In re Kenneth A. Martin ( 2014 )

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DISTRICT OF COLUMBIA COURT OF APPEALS
No. 11-BG-775
IN RE KENNETH A. MARTIN, RESPONDENT.
A Member of the Bar of the
District of Columbia Court of Appeals
(Bar Registration No. 420600)
On Report and Recommendation of the
Board on Professional Responsibility
(BDN-370-04)
(Argued April 4, 2012 Decided March 28, 2013)
(Amended February 13, 2014)
Daniel Schumack, with whom Pamela J. Bethel was on the brief, for
respondent.
Julia L. Porter, Senior Assistant Bar Counsel, with whom Wallace E. Shipp,
Jr., Bar Counsel, and Judith Hetherton, Senior Assistant Bar Counsel, were on the
brief, for the Office of Bar Counsel.
Before FISHER and BLACKBURNE-RIGSBY, Associate Judges, and KING,
Senior Judge.
KING, Senior Judge: Bar Counsel charged respondent Kenneth A. Martin
with violating Rule of Professional Conduct 1.5 (a) by charging his client an
unreasonable fee, Rules 1.15 (a) and (c) for comingling funds after the client
disputed the fee, Rule 1.16 (d) by failing to promptly return client funds after the
2
Attorney-Client Arbitration Board (“ACAB”) awarded the client the unreasonable
portion of the fee, Rule 8.4 (c) by falsely testifying that he received advice from
the D.C. Bar Ethics Hotline to retain the disputed funds in his operating account,
and Rule 8.4 (d) by requiring the client to withdraw a bar complaint against him
pursuant to a settlement agreement. The Hearing Committee found Martin
violated all rules except Rule 1.5 (a) (charging an unreasonable fee) and
recommended a one-year suspension with reinstatement subject to disgorgement of
the funds awarded by the ACAB. The Board on Professional Responsibility
(“Board”) found Martin violated only Rules 1.5 (a), 8.4 (c), and 8.4 (d) and
recommends a sixth-month suspension with reinstatement subject to disgorgement
of the unreasonable fee. We sustain all of Bar Counsel‟s charges and impose an
eighteen-month suspension with reinstatement subject to disgorgement of funds
awarded to the client by the ACAB.
I.
Enterprise Solutions, Inc. (“ESI”), retained Martin to represent it on various
matters starting in February 2000. Under a February 20, 2000, retainer agreement,
3
Martin billed ESI at an hourly rate of $125-275.1 Pursuant to this agreement,
Martin defended ESI in a lawsuit filed by Herbert Cannon, a former ESI
consultant, for breach of contract, and ESI later filed a counterclaim. Cannon filed
suit in Florida, and because Martin was not a member of the Florida bar, he
retained Florida counsel Luis Sergio Konski of the law firm Becker & Poliakoff as
associate counsel.
On December 11, 2001, ESI signed a second fee agreement whereby Martin
received “a 45% contingency fee interest” in “[ESI‟s] litigation against Herbert
Cannon.” ESI and Cannon reached a settlement in which Cannon agreed to pay
ESI $2.2 million. The settlement agreement, however, allowed ESI to collect the
judgment by executing only against assets held in the name of Rowen House, Ltd.
and Montville, Ltd., two New York brokerage accounts with Wall Street Equities,
Inc., which belonged to Cannon. Because Martin was not a member of the New
York bar, Martin helped ESI separately retain New York counsel Fred Van
Remortel to represent ESI in the action to collect judgment against Cannon.
Contemporaneously, the United States filed a civil forfeiture action against the
1
In the initial fee agreement with ESI signed on February 20, 2000, Martin
agreed to accept 40% of his fees in ESI stock. In January 2001, Martin ceased
accepting payment in ESI‟s stock because the Securities and Exchange
Commission suspended public trading of ESI‟s stock.
4
same Rowen House and Montville brokerage accounts to satisfy a judgment the
government had received against Cannon in a separate action. As a result, as the
Hearing Committee summarized, “the federal government and ESI each sought
payment or satisfaction of its judgment against Cannon from the same funds.”
On May 3, 2002, ESI and Martin entered into a third fee agreement in which
ESI agreed to pay “from $165-$295 per hour” “regarding the law suit filed by the
United States government for forfeiture of funds deposited with Wall Street
Equities, Inc.” ESI dismissed its own collection action and joined in the United
States forfeiture action. ESI and the United States then agreed to a settlement in
which $1.1 million of the Rowen House and Montville accounts would be released
to the government, and the remainder in the accounts would be split evenly
between the United States and ESI. After the distribution and division, ESI‟s share
totaled $656,464.30.
On February 24, 2003, Martin prepared a letter for Bruce Bragagnolo, CEO
of ESI. The letter proposed the following distribution of settlement proceeds:
5
Settlement Amount $656,464.30[2]
Credits:
Marshal‟s fees $ 32,823.22
Van Remort[e]l‟s/Conway & Conway‟s $109,317.30
Attorney‟s fees
(includes costs of $4,568.78)
Polliakoff, Fla. Attorney Fees $ 21,605.24
Martin, Outstanding Attorney‟s Fees $ 68,959.80
(Includes $50,000 discount off
$118,959.00 outstanding balance)
Contingency Fee (45%) $295,409.00
Kurt Van Voorhies $ 12,600.00
Al Saker $ 25,000.00
Subtotal of Credits $565,714.56
Net to ESI $ 90,749.74
Martin testified that he sent the distribution letter to Bragagnolo sometime on the
morning of February 25, 2003, by fax and by email.3 The proposed disbursement
would pay Martin $68,959.80 ($60,940.00 of which related to the Cannon
litigation) for hourly fees incurred under the February 20, 2000, and May 3, 2002,
fee agreements in addition to $295,409.00 under the December 11, 2001,
contingency fee agreement. The Board found that the total attorneys‟ fees related
2
The settlement funds were initially deposited in Van Remortel‟s trust
account; Van Remortel withdrew his attorney‟s fees and the Marshal‟s fees prior to
transferring the balance to Martin‟s trust account. Thus, Martin received only
$577,039.50 of the settlement funds.
3
The record is silent as to the precise time that Martin sent the letter.
6
to the litigation, including Florida and New York counsels, consumed over 73% of
the recovery.
At some point on February 25, 2003, Martin disbursed $376,968.804 to his
operating account pursuant to the February 24, 2003, letter to Bragagnolo. As
discussed at length infra, the record is not clear when these transfers were made.
According to Bragagnolo‟s testimony, he spoke with Martin by phone on the
morning of February 25, 2003, and disputed the proposed distribution with respect
to Martin and Van Remortel.5 At 10:45 a.m., Eastern Standard Time, on February
25, Bragagnolo followed up with an email6 to Martin stating:
Further to our telephone conversation this morning this is
your instruction not to pay any amounts from the
settlement funds of $656,400. You are expressly not to
pay Fred Van Remortel; Al Saker or Kurt Van Voorhies
until we have seen your letter and have given you further
written instructions.
4
This sum included Martin‟s $68,959.80 in hourly fees, Martin‟s
$295,409.00 contingent fee, and Kurt Van Voorhies‟ $12,600.00 fee.
5
The precise time of this phone conversation is unclear.
6
Bragagnolo, who was in Vancouver, Canada, sent this email at 7:45 a.m.,
Pacific Standard Time.
7
Because the Hearing Committee credited Bragagnolo‟s testimony on this issue, the
telephone conversation, as referenced to in the e-mail, would have taken place
before 10:45 a.m., the time of the email. We note, however, that the Hearing
Committee made no such finding – instead, it concluded that Martin learned of the
dispute “no later than February 25, 2003.”
According to Martin‟s version of events, Bragagnolo agreed to the proposed
distribution during the early morning February 25th telephone conversation after
Martin gave Bragagnolo a $50,000.00 discount. As a result, when Martin saw
Bragagnolo‟s 10:45 a.m. email at 4:37 p.m. the same day, Martin replied with an
email stating:
I assume this e-mail predates our discussion this
morning, and the letter that I faxed and e-mailed to you.
As you know, I disbursed the funds after our discussion,
including funds that I had wired to your trust account as
you directed. . . .[7]
7
Bar Counsel argued in its brief and at oral argument that Martin did not
actually disburse any of the funds until February 27, 2003, two days after
Bragagnolo registered his dispute, because checks and bank statements reflect that
funds were not transferred until February 27. Martin may have deposited the
checks on February 25, as he claims, and the checks were not processed by the
financial institution until two days later. However, because Bar Counsel did not
make this argument before the Hearing Committee or the Board, no findings of
fact were made on this issue. Thus, we do not consider this argument.
8
Bragagnolo and Martin did not correspond again until March 5, 2003, when
Bragagnolo once again disputed the fee distribution. The Hearing Committee
expressly did not credit “[Martin‟s] testimony that he disbursed the disputed fee
amount to his operating account before he heard any objection from Bragagnolo.”
