IOWA ATTORNEY DISCIPLINARY BD. v. NETTI No. 10-1081.
797 N.W.2d 591 (2011)
IOWA SUPREME COURT ATTORNEY DISCIPLINARY BOARD, Complainant, v. John Edward NETTI, Jr., Respondent.
Supreme Court of Iowa.
May 13, 2011.
Charles L. Harrington and David J. Grace, Des Moines, for complainant.
John E. Netti, Jr., Dubuque, pro se.
The Iowa Supreme Court Attorney Disciplinary Board brought a complaint against the respondent, John Edward Netti, Jr., alleging multiple violations of the Iowa Rules of Professional Conduct as well as the Iowa Court Rules, the Iowa Rules of Probate Procedure, and the Iowa Code. A division of the Grievance Commission of the Supreme Court of Iowa found the respondent's conduct violated the rules and recommended we suspend his license to practice law with no possibility of reinstatement for a period of two years. Neither party appealed. Therefore, we are required to review the report of the grievance commission de novo. Iowa Ct. R. 35.10(1). On our de novo review, we find respondent has violated numerous provisions of our rules and Code, which require us to impose sanctions. Accordingly, we
I. Scope of Review.
We review attorney disciplinary proceedings de novo. Iowa Supreme Ct. Att'y Disciplinary Bd. v. Keele,
II. Findings of Fact.
In 1994 respondent, John Edward Netti, Jr., received his license to practice law in the State of Kentucky. Sometime in 2002 or 2003, he received a private reprimand with regard to a client-related matter in Kentucky. In 2001 Netti obtained his license to practice law in Iowa. For some period, his Iowa license to practice law was on inactive status. In 2006 his license was placed on active status. On October 17, 2008, we issued an order suspending his license for failure to pay annual fees and/or file the reports as required by our rules. His license remains under suspension to this day.
The board's complaint alleges Netti engaged in multiple violations of the Iowa Rules of Professional Conduct, the Iowa Court Rules, the Iowa Rules of Probate Procedure, and the Iowa Code relating to his representation of four separate clients. The alleged misconduct primarily concerns trust account violations, misconduct surrounding fee agreements, the taking of fees, failure to satisfy a hospital lien with settlement proceeds, conflict of interest, the unauthorized practice of law, as well as dishonesty, incompetence, and neglect. Netti filed an answer, denying the board's allegations.
Netti, however, failed to answer the board's interrogatories, requests for production of documents, and requests for admission. As a result, the commission deemed the board's requests for admission admitted. See, e.g., Iowa Ct. R. 35.6; Iowa R. Civ. P. 1.517(2)(b); Iowa Supreme Ct. Att'y Disciplinary Bd. v. Moonen,
As part of its investigation, the board requested that Netti provide it with copies of his trust account records showing the handling of Matz's advance fee and expense payments and copies of the statements or correspondence he sent to Matz, notifying her of his withdrawal of funds from the trust account to apply toward the fees and expenses associated with his representation. In response, Netti provided the board with a time and billing statement for his representation of Matz. He also stated, "I am still working on the trust account records and should have them to you within the next 10 days." However, Netti never provided copies of his trust account records to the board.
In November 2006, Netti settled the wrongful death claim for $132,750 and deposited the settlement amount into his "escrow" account, rather than a proper client trust account. A few days later, Netti took $44,245 from the settlement amount as his fee and transferred this amount to a different account. At the time he collected his fee, Netti had not filed the affidavit required by Iowa Code section 633.202 (2005), and the probate court had not issued an order allowing Netti to collect any compensation for his services.
In addition to the wrongful death action, Netti also agreed to assist Nauret in administering the estate and was designated as counsel for the estate. His purpose in opening the estate was solely to pursue the wrongful death claim. After a notice of delinquency, Netti filed an inventory asserting the estate had no assets. This inventory misrepresented the assets of the estate because Netti did not list any of the wrongful death settlement proceeds as an asset. Netti also applied to close the estate. After learning of his incompetence and neglect in probating the estate, Nauret, as administrator of the estate, applied to remove Netti as designated attorney. In seeking Netti's removal, Nauret cited Netti's mishandling of the wrongful death settlement proceeds, his improper collection of fees, incorrect inventory, failure to pay claims against the estate, and failure to distribute funds to the decedent's legal heir, as well as other problems. The court removed Netti as the attorney for the estate. Netti returned $20,000 of the $44,245 in fees he collected, and the court entered judgment against him for the remaining $24,245 he had taken. Netti has not yet fully satisfied this judgment. Finally, after the court terminated his representation, Netti failed to promptly deliver the estate's file to his successor counsel.
