In re Kenneth A. Martin, Respondent. A Member of the Bar of the District of Columbia Court of Appeals (Bar Registration No. 420600)
Argued April 4, 2012
Amended February 13, 2014
On Report and Recommendation of the Board on Professional Responsibility (BDN-370-04)
Daniel Schumack, with whom Pamela J. Bethel was on the brief, for respondent.
Julia L. Porter, Senior Assistant Bar Counsel, with whom Wallace E. Shipp, Jr., Bar Counsel, and Judith Hetherton, Senior Assistant Bar Counsel, were on the brief, for the Office of Bar Counsel.
Before Fisher and Blackburne-Rigsby, Associate Judges, and King, Senior Judge.
King, Senior Judge:
Bar Counsel charged respondent Kenneth A. Martin with violating Rule of Professional Conduct 1.5 (a) by charging his client an unreasonable fee, Rules 1.15 (a) and (c) for comingling funds after the client disputed the fee, Rule 1.16 (d) by failing to promptly return client funds after the Attorney-Client Arbitration Board ("ACAB") awarded the client the unreasonable portion of the fee, Rule 8.4 (c) by falsely testifying that he received advice from the D.C. Bar Ethics Hotline to retain the disputed funds in his operating account, and Rule 8.4 (d) by requiring the client to withdraw a bar complaint against him pursuant to a settlement agreement. The Hearing Committee found Martin violated all rules except Rule 1.5 (a) (charging an unreasonable fee) and recommended a one-year suspension with reinstatement subject to disgorgement of the funds awarded by the ACAB. The Board on Professional Responsibility ("Board") found Martin violated only Rules 1.5 (a), 8.4 (c), and 8.4 (d) and recommends a sixth-month suspension with reinstatement subject to disgorgement of the unreasonable fee. We sustain all of Bar Counsel' s charges and impose an eighteen-month suspension with reinstatement subject to disgorgement of funds awarded to the client by the ACAB.
Enterprise Solutions, Inc. ("ESI"), retained Martin to represent it on various matters starting in February 2000. Under a February 20, 2000, retainer agreement, Martin billed ESI at an hourly rate of $125-275. Pursuant to this agreement, Martin defended ESI in a lawsuit filed by Herbert Cannon, a former ESI consultant, for breach of contract, and ESI later filed a counterclaim. Cannon filed suit in Florida, and because Martin was not a member of the Florida bar, he retained Florida counsel Luis Sergio Konski of the law firm Becker & Poliakoff as associate counsel.
On December 11, 2001, ESI signed a second fee agreement whereby Martin received "a 45% contingency fee interest" in "[ESI' s] litigation against Herbert Cannon." ESI and Cannon reached a settlement in which Cannon agreed to pay ESI $2.2 million. The settlement agreement, however, allowed ESI to collect the judgment by executing only against assets held in the name of Rowen House, Ltd. and Montville, Ltd., two New York brokerage accounts with Wall Street Equities, Inc., which belonged to Cannon. Because Martin was not a member of the New York bar, Martin helped ESI separately retain New York counsel Fred Van Remortel to represent ESI in the action to collect judgment against Cannon. Contemporaneously, the United States filed a civil forfeiture action against the same Rowen House and Montville brokerage accounts to satisfy a judgment the government had received against Cannon in a separate action. As a result, as the Hearing Committee summarized, "the federal government and ESI each sought payment or satisfaction of its judgment against Cannon from the same funds."
On May 3, 2002, ESI and Martin entered into a third fee agreement in which ESI agreed to pay "from $165-$295 per hour" "regarding the law suit filed by the United States government for forfeiture of funds deposited with Wall Street Equities, Inc." ESI dismissed its own collection action and joined in the United States forfeiture action. ESI and the United States then agreed to a settlement in which $1.1 million of the Rowen House and Montville accounts would be released to the government, and the remainder in the accounts would be split evenly between the United States and ESI. After the distribution and division, ESI' s share totaled $656, 464.30.
On February 24, 2003, Martin prepared a letter for Bruce Bragagnolo, CEO of ESI. The letter proposed the following distribution of settlement proceeds:
Marshal' s fees
$ 32, 823.22
Van Remort[e]l' s/Conway & Conway' s Attorney' s fees (includes costs of $4, 568.78)
Polliakoff, Fla. Attorney Fees
$ 21, 605.24
Martin, Outstanding Attorney' s Fees
(Includes $50, 000 discount off $118, 959.00 outstanding balance)
$ 68, 959.80
Contingency Fee (45%)
Kurt Van Voorhies
$ 12, 600.00
$ 25, 000.00
Subtotal of Credits
Net to ESI
$ 90, 749.74
Martin testified that he sent the distribution letter to Bragagnolo sometime on the morning of February 25, 2003, by fax and by email. The proposed disbursement would pay Martin $68, 959.80 ($60, 940.00 of which related to the Cannon litigation) for hourly fees incurred under the February 20, 2000, and May 3, 2002, fee agreements in addition to $295, 409.00 under the December 11, 2001, contingency fee agreement. The Board found that the total attorneys' fees related to the litigation, including Florida and New York counsels, consumed over 73% of the recovery.
