HONORING FINANCIAL OBLIGATIONS
By
Kenneth L. Jorgensen, First Assistant Director
Minnesota Office of Lawyers Professional Responsibility
Reprinted from Bench & Bar of Minnesota (July 1997)
Most would agree that the
payment of debts is necessary for social order. Ftn 1 While the vast majority of
lawyer financial obligations are honored, the profession’s standards also
recognize that lawyers may refuse to honor financial or other legal obligations
"upon a good faith belief that no valid obligation exists." Ftn 2 So when, if ever, should a
lawyer’s failure to honor financial obligations serve as a basis for
professional discipline?
Take, for example, a
recent ethics complaint filed by a court reporter alleging a lawyer’s failure
to pay for court reporting services despite the fact that a judgment, which was
no longer appealable, had been obtained against the lawyer. Even though he had
opted not to appear in court to contest the court reporter’s claim, the lawyer
claimed he disputed the amount of the court reporter’s bill. In responding to
this complaint, the lawyer stated:
Each and every
one of the [court reporter’s] allegations is correct. However, it is my
understanding, upon review of the Rules of Professional Conduct, including
specifically Rule 8.4, that disputing a debt is not professional misconduct.
The facts of this case are not in dispute (other than I continue to dispute the
validity of the [court reporter’s] bill). If my understanding of the Rules is
incorrect, I assume that you or the board will soon advise me of the error of
my ways. I must state, however, that it will be a shock to be advised that the
Rules require payment of every bill that comes my way, regardless of its
validity.
While some might find
the lawyer’s response disingenuous, it is hardly atypical. Over the past
several years, at least three other attorneys have presented nearly identical
arguments to the Minnesota Supreme Court under similar circumstances. Ftn 3 One lawyer refused to pay a
judgment obtained by a law library due to his belief he had been overcharged.
Ftn 4 Another refused to pay a malpractice judgment because he
"did not believe that he had committed malpractice." Ftn 5 The third acknowledged his
indebtedness to the judgment creditor for copy supplies but claimed his refusal
to pay voluntarily was not improper because his creditor should be
"required to resort to remedies such as garnishment or execution." Ftn 6
In each case, the Court
rejected the lawyers’ claims that they were insulated from discipline by their
"good faith belief" that they had no valid obligation to pay their debts.
The flaw in these three lawyers’ arguments was that the debts had been reduced
to a final judgment. In its most recent decision, the Court erased any doubt
about the efficacy of these arguments when it unequivocally declared that
"a lawyer cannot assert, in good faith, that no ‘valid’ obligation exists
once a debt is reduced to judgment and the lawyer’s legal challenges have been
exhausted." Ftn 7 Without expressly stating it, the Court applied an objective
rather than a subjective standard to determine whether the lawyers possessed a
good faith belief that no valid obligation existed. Ftn 8 The application of an objective
standard is evidenced by the Court’s blanket rejection of the lawyers’
arguments about why they believed their debts were invalid and its
pronouncement that "the rules of professional conduct do not recognize
‘good faith beliefs’ in the face of final judgments." Ftn 9 In all three cases, the Court
found that refusal to pay final judgments was prejudicial to the administration
of justice in violation of Rule 8.4(d). According to the Court, the prejudice
results from behavior that "reflects adversely on [the lawyer’s]
commitment to the rights of others." Ftn 10 Curiously absent from the
Court’s decisions, however, is the idea that the judicial system may also
suffer from the public’s perception that lawyers themselves are not compelled
to honor or comply with final decisions of the courts before which they
practice.
Clearly lawyers can be
disciplined for failure to satisfy final judgments. But, as the lawyer above
contended, do the profession’s standards in fact require payment of every bill,
regardless of its validity? The answer is that while not every unpaid debt
invokes professional scrutiny, new and different financial obligations have
become cause for professional concern.
PROFESSIONAL INDEBTEDNESS
In 1974 the Lawyers
Board adopted a formal opinion governing professionally incurred indebtedness.
The impetus for the opinion was numerous complaints about lawyers failing to
pay for services rendered by doctors, engineers, accountants, and other
professionals in legal cases. Opinion No. 7 (as amended October 26, 1979)
provided:
It is professional misconduct for an attorney to deny
responsibility for the payment of compensation for services rendered by
doctors, engineers, accountants, or other attorneys or other persons, if the
attorney has ordered or requested the services without informing the provider
of the service, by express written statement at the time of the order or
request, that he will not be responsible for payment.
