Leading commercial litigator Andrew C. Hall of the Hall Lamb and Hall law firm chimes in on the Scott Rothstein fraud and its impact on the legal profession in this candid Miami Herald Q&A.
Maintaining integrity in the legal profession
Andrew Hall, founder and managing partner of Hall, Lamb and Hall, reflects on the Scott Rothstein case and the state of the legal profession.
By JULIE KAY
Andrew Hall is the founder and managing partner of Hall, Lamb and Hall, a Miami law firm specializing in complex corporate and business litigation matters. He frequently sues law firms for legal malpractice and also serves as a plaintiff lawyer in securities and general business disputes.
Hall’s most famous clients were John D. Ehrlichman, President Richard Nixon’s former senior advisor for domestic affairs, in the Watergate trials, and former Ambassador Marvin L. Warner in proceedings following the failure of Ohio’s state-insured savings and loan industry.
Through his 42-year career, Hall has won a number of cases which have changed the law and resulted in multi-million dollar verdicts for such clients as Security Pacific Bank, Union Bank, Spanno Corp., Georgetown Manor, Burger King Corp and victims of terrorism. His largest verdict to date: $100 million.
The Miami Herald recently spoke with Hall about the case of disbarred Fort Lauderdale attorney Scott Rothstein, whose 70-lawyer firm imploded prior to his arrest last month for allegedly operating a $1.2 billion Ponzi scheme. Rothstein allegedly sold phony structured settlements to investors in a scheme federal authorities say began in 2005.
We picked Hall’s brain about how lawyers can ensure they aren’t working for a Scott Rothstein, investors can ensure they aren’t investing with a Scott Rothstein and clients can ensure they don’t hire a Scott Rothstein.
Q: In the wake of the Scott Rothstein case, should clients ever do deals with their attorneys, and if so, what guidelines should be in place?
A: A lawyer should never be on both sides of the transaction. A lawyer has a fiduciary duty to the client, and that fiduciary duty is compromised when he has his own interests at stake. When a lawyer is an investor in a deal, in reality the lawyer has a bias that may not be in the client’s best interests. When clients are invited to take part in an investment, there is a very fuzzy line. It matters whether the lawyer brings the deal to the client or the client brings it to the lawyer. But either way, the lawyer has to remind the client, if you want my work on this and want me to be an investor, we have to be satisfied with me playing this double role. If you’re involved as a lawyer, you better document completely the fact that you advised your client of the possible conflict and gave your client a chance to go elsewhere for the legal advice. There are certain circumstances where a conflict of interest is not waiveable. Florida Bar rules suggest that when your interest is hostile to the client’s you can’t serve any more.
Q: How common it is for lawyers and clients to do deals together?
A: It happens all the time. The reality of it is there are lots of circumstances where lawyers are putting together deals and their client is involved. It’s not unusual, particularly in real estate deals. It’s not unusual for a client to say to a lawyer, “I would like to pay you instead of cash, an interest in this deal.” These days, sometimes a client pays his bill by giving you a mortgage note. It’s happening increasingly.
Q. What exactly does the Florida Bar say about lawyers engaging in deals with their clients? Are there any rules on it?
A. As long as steps are taken to avoid conflicts of interest, the Bar is fine with it. Lawyers have been partners with their clients for years. The first thing you do is you make sure your client gets another lawyer to review the business relationships between the lawyer and the client. It’s all about integrity. If a lawyer compromises his integrity, the entire system breaks down.
Q. What warning signs should the Rothstein investors have spotted?
A. It’s a very basic, old-fashioned rule — if it looks too good to be true, it is. That’s the first warning sign. Rothstein allegedly started his scheme in 2005. In those four years, the general interest yield on a transaction was 5, 6 or 7 percent. He was paying 20 percent every three months. In that situation, you know have to have an incredible risk. Additionally, there was no transparency. The investors should have asked him to show them the court documents.
Q. But weren’t some of the court documents allegedly forged?
A. That’s why we have online documents. I’ve been in situations where clients come to me about an existing lawsuit. The first thing I do is pull the docket sheet. In every lawsuit, there are two sides. The investors in the structured settlements could have picked up the phone and called the other side to verify the facts. I know Rothstein told them not to because he said it would drive up the settlement amount, but that makes no sense, because the settlements were over. The biggest red flag is people weren’t using their common sense. The only lawyers who had the kind of success Rothstein had were the Big Tobacco lawyers. It was a lot of smoke and mirrors.
Q. What liability did the other lawyers at the firm have? How much do you think they knew, or should have known? What can lawyers do to make sure nothing like this is happening at their firm?
A. Those who just went there to work, they may not have known. But if you were involved in firm management, you had to know. Apparently the firm could not cover its own payroll without money coming in from deals. In any situation where you are dividing profits, you would have wanted to know where the revenue is coming from. If you don’t get a good answer, it’s very tempting to say, I’ll look the other way. There is a high likelihood that everybody who played any type of role with regard to approving investments or reporting on the fact there was a good deal will be held accountable and sued. As far as the office staff, as we get lower on the food chain and people have less financial resources, they will not be pursued.
Q. What are the chances that Stuart Rosenfeldt, the other equity partner at the firm, didn’t know what was going on?
A. Close to zero. You’re dealing with a guy [Rothstein] who had a flexible standard regarding the truth. Rosenfeldt saw the problems he had at his last firm. You shouldn’t have this huge wall of silence at a law firm.
Q. Are lawyers at your firm invited to question you on firm finances?
A. Other lawyers here ask questions all the time. Any lawyer is welcome to sit down with the office manager any time and go over the books. The only thing they don’t have access to is the compensation rates of other lawyers. Everyone here knows when a big fee comes in.
Q. Will RRA’s malpractice insurance cover any of the lawsuits?
A. It will not cover this because on the application, the firm is asked do they know of any thing that could result in exposure. If the policy is procured by fraud, you’re not covered. It’s like health insurance — if you say on the application you’ve never been to the doctor and you’re going every week, you were not truthful and the policy will not cover you if something happens.
Q. Does the Florida Bar need to alter any of its rules as a result of the Rothstein incident?
A. The fact of the matter is the rules are already there. We have 20,000 lawyers in the state of Florida and nearly all practice ethically.
Every once in awhile, you get someone like this. I’ve never seen anything of this magnitude hit our profession.