Should law firms use mascots in advertising?

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Should limitations be imposed on the use of mascots?

One South Carolina law firm claims to have been unfairly targeted

Left Shark Law?

Several news sources (The Post and Courier, The State, AP News) have recently published stories involving a South Carolina law firm with a mascot problem.

According to the news reports, South Carolina attorney John Hawkins said he has been unfairly targeted by the Office of Disciplinary Counsel because of his law firm’s mascot, a hawk. You have probably seen the television ads showing the hawk and actors flapping their arms like hawks to promote the firm’s personal injury practice.

Hawkins has purportedly sued the ODC in Federal Court complaining that the ODC has reached a settlement with another legal entity that uses a tiger as a mascot for a national network of motorcycle accident attorneys styled “Law Tigers.”

Mr. Hawkins has complained in court filings that his mascot is a three-pound bird that eats mice, squirrels, and other small animals, while Law Tiger’s mascot is a 400-plus pound animal that mauls, attacks and eats people. Which mascot, he questions, unfairly represents the ability to “obtain results” in the personal injury arena?

The news reports indicate that two rival law firms and a former employee all filed complaints with the ODC about the hawk mascot in 2017. This year, the ODC filed formal disciplinary charges.

Hawkins’ lawsuit purportedly makes constitutional arguments against the ODC’s enforcement action. I’m not a litigator, but it seems to me that the place to make this argument is in the disciplinary action itself. It never occurred to me that the ODC could be sued in Federal Court.

What do you think, dirt lawyers? Will that suit be dismissed? Can advertising using mascots unfairly tout a law firm’s strength and ability? Are potential clients confused or unduly influenced by the use of mascots? It will be interesting to see how this story plays out.

Lawyer publicly reprimanded for closing irregularity

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Most South Carolina dirt lawyers were disappointed with the result of the 2017 Quicken Loan case which did not hold, as many had hoped, that a South Carolina licensed lawyer must be at the center of each residential real estate closing, overseeing each step, and ensuring that the consumer client’s interests are protected in each step. That case blessed a scenario where an out-of-state entity oversaw the closing process and divvied up the required lawyer functions among various functions.

A disciplinary case* from August of 2021 demonstrates just one way the scenario approved by Quicken can go awry.

The lawyer was hired by Superior Closing and Title Services, LLC to serve as closing attorney for a home purchase for an attorney’s fee of $200. That fee is our first clue about the type of closing that is the subject of this case.  The Court refers to the purchaser as “C.W.” The lender was 1st Choice Mortgage, and the loan was assigned to Wells Fargo.

Almost two years after the closing, Wells Fargo demanded 1st Choice repurchase the loan because of a discrepancy with the title. The Court states “it was discovered” that C.W. was a straw purchaser who never made a payment on the loan.  The lawyer argued, and the Office of Disciplinary Counsel did not dispute, that the lawyer was unaware of the straw purchase. The closing statement showed a payment by C.W. of $11,598.16. At the closing, a copy of a $12,000 cashier’s check made payable to Superior Closing was shown to the lawyer and to 1st Choice Mortgage as the source of the down payment.

The lawyer signed the normal certification at closing representing that the settlement statement was a true and accurate account of the transaction.

The $12,000 check was never negotiated, and 1st Choice never received the funds. 1st Choice paid over $39,000 to settle the claim with Wells Fargo.

1st Choice sued Superior Closing and the lawyer. The lawyer represented that Superior Closing prepared the closing statement and acknowledged that he failed to properly supervise the preparation of the settlement statement and the disbursement of funds. As a result of the lawsuit, a $39,739 judgment was filed against the lawyer and Superior Closing. The judgment has been satisfied.

We all know how challenging it is to supervise the disbursement of a residential closing where the funds do not flow through the closing attorney’s trust account. This disciplinary case demonstrates the danger of skipping that problematic but necessary step.

