Archive for April, 2012

COURT OF APPEALS CONSIDERS RACINO BETTING IN KY.- EDITORIAL BY LARRY FORGY

Wednesday, April 25th, 2012

On April 25, 2012 oral arguments were held before the Ct. of Appeals to decide the “racino” issue. As Forgy views the issue,the Court must decide as “(can)…the Kentucky Racing Commission…promulgate regulations which approve a gambling scheme with gambling on video tapes of previously run horse races and the use of gambling devices to display videos of dead horses”.

A racino is a combined race track and casino. In some cases, the gambling is limited to slot machines.

LawReader welcomes any comments on the Forgy Editorial.

 

GUEST EDITORIAL

By Larry Forgy, Attorney

Lexington, KY

lforgy@lforgy.com

 

“The slot-machine-at-the-race-track crowd is trying to run daylight by the rooster. They got a Frankfort judge to rule that slot machines with pictures of dead horses can be placed in the race tracks when slot machines with pictures of cherries, oranges and lemons cannot.

Obviously, that is a distinction without the difference, but the Governor and the slot-machine-at-the-race-track crowd will go to any lengths to sock the people of this state with over $800 million dollars in annual gambling losses, most of which will go to rich race track owners.

Steve Beshear’s 2007 campaign for governor was funded largely by race track interests. For example, a guy named Yung “who is a Northern Kentucky casino impresario” donated $1 million in one dollop. The Chicago gambling crowd that largely owns Churchill Downs joined with Kentucky track interests to heavily fund Beshear. They own him.

In his 2007 Democratic primary debate with then Speaker Richards, Beshear promised to push approval of slot machine gambling through the General Assembly. Both Speaker Richards and President Williams responded quickly, at separate places, “like hell you will”. Later, the track interests beat Richards but couldn’t get David Williams.

Beshear’s first budget proposal, in 2008, contained a huge gambling program with eight slot machine dens at race tracks. The tracks, according to the LRC, would have gotten almost 70% of the estimated $800 million in Kentucky gambling losses. The plan landed at the Kentucky Senate with a thud. It went nowhere!

Beshear shifted gears. He appointed Republican Senators to high paying state jobs in an attempt to take control of the Senate in the races to fill the vacated seats. He was defeated on that. Thud!

Recently, he lost slot-issue dominated elections for State Senate seats in Bowling Green, Owensboro, Paducah, Richmond, Lexington and Louisville. So, his brazen attempts to gain enough votes in the legislature to pass slots gambling lost. Another thud!

To his credit, President Williams offered to help put the casino issue on the ballot, “Let the people decide”. Because Beshear knew that would lose; he walked away. The people aren’t for slot machines. Beshear knew and knows it. No public vote!

Now, he and his gambling buddies have come up with something called “Instant Racing” and are seeking, in an odd way, to have it validated. As said, they have tried legislation, political power and rejected a direct vote of the people, none of those worked. The next stage is judicial bypass.

According to the current law, betting on horses at racetracks is only permitted in a pari-mutuel form. There must be a wagering pool, you bet against other bettors. But with “Instant Racing” videos, there are no patrons betting against each other. Thus, no pari-mutuel. It is the machine only; thus illegal.

But somehow, the track crowd have convinced, at least one judge, that the Kentucky Racing Commission can promulgate regulations which approve a gambling scheme with gambling on video tapes of previously run horse races and the use of gambling devices to display videos of dead horses.

Also, under current law the Revenue Department has authority only to collect taxes on “tracks conducting pari-mutuel wagering on live racing”. KRS 138.510. Is a video of dead horses, live racing? Obviously not.

There is no statutory authority for the Department to collect excise taxes on bets on videos of previously and anonymously run horse races with the use of gambling devices which display videos and accept bets. But, the Judge, Wingate ruled the Department could. That is quite an illogical stretch.

Beshear and company are using judicial decisions to get done what they couldn’t do politically. They can’t get slots at the tracks legitimately and are trying by judicial subterfuge to run the mess through the back door to the disadvantage of Kentuckians who will be ripped off by the machines to the ultimate enrichment of a bunch of fabulously wealthy race track shareholders. Our Governor is orchestrating this to the detriment of the People

We must not let this crowd “slip shuck” the people of Kentucky with their “Instant Racing”.

If they can’t win this politically by a vote of the people they ought to lose. It’s that simple. No slots without a vote; no dead horses.”

 

 

See KRS 138.510

 

KRS 138.510 Taxes on pari-mutuel wagering on live racing and telephone account, intertrack, and interstate wagering — Exemptions — Uses of tax revenue.

(1) (a) Except as provided in paragraphs (b) and (d) of this subsection, an excise tax is imposed on all tracks conducting pari-mutuel wagering on live racing under the jurisdiction of the commission.

1. For each track with a daily average live handle of one million two hundred thousand dollars ($1,200,000) or above, the tax shall be in the amount of three and one-half percent (3.5%) of all money wagered on live races at the track during the fiscal year.

2. For each track with a daily average live handle under one million two hundred thousand dollars ($1,200,000), the tax shall be one and one-half percent (1.5%) of all money wagered on live races at the track during the fiscal year.

(b) 1. If:

a. A track located in this state is the host track for a live one (1) or two (2) day international horse racing event in 2010 that distributes in excess of a total of fifteen million dollars ($15,000,000) in purses during the international horse racing event; and

b. On or before November 4, 2010, the organization responsible for selecting the location of the same international horse racing event in subsequent years contractually agrees to conduct the international horse racing event at a host track in this state in calendar year 2011 or 2012 or calendar years 2011 and 2012;

then the excise tax imposed by paragraph (a) of this subsection shall not be imposed on pari-mutuel wagering on any live racing conducted during the one (1) or two (2) day international horse racing event held at a host track within this state in calendar years 2010 through 2012.

2. Beginning January 1, 2013, if the requirements of subparagraph 1. of this paragraph are satisfied, the tax exemption established by subparagraph 1. of this paragraph shall remain in effect for any succeeding one (1) or two (2) day international horse racing event if the event returns within three (3) years of a previously-held international horse racing event.

3. A minimum of five hundred thousand dollars ($500,000) of the amount that would have been paid to the Commonwealth but for the exemption provided by this paragraph shall be used by the host track to fund undercard races during each international horse racing event.

4. Notwithstanding paragraph (c) of this subsection, if the requirements of subparagraph 1.a. of this paragraph are satisfied but the requirements of subparagraph 1.b. of this paragraph are not, then the excise tax imposed by paragraph (a) of this subsection shall be imposed on pari-mutuel wagering on any live racing conducted during the one (1) or two (2) day

international horse racing event and the total amount of revenue collected shall be distributed as follows:

a. Eighty percent (80%) shall be deposited into the thoroughbred development fund established in KRS 230.400;

b. Thirteen percent (13%) shall be deposited into the standardbred development fund established in KRS 230.770; and

c. Seven percent (7%) shall be deposited into the Kentucky quarter horse, Appaloosa, and Arabian development fund established in KRS 230.445.

(c) Money shall be deducted from the tax paid under paragraph (a) of this subsection and deposited as follows:

1. An amount equal to three-quarters of one percent (0.75%) of all money wagered on live races at the track for thoroughbred racing shall be deposited in the thoroughbred development fund established in KRS 230.400;

2. An amount equal to one percent (1%) of all money wagered on live races at the track for harness racing shall be deposited in the Kentucky standardbred development fund established in KRS 230.770;

3. An amount equal to one percent (1%) of all money wagered on live races at the track for quarter horse, Appaloosa, and Arabian horse racing shall be deposited in the Kentucky quarter horse, Appaloosa, and Arabian development fund established by KRS 230.445.

4. An amount equal to two-tenths of one percent (0.2%) of all money wagered on live races at the track shall be deposited in the equine industry program trust and revolving fund established by KRS 230.550 to support the Equine Industry Program at the University of Louisville;

5. a. An amount equal to one-tenth of one percent (0.1%) of all money wagered on live races at the track shall be deposited in a trust and revolving fund to be used for the construction, expansion, or renovation of facilities or the purchase of equipment for equine programs at state universities.

b. These funds shall not be used for salaries or for operating funds for teaching, research, or administration. Funds allocated under this subparagraph shall not replace other funds for capital purposes or operation of equine programs at state universities.

c. The Kentucky Council on Postsecondary Education shall serve as the administrative agent and shall establish an advisory committee of interested parties, including all universities with established equine programs, to evaluate proposals and make recommendations for the awarding of funds.

d. The Kentucky Council on Postsecondary Education may promulgate administrative regulations to establish procedures for

administering the program and criteria for evaluating and awarding grants; and

6. An amount equal to one-tenth of one percent (0.1%) of all money wagered on live races shall be distributed to the commission to support equine drug testing as provided in KRS 230.265(3).

(d) The excise tax imposed by paragraph (a) of this subsection shall not apply to pari-mutuel wagering on live harness racing at a county fair.

(2) (a) Except as provided in paragraphs (c) and (d) of this subsection, an excise tax is imposed on:

1. All tracks conducting telephone account wagering;

2. All tracks participating as receiving tracks in intertrack wagering under the jurisdiction of the commission; and

3. All tracks participating as receiving tracks displaying simulcasts and conducting interstate wagering thereon.

(b) The tax shall be three percent (3%) of all money wagered on races as provided in paragraph (a) of this subsection during the fiscal year.

(c) A noncontiguous track facility approved by the commission on or after January 1, 1999, shall be exempt from the tax imposed under this subsection, if the facility is established and operated by a licensed track which has a total annual handle on live racing of two hundred fifty thousand dollars ($250,000) or less. The amount of money exempted under this paragraph shall be retained by the noncontiguous track facility, KRS 230.3771 and 230.378 notwithstanding.

(d) 1. A track located in this state shall be exempt from the excise tax imposed by paragraph (b) of this subsection on wagers placed on all races conducted at a one (1) or two (2) day international horse racing event if:

a. The international horse racing event is conducted at a host track in this state; and

b. The host track is exempt from the excise tax during the international horse racing event under subsection (1)(b) of this section.

2. Notwithstanding paragraph (e) of this subsection, if the host track is not exempt and is taxed pursuant to subsection (1)(b)4. of this section, then the excise tax imposed by paragraphs (a) and (b) of this subsection shall be imposed on wagers placed on all races conducted at the one (1) or two (2) day international horse racing event and the total amount of revenue collected shall be distributed as follows:

a. Eighty percent (80%) shall be deposited into the thoroughbred development fund established in KRS 230.400;

b. Thirteen percent (13%) shall be deposited into the standardbred development fund established in KRS 230.770; and

c. Seven percent (7%) shall be deposited into the Kentucky quarter horse, Appaloosa, and Arabian development fund established in KRS 230.445.

(e) Money shall be deducted from the tax paid under paragraphs (a) and (b) of this subsection as follows:

1. An amount equal to two percent (2%) of the amount wagered shall be deposited as follows:

a. In the thoroughbred development fund established in KRS 230.400 if the host track is conducting a thoroughbred race meeting or the interstate wagering is conducted on a thoroughbred race meeting;

b. In the Kentucky standardbred development fund established in KRS 230.770, if the host track is conducting a harness race meeting or the interstate wagering is conducted on a harness race meeting; or

c. In the Kentucky quarter horse, Appaloosa, and Arabian development fund established by KRS 230.445, if the host track is conducting a quarter horse, Appaloosa, or Arabian horse race meeting or the interstate wagering is conducted on a quarter horse, Appaloosa, or Arabian horse race meeting;

2. An amount equal to one-twentieth of one percent (0.05%) of the amount wagered shall be allocated to the equine industry program trust and revolving fund established by KRS 230.550 to be used to support the Equine Industry Program at the University of Louisville;

3. An amount equal to one-tenth of one percent (0.1%) of the amount wagered shall be deposited in a trust and revolving fund to be used for the construction, expansion, or renovation of facilities or the purchase of equipment for equine programs at state universities, as detailed in subsection (1)(c)5. of this section; and

4. An amount equal to one-tenth of one percent (0.1%) of the amount wagered shall be distributed to the commission to support equine drug testing as provided in KRS 230.265(3).

(3) The taxes imposed by this section shall be paid, collected, and administered as provided in KRS 138.530.

Effective: July 15, 2010

 

Court’s News Release re: the Racino Case:

 

FRANKFORT, Ky. — The Kentucky Court of Appeals will hear challenges to court rulings about instant horse racing and fraud cases involving Medicare, Medicaid and oil/gas leases when it convenes Wednesday and Thursday, April 25-26, at the Court of Appeals in Frankfort. Proceedings are open to the public and will take place in the Court of Appeals Courtroom at 360 Democrat Drive.

 

A three-judge panel comprised of Court of Appeals Judges Sara Walter Combs and Janet L. Stumbo and Senior Judge Joseph E. Lambert will hear arguments in the instant racing case at 1 p.m. EDT Wednesday. Judges Combs and Lambert and Court of Appeals Judge Joy A. Moore will hear arguments in the other appeals.

 

Nearly all cases heard by the Kentucky Court of Appeals come to it on appeal from a lower court. If a case is tried in Circuit Court or District Court and the losing parties involved are not satisfied with the outcome, they may ask for a higher court to review the correctness of the trial court’s decision. Some cases, such as criminal case acquittals and divorces, may not be appealed. In a divorce case, however, child custody and property rights decisions may be appealed. Cases are not retried in the Court of Appeals. Only the record of the original court trial is reviewed, with attorneys presenting the legal issues to the court for a decision.

 

Fourteen judges, two elected from seven appellate court districts, serve on the Court of Appeals. The judges are divided into panels of three to review and decide cases, with the majority determining the decision. The panels do not sit permanently in one location, but travel throughout the state to hear cases.

 

FRANKFORT DOCKET (All times EDT)

 

WEDNESDAY, APRIL 25, 2012

 

1 PM

 

2011-CA-000164

THE FAMILY TRUST FOUNDATION OF KENTUCKY, INC. v THE KENTUCKY HORSE RACING COMMISSION ET AL.

 

Summary: Civil. Judge Combs will preside. The primary issue in this appeal is justiciability/whether a court may provide an advisory opinion of an Executive Branch action in rendering draft regulations in conflict with the violation of pertinent statutes passed by the legislature. The appellant claims that it was deprived of adequate opportunity to develop discovery in the case as a result of a court order. The case also involves a revenue issue. The other appellees in the case are Appalachian Racing, Churchill Downs, the Keeneland Association and the Kentucky Department of Revenue. To see more information on a case, input the case number on the Court of Appeals cases page.

 

Franklin County judge who presided in the case – Thomas D. Wingate

 

Appellant’s attorney: Stanton Cave

 

Appellees’ attorneys: Peter Ervin et al.

 

 

 

COAKY Outlines Elements Of Tortious Interference Claims, Bank’s Status as Fiduciary

Wednesday, April 25th, 2012

 

By David Kramer | dkramer@dbllaw.com

 

A very recent decision written by former Kentucky Supreme Court Chief Justice Joseph Lambert (sitting as a Special Senior Judge of the Court of Appeals) in Snow Pallet, Inc. v. Monticello Banking Co., 2011-CA-696 (http://opinions.kycourts.net/coa/2011-CA-000696.pdf) (4/20/2012), concisely outlined the elements of claims of tortious interference with contractual relations and tortious interference with prospective economic advantage.

The elements of a contract interference claim are: (1) the existence of a contract; (2) the tortfeasor’s knowledge of the contract; (3) the tortfeasor intended to cause a breach of the contract; (4) the tortfeasor did actually cause a breach; (5) damages to the party claiming breach; and (6) no privilege or or other legal justification that would excuse the tortfeasor’s conduct.

The elements of a claim for interference with business advantage do not require a contract, but do require the following: (1) existence of a valid business relationship or expectancy; (2) the tortfeasor was aware of the relationship or expectancy; (3) the tortfeasor intentionally interfered; (4) improper motive; (5) causation; and (6) special damages.

The case also dealt with the issue of whether a bank is a fiduciary of its customer. The Court held that unless a bank either (1) fails to disclose material facts regarding a loan it is making to a customer or (2) uses confidential financial information provided by the customer to the customer’s detriment, a bank is generally not held to the status of a fiduciary of its customers.

NOTE: Snow Pallet, Inc. v. Monticello Banking Co. is not yet final but was designated for publication in the South Western Reporter. Nonfinal decisions should not be cited as authority to a Kentucky court.

David Kramer is a Northern Kentucky attorney practicing at Dressman Benzinger LaVelle psc.

Subscribe to the DBL Civil Litigation blog.

 

Attorney Eric Deters Expands Fight to Limit Discretionary Power of Bar Counsel to Overrule Sentence Imposed by Ky. Supreme Court. Original Action Filed in Ky. Supreme Court to Limit Powers of Bar Counsels Office.

Tuesday, April 24th, 2012

By LawReader Senior Editor Stan Billlingsley

Last week Deters objected to SCR 3.505(1)(b) which allows the Bar Counsel to deny his automatic reinstatement after he had served a 61 day suspension imposed by the Ky. Supreme Court. Deters filed a civil action in the Franklin Circuit Court. The Bar Counsel’s office of the KBA filed a pleading arguing that the jurisdiction for such a motion was not in the Circuit Court but required an original action in the Supreme Court. Deters then sought dismissal of the Circuit Court petition for injunctive relief, and filed an original action in the Kentucky Supreme Court (citing the legal argument of the KBA which argued that the relief Deters seeks can only be considered by the Supreme Court.)

In Deters filings this week, he seeks an order finding the Interim Bar Counsel (Jay Garrett) and his chief prosecutor (Sarah Coker) in contempt.

In his original action filed with the Ky. Supreme Court, Deters contests the delegation of the Supreme Court’s sentencing power to the ethics prosecutor.

Deters defended l9 ethics counts, and the Board of Governors of the KBA dismissed l5 of the l9 counts, and the Supreme Court upheld the Board of Governors and limited the period of Deters suspension to 61 days. Deters argues that the Bar Counsel, having lost l5 of l9 counts against Deters, is merely being vindictive. They apparently brought five new complaints against Deters after they lost most of their counts before the Board of Governors.

The Bar Counsel argues that since Deters has five new charges pending against him that he should not be restored to the right to practice law. All of these counts apparently existed before the hearing on the original l9 counts. Deters appears to be arguing that the Bar Counsel’s Office is angry over their substantial set back on the original l9 counts, and now seek to obtain punishment against Deters for counts on which he has not been tried and for which he has not been found to have violated any ethics rules. The Bar Counsel  argues that if they merely file new charges, that the attorney should be punished with an extended suspension and he should be punished prior to any hearing.

