Court Opinion

ID: 2716484
Source: CourtListenerOpinion
Date Created: 2014-08-08 17:13:28.290912+00
Date Added: 2024-06-11T09:55:17.937817
License: Public Domain

CORRECTED: NOVEMBER 28, 2012
                                                          TO BE PUBLISHED

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                               2012-SC-000413-KB               Pkg
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KENTUCKY BAR ASSOCIATION                                                    MOVANT

V                              IN SUPREME COURT

EDWARD L. JACOBS                                                       RESPONDENT

                              OPINION AND ORDER

      Pursuant to SCR 3.370, 1 Respondent, Edward L. Jacobs, KBA Member

No. 35408, seeks review of the Findings of Fact, Conclusions of Law, and

Recommendations of the Board of Governors of the Kentucky Bar Association

entered July 13, 2012. Respondent was admitted to the practice of law in

Kentucky on October 22, 1980, and his bar roster address is 26 Audubon

Place, Fort Thomas, Kentucky, 41075.

      The Board found that Respondent violated: Count I: SCR 3.130-1.5(a) 2

(requiring that a lawyer charge a reasonable fee); Count II: SCR 3.130-1.15(a)

(requiring a lawyer to hold his funds separate from his clients' funds); and

Count III SCR 3.130-1.15(b) (requiring the prompt delivery of funds or property

       I SCR 3.370(8) states that "the Respondent may file with the Court a notice for
the Court to review the Board's decision within thirty (30) days after the Board's
decision is filed with the Disciplinary Clerk, stating reasons for review, accompanied
by a brief supporting his/her position on the merits of the case."
      2All references to the Model Code of Professional Conduct refer to the version
and Supreme Court Rule number in effect at the time the alleged violations occurred.
to whoever is entitled to it and to provide a full accounting if requested), and

recommended that he be suspended from the practice of law for thirty days and

attend remedial ethics training. After reviewing the record, we agree with the

Board's findings, adopt their recommendations, and reject Respondent's

arguments in opposition to the Board's determinations and conclusions.

     I. FACTUAL AND PROCEDURAL BACKGROUND: KBA FILE 13262

      All of the charges in this case concern Respondent's conduct while acting

as both Executor and Attorney for the Estate of Sylvia Smith. On April 26,

1999, Smith executed a Will prepared for her by Respondent. Article VI of the

Will nominated Respondent to serve as Executor of the Estate; no provision of

the Will, however, provided that he was to serve as Attorney for the Estate. On

April 20, 2001, Smith died from injuries suffered in a motor vehicle accident

while a passenger in a motor vehicle she owned, which was being operated by

her daughter. On November 2, 2001, Respondent filed the Will for probate in

Campbell District Court, initiating Case Number 01-P-00543. The court

appointed Respondent as the Executor of the Estate.

       On December 26, 2002, Respondent mailed a letter to the heirs in

 response to their inquiries regarding the Estate. Respondent advised them that

 he would be acting as both the Attorney and the Executor for the Estate; that

 his fee would be equal to five percent of the assets passing through the Estate;

 that he would be entitled to his hourly rate of $200.00 for defending any claims

 against the Estate; and that normally hiS fee is taken at the beginning of his

 representation of an estate.
      Five claims were filed against the Estate. Three of the claims were from

heirs of the Estate for reimbursement of various expenses incurred for the

benefit of the decedent. Two of the claims were allowed. The fourth claim was

filed by a passenger of the other vehicle involved in the traffic accident that

resulted in the death of the decedent. This claim was ultimately denied. The

final claim related to a condemnation action by the Kentucky Transportation

Cabinet regarding land owned by the decedent. As a result of a settlement of

this claim the Estate received $220,000.00.

      During the administration of the Estate, Respondent wrote seven checks

to himself from Estate funds. These checks Were listed in the Disbursements

section of the Final Settlement of the Estate. The listed total receipts for the

Estate were    469,227.71. The seven disbursements from Estate funds to the

Respondent were identified in the Final Settlement as follows:

       Date         Amount       Description

       11/13/01 S5,500.00 Edward L. Jacobs Fee

       12/14/01 $4,500.00 Edward L. Jacobs Fee

       01/11/02 $645.40          Edward L. Jacobs Fee (attorney fee thru October
       18, 2001)

