North Carolina Disbars Attorney For Refusing To Produce Documents To Disciplinary Counsel

In North Carolina State Bar v. Phillips, No. COA19-1093, the Court of Appeals of North Carolina affirmed a decision of the trial court to disbar an attorney who failed to comply with court orders requiring him to produce documents concerning his out-of-state clients.

The facts:

Respondent was licensed to practice law in North Carolina, but he advertised himself as available to provide legal services in any state. In January 2017, the North Carolina State Bar (the “State Bar”) Grievance Committee issued Respondent a Letter of Warning for, among other things, engaging in conduct constituting the unauthorized practice of law in another jurisdiction in violation of Rule 5.5 of the Rules of Professional Conduct. Respondent accepted the Letter of Warning.

In May 2017, the State Bar received a new allegation that Respondent was continuing to offer to provide legal services in other jurisdictions. The State Bar sent Respondent a Letter of Notice requiring his response to the allegations. The Letter of Notice requested information about out-of-state clients Respondent represented from 2012 to present. Respondent submitted a response to the Letter of Notice; however, he did not include information about his out-of-state clients. The State Bar modified its request to limit any identifying information from the requested information about out-of-state clients. Respondent submitted another response but still did not provide the requested information.

The Chair of the Grievance Committee issued a subpoena for the requested information, and Respondent moved to quash the subpoena. The President of the State Bar granted Respondent’s motion in part and denied it in part. The Chair of the Grievance Committee then issued a new subpoena to produce the requested information from Respondent modified to be consistent with the President’s order. Respondent moved to quash the second subpoena. A successor President of the State Bar denied Respondent’s motion and ordered him to comply by 16 February 2019.

The State Bar filed a petition on 17 May 2018 in Superior Court, Wake County to enforce the subpoena. The State Bar served Respondent with discovery requests. Respondent objected to the discovery requests and moved for a protective order. Respondent argued that because he had filed grievances against various State Bar counselors and employees after the grievance file was opened, the State Bar had a conflict of interest requiring it to engage outside counsel to investigate him or ask the court to enforce the subpoena. Accordingly, Respondent filed a separate “Motion in the Cause” seeking to require the State Bar to engage outside counsel.

The State Bar moved to compel Respondent to respond to its discovery requests. At a hearing on 5 February 2019, Respondent reiterated his claim that the State Bar had a conflict of interest and was required to engage in outside counsel. The trial court dismissed Respondent’s argument and ordered him to comply with the discovery requests. Throughout this process, the trial court found Respondent in contempt four times for defying its orders compelling him to provide discovery responses. The trial court found that Respondent’s refusal to comply with its orders warranted discipline and disbarred him.

Respondent appeals the following orders: the 12 February 2019 order granting the State Bar’s motion to compel and denying Respondent’s motion for Rule 26(c) protective order, motion to waive Local Rule 5.4, and motion in the cause; the 30 April 2019 order allowing Respondent to amend his pleadings and denying Respondent’s motion to stay pending appeal, motion for judgment on the pleadings, and motion for declaratory judgment; the 30 April 2019 order granting the State Bar’s motion to hold Respondent in civil contempt and denying Respondent’s motion to continue; the 15 May 2019 order granting the State Bar’s motion to hold Respondent in civil contempt; the 31 May 2019 order granting the State Bar’s motion to hold Respondent in civil contempt; and the 31 July 2019 order granting the State Bar’s motion to hold Respondent in civil contempt and the order for disbarment.

The trial court may impose discipline in a matter pending before the court. In re Burton, 257 N.C. 534, 543-44, 126 S.E.2d 581, 588 (1962). Court-imposed discipline is not limited to violations of the Rules of Professional Conduct. Id. “A proceeding against an attorney for alleged dishonest or unethical conduct may result in disbarment.” Id. Respondent has failed to cite a specific finding of fact or conclusion of law that is alleged error. Moreover, Respondent also presented no evidence concerning the discipline that should have been imposed. Indeed, Respondent repeatedly failed to comply with the court’s orders and has failed to show that the disbarment was not the result of a reasoned decision. Accordingly, the trial court did not err.

North Carolina has different procedures than Illinois, but the principle is the same: you must comply with a lawful order to produce documents in a disciplinary case.

Ed Clinton, Jr.

What Should You Do If Your Device Is Hacked?

A few years ago there were bar association advisory opinions on whether lawyers could use email or cloud computing. Now almost everyone uses at least a smartphone with cloud computing capability. What should you do if your device is lost or stolen or you suspect that there may have been a data breach? California has released a new advisory opinion. No. 16-0002. The opinion covers a number of situations where the lawyer has reason to fear or believe that client data was accessed by a hacker. The option discusses several examples, from a lost phone (which is recovered quickly) to a missing laptop. The bottom line is that where there is a reasonable suspicion of an intrusion into a device, the lawyer must notify the clients involved.

In one of the examples an attorney visits a cafe and uses what he believes to be the free wifi. The attorney later learns that the “free wifi” network did not belong to the cafe but was the creation of some bad actor or hacker. The attorney realizes that client documents on his device were accessed. What is the lawyer to do?

According to the opinion, once he learns of the data breach the lawyer must notify the client that there was an intrusion into his laptop and that the company’s confidential information was accessed by some unknown person. The opinion insists that lawyers should not be held to a strict liability standard when it comes to data theft or loss. The example above is distinguished from the typical situation where a lawyer leaves his phone or iPad at a restaurant and retrieves it the next day. Since the device is password protected, there is no danger to clients that the missing device was accessed improperly.

The ABA Opinion No. 18-483

ABA Formal Opn. No. 18-483 (Lawyer’s Obligations After an Electronic Data Breach or Cyberattack) provides a useful list of competence-based duties that explain the requirement of “reasonable efforts” in addressing the potential for inadvertent disclosure of confidential client information due to a data breach:

• The obligation to monitor for a data breach: “lawyers must employ reasonable efforts to monitor the technology and office resources connected to the internet, external data sources, and external vendors providing services relating to data and the use of data.” Id. at p. 5.

• When a breach is detected or suspected, lawyers must “act reasonably and promptly to stop the breach and mitigate damage resulting from the breach.” Id. at p. 6. A preferable approach is to have a data breach plan in place “that will allow the firm to promptly respond in a coordinated manner to any type of security incident or cyber intrusion.” Id. at p. 6.

• Investigate and determine what happened: “Just as a lawyer would need to assess which paper files were stolen from the lawyer’s office, so too lawyers must make reasonable attempts to determine whether electronic files were accessed, and if so, which ones. A competent attorney must make reasonable efforts to determine what occurred during the data breach.” Id. at p. 7.

ABA Formal Opn. No. 18-483 describes a “data breach” as a “data event where material client confidential information is misappropriated, destroyed, or otherwise compromised, or where a lawyer’s ability to perform the legal services for which the lawyer is hired is significantly impaired by the episode.” ABA 18-483 at p. 4.4 Thus, not all events involving lost or stolen devices, or unauthorized access to technology, would necessarily be considered a data breach. Consistent with their obligation to investigate a potential data breach, however, lawyers and law firms should undertake reasonable efforts, likely through the use of individuals with expertise in such investigations, to ascertain, among other things, the identity of the clients affected, the amount and sensitivity of the client information involved, and the likelihood that the information has been or will be misused to the client’s disadvantage. This will assist in determining whether there is a duty to disclose. If the lawyer or law firm is unable to make such a determination, the client should be advised on that fact. Id. at p. 14.

Lawyers and clients may also differ as to what events would trigger the duty to disclose. The key principle, however, in considering whether the event rises to the level of a data breach, is whether the client’s interests have a “reasonable possibility of being negatively impacted.” ABA 18-483 at 11. Certainly disclosure is required in situations where a client will have to make decisions relevant to the breach, such as the need to take mitigating steps to prevent or minimize the harm, or to analyze how the client’s matter should be handled going forward in light of a breach. When in doubt, lawyers should assume that their clients would want to know, and should err on the side of disclosure.