Deters argues that the five new counts recently filed by the Bar Counsel do not allege any dishonesty, any fraud, any misapplication of client’s funds, and instead merely assert technical violations involving angry clients. The Bar Counsel has not announced any justification for not bringing these five new counts at the same time they brought the original l9 counts.

If Deters wins these five new counts, will the KBA merely bring other counts until they finally get their man?

The Bar Counsel pursuant to SCR 3.505(1)(b) is apparently granted the unregulated discretionary power to extend periods of suspension previously entered by the Supreme Court.

Since Eric Deters received a suspension of 61 days (after his acquittal of l5 of l9 charges brought against him) he was entitled to be automatically reinstated in the practice of law after the expiration of his 61 day sanction.

However SCR 3.505(1)(b) permits the Bar Counsel to merely write a letter to the Character and Fitness Committee, and then a lengthy hearing process must be conducted by the Committee before the attorney can be reinstated. At this hearing the burden of proof is placed on the defendant attorney to prove his good character.

The effect of this Rule will likely mean that the 61 day period of suspension issued by the Kentucky Supreme Court will be ignored, and Deters must remain suspended until he has gone through a hearing before the Character and Fitness Committee.   This hearing may not be completed for months. This additional hearing imposes on the attorney the burden of proof to prove his fitness to practice law. Therefore the automatic reinstatement provided for in the SCR’s is overruled merely by the request of the Bar Counsel’s Office.   Deters has asked the Character and Fitness Committee to expedite their hearing.

The effect of this rule is that Deters is receiving punishment (an extended period of suspension from the practice of law) without first having had a hearing to determine the necessity or justification for the imposition of this penalty. It is a classic case of punishment without hearing or trial. Deters argues in his Supreme Court motion for injunctive relief that this is a denial of his constitutional due process rights.

Deters has served his 61 day period of suspension , but the motion of the Bar Counsel will deny Deters automatic reinstatement for an indefinite period of time.

This procedure is claimed by Deters, in his Supreme Court filing for an injunction, to be a denial of his due process of law. He also challenges the constitutionality of this delegation of sentencing by the Supreme Court. Deters cites authority that an attorney has a property right in his law license and that the unilateral suspension from the right to practice law, merely on the motion of the prosecutor is unconstitutional.

LawReader finds the filing of an original action in the Supreme Court to be a novel solution to this problem. We note that the Supreme Court is the administrator of the KBA attorney discipline machine, and this conflicts with their role as a judicial body. Are they an appellate court or are they administrators? The Supreme Court is presented the opportunity to right many questionable actions of the Bar Counsels Office.

In Eric Deters petition to the Ky. Supreme Court, he alleges that an attorney has a property interest in his law license and before it may be taken from him he is entitled to Due process rights.

Deters has filed a brief which details authority for the conclusion that a law license is a property right, and that an attorney is entitled to a due process hearing before he in punished.

We have never heard of another procedure where after a Court has issued a sentence, that the prosecutor can merely write a letter and suspend an attorney’s right to practice law.

We note that the Kentucky Supreme Court has the jurisdiction to create Bar Rules, and they have the jurisdiction to fix this problem.

 

SUPREME COURT OF KENTUCKY

INQUIRY COMMISSION

KBA 15674, 15681, 15745, 15859, 16024 & 16795

 

IN RE: ERIC C. DETERS

 

KBA MEMBERSHIP NO. 81812

 

BAR ROSTER ADDRESS: 5247 Madison Pike

Independence, Kentucky 41051

 

* * * * *

 

MOTION FOR CONTEMPT AGAINST JAY GARRETT AND SARAH COKER

 

 

Jay Garrett and Sarah Coker’s conduct in this matter both supports the due process problem with SCR 3.510 and reflects contempt for this Court. SCR 3.510 provides Interim Bar Counsel and Associate Bar Counsel the power to unilaterally in essence overrule a Supreme Court Order. These are the same lawyers who prosecuted and lost 15 of 19 Bar Charges against Deters. These same lawyers have the power to question Deters fitness to practice law when they are the ones not fit to work as Bar Counsel.

It is expected that the provisions of SCR 3.510 Deters asserts are unconstitutional is a rule passed at the urging of Bar Counsel who wanted more power and the Court didn’t realize the abuses which would occur.

Did the Supreme Court really want, and does this Court realize, SCR 3.510 gives Bar Counsel the unilateral power to overrule a Supreme Court Order?

Armed with this power, can there be any question that Bar Counsel would abuse the power?

The entire reason for due process is to protect individuals from the abuse of power.

Bar Counsel and the KBA argue the due process of Respondent Deters for SCR 3.510 is the Character and Fitness Process of SCR 2.300. This is a ridiculous argument since Bar Counsel gets to punish without any process. Due process is not a hearing after the damage is done.

Bottom line—Bar Counsel can unilaterally extend a suspension. It is wrong and in Deters case it is Exhibit A of how it can be abused.

What is remarkable and further proof of the due process problems with SCR 3.510, Bar Counsel is forcing a Character and Fitness review when Deters has not even been accused or found guilty of any issue involving Character and Fitness. Both these matters do not involve the issue of competence, dependency addiction, theft, crime, dishonesty, moral turpitude, or any issue of character or fitness.

Bar Counsel pursued 19 charges against Deters. 15 of those were dismissed by the Board and sustained by the Court. Deters has 90 days from February 23, 2012 to filed a Motion for Certiorari before the U.S. Supreme Court on the issues raised including the First Amendment issues. Deters chose not to file same. However, if SCR 3.510 is not found unconstitutional, Deters has no choice to but elect that procedural option. None of this would be an issue if Jay Garrett and Sarah Coker would have simply allowed Deters to serve his suspension in peace. But no. Consumed with their desire to get Deters, they couldn’t wait ten days to file an Objection with false and premature allegations.

To Deters chagrin, both the Board and this Court unfairly failed to factor in Deters had to fight 15 baseless charges and all the negative publicity received from the Trial Commissioner’s unjust finding of 19 guilty charges and a 181-day suspension.

However, Deters decided to accept the 61 days. Will the Court allow Coker and Garrett to keep stirring up this matter and giving Deters no options but to fight back? Is it unreasonable to assume Bar Counsel, Garrett and Coker, were smarting from losing their prosecution of Deters (15 dropped/120 days dropped)? No.

And we have proof they did. Why? The Objection they filed to block Deters automatic reinstatement. Noticeably absent from the Objection is any allegation Deters practiced law the last 61 days, the thrust of the Order. Furthermore, the basis for the Objection are either false statements or premature conclusions not giving Deters the opportunity to comply under the time frame allowed. It’s outrageous.

Summary of Objection

1. Bar Counsel objected to the costs not being paid as Ordered by the February 23, 2012 Order. The Order did not give a time frame to pay the costs and Deters acknowledged he gave the instruction after February 28 for his secretary to pay the costs on March 15 when she would pay bills. Deters spent a week or so digesting it; exploring options; receiving advise. He began his suspension while he did. The office pays bills on the 15th and 30th of each month.

Bar Counsel used a baseless nit picky reason to object. On March 7, they objected based upon the costs not being paid in ten days?

Deters secretary, Maria Dallas, couldn’t even obtain from KBA who the check should be written to and where it should be sent.

2. Bar Counsel objected to the CLE’s not being obtained. Again, the KBA was uncooperative in providing information.

Deters had until April 23 to obtain his full 12.5 CLE’s and the Supreme Court gave him a year to obtain the remedial ethics CLE’s. He’s registered to do so in June.

Therefore, Bar Counsel used a premature baseless reason to object. They couldn’t even wait ten days.

3. Bar Counsel objected Deters had not notified his clients and Courts about his suspension within ten days. Deters timely did and presented written proof. Yet, another baseless reason for the Objection.

It’s important to note that Bar Counsel never wrote, called or emailed Deters to ask about any of these issues before filing the Objection. Maybe it’s not a requirement, but wouldn’t it be common sense and a matter of professional courtesy.

(Furthermore, Deters or counsel has never received anything from Bar Counsel withdrawing the basis for the Objection they know are baseless or fulfilled.)

4. Bar Counsel used as a basis for the Objection that Deters was advertising. They submit a reference as Deters as a Kentucky lawyer on a website and newsletter.

Advertising? An inadvertent reference? The attached details how Deters did all he could to comply. In addition, Deters submits an affidavit of Brad Amster, his web designer outlining his compliance.

Advertising: Definition- The activity of attracting public attention to a product or business, as by paid announcements in the print, broadcast, or electronic media.

Deters did not air television ads, radio ads, direct mail ads, newspaper ads and ads on social media and he took down his law office website. He then modified the website and only put back his home page.

And again, Bar Counsel never called, wrote or emailed to point out an issue and give Deters a chance to respond. Another example of the importance of due process.

5. Finally, Bar Counsel references other bar complaints and two bar charges as an excuse for the objection. Deters fully explains all those

It’s important enough to insert them again here:

Pending Bar Matters

A. Jessica Meyer- Dismissed Before Charge

B. Melissa Altman- Dismissed Before Charge

C. Fired Lawyer- Baseless bar complaint. Not a charge. Expect dismissal. Deters fired this lawyer for misconduct and the lawyer filed a bar complaint against Deters knowing Deters plans on suing the lawyer for money owed. It’s pending so no name is given.

D. Judge Danny Reeves Matter- Deters received a private admonition Deters was tempted to appeal. Bar Counsel lied and said Judge Reeves initiated a complaint on a lawsuit Deters filed. Deters confirmed from Judge Reeves he did not initiate the complaint. Then Bar Counsel simply obtained a private admonition. Deters accepted for closure.

E. Pending Matter- A bar charge Deters contested and Deters is contesting so no name will be given. The Trial Commissioner has not rendered a decision. Bar Counsel has asked for a public reprimand.

F. Fee dispute with Ohio client- Baseless bar complaint Bar Counsel has refused to just dismiss. Even Ohio dismissed it. Deters actually filed a Declaratory Judgment Action in Ohio to obtain his fee. The client threatened and filed the complaint hoping it would deter Deters from collecting his earned fee. No name will be given since its pending.

G. Pending Matter- Baseless Bar complaints involving a lawsuit Deters filed nearly ten years ago on a jail inmate’s medical treatment supported by one of the top experts in the country. Bar Counsel knows the matter is before the Kentucky Supreme Court and should not do anything based upon their own policies. Yet, they file it anyway. Pending, so no name.

H. Eight year old matter pending- Appeal to Board of Governors filed Friday. Pending, so no name.

I. All of these but the one referenced in paragraph 45 is a result of the public’s knowledge of Deters bar fight with Kentucky Bar Counsel.

Again, another example of the abuse of SCR 3.510 by Bar Counsel and the lack of due process. Who controls how fast a bar complaint moves? Bar Counsel. Who controls what bar complaints to present to the Inquiry Commission. Bar Counsel. Who recommends a disposition and punishment? Bar Counsel. Jay Garret and Sarah Coker are in a position to unilaterally block Deters’ reinstatement? Two lawyers have that much power? That’s due process? The basis for this Motion is they filed an Objection on baseless grounds. If one of those grounds were baseless, they should be held in contempt. Why did Bar Counsel file the Objection? Because they could.

It’s why Deters Motion was filed to appoint Special Counsel on his matter.

Conclusion

How scary is Bar Counsel’s conduct? It is contained in pleadings they filed in reference to Character and Fitness:

“Such a hearing will provide Mr. Deters with due process if he does, in fact, have a protected “right” to reinstatement.”

It is revealed! Despite no issue dealing with addiction, dependency, committing any criminal act, dishonesty, theft or moral turpitude, Bar Counsel wants to keep Deters from ever practicing law in Kentucky again. How can the Supreme Court accept Bar Counsel’s conduct?

 

_______________________________

Charles H. Deters

12581 Green Road

Walton, Kentucky 41094

 

________________________

Lawrence E. Forgy, Jr.

83 C. Michael Davenport Blvd.

P.O. Box 4292

Frankfort, KY 40601

(502) 227-3155

 

 

CERTIFICATE OF SERVICE

 

I do hereby certify that a true and exact copy of the foregoing was sent via regular U.S. mail, postage prepaid, on this ______ day of April 2012, to Bonnie Kittinger, Director and General Counsel, Character and Fitness Committee, Suite 156, 1510 Newton Pike, Lexington, Kentucky 40511-1255; Sarah V. Coker, Esq. Deputy Bar Counsel, Kentucky Bar Association, 514 West Main Street, Frankfort, Kentucky 40601, John Meyer, Kentucky Bar Association, 514 West Main Street, Frankfort, Kentucky 40601, and Mark Overstreet, Stites and Harbison, 421 West Main Street, P.O. Box 634

Frankfort, KY 40602-0634.

 

 

 

_______________________________

Lawrence E. Forgy, Jr.

 

 

 

ATTORNEYS HAVE A PROPERTY INTEREST IN THEIR LAW LICENSE – Can Prosecutor Overule Sentence of Suprrme Court?

Tuesday, April 24th, 2012

ATTORNEYS HAVE A PROPERTY INTEREST IN THEIR LAW LICENSE – Can Prosecutor Overule Sentence of Suprrme Court?

Attorney Eric Deters has filed a pleading with the Ky. Supreme Court alleging that an attorney has a property interest in his law license and before it may be taken from him he is entitled to Due process rights.

To find more about you due process rights in your law license, contact the Eric Deters law firm and they will provide you a copy of their brief with citations to the Ky. Supreme Court. This brief argues that before the Bar Association may revoke a lawyer’s license, he is entitled to a due process hearing.

One provision of the Ky. Supreme Court rules, being used against Deters, is a rule that allows the Bar Counsel’s Office to set aside a sentence of suspension (61 days) and to indefinitely expand the sentence of temporary suspension from the practice of law. All the prosecutor has to do is to write a letter to the Character and Fitness committee, and the automatic reinstatement of the attorney is denied, and the attorney must prove that he is fit to have his license restored.

We have never heard of another procedure where after the Court has issued a sentence, that the prosecutor can merely write a letter and force the indefinite suspension of the right to practice law, even though the Supreme Court has ruled that the suspension should be limited to 61 days.

Deters has filed an original action in the Ky. Supreme Court (on April 23, 2012) contesting the expansion of his suspension by the mere motion of the prosecutor.

Contact:

Hon. Eric Deters 5247 Madison Pike Independence, KY. 41051

eric@ericdeters.com

859-363-1900 – telephone / 859-363-1444 – facsimile

 

 

 

SUPREME CT. TO LECTURE ON SUP. CT. RULES AT JUNE 6TH. CLE – BRING YOUR QUESTIONS!

Tuesday, April 24th, 2012

At this year’s KBA State Convention and CLE program in Louisville, the Supreme Court may reveal the possibility of reform of existing Supreme Court Rules which grant extreme discretion to the Bar Counsel’s Office.

 

The Supreme Court is listed as a sponsor of this two hour class on Supreme Court Rules. All members of the Supreme Court are scheduled to appear. This class will provide a format for members of the Bar to question the Supreme Court. If you have a question you should take this opportunity to present it directly to the Supreme Court.

 

Wednesday June 6th. 8:30-10:35 am | CLE Credit: 2.0

Supreme Court Rules Hearing

Featuring

Chief Justice John D. Minton, Jr., Bowling Green

Justice Bill Cunningham, Princeton

Justice Lisabeth Hughes Abramson, Louisville

Justice Wil A. Schroder, Covington

Justice Will T. Scott, Pikeville

Justice Mary C. Noble, Lexington

Justice Daniel J. Venters, Somerset

Sponsor | Supreme Court of Kentucky

 

“The Supreme Court will meet in open session with Chief Justice

John D. Minton, Jr., presiding. Comments on proposed changes

to the civil and criminal rules will be presented. These proposed

changes are presented to the membership in order to solicit open

debate regarding the methods by which the courts can best

administer justice. Make sure your ideas are heard!”

 

Kentucky Human Rights Commission issues rulings on discrimination complaints

Saturday, April 21st, 2012

Commission on Human Rights

Kentucky Human Rights Commission issues rulings on discrimination complaints

 

 

 

Press Release Date:

 

Friday, April 20, 2012

 

 

 

Contact Information:

 

Victoria Stephens

502.641.0760

 

 

 

 

The Kentucky Commission on Human Rights Board of Commissioners met Thursday, April 19, to rule on discrimination complaints on behalf of the people of the Commonwealth of Kentucky.

 

At its headquarters in Louisville, Ky., the board ruled to accept three conciliation agreements, dismiss 31 complaints with findings of no probable cause to believe discrimination occurred, accept four case withdrawals giving complainants the right to file private suits, and accept three withdrawals where parties reached private settlements once the complaints were filed with the commission.

 

Conciliation agreements are similar to settlements, but are negotiated by commission enforcement officers and commission attorneys during the course of complaint investigation. The following are summaries of the accepted three conciliations:

 

Bruce and Maria Boerner v. Hamilton Housing Rental LLC, in Shelbyville, Ky.: The Boerners alleged that Hamilton Housing Rental discriminated against them on the basis of national origin (Ms. Boerner is of Hispanic descent, she said.) in the area of housing, which would violate the Kentucky Civil Rights Act and the U.S. Fair Housing Act. The couple claimed that Hamilton Housing falsely denied to them the availability of housing at one of its properties and made discriminatory statements to the couple. The company denied any violation of the law. The commission issued a probable cause finding stating there was sufficient evidence to believe discrimination occurred. Afterward, the parties agreed to resolve the matter with a conciliation agreement. Hamilton affirmed that it complies with civil rights laws including fair housing law and does not discriminate based on national origin or another protected class. The property company agreed to compensate $700 to each complainant in exchange for resolution of the complaint. The company agreed to undergo fair housing training and commission compliance monitoring for three years.

 

Jeanie Burbridge v. Hilltop Homeowners Association, in Owensboro, Ky.: Jeannie Burbridge alleged that Hilltop Homeowners Association of Owensboro discriminated against her on the basis of her children’s race (biracial) in the area of housing, which would violate the Kentucky Civil Rights Act and the U.S. Fair Housing Act. She claimed the homeowners association denied her biracial sons access to the swimming pool and common areas of the property treating them differently than non-biracial children of other residents. Hilltop denied any violation of the law and asserted it acted in accordance with its articles of incorporation. Before the commission investigation was complete, the parties agreed to resolve the matter with a conciliation agreement. Hilltop Homeowners Association agreed it complies with the Kentucky Civil Rights Act and the U.S. Fair Housing Act and does not discriminate against people based on race or any protected class. Hilltop agreed to compensate Burbridge with $935 for resolution of the complaint.

