Kelly v. Greason (State Report Title: Matter of Kelly)

• Decision Date: 12 December 1968
• Citation: 296 N.Y.S.2d 937,23 N.Y.2d 368
• Parties: , 244 N.E.2d 456 In the Matter of Edward J. KELLY and John P. Whalen, Attorneys, Appellants, v. Samuel GREASON, Respondent.
• Court: New York Court of Appeals Court of Appeals

Page 937

296 N.Y.S.2d 937

23 N.Y.2d 368, 244 N.E.2d 456

In the Matter of Edward J. KELLY and John P. Whalen Attorneys, Appellants, v. Samuel GREASON, Respondent.

Court of Appeals of New York.

Dec. 12, 1968.

Bernard Jeffrey, Garden City, for Edward J. Kelly, appellant.

John P. Whalen, pro se.

Harold M. Spitzer, Garden City, and James J. Fitzpatrick, New York City, for respondent.

BREITEL, Judge.

Respondents Kelly and Whalen appeal from an order of the Appellate Division suspending each respondent from the Bar for a period of two years. In a memorandum decision, that court confirmed in part and rejected in part a report of the Referee sustaining charges of professional misconduct.

There are two principal issues. The first relates to the sufficiency of the evidence in finding respondents guilty of professional misconduct in the representation of conflicting interests (Canons of Professional Ethics, canon 6 ¹, Judiciary Law Appendix). The second involves the sufficiency of the evidence in finding respondents guilty of professional misconduct in stirring up litigation (Canons of Professional Ethics, canon 28 ²). The record is insufficient to sustain the determinations. Because additional facts should be ascertained to determine whether there indeed was professional misconduct in the representation of conflicting interests, the proceeding should be remanded for further proof. The charge of stirring up litigation should be dismissed.

There were two lesser charges sustained. The first involved the making of 'improper' loans to one who had referred accident cases to respondents. The other involved the improper withholding of moneys due to a physician for medical services rendered to a client in an accident case. Because the record is insufficient to sustain them, these lesser charges should also be dismissed.

Apart from the substantive issues, respondent Whalen argues that he was deprived of a speedy hearing; and both respondents argue that the compulsory disclosure by subpoena of the law firm's records violated constitutional limitations. Both also seek a review of the two-year suspension as excessive.

On April 13, 1959, the Appellate Division, Second Department, on the petition of the Nassau County Bar Association, authorized a judicial inquiry into the conduct of lawyers in Nassau County. After an extensive investigation with hearings before a Supreme Court Justice, he recommended, on January 4, 1963, that disciplinary proceedings be instituted against respondents Kelly and Whalen. The Appellate Division, on January 9, 1963, designated petitioner, the Honorable Samuel Greason, to begin these proceedings, which he did by petition and order to show cause dated February 4, 1963.

The charges set forth in paragraph 7 of the petition were as follows:

'(A) The respondents have submitted fraudulent and exaggerated lost earnings statements to insurance companies in connection with claims for special damage in negligence claims.

'(B) Respondents, KELLY and WHALEN have accepted referrals of claimants with resultant conflict of interest: (i) from adjusters and other employees of insurance companies, which companies had employed either one or the other of the respondents as adjusters; and (ii) from brokers, agents and assureds of insurance companies, which companies had employed either one or the other of the respondents.

'Respondents also accepted referrals of claimants in negligence claims, which claimants were insured by Nationwide Insurance Company, although respondent, JOHN P. WHALEN, was working for Nationwide Insurance Company as an adjuster.

'(C) The respondents, KELLY and WHALEN, have submitted inflated and built-up medical bills to insurance companies.

'(D) Respondents have withheld payment of medical bills.

'(E) Respondents have made loans to clients in negligence suits and also to referrers.

'(F) The respondents have benefitted by the stirring up of litigation through referrals by auto repairmen, insurance agents and brokers.'

Hearings, held between September 17, 1965 and January 7, 1966 before a Special Referee, culminated in the submission of a report and findings on May 1, 1967.

As to specification A (fraudulent claims), the report sustained the charge against Kelly with respect to one client, but dismissed the charge against Whalen. Specification B (conflict of interest) was sustained against both respondents. Specification C (inflated bills) was dismissed against both respondents. Specification D (withholding payments) was sustained against Kelly with regard to a bill for medical services and dismissed against Whalen. Specification E (loans to referrers) was sustained against Whalen concerning loans to one Chicavich and dismissed against Kelly. Specification F (stirring up litigation) was sustained against both respondents, the Referee resting his conclusion on his earlier finding that Whalen had made the loans to Chicavich, one of the referrers, as a 'gratuity' or splitting of fees.

