Bd. of Overseers of the Bar v. Warren

• Decision Date: 08 December 2011
• Docket Number: Docket No. Cum–11–32.
• Citation: 34 A.3d 1103,2011 ME 124
• Parties: BOARD OF OVERSEERS OF THE BAR v. David E. WARREN, et al.
• Court: Maine Supreme Court

2011 ME 124

34 A.3d 1103

BOARD OF OVERSEERS OF THE BAR

v.David E. WARREN, et al.

Docket No. Cum–11–32.

Supreme Judicial Court of Maine.

Argued: June 13, 2011.Decided: Dec. 8, 2011.

J. Scott Davis, Bar Counsel, Board of Overseers of the Bar, Augusta (orally), and Gisele M. Nadeau, Esq., Portland, on the briefs, for appellant Board of Overseers of the Bar.

Peter L. Murray, Esq., Murray, Plumb & Murray, Portland, for appellee David E. Warren.

Melissa A. Hewey, Esq., Drummond Woodsum, Portland, for appellee James T. Kilbreth.Peter J. Rubin, Esq. (orally), Bernstein Shur, Portland, for appellees and cross-appellants Eric D. Altholz, Mark K. Googins, Roger A. Clement, Jr., and Juliet T. Browne.William J. Kayatta, Jr., Esq., Catherine R. Connors, Esq., and Benjamin W. Jenkins, Esq., Pierce Atwood, LLP, Portland, for appellee Verrill Dana LLP.

Panel: LEVY, MEAD, GORMAN, and JABAR, JJ.

Majority: LEVY, MEAD, and GORMAN, JJ.

Dissent: JABAR, J.

GORMAN, J.

[¶ 1] This case arises from an investigation by the Board of Overseers of the Bar (the Board) into the actions of six Verrill Dana LLP attorneys—David E. Warren, James T. Kilbreth III, Eric D. Altholz, Mark K. Googins, Roger A. Clement Jr., and Juliet T. Browne—who were involved in the discovery and reporting of the misconduct of John Duncan, a former partner in the law firm. The Board, acting through Bar Counsel, appeals ¹ from a prehearing discovery order entered by a single justice of the Maine Supreme Judicial Court ( Silver, J.) granting the six attorneys' motion to quash a subpoena, and also appeals from a judgment entered by a single justice ( Alexander, J.) determining that none of the six attorneys violated the Maine Bar Rules (Tower 2008) in responding to Duncan's misconduct.² We affirm in part and vacate in part.

I. BACKGROUND

A. Factual Findings

[¶ 2] John Duncan joined Verrill Dana in 1978 and was a partner practicing in the firm's private clients group, with the principal responsibilities of administering trust and estate accounts and providing related legal services. In late 2006, one of the firm's paralegals discovered a discrepancy in the account of one of Duncan's clients. The check register that Duncan prepared for that client account reflected that a payment had been made to Verrill Dana, but the check, as shown on the account's bank statement, had been made payable to Duncan. The paralegal brought the matter to the attention of Duncan's secretary. By comparing the bank statements to the check registers for the client's account, Duncan's secretary identified a total of fourteen such discrepancies dating back to 2003. In June 2007, Duncan's secretary ultimately confided in another attorney at the firm, who promptly notified Warren, the firm's managing partner, of the concerns and delivered the supporting documentation to him.

[¶ 3] Warren immediately obtained copies of the checks made payable to Duncan and the 2006 spreadsheet for the account in question. These documents revealed to Warren that the checks had not been signed over to a firm account. Although Warren was aware that, in some instances, an attorney might have authority to write checks to himself from a client's account, he did not believe that Duncan had any such authority.

[¶ 4] On June 13 or 14, 2007, Warren advised Kilbreth, the chair of the firm's executive committee, that Duncan appeared to be writing checks from a client account to himself rather than to the firm. Two weeks later, Warren confronted Duncan; Duncan explained that the checks represented attorney fees that he had earned for work on the account, but which should have been paid over to the firm in accordance with the partnership agreement. Duncan also stated that that client account was the only one from which he had written checks to himself. Duncan offered to write the firm a check to cover the funds and to resign from the firm. Warren deferred action on Duncan's offer to resign until speaking with Kilbreth and the executive committee, but did ask Duncan to pay the partnership $77,500 representing the fees that he had failed to turn over to the firm. Duncan repaid the money in full.

[¶ 5] At a July 9, 2007, executive committee meeting, Warren told committee members Altholz, Googins, Clement, and Browne about Duncan's actions and his offer to resign. Ultimately, the committee agreed to decline Duncan's offer to resign. The single justice did not specifically find, but the record is undisputed, that there was no discussion during this meeting about making a report to the Board of Overseers of the Bar. The executive committee also did not discuss bringing Duncan's conduct to the attention of Gene Libby, the firm's in-house general counsel. The committee concluded that Warren should notify Kurt Klebe, the head of the private clients group, to allow him to implement practices to prevent similar events from occurring in the future.

