*1 LEHMAN. Robert E. In the Matter of
No. 49S00-9510-DI-1244. of Indiana.
Supreme Court
Dec. *2 Elberger, McKinney E. Bose
Ronald Evans, Indianapolis, Respondent. for Secretary, Lundberg, Donald R. Executive Indianapolis, Supreme for Indiana Court Dis- ciplinary Commission.
DISCIPLINARY ACTION PER CURIAM.
Today we conclude that Ind.Code Section paid fees 34-4-41-4 out of recover- insurers their insured, not the in- ies enure to lawyer, permissi- sured’s absent an otherwise agreement setting forth an alternative ble profes- We that it is arrangement. also find lawyer to sional misconduct for the insured’s disclosing without retain such fees retention of the to the client. Disciplin- This case commenced when the Complaint ary Commission filed its Verified Disciplinary on October Action alleging respondent, Robert therein Lehman, E. violated the Rules Profession- Attorneys Law. at This al Conduct for appointed hearing officer Court Discipline Sec- Ind.Admission accepted parties’ tion who facts, facts, submitted to those of law recommendation for conclusions and a parties to this Court. Both have sanction hearing our review of the officer’s requested report respective posi- prior conference, and have briefed their pre-trial to the first tions. escalating percentages if progressed the case thereafter. defined parties’ stipulations,
Pursuant “amounts “gross actually now recovered” as sums find that Wilson, collected, associated with the law firm of Kehoe including but not limited sums *3 16,1994, Winingham. On March a client interest, punitive damages attributable or met with the at his law office to (whether attorneys’ such collection is on personal discuss injury judgment account of by way compro- or injured claim. The client had been in an mise, otherwise).” settlement, After days automobile accident two earlier while injuries, client received treatment for his driving a vehicle owned and insured began settlement negotiations wife. Company State Farm Insurance with the tortfeasor’s insurer and later ob- (“State Farm”) provided payments medical $12,000, tained a settlement offer of which coverage insurance incident to the wife’s accepted.1 the client On December ownership of the automobile. The Laborers met, and his client at which (“Hod and Hod Carriers Fund Welfare Car- time the explained the terms of riers”) major was the client’s medical insurer. provided the settlement. He his client with a During meeting, signed a con- statement, written disbursement which the tingent agreement providing spondent signed. provided, would receive as That statement any one-third of and all amounts part: recovered conference, Although cepted stated prior pre-trial to the first facts, we infer that the settlement offer was ac- insurer’s one-third of each SETTLE- AFOREMENTIONED THIS BREAKDOWN, FIGURE, rights: AND reimbursement State MENT IS from Hod Carriers. At OF SAID FIGURE Farm and $396.27 DISTRIBUTION AND MY AUTHORIZATION the time the disbursed WITH CONSENT, BY MY proceeds AUTHORIZED to his he did not inform the AS THIS DISBURSEMENT would issue trust account SIGNING that he equal SHEET. checks to the insurers respective subrogation of their two-thirds THAT I I HEREBY ACKNOWLEDGE rights nor did he inform him he would THAT ANY HAVE BEEN ADVISED med-pay amounts as retain one-third PAID MEDI- PARTY HAS THIRD WHO relied on his fees. AAS RE- EXPENSES INCURRED CAL interpretation of I.C. Indiana 34-4-41-4 and MAY OF THIS ACCIDENT SULT authority retaining as attor- case law as *4 REQUIRE THE TO RE- HAVE RIGHT med-pay amounts. ney fees one-third of the THE POLI- IMBURSEMENT UNDER provides, in 34-4-41-4 Indiana Code Section INVOLVED, OR OF INSURANCE CY part: THAT I INDIANA LAW. RECOGNIZE AND ALL MEDI- ANY OUTSTANDING claiming subrogation or An insurer reim- REIMBURSE- CAL BILLS AND/OR chapter rights under this shall bursement MENT IS MY RESPONSIBILITY. pay, received from the out of the amount insured, pro of the rata share the insurer’s deposited respondent later necessary costs and ex- reasonable and $12,000 into his trust ac settlement draft party penses asserting of a third claim. with the terms of the count. Consistent necessary costs and ex- These reasonable statement, respondent is disbursement (3) Attorney’s penses include ... fees