Source: http://www.mccarthyfingar.com/publications/joseph-j-brophy-white-plains-lawyer-lega.aspx
Timestamp: 2019-04-25 06:43:50+00:00

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The boundaries between legal ethics and ordinary honesty are not always as clear as the requirement to keeps one’s hands off the clients’ money. Honest lawyers can and do face responsibility for their partners’ wrongdoing. At times, zealous advocacy may reward or even require conduct on the part of a lawyer that would seem sharp or dishonest in everyday life. Yet, by going too far in representing their clients, attorneys can expose themselves to serious liabilities.
Honesty is necessary, but it is not sufficient. Only lawyers who are strongly committed to ethical practice and clearly understand their ethical obligations can hope to avoid some of the less obvious ethical pitfalls. An analysis of the Disciplinary Rules and recent court decisions illustrates the personal and practice pitfalls to avoid, as well as the penalties that have been assessed against those who have fallen short.
While respondent strongly disputes that his multiple acts of forgery constitute an aggravating "pattern of misconduct," we disagree. Significantly, respondent's misconduct included the misappropriation of the notary stamps of his work colleagues and the forgery of their signatures. This not only put his own career in jeopardy, but also adversely impacted his colleagues and his firm. We further note that while respondent stresses his cooperation and remorse, he had many opportunities to reconsider and admit his wrongful conduct, but did not do so, remaining silent until it was brought to light by others."
All attorneys should know that conviction of a felony leads to automatic disbarment. Then the First Department comes down with this case just this year.
NOTE- the only reason attorneys representing mass tort victims are not barred from doing so by conflict rules is that in all such cases the Court determines the distribution of an aggregate settlement. Rule 1.8(g) also permits informed consent to such a settlement in a writing signed by the client, but the Courts are liable to give such writings little weight. As we see in this instance, the courts, and especially the Federal courts, tend to scrutinize mass tort settlements very carefully.
Sometimes we see a case that blows such a huge crater in the Disciplinary Rules and in every ordinary notion of decency and honesty, that we must simple pause to gasp in wonder. Such a case is The Florida Bar v. St. Louis, 967 So.2d 108 (Fla. 2007). St. Louis represented twenty farmers and nurserymen suing DuPont Corp. for claims of damage to their crops caused by Benlate, a fungicide. He eventually obtained a settlement offer of $59 million from DuPont. DuPont demanded as a condition of the settlement that St. Louis accept no more Benlate claims, and offered St. Louis’s firm an "engagement agreement," whereby DuPont would pay them $6,445,000 million as a "retainer," outside of the $59 million settlement.
St. Louis accepted DuPont’s offer, and then persuaded, or pressured, his clients to settle the claims. He never informed either the Court or his clients of the side agreement with DuPont. Some of the clients were not satisfied that St. Louis had adequately explained their settlements, and filed grievances. In the course of the Bar’s investigation of the grievances, St. Louis failed to disclose the engagement agreement. He also failed to disclose the existence of the engagement agreement to a Federal Judge in a related matter. Eventually the engagement agreement came to the attention of the Federal judge- the decision does not explain how. The judge then informed the Bar Counsel of St. Louis’s misrepresentation and the existence of the agreement. .
The Florida Supreme Court found that the referee’s recommendation of a sixty-day suspension, probation for three years, and forfeiture of $2,277,663 share of the fee from DuPont to the Clients' Security Fund was too lenient, and increased the penalty to disbarment. The court specifically pointed out that the Supreme Court typically imposes the severe sanction of disbarment on lawyers who intentionally lie to a court. The Supreme Court also added interest to the $2,277,663 fee disgorgement. All of the lawyers in the firm disgorged their share of the DuPont retainer, but they apparently kept the fees on the $59 million settlement.
The laundry list of ethical violations cited by the Supreme Court (citations to New York rules) included: Rule 1.4(a) (informing client of status of representation); Rule 1.4(b) (duty to explain matters to client); Rule 1.5 (prohibited fees); Rule 1.7 (duty to avoid limitation on independent professional judgment; Rule 3.3 (candor towards a tribunal); Rule 4.1 (knowingly making a false statement of material fact); Rule 8.4 (violating rules of professional conduct; engaging in conduct involving misrepresentation). Lesson- While it is not explicitly stated, it seems that St. Louis’ decision to try to defend himself by any means necessary, rather than expressing remorse and acknowledging wrongdoing was what insured his disbarment.
