Simple Negligence Sufficient for Ethics Violation
By Kelso L. Anderson, Litigation News Contributing Editor – January 23, 2013
An attorney’s misstep in failing to inform a bankruptcy court of the value of his former client’s state malpractice case constitutes an ethical violation, even though the attorney had withdrawn from that case, says the Supreme Court of Appeals of West Virginia. That ruling sends a stern warning that an ethics violation occurs if an attorney fails to direct proceeds from a client’s personal injury case to the client’s bankruptcy estate.
Representation and Withdrawal
In In re Lawyer Disciplinary Board v. Burke, an attorney with over 30 years of legal experience represented a client pursuing a medical malpractice claim. During the pendency of that case, the client voluntarily petitioned for Chapter 7 bankruptcy, and the attorney informed the bankruptcy trustee that his cocounsel would provide a valuation in response to the bankruptcy court’s request. The bankruptcy court subsequently appointed the attorney and cocounsel as special counsel to the client’s estate.
While the two cases were ongoing, the attorney identified a conflict, and, with the client’s consent, withdrew from the malpractice case; he did not inform the bankruptcy court and the trustee of his withdrawal. Cocounsel continued to prosecute the malpractice claims, obtaining a settlement and a judgment of monetary damages.
After cocounsel distributed the proceeds to the client, the trustee requested that the attorney provide an update on the malpractice case. The attorney then disclosed his withdrawal and cocounsel’s handling of the case proceeds to the trustee. Because the proceeds were distributed to the client without court approval, the trustee filed adversary and ethics claims against the attorney and cocounsel.
Disciplinary Board Action
A hearing panel subcommittee of West Virginia’s Lawyer Disciplinary Board (Committee) found that, because the attorney had not apprised the trustee of events in the malpractice case until two years after his withdrawal, he did not act diligently in informing the trustee about the case, thereby violating West Virginia Rules of Professional Conduct 1.3, 1.4(a), and 1.4(b). The Committee found that the attorney’s years of experience was an aggravating factor that contributed to his admonishment. The Committee also imposed financial sanctions, including the trustee’s costs of litigating before the Committee and costs associated with the trustee’s claims seeking recoupment of proceeds to the estate.
Safeguarding Client Property Critical
Although West Virginia’s highest court affirmed the Committee in all respects, the court amplified the Committee’s legal analysis by concluding that the attorney also failed to safeguard client property, contrary to West Virginia Rule of Professional Conduct 1.15. Reasoning that the attorney had a duty to represent the interests of the bankruptcy estate, the majority rejected the attorney’s argument that his failure to apprise the trustee of events in the malpractice case amounted to simple negligence that was not an ethics violation.
“The majority opinion ties the issue of notice to the trustee to protecting property of the estate, and therefore finds that property of the estate was not safeguarded,” says Gregory R. Hanthorn, Atlanta, cochair of the ABA Section of Litigation’s Ethics and Professionalism Committee. Observing that West Virginia’s ethics rules are patterned after the ABA’s Model Rules of Professional Conduct (MRPC), Hanthorn emphasized that “courts take ethical lapses with respect to the property of clients extremely seriously.”
Dissent Rejects Simple Negligence as Ethics Violation
In a dissenting [PDF] opinion, two justices on the five-member court concluded that, although the attorney was guilty of simple negligence, nothing the attorney did “came close to being an ethics violation.” The dissent identified as problematic the majority’s failure to define “disciplinary incompetence” with particularity and noted that “single lawyer slipups” might expose a lawyer to professional liability but do not amount to an ethics violations.
“The [majority] opinion comes to an unheard of conclusion,” says Roberta K. Flowers, Gulfport, FL, cochair of the Subcommittee on Professionalism of the Ethics and Professionalism Committee. “Although the MRPC do not require gross negligence, a reading of the rules leads to the conclusions that were reached by the dissent,” Flowers adds.
Hanthorn believes that the tension between the majority and dissent is reconcilable. “The majority and the dissent differ on the appropriate standard to be applied,” Hanthorn states. “The dissent suggests that the sole focus is whether the attorney should be allowed to continue to practice or should be reprimanded. The majority focuses upon whether and to what extent client (i.e., trustee) interests have been harmed, and, finding harm, proceeds to act. Both the majority opinion and the dissent address situations that are addressed by the MRPC.”
Ethics rules exist to sanction improper attorney conduct, says Flowers, specifically “lawyer conduct that creates a substantial question as to the attorney’s honesty or competency. That is reflected in [Model Rule] 8.3 that only requires reporting if a lawyer’s misconduct raises a ‘substantial issue,’” Flowers said. Others believe the opinion sends the wrong message. “If every attorney mistake led to an ethics violation, that would be a bad” precedent, says Sharon D. Sirott, Chicago, cochair of the Subcommittee on the Judiciary of the Ethics and Professionalism Committee.
Keywords: ethics, attorney conduct, Rule 1.15
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