14.07. Reading: In Re Fisher, 202 P.3d 1186 (Colo. 2009)

Reading Guide

Preparing for the Reading:
Rarely does a case involving ethical violation implicate only one rule. Ordinarily, several rules are involved, and this case is no exception. The case discusses a “charging lien.” We will discuss charging liens in the topic on fees and billing. At this point you should just be aware that there are two types of liens that have been recognized to allow a lawyer to collect a fee: charging lien and a retaining lien. The charging lien is discussed in the case. A retaining lien provides the lawyer the right to retain papers and documents in the lawyer’s possession until the client pays the lawyer’s fee.

Issues:
– What happened with regard to the OPM benefits?
– Put yourself in the shoes of Fisher regarding the deed of trust that he took out on the client’s residence. What steps should he have taken to ensure that the transaction was ethical — if it is possible for it to be ethical?
– What argument did Fisher make that taking the deed of trust was not unethical?
– What is the underlying purpose of the obligations of a lawyer when entering into a business transaction with a client under Rule 1.8(a)?
– Do you see why taking the deed of trust would violate Rule 1.8(i)?
– What do you think is the justification for the Rule 1.8(i) prohibition? [See Rule 1.8, Comment [16]]

In re Fisher

202 P.3d 1186 (Colo. 2009)

Justice MARTINEZ delivered the Opinion of the Court.

I.

Introduction

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II.

Facts and Proceedings Below

Fisher is a sole practitioner from Colorado Springs who specializes in family law. In June of 2003, Shirley Varner retained Fisher to represent her in a dissolution of marriage case. At the time Ms. Varner retained Fisher, the case was already set for a … hearing. Ms. Varner and Fisher entered into a written fee agreement where Ms. Varner initially paid Fisher a retainer of $2,000. The contract authorized Fisher to charge a $350 collection fee. Ms. Varner informed Fisher that her primary objectives in the dissolution of marriage case were obtaining survivor benefits and a portion of the benefits being paid to her husband from her husband’s federal retirement plan through the Office of Personnel Management (“OPM”), and dividing the equity in the marital residence. Ms. Varner suffered from depression, diabetes, a recent back surgery, and emotional distress as a result of her son’s recent suicide.

Prior to retaining Fisher, Ms. Varner asked him if he had ever processed an OPM claim and he assured her he knew how to secure OPM benefits. Obtaining OPM benefits is a complex process governed by a number of rules and regulations a beneficiary must follow before the office will alter the named beneficiary of a pension plan. State court orders, such as those issued in dissolution of marriage cases, may be recognized by the OPM depending upon the language of the order and compliance with the OPM’s regulations in processing the order. Fisher had never processed an OPM claim and was unaware of the procedures the federal government required to change beneficiaries.

Shortly before the final orders hearing, Ms. Varner met with Fisher and discussed the status of her bill. She owed Fisher $3,102 for services rendered. Fisher presented Ms. Varner with a promissory note in the amount of $3,102 secured by a deed of trust in the marital residence. Fisher asked Ms. Varner to sign the documents, explaining they were necessary to ensure payment of his fees. However, he informed Ms. Varner that courts often order husbands to pay the wives’ attorney’s fees in dissolution of marriage cases. The terms of the deed of trust and promissory note did not allow Fisher to foreclose on the property, and he could only collect the outstanding amount if the residence was sold or refinanced. At no point did Fisher advise Ms. Varner to seek independent counsel, nor did he give her an opportunity to do so. He also failed to secure her written consent to the conflict of interest.

Ms. Varner testified that she signed the documents with reservation, and was concerned the encumbrance on the deed might make it more difficult to sell the home in the future. She also stated she understood that $3,102 represented all funds needed to cover Fisher’s work, including additional work Fisher needed to complete in order to secure her benefits with the OPM.

At the November 12, 2003 … hearing, the court ordered that Ms. Varner receive half of her husband’s OPM benefits during his lifetime and survivor benefits should he predecease her. The court also ordered the sale of the marital residence with the proceeds to be divided equally between Mr. and Ms. Varner. The court retained jurisdiction over the case, and ordered each party to pay their own attorney’s fees.

Fisher provided the court with a draft of the final orders which the court issued in January 2004. Fisher did not consult OPM rules and regulations when drafting the order. Additionally, he did not advise the court or opposing counsel of his interest in the marital residence or supplement Ms. Varner’s financial affidavit to reflect his interest in the property. However, Fisher did provide the court with a document showing the equity Mr. and Ms. Varner had in the marital residence, an estimate of costs associated with sale, and encumbrances on the property. The document did not disclose Fisher’s interest in the property.