, 552 F. 2d. 218 (2d Circuit, 2009)- District Court did not abuse its discretion in denying counsel’s request for attorney’s fees in its entirely, where Court determined that counsel violated New York disciplinary rules by purposely requesting a fee in excess of the statutory maximum by $20,000 in a $2.4 million settlement. The Court begins by drily observing that "this case is instructive with respect to the nature of the conduct that may merit the denial of an attorney’s application for fees." Counsel failed to provide any documentation detailing what he did, what his disbursements were, what the infant’s medical condition was, what the projected future medical expenses would be, or an expert report on which the district court could rely in assessing the reasonableness of the settlement. This criticism was based on the report of an experienced medical malpractice attorney who was appointed as special master to evaluate the settlement after counsel repeatedly ignored the Court’s requests for further documentation to support the application. The District Court excoriated the attorney, and denied his fee application in its entirety. The Court of Appeals held that the fact finder’s view of the evidence was not clearly erroneous and there was a sound basis for the determination that the attorney had committed misconduct. Back story – The attorney representing Chen had resigned from the bar under threat of disbarment for escrow violations while his fee application was under scrutiny, so perhaps he saw no point in trying to justify his application. He now is making a living in the litigation finance business.
PRACTICE TIP – If you want to get a referral fee, learn the provisions of Rule 1.5, Fees and Division of Fees, and follow it.
In Weisburst v. Dreifus (2011 Slip Op 08207) (1st Dept, Nov. 15, 2011) the Court upheld an order directing defendant to pay plaintiff $35,500 in counsel fees. The court did not abuse its discretion in finding that defendant's underlying motion for an emergency stay contained "false charges [against plaintiff] that were expressed by means of a tortured and very partial rendering of the facts that can only have been deliberately crafted to mislead" and was therefore frivolous within the meaning of 22 NYCRR 130-1.1. Lesson- this offender may have gotten off easy. I am waiting for a Court to impose treble sanctions pursuant to Judiciary Law §487.
Thanks to Justice Lewis Lubell for helping to develop this CLE and taking time from his busy schedule to present it with me. Thanks to Prof. John Humbach of Pace Law School, who was kind enough to share with me his article Shifting Paradigms of Lawyer Honesty, Tennessee Law Review 77:933 (2009). Reading that article assisted me in preparing for this CLE, and Prof. Humbach was kind enough to discuss some of the cases cited in his article in an exchange of e-mails. I hope he will be able to join us on future CLE panels.
, 74 A.D.3d 1168 (2d Dept., 2010), motion for leave to appeal denied, 16 N.Y.3d 826. Corporate client sufficiently alleged that its attorney's malpractice caused it damage, by pleading loss of its equipment, assets, and ability to continue in business, due in part to attorney's legal advice. Corporate client sufficiently alleged attorney's deceit, a misdemeanor for which treble damages were available, by asserting that attorney knowingly advised and counseled shareholder in violating injunction and in failing to advise other 50% shareholder of sale of all assets, and in failing to move to be relieved as corporation's counsel after shareholder advised him that he was resigning. While the order denying defendants’ dismissal motion was wending its way through the appeals process, defendants were apparently stonewalling their way through the discovery process. Defendant’s answer was stricken for "willful and contumacious" discovery abuse, 83 A.D.3d 685 (N.Y.A.D. 2 Dept. Apr 05, 2011). Back Story- The case was recently settled for an undisclosed amount. There was an insurance company involved so most likely the plaintiff waived any exemplary damages, which are not covered by most insurance policies. No doubt the treble damages claim gave plaintiffs considerable leverage., 12 N.Y. 3d 8 (2009) - On a certified question from the Second Circuit Court, the Court of Appeals held that a party to a litigation could be held liable for statutory treble damages and the prevailing party’s attorney fees, based upon material misrepresentation of fact to a tribunal in a complaint, regardless of whether the Court believed in the misrepresentation or relied on it. The Court in a short but remarkably broad decision, traces the statute’s origins back to the first decades after Magna Carta, and lauds "the statute’s evident intent to enforce an attorney’s special obligation to protect the integrity of the courts and foster their truth-seeking function." -There was a long line of cases limiting the availability of treble damages to instances of "chronic extreme pattern of legal delinquency." They will not be cited here because that interpretation of the statute is no longer controlling in light of the cases below. 