February 26, 2010

In law firm inquiry, key questions remain

TREVOR MAXWELL

— By

Staff Writer

PORTLAND — In January 2008, Maine's legal community was reeling from news that a partner at Verrill Dana had stolen hundreds of thousands of dollars from clients and from the prestigious firm.

The biggest question at that point was the fate of John D. Duncan.

The former trusts and estates lawyer was permanently disbarred, pleaded guilty to theft and tax-evasion charges and was ultimately sentenced to 28 months for stealing roughly $300,000. Duncan is serving his sentence at a federal prison in Brooklyn, N.Y.

But other questions remain unanswered.

At the top of the list is whether other partners at Verrill Dana -- including the managing partner at the time, David Warren -- will face sanctions. How did Warren and other members of the firm's executive board handle the internal review of Duncan's conduct and bookkeeping? Were any laws or professional rules violated?

On Jan. 2, 2008, Duncan's former legal secretary filed a complaint with the Maine Board of Bar Overseers, which governs the conduct of lawyers. The secretary, Ellie Rommel, accused Warren and other partners of covering up Duncan's misconduct and failing to report the situation to the bar overseers.

Gene Libby, Verrill Dana's general counsel, added fuel to the fire when he and two other lawyers abruptly left the firm because of the ''handling of the Duncan matter.''

J. Scott Davis, lead counsel for the Board of Bar Overseers, has been investigating the matter for the past two years -- far longer than the period of months that it usually takes to resolve a bar complaint. Davis does not comment on open investigations, so it is not known how close he is to a conclusion. He did not respond to a request for comment last week.

And others involved in the case said state rules prohibit them from speaking about it. That includes Libby and William Kayatta, a lawyer from Pierce Atwood who is representing Verrill Dana in the matter.

K.C. Jones, the current managing partner at Verrill Dana, issued a statement Thursday.

''The actions of John Duncan violated all of the values this firm and its employees hold dear. It was the firm that first reported the Duncan affair by writing to clients before there was any publicity,'' Jones said. ''Every client harmed by Mr. Duncan has been made whole. In the more than two years since the firm first reported Mr. Duncan's misconduct to law enforcement authorities, the firm has moved on and is busy serving the needs of our clients.''

Jones declined to comment on the pending Board of Bar Overseers investigation.

For the public, the only glimpse into what is happening behind the scenes comes from an Oct. 27 decision handed down by the Maine Supreme Judicial Court.

The decision highlighted a legal battle between Verrill Dana and Davis.

The two sides are essentially locked in a tug of war over Libby and information that he obtained while working at the firm. That information includes documents that may show criminal or fraudulent conduct by Verrill Dana partners, according to a state Supreme Court justice who reviewed them privately.

Libby, a former district attorney for York County in the 1980s, was general counsel for Verrill Dana in the summer of 2007.

In June of that year, Rommel, the legal secretary, informed another partner at Verrill Dana that Duncan had written several checks to himself from the account of an elderly client.

Duncan told Warren that the money was not stolen from the client but was earned money that should have been shared with all partners. Warren and other leaders at the firm accepted Duncan's explanation, apology and a repayment in the amount of $77,500.

It was not until October 2007, after Rommel gave notice that she intended to sue Verrill Dana, that the firm brought in outside auditors. Their report showed that Duncan had indeed stolen from several clients and embezzled from the firm.

Faced with the potential suit by Rommel, Libby undertook an internal review of what happened inside the firm. He collected e-mails and other documents before reaching conclusions.

Libby resigned from Verrill Dana on Nov. 26, 2007. In his only public comment on his departure, Libby said he left because of the internal handling of the Duncan case. Lawyers Gail Kingsley and Timothy O'Brien also left Verrill Dana, and with Libby, they established their own firm in Kennebunk.

Two days after Libby resigned, he wrote a letter to Davis, indicating that he had uncovered violations of Maine Bar Rules that needed to be reported to the Board of Bar Overseers.

Libby told Davis he did not believe the information was protected by attorney-client privilege. But Libby did not provide details about the alleged violations because Verrill Dana contended that the results of Libby's inquiry were confidential. The firm argued that because Libby was representing the other Verrill Dana partners, all of their communications were protected by attorney-client privilege.

Libby eventually reached an agreement with Verrill Dana regarding his resignation. He pledged not to disclose the information he had gathered unless a court ordered him to do so.

That's exactly what Davis seeks. He issued a subpoena to Libby on Sept. 8, 2008. Davis wants Libby's testimony and all of the documents.

Verrill Dana filed a motion to quash the subpoena.

The dispute went to Justice Warren Silver of the Maine Supreme Judicial Court. Silver reviewed the documents in his chambers, and he denied Verrill Dana's motion. Silver ruled that no attorney-client privilege existed because Libby ''may have uncovered criminal conduct by partners of Verrill Dana.''

Under federal and state law, communications between clients and lawyers are no longer protected if the purpose of the communications was to aid in the commission of a fraud or a crime, or to actively conceal past wrongdoing.

Justice Silver ordered Libby to turn over the documents to Davis. But Verrill Dana appealed to the full state supreme court.

In the Oct. 27 decision, the majority of the justices felt that Silver did not include enough information in his order to support the disclosure of the documents.

Justices Robert Clifford, Jon Levy, Andrew Mead and Ellen Gorman sent the case back to Silver for clarification. They essentially asked Silver to review the law again and to make sure that the documents obtained by Libby are exempt from attorney-client privilege.

It is not known whether Silver has issued a second order, which likely will have a major impact on the course of Davis' inquiry.

Warren stepped down as managing partner in the aftermath of the Duncan scandal, but he has remained with Verrill Dana as a lawyer in the firm's business law department.

Jones, the managing partner who took the reins when Warren stepped down, said Verrill Dana has weathered the recession and is one of the few firms that has not laid off any support staff or associate lawyers.

''We look forward to continuing to serve our clients as economic conditions improve, and to a time when we can discuss the issues surrounding the Duncan matter publicly,'' Jones said in his statement last week.

Staff Writer Trevor Maxwell can be contacted at 791-6451 or at:

tmaxwell@pressherald.com

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