Colorable Claims And Sanction Due Process Addressed By Iowa Supreme Court

The Iowa Supreme Court imposed a suspension rather than a proposed license revocation

In this matter, the Iowa Supreme Court Attorney Disciplinary Board brought a series of charges against attorney Eric Parrish related to his handling of a payment made by a client that the Board alleged was for the specific purpose of paying the cost of preparing a transcript on appeal. The Iowa Supreme Court Grievance Commission found that Parrish failed to use the funds to pay for the transcript as instructed by his client and, instead, converted the funds for his own use. The commission recommended revocation of Parrish’s license. For the reasons stated below, we agree with the commission that Parrish violated ethical rules and suspend his license.

Priors

Eric Parrish is a licensed Iowa attorney. He was admitted to practice in 1999. Parrish received ten private admonitions between 2001 and 2013. On three occasions, the private admonitions related to Parrish’s failure to provide his clients with itemization of services following his receipt of retainers. On three other occasions, he was privately admonished for neglect when his failure to pay filing fees or take other action caused dismissal of proceedings. On two occasions, he received private admonitions for withdrawing retained funds in excess of fees earned from his trust account. On another occasion, he allowed trust funds in a settled case to fall below the amount of a lien on the settlement funds, thereby failing to protect the rights of a third party to funds in his possession. He was also admonished for neglect in failing to notify clients of an adverse court decision and to inquire as to whether they wished to appeal. Although private admonitions are not discipline, they put a lawyer on notice of deficiencies regarding ethical requirements.

On the public side of the ledger are three reprimands and a 60-day suspension. 

The fighting issue as to sanction

Before we analyze the individual charges brought by the Board, we present an overview of relevant caselaw. In particular, we note that the caselaw establishes that there is a question whether a colorable future claim in funds provides a potential defense for alleged misappropriation or conversion of client funds entrusted to an attorney for a particular purpose.

At the outset, we note that in cases involving misappropriation of client funds, we generally impose the severe sanction of revocation…

On the other hand, the failure to follow the rules governing retainer fees normally results in a less severe sanction.

Thus

The critical difference between whether a lawyer has committed theft, thereby inviting license revocation, or merely violated trust account requirements that may result in a lesser sanction, often depends upon whether the attorney had a colorable future claim to the funds. See Iowa Supreme Ct. Att’y Disciplinary Bd. v. Carter, 847 N.W.2d 228, 232 (Iowa 2014). While the Board has the burden of showing that a misappropriation of funds occurred, the attorney has the burden of providing evidence of a colorable future claim to the funds. Cepican, 861 N.W.2d at 844

Here, the payment was for a specific purpose

This factual distinction is consequential. If the funds given to him on April 28 were a retainer to pay for attorney fees, Parrish could at least argue that he had a colorable future claim of right in the funds for work to be done on the appeal, thereby lessening the possibility of receiving harsh sanctions. Carter, 847 N.W.2d at 233. On the other hand, if the funds were given to Parrish for a particular purpose, any future claim of right would be undermined. See id. at 233–34. While a lawyer might be able to claim that the premature withdrawal of retainer funds was only a question of timing when there was a future claim of right to the funds, that argument is more difficult to make when the funds given to the lawyer have a restricted use that does not include payment of attorney fees. See id.

We think it abundantly clear that Ware advanced the $2467.50 for the specific purpose of paying for the transcript for her appeal in the custody matter. Ware’s testimony was firm and consistent on this point. Further, it is striking that the check was made out in the exact amount to the penny requested by the court reporter and Ware specifically wrote “Transcript Fees” on the memo line of the check. Moreover, Ware’s understanding of the urgency of obtaining transcript funds is reflected by Ware’s successful effort to convince her grandmother to advance to Ware money from her income tax refund to pay for it.

No general retainer agreement

We conclude, based on our examination of the entire record, that Parrish did not have a general retainer agreement with Ware at any time. In fact, there was no written agreement between Ware and Parrish. In the text messages with Ware, Parrish simply referred to the fee arrangement as a flat fee. The text messages never used the term retainer and made no mention of a limited term for representation. Ware and Parrish simply agreed to a flat fee of $5000 for the custody modification trial and, later, $2500 for the appeal.

The violations

Based on our review of the record, it is clear that Parrish knew the funds given to him by Ware on April 28, 2016, were for a limited purpose. Nonetheless, he cashed the check on the day it was received, did not place the funds in trust, and did not pay the court reporter for the preparation of the transcript needed for the appeal. There is no question that by using the transcript funds for other than their intended purpose, Parrish violated ethical rules related to proper handling of client funds. In order to determine whether Parrish violated rule 32:8.4(b) and (c), however, we must consider whether Parrish has validly asserted a colorable future claim of right to the funds…

In this case, Ware did not pay the funds to Parrish as a retainer for future attorney fees. The funds were provided for the specific purpose of paying for the transcript and not paying for future fees. The question of conversion of the funds is not one of mere timing, but of substance. Under the circumstances, we do not think the future claim of right doctrine is applicable. There is no future claim of right to use funds provided for a particular purpose to instead pay for attorney fees a lawyer reasonably believes will be incurred in the future.

While he had no present colorable claim

Yet, we are concerned that our prior cases at least suggested that a future colorable claim of right might prevent a finding of misappropriation or theft.

With a musical flourish “From This Moment On”

In the disciplining process, we believe lawyers are entitled to fair notice of what might lead to serious discipline, particularly when license revocation is a potential sanction. See Cepican, 861 N.W.2d at 844. Because our prior cases suggested but did not clearly and unequivocally hold that a future colorable claim of right was not a defense to a claim of theft of misappropriation when limited use client funds are involved, we decline to find, in this case, that a theft or misappropriation occurred. At the time he cashed the check for transcript fees, Parrish had a future colorable claim of right that exceeded the amount of the check.  We therefore consider Parrish’s transgression as involving violations of our trust account regulations involving safekeeping of client funds. Carter, 847 N.W.2d at 232. We want to make it clear, however, that in future cases concerning specific purpose funds, a future colorable claim of right will not be a defense to a charge of theft or misappropriation. In that sense, our holding here is prospective only.

As revocation is off the table

the lengthy nature of Parrish’s disciplinary record; the multiple nature of his violations and the relationship of the violations to past misconduct; his experience as an attorney; his resistance to the processes before the commission; his knowledge of his own wrongdoing, coupled with his refusal to admit wrongdoing or show remorse are important aggravating factors in imposing discipline.

…we suspend Parrish from the practice of law indefinitely with no possibility of reinstatement for two years from the date of this opinion.

(Mike Frisch)