56 A.D. 3d 1 (1st Dept. 2008) – Insurance company stated a valid claim, inter alia, breach of fiduciary duty and legal malpractice, where the firm represented the plaintiff company, its managing general agent, and a competing company. The competing company was actively soliciting the business of three insured of the plaintiff company, allegedly with the assistance of the law firm. At the same time, the law firm allegedly advised the plaintiff company to extend coverage to claims made after the policy period, which the plaintiff company did. Then the competing company signed up the accounts. [Remarkably, there is no reported disciplinary action arising from this dual representation. If true, this fact pattern represents a clear violation of Rule 1.7], docket No 08-4966-cv (2d Circuit, 2010) – The originating attorney had performed no documented services, and had referred the case to the attorney of record on a 65%-35% fee split. No writing was given to the client (See, Rule 1.5, formerly DR 2-107). The attorney of record agreed to a 2/3 – 1/3 split of that 65% with trial counsel. The case was settled for $975,000 and came before Magistrate Judge Mann for an infant’s compromise. At the compromise hearing, the judge sua sponte questioned whether the referring attorney could share in the attorney’s fee. When the plaintiffs were questioned about the referring attorney they could not even recall his name. He could not show that he had performed any services in the litigation. The magistrate judge approved the fee application of the attorney of record and the trial counsel, but denied any portion of the attorney’s fees to the referring attorney and awarded their 35% to the plaintiff. District Judge Gleeson confirmed magistrate Judge Mann’s decision, and the Circuit Court of Appeals affirmed. - NYLJ 3/14/11 – (continued) The other reason that the Court assigned ethics counsel was that of approximately 10,000 plaintiffs represented by the attorneys, they decided not to count 56 of them who had opted out of the settlement, presumably because they had accepted VCF funds, unlike the other 9944. It was undoubtedly a coincidence that had the 56 been included in the group, required to approve the settlement, the 95% threshold would not have been reached and the entire settlement would have fallen apart. The court cited Rules 1.7(a) (2), 1.8(g) in its decision. This case should be considered in light of the long string of citations in Tavarez about fee forfeiture., 23 Misc. 3d 377 (Sup. Bronx, 2009) – Justice Victor, sua sponte, stayed a motion for summary judgment on the basis that representing the driver and three passengers in the same vehicle is not necessarily a good idea. In fact, it is presumed to be a conflict of interest notwithstanding waiver and consent by the clients. Even the "possibility" or "appearance" of conflict is prohibited. J. Victor also reminds us that even in the most routine auto accident case, the consequences of a conflict can include fee forfeiture. The parties were directed to appear for a hearing on the conflict issue. Thereafter, the summary judgment motion was decided and the case settled. The court record does not show that the plaintiff’s attorney was substituted out, so presumably they dodged the bullet. – Rules 1.7 ff. - the explanation, such as it is, appears to lie in the definition of "serious crime" in the statute. "Wounding" is a felony in Virginia, not in NY. Therefore automatic disbarment does not follow such a conviction. Never mind that the attorney was a serial wife beater. He wasn’t convicted in New York of a New York defined crime. This case appears to be a throwback to the days when it was legal to beat one’s wife with a stick smaller than one’s thumb. 86 A.D. 3d 330 (1st Dept. 2011) - 36–month suspension based on conviction for "serious crime" of domestic violence in Virginia ("wounding" his spouse!), and prior New Jersey misdemeanor conviction of similar misconduct. Those acts reflected adversely on his fitness to practice law, even if his acts of physical aggression did not occur in his professional life.- the lawyer who has an excuse for misconduct and expresses remorse, has a good chance to avoid the most extreme sanctions. Those who compound their misconduct with arrogance and denial are most likely to get their tickets punched. , 21 A.D. 2d. 229 (4th Dept., 2005) – attorney violated prohibition of granting financial assistance to a client beyond the expenses of litigation. The lawyers had arranged to establish their own funding company through Cellino’s cousin, and failed to disclose their financial interest in the company to borrowers. For these and numerous other ethical violations, including filing a false retainer statement, Cellino was suspended for six months and his partner Barnes was publicly censured.