to cheek to the client on sued a trust account of the amount contracted the lesser 1,1994, $4,044.04. for Before dis December portion of the insured for the insured’s client, respon amount to the bursing this thirty-three percent claim or and one-third explained him that each insurer dent (3lé%) of the amount of the settlement. paid respective subrogation its would be (“subrogation rights reimbursement learn that the insurers The client did not subrogation rights”).2 State Farm claimed only respective two-thirds of their received pro against rights of rights subrogation or that prior payment of the client’s acci ceeds for of the amounts of had retained one-third dent-related medical bills. Hod Carriers rights attorney fees until Hod Carri- such as subrogation rights in the similar claimed him the transaction after the ers notified of $1,188.80. amount of On December signed settlement statement. signed the settlement after the client had 1, 1994, is- On December statement and after the re disbursement $1,333.33to Kehoe & pro sued a cheek for Wilson spondent had disbursed the settlement pay- client, Winingham from his trust account as respondent wrote ceeds to the attorney The re- Specifically, fees in the case.. insurer. ment trust checks to each from his trust spondent did not disburse a check to State Farm issued $2,473.33 any attorney fees to himself nor did account amount of and a check to expense $792.53, reim- repre he disburse to himself $35 Hod Carriers bursement, disbursement equal as indicated senting, respectively, an amount on De- After the transactions subrogation or statement. two-thirds of each insurer’s 1, 1994, amount and source right for the medical ex cember reimbursement respondent’s trust ac- in the funds retained penses it had satisfied. The re as follows: attorney equal to count were fees an amount tained debt or claim.” the other in relation Subrogation as "the substitu has been defined (5th 1279 place LAW DICTIONARY person BLACK’S Ed.1979). tion of one of another claim, Corp. Loan v. right, See also Home Owners’ so to a lawful demand or reference (1940). Henson, N.E.2d 873 rights 217 Ind. succeeds to the that he who is substituted $1,236.67 (1/3 (1/3 subrogationright) ofState Farm’s ofHod 1.7(b)5 client violated Prof.Cond.R. in that it subrogationright) 396.27 $ Carrier’s $2,666.67 ($4,000contingentattorney represented prohibited a conflict of interest. less $1,333.33 issued WilsonKehoe& Win- Finally, charged Commission that ingham) respondent violated Prof.Cond.R. (Reimbursement costs) 35.00 $ (c)6 by retaining in his trust account his own Disciplinary charged Commission that property portion contingency (ie., Ind.Professional and his expenses) reimbursed for an unrea- 1.5(a)3 Conduct Rule in that his undisclosed sonable time after there had been an ac- respective retention of one-third of the sub- counting and severance of interests between rogation rights of the insurers as additional himself and his client. contrary fees was to law and thus an unreasonable fee. It charged parties further have respondent’s 34-4-41-4, failure to disclose to I.C. diversity there is a practice in both the as to how the fees incident statement, and the settlement subrogation rights insurers’ are disbursed spondent’s total fee would include among participants retention in resolution of claims. one-third of the Pending insurers’ liens resolution of this pursu- matter and fully and his failure to disclose the ant to understanding method between the determination of Commission, constituted viola- dent and the 1.5(c) tion of Prof.Cond.R. and Prof.Cond.R. issued to himself a check for on 8.4(c).4 alleged It also March representing amount *5 retention of attorneys one-third of the insurers’ liens net fees due to the agreement without consultation or his to the disbursement statement and 1.5(a) provides: 3. provide Professional Conduct Rule shall the client with a written statement and, stating the outcome of the matter if there is lawyer’s A fee shall be reasonable. The factors recovery, a showing the remittance to the client determining to be considered in the reasonable- and the method of its determination. following: ness of a fee include the 8.4(c) provides: (1) Professional Conduct Rule required, the