Following permanent orders, Mr. Varner voluntarily paid Ms. Varner one half of his OPM benefits by writing her a check from his bank account after the OPM paid him the full amount. Ms. Varner testified she did not feel comfortable with Mr. Varner providing the funds directly to her and reiterated her concern to Fisher about securing her interest in Mr. Varner’s OPM benefits. She provided Fisher with the OPM telephone number and requested he call them. Fisher failed to do so.

The court appointed a real estate agent suggested by Fisher to market and sell the Varner residence. By March 5, 2004, a contract was in place for the sale of the home at full asking price. However, on or around March 29, 2004, Ms. Varner contacted Fisher and requested he stop all work on her behalf. Ms. Varner stated she had become distrustful of Fisher and feared his only purpose in continuing to call her was to charge her additional fees for the calls and proposed office visits. She also felt he already had enough information from her to secure the OPM benefits.

On May 5, 2004, Mr. Varner’s attorney and Fisher consulted and agreed that Mr. Varner’s attorney should file a motion requesting the court appoint Fisher to sign documents for Ms. Varner at the closing of the sale of the marital residence. The motion alleged Ms. Varner failed to cooperate in the sale of the marital residence. Fisher did not inform Ms. Varner about this pleading. On May 4, Ms. Varner sent Fisher a certified letter informing him she would attend the closing. Shortly thereafter, Ms. Varner went to the courthouse to determine whether Fisher had taken any further action on the case and discovered the order authorizing him to sign the closing documents.

Fisher and Mr. Varner’s attorney also co-authored a letter on Fisher’s letterhead to the title company handling the closing informing it all proceeds from the sale of the Varner residence should be directed to Fisher. In the letter Fisher represented he was acting as Ms. Varner’s attorney, even though Ms. Varner had terminated the professional relationship a week earlier. The title company declined to pay all proceeds to Fisher, insisting Ms. Varner agree to the payment arrangement and sign all documents.

On May 6, 2004, Fisher filed a notice of attorney’s lien in the El Paso County District Court in the amount of $6,640.97, representing fees owed to him by Ms. Varner. The notice of lien also asserted a claim to Ms. Varner’s share of the proceeds from the sale of the marital residence.

Both Fisher and Ms. Varner attended the real estate closing. The title company paid Fisher’s promissory note, plus interest, from the proceeds of the sale and Fisher released the deed of trust. The remainder of the sale proceeds were paid to Fisher in trust based upon his attorney’s lien. The following month, June 2004, Fisher filed a motion to enforce his attorney’s lien in the amount of $3,581.63. The judge signed the order and authorized this amount to be paid from the $4,095 remaining in Fisher’s trust account from the sale of the Varner residence. In July 2004, Fisher informed Ms. Varner he was keeping an additional $350 which he incurred in collecting his fees. This amount was not included in the $3,581.63 the court authorized Fisher to receive from the trust account.

During this time period, Fisher made numerous efforts, both via telephone and written mail, to contact Ms. Varner. Ms. Varner did not respond to Fisher’s letters and messages fearing additional charges. After collecting the court ordered $3,581.63 and the $350 collection fee, Fisher filed a notice in July 2004 to withdraw as Ms. Varner’s attorney. By this time, Fisher had made no efforts to secure survivor benefits or a portion of Mr. Varner’s pension from the OPM. Mr. Varner continued to pay half of his OPM benefits to Ms. Varner after OPM distributed the full amount to him.

On April 22, 2005, Mr. Varner died suddenly as a result of a heart attack. Because Ms. Varner received the OPM payments directly from Mr. Varner, after Mr. Varner’s death, Ms. Varner stopped receiving the payments. After his death, Ms. Varner personally filed a claim with the OPM based on the permanent order decree to receive survivor benefits. This claim was denied, as was her appeal of that decision. Ms. Varner received no benefits between May 2005 and December 2005 when the OPM officially recognized her claim to Mr. Varner’s survivor benefits. The Hearing Board found there was insufficient evidence to determine why the OPM changed course and recognized Ms. Varner’s claim.

[Bar Counsel filed a complaint against Fisher alleging violation of the equivalent of ABA Rules 1.1; 1.3;1.8(a); and 1.8(i)]

[After a hearing, the Hearing Board found that he violated the Rules and imposed this discipline:] Fisher was suspended for six months, stayed upon successful completion of a two-year period of probation and the Office of Attorney Regulation’s Ethics School.

