Court Opinion

ID: 7805591
Source: CourtListenerOpinion
Date Created: 2022-09-01 14:02:35.583951+00
Date Added: 2024-06-11T16:30:02.318217
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            DISTRICT OF COLUMBIA COURT OF APPEALS

                                No. 20-BG-682

        IN RE JOHN F. KENNEDY AND KATHLEEN A. DOLAN, RESPONDENTS.

               Suspended Member and Member of the Bar of the
                    District of Columbia Court of Appeals
                  (Bar Registration Nos. 413509 & 428925)

                        On Report and Recommendation
                   of the Board on Professional Responsibility
                           (Bar Docket No. 16-BD-42)

(Argued March 8, 2022                                  Decided August 25, 2022)

                        (Amended September 1, 2022) ∗

      Noah A. Clements, with whom Abraham C. Blitzer was on the brief, for
respondents.

        Sean P. O’Brien, Assistant Disciplinary Counsel, with whom Hamilton P.
Fox, III, Disciplinary Counsel, Myles V. Lynk, Senior Assistant Disciplinary
Counsel, and Rebecca A. Neal, Senior Assistant Disciplinary Counsel, were on the
brief, for petitioner.

      Before GLICKMAN and DEAHL, Associate Judges, and STEADMAN, Senior
Judge.

∗
  We granted Disciplinary Counsel’s August 25, 2022, unopposed motion to
consider clarification, principally relating to Kennedy’s nunc pro tunc status.
                                          2

      STEADMAN, Senior Judge: The Board on Professional Responsibility (“the

Board”) has recommended that respondent John F. Kennedy be disbarred for

intentional misappropriation, among other violations of the District of Columbia

Rules of Professional Conduct, in connection with the litigation and settlement of a

collective action during which his firm took 67% of the settlement award as

attorney’s fees without client authorization. The Board has also recommended that

respondent Kathleen A. Dolan be suspended for nine months for negligent

misappropriation and other ethics rules violations in connection with the same

litigation and settlement, with reinstatement subject to certain conditions. 1 We adopt

the Board’s recommendations.

                               I.     Factual Summary

      Respondents are a married couple and the sole attorneys in their law firm,

Kennedy & Dolan. In the early 2000s, current and former security officers at Inter-

Con Security Systems (“Inter-Con”) hired respondents to sue their employer for

      1
        On consideration of the Board’s report and recommendation, we ordered on
February 23, 2021, that respondents show cause why they should not be suspended
pending final disposition of this proceeding. D.C. Bar R. XI, § 9(g). Finding that
Kennedy did not make the showing required, we suspended him on May 4, 2021,
pending final disposition of this proceeding. Id. We did not suspend Dolan because
her recommended suspension was for less than one year. Id. Kennedy timely filed
the requisite affidavit under D.C. Bar R. XI, § 14(g) on June 10, 2021.
                                          3

violations of the Fair Labor Standards Act (FLSA) and the D.C. Wage Payment and

Collection Law, based on Inter-Con’s practice of docking its employees fifteen

minutes’ worth of wages if they arrived even a minute or more late to work and its

failure to pay minimum wages. Respondents pursued the lawsuit in arbitration as a

collective action, and they mailed over 100 notices and opt-in forms to potential

plaintiffs. The notice stated that those who joined the lawsuit would “not be required

to pay attorney’s fees directly. The plaintiffs’ attorneys will receive a part of any

money judgment entered in favor of the class.” Over 100 claimants opted in.

      A few years into the litigation, respondents initiated settlement negotiations

by sending Inter-Con a settlement offer for $700,000.          Respondents had not

discussed this offer with any of the claimants. It was not until this point that

respondents made efforts to enter into attorney-client agreements with each of the

claimants. These agreements said that respondents would “be paid at 40% of the

recovery or at an hourly rate pursuant to the applicable Adjustable [sic] Laffey

Matrix in Washington, DC at [the attorneys’] choosing upon recovery or upon

application to the arbitrator for payment of attorney[’]s fees and costs pursuant to

applicable statutes.”
                                          4

      Kennedy held a client meeting shortly thereafter, at which he informed the

claimants that he had begun settlement negotiations, and he asked them to sign

authorization forms to allow him to settle for “as much as he believes is reasonable

for any and all claims [each claimant] may have had with Inter-Con arising from this

action and give him the power to sign any and all papers [and] releases for

[him/her].” He also sent letters to the claimants who did not attend the meeting,

telling them to sign the authorization form or “risk being excluded from the case

and/or not getting anything from it.” He did not provide any of the claimants with

details of the settlement negotiations.