The Hearing Committee found that Martin did not transfer the disputed funds from
his operating account into an escrow or trust account until December 2003.
Sometime after February 25, 2003, Martin called the D.C. Bar Ethics
Hotline for advice on how to handle disputed fees. Martin testified that Ernest
Lindberg, who answered his call, told Martin not to return the disbursed funds,
which were then in Martin‟s operating account, into his client‟s trust account
because “if you put those funds back in your trust accounts, you will violate the
rules against co-mingling attorney funds with client funds.” Lindberg testified that
he had no independent recollection of a call from Martin, that he would not have
provided legal advice to persons calling in on the Hotline, and that he would only
have directed the caller to relevant rules and legal ethics opinions. Lindberg
further testified that he would not have advised Martin to retain disputed funds in
his operating account “because that seems to me that would be inconsistent with
reference in [Rule] 1.15(c) that says you must put it back in accordance with [Rule]
1.15(a).” The Hearing Committee found Martin‟s assertion that he had received
9
advice not to transfer disputed funds from his operating account to a trust account
“incredible.”
On March 27, 2003, ESI filed a petition to arbitrate the fee dispute with
Martin before the D.C. Bar‟s Attorney-Client Arbitration Board. After denying
Martin‟s motion to dismiss, the ACAB issued a decision awarding ESI
$165,313.00, the amount above what the ACAB considered a reasonable fee. ESI
filed a motion to confirm the award in Superior Court, but Martin obtained
removal of the case to federal District Court for the District of Columbia where he
sought to have the award vacated. On September 30, 2004, the District Court
affirmed the ACAB award for $165,313.00 and an additional $10,190.48 in
prejudgment interest.
On October 7, 2004, ESI filed an ethics complaint with the Board on
Professional Responsibility in the District of Columbia against Martin, who had
not yet paid the arbitration award. On October 13, 2004, Martin appealed the
judgment of the District Court to the United States Court of Appeals for the
District of Columbia Circuit after depositing a sum in the amount of the District
Court‟s judgment with the court. On January 19, 2005, ESI and Martin agreed to a
settlement in which Martin would dismiss his appeal and would give ESI
10
$87,820.50, half the District Court‟s judgment plus interest. In return, the
settlement stated that “ESI and Bragagnolo shall cause to be submitted to Bar
Counsel a letter dismissing the Bar Complaint and requesting that Bar Counsel
terminate its investigation of Martin without action.”
On June 29, 2004, before ESI filed its ethics complaint, Martin filed a
Virginia bar application in which he stated, “I am currently involved in a fee
dispute with a former client [ESI],” and that “[o]nce I received notice of the
dispute, I placed the disputed funds into a separate interest bearing account, to be
available in the event I am ultimately found liable on the claim.” In fact, contrary
to what he asserted in the Virginia bar application, Martin had not promptly placed
the disputed funds in a separate interest-bearing account; the Hearing Committee
found that Martin knew of the dispute no later than February 25, 2003, but did not
deposit the funds in a separate account until December 2003. In his testimony
before the Hearing Committee, Martin did not explain why he made a contrary
representation regarding the timing of the movement of funds in his Virginia bar
application.
After ESI requested that the ethics complaint against Martin be dismissed in
accordance with the ACAB award settlement agreement on January 19, 2005,
11
Martin amended his Virginia bar application to report that an ethics complaint had
been filed against him in the District of Columbia, but that “the client has
requested that the Complaint be withdrawn.” Martin did not explain that ESI‟s
withdrawal request had been made pursuant to a settlement agreement. The
Hearing Committee found that Martin‟s actions on his Virginia bar application
“reflect guilty knowledge that he had improperly handled the disputed fees.”
II.
“[T]he hearing committee conducts the hearings and makes factual findings
and recommendations which it submits to the Board for review.” In re Temple,
629 A.2d 1203, 1208 (D.C. 1993). “[T]he Board has the power to make its own
factual findings and forward them to the court with a recommendation” but “[t]he
Board must accept the hearing committee‟s factual findings if they are supported
by substantial evidence on the record as a whole.” Id. The Board, however, “owes
no deference to the hearing committee‟s determination of „ultimate facts,‟ which
are really conclusions of law.” In re Micheel, 610 A.2d 231, 234 (D.C. 1992).
“Ultimate facts” are those that have “a clear „legal consequence.‟” See id. at 235.
 12
This court “must accept the Board‟s findings of fact „unless they are
unsupported by substantial evidence of record.‟” In re Pierson, 690 A.2d 941, 946
(D.C. 1997). Like the Board, however, we review questions of law and ultimate
facts de novo. In re Anderson, 778 A.2d 330, 339 n.5 (D.C. 2001).
A.
We will consider first Bar Counsel‟s charge that Martin collected an
unreasonable fee in violation of D.C. Rule of Professional Conduct 1.5 (a). The
Hearing Committee held that Martin had not violated Rule 1.5 (a) because it found
that the Florida litigation, the New York collection action, and the United States
forfeiture action were separate matters. As a result, Martin was allowed to collect
his hourly fees under the February 20, 2000, fee agreement for the Florida
litigation; his 45% contingency fee under the December 11, 2001, fee agreement
for the collection action; and his hourly fees under the May 3, 2002, fee agreement
for the United States forfeiture action. The Board disagreed, finding that the
Florida litigation, New York collection action, and United States forfeiture action
were but a single matter that was subject to the requirement that he charge a single
reasonable fee. Bar Counsel‟s charge thus presents us with two questions: (1)
13
whether Martin represented ESI in a single or multiple matters, and (2) if Martin
represented ESI in a single matter, whether the fee charged was reasonable.
i.
We begin by noting that whether Martin represented ESI in a single or
multiple matters is an issue of “ultimate fact” with “a clear „legal consequence‟” in
determining whether the fee charged was reasonable. In re Micheel, 610 A.2d at
234-35. The Board, in its report, appeared confused about whether this issue
should be treated as a question of law or a question of fact; on one hand, the Board
discussed this issue under the heading “Conclusions of Law,” but on the other
hand, the Board concluded that the Hearing Committee‟s findings on this point
were “not supported by substantial record evidence.” Neither Bar Counsel nor
Martin directly address the appropriate standard of review, although Martin
appears to treat this as a question of fact by applying the “clearly erroneous”
standard. Because we conclude that whether Martin represented ESI in a single or
multiple matters is a question of “ultimate fact,” the Board owed no deference to
the Hearing Committee‟s determination on this issue.
14
Martin argues that he represented ESI in separate matters because the
forfeiture action was “a new case, separate and distinct from the Florida action
against Mr. Cannon and the follow-on New York collection action” and “involved
different parties, different facts, and different legal issues.” His insistence that the
forfeiture action was an entirely separate matter suffers from a serious flaw. The
December 11, 2001, contingency fee agreement applied only to “[ESI‟s] litigation
against Herbert Cannon.” Under the terms of the contingency fee agreement, if the
United States forfeiture action was an entirely separate matter, as he insists, Martin
should not have been permitted to collect a 45% contingency fee for the litigation
against Cannon from the results of the forfeiture action.
We agree with the Board that the litigation action against Cannon in Florida,
the subsequent action to collect on the Florida judgment in New York, and the
United States forfeiture action were a single matter. “„[A]s a matter of common
sense‟ a contingency fee agreement „cannot be read to exclude collection of the
settlement proceeds.‟” Dardovitch v. Haltzman, 190 F.3d 125, 142 (3d Cir. 1999).
“[W]here the record reveals that the parties had no reason to believe that collection
would require more than minimal effort, attorneys have been permitted no
additional fee for collection actions.” Id. “[A]bsent some significant evidence that
the collection efforts were not within the contemplation of the parties at the time
15
they entered into the contingent fee agreement, no additional fees will be
permitted.” Id.
Here, pursuant to the December 11, 2001, fee agreement, Martin represented
ESI in the Florida litigation for a 45% contingency fee. In the subsequent
settlement agreement between Cannon and ESI, ESI was awarded $2.2 million but
could collect the judgment only from Rowen House and Montville brokerage
accounts in New York. The record indicates that neither ESI nor Martin
contemplated that the collection of the judgment in New York “would require
more than minimal effort.” Id. Thus, the Florida litigation against Cannon and the
collection action in New York were a single matter.
