71st Installment. Plight of the Disciplined Attorney

The dominance of the state bars in legal ethics constricts the profession's ethical vision. State-bar moralism misdirects legal ethics toward enforcing compliance with judges and trivializes legal ethics with over-concern with negligent misappropriation. kanBARoo court will also explore the broader ethical horizons.

Ethical irresponsibility's first face is state-bar indifference to ethical problems bar prosecutors inflict on the profession; the California State Bar is heedless of the ethical morass suspensions produce after the attorney resumes practice. Attorneys disciplined for disobedience to court orders face bias from judges and harassment by opponents who bring the former respondent's State Bar record to the court's attention to support their sanctions' motions.

The State Bar has avoided noting the repercussions of its own operation, where an attorney's client can easily suffer prejudice or loss of confidence in attorney because of prejudice's scent. A client has little reason to anticipate that one consequence of attorney selection is judicial bias the legal apparatus blithely creates; a client legitimately expects that the legal system will strive to avoid prejudicing itself! Judges have so strong an interest in managing attorneys who have troubled the courts that protecting system integrity requires barring judges from accessing disciplinary information without cause.

Opposing a sanctions motion alleging a frivolous filing intended to harass is a serious matter for a previously disciplined attorney, as the former culpability will aggravate the offense. When the motion incorporates Bar-discipline history, the court should presume the mover's intent to threaten, this intent violating Rules of Professional Conduct, rule 5 – 100, barring Members from threatening State Bar action to secure civil-litigation ends:

A member shall not threaten to present criminal, administrative, or disciplinary charges to obtain an advantage in a civil dispute.

The State Bar would never consider applying rule 5 – 100 to punish harassing motions invoking prior-discipline records, and the litigation privilege precludes relief through civil procedure. (See Civ. Code, § 47.) The best immediate response to such harassment is to move for sanctions against the maker of the sanctions motion under the same code section. (See Code Civ. Proc., § 128.7.)

60th Installment. California State Bar becomes bar-establishment laughing stock

The California State Bar became laughing stock of the State Bar Establishment when the attorney general charged clerk Sharon Elyce Pearl with embezzling $675,000. She had persisted for eight years before the California State Bar noticed. (See http://tinyurl.com/ceydkh)

A Legal Ethics Forum blogger posted:

Sad Irony: State Bar victimized by (alleged) staff embezzler: We've all heard countless times about a solo practitioner facing disciplinary consequences because the lawyer's admin embezzled funds. (http://tinyurl.com/cz9rde)

The State Bar Establishment's embarrassment isn't misplaced. The California State Bar, which terms misappropriation by staff a supervising-attorney's willful act—casually adding charges of moral turpitude when any evidence of failure to supervise can be found—proved during an eight-year period that its moralistic stance is a pose. Although the clerk didn't embezzle clients' funds, the ethical culpability is the same because the State Bar held the money as fiduciary of the people and government of California. "All property of the State Bar is hereby declared to be held for essential public and governmental purposes in the judicial branch of the government..." (Bus. & Prof. Code, § 6008.) The Office of the Chief Trial Counsel, the prosecutorial entity, bears blame because that Office is charged with internal-oversight duties by the same law authorizing the State Bar's prosecution of disciplinary complaints. (Bus. & Prof. Code, § 6044.)

If the board of governors, which runs the State Bar, can't supervise ordinary commercial operations, how can it supervise the Office of the Chief Trial Counsel? The board of governors was designed to be ineffectual: consecutive (three-year) terms are prohibited, only annual meetings are mandated, and six members must not be lawyers. The Legislature disempowered the board of governors intending to empower the California Supreme Court, the State Bar's other supervisor, but since the Supreme Court has shown that its objectivity departs when the court hears allegations against its State Bar administrative arm, the feebleness of the board of governors unfetters the Chief Trial Counsel. (See Guarino v. Larsen (3rd Cir. 1993) 11 F.3d 1151, 1159 n.4.) Even the sycophantic State Bar Defense Establishment complains about the abrupt change in punitiveness and moralism when a new Chief Trial Counsel takes over.

This comedy isn't one of the gravest harms wreaked by the lawless State Bar, but its reckless failure to supervise public appropriations proves its ethical hypocrisy.