- the only distinction I can see from Vitelli is that Andrion’s victims were not his clients and he at least expressed remorse. Although the Committee apparently was unconvinced, they showed some mercy. 88 N.Y.3d 62, 2011 N.Y. Slip Op. 06076 (1st Dept. 2011) - Three-year suspension for attorney who had engaged in fraudulent conduct while obtaining mortgages in connection with his residence. Attorneys obtained three mortgages from two lenders by fraud over a period of three years by forging his wife's signature on two power-of-attorney (PA) forms without her knowledge or permission. He misappropriated the notary stamps of two colleagues, using stamps to notarize PA forms and forging notary signatures on PA forms, filed the forged PA forms with county clerk's office, obtained mortgages on jointly owned marital home without wife's knowledge or permission, forged wife's signature on mortgage documents and recorded the fraudulently obtained mortgages, and obtained mortgage funds from lenders based upon his intentional deception that he had authority to sign wife's name and to mortgage their jointly owned home. Unlike Vitelli, there were some mitigating factors at play such as his family’s illness. , 247 A.D. 2d 9 (2d Dep’t 1998) lv to appeal denied 92 N.Y.2d 815: The attorney was found to have notarized the forged signature of the client on litigation documents. There was insufficient evidence to prove that the attorney had forged it. The client also taped conversations with the attorney in which he asked the client for money to "pay off" a clerk to enter a default judgment based on the forged legal papers, and later falsely told the client that the sheriff had collected $25,000 on the bogus judgment. The attorney was disbarred. The attorney offered no evidence in mitigation. Note- The attorney later paid a significant malpractice settlement to his former client after a torturous litigation.., ____AD 3d _____, 2011 Slip Opinion [Sl. Op.] 07942 (2d Dep’t., Nov. 10, 2011) The attorney was found to have failed to filed 59 OCA retainer and/or closing statements. Filing them nunc pro tunc (probably after the investigation was underway) did not satisfy the Committee. More seriously, the Committee upheld a client’s complaint that the attorney had improperly used his influence over a former client to persuade the client to loan him $50,000, without interest, collateral, or even a writing. The decision does not report whether the loan was ever repaid. This charge had been rejected by the Referee, but was upheld by the Hearing Panel and the Committee as a violation of former DR 5-104(A) (Business dealings with a client- now Rule 1.8(A). The Committee’s opinion contains a good analysis of DR 5-104(A). Given the fact that the attorney had previously been censured for escrow irregularities, the Committee imposed a three-month suspension. Lesson- The Committee does not seem to care much whether OCA statements are filed. The leniency of the Referee in giving the attorney a pass on the loan, and of the Committee in imposing only a three-month suspension, is noteworthy. , 80 A.D. 3d 99 (1st Dep’t 2010) –attorney persuaded his brain-damaged medical malpractice client to sign a litigation funding agreement for the disbursements of his case at 15% per year. Not incidentally, attorney was heavily indebted to several litigation funding companies for hundreds of thousands of dollars. When the medical malpractice case finally settled in excess of $4 million, the attorney advised his client that the fee was one third of the net recovery, subject to court approval (scheduled medical malpractice fees are much less). The client was then asked to, and did, give the attorney a check for the amount the attorney requested as a fee, with the memo "gift." (A violation of Rule 1.8(b) on its face). Meanwhile, the attorney had assigned a $666,666 interest in the fees on another portion of the settlement to two funding companies, apparently in violation of a priority collateral agreement with a third. Litigation was commenced by the funding companies, of course. Justice Heitler ultimately denied the application for the increased fee, and directed the attorney to return the overcharge. He did not do so, and filed for bankruptcy. The attorney was disbarred. One reason given was his failure to show remorse, which seems superfluous to mention on this record. – Rule 8.4 (b)- This case is just the tip of the iceberg. There are three other pending related cases involving at least three law firms and various funding companies, all suing each other. -NYLJ 3/15/11 – former client files suit against funding company whose $30,000 advance has grown to as much as $800,000 over 7 years. He also named his former attorney, alleging that even though he had the client sign a letter stating that he had been advised that it "was not in his best interest" to take the advance, and he was doing so "against my lawyer’s advice," his lawyers had failed to explain to him that taking the loan was against his interest.