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In re Midlen

November 10, 2005

IN RE JOHN H. MIDLEN, JR., RESPONDENT.
A MEMBER OF THE BAR OF THE DISTRICT OF COLUMBIA COURT OF APPEALS (BAR REGISTRATION NO. 36384)



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

On Report and Recommendation of the Board on Professional Responsibility (BDN 165-98).

Argued October 18, 2005

Before SCHWELB and FARRELL, Associate Judges, and NEBEKER, Senior Judge.

The Board on Professional Responsibility (the Board), rejecting the contrary determination by a Hearing Committee, concluded that respondent John H. Midlen, Jr. (Midlen) had misappropriated client funds within the meaning of Rule 1.15 (c) of the Rules of Professional Conduct.*fn1 Because the Board also concluded that he had done so recklessly, it recommends that he be disbarred. See In re Addams, 579 A.2d 190 (D.C. 1990) (en banc).*fn2 The Board's conclusion and recommendation stem from Midlen's representation of an entity known as Jimmy Swaggart Ministries from 1991 until 1998, during which time he repeatedly deducted his attorney's fees from royalty payments destined for JSM but distributed to and held by Midlen as escrow agent. In its principal ruling, the Board found that Midlen had paid himself these fees despite the fact that, at least as of late 1994, a "dispute" between himself and JSM under Rule 1.15 (c) had arisen concerning both the amount of fees Midlen was billing and his right to deduct them from the distributed royalties. The Board found these deductions to be reckless, because they "evidenced a conscious indifference to the consequences of his actions and to his client's legitimate interest in the entrusted funds."

We agree with the Board that Midlen misappropriated funds entrusted to him. He repeatedly deducted fees from the escrowed royalty payments when he could not reasonably have doubted that JSM disputed his entitlement to the fees, a situation that imposed on him the duty to keep the funds "separate . . . until the dispute [was] resolved." Rule 1.15 (c). We do not agree, however, with the Board's conclusion of recklessness. In light of what the Board admits was a "complex factual history," including conflicting actions and signals by a client whose own conduct the Hearing Committee, with record support, found to be characterized by bad faith, and the fact that Midlen's ultimate entitlement to the fees he deducted is not questioned, his conduct did not rise to the level of intentional or reckless misappropriation warranting disbarrment under the Addams rule. We nevertheless agree with the Board that Midlen's misconduct, in the aggregate, was serious and requires a lengthy period of suspension. We accept the Board's "alternative [recommended] sanction" and suspend him from the practice of law for eighteen months.

I.

Midlen began a private practice of law in 1970 and later formed a partnership with Gregory Guillot under the name Midlen & Guillot, Chartered (M&G). In 1991, M&G was retained by Jimmy Swaggart Ministries (JSM), which produces and broadcasts religious programs that air on various cable television outlets. M&G was retained by JSM to represent it in the cable royalty distribution process, a creature of federal law by which the Librarian of Congress distributes royalties to copyright owners. The distribution process has two phases. In the first phase, royalties are allocated among eight designated "claimant" groups (including the Devotional Group, of which JSM was a member); in the second, payments are allocated within each claimant group. If the members of the claimant group agree on an allocation, they sign an agreement (a Settlement Agreement) specifying the distribution, otherwise they litigate the proper allocation.*fn3

The 1991 retainer agreement between Midlen's firm and JSM provided that services generally would be billed on an hourly basis and that JSM was expected to make "full and prompt payments of the amounts invoiced." M&G agreed, however, "at least for the 1990 [royalty] claim period, . . . to allow [JSM] to pay only our out-of-pocket expenses until such time as the royalties actually are distributed." Once that happened - i.e., when 1990 distribution checks were sent to M&G as escrow agent, see note 3, supra - M&G would "deduct the fees incurred as of that date for professional services rendered" and "forward[] the balance to [JSM]."

