CORRECTED: NOVEMBER 28, 2012
TO BE PUBLISHED
,isurfrrntr T.,nurf of
2012-SC-000413-KB Pkg
EATEI -a.- 4-1-.a.
KENTUCKY BAR ASSOCIATION MOVANT
V IN SUPREME COURT
EDWARD L. JACOBS RESPONDENT
OPINION AND ORDER
Pursuant to SCR 3.370, 1 Respondent, Edward L. Jacobs, KBA Member
No. 35408, seeks review of the Findings of Fact, Conclusions of Law, and
Recommendations of the Board of Governors of the Kentucky Bar Association
entered July 13, 2012. Respondent was admitted to the practice of law in
Kentucky on October 22, 1980, and his bar roster address is 26 Audubon
Place, Fort Thomas, Kentucky, 41075.
The Board found that Respondent violated: Count I: SCR 3.130-1.5(a) 2
(requiring that a lawyer charge a reasonable fee); Count II: SCR 3.130-1.15(a)
(requiring a lawyer to hold his funds separate from his clients' funds); and
Count III SCR 3.130-1.15(b) (requiring the prompt delivery of funds or property
I SCR 3.370(8) states that "the Respondent may file with the Court a notice for
the Court to review the Board's decision within thirty (30) days after the Board's
decision is filed with the Disciplinary Clerk, stating reasons for review, accompanied
by a brief supporting his/her position on the merits of the case."
2All references to the Model Code of Professional Conduct refer to the version
and Supreme Court Rule number in effect at the time the alleged violations occurred.
to whoever is entitled to it and to provide a full accounting if requested), and
recommended that he be suspended from the practice of law for thirty days and
attend remedial ethics training. After reviewing the record, we agree with the
Board's findings, adopt their recommendations, and reject Respondent's
arguments in opposition to the Board's determinations and conclusions.
I. FACTUAL AND PROCEDURAL BACKGROUND: KBA FILE 13262
All of the charges in this case concern Respondent's conduct while acting
as both Executor and Attorney for the Estate of Sylvia Smith. On April 26,
1999, Smith executed a Will prepared for her by Respondent. Article VI of the
Will nominated Respondent to serve as Executor of the Estate; no provision of
the Will, however, provided that he was to serve as Attorney for the Estate. On
April 20, 2001, Smith died from injuries suffered in a motor vehicle accident
while a passenger in a motor vehicle she owned, which was being operated by
her daughter. On November 2, 2001, Respondent filed the Will for probate in
Campbell District Court, initiating Case Number 01-P-00543. The court
appointed Respondent as the Executor of the Estate.
On December 26, 2002, Respondent mailed a letter to the heirs in
response to their inquiries regarding the Estate. Respondent advised them that
he would be acting as both the Attorney and the Executor for the Estate; that
his fee would be equal to five percent of the assets passing through the Estate;
that he would be entitled to his hourly rate of $200.00 for defending any claims
against the Estate; and that normally hiS fee is taken at the beginning of his
representation of an estate.
Five claims were filed against the Estate. Three of the claims were from
heirs of the Estate for reimbursement of various expenses incurred for the
benefit of the decedent. Two of the claims were allowed. The fourth claim was
filed by a passenger of the other vehicle involved in the traffic accident that
resulted in the death of the decedent. This claim was ultimately denied. The
final claim related to a condemnation action by the Kentucky Transportation
Cabinet regarding land owned by the decedent. As a result of a settlement of
this claim the Estate received $220,000.00.
During the administration of the Estate, Respondent wrote seven checks
to himself from Estate funds. These checks Were listed in the Disbursements
section of the Final Settlement of the Estate. The listed total receipts for the
Estate were 469,227.71. The seven disbursements from Estate funds to the
Respondent were identified in the Final Settlement as follows:
Date Amount Description
11/13/01 S5,500.00 Edward L. Jacobs Fee
12/14/01 $4,500.00 Edward L. Jacobs Fee
01/11/02 $645.40 Edward L. Jacobs Fee (attorney fee thru October
18, 2001)
3/29/02 $5,000.00 Edward L. Jacobs Fee
06/04/02 $5,000.00 Edward L. Jacobs Fee
06/17/02 $20,000.00 Edward L. Jacobs Fee
08/01/02 $10,000.00 Edward L. Jacobs Fee
The 50,000.00 in fees collected by Respondent in his capacity as
"Attorney and Executor for the Estate" totals more than ten percent of the total
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value of the Estate. The Respondent did not deposit any of these disbursed
funds into an account separate from his own personal funds, but rather, he
treated them as earned at the time of disbursement. Moreover, Respondent did
not request approval from the court for the 5645.40 disbursement to himself
from Estate funds for attorney fees he claimed were owed to him by decedent
for work done prior to her death. Nor did Respondent seek or obtain approval
from the court to serve in the dual capacity of both Attorney and Executor for
the Estate; nor did he seek court approval for any of the fees distributed to
himself. .Nor did the Respondent submit any proof to the court for
compensation predicated on "unusual or extraordinary" services to the Estate
as set forth in KRS 395.150(2).