In the course of the collection proceeding, however, Martin learned that the
United States had filed a civil forfeiture action against the Rowen House and
Montville brokerage accounts, meaning “the federal government and ESI each
sought payment or satisfaction of its judgment against Cannon from the same
funds.” Although the United States forfeiture action may have been unexpected,
an attorney may “protect himself, and provide for attorney‟s fees in the event
additional collection efforts are necessary . . . [by] do[ing] so explicitly in the
retainer agreement. . . . [T]his is the common-sense understanding of contingent-
16
fee agreements.” Id. at 143. Contingency fee arrangements are, after all,
arrangements by which attorney and client agree to share a degree of risk. The
attorney takes the risk that little or no recovery may result from a considerable
amount of work; the client takes the risk that a significant award may be given for
a very small amount of work by the attorney. An attorney cannot change this
balance of risks later when the chances of recovery appear slim, or the amount of
work required unexpectedly increases, without express provision that the client
may later be responsible for additional fees, making the client aware that the
attorney will assume only a limited degree of risk. Martin‟s December 11, 2001,
fee agreement makes no provision for additional fees beyond the 45% contingency
fee, and any ambiguity in the agreement would be interpreted against Martin, who
drafted the agreement. See Capital City Mortg. Corp. v. Habana Vill. Art &
Folklore, Inc., 747 A.2d 564, 567 (D.C. 2000) (stating that ambiguities in contracts
will be “„construed strongly against the drafter.‟”).
ii.
Having determined that the various actions were a single matter, we agree
with the Board that the charged fee was unreasonable. Rule 1.5 (a) states, “A
17
lawyer‟s fee shall be reasonable.”8 In this case, Martin initially represented ESI for
an hourly fee in accordance with the February 20, 2000, fee agreement under
which he billed $13,115.00 for the Cannon litigation. On December 11, 2001, ESI
agreed to a new fee agreement granting Martin a 45% contingency fee in the
Florida litigation. Martin gave no credit or refund for $13,115.00 already earned
under the February 20, 2000, fee agreement. Shortly after ESI joined the United
States forfeiture action in New York, ESI agreed to another hourly fee agreement
on May 3, 2002, under which Martin billed $47,825.00. ESI settled with the
United States and received $656,464.30. Martin then sought to collect from this
award $68,959.80 in hourly fees under the February 20, 2000, and May 3, 2002,
8
Under Rule 1.5 (a), “[t]he factors to be considered in determining the
reasonableness of a fee include the following:
(1) The time and labor required, the novelty and
difficulty of the questions involved, and the skill requisite
to perform the legal service properly;
(2) The likelihood, if apparent to the client, that the
acceptance of the particular employment will preclude
other employment by the lawyer;
(3) The fee customarily charged in the locality for similar
legal services;
(4) The amount involved and the results obtained;
(5) The limitations imposed by the client or by the
circumstances;
(6) The nature and length of the professional relationship
with the client;
(7) The experience, reputation, and ability of the lawyer
or lawyers performing the services; and
(8) Whether the fee is fixed or contingent.
18
fee agreements as well as $295,409.00 for the December 11, 2001 contingency fee,
which totaled $364,368.80. The Board, which reviewed Martin‟s billings for his
hourly fees, determined that $356,349.00 of the total fee directly related to the
Cannon litigation, which amounted to 54% of the total award to ESI.9
We agree with the Board that, under these circumstances, Martin‟s total fee
was unreasonable in violation of Rule 1.5 (a). Generally, an attorney should not
acquire “a greater interest in the outcome of the litigation than his clients.” See
Attorney Grievance Comm’n of Maryland v. Korotki, 569 A.2d 1224, 1233 (Md.
1990) (“Without passing upon whether there can ever be circumstances justifying a
contingent fee in excess of fifty percent, it is generally a violation of the rule for
the attorney‟s stake in the result to exceed the client‟s stake.”). See also United
States ex rel. Taxpayers Against Fraud v. General Elec. Co., 41 F.3d 1032, 1047
(6th Cir. 1994) (stating that “rules of ethics adopted by the legal profession” would
prohibit “contracting with a client for a 75% contingency fee”); International
Travel Arrangers, Inc. v. Western Airlines, Inc., 623 F.2d 1255, 1278 (8th Cir.
1980) (limiting contingency fee to 45% as the “outer bound[] of reasonableness”);
Feingold v. Pucello, 654 A.2d 1093, 1094 (Pa. 1995) (“Feingold‟s proposed
9
The Board determined that only $60,940.00 of the $68,959.80 in hourly
fees charged related to the Cannon litigation.
19
contingency fee of 50% of recovery, after costs, is breathtakingly high.”). “„[T]he
fact that the client agreed to the [amount of the fee] does not relieve the attorney
from the burden of showing that the amount agreed upon was fair and
reasonable.‟” Korotki, 569 A.2d at 1234. The combination of Martin‟s
contingency fee and the hourly fees gave Martin well over a 50% interest in the
outcome of the Cannon litigation in violation of Rule 1.5 (a).
Martin argues, however, that the overall fee was nevertheless reasonable
because he gave ESI a $50,000.00 discount, which the Board failed to take into
account. According to Martin‟s February 24, 2003, letter of proposed distribution,
Martin originally charged ESI $118,959.00 in hourly fees, but reduced that amount
to $68,959.00 after a $50,000.00 discount. The Board used the discounted
$68,959.00 figure in its report and concluded that only $60,940.00 of the fees
related to the Cannon litigation. Although the Board used the discounted figure,
Martin faults the Board for failing to apply the $50,000.00 discount solely to the
fees he charged in relation to the Cannon litigation because he testified that the
discount was intended to “give back” the fee he earned under the May 3, 2002,
20
forfeiture action fee agreement, which amounted to $47,825.00.10 According to
Martin, therefore, he charged only $10,940.00 ($60,940.00 - $50,000.00) in hourly
fees related to the Cannon litigation in addition to the 45% contingency fee, which
amounted to approximately 47% of the total award to ESI.
Courts in other jurisdictions have noted that, “if at the conclusion of a
lawyer‟s services it appears that a fee, which seemed reasonable when agreed
upon, has become excessive . . . [the attorney] must reduce the fee.” Matter of
Swartz, 686 P.2d 1236, 1243 (Ariz. 1984) (en banc). See also Korotki, 569 A.2d at
1233 (citing Matter of Swartz, 686 P.2d 1236 (Ariz. 1984)). Assuming, without
deciding, that an ex post facto discount or reduction in fee can make a fee
reasonable under Rule 1.5 (a), Martin‟s discount was insufficient to bring the fee
into the realm of reasonableness.11 Even with a $50,000.00 discount, Martin
charged ESI 47% of its total award from the Florida litigation, “a fee which
10
The Hearing Committee found that Martin gave a $50,000.00 discount,
but did not make a credibility determination regarding whether the discount was
solely intended to offset fees earned in the Cannon litigation.
11
The D.C. Rule of Professional Conduct 1.5 (a) states only that “[a]
lawyer‟s fee shall be reasonable.” The ABA Model Rule of Professional Conduct
1.5 (a) states, in contrast, that “[a] lawyer shall not make an agreement for, charge
or collect an unreasonable fee . . . .” (emphasis added).
21
exceeds the outer limits of reasonableness.” International Travel Arrangers, Inc.,
623 F.2d at 1278 (reducing attorney‟s fees from 47% of total award to 45%).
The reasonableness of Martin‟s fee “must [also] be considered in light of the
fact [that] other attorneys‟ fees were also being paid by [ESI] to [Florida and New
York Counsel] for [their] involvement in the case.” Id. The spirit of this principle
is found in Rule 1.5 (e), which states, inter alia, that “[a] division of a fee between
lawyers who are not in the same firm may be made only if . . . [t]he total fee is
reasonable.”12 In International Travel Arrangers, Inc., a client hired two attorneys
for involvement in the same case. 623 F.2d at 1278. Although the fee charged by
each attorney was reasonable, when combined, the fees amounted to “47% of the
substantial total award” which the United States Court of Appeals for the Eighth
Circuit found “disturbing.” Id. The court accordingly reduced the total attorneys‟
fees. Id. In the case before us, Martin‟s individual fee was not reasonable, but
even if it were, the fee unquestionably became unreasonable when taking into
account the fees charged by Florida and New York counsel. Even applying
12
The Board held that Rule 1.5 (e) did not apply to the facts of this case
because Martin, New York counsel, and Florida counsel were not dividing a single
fee. New York counsel, for example was retained under a separate agreement.
We agree with the Board that the principle of reasonableness in Rule 1.5 (e)
nevertheless “informs the situation here where Respondent arranged for the
retention of other lawyers to assist in the matter and his compensation was not
based on his efforts.”
22
Martin‟s discount solely to the fees incurred in the Cannon litigation, the combined
attorneys‟ fees amounted to 67% of the total award to ESI, which is not only
disturbing but borders on the unconscionable.
