Thursday, January 12, 2023

Disgorgement Of Legal Fee Affirmed

The Idaho Supreme Court affirmed an order that, among other things, disgorged a legal fee paid out of funds subject to the trial court oral ruling

This appeal arises from an order of contempt entered against Jeff Katseanes (“Jeff”) and an order of disgorgement entered against his attorney, Justin Oleson. As part of a divorce agreement between Judy Katseanes, now Judy Yancey (“Judy”), and Jeff, Jeff was required to pay Judy spousal support. Following several years of insufficient payments, Judy filed a lawsuit to seek enforcement of spousal support. During the proceedings, the district court orally granted Judy’s request for a Qualified Domestic Relations Order (“QDRO”) assigning Judy 100% of Jeff’s 401k plan. After the court orally issued its order in open court, but before the district court signed a written order reflecting the oral ruling, Jeff withdrew all of the funds from the 401k. The district court ordered Jeff to return the funds and provide an accounting. When the accounting was not timely provided, the district court held Jeff in criminal contempt and sentenced him to five days in jail. The court also granted an order of disgorgement against his attorney, Oleson, after discovering Jeff’s attorney fees had been paid with funds from the 401k. Jeff now appeals to this Court, arguing the order of contempt and order of disgorgement were improper because the QDRO did not become effective until the written order was signed by the court. We affirm.

The transfer of funds

The day after the district court granted the QDRO on January 6, but before the court signed a written order on January 27, Jeff called Rudd & Company, the third-party retirement plan administrator for his 401k. Jeff told a Rudd & Company employee, Erin Dupree, that his attorney informed him things were resolved, there was no QDRO, and he could access his funds. Dupree and the company’s CPA, Christian Zollinger, followed up with Oleson, on January 13, 2021, to verify that there was no QDRO. According to Dupree, Oleson told her, while using “some profanity,” that there was not a QDRO in place, and that “[Judy’s attorney] would not get his hands on the money.” Relying on Oleson’s statement, Dupree allowed Jeff to withdraw all of the funds in his 401k, which after fees and federal withholding, totaled $61,946.91.

Then it was Judy's turn to cry foul

After learning that Jeff’s attorney fees were paid with funds Jeff had taken from the 401k, Judy filed a motion for an order of disgorgement of fees. At a hearing on the motion, Oleson argued that the money was legally Jeff’s and the circumstances were not nefarious since the QDRO was not signed and entered by the district court until January 27, 2021. As a result, Oleson argued he had no duty to disgorge those funds. Judy’s attorney argued that Oleson had falsely misrepresented the district court’s order to the 401k plan administrator, and that the funds would not have been distributed if she had been properly informed by Oleson.

The court on appeal held the oral ruling was effective

The legitimacy of oral rulings, even if not later memorialized in writing, has been confirmed by the Third, Ninth, and Eleventh circuits.

The contempt was affirmed even if it was pursuant to advice of counsel

Oleson was representing Jeff when he filed the April 1 letter informing the court Jeff would not be complying with the court’s order. Jeff has not asserted on appeal that Oleson failed to consult with Jeff prior to Oleson sending a letter to the district court advising that he would not be producing the accounting. Idaho Rules of Professional Conduct 1.4(a)(1), (a)(2) required Oleson to promptly inform Jeff of any decision or circumstance with respect to which Jeff’s informed consent was required, and also to reasonably consult with Jeff about the means by which Jeff’s objectives were to be accomplished. Idaho Rule of Professional Conduct 1.0(e) defines “informed consent” as denoting an “agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.” Thus, no matter if the failure to comply was done at Oleson’s behest, or was a decision Jeff made on his own, as the litigant, Jeff ultimately bore the burden of complying with the court’s order. Jeff failed to do so. The district court’s order of contempt is supported by substantial and competent evidence in the record. Thus, it is affirmed.

The court also affirmed disgorgement and awarded fees and costs of the appeal. (Mike Frisch)

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