Thursday, July 29, 2021

Earned On Receipt

The Oregon Supreme Court sustained findings of a plethora of ethics rule violations and disbarred an attorney

Respondent graduated from law school and became a member of the Oregon State Bar in 2003. He worked for a small law firm in Roseburg until leaving Oregon in 2004 to begin graduate legal studies. After completing his graduate degree and clerking, respondent worked as a law professor specializing in environmental law. In 2015, respondent moved back to Oregon to begin practicing law. He started at a small firm in November 2015 and then opened a solo practice in January 2016. At around the same time, respondent was going through a difficult divorce and custody dispute with his wife, who resided in Florida with their children.

At the heart of the problem were Respondent's financial struggles and use of "earned on receipt" fees

Although respondent’s handling of those advance fees did not itself violate a Rule of Professional Conduct, it nevertheless left respondent’s clients vulnerable. “Earned on receipt” fee agreements shift the risk of loss to the client. If the client relationship ends before the lawyer has performed the services needed to keep the advance fees, then the lawyer is required to return the fees for the uncompleted work. If the lawyer has already spent the advance fees and has no other financial resources upon which to draw, then the lawyer may be unable to provide the client with the required refund.

That is what happened to many of respondent’s clients. The client provided respondent with advance fees that were designated as “earned on receipt.” The client then terminated respondent’s service before respondent performed the services needed to permit him to retain the advance fees. And respondent failed to provide the required refund of the advance fees that respondent had not, in fact, earned by performing legal services. For that conduct, the Bar alleged that respondent repeatedly violated RPC 1.5(a) (charging excessive fee) and RPC 1.16(d) (failing to refund unearned fees).

And multiple counts of failure to respond

He maintains, however, that his failure did not violate RPC 8.1(a)(2) because he believed that the Bar’s inquiries were not a “lawful demand for information.” According to respondent, he believed in good faith that the Bar’s inquiries “exceeded the Bar’s authority and/or [were] being used to advance illegal and unethical conduct.”

There is no merit to respondent’s defense.  A Bar inquiry is lawful if it is based on “an arguable complaint of misconduct, one that the Bar [has] legal authority to investigate.”

The most serious findings involved intentional conversion of entrusted settlement funds.

Respondent’s misconduct caused extensive injuries, which were not merely financial. Many of respondent’s clients had limited financial means and needed their advance fees returned before they could afford to hire new attorneys. When respondent failed to return those advance fees, some clients simply went without legal representation. Stone, for example, is a painting subcontractor who saved up money during his busy season of the year to hire a lawyer so that he could see his son again. At that time, his son was about to start high school. When respondent took Stone’s money without providing him any legal services, Stone’s effort to see his son was set back another year. Other clients reported emotional distress from respondent’s neglect and failure to keep them informed. Charpentier testified that, between not hearing back from respondent during the engagement and then having to repeatedly follow up with respondent to get her money back, “[i]t was two months of just pure hell.” Grotz, who for months tried unsuccessfully to get substantive responses from respondent on the status of his case, reported health problems as the result of anxiety from not knowing whether his legal interests were being protected.
(Mike Frisch)

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