      Kennedy subsequently entered into a settlement agreement with Inter-Con for

$320,000 (later reduced to $310,000). The agreement stated that “each side agree[d]

to separately bear all of its own costs and attorney’s fees” and that the settlement

was “inclusive of attorney[’s] fees and costs.” The agreement also provided that

respondents would instruct Inter-Con on how much of the settlement fund to send

each client and how much of the fund to send respondents as attorney’s fees; the

agreement did not specify any amounts or percentages related to how the lump sum

would be divided. Kennedy signed each client’s name individually to the agreement,

with the authority to do so from the settlement authorization form the clients had

signed.
                                          5

      Kennedy determined how much of the settlement money each client would

receive based on a formula he devised unilaterally that included the length of the

client’s employment at Inter-Con and whether or not he or she testified in a

deposition for the case. He advised Inter-Con how much to pay each client, and

Inter-Con sent each client a check for that amount. He also advised Inter-Con how

much to pay Kennedy & Dolan in attorney’s fees, and Inter-Con sent the firm a check

for that amount. In total, the clients received about 33% of the total settlement

($100,086.68), and Kennedy & Dolan received the remaining 67% as fees

($209,913.32). The clients were not made aware of the total settlement award

amount nor of the amount of attorney’s fees respondents received. Each client was

only aware of the final amount he or she individually received and did not receive

any sort of accounting of the distribution of the settlement funds. The Hearing

Committee found, based on Kennedy’s testimony during the disciplinary

proceedings, that “Kennedy deliberately concealed the settlement details because he

believed disclosing the individual settlement amounts and the amount of

[r]espondents’ fees would put the settlement at risk.”

      Disciplinary Counsel charged Kennedy and Dolan with two counts of

misconduct arising from the Inter-Con litigation. Count I related to respondents’
                                          6

failure to consult their clients on the details of the settlement agreement, and Count

II related to respondents’ misappropriation of client funds, including taking 67% of

the settlement proceeds as attorney’s fees without their clients’ knowledge or

approval. Evidence presented during the disciplinary proceedings indicated that

Kennedy was principally involved in the client communications and settlement

negotiations and that Dolan had limited involvement in the litigation, though she

managed the trust account and was aware of the terms of the settlement agreement.

      Regarding Count I, the Hearing Committee found that both respondents

violated Rules 1.2(a) (failure to abide by clients’ decisions and consult clients),

1.4(a-c) (failure to communicate adequately with clients), 1.5(b) (failure to

communicate the basis or rate of attorney’s fees within a reasonable time after

commencing representation), and 1.8(f) (failure to obtain informed written consent

of an aggregate settlement of claims for multiple clients), and that Kennedy alone

violated Rule 8.4(c) (dishonesty). Regarding Count II, the Hearing Committee

found that both respondents violated Rules 1.5(a) (unreasonable fee), 1.15(a)

(misappropriation of client funds and recordkeeping violations), and 1.15(c) (failure

to notify clients promptly of receipt of funds). The Hearing Committee found that

Kennedy’s Rule 1.15(a) misappropriation was intentional, due to the evidence of

Kennedy’s orchestration of the scheme to keep the clients unaware of the details of
                                            7

the settlement agreement and its distribution, and that Dolan’s misappropriation was

only negligent, due to the lack of evidence of Dolan’s direct knowledge of, or

participation in, the scheme.

      The Hearing Committee Recommended that Kennedy be disbarred and that

Dolan be suspended for a period of nine months with reinstatement conditioned on

a demonstration of fitness, including a required continuing legal education course

on law practice management and accounting.            The Board agreed with and

incorporated the Hearing Committee’s findings in its Report, and it agreed with most

of the Committee’s conclusions of law and recommended sanctions, with the

exception of the Committee’s recommendation that Dolan be required to prove

fitness. Instead of the fitness requirement, the Board recommended that Dolan be

required to take a practice management course, complete six hours of continuing

legal education on trust account management, and serve one year of probation under

the supervision of a practice monitor, with her failure to cooperate with the practice

monitor resulting in revocation of her probation with a requirement that she

demonstrate fitness before reinstatement.

