Disciplinary Board of the Supreme Court of North Dakota v. Wolff , 2010 N.D. LEXIS 177 ( 2010 )

CROTHERS, Justice,

specially concurring.

[¶ 28] I concur in the disciplinary sanctions imposed by the Court and with much of what the Court has written in support of the sanctions. I write separately on two points of law arising, I believe, because disciplinary counsel is unnecessarily “stacking” allegations of rule violations and because the disciplinary board’s hearing panel has not sufficiently explained the rationale behind several of its findings of fact and conclusions of law on those issues. Doing so, I recognize Wolff did not object to the hearing panel’s findings of fact, conclusions of law and recommendation. Yet, I am mindful of our obligation to correctly interpret and apply applicable law. See Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 99, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991) (“When an issue or claim is properly before the court, the court is not limited to the particular legal theories advanced by the parties, but rather retains the independent power to identify and apply the proper construction of governing law.”). Adhesion to our duty is especially important in lawyer disciplinary cases where we adjudicate in the first instance rather than act as an appellate tribunal.

[¶ 29] In File No. 4677-W-0711, disciplinary counsel alleged Wolff violated Rules 1.15(a) and (c) by billing and collecting money from four clients for work Wolff did not perform. Order at ¶¶ 4, 5. The Order notes, “The Petition alleges that Wolffs conduct in this matter violates ... N.D.R. Prof. Conduct 1.15(a) and (c), Safekeeping Property and Professional Liability Insurance Disclosure, which provide a lawyer shall hold property of clients and third persons that is in a lawyer’s possession in connection with a representation separate from the lawyer’s own property, and a lawyer shall deposit into a client trust account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred.” Order at ¶ 5. The hearing panel’s findings parrot allegations in the Petition for Discipline and culminate in a bare conclusion Rule 1.15 was violated. Order at ¶ 7. In fact, the hearing panel’s “conclusions” merely repeat the legal violations alleged in paragraph VII of the Petition for Discipline.

[¶ 30] I agree these sparse findings and bare conclusions of Rule 1.15 violations were minimally sufficient where Wolff overcharged the Administrative Office of the United States Courts $1,794 on one file and $3,606.40 on another and where he agreed to credit that unearned fee on the final bills to the government. Order at ¶ 6. In those instances, the fees were received and acknowledged by Wolff to be unearned. At that point, the money in Wolffs possession should have been deposited into the client trust account as “legal fees and expenses paid in advance” and the money should not have been withdrawn until the fees were earned. N.D.R. Prof. Conduct 1.15(c).

[¶ 31] I also agree the findings and conclusions are sufficient to support imposition of discipline in the Beckedahl case where Wolff falsified billing records by adding hours and then removed funds from his firm’s client trust account as earned fees. See In re Kellogg, 274 Kan. 281, 50 P.3d 57, 64 (2002) (“By failing to keep [client’s] unearned fees in the trust account the Respondent failed to appropriately safeguard her client’s property in violation of KRPC 1.15(a).”).

[¶ 32] My concern relates to the remaining case involving Wolffs billing for work not performed, but where no promise existed to credit fees against future work and where no withdrawal from a trust account occurred. I am not confident that either the plain wording of the rule or a case in any jurisdiction supports imposition of discipline for this last scenario.

[¶ 33] Rule 1.15(a) requires that lawyers hold client property separate from the lawyer’s property. The thought underlying this rule is that “[a] lawyer should hold property of others with the care required of a professional fiduciary.” N.D.R. Prof. Conduct 1.15 cmt. 1. Technically and in hindsight, one might conclude that receiving money from over-billing is a violation of the rule in that the lawyer has possession of something he was not entitled to possess — the client’s money. However, taking money as the result of excessive or fictitious billing is a direct violation of Rule 1.5 regarding fees. See ABA Center for Professional Responsibility, Annotated Model Rules of Professional Conduct 70-71 (6th ed. 2007) (“Padding bills and billing the same work to more than one client violates Rule 1.5(a) ” and “[i]t is by definition unreasonable to charge for work not done.”). Imposing discipline for violations of Rule 1.5 makes good sense, and we are doing that here. Order at ¶ 7. However, it is the predictable ill fit of a square peg in a round hole to then try hammer the lawyer’s possession of excessive fees into a violation of Rule 1.15(a) or (c).

[¶ 34] Rule 1.15 is designed to protect clients by requiring that lawyers not co-mingle client and lawyer property. I find nothing in the Rule’s drafting history or commentary suggesting this rule was intended as a “pile-on” charge to a Rule 1.5 violation for collecting excessive fees unless additional conduct constituting a separate violation of Rule 1.15 exits. Nor have I found any reported case in any jurisdiction where a Rule 1.15(a) violation has been tacked onto a Rule 1.5 violation for bill padding or fictitious billing without the fees first having been deposited into a client trust account and then improperly withdrawn to pay the inflated fee. In re Kellogg, 50 P.3d at 64.

