In the Matter of Michael J. Galanis , 2001 Ind. LEXIS 257 ( 2001 )

FOR THE RESPONDENT FOR THE INDIANA SUPREME COURT
DISCIPLINARY COMMISSION
Terry L. Smith Donald R. Lundberg, Executive
Secretary
Smith & DeBonis 115 West Washington Street
9696 Gordon Drive Suite 1165
Highland, IN 46322 Indianapolis, IN 46204
IN THE
SUPREME COURT OF INDIANA
IN THE MATTER OF )
) Case No. 45S00-9904-DI-233
MICHAEL J. GALANIS )
DISCIPLINARY ACTION
March 19, 2001
Per Curiam
The respondent, Michael J. Galanis, agreed in writing to represent a
client in her personal injury lawsuit in exchange for forty percent (40%)
of her recovery. The respondent ultimately retained fifty percent (50%) of
the recovery – $20,000 more than agreed – and refused the client’s demands
for the return of the excess fees. We suspend the respondent from the
practice of law in Indiana for ninety (90) days for such misconduct.
Having been admitted to the bar of this state in 1979, the respondent
is subject to our disciplinary jurisdiction. A hearing officer was
appointed to this case, and, after a hearing, tendered his report to this
Court. The hearing officer determined the respondent violated
Ind.Professional Conduct Rule 1.5(a) by charging an unreasonable fee.
Neither the respondent nor the Disciplinary Commission has petitioned
this Court for review of the hearing officer's report. Where the hearing
officer's report is unchallenged, we accept and adopt the findings
contained therein but reserve final judgment as to misconduct and sanction.
Matter of Kristoff, 611 N.E.2d 116 (Ind. 1993).
Within that review framework, we now find a client hired the
respondent in 1993 to represent her in her pending claim for personal
injuries arising from an automobile accident. The fee agreement signed by
the respondent and his client called for the respondent to receive a
contingent fee of forty percent (40%) of the gross amount recovered by the
filing of a lawsuit, plus expenses. The agreement further provided that
the client would pay an additional ten percent (10%) of the gross
settlement if it were appealed by another party to the litigation.
A jury returned a verdict of $250,000 for the client. The defendant
filed a motion to correct errors in which she urged that the damages
awarded by the jury – which were $150,000 more than her available insurance
coverage – were excessive and should be reduced. The respondent, on behalf
of his client, filed a brief opposing the motion to correct errors. The
trial court denied the motion.
The respondent began investigating the availability of collecting
directly from the defendant the $150,000 of the judgment not covered by
insurance. He determined that the defendant had been declared incompetent
and was under a guardianship. He further determined that the guardianship
did not have sufficient assets to satisfy the excess judgment.
That led the respondent to investigate whether the defendant might
have grounds for a claim against the defendant’s insurer for bad faith.
The respondent ultimately determined a factual basis for that claim
existed. The respondent negotiated with the defendant’s attorney, seeking
an agreement under which the defendant would assign her claim of bad faith
judgment to the client in exchange for a covenant not to execute the
judgment against the defendant. In response, the defendant’s attorney
initially offered to resolve the personal injury lawsuit for $150,000 --
$100,000 less than the judgment but $50,000 more than available insurance
coverage. Eventually, the respondent and the defendant’s attorney
negotiated a $200,000 settlement which did not include assignment of any
bad faith claim which the defendant had against her insurer.
On or about April 28, 1994, the client went to the respondent’s office
to approve the disbursement of the settlement. The respondent gave the
client a disbursement statement calling for his retention of $100,000 in
attorney fees – the equivalent of fifty percent (50%) of the total
settlement. The statement indicated the settlement was for a claim of
damages arising out of the automobile accident and did not indicate that
any of the fees were calculated on an hourly basis. The statement also
made no reference to compensation for an independent bad faith claim
against the insurer.
The client later objected to the disbursement, claiming that the
respondent was entitled to forty percent (40%) of the settlement proceeds,
not fifty percent (50%), because the case was not appealed. Though not
disputing that no appeal occurred, the respondent refused to return the ten
percent (10%). He testified at hearing that he spent more than eighty-
three (83) hours researching the potential bad faith claim against the
defendant’s insurer and that his normal billing rate was $250 per hour.
Thus, he asserted his time on the bad faith claim was worth about $21,000.