- NYLJ 3/14/11-Court appoints ethics counsel to supervise WTC settlement citing concerns about financial pressures on plaintiff’s counsel who had borrowed very large sums of money to finance a 10,000 plaintiff litigation, raising issues whether the attorney’s financial interests could affect their judgment in recommending the settlement. (more on this matter below) –this practice is increasingly prevalent. Using litigation funding is neither illegal nor unethical in itself, but it seems to be at least a factor in a number of reported ethical and legal problems attorneys have gotten into. The lesson is not, don’t do it, but rather, don’t do it for the wrong reason. Rule 1.7 warns against representing a client if there is a significant risk that the lawyer’s own interests will be adversely affected. When you use litigation financing or your clients do, understand the risks to you, and explain the risks to them. , 82 A.D. 3d 126, 2011 WL 781209 (2d Dept., March 2011) –variation on an old theme: a medical report is not just a medical report when paying for the medical report gets you a referral from the clinic. The clinic guy testified that he was actually auctioning off cases to the highest bidder. Fortunately for the lawyer, the hearing panel did not credit this testimony, so the lawyer got off with just a three month suspension, despite having pleaded guilty to a violation of Judiciary Law §479. 225 AD 2d 250 (2d Dept. 1929) -the second oldest violation? Paying laymen to procure accident cases leads to two year suspension. The fact that it was a prevalent practice at the time does not change the general rule that "the lawyer who engages in ‘ambulance chasing’ disqualifies himself from the practice of law." – Rule 7.2, Judiciary Law §479, §482., 259 A.D. 2d 206; Matter of Spencer, 259 A.D. 2d 218; Matter of Ponzini, 242 A.D. 2d 142 (2d. Dept. 2000), modified 268 A.D. 2d 478 – In 1982, Maroney, a partner in the firm of Maroney, Spencer and Ponzini, handled two real estate closings for a legal secretary with whom he had a "close personal relationship." Maroney paid the secretary $14,000 more than had been deposited on her behalf, from the firm’s escrow account. The defalcation went undiscovered by Maroney’s partners for eight (8) years, until the account balance fell below zero in 1990. An investigation ensued, and the Appellate Division adopted the Committee’s recommendation that Maroney should be disbarred for converting escrow funds, and the other two partners should be disbarred for failing to oversee the recordkeeping of the escrow account. Disbarment was imposed on Spencer and Ponzini despite their previously unblemished records, and the fact that they had been the "innocent" partners in this debacle. On reargument, the Court modified Spencer and Ponzini’s discipline to one year’s suspension because there had been no financial loss to any clients, and Ponzini had in fact reported the theft when it was belatedly discovered. – Rule 5.1 says we are all responsible to oversee the escrow account – and the other lawyers in the firm.86 A.D. 3d 196 (2d Dept. 2011). Two year suspension, despite absence of harm to her clients and lack of venality, where attorney showed lack of basic understanding of her ethical obligations. She comingled personal and business funds with funds entrusted to her as fiduciary, failed to maintain required bookkeeping records for her attorney escrow account, issued checks from her escrow account prior to depositing client funds, failed to adequately supervise non–attorney employee, and improperly used a trade name ("Advanced Legal Services") to describe her firm. Lesson - this case was reported in Decisions this year. I include it because of the irony of the trade name "Advanced Legal Services." 