In July 1991, and for each July thereafter until 1997, Midlen filed a claim with the Library of Congress on JSM's behalf for royalties earned in the preceding year. In 1992, after deducting its attorney's fees and expenses from the first distribution for the 1990 claim period, M&G sent the rest of those funds to JSM. In September 1993, M&G sent JSM a second disbursement check for that claim period, pointing out that its legal fees had been deducted from this distribution as well. An accompanying spreadsheet stated that a balance of $10,009.22 was being "reserved," i.e., not disbursed, by M&G. JSM informed Midlen that it would not consent to M&G holding this "reserve"; it reminded him that costs other than out-of-pocket expenses were to be reimbursed to M&G "when [royalty] funds are disbursed - not escrowed against." JSM said nothing in opposition to the two fee deductions M&G had taken from the distributed funds. Midlen forwarded the $10,009.22 to JSM.

In late 1994, JSM's Chairman of the Board of Directors, Clyde Fuller, wrote Midlen expressing concern about the amounts being billed in light of the results achieved. Near the end of December 1994, Midlen informed JSM that his legal fees would be deducted from the upcoming 1991 royalty distribution. Although it appeared that JSM owed M&G substantial overdue fees, Fuller objected to the deductions in several phone conversations. On December 27, 1994, JSM instructed Midlen in writing that "no attorneys' fees are to be withheld from the proceeds. In other words, the entire amount disbursed is to be sent to us and we will, in turn, reimburse your firm when an amount is agreed upon." When Midlen objected to these instructions as contrary to the retainer agreement, JSM fired him.*fn4

Nevertheless, a few days later the claimants in JSM's group reached a settlement enabling JSM to receive a 1991 distribution, and JSM rehired Midlen - in order, Frances Swaggart of JSM testified, to insure that JSM obtained this money. On or around January 3, 1995, JSM received a distribution from M&G from which Midlen had withheld $20,000 in attorney's fees and costs. JSM made no objection to this deduction. In late January 1995, Midlen and Guillot dissolved their partnership and Midlen formed his own law firm. In a letter, he proposed that JSM continue its relationship with him on the same basis as before, and JSM accepted, remaining with him because, as Frances Swaggart testified, "his fees were lower than" Guillot had proposed in similarly offering to represent JSM. At this time, too, JSM raised no questions about Midlen's deductions of fees from royalty payments or the size of his fees.

On August 18, 1995, however, Mrs. Swaggart sent a letter to Midlen stating that JSM "continued to disagree with [him] concerning [his] billings over the past two years and that the matter must be resolved." The letter complained that his last bill was "ridiculous" and directed him to "list the hours you work for us plus state the charge per hour." It continued:

You also know that we do not give and we have not given you permission to deposit any royalties into your account, delete your expenses, and remit the balance to us. Instead, we have consistently instructed you to send the full amount of royalties received to us and we will remit payment to you. However, that remittance will only be when we feel we are being charged the correct amounts for the work done and your invoices are in the format requested.

A second letter to Midlen from Barry Miller, an attorney for JSM, in October 1995 reiterated the request that Midlen itemize the hours spent on each daily service referenced in his bills. Miller further expressed his belief that JSM had not authorized Midlen to deduct legal fees directly from royalty disbursements, a practice "particularly problematic since there may be a dispute concerning your bills." Midlen answered the October letter by proposing different formats for his bills and by reminding Miller of the original engagement letter. "Given the Ministry's payment history," Midlen wrote, "the one thing that is not negotiable is that I remit anything to JSM while leaving payment of my legal fees to some future agreement and compensation."

In March and May 1996, Midlen notified JSM that distributions would soon be issued for the 1992 and 1993 claim periods, but that JSM's share would be insufficient to cover his unpaid legal fees. On multiple occasions after 1996 and through 1997, Midlen received royalties on JSM's behalf but failed to notify it of the distributions. This prompted Miller in August 1996 to write to Midlen requesting an accounting, because "it appears that you did receive some distributions and that you, without authorization of the Ministries, applied them to payment of your legal fees which we still question." In October 1996, Miller again wrote Midlen asking for "an accounting of all sums which have been collected to date and the disbursal of such sums." A year ...


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