Monday, December 15, 2008

Charges Allege Conspiring Against Client

The Illinois ARDC has filed a complaint charged two partners of of a self-adevertised "boutique law firm" with using a client's confidences and secrets of a former client. The charges allege that the lawyers had agreed to provide legal services to a client that provided them with computer services. The client was the sole shareholder of a company that provided hardware and software computer services. An exchange of legal for computer services on a "work trade" basis was arranged.

The key allegations relate to the "lead employee" of the client's business. The lawyer learned that the client was receptive to offering an ownership interest in the business to that employee and that the client had no "anti-competition" agreements with any of his employees.

The firm allegedly conspired with the employee to start a competing business and lure away the client's work force.  One of the partners allegedly "formulated a plan to start a computer services business that she knew would compete directly with {the client's] business" on behalf of the employee and entered into a business arrangement with the new entity. The client continued to be represented by the firm and was not advised of the firm's dealings with the employee. The client's relationship with the employee was destroyed and his business had to be closed.

Thus:

As an attorney for James Throgmorton [the client], Jackson was acting as a fiduciary with respect to Throgmorton’s business plans regarding Computer Warehouse and M.O.C.C.I., LLC. Because of this fiduciary relationship, Jackson was obligated to exercise at all times the highest degree of honesty, loyalty and good faith regarding her handling of Throgmorton’s business matters and was prohibited from taking action for her own benefit or enrichment. As a consequence of this fiduciary duty and relationship, Jackson was prohibited from engaging in actions that gave preference to her own business and personal interests over the interests of Throgmorton and his business interests.

Jackson knew that Mayer [the employee]intended to hire Throgmorton’s Computer Warehouse employees as NCS employees. Jackson further knew that Computer Warehouse employees had no employment agreement which constricted their ability to bring the clients they served at Computer Warehouse with them to NCS. When she assessed the potential viability of opening a computer services business with James Mayer, Jackson knew she was using confidential knowledge that she had gained about Computer Warehouse while representing Throgmorton.

By going into business with Mayer, Jackson acted on confidential knowledge she had gained while representing Throgmorton; including, but not limited to, knowledge from Throgmorton that Mayer was receptive to a business arrangement that would permit him to gain an ownership interest in a computer business which provided the same services as Computer Warehouse, and knowledge that Computer Warehouse employees were free to leave Computer Warehouse unfettered by anti-competition clauses in the terms of their employment.

The charges are brought in a single complaint against both partners in the law firm, although most of the interaction with the employee was through a single lawyer. Indeed, it appears from the above quote that only lawyer Jackson is charged with the core offenses. It is alleged that the other partner was involved in the representation of the client and took an interest in the new business entity. If the charges are proven, it appears that there may be a legitimate questions concerning whether both partners are equally culpable.

Update: I was attempting to describe the charges made by the Administrator and have no idea about the quality of the underlying evidence or any prediction as to what the outcome will be after the evidence is presented. (Mike Frisch) 

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Since when do you parse the charges to leave out the fact that the second lawyer in the firm was aware that they still had a fiduciary relationship with Mr. Throgmorton as well as Mr. Mayer (for his LLC/invention) when they together approached Mr. Mayer repeatedly to say they would provide $10K (which they borrowed) for HIM to start a firm so THEY would not be without proper IT support when Mr. Throgmorton finally caused their client company where Mr. Mayer worked to go bankrupt from inappropriate use of the operating account. The offers started in April and extended through the first week of June on a weekly basis when Mr. Mayer finally agreed to start a new company.

I believe there is also a rule that a member of that firm may not allow such an ethics violation to continue... but in contrast to your remarks, she was there at the initial offer meetings, multiple times... so where did you get the idea she didn't take part? Wishful thinking?

Surely you have not deliberately misread the case?

Posted by: Jane Mayer | Jan 5, 2009 5:43:40 AM

What would you say if you were told the full story...
Weekly meetings between the two lawyers and Mr. Mayer from mid April through the first week of June where they continued to add perks to the deal would hardly qualify the OTHER lawyer for acquittal. She was aware that both Mayer and Throgmorton were still clients AFTER Mayer accepted their offer in June. While the first lawyer was the "point person" in most of the ethics violations, the second lawyer is not to be assumed unaware since it was incumbent on her to stop ethics violations... which she actually took part in.

Some lawyers might think it possible to engage in a business transaction with a client, but there is a vast difference between being a partner in a firm which advertises itself as a "business to create businesses" as a counselor (MBA equivalent) which then takes a half ownership in a business belonging to a client and refuses to allow their name to be divulged... even to the clients to whom they recommended the new company.

