The Complaints Of An Ex-Lover And A Litigation Funder Draw Disbarment Recommendation
The Disciplinary Counsel himself will argue a case next Thursday at 2 pm before the District of Columbia Board on Professional Responsibility where an Ad Hoc Hearing Committee proposes disbarment on multiple counts of ethics violations.
One case involves the complaint of a former romantic partner who had the bad judgment to allow him to reside in a condominium that he had repurchased on her credit. He was supposed to pay the mortgage, taxes and condo fees. When he did not, she got sued for unpaid condo fees and foreclosure.
Even though there was a clear conflict between them in the ensuing litigation over the property, he represented her without any disclosure and waiver. He had her confess judgment in the amount of $17.000 in an arrangement that put cash in his pocket and benefitted him alone.
When the dust settled
As of the time of the hearing in this matter, Respondent had not paid any part of the $176,000 judgment against him (Tr. 166:12-14 (Fitzgerald)); the Condominium Association was still pursuing its confessed judgment against Ms. Fitzgerald, which had grown to over $60,000 including principal, interest, and legal fees (Tr. 185:4-15 (Fitzgerald)); as a result of that confessed judgment Ms. Fitzgerald’s credit had been “destroyed” (Tr. 159:22 (Fitzgerald)); and because Ms. Fitzgerald works in the financial services industry, her job mobility had been compromised due to her financial difficulties (Tr. 159:22-160:3 (Fitzgerald)).
As to whether he should have declined the representation
No, not at all. I feel she was put in an untenable situation by me. I had a duty to help her as a friend. You know, it was a horrible situation. So I felt an absolute obligation to represent her.
* * *
What I should have done more quickly . . . I should have run down to the courthouse more quickly to withdraw.
The committee on the conflict
There is clear and convincing proof that Respondent violated Rule 1.7(b)(4) because his representation of Ms. Fitzgerald in the Fee Litigation was, and could reasonably have been foreseen to be, adversely affected by his own financial, property, and personal interests. The Fee Litigation involved the Condominium Unit, a property where Respondent lived (FF ¶ 12), where he was responsible for paying all condominium fees, mortgage costs, and real property taxes (id.), and which he thought he desired to eventually have titled in his own name (FF ¶¶ 14, 25). When the Condominium Association sued Ms. Fitzgerald in 2011, it was actually Respondent’s own debt that was in question, and when he undertook to represent her in the Fee Litigation he had an immediate conflict of interest because, at a minimum, she had a likely third-party claim against him under their separate agreement. FF ¶¶ 12, 14, 18. Any competent, objective, independent attorney would have advised her of that fact, as Mr. Aronson did (FF ¶ 30) but Respondent did not (FF ¶¶ 19- 20). Respondent, however, kept Ms. Fitzgerald in the dark about her potential claims against him (FF ¶¶ 20-22), while he worked out an arrangement with the Condominium Association by having Ms. Fitzgerald (without being informed by Respondent that she could consult independent counsel (FF ¶ 21)) execute a $17,000 confessed judgment (FF ¶ 22) in favor of the Condominium Association.
If there was any doubt about that conflict of interest in 2011, it should have been erased in January of 2013 after the acrimonious confrontation between Respondent and Ms. Fitzgerald in which, as Respondent put it, she threatened to sell his home out from under him. FF ¶ 24.
Respondent, however, continued to represent Ms. Fitzgerald in the Fee Litigation, despite the obvious fact that her interests and his were at that point clearly adverse.
Unrelated charges of intentional misappropriation of funds held in trust for a third party litigation funder were sustained.
In addition to creating [Lawsuit Financial Corporation’s] lien interest, Respondent created an express contractual obligation and duty of his own to withhold payments due LFC from settlement funds that came into his possession from his Hedgepeth fee (and his fee in any other pledged case that resulted in a positive recovery) in order to repay LFC’s loans to him to the extent required by the Loan Agreements. FF ¶ 51. See Bailey, supra. LFC’s express contractual interest was even clearer and more specific than the inchoate interest of Williams Industries and Mr. Williams described in Mitrano, supra, where the Court found that misappropriation occurred.
The applicable law
the Hearing Committee recommends that Rule 1.15 be applied in a situation such as the present case, where a D.C. Bar member (a) focuses on contingent fee representation of personal injury plaintiffs and often pledges such fees to secure repayment of loans to finance his/her practice; (b) contracts to finance a specific case litigated in the District, to create a repayment lien for a lender from a contingent fee in that case, and to withhold from any settlement in that case the amount due the lender; (c) repeatedly acknowledges the existence of such a lien to the lender, who is relying on the lawyer to deal honestly; and (d) places the settlement proceeds from the case in his/her trust account but appropriates the entire fee and fails to withhold or pay any amount due under the lien. Such an appropriation and failure by a lawyer in those circumstances bear a reasonable relationship to the lawyer’s professional conduct as a Bar member. LFC’s interest in the Hedgepeth settlement therefore constituted funds in Respondent’s possession “in
connection with a representation,” and Respondent’s treatment of those funds is of legitimate concern to [the Office of Disciplinary Counsel]…
The Hearing Committee concludes that ODC has also demonstrated by clear and convincing evidence that once it became clear Respondent had received a $160,000 legal fee in Hedgepeth, Respondent not only failed to maintain in his escrow account the $32,000 he contends was the proper computation of LFC’s interest under the Loan Agreements; but he also failed to maintain the lower $25,000 amount that LFC loaned him. FF ¶¶ 83, 111. In fact, Respondent testified that he removed his legal fee from the escrowed Hedgepeth settlement funds for use in his office operating account without setting aside or protecting any amount for LFC. FF ¶ 66.
The committee found reckless misappropriation in a third matter.
The case is In re Johnathan Dailey. The location is the District of Columbia Historic Courthouse. (Mike Frisch)