The Appellate Division confirmed the report with the exception of specification A (fraudulent claims), which that court found was not sustained by the evidence. In directing the two-year suspension, the court stated, 'With respect to the extent of the discipline to be imposed, we have been largely influenced by charges B and F, which reflect patterned conduct and not isolated instances of misconduct.' (29 A.D.2d 651, 652, 286 N.Y.S.2d 746, 747.)

The two principal charges will be considered first.

I. Specification B (Conflict of Interest)

The two lawyers, Kelly and Whalen, after having shared office space for several months, entered into a law partnership by oral agreement in 1958. Whalen was the employed as an insurance adjuster for Nationwide Insurance Company, a position he held until 1962. Under the partnership arrangement, Kelly first drew funds equivalent to the salary Whalen was receiving from Nationwide, and any additional income was shared equally.

William Buckley, the district office claims manager for Nationwide and Whalen's supervisor from 1959 to 1962, testified that Whalen was an outside adjuster, that is, he received assignments of claims by mail, did whatever investigation and interviewing was required, and then reported by mail. Whalen, he said, had no access to any Nationwide files other than those of claims assigned to him.

Neither lawyer denies that the partnership handled matters for assureds of Nationwide referred to them by Nationwide employees or independent brokers. These were claims for medical payments under the carrier's policies. With one possible exception, no negligence liability claims against Nationwide for such assureds were ever handled by them. Both lawyers testified that, when an assured was referred to them by a Nationwide employee, they first ascertained whether there was any negligence liability claim against the carrier before they would handle the matter. However, several negligence liability claims against Nationwide were handled for claimants who had been referred by automobile repairmen and others not associated with Nationwide.

In only two instances was Whalen, as adjuster, assigned by Nationwide to claims instituted by the partnership. In one case the claim was reassigned to a different adjuster; in the second, a claim for medical payments under the insurance policy, Whalen negotiated a settlement which was approved by his superiors.

Virtually all filed retainer statements on claims for Nationwide assureds were attributed to Kelly and Whalen as law partners. On the other hand, the pleadings and correspondence for these matters were uniformly subscribed by Kelly alone as attorney, as were the filed closing statements. Nationwide employees, including the district office claims manager, in their testimony, agreed that Nationwide placed no restrictions on the outside practice of law by its employees and that they were aware, at the very least, that Whalen was engaged in the practice as a plaintiff's attorney. These employees also testified that they had been aware that Whalen practiced with Kelly, and that the partnership handled claims against Nationwide. Both lawyers testified that the carrier had full knowledge of Whalen's activities. And Kelly testified that he had asked other lawyers about the impropriety of respondents' conduct and, with their advice, had concluded there was none.

Petitioner offered no proof that any of the Nationwide settlements were unreasonable or unfair to either the carrier or its assureds. Neither did he show that there was any prejudice to a Nationwide assured by the partnership's failure to bring a negligence liability claim against the carrier. Kelly and Whalen also testified that they received no fees for the processing of medical payment claims against Nationwide.

The representation of conflicting or adverse interests may constitute professional misconduct because a lawyer, as one in a confidential relationship and as any fiduciary, is charged with a high degree of undivided loyalty to his client (Matter of Mahan, 237 App.Div. 664, 666, 262 N.Y.S. 702, 704; People v. Peoples Trust Co., 180 App.Div. 494, 496, 167 N.Y.S. 767, 768; 3 N.Y.Jur., Attorney and Client, § 74; 7 C.J.S. Attorney and Client § 125, p. 957; cf. City Bank Farmers Trust Co. v. Cannon, 291 N.Y. 125, 131--132, 51 N.E.2d 674, 675--676, 157 A.L.R. 1424). Thus, with rare and conditional exceptions, the lawyer may not place himself in a position where a conflicting interest may, even inadvertently, affect, or give the appearance of affecting, the obligations of the professional relationship (Eisemann v. Hazard, 218 N.Y. 155, 159, 112 N.E. 722, 723; Matter of Tevlin, 250 App.Div. 685, 687--688, 295 N.Y.S. 394, 396--398; 7 C.J.S. Attorney and Client § 47; see Matter of Sociedad Maritima, etc. (Pangalante Co.), 21 A.D.2d 43, 45, 248 N.Y.S.2d 143, 145; Cf. City Bank Farmers Trust Co. v. Cannon, 291 N.Y. 125, 132, 51 N.E.2d 674, 676, Supra). In the...