57th Installment. Against sentimentalizing misappropriation

Irate clients lambast the State Bar for laxity, I castigate it for oppression, and the uninformed might conclude that the truth lies between. But both criticisms apply, not only because the State Bar is incompetent. Rather than lax or severe, the State Bar is unconcerned about the most important wrongdoings and exaggeratedly concerned about the less important. More exactly, its concerns follow its pecuniary interest.

What's the worst harm an attorney can inflict on a client? If you listen to the State Bar, you'll think misappropriation of the client's money. No doubt, an attorney who embezzles client funds is unfit to practice law and should be disbarred, but the State Bar's Chief Trial Counsel advises attorneys of a different threat to their livelihood when he states the main risk they run for disbarment is misappropriation by staff. (See http://tinyurl.com/bhlbnf) Embezzlement justifies ejection from the profession because it is a crime of deceit. Courts comment that "willful misappropriation" encompasses a broad spectrum of acts (Edwards v. State Bar (1990) 52 Cal.3d 28, 38), yet the State Bar denominates them with a single term. Embezzlement and negligent misappropriation are essentially the same only to the State Bar, which has a financial interest in the client trust funds. The courteousness of the Chief Trial Counsel's recommendation shows he realizes attorneys who trust their staff excessively don't manifest the despicable traits of character justifying disbarment for embezzling client funds.

The public's impression that negligent misappropriation proves lack of fitness to practice law comes from the State Bar's misleading sanctimony tying mistakes in handling funds to disloyalty to client. Misappropriation can impose damaging delays on recovery, but, a well-kept secret, losses due to fraud are reimbursable by expedited Client Security Fund procedures: the clients' protection from office fraud is not, today, the attorney's primary duty. But, in an earlier day, the California State Bar balked at establishing a client security fund. In 1969, the Court of Appeal commented on the State Bar's procrastination and on the absurdity of relying on the attorney as guardian of client funds. The court pointed out that by 1967, twenty client security funds were established in twenty foreign jurisdictions, 28 states and eight local bar associations, but "the State Bar of California, instead of leading in this work, has been lagging. Although the State Bar has been studying the matter since 1961 [citation], it has yet to take action." (Blackmon v. Hale (1969) 78 Cal.Rptr. 569, 582 [withdrawn for other reasons].) The Court of Appeal parodied the State Bar's moral message:

Turn your money over to me and I'll take care of it, but if I steal it you will have no recourse against anyone but me. Not only that, but as your attorney I may claim offsets for fees earned and disbursements made on your behalf and prevent any accounting or audit of the money for years, during which time you will have no remedies against me except to usual ones of any creditor pressing a contested claim against a denying debtor.

(Id., at p. 580.)

The State Bar partly abolished client serfdom in 1972, and the Client Security Fund indemnifies for misappropriation up to $50,000. With indemnification's advent, misappropriation isn't the worst injury an attorney's office can inflict on clients. The actual worst commonly happens in the ordinary incompetent handling of cases, usually not constituting actionable malpractice. An attorney's fundamental ethical duty of client loyalty is undermined by the State Bar's disciplinary emphasis on misappropriation (and disobedience). A loyal attorney must prioritize effort based on client legal interest, but anachronistic rules assigning the attorney exclusive personal responsibility for safeguarding funds distract attorneys from attending to the client's real interests. The State Bar's sentimentalizing of the attorney-client relation diverts attorneys, distorts professional ethics, and blocks further improvements in client security, like the needed tenfold increase in Security Fund coverage.

56th Installment. More Truth, Less Publication — Against Liberal Publication of Records

The State Bar wants to publicize Bar Court documents to insulate itself against libel in its extrajudicial statements, arguably not subject to the litigation privilege. Whether the California State Bar is liable for a federal tort grounded in defamation by a state-actor under color of law is an issue of first impression, as the Ninth Circuit procedurally dismissed the only case to argue a section 1983 theory based on the State Bar’s defamatory extrajudicial publications. (See Canatella v. Van De Kamp (9th Cir. 2007) 486 F.3d 1128, 1136 [single publication rule].) In my case the State Bar Journal’s summary changed the case’s gravamen by omitting the most serious allegations. First, the State Bar Journal’s February 2009 summary:

STEPHEN RONALD DIAMOND [#183617], 61, of Joshua Tree was disbarred Oct. 10, 2008, and was ordered to comply with rule 9.20.
In a default proceeding, Diamond was charged with 28 counts of misconduct, including forming a partnership with a non-lawyer whom he assisted in the unauthorized practice of law, failing to notify clients of receipt of settlement funds, maintain client funds in a trust account, communicate with clients and return client files, and he committed acts of moral turpitude involving at least $182,000 in client funds and lent his name to be used by a non-lawyer.
In 2004, Jae Bum Kim, a non-lawyer, took over the lease of an attorney for whom he had worked as the office manager. He hired at least five case managers and eventually entered into an agreement with Diamond to form a personal injury law practice. Kim and his staff signed up clients, worked on their files, settled cases, endorsed and deposited settlement checks into Diamond’s client trust account and made withdrawals from the account.
More than 200 matters were settled over the course of a year, when Diamond worked part time in the office. Kim paid him approximately $5,000 a month in cash. During that year, more than $1.33 million was deposited and withdrawn from Diamond’s client trust account. The money was withdrawn in the form of checks that were either negotiated at a check cashing service or deposited into the general account.

Ibid.

As stated, the case's gravamen is aiding and abetting the unauthorized practice of law. Gestures toward misappropriation stop short of accusation and hint at a respondeat-superior theory. The following two paragraphs come from the October 28, 2008, judgment. In both fact and purport, they determine the overall severity of the charges:

In this matter, respondent had abused his clients’ trust and allowed Kim and staff to abscond thousands of dollars from settlement funds. Their taking of the funds is tantamount to misappropriation and respondent is responsible for their acts. The misappropriation of client funds is a grievous breach of an attorney’s ethical responsibilities, violates basic notions of honesty and endangers public confidence in the legal profession. In all but the most exceptional cases, it requires the imposition of the harshest discipline – disbarment. [Citation.]
Moreover, respondent’s misuse of his CTA involving client funds of $182,777 and act of money laundering when he issued the $6,000 for himself were acts of dishonesty which “manifest an abiding disregard of the fundamental rule of ethics – that of common honesty – without which the profession is worse than valueless in the place it holds in the administration of justice. [Citation.]

Id., at p. 26.

The first reason the State Bar prefers releasing court judgments to supplying summaries is to avoid complying with a standard of care in its discipline publications. The State Bar Court based the misappropriation charge on the discredited and potentially defamatory theory of strict ethical liability. The State Bar, seeking the most punitive outcome, prefers the unrestrained original judgment — containing charges known false, such as money laundering — to the abridged version edited for supportability. The bizarre money-laundering allegation appeared in the draft Notice of Disciplinary Charges, was abandoned in the NDC, and reappeared in the October 2008 judgment, despite being uncharged. Transferring funds from trust account to business account isn’t plausibly a way to disguise the funds’ source, but a serious criminal charge expedites plea bargaining and justifies the outcome. The State Bar had only the flimsiest evidence that I allowed the unauthorized practice of law — a self-serving statement by Kim, the perpetrator, that I provided minimal supervision — but no evidence of misappropriation or money laundering. When facing potential consequences for its case summary, the State Bar retreated to the ground it could support. Unsupportable charges remain vital to the State Bar’s ability to coerce concessions without trial, and the State Bar’s accelerating reliance on aggressively released official allegations means knowingly false charges will often set the offenses’ severity.

The State Bar's recalcitrance to disclosing exculpatory evidence provides its second reason to release court documents, not extrajudicial summaries. Nondisclosure of evidence may render defamatory any conclusion the State Bar publishes extrajudicially. Long before the judgment or even the default, Kim compensated the person defrauded of the largest sum according to a notice defrauded person’s attorney served on the State Bar and me. Yet, this settlement was never noted by the State Bar in the default proceeding. A misappropriation charge against one party loses credibility when someone else returns the funds.

kanBARoo Court. 8th Installment. Reply to Critics: An Overview

To be resolved properly, legal issues must be debated. Since little real controversy seeps into the California State Bar Court, I have tried to develop controversy on this blog. In further pursuit of controversy, I posted the 7th installment on the newsgroup misc.legal. Two attorneys responded, although they did not answer my invitation to post their comments to the blog. The thread is at http://tinyurl.com/2zaea3 Without taking unauthorized liberties by direct quotation, I shall deal here with those arguments going to merit.