The unreasonableness of Martin‟s fee is aggravated by the relatively small
amount of work he performed. The Board correctly observed that evidence in the
record indicates that “Florida and New York counsel performed much of the legal
work,” and the Hearing Committee found that Martin “rarely spent more than 5-15
hours per week working on ESI litigation matters.” Despite the relatively small
amount of work performed by Martin, he charged ESI more than twice as much as
the combined fees of Florida and New York counsel. For all these reasons, we
agree with the Board that Martin‟s fee was unreasonable in violation of Rule 1.5
(a).
B.
Bar Counsel‟s second charge is that Martin violated Rules 1.15 (a) and (c)
by comingling the disputed portion of ESI‟s settlement award with his own funds
by transferring the amount designated as his fee to his operating account. Rule
1.15 (a) states, inter alia, that “[a] lawyer shall hold property of clients . . . that is
23
in the lawyer‟s possession in connection with a representation separate from the
lawyer‟s own property.” Rule 1.15 (c)13 stated, inter alia, that “[w]hen in the
course of representation a lawyer is in possession of property in which interests are
claimed by the lawyer and another person . . . the property shall be kept separate by
the lawyer until there is an accounting and severance of interests in the property. . .
. Any funds in dispute shall be deposited in a separate account meeting the
requirements of paragraph (a),” i.e., an escrow or trust account, not the lawyer‟s
operating account.
The Hearing Committee determined that Martin violated Rules 1.15 (a) and
(c) because Martin knew of a fee dispute “no later than February 25, 2003” and
distributed the funds that same day despite his client‟s instruction not to distribute
the bulk of the settlement funds. The Hearing Committee found, alternatively, that
even if Martin was unaware of the dispute when he disbursed the funds, he “should
have returned the funds from his operating account back to his trust account.”
The Board disagreed because the Hearing Committee found only that Martin was
aware of a fee dispute “no later than February 25, 2003,” which is the same day
that the funds were disbursed, but “did not specify when on that critical day.”
13
Now Rule 1.15 (d).
24
The Board also disagreed with the Hearing Committee‟s alternative finding that
Martin was required to return funds when a dispute occurred after distribution.
i.
We hold that substantial evidence supported the Hearing Committee‟s
finding that Martin was aware of a dispute prior to disbursing ESI‟s settlement
award. Bragagnolo testified that he had a phone call with Martin instructing him
not to distribute the settlement award, and that he later placed this objection in an
email sent to Martin at 10:45a.m., Eastern Standard Time, on February 25, 2003.
Martin testified that he had two phone calls with Bragagnolo, one on February 24,
2003, and a second the next morning on February 25, 2003, in which Bragagnolo
agreed to the distribution of funds. Martin testified that he did not see
Bragagnolo‟s 10:45 a.m. email until after he had already distributed the funds.
Thus, at 4:37 p.m. that same day, Martin replied to Bragagnolo‟s email that “I
disbursed the funds after our [telephone] discussion.” The Hearing Committee,
based upon “the witnesses‟ testimony and demeanor,” credited Bragagnolo‟s
testimony about his phone call and emails over Martin‟s testimony and found that
Martin was aware of a dispute prior to the disbursement of funds.
25
The Board faulted the Hearing Committee‟s findings on these points because
“[t]he Committee did not make a finding whether Respondent was aware of a
dispute with Bragagnolo before making the fee disbursement” and found only that
Martin learned of a dispute “no later than February 25, 2003,” the day on which the
funds were disbursed. We think the Board reads the Hearing Committee‟s report
too narrowly. The report makes clear, in context, that the Hearing Committee
credited Bragagnolo‟s testimony that he informed Martin of a dispute by phone on
the morning of February 25, 2003, and Martin does not deny that the disbursement
of funds occurred only after the phone conversation with Bragagnolo; Martin‟s
4:37 p.m. email acknowledges that “I disbursed the funds after our [telephone]
discussion.” The Hearing Committee‟s finding that Martin knew of a dispute prior
to disbursal is made clearer when the Committee states, “Even if we credit
Respondent’s testimony that he disbursed the disputed fee amount . . . before he
heard any objection from Bragagnolo, the record evidence makes it clear that
Respondent knew of the dispute later that same day.” We conclude that the
Hearing Committee found that Martin knew of a dispute prior to the disbursement
of funds, and that this finding was supported by substantial evidence.
Martin violated Rules 1.15 (a) and (c) by distributing funds that were in
dispute. “There is no requirement that the dispute be „genuine,‟ „serious,‟ or „bona
26
fide.‟” In re Haar, 667 A.2d 1350, 1353 (D.C. 1995). Once the fact of dispute has
been conveyed, disputed funds must be placed in a separate interest-bearing
account. D.C. Rule of Professional Conduct 1.15 (c). Comingling the disputed
funds with attorney funds will result in a violation of Rules 1.15 (a) and (c). See In
re Berryman, 764 A.2d 760, 764, 767 (D.C. 2000). Martin did not place the
disputed funds into a separate account until December 2003, some nine months
after he was aware of a dispute. As a result, Martin comingled disputed funds with
his own funds in violation of Rules 1.15 (a) and (c).
ii.
We also agree with the Hearing Committee‟s alternative holding that even if
Martin was unaware of a fee dispute when the settlement funds were disbursed, he
violated Rules 1.15 (a) and (c) by failing to restore disputed funds to a separate
trust account after becoming aware of a dispute. We conclude, however, that we
should not apply that ruling to Martin because of the uncertainty surrounding the
scope of these rules at the time of the events described. Few authorities address
whether an attorney is required to return funds to a separate account when a fee
27
dispute is conveyed only after the disbursal of funds.14 Rule 1.15 (c) states, “Any
funds in dispute shall be deposited in a separate account,” but neither the rule nor
the comments specify whether funds must be restored to a separate account if the
dispute arises after funds have already been disbursed. Under the circumstances
presented here, however, we think the funds should be restored to a separate
account.
14
The following authorities hold the funds must be returned: In Matter of
Berg, 1997 WL 469003, *9 (Rev. Dep‟t of Ca. State Bar 1997) (although attorney
testified he was not aware of a dispute when he withdrew funds, “respondent failed
to provide any evidence of a return to trust of the disputed portion of the fees.”);
Vermont Legal Ethics Opinion 1998-05 (“Should the client dispute the transfer, the
immediate re-deposit of funds into the trust account placed the lawyer or law firm
in compliance with the Rule.”).
The following authorities hold that funds need not be returned: Board of
Prof’l Responsibility v. Curry, 266 S.W.3d 379, 392 (Tenn. 2008) (Because no fee
dispute existed when attorney withdrew funds, “he was not obligated to return
them after a dispute subsequently arose.”); Oregon Legal Ethics Opinion 2005-145
(“Because Oregon RPC 1.15-1 does not expressly mandate replenishment after
Lawyer has withdrawn funds without knowledge of a dispute, we conclude that
replenishment is not required.”); Colorado Legal Ethics Opinion 118 (“[T]he
Committee does not believe that a lawyer should be required or permitted to return
a disputed amount to a trust account of the lawyer that holds funds of any client, if
the client does not dispute the lawyer‟s fee before the lawyer withdrew funds for
payment from the lawyer‟s trust account . . . .”); California Legal Ethics Opinion
2006-171 (“Funds properly withdrawn from a [trust account] under rule 4-100(A)(2)
and later disputed by the client . . . do not need to be re-deposited into the attorney‟s
[trust account].”).
28
The Hearing Committee found that even if Martin did not know of a dispute
when he disbursed the funds, “he knew of the dispute later that same day.” Given
the short passage of time, Martin could have easily reversed the transfer of funds
and returned the amount in dispute to a trust account. Indeed, according to the
bank stamps on the checks and bank statements, the funds were not actually
transferred by the financial institution until February 27, 2003, two days after
Martin was aware of a dispute.15
We are also unconvinced by the Board‟s reasoning that, once disbursed,
funds can “no longer [be] client or protected funds.” If disbursing funds from a
client trust account automatically removed funds from the protection of Rule 1.15,
an attorney could easily circumvent the protections afforded by this rule by
disbursing putatively earned fees without ever providing clients an opportunity to
dispute the fee. For example, in this case, Van Remortel, ESI‟s New York counsel,
received the settlement award, withdrew his fees, and then transferred the
remainder to Martin for disbursal. Under the Board‟s view of Rule 1.15, the funds
15
As discussed supra note 7, Bar Counsel argues Martin did not deposit the
checks until February 27, 2003. As we stated, the Hearing Committee and Board
never found whether Martin deposited the checks on that date or whether the
checks were deposited on February 25 and were not processed by the bank until
two days later. Here, we note only that the financial institution did not process the
fund transfer until two days later, which meant Martin could have simply told the
financial institution to cancel his checks or otherwise stop the transfer.
29
taken by Van Remortel, which ESI had no opportunity to dispute, would not be
protected by Rule 1.15. We cannot accept an interpretation of the rule that would
so easily allow an attorney to circumvent its protections.