Netti settled Walker's personal-injury claim with the tortfeasor and Metropolitan for $45,000. Metropolitan issued a settlement check for $45,000, payable to Netti and Walker. Netti deposited the settlement proceeds into his "escrow" account rather than a proper client trust account. Subsequently, Netti took $23,296.02 as his fee and transferred this amount to a different account. He then gave Walker a check for $20,278.98. The settlement agreement and release obligated Walker to pay from the settlement proceeds "all outstanding liens or claims for reimbursement of medical subrogation claims." Netti, however, failed to take the appropriate steps to satisfy Finley Hospital's hospital lien from the settlement proceeds. He also failed to provide Walker with an accounting for the settlement proceeds.
Finley Hospital sued Metropolitan to satisfy its hospital lien. Subsequently, Metropolitan filed a third-party petition against Netti and Walker for indemnity. Without authority, Netti filed an answer for himself and Walker. This prompted a letter from Metropolitan's lawyer, warning Netti of the conflict of interest and stating, "[I]t's my belief that you cannot ethically represent both yourself and Joshua Walker in this lawsuit." In response, while still purporting to represent Walker, Netti moved to withdraw the previously filed answer, filed a new answer for himself, and filed a cross-claim against Walker for indemnity. The cross-claim alleged it was Walker's obligation to satisfy Finley Hospital's lien. Netti apparently viewed his attempted withdrawal of the answer as a withdrawal from his representation of Walker.
The district court granted summary judgment in favor of Finley Hospital as to its hospital-lien claim against Metropolitan. The court also granted summary judgment in favor of Metropolitan as to its third-party indemnification claim against Walker. The court rejected Metropolitan's third-party indemnification claim against Netti because he was not a party to the settlement agreement. After the court's order, Netti filed a motion for protective order asserting that, in seeking his deposition, Metropolitan was harassing him and fishing for undiscoverable information. The assertions in Netti's motion were false.
Possibly believing he could represent Mangeno as a non-lawyer, Netti convinced Mangeno to execute a power of attorney in his favor. In addition, Mangeno gave Netti a $750 retainer as payment for his anticipated services. Netti failed to deposit the $750 into a separate client trust account. He also failed to regularly communicate with Mangeno or do the work she hired him to do. As a result, Mangeno terminated Netti's representation and requested a refund of her retainer and the return of her records. Netti failed to promptly return Mangeno's records and has not refunded her $750 retainer. Mangeno filed a complaint with the board. Netti refused to send a copy of his file to the board and asserted that the board "has no jurisdiction over this matter."
III. Violations. 1
In the Zimmerman matter, Netti's failure to administer the estate properly constituted incompetent representation. In the Walker matter, his handling of the hospital lien also amounted to incompetent representation. Finally, his failure to perform any services in the Mangeno matter was incompetent representation. Accordingly, the board has proved Netti violated rule 32:1.1.
Iowa R. Prof'l Conduct 32:1.4(a)(3), (4). This rule requires an attorney to stay in communication with his or her client so that the attorney can inform the client of the status of the matter and promptly respond to reasonable requests of the client. Id. In the Mangeno matter, Netti did not keep his client informed or respond to her reasonable requests. Accordingly, Netti violated rule 32:1.4.
Netti violated this rule in the Zimmerman matter because the contingent fee agreement failed to state whether Netti would deduct the litigation expenses before or after the contingent fee is calculated. In the Walker matter, Netti failed to execute a written contingent fee agreement with Walker. For these reasons, Netti violated rule 32:1.5(c).
Id. r. 32:1.7(a)(2).
This rule applies to concurrent conflicts of interest with current clients. Id. r. 32:1.7 cmt. 1. The first question then becomes, was Walker Netti's client at the time the hospital filed the lawsuit to satisfy its hospital lien?