I asserted that procedural issues concerning notice and due process were at the heart of my case. One poster said the merits of the State Bar's allegations were central. The distinction here is between "my" case and the State Bar's case. More substantively, the poster believes that the nature of the State Bar’s allegations (see 3rd Installment) is clear. The poster agreed with me on the pure question of law that conclusory allegations were insufficient to state a disciplinable offense.

The State Bar alleges that I misappropriated client funds. I maintain that staff members perpetrated fraudulent acts, but the misappropriation occurred without my knowledge, approval, or ratification and despite my supervisory efforts. The Deputy Trial Counsel and other State Bar officials maintain in correspondence that the attorney is liable for the acts of his staff. I would be happy to resolve this issue as a matter of law. It is crystal clear that the State Bar is wrong on the legal cognizability of strict ethical liability.

The State Bar knows it would lose taking a straightforward approach. The State Bar has oppressed many attorneys through its dogma of strict ethical liability. The Bar's successful history prosecuting under a legal theory unapproved by any court has made it arrogant in its private construals of law, but not so arrogant as to base a case on interpretations so jurisprudentially anomalous.

Instead, the State Bar Court's Office of the Chief Trial Counsel alleges that I performed the acts in question "through" various staff members. The Bar's formula is vague and conclusory with respect to the key issues, such as how did I engage and cheat those defrauded, "through" these staff members. Is the Bar saying what it believes, that I committed fraudulent acts, as a matter of law, because my staff did? Then their notice of disciplinary charges should state this legal theory, and it should not leave open the competing interpretations.

On its face, my committing acts of misappropriation through staff members would mean I instructed the staff members to engage the clients and misappropriate their money. But the State Bar refuses to state its meaning with particularity, by alleging that I instructed the staff members, had knowledge of their fraudulent conduct, or ratified it. An intermediate meaning sometimes mooted would hold I acted with gross negligence in failing to supervise my staff. If the State Bar so alleged with particularity, it would lose, as I can prove my active regard for securing funds my office received.

This failure to allege the charges with particularity characterizes the State Bar's quotidian functioning. It means one thing, states another, and hopes it can discover evidence of what it does not state. The State Bar misuses the notice of disciplinary charges to license a fishing expedition. It can support only its delusion-based theory that a lawyer is strictly liable in ethics (not civil controversy, remember) for the acts of the attorney's staff, but it refuses to state the theory and expose it to refutation.

This incompetent and oppressive pleading style allows the State Bar more than its fishing expeditions. It gets voluntary convictions and even resignations. Since the State Bar avidly tells respondents its private theories, most lawyers accept their guilt, based on an unlawful unpled theory. These attorneys compromise their cases, based on the State Bar theory of strict ethical liability. My defense stands for exposing and discrediting this deceptive and oppressive pleading practice.

Moving now to the comments of the other poster, he advises me to get rid of the blog, because of the self-defeating admissions it contains. I admit potentially damaging facts. Deleting the blog would be futile, because the blog merely quotes what I already filed. The poster is referring to a paragraph from my motion to dismiss the notice of disciplinary charges, quoted in the 3rd Installment, where I state:

Respondent hoped to test in practice his theoretical ideas concerning the effective delivery of legal services to non-mainstream cultures. If necessary, the enterprise would also test respondent's interpretation of rule 1-310 of the Rules of Professional Conduct, because of the contractual terms on which respondent ventured. J.B. Kim agreed to fund and staff the office operations and provide a skilled negotiator. Kim would report directly to respondent, and respondent would have ultimate control of the office and complete control of the practice of law within it. Respondent, viscerally averse to the mechanics of financial management and effectively incompetent in their execution, sought to delegate the operational responsibility for keeping the books, while maintaining a robust system to monitor Kim’s compliance.

The poster says that I admit I was a name for hire and unable to manage the law office. The "name for hire" is unsubstantiated and false, because I supervised the legal operation of the office and prosecuted my clients' cases. My financial-management incompetence is indeed an admission, made because I do not want to play a procedural game, even though in such a game, played against the California State Bar, I should expect to prevail. When some defrauded persons wrote me, I informed them that while I denied responsibility for their loss, they might have a cause of action against me for negligent staff supervision. But the Bar does not allege negligence. While a civil case so based might possibly be tenable, my financial ineptitude and my failure to appraise it or its implications accurately is not subject to State Bar discipline.

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