Posts Tagged ‘disciplinary proceeding’

Lawyer Suspended After Representing Wife as Conservator

JUNE 13, 2011 VOLUME 18 NUMBER 21
Richard J. Murphy was first admitted to practice law in 1964. He was a fixture in local political and legal circles in Osceola, Iowa, for nearly fifty years. He was the attorney for the City of Osceola, and he had been the County Attorney years earlier. His private practice, which he shared with his son, focused on real estate, probate and tax issues.

Helen Doss had been the County Auditor at the same time Mr. Murphy was County Attorney, and their friendship continued after they both left office. Ms. Doss, who had no children, came to rely on Mr. Murphy and his wife for assistance with errands and legal matters. Mr. Murphy prepared her will, which named his wife as executor. He helped her set up bank accounts, including one that named Mrs. Murphy as co-owner. He was named as one of the beneficiaries of her life insurance policy.

When Ms. Doss, at 92, experienced several falls in her home, Mr. Murphy filed a voluntary guardianship and conservatorship petition. Ms. Doss acknowledged that she needed help, and agreed that Mrs. Murphy should be appointed as her guardian and conservator.

For the next four years, Mr. Murphy and his wife took care of Ms. Doss and her finances. He arranged to cash in over $125,000 worth of Series E Bonds, and placed the proceeds in an account jointly held between Ms. Doss and Mrs. Murphy. He arranged the sale of her home and represented his wife at the closing; his son represented the buyers in the transaction. He prepared a new will, naming Mrs. Murphy as executor again.

During the conservatorship, Mr. Murphy prepared annual accountings for his wife to sign and file with the local court. He left off at least one account, one which he said he considered to be Ms. Doss’ own account and not part of the conservatorship. That account named Mrs. Murphy as co-owner, and Mrs. Murphy wrote various checks on it during the conservatorship years — including at least one, for $1,427.96 for a new vacuum cleaner for herself. Other checks on the undisclosed account were for $500 or $1,000 and payable to either Mrs. Murphy or to Mr. Murphy himself.

When Ms. Doss died in 2004, Mr. Murphy represented his wife in filing and administering the probate proceedings. Her will (which he had prepared) left the bulk of her estate to nephews and nieces. However, considering the joint accounts and life insurance proceeds, almost a third of Ms. Doss’ estate went to Mr. and Mrs. Murphy rather than the relatives.

One of the nephews complained, and after negotiations a portion of Ms. Doss’ estate was returned for distribution to family. But the matter did not end there. The Disciplinary Board of the Iowa Supreme Court, which regulates lawyers, got involved.

The Disciplinary Board conducted hearings and ultimately recommended a public reprimand for Mr. Murphy’s multiple violations of legal ethics rules. Mr. Murphy appealed, and the matter was considered again — this time by the Iowa Supreme Court.

In its ruling last month, the Court decided that public reprimand was not the right sanction. Instead, Mr. Murphy was suspended from the practice of law indefinitely, with no ability to reapply for admission for at least eighteen months.

After the fact, violations like Mr. Murphy’s always seem obvious. It is hard to imagine what he thought was defensible about filing a petition against his own client (even with her consent), and then representing the guardian and conservator. It seems even more obviously wrong when the guardian and conservator is his own wife. Add to that the transactions giving an increasing share of Ms. Doss’ estate to his wife, his failure to include all of Ms. Doss’ assets in the conservatorship accountings, and then the multiple representations in the sale of her home.

What was Mr. Murphy’s explanation for his actions? The Iowa Supreme Court characterizes his response as arguing that he was just following Ms. Doss’ instructions. She was strong-willed and had a generous nature, he argued. He denied that he had influenced her in any way in the exercise of her generosity. Supreme Court Attorney Disciplinary Board v. Murphy, May 27, 2011.

Lawyer Suspended for Bad Special Needs Trust Advice

MAY 16, 2011 VOLUME 18 NUMBER 18
Sometimes in our zeal to help solve problems we lawyers can get carried away. We are constrained by ethical rules to avoid conflicts of interest. We also have to act competently. In a case involving an injured young man, a special needs trust and the state’s Medicaid claim against the trust, New Hampshire lawyer Paul Bruzga fell short.

