Attorney Fee Disgorgement as a Disciplinary Action

• Publication year: 1984

UNIVERSITY OF PUGET SOUND LAW REVIEWVolume 7, No. 3SPRING 1984

COMMENTS

Attorney Fee Disgorgement As A Disciplinary Action

Disciplinary action against attorneys is aimed primarily at preserving public confidence in the legal system and preventing misconduct within the system.(fn1) However, conventional efforts by disciplinary agencies not only are inadequate and ineffective(fn2) but also fail to generate public confidence and esteem for the legal profession.(fn3) Furthermore, the imposition of current disciplinary sanctions does little or nothing to compensate an aggrieved client.(fn4)

Under the Washington Rules for Lawyer Discipline,(fn5) an attorney who commits an act of misconduct is subject to the following sanctions: disbarment, suspension from the practice of law for an appropriate fixed period of time not exceeding two years, reprimand, censure, or cumulative disciplinary suspension pursuant to the rules for lawyer discipline.(fn6) The disciplinary rules do not specifically authorize fee forfeiture as a sanction for attorney misconduct, and courts generally are reluctant to invoke this sanction.(fn7) The Washington rules do provide that a lawyer sanctioned for misconduct may be ordered to make restitution to persons financially injured by the lawyer's conduct.(fn8) They do not, however, explain whether restitution is limited to a return of money held for a client or whether restitution includes a full or partial forfeiture of fees.(fn9) The language of the Washington rules indicates that no restitution should be made to an uninjured client.(fn10)

Generally, the principles of restitution attempt to restore the aggrieved party to his former position, "either by the return of something which he formerly had or by the receipt of its equivalent in money."(fn11) Thus, restitution is primarily a tool for restoration rather than punishment. For purposes of this Comment, however, the terms "fee disgorgement" and "fee forfeiture" encompass both a restorational purpose and a punitive one.(fn12)

To further deter attorney misconduct, fee disgorgement should be encouraged as a disciplinary sanction and should not be limited to, or dependent on, client injury. Such forfeiture complies with contract(fn13) and agency(fn14) principles involving fiduciary relationships. Denial of compensation is also consistent with the principle that a person should not profit from his own misconduct.(fn15) Moreover, by including disgorgement as part of the disciplinary action, the aggrieved client receives restitution without a separate legal action. Thus, this inclusion promotes judicial economy and compensates the client who has no reasonable recourse in law because of the high cost of litigation and limitations on malpractice suits.(fn16) For these reasons, the Washington Bar Association,(fn17) in conjunction with its authority to recommend disciplinary sanctions,(fn18) should devise a system, subject to Washington Supreme Court approval,(fn19) authorizing fee disgorgement as a sanction for unethical conduct.(fn20)

This Comment will first explore existing reasons for the rare application of fee disgorgement as a disciplinary measure. It will then examine the contexts under which courts currently deprive attorneys of their fees in both nondisciplinary and disciplinary proceedings. This Comment will conclude that, in many cases, disgorgement of fees as a disciplinary action for attorney misconduct would most effectively protect the public, deter unethical conduct, and restore confidence in the legal profession.

The judiciary has the inherent power(fn21) to regulate the practice of law,(fn22) and that regulation is within the sole province of the judiciary.(fn23) However, even though the inherent power of the court enables it to make independent determinations,(fn24) only a few courts appear to have exercised their power to order restitution or the return of attorneys' fees in a disciplinary hearing.(fn25)

The rare application of fee forfeiture as a disciplinary measure can be explained in part by the position of the complaining client. A citizen filing a complaint with a state bar association is not considered a party to any action taken against an attorney.(fn26) The Washington State Bar essentially serves to maintain appropriate standards of professional conduct and to dispose of individual cases of lawyer discipline.(fn27) Washington State Bar officials institute disciplinary proceedings upon a determination that the client complaint has merit.(fn28) Although, under the procedural rules,(fn29) the client may be present during the proceeding, he attends and testifies only as a witness.(fn30) Because the client is not a party to the proceeding and because the Bar's purpose is disciplinary, the client's interest in restitution may not be adequately argued.