Consistent with section 14 of the Restatement (Third) of the Law Governing Lawyers, we have formulated a three-part test to determine the existence of an attorney-client relationship. State v. Parker,
Comm. on Profl Ethics & Conduct v. Wunschel,
In determining when the attorney-client relationship ends, we have said, "The point at which the attorney-client relationship . . . ends is further defined by the rule that a lawyer bears responsibility for only those legal matters he or she is engaged to discharge." Wunschel, 461 N.W.2d at 845. Our formulation of when the attorney-client relationship ends is consistent with the Restatement (Third) of the Law Governing Lawyers. The Restatement states, "Subject to Subsection (1) and § 33, a lawyer's actual authority to represent a client ends when . . . the representation ends as provided by contract or because the lawyer has completed the contemplated services." Restatement (Third) of the Law Governing Lawyers § 31(2)(e), at 220 (2000). Moreover, section 33(2)(b) provides,
Id. § 33(2)(b), at 240. The determination as to when an attorney-client relationship begins or ends is a question of fact. Kurtenbach v. TeKippe,
Applying these principles, the board has established an attorney-client relationship existed during the prosecution and settlement of the personal-injury suit. Although Netti and Walker did not enter into a written contingent-fee agreement setting forth the scope of employment, we believe Netti completed his service to Walker for the personal-injury claim when he disbursed the settlement funds. However, the existence of an attorney-client relationship for the personal-injury case does not necessarily mean Netti and Walker had an attorney-client relationship during the hospital's action to satisfy its hospital lien.
When Netti filed an appearance on behalf of Walker in the hospitallien action, a presumption exists that Netti and Walker had an attorney-client relationship. However, the undisputed evidence establishes Netti filed the answer on Walker's behalf without Walker's authority to do so. Thus, the presumption is rebutted. Accordingly, Netti and Walker did not have an attorney client relationship at the time Netti filed the appearance in the hospital lien action. Nevertheless, Walker was Netti's former client at that point in time.
At the time Netti filed the answer, Netti was representing his personal interest. Netti's interests conflicted with Walker's interests, as evidenced by the claim for indemnity Netti filed against Walker, when Netti attempted to withdraw as Walker's attorney. This conflict violates rule 32:1.7(a)(2).
Iowa R. Prof'l Conduct 32:1.9(c). By its terms, this rule applies to former clients. We have found that, at the time Netti filed the answer in the hospital-lien case, Walker was a former client.
The record does not reveal Netti used or revealed any information he may have obtained during his representation of Walker at the time he filed the answer on behalf of Walker. Netti did reveal confidential conversations between Walker and him concerning who would pay the hospital lien in Netti's cross-claim against Walker for indemnity. In the cross-claim, Netti alleged that he and Walker discussed the lien and Walker agreed he should pay it.
Rule 32:1.6 allows an attorney to reveal confidential information under certain circumstances. The relevant part of the rule provides:
Id. r. 32:1.6(a), (b)(5). Comment 10 further elaborates on an attorney's right to disclose information. It states:
Id. r. 32:1.6 cmt. 10.
Assuming Netti had the right to disclose this information in order to protect himself from a judgment sought by the insurance company, the information revealed by Netti in the cross-claim may have been allowed under rule 32:1.6(b)(5). However, an attorney can only disclose such information to the extent the attorney reasonably believes it necessary to protect him from a claim. Id. r. 32:1.6(b). Thus, an attorney does not have an unlimited right of disclosure. Comment 14 discusses the factors an attorney should consider before making such a disclosure. The comment contains the following statement:
Id. r. 32:1.6 cmt. 14.
The board has not produced any evidence regarding any conversations between Netti and Walker before Netti disclosed the information in his cross-claim. It did not offer any evidence under what circumstances Netti made the disclosures. Although the board relied on Netti's failure
Rule 32:1.15 governs the safeguarding of a client's property. It reads in relevant part:
Id. r. 32:1.15. Iowa Court Rules 45.1, 45.2(2), 45.3, 45.4, and 45.7 set forth the details a lawyer needs to know in administering his or her trust accounts. These rules require a lawyer to place client funds, including a retainer, in a trust account, account for those funds, and when requested to do so, properly deliver a client's funds to the client. Iowa Supreme Ct. Att'y Disciplinary Bd. v. McCann,
By not having a trust account, Netti violated rules 32:1.15, 45.1, 45.2(2), 45.3, 45.4, and 45.7. He violated rule 32:1.15, which incorporates chapter 45 of the Iowa Court Rules, by failing to deposit Matz's retainer in a trust account, taking fees in the Matz matter before he earned the fees, and failing to give Matz contemporaneous notice of his withdrawals.