 

Jonathan and Tiffany Ratliff v. Foxglove Management LLC, Becky Chenault, Allen Grant Sr., Molly Pingleton, Brook Means, and Randall Grant, in Richmond, Ky.: In two separate complaints, Jonathan and Tiffany Ratliff alleged that Foxglove Mgt. et al discriminated against them based on disability in the area of housing, which would violate the Kentucky Civil Rights Act and the U.S. Fair Housing Act. The couple claimed the respondents denied the Ratliffs housing after discovering that Tiffany Ratliff had a service dog in training and questioned whether the animal was a “true” service dog. Foxglove et al denied all violations of the law and asserted the complainants did not provide requested documentation to verify the dog is certified as a service animal and helps Ms. Ratliff’s disability. Before a determination was made by the commission, the parties agreed to resolve the matter with a conciliation agreement. The Ratliffs will have the service animal reside at the property with them. They have the option to renew their lease until they wish to move unless the respondents substantiate a reasonable cause not to renew a lease. The respondents will not be able to terminate the complainants’ lease because of any incident related to the service animal unless the animal poses a direct threat. The respondents removed the $300 pet fee they charged to the Ratliffs and will not charge any other fees or deposits related to the animal.

 

The Kentucky Commission on Human Rights is the state government authority that enforces the Kentucky Civil Rights Act including the state Fair Housing Act, and as an affiliate of federal government entities such as the U.S. Dept. of Housing and Urban Development, the commission enforces federal laws such as the U.S. Civil Rights Act and the U.S. Fair Housing Act.

 

The Kentucky Civil Rights Act prohibits discrimination in the areas of housing, employment, public accommodations, and financial transactions. Protected classes include race, color, religion, national origin, disability, sex, age (in employment), tobacco-smoking status (in employment), and familial status, which protects pregnant women and families with children under age 18 years old (in housing). It is illegal to retaliate against any person who has made a discrimination complaint to the Kentucky Commission on Human Rights.

 

For help with discrimination, contact the Kentucky Commission on Human Rights at 1.800.292.5566. For more information about civil rights, call or visit the website at www.kchr.ky.gov. From there, link to the commission Face Book and Twitter pages for news and announcements regarding protected classes.

 

HARLAN CIRCUIT JUDGE RUSSELL D. ALRED’S REMOVAL ARGUED IN SUPREME COURT

Friday, April 20th, 2012

FRANKFORT — A circuit judge ordered removed from office for misconduct was treated unfairly and should be allowed to keep his job, his attorney argued to the state Supreme Court on Thursday april 19, 2012.

However, the attorney for the panel that disciplined Harlan Circuit Judge Russell D. Alred said the decision to strip him of office was clearly justified by a range of evidence.

Alred is appealing a decision by the state Judicial Conduct Commission, which ordered him removed last September.

The high court could uphold the decision, order a lesser penalty or decide, as Alred argues, that the commission and the ethics rules it enforces are unconstitutional, in part because the standards are vague.

The judicial conduct commission judged Alred guilty of numerous ethics violations, including having improper involvement in cases, failing to dispose of cases fairly, using his office to advance personal interests and misrepresenting his actions.

For instance, the panel decided Alred improperly solicited money for a school his children attended; barred a woman charged with fraud from teaching at the school, without a basis to do so; urged police to investigate gambling machines at a business and then presided over the case of a man who was charged; and altered a court order in a way that misrepresented the earlier terms of the order.

In perhaps the most high-profile charge, the commission ruled that Alred abused his power by appointing a special grand jury in April 2010 to investigate county Judge-Executive Joe Grieshop, who was being opposed for re-election by Alred’s cousin.

Alred wrote the order in a way to discredit Grieshop in the weeks before the election, the commission said.

Alred’s actions “show a blatant and persistent failure to uphold the impartiality and integrity of the judiciary,” the commission said.

Alred’s attorney, Marcus Carey of Erlanger, said the charges against Alred were not supported by clear and convincing evidence, and that in most cases he did nothing wrong.

Alred admitted that he should not have raised money for his children’s school, but he said that was an innocent mistake.

Carey said the commission’s process did not provide due process to Alred, and that the commission had decided that Alred was guilty before holding a formal hearing in his case.

Carey also argued the commission was unfair to Alred.

The commission’s attorney, Jeff Mando, told the justices the commission treated Alred fairly, pointing out it dismissed many of the charges against him at his request.

Mando urged the justices to uphold the removal order. A ruling by the Ky. Sup. Ct. usually takes several months.

 

 

 

COAKY Distinguishes Claim For Negligent Delay In Cancer Diagnosis From Loss of Chance

Wednesday, April 18th, 2012

 

 

By David Kramer | dkramer@dbllaw.com

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In the recent decision in Gill v. Burress, 2011-CA-332 (4/13/12) http://opinions.kycourts.net/coa/2011-CA-000332.pdf, the Kentucky Court of Appeals held that a plaintiff who claims a negligent delay in cancer diagnosis may pursue damages for (1) mental anguish, emotional distress, and loss of enjoyment of life due to increased fear of possible cancer recurrence and death; (2) compensatory damages arising as a result of chemotherapy treatment and associated surgery; but not for (3) a five to twenty-five percent decreased chance of remaining cancer-free; or (4) future medical treatment relating to potential recurrence. The Court found the latter two categories of damages were effectively barred by the Kentucky Supreme Court’s holding in Kemper v. Gordon, 272 S.W.3d 146 (Ky. 2008), which rejected loss of chance claims where the reduced chance of survival is less than 50%. Nevertheless, the Court permitted the claim for the first two categories to go forward, citing Kemper and Davis v. Graviss, 672 S.W.2d 928 (Ky. 1984), based on expert testimony that a diagnostic procedure should have been done and probably would have detected the cancer 18 months earlier, and that had such earlier detection occurred the plaintiff would have received less treatment.

 

The opinion was designated for publication in the South Western Reporter but is not yet final. Nonfinal decisions should not be cited as precedent.

 

David Kramer is a Northern Kentucky attorney practicing at Dressman Benzinger LaVelle psc.

 

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TRY YOUR CASE ON THE INTERNET…

Wednesday, April 18th, 2012

TRY YOUR CASE ON THE INTERNET

Want to pre-try your case and see what an “impartial” jury thinks of it. Want to improve your trial and litigation skills without causing any harm to your client? One way to do this is to log on to a web site called i-courthouse. Users can “file cases” and litigate them as a party, or serve as a juror on other users cases. This is an interesting concept that may well provide good training to lawyers who have not had a lot of experience in preparing and trying cases to a jury.

If you think you have a million dollar case, you can see what a “jury” thinks of it before you turn down an offer of settlement.

The address of the site is: http://www.i-courthouse.com/main.taf?&redir=0

JUST WHEN YOU THOUGHT THE KBA BAR COUNSEL’S OFFICE WAS UNDER ADULT CONTROL, THEY DO IT AGAIN! Attorney Eric Deters files Injunction Suit in Franklin Circuit Court against KBA when Bar Counsel overrules the Supreme Court Sentence and seeks to increase his period of suspension

Wednesday, April 18th, 2012

By LawReader Senior Editor Stan Billingsley

In November of 2011, the Board of Governors exercised their authority to regulate the Bar Counsel’s office by discharging Linda Gosnell. Many believed that this firing was a signal that the Board of Governors was adopting a new standard of conduct for the remaining prosecutors in the Bar Counsel’s Office. The Courier Journal reported that one insider even commented that one of the reasons Gosnell was discharged was “excessive punishment” of lawyers by her office.

(Neither the Board of Governors nor the KBA have ever issued a public statement explaining why the KBA’s chief ethics prosecutor was summarily dismissed)

Supreme Court Rule SCR 3.505 (1)(b), strangely permit the Bar Counsel’s Office to object to the automatic reinstatement of any attorney who receives a suspension from the Supreme Court.

Since Eric Deters received a suspension of 61 days (after his acquittal of l5 of l9 charges brought against him) he was entitled to be automatically reinstated in the practice of law after the expiration of his 61 day sanction. However SCR 3.505(1)(b) permits the Bar Counsel to merely write a letter to the Character and Fitness Committee, and then a lengthy hearing process must be conducted by the Committee before the attorney can be reinstated. At this hearing the burden of proof is placed on the defendant attorney to prove his good character.

The effect of this Rule will likely mean that the 61 day period of suspension issued by the Kentucky Supreme Court will be ignored, and Deters must now go through a hearing before the Character and Fitness Committee.

This procedure is claimed by Deters, in his suit for an injunction, to be a denial of his due process of law. He also challenges the constitutionality of this delegation of sentencing by the Supreme Court.

One would think that when the Bar Counsel’s Office was embarrassed after losing l5 ot the l9 counts they brought against Deters, that they would get on with their lives and attend to other matters before them. However, the new attack on Deters indicates that the acting Bar Counsel Jay Garrett and Deputy Bar Counsel Sarah Coker, are like the Bourbon Kings who ruled Europe from 1589 to 1793. It was said of them, “they learn nothing and forget nothing.”

Not being satisfied with having obtained rulings in 4 counts against Deters, they just couldn’t act like adults. The now are seeking to use this questionable rule and overrule the findings of the Board of Governors and the Supreme Court and add up to four additional months of suspension against Deters by filing their objection to his automatic reinstatement and subjecting to a new hearing. The U.S. Supreme Court has described attorney discipline proceedings as “quasi-criminal” proceedings. Can you imagine a rule that allows the Commonwealth Attorney or County Attorney who does not get a conviction on all charges, having the power to overrule the sentencing court and greatly increasing the defendants penalty? Deters can’t imagine that such a procedure is constitutional, and he is seeking to have it reviewed.

He is seeking a prompt hearing before the Character and Fitness Committee or a decision voiding SCR 3.350 (1)(b). He is hopeful that the Franklin Circuit Court may void this application of SCR 3.350(1)(b), and allow him to be automatically reinstated upon the expiration of his 61 day suspension.

The Bar Counsel has claimed that Deters has five new charges pending and should not be instated. Never mind that these new charges were filed after Deters spent several years in litigation on the original l9 charges, and only after his final jugement dismissing l5 of the l9 charges against him.

The Interim Bar Counsel Jay Garrett, and Deputy Bar Counsel Sarah Coker, are cited as the parties who have filed their objection with the Character and Fitness Committee seeking a lengthened period of suspension.

Garrett and Coker filed these new five charges after all other charges against Deters were finalized. They are arguing for a theory that they can justify continuing the suspension of an attorney as long as they can file new charges ….and never mind that the defendant attorney has never been tried on these new charges. They argue that they can merely file new complaints, apparently forever, and in effect permanently disbar an attorney even though he was only sentenced to a period of suspension of 61 days.

This motion by the Bar Counsel’s Office against Deters clearly expresses their dislike of Deters. But their claim that he is unfit to be a lawyer, should be viewed in the light of his vigorous defense of himself, and his great grasp of constitutional law. You may disagree with Deters politics, or his radio show, but you have to concede he is one tough lawyer and the Bar Counsel is making a mistake underestimating his knowledge of the law. He won l5 of l9 charges, and they still argue he is not a competent attorney???

The word on the street we hear, is that the Bar Counsel’s Office is just being vindictive against Deters. He beat them on 15 of l9 counts, and some feel they detect a sense of vindictiveness and losers remorse by the Bar Counsel’s Office. How far will the Board of Governors and the Supreme Court allow the Bar Counsel’s Office to exercise ever trick in the book to exorize  their defeat before the Board of Governors and the Kentucky Supreme Court.

The Board of Governor’s had the authority to dismiss Linda Gosnell, and they clearly have the authority to dismiss Garrett and Coker. Maybe that would finally send the message that the Board is demanding adult conduct by the Bar Counsel’s Office.

Let us be careful to note. Bar Counsel Jay Garrett and Deputy Bar Counsel Sarah Coker are not breaking a law. SCR 3.350 (1)(b) actually gives them the right to file a letter with the Character and Fitness Committee and automatically the lawyers suspension is extended until all the hearings before that Committee are completed, and issues already litigated must be re-litigated by the defendant attorney. However, we find no rule that says the Board can’t fire an employee of the Bar Counsels at their discretion.

The lawsuit filed by Eric Deters in the Franklin Circuit Court on April 18th. seeks injunctive relief to stay the action of the Interim Bar Counsel Jay Garrett and by Deputy Bar Counsel Sarah Coker, to unilaterally increase the period of suspension from the practice of law from 61 days to a possible six months. (And to possible obtain a permanent suspension if they are successful.)

Deters claims in his lawsuit that the Supreme Court Rule delegating the final sentencing power to the Prosecutor in attorney discipline is unconstitutional.

SCR 3.350 (1)(b) was adopted by the Kentucky Supreme Court years ago, and the present panel on the Supreme Court now has the responsibility to consider if they wish to continue to delegate their sentencing powers to the prosecutor.

In 2011 the KBA Bar Counsel sustained a significant embarrassment when the Board of Governors and later the Kentucky Supreme Court, found that l5 of the l9 count complaint that the Bar Counsel had brought against Deters should be dismissed. The 181 day period of suspension sought by the Bar Counsel against Deters was reduced to only 61 days.

There is one thing that many have not considered. The Character and Fitness Committee is not the rubber stamp of the Bar Counsel’s Office. The members of the Committee are appointed by the Supreme Court, and they have the right to conduct their own investigation, and they don’t have to grant the relief sought by the Interim Bar Counsel and his Deputy. Further we find no requirement that they must take months to rule on this issue.

When the Board of Governors discharged Linda Gosnell, many thought they were sending a message to the Bar Counsel’s Office to start acting like adults. The Character and Fitness Committee could call a meeting before the expiration of Deter’s 61 day suspension, and dismiss the request for an increased sentence of suspension. They can find that the filing by the Bar Counsel of five new charges against Deters, should not be considered in this current action until such time as Deters has had a hearing and the Board and Supreme Court has sustained any new conviction.

The Character and Fitness Committee members may not be in the mood to rubber stamp the apparent retaliatory motion of the Bar Counsel’s Office. This ball is now in their court. Their reputation as an independent body is at risk. They can meet immediately before Deters sentence is actually extended past the 61 days, and dismiss this motion.

It is of course always possible that the Kentucky Supreme Court could step in (like they did recently when they found that the Bar Counsel was improperly limiting the right of a defendant attorney to appeal an ethics ruling by requiring defendant attorneys to pay in advance all attorney fees unilaterally claimed by the Bar Counsel’s Office before an attorney had the right to appeal to the Supreme Court.)

We believe that the final sentence of the Supreme Court, as recommended by the Board of Governors should stand. They have ruled, and the attempt by the Bar Counsel’s Office to set aside the Court’s final judgment should not be allowed.

If the KBA has new charges against Deters, then let them advance. If he is convicted on new charges, then punish him after he is convicted. Allowing the Bar Counsel to come up with new charges after they sustained such an embarrassing loss in the original action should not be a justification for overruling the Supreme Courts sentence in the Deters case.

Just when we thought that the Board of Governors had cleaned up the mess in the Bar Counsel’s office, they once again demonstrate that they have learned nothing from the firing of Linda Gosnell, and they are unwilling to forget their loss of l5 of l9 counts against Deters.

The Bar Counsel’s Office has advertised that they are looking for a new Bar Counsel. One would hope that whoever the Board hires, he/she will be able to bring some adult supervision to the Bar Counsel’s Office.

 

FOOTNOTES Regarding SCR 3.505(1)(b):

KBA Bar Counsel Can Overrule the Sanctions Re: Suspensions Imposed by Supreme Court

Review of the Rules Regarding the Character and Fitness Commission When Bar Counsel Objects to Reinstatement

The Supreme Court by adoption of the following rules has delegated to the Character and Fitness Committee the right to ignore the ethics sanctions handed down by the Ky. Supreme Court if the Bar Counsel objects to the automatic reinstatement of the defendant attorney.

SCR 3.505 (1)(b) allows the Bar Counsel to object to the automatic reinstatement of the defendant lawyer, and under Section (4) the burden of proof is placed on the defendant attorney to prove his “good character and fitness to practice law.”

Either the Bar Counsel or the Defendant Attorney may request a hearing before the Committee, and this must be held within 60 days of the request.

Unless the Bar Counsel has requested the hearing, the defendant attorney should promptly make a demand for a hearing.

The Character and Fitness Committee must issue a decision within sixty (60) days of receipt of the transcript of hearing. This means that any delay in the court reporter in delivering the “transcript of the hearing” held by the Character and Fitness Committee, may work to expand the period of suspension of the defendant attorney.

It is highly possible that an attorney may serve the majority of his period of suspension, then the Bar Counsel may object to the automatic reinstatement, and the hearing process required may add another three or four months to the attorneys suspension even if he is successful.

So a 60 day suspension may easily become a 180 day suspension solely on the motion of the Bar Counsel.

We are not aware of any statute or rule in any other area of the law which allows a prosecutor to unilaterally add to the punishment imposed by the Kentucky Supreme Court.

If the Board of Governors has recommended a suspension of 60 days, and the Supreme Court has accepted that recommendation of the Board of Governors, then it must be recognized that the Bar Counsel as a result of this rule, has sentencing powers that exceed those of the Kentucky Supreme Court.

RULES OF THE SUPREME COURT OF KENTUCKY

PRACTICE OF LAW

SCR 3.505 Character and Fitness Committee; reinstatements

(1) The Character and Fitness Committee created by SCR 2.040 shall, in addition to the powers and duties conferred in that rule, consider all applications for reinstatement to the practice of law by persons who:

(a) have been suspended for more than one hundred eighty (180) days;

(b) have been suspended for one hundred eighty (180) days or less, but whose reinstatement has been opposed by Bar Counsel.

(2) The Character and Fitness Committee may act upon the application and such investigative material as it may gather or Bar Counsel may tender to it, all of which information not submitted by the Applicant shall be made available to the Applicant.

(3) The Applicant or Bar Counsel shall have the right to a hearing before the Character and Fitness Committee prior to the issuance of its decision. The hearing shall be held within sixty (60) days from the request. The report of the Committee shall be filed within sixty (60) days of receipt of the transcript of hearing.