Mr. Bruzga’s problems started with a tragedy that had nothing to do with him. George Doherty was injured, and in a coma. His brother Steven started a guardianship action. George and Steven’s sister didn’t think Steven was the right person to be appointed, and she objected. The court appointed Mr. Bruzga as attorney for George Doherty, to protect his interests in the contested guardianship.

Mr. Bruzga learned that Steven Doherty had applied for Medicaid coverage for his brother’s substantial medical bills. He pointed out to Mr. Doherty that his brother would not be eligible for Medicaid unless a special needs trust was established to handle all of George Doherty’s money. To this point, it appears that Mr. Bruzga’s advice — and his behavior as a lawyer — was fine. But then he took the first of several wrong steps.

When Steven Doherty asked for help setting up a special needs trust for his brother, Mr. Bruzga went ahead and drafted the document and filed it with the court for approval. Later he insisted that he was doing this as attorney for George Doherty, the injured client. He also negotiated a settlement between George Doherty’s brother Steven and their sister, and he insisted that this, too, was done as lawyer for George Doherty — but his behavior was easy to challenge when he signed the court pleadings as Steven Doherty’s attorney.

George Doherty, the injured brother and beneficiary of a newly-minted special needs trust, unfortunately died a few months later. Under the terms of the special needs trust his funds would first have to be used to pay back the New Hampshire Medicaid program for care he had received. But up to that point, neither Mr. Bruzga nor Mr. Doherty had even told the Medicaid agency about the special needs trust.

Several months later, when Medicaid had not requested repayment from the trust, Mr. Bruzga advised Mr. Doherty that he could just write checks from the trust to himself and his sister. Of course, the reason Medicaid had not sent a bill might have been related to the fact that no one had ever told them the trust existed — or, indeed, even that George Doherty had died.

Coincidentally or not, the state Medicaid agency had just begun to ask questions as the final trust checks were being written. A few days before advising Mr. Doherty to distribute the remaining trust assets to himself and his sister, Mr. Bruzga had heard from a Medicaid fraud investigator, who left a message expressing his concern that there was a special needs trust they had never heard about. Mr. Bruzga left a voice message for the investigator, and shortly thereafter counseled Mr. Doherty to close out the trust.

Within a two-month period, Mr. Bruzga exchanged messages with the Medicaid investigator, filed a final accounting with the court on behalf of Mr. Doherty, and advised Mr. Doherty to tell the court that Medicaid had not filed a request for repayment and that his final distributions should be approved. Then the Medicaid investigator sent a demand for repayment to Steven Doherty and his sister, noting that the distributions should never have been made. Then the sister filed a complaint with the New Hampshire Attorney Discipline Office, which investigated Mr. Bruzga’s behavior.

Throughout all of these periods, Mr. Bruzga spoke with Steven Doherty regularly and billed him monthly for his work. He signed some pleadings indicating he represented Mr. Doherty, even though he had originally been appointed by the court as the attorney for George Doherty, the injured brother. Though he sometimes indicated that he did not think he represented Steven Doherty, he gave him specific and direct advice at each turn in the case.

The Attorney Discipline Office decided that Mr. Bruzga had a serious conflict of interest in trying to represent Steven Doherty as his brother’s guardian and as trustee, while he was really supposed to be the brother’s lawyer. The Office also decided that Mr. Bruzga had simply given bad advice — legal advice that was clearly wrong — to Mr. Doherty.

The New Hampshire Supreme Court agreed. Lawyers are supposed to avoid conflicts of interest. They are also supposed to be competent. The Court decided that Mr. Bruzga had failed on both counts. Because he “knowingly rendered incompetent advice,” his license to practice law was suspended for six months. Bruzga’s Case, May 12, 2011.

Interestingly, the court never did get around to deciding what the appropriate sanction might be for Mr. Bruzga’s failure to recognize or avoid the conflict of interest. Though failure to act competently might ordinarily result in just a public reprimand, said the justices, his failure was so much worse that the suspension was appropriate — and so they did not need to decide what (presumably lesser) sanction might have been in order for the conflict of interest. It didn’t help Mr. Bruzga’s case that he had been in trouble with the attorney discipline process twice before in his 33-year legal career.

