Disciplinary Counsel v. Smith ( 2009 )

[Cite as Disciplinary Counsel v. Smith, 124 Ohio St. 3d 49, 2009-Ohio-5960.]
DISCIPLINARY COUNSEL v. SMITH.
[Cite as Disciplinary Counsel v. Smith, 124 Ohio St. 3d 49, 2009-Ohio-5960.]
Attorneys — Misconduct — Charging excessive fees — Accepting employment in
a legal matter for which lawyer was not professionally competent —
Public reprimand.
(No. 2009-1144 — Submitted September 15, 2009 — Decided
November 19, 2009.)
ON CERTIFIED REPORT by the Board of Commissioners on Grievances and
Discipline of the Supreme Court, No. 08-019.
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MOYER, C.J.
{¶ 1} Respondent, Justin Martus Smith of Cleveland, Ohio, Attorney
Registration No. 0072044, was admitted to the practice of law in Ohio in 2000.
The Board of Commissioners on Grievances and Discipline recommends that we
publicly reprimand respondent for his conduct in charging two clients excessive
fees and representing them in legal matters for which he was not competent, while
under the supervision of the owner of the law firm with which he was associated.
We agree that respondent committed the misconduct found by the board and,
accordingly, publicly reprimand respondent.
I. Procedural History
{¶ 2} Relator, Disciplinary Counsel, filed a complaint against
respondent, alleging violations of two Disciplinary Rules arising from
respondent’s conduct in helping two clients of his law firm to obtain
compensation for injuries sustained in an auto accident. A panel of the board
concluded that respondent had committed both violations of the Code of
Professional Responsibility and recommended a public reprimand. The board
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adopted the panel’s findings of fact, conclusions of law, and recommended
sanction.
{¶ 3} Respondent filed objections to the board’s decision, arguing that
the evidence did not support the findings that he had violated the Disciplinary
Rules and thus that the complaint should be dismissed.
II. Misconduct
A. Factual Background
{¶ 4} In May 2002, having been admitted to the practice of law in Ohio
for two years and employed as an associate in the Chapman Law Firm, owned by
Frank Chapman, respondent was assigned to the case of Louis and Florence
Reiger. The Reigers were passengers in the vehicle of Marvin Seltzer and his
wife when they were involved in an accident. Seltzer lost control of the car while
driving on an Ohio expressway, causing it to flip into the median. Louis Reiger
was seriously injured in the accident and required extensive medical treatment,
hospitalization, and rehabilitation. Florence Reiger was also injured, although
less seriously. She also required medical treatment and hospitalization.
{¶ 5} After viewing the firm’s advertisement in the yellow pages, the
Reigers contacted the Chapman Law Firm, and respondent was assigned to the
case. He visited Florence Reiger at the hospital and presented a contingent-fee
agreement to her. The agreement provided for attorney fees of 33 1/3 percent of
the gross amount if the case was settled without filing a lawsuit, 40 percent of the
gross settlement or judgment if suit was filed, and 45 percent of the gross
settlement or judgment following a trial or appeal. Respondent signed the
agreement on behalf of the firm, and Florence signed on her own behalf and on
behalf of her husband, Louis, as his attorney in fact, although she did not show
respondent any documentation that she held her husband’s power of attorney.
Respondent never met with Louis because he was a patient at a different hospital.
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{¶ 6} Seltzer was insured by a Geico automobile insurance policy with a
$100,000-per-person limit for personal injury. He had no other assets that would
allow for additional recovery. The Reigers, who were residents of New York,
carried an insurance policy with State Farm Mutual Automobile Insurance
Company (“State Farm”) in New York. Their policy included personal-injury
protection (“PIP”) coverage of $175,000 per person. Under New York law, PIP
coverage is no-fault insurance paid without a determination of liability.
N.Y.Ins.Law 5101 et seq. PIP claims for medical and hospitalization expenses
are paid directly to medical service providers. The providers may apply for the
coverage themselves. Most importantly, New York law does not permit an
attorney to collect a contingent fee from a client on PIP payments.