The protections afforded by Rule 1.15 to a client‟s interest in disputed funds
should not be underestimated. As we stated in In re Hessler, a case involving
misappropriation and comingling, “placing a client‟s funds in the attorney‟s own
account . . . puts the client‟s funds at risk.” 549 A.2d 700, 701-02 (D.C. 1988).
“[I]nherently there is danger in such practice for frequently unforeseen
circumstances arise jeopardizing the safety of the client‟s funds.” Id. at 702. “By
mingling client funds with the attorney‟s own, the client‟s funds become more
difficult to trace and are subject to the risk that they may be taken by creditors of
the attorney.” Id. The inherent harm in comingling funds does not require moral
turpitude for, “as far as the client is concerned[,] the result is the same whether his
money is deliberately misappropriated by an attorney or is unintentionally lost by
circumstances beyond the control of the attorney.” Id.
So serious has been the prohibition against commingling
that it has been held that a fiduciary who does so
becomes an absolute guarantor of the funds on deposit,
so that if, for example, the bank fails, the fiduciary is
responsible. This sanction, plainly a penalty to prevent
commingling, moreover has survived the relaxation of
30
the old “earmarking” rule which imposed a similar
penalty if a fiduciary failed to label trust assets as such.
Id. (footnote omitted). Although In re Hessler discusses funds that clearly belong
to the client, the same dangers are present with respect to comingling disputed
funds because subsequent litigation may determine that at least a portion of the
disputed funds belongs to the client. Moreover, the protections against comingling
in Rule 1.15 extend to both client funds and disputed funds.
For these reasons, we hold that if a client in any future matter, with
reasonable promptness, disputes an attorney‟s fee after the attorney has already
withdrawn his fee from the client trust account, the attorney must place the
disputed amount in a separate account in accordance with Rule 1.15 (a). What is
“reasonable promptness” will be a case-specific inquiry, and we need not address
other circumstances in which a client is less diligent in reviewing and disputing an
attorney‟s fee. Going forward, an attorney who, like Martin, claims he learned of a
dispute “later that same day” in circumstances such as these will be required to
return the disputed funds to a separate account under Rules 1.15 (a) and (c).
31
C.
Bar Counsel‟s third charge is that Martin violated Rule 1.16 (d) by failing to
promptly return unearned fees. Rule 1.16 (d) states, in relevant part: “In
connection with any termination of representation, a lawyer shall . . . surrender[]
papers and property to which the client is entitled.” Bar Counsel alleges that
Martin violated this rule by challenging ESI‟s ACAB arbitration award in federal
District Court and appealing to the District of Columbia Circuit, “effectively
den[ying] his client the benefits of D.C. Bar Rule XIII . . . [and] driving his cash-
poor client to „cut its losses and settle for 50% of what the ACAB . . . had ruled
[ESI] was entitled to receive.‟” The Hearing Committee agreed with Bar Counsel,
characterizing Martin‟s actions as “resisting the [arbitration] process and then
taking fruitless appeals over the course of one year following the ACAB award,”
which denied ESI property it was entitled to receive under Rule 1.16 (d). The
Board disagreed with the Hearing Committee, holding that Martin “had the right to
contest the fee arbitration and seek appeal prior to the requirement to make the
payment.”
District of Columbia Bar Rule XIII states that “[a]n attorney subject to the
disciplinary jurisdiction of this Court shall be deemed to have agreed to arbitrate
32
disputes over fees for legal services” and that such arbitration “shall be final and
binding on the parties according to applicable law[.]” The purpose of Rule XIII
“„is to provide a relatively quick, efficient and informal means of private dispute
settlement.‟” See Schwartz v. Chow, 867 A.2d 230, 233 (D.C. 2005) (per curiam)
(citing Sobel v. Hertz, Warner & Co., 469 F.2d 1211, 1214 (2d Cir. 1972)). Rule
XIII arbitrations are also intended to be essentially final, as indicated by this
court‟s relatively narrow scope of review. See id. See also D.C. Code § 16-4423
(2001) (setting forth the grounds for vacating an arbitral award).16 If the ACAB
16
D.C. Code § 16-4423 allows an arbitration award to be vacated if:
(1) The award was procured by corruption, fraud, or
other undue means;
(2) There was:
(A) Evident partiality by an arbitrator
appointed as a neutral arbitrator;
(B) Corruption by an arbitrator; or
(C) Misconduct by an arbitrator prejudicing
the rights of a party to the arbitration
proceeding;
(3) An arbitrator refused to postpone the hearing upon
showing of sufficient cause for postponement, refused to
consider evidence material to the controversy, or
otherwise conducted the hearing contrary to § 16-4415,
so as to prejudice substantially the rights of a party to the
arbitration proceeding;
(4) An arbitrator exceeded the arbitrator‟s powers;
(5) There was no agreement to arbitrate; or
(6) The arbitration was conducted without proper notice
of the initiation of an arbitration as required in § 16-4409
(continued…)
33
issues an award in favor of the client in a fee dispute, the attorney is required to
give this sum to the client under Rule 1.16 (d), which requires “a lawyer to make
timely return to the client of any property or money „to which the client is
entitled.‟” Rule 1.16 Comment [11].
Recognizing that whether a violation occurred in this case is a close
question, we agree with Bar Counsel and the Hearing Committee that Martin
violated Rule 1.16 (d) under the circumstances presented here. Martin violated
Rule 1.16 (d) by repeatedly resisting the mandatory arbitration process and “taking
fruitless appeals” with claims that were not substantial following the ACAB
decision. We do not lightly dismiss the Board‟s position that Martin had a right to
contest the outcome of the arbitration. Nevertheless, as we explain in recounting
the procedural history that follows, Martin “litigated the arbitration award to the
death” and his continued failure to return unearned fees to ESI “allow[ed]
Respondent to profit from his wrongdoing at his client‟s expense.”
(…continued)
so as to prejudice substantially the rights of a party to the
arbitration proceeding.
An arbitration award may also be vacated “on other reasonable ground.” Id.
34
On March 27, 2003, ESI filed a petition to arbitrate its fee dispute with
Martin before the ACAB. On May 21, 2003, Martin filed a motion to dismiss the
arbitration. Martin argued that ESI‟s petition implicated funds paid to other
attorneys (New York counsel); that New York counsel was an indispensible party;
that the claim was barred by the statute of limitations because his fee agreement
with ESI began in 2000; and that he intended to claim that ESI had committed
fraud, which was not a defense suited for an arbitration proceeding.
On June 24, 2003, ESI responded to Martin‟s motion to dismiss.
Addressing Martin‟s first two arguments, ESI clarified that it sought to recover
only the fees received by Martin and not by New York counsel. Second, ESI
stated that the claim was well within the statute of limitations; Martin did not
distribute the settlement award – which led to the fee dispute – until February,
2003, and ESI filed its petition to arbitrate one month later in March 2003.
Needless to say, the claim was well within the three-year statute of limitation.
D.C. Code § 12-301 (7) (2001). Finally, ESI argued that Martin‟s fraud claim was
“spurious,” but even if colorable, it was fully arbitrable. In any event, Martin‟s
fraud claim was later exposed as baseless. Martin alleged that ESI fraudulently
induced him to accept 40% of his legal fees in worthless ESI stock. However, in
his testimony before the Hearing Committee, Martin admitted that he did not
35
believe nor claim that ESI had defrauded him until ESI instituted the arbitration
proceedings three years after he accepted part of his fee in ESI stock.
Following ESI‟s response to Martin‟s motion to dismiss, Martin filed a
second motion to dismiss on July 10, 2003. The motion restated his arguments that
ESI‟s claim implicated indispensible third parties, that the statute of limitations
applied, and that the ACAB could not arbitrate the fraud claim. On July 31, 2003,
the ACAB denied Martin‟s motion to dismiss and reminded him that a hearing had
been scheduled for September 16, 2003.
Not content with the ACAB‟s ruling on his motion to dismiss, Martin filed a
complaint in Superior Court to enjoin the ACAB proceeding on September 10,
2003. On September 12, 2003, the Superior Court denied Martin‟s request to
enjoin the ACAB proceedings. Later that same day, September 12, Martin
requested that the ACAB hearing be postponed because ESI‟s claim allegedly
engendered confusion by referencing fees paid to New York counsel. However, as
ESI stated in response and as recounted above, “[t]he matter of the NY counsel
fees ha[d] already been considered and decided by the [ACAB] Panel.” The
ACAB denied the motion to postpone that same day. Despite Martin‟s alleged
36
confusion about ESI‟s claim, Martin successfully filed an answer and
counterclaims three days later on September 15, 2003.
