Monday, November 16, 2020

Sanctions Proposed In Collective Action Settlement

The District of Columbia Board on Professional Responsibility recommends disbarment of one attorney and a nine-month suspension with automatic reinstatement of another 

Disciplinary Counsel charged John F. Kennedy and Kathleen A. Dolan with two counts based on misconduct arising out of a litigation and settlement of a collective action and their misappropriation of the entrusted settlement funds. Count I focused on Respondents’ representation of over 100 current and former security officers with wage claims against their employer, Inter-Con Security Systems (“Inter-Con”). Respondents settled without informing the clients of the terms and Kennedy misled their clients by telling them that Inter-Con would pay their attorney’s fees. Kennedy concealed that the fees were paid out of the lump sum settlement. An Ad Hoc Hearing Committee found both Respondents violated Rules 1.2(a) (failure to abide by clients’ decisions), 1.4(a) (failure to keep clients reasonably informed), 1.4(b) (failure to explain a matter to clients), 1.4(c) (failure to inform clients of settlement offer), 1.5(b) (failure to communicate in writing the basis or rate of fee within a reasonable time after commencing representation), and 1.8(f) (failure to obtain informed written consent of an aggregate settlement of claims for two or more clients). The Hearing Committee also found Kennedy was dishonest in violation of Rule 8.4(c).

Count II related to the mishandling and misappropriation of the Inter-Con settlement funds and other trust account violations. After unilaterally agreeing to a $310,000 settlement, Respondents paid their firm 67% of the settlement funds as attorney’s fees and determined the amount of recovery for each client with the remaining settlement funds. Respondents divided the funds between themselves and their clients without client knowledge or approval. The Hearing Committee found that both Respondents violated Rules 1.5(a) (unreasonable fee), 1.15(a) (failure to maintain records of entrusted funds), and 1.15(c) (failure to notify clients promptly of receipt of funds). And the Hearing Committee found both Respondents misappropriated entrusted funds in violation of Rule 1.15(a), finding Dolan’s misappropriation was negligent because the record does not demonstrate direct involvement in the settlement negotiation and client communication or knowledge of Kennedy’s dishonesty. But the Hearing Committee found Kennedy’s misappropriation was intentional in large part because of his dishonesty.

The BPR on Respondent's exceptions

The Board, having reviewed the record, concurs with the Hearing Committee’s factual findings as supported by substantial evidence in the record and adopts and incorporates those findings.

Respondents legal argument

Respondents do not challenge the factual underpinnings of the Hearing Committee’s conclusions; instead they argue that as a legal matter they did not have to communicate the settlement information or seek client approval because of the nature of a collective action and because of the fee-shifting provisions in the FLSA. R. Br. 9-17. We are unpersuaded by their arguments.

The BPR rejected the suggestion that the matter was a class action to which the charged rules did not apply

But Respondents did not comply with any of the Rule 23 procedural protections. They did not treat the litigation as a class action. They did not apply to the court or arbitrator to provide oversight over the settlement.

The lesser sanction

After reviewing the record, the Board agrees with the Hearing Committee that there is insufficient evidence to establish Dolan’s conduct was reckless or intentional.  The record shows Dolan had general knowledge of the litigation and negotiations but did not communicate directly with the clients.

The hearing had recommended a fitness requirement for Dolan; the BPR recommends automatic reinstatement with conditions. (Mike Frisch)

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