[¶ 6] Throughout the summer of 2007, Warren delayed notifying Klebe of Duncan's actions because he thought attention from Klebe might drive an already fragile Duncan “over the edge.” Although the executive committee members repeatedly asked Warren if Klebe had been notified, they acquiesced in his decision to temporarily defer action.

[¶ 7] On October 2, 2007, Warren met with Klebe to inform him of Duncan's misconduct. After the meeting, Klebe began an investigation and quickly discovered another account from which Duncan had written a check to himself, ostensibly for fees, which had not been turned over to the firm. As he reviewed more of Duncan's client accounts during the remainder of October, Klebe uncovered similar problems.

[¶ 8] On October 10, 2007, Verrill Dana received a “preservation” letter advising them that Duncan's secretary was pursuing an employment lawsuit against the firm and asking that certain evidence be preserved. Only then did Libby, the firm's in-house general counsel, learn that Duncan had been mishandling funds. Libby undertook an investigation and retained outside counsel to assist him. In re Motion to Quash Bar Counsel Subpoena, 2009 ME 104, ¶ 3, 982 A.2d 330. In the course of this investigation, Libby gathered emails and other documents, and wrote memos to others and to the file discussing both the evidence he had gathered and his conclusions about the evidence. Id.

[¶ 9] On October 27, 2007, after learning that Duncan's misconduct involved additional client accounts, the executive committee voted to terminate Duncan effective December 31, 2007. The following week, the results of an independent audit ordered by the firm revealed that Duncan had also billed clients for work he had not performed and taken money from those clients' accounts to “pay” himself. At that point, the firm immediately terminated Duncan and notified the Board of Overseers of the Bar, the United States Attorney, and the Cumberland County District Attorney of Duncan's thefts and other improprieties.

B. Discovery Dispute

[¶ 10] Libby resigned from Verrill Dana in November of 2007. Id. Following his resignation, Libby informed Bar Counsel that he believed he had unprivileged knowledge of violations of the Maine Bar Rules that had occurred at Verrill Dana. Bar Counsel subpoenaed the information and documents that formed the basis of Libby's belief, and Verrill Dana moved to quash the subpoena, asserting that the information was protected by the lawyer-client privilege and the work product doctrine. Id. ¶ 5. Bar Counsel argued that the crime-fraud exception removed any such privilege. Id.; see M.R. Evid. 502(d)(1).

[¶ 11] A single justice of the Maine Supreme Judicial Court ( Silver, J.) held a hearing on the motion to quash, reviewed the disputed documents in camera, and issued an order in April of 2009 denying Verrill Dana's motion. Id. The single justice found that the crime-fraud exception to the lawyer-client privilege applied to all of the disputed documents. Id.

[¶ 12] On Verrill Dana's appeal, we first determined that the appeal should not be dismissed as interlocutory. Id. ¶¶ 6–12. Next, we set forth the test to be used in determining when the crime-fraud exception could pierce a claim of lawyer-client privilege. Id. ¶¶ 13–19. Finally, we vacated the single justice's order and remanded the matter because we could not determine whether the single justice had properly applied the crime-fraud exception. Id. ¶ 22.

[¶ 13] On remand, the single justice granted Verrill Dana's motion to quash. The single justice found that Libby and the firm had a lawyer-client relationship and that the firm had “met the requirements of M.R. Evid. 502(a)-(c)” for asserting the lawyer-client privilege. The single justice also found that “even if the firm was not honest and forthcoming about the Duncan matter from June to October, any possible misconduct in failing to come forward ended” when the firm involved Libby. Because any misconduct constituted past conduct, rather than ongoing conduct, the court determined that the crime-fraud exception did not apply.

C. Alleged Bar Rule Violations

[¶ 14] In September 2010, Bar Counsel filed an information alleging that Warren and the five members of the executive committee had violated M. Bar R. 3.1(a), 3.2(e)(1), (f)(2), (3), (4), 3.6(i), 3.13(a), (b) (Tower 2008) by failing to investigate, discover, and report Duncan's misconduct, and failing to mitigate losses to clients and the firm resulting from Duncan's misconduct. Following a three-day hearing, the single justice ( Alexander, J.) found that the Board had failed to prove, by a preponderance of the evidence, that the six attorneys committed the violations charged in the information. Regarding the alleged violation of M. Bar R. 3.2(e)(1), the single justice concluded:

Based on what the respondents knew or believed at the time, on facts now known to be incomplete, the respondents did not believe that the perceived-to-be aberrational misapplication of firm funds from one account required a report to the Board...