Fisher appeals the Hearing Board’s determination that he violated the Rules. …

III.

Fisher’s Appeal

A. Standard of Review

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B. Colo. RPC 1.1

The Hearing Board found clear and convincing evidence that Fisher violated Colo. RPC 1.1, failure to provide competent representation, when he did not research the process necessary to secure Ms. Varner’s rights in Mr. Varner’s OPM benefits or take any steps toward securing those rights. Fisher argues this determination must be reversed because it was not supported by clear and convincing evidence. We disagree.

Colo. RPC 1.1 states “a lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.” The comments provide that, when determining the level of knowledge and skill a particular matter requires, the Board should look to factors including the complexity and specialized nature of the matter, the lawyer’s general experience, and the lawyer’s training and experience in the field in question. Colo. RPC 1.1 cmt. “Competent handling of a particular matter includes inquiry into and analysis of the factual and legal elements of the problem and use of methods and procedures meeting the standards of competent practitioners.” Id. While an attorney should generally not accept employment in an area of law in which she is not qualified, she may accept such employment if she in good faith expects to become qualified through study and investigation. Id.

The Hearing Board acknowledged Ms. Varner terminated the professional relationship with Fisher shortly after the permanent orders hearing and did not respond to telephone calls or written communications. However, it found that if Fisher had taken any steps to become acquainted with the procedures for securing retirement benefits through the OPM by the time the relationship was terminated, he could have, at a minimum, informed Ms. Varner of the potential injury she might suffer if she did not allow him to continue working to secure the benefits.

The record supports the finding of the Hearing Board. Fisher had never handled a case involving a federal pension before. During the nine months between the time he was retained by Ms. Varner and his termination, Fisher never contacted the OPM, did not review the attorney’s handbook published by the OPM, did not consult the OPM website, and did not consult with experts in the field of federal benefits. After the trial court issued the decree providing Ms. Varner should receive benefits from Mr. Varner’s OPM account, Fisher failed to mail the decree to the OPM or instruct another party to do so.

Thomas Hefly, an expert witness in the area of division and transfer of retirement benefits upon dissolution of marriage, testified division of retirement benefits is a specialized practice that domestic relations attorneys often refer to specialists. He stated the OPM publishes a handbook and website to provide information to attorneys on the proper handling of federal pensions. Mr. Hefly testified that it is not enough for an attorney simply to obtain a decree awarding benefits to the spouse, the attorney must provide the OPM with the order.

Therefore, evidence in the record supports the Hearing Board’s finding that Fisher did not provide competent representation to Ms. Varner because he failed to take action which would have aided him in securing the survivor benefits. Accordingly, the Hearing Board’s finding was not clearly erroneous, and we affirm the Board on this ground.

C. Colo. RPC 1.3

Fisher argues the Hearing Board’s determination that he neglected a legal matter in violation of Colo. RPC 1.3 must be reversed because it is not supported by clear and convincing evidence. The Hearing Board found Fisher violated this rule because he did not take any steps to secure the OPM benefits-one of Ms. Varner’s primary objectives for the representation. Fisher argues he could not have neglected the matter because Ms. Varner ultimately received the benefits. We disagree with Fisher’s conclusory reasoning.

Colo. RPC 1.3 requires a “lawyer to act with reasonable diligence and promptness in representing a client. A lawyer shall not neglect a legal matter entrusted to that lawyer.” Lawyers retained on particular matters should pursue those matters “on behalf of a client despite opposition, obstruction [,] or personal inconvenience to the lawyer.” Colo. RPC 1.3 cmt. Unless the professional relationship is terminated by the client, “a lawyer should carry through to conclusion all matters undertaken for a client.” Id.

Fisher’s argument that he could not have neglected the matter because Ms. Varner ultimately received the benefits is unpersuasive. The Hearing Board found that, while Fisher won a judgment from the trial court in the dissolution of marriage action awarding Ms. Varner these benefits, Fisher “did not take the next steps necessary to secure them.” The Board considered Ms. Varner’s unwillingness to return telephone calls or meet with Fisher following the permanent orders hearing. However, the Board determined that, while Ms. Varner’s actions made it difficult for Fisher to communicate with her, they did not ameliorate his duty not to neglect legal matters entrusted to him.