(4) If either party requests a hearing before the Character and Fitness Committee, the Applicant shall have the rights accorded a Respondent in a disciplinary proceeding pursuant to SCR 3.300, except that the Character and Fitness Committee shall hold the hearing rather than a Trial Commissioner. The burden of proof of one’s good character and fitness to practice law shall be on the Applicant.

HISTORY: Amended by Order 2003-4, eff. 1-1-04; adopted by Order 98-1, eff. 10-1-98

RULES OF THE SUPREME COURT OF KENTUCKY

ADMISSION OF PERSONS TO PRACTICE LAW

SCR 2.040 Character and Fitness Committee; nominations

(1) There is hereby created a Committee on Character and Fitness, hereinafter referred to as the Committee, to be composed of five attorneys, appointed by the Supreme Court for terms of three years, the members to serve until the expiration of their terms and until their successors are appointed. The Supreme Court of Kentucky shall appoint the Chair of the Committee.

(2) Subject to the approval of the Supreme Court, the committee shall have the power to adopt and amend rules and regulations governing the manner in which it carries out its duties. The Character and Fitness Committee may appoint from the bar of the state associate members of the Character and Fitness Committee.

(3) The Committee on Character and Fitness is charged with the responsibility of determining the age, character and fitness, education and general qualifications of those applicants for admission to the bar of the Commonwealth whose applications are referred to it by the Clerk of the Supreme Court. The Character and Fitness Committee is further charged with the duty of certifying to the Supreme Court persons who appear qualified to perform legal services as interns under Rule 2.540.

(4) The Character and Fitness Committee, in determining the character and fitness of an applicant for admission to the bar of the Commonwealth, and in determining the character and fitness of a person seeking to perform legal services as an intern under Rule 2.540, may have such persons investigated by associate members of the Character and Fitness Committee, members of the bar of the state, the National Conference of Bar Examiners or any other reputable investigative agency. Subject to the approval of the Supreme Court the Character and Fitness Committee may compensate any person or agency making such investigation out of

funds held for that purpose.

(5) The Character and Fitness Committee shall submit to the Board of Bar Examiners the names and addresses of all applicants to take the examination who will be eligible upon approval from the standpoint of character and fitness and upon submission of the required recommendations of their law school deans. Said list shall be submitted no later than 30 days after the extended late deadline. At least ten days prior to each Bar examination the Character and Fitness Committee

shall certify to the Secretary of the Board of Bar Examiners the names and addresses of all applicants who are qualified to take that Bar examination.

(6) From time to time, the Character and Fitness Committee shall recommend to the Supreme Court admission to the bar without examination of applicants for such admission who qualify

therefor under the provisions of Rule 2.110.

(7) The Character and Fitness Committee shall have the power to issue subpoenas and to assess costs as it shall determine necessary.

HISTORY: Amended by Order 2009-12, eff. 1-1-2010; prior amendments eff. 2-1-00 (Order 99-1), 1-1-97 (Order 96-1), 8-1-92, 2-24-86, 1-1-78, 3-10-73

SCR 2.002 Fiscal provisions

(1) The fees collected by the Kentucky Office of Bar Admissions shall constitute a fund to provide for the ordinary and necessary expenses of the administration of the bar examination and the operation of both the Board of Bar Examiners and the Character and Fitness Committee.

(2) An annual budget including all income and expenditures shall be prepared by the Board and the Committee and submitted to the Supreme Court not less than four (4) months prior to the commencement of the next fiscal year. The budget shall distinctly set forth expected revenues according to source, together with carryover funds from the previous year, and shall list budgeted amounts for each category of expenditure in sufficient detail to identify clearly the nature of the respective expenditures.

(3) Upon approval by the court, the budget shall govern the fiscal operation of the Board and the Committee. Each expenditure category may be increased or decreased by not more than ten (10) percent. Further departure from the budget allotments may be made only upon approval of the court.

(4) All fees collected by the Kentucky Office of Bar Admissions for the Board and the Committee shall be recorded and deposited promptly in a joint account of the Board of Bar Examiners and Character and Fitness Committee. Each repository of funds and each bank account shall be designated by the Board and the Committee and approved by the Court.

(5) All disbursements shall be in accordance with the budget and recorded. Checks shall bear such signatures and countersignatures as the Board and the Committee shall direct.

(6) At least once each quarter a financial report shall be prepared at the direction of the Board and the Committee and transmitted to the Court.

(7) Each member of the Board and the Committee and each employee given responsibility by the Board and the Committee for the receipt or disbursement of funds shall be bonded in an amount specified by the Board and the Committee.

(8) There shall be an annual audit of the Board and the Committee by the Administrative Office of the Courts or, at the election of the Board and the Committee, a private accounting firm approved by the Court. The report of the audit shall be submitted to the Court. Each annual audit shall be paid for by the Board and the Committee.

(9) The Board and the Committee may employ such personnel as the Court authorizes. Their compensation shall be fixed by the Board and the Committee subject to approval by the Court. The compensation of members of the Board and Committee shall be fixed by the Court.

(10) Printing and purchasing shall be regulated by procedures established through the Administrative Office of the Courts except that the duplicating of bar examinations shall be accomplished in such manner as the Board designates in order to preserve the security thereof.

HISTORY: Amended by Order 2009-12, eff. 1-1-2010; prior amendments eff. 8-1-92 (Order 92- 1); adopted eff. 2-1-81

The following rule appears to apply to new attorneys, but might be interpreted to be used against suspended attorneys who seek reinstatement.

SCR 2.011 Moral character and fitness

All applicants for admission to the bar of this state must be of good moral character and general fitness requisite for an attorney.

(1) Every applicant shall be of good moral character. The applicant shall have the burden of proving that he or she is possessed of good moral character. The term “good moral character” includes qualities of honesty, fairness, responsibility, knowledge of the laws of the state and the nation and respect for the rights of others and for the judicial process. Good moral character is a functional assessment of character and fitness of a prospective lawyer. The purpose of requiring an applicant to possess present good moral character is to exclude from the practice of law those persons possessing character traits that are likely to result in injury to future clients, in the obstruction of the administration of justice, or in a violation of the Code of Professional Responsibility.

(2) Fitness is the assessment of mental and emotional health as it affects the competence of a prospective lawyer. The purpose of requiring an applicant to possess this fitness is to exclude from the practice of law any person having a mental or emotional illness or condition which would be likely to prevent the person from carrying out duties to clients, Courts or the profession. A person may be of good moral character, but may be incapacitated from proper discharge of his duties as a lawyer by such illness or condition. The fitness required is a present fitness, and prior mental or emotional illness or conditions are relevant only so far as they indicate the existence of a present lack of fitness.

(3) If the Committee’s initial review and investigation into the character and fitness of an applicant reveals any of the following conduct, further detailed investigation shall be undertaken, as determined to be warranted, prior to the Committee’s determination regarding whether the applicant possesses the requisite character and fitness to practice law in Kentucky:

A. Unlawful conduct

B. Academic misconduct

C. Making a false statement, including omissions of material information

D. Misconduct in employment

E. Acts involving dishonesty, fraud, deceit or misrepresentation

F. Abuse of legal process

G. Neglect of financial responsibilities

H. Neglect or disregard of ethical or professional obligations

I. Violation of an order of court

J. Conduct indicating mental or emotional instability impairing the ability of an applicant to perform the functions of an attorney

K. Conduct indicating substance abuse impairing the ability of an applicant to perform the functions of an attorney

L. Denial of admission to the bar in another jurisdiction on character and fitness grounds

M. Disciplinary complaints or disciplinary action by an attorney disciplinary agency or a professional disciplinary agency of any jurisdiction

(4) Each applicant for admission to the Kentucky Bar shall pay all investigative fees, reporting fees or other expenses required and assessed by the Character and Fitness Committee as deemed necessary in determining

)

Rule 2.010 Character of Applicant; Oath

An applicant for admission to take the bar of this state must be of good moral character and general fitness requisite for an attorney and take the oath to support the Constitutions of the United States and Kentucky.

Rule 2.110 Admission Without Examination

(1) Any person who has been admitted to the highest court of the District of Columbia or some sister state and who had been engaged in the active practice of the law for five of the seven years next preceding his application may be admitted to the bar of this state without examination provided that the qualifications required for admission to the bar in such district or state were, at the time of his admission, equal to or higher than those for admission to the bar in the Commonwealth of Kentucky at that time. Active engagement in the teaching of the law shall be considered active engagement in the practice of the law.

(2) An attorney applying for admission under this Rule shall file with the Clerk of the Supreme Court, on the form provided for application for admission, such information as shall be requested thereon together with a fee of seven hundred fifty dollars ($750.00), no part of which shall be returned. The Clerk shall forward the application to the Chairman of the Character and Fitness Committee. An applicant shall file with the Character and Fitness Committee such other affidavits or materials as shall be required to satisfy the Committee of the applicant’s moral character and fitness to be a member of the Bar of this state. With respect to character and fitness, the Character and Fitness Committee shall process such applications pursuant to Rule 2.040.

(3) In addition to the fee above described, an attorney applying for admission under this Rule shall pay all investigative fees, reporting fees or other expenses required and assessed by the Character and Fitness Committee, including but not limited to the fee paid to the National Conference of Bar Examiners.

NEW SECTION

(4) Admission under this rule shall be conditioned as follows: (a) Applicant shall file with the application for admission a verified statement that, if admitted, the applicant intends to engage in the practice of law in Kentucky and that the applicant agrees to abide by the rules, duties and standards imposed upon attorneys of this state, (b) Applicant must further file proof that the district or state from which the applicant applies and in which the applicant performs the major portion of his professional activities has rules or other provisions providing for admission without examination and by reciprocity or comity which are at least equivalent to this rule 2.110 and all other pertinent rules of this jurisdiction.

The action of the respondent Character and Fitness Committee of the Kentucky Board of Bar Examiners was proper under the rules which existed at the time of application, and is hereby affirmed. However, when the amended rules become effective on January 1, 1988, the movant’s present application shall be reconsidered with no re-application necessary, and movant shall be given credit for any fees previously paid and not refunded.

 

 

U.S. SUPREME COURT AND 6TH. CIRCUIT, HAVE PREVIOUSLY RULED THAT FEDERAL COURTS HAD JURISDICTION TO REVIEW BAR ASSOCIATION SANCTION ACTIONS WHICH VIOLATE CONSTITUTIONAL RIGHTS

Tuesday, April 17th, 2012

By Stan Billlingsley, LawReader Senior Editor

There are currently two cases pending before the 6th. Circuit Court of Appeals in which Federal Judge Danny Reeves has ruled that the Federal Courts have no jurisdiction to review constitutional violations by the Kentucky Bar Association.

Those two cases on appeal are by John M. Berry Jr. and the ACLU and another case brought against the KBA by Eric Deters. Both cases assert that the Kentucky Bar Association violated their constitutional rights.

The U.S. Supreme Court has ruled in a number of cases that Federal Courts have jurisdiction over certain actions of the Bar Associations. This issue was settled in 1970 when the 6th. Circuit determined in the Dan Taylor appeal cited below.

The 6th. Circuit, in the Dan Taylor appeal, cited numerous rulings of the U.S. Supreme Court which upheld the jurisdiction of federal courts to review state laws (and rules) which were unconstitutionally applied, or when they had a chilling effect on constitutional rights.

U.S. Supreme Court as quoted in Taylor case:

“We have not hesitated on direct review to strike down applications of constitutional statutes which we have found to be unconstitutionally applied to suppress protected freedoms. See Cox v. Louisiana, 379 U.S. 559, 85 S.Ct. 476, 13 L.Ed.2d 487 (1965)

These citations appear to bring into question the rulings of Judge Danny Reeves in which he concluded that the Federal Courts have no jurisdiction to review the constitutionality of rules of the Kentucky Bar Association.

See: Taylor v. Kentucky State Bar Association, 424 F.2d 478 (6th Cir., 1970)

Having concluded its inquiry at this point, the District Court neglected to determine whether the Appellants properly invoked its jurisdiction under 28 U.S.C. § 1343 (1964) and 42 U.S.C. § 1983 (1964). It is to this point that we now turn our attention.

Restated, the essential allegations of the complaint, which must be accepted as true for the present purposes, are that the Kentucky State Bar Association,

[424 F.2d 481]

through its officers and agents acting under color of the Rules of the Court of Appeals of Kentucky, initiated a grievance proceeding against Taylor, in bad faith and without regard to success or failure, as an instrument for the suppression of First Amendment activities, to-wit: the advocacy of unpopular ideas. The issue raised is whether federal injunctive power may be invoked under these circumstances.

A general rule, inherent in American Federalism, is that courts of the United States will not interfere with a state’s enforcement of its local laws. Douglas v. City of Jeannette, 319 U.S. 157, 63 S.Ct. 877, 87 L.Ed. 1324 (1943). A fortiori should this rule apply where the dispute is of a peculiarly local character, as is this one. It has long been recognized that the states have “autonomous control over the conduct of their officers, among whom * * * lawyers are included,” Theard v. United States, 354 U.S. 278, 281, 77 S.Ct. 1274, 1276, 1 L.Ed.2d 1342 (1957), and that the state supreme courts and bar associations bear the primary and often painful responsibility of policing the profession. See Selling v. Radford, 243 U.S. 46, 37 S.Ct. 377, 61 L.Ed. 585 (1917). Nevertheless, the Supreme Court has instructed that where a plaintiff alleges “highly unusual and very limited circumstances,” that is:

“(1) a bad-faith use of the state\’s legal machinery with the purpose of inhibiting the exercise of the right of free speech (or, alternatively, the existence of a statute unconstitutional on its face affecting free speech) and (2) a probability of irreparable injury, which is established if there is a showing of a significant chilling effect on speech that cannot be avoided by state court adjudication.” Sheridan v. Garrison, 415 F.2d 699, 709 (5th Cir. 1969), cert. denied, 396 U.S. 1040, 90 S.Ct. 685, 24 L.Ed.2d 685 (1970)

federal injunctive power under 42 U.S.C. § 1983 (1964) may be the appropriate remedy. Cameron v. Johnson, 390 U.S. 611, 88 S.Ct. 1335, 20 L.Ed.2d 182 (1968); Zwickler v. Koota, 389 U.S. 241, 88 S.Ct. 391, 19 L.Ed.2d 444 (1967); Dombrowski v. Pfister, 380 U.S. 479, 85 S.Ct. 1116, 14 L.Ed.2d 22 (1965); Cox v. Louisiana, 348 F.2d 750 (5th Cir. 1965). It is not necessary that the state statute under which the proceedings were threatened or instituted be unconstitutional on its face. The Supreme Court has recently stated:

“We have not hesitated on direct review to strike down applications of constitutional statutes which we have found to be unconstitutionally applied to suppress protected freedoms. See Cox v. Louisiana, 379 U.S. 559, 85 S.Ct. 476, 13 L.Ed.2d 487 (1965); Wright v. Georgia, 373 U.S. 284, 83 S.Ct. 1240, 10 L.Ed.2d 349; Edwards v. South Carolina, 372 U.S. 229, 83 S.Ct. 680, 9 L.Ed.2d 697 (1963).” Cameron v. Johnson, supra, 390 U.S. at 620, 88 S.Ct. at 1340.

Nor is it technically necessary that the vehicle be a criminal prosecution by the state — disbarment proceedings having been described as “proceedings of a quasi-criminal nature,” In re Ruffalo, 39,0 U.S. 544, 88 S.Ct. 1222, 20 L.Ed. 2d 177 (1968) — where, under color of state law or court rule, the effect is to chill the exercise of First Amendment freedoms. See Eisenberg v. Boardman, 302 F.Supp. 1360, 1364 (W.D.Wis.1969).

The Bar Association urges that the Kentucky Court of Appeals is an indispensible party to this litigation, since only that Court has the power to disbar. See Clark v. State of Washington, 366 F.2d 678 (9th Cir. 1966). This argument overlooks the very nature of the Dombrowski remedy, which is directed at the chilling effect of bad-faith proceedings instituted under color of state law, rather than at the punishment alone.

“The chilling effect upon the exercise of First Amendment rights may derive from the fact of the prosecution, unaffected by the prospects of its success or failure.” Dombrowski v. Pfister, supra, 380 U.S. at 487, 85 S.Ct. at 1121.

[424 F.2d 482]

“Appellants\’ case that there are `special circumstances\’ establishing irreparable injury sufficient to justify federal intervention must therefore come down to the proposition that the statute was enforced against them, not because the Mississippi officials in good faith regarded the picketing as violating the statute, but in bad faith as harassing appellants\’ exercise of protected expression with no intention of pressing the charges or with no expectation of obtaining convictions, knowing that appellants\’ conduct did not violate the statute.” Cameron v. Johnson, supra, 390 U.S. at 619-620, 88 S.Ct. at 1340.

It is ordinarily the officials of the Bar Association, not the Justices of the Kentucky Court of Appeals, who set grievance proceedings in motion. Rule 3.160, Rules of the Kentucky Court of Appeals. In further support of this proposition, the Appellees argue that no remedy can be framed against the Bar Association unless the Court of Appeals is joined. We disagree. If the Appellants can bear the “heavy burden” of showing that the Bar Association proceedings were instituted deliberately to suppress First Amendment rights, and if the Appellants can overcome the strong presumption that the Bar Association’s motive was to enforce its canons of ethics, then the District Court can frame an appropriate remedy against the Bar Association by enjoining further grievance proceedings and preventing the Bar Association from presenting any recommendations to the Court of Appeals of Kentucky. The Appellees’ contention that the Court of Appeals is an indispensible party is rejected.

The Supreme Court has refused to decide whether 28 U.S.C. § 2283 (1964) is a bar to injunctive relief in meritorious Dombrowski cases where suit has already begun, Cameron v. Johnson, supra, 390 U.S. at 614, 88 S.Ct. 1335; Cameron v. Johnson, 381 U.S. 741, 85 S.Ct. 1751, 14 L.Ed.2d 715 (1965); Dombrowski v. Pfister, supra, 380 U.S. at 484, n. 2, 85 S.Ct. 1116; and the decisions of the lower courts are divided. Compare, e. g., Baines v. City of Danville, 337 F.2d 579 (4th Cir. 1964), cert. denied, Chase v. McCain, 381 U.S. 939, 85 S.Ct. 1772, 14 L.Ed.2d 702 (1965), with Sheridan v. Garrison, 415 F.2d 699 (5th Cir. 1969), cert. denied, 396 U.S. 1040, 90 S.Ct. 685, 24 L.Ed.2d 685 (1970). We need not reach that issue, however, since disbarment proceedings, prior to their adjudication in the court in which the power to disbar resides, are not “proceedings in a State court,” therefore the federal anti-injunction statute does not apply.

