Deterrence, Integrity, and the Public Good: The Disgorgement and Restitution of Third Party Fees as a Condition of Reinstatement in In re Hager

Georgetown Journal of Legal Ethics, The, Summer 2005 by Bender, Natalie L

I. INTRODUCTION

When an attorney commits an ethical violation, a court may impose many forms of discipline. It may suspend an attorney from the practice of law or disbar her altogether.1 Other forms of discipline, such as censure or probation, may be imposed as well.2 In addition to a disciplinary sanction, it may impose conditions which an attorney must meet in order to be reinstated.3 The District of Columbia Court of Appeals Bar Rules provide that such conditions may include "restitution either to persons financially injured by the attorney's conduct or to the Clients' Security Trust Fund . . . or both . . . [or] any other reasonable condition."4

Until recently, courts ordered restitution as discipline for attorneys in three types of situations. First and most often, courts order attorneys to make restitution of fees directly to their clients if the clients themselves directly paid the attorney.5 Discipline in these cases most often results from a violation of standards of professional conduct which does not involve the fee itself, but some other action the attorney took or failed to take.6 Second, courts order restitution to clients if attorneys misappropriate client funds, either from escrow or from improper loans.7 Third, courts occasionally order restitution to a third party. This can occur when the attorney's conduct harms the third party financially.8 Courts occasionally impose restitution when the third party paid the client's attorney's fees in the first place.9

The disciplinary sanction ordered by the District of Columbia Court of Appeals in In re Hager10 presents a novel approach to restitution. Hager, an attorney representing plaintiffs in a potential class action lawsuit, accepted fees from an opposing party without the consent of his clients. The court recognized the uniqueness of the situation by repeatedly citing an amicus brief filed by Public Citizen in support of the assertion that Hager should be required to disgorge his fee.11 Hager and his co-counsel John Traficonte12 both received their fee from Warner-Lambert, the potential defendants, in violation of ethics rules.13 Because Warner-Lambert's counsel also committed an ethical violation in providing the payment under the circumstances of the case,14 restitution to Warner-Lambert would be inappropriate. However, it is not immediately clear who the correct recipient should be. Little ethical precedent exists on restitution of third party funds in the context of an ethics violation.15 There are even fewer cases on restitution of third party funds when both the payment and receipt of those funds constituted ethical violations.16 If Hager seeks reinstatement to the Bar, the proceeding would present a unique opportunity for the D.C. Court of Appeals to set up the framework for how to determine the proper recipient of future restitutions.

In that event, the D.C. Court of Appeals faces a problem for which there are many possible solutions. The Hager court divided the violations in that case into four somewhat overlapping, but useful, categories: conflict of interest absent client consent, lack of communication with clients, improper conduct during a settlement, and improper withdrawal from representation.17 These categories clarify the court's reasoning as to its choice of sanction in that they align with the relevant principles which guide courts to impose discipline for ethical violations. These principles include protection of the client, the public, the legal system, and the integrity of the bar.18 Courts frequently use these principles in decisions that impose restitution as a form of discipline for ethical violations similar to those presented in Hager.19 Application of these principles to Hager will present the best solution to who should receive the attorneys' disgorged fees. When Hager applies for reinstatement, the court should allow the former plaintiffs to elect to use the fee to establish a research fund or to donate the money to the Clients' Security Trust Fund. This solution serves the interests of both attorneys' former clients by allowing them to fulfill the initial goals of their legal action. It provides for the protection of the public and the legal system, because the Clients' Security Trust Fund empowers the legal system to help other clients injured by their attorneys' ethical violations. Finally, this solution serves the interest of deterrence and the protection of the legal profession by preventing Hager and Traficonte from profiting from their ethical violation. The resolution of this case provides a framework for other courts to consider this new and important issue.

II. THE HAGER CASE

Early in 1997, Mark Hager was a Professor of Law at American University's Washington College of Law and an expert in products liability.20 At that time, Debra Duke and Erika Littlewood brought a matter to Hager and his co-counsel Traficonte concerning a claim against Warner-Lambert, the manufacturer of Nix anti-lice shampoo.21 Duke and Littlewood asserted that Nix was ineffective against a particularly resistant strain of head lice, and Hager and Traficonte agreed to represent them.22 Duke and Littlewood signed contingency fee agreements in May 1997, acknowledging that, because Hager and Traficonte decided to file suit under the Magnuson-Moss Warranty Act,23 they would need 100 plaintiffs to go forward with class certification.24 After several months of work, Duke, Littlewood, and their attorneys had assembled fifty plaintiffs and found forty additional people who expressed interest in joining the suit.25