time novelty and labor professional It lawyer involved, misconduct for a difficulty questions and of the and the fraud, engage involving dishonesty, in conduct requisite perform legal skill service misrepresentation. deceit or properly; (2) likelihood, apparent if 1.7(b) 5. acceptance provides, Professional Conduct particular Rule employment of the in part: preclude relevant employment by lawyer; will other (3) customarily charged locality in the lawyer A represent shall not a client if the services; legal for similar representation may materially of that client be (4) the amount involved and the results ob- by lawyer's responsibilities limited to another tained; person, client or to a lawyer’s third or (5) imposed by the time limitations interests, own unless: circumstances; byor (1) lawyer reasonably repre- believes the (6) length professional the nature and of the affected; adversely sentation will not be client; relationship with the (2) the client consents after consultation. (7) experience, reputation, ability lawyer services; lawyers performing or 1.15(a) 6. provides, Professional Conduct Rule and (8) part: relevant contingent. whether the fee is fixed or lawyer A property shall hold of clients or third 1.5(c) provides: Professional Conduct Rule persons lawyer’s possession that is in a in con- may contingent A fee be representation on the outcome of the separate nection with a from the rendered, matter for except which the lawyer’s service is property. kept own Funds shall be ain in a contingent prohibit- matter in a separate which fee is account maintained in the state where (d) by paragraph situated, ed contingent or other lawyer’s law. A office is or elsewhere with agreement fee writing shall be and shall state person. consent of the client or third determined, the method 1.15(c) which the fee is to be provides, Professional Conduct Rule including percentage percentages part: or lawyer shall accrue to the ment, in the event of settle- lawyer When in the course of a appeal, litigation trial or possession and other ex- property is in in which both the penses recoveiy, interests, to be lawyer deducted from the person and another expenses whether such are property to be deducted before kept separate by shall lawyer contingent or Upon after the fee is accounting calculated. until there is an and severance of matter, contingent conclusion a lawyer their interests. writing agreements such state expenses. The bal- and that of reimbursable the $35 $1,632.94, the one-third representing by which the fee is to be deter- ance of method subroga- the insurers’ attorney fee based on percentages percentage or mined and claims, in the trust retained has been tion lawyer in event that shall accrue to the of this ease. pending the outcome account that, at The rule of settlement. representation, lawyer the conclusion of found the hearing officer 1.5(c) by failing provide to dis- client with a written settlement Prof.Cond.R. his portion of the insurers’ of a stating close retention the outcome of the matter attorneys liens as additional and, recovery, showing if remit- there is a fees, upon good faith he so but that did to the client and the method of its de- tance applicable law and without interpretation of termination. Professional Conduct or commit an intent to deceive malice or 8.4(c) prohibits lawyers engaging in was concluded further that there fraud. He fraud, deceit, dishonesty, involving conduct' ' respondent’s retention no evidence misrepresentation. ‘ $12,000 gross settle- out contingent agreement with the client proscribed by unreasonable fee ment was an keep as his fee one- stated that he would 1.5(a); there was no viola- Prof.Cond.R. of all amounts recovered. He recov- third 1.7(b) no con- because tion of $12,000 from the tortfeasor’s insurer. ered materially interfered with flict arose which His that he settlement statement indicated loyalty towards his representation of or However, kept that as his fee. client; no violation of Prof. that there was retaining an additional one-third after later (c) because the Cond.R. fees, subrogated prolonged retention of his own funds dent’s respondent’s actual total fee amounted account inadvertent and done in his trust $5,632.94. He twice failed to disclose malice; there was no viola- without and that fee to his client: retention of the additional 8.4(c) because tion of Prof.Cond.R. first his client spondent did not intend to deceive settlement statement. later in the inaccurate statement. with the inaccurate disbursement *6 eventually learned of the addi- The client hearing petition for review of the In its his insurance carrier tional fee from own conclusions, argues officer’s the Commission surprised of the additional to learn violated Prof. respondent’s actions that the findings, on our fee. Based 1.15(a) 8.4(c). 