Free Motion for Summary Judgment - District Court of Arizona - Arizona

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RICHARD J. MCDANIEL, P.C. ATTORNEY AT LAW 11811 N. TATUM BLVD., SUITE 1051 PHOENIX, ARIZONA 85028 Telephone (602) 953-8721 FAX (602) 953-8731 Richard J. McDaniel #013329 Attorney for Defendants Woodcock IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Case No. CIV 04-78-FJM SHIMKO & PISCITELLI, Plaintiff, v. DEFENDANT WOODCOCKS' MOTION TO DISMISS CLAIMS AND MOTION FOR SUMMARY JUDGMENT

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PAUL and BOBBI WOODCOCK, et. al. Defendants.

Ohio attorney Shimko is not entitled to additional attorneys' fees. His representation of Paul and Bobbi Woodcock was so ridden with conflicts and ethical violations that it had no value to them personally. He failed to: (1) disclose numerous conflicts involved in his representation of multiple parties; (2) inform them of the details and risks of his business transactions with the CORF entities; and (3) obtain their consent to the conflicts and business transactions. This motion is supported by the accompanying Memorandum of Points and Authorities and a separate Statement of Facts.

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MEMORANDUM OF POINTS AND AUTHORITIES I. Facts Ohio attorney Tim Shimko and his partner, Frank Piscitelli began to represent the CORF entities in December 2000, when Shimko was asked to review a comprehensive outpatient rehabilitation facility consulting business the individual defendants were starting. (SOF 13) Unfortunately for the clients, Shimko and his partner, Frank Piscitelli, knew almost nothing about Medicare or other laws and regulations concerning CORFs. (SOF 1) In November 2001, Shimko was retained by the CORF entities to be their counsel to address complaints from disgruntled clients. Shimko & Piscitelli represented at least eight clients including the limited partners Woodcock, Ross, Goldfarb, and Guenther; employees and officers, including, Ritchie and Brill; and CORF Management Services, L.P., and CORF Licensing Services, L.P. (SOF 5) Unfortunately for the individual defendants, Shimko and Piscitelli had almost no prior experience representing defendants, particularly multiple defendants. Almost all of Shimko's previous work had been plaintiffs' contingency fee cases. (SOF 5)

Shimko never explained to his clients, as required by Ethical Rule 1.7, the dangers and risks involved in his representing multiple clients. (SOF 7) Shimko did not even perceive the potential conflicts inherent in simultaneously

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representing the business entities, officers and employees, and limited and general partners. (SOF 8) Clearly, since Shimko did not inform his clients of the conflict, he never received Paul and Bobbi Woodcock's consent to waive the potential conflicts as required in a situation as plagued with potential conflicts as this one was. (SOF 9) Shimko admitted at his deposition that, although he had significant business dealings with the CORE entities (lending $250,000 and taking an ownership interest in another business), he did not disclose the details of the transactions to the Woodcocks; did not advise them to seek review by outside counsel; and did not get the Woodcocks' consent, as required by Ethical Rule 1.8. (SOF 10) Shimko did not advise Paul and Bobbi Woodcock that they might want to obtain their own counsel even after some of the other individual defendants carried on activities that Shimko testified he warned them against. (SOF 11) Shimko did not advise Paul and Bobbi Woodcock that they might want to obtain their own counsel even after he had dinner with the lead attorney prosecuting the underlying fraud lawsuits and learned that the attorney was offering to drop lawsuits against some of his clients, Brill and Ritchie, who were CORF officers, in return for their testimony. (SOF 14)

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Shimko testified that he could not make a deal offering the testimony of Woodcock, Ross, Guenther, or Goldfarb because since

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he represented them all, "they would all sink or swim together." (SOF 15) Shimko acknowledges that the primary concern of the individual defendants, including the Woodcocks, was their personal exposure to liability and judgment. Nevertheless, Shimko never inquired about the assets of the individual limited partners or how they were held; and never made an effort to determine whether the individuals might have conflicts based upon amount of assets; how they were held; and their degree of participation in various CORF activities. (SOF 30)