                                II.   Standard of Review
                                           8

      Under D.C. Bar Rule XI § 9(h)(1), this court “shall accept the findings of fact

made by the Board unless they are unsupported by substantial evidence of record,

and shall adopt the recommended disposition of the Board unless to do so would

foster a tendency toward inconsistent dispositions for comparable conduct or would

otherwise be unwarranted.”       However, this court reviews the Board’s legal

determinations and determinations of ultimate fact de novo. See In re Samad, 51

A.3d 486, 495 (D.C. 2012) (per curiam).

                                    III.   Analysis

      Though we recognize that misappropriation is a controlling issue here because

a finding of intentional misappropriation, with rare exceptions, results in automatic

disbarment, see Matter of Addams, 579 A.2d 190, 191 (D.C. 1990) (en banc), the

issues surrounding respondents’ failure to consult their clients on the details of the

settlement agreement lay a foundation for our discussion of the misappropriation

issue. Therefore, our analysis proceeds, as the Board’s did, first with a discussion

of Count I and then of Count II. We conclude with a brief discussion of sanctions. 2

      2
       Respondents filed a motion to dismiss the entire proceeding based on Board
Rule 2.9(b), which provides that Disciplinary Counsel shall not contact a
respondent’s client when the client is not a complainant without first obtaining the
respondent’s consent, unless “Disciplinary Counsel believes the client has
knowledge of a matter under investigation in a docketed case.” We agree with the
                                            9

                                     A.    Count I

          Count I relates to respondents’ communication – or lack thereof – with their

clients regarding the contents of the settlement agreement and regarding

respondents’ payment to themselves of attorney’s fees out of the settlement award.

Respondents take issue with several aspects of the Board’s findings related to Count

I, though they primarily challenge the Board’s determination that they violated Rule

1.8(f) by failing to obtain their clients’ informed consent to enter into the settlement

agreement and Rule 8.4(c) by inducing the clients to sign a settlement authorization

form. 3

Board that the Disciplinary Counsel did not violate that rule under the circumstances
respondents reference.
          3
         Additionally, respondents take issue with the Board’s determination that
respondents violated Rules 1.2(a), 1.4(a-c), and 1.5(b), all of which also relate to
respondents’ failure to communicate to the clients the terms of the settlement
agreement and the amount of attorney’s fees they took from the award. Respondents
argue that they adequately communicated that information to the clients, but we
agree with the Board that respondents’ communication to each client individually
regarding the amount he or she would receive and notice to the clients that Inter-Con
would pay their attorney’s fees was insufficient to satisfy the rules’ requirements
that attorneys inform and consult their clients regarding their representation, share
settlement information with their clients, and communicate to their clients the basis
or rate of attorney’s fees.
                                            10

             1. Rule 1.8(f)

      Rule 1.8(f) provides, “A lawyer who represents two or more clients shall not

participate in making an aggregate settlement of the claims for or against the clients

. . . unless each client gives informed consent in a writing signed by the client after

consultation . . . .” Respondents take issue with the Board’s determination that they

violated Rule 1.8(f), arguing that they fell under a class action exception to that rule. 4

      4
        Respondents point to Comment 12 to Rule 1.8, including the final sentence,
as creating this exception. That Comment in full provides:

              Differences in willingness to make or accept an offer of
              settlement are among the risks of common representation
              of multiple clients by a single lawyer. Under Rule 1.7, this
              is one of the risks that should be discussed before
              undertaking the representation, as part of the process of
              obtaining the clients’ informed consent. In addition, Rule
              1.2(a) protects each client’s right to have the final say in
              deciding whether to accept or reject an offer of settlement
              and in deciding whether to enter a guilty or nolo
              contendere plea in a criminal case. The rule stated in
              paragraph (f) of this rule is a corollary of both Rules 1.7
              and 1.2(a), and provides that, before any settlement offer
              or plea bargain is made or accepted on behalf of multiple
              clients, the lawyer must inform each of them about all the
              material terms of the settlement, including what the other
              clients will receive or pay if the settlement or plea offer is
              accepted. Lawyers representing a class of plaintiffs or
              defendants, or those proceeding derivatively, must comply
              with applicable rules regulating notification of class
              members, compensation of class counsel, and other
              procedural requirements designed to ensure adequate
              protection of the entire class.
                                          11