On September 17, 2003, an heir of the Estate wrote to Respondent on
behalf of all the heirs requesting an "itemized bill to date as to your fees
reflected in the Disbursements." In response to this request, Respondent
provided a document captioned "Sylvia Smith Estate Client Service Record."
That document provides brief descriptions of activities and lists a date for each
activity from November 1, 2001 to August 25, 2003. There are no entries
reflecting the time devoted to any of the activities and no specific indications
reflecting whether any activity was conducted in the capacity of Executor or
Attorney for the Estate.
Heirs of the Estate of Sylvia Smith challenged the fees charged to the
Estate by the Respondent after the Final Settlement was filed. By Agreed Order
4
dated August 11, 2004, the Respondent agreed to return to the Estate the
amount of $20,000.00.
A. KBA Proceedings
As a result of Respondent's representation of the Estate of Sylvia Smith,
the KBA Inquiry Commission charged Respondent with three counts of
professional misconduct as follows:
Count I Violating SCR 3.130-1.5(a), which provides that "[a] lawyers' fee
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shall be reasonable." The Commission alleged that Respondent violated this
rule by collecting fees from the Estate as both its Attorney and Executor
without seeking approval from the court, and by collection of fees of more than
twice the maximum authorized by KRS 395.150(1) as compensation for an
Executor based upon an estate value of $469,277.71, including his claims for
attorney services not authorized in the Will or by the court. In addition, the
Commission alleged that he violated this rule by collecting from the Estate,
without seeking or obtaining approval from the court, a fee of $645.40 for pre-
death legal services of the decedent.
Count II -Violating SCR 3.130-1.15(a), which provides that "[a] lawyer
shall hold property of clients or third persons that is in the lawyer's possession
in connection with a representation separate from a lawyer's own property."
The Commission alleged that Respondent violated this rule by not depositing
advanced, unearned, fee payments from the Estate in an account separate
from Respondent's own property.
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Count III— SCR 3.130-1.15(b), which provides that "[u]pon receiving
funds or other property in which a client or third person has an interest, a
lawyer shall promptly notify the client or third person. Except as stated in this
rule or otherwise permitted by law or by agreement with the client, a lawyer
shall promptly deliver to the client or third person any funds or other property
that the client or third person is entitled to receive and, upon request by the
client or third person, shall promptly render a full accounting regarding such
property." The Commission alleged that Respondent violated this Rule by
failing to provide an itemized accounting of the fees he charged to the Estate
after he received a written request from the heirs for such an accounting.
As a result of the above alleged violations, the Office of Bar Counsel
sought a two-year suspension from the practice of law. Respondent timely filed
an answer to the charges, and Frank H. Warnock was appointed by the Chief
Justice to preside over the case. On May 4, 2011, an evidentiary hearing was
held at which the Office of Bar Counsel and Respondent presented testimony
and exhibits in support of their respective positions. On August 23, 2011, the
trial commissioner filed his Report with the Disciplinary Clerk in which he
recommended that Respondent be found guilty (in part) of Count I and not
guilty of the other two counts.
As to Count I, the trial commissioner determined that Respondent had
indeed violated the excessive fee rule pursuant to the five percent limitation
contained in KRS 395.150 and the separate compensation provisions
applicable to one who serves as both the Executor and Attorney of an Estate
pursuant to Morgan v. Meacham, 130 S.W.2d 992 (Ky. 1938). The trial
Commissioner further determined, however, that because of the de minimus
amount involved, and the undisputed validity of the debt, it was not ethically
necessary for Respondent to have sought court approval for the 645.40 in fees
he paid himself for services rendered prior to Smith's death. Cf., Kentucky Bar
Ass'n v. Profumo, 931 S.W.2d 149 (Ky. 1996).