[¶ 35] Rule 1.15(c), N.D.R. Prof. Conduct, requires a lawyer to “deposit into a client trust account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred.” The hearing panel did not find, and I cannot locate anything in the record supporting a conclusion, that the fees in the Bray file were “paid in advance,” that advance fees were not put in a trust account or that trust account funds were wrongfully withdrawn as the result of fraudulent billings. Rather, the lawyer accepted fictitious or excessive fees directly from the client, and no trust account was misused. Standing alone, bill padding and fictitious billings are serious ethical violations for which serious discipline is warranted and is being meted out in this case. However, Wolffs fictitious billing in the Bray file had nothing to do with Rule 1.15. I discourage reading the Order in this case as providing reliable precedent to the contrary. I also caution against the result in this case being read for the proposition that Rule 1.15 can or should be used against a lawyer who withdraws what are thought to be legitimately earned fees from the trust account, only to later have a fee dispute with a client.

[¶ 36] In File No. 4736-W-0803, I am troubled by the hearing panel’s failure to adequately explain its application of Rule 1.8(h), N.D.R. Prof. Conduct.

[¶ 37] Rule 1.8(h)(1) provides:

“(h) A lawyer shall not:

(1) make an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless the client is independently represented in making the agreement.”

[¶ 38] The Amended Petition for Discipline in this case alleged at paragraph II:

“Wolff represented Lisa Anderson in regard to litigation involving the death of her daughter. The fee agreement between the two provided that Wolff would receive l/3rd of any recovery as an attorney fee, with the attorney fee calculated prior to the deduction of costs which were to be born by Anderson. The agreement also provided that in the event there was a dispute between the attorney and client of any type involving the engagement, it would be resolved solely by arbitration, or by applicable rules of the State Bar Association for resolution of fee disputes if applicable. It also provided that the prevailing party in any such disputes would be entitled to attorney’s fees and costs incurred in the resolution of the dispute. Wolff did not discuss the dispute clause in the agreement with Anderson.”

The hearing panel’s finding 2 is identical to paragraph II of the Petition. Neither is helpful to the resolution of this case.

[¶ 39] The Petition concerns itself with the fee dispute clause not being disclosed or discussed with the client. Nothing in the Petition or the hearing panel’s findings and conclusions bring this within the terms of Rule 1.8(h)(1) by suggesting Wolff attempted to exculpate himself from “malpractice” without discussing the clause with his client and without having her obtain independent advice. Legal malpractice is “[a]n instance of negligence or incompetence on the part of a professional.” Black’s Law Dictionary 978 (8th ed.1999). In North Dakota, “[p]rofessional negligence in a legal malpractice action involves establishing the existence of an attorney and client relationship, an attorney’s duty to a client, an attorney’s breach of that duty, and damages caused by the attorney’s breach.” Minn-Kota Ag Prods., Inc. v. Carlson, 2004 ND 145, ¶ 7, 684 N.W.2d 60.

[¶ 40] Rather than involving malpractice, the hearing panel found that Wolff attempted to limit the remedies available to the client for any fee dispute that might arise and that he failed to properly disclose that provision to his client. Fee disputes are not malpractice claims, and although several ethics advisory opinions discussed application of Rule 1.8(h) in the context of fee disputes, I can find no authority from any court directly addressing the issue or holding Rule 1.8 can be extended to fee disputes. See, e.g., Okla. Adv. Op. 312, 2000 WL 33389634 (Aug. 18, 2000); Mich. Adv. Op. RI-257 (Apr. 8, 1996). Perhaps Rule 1.8(h) can be taken that far, but I am unwilling to so hold unless we are required to reach the issue and we are assisted by briefing.

[¶ 41] Even assuming Rule 1.8(h) can be applied to fee disputes, arbitration clauses are not per se prohibited. Rather, the prohibited conduct is including an arbitration clause without first disclosing the fact to the client and ensuring the client is independently represented. N.D.R. Prof. Conduct 1.8(h)(1). See also Watts v. Polaczyk, 242 Mich.App. 600, 619 N.W.2d 714, 718 (2000) (“[M]erely contracting for ADR on issues of professional malpractice does not violate MRPC 1.8(h). As other ethics opinions have noted, when used appropriately such provisions in fee agreements only address the forum in which liability will be determined, not the duty of the lawyer to exercise reasonable care nor liability for breach of that duty.”) (citations omitted).

[¶ 42] Here, nothing in the Petition and no findings of fact by the hearing panel indicate Wolff violated Rule 1.8(h) by requiring arbitration of any malpractice case brought against him. That is a problematic gap in view of the fee agreement found in the record — but not mentioned by either disciplinary counsel or the hearing panel— containing a clause providing, “Any and all disputes of any type, kind, or nature whatsoever involving the engagement (including, without limitation, fee disputes and disputes concerning the legal services rendered or not rendered by the firm) shall be resolved solely by arbitration.”

[¶ 43] The hearing panel did make a finding of fact (again adopted verbatim from the Petition for Discipline) that Wolff had the client sign a fee agreement containing a mandatory fee arbitration clause and findings that “Wolff did not discuss the dispute clause in the agreement with Anderson.” That finding, along with the broad arbitration clause found in the record but not quoted by the hearing panel, may be enough to conclude clear and convincing evidence establishes Wolffs violation of Rule 1.8(h). However, all of the findings and conclusions address a fee dispute and not malpractice, thus falling outside the apparent scope of Rule 1.8(h) and thus calling into question whether the Rule has been properly applied.

[¶ 44] GERALD W. VANDE WALLE, C.J., and DANIEL J. CROTHERS, J., concur.