Christensen & Jensen | 257 East 200 South, Ste 1100 Salt Lake City, Utah 84111

801.323.5000 kporter@chrisjen.com

Accepting disputed funds can get you disbarred

Accepting Funds Gets you Disbarred

The question of whether an attorney may accept payment of his or her fees from disputed funds recently came before the Utah Supreme Court.  The attorney at issue had been disbarred from the practice of law for accepting payment of his fees from funds that he knew or should have known were the subject of litigation and were paid from bank accounts that were the subject of an injunction.

Attorney Challenges Disbarment Over Accepting Disputed Funds

In In the Matter of the Discipline of Donald D. Gilbert, an attorney that formerly represented the Utah Down Syndrome Association and a number of its founders in a dispute with the Utah Down Syndrome Foundation, challenged a lower district court’s conclusion following a five-day bench trial that the attorney had violated several ethical rules under the Utah Rules of Professional Conduct.  In light of the district court’s finding, the district court determined that the appropriate sanction was disbarment for the attorney.

Attorney Represents Utah Down Syndrome Association in Two Cases Brought by Utah Down Syndrome Foundation

By way of background, in 2006, several board members of the Salt Lake and Utah County Chapters of the Utah Down Syndrome Foundation became concerned with the Foundation’s operations.  The disgruntled board members questioned whether the Foundation was complying with its governing documents and Utah law.  The board members hired the aforementioned attorney to consult with them over their corporate governance questions.  Subsequently, a number of the Chapters’ officers, while still serving in their representative capacities for the Chapters, formed the Utah Down Syndrome Association.

The Foundation responded by sending letters to six of the Chapters’ officers, notifying the officers that they had been removed from their positions within the Chapters.  The dispute eventually ended up in litigation.  As part of the litigation, the attorney at issue represented the Association, the Chapters, and certain members of the Chapters’ board of directors in two separate lawsuits.

Utah Down Syndrome Foundation Obtains Injunction

In the first suit, a derivative suit brought by two of the Chapters’ board members, the district court granted summary judgment to the Foundation’s officers, finding that the Chapters’ board members lacked standing to file suit on the Foundation’s behalf.  In the second suit, the Foundation sought an accounting and return of the disputed funds the Foundation alleged that the Association had taken.  Specifically, the Foundation alleged that the named Chapters’ board members unlawfully continued to access the Foundation’s bank accounts after they had been removed from their Chapter positions.

The Foundation moved for partial summary judgment, which the defendants did not oppose.  The district court granted the Foundation’s motion and issued an order requiring the defendants to return any and all of the disputed funds they had taken and enjoined the defendants from further accessing funds in the Foundation’s accounts.  Even though the attorney at issue did not represent any of the defendants in the second action at the time the district court entered the injunction against the defendants, the attorney received a copy of the injunction five days after it was issued.

Attorney Accepts and Cashes Checks Even Though Aware of Injunction

After receiving the injunction, the attorney accepted four checks for payment of approximately $30,000 in attorney fees that were drawn from the bank accounts listed in the injunction as belonging to the Foundation.  At the time the attorney accepted the checks, he knew or should have known that the funds he received were disputed funds, meaning they were the subject of litigation and were drawn from the accounts that were listed in the injunction.  Even still, the attorney did not deposit the four checks into a trust account or otherwise hold the disputed funds pending resolution of the legal fight between his clients and the Foundation.

Furthermore, the attorney did not notify the court of his intention to retain the checks based on his position that the injunction was “invalid, void, had expired, [or] did not apply to the [funds] he received.  Instead, the attorney simply cashed the checks and kept the disputed funds.

Utah Down Syndrome Foundation Seeks to Have Disputed Funds Disgorged

Eventually the Foundation found out that the attorney had received the disputed funds from the bank accounts listed in the injunction.  The Foundation thereafter moved to have the disputed funds disgorged and requested an order requiring the attorney to return the disputed funds.  The district court granted the motion, ordering the attorney to return the disputed funds.

However, despite the district court’s order to return the disputed funds, the attorney did not return any of the funds to the Foundation.  As a result, the Foundation filed a second motion for disgorgement, which was granted by the district court.  Again, the attorney failed to repay any of the disputed funds he received.

OPC Finds Attorney Violated Several Ethical Rules

Some two years after the second disgorgement order was issued, a Foundation officer filed an informal complaint against the attorney with the Utah State Bar’s Office of Professional Conduct (“OPC”).  After a preliminary panel recommended formal action against the attorney, the OPC initiated disciplinary proceedings against the attorney, which found that the attorney had violated the Utah Rules of Professional Conduct.  In response, the attorney argued that the injunction was void for a host of reasons, that he had no obligation to comply with a void order, and that he was excused from complying with the disgorgement order because the court lacked jurisdiction over him as a non-party.

Third-Party Complaints Inappropriate in Attorney Disciplinary Proceedings

The attorney subsequently filed a third-party complaint under Rule 14 of the Utah Rules of Civil Procedure, impleading the Foundation into his disciplinary proceeding.  The district court granted the attorney’s motion, but the Utah Supreme Court reversed that decision, holding third-party complaints are inappropriate in attorney discipline proceedings.