On September 23, 2003, the ACAB came to a decision and awarded ESI
$165,313.00. For nearly a month following the decision, however, Martin made no
effort to pay the award. ESI sought to confirm the arbitration award in Superior
Court on October 10, 2003. In addition, on October 15, 2003, the ACAB ordered
Martin to pay the award within ten days. Martin did not pay the award as ordered.
Rather, fifteen days later, on October 30, 2003, Martin obtained removal of ESI‟s
motion to confirm the arbitration award from Superior Court to the Federal District
Court for the District of Columbia.
On December 5, 2003, Martin filed an answer and a counterclaim seeking to
vacate the ACAB award to ESI in federal District Court. In his answer, Martin
argued that the award should be vacated on the grounds that “D.C. Bar Rule XIII is
ultra vires,” that “D.C. Bar Rule XIII is unconstitutional,” that ACAB lacked
jurisdiction because “[n]one of the requirements under D.C. Bar Rule XIII for
deemed consent to arbitrate exist,” and that “[t]he arbitrators were guilty of
misconduct in refusing to postpone the hearing” and refusing to receive evidence
regarding Martin‟s admittedly untimely counterclaims. Martin‟s counterclaim
37
restated his argument that ESI had committed fraud by paying him in worthless
ESI stock.17
On September 30, 2004, the federal District Court dismissed Martin‟s ultra
vires and jurisdiction arguments because he failed to raise them before the ACAB
and rejected Martin‟s constitutional argument because “mandatory client fee
arbitration is nothing new.” The District Court found the ACAB arbitrators did not
commit misconduct by refusing to postpone the hearing because Martin was able
to respond to ESI‟s claims within three days of the denial to postpone. Finally,
citing a decision from this court,18 the District Court dismissed Martin‟s
counterclaims because “[c]ounterclaims will not lie in proceedings to confirm
arbitration awards.”
On October 13, 2004 – more than nineteen months after ESI petitioned for
arbitration before the ACAB – Martin filed an appeal to the United States Court of
17
As indicated supra note 16, the ground for vacating an arbitration award
are quite narrow, and most of Martin‟s claims did not fall within the permissible
categories to vacate an arbitration award.
18
A.S. Johnson Co. v. Atlantic Masonry Co., 693 A.2d 1117, 1120-21 (D.C.
1997) (complaint to stay arbitration was not a “pleading” requiring counterclaims
from the same transaction to be included).
38
Appeals for the District of Columbia Circuit. Contemporaneously, an ESI
shareholder by the name of Ron Grow, at Martin‟s behest, filed a petition in
Nevada state court to force ESI to hold a shareholders‟ meeting, thus expanding
the scale of litigation with which ESI had to contend.19 The Hearing Committee
found that, under the pressure of the lengthy above-stated procedural history,
Martin “dr[ove] his cash-poor client to „cut its losses and settle for 50% of what the
ACAB . . . had ruled [ESI] was entitled to receive.‟”
This procedural history convinces us that the Hearing Committee was
correct when it concluded that Martin “resist[ed] the process and then [took]
fruitless appeals over the course of one year” to defeat the purpose of Rule XIII. 20
Martin‟s resistance to every step of the arbitration process is quite evident; he filed
two motions to dismiss before the ACAB, then sought to enjoin the proceedings in
19
ESI claimed that Martin was attempting to circumvent the ACAB award
by orchestrating a takeover of ESI and then causing the company to forgive any
money owed by Martin to ESI. The Hearing Committee did not make any findings
with respect to this allegation, and the Board found that the evidence was
insufficient to support Bar Counsel‟s claim. Nevertheless, the Hearing Committee
did find that the Nevada lawsuit was instituted at Martin‟s behest, and we refer to
this lawsuit only to show that Martin was expanding the field of litigation and
exhausting ESI‟s resources.
20
Like the Hearing Committee, we conclude that the absence of a Fed. R.
Civ. Proc. Rule 11 (c) sanction against Martin does not absolve him of his conduct.
The record does not indicate whether any Rule 11 sanctions had been requested.
39
Superior Court, and then sought postponement when he could not enjoin the
proceedings. Even after the ACAB decision, Martin sought to vacate the award in
federal District Court and then appealed to the Court of Appeals when his claims
failed again. Contemporaneously, Martin instigated new litigation against ESI in
Nevada to further exhaust ESI‟s resources. In addition, the bases for Martin‟s
challenge to the ACAB proceedings and ultimately to the ACAB award were not
substantial. We fully recognize the right of an attorney to challenge an ACAB
award according to applicable law. Here, however, Martin‟s numerous filings
before the ACAB, two state courts, and two federal courts as well as the
consistently poor quality of his claims convinces us that Martin was engaged in
nothing more than an effort to exhaust his former client‟s resources and compel it
to settle for half of what it deserved. For these reasons, we are satisfied that Martin
violated Rule 1.16 (d) by unreasonably withholding the arbitral award to which
ESI was entitled.
D.
Bar Counsel‟s fourth charge was that Martin violated Rule 8.4 (c) by
engaging “in conduct involving dishonesty, fraud, deceit, or misrepresentation.”
We have stated that Rule 8.4 (c) should “not be accorded a hyper-technical or
40
unduly restrictive construction” and that “dishonesty encompasses conduct
evincing a lack of honesty, probity, or integrity in principle; a lack of
straightforwardness.” In re Ukwu, 926 A.2d 1106, 1113 (D.C. 2007) (brackets and
internal quotation marks omitted). The Hearing Committee found Martin violated
Rule 8.4 (c) by falsely claiming that Ernest Lindberg advised him not to place the
disputed fees back into a separate trust account.21 The Board held that substantial
evidence supported the Hearing Committee‟s finding.
Martin argues that the Hearing Committee‟s credibility determination that
Martin gave a false statement in connection to the advice he received from
Lindberg should be given no deference. We do not give deference to a Hearing
Committee‟s credibility determination where that determination is predicated upon
a conclusion of law rather than the demeanor of testifying witnesses. In re
Anderson, 778 A.2d 330, 341-42 (D.C. 2001). Martin argues that the Hearing
Committee rested its credibility determination of Martin and Lindberg‟s testimony
21
The Hearing Committee also found that Martin violated Rule 8.4 (c) by
falsely stating on his Virginia bar application that he had promptly placed the
disputed funds into a separate interest-bearing account. The Board agreed with the
Hearing Committee but considered Martin‟s false statements on the Virginia bar
application only as an aggravating factor in sanctions because Bar Counsel did not
claim a violation of Rule 8.4 (c) based upon the Virginia bar application statements
in the specification of charges. We agree with the Board‟s conclusion on this
point.
41
on the legal conclusion that the advice Lindberg allegedly gave was incorrect, and
that Martin was not required under the Rules of Professional Conduct to restore the
disputed fees to a separate trust account.
We are unpersuaded that the Hearing Committee‟s credibility determination
should be given no deference. First, the Hearing Committee credited Lindberg‟s
testimony that he never gave legal advice to attorneys calling the D.C. Bar Ethics
Hotline but merely directed attorneys to relevant rules and opinions. This
determination was not predicated upon a legal conclusion. Second, the Hearing
Committee also credited Lindberg‟s testimony that, even if he had given legal
advice, he would never have provided the advice alleged by Martin “because that
advice was incorrect.” Martin argues this second finding rested upon an incorrect
legal conclusion because the Rules of Professional Conduct did not require him to
return the disputed funds to a separate trust account.22 What is important in the
credibility determination here, however, is not whether the purported advice was in
fact legally sound but whether Lindberg thought the advice was correct. Lindberg
testified that the advice Martin allegedly received “seems to me” inconsistent with
22
Martin‟s argument, of course, is based on the same argument which we
rejected, supra, in II.B.ii where we held that Martin was required to transfer the
disputed funds to a separate trust account in accordance with Rules 1.15 (a) and
(c).
42
Rule 1.15. Martin‟s testimony was found to be “incredible” by the Hearing
Committee because Lindberg would not have given advice he believed to be
legally incorrect, regardless whether Lindberg‟s own belief was correct or not.
Based upon the Hearing Committee‟s credibility determinations, we agree
with the Board that Martin violated Rule 8.4 (c) by falsely claiming that he had
received advice from the D.C. Bar Ethics Hotline not to return disputed funds to a
separate trust account. Martin‟s false statements evince “a lack of honesty,
probity, or integrity in principle.” In re Ukwu, 926 A.2d at 1113 (internal
quotation marks omitted). As in In re Ukwu, “[w]e do not suggest that every
credibility finding in favor of Bar Counsel automatically establishes perjury or
false testimony on the part of a respondent whose recollection was different.” Id.
at 1118 n.23. However, the suggestion that Lindberg would have given advice he
perceived to be wrong and in contravention of his general practice not to give any
advice “is improbable to say the least.” Id.23
23
In addition, statements that Martin made on his Virginia bar application
make his testimony even more improbable. Although Martin testified that he had
been advised not to return the disputed funds to a separate trust account, he stated
on his Virginia bar application that he promptly placed the disputed fee in a
separate account, implying that he fulfilled his ethical duties to avoid comingling.
