Saturday, March 23, 2019

Lack Of "Clear Cut" Rules Leads To Rejected Claims Of Fraud On Law Partners

The California State Bar Court Hearing Department recommended a 30-day suspension of an attorney charged with (and largely absolved of)  dishonesty toward his law partners.

In this contested disciplinary proceeding, respondent Jakrun S. Sodhi (Respondent) is charged with twenty counts of professional misconduct, including: (1) engaging in a scheme to defraud; (2) misappropriation; (3) breaching his duty of loyalty; (4) seeking an agreement to withdraw a disciplinary complaint; (5) failing to perform legal services with competence; (6) failing to inform clients of significant developments; (7) sharing legal fees with a non-lawyer; (8) improperly withdrawing from employment; (9) failing to deposit client funds in a trust account; and (10) engaging in a business transaction with a client.

The court finds, by clear and convincing evidence, that Respondent is culpable of five out of the twenty counts of misconduct. Based on the nature and extent of culpability, as well as the applicable aggravating and mitigating circumstances, the court recommends, among other things, that Respondent be suspended for 30 days.

The four partner firm had no formal policies

While the Corporation had no actual policy pertaining to pro bono work allotment, Swingle, Arata, and Van Egmond were in agreement that all cases, including pro bono matters, had to be inputted into the Corporation’s Abacus case management system. Inputting cases into the Abacus system served several purposes, including generating Bills, listing opposing parties, running conflict checks, highlighting important deadlines, listing contact information, and calendaring court dates and events. Moreover, using the Abacus system was a requirement of the Corporation’s malpractice insurance.

But respondent subtracted himself

Unlike the other shareholders, Respondent did not typically use the Abacus system for his criminal practice because he considered it to be nothing more than a billing program. Respondent believed that the Abacus system was designed for hourly cases, while most of his criminal cases were flat fee or a retainer based upon a lump sum payment.  Respondent also did not use the Abacus system for his pro bono cases because there was nothing to bill. Instead, Respondent put all of his pro bono cases in Microsoft Outlook.

The issue came to light

In early 2016, while researching a witness in a case that he was handling for a municipal client, Swingle discovered that Respondent was representing the witness in a criminal case as an adverse party against the municipal client. The municipal client was the City of Turlock, which had long been a client of Swingle, and hence the Corporation. And the Witness Respondent was representing was not in the Abacus system. Swingle told Van Egmond and Arata that the Corporation had to get a handle on this or risk being sued for malpractice.

Van Egmond subsequently performed a search of how many cases were out there where Respondent was representing clients, but the clients were not listed in the Abacus system. Van Egmond found there were at least forty-three cases over seven years where Respondent was attorney of record and the cases were not in the Abacus system. Also, Van Egmond searched Helen Mays’s desk and found a number of receipts indicating that money had been collected but not reported to the Corporation. Helen Mays (Mays) was Respondent’s secretary/paralegal/administrative assistant.

Next 

After discovering the number of cases not in the Abacus system, Arata, Swingle, and Van Egmond sought the advice of attorney David Zeff (Zeff). Zeff advised that the Corporation had exposure for liability in those cases not in the Abacus system and that Respondent should be terminated.

And so he was.

The State Bar failed to establish intent to defraud

OCTC’s allegations in Count One, however, have not been established by clear and convincing evidence. To begin with, the Corporation operated informally and largely based on “trust.” There were no clear cut rules regarding how many cases one could take on a pro bono basis and no written policy regarding inputting all cases into the Abacus system. Van Egmond testified that there were no policies regarding handling cases for family and friends, indicating that the shareholders generally trusted one another. Swingle testified that there was no limit on pro bono cases. Arata, when questioned regarding whether there was any agreement that all fees earned by an attorney were the property of the Corporation, replied that there was not such an agreement because the shareholders trusted each other.

Respondent did not share the belief of his former shareholders that all cases needed to be inputted into the Abacus system. As a result, Respondent asserts that he did not enter pro bono cases and various flat fee criminal cases that did not involve billing. Respondent also asserted that most of the cases listed in Count One of the NDC were pro bono cases. It should also be noted that the list of 39 cases spans a seven-year period. Given that Respondent handled 320- 400 cases a year and 5%-10% were pro bono, this list does not appear to demonstrate clear and convincing evidence of a scheme to defraud.

It was Respondent’s perceived breaking of the trust Van Egmond and Arata described that led to the nasty break-up of the Corporation. While Respondent’s conduct clearly did not meet the expectations of his former shareholders, a violation of ambiguous or “unwritten rules” does not establish, by clear and convincing evidence, a violation of section 6106. Accordingly, Count One is dismissed with prejudice.

He also was absolved of several charges of misappropriating fees due to the firm.

The only remaining fly in the ointment

On October 13, 2016, Respondent, by and through his attorney, sought an agreement from his former shareholders to withdraw their disciplinary complaint to the State Bar as part of an attempt to settle civil litigation between Respondent and the former shareholders, in willful violation of Business and Professions Code, section 6090.5(a)(2).

The Bar Court rejected most charges concerning a personal injury matter except

Respondent willfully violated rule 3-700(A)(2) by constructively terminating his employment of his client, Nazreen, without notice and without taking any other steps to avoid reasonably foreseeable prejudice to his client.

Another set of charges

Respondent owned rental property in Modesto, California (the Modesto property). The tenants living at Respondent’s Modesto rental property were evicted in late December 2014 or early January 2015.

In late 2014 or early 2015, Noah Yates (Yates) — who was a client of the Corporation —approached Respondent about doing some repair work on Respondent’s Modesto property as partial payment toward legal fees Yates owed to the Corporation. Respondent hired Yates and agreed to pay him $25 per hour, which Yates could use to pay off his legal debt to the Corporation. There is no evidence in the record that Respondent disclosed the terms of this agreement in writing to Yates or otherwise memorialized the agreement.”

Yates inspected the property and reported, in late January 2015, that the tenants had left the place filthy, but the only repair work that needed to be done was some painting, repair to a hole in the wall, and removal of junk. The initial estimate for repairs was about $1,000.

On or about February 9, 2015, the Modesto property was broken into and vandalized. As a result, the estimate to repair the damages increased to $11,000. And by March 2015, the repair costs ballooned to approximately $30,000.

In March 2015, Respondent filed an insurance claim with his insurance company —Foremost Insurance — stating that the damages were discovered on February 9, 2015.  Under the terms of Respondent’s insurance policy, there would be no coverage if the tenants caused the damage to the property. The insurance company suspected that Respondent’s tenants may have caused the damages. Accordingly, the insurance company began an investigation.

During the investigation, Respondent gave some statements regarding the timing of the claim that contradicted statements contained in his initial claim. Respondent explained these contradictions by noting that some of his statements were based on information conveyed by Yates.

On August 27, 2015, Respondent withdrew his insurance claim. Respondent’s explanation for the withdrawal was that he was unable to secure insurance coverage for the Modesto property while it still had a pending insurance claim.

The State Bar Court rejected charges of insurance fraud but found he violated the business transaction with a client rule.

Sanction

having considered the evidence, the standards, and the caselaw, the court concludes that a 30-day period of actual suspension, among other things, is sufficient to protect the public, the courts, and the legal profession.

The discipline takes effect on March 29.  (Mike Frisch)

https://lawprofessors.typepad.com/legal_profession/2019/03/the-california-state-bar-court-hearing-department-recommended-a-30-day-suspension-of-an-attorney-for-dishonesty-toward-his-la.html

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