Shimko admitted that he charged excessive fees for his unlicensed law clerk, David Welling, who was billed at $350 per hour. Although Shimko admits the rate should have been no more than $125 per hour, Shimko never adjusted his billings to retract the overcharges. (SOF 27) II. Argument Shimko is not entitled to additional attorneys' fees. He zas already received $130,000 or more for his work in the CORF related litigation. (SOF 26) Shimko's repeated ethical

violations, conflicts of interests, and failures to properly disclose and obtain consent to the conflicts bar any recovery against the Woodcocks personally. A. Shimko Failed to Provide Competent Representation. Shimko failed to provide competent legal representation in violation of ER 1.1. Competent representation of a client

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requires the legal knowledge, skill, thoroughness, and preparation reasonably necessary for representation. ER 1.1, Rule 42, Rules of the Supreme Court. In December 2000 some of the individual defendants asked Shimko, who they knew from a previous representation, to come to Phoenix to review a new comprehensive outpatient rehabilitation facility consulting business they were starting. (SOF 1) Shimko sent his partner, Frank Piscitelli. Shimko testified at his deposition that he and Piscitelli knew almost nothing about Medicare or other laws and regulations concerning CORFs. The lawyers billed CORF almost $8,000 in fees for the visit, but never issued a report or opinion on the business. (SOF 2-4) They

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did not send a letter explaining they had little knowledge of ousiness formation, Medicare, and regulatory law and were thus not able to render an opinion. Shimko and Piscitelli did nothing. They never even called their clients. Shimko testified that he did not speak to any of the clients until almost one year later, when they called him in November 2001. (SOF 2-4) For the value they got, the clients might as well have paid Shimko and Piscitelli to go golfing. B. Shimko Failed to Provide Loyal Representation to Paul and Bobbi Woodcock. Because he represented multiple clients and did not disclose the inherent risks, Shimko failed to provide loyal legal representation to the Woodcocks. "Loyalty is an essential element in the lawyer's relationship with his client." Comment

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to ER 1.7. A lawyer shall not represent a client if the representation will be directly adverse to another client unless the lawyer reasonably believes the representation will not adversely affect the relationship with the other client and each client consents after consultation. ER 1.7.(a). When representing multiple clients in a single matter, the consultation must include explanation of the implications of common representation and the advantages and risks involved. ER 1.7(b)(2). Disciplinary rules disfavor multiple representations any time there is even a potential conflict of interest. Eriks v. Denver, 824 P.2d 1207, 1212, 118 Wash.2d 451, 460-461 (1992). Shimko was so unqualified for the CORF work that he didn't even see the inherent risks of representing multiple defendants, whom he both represented and had business dealings with. Thus he did not see and did not advise his clients of the potential conflicts involved in his simultaneous, joint representation of the CORF business entities, its officers and employees, the general partner and limited partners. He never advised the limited partners that they might have different interests and conflicts with the general partner and officers and employees. He never advised the individual defendants that they might have conflicts and different interests depending upon their own personal assets and financial situations; level of involvement in CORF activities and promotions; and knowledge of activities at CORF. He never advised them that he couldn't offer a

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settlement for one of them because that would conflict with his
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duty to the others. 1. Even When Some Clients Did Not Follow His Advice, Shimko Did Not Warn the Woodcocks of the Risks.

Shimko testified that he had advised Ross, Goldfarb, Woodcock and Guenther to discontinue participating in seminars promoting the CORF consulting services. Shimko said that Woodcock followed his advice; however, not everyone did. Shimko testified that he said that Goldfarb's continuing activities would be the death of them all. However Shimko never advised the Woodcocks of the risks and potential conflict involved in his continuing to represent multiple clients with different levels of involvement and potential culpability. Shimko never advised the Woodcocks that they might want to consult with another attorney. By failing to warn of these risks, Shimko violated ER 1.7 and his duty of loyalty to Paul and Bobbi Woodcock. 2. Even When The Plaintiffs' Attorneys in the CORF Litigations Approached Shimko About Cutting Deals with Some of His Clients, He Did Not Warn the Others About Potential and Acutual Conflicts.

to
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A conflict may exist when substantially different
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possibilities of settlement of the claims or liabilities exist.
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Matter of Shannon, 179 Ariz. 52, 876 P.2d 548 (1994).
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Representing clients with substantially different positions in
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terms of settlement, is a basis for finding a conflict of interest. Id.