1.5(a), 1.7(b), In Cond.R. Prof. respondent that the conclude review, con- respondent’s petition for he 1.5(c) per- by failing to disclose Cond.R. he not violate Prof.Cond.R. tends that did to him as centage of settlement that accrued 1.5(c) by the method by failing to disclose attorney upon settlement fees was calculated because the which his total fee provide the client with by failing to part of the disputed subrogation fee was not accurately ease, which an statement recovery in but rather settlement gross repre- client and the amount recovered after the the remittance to the additional showed the client was concluded. sentation method of its determination. Therefore, duty 8.4(c) to to argues, he disclose in that also violated Prof.Cond.R. dent not attach. The the client does represents conduct involv- his nondisclosure provide guidance this Court to further asks misrepresentation. ing who, among participants to the as to injury litigation, enti- underlying personal is Fee of the II. Reasonableness subrogation attor- disputed tled to retain ney fees.7 Rule Conduct Professional
I. Nondisclosure of Additional be “reason attorney fees must provides that Attorney Fee to specific definition as There is no able.” attorney fee. 1.5(c) a reasonable what constitutes re
Professional Conduct gauged fee’s reasonableness in A contingent agreements particular fee quires that Carriers, requested by the as disputed Farm and Hod hearing suggested that the officer grievance Commission. paid in his to the attorney to State client be reimbursed or back fees 702
through
many
that the
retained
careful consideration
fac-
indicated
tors,
including
provided
list
reality,
the nonexclusive
of that
his fee.
1.5(a).8 Underlying
$5,632.94,
in Prof.Cond.R.
percent
or 47
retained
respondent’s fee was
collected,
claim that the
unrea-
gross
actually
of the
sum
or some
of an
sonable was his retention
additional
percentage points
provid-
14
more than that
subrogation
one-third of the
liens. Central
contingent
agreement.
ed
fee
analysis
of the reasonableness of the
respondent agreed
keep
one third as his
respondent’s fee is the existence of the writ-
actually
much
kept
fee but
more. His reten-
agreement calling
for the
ten
exceeding
agreed
tion of an amount far
to retain one third of “all
an
presumptive
fee is
unreasonable fee.
recovered” and
We have also
that retention of
held
contin-
reflecting
that
re-
gent legal
beyond
fees
appli-
allowed
only
tained
one third of the settlement as his
an
may
cable law
indicate
unreasonable fee.
collaterally
Also
is determina-
fee.
(Ind.1996) (con-
Maley,
In re
674 N.E.2d
respondent was,
tion
whether the
as a
tingent
beyond
presumptive
limit
law,
matter of
one-third of
entitled
case).
compensation
worker’s
Indiana Code
subrogated med-pay amounts.
Section 34-4—41-1 states
an insurer who
agree
Where
written fee
there is a
through subrogation
recovers funds
is obli-
specifying
legal
ment
the amount of
fees the
gated
pay “pro
rata share of the reason-
pay,
attorney’s
will
an
retention of a
necessary
expenses
able and
costs and
greater
specified
agree
than that
party claim,”
asserting
including
the third
strongly
ment is
of an unreason
indicative
attorneys
up
to “the lesser amount of
Thus,
agreed
fee.
an
who
able
the amount contracted
the insured for the
accept
any gross
one-third of
settlement as
portion
thirty-three
insured’s
claim or
of the
fee,
actually
and who thereafter
retained
(33jé)
percent
and one third
amount
percent
gross
34.6
settlement due to
statute, however,
the settlement.” The
does
retention of
quarter
one
a Medicare
who,
indicate
between
in-
lien,
was found to have retained
attorney,
sured and the insured’s
is entitled
Brown,
an unreasonable fee.