Passwords and Security Measures

If a lawyer failed to protect a device with a password, I believe that there might be grounds for a professional complaint or lawsuit. The opinion does not go this far, but I believe that every device containing client confidences should be protected by a strong password.

If you have a question about an ethics issue, do not hesitate to contact me. The sooner you get impartial advice the better. Many problems can be solved by seeking the advice of a disinterested ethics lawyer.

https://www.clintonlaw.net/legal-ethics.html

West Virginia Suspends Lawyer For Falsely Claiming He Had Malpractice Insurance

West Virginia, like many other states, requires a lawyer to disclose whether or not he has legal malpractice insurance. This disclosure is important because insurance is usually the only way for a lawyer to defend or pay a negligence claim. The case Lawyer Disciplinary Board v. Curnutte, No. 19-0636 discusses this issue in some detail and affirms a recommendation for a three-month suspension.

This lawyer disciplinary proceeding originated with a “Statement of Charges” by the Lawyer Disciplinary Board (“LDB”) against Scott A. Curnutte (“Mr. Curnutte”) alleging that he violated the West Virginia Rules of Professional Conduct by providing false information about his professional liability insurance coverage to the West Virginia State Bar (“State Bar”). For three consecutive fiscal years, Mr. Curnutte submitted his annual Financial Responsibility Disclosure (“FRD”) falsely certifying that he was covered under a policy of professional liability insurance, when, in fact, he had no such coverage. He also lied about having such coverage to a lawyer he employed, causing that lawyer to similarly provide false information to the State Bar.

The Hearing Panel Subcommittee (“HPS”) of the LDB has concluded, and Mr. Curnutte and the Office of Lawyer Disciplinary Counsel (“ODC”) have stipulated, that Mr. Curnutte’s dishonesty violated the Rules of Professional Conduct. The HPS recommends that this Court suspend Mr. Curnutte’s license to practice law for one-hundred days. In addition, the HPS recommends that Mr. Curnutte be required to complete an additional six hours of Continuing Legal Education in ethics; to comply with the duties of suspended lawyers set out in Rule 3.28 of the West Virginia Rules of Lawyer Disciplinary Procedure (“RLDP”); to reimburse the costs of these proceedings; and to fully and accurately disclose to the LDB what efforts, if any, he has made to procure professional liability insurance. After a careful review of the record developed in this disciplinary proceeding, and upon a thorough consideration of the parties’ briefs, their oral arguments, and the relevant law, we conclude that Mr. Curnutte has twice violated a Rule of Professional Conduct as alleged. However, we determine that a ninety-day suspension with automatic reinstatement pursuant to RLDP 3.31, along with the other recommended sanctions modified to comport with automatic reinstatement, provides an adequate sanction for Mr. Curnutte’s misconduct.

Comment: Please get malpractice insurance. Failing to get it can really cause an injured party to lose their recovery. Claiming that you have it when you don’t will result in discipline.

Ed Clinton, Jr.

Kentucky Disbars Attorney Who Practiced While Suspended

Kentucky Bar Association v. Thomas Steven Poteat, 2020 – SC – 00227 – KB (September 24, 2020). A lawyer was suspended for failing to complete continuing legal education requirements. The opinion summarizes the facts as follows:

Poteat was suspended from the practice of law on January 23, 2014, for failure to comply with Continuing Legal Education (CLE) requirements. He has not since been restored to practice. The Notice of Suspension required Poteat to “notify all Courts in which he … has matters pending, and all clients for whom he … is actively involved in litigation and similar matters, of his … inability to continue representation and of the necessity and urgency of promptly retaining new counsel.”

Nevertheless, Poteat continued to represent John Ford in Ohio Circuit Court, 10-CI-00530, in a property dispute. Poteat failed to inform Mr. Ford he was suspended and was unable to continue representation.

As part of that representation, Poteat and opposing counsel discussed entering into an agreed order to determine the property ownership. Poteat represented to his client, Mr. Ford, the agreement would determine the property ownership in his favor, and Mr. Ford consented to the agreement. Poteat signed the agreed order on behalf of Mr. Ford in December 2014, and the circuit court entered it on January 26, 2015. The agreed order referenced a survey dated September 2, 2004, which was previously entered into the record, and provided, “[t]he Counterclaim of Defendant, John B. Ford, including all claims contained therein that assert any ownership rights with respect to any of the property owned by Plaintiffs, as described in the above-referenced survey, is dismissed with prejudice.”

Poteat sent a letter dated April 23, 2015, to the KBA requesting to be restored to active status.

Approximately two years after the Ohio Circuit Court entered the agreed order, Poteat’s client, Mr. Ford, learned that the survey referenced in the agreed order was not what Poteat represented to him, and the property ownership was decided to Mr. Ford’s detriment. Mr. Ford contacted Poteat, who explained he believed the agreed order referenced a different survey that was to Mr. Ford’s benefit and said he would take care of it. Poteat took no further action.

Mr. Ford then consulted another attorney, Cheryl Spalding, who first informed Mr. Ford of Poteat’s suspension. On February 15, 2017, Spalding filed a motion to set aside the agreed order. On May 2, 2017, as part of that proceeding, Poteat testified he was not aware he was suspended when he signed the agreed order.

The Ohio Circuit Court entered an order on September 29, 2017, denying the motion to set aside the agreed order, and Spalding filed a notice of appeal on October 27, 2017. On April 12, 2019, the Court of Appeals affirmed the Ohio Circuit Court’s order denying the motion to set aside the agreed order.

The Inquiry Commission filed a five-count Charge against Poteat on November 14, 2019. The Charge asserted violations of:

SCR 3.130(1.4)(a)(5): “A lawyer shall: … (5) consult with the client about any relevant limitation on the lawyer’s conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law.”

SCR 3.130(5.5)(a): “A lawyer shall not practice law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction, or assist another in doing so.”

SCR 3.130(8.4)(c): “It is professional misconduct for a lawyer to: … (c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation.”

SCR 3.130(3.4)(c): “A lawyer shall not: … (c) knowingly disobey an obligation under the rules of a tribunal except for an open refusal based on an assertion that no valid obligation exists.”

SCR 3.130(8.1)(b): [A] lawyer in connection … with a disciplinary matter, shall not: … knowingly fail to respond to a lawful demand for information from an admissions or disciplinary authority.”

Poteat was personally served with the Charge on December 10, 2019. He did not file an answer or respond otherwise. After due deliberation, the Board of Governors voted to find Poteat guilty of violating the five Supreme Court Rules as charged, the vote being 18-0 for each count.

After making the preceding findings and considering Poteat’s disciplinary record, seven known applicable aggravating factors, and no known applicable mitigating factors, fourteen (14) Board members voted in favor of permanent disbarment and payment of costs in this action and four (4) Board members voted in favor of a five-year suspension and payment of costs in this action.

The Kentucky Supreme Court accepted the recommendation.

The Truman Show Comes To Attorney Discipline – With Disastrous Results

The Truman Show was a successful movie starring Jim Carrey in which he played the role of Truman Burbank who lives an ordinary life. What Truman does not know is that the entire world around him is composed of actors. Truman is the star of a television show in which he is the only “real” person. There are many lessons to be learned from this sad case.

Yesterday the Illinois Supreme Court entered an order disbarring Vincent Porter, an attorney who the Court believes engaged misconduct serious enough for disbarment. Porter is an attorney and also acts as a sports agent. He did not realize it, but he came to star in his own version of The Truman Show, which ultimately led to his disbarment.

Vincent Porter came to star in his own version of The Truman Show. The transaction he was involved with was a sting operation set up by the FBI. The main witness against him was Marc Pennebaker, an FBI agent who set up the entire scam and recorded hours of conversations with Porter and others discussing a litany of fraudulent actions he was planning to perform, but never did. There were no investors. There was no deal. There were no victims. There was no financing. All that resulted from the FBI operation was the disbarment of Vincent Porter, whose greatest sin was, in my opinion, that he was duped by the FBI and failed to take measures to protect himself. His disbarment is a direct result of his failure to document precisely who he was representing and what his duties were as a lawyer. He was also fooled by a confidential informant who knew what to say, how to say it, when to say it and to record it.