Martin‟s bar application suggests that he believed the proper action would have
been to place the disputed fee in a separate account, in contradiction to the advice
he claims to have received from Lindberg.
43
E.
Bar Counsel‟s fifth charge is that Martin violated Rule 8.4 (d) by requiring
ESI to withdraw its bar complaint against Martin in the settlement following the
ACAB arbitration award.24 The settlement agreement also required ESI and
Bragagnolo not to “aid, abet or cause the institution or prosecution of Suit . . .
arising from or relating to Enterprise Solutions Inc.”
24
The Hearing Committee sustained a violation of this rule on the grounds
that Martin
failed to disclose to his client that, after the fund
distribution list was challenged by the client, [Martin]
allowed the disputed fees to remain in his operating
account as opposed to his trust account; resisted and
delayed engaging in the process of fee arbitration with
his client . . . ; and falsely reported to ACAB that the
disputed funds were kept in a trust account and he failed
to disclose to the Virginia Bar that that [sic] the disputed
funds were kept in his operating account and were not
kept in a trust account.
The Board sustained a violation of this rule on the grounds that Martin made
“false statements to Bar Counsel that the disputed funds were held in his trust
account” and that Martin required ESI “to dismiss or withdraw its disciplinary
complaints filed against him with the Office of Bar Counsel.” As we sustain
Martin‟s violation of Rule 8.4 (d) on the ground that he required ESI to dismiss its
bar complaint against him, we do not address the other grounds raised by the
Hearing Committee and the Board.
44
Rule 8.4 (d) states that it is professional misconduct for a lawyer to
“[e]ngage in conduct that seriously interferes with the administration of justice.”
In order to sustain a violation of this rule, Bar Counsel must prove that the
attorney‟s conduct is (1) improper, (2) that the conduct bears “directly upon the
judicial process . . . with respect to an identifiable case or tribunal,” and (3) the
conduct must “taint the judicial process in more than a de minimis way.” In re
Uchendu, 812 A.2d 933, 940 (D.C. 2002) (internal quotation marks omitted).
It is well-settled that an attorney who enters into an agreement with a client
which requires the client either to refrain from filing or to seek dismissal of a bar
complaint violates Rule 8.4 (d). The settlement agreement between ESI and
Martin stated, “ESI and Bragagnolo shall cause to be submitted to Bar Counsel a
letter dismissing the Bar Complaint and requesting that Bar Counsel terminate its
investigation of Martin without action.” The District of Columbia Bar‟s Legal
Ethics Opinion 260 states that an agreement whereby “the client agrees not to file a
complaint with Bar Counsel against the lawyer constitutes conduct that „seriously
interferes with the administration of justice‟” in violation of Rule 8.4 (d). The
District of Columbia Bar‟s position is consistent with that of other jurisdictions.
The Florida Bar v. Frederick, 756 So. 2d 79, 86 (Fla. 2000) (per curiam) (violation
of Rule 8.4 (d) where attorney required clients to “agree to either not contact the
45
Florida Bar with any complaints concerning him, or if they had already done so,
that they would withdraw the same.”); Matter of Cartmel, 676 N.E.2d 1047, 1050
(Ind. 1997) (per curiam) (“By entering into an agreement with his client which
called for dismissal of the grievance she had filed against him, the respondent
engaged in conduct that was prejudicial to the administration of justice and thus
violative of Prof. Cond. R. 8.4 (d).”); People v. Moffitt, 801 P.2d 1197, 1198 (Colo.
1990) (en banc) (attorney‟s “effort to condition settlement of the malpractice claim
upon [client‟s] agreement not to file a grievance against him constituted conduct
prejudicial to the administration of justice.”); In re Tartaglia, 798 N.Y.S.2d 458,
460-61 (N.Y. App. Div. 2005) (per curiam) (attorney “engaged in conduct
prejudicial to the administration of justice” by insisting that client withdraw bar
complaint). Because the settlement agreement required ESI to withdraw its bar
complaint against Martin, we sustain the violation of Rule 8.4 (d).
Martin argues that no violation of Rule 8.4 (d) occurred because ESI‟s
request to withdraw the bar complaint had only a de minimis effect upon the
disciplinary proceeding. Despite ESI‟s request, Martin asserts, Bar Counsel‟s
investigation proceeded and Bragagnolo testified before the Hearing Committee.
Martin‟s argument fails to recognize that “[a]ll that Rule 8.4 (d) requires is conduct
that taints the process or potentially impact[s] upon the process to a serious and
46
adverse degree.” In re Uchendu, 812 A.2d at 941 (emphasis in original) (internal
quotation marks omitted). See also In re Reback, 513 A.2d 226, 231-32 (D.C.
1986) (attorneys‟ false signature on Superior Court filing tainted judicial process
“even though their dishonesty, as such, caused the client little, if any, prejudice.”).
Here, the settlement agreement certainly had the potential to seriously impact the
bar proceedings against Martin. Prior to giving testimony, Bragagnolo reviewed
the settlement agreement and was concerned that the agreement might prohibit him
from testifying in the disciplinary action. Tellingly, when Bragagnolo sought
assurances from Martin that he would not retaliate for testifying, Martin refused to
provide any assurance. Bragagnolo testified under subpoena. The settlement
agreement therefore had the potential to prevent Bragagnolo from testifying, which
would have seriously undermined Bar Counsel‟s case; in light of this, we cannot
say that the settlement agreement had only a de minimis effect.
III.
Having established Martin‟s violation of Rules 1.5 (a), 1.15 (a) and (c), 1.16
(d), 8.4 (c), and 8.4 (d), we turn to the appropriate sanction for this case. The
Hearing Committee, which sustained Martin‟s violation of all counts except for
charging an unreasonable fee under Rule 1.5 (a), recommended a one-year
47
suspension and payment of restitution to ESI for the remainder of the ACAB
arbitration award with pre and post-judgment interest prior to reinstatement. The
Board, which sustained Martin‟s violation of Rules 1.5 (a), 8.4 (c), and 8.4 (d),
recommended a six-month suspension with restitution of the remainder of the
ACAB arbitration award as a condition to reinstatement with pre and post-
judgment interest. Bar Counsel argues for disbarment.
“The discipline we impose should serve not only to maintain the integrity of
the profession and to protect the public and the courts, but also to deter other
attorneys from engaging in similar misconduct.” In re Scanio, 919 A.2d 1137,
1144 (D.C. 2007) (internal quotation marks omitted). We base our determination
of sanctions upon a number of factors, such as (1) the seriousness of the conduct,
(2) prejudice to the client, (3) whether the conduct involved dishonesty, (4)
violation of other disciplinary rules, (5) the attorney‟s disciplinary history, (6)
whether the attorney has acknowledged his or her wrongful conduct, and (7)
mitigating circumstances. In re Elgin, 918 A.2d 362, 376 (D.C. 2007). In
addition, “[s]o long as the Board‟s sanction recommendation falls within the wide
range of acceptable outcomes, it comes to us with a strong presumption in favor of
its imposition.” Id. (internal quotation marks omitted). Nonetheless, “[i]n the final
analysis, it is the court which decides the sanction to be imposed.” Id.
48
Under our case law, Martin‟s unreasonable fee in violation of Rule 1.5 (a),
comingling funds in violation of Rules 1.15 (a) and (c), and failure to promptly
return client funds in violation of Rule 1.16 (d), standing alone, do not warrant a
severe penalty such as a lengthy suspension or disbarment. For example, sanctions
for charging an unreasonable fee range “from informal admonition to suspension,”
and suspension is usually imposed only in combination with violation of other
rules. In re Shaw, 775 A.2d 1123, 1125 n.5 (D.C. 2001) (per curiam). See also In
re Roxborough, 675 A.2d 950, 952 (D.C. 1996) (per curiam) (noting attorney
received informal admonition for charging an excessive fee). “Sanctions for the
single act of commingling generally have ranged from [public] censure
accompanied by a requirement for continuing legal education in professional
responsibility to suspension.” In re Berryman, 764 A.2d 760, 767 (D.C. 2000)
(internal citations omitted). Similarly, failure to promptly return client funds has
been punished with public censure. In re Mance, 980 A.2d 1196, 1208 (D.C.
2009) (public censure for comingling in violation of Rule 1.15 (a) and failure to
promptly return client funds in violation of Rule 1.16 (d)).