In re
669 to retain those
The Commission
fees.
con-
(Ind.1996). Similarly,
N.E.2d
attor
go
tends
statute
the fees to
percent
ney who retained his
ten
con
entire
argues
the insured. The
fee,
tingent
which
on total
was based
future
the statute
allows the insured’s
settlement,
payments of a structured
from retain the additional fees.
judgment
pay
debtor’s first installment
*7
charged
ment was found to have
an unrea
“ambiguous”
A
open
statute is
fee after
sonable
the debtor defaulted.
In re
judicial
it
suscepti
determination where
is
(Ind.1996).
Myers,
independently contract
the insured’s
$16,898,
recovery
actually
was
the case
torney
representation
for
on the
$4,898
payment
because
medical
tortfeasor,
party
its obli
against
third
insurer to the
insurers
tortfeasor’s
cliént’s
recovery
is based
gation
payment
for
costs
represented
wholly
an additional transaction
agreement
on the
between the
from the initial
He simi-
distinct
settlement.
legislature
for
the client. Had the
intended
larly
right to
asserts that his
receive attor-
attorney to
the insured’s
retain an addition
neys
fees out of
insurer’s
agreed contingency
top
amount on
of the
al
recovery
separate
is a
and distinct issue from
fee, it
not have
the insurer’s
would
identified
pursu-
the amount
was
which he
entitled
sharing obligation
“pro
as a
rata share”
cost
agreement.
ant to the
Those
representation resulting
cost
of the
arguments are
merit.
without
The total
settlement. Because the insurer’s cost shar
recovery
gross
injury
the client’s
ing obligation
to the
is
referenced
$12,000,
included,
subrogated amounts
as in-
in
contingent
agreement
between
by
respondent’s
dicated
own disburse-
stat
lawyer,
sured and her
we find that the
Thus,
respondent’s
ment statement.
re-
require
pro
ute must be construed to
that the
subrogated
tention of the
not a
amount was
in
to the
rata share is to be remitted
wholly
transaction
distinct
from his fee
sured/elient,
lawyer
unless
Further,
agreement with the client.
his fee
per
expressly agreed
have
to an otherwise
agreement with his client
“all
covered
arrangement.
missible alternative
Statutes
subrogated
amounts
recovered.”
prevent absurdity,
so as to
construed
will
were
in the
included
settle-
hardship,
injustice.
Indianapolis
Union
agreement
by
ment and covered
be-
Waddington,
Railroad Co. v.
169 Ind.
tween the
and his client.
(1907).
interpretation
N.E. 1030
Our
of I.C.
III.
of Interest
Conflict
that,
provides
pro
to its
34-4-41-4
1.7(b)
lawyer may
A
violate Prof.Cond.R.
visions,
may not
lawyers
retain undisclosed
lawyer’s
if
representation
of a client is
contingent
beyond that
to with
agreed
“materially
lawyer’s
in-
limited”
own
their clients.
terests,
lawyer reasonably
unless the
be-
representation will
lieves the
not be" ad-
Based on
fact that
re
versely
after
affected and the
consents
agreed
greatly
tained a fee
in excess of that
charges that
consultation. The Commission
find
we
respondent’s
“own economic interest
1.5(a) by retaining
an
fees,”
maximizing
interest
note
on
unreasonable fee. We
based
argues
it-
which the Commission
manifested
holding today,
respondent retained
our
respondent’s
retention of the ad-
self
application
contrary
his fee
of control
fees, constituted self-interest which
ditional
However,
ling
recognize
law.
materially
limited his
respondent’s
retention
one-third
client.
subrogated
to a col-
amounts was
(albeit erroneous) interpretation of
orable
negotiation
Ordinarily,
of a fee
that law.
are told that the
We
any
not a conflict that carries
*8
contrary
prevailing
view of the law is
to
1.7(b).
implications for Prof.Cond.R.
Howev
George,
practice.
Erie
v.
