Usury Unfriendly

An attorney’s failure to pay a litigation funder who had advanced funds to his client drew a term suspension of two months from a single justice the Massachusetts Supreme Judicial Court.

The respondent’s primary argument before me is that the advances from Global and Excel were loans that were both usurious and illegal, and that the underlying premise of Bar Counsel’s petition for discipline is therefore a nullity.

The court assumed that this argument had been preserved and rejected it on the merits

The flaw in the respondent’s argument is that even if he is correct in his view that the loans were void, it has no bearing on the heft of Bar Counsel’s petition. The majority of the committee and the board found that the respondent’s written representations to Excel that his client had not received any prior cash advances was knowingly false and misleading, and that he knowingly failed to notify Excel that he had received the settlement funds. Excel advanced funds to the client on two occasions based on the respondent’s representations. Had he not made those representations, Excel would not have advanced any funds to his client. Excel relied on the respondent’s representations. The legality of the loans had nothing to do with his intent or his ethical obligations at the time.  His ethical obligations in these circumstances are independent of the validity of the loans. “The most fundamental duty which a lawyer owes the public is the duty to maintain the standards of personal integrity upon which the community relies…

Similar reasoning applies to the finding that the respondent failed to notify Excel of this receipt of the settlement funds, and his failure to follow his client’s written directions. The majority of the committee discredited the respondent’s explanations, and found that his conduct violated rules 1.2(a), 1.3, and 1.15 (c).

…the validity of.the loans has no bearing on the fact that the respondent promised to place all settlement monies in escrow and seek court intervention to determine the rights of Excel in the event of a dispute. His failure to honor that promise is a violation of his ethical obligations, even if there were no fiduciary relationship. The findings in this regard also support the further finding in aggravation that the respondent lacked insight into his ethical obligations.

Sanction

 Taking into consideration the question about the existence of a fiduciary relationship, there were misrepresentations made as to the client’s non-receipt of prior loans taken against the expected settlement to the detriment of a third party, and there were promises made to the effect, that the respondent would place the settlement proceeds in escrow and seek court intervention to determine the rights of Excel in the event of a dispute. The respondent’s misconduct, as well as his lack of insight into his ethical obligations, warrant a term suspension.

An order of reinstatement was entered by Justice Gaziano. (Mike Frisch)