This is how the Hearing Board described the charges:

The Administrator brought a two-count complaint against Respondent charging him with misconduct arising out of his participation in a purported deal to purchase Burger King franchises and related property. The deal, in reality, was part of an FBI sting, which culminated in Respondent’s arrest and eventual entry into a deferred prosecution agreement. Because of his role in the purported deal, Respondent was charged with assisting a client in conduct the lawyer knows is fraudulent, in violation of Rule 1.2(d); making statements of material fact or law to a third person which the lawyer knows are false, in violation of Rule 4.1(a); failing to disclose a material fact when disclosure is necessary to avoid assisting a criminal or fraudulent act by the client, in violation of Rule 4.1(b); committing a criminal act that reflects adversely on his honesty, trustworthiness, or fitness as a lawyer, in violation of Rule 8.4(b); and engaging in dishonesty, in violation of Rule 8.4(c). Hearing Board Opinion January 18, 2019 at 2.

According to the ARDC and the Hearing Board, “Respondent was a participant in, and counsel to, a group of individuals that planned to defraud investors in a real estate transaction.” Further, Porter was accused of making false statements and withholding information about the transaction.

Porter became involved with Joseph Vaccaro who was being investigated by the FBI. Billy Crafton, a confidential information, contacted Vaccaro Vaccaro then introduced Porter to Crafton, who held meeting and made recordings. Crafton, Vaccaro and Porter discussed a scheme under which they would create an entity to purchase 13 Burger King Restaurants and sell those restaurants to a group of professional athletes at an inflated price. Porter met with Crafton and Vaccaro and later met with Pennebaker.

Comment

There is an old saying that if you meet with a group of investors and you have not clarified who you represent, it will later turn out that you represented all of them. It apparently never occurred to Porter to prepare an engagement letter which would have identified his client or clients. Had he taken this small step, it is possible that this entire fiasco could have been avoided. Because he did not protect himself or think about the attorney-client relationship, the ARDC alleged and the Hearing Board found that Porter represented a group of investors including himself, a confidential informant (Crafton) and another target of the investigation (Vaccaro).

Back to the Facts:

Respondent testified he also discussed the Burger King deal with Crafton at a restaurant in Chicago. An audio recording of a meeting between Respondent and Crafton on July 22, 2014 reflects the following statements:

Respondent indicated he was conducting due diligence and would be handling the legal side and structuring the LLCs;

Respondent and Crafton agreed that the real purchase price for the restaurants was $16 million, but Crafton would tell investors that the entire $20 million was going toward the deal;

Respondent confirmed that Crafton should not disclose to potential investors that Respondent, Crafton and Vaccaro would be taking $4 million off the top; Crafton should state that the other 50% stake in the Burger Kings would be owned by a group of New York investors whose identity he did not know; Crafton should not reveal that, in actuality, Vaccaro and Respondent would own the remaining 50% of the Burger Kings; and Crafton should deny any ownership interest or receipt of kickbacks;

Respondent indicated he would create multiple LLCs to make it appear that another group of investors would own 50% of the Burger Kings; When Crafton asked for confirmation that he should not disclose the actual structure of the deal, Respondent replied “Yeah, we’d all be committing suicide . . . you know, career suicide;”

Respondent and Crafton referred to a “home run deal” that the investors would not know about, and a “single” deal. The two deals were also characterized as an “A” deal and a “B” deal; and Respondent indicated he has the experience to do more deals in the future.

Hearing Board Opinion at pages 6-7.

Porter then prepared an Operating Agreement an LLC which was to be owned by the investors brought to the deal by Crofton. Hearing Board at 8. (Here again, the engagement letter would have greatly assisted Porter. Had he created an engagement letter he would have had to figure out who his client was. He might have chosen to represent Crofton or he might have chosen to represent the “investors.” Either choice would have been better than no choice at all because he could have then sorted out what his professional duties were.).

The October 1, 2014 Meeting

Porter agreed to meet with Pennebaker (posing as a financial advisor), Vaccaro and Crafton at Crafton’s office in San Diego. Another FBI agent played the role of “potential investor.” The meeting was, of course, recorded and Porter was arrested after the meeting was over. The Hearing Board explained:

On October 1, 2014 Pennebaker, again posing as a financial advisor, met with Respondent, Vaccaro and Crafton at Crafton’s office in San Diego. Pennebaker brought along another undercover FBI agent who posed as a potential investor. Both video and audio recordings were made of the meeting. (Tr. 78-79, 116, 125-26, 139, 150).

Pennebaker testified the purpose of the meeting was to gather more information and evidence relating to the Burger King investment. During the meeting Respondent stated the final details of the transaction had not been negotiated, but funds would be received from a New York investment group which would have a 50% ownership stake. When Pennebaker asked about the $37 million purchase price, Respondent again indicated the price had started higher and had been negotiated down. Respondent indicated he would be handling the legal end of arranging the deal, although the closing would be handled by Virginia attorneys, and he explained he was not taking any stake in the deal because as a lawyer doing the legal work, he did not want to create a conflict of interest for himself. (Tr. 84, 139, 141, 150; Adm. Ex. 11, Oct. 1, 2014, Track 5, 6, 7).

Respondent testified the information he presented at the meeting was given to him by Vaccaro and Crafton. He acknowledged that the pitch they made was based on a valuation of $40 million for the Burger King restaurants, with Crafton’s group of ten investors contributing a total of $20 million for 50% ownership of the Burger Kings and Vicar’s group owning the other 50%. Respondent recalled the purchase price was represented to be non-final at all times, and he advised Pennebaker that all the details would be disclosed once the deal was made. (Tr. 79-82, 207-08).

Respondent testified that no documents were signed at the October meeting and no papers changed hands. He denied knowingly making any misrepresentations to anyone or misrepresenting anything to the point of putting it on paper. (Tr. 81, 209, 214).

The Hearing Board

Porter attempted to defend himself on the ground that he did not represent any of the parties involved. The ARDC alleged that Porter represented a group of investors including himself and Vaccaro. The Hearing Board disagreed and concluded in Delphic fashion “We find that an attorney-client relationship was established.” Hearing Board at 12. (Note the problem – since Porter did not prepare and make everyone sign an engagement letter he lost the opportunity to decide who he would represent.)

The Findings:

We find that an attorney-client relationship was established. Although we did not hear testimony from Vaccaro or Crafton, we reviewed numerous statements made by Respondent during meetings and telephone conversations, which statements demonstrate he was acting as the attorney for the business group proposing the investment. In July 2014, he indicated to Crafton that his role was to handle the legal side of the transaction, conduct due diligence, and structure LLCs. He also drafted a preliminary version of an LLC operating agreement and provided that document to Crafton. When speaking to Pennebaker in September, Respondent stated his role was to handle the legal work for the deal; he was involved in due diligence and negotiations with Burger King; and funds from the investors would be deposited into his attorney IOLTA account. At the October in-person meeting, Respondent again stated that his role was to handle the legal end of the transaction.

While Respondent consistently disavowed that he would handle the actual closing, as that work had to be done by Virginia attorneys, the closing was only a portion of the legal work necessary for completion of the deal. By Respondent’s own representations, he held himself out as being responsible for the legal side of the transaction and took actions in accordance with his role as attorney. We find, therefore, that the predicate relationship for Rules 1.2 and 4.1 has been established.

Rule 1.2(d) – assisting client in conduct the lawyer knows to be fraudulent

The Administrator charged Respondent with violating Rule 1.2(d) by conduct including:

participating in discussions with Vaccaro and the informant about offering an investment deal to their professional athlete clients which concealed the true terms of the purchase of the Burger King franchises (including the ownership and purchase price of the franchises) from their clients;

agreeing to do the legal work to effectuate the scheme;

telling the informant to misrepresent the purchase price and ownership of the franchises to investors;

telling Pennebaker that the purchase price of the franchises was $37 million, and Respondent did not have an interest in the deal; and telling Pennebaker and the other FBI agent that another investor group would own the remaining 50% of the franchises.