The trial commissioner found Respondent not guilty under Count II
because he determined, without citation, that "an Executor's commission is
normally a flat percentage fee and is not based upon an hourly charge." The
trial commissioner believed that Respondent had been forthright with the heirs
from the beginning about the amount of fees he would be charging and made
no attempt to hide his conduct, and observed that "[t]his is not a normal
situation where an hourly fee is charged against the retainer and the unearned
portion of the retainer must be kept in escrow until earned by hourly services."
From these factors, the trial commissioner concluded that Respondent was not
required to segregate his fee disbursements from the Estate from his own
personal funds.
With regard to Count III, the trial commissioner determined that
Respondent did not fail to promptly turn over property to whom it was entitled,
or fail to provide an accounting of funds held because "the Respondent testified
under oath that it was his belief that he was charging a flat fee and when an
accounting was requested of him he furnished a 14 page narrative statement of
the services he had performed for the estate. Since the Respondent, in his
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mindset, was not charging an hourly fee but rather charging a flat fee, a 14
page narrative summary of his services appears to be an adequate response to
the request for accounting and not in violation of Supreme Court Rule 3.130-
1.15(b)."
As the sanction for charging an excessive fee as set out in Count I, the
trial commissioner recommended a private reprimand. Bar Counsel filed a
motion to amend the report, which the trial commissioner denied. Bar Counsel
subsequently filed an appeal with the Board of Governors requesting a de novo
review of the case. Pursuant to SCR 3.370(6), 3 the Board of Governors rejected
the commissioner's report and reviewed the file de novo.
Following its review, the Board found that Respondent violated Count I:
SCR 3.130-1.5(a) (requiring that a lawyer charge a reasonable fee) by a vote of
17-0, and that he violated Count II: SCR 3.130-1.15(a) (requiring a lawyer to
hold his funds separate from his clients' funds) by a vote of 17-0, and that he
violated Count III SCR 3.130-1.15(b) (requiring the prompt delivery of funds or
property to whomever is entitled to it) by a vote of 11-6. The Board
recommended that Respondent be suspended from the practice of law for thirty
days and be required to attend remedial ethics training.
Respondent then filed a notice to this Court seeking review pursuant to
SCR 3.370(8).
3 SCR 3.370(6) provides, in pertinent part that "[t]he Board shall decide, by a
roll call vote, whether the decision of the Trial Commissioner as to the finding of a
violation and degree of discipline imposed is supported by substantial evidence or is
clearly erroneous as a matter of law. The Board, in its discretion, may conduct a
review de novo of the evidence presented to the Trial Commissioner. Both the findings
and any disciplinary action must be agreed upon by eleven (11) or three-fourths (3/4)
of the members of the Board present and voting on the proceedings, whichever is less."
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II. ASSESSMENT OF GUILT
"The findings of fact by the trial commissioners and the Board of
Governors [in a disciplinary proceeding] are advisory only." Kentucky Bar Ass'n
v. Berry, 626 S.W.2d 632, 633 (Ky. 1981). "Final decisions of guilt and
punishment can only be made by the Supreme Court, and it is done on the
basis of a de 11.01)0 consideration of pleadings and trial review." Kentucky Bar
Ass'n v. Jones, 759 S.W.2d 61, 63-64 (Ky. 1988).
In opposition to the charges against him, Respondent alleges that the
facts in support of the charges have been presented in an "overly-narrow and
selective view" of the evidence; and that Bar Counsel has raised "technical and
non-prejudicial" issues concerning the actions of Respondent with regard to the
Estate. He complains that the findings and reasoning of the Board misstate
his actual conduct and the good faith nature of his actions, and fail to
recognize the strong mitigating circumstances surrounding his representation
of Smith before her death and of her Estate after her death.
Upon reviewing the record, we adopt the Board of Governors' findings,
adopt their recommendation, and reject Respondent's arguments in opposition
to the Board's determinations and conclusions.
Count I - A review of the record demonstrates that Respondent violated
SCR 3.130-1.5(a) by collecting amounts from the Estate as both lawyer and
Executor without seeking the prior approval from the court, and by the
collection of fees more than twice the maximum authorized by KRS 395.150(1)
as compensation for an executor based upon an estate value of 469,277.71,
including his claims for attorney services not authorized in the Will or by the
9
Court. In addition, he violated this rule by collecting from the Estate, without
seeking or obtaining approval from the court, a fee of 645.40 for pre-death
legal services of the decedent; in this vein, we do not believe the comparatively
small amount at issue excuses compliance from the obligation to obtain the
probate court's approval for an attorney acting as the executor for an Estate to
make a self-disbursal to himself.
