In re Sather

• Decision Date: 22 May 2000
• Docket Number: No. 99SA72.,99SA72.
• Citation: 3 P.3d 403
• Parties: In the Matter of Larry D. SATHER, Attorney-Respondent.
• Court: Colorado Supreme Court

3 P.3d 403

In the Matter of Larry D. SATHER, Attorney-Respondent.

No. 99SA72.

Supreme Court of Colorado, En Banc.

May 22, 2000.

As Modified on Denial of Rehearing June 12, 2000.¹

John S. Gleason, Attorney Regulation Counsel James S. Sudler, Assistant Regulation Counsel, Denver, Colorado, Attorneys for Complainant.

Law Office of George S. Meyer George S. Meyer, Denver, Colorado, Attorney for Attorney-Respondent.

Jane Hazen, Denver, Colorado, Attorney for Amicus Curiae Colorado Criminal Defense Bar.

White & Steele, P.C., John Lebsack, Denver, Colorado, Attorneys for Amicus Curiae Colorado Defense Lawyers Association.

Justice BENDER delivered the Opinion of the Court.

I. INTRODUCTION

In this attorney regulation proceeding, we address the conduct of the attorney-respondent, Larry D. Sather, who spent and failed to place into a trust account $20,000 he received as a "non-refundable" advance fee for a civil case. Because Sather treated these funds as his own property before earning the fee, Sather's conduct violated Colo. RPC 1.15(a). Sather labeled the $20,000 fee "non-refundable" even though he knew that the fee was subject to refund under certain circumstances, thereby violating Colo. RPC 8.4(c). After being discharged by his client, Sather failed to return all of the unearned portion of the $20,000 promptly, in violation of Colo. RPC 1.16(d).

In this original proceeding, we hold that an attorney earns fees by conferring a benefit on or performing a legal service for the client. Thus, under Colo. RPC 1.15 an attorney cannot treat advance fees as property of the attorney and must segregate all advance fees by placing them into a trust account until such time as the fees are earned.² An attorney cannot label advance fees "non-refundable" because it misleads the client and risks impermissibly burdening the client's right to discharge his attorney, in violation of Colo. RPC 8.4(c) and 1.16(d).

After a hearing on the matter, the hearing board recommended that Sather be suspended for a year and a day as discipline for his violations of Colo. RPC 1.15(a), 1.16(d) and 8.4(c).³ We disagree with the board's recommendation. Because we have not previously explained that all advance fees, including "lump-sum" fees and "flat fees," must be placed into trust accounts and withdrawn only as the attorney performs services or confers benefits on the client, we do not impose a sanction on Sather for his violation of Colo. RPC 1.15(a). However, we agree with the hearing board that Sather be disciplined for violating Colo. RPC 1.16(d) and 8.4(c). Because Sather knowingly mishandled client funds and knowingly deceived a client, and in light of Sather's disciplinary history, we suspend Larry D. Sather for six months. Further, as a condition of reinstatement, Sather must demonstrate his fitness to practice by undergoing proceedings pursuant to C.R.C.P. 251.29, even though the term of the suspension is less than one year.

II. FACTS AND PROCEDURAL BACKGROUND

The hearing board found the following facts were established by clear and convincing evidence. Sather agreed to represent Franklin Perez in a lawsuit against the Colorado State Patrol and certain individual troopers. Perez alleged that the troopers violated his civil rights during a traffic stop on December 7, 1995. Almost a year after the stop, on November 15, 1996, Sather and Perez entered into a written agreement for legal services, captioned "Minimum Fee Contract." Sather drafted the agreement, the terms of which required Perez to pay Sather $20,000 plus costs to represent Perez in the case against the State Patrol. Sather testified that he had never charged this large an amount as a flat fee in a civil case.

The contract referred to the $20,000 alternatively as a "minimum fee," a "non-refundable fee," and a "flat fee." The contract stated that Perez understood his obligation to pay this fee "regardless of the number of hours attorneys devote to [his] legal matter" and that no portion of the fee would be refunded "regardless of the time or effort involved or the result obtained." The contract acknowledged Perez's right to discharge Sather as his attorney, but the contract informed Perez that in no circumstance would any of the funds paid be refunded:

IN ALL EVENTS, NO REFUND SHALL BE MADE OF ANY PORTION OF THE MINIMUM FEE PAID, REGARDLESS OF THE AMOUNT OF TIME EXPENDED BY THE FIRM.

The client has been advised that this is an agreed flat fee contract. The client acknowledges that the minimum flat fee is the agreed upon amount of $20,000, regardless of the time or effort involved or the result obtained.