We find Respondent engaged in each of the foregoing acts and by doing so, assisted clients Vaccaro and Crafton in furthering a fraudulent scheme. Fraud encompasses a broad range of human behavior, including “anything calculated to deceive . . . whether it be by direct falsehood or by innuendo, by speech or by silence, by word of mouth or by look or gesture.” In re Armentrout, 99 Ill. 2d 242, 251, 457 N.E.2d 1262 (1983).

Pennebaker’s testimony, as well as the recordings that were presented to us, showed that the three individuals plotted, as a group, to present a financial transaction in a way that would conceal the benefit they would personally realize from the transaction. That benefit was twofold. First, they intended to collect $20 million for the purchase of a group of properties that cost only $16 million, and then divide the remaining $4 million between themselves. Second, they planned to take a 50% ownership stake in the properties without making any financial investment whatsoever. Their financial benefit and interest in the transaction would not be disclosed to the investors. As we saw from Respondent’s September 19th telephone call with Pennebaker, Respondent represented that the purchase price was $37 million, which was more than twice the price he had discussed with Vaccaro and Crafton. Further, he falsely stated that a New York group was investing funds for the other one-half ownership, and he would have no ownership interest in the properties. In reality, the second group would be Respondent, Vaccaro and Porter, but their identities would be concealed by layers of LLCs. Respondent’s representations to Pennebaker were contrary to the facts set forth in Respondent’s discussions with Vaccaro and Crafton.

We recognize the investors were not misinformed as to their rate of return, and because the deal was never consummated, no one suffered a financial loss. The absence of an actual loss, however, does not erase the misconduct that occurred. By participating in crafting a deal with secret terms, presenting the deal to a potential investor without disclosing those terms, advising Crafton to misrepresent information, and making affirmative false statements regarding the investment, Respondent assisted in perpetrating a fraud.

We reject Respondent’s claim that he did not knowingly commit any misconduct. Pennebaker’s testimony, as well as the recordings, show that Respondent knew the actual terms of the proposed transaction and yet misrepresented those terms and advised Crafton to do the same. Further, Respondent’s claim that he was merely repeating information given to him by Vaccaro carries little weight in light of his role as the attorney structuring the deal. If the valuations for the properties were constantly changing, as he maintained, he had an obligation to ferret out the truth before passing information to potential investors. Further, we view Respondent’s lack of recall of key conversations, his vague testimony, and his portrayal of himself as a victim as nothing more than attempts to disguise his own involvement in the scheme. All in all, we did not find him to be a credible witness. By contrast, we regarded Mark Pennebaker as a reliable and objective witness who testified with precision and clarity.

Respondent had many opportunities to disagree with proposals made by Vaccaro and Crafton, to advise them to take a different course, or at least withdraw from representation and from the deal, but he did not do so. Instead, he became an active participant and took actions in furtherance of the scheme. Therefore we find that he engaged in misconduct in violation of Rule 1.2(d). Hearing Board Pages 13-15.

The Hearing Board also found that Porter violated Rule 4.1(a) knowingly making false statements of fact material fact to a third person and 8.4(c) dishonesty, fraud, deceit or misrepresentation and 8.4(b) a criminal act.

Rule 4.1(a) Violation

The Administrator charged Respondent with violating Rule 4.1(a) by:

falsely telling Pennebaker on September 19, 2014 that the purchase price of the franchises was $37 million; Respondent had no interest in the deal; and another investors group would own the remaining 50% of the franchises (in return for a $17 investment); and

by falsely telling Pennebaker and another undercover agent on October 1, 2014 that other investors would be investing money and those investors would receive the other 50% ownership interest in the franchises.

We have addressed the foregoing misrepresentations in the prior section and determined that Respondent made those statements and he knew they were false. We further find that the $37 million purchase price and the identity of other owners in an investment, including whether or not Respondent had an ownership interest in the deal, would be material to the investors’ decision in proceeding with the transaction. Therefore, we find a violation of Rule 4.1(a).

Rule 4.1(b) – knowingly failing to disclose material facts when disclosure is necessary to avoid assisting a criminal or fraudulent act by client

While the previous charge involved the providing of false information, Rule 4.1(b) involves the failure to disclose material information. The Administrator charged Respondent with violating Rule 4.1(b) by not disclosing to the undercover agent and Pennebaker that:

the true purchase price of the franchises was $16 million; and

Respondent, Vaccaro and Crafton would have an interest in ownership and would receive $4 million dollars out of the investors’ money.

We find this charge was proved. Respondent did not disclose the true nature of the Burger King transaction during his September 19, 2014 telephone call with Pennebaker, or during the October 1, 2014 meeting with Pennebaker and the second undercover FBI agent. As stated previously, the true purchase price and ownership interest was material information that should have been provided to prospective investors, as was the fact that $4 million of the purchase money would be going directly to Respondent, Vaccaro and Crafton. Respondent’s failure to disclose assisted his clients’ criminal or fraudulent conduct in violation of Rule 4.1(b).

Rule 8.4(c) Violation

The Hearing Board found:

Rule 8.4(c) – dishonesty, fraud, deceit or misrepresentation

In In re Edmonds, 2014 IL 117696, par. 62 the Court stated “there is essentially no way to define every act or form of conduct that would be considered a violation” of Rule 8.4(c) as “[e]ach case is unique and the circumstances surrounding the respondent’s conduct must be taken into consideration.” Rule 8.4(c) “is broadly construed to include anything calculated to deceive, including the suppression of truth and the suggestion of falsity.” Id. at 53. Motive and intent are rarely proved by direct evidence and must be inferred from conduct and circumstances. See In re Stern, 124 Ill. 2d 310, 529 N.E.2d 562, 565 (1988)

The Administrator charged Respondent with violating Rule 8.4(c) by engaging in the exact same conduct that was set forth in the Rule 1.2(d) charge. We found with respect to that charge that Respondent assisted in conduct that was fraudulent by making statements that were false, performing legal work to further the scheme, directing Crafton to misrepresent facts, and failing to disclose information that was material to the transaction. Further, his actions were taken with knowledge of the fraudulent nature of the transaction.

Our prior discussions amply support a finding that Respondent violated Rule 8.4(c). His motive and intent to deceive investors was further demonstrated by his agreement that Crafton should not disclose the actual deal to investors; and by his indication that disclosure would be “career suicide.” In addition, the video of the October 1, 2014 meeting demonstrated to us that Respondent had no trouble providing misleading and inaccurate information to the undercover agents. Indeed, we found his cavalier attitude in misrepresenting facts to be deeply disturbing. For the reasons stated, we find Respondent engaged in dishonesty, fraud deceit and misrepresentation.

The Panel also found a violation of Rule 8.4(c) criminal conduct. The Review Board essentially affirmed all the factual findings of the Hearing Board but recommended a suspension of three years. The criminal case against Porter was resolved by a deferred prosecution agreement. The Illinois Supreme Court disbarred Porter on September 21, 2020.

Comment:

This case is a teaching tool for every lawyer who is in the transactional practice. Porter was unlucky because his mistakes were on tape and on video. He was promised, but never received, a hidden interest in the deal. (That should have been disclaimed in the engagement letter. Porter could have been charged with entering into a contract with a client without advising the client to get his own lawyer, but the ARDC did not bother with that.)

The case worries me. In my career clients have, at times, said all sorts of things to me about what they intended to do. I have tried my best to correct them and stop them from engaging in illegal conduct. Porter did not speak up when the FBI agent and the confidential informant read their lines with Shakespearian skill. He sat mute or agreed or went along with the scheme. He was a dupe or chump. The joke was on him. If you wish to keep your license, you cannot be duped in this fashion. You must speak up when the client proposes something unlawful or inappropriate or just plain deceptive.