These two lawyers didn't start making ethical violations with this new company... in 2003 they had their paralegal sign a court order, took the paper to the bank and had an opponent doctor's financial information that same day... along with having his accounts frozen. The banker knew the paralegal, so he was just another "associate" of their firm. Then when the paralegal realized what they were doing with Throgmorton's company, she threatened to tell him what they were doing. They fired her, then brought her back for a meeting where they threatened to blackball her from the profession for divulging private matters, then offered her a separation agreement where she received money for her promise not to tell what they had done. She quit the profession after spending the time and money to become a paralegal. In August after linking the law firm's server to the IT company server, the first lawyer sent a bragging email to all employees AND the second lawyer and inadvertently sent it to Mayer. It suggested that "since (they) had such a good year in 2003 with their discovery practices (the fake court order), (she) wanted all employees at the firm to begin accessing all the FREE data on the internet"... which to Mayer meant they were going to attempt to access all the servers where his employees had remote ID and password access in a file on his server... he shut it down, warned her that he received her email, changed all the passwords, and encrypted the file. She continued to demand administrative password to his server. They had a CPA firm set up the books so that their bills were expensed while Mayer's salary for full time work was charged to his equity. They paid her three times the normal rate. They hired another CPA firm to value the new company at 15 months... it came in at $1M. They hired that CPA firm to become Mayer's advisor because Mayer was complaining about the large negative equity balance. They demanded that the $145K profit for 2005 be spent down to prevent them from being forced into a higher tax bracket. Mayer's share after they took a share equal to his salary for 18 months would have been nearly $20K... but they saw to it that he didn't have a positive equity balance. Then in January 2006, they took the operating funds to another bank and refused to put his name on the signatory, thereby taking the funds out of his access and control. That same banker they worked with against the doctor gave them Mayer's credit report. They demanded he cut his salary by $1000 per month to less than he needed to live on. They refused to pay his salary for over a month. They demanded he sign an agreement making the first lawyer COO AND CFO and cut his salary. Three months later they sent the second CPA to him with an offer to give him back his salary for full time work if he would GIVE them each 1/3 of the company in their own names... thereby setting them up to take over the company the minute he signed this new demand. The second lawyer used an old financial statement to write his buyout after dissociation... and told him his share was a negative $25K and of course would not allow him to take any of the assets or retained earnings into account.

If you were an ethics teacher, would you find this to be amusing?

Posted by: Jet | Jan 5, 2009 5:44:15 AM

i hope both lawyers are taken out of their profession.

Posted by: Concerned | Jan 5, 2009 5:44:42 AM

At behest of these lawyers, Mayer was deposed. Ten lawyers were in the room: Two boutique law firm owners and their attorneys and Six lawyers for everybody else amended into the injunction lawsuit... even though these lawyers refused to answer the interrogatories put to them by Mayer's attorney and took 18 months to return their refusal to answer.... listened to questions and answers replied to by Mayer. Hours later several lawyers had called the ARDC to add their voice to the ARDC complaint against this pair of lawyers. The ARDC lawyer in charge of the case is bringing Mayer's ethics complaint forward... perhaps even in time to add it to the current disbarment procedure.

Justice delayed is justice denied. Thirty motions are still unheard over the last 30 months. It seems their threats to ruin Client Mayer's reputation, sue his wife, charge him with theft, and ruin his life are impossible... because they admitted that they have NO EVIDENCE of any wrongdoing by Mayer or any of the other four defendants... but they still expect to cause Mayer bankruptcies by their frivolous complaint and perjured (12 times) testimony in the hearing... that testimony being the only reason there was an injunction. We question why there is still an injunction after this long... Why is Mayer still under injunction after 33 months? No non-compete would last this long. But the court moves slowly... or not at all. Clearly even their affidavit supporting their complaint has been proven false. But if somebody is asleep at the wheel, it is not the lawyers... Motion after unheard motion are stacking up.

Posted by: jet | Feb 24, 2009 11:56:43 AM

The second lawyer in this case has known since March, 2004, that her partner was trying to partner them with the lead tech from the firm that was under trade of service agreement with her firm to open a competing IT company to his employer. That in itself is enough to disbar both of them over an attempt to enrich themselves by taking business from a client. Never mind that both of the lawyers attended weekly sessions with Mayer where they would call him to service their systems and knew what was being offered. This didn't happen in a closet. IT happened in an office with both of them present. But now the ARDC lawyer in charge has been hired by Ms. Madigan and the new lawyer on the case has decided that he just doesn't believe that the second lawyer knew who she was talking to or why or how he happened to be at their company???? GET REAL. The new ARDC lawyer clearly knows which lawyer led the ethics violations, an 8 year lawyer... and which lawyer attended every meeting, a 30 year lawyer who sits on the Illinois Bar Association Board of Governors and who now has been released from this case just as these two pundits have suggested... perhaps she is too long in the tooth to pay attention to what it is that she is doing?

But they have both spent their goodwill in this community and would be better off to leave. Both have licenses elsewhere and homes elsewhere. Neither will find it easy to fake court orders or subborn perjury or buy judgements.

Posted by: Jet | Dec 13, 2011 4:33:33 AM

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