{¶ 7} On September 11, 2002, respondent filed suit on behalf of the
Reigers against Marvin Seltzer. Neither insurance company was named in the
suit. In October 2003, Geico paid the full $100,000 policy limit for Florence
Reiger. Respondent endorsed the check from Geico that was payable to Florence
by signing the names of both clients and his own name. In May 2004, Geico paid
the full $100,000 policy limit for Louis Reiger. Respondent also endorsed this
check, payable to Louis, by signing both clients’ names and adding “POA” after
each. Respondent did not have a power of attorney for either client that
specifically authorized him to sign their names on checks. Respondent testified
that he was just doing what Chapman instructed.
{¶ 8} In November 2002, respondent applied for PIP coverage for both
Louis and Florence Reiger by completing the appropriate State Farm paperwork.
Cleveland MetroHealth Hospital had, however, already applied for PIP coverage
on behalf of Louis Reiger. State Farm paid the policy limit of $175,000 for Louis
directly to the hospital. Upon respondent’s application, State Farm also paid
$33,152.91 in PIP coverage for Florence Reiger directly to Akron General
Hospital. The Chapman Law Firm received none of the money paid by State
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Farm. Respondent testified that he possessed a general understanding of PIP
coverage as no-fault insurance, but he did not research the permissibility of
collecting legal fees. Respondent testified that he collected the fees because, after
he questioned Chapman regarding fees on PIP recovery, Chapman instructed him
to do so. Respondent stated that he did not feel that it was his responsibility to
research whether fees could be collected from the PIP recovery, despite being the
Reigers’ attorney, because Chapman set fees for the firm.
{¶ 9} In December 2003, respondent sent the first of three disbursement
sheets to the Reigers, itemizing the recovery for Florence. The document noted a
gross recovery of $139,159.92, the total of the $100,000 from Geico and the
$39,152.92 from State Farm. This amount was reduced by $6,000 for a
settlement negotiated by respondent with State Farm regarding the insurer’s
subrogation rights, by $3,500 for the cost of an asset investigation of Seltzer, and
by $55,661 for respondent’s legal fees (taken at 40 percent of the gross recovery).
Florence’s net recovery was listed at $34,839. The document did not mention the
recovery of any funds for Louis, nor was a check for Florence enclosed.
{¶ 10} The second disbursement sheet was sent in September 2004, listing
jointly the recovery for the Reigers. There was no separate itemization for each
client because after respondent initially prepared separate documents, Chapman
would not approve them. The initial separate document for Louis Reiger resulted
in a negative disbursement, meaning he would have owed legal fees to the firm.
Chapman told respondent to “make it work,” which he did by combining
Florence’s and Louis’s disbursements. Respondent testified that he informed
Chapman that this would mean that the Reigers would receive less than the
amount denoted in the first disbursement sheet for Florence alone, but Chapman
rebuffed him.
{¶ 11} The document noted a total gross recovery from both State Farm
and Geico of $414,152.92. Attorney fees were again calculated at 40 percent for
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a total of $165,661.17, which was deducted from the gross recovery along with
various other expenses, resulting in a joint disbursement to the Reigers of
$8,207.46. The law firm sent the Reigers a check for that amount. Respondent
testified that he prepared the disbursement sheet based on instructions from
Chapman. Chapman directed respondent to collect 40 percent in fees from the
total gross recovery even though no lawsuit had been filed against State Farm and
the State Farm settlement was paid directly to the hospitals. Even after one of the
Reigers’ children complained to respondent about the amount of the fees,
Chapman told respondent that he was collecting 40 percent of the recovery.
Respondent then sent a follow-up letter with greater detail to the Reigers.