At some point on February 25, 2003, Martin disbursed $376, 968.80 to his operating account pursuant to the February 24, 2003, letter to Bragagnolo. As discussed at length infra, the record is not clear when these transfers were made. According to Bragagnolo' s testimony, he spoke with Martin by phone on the morning of February 25, 2003, and disputed the proposed distribution with respect to Martin and Van Remortel. At 10:45 a.m., Eastern Standard Time, on February 25, Bragagnolo followed up with an email to Martin stating:
Further to our telephone conversation this morning this is your instruction not to pay any amounts from the settlement funds of $656, 400. You are expressly not to pay Fred Van Remortel; Al Saker or Kurt Van Voorhies until we have seen your letter and have given you further written instructions.
Because the Hearing Committee credited Bragagnolo' s testimony on this issue, the telephone conversation, as referenced to in the e-mail, would have taken place before 10:45 a.m., the time of the email. We note, however, that the Hearing Committee made no such finding – instead, it concluded that Martin learned of the dispute "no later than February 25, 2003."
According to Martin' s version of events, Bragagnolo agreed to the proposed distribution during the early morning February 25th telephone conversation after Martin gave Bragagnolo a $50, 000.00 discount. As a result, when Martin saw Bragagnolo' s 10:45 a.m. email at 4:37 p.m. the same day, Martin replied with an email stating:
I assume this e-mail predates our discussion this morning, and the letter that I faxed and e-mailed to you. As you know, I disbursed the funds after our discussion, including funds that I had wired to your trust account as you directed. . . .
Bragagnolo and Martin did not correspond again until March 5, 2003, when Bragagnolo once again disputed the fee distribution. The Hearing Committee expressly did not credit "[Martin' s] testimony that he disbursed the disputed fee amount to his operating account before he heard any objection from Bragagnolo." The Hearing Committee found that Martin did not transfer the disputed funds from his operating account into an escrow or trust account until December 2003.
Sometime after February 25, 2003, Martin called the D.C. Bar Ethics Hotline for advice on how to handle disputed fees. Martin testified that Ernest Lindberg, who answered his call, told Martin not to return the disbursed funds, which were then in Martin' s operating account, into his client' s trust account because "if you put those funds back in your trust accounts, you will violate the rules against co-mingling attorney funds with client funds." Lindberg testified that he had no independent recollection of a call from Martin, that he would not have provided legal advice to persons calling in on the Hotline, and that he would only have directed the caller to relevant rules and legal ethics opinions. Lindberg further testified that he would not have advised Martin to retain disputed funds in his operating account "because that seems to me that would be inconsistent with reference in [Rule] 1.15(c) that says you must put it back in accordance with [Rule] 1.15(a)." The Hearing Committee found Martin' s assertion that he had received advice not to transfer disputed funds from his operating account to a trust account "incredible."
On March 27, 2003, ESI filed a petition to arbitrate the fee dispute with Martin before the D.C. Bar' s Attorney-Client Arbitration Board. After denying Martin' s motion to dismiss, the ACAB issued a decision awarding ESI $165, 313.00, the amount above what the ACAB considered a reasonable fee. ESI filed a motion to confirm the award in Superior Court, but Martin obtained removal of the case to federal District Court for the District of Columbia where he sought to have the award vacated. On September 30, 2004, the District Court affirmed the ACAB award for $165, 313.00 and an additional $10, 190.48 in prejudgment interest.
On October 7, 2004, ESI filed an ethics complaint with the Board on Professional Responsibility in the District of Columbia against Martin, who had not yet paid the arbitration award. On October 13, 2004, Martin appealed the judgment of the District Court to the United States Court of Appeals for the District of Columbia Circuit after depositing a sum in the amount of the District Court' s judgment with the court. On January 19, 2005, ESI and Martin agreed to a settlement in which Martin would dismiss his appeal and would give ESI $87, 820.50, half the District Court' s judgment plus interest. In return, the settlement stated that "ESI and Bragagnolo shall cause to be submitted to Bar Counsel a letter dismissing the Bar Complaint and requesting that Bar Counsel terminate its investigation of Martin without action."
On June 29, 2004, before ESI filed its ethics complaint, Martin filed a Virginia bar application in which he stated, "I am currently involved in a fee dispute with a former client [ESI], " and that "[o]nce I received notice of the dispute, I placed the disputed funds into a separate interest bearing account, to be available in the event I am ultimately found liable on the claim." In fact, contrary to what he asserted in the Virginia bar application, Martin had not promptly placed the disputed funds in a separate interest-bearing account; the Hearing Committee found that Martin knew of the dispute no later than February 25, 2003, but did not deposit the funds in a separate account until December 2003. In his testimony before the Hearing Committee, Martin did not explain why he made a contrary representation regarding the timing of the movement of funds in his Virginia bar application.
After ESI requested that the ethics complaint against Martin be dismissed in accordance with the ACAB award settlement agreement on January 19, 2005, Martin amended his Virginia bar application to report that an ethics complaint had been filed against him in the District of Columbia, but that "the client has requested that the Complaint be withdrawn." Martin did not explain that ESI' s withdrawal request had been made pursuant to a settlement agreement. The Hearing Committee found that Martin' s actions on his Virginia bar application "reflect guilty knowledge that he had improperly handled the disputed fees."
"[T]he hearing committee conducts the hearings and makes factual findings and recommendations which it submits to the Board for review." In re Temple, 629 A.2d 1203, 1208 (D.C. 1993). "[T]he Board has the power to make its own factual findings and forward them to the court with a recommendation" but "[t]he Board must accept the hearing committee' s factual findings if they are supported by substantial evidence on the record as a whole." Id. The Board, however, "owes no deference to the hearing committee' s determination of „ultimate facts, ' which are really conclusions of law." In re Micheel, 610 A.2d 231, 234 ...