       3/29/02 $5,000.00 Edward L. Jacobs Fee

       06/04/02 $5,000.00 Edward L. Jacobs Fee

       06/17/02 $20,000.00 Edward L. Jacobs Fee

       08/01/02 $10,000.00 Edward L. Jacobs Fee

       The 50,000.00 in fees collected by Respondent in his capacity as

 "Attorney and Executor for the Estate" totals more than ten percent of the total

                                           3
value of the Estate. The Respondent did not deposit any of these disbursed

funds into an account separate from his own personal funds, but rather, he

treated them as earned at the time of disbursement. Moreover, Respondent did

not request approval from the court for the 5645.40 disbursement to himself

from Estate funds for attorney fees he claimed were owed to him by decedent

for work done prior to her death. Nor did Respondent seek or obtain approval

from the court to serve in the dual capacity of both Attorney and Executor for

the Estate; nor did he seek court approval for any of the fees distributed to

himself. .Nor did the Respondent submit any proof to the court for

compensation predicated on "unusual or extraordinary" services to the Estate

as set forth in KRS 395.150(2).

      On September 17, 2003, an heir of the Estate wrote to Respondent on

behalf of all the heirs requesting an "itemized bill to date as to your fees

reflected in the Disbursements." In response to this request, Respondent

provided a document captioned "Sylvia Smith Estate Client Service Record."

That document provides brief descriptions of activities and lists a date for each

activity from November 1, 2001 to August 25, 2003. There are no entries

reflecting the time devoted to any of the activities and no specific indications

reflecting whether any activity was conducted in the capacity of Executor or

Attorney for the Estate.

       Heirs of the Estate of Sylvia Smith challenged the fees charged to the

 Estate by the Respondent after the Final Settlement was filed. By Agreed Order

                                          4
dated August 11, 2004, the Respondent agreed to return to the Estate the

amount of $20,000.00.

   A. KBA Proceedings

      As a result of Respondent's representation of the Estate of Sylvia Smith,

the KBA Inquiry Commission charged Respondent with three counts of

professional misconduct as follows:

      Count I Violating SCR 3.130-1.5(a), which provides that "[a] lawyers' fee
               -

shall be reasonable." The Commission alleged that Respondent violated this

rule by collecting fees from the Estate as both its Attorney and Executor

without seeking approval from the court, and by collection of fees of more than

twice the maximum authorized by KRS 395.150(1) as compensation for an

Executor based upon an estate value of $469,277.71, including his claims for

attorney services not authorized in the Will or by the court. In addition, the

Commission alleged that he violated this rule by collecting from the Estate,

without seeking or obtaining approval from the court, a fee of $645.40 for pre-

death legal services of the decedent.

       Count II -Violating SCR 3.130-1.15(a), which provides that "[a] lawyer

 shall hold property of clients or third persons that is in the lawyer's possession

 in connection with a representation separate from a lawyer's own property."

 The Commission alleged that Respondent violated this rule by not depositing

 advanced, unearned, fee payments from the Estate in an account separate

 from Respondent's own property.

                                          5
      Count III— SCR 3.130-1.15(b), which provides that "[u]pon receiving

funds or other property in which a client or third person has an interest, a

lawyer shall promptly notify the client or third person. Except as stated in this

rule or otherwise permitted by law or by agreement with the client, a lawyer

shall promptly deliver to the client or third person any funds or other property

that the client or third person is entitled to receive and, upon request by the

client or third person, shall promptly render a full accounting regarding such

property." The Commission alleged that Respondent violated this Rule by

failing to provide an itemized accounting of the fees he charged to the Estate

after he received a written request from the heirs for such an accounting.

      As a result of the above alleged violations, the Office of Bar Counsel

sought a two-year suspension from the practice of law. Respondent timely filed

an answer to the charges, and Frank H. Warnock was appointed by the Chief

Justice to preside over the case. On May 4, 2011, an evidentiary hearing was

held at which the Office of Bar Counsel and Respondent presented testimony

and exhibits in support of their respective positions. On August 23, 2011, the

trial commissioner filed his Report with the Disciplinary Clerk in which he

 recommended that Respondent be found guilty (in part) of Count I and not

 guilty of the other two counts.

       As to Count I, the trial commissioner determined that Respondent had

 indeed violated the excessive fee rule pursuant to the five percent limitation

 contained in KRS 395.150 and the separate compensation provisions

 applicable to one who serves as both the Executor and Attorney of an Estate
pursuant to Morgan v. Meacham, 130 S.W.2d 992 (Ky. 1938). The trial

Commissioner further determined, however, that because of the de minimus

amount involved, and the undisputed validity of the debt, it was not ethically

necessary for Respondent to have sought court approval for the 645.40 in fees

he paid himself for services rendered prior to Smith's death.   Cf., Kentucky Bar

Ass'n v. Profumo, 931 S.W.2d 149 (Ky. 1996).

