STATEWIDE GRIEVANCE COMMITTEE

Lukken Color Corp., Complainant vs. John Timbers, Respondent

Grievance Complaint #96-0572

PROPOSED DECISION

Pursuant to Practice Book '2-35, the undersigned, duly-appointed reviewing committee of the Statewide Grievance Committee, conducted hearings at the Superior Court, 300 Grand Street, Waterbury, Connecticut on June 5, 1997 and September 4, 1997. The hearings addressed the record of the complaint filed on January 10, 1997, and the probable cause determination filed by the Stamford-Norwalk Judicial District Grievance Panel on February 7, 1997, finding that there existed probable cause that the Respondent violated Rules 1.3, 1.4, 1.5 and 3.2 of the Rules of Professional Conduct.

Notice of the June 5, 1997 hearing was mailed to the Complainant and to the Respondent on May 5, 1997. Notice of the September 4, 1997 hearing was mailed to the Complainant and to the Respondent on June 24, 1997. At the June 5, 1997 hearing, the Complainant was represented by Attorney Charles Tusa. At the September 4, 1997 hearing, the Complainant was represented by Attorney Mark Kovack. At the June 5, 1997 hearing and at the September 4, 1997 hearing, Ivan Mahoney and Veva Crozer appeared as witnesses for the Complainant. The Respondent appeared at the June 5, 1997 hearing and at the September 4, 1997 hearing and was heard by the reviewing committee. Exhibits were entered into evidence. The Complainant and the Respondent were allowed to submit post-hearing briefs. The Complainant filed a brief. The Respondent did not file a brief.

This reviewing committee finds the following facts by clear and convincing evidence:

Ivan Mahoney is a fifty percent stockholder in the Complainant. He is also a chairman and secretary. Veva Crozer is also a fifty percent stockholder in the Complainant. She is also president and treasurer. Ms. Crozer developed a water-based wood stain. In 1989, she applied for a patent. She used the law firm of Levisohn, Lerner, Berger and Langsan (hereinafter "Levisohn") of New York to handle the patent application. A corporation known as Valspar Corp. (hereinafter, "Valspar") had a licensing agreement with the Complainant. In October of 1990, Valspar sued the Complainant in Minnesota state court seeking a declaratory judgment that Valspar was not breaching confidentiality and trade secret agreements with the Complainant. The Complainant retained the law firm of McGovern and Associates of Greenwich, Connecticut to represent it in the Minnesota case. The Complainant entered into a written retainer agreement. Attorney McGovern charged $185.00 an hour for his work and $175.00 for other attorneys. The agreement was that the Complainant would pay the McGovern firm $6,500.00 per month from October 1, 1990 to April 30, 1991 and thereafter $5,000.00 per month until the fees, which were based on hourly rates, were paid in full. Attorney McGovern referred work on the Complainant's case to the Respondent. The Respondent was paid approximately $10,000.00 plus expenses by the Complainant through Attorney McGovern for work on the Minnesota case. The Complainant also retained a law firm in Minnesota to assist in the Minnesota case. While the Minnesota case was pending, Ms. Crozer's patent application was approved and a United States patent was granted.

In the Spring of 1991, the Complainant informed the McGovern firm that it could no longer afford Attorney McGovern's services based on an hourly rate because of financial constraints. The Respondent agreed to represent the Complainant in the Minnesota case and related proceedings and to commence a lawsuit in Connecticut Federal District Court against Valspar based on a patent infringement claim. The Respondent informed the Complainant that his general contingency fee agreement would contain the following terms: 1) fifteen percent of any recovery by way of an out-of-court settlement, 2) twenty-five percent of any recovery by means of trial, provided that the trial, in the opinion of the Respondent was a walk over, and 3) thirty-three percent of any recovery by means of trial if the trial in the Respondent's opinion was full blown. It was also indicated that the sums that the Complainant had already paid to the Respondent, approximately $10,000.00, would be credited towards the fee. No contingency fee agreement was reduced to writing. No other substantive discussion of fees took place between the Complainant and the Respondent between the Spring of 1991 and December of 1994. In December of 1994, when the Complainant asserted the contingency fee agreement provisions, the Respondent did not object, but rather claimed that even if the contingency fee was in place he was still entitled to an hourly rate, since he did not agree to settle the case. Between 1991 and December of 1994, the Respondent did not bill the Complainant. The Respondent produced no records for this reviewing committee reflecting any accounting for the Respondent's time.

The Respondent did file a civil action for the Complainant in Federal Court. During the course of the litigation, the Respondent was unable to ascertain the nature of the color dispersant used by Valspar. The Respondent issued unanswered interrogatories and conducted no depositions on behalf of the Complainant. Mr. Mahoney and Ms. Crozer were deposed, and only minimally prepared for the deposition. The Complainant paid an expert approximately $5,000.00 to assist the Respondent with technical matters. The Complainant also earmarked approximately $11,000.00 as costs associated with legal bills from Levisohn to assist the Respondent and to prepare settlement papers.