How much money was at issue? Not much. The total value of the special needs trust was about $50,000 and the Medicaid claim was about $74,000. It is hard to figure out what motivated Mr. Bruzga to give such breathtakingly bad legal advice.

Attorney Disciplined for Advice to Ignore POA Limitations

JANUARY 3, 2011 VOLUME 18 NUMBER 1
Lawyers, of course, grapple with ethical issues constantly. Elder law attorneys see particular ethical issues recur frequently. Sometimes the lawyer’s eagerness to accomplish the client’s wishes can cloud the lawyer’s ethical judgment. Sometimes the lawyer’s fascination with what might be done can even gallop ahead of the client’s wishes.

None of that is terribly profound or original. Last month, however, we were reminded of how easy it is to get enamored of a particular legal stratagem even though it may not be appropriate in a given case. The notion surfaced in the form of a Minnesota disciplinary proceeding involving attorney Donald W. Fett.

Mr. Fett was consulted by a man (we’ll call him Richard here, just to give him a name) whose brother (let’s call him Martin) was failing. Martin had moved into a nursing home, where he was likely to spend the rest of his life. Martin was unmarried, had no children, and was worth a little more than $600,000.

Martin had already signed a power of attorney naming Richard as his agent. Minnesota law provides a simplified form for powers of attorney, and it has a space where the signer can indicate whether his agent will have the authority to make gifts, including to himself. Martin had checked the line to give Richard the power to make gifts of Martin’s property, but not to Richard himself.

Mr. Fett knew that Martin’s money would be used up in relatively short order if it had to be spent on his nursing home care. Richard had told him that Martin would not want that to happen if it could be avoided, and Mr. Fett could see a way to allow at least a portion of Martin’s money to be protected. In a letter to Richard, and in several follow-up communications, he outlined his plan.

Basically, Mr. Fett suggested that Richard could make a gift of nearly all of Martin’s money, leaving him less than $3,000 (the asset limit in Minnesota for Medicaid assistance with long-term care — note that the limit is even lower in most states). That would make Martin ineligible for Medicaid assistance, but only for a limited time. The money that Richard had given away could be given back over the next couple of years, and then the ineligibility period would expire and Richard could keep the remaining money aside until after Martin’s death. That way at least a portion of his assets could go to the people he had named in his will — including Richard, his other siblings, and some charities.

The fly in the ointment for Mr. Fett’s advice: Martin’s power of attorney had expressly prohibited gifts to Richard himself. In order for the plan to work, though, Richard would have to be confident that Martin’s money would be used to benefit Martin during the ineligibility period. It was a conundrum.

Mr. Fett’s proposed solution was to have Richard liquidate all of Martin’s investments, transfer them to a bank account in Richard’s and Martin’s names as joint owners, and then withdraw them from the bank into his own name. That way, he apparently reasoned, Richard wouldn’t be using the power of attorney in a way that was prohibited — he would instead be using general rules governing joint accounts.

Richard was apparently suspicious of Mr. Fett’s advice, and eventually he consulted another attorney. That resulted in a complaint to the Minnesota disciplinary commission, the Office of Lawyers Professional Responsibility. After hearings the Office recommended that Mr. Fett be publicly reprimanded and placed on probation for a year.

The Minnesota Supreme Court agreed, and upheld both the discipline and the sanction. The Court’s opinion takes a dim view of Mr. Fett’s argument that he was not really recommending a course of action in violation of the limitation in the power of attorney. The Court notes that even if Richard could have used the joint tenancy account to circumvent the limitations of his brother’s power of attorney, Mr. Fett’s correspondence with his client failed to explain the distinction in sufficient detail to allow Richard to make an informed decision about how to act.

The Court notes that Mr. Fett’s failure to give his client complete information could have subjected Richard to serious problems. He might be held liable to return all of Martin’s money, and perhaps even triple the amount transferred. He could even be criminally charged. Mr. Fett gave him none of that information. His failure to fully inform his client was also a failure to provide competent representation, and a violation of the ethics rules for lawyers.

