Z

Document:
COLUMBUS BAR ASSOCIATION v. ZAUDERER. 
[Cite as Columbus Bar Assn. v. Zauderer (1997), 80 Ohio St.3d 435.] 
Attorneys at law — Misconduct — One-year suspension with sanction stayed on 
conditions — Failing to maintain complete records of all funds coming into 
attorney’s possession and to account to client regarding them. 
(No. 97-867 — Submitted September 10, 1997 — Decided December 31, 1997.) 
ON CERTIFIED REPORT by the Board of Commissioners on Grievances and 
Discipline of the Supreme Court, No. 93-05. 
 
In 1981, respondent, Philip Q. Zauderer of Columbus, Ohio, Attorney 
Registration No. 0002474, began to represent clients in personal injury actions 
against A.H. Robins Co., the manufacturer of a device known as the “Dalkon 
Shield” that was later determined to have caused injury to thousands of women.  
Eventually, respondent represented more than three hundred clients in such 
actions.  In 1983, respondent entered into a contingent fee agreement to represent 
Leslie M. Smith in an action against A.H. Robins Co. and also her then-husband, 
Gary A. Smith, with respect to his derivative claim. 
 
Paragraph III of the standard contingent fee agreement entered into between 
respondent and the Smiths, and between respondent and his other clients, gave 
respondent “full power and authority to file, commence, maintain and prosecute 
my suit * * *.”  In paragraph V of the agreement, the client consented to reimburse 
respondent for any out-of-pocket costs or expenses advanced by respondent, and 
in paragraph VI of the agreement, the client agreed to reimburse respondent for the 
fees and expenses of medical experts and investigators employed by respondent 
after consultation with the client. 
 
Because more than 100,000 persons with claims similar to those of 
respondent’s clients had filed suit, A.H. Robins Co. filed Chapter 11 bankruptcy 
 
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proceedings in August 1985 in the United States Bankruptcy Court for the Eastern 
District of Virginia.  Cf. In re A.H. Robins Co. (Briggs v. Dalkon Shield Claimants 
Trust) (E.D.Va.1997), 211 B.R. 199.  While representing his clients, respondent 
traveled several times to the bankruptcy court in Richmond, Virginia, and incurred 
expenses for nurses, expert witnesses, depositions, court costs, reporters’ fees, 
transcripts, subscriptions to periodicals related to the progress of the case, 
seminars, and postage.  Respondent estimated that these expenses, which benefited 
all his clients and could not, unlike specific expenses, be attributed to any 
particular client, totaled over $300,000.  Respondent did not itemize these 
“general” expenses as they occurred.  Instead, he attempted to reconstruct them 
from his federal tax returns for the relevant years on the basis of the percentage 
that Dalkon Shield cases represented of his entire caseload. 
 
During the Chapter 11 case, a $2.4 billion trust fund was established to 
compensate the A.H. Robins Co. claimants.  The trust provided four forms of 
immediate settlement and residual rights in the year 2001 for each claimant should 
any money remain in the trust.  In 1991 and 1992, respondent settled 174 cases for 
his clients for a total amount from the trust fund of $3,000,007.  He had incurred 
approximately $226,000 in expenses for these cases, no portion of which could be 
attributed to any specific case.  Rather than attempting to bring three hundred 
people together to attempt to devise a method to share expenses, respondent 
established what he believed was a fair and equitable formula to allocate these 
general expenses among his clients.  Under the formula a client who received 
$50,000 or less as a settlement would be charged ten percent of her settlement 
amount as a general expense, a client whose settlement was $50,000 to $120,000 
would be charged $5,000, and a client whose settlement was over $120,000 would 
be charged $7,500 for such expenses. 
 
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Respondent applied the formula by having a member of his staff contact the 
clients just prior to distribution, explain that the formula was not in their contracts, 
and ask if each would consent to the allocation of general expenses.  If a client did 
not agree to the formula, and five or six did not, it could be waived or 
compromised. 
 
Respondent applied this formula to the Smiths’ settlements.  Leslie Smith 
was entitled to a distribution of $91,652.57 from the trust.  Although respondent 
could document only $400.79 in expenses specific to the Leslie Smith case, he 
sent her a settlement sheet which indicated that expenses would be $5,000 under 
the formula he devised.  Similarly, he charged Gary Smith, whose settlement was 
$4,582.63, the sum of $458.26 in general expenses.  Leslie Smith and Gary Smith 
signed the settlement sheets, and respondent remitted to them the balance of their 
trust fund distribution less his fees and the expenses. 
 
After Leslie Smith and Gary Smith filed a grievance with relator, Columbus 
Bar Association, respondent returned to them the expense amounts which had 
been subtracted from their settlements.  Relator then filed a complaint charging 
respondent with violating several Disciplinary Rules in his accounting for and 
charging expenses.  At the hearing before a panel of the Board of Commissioners 
on Grievances and Discipline of the Supreme Court (“board”) in July 1994, the 
parties submitted testimony and stipulations of fact.  The respondent agreed that 
he had violated DR 9-102(B)(3) (a lawyer shall maintain complete records of all 
funds coming into his possession and account to his client regarding them) and 
further agreed to establish an escrow fund to repay any client who wished to 
obtain a refund of the general expenses charged to him or her.  Both parties agreed 
that under the circumstances a public reprimand would be an appropriate sanction. 
 