Further, KRS 395.150(1) limits the compensation of an executor for
services to five percent of the value of the personal estate of the decedent, plus
five percent of the income he collects. Notwithstanding this limit, KRS
395.150(2)(a) provides that luipon proof submitted showing that an executor,
administrator or curator has performed additional services in the
administration of the decedent's estate, the court may allow to the executor,
administrator or curator such additional compensation as would be fair and
reasonable for the additional services rendered, if the additional services were:
(a) Unusual or extraordinary and not normally incident to the administration of
a decedent's estate[.]" In addition, "[i]f a court finds an executrix is deserving of
pay for extraordinary services over and above the usual commission, it should
make a specific finding to that effect. Without such a finding, the excessive fee
should be disallowed." Hale v. Moore, 289 S.W.3d 567, 583 (Ky. App. 2008);
see Panke v. Louisville Trust Co., 198 S.W.2d 313 (Ky. 1946). It is undisputed
that no such specific finding was made by the probate court in this case.
Further, it is well-settled that an attorney who accepts appointment as
an executor cannot also serve as legal counsel for the estate and receive dual
10
compensation for the additional role, absent approval of such an arrangement in
the will. Clay v. Eager, 444 S.W.2d 124 (Ky. 1969); Profumo, 931 S.W.2d at
151 ("To receive dual compensation [as executor and estate's attorney], one
must have been appointed and identified as both executor and attorney in the
will so as to evince testator's intention that the attorney be compensated in
both capacities.").
Here, Respondent concedes that he acted as both Executor and as
Attorney for the Estate: Therefore, it is clear that Respondent violated Profumo
and KRS 395.150(2) in at least two ways: (1) because he took executor fees for
"unusual or extraordinary" services from the Estate account without the prior
consent and approval of the probate court[;]" and (2) by failing to provide the
required documentation corroborating the fees for "unusual or extraordinary"
services.
Additional compensation is allowed only upon consent of the court and
after submission of proof detailing the services rendered. KRS 395.150(2). As
a result, "Respondent cannot rely on this exception since he neither asked the
probate court to allow additional compensation nor presented evidence to the
probate court justifying the fee." Profumo, 931 S.W.2d at 150. Thus, because
Respondent had not met the statutory requirements for entitlement to more
than five percent of the Estate, the fee he disbursed in excess of this amount
was necessarily an unreasonable fee. That the fee disbursements were
unreasonable is further supported by his having to return 20,000.00 of the
amounts disbursed.
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We thus agree with the Board that Respondent violated SCR 3.130-
1.5(a), charging an unreasonable fee, in regard to the conduct described in
Count I.
Count II The record further demonstrates that Respondent violated
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SCR 3.130-1.15(a) by not depositing advance unearned fee payments from the
Estate into a separate account, and instead depositing those funds into his
own general office account. Respondent's guilt under Count I, and his
depositing of the fees as described in our discussion above into his office
accounts, necessarily compels the result he failed to keep separate unearned
fees from his personal accounts. That is, because Respondent was not entitled
to those amounts, but nevertheless received them and deposited them into his
office accounts, he by definition violated SCR 3.130-1.15(a). Further, that
unearned fees were deposited into his office account is clearly demonstrated by
Respondent's agreement that he had overcharged the Estate and agreeing to
refund $20,000.00. The $20,000.00 refund was paid from Respondent's office
accounts, not a client trust account, and thus it further demonstrates that the
Rule was violated. We reject Respondent's argument that his "mindset" was
that all amounts were pursuant to a flat fee, and thus his conduct is
excusable. As explained in our discussion above, the law is well - settled in this
area and therefore his unawareness is no excuse. Finally, we will not
distinguish between "unearned" funds, in the traditional sense, from funds
that are theoretically "earned," but are barred by statute from disbursement
without the probate court's approval. It further bears emphasis that this issue
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deals with a lawyer's handling of client and third-party funds, and it is
fundamental that such rules will be strictly enforced.
