In re Roach

982 N.W.2d 699

IN RE Petition for DISCIPLINARY ACTION AGAINST Joseph Daniel ROACH, a Minnesota Attorney, Registration No. 0250843.

A21-0374

Supreme Court of Minnesota.

Filed: December 7, 2022

Susan M. Humiston, Director, Office of Lawyers Professional Responsibility, Saint Paul, Minnesota, for petitioner.

Paul Engh, Minneapolis, Minnesota; and Thomas B. Wieser, Meier, Kennedy & Quinn, Chartered, Saint Paul, Minnesota, for respondent.

OPINION

PER CURIAM.

The Director of the Office of Lawyers Professional Responsibility (Director) filed a petition for disciplinary action against respondent Joseph Daniel Roach. We appointed a referee. After a hearing, the referee determined that Roach committed professional misconduct while handling a divorce matter for a client. The referee concluded that Roach committed misconduct by charging a higher hourly rate than the client agreed to pay and by threatening to withhold client files until the client paid Roach's bills. No party challenges these conclusions. The referee also concluded that Roach failed to provide competent representation and failed to adequately communicate with his client. Roach asserts that these conclusions were erroneous because he secured a favorable resolution for his client and remained in communication with the client. Finally, the referee found that Roach did not charge unreasonable fees. The Director asserts that this conclusion was erroneous because Roach billed a high hourly rate despite lacking relevant experience and recorded more hours for certain tasks than the Director believes reasonable.

We conclude that the referee did not clearly err by finding that Roach failed in his duty to provide competent representation and clear communication. We also conclude that the referee did not clearly err by crediting Roach's explanation of his billing practices. Finally, we conclude that the appropriate discipline for Roach's misconduct is a public reprimand and 2 years of supervised probation.

FACTS

Roach was admitted to practice law in Minnesota in 1994. He had extensive experience in farming and banking prior to becoming a lawyer. Roach practiced in business advising and transactional work, particularly within the farming industry. Roach was a shareholder at Lapp, Libra, Stoebner & Pusch, Chartered (Lapp Libra) during the course of the divorce proceedings that led to the Director's investigation and the hearing before the referee.¹

J.C. was married for over 18 years prior to filing for divorce in January 2015. The divorce was acrimonious, involving disputes over both custody and marital assets. Many of J.C.’s assets related to farmland and investments that were held by both a holding and investment company (the LLC) and a Chapter 318 farm trust established by J.C.’s father (the Trust). J.C. co-owned the LLC with one of his brothers, and J.C. and that brother were also the trustees for, and equal beneficiaries of, the Trust.

J.C.’s wife believed that some of the assets held by the LLC and the Trust were also part of the marital estate. In May and June 2015, her counsel filed discovery requests, seeking financial information relating to the LLC and the Trust, and then attempted to add the LLC, the Trust, and J.C.’s brother as parties to the divorce. J.C. and his brother retained Roach as an expert in agricultural business organizations to help navigate these motions. Because he was not a litigator, Roach also brought in a law firm shareholder, Schwartz, to assist with opposing the discovery requests and the motion to add the farm entities. The district court denied the motion to add the farm entities, and counsel for J.C.’s wife filed a separate civil lawsuit, asserting largely the same claims against J.C., his brother, and the farm entities.

In December 2015, Roach contacted J.C. to express concerns that J.C.’s current attorneys were not taking adequate measures to either resolve the divorce before trial or to prepare for trial if no settlement was obtained. Roach admitted that he had no prior experience with family law matters but offered to take over as lead attorney in the dissolution. Roach advised that if a trial was necessary, J.C. would need to retain an additional lawyer with experience in litigating marital dissolution disputes. J.C. discharged his current attorneys and hired Roach. The engagement letter with Lapp Libra stated that Roach would bill his time at $500 per hour. Roach, however, instead charged $510 per hour for all work performed during 2016.

Roach and his law firm partner Schwartz represented J.C.’s interests throughout early 2016. They opposed and responded to discovery requests, took depositions, and identified and hired expert witnesses, including accountants and a property appraiser. In the separate civil lawsuit, Roach and Schwartz obtained an anti-suit injunction staying the matter pending resolution of the divorce. Roach also hired another lawyer with whom he had worked previously, Grande, to serve as an experienced family law trial counsel. Roach then represented J.C. at an unsuccessful mediation in March 2016.