{¶ 12} A grievance was filed with the Office of Disciplinary Counsel
regarding the attorney fees. After respondent received a request for additional
information from Disciplinary Counsel, he sent the Reigers a revised
disbursement sheet in February 2005. This final document deducted the $6,000
subrogation settlement from the State Farm PIP payments for Florence Reiger,
rather than subtracting it as an expense. This change reduced the total recovery,
thereby reducing the attorney fees and resulting in an increased disbursement for
the Reigers of $2,400.
{¶ 13} The Reigers later sued respondent, Frank Chapman, and the
Chapman Law Firm for legal malpractice and excessive fees. The case was
settled when the Chapman Law Firm agreed to disgorge the attorney fees received
on the PIP coverage of $83,261.17. The Reigers also received $18,738.83 under
the malpractice insurance policy held by the firm.
B. Disciplinary Rule Violations
{¶ 14} The board found that respondent violated DR 2-106(A) (“A lawyer
shall not enter into an agreement for, charge, or collect an illegal or clearly
excessive fee”). We agree. Respondent has stipulated that the fees paid by the
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Reigers were excessive but argues that Chapman was responsible for charging
those fees.
{¶ 15} Although Chapman was the owner of the law firm, it was
respondent who acted as the Reigers’ attorney. Respondent signed the
contingent-fee agreement, he filed suit on the Reigers’ behalf, he submitted PIP
claims on their behalf, he was the only attorney for the law firm that had any
contact with them, and he prepared the disbursement sheets detailing their
recovery and attorney fees.
{¶ 16} It is undisputed that the fees charged in this case were excessive.
New York state law controls the State Farm insurance policies held by the
Reigers. New York law prohibits the collecting of a contingent fee from a client
on PIP coverage. Respondent and the Chapman Law Firm were thus prevented
by law from collecting fees based on the PIP recovery that their clients received.
Despite this, and despite the fact that the law firm received no part of the PIP
recovery because it was paid directly to the hospitals that had treated the clients,
respondent collected 40 percent of the funds for his fees. He did so by reducing
the disbursement that the Reigers should have received from the Geico liability
coverage.
{¶ 17} Respondent argues that he cannot be disciplined for his actions
because Chapman had control of the fees and the firm’s checkbook. Even though
Chapman was his superior, respondent has a responsibility to his clients.
Respondent’s counsel stated at oral argument that respondent prepared the
disbursement sheets as a scribe would, following the dictates of his superior.
Actually, respondent is not a scribe but an attorney, responsible for zealously
representing his clients’ interests. We have stated previously that “new lawyers
are just as accountable as more seasoned professionals for not complying with the
Code of Professional Responsibility.” Disciplinary Counsel v. Johnson, 106 Ohio
St.3d 365, 2005-Ohio-5323, 835 N.E.2d 354, ¶ 39. The same general rule applies
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to lawyers who are directly supervised by their superiors within a law firm. A
lawyer’s obligations under the ethics rules are not diminished by the instructions
of a supervising attorney.
{¶ 18} Respondent claims that if only his conduct had occurred more
recently, it would have fallen within the safe harbor of recently adopted
Prof.Cond.R. 5.2. This assumption is incorrect. Prof.Cond.R. 5.2(a) states the
general rule that “[a] lawyer is bound by the Ohio Rules of Professional Conduct
notwithstanding that the lawyer acted at the direction of another person.” The
safe harbor appears in Prof.Cond.R. 5.2(b): “A subordinate lawyer does not
violate the Ohio Rules of Professional Conduct if that lawyer acts in accordance
with a supervisory lawyer’s reasonable resolution of a question of professional
duty.” (Emphasis sic.)
