Ethics in Brief

Ethics in Brief is designed to present ethical issues that practitioners might well face on a daily basis. It is a service of the Legal Ethics Committee of the San Diego County Bar Association for SDCBA members.

Bankruptcy Attorney Loses Big In Vegas: Or Don’t Gamble With Your License

It’s said that what happens in Vegas, stays in Vegas. That is not true, as the tale told by a recent decision of the Bankruptcy Appellate Panel of the Ninth Circuit In Re Searle. And it’s a good thing for us, if not for the attorney involved, because the news blowing in on the hot desert wind from Searle offer object lessons on the pits that an attorney can fall into.  In this case, there were two pits: (1) a badly written boilerplate fee agreement and (2) a sloppy intake process. And every fall comes with a sudden stop: in this case, sanctions including disgorgement of fees and having to show a copy of the sanctions order to any new client in the same position as Mr. Searle.

The Attorney met with Mr. Searle and his wife at 5 p.m. on a cool Monday evening, the 13th of February. What happened at the meeting is not clear. Mr. Searle testified that he told the Attorney that his wages were being garnished as a result of a judgment against him in a lawsuit resulting from a sanction order where fraud was found to be involved and that the Attorney told him the debt was dischargeable. The Attorney testified that he had no recollection of the meeting at all but conceded that his firm knew about the judgment and wage garnishment at the time Mr. Searle’s bankruptcy petition was filed.

After the meeting, Mr. Searle was ushered into a separate room and given the firm’s 19 page fee agreement to sign.   No one explained the fee agreement to him, although occasionally firm staff would check into see how much progress he was making.  Attorney testified that his practice was to have a firm paralegal go through the firm paperwork with clients, although he had no record keeping system to verify that this practice was followed.  The fee agreement provided for “unbundled” representation; beyond the basic services provided for a flat fee of $1,999 it did not include representation “addressing allegations of fraud or non-dischargeabilty” or “adversary proceedings” unless additional attorney’s fees were paid at the rate of $450 per hour.

The Chapter 7 bankruptcy was filed. The judgement creditor informed Attorney, Mr. Searle and his wife at the first meeting of creditors that a non-dischargeability action would be filed.  Attorney later received a proposed stipulation and order regarding non-dischargeability but never sent it to Mr. Searle. A discharge was filed on May 30, 2012 and Attorney’s office sent Mr. Searle a form letter telling him that his representation was concluded. A few days later the judgment creditor filed an action for non-dischargeability. Mr. Searle answered in pro se. At the scheduling hearing Mr. Searle complained that attorney “threw him under the bus.”

The bankruptcy judge issued an order to show cause. In imposing sanctions, the court found that Attorney did not discuss the fraud issue with Mr. Searle at the intake meeting, “thumbed through” the judgment and wage garnishment order, and did not explain anything about a possible adversary proceeding, in violation of his duty of competence under Nevada Rules Prof. Conduct 1.1 (see Calif. Rule Prof. Conduct 3-110(a).). It further found that he failed to adequately communicate with his client about the objectives of the employment (Nevada Rule 1.2, 1.4.8/Calif. Rule 3-500.) The bankruptcy court also found that while “unbundled” representation is permissible in bankruptcy, Attorney did not explain the terms of his unbundled representation with sufficient clarity in violation of Nevada Rule 1.5.)

Lesson for California lawyers: don’t gamble with your law license. Although the order doesn’t make a referral to the Nevada State Bar, this would be a reportable action for a California lawyer under Bus. & Prof. Code section 6068(o)(3). 

– David Cameron Carr

**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**