Martin‟s dishonesty in violation of Rule 8.4 (c) and interference with the
administration of justice in violation of Rule 8.4 (d), however, warrant imposition
of a more severe sanction. The violation of these two rules warrants severe
49
sanction because “honesty is „basic‟ to the practice of law.” In re Mason, 736
A.2d 1019, 1024 (D.C. 1999). The Board noted that we have generally imposed
relatively short periods of suspension for isolated instances of dishonesty, see In re
Hawn, 917 A.2d 693, 693 (D.C. 2007) (per curiam) (thirty-day suspension for
falsifying transcript); In re Owens, 806 A.2d 1230, 1231 (D.C. 2002) (per curiam)
(thirty-day suspension for making false statements to administrative law judge); In
re Schneider, 553 A.2d 206, 212 (D.C. 1989) (thirty-day suspension for falsifying
receipts), whereas we have imposed relatively longer suspensions where
dishonesty is accompanied by other serious violations or is protracted, see In re
Wright, 885 A.2d 315, 316-17 (D.C. 2005) (per curiam) (one-year suspension for
pattern of dishonesty in several matters); In re Ukwu, 926 A.2d 1106, 1120 (D.C.
2007) (two-year suspension for neglecting client‟s matters, dishonesty to client,
and false statements to Bar Counsel). In particular, engaging in dishonest conduct
“to cover up [other] misconduct is absolutely intolerable” and warrants a greater
sanction. In re Chapman, 962 A.2d 922, 925 (D.C. 2009) (per curiam).
We conclude that Martin‟s actions in this case warrant an eighteen-month
suspension because his dishonesty was both protracted and intended to conceal or
excuse earlier misconduct. In weighing the severity of Martin‟s dishonest conduct,
we consider the “entire mosaic” of the attorney‟s practice as reflected in the record.
50
See In re Ukwu, 926 A.2d at 1117 & n.20. Following the end of the Cannon
litigation, Martin sought to collect a grossly unreasonable fee in violation of Rule
1.5 (a), which when combined with the fees charged by other attorneys involved in
the same matter, amounted to 67% of the total award. Despite ESI‟s dispute of the
attorneys‟ fees, Martin disbursed the settlement proceeds and failed to remove the
funds to a separate trust account when ESI further disputed the fees in violation of
Rules 1.15 (a) and (c). Martin then engaged in a series of additional misconduct to
conceal and excuse these earlier violations.
First, Martin falsely testified that Lindberg from the D.C. Bar Ethics Hotline
had advised him not to place the disputed fees in a separate account, which we
found to be a violation of Rule 8.4 (c). Second, Martin falsely stated on his
Virginia bar application that “[o]nce I received notice of the dispute, I placed the
disputed funds into a separate interest bearing account,” when in fact Martin did
not place the funds in a separate account until December 2003, some eight months
after he learned of a fee dispute. The false statement on the Virginia bar
application is particularly aggravating as it is in direct contradiction to the alleged
advice from Lindberg. On one hand, Martin told Bar Counsel that Lindberg
advised him not to return the disputed fees to a separate account because that
would be comingling; on the other hand, he told the Virginia bar that he placed the
51
disputed funds in a separate account, implying that he therefore fulfilled his ethical
duties to avoid comingling. These two inconsistent (and false) statements reveal
the duplicitous nature of Martin‟s actions as he attempted to hide and excuse his
misconduct.
Third, after ESI obtained an award for $165,313.00 from ACAB, Martin
refused to pay and instead undertook “fruitless” appeals to delay any payment,
which we found to be a violation of Rule 1.16 (d). The delay prejudiced his former
client, causing ESI to settle for half the amount it was entitled to receive. Fourth,
under the settlement agreement between Martin and ESI, ESI was required to
withdraw its bar complaint against Martin, which we have found was an
interference with the administration of justice in violation of Rule 8.4 (d). Fifth,
Martin amended his Virginia bar application to report that a bar complaint had
been filed against him, but that “the client has requested that the Complaint be
withdrawn.” Martin did not reveal that the requested withdrawal was made only
pursuant to a settlement agreement. Such conduct displays a “lack of
straightforwardness” expected of attorneys. In re Ukwu, 926 A.2d at 1113
(internal quotation marks omitted).
52
Sixth, and perhaps most egregious, Martin substantially aggravated the
serious nature of his dishonest conduct by suggesting that he would not retaliate
against Bragagnolo for testifying before the Hearing Committee if Bar Counsel
agreed not to prosecute some of the charges against him. In the ACAB award
settlement agreement between ESI and Martin, Bragagnolo had agreed that he
would “not hereafter institute or prosecute any Suit or other proceeding against
Martin . . . or in any way aid, abet or cause the institution or prosecution of Suit . . .
arising from or relating to Enterprise Solutions Inc.” Fearing that his testimony
before the Hearing Committee may constitute a breach of the settlement
agreement, Bragagnolo requested assurances from Martin that he would not
retaliate for testifying. Martin refused to give any assurance. Subsequently, a fax
sent by Martin‟s attorney to the Hearing Committee and Bar Counsel stated that
Martin noted “there was no offer by Bar Counsel to drop any of the charges against
him in exchange for him making a concession with respect to the settlement
agreement that would assist Bar Counsel‟s case.” Martin‟s veiled attempt to
bargain with Bar Counsel to drop charges in return for Bragagnolo‟s testimony
reveals Martin‟s willingness to interfere with the Bar‟s regulation of the legal
profession. This cannot be tolerated.25 We note, in mitigation, that Martin has
25
A respondent may certainly litigate vigorously against Bar Counsel and
may engage in negotiated discipline. See, e.g., In re Rigas, 9 A.3d 494 (D.C.
(continued…)
53
never been subject to prior disciplinary action in twenty years of practice. Given
the severity of the aggravating factors, however, an eighteen-month suspension is
appropriate.
Although the Hearing Committee, Board, and Bar Counsel all agree that no
cases involving comparable facts exist in this jurisdiction, and the choice of an
appropriate sanction is not “an exact science,” In re Edwards, 870 A.2d 90, 94
(D.C. 2005), an eighteen-month suspension is consistent with our other cases
involving a similar level of dishonesty. See In re Midlen, 885 A.2d 1280, 1292
(D.C. 2005) (Eighteen-month suspension for misappropriation compounded by
dishonesty); In re Kitchings, 857 A.2d 1059, 1059 (D.C. 2004) (per curiam)
(Eighteen-month suspension for negligent conduct, harm to clients, and a “number
of violations over a protracted period of time.”); In re Hallock, 702 A.2d 1258,
1259 (D.C. 1997) (per curiam) (In reciprocal disciplinary action, eighteen-month
suspension for charging an unreasonable fee in violation of Rule 1.5 and
dishonesty prejudicial to the administration of justice in violation of Rule 8.4.); In
re Morissey, 648 A.2d 185, 190 (D.C. 1994) (per curiam) (In reciprocal
(…continued)
2010). In this case, however, Martin‟s action was akin to blackmailing Bar
Counsel to drop charges in return for Bragagnolo‟s testimony, which was central to
the disciplinary proceedings against Martin.
54
disciplinary action, eighteen-month suspension for “dishonesty and numerous
instances of litigation misconduct.”); In re Lenoir, 585 A.2d 771, 774 (D.C. 1991)
(per curiam) (Eighteen-month suspension for repeated dishonesty in representing
two clients.).
Because Martin‟s delaying actions following the ACAB award caused ESI
to settle for half the amount of the arbitration award, both the Hearing Committee
and the Board recommend, as a condition to reinstatement, disgorgement of the
remainder of the ACAB award with pre and post-judgment interest. The Board
recommends that the funds be paid to ESI, if ESI has not already been paid by the
Client‟s Security Fund, but if ESI is no longer in existence or has already been
compensated by the Client‟s Security Fund, funds should be disgorged to the
Client‟s Security Fund.
Martin argues that disgorgement is inappropriate because ESI relinquished
half the ACAB award pursuant to a full and fair settlement agreement. We cannot
agree. First, the Board adopted ACAB‟s findings that the $165,313.00 arbitration
award represented the unreasonable portion of Martin‟s fee, which Martin is not
entitled to receive or retain under Rule 1.5 (a). ESI‟s willingness to settle for half
the arbitration amount does not reduce the unreasonable portion of Martin‟s fee.
55
See In re Haar, 667 A.2d at 1354-55 (willingness to compromise does not establish
admission to liability). Second, permitting Martin to keep half of the arbitration
award would “allow[] him to profit from his unethical behavior.” In re Hager, 812
A.2d 904, 922 (D.C 2002). Thus, we adopt the Board‟s recommendation and rule
that “disgorgement should be imposed as a „reasonable condition‟ of
reinstatement.” Id.
Accordingly, it is ORDERED that respondent Kenneth A. Martin be, and he
hereby is, suspended from the practice of law in the District of Columbia for a
period of eighteen months, with reinstatement conditioned upon compliance with
D.C. Bar Rule XI § 16 (d) as set forth above.