April 22, 2018
Attorney Suspended for Using a Nonlawyer to Solicit Clients; In re Wray,
Category: Indiana Law Review | Author: | Share:
A recurring theme in Indiana disciplinary cases is that aggressive business models will frequently get lawyers in trouble. The same held true in this case.
Robert Wray was an attorney in Fort Wayne. He represented several owners of allegedly defective modular or manufactured homes in actions against the homes’ installers, builders, or manufacturers. One of those owners was Stephan.
Wray and Stephan developed a relationship under which Stephan (through a company Wray incorporated for him) would solicit other owners to become plaintiffs in Stephan’s action and in other actions. Typically, Stephan would “cold call” the owners, offer to perform home inspections for them, and then ask those owners to sign an “Investor Agreement” and an “Attorney Agreement,” both of which were drafted or approved by Wray and included his name. These agreements gave Wray a contingent fee of between 33% and 50%, provide for a nonrefundable retainer of $1,000, and gave Stephan 50% of the client’s net recovery for advancing the costs of litigation. This relationship resulted in about 118 new clients for Wray.
One of these new clients was Lomperski, who agreed to work with Stephan in exchange for a reduced contingency. Wray drafted an employment contract and noncompete between Stephan and Lomperski.
The relationship between Wray and Stephan soured due to a dispute involving the advancement of costs, and Wray proposed to Lomperski that they work together in the same capacity that Wray had been working with Stephan. Wray also entered into a similar relationship with Blumenherst.
As a result of the dispute, Wray stopped paying Stephan his portion of settlement funds. Yet the settlement statements he prepared for the clients said that he had paid Stephan his share.
During the disciplinary proceedings, Wray insisted that Stephan (nor anyone else) was acting as his agent for the purposes of soliciting these clients. The Court disagreed.
Respondent helped Stephan incorporate Stephan Consulting, the business Stephan used to recruit other potential plaintiffs. The Investor Agreements and Attorney Agreements used by Stephan (and later by Blumenherst) were drafted and/or approved by Respondent and contained his name throughout. Stephan performed the client intake and, as the Agreements expressly contemplated, served as the primary point of contact for the clients. Respondent later drafted an employment and noncompete agreement between Stephan and Lomperski, who assisted Stephan in identifying potential plaintiffs. When Respondent’s relationship with Stephan soured, Respondent attempted to persuade Lomperski to take Stephan’s place in the recruitment scheme and discussed (in a conversation secretly recorded by Lomperski) the need for Lomperski to get out of the noncompete agreement Respondent had drafted. In sum, this was not merely a referral system, and Respondent’s role in the client recruitment process was anything but passive. We find the evidence clearly and convincingly establishes an agency relationship between Respondent and Stephan.
And this was a problem, as an agency relationship meant that Wray violated his ethical responsibilities by, among other things:
- Rule 1.4 – inadequate communications
- Rule 7.3(a) – improper solicitation
- Rule 8.4(a) – vicarious responsibility for a violation of the Rules by another
- Rule 8.4(c) – lying to clients about whether he had paid Stephan and whether Stephan was advancing any funds
These and the many other rules Wray violated required a sanction. And while Wray provided more benefit to his clients than the “illusion of meaningful attorney involvement” in some other of the Court’s recent cases, the danger posed by his business model was “readily apparent.”
In this case, Respondent’s delegation of client intake responsibilities to Stephan led to impermissible solicitation of clients, misrepresentations to clients about financing and costs, and delays of several months before Respondent became involved with (or even aware of) the clients’ cases. Clients, whose primary point of contact was Stephan, encountered difficulty communicating with Respondent and remaining sufficiently apprised about their cases. Although many clients did obtain some recovery, those recoveries were greatly reduced due to a second contingent fee owed to Stephan, a middleman who was not actually providing the financing services clients were paying him to provide. And when a financial dispute arose between Respondent and Stephan, clients were caught in the middle.
These problems, compounded by Wray’s “pattern of dishonesty” in the disciplinary proceedings, resulted in a nine-month suspension without automatic reinstatement.
- Be wary of “creative” ways of expanding your law practice.
- Don’t have non-lawyers solicit business for you.
- Don’t enter into agreements saying that someone is fronting expenses for your client if they are not actually doing so.
- Be honest with your clients in all matters.