Advice Of Counsel Defense In Bar Proceedings

The Florida Supreme Court has remanded a bar discipline matter

This case arises entirely out of Herman’s personal bankruptcy proceeding. More specifically, the case is about certain final disclosures that Herman allegedly failed to make in that proceeding. The disclosures at issue relate to bonus compensation that Herman hoped to receive after filing his Chapter 7 bankruptcy petition. In November 2017, The Florida Bar (Bar) filed a complaint with this Court alleging that Herman “had an obligation to be forthright” in his bankruptcy financial disclosure forms and that he failed to live up to that obligation.

In the bankruptcy issues arose concerning disclosures about an expected fee

At the conclusion of that trial, the bankruptcy court entered a seventy-one page order denying Herman’s petition for discharge. The court concluded that Herman had deliberately concealed his expected bonus share of the $10 million fee and that Herman had done so with the intent to hinder, delay, or defraud his creditors. In re Herman, 495 B.R. at 595-97. The bankruptcy court did not consider an advice of counsel defense, because Herman did not timely plead one. The United States District Court for the Southern District of Florida affirmed the bankruptcy court’s order. Herman v. CIB Marine Capital, LLC, No. 13-cv-62251- KMM (S.D. Fla. Sept. 29, 2014). In light of the nature of the bankruptcy court’s findings and the district court’s affirmance, the district court forwarded the matter to the U.S. Attorney for the Southern District of Florida and to the Bar.

His attorney testified in the bar proceeding

Our decision to remand this case to the referee for further proceedings turns on Herman’s advice of counsel defense, so we will start there.

The court finds that its precedents do not preclude such a defense in these circumstances

While we do not fault the referee for interpreting this Court’s precedent as he did, the general principle we articulated in Adorno is not so unyielding as to preclude consideration of Herman’s advice of counsel defense in this case. The reason an advice of counsel defense is usually unavailable in Bar discipline proceedings is that the Bar rules themselves charge Florida lawyers with knowledge of the rules and of “the standards of ethical and professional conduct prescribed by this court.” R. Regulating Fla. Bar 3-4.1. But here, Herman does not claim that he relied on the advice of counsel as to the meaning and requirements of any Bar rule. Nor does this case have anything to do with Herman’s work as an attorney serving clients. Instead, Herman himself was the client, and the charges in this case are inextricably intertwined with Herman’s
obligations under federal bankruptcy law. The Bar rules at issue did not require of Herman anything over and above what federal bankruptcy law already required— honesty and good faith in completing his bankruptcy schedules. To the extent that federal bankruptcy law permits an advice of counsel defense to negate a finding of bad intent, we conclude that such a defense should also be available to Herman in this Bar discipline proceeding.

The Adorno precedent (a very interesting case) is linked here. 

The Bar’s burden

To establish that Herman is guilty of misconduct, the Bar would have to prove by clear and convincing evidence not only that Herman’s bankruptcy disclosures were false or misleading, but also that Herman knew that they were false or misleading. Put differently, the Bar would have to prove that Herman’s answers to the questions on his bankruptcy schedules were not made in good faith. The advice Herman received from counsel, along with whether Herman relied on that advice in good faith, is relevant to determining whether the Bar can prove its case.

Without prejudging the merits, we believe that Herman’s advice of counsel defense is sufficiently plausible that it cannot be taken off the table without consideration by the referee.

On remand

For the benefit of the referee and the parties, we conclude by commenting on two aspects of the referee’s report that might come up again on remand. First, as a partial explanation of his decision not to consider Herman’s advice of counsel defense, the referee indicated that Herman negated the defense by conducting his own legal research about the requirements of schedule B. Herman and Houston testified that this research consisted mainly of Herman reading a handful of cases that Houston provided him. Without more, we do not see how this “legal research” cuts against Herman’s advice of counsel defense—especially considering that the defense turns in part on whether the debtor/client’s reliance on counsel was reasonable and in good faith.

Second, we note that the relevant inquiry in this Bar discipline proceeding is not the prudence of Herman’s answers on the bankruptcy schedules. The referee here concluded that the conflicting testimony of the “two learned experts” in this case “serves only to underscore what the District Court Judge observed in his order: ‘Clearly, the better course of action in the case of a possible difference of opinion about the law is to air [sic] on the side of disclosure.’ ” To respond to Herman’s advice of counsel defense and to justify a conclusion that Herman is guilty of intentional misconduct, it will not be enough for the Bar to prove that Herman did not resolve close calls by erring on the side of disclosure.

To sum up: we hold that, under the circumstances here, Herman is entitled to present an advice of counsel defense to rebut the charge that he was intentionally dishonest in the schedules to his personal bankruptcy petition. Earlier in this opinion we have described the nature of that defense and the preconditions to its assertion. Here the referee declined to consider Herman’s advice of counsel defense at all. And the referee relied significantly (though not exclusively) on a bankruptcy court order that also did not consider the defense and that the court decided under a lower standard of proof than the clear and convincing evidence standard that governs in a Bar discipline case. Of course, though Herman bears a burden of production to come forward with the evidence necessary to support his advice of counsel defense, the ultimate burden of proof always remains on the Bar.

(Mike Frisch)