78 A.D.3d 106 (1st Dept. 2010) –Disciplinary investigation was triggered when a $30,000 IOLA check was dishonored. Audit revealed that the attorney kept personal funds in the account as a "cushion" against overdrafts, and failed to keep an escrow account ledger. The shortfalls in the account were caused by making payments on account of his clients and returning fees to assist his clients financially. No clients lost money as a result of his conduct. As a result of his lack of sophistication, good intentions, and sincere remorse, he was censured. Lesson- the Committee must have really, really liked this guy. Apparently he was using his escrow account funds to help people out. - litigation funding company tried to collect on a fee advance to Kressner and was rebuffed by Westchester Surrogate’s Court. Other Surrogate’s courts have recognized such assignments and have provided for payment of funding companies in compromise decrees. , 72 A.D. 3d 112 (1st Dept., 2010) - Attorney had previous 3-year suspension in 1985 for misdemeanor conviction of illegally soliciting legal work by purchasing medical files of potential clients (108 A.D. 2d 334). In this instance, he admitted commingling his personal funds with client funds in his escrow account to conceal assets and income from the tax authorities. He only used his IOLA account for business and personal purposes. He utilized lending companies for advances on his legal fees and relied on their accounting records instead of keeping an escrow ledger. He was found guilty of professional misconduct immediately threatening the public interest, and placed on interim suspension pending conclusion of disciplinary proceedings, although there was no proof any clients had lost money up to that time. He subsequently resigned from the bar. Lesson- I wonder if he could have saved his license without the prior suspension?88 A.D.3d 380 (1st Dept., 2011) Court distinguishes Salo, and disbars attorney for intentional conversion of escrow funds. The Panel concluded that respondent did not show "extremely unusual mitigating circumstances" to avoid disbarment. In addition to finding that respondent failed to show a causal connection between his mental condition and his escrow violations, the Panel properly considered in aggravation that respondent's actions in obtaining loans to restore funds to his escrow account, his concealment of his invasion of the escrow account from the divorce court and his check kiting scheme designed to create the illusion of a greater amount of currency, all demonstrated that he knew at the time of his misconduct that his handling of the escrow account was wrong. Furthermore, although respondent cooperated with the Committee by admitting many of the Committee's charges, he first revealed his check kiting scheme during cross-examination at the hearing, showing that he had previously been less than candid with the Committee, as well as with the medical witnesses, and that his earlier testimony that he did not know the purpose of various money transfers was deceptive. Finally, respondent put at risk the funds of 21 clients by allowing his escrow account to have a negative balance on several occasions. Lesson- trying to BS the Committee makes it worse. - , 77 A.D. 3d 30 (1st Dept. 2010)-Attorney misappropriated third-party escrow funds, earmarked for a lien, from his IOLA account, later replacing the funds and paying the lien. He also issued a check to a client from the IOLA account made out to "cash." Psychiatric testimony established that the attorney had been suffering from severe PTSD, depression and alcohol abuse triggered by the 9/11 attacks; he had very limited access to his office due to its location for a long time; and he thought he was using a "cushion" of personal funds from the IOLA account, to pay himself. There was no evidence of any venal intent in the conversion of funds. Attorney was suspended for one year. Lesson- the way to avoid disbarment for conversion of escrow funds is to demonstrate remorse, give a credible excuse and persuade the Panel that you didn’t intend to steal money. – perspectives from the Hon. Lewis Lubell, a Supreme Court judge who was an active trial practitioner, and Joseph Brophy, a lawyer of 37 years’ experience, now administrative partner in a 25-lawyer general practice firm. When lawyers place their own interests above their clients’, they can fall into conflicts of interest, or worse. Most of the common violations of legal ethics involve simple dishonesty to some degree. An escrow account exists to safeguard the clients’ money, after all. Judiciary Law § 487 cause of action, where documents submitted by defendants in support of their motion established that some of the attorneys at defendant law firm engaged in intentional deceit. According to plaintiff, he was informed that he could not prevail in his underlying action but was never informed that the action already had been dismissed as a result of defendants' failure to file a timely note of issue. Subsequently, a member of defendants' firm telephoned plaintiff and told him the actual basis of the dismissal. It is unclear from the decision if there was any other evidence of deceit. Lesson - deceit on the part of some individual attorneys resulted on exposure of the entire firm to treble damages.

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