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In re Bernstein

June 07, 2001


Before Steadman and Schwelb, Associate Judges, and Kern, Senior Judge.

The opinion of the court was delivered by: Schwelb, Associate Judge

On Report and Recommendation of the Board on Professional Responsibility

Argued January 23, 2001

The Board on Professional Responsibility (BPR or the Board) has recommended that Kenneth H. Bernstein, a member of our Bar since 1975, be suspended from practice for nine months for charging an unreasonable fee, for commingling, and for engaging in conduct involving dishonesty. The Board has further proposed that Bernstein's reinstatement be conditioned, inter alia, on his payment of restitution, with interest, to a former client, and on Bernstein's completion of a Continuing Legal Education course on professional responsibility. Bernstein has raised numerous objections to the Board's report and recommendation. With a single minor exception, *fn1 we impose the discipline recommended by the Board.


This case arises out of a workers' compensation claim that Bernstein filed with the Industrial Commission of Virginia (the Commission) more than ten years ago. Bernstein's client in that matter, John D. Smith, claimed to have suffered injuries to his back while employed in Virginia. Bernstein was not a member of the Virginia Bar, but he associated himself, for purposes of the representation, with an attorney who was admitted to practice in that jurisdiction.

In May 1992, Bernstein negotiated a settlement on Smith's behalf with the employer's attorney. Under the terms of the settlement, the employer was to pay Mr. Smith a total of $30,000. After securing his client's approval, Bernstein prepared, and Smith executed, a "Legal Services and Settlement Allocation Agreement" which provided that $9,000 of the $30,000 would be paid to Bernstein.

Under Virginia law, Bernstein's fee was subject to the approval of the Commission. On June 8, 1992, Bernstein wrote a letter to the Commission requesting approval of a fee "in the amount of 25% of the settlement amount," or $7,500. Bernstein noted in his letter that his client had agreed to the proposed fee.

In July 1992, the Commission rejected Bernstein's request for a fee of $7,500, and instead awarded him a total of only $4,000 for representing Mr. Smith. Bernstein later complained that the Commission's award represented "a 60% pay cut from his original agreement" with his client. *fn3 Bernstein again requested the Commission to award him a fee of at least $7,500, and he stated that he was absorbing "$1,000 of what otherwise would be expenses of the client." On September 17, 1992, the Commission approved the settlement of $30,000, increased Bernstein's initial award by 50%, and directed that $6,000 be deducted from the total award and paid to Bernstein for his representation of Mr. Smith.

Although the Commission's revised fee award represented a substantial increase over the amount originally awarded, Bernstein apparently regarded it as unlawful and confiscatory. In any event, Bernstein ignored the Commission's decision. After receiving a check pursuant to the settlement, *fn4 Bernstein retained $9,000, rather than $6,000, for himself. Notwithstanding his fiduciary obligation vis-a-vis his client, Bernstein did not inform Mr. Smith that the Commission had approved only $6,000 as Bernstein's compensation. *fn5 Smith had previously been provided with documents revealing that it was the Commission's responsibility to designate the amount of Bernstein's fee. *fn6 Under these circumstances, in the absence of information to the contrary from Bernstein, Smith could reasonably assume that any fee deducted by Bernstein from the proceeds of the settlement had been approved by the Commission. *fn7

On October 5, 1992, upon receiving the settlement check, Bernstein deposited it in his business checking account at a local bank. Bernstein also maintained his own funds in this account. Thus, for a brief period, settlement funds belonging to Mr. Smith, as well as moneys owed to medical providers, were commingled with funds belonging to Bernstein. On October 13, 1992, after the check had cleared, Bernstein disbursed to his client all but $480 of the remaining settlement funds. *fn8 As previously noted, however, he retained $9,000 of the proceeds for himself.


On the basis of the facts summarized above, the Hearing Committee and the Board on Professional Responsibility both found, by clear and convincing evidence, that Bernstein had violated the following Rules of Professional Conduct:

Rule 1.5 (a) Charging an excessive fee

Rules 1.15 (a) and 1.17 (a) Commingling

Rule 8.4 (c) Dishonesty *fn9

Each of these violations is well established in the record.

It is undisputed that although the Commission awarded Bernstein only $6,000 for his fees and expenses, Bernstein retained $9,000. The retention of the increased fee was unlawful, and therefore unreasonable. See In re Hudock, 544 A.2d 707, 708 (D.C. 1988) (per curiam); see also Hudock v. Va. State Bar, 355 S.E.2d 601 (Va. 1987) (Hudock I). Bernstein argues that he earned the fee, that Mr. Smith owed him money, and that the fee was reasonable. But as BPR member Joanne Doddy Fort, writing for a unanimous Board, cogently explained in the Board's Report, Bernstein

had the opportunity to challenge the fee award before the Commission and he could have challenged the Commission's award in the courts of Virginia. He chose not to pursue the issue any further. Having made that decision, he became bound by the decision of the Commission. The issue before us is not a novel one. The Court has already clearly addressed the issue of what constitutes an "illegal fee" in the context of a Virginia workers compensation case in Hudock where the facts are virtually identical to the case before us. Based on the Court's ruling in Hudock, we conclude that Bar Counsel has ...

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