Iowa Code sections 633.198 and 633.199 set forth the amount of fees an attorney can be paid for representing an estate. Section 633.202 and Iowa Court Rule 7.2 establish when an attorney can take his or her fee. Netti failed to comply with any of these Code provisions or rule 7.2 when he took his fee in the Zimmerman matter. Accordingly, he violated rule 35:1.15 by taking his fee without court approval and failing to deposit the proceeds of the wrongful death settlement in a trust account.
In the Walker matter, he also violated rule 32:1.15 by failing to deposit the settlement in a trust account. Finally, he violated rule 32:1.15 in the Mangeno matter by failing to deposit the retainer in the trust account, taking a fee before the work was
In short, Netti's handling of his clients' property is a textbook example of how not to operate a law office. The proper way to operate a law firm is to comply with rule 32:1.15 and chapter 45 of our court rules. These rules require an attorney not to commingle a client's funds with the attorney's funds. Iowa R. Prof'l Conduct 32:1.15(a); Iowa Ct. R. 45.1. Moreover, an attorney should never withdraw any funds from a trust account until the attorney earns the fee or uses the funds for an actual expense. Iowa R. Prof'l Conduct 32:1.15(c); Iowa Ct. R. 45.7(3). When an attorney withdraws funds from an account, the attorney should give contemporaneous notice to the client. Iowa Ct. R. 45.7(4). Lastly, when requested, the attorney should give his or her client an accounting of the property the attorney is holding for the client. Iowa R. Prof'l Conduct 32:1.15(d); Iowa Ct. R. 45.2(2).
Iowa R. Prof'l Conduct 32:1.16(d).
In the Zimmerman matter and the Mangeno matter, the admission contained in the record is that Netti failed to promptly deliver the file to successor counsel or to the client. Our rule requires a lawyer to "take steps to the extent reasonably practicable to protect a client's interests," including surrendering papers and property of the client. Id. The admission of "promptly deliver" is not the same as "reasonably practicable." "Promptly" means immediately or quickly. Webster's Third New International Dictionary 1816 (unabr. ed.2002). The "reasonably practicable" standard in rule 32:1.16(d) injects the standard of reasonableness when determining if an attorney took the proper steps to protect the client's interest. In other words, "promptly" and "reasonably practicable" are not synonymous. Without any further evidence of the circumstances surrounding Netti's delivery of the file to successor counsel, we are unable to determine whether Netti's conduct in the Zimmerman matter or the Mangeno matter violates rule 32:1.16(d). Thus, the board has failed to prove a violation of rule 32:1.16(d) in the Zimmerman and Mangeno matters.
In the Walker matter, Netti withdrew from the hospital-lien litigation without taking any steps to protect Walker's interest. However, as we have previously found, Walker was not Netti's client at the time of the hospital-lien action because Netti filed an answer without Walker's authorization. Thus, Netti did not violate section 32:1.16(d) in the Walker matter.
In the Walker matter, the admission the board relies on is that Netti filed an answer for Walker in the hospital-lien action on behalf of Walker, when he had no authority to do so. Additionally, in the Walker matter, the admission relied on by the board is that Netti filed a motion for a protective order containing false information. The false information was that, in seeking his deposition, the insurance carrier was harassing Netti and going on a fishing expedition.
An attorney knows whether he has authority to file a pleading on behalf of a client. Therefore, from this record we can infer Netti knowingly misrepresented to the court he had authority to represent Walker when he filed an answer on Walker's behalf. Id. ("A person's knowledge may be inferred from circumstances."). We cannot infer, however, Netti knowingly misrepresented to the court that, in seeking his deposition, the insurance carrier was harassing him and going on a fishing expedition at the time he filed the motion for protective order. Consequently, we find the board has proven one instance where Netti violated rule 32:3.3(a)(1) in the Walker matter.
