Can a lawyer use an advice-of-counsel defense in a disciplinary case? The Florida Supreme Court last month accepted the defense, adopting a referee’s report in a case spotlighting the issue.
The lawyer in the case personally guaranteed a loan for his own business venture. Unable to repay the loan, and facing hard-hitting collection methods from his creditor, he filed a Chapter 7 bankruptcy petition. His failure to disclose a potential bonus from his law firm, arising from nearly $10 million dollars in legal fees, cost the seasoned lawyer years of litigation before he was finally exonerated of ethical misconduct.
Disclose or not?
The lawyer was required to submit certain bankruptcy schedules to the bankruptcy court prior to discharge. While his salary and past bonuses were sure predictors of future income, he was unsure of the exact amount that he would receive from the nearly $10 million dollars in fees he generated for his firm and whether the bonus should be disclosed on the schedules.
The lawyer relied on his bankruptcy attorney’s advice and did not disclose the discretionary bonus. The bankruptcy court denied the discharge based on the failure to disclose the bonus. The Florida district court later affirmed and referred the matter to the Florida Bar.
The formal disciplinary complaint alleged that the lawyer purposely failed to disclose the bonus in the sworn schedules, in violation of Florida’s version of Model Rule 3.3(a) (“Candor Toward the Tribunal”) and 8.4(c) (barring dishonesty, fraud, deceit and misrepresentation), among other rule violations, and sought his disbarment.
The lawyer’s defenses included his reliance on his bankruptcy attorney’s advice that he was not required to disclose the potential discretionary bonus. The initial disciplinary panel recommended an 18-month suspension, but the Florida Supreme Court remanded and ordered reconsideration of the advice of counsel defense.
At the rehearing, the lawyer provided evidence that he did not have even a basic understanding of bankruptcy law and completely relied on his bankruptcy attorney. His bankruptcy attorney likewise testified that “although Respondent is an experienced civil litigation attorney, he was a bab[e] in the woods when it came to bankruptcy law.” Evidence showed his bankruptcy attorney’s advice was unambiguous— that the lawyer did not have to disclose the discretionary bonus on the sworn schedules as the bonus would have been the property of the law firm until the firm awarded him the bonus.
Exoneration based on advice of counsel
Ultimately, the Florida Supreme Court exonerated the lawyer of ethical misconduct, adopting the hearing referee’s finding that there was no clear and convincing evidence that the lawyer submitted the schedules with the intent to mislead the trustee and creditors, and no evidence that he did not act in good faith reliance on his attorney’s advice. Rather, the lawyer was found to have reasonably relied on his attorney’s advice.
At the rehearing, the lawyer provided evidence that he did not have even a basic understanding of bankruptcy law and completely relied on his bankruptcy attorney. His bankruptcy attorney likewise testified that “although Respondent is an experienced civil litigation attorney, he was a babe in the woods when it came to bankruptcy law.” Evidence showed his bankruptcy attorney’s advice was unambiguous— that the lawyer did not have to disclose the discretionary bonus on the sworn schedules as the bonus would have been the property of the law firm until the firm awarded him the bonus.
We have considered the advice of counsel defense before, when an Illinois attorney asserted the defense after he failed to disclose to a court the fact that his client had died 8 months before the start of settlement negotiations. There, the court rejected the defense where the lawyer asserted that his law partners had advised him that his ethical duty of confidentiality barred him from disclosing the death, although the court gave the circumstances mitigating weight.
The difference is that the Florida lawyer was held to have reasonably relied on advice of counsel in a substantive area of law he was totally ignorant of, while lawyers (like the Illinois lawyer above) are presumed to know the legal ethics rules. Thus, the Florida lawyer’s defense was exonerating, rather than mitigating. You cannot simply pass on the responsibility of knowing your ethical duties by seeking the advice of counsel; however, reliance on that advice could certainly be a mitigating factor.
Although the distinction may seem small, it could be the difference between being found guilty of misconduct or avoiding being disciplined altogether.