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Tom Girardi Downfall Casts California Bar in Unflattering Light

July 11, 2022, 8:45 AM

A racketeering lawsuit filed against Girardi & Keese by one of its local counsel has once again focused attention on the California Bar’s failure to rein in lawyers like disgraced plaintiffs’ attorney Tom Girardi.

Lawmakers and law watchers have criticized the bar for decades, alleging inaction and deficient attorney oversight particularly of Girardi, who was disbarred last month amid allegations he’d violated bar ethics rules and stolen millions of dollars from clients.

The RICO lawsuit, filed last week by Chicago-based Edelson PC, alleges the now-defunct Girardi & Keese firm operated a long-running Ponzi scheme, stealing from vendors and attorneys as well to fund a lavish lifestyle for Girardi and his celebrity wife, Erika.

Edelson was Girardi & Keese’s local counsel in litigation over the 2018 crash of Lion Air flight JT 610.

Reporting by the Los Angeles Times, filings by Edelson, and state audits revealed allegations of decades-long fund diversions, self-dealing, and ethical violations. The climbing count of Girardi’s victims also fueled already long simmering claims of a state regulator sleeping on the job.

“Tom Girardi was a wake-up call,” said David Freeman Engstrom, co-director of Stanford Law’s Center on the Legal Profession.

“We knew that only a tiny proportion of grievances resulted in disciplinary action. But we didn’t know just how bad the sorting mechanism was,” he said. “Maybe, we told ourselves, these statistics could be explained if most grievances were unfounded. Girardi showed that even egregious conduct is falling through the cracks.”

A legislature-mandated State Auditor’s report, prompted by revelations Girardi stole from clients, found faulty policies limit the bar’s ability to protect the public from attorney misconduct.

“The Tom and Erika Girardi fiasco illustrates that the state bar and all of us responsible to protect California consumers need to do a better job,” said Tom Umberg (D), the state’s Senate Judiciary Committee chairman.

“Girardi and Co. stole from those who had been victimized, first by the event, for example, the plane crash, and secondly as victims of his crimes as he stole the money and used it for he and his wife’s personal expenses,” Umberg said. The fact that he was allowed for so long “is an indictment of our system.”

Responsible for regulating more than a quarter million attorneys, the bar has long exasperated California lawmakers. The state legislature oversees the profession under the Business and Professions Code while its Supreme Court licenses and ultimately disciplines lawyers. Lawmakers exert influence through the annual fee bill, previously known as the dues bill, which funds bar operations.

While legislative pressure has helped transform the bar from a country club run by a board of governors charging dues for its members, to one that prioritizes consumer protection over the past decade, the Girardi affair reached its crescendo at nearly the same time the organization was forced to defend itself in US court against allegations it failed to safeguard online attorney and client complaint data.

Bar Executive Director Leah Wilson in an emailed statement declined to comment on Edelson’s allegations.

The bar’s board of trustees “in light of Girardi’s massive malfeasance” approved requiring lawyers to report the amount of client awards held in individual trust accounts and to conduct mandatory self-assessments, she said.

“These proactive, corrective actions with an educational focus will strengthen the disciplinary system and improve public protection. This effort should ultimately result in a reduction of cases in the State Bar’s discipline system, as well as a stop-gap measure to quickly identify attorneys who seek to defraud their clients,” Wilson added.

Years of Complaints

Jay Edelson said his firm was “astonished” that the bar apparently knew of Girardi’s theft of client funds “and did nothing to protect the public.”

“Even now,” he said, “they have refused to do a full investigation into all those potentially involved and won’t appoint a special prosecutor who is free from conflicts.”

The bar must “be re-examined from the bottom up. Their primary job is to protect the public from bad lawyers. They have clearly failed and are not motivated to do better,” Edelson said in an email.

Acting California State Auditor Michael Tilden agreed that California’s system for overseeing the legal profession failed to adequately investigate attorneys “despite lengthy patterns of complaints against them.”

“We reviewed files for one attorney who was the subject of 165 complaints over seven years, many of which the State Bar dismissed outright or closed after sending private letters to the attorney,” Tilden said in a letter to lawmakers accompanying the audit released last spring.