      Respondents do not provide any support in our case law for the existence of

an exception to Rule 1.8(f) for attorneys representing clients in class actions. Even

if we were to recognize such an exception, we are unpersuaded that respondents can

take advantage of it. Respondents contend that an exception to Rule 1.8(f) should

cover not just Rule 23 class actions but also collective actions. We disagree. If we

recognized an exception to Rule 1.8(f) for certified class actions, it would be because

class counsel may not have a full attorney-client relationship with each class member

and because Rule 23 contains requirements, such as notice and court approval, that

protect class members from abusive settlement practices by class counsel. See

Super. Ct. Civ. R. 23(e). By contrast, respondents had individual attorney-client

agreements with each Inter-Con claimant, and the Inter-Con litigation was not

governed by those Rule 23 requirements. The absence of those safeguards to protect

collective action clients from the unfair or unethical settlement of their claims

necessitates maintaining the protections of Rule 1.8(f) for collective actions such as

the one in this case. 5 Therefore, we agree with the Board that respondents were still

      5
         Other jurisdictions have also determined that an exception to the aggregate
settlement rule does not apply to non-class action cases because of the lack of Rule
23 safeguards. See, e.g., Knisley v. City of Jacksonville, 497 N.E.2d 883, 887-88
(Ill. App. Ct. 1986), appeal denied, 505 N.E.2d 353 (Ill. App. Ct. 1987) (noting the
distinction for the purposes of the aggregate settlement rule between class action
suits and joinder actions because court approval of settlements is required in class
actions and not in joinder actions); Tax Auth., Inc. v. Jackson Hewitt, Inc., 898 A.2d
                                          12

bound to comply with Rule 1.8(f). Having failed to obtain their clients’ informed

written consent to make an aggregate settlement of their claims, respondents violated

Rule 1.8(f).

               2. Rule 8.4(c)

      The Board found that Kennedy violated Rule 8.4(c) when he intentionally

concealed the terms of the settlement agreement from the clients and when he told

the clients they risked being excluded from the case if they did not sign the settlement

authorization form. 6 Rule 8.4(c) provides, “It is professional misconduct for a

lawyer to . . . [e]ngage in conduct involving dishonesty, fraud, deceit, or

misrepresentation.”    Respondents argue that Kennedy did not violate this rule

because the language he used to get the clients to sign the settlement form was

merely to “stimulate any response” from clients who had been previously

unresponsive. Respondents do not address whether Kennedy violated Rule 8.4(c) in

concealing the terms of the settlement agreement.

512, 514-15, 522 (N.J. 2006) (determining that the aggregate settlement rule applied
to a non-class action lawsuit pursued collectively on behalf of 154 plaintiffs).
      6
        The Board did not find that Dolan violated Rule 8.4(c) because she was not
involved enough in the relevant communications with the clients. Neither party
challenges this determination, and we agree.
                                          13

      We find respondents’ only argument unpersuasive: an admission that the

language used was meant to stimulate a response from the clients only supports the

determination that it was deliberately misleading and deceitful. Coupled with the

Hearing Committee’s finding that Kennedy intentionally concealed the settlement

terms from his clients in an effort to prevent them from putting the settlement at risk,

the facts support the Board’s determination that Kennedy violated Rule 8.4(c).

                                   B.     Count II

      Count II relates to respondents’ keeping for themselves 67% of the settlement

award without client authorization, and respondents primarily challenge the Board’s

determination that this constituted misappropriation. Misappropriation has occurred

if the following three elements are met: “(1) . . . client funds were entrusted to the

attorney; (2) . . . the attorney used those funds for the attorney’s own purposes; and

(3) . . . such use was unauthorized.” In re Travers, 764 A.2d 242, 250 (D.C. 2000).