Mr. Fett had been a lawyer for over thirty years, and had limited his practice to estate planning and elder law matters for about six years prior to his contact with Richard. Because of that experience in the practice, and particularly in elder law, the Court determined that the sanction could be higher than would otherwise be implemented. Mr. Fett also had a history of disciplinary actions, having appeared before the Office of Lawyers Professional Responsibility five times over two decades.

The Court also considered mitigating factors such as lack of harm to either Richard or Martin (Mr. Fett’s advice was not followed) and lack of improper motive or harmful intent on Mr. Fett’s behalf. Those were not sufficient to offset the recommendation for a public reprimand, however. In Re Petition for Disciplinary Action Against Fett, November 24, 2010.

Is there a larger message in Mr. Fett’s disciplinary proceeding? We think there is, and it is this: just because a legal strategy might work, it does not follow that it must be implemented, or even that it is a good strategy. Careful consideration of all the negatives is important, and complete information should be shared with the client.

Non-Lawyer Trust Preparation Group Shut Down in Indiana

MAY 3, 2010  VOLUME 17, NUMBER 15

United Financial Systems Corporation looks like they can do it all. According to their website (which you will have to look up for yourself — we don’t want to point to it since it still includes information about how to sign up for the activities that have now been prohibited), they can tell you how to plan your estate, retirement, insurance needs, health care — even your funeral arrangements. There is a disclaimer that lets you know they do not practice law (and do not give investment advice). The Indiana Supreme Court begs to differ.

In a disciplinary action three weeks ago, that state’s high court found that UFSC was “an insurance marketing agency,” and it was practicing law. The company was ordered to stop selling living trusts, to give every client a copy of the Court’s opinion, to offer refunds to all clients they had worked with in the past four years, and to pay the costs and some of the attorney’s fees associated with the proceeding. A handful of lawyers were included in the disciplinary process; most agreed to end their involvement with UFSC (and the practice of participating in non-lawyer legal work) and were dismissed from the case.

What was UFSC doing? It had “Estate Planning Assistants” (non-lawyers) contact prospective customers to tell them about the importance of estate planning. If the customer signed up for the $2,695 living trust package, the salesperson collected $750 to $900 and helped the customer fill out a questionnaire.

That questionnaire was then sent to one of several attorneys UFSC hired to prepare living trusts, wills and powers of attorney. The attorney would be paid $225, and would make one telephone call to the client to discuss the estate plan. Once a trust and supporting documents were prepared the signing was handled by another UFSC salesperson — for another $75 slice of the total fee.

The person handling the signing, whose title was usually “Financial Planning Assistant,” also had access to the customer’s financial information (remember that questionnaire?) and could make recommendations about investment changes. One common proposal was to liquidate other investments in order to purchase an annuity — which, incidentally, would yield a significant commission for the Financial Planning Assistant and UFSC.

The Indiana Supreme Court’s opinion details one extreme example of the effect of this marketing juggernaut. The 72-year-old woman was persuaded to liquidate $500,000 worth of Exxon Mobil stock — the bulk of her entire net worth — in order to purchase an annuity. The result: she incurred a $132,000 income tax liability and her salesperson received a $40,000 commission. State of Indiana ex rel. Indiana State Bar Association v. United Financial Systems Corporation, April 14, 2010.

Would UFSC face the same result in Arizona? Probably not. While the unauthorized practice of law is prohibited by court rule, Arizona repealed its criminal statute decades ago. The Arizona Supreme Court has not been active in reviewing such cases, and indeed has even created a “certified document preparer” classification for non-lawyers who “assist” clients in creating wills and trusts.

How can you avoid being taken advantage of by non-lawyer “estate planners” or “document prepapers”? Lawyers tend to think the best answer is the simplest one: hire a lawyer for your legal needs. If you are approached by a “finanical planning assistant” or something similar, you might want to ask “assistant to whom?”

If the salesperson assures you that they have a crack team of estate planners, tax advisers and financial consultants, ask for a few names, titles and credentials. Above all, be very cautious of any person or group who also happens to sell annuities or other insurance products. Not all insurance salespersons are questionable, but practically all questionable non-lawyer “estate planners” sell insurance products.

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