      The trial commissioner found Respondent not guilty under Count II

because he determined, without citation, that "an Executor's commission is

normally a flat percentage fee and is not based upon an hourly charge." The

trial commissioner believed that Respondent had been forthright with the heirs

from the beginning about the amount of fees he would be charging and made

no attempt to hide his conduct, and observed that "[t]his is not a normal

situation where an hourly fee is charged against the retainer and the unearned

portion of the retainer must be kept in escrow until earned by hourly services."

From these factors, the trial commissioner concluded that Respondent was not

required to segregate his fee disbursements from the Estate from his own

personal funds.

       With regard to Count III, the trial commissioner determined that

Respondent did not fail to promptly turn over property to whom it was entitled,

 or fail to provide an accounting of funds held because "the Respondent testified

 under oath that it was his belief that he was charging a flat fee and when an

 accounting was requested of him he furnished a 14 page narrative statement of

 the services he had performed for the estate. Since the Respondent, in his

                                          7
mindset, was not charging an hourly fee but rather charging a flat fee, a 14

page narrative summary of his services appears to be an adequate response to

the request for accounting and not in violation of Supreme Court Rule 3.130-

1.15(b)."

      As the sanction for charging an excessive fee as set out in Count I, the

trial commissioner recommended a private reprimand. Bar Counsel filed a

motion to amend the report, which the trial commissioner denied. Bar Counsel

subsequently filed an appeal with the Board of Governors requesting a de novo

review of the case. Pursuant to SCR 3.370(6), 3 the Board of Governors rejected

the commissioner's report and reviewed the file de novo.

       Following its review, the Board found that Respondent violated Count I:

SCR 3.130-1.5(a) (requiring that a lawyer charge a reasonable fee) by a vote of

17-0, and that he violated Count II: SCR 3.130-1.15(a) (requiring a lawyer to

hold his funds separate from his clients' funds) by a vote of 17-0, and that he

violated Count III SCR 3.130-1.15(b) (requiring the prompt delivery of funds or

property to whomever is entitled to it) by a vote of 11-6. The Board

recommended that Respondent be suspended from the practice of law for thirty

days and be required to attend remedial ethics training.

       Respondent then filed a notice to this Court seeking review pursuant to

 SCR 3.370(8).

         3 SCR 3.370(6) provides, in pertinent part that "[t]he Board shall decide, by a
 roll call vote, whether the decision of the Trial Commissioner as to the finding of a
 violation and degree of discipline imposed is supported by substantial evidence or is
 clearly erroneous as a matter of law. The Board, in its discretion, may conduct a
 review de novo of the evidence presented to the Trial Commissioner. Both the findings
 and any disciplinary action must be agreed upon by eleven (11) or three-fourths (3/4)
 of the members of the Board present and voting on the proceedings, whichever is less."

                                            8
                               II. ASSESSMENT OF GUILT

      "The findings of fact by the trial commissioners and the Board of

Governors [in a disciplinary proceeding] are advisory only." Kentucky Bar Ass'n

v. Berry, 626 S.W.2d 632, 633 (Ky. 1981). "Final decisions of guilt and

punishment can only be made by the Supreme Court, and it is done on the

basis of a de   11.01)0   consideration of pleadings and trial review." Kentucky Bar

Ass'n v. Jones, 759 S.W.2d 61, 63-64 (Ky. 1988).

      In opposition to the charges against him, Respondent alleges that the

facts in support of the charges have been presented in an "overly-narrow and

selective view" of the evidence; and that Bar Counsel has raised "technical and

non-prejudicial" issues concerning the actions of Respondent with regard to the

Estate. He complains that the findings and reasoning of the Board misstate

his actual conduct and the good faith nature of his actions, and fail to

recognize the strong mitigating circumstances surrounding his representation

of Smith before her death and of her Estate after her death.

       Upon reviewing the record, we adopt the Board of Governors' findings,

adopt their recommendation, and reject Respondent's arguments in opposition

to the Board's determinations and conclusions.

       Count I     -   A review of the record demonstrates that Respondent violated

 SCR 3.130-1.5(a) by collecting amounts from the Estate as both lawyer and

 Executor without seeking the prior approval from the court, and by the

 collection of fees more than twice the maximum authorized by KRS 395.150(1)

 as compensation for an executor based upon an estate value of 469,277.71,

 including his claims for attorney services not authorized in the Will or by the

                                                9
Court. In addition, he violated this rule by collecting from the Estate, without

seeking or obtaining approval from the court, a fee of 645.40 for pre-death

legal services of the decedent; in this vein, we do not believe the comparatively

small amount at issue excuses compliance from the obligation to obtain the

probate court's approval for an attorney acting as the executor for an Estate to

make a self-disbursal to himself.

