Opinion ID: 2603915
Heading Depth: 1
Heading Rank: 3

Heading: The Montgomery Matter.

Text: On March 8, 1972, William C. Montgomery entered into a written contingent fee contract with the respondent to recover damages for injuries sustained in an automobile accident which occurred in May 1971, in the course of his employment. Montgomery received Workmen's Compensation benefits through Liberty Mutual Insurance Company in the amount of $10,883.95. The insurance company notified Montgomery of its right to subrogation. The contingent fee contract provided that respondent was to receive 25 percent of the amount recovered as a result of a settlement prior to suit, 331/3 percent of a settlement prior to or during trial and 50 percent of all proceeds received after an appeal. An action was filed against Yellow Cab Company. Immediately prior to trial in September 1973, after lengthy negotiations, Yellow Cab Company offered to settle for $50,000. Montgomery accepted the offer. As an inducement to his client to accept the settlement offer, the respondent agreed to reduce his fee from $16,666 to $10,000. Respondent obtained the endorsement of Mr. and Mrs. Montgomery on the settlement check and gave them his personal check for $30,000, retaining $20,000. A dispute arose between the respondent and his clients, primarily over whether he was to retain $10,000 for his fee or whether, after paying the subrogation claim of Liberty Mutual and the balance of doctor and hospital bills, the remainder would constitute his fee. It was the contention of respondent that he was to attempt to compromise the Liberty Mutual claim, but pay the balance due the doctor and the hospital. To the extent the $10,000 retained for settling these claims fell short of his ability to liquidate the claims, the Montgomerys were to pay. The Montgomerys took the opposite view. The Hearing Committee resolved this issue in favor of the respondent, pointing out, however, that it would have been better practice for him to have put the subsequent fee agreement in writing. The Montgomerys paid the doctor and hospital bills but did not advise the respondent. Respondent's efforts to compromise failed, and he paid all but $1,271.25 of the subrogation claim in installments of $5,000, $3,000, $1,000 and $612.70. Respondent made the final payment of $612.70 on August 24, 1974. At that time, the respondent advised Liberty Mutual that it would have to look to the Montgomerys for payment of the balance since the total of $9,612.70 represented all of the funds in his hands for payment of their claim. In the meantime, the Montgomerys moved to Nebraska and left no forwarding address with the respondent. In May 1976, Liberty Mutual sued Mr. Montgomery for the $1,271.25 balance, but ultimately accepted approximately one-half in full settlement of its claim. The Hearing Committee concluded that the respondent did not segregate the trust funds being held for the use and benefit of the Montgomerys from his regular business account and was, therefore, in violation of DR 9-102(A). This conclusion is followed by this finding: Although he ultimately expended all of those funds on behalf of and for the benefit of the Montgomerys and although there may have been some justification for the piecemeal or periodic payments to Liberty Mutual Insurance Company consistent with the respondent's alleged efforts to compromise its claim, it is the Hearing Committee's opinion that the respondent should have immediately paid all monies being held by him for the use of the Montgomerys to Liberty Mutual Insurance Company when it was determined that a compromise was impossible. Furthermore, it is clear from the respondent's bank records that he did not retain the funds of the Montgomerys in a trust account as required by DR 9-102(A). His regular law firm account into which the funds were deposited did not at all times during which the funds were held by the respondent, contain a balance equal to the funds belonging to the Montgomerys; indeed, at one time during said period the account was substantially overdrawn. The Hearing Committee necessarily concludes, therefore, that the respondent used funds held for the use of his clients for his own purposes and could not have, upon demand, at all times, produced such funds. Such conduct warrants substantial discipline. It is clear from the records introduced by the Attorney General that the $50,000 received from the settlement went into the firm's general business account and that all of the funds paid in connection with the settlement were paid out of the same account.