We find that the Appellants have properly invoked federal jurisdiction under 28 U.S.C. § 1343 (1964) and have stated a claim for which relief may be granted under 42 U.S.C. § 1983 (1964). The judgment of the District Court is therefore reversed in part, and this cause is remanded for an evidentiary hearing or such other proceeding as the District Court may direct.

 

 

READ THE JOHN M. BERRY JR. LETTER WHICH UPSET THE LEGISLATIVE ETHICS COMMISSION AND SPARKED A WARNING FROM THE KBA INQUIRY COMMISSION, AND A FEDERAL LAWSUIT – this letter is the basis for an appeal pending in the 6th. Cirt. over lawyers free speech rights in Kentucky

Monday, April 16th, 2012

 

 

READ THE JOHN M. BERRY JR. LETTER WHICH UPSET THE LEGISLATIVE ETHICS COMMISSION AND SPARKED A WARNING FROM THE KBA INQUIRY COMMISSION, AND A FEDERAL LAWSUIT.

 

THE FOLLOWING LETTER WAS WRITTEN BY NEW CASTLE ATTORNEY JOHN M. BERRY, JR. A FORMER STATE SENATOR. THIS LETTER IS AN EXHIBIT IN A FEDERAL CIVIL SUIT FILED BY JOHN M. BERRY, JR. AND THE ACLU AGAINST THE KBA INQUIRY COMMISSION.

 

AS A RESULT OF THIS LETTER THE KBA INQUIRY COMMISSION CONDUCTED AN “INVESTIGATION” AND LATER ISSED “A WARNING LETTER” TO BERRY. THE INQUIRY COMMISSION ALLEGED THAT BERRY VIOLATED SCR 3.130 8.2(A) WHICH STATES:

 

SCR 3.130 8.2(A) ” A LAWYER SHALL NOT MAKE A STATEMENT THAT THE LAWYER KNOWS TO BE FALSE OR WITH RECKLESS DISREGARD AS TO ITS TRUTH OR FALSITY CONCERNING THE QUALIFICATIONS OR INTEGRITY OF A JUDGE, ADJUDICATORY OFFICER OR PUBLIC LEGAL OFFICE, OR A CANDIDAE FOR ELECTION OR APPOINTMENT TO JUDICIAL OR LEGAL OFFICE.”

 

THE INVESTIGATION BY THE INQUIRY COMMISSION COMMENCED ON NOV 9, 2007 WITH A NOTICE OF INVESTIGATION BY DEPUTY BAR COUNSEL JENNY D. LAFFERTY, AND CONCLUDED ON MARCH 16, 2009 WITH THE ISSUANCE OF A “WARNING LETTER” AND WITH THE ORDER OF DISMISSAL DATED MARCH L4, 2009.

 

THE FEDERAL LAWSUIT SEEKS A RULING HOLDING SCR 3.130 8.2(A) UNCONSTITUTIONAL AS APPLIED IN THIS INSTANCE BY THE INQUIRY COMMISSION. THE SUIT SEEKS DAMAGES AND COSTS INCLUDING ATTORNEY FEES.

 

THE WARNING LETTER STATED AS ITS ONLY FINDING OF MISCONDUCT THAT:

 

“The Respondent violated (SCR 3.130 8.2(a) ) by publicly implying that the Legislative Ethics Commission did not conduct its review appropriately.”

 

The Berry letter stated:

 

********

 

Oct. 5, 2007

 

Kentucky Legislative Ethics Commission 22 Mill Creek Park Frankfort, Ky. 40601

 

Dear Chairman Troutman and Commission Members:

 

As you know, my brother Wendell, and I attempted to attend your meeting on August 14, 2007. Before commencing the preliminary inquiry relative to the complaint filed against Senator David L. Williams, we were asked to leave along with other members of the public, the media and the complainant, Richard Beliles, on behalf of Common Cause of Kentucky. The Inquiry was conducted entirely behind closed doors with the exception of Senator Williams who was allowed to be present throughout the preliminary inquiry. The exclusion of the pubic (sp) and the media was enough to arouse suspicion, but the exclusion of the complainant (except for a brief appearance as a witness) coupled with the inclusion of the alleged violator throughout the proceeding gave cause for some to speculate that the deck was stacked and the Senator would be exonerated. I was not, and am not, willing to go that far, but I do believe that your Order entered July 29, 2007 that exonerated him, was contrary to the undisputed evidence that was presented.

 

It is very unlikely that a legislator would ever come before the Commission and confess guilt. it is almost as unlikely that witnesses consisting of legislative staff, lobbyists, or others who have a special interest in the public policy decisions which are influenced by the legislator would take a chance of alienating by testifying, in his presence, to anything except their high regard for him. Your Order implies that the absence of such testimony warrants the finding that there is no probable cause to believe that there was any wrongdoing, or even the appearance of it, and, therefore, no adjudicatory proceeding would be in order. I do not agree with your conclusion and I believe that the evidence filed with the complaint, with the other facts you found by the order, clearly indicate that what was going on was unethical and a violation of the statutes which your are charged to enforce.

 

I looked first at the letter written by Senator Williams which was an invitation to all of the invitees to participate in a joint venture to raise money to finance the campaigns of Republican candidates for the State Senate. The letter itself depicts the capitol dome with the senator’s name and high office printed underneath. Across the capitol dome are the words, “Senate Majority Event”. The letter stresses the importance of Senator Williams in the conduct of Senate business and the personal importance to him of the invitee’s cooperating in this effort to elect Republican candidates to the Senate. The purpose of the solicitation is to maintain and grow the Senate Republican majority which is necessary to keep Senator Williams in the position of President and therefore, well positioned to attend to the business of the invitees. The letter is signed by Senator Williams and underneath his signature the invitees are once again reminded that he is the Senate President.

 

The letter, although not an exact copy of senate stationary, is set up so as to appear to be his letterhead and he repeatedly speaks of himself as the Senate President. Anyone aware of the importance of public policy decisions to fund-raisers would be aware also of the extent to which the power and influence of Senator Williams could affect their interests and, therefore, of the importance of having his goodwill. To ignore the invitation would be risky business for them. All of this is clearly contrary to, or in violation of, or questionable under, the follows:

 

KRS 6.606 Purpose of Code

 

The proper operation of democratic government requires that a public official be independent and impartial; that government policy and decisions be made through the established processes of government; that a public official not use public office to obtain private benefits; that a public official avoid action which creates the appearance of using public office to obtain a benefit; and that the public have confidence in the integrity of its government and public officials.

 

KRS 6.731 General Standards of conduct; penalties

 

A legislator, by himself or through others, shall not intentionally:

 

(1) Use or attempt to use his influence as a member of the General Assembly in any matter which involves a substantial conflict between his personal interest and his duties in the public interest. Violation of this subsection is a Class A misdemeanor; ……

 

(3) Use or attempt to use his official position to secure or create privileges, exemptions, advantages, or treatment for himself or others in direct contravention of the public interest at large. Violation of this subsection is a Class A misdemeanor. …..

 

(5) Use public funds, time, or personnel for partisan political campaign activity, unless the use is:

 

(a) Authorized by law, or

 

(b) properly incidental or another activity required or authorized by law, such as elections to constitutional or party offices within the General Assembly. Violation of this subsection is a Class A misdemeanor.

 

(6) Use of his official legislative stationery, or a facsimile thereof, to solicit a vote or a contribution for his or another person’s campaign for election or reelection to public office, or use the great seal of the Commonwealth on his campaign stationery or campaign literature. For purposes of this subsection, “official legislative stationery” means the stationery used by a legislature on a day-to-day basis for correspondence related to his duties as a member of the General Assembly. Violation of this subsection is ethical misconduct.

 

KRS 6.767 Prohibition against acceptance of campaign contributions from legislative agents penalty

 

A member of the General Assembly, candidate for the General Assembly, or his campaign committee shall not accept campaign contributions from a legislative agent. Violation of this provision is ethical misconduct.

 

OLEC 06-03 OPINION

 

1. A member of the General Assembly may not ask or direct a lobbyist to solicit campaign contributions for a political party or a legislative campaign.

 

A careful reading of the letter which Senator Williams sent to the invitees leads but to one conclusion, which is that the most powerful member of the Kentucky State Senate, representing himself personally and the Majority Caucus, was putting the arm on people, who have a vital special interest in public policy decisions, for campaign contributions, and that he was doing so in order to maintain the majority and to keep himself in his position as President. If the letter is then read in the context of the above statues, it is just as clear that his conduct violates those statutes.

 

This conclusion is reenforced by all of the things that occurred between the time that the letter was written and the luncheon on May 23rd. The material distributed at the luncheon is especially offensive in that it solicits contributions to the senate political caucus, which will finance the campaigns of individual senators. It further recommends that, in addition to the $2,000 per person ticket of admission to the fundraiser, invitees should contribute a minimum of $5,000. And it further suggests that attendees can achieve much greater benefit, including seat at the head table with the featured speaker and Senate President David L. Williams, for $50,000.

 

In all of these documents, from the letter of invitation to the fact sheet and the benefit sheet, Senator Williams is prominently featured. he was the featured speaker at the event at which the information was given to all guess including the lobbyists. This episode as a whole constitutes a blatant misuse of power in order to obtain large contributions from lobbyists and others with a big stake in government programs and projects. It is not clear how the Commission could have justified Senator Williams conduct and dismissed the complaint. There is no question that he as well as his official position and influence were being used for the benefit and advantage of the senate candidates and himself.

 

There were approximately seven grounds cited by you in your order to support your exoneration of Senator Williams. None of these grounds either standing alone or collectively warrant the result. How many complainants could be expected to have firsthand knowledge of violations? Mr. Beliles did have first-hand knowledge of the documents that clearly set forth the plan and the motive behind it. They were presented to your and admitted as evidence. What value is it to know that an alleged violator made a telephone call verbally requesting an opinion, without all of the facts and asking only one very limited and irrelevant question? When did the hiring of go-betweens to carry out an illegal plan in order that the planners and organizers “could get away from it” become a justification for anything? Is it further mitigating if the people you hire know little or nothing about the law? The implications here are obvious, but in the opinion of the Commission, appear to be sufficient to establish nothing less than the best of intentions. If the lobbyists question the legality of what is being done, you solve the problem by simply instructing them to make their checks payable to the party and not to the caucus. If all else fails, but the Senator was at the time in a hurry, then he is exonerated on the basis of the legal proposition that “haste makes waste”.

 

If the law as it stand is inadequate to allow you in this case to find any violation, ethical misconduct, impropriety, or even the appearance of it, then the law needs to be changed and I hope that you would be instrumental in attempting to get that done.

 

Very truly yours,

 

(s) John M. Berry Jr.

 

JMBjr:mc

 

******************

 

The Federal Lawsuit contains a letter from the Inquiry Commission to John M. Berry Jr. dated March 16, 2009. This letter is dated some l7 months after the date of the Berry letter to the Legislative Ethics Commission. We have not viewed any documents which specifically detail what statements made by Berry in his letter were “false or with reckless disregard as to its truth or falsity concerning the qualifications or integrity of a judge, adjudicatory officer or public legal officer…”(As required by SCR 3.130 8.2(a)… the ethical rule Berry is alleged by the Inquiry Commission to have violated.

 

In a document dated May 29, 2008 Berry notified the Inquiry Commission that he waived any confidentiality concerning the investigation against him by the Inquiry Commission. “(Re: SCR 3.150)… Subsection 1(a) …provides that I can waive confidentiality and that would appear to remove the confidentiality requirement entirely. I therefore am waiving the confidentiality requirement effective with this letter.”

 

Plaintiff’s Exhibit 2 – Document 1-3 filed in the Federal Civil Suit states:

 

INQUIRY COMMISSION KENTUCKY BAR CENTER 514 WEST MAIN STREET FRANKFORT, KENTUCKY 40601-1812

 

March l6, 2009

 

 

 

CONFIDENTIAL John M. Berry Jr. l9 N. Main St., P.O. Box 245 New Castle, Ky. 40050-0245

 

Re: John M. Berry Jr. (Complaint of the Inquiry Commission) KBA File 15773

 

Dear Mr. Berry:

 

The Inquiry Commission has considered the above referenced Complaint and the materials provided by the Respondent, as well as additional investigative materials.

 

The Commission has found that it appears Respondent ‘s conduct did not adequately comply with the requirements of SCR 3.130 8,2(a).

 

On October 5, 2007, the Respondent sent a letter to the Kentucky Legislative Ethics Commission criticizing its treatment of a Complaint filed against Kentucky Senator David L. Williams.

 

SCR 3.130 8.2 (a) provides: “A lawyer shall not make a statement that the lawyer knows to be false or with reckless disregard as to its truth or falsity concerning the qualifications or integrity of a judge, adjudicatory officer or public legal officer, or a candidate for elections or appointment to judicial or legal office.” The Respondent violated this Rule by publically implying that the Legislative Ethics Commission did not conduct its review appropriately.

 

The Inquiry Commission voted to issue this warning letter, in connection with its Order of Dismissal, as provided by SCR 3.185, in lieu of either a Private Admonition or a Charge. This letter is to advise you in the future to conform your conduct to the requirements of the Rules of Professional Conduct.

 

Pursuant to SCR 3.185, the issuance of this warning letter does not constitute a record of discipline. The file will be destroyed after one (1) year.

 

Very truly yours,

 

(s) Reed N Moore Jr. Chair, Inquiry Commission

 

RNM/esd

 

cc. Steven R. Romines, Counsel for Respondent.

 

In another document filed as an exhibit with the Federal lawsuit – Document 1-3- The Inquiry Commission issued an “Order of Dismissal” of the complaint against Berry. that order was dated March 14, 2009. That order said “the record relating to this complaint shall be destroyed one year after the date of this order.”

 

*****

 

COAKY HOLDS NEGLIGENCE CLAIM AGAINST BANK FOR CHECK-KITING CAN BE BARRED BY ACCOUNT OWNER’S FAILURE TO REVIEW BANK ACCOUNT

Saturday, April 14th, 2012

 

 

By David Kramer | dkramer@dbllaw.com

 

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.

 

In Mark D. Dean, P.S.C. v. Commonwealth Bank & Trust Co., 2010-CA-00050 (rendered 4/6/12), the Kentucky Court of Appeals considered an appeal of a summary judgment dismissing claims against a bank by a commercial escrow account holder whose bookkeeper had embezzled money by kiting checks. The trial court dismissed a claim under the Uniform Commercial Code (UCC) based on the Code’s three-year statute of limitations, and dismissed associated common law claims as having been displaced by the UCC. On appeal, the customer argued that the UCC claim, even though it was made nearly four years after the matter was brought to the customer’s attention, was not time-barred since the UCC’s three-year limitations period should be deemed to have been tolled until the bank’s negligence was discovered.

 

The Court, in an opinion by Judge Glenn Acree, rejected that argument and held instead that the customer’s failure to inspect its monthly statements – even though they were being intercepted and diverted by the bookkeeper – barred the claim under the substantive provisions of the UCC, specifically Code Sections 4-403 and 4-406(6) (KRS 355.4-403 and 355.4-406(6)). Those sections require a bank customer to inspect account statements in a prompt and reasonable fashion (4-403), and allow the customer one year after the statement is made available to the customer to discover and report any unauthorized signature or alteration (4-406(6)). The Court held that the customer had unreasonably failed to comply with its duties to monitor the account, and as a result the customer did not discover and report the kiting scheme in a timely fashion. Thus, the UCC claim was barrred substantively, not based on limitations.

 

Though the Court declined to address whether the UCC’s three-year SOL is subject to a discovery rule, the Court nevertheless considered whether the failure of Dean to discover the kiting scheme was reasonable or not, since Official Comment 1 to 4-406 requires consideration of whether the customer should have reasonably discovered the unauthorized payment. The Court found the customer’s failure to oversee the bookkeeper’s work was not reasonable and that the scheme should have been discovered sooner with reaonable diligence.

 

Finally, the Court found that the failure of the customer to comply with its UCC obligations barred not just the UCC claim, but any common law claims for relief relating to the check-kiting scheme.

 

The decision highlights not just the need for internal oversight and control over a company’s finances (including not having only one person sign checks, or not having the same person who signs checks review bank statements), but also the duty of any bank checking account owner to promptly inspect account statements for unauthorized charges or alterations to checks.

 

The opinion was designated for publication but is not yet final. Decisions that are not final may not be cited as precedent.

 

David Kramer is a Northern Kentucky attorney practicing at Dressman Benzinger LaVelle psc.

 

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Sixth Circuit Sets Aside Melbourne Mills Malpractice Insurance in Fen Phen Case

Saturday, April 14th, 2012

 

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 12a0102p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

_________________

CONTINENTAL CASUALTY COMPANY,

Plaintiff-Appellee,

v.

LAW OFFICES OF MELBOURNE MILLS, JR.,

PLLC;MELBOURNE MILLS, JR., (10-5813);

MILDRED ABBOTT, et al. (10-5814),

Defendants-Appellants.

X—-

>,—–

N

Nos. 10-5813/5814

Appeal from the United States District Court

for the Eastern District of Kentucky at Lexington.

No. 06-00272—Joseph M. Hood, District Judge.

Argued: January 20, 2012

Decided and Filed: April 13, 2012

Before: SILER, CLAY, and ROGERS, Circuit Judges.

_________________

COUNSEL

ARGUED: James A. Shuffett, Lexington, Kentucky, William T. Ramsey, NEAL &

HARWELL, PLC, Nashville, Tennessee, for Appellants. Richard A. Simpson, WILEY

REIN LLP, Washington, D.C., for Appellee. ON BRIEF: James A. Shuffett,

Lexington, Kentucky, William T. Ramsey, Kendra E. Samson, NEAL & HARWELL,

PLC, Nashville, Tennessee, for Appellants. Richard A. Simpson, WILEY REIN LLP,

Washington, D.C., for Appellee.