The State Bar Court charged Girardi with 14 counts of violating ethics rules and California law. He was ordered to inactive status in March. Stripping him of his law license on June 1, the California Supreme Court ordered the fallen attorney to pay four minor children of Lion Air flight 610 crash victims and others $2,282,507 plus 10% interest for stolen funds.

The long-delayed and high-profile discipline only fueled condemnation of the bar.

The bar doesn’t go after well-funded, well-connected large law firms “because they’re going to make you fight for months,” said Carol Langford, an attorney who represents California lawyers in discipline cases and is an adjunct University of San Francisco School of Law professor. “Do you really think there aren’t more Girardis out there?”

The bar’s Wilson, in an interview about Girardi’s legacy before Edelson’s lawsuit was filed, agreed that the agency isn’t “all the way there in terms of our transformation.”

“One really important aspect of the legacy is the bar really has to reconcile the fact that it is difficult for us to go after more sophisticated bad actors. I think that we are not necessarily resource trained, staffed to have systems that have highly sophisticated disciplinary function that is able to effectively and timely go after a Tom Girardi,” Wilson said.

“Yes, there were also failings in our system,” which the bar acknowledged after the audit, she said. “But think the other piece of it beyond better processes in place is really our ability to prosecute more bad actors.”

The bar on July 5 filed disciplinary charges against its former executive director, Joe Dunn, alleging three counts of moral turpitude including breach of fiduciary duty. Dunn, a former state lawmaker, oversaw the agency for four years until his firing in 2014. An arbitrator in 2017 upheld his termination.

An outside, part-time special counsel was appointed to review a discipline complaint against Dunn in a lengthy process, Stacia Laguna, bar special deputy trial counsel administrator, said in an emailed statement. “Regardless, we believe this case reflects the principle that all California attorneys must adhere to their oath, to the law, and to the Rules of Professional Conduct.”

Dirty Jobs

Girardi “was probably the biggest mistake historically they’ve ever made. And they’ve made a lot of mistakes,” Langford said.

“It doesn’t matter if you pass the ethics rules,” Langford said. “They’re still going to steal.” The attorney added,"Girardi was given a pass, a get out of jail free card, a hall pass to commit fraud” because of friends in the bar.

“It wasn’t the Office of Professional Competence. It was not the bar board. It was not fee arbitration. It was none of those. It was the Office of Chief Trial Counsel,” Langford said. “I’m not going to be popular with that because I represent clients before them.”

The bar’s top prosecutor job was the focus of last year’s fee bill as lawmakers set fees at zero unless the association hired a permanent chief trial counsel. In August, it appointedGeorge Cardona, a federal prosecutor for three decades, as chief trial counsel. The Senate confirmed his appointment June 29.

Wilson agreed having a permanent chief trial counsel will stabilize the office and set the “moral terms of culture.” “You also have somebody who is permanently vested in getting things right. Making systemic reforms from changes the chief trial counsel will make and is making will take some time to bear fruit.”

Large Numbers, Not Investigations

Making sure the bar works for nearly 40 million Californians depends on effectively overseeing the state’s 285,609 attorneys, including judges, professors, and those who aren’t eligible to practice.

The California Bar in 2020 opened nearly 17,500 cases of attorney misconduct, a number reflecting just under 1% of the number of licensed attorneys in California.

It filed notices of disciplinary charges seeking to impose some form of attorney discipline against 180 attorneys in State Bar Court. In 2020, 79 California attorneys were disbarred, and another 114 were suspended, Neil Wertlieb, a founding member and co-chair of the California Lawyers Association Ethics Committee, wrote in a California Lawyers Association article.

Assembly Judiciary Committee Chairman Mark Stone (D) in an interview said the bar would have more impact instilling fear in large firms when the chief trial counsel’s office calls than prosecuting a young practitioner who makes a mistake.

“I want that managing partner or somebody to say, ‘Oh yeah, oh shit. We’re going to have to deal with this and we’re going to have to show that we solved whatever problem we identified.’ Not, ‘Don’t worry. We can get around this’ attitude. That’s where I want those prosecutors” acting, said Stone.

To contact the reporter on this story: Joyce E. Cutler in San Francisco at jcutler@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Andrew Harris at aharris@bloomberglaw.com; Carmen Castro-Pagán at ccastro-pagan@bloomberglaw.com