Thursday, August 4, 2022

The Five Required Disclosures

The District of Columbia Court of Appeals has affirmed a finding of reckless misappropriation and ordered disbarment.

The matter involves the obligations of disclosure for advanced fees

We agree with the Hearing Committee’s determination that Mr. Ponds’s misappropriation was at a minimum reckless. In re Mance is not clear in all respects. See In re Haar, 270 A.3d 286, 295 (D.C. 2022) (In re Mance is unclear about whether attorneys were required to apply its requirements retroactively to funds received from clients before In re Mance was decided). On the issues raised in this case, though, In re Mance is quite clear: (1) flat fees paid in advance are client property and must be treated accordingly unless the client gives informed consent to a different arrangement; (2) informed consent requires an attorney to discuss the “material risks of and reasonably available alternatives to the proposed course of conduct”; and (3) to obtain informed consent in this context, an attorney must “expressly communicate to the client verbally and in writing” five specific pieces of information. In re Mance, 980 A.2d at 1206-07 (internal quotation marks omitted); see also supra pp. 3-4 (listing five required disclosures).

Mr. Ponds’s fee agreement and his conduct in this case are fundamentally incompatible with the requirements of In re Mance. Rather than making clear that the unearned portion of a flat fee must be returned, the fee agreement indicated precisely the opposite. Rather than complying with the requirement to return unearned advance fees, Mr. Ponds refused, despite an arbitral award requiring him to comply. As the Hearing Committee explained, the fee agreement also omits other topics specifically required by In re Mance, and neither the fee agreement nor Mr. Ponds’s discussion with Mr. Young provided the information that would have been necessary for Mr. Young to have given informed consent.

We view it as quite implausible that an attorney who was trying in good faith to comply with the requirements of In re Mance would have drafted the fee agreement in this case or would have acted as Mr. Ponds has acted in this case. We need not rest, however, on a conclusion of subjective bad faith. Even assuming that Mr. Ponds may have subjectively believed that the fee agreement and his conduct were permissible, we think it quite clear that Mr. Ponds at a minimum demonstrated “conscious indifference” to the requirements of In re Mance. See, e.g., In re Gray, 224 A.3d at 1232 (“Reckless misconduct requires a conscious choice of a course of action, either with knowledge of the danger to others involved in it or with knowledge of facts that would disclose this danger to any reasonable person.” (internal quotation marks omitted); see also, e.g., In re Cloud, 939 A.2d 653, 661 (D.C. 2007) (holding that attorney’s failure to pay client “back within a reasonable time after discovering [attorney’s] error” supports finding of reckless misappropriation); In re Anderson, 778 A.2d 330, 339 (D.C. 2001) (reckless misappropriation may be shown by proof of “a pattern or course of conduct demonstrating an unacceptable disregard for the welfare of entrusted funds”).

(Mike Frisch)

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