*In the Matter of Ebener, South Carolina Supreme Court Opinion No. 28047 (August 11, 2021)

SC lawyers connected to Hardwick receive admonitions

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Nat HardwickIn additional fallout from the Nat Hardwick fiasco in Atlanta, the South Carolina Supreme Court has anonymously admonished two bar members for failing to restrict access to South Carolina-based trust accounts containing client funds and failing to ensure proper monthly reconciliations of those accounts*.

This blog has discussed Nat Hardwick, a name familiar to many South Carolina real estate lawyers three times. He was convicted in 2018 of embezzling more than $25 million from his former companies, including his former law firm, Morris Hardwick Schneider. In February of 2019, he was sentenced to 15 years in prison. His co-conspirator and controller, Asha Maurya, was sentenced to seven years after she cooperated with the government. In May of 2019 Hardwick and Maura were ordered to pay $40 million in restitution.

Nathan E. Hardwick IV, described himself as the face of Morris Hardwick Schneider, an Atlanta residential real estate and foreclosure firm that grew into sixteen states, including South Carolina. The firm once had more than 800 employees and boasted of offices in Charleston, Hilton Head, Columbia and Greenville.

This story hits close to home. My company was one of the victims of the crimes and one of the parties awarded restitution because it funded the firm’s escrow accounts when the losses were discovered.

The prosecutor described an extravagant lifestyle that Hardwick enjoyed at the expense of others. The case was said to be particularly troubling because the illegal activity was orchestrated by a lawyer who swore an oath to uphold the law and represent his clients with integrity. The U.S. Attorney said he hoped the case sent the message that the FBI and the U.S. Attorney’s office will not tolerate this type of white-collar crime.

According to the evidence, from January 2011 through August 2014, Hardwick stole more than $26 million from his law firm’s accounts, including its trust accounts, to pay his personal debts and expenses. The firm’s audited financial statements showed that the firm’s net income from 2011 through 2013 was approximately $10 million. During that time, according to the evidence, Hardwick took more than $20 million from firm accounts.

Asha Maurya, who managed the firm’s accounting operations, reached an agreement last May with the U.S. Attorney’s office and pled guilty. She was expected to testify at the trial, but was unexpectedly not called as a witness. Her lawyer argued at the restitution hearing that she should be liable for only $900,000, the amount she admitted taking from the firm for her own benefit. She had agreed to pay restitution in that amount as a part of her plea bargain.

During the trial, Hardwick did take the stand in his defense and attempted to blame Maurya with the theft. He said that he trusted her to his detriment, that he was entitled to the funds, and that he was unaware that the funds were wired from trust accounts. Hardwick testified for more than a day and explained that he believed Maurya followed proper law firm procedures.

On the stand, Hardwick, described as the consummate salesman, said that he gave his cellphone number to almost everyone. He said he returned calls and messages within a few hours and instructed his employees to do the same. He apparently believed himself to be a master in marketing and customer service and prided himself in focusing on the firm’s expansion strategy. He hoped to expand to all fifty states and make money through a public stock offering.

With his ill-gotten gains, Hardwick bought expensive property, made a $186,000 deposit for a party on a private island, spent $635,000 to take his golfing friends to attend the British Open in 2014, paid off bookies, alimony obligations, and sent more than $5.9 million to various casinos, all according to trial evidence. Hardwick’s activities lead to the loss of his law license and the bankruptcy of his firm.

Hardwick’s former partners, Mark Wittstadt and his brother, Gerald Wittstadt, were each awarded $6 million in restitution, and Art Morris, a retired member of the firm, was awarded $5 million.  All claim damage to their reputations in addition to substantial monetary losses.

These two South Carolina disciplinary cases began in May of 2014 when SunTrust Bank reported it paid three wires that were presented against insufficient funds on one of the firm’s South Carolina IOLTA accounts, leaving the account overdrawn by more than $65,000. Approximately a month later, the bank reported the same account was overdrawn by more than $18,000. The ODC began its investigation about the same time the law firm and my company began investigating the problems in Atlanta.

In South Carolina, the misappropriations occurred primarily through online transfers between firm trust accounts. More than $9 million in transfers in and out of the South Carolina trust accounts occurred during 2014 alone. As a result of the investigations and the subsequent funding of the shortage by my company, no South Carolinians lost funds.