Porter did not write an engagement letter or even bother to write emails to the participants so that he could summarize the meetings they held. He had nothing to defend himself with. Because he never did the hard work of figuring out who he represented he never understood his duties to that “client.” Had he done so there is a chance that this fiasco could have been avoided. He should have asked other questions such as “Who represents the investors?” “Has anyone recommended that they engage counsel?” I would have been uneasy at the prospect of doing a deal of that size with no counsel on the other side to protect the imaginary athletes who were investing. That Porter never asked these questions saddens me. He never showed any sign, in my opinion, of trying to protect anyone, client or non-client.

He could also have asked the promoters to get a valuation of the deal by a reputable real estate appraiser. He could have requested audited financials of the “franchises.” Better yet, he should have requested tax returns. That too would have protected him and the investors. The promotors would have made excuses, but Porter could have used that to get out of the deal. (They could never have gotten an appraisal because the Burger King franchises did not exist and no one would sign an appraisal valuing nonexistent franchises. There were no tax returns either because the franchises did not exist.) Corporate lawyers ask questions, lots of questions. It does not appear that Porter asked any questions.

Long ago an experienced lawyer told me “if it looks to good to be true, it probably is.” This is a disbarment that did not need to happen. An engagement letter and a few minutes of careful thought could have avoided all of this.

The most troubling aspect of this case is that Porter never made a dime on the deal and no one lost any money. The deal papers were nowhere near completion and Porter, it appears, was waiting for further information from the “clients.” That is probably why the federal government entered into a deferred prosecution agreement with him. Why is this troubling? There is a chance that Porter is just as much a victim as the supposed investors were. Many lawyers in Illinois have done far worse conduct and not received a disbarment. But for the FBI, this “deal” would never have happened.

In the end of The Truman Show, Truman figures out that he is in a show that his life is onstage that his wife and friends are not real and he leaves the set. “In case I don’t see you, Good Morning, Good Afternoon and Goodnight.” To be a corporate lawyer in our world, you have to be at least as smart as Truman Burbank and know when to walk away.

If you are in the practice of law and you are concerned about something, call an ethics lawyer now. Don’t wait until the “deal” goes bad. Speak up. Ask questions. Ask the questions you would want to know the answers to if you were investing in the venture. Ask for the name of the lawyer or the accountant. If those people don’t exist, you can assume it is a scam of some sort. Warn your clients and protect your license.

Ed Clinton, Jr.

http://www.clintonlaw.net

ARDC Review Board Recommends 30 Day Suspension for MCLE Noncompliance

An Illinois attorney, who was employed as an assistant state’s attorney, failed to complete his MCLE certification (continuing legal education) and was stricken from the master roll of attorneys. This unfortunate lapse netted him an additional 30 day suspension. The ARDC Review Board recommended a 30 day suspension, which was one-half the suspension recommended by the Hearing Board.

The facts as recounted by the Panel are:

Once Respondent became licensed to practice law in November 2015, Illinois Supreme Court Rule 793 required him to complete 15 hours of MCLE credit, including six hours of a basic skills course or an approved mentoring program, by November 30, 2016, and to report his completion of those requirements to the MCLE Board by December 31, 2016.

In September 2016, the MCLE Board mailed an initial notice of the applicable MCLE requirements to Respondent at the residence address then on file with the ARDC. Respondent, who had moved in August 2016, did not recall if he received that notice.

On December 6, 2016, Respondent updated his contact information with the ARDC and gave the McLean County State’s Attorney’s Office address as his business address. Subsequent MCLE and ARDC communications were sent to that address.

On December 22, 2016, the MCLE Board sent Respondent an email reminding him of his December 31 reporting deadline. Respondent received that email. He did not report compliance by December 31. Thus, on January 6, 2017, the MCLE Board sent Respondent a notice of noncompliance, which informed him that he had until March 2, 2017 to complete the required MCLE credits, report completion, and pay a $250 late fee, or his name would be removed from the master roll.

Respondent received that notice sometime during the second week of January. Around the end of January, he called the MCLE Board and left a voicemail message. A Board employee, Susan Doran, called him back on the next business day, January 30, and left a message. He replied on February 6, and spoke with Doran and another Board employee, Kevin Leonard.

Doran and Leonard testified at Respondent’s hearing that, in their conversations with Respondent, he addressed only the late fee and did not raise any issues about the sufficiency of his credits. Leonard also testified that he told Respondent that Respondent had not reported compliance. MCLE Board Director Karen Litscher Johnson also testified that attorneys must report compliance online and cannot report by telephone. Respondent acknowledged that he did not report compliance using the online system, but he further testified that someone at the Board, whom he believed was Leonard, told him by phone that he was in compliance and only needed to work on getting the fee waived. The Hearing Board found his testimony not credible.

On February 27, the MCLE Board’s manager of attorney compliance and outreach, Christina Pusemp, telephoned Respondent and left a message. He did not return her call.

Respondent testified that he used the Board’s online portal to submit a fee waiver request prior to March 2. The Board did not receive a written fee waiver request or supporting documentation from Respondent. Respondent sent an email to the Board regarding a fee waiver on March 10, but the Board did not receive the email because Respondent used an incorrect email address.

As of March 2, 2017, Respondent had not reported compliance. Thus, on March 3, the MCLE Board notified the ARDC that Respondent had not complied with the MCLE requirements. On March 16, the ARDC Registrar’s Office sent Respondent a notice of impending removal, stating that he would be removed from the master roll if he did not bring himself into compliance by April 14.

Respondent testified that he called the Board in late March 2017, spoke with someone named “Dee, ” and was told that his email had been received, that he was “good,” and that “no news is good news.” (Hearing Bd. Report at 7.) He therefore assumed the matter had been resolved.

As of April 19, Respondent still had not reported compliance to the MCLE Board, and consequently was removed from the master roll on that date. The ARDC sent him a removal notice informing him of that fact. He testified that he did not receive the notices of impending removal or removal.

Between April 19 and November 21, 2017, Respondent routinely appeared in court on behalf of the State. He estimated that he appeared as an assistant state’s attorney in approximately 300 cases during that time. He therefore practiced law for a seven-month period when he was not authorized to do so.

On November 21, 2017, the McLean County State’s Attorney told Respondent that he had learned that Respondent was not authorized to practice law in Illinois. On November 22, Respondent called the MCLE Board and spoke with an employee who suggested that he speak with Pusemp, who was away for the Thanksgiving holiday. On November 27, Respondent spoke with Pusemp and sent her the March 10, 2017 email and his CLE certificates. She noted that the email had been sent to an incorrect email address and that Respondent had not satisfied his MCLE requirements because he had not taken the Basic Skills Course.

That night, he completed an online Basic Skills Course and submitted information to the MCLE Board to support his request for a fee waiver. The Board approved the request and Respondent was reinstated to the master roll on November 29, 2017. That same day, the McLean County State’s Attorney terminated his employment.

The Hearing Board found that the attorney violated Rule 5.5(a) and engaged in the unauthorized practice of law. The Review Board affirmed that finding. The panel explained in part:

Three factors support a short suspension rather than censure in this matter. First, the goals of discipline include maintaining the integrity of the profession and safeguarding the administration of justice from reproach. The Hearing Board noted that it was “particularly mindful of these concerns here, given the nature of Respondent’s employment” as an assistant state’s attorney. (Hearing Bd. Report at 10.) It stated that “[t]he fact that an Assistant State’s Attorney would practice law while not authorized to do so, especially over time, carries a particular risk of diminishing the public’s perception of the integrity of the legal system.” (Id.) We agree with its reasoning.

Second, the Hearing Board was clearly disturbed by Respondent’s failure to recognize his wrongdoing, noting that he still does not understand his professional obligations. The extent to which a respondent realizes the seriousness of his misconduct is a factual determination to which this Board gives great deference. In re May, 93 CH 320 (Review Bd., Sept. 6, 1995), approved and confirmed, M.R. 11764 and 11457 (Dec. 1, 1995).