_________________

OPINION

_________________

ROGERS, Circuit Judge. This case involves whether a malpractice liability

policy is properly rescinded for incomplete responses to questions on the applicable

insurance applications. After lawyer Melbourne Mills, Jr., was successfully sued for

1

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millions of dollars for legal malpractice, his ostensible malpractice insurance carrier,

Continental Casualty Company, sought a judicial declaration that it was entitled to

rescind Mills’s insurance policy for the time period covered by the class action. The

district court granted Continental summary judgment, holding that Mills’s failure to

disclose an ongoing state bar association inquiry constituted a material misrepresentation

when the policy renewal application specifically asked if “any attorney [was] subject to

any disciplinary inquiry . . . during the expiring policy period.” On Mills’s appeal, there

are two alternative bases for affirming the judgment in favor of Continental: (1) Mills’s

negative response to a different question constituted a material misrepresentation in light

of the ongoing bar association inquiry which ultimately led to Mills’s disbarment, and

(2) the policy’s dishonesty exclusion clause bars coverage of any claim arising out of a

“dishonest, fraudulent, or . . . malicious act or omission.” In 2010, the Kentucky

Supreme Court issued an order which permanently barred Mills from the practice of law

in Kentucky. This order constituted a sufficient “regulatory ruling” under the dishonesty

exclusion clause to bar coverage. Each of these two bases supports upholding the

district court’s grant of summary judgment.

Continental sued below to rescind a malpractice insurance policy for the Law

Offices of Melbourne Mills, Jr., after Mills and other attorneys allegedly breached their

fiduciary duties during the negotiations of a large class action settlement. Mills and

others, including Shirley Cunningham and William Gallion, represented a group of over

400 plaintiffs in a class action suit against American Home Products for injuries related

to the use of the diet drug Fen-Phen. At the outset of the suit, it was agreed that the

lawyers’ fees would be determined by contingency fee contracts, limited to 30% of the

clients’ gross recovery. In May 2001, American Home Products agreed to settle the

class action for almost $200 million. The plaintiffs in the action together received only

$74 million, or 37% of the settlement, while the lawyers received the following: Mills

received $23 million; Cunningham received $26 million; Gallion received $30 million;

Stan Chesley received $20 million; and consultants and other counsel received $7

million. The remaining $20 million was used to establish The Kentucky Fund for

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Healthy Living, Inc. Mills served as a member of the Fund’s Board of Directors, for

which he allegedly received a monthly compensation of $5,350.

In early February 2002, Mills learned that the Kentucky Bar Association

(“KBA”) was investigating complaints filed against him in connection with the Fen-Phen

class action. The Inquiry Commission Complaint stated that Mills was under

“investigation” for “fees obtained in settlement of certain [claims regarding the use of

Fen-Phen and other pharmaceuticals] . . . [that] were divided with other counsel not in

your firm,” as well as allegations concerning a paralegal in Mills’s office who was

“conducting the unauthorized practice of law” as part of the work on the class action. On

February 11, 2002, Mills’s attorney, William Johnson, attended a hearing of the KBA’s

Inquiry Commission with respect to an application for a subpoena duces tecum that was

served on Mills.

In August 2003, Mills applied to renew his professional liability insurance with

Continental for the 2003– 2004 year. Continental had insured Mills’s law office for

many years prior to this application.

Question 3 of the application asked: “Are there any claims, or acts or omissions

that may reasonably be expected to be a claim against the firm, that have not been

reported to the Company or that were reported during the expiring policy period?” In

response, Mills checked “NO,” but made a notation to “See Schedule 2.” Schedule 2,

entitled E&O Claims, stated: “In addition to Melbourne Mills, Jr., the lawyers currently

serving in the firm include two of counsel partners, David L. Helmers and E. Patrick

Moores. The information regarding the of counsel attorneys is contained on the attached

attorney information sheet.”

Question 4 of the 2003 application read: “Has any attorney been disbarred,

suspended, formally reprimanded or subject to any disciplinary inquiry, complaint or

proceeding for any reason other than non-payment of dues during the expiring policy

period?” Again, Mills checked “NO,” but wrote that Continental should “See Schedule

3.” Schedule 3, entitled Disciplinary Proceedings, stated:

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During the current year no attorney has been disbarred, suspended,

formally reprimanded or subject to any disciplinary inquiry, complaint

or proceeding. In prior years, attorneys in the Firm have responded to

inquiries filed by all jurisdictions exercising jurisdiction and control over

attorney conduct. There have been no adverse findings regarding any

attorney or other party’s conduct.

According to Mills, at the time of the 2003 application, he did not know the status of the

2002 KBA investigation; in his own words, the case “lay in limbo for years at a time.

Just nothing was done.”

In August 2003, Continental granted an insurance policy, entitled Lawyers’

Professional Liability Policy, to the Law Offices of Melbourne Mills, Jr. The policy

contained various exclusions, including a Dishonesty Exclusion which stated:

This Policy does not apply . . . to any claim based on or arising out of any

dishonest, fraudulent, or criminal or malicious act or omission by an

Insured except that this exclusion shall not apply to personal injury. The

Company shall provide the Insured with a defense of such claim unless

or until the dishonest, fraudulent, criminal or malicious act or omission

has been determined by any trial verdict, court ruling, regulatory ruling

or legal admission, whether appealed or not. Such defense will not waive

any of the Company’s rights under this Policy.

In 2005, the Fen-Phen class action members asserted legal malpractice claims

against Mills and others in Abbott, et al. v. Chesley, et al. The Boone County Circuit

Court determined that the attorneys “breached their fiduciary duties to the Plaintiffs

when they paid themselves fees over and above the amount to which they were entitled

to under their fee contracts with their clients.” As a result, the class plaintiffs were

awarded $42 million. Continental initially provided Mills a defense in this case;

however, Continental also fully reserved its rights, including the right to rescind the

policy.

Continental sought a judicial declaration that it was entitled to rescind the

insurance policy granted to the Law Offices of Melbourne Mills, Jr., for the period

covering August 21, 2003 to August 21, 2004. The district court granted summary

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judgment in favor of Continental, holding that Continental was entitled to void the policy

because Mills’s 2003 application included material misrepresentations and omissions

regarding the ongoing KBA ethical inquiries. Because the district court found that

“Mills knew that a bar complaint had been filed against him in early 2002,” and the

“KBA’s investigation was ongoing,” the district court held that Mills’s response to

Question 4 constituted a material misrepresentation under section (2) of K.R.S. § 304.14-

110. This section provides that a misrepresentation prevents recovery under a policy if

it is “[m]aterial either to the acceptance of the risk, or to the hazard assumed by the

insurer.” The district court noted that the “ongoing KBA inquiry into Mills’s actions

with respect to the Fen-Phen Action is precisely the type of information Continental

needed to evaluate its potential for current and future risk.” The district court also

determined that Mills’s response to Question 4 satisfied section (3) of K.R.S. § 304.14-

110, which provides that a misrepresentation shall bar coverage if “[t]he insurer in good

faith would either not have issued the policy or contract, or would not have issued it at

the same premium rate . . . if the true facts had been made known to the insurer as

required . . . by the application for the policy.” In doing so, the district court relied

heavily on the testimony of a Continental employee who stated that disclosure of the

investigation would have led Continental to take “one of several potential restrictive

underwriting actions in order to address potential exposure.” Holding that Mills’s

response to Question 4 entitled Continental to rescind the policy, the district court

determined that it was not necessary to address whether Mills’s answer to Question 3

was a material misrepresentation or whether Continental was entitled to summary

judgment based upon exclusionary language in the policy.

In addition to the grant of summary judgment to Continental, a money judgment

for $233,674.49 was entered against Mills, which was the amount of the defense costs

Continental paid on his behalf in the initial class action.

On June 10, 2010, the same day that the money judgment was entered, the district

court also granted Continental leave to file supplemental authority, namely: (1) the May

20, 2010 Order of the Kentucky Supreme Court which disbarred Mills from the practice

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of law in Kentucky, and (2) the August 27, 2009 Findings of Fact and Conclusions of

Law of the Trial Commissioner, which the Kentucky Supreme Court used to reach its

decision to disbar Mills. The district court held that it could take judicial notice of the

Order of the Supreme Court disbarring Mills and the Findings of Facts because the

documents came under Fed. R. Evid. 803(8), the public records exception to

inadmissible hearsay. In the alternative, the district court determined that the documents

had the “guarantees of trustworthiness” which allowed them to be admitted pursuant to

Fed. R. Evid. 807. In allowing these documents to be included in the record, the district

court noted that it did not reach the issue of whether the dishonesty bar in the policy

voided Mills’s insurance, and “[s]hould an appellate court have reason to review the

additional grounds upon which Continental moved for summary judgment, these

documents could be essential to a complete record.”

Mills and the class members, who intervened to protect their ability to recover

against Mills, now appeal. They argue that Mills did not make a material

misrepresentation on the 2003 insurance renewal application, and thus the policy should

not have been rescinded. Mills and the class action plaintiffs also maintain that the

district court erred by allowing Continental to file supplemental authority that was both

a finding of fact and hearsay after the court had already granted summary judgment.

Because Mills made a material misrepresentation in his malpractice insurance

application with Continental, the policy was properly voided under Kentucky law.

Though the district court determined that the policy was void due to Mills’s response to

Question 4 of the 2003 application, Mills’s answer to Question 3 represented a material

misrepresentation, and provides an alternative basis for affirmance. According to K.R.S.

§ 304.14-110, a misrepresentation voids an insurance policy if the misrepresentation is

“material” to the acceptance of risk or if the insurance company would not have issued

the policy if the true facts had been made known. Though this standard is disjunctive,

Mills’s response to Question 3 was both a misrepresentation that was material to

Continental’s acceptance of risk and, if Continental had known of the investigation

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against Mills, Continental would not have issued the policy or would not have issued the

policy at that rate.

Mills’s answer to Question 3 of the 2003 application was a material

misrepresentation. Question 3 of the application asked: “Are there any claims, or acts

or omissions that may reasonably be expected to be a claim against the firm, that have

not been reported to the Company or that was reported during the expiring policy

period?” In response, Mills checked “NO,” but made a handwritten notation to “See

Schedule 2.” Schedule 2, entitled E&O Claims, stated: “In addition to Melbourne Mills,

Jr., the lawyers currently serving in the firm include two of counsel partners, David L.

Helmers and E. Patrick Moores. The information regarding the of counsel attorneys is

contained on the attached attorney information sheet.”

Mills’s answer to Question 3 was a misrepresentation because in August of 2003,

when he was filling out the application, Mills knew of not only the ongoing KBA

investigation, initiated in February 2002 but unresolved at that time, but also all of the

acts surrounding the Fen-Phen class action settlement negotiations, which reasonably

could have—and ultimately did—lead to a malpractice claim. Even though the class

action members did not bring the legal malpractice suit until 2005, in August 2003 Mills

still knew that, collectively, the lawyers in the Fen-Phen class action paid themselves

over $126 million. According to one uncontested document put forth by the class

members, the lawyers were limited to fees of a little over $60 million. Mills knew that

the clients had not been told all of the pertinent facts regarding the settlement offer and

the fee splitting arrangement, and that the KBA had subpoenaed the financial records

from the case as a result of the 2002 inquiry. In sum, Mills was aware that he had

engaged in conduct that led to the disbarment of him and two of his co-counsel. Mills

knew that his conduct was egregious and that his “acts” and “omissions” could have

“reasonably be[en] expected” to lead to “a claim against the firm.” Mills was

unquestionably required to disclose this information to Continental when filling out the

policy renewal application.

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Mills’s failure to disclose his actions in response to Question 3 was also material

to Continental’s acceptance of risk, K.R.S. § 304.14-110(2), and had an impact on

Continental’s decision to issue the policy at the rate that it did, K.R.S. § 304.14-110(3).

Mills incorrectly argues that K.R.S. § 304.14-110 requires that the insured make an

intentional misrepresentation; the plain language of the statute requires only that the

misrepresentation be “material.” According to Kentucky case law, a misrepresentation

is material if “the insurer, acting reasonably and naturally in accordance with the usual

practice of . . . insurance companies under similar circumstances, would not have

accepted the application if the substantial truth had been stated therein.” Mills v. Reserve

Life Ins. Co., 335 S.W.2d 955, 958 (Ky. 1960). A misrepresentation is material if there

is sufficient evidence that the insurance company would not have issued the policy or

would have issued a different policy if it had knowledge of Mills’s actions and omissions

under K.R.S. § 304.14-110(3). Therefore, many of the reasons that support a

determination of “materiality” under K.R.S. § 304.14-110(2) also support a holding that

Mills’s misrepresentation satisfied section (3) of the statute as well.

Mills’s failure to disclose the circumstances surrounding the Fen-Phen class

action and the ongoing KBA investigation was material to Continental, which likely

would not have issued the policy, or would have issued a different policy, had it known

of Mills’s acts and omissions during this time. Because Continental has a duty to defend

all claims against its insured, including non-meritorious claims, Continental has an

interest in all potential claims. This is “precisely the kind of information that

Continental [sought and] would need to evaluate its potential for current and future risk.”

Cont’l Cas. Co. v. Lampe & Hamblin, PLLC, No. 3:03CV604-H, 2004 WL 5708261,

at *4 (W.D. Ky. Nov. 1, 2004) (“Lampe”). In this case, that risk was amplified by the

enormity of the $200 million class action settlement. Mills had a duty to disclose this

information in response to Question 3, and when he did not, he affected Continental’s

opportunity to consider and weigh its options when issuing the Policy.

Peter Brinkman, underwriter for Continental, also testified that he could “state

without hesitation or qualification that an affirmative response to Question 3 . . . of the

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2003 application would have been material to Continental’s underwriting of policies

issued to the Firm.” Though the class members argue that the testimony of the insurance

company’s own employee is not sufficient for a finding of materiality, this is not correct.

In Lampe the district court applied Kentucky law and determined that a

misrepresentation was material solely on the basis of commonsense assumptions

regarding what would have an impact on the decision making process of a reasonable

insurance company. Underlying documents or employee testimony were not necessary

to support this determination. Id. at *2.

Both Mills and the class action members dispute the district court’s finding and

argue that an answer to Question 3 reflects the “subjective state of the applicant’s mind,”

and thus the question of materiality should be determined by a jury. However, in

reviewing a policy under K.R.S. § 304.14-110, this court has not hesitated to declare that

a misrepresentation was “plainly material.” See Cook v. Life Inv. Ins. Co., 126 F. App’x

722, 729 (6th Cir. 2005). In addition, while Question 3 is subjective, the ongoing

investigation by the KBA, as well as the circumstances surrounding the class action

settlement, meant that Mills knew that there was the potential for a “claim” against him,

and thus the only possible answer to Question 3 was “YES.” The purpose of K.R.S

§ 304.14-110 is to “encourage honesty . . . on the part of potential insureds and to

dissuade misrepresentations,” Progressive, 891 F. Supp. at 381; therefore, even if Mills

did not “know” that the Fen-Phen class action members would initiate a lawsuit against

him, he should have let Continental know of the possibility of a claim in light of the

complaints and inquiry. Mills’s reference to Schedule 2, which does not answer

Question 3 at all, further suggests that Mills understood and was trying to get around

Continental’s clear attempt to learn of any current and potential future risk.

Mills resurrects an argument raised in Lampe, comparing malpractice coverage

to Kentucky’s universal automobile liability insurance coverage and arguing that the

“expressed public interest” in legal malpractice insurance “outweighs any right of an

insurer to rescind an insurance contract.” Lampe, 2004 WL 5708261, at *3. The district

court in Lampe considered this argument carefully but rejected it, concluding “that a

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Kentucky court would not find public policy of the state so strongly in favor of lawyers

liability insurance coverage that it could outweigh an insurer’s right to rescission as is

the case with automobile liability coverage.” Id. at *3 -*4. In any event, Mills did not

make this argument during the proceedings before the district court and this court will

not review issues raised for the first time on appeal, because “[o]ur function is to review

the case presented to the district court, rather than a better case fashioned after a district

court’s unfavorable order.” DaimlerChrysler Corp. Healthcare Benefits Plan v. Durden,

448 F.3d 918, 922 (6th Cir. 2006). Accordingly, we need not consider this new

argument on appeal. See Post v. Bradshaw, 621 F.3d 406, 415 (6th Cir. 2010).

As a final argument, the Fen-Phen class action plaintiffs suggest, as best we can

understand, that if Continental had known of Mills’s ongoing investigation, and as a

result had cancelled or not renewed the 2001– 2002 policy, Mills could have purchased

a three-year extended reporting period (“ERP”), thus covering Mills during the time

frame encompassing the claims of the class action plaintiffs. However, this argument

makes little sense, as the opportunity for Mills to purchase the ERP would have expired

60 days after the hypothetical non-renewal or cancellation in 2002, and thus would have

occurred almost ten months prior to the 2003 misrepresentation that is at the crux of this

case.

Though not argued on appeal, the class action plaintiffs made a similar argument

below with regard to a potential ERP after the cancellation or non-renewal of the 2002–

2003 policy. However, in addition to not being adequately raised, this claim suffers

from the following weakness: such an ERP would have had to been purchased at 175%

of the premium rate. Thus, even under this speculation, Continental was deprived of the

ability to charge a higher premium due to Mills’s misrepresentation. Therefore, the

hypothetical existence of the ERP does not change the materiality analysis.

In sum, Mills’s response to Question 3 failed to disclose the circumstances

surrounding the Fen-Phen class action and the ongoing KBA investigation, and this

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information was material to Continental’s risk assessment. These conclusions are

sufficient to uphold the district court’s grant of summary judgment.

In addition, the policy could have been rescinded under the plain terms of a

clause in the policy excluding coverage for dishonest acts. The clause provides:

This Policy does not apply . . . to any claim based on or arising out of any

dishonest, fraudulent, or criminal or malicious act or omission by an

Insured except that this exclusion shall not apply to personal injury. The

Company shall provide the Insured with a defense of such claim unless

or until the dishonest, fraudulent, criminal or malicious act or omission

has been determined by any trial verdict, court ruling, regulatory ruling

or legal admission, whether appealed or not. Such defense will not waive

any of the Company’s rights under this Policy.

Although Kentucky law states that an insurance policy “should be liberally

construed” and “all doubts [should be resolved] in favor of the insureds,” this does not

mean that the clear terms should not be interpreted “according to their ‘plain and

ordinary meaning.’” K.M.R. v. Foremost Ins. Group, 171 S.W.3d 751, 753 (Ky. App.

