Wednesday, December 20, 2017

Consent Decree Cannot Be Used As Proof In Bar Discipline Proceeding

The Arizona Supreme Court overruled the Presiding Disciplinary Judge and held that a consent judgment cannot be used in a bar discipline proceeding.

This case concerns the application of Arizona Rules of Evidence 408 and 613 when the State Bar of Arizona seeks to use a consent judgment entered in another matter in attorney disciplinary proceedings. We hold that Rule 408 precludes use of a consent judgment to prove substantive facts to establish liability for a subsequent claim, and a consent judgment likewise cannot be used for impeachment purposes under Rule 613.

The issue

Disciplinary proceedings are currently pending against attorney Brent Phillips before the Presiding Disciplinary Judge (“PDJ”). Prior to these proceedings, the Arizona Attorney General sued Phillips for violations of the Arizona Consumer Fraud Act (“CFA”), A.R.S. §§ 44-1521 to -1534. The state alleged that he mailed deceptive advertisements to Arizona consumers. Among other violations, the advertisements led consumers to mistakenly believe they were eligible for mortgage payment or interest rate deductions and were worded in a way that made some consumers think the mortgage lenders sent the advertisements. The advertisements also made the program look selective when it was not, and Phillips’ fee agreements required consumers to pay attorney fees up front, even if the lender ultimately denied the application to modify the consumers’ mortgage loan terms. The disciplinary proceedings also relate to this conduct.

To resolve the Attorney General’s CFA action, Phillips agreed to a consent judgment (“Judgment”). The Judgment waived Phillips’ right to a trial, admitted that his actions violated the CFA and a federal regulation, and required him to pay restitution, attorney fees, and civil penalties. The Judgment also precluded its use in most other proceedings...

In this case, applying the transactional analysis leads us to conclude that the two proceedings at issue involve the same claim. Unlike the evidence in Broadcort, which concerned an entirely different loan transaction, the State Bar’s claims here arose from the same set of operative facts underlying the CFA litigation. Specifically, both the Attorney General’s lawsuit and the State Bar’s disciplinary proceedings were brought to sanction Phillips for the advertisements he distributed. Although the sanctions Phillips may face from the State Bar differ from those in the civil proceeding the Attorney General brought, a difference in sanctions alone does not render a claim “different” for purposes of the transactional analysis. See id. ¶¶ 19–21. We therefore find that none of the exceptions to Rule 408 allow the State Bar to admit the Judgment or its contents into evidence.

The PDJ’s order implied that the stipulated facts from the Judgment are nevertheless admissible under Rule 613(b) because “justice so requires.” We disagree. There is nothing unjust about requiring the State Bar to prove its case—as it generally must do in attorney disciplinary proceedings—against Phillips without the stipulated facts from the Judgment. To the extent the PDJ’s order invokes Rule 613(b)’s “justice so requires” language to prevent Phillips from admitting facts in a civil proceeding to mitigate liability and then denying them in a subsequent disciplinary proceeding, Rule 408 does not permit it. Rule 408’s text expressly precludes the use of the Judgment to impeach Phillips and the policy underlying the rule balances the risk of such an outcome in favor of encouraging the compromise and settlement of disputes.

Justice Bolick dissented

When the Court finds it necessary to resort to federal cases, advisory comments to a federal rule, and multiple restatements to figure out what a rule of our own making means, something is seriously wrong.

I cannot join my colleagues in finding that Rule 408 encompasses consent decrees and settlement agreements. The rule is titled “Compromise Offers and Negotiations,” and the provisions that follow encompass that limited subject matter and no other. A rule intended to apply to consent decrees would use that or a similar term, not the cumbersome verbiage cited by the majority.

AZ Central reported on the consent decree. (Mike Frisch)

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