      Further, KRS 395.150(1) limits the compensation of an executor for

services to five percent of the value of the personal estate of the decedent, plus

five percent of the income he collects. Notwithstanding this limit, KRS

395.150(2)(a) provides that luipon proof submitted showing that an executor,

administrator or curator has performed additional services in the

administration of the decedent's estate, the court may allow to the executor,

administrator or curator such additional compensation as would be fair and

reasonable for the additional services rendered, if the additional services were:

(a) Unusual or extraordinary and not normally incident to the administration of

a decedent's estate[.]" In addition, "[i]f a court finds an executrix is deserving of

pay for extraordinary services over and above the usual commission, it should

make a specific finding to that effect. Without such a finding, the excessive fee

 should be disallowed." Hale v. Moore, 289 S.W.3d 567, 583 (Ky. App. 2008);

 see Panke v. Louisville Trust Co., 198 S.W.2d 313 (Ky. 1946). It is undisputed

 that no such specific finding was made by the probate court in this case.

       Further, it is well-settled that an attorney who accepts appointment as

 an executor cannot also serve as legal counsel for the estate and receive dual

                                          10
compensation for the additional role, absent approval of such an arrangement in

the will. Clay v. Eager, 444 S.W.2d 124 (Ky. 1969); Profumo, 931 S.W.2d at

151 ("To receive dual compensation [as executor and estate's attorney], one

must have been appointed and identified as both executor and attorney in the

will so as to evince testator's intention that the attorney be compensated in

both capacities.").

      Here, Respondent concedes that he acted as both Executor and as

Attorney for the Estate: Therefore, it is clear that Respondent violated Profumo

and KRS 395.150(2) in at least two ways: (1) because he took executor fees for

"unusual or extraordinary" services from the Estate account without the prior

consent and approval of the probate court[;]" and (2) by failing to provide the

required documentation corroborating the fees for "unusual or extraordinary"

services.

       Additional compensation is allowed only upon consent of the court and

after submission of proof detailing the services rendered. KRS 395.150(2). As

a result, "Respondent cannot rely on this exception since he neither asked the

probate court to allow additional compensation nor presented evidence to the

probate court justifying the fee." Profumo, 931 S.W.2d at 150. Thus, because

 Respondent had not met the statutory requirements for entitlement to more

 than five percent of the Estate, the fee he disbursed in excess of this amount

 was necessarily an unreasonable fee. That the fee disbursements were

 unreasonable is further supported by his having to return     20,000.00 of the

 amounts disbursed.

                                         11
      We thus agree with the Board that Respondent violated SCR 3.130-

1.5(a), charging an unreasonable fee, in regard to the conduct described in

Count I.

      Count II The record further demonstrates that Respondent violated
                -

SCR 3.130-1.15(a) by not depositing advance unearned fee payments from the

Estate into a separate account, and instead depositing those funds into his

own general office account. Respondent's guilt under Count I, and his

depositing of the fees as described in our discussion above into his office

accounts, necessarily compels the result he failed to keep separate unearned

fees from his personal accounts. That is, because Respondent was not entitled

to those amounts, but nevertheless received them and deposited them into his

office accounts, he by definition violated SCR 3.130-1.15(a). Further, that

unearned fees were deposited into his office account is clearly demonstrated by

Respondent's agreement that he had overcharged the Estate and agreeing to

refund $20,000.00. The $20,000.00 refund was paid from Respondent's office

accounts, not a client trust account, and thus it further demonstrates that the

Rule was violated. We reject Respondent's argument that his "mindset" was

that all amounts were pursuant to a flat fee, and thus his conduct is

 excusable. As explained in our discussion above, the law is well - settled in this

 area and therefore his unawareness is no excuse. Finally, we will not

 distinguish between "unearned" funds, in the traditional sense, from funds

 that are theoretically "earned," but are barred by statute from disbursement

 without the probate court's approval. It further bears emphasis that this issue

                                          12
deals with a lawyer's handling of client and third-party funds, and it is

fundamental that such rules will be strictly enforced.