Third, the Hearing Board found that Respondent did not testify credibly when he claimed not to have received the impending-removal notice. Moreover, Respondent’s testimony as to his March 2017 phone call with “Dee” could be viewed as a complete fabrication. An attorney’s false testimony at his or her disciplinary hearing may be considered in aggravation. See In re Vavrik, 117 Ill. 2d 408, 415-16, 512 N.E.2d 1226 (1987); In re Stillo, 68 Ill. 2d 49, 55, 368 N.E.2d 897 (1977).

Based on these factors, we believe a short suspension is warranted. However, we also believe that the 60-day suspension recommended by the Hearing Board is longer than necessary and is not supported by authority. Instead, we would recommend a 30-day suspension, which we believe is more commensurate with Respondent’s conduct and consistent with precedent.

Comment: this is obviously a mistake that any lawyer could have made. You get busy and you become distracted. You forget to comply with the continuing legal education requirements and then you fail to take prompt remedial measures to comply. If you make an error like this one, call a respected senior colleague and seek advice. Discipline could have been avoided here with a prompt apology and, I think, disclosure to the employer.

http://www.clintonlaw.net/legal-ethics.html

Lawyer Held In Contempt For Refusing To Follow Court Orders

Eisenberg v. Swain, No. 19-cv-189, District of Columbia Court of Appeals began modestly with an effort by the attorney (Eisenberg) to collect fees owed to him from his client. He obtained a judgment and garnished $1499 in wages. After that he learned that the former client had filed a bankruptcy petition. The Superior Court entered certain orders against the attorney as follows:

The Superior Court ordered Mr. Eisenberg to return the garnished wages to Ms. Swain until a decision was reached on whether his judgment against her was included in the bankruptcy discharge. Mr. Eisenberg did not comply. The Superior Court then issued an order that included three rulings: (1) it ruled that Ms. Swain’s debt to Mr. Eisenberg had been discharged, (2) it held Mr. Eisenberg in contempt of court for his failure to return the garnished wages, and (3) it rejected Mr. Eisenberg’s request to add Ms. Swain’s bankruptcy attorney as a defendant in the underlying breach of contract case after Mr. Eisenberg alleged that Ms. Swain’s attorney had conspired with her to defraud Mr. Eisenberg.

Usually when a debtor files a bankruptcy petition, there is an automatic stay of all collection proceedings against the debtor. In this case the trial court understood the bankruptcy stay applied and ordered Eisenberg to return the garnished wages to the debtor until the bankruptcy had been adjudicated. The lawyer then refused to do so and was held in contempt. He then apparently attempted to add the debtor’s bankruptcy attorney to the case. The trial court rejected this request and Eisenberg appealed. The DC Court of Appeals affirmed.

Eisenberg’s appeal of the contempt order was rejected on several grounds. The relevant portion of the Court’s opinion is quoted below:

Mr. Eisenberg challenges Judge Pan’s contempt ruling and associated sanctions. Mr. Eisenberg’s actions in this litigation justified holding him in contempt. We affirm the trial court’s judgment on this ground as well.

Mr. Eisenberg was ordered to return $1,499 to Ms. Swain on November 17, 2016. His motion to stay the return of these funds was denied on February 23, 2017. Despite twice receiving clear instruction from the court to return $1,499 to Ms. Swain, Mr. Eisenberg had not returned the funds when he appeared before the court on December 3, 2018, more than two years after the initial order, and nearly two years after his motion to stay return of the funds was denied. When questioned by the trial court on the reasons for his noncompliance, Mr. Eisenberg said only, “I believe the judgment was actually void given the history that we have gone through,” adding later that he believed “federal law” superseded the Superior Court’s authority and that Judge Pan had relinquished jurisdiction over the issue. When asked why, given these beliefs, he had not filed a motion to reconsider, Mr. Eisenberg responded that he “wasn’t aware that was an option.” At other points during this exchange, however, Mr. Eisenberg represented that he kept the funds in his trust account because “Ms. Swain had been resistant and deceptive, and [he] wanted to make sure [he] preserved [his] property” and that “those monies were [his], and … since they were in dispute … [he] left them in the trust account.” These alternating and seemingly self-serving rationales left Judge Pan with the well-founded impression that after receiving a ruling he did not like, Mr. Eisenberg “just did what [he] wanted to do” and that his actions were “[n]ot in good faith.” Judge Pan issued an order to show cause why Mr. Eisenberg should not be held in contempt and requested briefing from both parties.

At a second hearing, held on February 25, 2019, Judge Pan questioned Mr. Eisenberg and Ms. Swain on their positions regarding contempt. In conjunction with this questioning, Judge Pan asked Ms. Swain to detail the expenses she had incurred as a result of not having the $1,499 returned to her. These included moving expenses after Ms. Swain was unable to pay her rent and had to relocate, as well as time spent litigating the issue in Superior Court. In a written order issued on March 1, 2019, Judge Pan held Mr. Eisenberg in contempt of court and ordered him to pay compensatory damages to Ms. Swain in the amount of $978.22.[5]

Superior Court judges have express authority to “punish for disobedience of an order or for contempt committed in the presence of the court.” D.C. Code § 11-944(a) (2012 Repl.) In addition to its statutorily derived authority, the court retains a well-established power to punish for contempt that is “inherent in the nature and constitution of a court … arising from the need to enforce compliance with the administration of the law.” Brooks v. United States, 686 A.2d 214, 220 (D.C. 1996) (citation and quotation marks omitted). The decision whether to hold a party in civil contempt is confided to the sound discretion of the trial judge, and will be reversed on appeal only upon a clear showing of abuse of discretion. In re T.S., 829 A.2d 937, 940 (D.C. 2003).

In challenging the trial court’s contempt ruling, Mr. Eisenberg advances three arguments: (1) that the Superior Court did not have substantive jurisdiction over the garnished funds, (2) that the underlying order was vague and ambiguous as to when the money had to be returned to Ms. Swain, and (3) that, for a variety of ill-supported reasons, his actions could not be deemed contemptuous. Each argument is meritless.

Mr. Eisenberg claims that the Superior Court lacked substantive jurisdiction over the garnished wages, rendering the underlying order requiring him to return the money to Ms. Swain void. While it is true that “[v]oidness of a court order is an absolute defense to a contempt motion,” an order is void for lack of jurisdiction only when the issuing court is “powerless to enter it.” Kammerman v. Kammerman, 543 A.2d 794, 799 (D.C. 1988) (citation omitted). Mr. Eisenberg asserts that the Superior Court did not have substantive jurisdiction over the disputed funds because they were under the exclusive jurisdiction of the bankruptcy court. As explained in detail above, he is wrong about that. Because Mr. Eisenberg’s debt was unscheduled, the funds at issue were subject to the concurrent jurisdiction of the Superior Court. See, e.g., In re Rollison, 579 B.R. at 72-73.

Mr. Eisenberg also argues that any substantive jurisdiction the Superior Court may have had was nonetheless waived by Judge Pan’s statement in the order that she was “not in a position to evaluate the merits of plaintiff’s motion to dismiss defendant’s bankruptcy.” Mr. Eisenberg relies heavily on this statement, alleging in his brief that the Superior Court “at the time chose to relinquish its jurisdiction over the disputed money as it pertained to the [federal bankruptcy law] issue and send it to [the bankruptcy court].” Mr. Eisenberg advances this interpretation despite the immediately preceding sentence in the order, which reads, “[Mr. Eisenberg] is not entitled to garnishment at this time, and it would be unjust to allow [Mr. Eisenberg] to retain defendant’s money pending the outcome of [Ms. Swain]’s bankruptcy matter,” and the immediately following sentence, which reads, “[t]he Court, therefore, denies plaintiff’s motion to stay the order releasing garnishment.” In the context of the order as a whole, Mr. Eisenberg’s suggestion that Judge Pan expressly relinquished jurisdiction over the garnished funds is patently unreasonable.[6]

