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Justices consider 'costs' in UPL action

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The Indiana State Bar Association wants the state's highest court to define the term "costs and expenses" as it's never done before, and in doing so order a company being prosecuted for the Unauthorized Practice of Law to have to pay those fees and disgorge any profits it shouldn't have made in the first place.

Hearing arguments today in State of Indiana, Ex. Rel. Indiana State Bar Association v. United Financial Systems Corp., No. 84S00-0810-MS-551, justices considered an issue of first impression on how far its scope extends in interpreting Administrative Disciplinary Rule 24, and what statutory considerations are involved in this litigation about whether an estate planning company engaged in unlawful legal work.

The ISBA initiated the action in October 2008 against estate planning service United Financial Systems in Indianapolis, accusing it of operating a trust mill operation that engaged in unauthorized practice of law and wrongly collected more than $1 million from at least five families located throughout the state. Acting as special commissioner in the case, Senior Judge Bruce Embrey from Miami Superior Court issued a report in July to the Indiana Supreme Court that included 266 findings and conclusions of law about the company's practice, and after supplemental briefing the justices set the matter for oral argument.

What's at issue in this case is an ISBA request for a disgorgement of fees and reimbursement of the unlawful money the company collected. The organization paid almost $36,965 in legal expenses on this case, according to court records.

The ISBA has never settled a UPL case in exchange for money from an individual or corporation accused of violating the state provisions, and no costs or fees have ever been received by the ISBA in the course of processing these cases, according to Indianapolis attorney Kevin McGoff who represents the state bar association.

"The bar believes that 'costs and expenses' hasn't been previously defined, and we think that attorney fees should be included here in this case," McGoff told the justices, pointing out that ISBA is only one of the three Indiana entities able to prosecute a UPL action but that it doesn't have any staff to handle those issues as the Attorney General's Office and Indiana Supreme Court Disciplinary Commission have. "Given the uniqueness of these proceedings... this would be an exception that wouldn't be a blanket rule that goes outside UPL cases. This wouldn't open the floodgates."

United Financial attorney Suzanna Hartzell-Baird with Bose McKinney & Evans argued that neither amount is appropriate in this case, and ordering any attorney fees or disgorgement would conflict with common law and precedent from the U.S. Supreme Court - specifically because it would be considered a sanction, and the company had received no notice so this goes against ex post facto law present in criminal cases. The company wasn't aware that could be possible when it engaged in litigation, so that might have influenced the decision to litigate, she said. She also disagreed with the commissioner's findings that United Financial had engaged in any frivolous or baseless claims, something she challenged justices to determine for themselves in reviewing the record.

Ordering disgorgement and awarding attorneys fees would have a chilling effect, Hartzell-Baird said.

Justices wondered about the implications this could have on the traditional American rule of not awarding these attorneys fees as part of the costs and expenses, and if it should be considered a cost of doing business. Justices Theodore Boehm and Frank Sullivan pondered whether disgorgement is considered a penalty, as Hartzell-Baird contended, or whether it was simply a return of money that any company engaged in UPL shouldn't have received in the first place.

Don Lundberg, executive secretary of the Disciplinary Commission that's admitted as amicus curiae, urged the court to narrowly craft a rule so that it doesn't impact the Disciplinary Commission or Attorney General's Office in future UPL actions. He also said it's appropriate for the court to exercise disgorgement power since that serves as a deterrent and public protection against future UPL.

This was one of two cases the Supreme Court heard arguments on today. The other was Wayne D. Kubsch v. State of Indiana, No. 71S00-0708-PD-335, a post-conviction relief appeal involving Kubsch's three murder convictions and death sentence.
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  1. KUDOS to the Indiana Supreme Court for realizing that some bureacracies need to go to the stake. Recall what RWR said: "No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we'll ever see on this earth!" NOW ... what next to this rare and inspiring chopping block? Well, the Commission on Gender and Race (but not religion!?!) is way overdue. And some other Board's could be cut with a positive for State and the reputation of the Indiana judiciary.

  2. During a visit where an informant with police wears audio and video, does the video necessary have to show hand to hand transaction of money and narcotics?

  3. I will agree with that as soon as law schools stop lying to prospective students about salaries and employment opportunities in the legal profession. There is no defense to the fraudulent numbers first year salaries they post to mislead people into going to law school.

  4. The sad thing is that no fish were thrown overboard The "greenhorn" who had never fished before those 5 days was interrogated for over 4 hours by 5 officers until his statement was illicited, "I don't want to go to prison....." The truth is that these fish were measured frozen off shore and thawed on shore. The FWC (state) officer did not know fish shrink, so the only reason that these fish could be bigger was a swap. There is no difference between a 19 1/2 fish or 19 3/4 fish, short fish is short fish, the ticket was written. In addition the FWC officer testified at trial, he does not measure fish in accordance with federal law. There was a document prepared by the FWC expert that said yes, fish shrink and if these had been measured correctly they averaged over 20 inches (offshore frozen). This was a smoke and mirror prosecution.

  5. I love this, Dave! Many congrats to you! We've come a long way from studying for the bar together! :)

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