The fact that Ms. Varner ultimately received the benefits to which she was entitled does not mean that Fisher promptly and diligently performed his duties. In fact, the record supports the Board’s conclusion that, during the time Fisher represented Ms. Varner, he did not act with promptness or diligence in securing the OPM benefits. In the three months between the trial court’s order that Ms. Varner receive one half of Mr. Varner’s OPM benefits and Fisher’s termination, Fisher took no steps to secure the benefits in Ms. Varner’s name. After obtaining the decree from the trial court, Fisher did not mail the order to the OPM or consult with Ms. Varner regarding the need to submit an order to the OPM for processing. Nor did he consult with opposing counsel regarding the division of the survivor benefits or request that opposing counsel make arrangements with the OPM for the benefit division.

Therefore, it was not clearly erroneous for the Hearing Board to find that Fisher failed to take prompt measures to secure Ms. Varner’s rights in Mr. Varner’s OPM. Accordingly, we affirm the Board’s finding Fisher neglected a legal matter.

D. Colo. RPC 1.8(a)

On summary judgment, the Presiding Disciplinary Judge (“PDJ”) found Fisher obtained an interest adverse to his client’s without complying with the requirements of Rule 1.8(a) when he took the deed of trust in the Varner residence. Fisher argues this determination was legal error which we should review de novo. However, we view this as a challenge to the PDJ’s factual finding, and will reverse only if the decision was clearly erroneous.

Colo. RPC 1.8(a) provides that an attorney

shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:

(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and writing to the client in a manner reasonably understood by the client;

(2) the client is informed that use of counsel may be advisable and is given a opportunity to seek the advice of such counsel in the transaction; and

(3) the client consents in writing thereto.

Therefore, an attorney may obtain an interest adverse to a client’s, but the transaction must be fair to the client, the client must be advised of the desirability of obtaining independent counsel and given the opportunity to do so, and must consent to the transaction in writing. [1]

Fisher argues it was not improper to take the deed of trust because it was not “adverse” to Ms. Varner’s interests. He states there was no adversity because he and Ms. Varner’s objectives regarding the residence were aligned and his interest did not negatively impact Ms. Varner. He therefore asserts the Rule requiring consent and independent counsel when an attorney and a client’s interests are adverse is inapplicable. We disagree.

In a Formal Ethics Opinion, the American Bar Association (“ABA”) takes the position it is not per se improper for an attorney to secure a fee through taking a security interest; however, when doing so, the attorney must abide by the mandates of Rule 1.8(a). ABA Formal Opinion 02–427. …

Black’s Law Dictionary defines “adverse” as “against or opposed to,” and having a “contrary interest, concern, or position.” Black’s Law Dictionary 252 (8th ed. 2004). Here, Fisher entered into a prohibited transaction with Ms. Varner when he acquired an ownership interest in the residence. In the context of Rule 1.8(a), an attorney and a client’s interests are adverse if their pecuniary interests are opposed to one another. The simple fact that a client and an attorney’s interests are opposed establishes adversity for purposes of Rule 1.8(a). It is therefore not necessary to inquire into whether that adversity negatively impacts the client because the protective measures outlined by Rule 1.8(a) must be followed any time a lawyer’s pecuniary interest are opposed to the client’s.

Accordingly, in the context of Rule 1.8(a), Fisher’s argument that there was no adversity between himself and Ms. Varner is flawed. Here, by acquiring the promissory note and deed of trust, Fisher streamlined his ability to collect his fees and reduced the amount of equity Ms. Varner had in the property. Therefore, Fisher’s pecuniary interest in the residence was opposed to Ms. Varner’s, and their interests were adverse. It is of no consequence that Ms. Varner was not ultimately negatively impacted because of this adversity.

Because Fisher entered into a business transaction with Ms. Varner in which their pecuniary interests were adverse, he should have complied with Rule 1.8(a)’s independent counsel and consent requirements. Therefore, the Hearing Board’s determination that Fisher violated Rule 1.8(a) is not clearly erroneous, and we affirm the Board.

E. Colo. RPC 1.8(i)[2]

On summary judgment, the PDJ also determined Fisher violated Colo. RPC 1.8(i), which prohibits attorneys from obtaining proprietary interests in the subject matter of the representation, when he took the deed of trust in the Varner residence. Fisher argues this finding was legal error; we view this claim as a challenge to the sufficiency of the evidence to support the PDJ’s conclusion, and we will reverse only if we find the decision was clearly erroneous.