*In re Anonymous Member of the South Carolina Bar, SC Supreme Court case 27937 (May 27, 2020) and In re Anonymous Member of the South Carolina Bar, SC Supreme Court case 27974 (May 27, 2020).

SC Supreme Court rule change affects every lawyer with a trust account

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Make one simple change to stay in compliance

change ahead sign

On October 23, our Supreme Court implemented several changes to the South Carolina Appellate Court Rules dealing with lawyer and judicial disciplinary rules enforcement procedures. If things go well in our respective practices, most of us will never have to study the rule changes.

But one change affects every lawyer with a trust account.

Rule 1.15(h) of the Rules of Professional Conduct has been amended to state that every lawyer maintaining a trust account must file a written directive requiring his or her financial institution to report to the Office of Disciplinary Counsel, rather than to the Commission on Lawyer Conduct, when any properly payable instrument is presented for payment against insufficient funds.

In other words, NSF checks must now be reported by your bank to the ODC.

The Court recognized in a footnote that these written directives will take time to update and that lawyers whose written directives currently require reporting to the Commission on Lawyer Conduct are not in violation of the rule. The Court stated that lawyers should update these directives at their earliest convenience.

Most dirt lawyers pay close attention to detail, and I would recommend paying attention to this one sooner rather than later.

Lawyer disciplined for involvement in investment scheme

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The SEC is not “another jurisdiction” for the purpose of reciprocal discipline

On June 27, the South Carolina Supreme Court suspended a lawyer for eighteen months based on Securities and Exchange Commission (SEC) charges*. While this case has nothing to do with dirt law, I bring it to the attention of South Carolina lawyers because they often find themselves in the position of forming and representing limited liability companies (LLCs).

SECThe South Carolina lawyer, John Kern, helped form and served as general counsel for Ventures Trust II LLC and Face-Off Acquisitions, LLC, two of the LLCs used in a fraudulent investment scheme perpetrated by Craig Berkman. Berkman fraudulently raised around $13.2 million from approximately 120 investors by selling memberships in the LLCs he controlled. Unfortunately for these investors, Berkman was subject to a $23 million judgment in Oregon, in connection with another fraudulent investment scheme, and was also facing bankruptcy in Florida. Berkman began to use some of the funds from his new ventures to pay his bankruptcy obligations in Florida, and the SEC got involved.

In 2014, Kern signed an offer of settlement and consented to an entry by the SEC of an order imposing sanctions against him. SEC findings included that (1) Kern willfully aided and abetted the fraudulent conduct of Berkman; (2) Kern was ordered to disgorge fees of around $235,000 and to pay a fine of $100,000; (3) Kern was barred from associating with brokers and investment advisors; and (4) Kern consented to being denied the privilege of practicing law before the SEC.

South Carolina’s Office of Disciplinary Counsel (ODC) filed formal charges in 2016 and argued that the SEC is “another jurisdiction” under the Rule 29(e), which deals with conclusiveness of misconduct adjudications against lawyers in other jurisdictions. The Supreme Court found that the SEC is not a jurisdiction for the purposes of reciprocal discipline, but found that Kern was guilty of providing false information in statements to others.

Kern falsely assured Berkman’s bankruptcy attorney that none of the funds used to settle Berkman’s bankruptcy obligations were derived from Ventures II. Kern also issued a false memorandum to investors in Ventures II to the effect that their funds were secure and were not part of a Ponzi scheme orchestrated by Berkman.

Kern’s primary defense in his South Carolina disciplinary proceedings was that he was totally unaware of Berkman’s malfeasance, and that as soon as he became aware, he resigned as general counsel for the LLCs and encouraged a principal in the companies to act as a whistleblower to the SEC. Kern argued that he had no dishonest or selfish motive, did not profit from his misconduct and showed remorse for the harm caused to investors. The Court said that it took these mitigating factors into consideration in imposing sanctions.