Count III - The record also reflects that Respondent violated SCR 3.130-
1.15(b) by failing to provide an itemized accounting of the fees he charged to
the Estate after he received a written request from the heirs for such an
accounting. In September 2003, an heir of the Estate wrote to the Respondent
on behalf of all the heirs requesting an "itemized bill to date as to your fees
reflected in the Disbursements." In response to this request, Respondent
provided a document captioned "Sylvia Smith Estate Client Service Record."
That document provides brief descriptions of activities and lists a date for each
activity from November 1, 2001 to August 25, 2003; however, there are no
entries reflecting the time devoted to any of the activities and no specific
indications reflecting whether any activity was conducted in the capacity of
Executor or Attorney for the Estate. The Rule provides that "upon request by
the client or third person, [a lawyer] shall promptly render a full accounting
regarding such property." SCR 3.130-1.15(b) (emphasis added). We are
persuaded that in the context of a lawyer providing an accounting of fees
charged to a client, fundamental to that process is a reflection of the time spent
on each of the relevant tasks. While in the case of a true flat fee that may be
irrelevant; nevertheless, here, Respondent had informed the heirs at the outset
that he would be charging $400.00 per hour for his services in his dual
capacity as attorney for the Estate. Therefore, we emphasize that in the usual
case when a client is being charged for lawyer's services at an hourly rate, and
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perhaps with exceptions not applicable here, a demand for an accounting
under the Rule will require a lawyer to include a representation of the time
spent for each of the relevant services billed. Only in this way may a client
assess whether the charges are reasonable so as to further pursue relief.
Therefore, we are satisfied that the Board properly concluded that
Respondent's communication in response to the request for an accounting fell
short of this standard.
III. ASSESSMENT OF PENALTY
As a result of the above alleged violations, the Office of Bar Counsel
originally sought a two-year suspension from the practice of law. As noted, the
Board recommends a thirty-day suspension with additional ethics training.
Respondent argues that if his conduct supports any disciplinary sanction at
all, the sanction should be limited to either a private or public reprimand, or a
probated suspension, as a more balanced and appropriate resolution rather
than the actual suspension recommended by the Board. Significantly, in his
thirty-one years of practice prior to these charges Respondent has incurred no
other disciplinary proceedings.
Upon consideration of the conduct and violations involved in this case,
we agree with the Board that a thirty-day suspension is an appropriate
sanction for these ethical violations. See Kentucky Bar Ass'n v. Niemi,
366 S.W.3d 921 (Ky. 2012) ("Attorney's misconduct in failing to keep client
reasonably informed as to progress of workers' compensation case, in failing to
return unearned fees, and in failing to respond to disciplinary authority's
14
complaint and requests for information warranted 30-day suspension from
practice of law.").
ACCORDINGLY, IT IS HEREBY ORDERED that:
(1) Respondent, Edward L. Jacobs, is found guilty of violating SCR 3.130-
1.5(a); SCR 3.130-1.15(a); and SCR 3.130-1.15(b);
(2) For these violations, Jacobs is hereby suspended from the practice of law for
thirty days and required to attend the entire KBA Ethics and Professionalism
Enhancement Program (EPEP) within one year of the date of this Order;
(3) Respondent will not apply for Continuing Legal Education credit of any kind
for his attendance at the EPEP. He will furnish a release and waiver to the
Office of Bar Counsel to review his records of the CLE Department that might
otherwise be confidential, such release to continue in effect until after he
completes his remedial education, in order to allow the Office of Bar Counsel to
verify that he has not reported any hours to the CLE Commission that are to be
taken as remedial education.
(4) In accordance with SCR 3.450, Respondent shall pay costs associated with
these proceedings in the amount of 2,503.91, for which execution may issue
from this Court upon finality of this Order.
Minton, C.J., Abramson, Cunningham, Noble, Scott and Venters, JJ.,
concur. Schroder, J., not sitting.
ENTERED: November 21, 2012.
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CORRECTED: NOVEMBER 28, 2012
TO BE PUBLISHED
Suprrittr (Courf ri,firnfur4
2012-SC-000413-KB
KENTUCKY BAR ASSOCIATION MOVANT
V. IN SUPREME COURT
EDWARD L. JACOBS RESPONDENT
ORDER CORRECTING
The Opinion and Order entered November 21, 2012, is corrected on its
face by substitution of the attached Opinion and Order. Said correction does
not affect the holding of the original Opinion and order of the Court.
ENTERED: November 28, 2012.