Although the client is not technically a party to a disciplinary proceeding, both the Washington Rules for Lawyer Discipline(fn31) and the ABA Standards of Lawyer Discipline(fn32) recognize that a court may direct restitution as part of a disciplinary order.(fn33) One provision of the ABA Standards refers to "persons financially injured" by the attorney's willful misconduct.(fn34) Because a court may structure its order to ultimately benefit the client, arguably it may include fees already paid to an attorney in the restitution order. This argument is strengthened by the commentary to this provision: "Whenever possible, the disciplinary process should facilitate restitution to the victims of the respondent's misconduct without requiring victims to institute separate proceedings at their own expense."(fn35) However, a review of the cases cited in the commentary to the ABA Standards indicates that the commentators view restitution as proper only in very limited circumstances.(fn36) Although restitution is recommended in the commentary when an attorney has wrongfully withheld or misused funds entrusted to him by the client,(fn37) the denial of attorneys' fees for professional misconduct does not appear to be encompassed within this provision. Moreover, the ABA Standards also provide that "[f]ines should not be imposed upon respondents."(fn38) If fee disgorgement for attorney misconduct were characterized as a fine, the ABA Standards would expressly disapprove of such an order.

Disapproval of fines in disciplinary proceedings is based on the rationale that "[f]ines are punitive and criminal in nature and should be avoided."(fn39) This view comports with the position that disciplinary proceedings are not properly characterized as criminal, but are instead sui generis.(fn40) Although there is authority to the contrary,(fn41) there is general agreement among the Bar and the courts that disciplinary proceedings are not for the purpose of punishment.(fn42)

Courts have articulated several proper justifications for disciplinary proceedings in the legal profession. For example, the Washington Supreme Court has stated that disciplinary proceedings are prosecuted to "curb disrespect for the profession, maintain its honor and dignity, and to assure to those who seek the services of an attorney that dishonesty and unlawful conduct will not be tolerated."(fn43) Another state's supreme court determined that "[t]he primary purpose of discipline is not punishment but purification of the Bar and protection of the courts and the public generally. However, this is not the sole purpose. Discipline also serves to deter a respondent from committing similar acts in the future and acts as a restraining influence upon others."(fn44)

Despite the fact that disciplinary proceedings are not designed to punish, the consequences of most of these actions are unavoidably punitive.(fn45) Thus, an attorney is entitled to procedural due process in any proceeding relating to discipline.(fn46) Although the due process requirements of disciplinary proceedings may differ from those in the criminal context,(fn47) many of the mandates are identical. These due process rights include fair notice of the charges,(fn48) right to counsel,(fn49) right to discovery(fn50) and subpoena,(fn51) right to cross-examine witnesses,(fn52) right to.present arguments to the adjudicators,(fn53) and right of appeal.(fn54) All of these due process rights are included in the ABA Standards and the Washington Rules for Lawyer Discipline.(fn55) Nevertheless, the specific safeguards afforded lawyers in disciplinary proceedings vary greatly from state to state.(fn56)

One reason courts generally do not consider fee forfeiture as a desirable disciplinary measure is the belief that if the attorney's conduct has damaged the client, the client's recourse to civil suit will amply protect his rights.(fn57) An aggrieved client may institute an action under breach of contract(fn58) or restitution theories.(fn59) Malpractice suits, however, represent the usual setting in which fee disgorgement is litigated. The usual objective of a legal malpractice action(fn60) is the recovery of damages. Moreover, proof of damages(fn61) is fundamental to a cause of action.(fn62) Unless the client has sustained a pecuniary loss as a result of some negligent act(fn63) on the part of the lawyer, the client has no basis for a malpractice action.(fn64) On the other hand, a disciplinary proceeding does not require allegations that a client actually suffered a monetary loss as a result of the attorney's conduct.(fn65)

The...