On April 21, 2016—the scheduled first day of trial—J.C.’s wife reduced her settlement demand. Roach and J.C. dispute what happened next. J.C. testified that Roach initially told him not to accept the settlement, but that Roach later advised him to accept. J.C. asserted that Roach claimed the settlement could be structured to be tax deductible, and J.C. would be entitled to the cash value of life insurance policies he had purchased for his wife and one of his children. J.C. testified that he accepted the offer only because he understood that, in practice, it would cost him less than the agreed-upon settlement amount. Roach, on the other hand, testified that there was no discussion of potential tax consequences at that time and that his client simply accepted the offer.

Roach read the settlement agreement into the record in district court. The agreement included a significant payment from J.C. to his former spouse, and the parties specifically agreed to waive any spousal maintenance, and also agreed to sign a Karon waiver.² Roach was to draft the final written agreement for the parties to sign.

In May 2016, Roach sent J.C. a draft settlement agreement. Consistent with the agreement on the record, this draft stated that neither party required spousal maintenance and that the parties "agreed to waive the right to modify the amount and duration of spousal maintenance." This draft also described the significant payment from J.C. to his former spouse as a "cash property settlement." In July 2016, Roach sent J.C. a second draft of the proposed settlement agreement. This updated draft stated that J.C. would pay "nontaxable spousal maintenance" and changed the description of the cash payment from a "cash property settlement" to "settlement of spousal maintenance and property claims." There is no record of why these changes were made, but federal law at the time of the settlement allowed taxpayers to deduct spousal maintenance payments from taxable income and did not allow taxpayers to deduct property settlement payments. See 26 U.S.C. § 215(a) (2015) (repealed 2017).

At some point, J.C. and Roach discussed the tax treatment of the settlement payment. On July 21, 2016, J.C. sent Roach an email asking whether Roach had heard from an accountant about whether J.C. could deduct the settlement payment from his taxable income. According to J.C., this email was sent to follow up on conversations that occurred before the settlement agreement. According to Roach, the email was the first time his client had raised the issue of tax deductibility. Roach replied to this email, "I did the research myself. We're good." Roach stated in further emails on July 21 that J.C.’s former spouse "will have to pay tax on the settlement payment" and that "you [J.C.] get to deduct the payment." Part of Roach's billing statement for July 21 includes "[r]eview tax code regarding deductibility of payment due under Settlement Agreement."

Roach sent the July 20, 2016, second draft of the proposed settlement agreement to counsel for J.C.’s former spouse. The attorney strongly objected to the draft, stating "my client and I do not believe your proposed written agreement is an accurate reflection of the agreement stated on the record by the parties." Specifically, counsel stated that the cash payment was "not a lump sum taxable spousal maintenance payment because the parties agreed that neither party would pay the other any spousal maintenance." Roach continued to tell his client that the payment would be tax deductible and attempted to convince opposing counsel to agree to the draft agreement characterizing the payment as "settlement of spousal maintenance and property claims."

On November 17, 2016, counsel for J.C.’s former spouse sent another draft settlement agreement. Roach advised J.C. to accept this version. J.C. noted that this draft again referred to the payment as a "cash property settlement" and stated, "I assume that means I will not be able to deduct any of this like I have been understanding?" Roach replied that the language was the same as the first draft agreement and stated that Roach did not think it would be "an issue."

Roach met with J.C. and J.C.’s brother on December 2, 2016. The brothers again asked about whether the settlement payment would be tax deductible. Roach responded, "I'm not your tax advisor. You should talk with him." When pushed, Roach said, "The way it's written up, you should be able to take the deduction. Whether the IRS supports that, allows that is beyond my control." J.C. signed the agreement and demanded to see his client files. Roach responded, "Sure. Pay my bill and we'll get you all you want."

J.C.’s brother later consulted with his accountant, who advised him that none of the settlement payment would be tax deductible. J.C. filed an ethics complaint against Roach, and in March 2021 the Director filed a petition for disciplinary...