Shimko testified that he attended dinner with the lead attorney for the plaintiffs in the underlying CORF lawsuits. The attorney was offering to drop lawsuits against Brill and Ritchie, who were CORF officers and employees, if they would provide testimony. (SOf 14) Shimko never explained to the

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individual defendants that he could not make a settlement on behalf of one of them, for example Woodcock, by offering Woodcock's testimony against the others because doing so would conflict with his duty of loyalty to the other limited partners. (SOF 15-16) By failing to disclose these conflicts to the Woodcocks and to get their waiver, Shimko failed at the most fundamental level to meet his ethical duties. C. Shimko Entered Into Transactions with the CORP Entities That Compromised His Representation of Paul and Bobbi Woodcock. Shimko also entered into business transactions with the CORE entities that compromised his representation of Paul and Bobbi Woodcock. Shimko violated ER 1.8, which required that he not enter into a business transaction with a client unless the terms were fully disclosed; the client was given a reasonable opportunity to seek advice of outside counsel; and the client consented in writing. A lawyer entering into a business relationship with a client must not only give a full explanation of divergence of interest between lawyer and client and the need

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to seek independent counsel, but must also give a detailed explanation of the risks and disadvantages to the client which flow from the relationship. Matter of Neville, 147 Ariz. 106, 708 P.2d 1297 (1985). Shimko testified that he lent approximately $250,000 to the
CORF

business entities. Shimko testified that he did not even

inform Paul Woodcock that he had made the loan until after the fact. Shimko did not prepare a promissory note or disclose details of the transaction to the Woodcocks. Shimko did not advise Woodcock to have independent counsel review the loan transaction.
(SOF

20-22)
CORF

When Shimko lent money to the

entities without

Woodcock's knowledge and consent, Shimko compromised his ability to loyally represent the Woodcocks. As a creditor, Shimko had an interest in maintaining the
CORF

entities that potentially

conflicted with his duty to the Woodcocks. Shimko was unlikely to advise Woodcock to do something that might jeopardize repayment of the loan such as advising Woodcock to cut his ties with the entities or offer a settlement to the underlying plaintiffs in which Woodcock might give testimony in return for dismissal of claims against him individually. Shimko also never explained to any of his clients how he would allocate monies he received from
CORF

between his legal
CORF

bills and loan repayment. By applying monies received from

preferentially to repayment of the loan, Shimko increased the

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risk that CORF would be unable to pay legal bills and thus the likelihood that the individual defendants might be held responsible for the bills. The Woodcocks were not advised nor did they consent to this conflict and risk. On August 19, 2002, Shimko entered into another business transaction with some of his clients acquiring an ownership interest in a tissue bank business, Aztec Medical Group Partners, LLC. Shimko agreed to provide legal services to the business in exchange for an interest. Again Shimko failed to meet his ethical duties. Shimko did not advise Woodcock to have independent counsel review the transaction and operating agreement. Shimko did not get the Woodcocks' written consent. (SOF 23) After it became apparent that the CORP entities were headed toward insolvency and would be unable to pay ongoing attorneys' fees, Shimko demanded that Paul and Bobbi Woodcock and the other individual defendants pledge their homes as collateral. Shimko did not warn his clients that if they knowingly and willingly pledged their homes they would be potentially waiving their homestead exemption. Shimko did not advise the Woodcocks to seek the advice of outside counsel. (SOF 24) D. Shimko Cannot Meet His Burden to Show the Woodcocks Consented to the Conflicts. Shimko cannot meet his burden to show that the Woodcocks consented to his numerous ethical conflicts. In a disciplinary

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proceeding, the burden of establishing disclosure to and consent