{¶ 19} Prof.Cond.R. 5.2(b) would not apply to the circumstances of this
case regardless of its effective date. First, there was no ambiguity in the
illegitimacy of the fees because New York law clearly prohibits the collection of a
contingent fee from the client on PIP coverage. Second, respondent and Chapman
were both insufficiently familiar with PIP coverage, and they did not properly
research the question of attorney fees. Although respondent apparently posed the
question to Chapman, and Chapman said he would look into it, it was
unreasonable for respondent to rely on Chapman’s directions under the
circumstances. The nature of PIP coverage as no-fault insurance that was to be
paid directly to the Reigers’ medical service providers should have alerted
respondent to the issue of attorney fees. That context, coupled with the relatively
small disbursement check issued to the Reigers compared to the total recovery,
should have at least prompted respondent to seek confirmation from Chapman
that his research verified the permissibility of attorney fees, if not to research the
question himself. There is no indication in the record that respondent ever
followed up with Chapman after Chapman stated that he would contact another
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lawyer; nor did respondent verify the source of any information to which
Chapman referred. Respondent even failed to take significant action after
receiving complaints from the clients’ family and Disciplinary Counsel. Under
these circumstances, respondent was required to verify, at least minimally, the
information he was given before he could reasonably rely on the instructions of
his supervisor.
{¶ 20} In addition to the unauthorized assessment of a fee against the
Reigers on the PIP coverage, respondent should have recognized that the fees
collected were excessive under the terms of the fee agreement. The agreement
permitted a contingent fee of 40 percent only if it was necessary to file suit, while
a lower fee of 33 1/3 percent was to be charged if no lawsuit was needed.
Although respondent did file suit against Seltzer, and thereby recovered through
Seltzer’s Geico liability policy, no action was ever filed against State Farm. State
Farm made payments under the Reigers’ PIP coverage upon receipt of the proper
forms. Even if legal fees could have been collected on the PIP recovery, the
contingent-fee agreement permitted respondent to collect only 33 1/3 percent of
the recovery, rather than the 40 percent he did collect. Since respondent signed
the agreement on behalf of the law firm and prepared the disbursement sheets,
there would be no reasonable basis for him to rely on Chapman for these
purposes.
{¶ 21} The board also found that respondent violated DR 6-101(A)(1) (“A
lawyer shall not * * * [h]andle a legal matter which he knows or should know that
he is not competent to handle, without associating with him a lawyer who is
competent to handle it”). We agree. Respondent testified that he had a general
understanding of PIP coverage but was unaware that he could not collect fees
from the client. Respondent did not research the issue of attorney fees for helping
a client obtain PIP benefits or associate with a lawyer who was familiar with PIP.
He deferred to Chapman’s statement that Chapman would speak to another
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lawyer, but at no time did respondent have any contact with outside counsel or
even verify that Chapman had done so.
III. Sanction
{¶ 22} The proper sanction for violations of the Disciplinary Rules is
determined after consideration of “the duties violated, respondent's mental state,
the injury caused, the existence of aggravating or mitigating circumstances, and
applicable precedent.” Disciplinary Counsel v. Evans (2000), 89 Ohio St. 3d 497,
501, 733 N.E.2d 609. The relevant factors are addressed below.
A. Duties Violated and Injury Caused
{¶ 23} Respondent violated two Disciplinary Rules through his conduct in
charging two clients attorney fees that were prohibited by law. Although he was
supervised by another attorney and given instructions on drafting the
disbursement sheets he prepared, respondent either did not recognize the
questionable nature of the fees or unreasonably relied on his superior. As a result,
respondent’s clients were forced to pay over $83,000 in illegal attorney fees,
which they did not recover until after they filed a malpractice action.
B. Aggravating and Mitigating Circumstances
{¶ 24} A nonexhaustive list of the aggravating and mitigating
circumstances that may be considered in disciplinary cases is found in Section
10(B) of the Rules and Regulations Governing Procedure on Complaints and
Hearings Before the Board of Commissioners on Grievances and Discipline
(“BCGD Proc.Reg.”). In mitigation, the board noted that respondent has no prior
disciplinary record and that he displayed a cooperative attitude during the
disciplinary process. BCGD Proc.Reg. 10(B)(2)(a), (d). Respondent also
presented four witnesses that testified to his good character and to the fact that
Chapman made all financial decisions of the law firm. BCGD Proc.Reg.
10(B)(2)(e).
