ATTORNEY GRIEV. COMM'N OF MARYLAND v. Eisenstein

JOHN F. McAULIFFE, Judge (Retired). The Attorney Grievance Commission (the Commission) charges that Myles R. Eisenstein, respondent, violated a number of the Maryland Rules of Professional Conduct by the manner in which he collected fees and handled the funds of William C. Taylor (the claimant) in connection with a claim brought against ITO Corporation (ITO) under the Longshore ⁴⁶⁸ and Harbor Workers’ Compensation Act (hereinafter “LHWCA” or “the Act”) and by advancing certain living expenses to the claimant during the pendency of the litigation. Pursuant to Maryland Rule BV 9(b), this Court directed that the charges be heard by Judge Ellen M. Heller of the Circuit Court for Baltimore City. Respondent filed a motion to dismiss certain of the charges, contending that they were not authorized by the Review Board.

That issue is preserved by respondent’s exceptions, and therefore the motion is moot. Respondent also moved to dismiss the proceedings, or in the alternative for recusal of Bar Counsel, claiming violations of confidentiality and lack of objectivity. This motion is without substance, and is denied. Judge Heller held hearings on 13 November and 3 December, 1992, and filed written findings of fact and conclusions of law.

Exceptions have been filed by Bar Counsel on behalf of the Commission and by respondent. I. Judge Heller made the following findings of fact: 1 “Myles R. Eisenstein, Esquire, has been a member of the Bar of Maryland since 1957 and maintains an office for the practice of law at 110 Saint Paul Street, Suite 500, in Baltimore. The monies kept by Mr. Eisenstein, which are the subject of the charges in this case, all relate to his representation of William Curtis Taylor in claims arising under the LHWCA Mr. Eisenstein began representing Mr. Taylor in connection with these claims shortly after an accident of November 25, 1981. However, Mr. Eisenstein had represented Mr. Taylor in other matters, and he and Mr. Taylor had what he characterized at one time as ‘a close personal relationship.’ In fact, although Mr. Taylor’s complaint initiated these proceedings, Mr. Eisenstein continues to represent him in other matters. ⁴⁶⁹ “In regard to the claims under consideration in this matter, Mr. Taylor, because of the 1981 accident, remained out of work and received regular compensation checks until August 1, 1983, when he was convicted in federal court of the illegal possession of firearms and served a two-month sentence in the United States Penitentiary in Lexington, Kentucky.

When he went to jail in August 1983, his compensation benefits ceased. He was released in October, 1983 and at that time, Mr. Eisenstein referred him back to Dr. G. Edward Reahl who did a disability evaluation. Dr. Reahl discharged Mr. Taylor but found he had a minimal permanent disability of both legs due to the accident. He also expressed an opinion that Mr. Taylor could not continue to perform unrestricted work as a longshoreman and should be rehabilitated for a different type of employment.

In fall 1983, an informal conference was held by a deputy commissioner of Labor without resolution of the issues. The matter then proceeded to a formal hearing before an administrative law judge (“ALJ”) in spring 1984. On December 7, 1984, an Order of Compensation was issued by the ALJ who determined that Mr. Taylor was entitled to receive $20,250.07 in benefits from the employer-self-insurer because he had sustained a 10% permanent partial disability of the left knee and a 5% permanent partial disability of the right knee. “Mr. Taylor requested Mr. Eisenstein file an appeal from the decision of the ALJ to the Benefits Review Board. While this appeal was pending, on February 11, 1985, the ALJ approved attorneys’ fees for Mr. Eisenstein in the amount of $7,456.85.

This amount included expenses of $636.85. In addition, on May 16,1985, a deputy commissioner approved an attorneys’ fees award for Mr. Eisenstein in the amount of $5,000.00. Both of these fees were ordered to be paid by the employer. Payment of these fees does not have to be made until an award of compensation is deemed final which occurs when possibilities for review have been exhausted. [33] U.S.C. § 928(a) (1988); Wells v. Intern Great Lakes Shipping Co., 693 F.2d 663 , 665 (7th Cir.1982).

As of this date, although ⁴⁷⁰ these fees have been approved, they have never been paid to Mr. Eisenstein. “In spring 1988, while the appeal was pending from the decision of the ALJ, Mr. Taylor advised Mr. Eisenstein that he had been working as a long distance truck driver for nearly two years and had been involved in another accident in June, 1987. Mr. Eisenstein stated that he told Mr. Taylor he could not represent him because, if the employer-insurer could show the availability of suitable alternative employment (being a truck driver), then the employer could avoid liability for a permanent total disability award which was the subject of the appeal. Mr. Eisenstein recommended that Mr. Taylor withdraw the appeal since he was earning an equal or greater rate of pay than that of a longshoreman. However, according to Mr. Eisenstein, he made an agreement with Mr. Taylor that if Mr. Eisenstein would continue his representation, Mr. Taylor would see to it that Mr. Eisenstein would be paid ‘first’ out of any future award of compensation. “On June 27, 1988, the Benefits Review Board issued an order reversing the initial award of the ALJ and remanded the matter for a further hearing in conformity with its decision.