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Upon receipt of the panel’s report, the board remanded it for additional 
evidence.  The panel then received a report of a special master commissioner and 
adopted the same findings of facts.  The panel readopted its conclusions of law 
that respondent had violated DR 9-102(B)(3).  The panel once again recommended 
that respondent be suspended for one year with the year stayed on condition that 
respondent remit to all his Dalkon Shield clients the expenses he had overcharged 
them and had deducted from their settlement amounts, that any further general 
expenses be allocated only after review by the relator, and that respondent be 
subject to monitoring with respect to the repayment.  The board adopted the 
findings, conclusions, and recommendation of the panel. 
__________________ 
 
James K. Hunter III, K. Wallace Neidenthal, Max Kravitz and Bruce A. 
Campbell, for relator. 
 
Mark H. Aultman and Charles W. Kettlewell, for respondent. 
__________________ 
 
Per Curiam.  Respondent entered into contingent fee agreements with his 
clients which required them to reimburse him for expenses advanced by him in the 
course of their cases.  Such a commitment required that respondent keep an 
accurate record of such expenses.  Respondent not only failed to keep such 
records, but he also failed to inform his clients that extraordinary general expenses 
were being incurred for them and similarly situated clients and that a portion of 
those expenses would eventually be charged to their accounts. 
 
As early as 1982, respondent knew that he would be handling more than one 
Dalkon Shield case.  Indeed, in that year he placed newspaper advertisements 
stating that he was “presently representing women on such cases” and was 
available to handle others on a contingent fee basis. Disciplinary Counsel v. 
 
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Zauderer (1984), 10 Ohio St.3d 44, 45, 10 OBR 308, 461 N.E.2d 883, 884, fn. 1, 
modified in Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio 
(1985), 471 U.S. 626, 105 S.Ct. 2265, 85 L.Ed.2d 652.  Certainly, by 1985, when 
A.H. Robins filed its Chapter 11 case, respondent knew he was incurring fees that 
would have to be spread among many clients.  Respondent knew, better than any 
one of his clients, that upon taking on additional cases after 1981 he was incurring 
expenses which would benefit all clients.  Yet respondent neither took action to 
categorize these expenses, nor attempted to isolate them from his other overhead 
expenses. 
 
Until their cases were settled, respondent did not inform either his existing 
clients or the new clients who entered into his standard contingent fee contract 
about the general expenses which would eventually be charged against their cases.  
At that time, with the settlement figure in hand, he sent to the Smiths, and 
presumably to other clients whose cases were ready for settlement, “settlement 
sheets” which allocated a portion of the general expenses to their cases.  Although 
testimony at the hearing indicates that respondent or his staff would explain the 
expense allocation to his clients at settlement time, ask them if they had any 
objections, and give them the opportunity to have the allocation of general exposes 
waived, there is no such evidence that such an explanation or option was given to 
the Smiths.  The stipulations indicate merely that respondent mailed the settlement 
sheets to the Smiths, and after they signed them, the net funds were disbursed to 
them. 
 
It appears that respondent, while in a position of dominance because he was 
in control of the settlement funds, attempted a unilateral alteration of the 
contingent fee contracts with his clients.  He allocated to their cases a portion of 
extraordinary expenses which the clients might not have anticipated, and allocated 
 
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as well the costs of medical and expert witnesses who, under his contracts, could 
be employed by respondent only after consultation with the clients.  He then put 
his clients in a “take it or leave it” position unless they questioned the allocation.  
We doubt that many clients with the opportunity for an immediate payment would 
challenge their attorney’s discretion. 
 
We find that respondent both failed to keep appropriate records and 
unilaterally altered contracts with his clients.  Respondent’s rationalization of his 
actions on the ground that it would have been inconvenient to call three hundred 
clients together to discuss an allocation formula, does not excuse either his failure 
to keep appropriate records of general expenses specifically incurred for his 
Dalkon Shield cases, or his failure to inform his clients of the extraordinary 
general expenses which he was and would be incurring and give them an 
opportunity, at that time, to exercise the option to seek other counsel. 
 
We conclude, as did the board, that respondent’s actions violated DR 9-
102(B)(3).  Respondent is hereby suspended from the practice of law in Ohio for 
one year with the entire year stayed on the following conditions: 
 
1. Respondent shall not violate any provision of the Code of Professional 
Responsibility for a period of two years. 
 
2. The allocation of expenses in any class action or multi-district litigation 
in which the respondent is counsel within the two years shall be preapproved by 
relator. 
 
3. The respondent shall refund all amounts overcharged to clients as set 
forth on the list stipulated into evidence before the panel. 
 
4. The respondent shall maintain the escrow account which he has 
established to be applied to these refunds. 
 
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5. The list of clients entitled to a refund shall remain open for one year for 
any additional claims by clients and such claims shall, after verification by relator, 
be paid by respondent. 
 
6. Notice of the potential for such refund shall be given to respondent’s 
clients in a reasonable manner to be approved by relator. 
 
7. The names and addresses of the clients to whom reimbursement is made, 
other than the Smiths, shall remain under seal to be released only to those 
representatives of respondent, relator, the board and the Ohio Supreme Court as 
may be necessary and otherwise identified through a numerical system which does 
not specifically disclose the identity of any client. 
 
8. The costs of monitoring the disbursement of funds and supervision of 
that process shall be borne by respondent. 
 
Costs taxed to respondent. 
Judgment accordingly. 
 
MOYER, C.J., DOUGLAS, RESNICK, PFEIFER, COOK and LUNDBERG STRATTON, 
JJ., concur. 
 
F.E. SWEENEY, J., dissents and would publicly reprimand respondent.