A recent Bloomberg Big Law Business story by Mindy L. Rattan, “Forced Sale of Client’s Lamborghini Not a Proper Legal Fee,” reports that the Florida Supreme Court on May 3 suspended a lawyer for three years for taking an interest in a client’s Lamborghini as a fee and for taking financial interests in his client’s litigation and doing business with a client. Lawyer Jon Douglas Parrish made a deal to get paid after selling his client’s 1989 Lamborghini sports car. He also loaned money to property owners his client was suing and had his client subordinate his interests in that property to mortgages Parrish took out to secure his loan.
This case provides examples of deals with a client that a lawyer should never make. Parrish represented Spruce River Ventures, LLC and its principal, Benjamin Bergaoui in several matters. Parrish and Bergaoui signed an agreement giving Parrish a $30,000 security interest in Bergaoui’s Lamborghini, the court said, citing the referee’s findings for all facts. Bergaoui had 90 days to sell the car to pay Parrish $30,000 in fees. If he didn’t sell it in that time, Parrish could sell it and either give Bergaoui “a credit for current and future legal fees in the amount of the sale or in the amount of $80,000, at the firm’s discretion,” the court said. The referee’s report said that Bergaoui sold the car within 90 days and Parrish accepted $42,000 to settle the balance of $54,000 in fees owed.
Parrish also loaned $150,000 to defendants in a dispute over real property he pursued on behalf of Spruce River, the court said. The defendants were delinquent in paying taxes on parcels of land they purchased, and Parrish testified the entire case could be dismissed if the parcels were subject to forfeiture, the court said.
Parrish was trying to “preserve his client’s claim and protect his interest in his fee, which was now a contingency fee.” He got the defendants to give him a security interest in the property that Bergaoui was pursuing, and convinced Bergaoui to subordinate his interests in the property to Parrish’s. Parrish asked a colleague, John White, to prepare the mortgage, the subordination agreement, and the promissory note for the loan, the court said.
Parrish also attempted to enter into a settlement agreement that created a new company owned by Parrish’s firm, his client, and a few of the defendants, the court said. The new company would join the litigation in the place of its defendant owners. Parrish and Bergaoui would have equal decision-making authority, the court said.
One of the other defendants moved to disqualify Parrish, who then prepared an affidavit for Bergaoui to sign saying he declined to seek independent counsel, the court said. Bergaoui wouldn’t sign it so Parrish then claimed White was independent counsel for Spruce River. Bergaoui then got independent counsel, Brad Bryant, who told Parrish that Bergaoui didn’t want to be business partners with him, the court said.
No Car for Fees
The court agreed with the referee that Parrish violated Rule Regulating the Florida Bar 4-1.8(a), which prohibits transactions with clients unless the terms are fair and reasonable and fully disclosed to the client, the client is advised to seek independent counsel, and the client gives written informed consent. The court said the comment to the rule explains that this rule doesn’t apply to an “ordinary fee arrangement,” which is covered by Rule 4-1.5. Rule 4-1.5 says all fees must be reasonable and not excessive.
The Lamborghini agreement clearly pertained to legal fees and wasn’t ordinary, the court said. The referee focused on the forced sale provision and found it didn’t satisfy the requirements of Rule 4-1.8(a). The agreement gave Parrish an opportunity to collect an indeterminate amount of funds from the sale of his client’s Lamborghini, which “would constitute an excessive fee,” the court said.
The court agreed with the referee that Parrish violated rules 4-1.5(a), 4-1.8(a) and 3-4.3 (“commission by a lawyer of any act that is unlawful or contrary to honesty and justice may constitute a cause for discipline”).
No Loans, No Financial Help
The court agreed with the referee that Parrish violated Rule 4-1.2, which says a lawyer must “abide by a client’s decisions concerning the objectives of representation” and “reasonably consult with the client as to the means by which they are to be pursued.” Parrish having “co-equal decision-making authority with his client in directing litigation strategy,” violated the rule.
And Parrish again failed to meet the requirements of Rule 4-1.8(a) for entering into the subordination agreement with his client, the court said. The court deferred to the referee’s determination that Parrish’s and White’s testimony about White being independent counsel for Bergaoui wasn’t credible.
The court also agreed with the referee that Parrish violated Rule 4-1.8(e), which prohibits a lawyer from providing “financial assistance” to a client. Parrish’s loan to the defendants was a form of financial assistance for the benefit of his client, the court said.
The court agreed that Parrish violated 4-1.8(i), which prohibits a lawyer from acquiring a proprietary interest in a litigation. The court rejected Parrish’s argument that the mortgage wasn’t a “proprietary interest.” It also found that he failed to act diligently and competently in another matter.
But the court determined that the referee’s recommendation of a one year suspension wasn’t supported by a “reasonable basis in the case law.” The court said the other conflict of interest cases the referee relied upon were factually distinguishable. Unlike in several of those cases, Parrish “engaged in multiple instances of unethical conduct,” that resulted in several rule violations. Another case the referee cited was over 15 years old and the court has since imposed more severe discipline than in the past, it said.