Because it is undisputed that respondents took the funds in question to use for their

own purposes, the disputed elements here are the first and third.
                                          14

      Respondents argue that the attorney’s fees they received from the settlement

funds cannot be considered “entrusted client funds” because the $210,000 check they

received from Inter-Con was made out to them and was specifically for attorney’s

fees; therefore, the clients had no interest in that portion of the funds. They take

issue with the Hearing Committee’s reasoning, which the Board endorsed, that the

“economic substance” of the settlement agreement was the “equivalent of a

settlement check jointly payable to a lawyer and client,” arguing that such a theory

would be “unprecedented.”       Respondents also argue that they could not have

misappropriated the funds they took as attorney’s fees because they were entitled to

those fees under the FLSA.

      Respondents’ arguments are unpersuasive. The Hearing Committee found

that respondents directed Inter-Con to pay them out of the settlement award – funds

in which the clients surely had an interest. Respondents may have had an interest in

the funds as well, but their interest was in a yet-to-be-determined portion as

attorney’s fees. As this court reasoned in In re Haar,

             [I]t is important to keep clearly in mind the distinction
             between a right to payment and a right to particular
             property. When a lawyer performs legal work for another,
             the client of course has an obligation to pay the lawyer’s
             fee. But absent agreement or a statutory lien, the lawyer
             has no right to any particular property of the debtor-client,
             including the proceeds of litigation. The lawyer as an
                                          15

             unsecured creditor has no intrinsic right of self-help, and
             even where a specific property interest – a charging lien –
             is created, the right to self-help is strictly limited by law
             and, in the lawyer’s case, by the rules of professional
             conduct.

698 A.2d 412, 424 (D.C. 1997). Thus, respondents had no right to help themselves

to the settlement funds without authorization from the clients to take an agreed upon

amount of the funds as attorney’s fees; until such an agreement was reached, the

entire settlement award was client funds. And because the settlement agreement

provided that respondents would unilaterally determine where the money would go

and how it would be divided, these client funds were “entrusted” to respondents. 7

      With regards to whether the FLSA entitled respondents to the funds they took,

the statute only provides that “[t]he court in [an FLSA] action shall, in addition to

any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney’s fee

to be paid by the defendant . . . .” 29 U.S.C. § 216(b). The statute does not state, or

even imply, that an attorney is entitled to unilaterally take any particular portion of

a settlement award resulting from the out-of-court settlement of an FLSA claim;

      7
         By signing the agreement on behalf of each of the clients, respondents
actually entrusted the funds to themselves on behalf of their clients.
                                          16

rather, it pertains specifically to court-awarded attorney’s fees that accompany court-

awarded judgments. 8

      Having established that the portion of the settlement award respondents took

as attorneys’ fees were “entrusted client funds,” the remaining question is whether

the clients authorized respondents to take the funds they took. We agree with the

Board that the answer must be no. Respondents made no effort to get the clients’

consent to take the fees they actually took: they merely sent each client his or her

own check and quietly kept the rest for themselves. 9 The Hearing Committee found,

based on Kennedy’s own admission at the hearing, that he did not inform the clients

of the settlement details because he feared the clients would put the settlement at

risk if they knew that information. Therefore, the clients could not have provided

informed consent for respondents to take what they took of the settlement as fees. 10

      8
        Nor does the statute provide respondents a viable defense to Rule 1.5(a)
(unreasonable fees). Respondents point out that attorney’s fees awards in FLSA
cases can be large relative to the often small amount of each individual claim, see
Fegley v. Higgins, 19 F.3d 1126, 1134-35 (6th Cir. 1994), but no determination of
attorney’s fees was made by the court here, and respondents do not present any
analysis that would justify the entire amount of the fee.
      9
       Respondents point out the asserted absence of any client complaints, but this
can hardly substitute for affirmative approval in the circumstances here.
      10
         Respondents do not argue that they derived consent from the provision in
the attorney-client agreements that they would be paid 40% of the recovery or at an
hourly rate pursuant to the Laffey Matrix. Even if they did, respondents would have
                                           17

      Disbarment is the presumptive sanction for misappropriation unless “the

misconduct resulted from nothing more than simple negligence.” See Matter of

Addams, 579 A.2d 190, 191 (D.C. 1990) (en banc). In cases where an attorney took

client funds inadvertently or based on a good faith belief that he or she was

authorized to do so, this court usually finds only negligent misappropriation. See,

e.g., Haar, 698 A.2d at 422; In re Choroszej, 624 A.2d 434, 436 (D.C. 1992) (per

curiam). As the findings here demonstrate, Kennedy knew that he did not have the

clients’ authorization to take the fees he took from the settlement funds, having not

even attempted to obtain such authorization, and he does not allege that he took the

fees inadvertently. “Good faith” cannot encompass a belief that an attorney was

entitled to unilaterally take whatever amount of a client’s settlement award in

attorney’s fees as the attorney saw fit, without consulting the client as to that amount.