2005) (citing Nationwide Mut. Ins. Co. v. Nolan, 10 S.W.3d 129, 131-32 (Ky. 1999)).

See also Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 564 (6th Cir. 2008). Policies

should reflect “the parties’ mutual understanding at the time they entered into the

contract and ‘[s]uch mutual intention is to be deduced, if possible, from the language of

the contract alone.’” K.M.R., 171 S.W.3d at 753 (quoting Nolan, 10 S.W.3d at 131.32).

In this case, the dishonesty exclusion clause can only be interpreted to mean that

the parties did not intend for the policy’s legal malpractice coverage to include acts that

were objectively fraudulent or dishonest. To the extent that the clause requires a court

or regulatory ruling, the requirement is satisfied by the May 20, 2010 Order of the

Kentucky Supreme Court which disbarred Mills from the practice of law in Kentucky.

Ky. Bar Ass’n v. Mills, 318 S.W.3d 89, 93 (Ky. 2010). After granting Continental’s

motion for summary judgment, the district court properly granted Continental leave to

file the disbarment order as supplemental authority. The Kentucky Supreme Court

ruling is within the plain language of Fed. R. Evid. 803(8), the public records exception,

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and thus is not inadmissible hearsay. Moreover, the class action members concede that

the Disbarment Order may be considered as part of the record, and that this court may

take judicial notice of it as part of our de novo review on summary judgment.

The Kentucky Supreme Court’s ruling determined that Mills had committed

“dishonest” and “fraudulent . . . act[s] or omission[s],” and thus is sufficient to bar

coverage under the dishonesty exclusion clause of the policy. In addition to other

violations, the Kentucky Supreme Court found that Mills violated S.C.R. 3.130– 8.3(c)

by deceiving his clients into accepting the individual settlement amounts

devised by a fraudulent method; misrepresenting to the Boone Circuit

Court that his clients had agreed to donate a substantial portion of the

total settlement received to charity; failing to inform the Boone Circuit

Court that he had contingent fee contracts with all of his clients which set

a specific fee; providing, or assisting in providing, false or misleading

information to the Boone Circuit Court about the fees and expenses . . . ;

and misappropriating, or participating in the misappropriation of, his

clients’ funds and the subsequent cover up.

Id. (emphasis added).

As the court found that Mills’s “participat[ed] in the misappropriation of . . .

clients’ funds,” Mills’s argument that he did not personally misappropriate funds, and

thus did not act fraudulently, is not persuasive. Even if he did not himself engage in the

misconduct, the Kentucky Supreme Court found that Mills’s acted dishonestly “by

failing to exercise professional judgment independent of his co-counsel.” Id. This

omission is covered by the dishonesty exclusion clause. Similarly, Mills’s assertion that

he did not act fraudulently because, unlike his colleagues, he was acquitted of criminal

charges, also fails because the dishonesty exclusion clause does not require a criminal

conviction to bar coverage. Therefore, the May 20, 2010 Order of the Kentucky

Supreme Court disbarring Mills from the practice of law is a sufficient basis for

precluding coverage under the policy’s dishonesty exclusion clause.

Because it is not necessary to rely on the August 27, 2009 Findings of Fact and

Conclusions of Law of the Trial Commissioner to affirm the district court’s grant of

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summary judgment, we do not address whether this document was inadmissible hearsay

and whether the district court erred by allowing Continental to file it as supplemental

authority. We also do not address whether Mills’s response to Question 4 warranted

rescission of the policy.

The judgment of the district court granting summary judgment to Continental is

affirmed.

 

SIXTH CIRCUIT HEARS JOHN M. BERRY JR./ ACLU FREE SPEECH ORAL ARGUMENT AGAINST THE KENTUCKY BAR ASSOCIATION

Saturday, April 14th, 2012

By LawReader Senior Editor Stan Billingsley

THE 6TH CIRCUIT ORAL ARGUMENT HEARING – JOHN M. BERRY JR. VS. KBA

It is appropriate that April 13th. was the day the 6th. Circuit Court of Appeals heard the free speech rights appeal of attorney John M. Berry, Jr. and the ACLU, against the Kentucky Bar Association. Thomas Jefferson, the advocate of the bill of rights, was born April 13, 1743.

Promptly at 9:30 a.m., U.S. Circuit Judge Rogers and U.S. Circuit Judge Daugherty, and Special Judge Zouhary (a District Judge from Toledo, Ohio) called the Berry appeal case to order. Each party was advised that they had a time limit of l5 minutes to make their argument. On their podium was a red, yellow and green light fixture. Green meant you could continue, yellow meant you had one minute left, and red meant your time is up.

Berry and the ACLU were represented by the Hon. William Sharp.   Sharp  was accompanied by the Hon. David Brandeis Tachau and Hon. Katherine E. McKune.

 

The KBA was represented by Hon. Mark Overstreet of Stites & Harbison. Overstreet carried a notebook file about 2.5 inches thick (about 600 pages). He appeared lonely sitting by himself, as all other hearings that morning had numerous lawyers attending them. He rarely referred to his notes, as he was well prepared and had committed everything to memory.

Berry’s attorneys were funded by the ACLU. (Perhaps you should consider sending them a donation since they are fighting for your rights!)

The KBA’s attorney, Mark Overstreet, was paid by the bar dues of every Kentucky lawyer, i.e. the KBA. His firm was hired by the KBA as an outside counsel, as apparently the Bar Counsel’s staff of nine full time lawyers are not qualified to make appearances in Federal Court.

William Sharp made an impressive argument, and was a crowd favorite. I was impressed when he quickly answered questions that were over my head. I was particularly impressed when he cited New York Times Co. v. Sullivan. See FN*

Overstreet, in my opinion, had a difficult task in trying to justify why Kentucky lawyers have only a limited right to free speech. Nevertheless the tall lanky Overstreet effectively presented an argument largely based on the lack of harm to Berry.

The appellate judges frequently asked highly technical questions, and both attorneys responded quickly and intelligently.

Overstreet and Stites and Harbison earned their fee with their excellent presentation. The author asked Mr. Overstreet what the dues paying members of the Kentucky Bar were paying him, but he smiled and referred the question to “his client”. The author has written the President of the KBA, Margaret Keane and asked that same question last week in a letter, but we have as yet had no response. The recently published financial report of the KBA (published in the March issue of Bench & Bar did not detail the expenses of the Bar in hiring outside counsel.)

It seems very upside down that dues paying members of the KBA must pay for a legal argument to be advanced against us, arguing that attorneys should have limited free speech rights.

Overstreet had a client to represent and he did a good job. I can recall representing clients, whose innocence I personally questioned, but fulfilled my obligation to be their advocate. Overstreet fulfilled his role as an attorney. Just because he advocated for limited free speech rights of attorneys, I just can’t believe that he personally buys that argument. That is just my opinion and he did not shirk his duty to fiercely represent his client. Someday I would like to buy him a drink and ask him what he personally thought about the actions of the Bar Counsel.

We have seen numerous attorneys and KBA officers shake their heads in disgust when they heard of the ethics investigation of Berry for merely writing a letter to the Legislative Ethics Commission. Many believe that if the 6th. Circuit upholds the KBA, then lawyers will forever be at risk for expressing their opinion about any case.

Judge Daugherty commented that she once read a criticism of the 6th. Circuit’s actions in a legal brief. She opined that she was not offended. One judge commented that trial judges have several remedies to prevent comment that actually causes harm by interfering with a trial, and wondered why a broad application of SCR 8.2 was necessary “as a compelling state interest”.

One judge asked Overstreet, something to the effect, “if a Judge was a crook, could an attorney not comment on that?” We did not hear Overstreet’s reply.

After the oral arguments expired, everyone left the courtroom and met in the hallway. The relief of everyone that the hearing was over, was heavy in the air. All parties shook hands, and there was no ill will evident. That is the way professional lawyers should conduct themselves.

A decision is possible in three to six months.

If Berry and the ACLU are successful, it is possible that the KBA could be ordered to pay the attorney fees of the ACLU. They will of course have to pay their own attorney fees. This ethics prosecution by the KBA could end up costing the dues paying members of the Ky. Bar Association several hundred thousand dollars.

The important question which was not discussed in this hearing, but which ominously remains over the Kentucky ethics procedures is the question of whether the Kentucky Supreme Court will fix this troubled system which grants almost unlimited power to the Bar Counsel’s Office.

FN *”New York Times Co. v. Sullivan, 376 U.S. 254 (1964),[1] was a United States Supreme Court case which established the actual malice standard which has to be met before press reports about public officials or public figures can be considered to be defamation and libel[2]; and hence allowed free reporting of the civil rights campaigns in the southern United States. It is one of the key decisions supporting the freedom of the press. The actual malice standard requires that the plaintiff in a defamation or libel case prove that the publisher of the statement in question knew that the statement was false or acted in reckless disregard of its truth or falsity. Because of the extremely high burden of proof on the plaintiff, and the difficulty in proving essentially what is inside a person’s head, such cases—when they involve public figures—rarely prevail.”

 

THE UNDERLYING ARGUMENT

The essence of Berry’s appeal to the nations 2nd. Highest court was the application of SCR 8.2 by the KBA Bar Counsel’s Office, and the KBA, to limit the free speech of attorneys. As interpreted by the Bar Counsel, an attorney may not make a “truthful statement” if it is deemed “reckless”. Apparently Berry’s letter critical of the finding in behalf of Senator David Williams was believed by former Bar Counsel Linda Gosnell to be “reckless”. Her argument is based on the language of SCR 8.2 which appears to include members of the legislative ethics commission as judicial officers.

The complaint against Berry came directly, from a member of the Legislative Ethics Commission (Retired Ct. of Appeals Judge Paul Gudgel). I can’t get it out of my mind that in Linda Gosnell’s prosecution of former Circuit Judge Jay Bamberger, she accused him of “being dazzled” by the important people who came before him. Out of fear of the application of SCR 8.2 against me, I will not speculate on whether or not Linda Gosnell and the KBA were “dazzled” by Judge Paul Gudgel and Senator David Williams, when they decided to toss Senator Berry under the bus and seek sanctions against him for his having written a letter.

The Bar counsel’s Office issued a warning letter to attorney John M. Berry, Jr. of New Castle, Ky. Their letter was styled as “a warning” with the implication that he should chill his free speech. A warning Letter carries the possibility that any future ethics charges can be enhanced due to the issuance of the original warning letter. The KBA Inquiry Commission dismissed Gudgel’s complaint but it still sent Berry a warning letter. Berry was never given a hearing on the allegations that he violated SCR 8.2. He once commented to the author, “I never got to look my accusers in the eye.”

It has always amazed the author that the Bar Counsel’s office would carry water for the State Senate President, and toss Berry, a former State Senator, under the bus. Did the Bar Counsel not recognize that the First Amendment existed, and that even attorneys should have the right to speak freely? Will other lawyers be sanction if they express their personal opinion about acts of the Legislature?

Berry had written a letter to the Legislative Ethics Commission which took issue with their legal reasoning in not issuing an ethics finding against State Senate President David Williams. Berry’s letter was not intemperate, was not profane, and was merely critical of their findings. The letter was written after the Commission’s finding were released to the public and could not have interfered with their proceedings. It appears that the Legislative Ethics Commission just didn’t like anyone being critical of them. That is their right to be angry at criticism. But the conduct of the KBA and the Bar Counsel in being so willing to do the legislatures dirty work is very troubling.

In essence the Legislative Ethics Commission in their hearing, acquitted Sen. Williams on the basis that any violation of campaign finance laws that may have occurred were committed by employees or workers of Senator Williams and that therefore, although he benefited from his underlings work, he was not “ethically” liable for their violation of campaign rules.

Berry had commented in his letter that “some people “ find it bothering that Sen. Williams sat in on the committee’s deliberations when the public was excluded. Berry’s letter cautiously emphasized, “I do not go that far.” It was pointed out in the arguments that Berry never alleged that Williams did not have the right to sit in on his hearing, only that to “some people” this appeared improper.

Berry and the ACLU filed a Federal Civil Rights action in the U.S. District Court. District Judge Danny Reeves, dismissed the case and held that the Federal Courts do not have the right under the l4th. Amendment to enforce the constitutional rights of lawyers when their free speech rights are infringed by the State Bar Association. (Reeves has issued a similar ruling in another case brought by a Kentucky lawyer, and that case is currently on appeal to the 6th. Circuit.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

East Ky. Lawyer Uses Ralph Stanley to Publize His Work – Great Video

Wednesday, April 11th, 2012

 

We appreciate the creativity of Kentucky Lawyer Eric Conn in ringing the bell!http://www.youtube.com/watch?v=Ljua1P7M9DU

KBA publishes “Statement of Financial Position”. Report doesn’t answer important questions.

Wednesday, April 11th, 2012

KBA publishes “Statement of Financial Position”. Report doesn’t answer important questions.

This auditors report in the March 2012 edition of the Bench & Bar once again shows that the Bar Counsel’s Office is the single largest expenditure of the Ky. Bar Association. In the year 2011, the cost of attorney discipline rose to $1,753,745. This is an increase of $113,550 over the prior year. There is no explanation why the Bar Counsel’s Office needed an increase of $113,550 in their budget.

The financial report fails to show how much money was paid to outside counsel hired by the Bar Counsel’s Office because their staff of nine full time lawyers apparently were not qualified to represent the KBA in Federal Court hearings.

One would think that the KBA Board of Governors who has the responsibility to hire and fire attorneys for the Bar Counsel’s Office, would hire at least one or two full time lawyers who were qualified to represent the KBA in Federal court. Critics believe the Bar Counsel’s office should be more self-sufficient, and should not need to hire outside counsel at all.

We note that the State of Ohio has 40,000 lawyers to regulate and hires only 12 lawyers for handling discipline of Ohio lawyers. Kentucky has nine full time lawyers to handle the regulation of only 17,000 lawyers. This means that the Ohio Bar Association is almost twice as efficient in their work than the Ky. Bar Counsel’s office.

LawReader has asked for more financial information, and if the KBA provides that information we will publish it here. We can find no reason why detailed financial information of the KBA should not be published on the Bench & Bar web site. The auditor’s report does not provide detailed information. The KBA likes to hide behind “confidentiality” rules, but those rules only apply to ethics prosecutions. We find no legal justification for the KBA to deny requests for detailed financial reports regarding their expenditure of our dues.

The Ky. Supreme Court recently stopped the practice of the KBA Bar Counsel billing defendant attorneys for attorney fees. We believe that there should be an accounting of how much in attorney fees was improperly billed to defendant attorneys. The rules permit the billing of “court costs” but never authorized the imposition of “attorney fees” to the KBA. This billing practice appears to be linked to the Bar’s hiring outside counsel, and the liability for reimbursement of these attorney fees could easily reach six figures. We believe that it is appropriate to request information on the practice of the Bar Counsel’s Office hiring outside counsel, and the propriety of billing defendant attorneys for these expenses.

 

KBA Bar Counsel Can Overrule the Sanctions Re: suspensions imposed by Supreme Court

Tuesday, April 10th, 2012

Review of the Rules Regarding the Character and Fitness Commission When Bar Counsel Objects to Reinstatement

 

The Supreme Court by adoption of the following rules has delegated to the Character and Fitness Committee the right to ignore the ethics sanctions handed down by the Ky. Supreme Court if the Bar Counsel objects to the automatic reinstatement of the defendant attorney.

 

SCR 3.505 (1)(b) allows the Bar Counsel to object to the automatic reinstatement of the defendant lawyer, and under Section (4) the burden of proof is placed on the defendant attorney to prove his “good character and fitness to practice law.”

 

Either the Bar Counsel or the Defendant Attorney may request a hearing before the Committee, and this must be held within 60 days of the request.

 

Unless the Bar Counsel has requested the hearing, the defendant attorney should promptly make a demand for a hearing.

 

The Character and Fitness Committee must issue a decision within sixty (60) days of receipt of the transcript of hearing. This means that any delay in the court reporter in delivering the “transcript of the hearing” held by the Character and Fitness Committee, may work to expand the period of suspension of the defendant attorney.

 

It is highly possible that an attorney may serve the majority of his period of suspension, then the Bar Counsel may object to the automatic reinstatement, and the hearing process required may add another three or four months to the attorneys suspension even if he is successful.

 

So a 60 day suspension may easily become a 180 day suspension solely on the motion of the Bar Counsel.

 

We are not aware of any statute or rule in any other area of the law which allows a prosecutor to unilaterally add to the punishment imposed by the Kentucky Supreme Court.

 

If the Board of Governors has recommended a suspension of 60 days, and the Supreme Court has accepted that recommendation of the Board of Governors, then it must be recognized that the Bar Counsel as a result of this rule, has sentencing powers that exceed those of the Kentucky Supreme Court.

 

 

 

RULES OF THE SUPREME COURT OF KENTUCKY

PRACTICE OF LAW

 

SCR 3.505 Character and Fitness Committee; reinstatements

 

(1) The Character and Fitness Committee created by SCR 2.040 shall, in addition to the powers and duties conferred in that rule, consider all applications for reinstatement to the practice of law by persons who:

(a) have been suspended for more than one hundred eighty (180) days;

(b) have been suspended for one hundred eighty (180) days or less, but whose reinstatement has been opposed by Bar Counsel.

 

(2) The Character and Fitness Committee may act upon the application and such investigative material as it may gather or Bar Counsel may tender to it, all of which information not submitted by the Applicant shall be made available to the Applicant.

 

(3) The Applicant or Bar Counsel shall have the right to a hearing before the Character and Fitness Committee prior to the issuance of its decision. The hearing shall be held within sixty (60) days from the request. The report of the Committee shall be filed within sixty (60) days of receipt of the transcript of hearing.

 

(4) If either party requests a hearing before the Character and Fitness Committee, the Applicant shall have the rights accorded a Respondent in a disciplinary proceeding pursuant to SCR 3.300, except that the Character and Fitness Committee shall hold the hearing rather than a Trial Commissioner. The burden of proof of one’s good character and fitness to practice law shall be on the Applicant.