District Court Determines Disbarment Appropriate Sanction

On remand, after denying several motions by the attorney, the district court held a five-day bench trial, after which the court concluded that the attorney had violated four of the Utah Rules of Professional Conduct: rule 1.7(a) (Conflict of Interest: Current Clients), rule 1.15(e) (Safekeeping Property), rule 3.4(c) (Fairness to Opposing Party and Counsel), and rule 8.4(d) (Misconduct).  The district court then determined that the appropriate sanction for the attorney based on his violations was disbarment.  The attorney subsequently appealed.

On appeal, the attorney challenged the district court’s findings that he violated several of the Rules of Professional Conduct, the district court’s determination to disbar him, the district court’s dismissal of his third-party complaint, and that the district court erred by failing to stay his disciplinary proceedings while his third-party complaint was resolved.

Rule 1.7 Violations

As it relates to the violations of the rules of professional conduct, the Utah Supreme Court affirmed the district court’s ruling that the attorney had violated rules 1.7, 1.15(e), 3.4(c), and 8.4(d).  As to the rule 1.7 violations, the court concluded:

[The attorney] has not established that the district court erred in concluding that [the attorney’s] representation of the Individual Defendants, the Chapters, and the Association created a concurrent conflict of interest.  Nor has he established that the district court erred in concluding that once the district court ordered him to disgorge the attorney fees he had received, his interest in keeping those fees created a concurrent conflict of interest that prevented him from zealously representing his clients’ interests.

Rule 3.4(c) Violation

As to the rule 3.4(c) violation, the court found:

Although [the attorney] may have harbored reservations about the order’s validity, he, in the district court’s words, “had a duty to openly contest the order by filing a request to stay the order in court, notify the court of his receipt of the . . . checks and at least hold the monies in trust until the court ruled on the issue.”  The district court interpreted and applied rule 3.4(c) correctly.

Rule 1.15(e) Violation

As to the rule 1.15(e) violation, the court set forth:

As explained above, an attorney has a professional obligation to comply with a court order and cannot unilaterally ignore a court order based on her belief that the court’s order was wrongly determined.  It logically follows that an attorney cannot ignore rule 1.15(e)’s obligation to safekeep disputed funds and disburse undisputed funds based upon a claim that the district court’s order is void.  [The attorney’s] attack on the court’s rule 1.15(e) determination fails.

Rule 8.4(d) Violation

Finally, in regards to the rule 8.4 violation, the court determined:

Despite the directive of the rules of professional conduct, [the attorney] declined to formally or openly object to the court’s order.  Instead, [the attorney] disregarded the disgorgement order without taking any action to appeal, stay, or otherwise object to the order. The district court correctly noted, “Regardless of whether an attorney believes that the attorney is entitled to fees from a client, if court orders award the funds to others, the attorney violates rule 8.4(d) by disregarding the orders.”

Utah Supreme Court Upholds Disbarment

Next, the court turned to the issue of whether disbarment was the appropriate discipline based on the aforementioned violations of the Utah Rules of Professional Conduct.  There, the court concluded:

Like the district court, we conclude that the aggravating and mitigating circumstances confirm disbarment as the appropriate sanction. Here, [the attorney] concluded that his desire to keep the fees outweighed the court’s interest in resolving and bringing finality to the dispute.  Indeed, [the attorney’s] willingness to continually disregard the district court’s orders is extremely troubling conduct for an officer of the court.  [The attorney’s] actions demonstrated a lack of respect for the district court and the legal system as a whole.

But [the attorney’s] lack of remorse and his unwillingness to recognize his actions’ consequences constitute the most powerful aggravating circumstances.  At no point in the proceedings below, or in those before this court, has [the attorney] acknowledged an attorney’s obligation to comply with court orders.  At no time has he acknowledged that our system suffers when attorneys refuse to comply with court orders.  Ultimately, it is this lack of respect for the rule of law and the legal process that warrants [the attorney’s] disbarment.  Otherwise, to paraphrase the Florida Supreme Court, “to countenance [this blatant disregard of the court’s authority] is to court pandemonium and a breakdown of the judicial system.”

Utah Supreme Court Says Attorney “Unreasonably Delayed” Seeking Releif From Injunction

In a related case, the Utah Supreme Court held that the attorney had:

[U]nreasonably delayed seeking extraordinary relief from the Injunction, the Disgorgement Order, and the denial of his Motion to Vacate. He also failed to pursue the plain, speedy, and adequate remedy of seeking intervention and direct appeal of the denial of his Motion for Relief from Judgment.  We therefore deny Gilbert’s petition for extraordinary relief.

Attorney’s Lack of Remorse Meant Disbarment

As a result of the two cases described above, the disbarred attorney is now seemingly out of options, and is resigned to the fact that he can no longer practice law.  Most notably, the Utah Supreme Court said it was the attorney’s “lack of remorse and his unwillingness to recognize his actions’ consequences” that made disbarment especially compelling.  Likewise, the court took issue with the fact that at no point had the attorney acknowledged the duty of attorneys to comply with court orders.  Who knows, if the attorney had been remorseful, and/or complied with either of the disgorgement orders, then he might still be practicing law today.  However, that is all water under the bridge now following the Utah Supreme Court’s decisions.

* Photo Cred.: bankingsense.com

Copyright 2016