In the Fall of 1994, the Complainant began to consider settling its matters with Valspar. Mr. Mahoney sought to rely on the Respondent, but eventually dealt directly with Valspar personnel. In December of 1994, the Complainant, through Mr. Mahoney, discussed the settlement with the Respondent. The offer from Valspar was $330,000.00. The Respondent advised against the settlement because he believed the Complainant should know the nature of the color disbursement used by Valspar before settling. The Complainant believed the Respondent had neglected to properly pursue information regarding the nature of the color disbursement since 1991. The Complainant was also in poor financial condition to continue the litigation. In the meeting, Mr. Mahoney, on behalf of the Complainant, asserted the contingency fee agreement. The Respondent did not object, but still claimed hourly rates based on his desire not to settle. No figure for a fee, however, was offered by the Respondent.

The Complainant, while expecting the Respondent to finish the settlement paperwork, eventually used Levisohn to do the settlement paperwork. The Complainant settled its matters with Valspar in mid-January, 1995. In early February of 1995, the settlement check was forwarded to the Complainant. In February of 1995, Mr. Mahoney and Ms. Crozer were out of the country a great deal of the month. By a check dated March 1, 1995, the Complainant paid the Respondent $80,795.00 in legal fees. Mr. Mahoney testified that he calculated the sum by taking one-third of the $330,000.00 and subtracting $11,000.00 previously paid to the Respondent through Mr. McGovern and deducting an additional $11,900.00 that was paid to the Levisohn law firm in New York. The Complainant believed that the Respondent's neglect led to the need for that expenditure. The Complainant also deducted $5,000.00 which was to pay the chemist hired to assist the Respondent. On the back of the check, the following release language was included:

"By endorsement of this check payee acknowledges that this payment is full satisfaction of any and all obligations owed to John Timbers, Esquire by the maker Veva Crozer, Ivan Mahoney and other parties relating to the maker and or including without limitation any obligations of the above parties to payee with respect to all litigation matters relating to any and all claims against Valspar, Inc."

In letters dated March 8, 1995 and March 9, 1995, the Respondent claimed additional legal fees and sought dispute resolution. He did not specify the amount of his claim. On or about March 13, 1995, the Respondent endorsed and deposited the check, since he needed the funds. Over a year and one-half later in December of 1996, the Respondent brought suit against the Complainant and Mr. Mahoney and Ms. Crozer for additional legal fees. The Respondent claimed approximately half a million dollars in additional legal fees. Before the reviewing committee, the Respondent indicated that he believed anywhere from $250,000.00 to $500,000.00 was still due and owing from the Complainant.

This reviewing committee finds the following violations of the Rules of Professional Conduct by clear and convincing evidence:

While the Respondent argued that no contingency fee agreement needed to be in writing because there was no agreement on fees, we conclude that the Respondent's discussion with the Complainant about the general terms of a contingency fee agreement, especially in light of the Complainant's unwillingness to continue with the McGovern firm because of a desire to avoid hourly rates, the Respondent's actions in not billing the Complainant, and in not challenging the Complainant in December of 1994 regarding the contingency fee agreement claim, support the conclusion that in 1990, the Respondent agreed to handle the Complainant's matter on a contingency fee basis. The agreement was not in writing in violation of Rule 1.5 of the Rules of Professional Conduct.

Additionally, we conclude that the Respondent violated Rule 1.4 and Rule 1.5 by failing to provide the Complainant with a reasonable fee and adequate accurate information about the Respondent's shifting fee claims from 1990 to 1994. The Respondent knew the Complainant was going to settle the case for $330,000.00 and did not inform the Complainant that the Respondent was claiming fees well beyond a contingency fee. A year and one-half later, the Respondent informed the Complainant that one-half million dollars in fees was claimed, in spite of his representation of a contingency fee agreement to the Complainant in 1990 and in spite of his endorsement of the payment check. The Respondent clearly claimed an unreasonable fee in violation of Rule 1.5 of the Rules of Professional Conduct. It was the responsibility of the Respondent to inform the Complainant of specific fees and claims beyond any contingency fee agreement. Any confusion regarding the fee relates to the Respondent's breach of his ethical obligation to set a reasonable fee and to communicate that fee to the Complainant. The Respondent did not do so. The Respondent's actions violated Rules 1.4 and 1.5 of the Rules of Professional Conduct.

After considering the other claims by the Complainant, this reviewing committee does not find clear and convincing evidence in the record that the Respondent neglected the Complainant's actions, or failed to expedite litigation.

We are, however, very concerned about the Respondent's complete lack of professional behavior in reference to his fees. There is no support in the record that the Complainant agreed to anything beyond a contingency fee agreement. The lack of a written fee agreement, a lack of communication on the fee, the lack of work records and the untimely and excessive fee claims in the civil action against the Complainant reflect that the Respondent acted in his own interest, not that of his client. We find the Respondent's actions such a serious breach of ethical responsibility that we recommend that the Statewide Grievance Committee present the Respondent to the Superior Court for whatever discipline the court deems appropriate.

Attorney Alfred R. Belinkie

Attorney M. Katherine Webster-O'Keefe

Mr. Carmen Donnarumma