 

HISTORY: Amended by Order 2003-4, eff. 1-1-04; adopted by Order 98-1, eff. 10-1-98

 

RULES OF THE SUPREME COURT OF KENTUCKY

ADMISSION OF PERSONS TO PRACTICE LAW

 

SCR 2.040 Character and Fitness Committee; nominations

(1) There is hereby created a Committee on Character and Fitness, hereinafter referred to as the Committee, to be composed of five attorneys, appointed by the Supreme Court for terms of three years, the members to serve until the expiration of their terms and until their successors are appointed. The Supreme Court of Kentucky shall appoint the Chair of the Committee.

 

(2) Subject to the approval of the Supreme Court, the committee shall have the power to adopt and amend rules and regulations governing the manner in which it carries out its duties. The Character and Fitness Committee may appoint from the bar of the state associate members of the Character and Fitness Committee.

 

(3) The Committee on Character and Fitness is charged with the responsibility of determining the age, character and fitness, education and general qualifications of those applicants for admission to the bar of the Commonwealth whose applications are referred to it by the Clerk of the Supreme Court. The Character and Fitness Committee is further charged with the duty of certifying to the Supreme Court persons who appear qualified to perform legal services as interns under Rule 2.540.

 

(4) The Character and Fitness Committee, in determining the character and fitness of an applicant for admission to the bar of the Commonwealth, and in determining the character and fitness of a person seeking to perform legal services as an intern under Rule 2.540, may have such persons investigated by associate members of the Character and Fitness Committee, members of the bar of the state, the National Conference of Bar Examiners or any other reputable investigative agency. Subject to the approval of the Supreme Court the Character and Fitness Committee may compensate any person or agency making such investigation out of

funds held for that purpose.

 

(5) The Character and Fitness Committee shall submit to the Board of Bar Examiners the names and addresses of all applicants to take the examination who will be eligible upon approval from the standpoint of character and fitness and upon submission of the required recommendations of their law school deans. Said list shall be submitted no later than 30 days after the extended late deadline. At least ten days prior to each Bar examination the Character and Fitness Committee

shall certify to the Secretary of the Board of Bar Examiners the names and addresses of all applicants who are qualified to take that Bar examination.

 

(6) From time to time, the Character and Fitness Committee shall recommend to the Supreme Court admission to the bar without examination of applicants for such admission who qualify

therefor under the provisions of Rule 2.110.

 

(7) The Character and Fitness Committee shall have the power to issue subpoenas and to assess costs as it shall determine necessary.

HISTORY: Amended by Order 2009-12, eff. 1-1-2010; prior amendments eff. 2-1-00 (Order 99-1), 1-1-97 (Order 96-1), 8-1-92, 2-24-86, 1-1-78, 3-10-73

 

SCR 2.002 Fiscal provisions

(1) The fees collected by the Kentucky Office of Bar Admissions shall constitute a fund to provide for the ordinary and necessary expenses of the administration of the bar examination and the operation of both the Board of Bar Examiners and the Character and Fitness Committee.

(2) An annual budget including all income and expenditures shall be prepared by the Board and the Committee and submitted to the Supreme Court not less than four (4) months prior to the commencement of the next fiscal year. The budget shall distinctly set forth expected revenues according to source, together with carryover funds from the previous year, and shall list budgeted amounts for each category of expenditure in sufficient detail to identify clearly the nature of the respective expenditures.

(3) Upon approval by the court, the budget shall govern the fiscal operation of the Board and the Committee. Each expenditure category may be increased or decreased by not more than ten (10) percent. Further departure from the budget allotments may be made only upon approval of the court.

(4) All fees collected by the Kentucky Office of Bar Admissions for the Board and the Committee shall be recorded and deposited promptly in a joint account of the Board of Bar Examiners and Character and Fitness Committee. Each repository of funds and each bank account shall be designated by the Board and the Committee and approved by the Court.

(5) All disbursements shall be in accordance with the budget and recorded. Checks shall bear such signatures and countersignatures as the Board and the Committee shall direct.

(6) At least once each quarter a financial report shall be prepared at the direction of the Board and the Committee and transmitted to the Court.

(7) Each member of the Board and the Committee and each employee given responsibility by the Board and the Committee for the receipt or disbursement of funds shall be bonded in an amount specified by the Board and the Committee.

(8) There shall be an annual audit of the Board and the Committee by the Administrative Office of the Courts or, at the election of the Board and the Committee, a private accounting firm approved by the Court. The report of the audit shall be submitted to the Court. Each annual audit shall be paid for by the Board and the Committee.

(9) The Board and the Committee may employ such personnel as the Court authorizes. Their compensation shall be fixed by the Board and the Committee subject to approval by the Court. The compensation of members of the Board and Committee shall be fixed by the Court.

(10) Printing and purchasing shall be regulated by procedures established through the Administrative Office of the Courts except that the duplicating of bar examinations shall be accomplished in such manner as the Board designates in order to preserve the security thereof.

HISTORY: Amended by Order 2009-12, eff. 1-1-2010; prior amendments eff. 8-1-92 (Order 92- 1); adopted eff. 2-1-81

 

The following rule appears to apply to new attorneys, but might be interpreted to be used against suspended attorneys who seek reinstatement.

SCR 2.011 Moral character and fitness

All applicants for admission to the bar of this state must be of good moral character and general fitness requisite for an attorney.

(1) Every applicant shall be of good moral character. The applicant shall have the burden of proving that he or she is possessed of good moral character. The term “good moral character” includes qualities of honesty, fairness, responsibility, knowledge of the laws of the state and the nation and respect for the rights of others and for the judicial process. Good moral character is a functional assessment of character and fitness of a prospective lawyer. The purpose of requiring an applicant to possess present good moral character is to exclude from the practice of law those persons possessing character traits that are likely to result in injury to future clients, in the obstruction of the administration of justice, or in a violation of the Code of Professional Responsibility.

(2) Fitness is the assessment of mental and emotional health as it affects the competence of a prospective lawyer. The purpose of requiring an applicant to possess this fitness is to exclude from the practice of law any person having a mental or emotional illness or condition which would be likely to prevent the person from carrying out duties to clients, Courts or the profession. A person may be of good moral character, but may be incapacitated from proper discharge of his duties as a lawyer by such illness or condition. The fitness required is a present fitness, and prior mental or emotional illness or conditions are relevant only so far as they indicate the existence of a present lack of fitness.

(3) If the Committee’s initial review and investigation into the character and fitness of an applicant reveals any of the following conduct, further detailed investigation shall be undertaken, as determined to be warranted, prior to the Committee’s determination regarding whether the applicant possesses the requisite character and fitness to practice law in Kentucky:

A. Unlawful conduct

B. Academic misconduct

C. Making a false statement, including omissions of material information

D. Misconduct in employment

E. Acts involving dishonesty, fraud, deceit or misrepresentation

F. Abuse of legal process

G. Neglect of financial responsibilities

H. Neglect or disregard of ethical or professional obligations

I. Violation of an order of court

J. Conduct indicating mental or emotional instability impairing the ability of an applicant to perform the functions of an attorney

K. Conduct indicating substance abuse impairing the ability of an applicant to perform the functions of an attorney

L. Denial of admission to the bar in another jurisdiction on character and fitness grounds

M. Disciplinary complaints or disciplinary action by an attorney disciplinary agency or a professional disciplinary agency of any jurisdiction

(4) Each applicant for admission to the Kentucky Bar shall pay all investigative fees, reporting fees or other expenses required and assessed by the Character and Fitness Committee as deemed necessary in determining

)

 

Rule 2.010 Character of Applicant; Oath

An applicant for admission to take the bar of this state must be of good moral character and general fitness requisite for an attorney and take the oath to support the Constitutions of the United States and Kentucky.

Rule 2.110 Admission Without Examination

(1) Any person who has been admitted to the highest court of the District of Columbia or some sister state and who had been engaged in the active practice of the law for five of the seven years next preceding his application may be admitted to the bar of this state without examination provided that the qualifications required for admission to the bar in such district or state were, at the time of his admission, equal to or higher than those for admission to the bar in the Commonwealth of Kentucky at that time. Active engagement in the teaching of the law shall be considered active engagement in the practice of the law.

(2) An attorney applying for admission under this Rule shall file with the Clerk of the Supreme Court, on the form provided for application for admission, such information as shall be requested thereon together with a fee of seven hundred fifty dollars ($750.00), no part of which shall be returned. The Clerk shall forward the application to the Chairman of the Character and Fitness Committee. An applicant shall file with the Character and Fitness Committee such other affidavits or materials as shall be required to satisfy the Committee of the applicant’s moral character and fitness to be a member of the Bar of this state. With respect to character and fitness, the Character and Fitness Committee shall process such applications pursuant to Rule 2.040.

(3) In addition to the fee above described, an attorney applying for admission under this Rule shall pay all investigative fees, reporting fees or other expenses required and assessed by the Character and Fitness Committee, including but not limited to the fee paid to the National Conference of Bar Examiners.

NEW SECTION

(4) Admission under this rule shall be conditioned as follows: (a) Applicant shall file with the application for admission a verified statement that, if admitted, the applicant intends to engage in the practice of law in Kentucky and that the applicant agrees to abide by the rules, duties and standards imposed upon attorneys of this state, (b) Applicant must further file proof that the district or state from which the applicant applies and in which the applicant performs the major portion of his professional activities has rules or other provisions providing for admission without examination and by reciprocity or comity which are at least equivalent to this rule 2.110 and all other pertinent rules of this jurisdiction.

The action of the respondent Character and Fitness Committee of the Kentucky Board of Bar Examiners was proper under the rules which existed at the time of application, and is hereby affirmed. However, when the amended rules become effective on January 1, 1988, the movant’s present application shall be reconsidered with no re-application necessary, and movant shall be given credit for any fees previously paid and not refunded.

 

 

ORAL ARGUMENTS IN 6TH. CIRCUIT CT. OF APPEALS RE: KBA ATTEMPT TO LIMIT LAWYERS FREE SPEECH RIGHTS

Sunday, April 8th, 2012

On Friday 13th.  9:00 A.M  This week,  The 6th. Cirt. Ct. of Appeals in Cincinnati will hear oral arguments in the JOHN  M. BERRY, JR. / ACLU CASE AGAINST THE KBA. The KBA is trying to limit the free
speech rights of Kentucky Attorneys.  LawReader will be there, you should too!

Your Bar Association is spending large sums of your dues money to prevent attorneys from having the right to express their opinions about acts of the legislature’s Ethics Commission!

PROSECUTION OF GEORGIA ATTORNEY – JURY FINDS PAYMENT OF ATTORNEY FEE NOT MONEY LAUNDERING

Saturday, April 7th, 2012

Columbus, GA, Attorney Acquitted; Middle District of Georgia Instruction on Money Laundering of Fees Paid for Legal Representation

Mark Shelnutt, a distinguished attorney and member of the Columbus, Georgia, community, was found not guilty by a jury in the United States District Court for the Middle District of Georgia, the Honorable Clay D. Land, United States District Judge, presiding, on 36 counts brought by the government, including conspiracy, aiding and abetting a conspiracy to distribute cocaine, concealment money laundering, false statements and attempted bribery. Mr. Shelnutt was represented in the trial by attorneys Thomas Withers and Craig Gillen and the firm of Gillen Withers & Lake LLC. The Government was represented by attorneys Charles Bourne, David Stewart and Joe Newman of the United States Attorneys Office for the Southern District of Georgia.

The 6 day trial saw testimony by convicted drug dealers, federal agents and attorneys, as well as numerous supporters of Mr. Shelnutt, including several ministers with the United Methodist Church, which included the late Reverend Joseph Roberson, head of the South Columbus United Methodist Church and Cabinet member of the South Georgia United Methodist Conference, who died in an auto collision near Statesboro, Georgia, on Saturday. This blog has been on a hiatus for the trial, and we would like to thank all those who supported Mr. Shelnutt throughout the trial, as well as to send our condolences to Reverend Roberson’s family and congregation.

The allegations arose from Mr. Shelnutt’s representation of Torrance Hill, a convicted drug trafficker. The central allegation was that Mr. Shelnutt laundered money which Hill paid him as legal fees.

Mr. Shelnutt was charged under the concealment money laundering provision, 18 U.S.C. s 1956(a)(1)(B). The companion federal money laundering statute, 18 U.S.C. s 1957, contains an express exemption for “transaction necessary to preserve a person’s right to representation as guaranteed by the sixth amendment to the Constitution…” 18 U.S.C. s 1957(f)(1). However, no such exemption for legal fees exists in s 1956. Two weeks before Mr. Shelnutt’s trial began, the Eleventh Circuit Court of Appeals issued an opinion in United States v. Velez, No. 09-10199, 2009 WL 3416116 (11th Cir., October 26, 2009), in which it reaffirmed s 1957(f)(1)’s exemption of payment of fees for legal representation from transactions which can constitute money laundering.

The parties and the Court agreed that mere payment of attorney’s fees, even from drug proceeds, was lawful. Mr. Withers and Mr. Gillen argued to the Court that if legal fees were lawful in an attorney’s hands, the fees could not be “magically transformed” into unlawful fees no matter what the attorney might do with them afterwards. After considering these issues, Judge Land crafted an instruction to the jury on s 1956(a)(1)(b), which read as follows:

I am first going to explain the law to you regarding the substantive offense of money laundering. I will then explain to you the separate charge of conspiracy to commit money laundering. I will then explain the other offenses alleged in the Indictment.

Counts Five through Thirty-Five of the Indictment allege that Defendant engaged in money laundering. Title 18, United States Code, Section 1956(a)(1)(B), makes it a Federal crime or offense for anyone to knowingly engage in certain kinds of financial transactions commonly known as money laundering. The Government alleges that the Defendant committed this crime on thirty-one separate occasions. You must consider each separate alleged count and determine whether the Government proved beyond a reasonable doubt the essential elements for each separate count.

The Defendant can be found guilty of the offense of money laundering only if all of the following facts are proved beyond a reasonable doubt:

First: That the Defendant knowingly conducted, or attempted to conduct, a “financial transaction;”

Second: That the Defendant knew that the funds or property involved in the financial transaction represented the proceeds of some form of unlawful activity;

Third: That the funds or property involved in the financial transaction did in fact represent the proceeds of “specified unlawful activity” – - in this case the proceeds of the distribution of controlled substances, also known as illegal drugs; and

Fourth: That the Defendant engaged in the financial transaction knowing that the transaction was designed in whole or in part to conceal or disguise the nature, location, source, ownership or the control of the proceeds of the distribution of a controlled substance.

The term “conducts” means initiating, concluding, or participating in initiating or concluding a transaction. “Knowingly conducted” means that conduct was done voluntarily and intentionally and not because of accident or mistake.

The term “transaction” means a purchase, sale, loan, pledge, gift, transfer, delivery or other disposition of funds or property; and, with respect to a financial institution, includes a deposit, withdrawal, transfer between accoiints, exchange of currency, loan, extension of credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument, or use of a safe deposit box.

The term “financial transaction” means a transaction which in any way or degree affects interstate or foreign commerce involving one or more “monetary instruments” which includes coin or currency of any country, travelers or personal checks, bank checks or money orders, or investment securities or negotiable instruments in such form that title thereto passes upon delivery. The term “financial transaction” also means a transaction involving the use of a “financial institution” which is engaged in, or the activities of which affect, interstate or foreign commerce in anyway or degree. The term “financial institution” includes a bank.

The term “interstate or foreign commerce” includes any commercial activity that involves transportation or communication between places in two or more states or between some place in the United States and some place outside the United States.

The term “proceeds of some form of unlawful activity” means profits of some form of unlawful activity and not simply gross receipts.

The term “knowing that the funds or property involved in the financial transaction represented the proceeds of some form of unlawful activity” means that the Defendant knew that such funds or property involved in the transaction represented proceeds from some form, though not necessarily which form, of activity that constitutes a felony offense under state or Federal or foreign law.

The term “specified unlawful activity means distribution of a controlled substance. “Controlled substances” means illegal drugs.

In this case, the Government alleges that the Defendant committed the crime of money laundering for each of the separate amounts listed in Counts Five through Thirty-Five of the Indictment by doing the following:

1) Knowingly receiving the money as alleged from Torrance Hill;

2) That the money Defendant received from Torrance Hill which he is accused of laundering actually came from illegal drug proceeds;

3) That Defendant knew that the money he received from Torrance Hill came from illegal drug proceeds; and

4) That the Defendant received the money and deposited it for the purpose of concealing or disguising the nature, location, source, ownership, or control of the proceeds from the distribution of illegal drugs.

In order for you to find the Defendant guilty as to these money laundering counts, you must find beyond a reasonable doubt the existence of all of these elements.

I instruct you that it is not illegal for an attorney who represents a defendant accused of a crime to accept payment of his attorney fees in cash. It is also not illegal for an attorney to receive attorney’s fees from someone accused of a crime who pays those attorney’s fees from money that the person got from illegal activities. In other words, if you found here that Torrance Hill paid the Defendant attorney’s fees and that the source of those fees was Hill’s illegal drug activities, then the Defendant’s receipt of those attorney’s fees, without proof of concealment as described previously, is not money laundering or a federal crime.

Just as it is not a federal crime for a Defendant to receive an attorney’s fee from illegal drug activities, it is not a federal crime to conceal a legitimate attorney’s fee, even if the fee comes from illegal proceeds. To be money laundering, the concealment must be concealment of illegal proceeds other than those that are paid for legitimate attorney’s fees.

The Shelnutt prosecution raised serious issues and concerns for criminal defense attorneys who represent clients charged with drug offenses, or in other contexts, where there is a high likelihood that any legal fees paid to counsel may be derived from unlawful activity. The defense argued that the prosecution of Mr. Shelnutt for money laundering could set a frightening precedent whereby the government could choose to prosecute any criminal defense attorney or money laundering for accepting payment for legal fees which was also proceeds of unlawful activity. The Court acknowledged these concerns and addressed them in the instruction it crafted for the jury. Fortunately, there have to date been very few prosecutions of attorneys under s 1956 for receiving attorney’s fees, however the Shelnutt prosecution and the Court’s instruction illustrate the need for either an amendment to s 1956 to contain an exemption for payment of legal fees similar to s 1957, or for the courts to make clear, as the Court’s instruction did in this case, that (1) it is not illegal for an attorney to receive attorney’s fees from money a person got from illegal activity and (2) it is not illegal to conceal monies received as legitimate attorney’s fees.

Tags: 1956, 1957, Columbus, District, Georgia, Jury Instructions, Legal, Mark, Middle, Money, Shelnutt, acquittal, acquitted, attorney’s, fees, instruction, jury, laundering