See
Insurance Co.
er, in this case the record does not indicate
(Ind.1997).
at
681 N.E .2d
n. 17
respondent
client
discussed with the
However,
ease,
had not
until this
the courts
legal
by his
the
issues raised
view of
among
of
the
question
considered the
who
in
arrangement.
if he held
view
his
Even
parties to an
are
to retain the
action
entitled
faith,
certainly
good
is
room for debate.
there
subrogated
portion of amounts
to
issue
affected
explain
His failure
this
was
Therefore,
to I.C. 84-4-41-4.
therefore
We
client
by his
the
self-interest.
in
culpability
respondent’s
no
to the
attach
not consented after consultation
had
law,
terpretation
given
its ambi
of in
alleged tainting
Conflicts
self-interest.
prohibited
may mate-
they
are
because
guity was heretofore unresolved.
terest
misconduct,
lawyer’s
rially
independent
lawyer’s
with the
the
state mind which
interfere
misconduct,
professional judgment
potential
or foreclose courses of
the
underlies
actual or
reasonably
misconduct,
action
injury flowing
duty
that otherwise
should
the
the
pursued
behalf of a client. Comment to
preserve
integrity
on
of this Court to
1.7. Here
client was fore-
profession,
public
Prof.Cond.R.
allowing
the risk
in
respondent’s
challenging
respondent
closed from
practice,
to continue in
respon-
view
34-4-41-4. Because the
of I.C.
any mitigating
aggravating
factors.
re
legal
on
of Heamon,
(Ind.1993).
dent
his view of
effect
relied
The Clerk order accordance provide notice of this of Patrick the Matter J. O’NEIL 23(3)(d) provide to Admis.Disc.R. with Ap- Court of No. 98S00-9708-DI-466. of United States the clerk Circuit, the of clerk peals for Seventh Supreme Court Indiana. in this District Courts each of Federal state, and the clerk of United States 16, Jan. with the last Bankruptcy Court in this state ORDER IMPOSING IDENTICAL RECIP- reflected known address of the ROCAL DISCIPLINE AND DISBAR- in the records of the Clerk. RING RESPONDENT are proceeding assessed Costs this Supreme July On Court respondent. against disbarred, consent, Jersey New O’Neil,
spondent, attorney ad- Patrick J. an law in in 1981. practice mitted to this state DICKSON, SULLIVAN, SELBY and Supreme Disciplinary The Indiana Court BOEHM, JJ., concur. now filed a Notice Commission has Verified dissents, SHEPARD, C.J., concurs Discipline and Issu- Foreign Petition separate opinion. Cause, therein ance an to Show Order requesting that this Court issue an Order directing Cause Show Justice, SHEPARD, concurring and Chief why impose this Court show cause should dissenting. state, discipline reciprocal identical in this join findings conclu- I Court’s Discipline to Ind.Admission and Lehman’s violations 28(b). sions about Robert has is- Rule This Court Section Rules Conduct. I dis- Cause, an neither sued to Show Order of Professional Simply put, about Leh- agree the sanction. nor the has re- the Commission prepared agreement providing for man this sponded. The matter now before ease contingent fee if the was set- one-third Court for final resolution. pre-trial conference. Actual-
tled before advised, Court, being duly now And this ly, a 50% fee. He Lehman wanted about reciprocal discipline finds identical pro him pay their expected lienholders imposed in this should be state. their liens and he wanted rata one-third of THEREFORE, IS, IT ORDERED pay gross client to him a third O’Neil, J. be dis- respondent, Patrick pretty recovery. Lehman worked hard Accordingly, the Clerk barred in this state. knowing keep what he intend- from name this directed to strike his Court is. If charge for his services. Lehman had ed Attorneys., from Roll of beginning the client in the he would told one-half, charge a minimum fee of this Court is directed The Clerk of Instead, shopped around. might well have copy of forward this Order a certified only his union how client learned attorney, to the Indiana kept for himself. much Lehman had Commission, Supreme Disciplinary Court entities to Ind.Ad- and to all other I think behavior was-intentional- Lehman’s 23(3)(d), govern- Discipline mission and surreptitious, suspend I him for ly and would suspension. ing disbarment and it. All concur. Justices