In re Engel, 05-174.

• Decision Date: 17 July 2007
• Docket Number: No. 05-174.,05-174.
• Citation: 338 Mont. 179,169 P.3d 345,2007 MT 172
• Parties: In the Matter of Joseph ENGEL, III, An Attorney at Law, Respondent.
• Court: Montana Supreme Court

169 P.3d 345

2007 MT 172

338 Mont. 179

In the Matter of Joseph ENGEL, III, An Attorney at Law, Respondent.

No. 05-174.

Supreme Court of Montana.

July 17, 2007.

OPINION AND ORDER

¶ 1 The Commission on Practice of the Supreme Court of the State of Montana (the Commission) entered its findings of fact, conclusions of law, and recommendation to the Court on November 20, 2006, regarding a complaint filed against Joseph Engel, III, (Engel), an attorney licensed to practice law in the State of Montana. The Office of Disciplinary Counsel of the State of Montana (ODC) alleged in its complaint that Engel had violated numerous provisions of the Montana Rules of Professional Conduct (MRPC). The Commission concluded that no clear and convincing evidence supported the allegations made in the complaint. The Commission recommends that this Court dismiss the complaint. ODC objects to the Commission's recommendation. We conclude that Engel violated Rules 1.5, 1.15, and 1.18, MRPC. We remand this matter to the Commission for its consideration and recommendation of an appropriate sanction.

¶ 2 ODC presents the following issues for review:

¶ 3 1. Whether Engel violated Rule 1.5, MRPC, by charging an excessive fee for his legal services in a trust termination action.

¶ 4 2. Whether Engel violated Rules 1.15 and 1.18, MRPC, by failing to deposit retainer fees in an IOLTA or client trust account.

¶ 5 3. Whether Engel violated Rule 1.7, MRPC, by engaging in a conflict of interest.

¶ 6 4. Whether Engel violated Rules 1.14, 2.1, 8.4(c), MRPC, by failing to advise his client that a relative had mismanaged her affairs.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 7 We discussed most of the facts giving rise to this matter in In re Conservatorship of Kloss, 2005 MT 39, 326 Mont. 117, 109 P.3d 205. We will repeat here only those facts necessary for our analysis. Alice Kloss (Kloss) was born on November 26, 1906. She died April 22, 2006, at the age of 99. Kloss, a widow, had no relatives living in Montana until 1998, when she fell and broke her legs, hip, and pelvis. The injuries forced her to move from her apartment to an assisted living facility in Great Falls. Kloss established the Alice P. Kloss Charitable Remainder Trust (CRT) on May 19, 1998. The CRT consisted of $365,000 from Kloss's roughly $1,000,000 estate.

¶ 8 After her injuries, Kloss requested that Kenneth Parrent (Parrent), her 71-year-old nephew, move from Colorado to Great Falls to assist in the care of her affairs. Kloss executed an unlimited power of attorney for Parrent to manage her assets. Engel represented Kloss in three legal matters: an action to terminate the CRT; a tort claim against Edward D. Jones; and a conservatorship proceeding involving Kloss. Kloss paid Engel approximately $296,000 for his services in these three separate matters.

¶ 9 Engel originally signed a fee agreement with Kloss on July 1, 1998, to terminate the CRT for an hourly rate of $125. Parrent signed the fee agreement on Kloss's behalf. Engel filed a petition to terminate the CRT on September 21, 1998. All of the CRT's beneficiaries voluntarily relinquished their interests. The District Court terminated the CRT on October 14, 1998. Engel's bills indicate that he performed 65.9 hours of work in terminating the CRT. Kloss paid Engel $8,362.50 for this work in 1998 according to the terms of the hourly agreement signed by Engel and Parrent.

¶ 10 Engel signed a second fee agreement with Kloss on October 27, 1998. This second fee agreement related to Kloss's action against her former brokerage firm, Edward D. Jones, and its manager. Kloss alleged that Edward D. Jones tortiously had caused her to execute the CRT. Parrent retained Engel to prosecute the action and to represent both Kloss's and Parrent's interests. The parties eventually settled the action with Edward D. Jones agreeing to pay $150,000 to Kloss.

¶ 11 Kloss paid Engel a retainer of $20,000 pursuant to the October 27, 1998, agreement. The second fee agreement provided that Engel would bill Kloss at an hourly rate of $125 from the $20,000 retainer. The second fee agreement further provided that Kloss and Engel would divide any recovery in the action against Edward D. Jones, with Engel receiving thirty-five percent and Kloss receiving sixty-five percent. Engel received an additional $50,000 retainer in January 2002. Engel's accounting principles make it impossible to determine precisely to which litigation this $50,000 retainer fee applied. Engel contends that he used this $50,000 retainer fee to cover the cost of his work in a separate conservatorship action involving Kloss. It should be noted, however, that this conservatorship proceeding began in June 2003, about 18 months after Engel received the $50,000 retainer fee. Engel did not place either of these retainers into an IOLTA account or a client trust account. Engel instead placed the $20,000 and $50,000 retainers directly into his operating account.