Within seven years,
complaints alleging Opinion No. 7 violations accounted for 5 percent
of the disciplinary caseload. After concluding that this constituted a
disproportionate use of disciplinary resources, in 1981 the board began
limiting enforcement of Opinion No. 7 to cases involving "aggravating
circumstances." Examples of aggravating circumstances included failure to
pay judgments, lawyers with chronic failure to pay indebtedness problems, and
other situations involving demonstrably fraudulent conduct. In January 1983 the
Board repealed Opinion No. 7 but announced that disciplinary action would
continue to be pursued in cases involving these aggravating circumstances. Ftn 11
Since 1983 the
Director’s Office has limited its investigation of complaints by most creditors
to those complaints involving aggravating circumstances. Becoming involved in
legitimate disputes between creditors and lawyers as debtors constitutes an
imprudent use of limited resources. Consequently, the vast majority of
complaints from lawyers’ creditors today are dismissed on the basis that the
Director’s Office is without the resources to become a specialized collection
agency for lawyers. In 1996 alone, 34 complaints from lawyer creditors were
summarily dismissed without investigation.
The aggravating
circumstances giving rise to today’s investigations have not changed
dramatically. Failure to pay judgments obviously constitutes the most recurring
scenario warranting investigation. Other aggravating circumstances which have
invoked the demonstrably fraudulent standard include lawyers who
continue to incur liability for professionally incurred services without any
reasonable expectation of being able to pay, failure to pay a court reporter
after obtaining funds from the client to pay the court reporter, and failure to
pay an expert after the expert’s fee had been taxed as a cost and recovered
from the adverse party.
OTHER FINANCIAL OBLIGATIONS
Lawyers need to be
aware that exposure to discipline is not limited to nonpayment of traditional
creditors. Other forms of financial obligations can similarly give rise to discipline.
For example, Rule 30, Rules on Lawyers Professional Responsibility, mandates
the administrative suspension of law licenses for those who fail to comply with
child support and maintenance obligations. Rule 30 follows the statutory scheme
enacted by the Legislature to suspend other professional licenses for
nonpayment of child support and maintenance. Ftn 12 In addition, lawyers who fail
to pay employer withholding taxes Ftn 13 or who continue to practice
after being suspended for failing to pay their annual attorney registration fee
Ftn 14 can face disciplinary
suspension. Discipline can also result from failing to pay binding fee
arbitration awards, Ftn 15 failing to honor a letter of protection to a client’s creditor, Ftn 16 improperly disbursing funds in
accordance with an escrow agreement, Ftn 17 and failing to repay loans
obtained from clients. Ftn 18
Like other members of
society, lawyers are not restrained from legitimately disputing their financial
obligations. Nor should they be. Where the scrutiny of lawyers differs,
however, is when the legitimacy or objectivity of the dispute is called into
question. For these types of violations, the "empty head-pure heart"
defense does not appear viable. Moreover, while not every unpaid lawyer debt is
cause for professional review, increasingly lawyers must be on the lookout for
those financial obligations which are capable of transforming themselves into
professional obligations.
NOTES
2 Comment to Rule 8.4, Minnesota Rules of Professional Conduct.
3 In re Stanbury, 1997 WL 152220 (Minn. 1997); In re Ruffenach,
486 N.W.2d 387 (Minn. 1992); In re Pokorny, 453 N.W.2d 345 (Minn. 1990). See
also In re Haugen, 543 N.W.2d 372 (Minn. 1996).
8 This is not surprising given the Court’s similar treatment of
another attorney who made false statements about judges in violation of Rule
8.2 (a) but claimed he did so out of a genuine belief that his statements were
true. See In re Graham, 453 N.W.2d 313 (Minn. 1990). The Court
found that Graham’s genuine feelings did not negate the violation of Rule
8.2(a) because an objective standard, rather than a subjective standard, should
be applied in lawyer discipline cases.
9 Stanbury at p. 4 and Ruffenach at 390, fn. 3.
10 Stanbury at p. 3. This analysis is similar to that
used to find that bar applicants are lacking in good moral character when there
exists evidence of substantial financial responsibility. See e.g. In re
Admission of Gahan, 279 N.W.2d 82 (Minn. 1979).
11 See Hoover, "Opinion No. 7 Repealed,"
Bench & Bar 40:3 (March 1983) at p. 35.
12 See Marcia Johnson, "Discipline for Failure to
Pay Child Support," Bench & Bar 53:8 (September 1996),
p. 12.
13 In re Gurstel, 540 N.W.2d 838, 842 (Minn. 1995).
14 In re Lallier, 555 N.W.2d 903 (Minn. 1996).
15 In re Hartke, 529 N.W.2d 678, 683 (Minn. 1995). See also
Opinion No. 5 of the Lawyers Board.
16 See Marcia Johnson, "Summary of
Admonitions," Bench & Bar 50:2 (February 1993),
p. 11.
17 See Marcia Johnson, "Summary of Admonitions,"
Bench & Bar 51:2 (February 1994), p. 12.
18 In re Wyant, 533 N.W.2d 397 (Minn. 1995). Moreover, simply
borrowing money from clients can by itself be a basis for discipline. See Rule
1.8 (a).