We likewise reject Mr. Eisenberg’s assertion that the order was vague because it did not list a date by which the funds had to be returned. Nothing in the record suggests a genuine confusion on Mr. Eisenberg’s part about when the return of funds was required. To the contrary, in Mr. Eisenberg’s motion to stay the return of the garnished funds, he acknowledged that the court had “ordered the moneys be returned to Ms. Swain,” but specifically requested that the order be stayed “pending the exhaustion of his legal remedies.” In her order denying this motion, Judge Pan stated that it would be unjust to allow Mr. Eisenberg to keep the money “pending the outcome of defendant’s bankruptcy matter” and ordered the funds returned. To the extent that there was any ambiguity in the initial order, it is clear from the ensuing litigation that the order contemplated the prompt return of the funds during the pendency of the bankruptcy matter. Under any interpretation of the language of the order, a delay of two years—during which time Mr. Eisenberg actively pursued his claims in both bankruptcy court and the Superior Court—is clearly not contemplated. Finally, “the proper response to a seemingly ambiguous court order is not to read it as one wishes.” Loewinger v. Stokes, 977 A.2d 901, 907 (D.C. 2009). If a party subject to a court order genuinely does not understand its requirements, he may “apply to the court for construction or modification.” Id. To fail to take such steps is “to act at one’s peril as to what the court’s ultimate interpretation of the order will be.” Id. (quoting D.D. v. M.T., 550 A.2d 37, 44 (D.C. 1988)).

The court of appeals also rejected the attempt to add the bankruptcy lawyer as a defendant.

Mr. Eisenberg argues that the trial court erred in denying his motion to join Ms. Swain’s bankruptcy attorney, Mr. Moses, in the underlying breach of contract action. According to Mr. Eisenberg, Mr. Moses should have been joined as a party because he and Ms. Swain “conspired to defraud [Mr. Eisenberg] of moneys they knew were not dischargeable through bankruptcy.” Mr. Eisenberg does not assert that the trial court was required to join Mr. Moses under Super. Ct. Civ. R. 19, but that it erred in not joining him under Super. Ct. Civ. R. 20, governing permissive joinder. Rule 20 allows for the joinder of a defendant where any “right to relief is asserted against them jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences” and “any question of law or fact common to all defendants will arise in the action.” Super. Ct. Civ. R. 20(a)(2). Superior Court Civil Rule 20 is largely identical to Rule 20 of the Federal Rules of Civil Procedure. See Super. Ct. Civ. R. 20 cmt.; Fed. R. Civ. P. 20. As with its federal counterpart, we will review rulings on permissive joinder only for an abuse of discretion. See, e.g., Mosley v. Gen. Motors Corp., 497 F.2d 1330, 1332 (8th Cir. 1974) (“[T]he scope of the civil action is made a matter for the discretion of the district court, and a determination on the question of joinder of parties will be reversed on appeal only upon a showing of abuse of that discretion.”).

Mr. Eisenberg has not proffered any factual basis tying Mr. Moses to Mr. Eisenberg and Ms. Swain’s initial representation agreement, to the settlement agreement, or any other set of events relevant to the original contractual dispute in Superior Court. As the trial court noted, the contract dispute was already resolved in Superior Court with a full judgment in Mr. Eisenberg’s favor and the case was reopened for the limited purpose of addressing the discharge of debt. If Mr. Eisenberg believes he has a non-frivolous claim against Mr. Moses arising out of the proceedings in bankruptcy court, the proper course of action is to initiate a separate lawsuit. It is no basis to join Mr. Moses in the breach of contract case against Ms. Swain.

Comment: Deciding to defy a court order is a serious matter that should not be undertaken lightly. In my opinion, a lawyer should not subject himself to contempt proceedings in a dispute over his own legal fees. The decision to defy a court order should be undertaken only when the client’s important rights are at stake, such as preserving the attorney-client privilege or preserving the client’s 5th Amendment rights.

Should you have a question on an ethics issue, do not hesitate to call me.

Ed Clinton, Jr.

https://www.clintonlaw.net/legal-ethics.html

The Limits of the Lawyer Litigation Privilege

Older lawyers will tell you not to talk to the media. There is a good reason for that advice. Generally speaking, anything contained in a pleading filed with a court is privileged under the lawyer’s litigation privilege. (There are exceptions, including bar complaints). So, inside the courtroom you allege that the Defendant committed fraud. Answer: privileged. Inside the courtroom during a trial you tell the jury that the opposing expert did no real work on the case and simply accepted what the defendant told him was true. When the expert sues you for defamation, you can point to the litigation privilege. In closing argument, you tell the jury that the defendant committed fraud. Answer privileged. After a case is over, the other party sues you for defamation. That case will be dismissed and the litigation privilege will apply. Similarly, if the expert witness sues for defamation his case will also be dismissed.

The Restatement (Second) of Torts Section 586 provides that an attorney may “publish defamatory matter concerning another in communications preliminary to a proposed judicial proceeding, or in the institution of, or during the course and as part of, a judicial proceeding in which he participates as counsel, if it has some relation to the proceeding.” For background on this topic also consult Douglas R. Richmond, “The Lawyer’s Litigation Privilege” 31 Am. J. Trial Advoc. 281 (2007), an excellent and thorough discussion of the cases and case law. Over time as more and more cases have been filed against lawyers by former adversaries, the privilege has expanded beyond defamation to other tort claims arising out of the same conduct such as intentional infliction of emotional distress, negligent infliction of emotional distress, tortious interference with prospective business relations, tortious interference with a contract and other torts. The litigation privilege does not shield lawyers from professional discipline or allow a lawyer to evade judicially imposed sanctions.

The key point is that the litigation privilege applies to statements in pleadings, briefs, memoranda and oral statements before the court. It does not usually apply to statements outside the courthouse.

Mistake No. 1

After you file a complaint do not post it on your website or fax it to a newspaper or blogger. That is an activity outside of the courthouse and it is not privileged. The defendant in the lawsuit may choose to file a defamation case against the lawyer. Such a lawsuit is a long shot but it won’t be any fun defending that lawsuit.

Mistake No. 2

After the hearing ends, you speak to the media on the stairs outside the courthouse. Answer: not privileged. That is why lawyers say things like “No Comment” or “We are evaluating a possible appeal.” Neither statement is defamatory and neither will get you in trouble. Most clients gain little benefit from comments by attorneys.

Mistake No. 3

Don’t criticize any judge or imply that a judge or opposing lawyer is dishonest or evil. This is a statement that you can make: “We disagree with the Judge’s reasoning.” That is an appropriate statement. Any other kind of statement concerning the judge is not privileged and can lead to professional discipline.

If you have a comment to make concerning another party to litigation, make that comment inside the courthouse or in a pleading or brief. Do not make that comment outside the courthouse to the media.

Conclusion

These issues arise all the time. When I was a young lawyer, my mentors told me never to talk to the media, and I have accepted that wisdom for the most part. A few years later a colleague suggested that we fax a copy of a complaint to a newspaper. We discussed the idea and ultimately rejected it. Once you “leave” the courthouse, you should carefully consider what you wish to say and why saying it would help your client. If it won’t help the client, do not make any comments to the media. Do not post a complaint on your website. Do not make promises or predictions about any case you are handling. This world is full of people who wish to share their opinions on social media. As a lawyer, you should be more careful and prudent. Win the case in court and then make a generic comment to the media if you must. Otherwise, keep quiet. It is good for your client and ultimately good for you.

If you have a question about the litigation privilege or the limits of that privilege, do not hesitate to call me. Since 1991, I have encountered numerous touchy situations and I can often provide cautious and prudent advice. My goal in these situations is to keep lawyers out of trouble.

www.http://clintonlaw.net

Supervisory Partner of Law Firm Disciplined for Failure to Oversee Trust Account

In the Matter of an Anonymous Member of the Bar of South Carolina, No. 27973 (South Carolina May 27, 2020) imposes a non public admonishment on the supervisory partner of a law firm office who failed to oversee the firm’s trust account. The event that triggered the discipline was a series of thefts by an employee of the firm. The employee wrongfully stole funds from the operating and trust accounts. The firm’s insurer reimbursed the firm for the losses and no clients suffered any economic losses. The member of the South Carolina bar failed to supervise the trust account.

