Two Partner Firm Sanctioned

In an opinion authored by Senior Judge John Steadman, the District of Columbia Court of Appeals disbarred one law firm partner and suspended a second partner for nine months

Respondents are a married couple and the sole attorneys in their law firm, Kennedy & Dolan. In the early 2000s, current and former security officers at InterCon Security Systems (“Inter-Con”) hired respondents to sue their employer for violations of the Fair Labor Standards Act (FLSA) and the D.C. Wage Payment and Collection Law, based on Inter-Con’s practice of docking its employees fifteen minutes’ worth of wages if they arrived even a minute or more late to work and its failure to pay minimum wages. Respondents pursued the lawsuit in arbitration as a collective action, and they mailed over 100 notices and opt-in forms to potential plaintiffs. The notice stated that those who joined the lawsuit would “not be required to pay attorney’s fees directly. The plaintiffs’ attorneys will receive a part of any money judgment entered in favor of the class.” Over 100 claimants opted in.

A few years into the litigation, respondents initiated settlement negotiations by sending Inter-Con a settlement offer for $700,000. Respondents had not discussed this offer with any of the claimants. It was not until this point that respondents made efforts to enter into attorney-client agreements with each of the claimants. These agreements said that respondents would “be paid at 40% of the recovery or at an hourly rate pursuant to the applicable Adjustable [sic] Laffey Matrix in Washington, DC at [the attorneys’] choosing upon recovery or upon application to the arbitrator for payment of attorney[’]s fees and costs pursuant to applicable statutes.”

The case settled for $310.000.

Kennedy determined how much of the settlement money each client would receive based on a formula he devised unilaterally that included the length of the client’s employment at Inter-Con and whether or not he or she testified in a deposition for the case. He advised Inter-Con how much to pay each client, and Inter-Con sent each client a check for that amount. He also advised Inter-Con how much to pay Kennedy & Dolan in attorney’s fees, and Inter-Con sent the firm a checkfor that amount. In total, the clients received about 33% of the total settlement ($100,086.68), and Kennedy & Dolan received the remaining 67% as fees ($209,913.32). The clients were not made aware of the total settlement award amount nor of the amount of attorney’s fees respondents received. Each client was only aware of the final amount he or she individually received and did not receive any sort of accounting of the distribution of the settlement funds. The Hearing Committee found, based on Kennedy’s testimony during the disciplinary proceedings, that “Kennedy deliberately concealed the settlement details because he believed disclosing the individual settlement amounts and the amount of [r]espondents’ fees would put the settlement at risk.”

Respondents contended that the “aggregate settlement” rule did not apply

Respondents contend that an exception to Rule 1.8(f) should cover not just Rule 23 class actions but also collective actions. We disagree. If we recognized an exception to Rule 1.8(f) for certified class actions, it would be because class counsel may not have a full attorney-client relationship with each class member and because Rule 23 contains requirements, such as notice and court approval, that protect class members from abusive settlement practices by class counsel. See Super. Ct. Civ. R. 23(e). By contrast, respondents had individual attorney-client agreements with each Inter-Con claimant, and the Inter-Con litigation was not governed by those Rule 23 requirements. The absence of those safeguards to protect collective action clients from the unfair or unethical settlement of their claims necessitates maintaining the protections of Rule 1.8(f) for collective actions such as the one in this case. Therefore, we agree with the Board that respondents were still bound to comply with Rule 1.8(f).

Misappropriation

Respondents’ arguments are unpersuasive. The Hearing Committee found that respondents directed Inter-Con to pay them out of the settlement award – funds in which the clients surely had an interest. Respondents may have had an interest in the funds as well, but their interest was in a yet-to-be-determined portion as attorney’s fees…

Having established that the portion of the settlement award respondents took as attorneys’ fees were “entrusted client funds,” the remaining question is whether the clients authorized respondents to take the funds they took. We agree with the Board that the answer must be no. Respondents made no effort to get the clients’ consent to take the fees they actually took: they merely sent each client his or her own check and quietly kept the rest for themselves.

Kennedy was disbarred for intentional misappropriation; Dolan received a lesser sanction for negligent misappropriation.  (Mike Frisch)