“A Tough Knot to Crack” (photo by Jay Fanelli)
Discuss the ethical issues, if any, with respect to Lawyers A, B, C, and D in the following hypothetical.
Lawyer A represents Jane in her bitterly fought divorce from Nick, the wealthy son of an extremely wealthy father, Norm.
Lawyer A threatens to withdraw from the case and does withdraw from the case 41 days before trial because Jane has only paid him $500,000 for his legal services to date. He claims he is still owed an additional $523,000 (plus interest accruing at 10%).
As Jane’s divorce proceeds (with a new lawyer for Jane), Lawyer A hires Lawyers B and C to sue Jane for the unpaid legal fees Lawyer A claims he is still owed.
Lawyers B and C bring an arbitration action against Jane on behalf of Lawyer A. Represented by her new lawyer, Jane counterclaims for disgorgement of excessive legal fees she asserts she was wrongfully charged by Lawyer A. After negotiation, Lawyers B and C seem to be on the verge of settling Lawyer A’s claim and Jane’s counterclaim for a payment of about $160,000 (from Jane to Lawyer A) when, suddenly, Jane and Lawyer A agree to a “walk-away” — a settlement without the payment of any money to or from Lawyer A.
Lawyer A (counseled by Lawyers B and C) had accepted a secret payment from Norm of $234,000 before Lawyer A entered into the “walk-away settlement” with Jane. It is not entirely clear what Norm’s payment was for because Norm does not actually settle Lawyer A’s fee claim against Jane. Norm apparently only buys the right to control Lawyer A’s claim against Jane (including the right to dismiss the claim if he chooses to). Norm’s secret agreement with Lawyer A is arguably unfavorable to Jane as evidenced, among other things, by the fact that the agreement is to be kept secret from her (and that it is not actually a settlement so much as an assignment of the claim to her soon-to-be-ex father-in-law).
The Norm/Lawyer A secret agreement comes to light when Jane, represented by her new lawyer in her divorce proceeding against Nick, seeks an award of her legal fees from Nick. Nick, in response, submits a sworn affidavit saying that his dad, Norm, already paid off Jane’s debt for legal fees to Lawyer A so, at least as to these fees, Nick argues, Jane should not prevail because that would be a windfall to her.
Then Lawyer D, representing Norm, sends a letter to Jane’s new lawyer explaining that Norm’s sole motive for the secret transaction with Lawyers A, B, and C was “to decrease the animosity towards everyone in this extremely sad situation.”
(You have thirty-minutes for this section of the exam.)
And, by the way, according to a recently filed complaint, the cast of characters in this drama were played by Mark Briol (as Lawyer A), Terrence Fleming (as Lawyer B), Sandra Smalley-Fleming (as Lawyer C), and Chris Madel (as Lawyer D) — some of the most distinguished (and expensive) civil litigators in Minnesota. These allegations are in the linked recently filed complaint and related documents: here (complaint) and here (Madel Letter with Secret Briol/NJK Agreement).
“There’s something happening here; But what it is, ain’t exactly clear….” Buffalo Springfield, singing Stephen Still’s lyrics in his song “For What It’s Worth” in 1966. (“Stop, look, what’s that sound….everyone look what’s going down…)
My challenge is to set out in plain English for Minnesota Litigator readers what are some of the knotty potential ethical issues in this complicated fact pattern (assuming the truth of the complaint’s allegations). But first, some disclaimers: (1) the complaint includes mere allegations and nothing in this post should be understood to express an opinion as to the truth or falsity of the factual allegations; (2) similarly, the thoughts below as to potential ethical implications are intended to raise questions not to answer them. I take no position as to whether any of the alleged conduct in this case violated any rules of professional conduct; and (3) I take no position on the merits of the legal claims in the complaint. That is a job for a judge or jury in due course.
First, it is truly extraordinary for a divorce in Minnesota, at least, to cost a litigant over one million dollars, as Lawyer A apparently/allegedly billed “Jane.” There is an ethical rule about excessive fees. Minn. R. Prof. Conduct, 1.5(a). Could that be implicated here?
Second, is withdrawing from a case because of untimely bill-paying 41 days before trial a violation of Minn. R. Prof. Conduct 8.4(d), which prohibits “conduct that is prejudicial to the administration of justice” or Minn. R. Prof. Conduct 1.1.6(b)(1)? The rule provides that a lawyer may withdraw when withdrawal “can be accomplished without material adverse effect on the interests of the client,” implying that he may not withdraw if he is not compelled to and if his withdrawal is at a time that would materially and adversely affect his client’s interest.
Third, a lawyer owes duties of loyalty to former clients and, in light of this, the lawyer cannot take on subsequent clients in a “substantially related matter” in which the former client’s interests are materially adverse without the former client’s informed consent. Minn. R. Prof. Conduct 1.9(a). Can Lawyer A agree to be directed by “Norm” in litigation against his former client, “Jane” without Jane’s knowledge (much less consent which undoubtedly would have been withheld, we can assume) and in return for a secret payment of more than $200,000?
Fourth, if Nick’s affidavit is accurate that Norm paid off Jane’s debt to Lawyer A, then Jane’s legal fees had already been paid by Norm when Lawyers A, B, and C got Jane to settle her counterclaim for excessive fees in exchange for Lawyer A’s dropping his claim against Jane. Could it be argued that Jane got no consideration for Jane’s settlement and the settlement was procured by fraud, implicating Minn. R. Prof. Conduct 4.1; Minn. R. Prof. Conduct 8.4?
Fifth, if Nick’s affidavit is accurate, could Lawyer A have a problem with Minn. R. Prof. Conduct 1.8(f) which sets out rules for accepting compensation for legal work from someone other than the client? Such arrangements are only permissible under the rules when (1) the client gives informed consent, (2) when there is no interference with the lawyer’s independence of professional judgment or the client-lawyer relationship; and (3) the lawyer’s duty of confidentiality is preserved.
Sixth, if Nick’s affidavit was inaccurate, what, exactly, was Norm paying Lawyer A (represented by Lawyers B and C) $234,000 for? Is it consistent with legal ethics for Lawyers A, B, and C to cede control of A’s legal action against Jane to her soon-to-be-ex wealthy father-in-law? What is champerty, is this champerty, and is that unethical in 2015?
And, finally, seventh, the statement made by Lawyer D that Norm paid Lawyer A “to decrease the animosity towards everyone in this extremely sad situation” seems to strain credulity under the circumstances (putting it mildly). The rules of professional conduct provide that “in the course of representing a client, a lawyer shall not knowingly make a false statement of fact or law.” Minn. R. Prof. Conduct 4.1. If one concludes that Norm’s motive or his secret agreement could not imaginably have been “to decrease animosity” with his son’s soon-to-be ex-wife, is this rule implicated?
[Editor’s Note: in full disclosure, I sublet office space from “Jane’s” new lawyer, Mr. William R. Skolnick of the law firm of Skolnick & Joyce, who signed the complaint discussed in this post. I do not think this has affected the substance of this post in any material respect but some might take the position that this relationship is relevant and should be disclosed.]