Nonlawyers may do tax work because tax work is not necessarily the practice of law. Comm. on Prof'l Ethics & Conduct v. Mahoney,
That being said, we still need to deal with the board's allegation that Netti violated rule 32:8.4(c) in the Mangeno matter when he told his client he would return her retainer to her after he failed to do any work on the file. Most courts require a reasonable level of scienter to find that an attorney violated rule 32:8.4(c). 2 Geoffrey C. Hazard, Jr., et al., The Law of Lawyering § 65.5, at 65-15 (3d ed. 2009 Supp.). In the legal sense, a misrepresentation usually requires something more than negligence. Black's Law Dictionary 1091 (9th ed.2009). We believe the better view is to require some level of scienter that is greater than negligence to find a violation of rule 32:8.4(c).
We have already found Netti's failure to return the retainer as a violation of rule 32:1.15(d). From the record presented, we are unable to determine if Netti made a knowing misrepresentation of a material fact when he made the representation to Mangeno. Accordingly, we cannot find the board proved Netti violated rule 32:8.4(c).
Netti's failure to timely probate the Zimmerman estate, his filing of the motion for protective order containing false statements, and his failure to do any work in the Mangeno matter hampered the efficient operation of the courts and an administrative agency, and was not the type of conduct within the well-understood norms and conventions of the practice of law. Accordingly, Netti's conduct in these regards violated rule 32:8.4(d).
In determining the sanction a lawyer must face for misconduct, we have stated:
Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Honken,
A mitigating factor is that Netti has some short-term memory loss stemming from treatment for a brain tumor. While personal illness will not excuse an attorney's misconduct, such illnesses may influence our approach to discipline. Iowa Supreme Ct. Att'y Disciplinary Bd. v. Frerichs,
There are a number of aggravating factors in this case. First, we cannot overlook the serious, egregious, and persistent nature of Netti's misconduct and the effect it had on his victims. See, e.g., Comm. on Prof'l Ethics & Conduct v. Tompkins,
Second, Netti's trust account violations are a serious matter. See Iowa Supreme Ct. Att'y Disciplinary Bd. v. Wagner,
Third, Netti's knowing misrepresentations to the court is not only a breach of professional ethics in itself but also serves to exacerbate his other conduct. See Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Rauch,
Fourth, it is significant that Netti's actions caused harm to others, in terms of
The final aggravating factor is Netti's prior discipline. Iowa Supreme Ct. Att'y Disciplinary Bd. v. Gailey,
In similar cases, we have suspended an attorney's license for as short as six months to as long as three years. See, e.g., Iowa Supreme Ct. Att'y Disciplinary Bd. v. Hauser,
In light of the multiple violations, his incompetent representation, his conflict of interest, his failure to properly communicate with his clients, his total failure to maintain a trust account, his taking of fees without accounting for his time, his misrepresentations to the court, his failure to cooperate with the board, his unauthorized practice of law, the harm he caused his clients, the period of time over which these violations occurred, the mitigating factors, and the aggravating factors, we conclude a suspension of two years is warranted in this case.
We have carefully considered the respondent's current violations, his prior history of ethical infractions, and his current fitness to practice law and conclude the respondent's license to practice law should be suspended indefinitely with no possibility of reinstatement for two years from the date of this decision. Prior to any application for reinstatement, the respondent must provide this court with verification of his fitness to practice law. In addition, as a condition of reinstatement, the respondent must satisfy the judgment in the Zimmerman matter and return the fee in the Mangeno matter. See Hauser, 782 N.W.2d at 154-55. Finally, he must do all acts necessary to reinstate his license for his failure to pay annual fees and/or file the reports as required by our rules.
This suspension applies to all facets of the practice of law. See Iowa Ct. R. 35.12. Upon any application for reinstatement, the respondent must establish that he has not practiced law during the suspension period and that he has in all ways complied with the requirements of Iowa Court Rule 35.13 and has provided the required notification of clients as outlined in Iowa Court Rule 35.22. Prior to any application for reinstatement, the respondent must provide the board with an evaluation by a licensed health care professional verifying his fitness to practice law. In addition, he must also submit documentation to the board that he has refunded the fee to Mangeno and satisfied the judgment in the Zimmerman matter. Costs are taxed to
All justices concur except WATERMAN, MANSFIELD, ZAGER, JJ., who take no part.
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