      Additionally, this court has found relevant in negligent misappropriation cases

whether an attorney attempted to conceal his or her conduct. See, e.g., Travers, 764

A.2d at 249 (noting that the attorney was in “no way trying to mislead [the court] or

conceal his conduct”); Haar, 698 A.2d at 422 (noting that the attorney “did not

nevertheless misappropriated the difference between 67% and the amount that would
have resulted from that fee arrangement.
                                         18

attempt to conceal his conduct from his client” and “informed her of what he

proposed to do before withdrawing the” money). By contrast, the Board in this case

determined that Kennedy “deliberately did not share settlement details with clients

to ensure that the settlement would be finalized.” We must agree with the Board

that Kennedy’s conscious actions throughout the settlement process rendered a

conclusion of intentional misappropriation requiring disbarment. With respect to

Dolan, neither party challenges the Board’s determination that Dolan committed

only negligent misappropriation, and we agree that the evidence supports that

determination.

                                  C.    Sanctions

      Because we determine that Kennedy engaged in intentional misappropriation

and see no extraordinary circumstances that mitigate his misconduct, 11 we agree with

the Board’s recommendation that he be disbarred. See Addams, 579 A.2d at 191.

We also find the Board’s recommended nine-month suspension for Dolan to be

      11
          Respondents urge us to apply any ruling in their case prospectively because
of the “new” and “novel” applications of the misappropriation standard and of Rule
1.8(f) to collective actions. However, we have simply applied the well-established
standards for misappropriation and the plain text of Rule 1.8(f). We see no reason
to apply this ruling prospectively.
                                         19

consistent with other dispositions for comparable conduct, and neither party

specifically challenges Dolan’s sanction. See, e.g., In re Herbst, 931 A.2d 1016,

1016-17 (D.C. 2007) (per curiam) (ordering a nine-month suspension for an attorney

who committed negligent misappropriation as well as multiple other rule violations);

In re Bailey, 883 A.2d 106, 123 (D.C. 2005) (same). Respondents also do not

challenge the Board’s recommendation that Dolan be required to comply with

certain conditions of reinstatement and that her failure to comply with the conditions

will result in the revocation of her probation and imposition of a requirement that

she demonstrate fitness before reinstatement. 12

                                      * * * *

      12
         In addition, having recommended a showing of fitness by both respondents
before reinstatement, the Hearing Committee recommended that the issue of
disgorgement by respondents of at least a portion of the attorney’s fees by payment
to the Clients’ Security Fund be addressed during reinstatement proceedings, as is
common. See In re Hager, 812 A.2d 904, 923 (D.C. 2002). In rejecting a showing
of fitness (except in the event of breach) in lieu of imposing a number of conditions
to Dolan’s automatic reinstatement, the Board did not include a disgorgement
requirement, which we note would place that initial burden on Dolan, the lesser
offender. We therefore leave that issue to be determined as part of any reinstatement
proceedings on fitness that arise in due course.
                                         20

      It is therefore ORDERED that John F. Kennedy is disbarred from the practice

of law in the District of Columbia, nunc pro tunc to May 4, 2021.13 It is FURTHER

ORDERED that Kathleen A. Dolan is suspended from the practice of law in the

District of Columbia for a period of nine months and that, as a condition of

reinstatement to membership in the Bar, she shall complete a practice management

course, six hours of continuing legal education on trust account management, and

one year of probation under the supervision of a practice monitor, with her failure to

cooperate with the practice monitor resulting in revocation of her probation and

imposition of a requirement that she demonstrate fitness before reinstatement.

Respondent Dolan’s attention is called to the requirements of D.C. Bar R. XI, § 14

and the relationship of compliance therewith to eligibility for reinstatement as

provided in D.C. Bar R. XI, § 16(c).

      13
           See note 1 supra.