(Emphasis in original.) Thus, the contract stipulated that Perez pay Sather $20,000 for his legal services; that he pay all legal costs incurred by Sather in the case; and that no funds would be refundable after Perez paid Sather the flat fee of $20,000.⁴

Perez paid Sather $5,000 of the minimum fee on November 17, 1996. He paid the remaining $15,000 on December 16th. Sather spent the $5,000 soon after receiving the money. Sather kept the second payment of $15,000 for approximately one month before spending these funds. Sather did not place any of these funds in his trust account before spending them. Sather testified that he spent Perez's $20,000 because he believed he earned the fees upon receipt. Sather stated that while he could not cite a specific rule for this opinion, he thought it was a common practice in the legal community to treat flat fees as being earned on receipt.

Less than a month after agreeing to represent Perez, on December 6, 1996, Sather filed suit in Denver District Court on behalf of Perez against the State Patrol and three troopers. In addition to claims for tort and civil rights injuries, the complaint included a claim for attorney's fees. The Attorney General's Office, which represented the State Patrol and three troopers, negotiated with Sather and offered Perez a $6,000 settlement, which Perez refused. Sather then requested an extension of time to respond to a pretrial motion, which the court granted.

On April 21, 1997, in a matter unrelated to the Perez case, this court suspended Sather from the practice of law for thirty days, effective May 21, 1997. See People v. Sather, 936 P.2d 576, 579 (Colo.1997)

. As required, Sather notified Perez of his suspension and Perez responded on May 23, requesting an accounting of the hours Sather worked on his case. Perez requested that Sather provide the accounting by May 30, but Sather replied that he would be unable to provide this information until the third week of June. Thereafter, on June 4, 1997, Perez faxed Sather notice discharging him from his case because of the suspension.

Acting pro se, Perez received an extension of time to file a response to the State Patrol's motion after informing the court that he was seeking replacement counsel to handle the case. Then, on August 21, 1997, Perez wrote a letter to the Attorney General's Office, accepting the offer of $6,000 to settle all of his claims against the State Patrol and the troopers. In its findings of fact, the hearing board noted that the attorney for the Attorney General's office did not exert any pressure on Perez to settle the case and further noted that that the Attorney General's Office would have agreed to an extension of time had Perez needed it to obtain substitute counsel.

Sather provided the accounting requested by Perez on June 27, 1997. Sather claimed that his fees, his paralegal assistant's fees, costs and expenses in Perez's case as of the date of discharge totaled $6,923.64. At that time, Sather acknowledged that he should refund $13,076.36, the balance of the $20,000 paid by Perez.

Despite acknowledging his duty to return the unearned $13,076.36 to Perez, Sather did not refund any money to Perez because at the time of discharge he had spent Perez's funds. On September 3, 1997—three months after Perez discharged him—Sather paid Perez $3,000. Sather paid the remaining $10,076.36 on November 2, 1997. The hearing board found that this delay prejudiced Perez because he did not have access to his funds for almost five months.

At the time Sather and Perez entered into the flat fee agreement, Sather was involved in personal bankruptcy proceedings. Sather filed a Chapter 7 bankruptcy proceeding in U.S. Bankruptcy Court in March 1995, over a year before agreeing to represent Perez. Sather later converted this case to a Chapter 13 proceeding, and then attempted to reconvert the case to a Chapter 7 filing. At the time of the hearing, the bankruptcy case was still pending. During the representation, Sather never told Perez that he had declared bankruptcy. After discharging Sather, Perez hired an attorney to pursue a claim against Sather in the bankruptcy proceeding for a refund of the fees ($6,923.64) Sather charged for work on Perez's suit.

Much later, in June 1998, Perez and Sather agreed to an arbitration by the Colorado Bar Association concerning the amount of fees charged by Sather for his work. The arbitrator awarded Perez $2,100.00, which represented the cost to Perez to bring the arbitration action. The arbitrator did not award Perez any recovery of the fees Sather charged for work performed. Shortly before the hearing in this case, on November 17, 1998, Sather paid Perez the award.

After a hearing, the board recommended that Sather be suspended for a year and a day. The board found that Sather violated Colo. RPC 1.16(d) by failing to return Perez's funds for nearly five months after Perez discharged him.⁵ The board concluded that because Sather admitted that he knew he had an ethical obligation to refund any unearned fees to Perez, the characterization of Perez's fee as "non-refundable" constituted a material misrepresentation. Thus, Sather violated Colo. RPC 8.4(c) by engaging in conduct involving dishonesty, fraud, deceit, or misrepresentation.⁶

In addition to these violations, the board found that Sather violated ...