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{¶ 25} “Because each disciplinary case is unique, we are not limited to the
aggravating and mitigating factors specified in BCGD Proc.Reg. 10(B) but may
take into account ‘all relevant factors’ in determining what sanction to impose.”
Cincinnati Bar Assn. v. Mullaney, 119 Ohio St. 3d 412, 2008-Ohio-4541, 894
N.E.2d 1210, ¶ 40, quoting BCGD Proc.Reg. 10(B). In Mullaney, for example,
we noted one attorney’s inexperience and the fact that the firm’s established
practices constrained his conduct. Id. That attorney was publicly reprimanded.
Id. We similarly consider respondent’s inexperience as an attorney and the fact
that Chapman primarily controlled the firm’s finances as mitigating factors in this
case.
C. Applicable Precedent
{¶ 26} We find three cases to be particularly relevant to our
determination. The recent case of Toledo Bar Assn. v. Sawers, 121 Ohio St. 3d
229, 2009-Ohio-778, 903 N.E.2d 309, involved conduct similar to that of
respondent. There, the attorney was found to have violated the same two
Disciplinary Rules as respondent, DR 2-106(A) and 6-101(A)(1), as well as DR 9-
102(A) (requiring a lawyer to deposit client funds in a separate, identifiable bank
account). Id. at ¶ 5-6. The attorney joined with a more seasoned attorney with
whom she was previously affiliated to prepare trusts for clients. Id. at ¶ 3-5. The
attorneys collected a fee of nearly $10,000 to prepare generic trust documents
without considering the clients’ particularized needs. Id. at ¶ 5. We issued a
public reprimand. Id. at ¶ 9.
{¶ 27} In Disciplinary Counsel v. Johnson, 106 Ohio St. 3d 365, 2005-
Ohio-5323, 835 N.E.2d 354, ¶ 2, 5, and 9-22, the respondent attorney had
overcharged for her services on numerous occasions related to her court-
appointed representation of juvenile clients. She was found to be in violation of
DR 2-106(A), for charging an excessive fee, among other rules, including DR 1-
102(A)(4) (barring conduct involving dishonesty, deceit, fraud, or
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misrepresentation). Id. at ¶ 40. After considering the respondent’s inexperience
and the fact that she was following the practices of another attorney who had
served as her mentor, we imposed a one-year suspension from the practice of law,
with six months stayed. Id. at ¶ 39, 41.
{¶ 28} In Cincinnati Bar Assn. v. Mullaney, 119 Ohio St. 3d 412, 2008-
Ohio-4541, 894 N.E.2d 1210, ¶ 5-6, 12, and 43-45, three attorneys were
disciplined for representing a total of approximately 2,000 clients referred from a
foreclosure-assistance company. The attorneys had little to no contact with each
client and filed boilerplate pleadings on their behalf, while allowing nonlawyers
from the company to negotiate with the clients’ lenders. Id. at ¶ 15-17. We
publicly reprimanded the inexperienced associate involved, finding him subject to
discipline for failing to comply with the Disciplinary Rules but noting his efforts
on behalf of the clients within the constraints of the firm’s established practices.
Id. at ¶ 40.
{¶ 29} The board’s recommendation of a public reprimand is consistent
with our precedent involving cases of similar misconduct and similarly
inexperienced attorneys.
D. Determination
{¶ 30} Respondent’s conduct in this case constituted violations of two
Disciplinary Rules. We accordingly adopt the board’s recommended sanction of
a public reprimand. Costs are taxed to respondent.
Judgment accordingly.
PFEIFER, LUNDBERG STRATTON, O’CONNOR, O’DONNELL, LANZINGER, and
CUPP, JJ., concur.
__________________
Jonathan E. Coughlan, Disciplinary Counsel, and Heather L. Hissom,
Assistant Disciplinary Counsel, for relator
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Koblentz & Koblentz, Richard S. Koblentz, and Craig J. Morice, for
respondent.
______________________
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