We find that the respondent violated Prof.Cond.R. 1.5(a) by charging
an unreasonable fee. Under the fee agreement, he was entitled to forty
percent (40%) of the $200,000 -- $80,000. The hearing officer’s findings
indicate the respondent justified the $100,000 fee by asserting he was
entitled to $20,000 in hourly fees for his work on the bad faith claim in
addition to the forty percent (40%) of the $200,000 settlement authorized
by the fee agreement. This approach rests on his assertion that the bad
faith claim was a separate action to which a different fee structure
applies.
The respondent’s argument fails. First, the fee agreement does not
specify that the respondent is entitled to an hourly rate nor does it
specify an hourly rate. The fee agreement only refers to a percentage
recovery of any gross amount recovered from the lawsuit. Moreover, the
disbursement statement does not reflect any hourly billing rate. It notes
a total settlement of $200,000 and attorney fees of $100,000. While the
respondent contends the bad faith claim was separate from the client’s
personal injury claim, the respondent and the client negotiated and
finalized only one fee agreement. Nothing in that fee agreement suggests
that the personal injury and bad faith claims are separate actions to which
separate billing procedures will apply.
In fact, the bad faith claim was not a separate action in which the
respondent was representing his client and for which he was entitled to
separate fees totaling $20,000. The bad faith claim belonged to the
defendant in the personal injury lawsuit, not the respondent’s client. The
defendant’s possible bad faith claim against her insurer was an asset of
the defendant which the respondent discovered during his efforts to collect
his client’s personal injury judgment. To the extent that the respondent
researched the merits of a bad faith claim against the insurer, he did so
only as a means of collecting the judgment in his client’s personal injury
lawsuit.
Where there is a written fee agreement specifying the amount of legal
fees the client will pay, an attorney’s retention of a fee greater than
that specified in the agreement is strongly indicative of an unreasonable
fee. Matter of Lehman, 690 N.E.2d 696 (Ind. 1997). In this case, the
respondent retained fifty percent (50%) of the settlement when the fee
agreement provided for forty percent (40%). He has failed to establish any
legitimate grounds for retaining the additional ten percent (10%) as fees.
Accordingly, we find the respondent charged an unreasonable fee, in
violation of Prof.Cond.R. 1.5(a).
Given our finding of misconduct, we must determine an appropriate
sanction. In doing so, we consider the misconduct, the respondent’s state
of mind underlying the misconduct, the duty of this court to preserve the
integrity of the profession, the risk to the public in allowing the
respondent to continue in practice, and any mitigating or aggravating
factors. Matter of Mears, 723 N.E.2d 873 (Ind. 2000). The reasonableness
of an attorney’s fee is an important question of public import with broad
implications; it has an impact on the availability of legal services to the
public and the administration of justice, and, ultimately, reflects on the
attorney’s status. Matter of Benjamin, 718 N.E.2d 1111 (Ind. 1999).
The respondent attempted to take fifty percent (50%) of his client’s
recovery when he was entitled to only forty percent (40%). When the client
objected and sought return of the excess fees, the respondent refused and,
to justify his excessive fee, claimed that he was entitled to $20,000 in
hourly fees. In light of the substantial amount of the unreasonable fee,
we find that the respondent’s misconduct warrants a significant period of
suspension.
It is, therefore, ordered that the respondent, Michael J. Galanis, is
hereby suspended from the practice of law for ninety (90) days, beginning
April 23, 2001. At the conclusion of this suspension, he shall be
automatically reinstated if he has: 1) fully reimbursed the client the
$20,000 in fee overcharges; 2) provided proof of such reimbursement to the
Commission before the 80th day of his suspension; and 3) paid the costs
assessed in this proceeding. If such conditions are not met before the
expiration of the ninety (90) day suspension, the respondent’s suspension
shall continue until he successfully petitions for reinstatement pursuant
to Ind. Admission and Discipline Rule 23(4).
The Clerk of this Court is directed to provide notice of this order in
accordance with Admis.Disc.R. 23(3)(d) and to provide the Clerk of the
United States Court of Appeals for the Seventh Circuit, the Clerk of each
of the United States District Courts in this state, and the Clerk of each
of the United States Bankruptcy Courts in this state with the last known
address of the respondent as reflected in the records of the Clerk.
Costs of this proceeding are assessed against the respondent.