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by the client is upon the lawyer and any doubt or ambiguity must be resolved against the lawyer. A violation of the rule prohibiting the representation of multiple, adverse interests is established when, in the absence of a writing, the lawyer cannot prove the client's consent to multiple representation is voluntary and knowing. Matter of Neville, 147 Ariz. 106, 708 P.2d 1297 (1985). Any doubts and ambiguities which are disclosed in later disputes with the client will be resolved against the attorney. Id. Paul Woodcock has testified that Shimko did not disclose or warn him of the potential conflicts involved in Shimko's representation of multiple clients. Woodcock testified that Shimko did not advise him about business transactions; did not advise him to have outside counsel review the transactions; and did not obtain his consent. Shimko cannot refute this testimony and has no evidence showing that he warned his clients about the potential conflicts or obtained their consent to them. E. Even if Shimko had Provided Competent and Ethical Representation, the Woodcocks Would Owe Him Less than $13,000. Shimko's calculation of fees owed him is incorrect. Shimko testified that he has been paid approximately $130,000 in legal fees and is owed approximately $365,000 more, for total charges of $495,000. (SOF 26) Shimko acknowledges that he has never

corrected his bills even though he overcharged for David Welling, an unlicensed law clerk at the time, who was billed at

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$350 per hour. Shimko admits the hourly rate should have been $125. (SOF 27) Welling billed a total of approximately 310 hours. Subtracting out the $108,500 Welling billed from the total charges of $495,000 leaves $386,500. This Court has ruled that Piscitelli's failure to make himself available for deposition bars a claim for fees attributable to him. Piscitelli billed more than $100,000 in charges. (SOF 29) Subtracting out $100,000 leaves $286,500.

This Court has also ruled that the $350 charged by Shimko was unreasonably high. Reducing the $286,500 by one-third leaves approximately $191,500. Adding back in Welling's 310 hours at $125 per hour gives a total bill of about $230,250. Subtracting the approximately $130,000 Shimko acknowledges he was paid, leaves a balance of $100,250. However, Shimko not only represented Woodcock, but also Ross, Goldfarb, and Guenther, Ritchie, Brill, CORF Management Services, L.P., and CORF Licensing Services, L.P. Dividing the remaining balance of $100,250 by the eight clients leaves a balance due by the Woodcocks of no more than $13,000. F. Fee Forfeiture and Conclusion. Many courts have held that once a conflict of interest or other ethical violation has been established, the attorney is prohibited from collecting fees. In Estate of Watson, 557 N.W. 2d 38, 41, 5 Neb. App. 184, 189 (1996). An attorney who knew or plainly should have known he had a conflict of interest, may not

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receive fees for services rendered after acquiring such knowledge. 557 N.W. 2d at 43, 5 Neb. App. at 193. The general principle that a breach of ethical duties may result in denial or disgorgement of fees is well recognized by courts of law. Eriks v. Denver, 824 P.2d at 1213, 118 Wash.2d at 462. Even if Shimko had provided competent, adequate, and loyal representation, the Woodcocks would owe him less than $13,000. However, Shimko did not provide such service. He repeatedly failed to disclose potential conflicts and failed to obtain knowing and informed consent to the multiple representations. He failed to inform his clients of deals and transactions he was entering into with the CORE entities; the potential risks and conflicts; and the wisdom of seeking outside counsel to review the transactions. These failures violated the Arizona and Ohio ethical rules and fatally compromised Shimko's loyalty and duty to the Woodcocks. Not only is Shimko not entitled to further fees from any of the individual defendants, but his conduct should be sanctioned by the Arizona and Ohio Bars and this Court. Dated this 31st day of March 2008. RICHARD J. MCDANIEL ATTORNEY AT LAW By /s/ Rich McDaniel Richard J. McDaniel 11811 N. Tatum, #1051 Phoenix, AZ 85028 Attorney for Defendants Woodcock

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Original electronically filed and copy sent electronically this 31st day of March 2008 to: David Welling Timothy Shimko & Associates 2010 Huntington Building 925 Euclid Avenue Cleveland, Ohio 44115 Roger Cohen JABURG & WILK 3200 N. Central, 20 th Floor Phoenix, AZ 85012-2440 Attorney for Ross Copy mailed to:

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David and Rhona Goldfarb 11437 N. 53 rd Place Scottsdale, AZ 85254 Pro Per /s/ Rich McDaniel

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