¶ 12 Engel next modified the original July 1, 1998, fee agreement with Kloss relating to the termination of the CRT. Engel informed Kloss of the purported novation of the agreement through a letter that he sent to Kloss on February 1, 2000, in which he transmogrified the hourly fee arrangement for work already completed into a contingent fee. Engel informed Kloss that the contingent fee for representing her in the CRT termination almost two years earlier would be one-third of the amount that he had "recovered" through his prosecution of the uncontested termination proceeding. Kloss signed the consent form on the bottom of the letter on February 22, 2000.

¶ 13 Engel further refined the fee agreement relating to the CRT termination through a letter to Parrent on July 5, 2000. Engel acknowledged receipt of $10,000 and confirmed that he would receive $10,000 monthly installments for the remainder of the year 2000, for a total of $70,000. Engel further informed Parrent that the remaining $50,000 due under the CRT termination fee agreement would be payable in 2001 with the specific timing being a "matter of mutual convenience."

¶ 14 Engel revised the 1998 CRT agreement a final time on October 3, 2003, through a "supplemental attorney-client fee contract." Engel intended this supplemental agreement to "replace[ ] entirely" the original hourly fee agreement and to be "retroactively effective" from July 1, 1998. The supplemental agreement provided that Engel would receive one-third of $365,000, the same amount as the value of the CRT.

¶ 15 ODC investigated a complaint regarding Engel's representation of Kloss. ODC alleged in a formal complaint that Engel had committed four counts of professional misconduct. The first count alleges that Engel had charged an unreasonable fee for his representation of Kloss in the CRT termination action in violation of Rule 1.5, MRPC. The second count charges that Engel violated Rules 1.15 and 1. 18, MRPC, by failing to deposit the $20,000 and $50,000 retainer fees in a trust account. Count Three alleges that Engel's representation of Kloss and Parrent constituted a conflict of interest in violation of Rule 1.7, MRPC. The fourth count accuses Engel of violating the duty of loyalty by failing to protect Kloss from Parrent's alleged misuse of her assets.

¶ 16 The Commission heard the matter on September 22, 2006. The hearing focused on the fee arrangements that Engel had entered with Kloss between 1998 to 2003. Engel testified that he viewed Kloss as "competent" and working "in concert" with Parrent. Engel further testified that he modified the July 1, 1998, fee agreement two years after the CRT had been terminated because he wanted to find a way to pay for Kloss's tort action against Edward D. Jones without exhausting Kloss's resources. Engel admitted that the CRT termination and the Edward D. Jones tort litigation constituted two separate matters, but Engel testified that he treated the CRT recovery as part of the "entire matter." Engel also agreed with the Commission that he created cumbersome, confusing, ambiguous documents that needed explanation.

¶ 17 The Commission determined that no clear and convincing evidence supported the allegation in the complaint against Engel. The Commission recommends that this Court dismiss the complaint. ODC objects.

STANDARD OF REVIEW

¶ 18 This Court "possesses original and exclusive jurisdiction and responsibility" in all matters involving the disciplining of lawyers in the State of Montana. See Introduction, Montana Rules for Lawyer Disciplinary Enforcement. As a result, we review de novo the Commission's findings of fact, conclusions of law, and recommendations. We weigh the evidence upon which the Commission's findings rest. In the Matter of Potts, 2007 MT 81, ¶ 32, 336 Mont. 517, ¶ 32, 158 P.3d 418, ¶ 32.

DISCUSSION

¶ 19 We first must address Engel's motion to dismiss ODC's objections to the Commission's recommendation. Engel argues that the Montana Rules for Lawyer Disciplinary Enforcement (MRLDE) do not allow this Court's review of ODC's objection unless ODC first sought reconsideration of the Commission's decision under Rule 14, MRLDE. Engel asserts that Rule 14, MRLDE, requires the ODC to petition for reconsideration within thirty days of the panel's decision. Rule 14, MRLDE, provides that "[t]he Supreme Court may, in its sole discretion, review the Panel's disposition upon reconsideration." Engel contends that ODC's failure to request reconsideration of the panel leaves this Court with nothing to review.

¶ 20 Rule 14's limitation of this Court's review to matters that had been reconsidered by the Commission does not apply to formal complaints submitted by ODC. Rule 14 sets forth the procedures to be taken by the "Adjudicatory Panel" when a "complainant" requests reconsideration of a disposition of a complaint. Rule 14's history reveals, however, that ODC does not qualify as a "complainant." Rule 14 originated out of former Rule 8B. Rule 8B existed before ...