The facts:

Morris Hardwick Schneider (MHS) was a multi-jurisdictional real estate closing and default services law firm based in Atlanta, Georgia. In 2014, Nathan Hardwick was MHS’s CEO and held a majority interest in the firm. Hardwick oversaw corporate accounting for MHS and financial and accounting matters for the closing side of the practice from his office in Atlanta. MHS had two other equity partners, Mark Wittstadt and Gerard Wittstadt, who were based in Maryland and headed the firm’s default services practice. None of MHS’s equity partners were licensed to practice law in South Carolina.

In 2014, Respondent served as the managing attorney for MHS’s Dunwoody, Georgia office but was also a non-equity partner in the firm and held the title of President of South Carolina Operations. In that role, Respondent provided oversight and assistance with business development, marketing, communications, hiring, and training in the South Carolina offices located in Columbia and Greenville. However, Respondent was not involved with or responsible for the day-to-day operations of either South Carolina office….

A partner in a law firm is required to make reasonable efforts to ensure the law “firm has in effect measures giving reasonable assurances that all lawyers in the firm conform to the Rules of Professional Conduct.” Rule 5.1(a), RPC, Rule 407, SCACR. Additionally, law firm partners are required to “make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance” that the conduct of non-attorney assistants is compatible with the attorneys’ own professional obligations. Rule 5.3(a), RPC, Rule 407, SCACR.

Rule 417, SCACR, restricts access to South Carolina trust accounts in order to protect the funds contained in those accounts and those to whom the funds belong. Rule 2, Rule 417, SCACR. Only an attorney admitted to practice in South Carolina and individuals directly supervised by an attorney so admitted may have authority to sign checks or transfer funds from a client trust account. Id. Rule 417 also requires monthly reconciliation of all South Carolina trust accounts. Rule 1, Rule 417, SCACR.

In the instant matter, Respondent admits she failed to uphold her responsibilities as a partner in MHS. She failed to make reasonable efforts to ensure the firm’s attorneys and non-attorney staff complied with Rule 417, SCACR, with regard to South Carolina trust accounts. Numerous people who had access to the South Carolina trust accounts were neither licensed to practice law in South Carolina nor directly supervised by an attorney who was, including several attorneys licensed in other jurisdictions and non-attorney staff who worked in the firm’s accounting department in Atlanta. Respondent’s misconduct enabled those with impermissible and unfettered access to misappropriate almost $30 million. Further, the misappropriations were allowed to continue undetected because MHS’s non-attorney accounting staff were in charge of receiving the trust account bank statements and reconciling the accounts. Neither Respondent nor any other South Carolina licensed attorney reviewed the reports or supervised the reconciliation process as required by Rule 417, SCACR.

Accordingly, Respondent admits her conduct in this matter violated Rules 5.1(a) and 5.3(a), RPC, Rule 407, SCACR, and Rule 417, SCACR. Respondent also admits the allegations contained in the Agreement constitute grounds for discipline pursuant to Rule 7(a)(1), RLDE, Rule 413, SCACR (violating or attempting to violate the Rules of Professional Conduct).

Comment: the thefts from the trust account were substantial, $648,937.40. The lawyer is very fortunate that she received a nonpublic reprimand.

Should you have a legal ethics question or concern, do not hesitate to contact us. We can often provide solutions and resources to ethics issues.

Court Dismisses Lawsuit Against Legal Ethics Publisher

On May 1, 2020, the federal district court for the Southern District of New York dismissed a lawsuit filed by Andrew Straw (a lawyer currently suspended from the practice of law in the State of Indiana) against Wolters Kluwer, a legal publisher. (20 CV 3251 S.D. NY). Straw claimed that the publisher violated his rights under the Americans with Disabilities Act by citing to an opinion disciplining him. The relevant parts of the opinion are quoted here:

Plaintiff contends that “[t]he book ridiculed me by making me seem totally incompetent just for asking [for] this information[. I]t seems the only information the defendants relied upon was the Indiana discipline order, In Re Straw, 68 N.E.3d 1070 (Ind. 2/14/2017).” (Id. at ¶ 46). He states that “the language [to which he] object[s] concerns [his] bogus Indiana Supreme Court discipline.” (Id. at ¶ 20).

In that disciplinary action, In Re Straw, 68 N.E.3d 1070 (Ind. 2017), cert. denied sub nom. Straw v. Ind. Supreme Court, 137 S. Ct. 2309 (2017), the Indiana Supreme Court suspended Plaintiff from the practice of law for violations of Indiana Professional Conduct Rule 3.1, which prohibits bringing a proceeding or asserting an issue unless there is a nonfrivolous basis in law and fact.[1] Plaintiff asserts that the publisher “should have asked me before ridiculing me,” and that “this blistering attack in a major book on legal ethics cannot stand.” (Id. at ¶ 47.) Plaintiff also rehashes arguments that he made in his suspension proceedings and elsewhere that his suit against the ABA was not frivolous because he did not seek to collect private data but rather sought to amend “form 509” in order to collect information about disability, in addition to race and gender. (Id. at ¶ 49).[2]

Plaintiff styles this action as a suit under “Title II/Title V” of the ADA, alleging that the publisher and its employees retaliated against him for his having filed the disability discrimination suit, Straw v. ABA., No. 14-CV-0519 (N.D. Ill. 2015), which is one of the suits that was deemed frivolous and was part of the basis for his suspension from the practice of law in Indiana. Plaintiff invokes “42 U.S.C. § 12203 and 28 C.F.R. § 35.134 [which] prohibit[s] retaliation by anyone.” (ECF 2 at 16, ¶ 60). He argues that “[r]epublishing the vicious attacks … amount to additional retaliation and collusion with that state supreme court.” (Id. at ¶ 62)……

“To state a claim for retaliation under the ADA …, a plaintiff must show: (i) he or she was engaged in protected activity; (ii) the alleged retaliator knew that plaintiff was involved in protected activity; (iii) an adverse decision or course of action was taken against plaintiff; and (iv) a causal connection exists between the protected activity and the adverse action.” Patrick v. Success Acad. Charter Sch., Inc., 354 F. Supp. 3d 185, 226 (E.D.N.Y. 2018) (addressing retaliation in the public services context) (citing Lawton v. Success Acad. Charter Sch., Inc., 323 F. Supp. 3d 353, 366 (E.D.N.Y. 2018) (quoting Weixel v. Bd. of Educ., 287 F.3d 138, 148 (2d Cir. 2002))); see also Sarno v. Douglas Elliman-Gibbons & Ives, Inc., 183 F.3d 155, 159 (2d Cir. 1999) (“[I]t is appropriate to apply the framework used in analyzing retaliation claims under Title VII in analyzing a claim of retaliation under the ADA.”).

Generally, “any activity designed “to resist or antagonize …; to contend against; to confront; resist; [or] withstand” discrimination prohibited by Title VII constitutes a protected oppositional activity.” Littlejohn v. City of New York, 795 F.3d 297, 317 (2d Cir. 2015) (quoting Crawford v. Metropolitan Government of Nashville & Davidson Cnty., 555 U.S. 271, 276 (2009)). Here, however, Plaintiff fails to plead any facts that could satisfy the third element of a retaliation claim. Publishing a book that accurately reports the Indiana state court’s disciplinary decision against Plaintiff, even if he continues to dispute the court’s decision, does not qualify as taking adverse action against Plaintiff.

Nor does Plaintiff plead any facts that could give rise to an inference that his suspension decision was used as an illustration in a book on legal ethics because of retaliatory animus against Plaintiff for his opposition to disability discrimination. Because Plaintiff fails to plead facts suggesting any causal connection between his ABA suit opposing discrimination and any adverse action against him, Plaintiff fails to state a claim that any Defendant retaliated against him in violation of his rights under the ADA.”

The court also rejected a claim for intentional infliction of emotional distress.

Ed Clinton, Jr.

Note: Andrew Straw is a member of the bar of the State of Virginia and is currently in good standing.