A second hearing was held by the ALJ which resulted in a March 10, 1989 order determining that Mr. Taylor was entitled to additional temporary total disability benefits and that he was permanently totally disabled as a result of the 1981 accident and a preexisting disability. As a result, Mr. Taylor was deemed to be entitled to weekly compensation benefits for the rest of his life from August, 1983, which included cost of living increases. On June 7, 1989, Mr. Taylor received a check from the United States Treasury Special Fund in the amount of $984.00, and on June 19, 1989, he received a second check from the Special Fund in the amount of $121,897.03. On June 19, 1989, Mr. Taylor and Mr. Eisenstein deposited this latter check in Mr. Eisenstein’s escrow account in the NationsBank.

The placement of these monies in the escrow account is at the heart of this matter. ⁴⁷¹ Monies retained from June 19, 1989 award “Of the $121,897.03, Mr. Eisenstein retained $59,025.00 in his escrow account and gave the remainder to Mr. Taylor. According to a receipt signed by Mr. Eisenstein, the sum of $59,025.00 represented the following: ‘Funds advanced on behalf of $ 7,225.00 William C. Taylor Harold Glaser, attorneys’ fees 1,500.00 Myles R. eisenstein [sic], at- 51,800.00’ tomeys’ fee (as of this date) That receipt also stated the following: ‘IT IS UNDERSTOOD that if attorneys fees in this amount are not approved by the Benefits Review Board, The Deputy Commissioner, Administrative Law Judge, and the U.S. District Court, all funds due will be refunded. ‘In addition, when ITO Corporation of Baltimore pays Myeles [sic] R. Eisenstein attorneys fees now pending and approved, these funds will be refunded to William C. Taylor.’ ” This receipt was not signed by Mr. Taylor who testified before the Inquiry Panel that he can only read and write ‘a little’ and did not go beyond the third grade. Despite his limited education, however, this Court finds that Mr. Taylor did agree to Mr. Eisenstein’s retention of part of the compensation award in June, 1989. “On the receipt, $7,225.00 is entitled ‘funds advanced’ on behalf of Mr. Taylor, and that amount was explained as follows. Three thousand dollars were for representing Mr. Taylor in a 1983 criminal case in the U.S. District Court for Maryland; fifteen hundred were monies for representation of two uncontested divorces involving Mr. Taylor’s son and daughter, as well as a custody proceeding for another daughter; and twenty-six hundred dollars were for a personal loan Mr. Eisenstein had made to Mr. Taylor.

That totals $7,100.00. There remains $125.00 that Mr. Eisenstein believes was for court costs in one of the proceedings. In addition, $1,500.00 were paid to Harold Glaser, Esquire, as attorneys’ fees for another matter. ⁴⁷² “Therefore, of the $121,897.03 award received by Mr. Taylor on June 19, 1992, he took home only $62,872.03. Mr. Eisenstein retained the remainder except for the $1,500.00 fee paid to Mr. Glaser.

Specifically, $51,800.00 was placed in Mr. Eisenstein’s escrow account. Of this, he explains, $12,500.00 represented the attorneys’ fees which had been approved in February and May 1985 but not yet paid. In addition, $11,-800.00 was an estimate of an application for a fee pending for a claim before a second ALJ, and $27,500.00 was an estimate of an application for a fee pending before the Benefits Review Board. [2] Mr. Eisenstein testified that the June 1989 receipt covered only work done for Mr. Taylor before that date. Events after June, 1989 “On July 31, 1989, Mr. Eisenstein received a check from ITO in the amount of $9,775.00 for attorneys’ fees.

This check was endorsed by him and paid over to Mr. Taylor on the same date. Therefore, as of that date, there was remaining in the escrow account $40,025.00. Of significance, Mr. Eisenstein did not repay to Mr. Taylor the difference between the $11,800.00 he had estimated and the actual $9,775.00 awarded for representation in July 1989. Subsequently, on October 10, 1989, attorney fees were approved for Mr. Eisenstein in the amount of $9,750.00 for his work before the Benefits Review Board.