Colo. RPC 1.8(i) disallows a lawyer from acquiring “a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client.” However, the lawyer may acquire a “lien granted by law” to secure the lawyer’s fees and contract with a client for a reasonable contingent fee in a civil case. Id. In amended Rule 1.8(j), now appearing as Rule 1.8(i), the language was changed to allow a lawyer to acquire a lien “authorized by law.” We view this change in language as not affecting the substance of the rule.

Fisher argues he did not violate the rule prohibiting attorneys from acquiring proprietary interests in the subject matter of the representation because a deed of trust is a “lien granted by law to secure a lawyer’s fees.” He states the 2008 revision to Rule 1.8(j) makes clear that deeds of trust are not prohibited under this rule. However, Fisher is again mistaken.

The exception for “liens granted by law” refers to an attorney’s retaining or charging lien, authorized by [statute]. Fisher argues the deed of trust qualifies as a “lien granted by law” because it operated in the same manner as an attorney’s charging lien, and the revised rule includes deeds of trust in the exception.

Attorney’s charging liens are statutory creations under which attorneys have liens on money, property, claims, or judgments they have obtained or assisted in obtaining. The lien begins to accrue from the moment of commencement of services. An attorney’s charging lien places third parties on notice that the attorney has an interest in the funds subject to the lien. In order to collect under the lien, the attorney must reduce it to a judgment.

The comments to the revised version of the rule state “the law of each jurisdiction” determines which “liens authorized by law” are excepted from the rule’s prohibition on attorneys acquiring proprietary interests in the subject matter of the representation. Colo. RPC 1.8 cmt. The comment suggests “these may include liens granted by statute, liens originating in common law, and liens acquired by contract with the client.” Id. Fisher argues that, because the comments specifically allow liens originating in common law and those acquired by contract, his deed of trust was proper. However, the comments state the law of each jurisdiction determines what liens are excepted from the rule. In Colorado, attorney’s charging liens are the only “liens authorized by law,” and as such, they are the only liens excepted from the prohibition against attorneys obtaining proprietary interests in the subject matter of the litigation.

In contrast to attorney’s charging liens, the promissory note and deed of trust were not authorized by law. While attorney’s charging liens arise by operation of law, promissory notes and deeds of trust do not—they arise when granted by an individual. The deed of trust allowed Fisher to collect on his promissory note immediately without reducing his claim to a judgment. While attorney’s charging liens roughly accomplish the same purpose Fisher pursued when he had Ms. Varner sign the deed of trust—security for the payment of fees—Fisher cannot merely substitute one for the other.

Attorney’s charging liens are specifically provided for by statute and are excepted from the prohibition on attorneys obtaining proprietary interests in the subject matter of the representation. Deeds of trust are not. Therefore, when Fisher secured the promissory note with the deed of trust in the Varner residence he acquired a proprietary interest in the subject matter of the litigation in violation of the Rules of Professional Conduct. Accordingly, we affirm the PDJ because the determination Fisher violated Rule 1.8(i) was not clearly erroneous.

F. Requirements of 1.8(a) and (j) unknown to Fisher

Fisher argues that even if his actions violated Rules 1.8(a) and (j), he cannot now be punished because he did not know the conduct was wrong at the time it was committed. This argument presents a legal question, and we therefore apply a de novo standard of review.

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All Colorado attorneys are presumed to be aware of the Rules of Professional Conduct and their impact. An attorney’s “awareness that his conduct will violate an ethical proscription is not itself material.” In re Attorney D., 57 P.3d 395, 400 (Colo. 2000). Therefore, Fisher’s conduct warrants punishment whether or not he knew the conduct was improper. Accordingly, we decline to set aside the PDJ’s determination that Fisher violated Colo. RPC 1.8(a) and (i).

V.

Sufficiency of Discipline

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The Hearing Board properly considered the ABA standards and appropriately applied them to the facts in this case. The sanctions imposed by the Hearing Board-suspension from the practice of law in the State of Colorado for six months stayed upon completion of a two-year probationary period-adequately protect the public and were not unreasonable or insufficient. Accordingly, we affirm the Hearing Board’s disciplinary order.

VI.

Conclusion

For the foregoing reasons, we affirm the decision of the Hearing Board on all grounds.

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[1] The 2008 revision of Rule 1.8(a) adds the additional requirements that the client be advised of the desirability of obtaining independent counsel in writing and, if the client gives written consent, the writing must contain the essential terms of the transaction and the lawyer’s role in the transaction.

[2] [ed. Throughout this section I change the citation to “1.8(i)” to coincide with the ABA Rule.  At the time this case was decided the Colorado Rule was 1.8(j)