      Count III - The record also reflects that Respondent violated SCR 3.130-

1.15(b) by failing to provide an itemized accounting of the fees he charged to

the Estate after he received a written request from the heirs for such an

accounting. In September 2003, an heir of the Estate wrote to the Respondent

on behalf of all the heirs requesting an "itemized bill to date as to your fees

reflected in the Disbursements." In response to this request, Respondent

provided a document captioned "Sylvia Smith Estate Client Service Record."

That document provides brief descriptions of activities and lists a date for each

activity from November 1, 2001 to August 25, 2003; however, there are no

entries reflecting the time devoted to any of the activities and no specific

indications reflecting whether any activity was conducted in the capacity of

Executor or Attorney for the Estate. The Rule provides that "upon request by

the client or third person, [a lawyer] shall promptly render a full accounting

regarding such property." SCR 3.130-1.15(b) (emphasis added). We are

persuaded that in the context of a lawyer providing an accounting of fees

charged to a client, fundamental to that process is a reflection of the time spent

 on each of the relevant tasks. While in the case of a true flat fee that may be

 irrelevant; nevertheless, here, Respondent had informed the heirs at the outset

 that he would be charging $400.00 per hour for his services in his dual

 capacity as attorney for the Estate. Therefore, we emphasize that in the usual

 case when a client is being charged for lawyer's services at an hourly rate, and

                                          13
perhaps with exceptions not applicable here, a demand for an accounting

under the Rule will require a lawyer to include a representation of the time

spent for each of the relevant services billed. Only in this way may a client

assess whether the charges are reasonable so as to further pursue relief.

Therefore, we are satisfied that the Board properly concluded that

Respondent's communication in response to the request for an accounting fell

short of this standard.

                          III. ASSESSMENT OF PENALTY

      As a result of the above alleged violations, the Office of Bar Counsel

originally sought a two-year suspension from the practice of law. As noted, the

Board recommends a thirty-day suspension with additional ethics training.

Respondent argues that if his conduct supports any disciplinary sanction at

all, the sanction should be limited to either a private or public reprimand, or a

probated suspension, as a more balanced and appropriate resolution rather

than the actual suspension recommended by the Board. Significantly, in his

thirty-one years of practice prior to these charges Respondent has incurred no

other disciplinary proceedings.

       Upon consideration of the conduct and violations involved in this case,

 we agree with the Board that a thirty-day suspension is an appropriate

 sanction for these ethical violations. See Kentucky Bar Ass'n v. Niemi,

 366 S.W.3d 921 (Ky. 2012) ("Attorney's misconduct in failing to keep client

 reasonably informed as to progress of workers' compensation case, in failing to

 return unearned fees, and in failing to respond to disciplinary authority's

                                         14
complaint and requests for information warranted 30-day suspension from

practice of law.").

ACCORDINGLY, IT IS HEREBY ORDERED that:

(1) Respondent, Edward L. Jacobs, is found guilty of violating SCR 3.130-

1.5(a); SCR 3.130-1.15(a); and SCR 3.130-1.15(b);

(2) For these violations, Jacobs is hereby suspended from the practice of law for

thirty days and required to attend the entire KBA Ethics and Professionalism

Enhancement Program (EPEP) within one year of the date of this Order;

(3) Respondent will not apply for Continuing Legal Education credit of any kind

for his attendance at the EPEP. He will furnish a release and waiver to the

Office of Bar Counsel to review his records of the CLE Department that might

otherwise be confidential, such release to continue in effect until after he

completes his remedial education, in order to allow the Office of Bar Counsel to

verify that he has not reported any hours to the CLE Commission that are to be

taken as remedial education.

 (4) In accordance with SCR 3.450, Respondent shall pay costs associated with

 these proceedings in the amount of 2,503.91, for which execution may issue

 from this Court upon finality of this Order.

        Minton, C.J., Abramson, Cunningham, Noble, Scott and Venters, JJ.,

 concur. Schroder, J., not sitting.

        ENTERED: November 21, 2012.

                                          15
                                            CORRECTED: NOVEMBER 28, 2012
                                                        TO BE PUBLISHED

              Suprrittr (Courf                    ri,firnfur4
                              2012-SC-000413-KB

KENTUCKY BAR ASSOCIATION                                                 MOVANT

V.                            IN SUPREME COURT

EDWARD L. JACOBS                                                   RESPONDENT

                             ORDER CORRECTING

      The Opinion and Order entered November 21, 2012, is corrected on its

face by substitution of the attached Opinion and Order. Said correction does

not affect the holding of the original Opinion and order of the Court.

      ENTERED: November 28, 2012.