Although these fees were approved, as of this date, they have still not been paid. Mr. Eisenstein did not refund to Mr. Taylor these monies or the difference between the fees that were approved — $9,750.00—and his estimate of $27,500.00 (or his request of $17,875.00). “Therefore, as of October 1989, Mr. Eisenstein had paid Mr. Taylor only $9,775.00 of the original $51,800 kept in his escrow account. There remained in the escrow account approximately $42,025.00. Of this, $22,250.00 represented attorney fees ⁴⁷³ that had been approved but not paid to Mr. Eisenstein. [3] This left $19,775.00 reflecting the difference between the estimates in the fee petitions and those fees actually approved. [4] “Mr. Eisenstein’s explanation for retaining these monies is that he had an independent agreement with Mr. Taylor because of their longstanding friendship and the amount of work he had done that he could keep the ‘approved’ fees until the employer actually paid the monies.

At that time, the monies would be refunded. As far as the $19,775.00 of ‘unapproved’ monies, he claims that he was by that time doing additional work for Mr. Taylor and depending on the result, Mr. Taylor or the employer would be responsible for these fees. However, he did not introduce into evidence the nature of this work, the amount of work, or the number of hours. In fact, there has been no petition regarding attorney’s fees filed for this money or billed to Mr. Taylor.

THE COURT: And so the bottom line question of this whole hearing is why you didn’t give him the refund? THE WITNESS: Because I am holding that money in escrow due to the additional work I did for Mr. Taylor. THE COURT: And did you bill Mr. Taylor for this work? THE WITNESS: No. I don’t know who’s going to pay it.

THE COURT: Well, what work? Where? What work? THE WITNESS: Okay.

THE COURT: Where did you petition for extra work on his behalf? THE WITNESS: I won’t petition until the case is over. The case is still pending before the Benefits Review Board. ⁴⁷⁴ I do not know who is going to pay it until I receive a ... an award from the Benefits Review Board. Mr. Taylor may not be required to pay one penny.

But then again, he may be required to pay. In short, because of the future possibility that Mr. Taylor may be responsible for attorney’s fees concerning a matter which was only alluded to at the hearing, Mr. Eisenstein continued to keep the $19,775.00. This was notwithstanding his testimony that the June 19, 1989 receipt was only for work covered before that date. In fact, the $42,025.00 was never repaid to Mr. Taylor until April 1992 — after the petition for disciplinary action was filed and after Mr. Taylor had sued him for the money.

Mr. Taylor testified before the Inquiry Panel that there came a time when he asked Mr. Eisenstein for the money or for a least part of it. He stated that Mr. Eisenstein told him he didn’t owe him anything. ‘That’s when he told me, he said he don’t owe me nothing, ITO owes me. Those were his exact words.’ Mr. Eisenstein admitted before this Court that keeping the monies was a mistake, but that he was very angry at Mr. Taylor. Mr. Taylor had requested the fees in 1991.

Mr. Eisenstein said he told him the following at that time: A. I told him that, You may well owe me a fee. You have deep personal problems at this time, and I am not going to rely upon you to pay me my fee.[’] Q. Okay. Had you, at that time when he asked for the monies back, discussed with him the fact that you were holding monies which were not approved? . A Probably.

Q. Okay. And he said then, ‘Pay them over to me.’? A. Yeah. % % s-s # Q. And because you had done work for him, you maintained those fees; is that correct? A. No. I was very angry at Mr. Taylor.

Mr. Taylor became an out-and-out junkie. And he and I had a close personal relationship. I was very upset with this man. ⁴⁷⁵ I lost all compassion and reason for him when he became a ... a cocaine addict. You know, he really went downhill.

I thought I created a monster. “Although the $51,800.00 was initially deposited in Mr. Eisenstein’s escrow account, the October 10, 1989 approved fee award was removed from the escrow account sometime in October or November, 1989, and placed in Mr. Eisenstein’s personal account. That is, although these fees were approved by the October 10, 1989 order, Mr. Eisenstein did not reimburse that amount to Mr. Taylor or the difference between that amount and the original estimate. Rather, he placed the approved amount in his personal account. He testified that he kept the remainder of the original estimate in his escrow account at that time because, ‘There is no question, I owed it to the claimant.’ Nevertheless, when the $42,025.00 was finally paid to Mr. Taylor in 1992, it was paid from Mr. Eisenstein’s personal account.

According to his testimony, he was advised by his accountant to pay income tax on the entire $51,800.00 he had placed in escrow. After April, 1990, he maintained only about $11,000.00 of Mr. Taylor’s funds in the escrow account. “In sum, Mr. Taylor received an award on June 19, 1989 of $121,897.03. Fifty-nine thousand twenty-five dollars was given to Mr. Eisenstein. Fifty-one thousand eight hundred dollars was placed in his escrow account, comprising approved and unapproved petitions for attorney fees for claims under the LHWC.