Professor John Freeman, who taught ethics to many of us, was qualified as an expert in the case and testified that when a lawyer acts as general counsel for a private securities company, he or she must exercise due diligence to ensure money is invested for the represented purposes.

Despite the fact that the SEC is not considered by the South Carolina Supreme Court to be a jurisdiction for the purposes of reciprocal jurisdiction against attorneys, this attorney was suspended for eighteen months because of his conduct that led to charges before the SEC.

The lesson to us is clear. Be careful in forming and representing LLCs and use proper due diligence in statements made to the investors in those entities. Lacking a dishonest motive is not enough to protect lawyers from discipline.

*In the Matter of Kern, South Carolina Supreme Court Opinion 27820 (June 27, 2018)

Blogging in the holiday spirit

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Be excellent to each other!

Bill and Ted christmas

The purpose of this blog is to, in a very small way, assist South Carolina real estate lawyers in their constant quest to stay out of trouble. And there are so many ways we can get ourselves into trouble!  Trust accounting, cyber-security, legislative changes, case law changes and rule revisions are just a few examples. But I’m in the holiday spirit, and it occurred to me that one of the easiest ways to get into trouble is to simply fail to be nice.

Some lawyers had developed such terrible habits of failing to be courteous to each other and to opposing parties that our Supreme Court added a “Civility Oath” in 2003, which reads:  “To opposing parties and their counsel, I pledge fairness, integrity, and civility, not only in court, but also in all written and oral communications…”  New lawyers now take this oath when they are sworn in, and the rest of us had to attend seminars or functions that included the new oath as a component. We have all now pledged to be civil.

South Carolina lawyers have been disciplined for being uncivil and unprofessional. One lawyer wrote a letter questioning whether the officials of a municipality had brains and souls. He was suspended for 90 days and required to complete the Bar’s legal ethics and professionalism program. Another lawyer was suspended for 90 days for slapping an opposing party during a deposition.

The Office of Disciplinary Counsel has requested a sanction for bringing the profession into disrepute through a blog. Because the lawyer didn’t identify himself as a lawyer in his blog, the Supreme Court said the profession was not harmed. (I promise to be careful!)

Some authorities on the subject of attorney civility have speculated that technology and social media have exacerbated this problem. It’s easy to be rude while hiding behind a computer screen. Another factor has been the economy. When young lawyers are forced to hang out shingles without the careful mentorship of seasoned lawyers, they often fail to obtain the requisite training on how lawyers should behave.

Litigation lawyers are in the business of fighting for a living, so they often walk a tight rope between vigorously representing their clients and mowing over their opponents in an uncivil manner. I remember, however, attending a trial early in my career to witness two excellent, seasoned, respected Columbia lawyers attempt to out-polite each other. It was an impressive display of civility and effective representation that has remained vividly in my memory for many years. If we were all as civil as those two litigators were, no civility oath would have been necessary.

Unlike trial lawyers, transactional lawyers are in the business of providing solutions, solving problems, arriving at consensus and properly documenting all of the above. Transactional lawyers should, in theory, have fewer problems getting along with each other than trial lawyers have. That is definitely not always the case.

Sitting here in Columbia and listening to title problems from lawyers across South Carolina all day long, the lawyers in our office hear fights between real estate lawyers on a routine basis. It seems to us that an inability to communicate civilly can have a direct dollar impact on business through lost time and productivity.

Books and articles on business ethics stress the value of being nice. I believe that being nice is particularly valuable to transactional lawyers. Being nice can, for example, go a long way toward keeping a lawyer from being sued.

I was taught as a young lawyer to be courteous to the most annoying real estate agents and the most exasperating clients. We should all own up to and fix our mistakes, even when fixing a mistake requires writing a check. Our written and oral communications should demonstrate that we are not only effective lawyers, but also courteous, caring, sympathetic individuals. Being a meticulous and effective lawyer is the best method to eliminate being a defendant in litigation, but being nice is probably the second best method.

I am now stepping off of my soap box and wishing each of you happy holidays and a healthy, happy and prosperous 2018!