Of this, Mr. Taylor received only $9,775.00 in July, 1989. He did not receive the remaining $42,025.00 until after a grievance had been filed with the Commission, although it is also true that Mr. Eisenstein has never received awards for the attorney fee petitions that were approved.” II. Judge Heller found that respondent had violated the following Rules: Rule 1.8(e) (providing financial assistance to client); Rule 1.15(a) (maintaining separate accounts for client’s property); Rule 8.4(c) (engaging in conduct involving dishonesty, ⁴⁷⁶ fraud, deceit, or misrepresentation); and Rule 8.4(d) (engaging in conduct that is prejudicial to the administration of justice). The hearing judge found no violations of Rule 1.5(a) (charging unreasonable fee) or Rule 8.4(b) (committing a criminal act that reflects adversely on the lawyer’s honesty, trustworthiness, or fitness as a lawyer in other respects).

Bar Counsel filed exceptions to the findings that respondent had not violated Rules 1.5(a) and 8.4(b). Respondent filed exceptions to certain of Judge Heller’s findings of fact, and to the findings that respondent had violated Rules 1.15(a), 1.8(e), and 8.4(c) and (d). Our review of the record, affording appropriate deference to those findings of the hearing judge that are not clearly erroneous, leads us to conclude that certain of the exceptions of each party must be granted, but that clear and convincing evidence supports the finding that respondent committed violations of the Rules warranting the imposition of a sanction.

III

The Longshore and Harbor Workers’ Compensation Act is a workers’ compensation plan requiring employers to compensate their employees for certain job-related injuries or deaths. 33 U.S.C. § 904 et seq. Claims are filed with the Deputy Commissioner, and then, if necessary, referred to an Administrative Law Judge (ALJ) for a hearing, and to the Benefits Review Board (the Board) for appellate review. Further appellate review is available in federal courts. The Act establishes a comprehensive regulatory scheme of attorney’s fees, providing that where the employer 5 denies liability, and the claimant thereafter obtains a compensation award, the employer is liable for the fees. 33 U.S.C. § 928 (a).

Similarly, if the claimant prevails where there is a controversy concerning the amount of compensation to be ⁴⁷⁷ paid, the employer may be required to pay attorney’s fees reasonably representing efforts expended by the attorney with respect to the amount in controversy. Id. Attorney’s fees assessed against the employer are in addition to the award of compensation and are paid directly by the employer to the attorney, but not until the compensation award becomes final. See Thompson v. Potashnick Constr.

Co., 812 F.2d 574 (9th Cir.1987); Wells v. International Great Lakes Shipping Co., 693 F.2d 663 , 665 (7th Cir.1982). No attorney’s fees may be assessed against the employer if the claim is denied, or if the compensation award is equal to or less than any settlement offer originally made by the employer. 33 U.S.C. § 928 (b); 20 C.F.R. § 702.134 (b). Attorney’s fees for services rendered to the claimant in connection with the claim but not assessable against the employer may be awarded, and may be made a lien upon the compensation due under an award. 33 U.S.C. § 928 (c). In all cases, fees for attorneys representing claimants under the Act must be approved by the Deputy Commissioner, the ALJ, the Board or a court.

Anyone who receives an unapproved fee in connection with representation of a claimant is subject to a fine of $1,000 or imprisonment for not more than one year, or both. 33 U.S.C. § 928 (e). Contracts between attorney and claimant regarding the amount of a fee are invalid. 20 C.F.R. § 702.132 (1992). The fee provisions of the Act, designed to afford a full measure of protection to the claimant, may result in delay in the attorney receiving the fee. Compensation must be paid to the claimant when an award is entered even though an appeal is taken, but attorney’s fees payable by an employer are not required to be paid until the appeals process is completed.

If the employer is successful on appeal, the employer’s liability for attorney’s fees will be reduced or abated, depending on the extent of the employer’s success, in which case the attorney may seek approval of a fee to be paid by the claimant. If, however, the compensation benefits to which the claimant is entitled according to the award that results from the appeals ⁴⁷⁸ process have already been paid to the claimant, there may be no fund from which the fees could be paid. Respondent contends that having achieved a very favorable result for the claimant in his appearance before the ALJ, which resulted in significant lump sum payments to the claimant for accrued compensation, and faced with a possibility of reversal on appeal because of the claimant’s acknowledged return to gainful employment, he sought the establishment of an escrow fund that would