Tuesday, December 26, 2017
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Lawyer Philip Layfield to Go On Trial in State Bar Court Next Month
Accused of Misappropriating $3.4 Million in Client Funds
By a MetNews Staff Writer
Attorney Philip Layfield has been ordered to trial in State Bar Court on charges that he stole more than $3.4 million from his clients through depositing settlement checks in his attorney-client trust account, then filching the funds.
The decision to proceed to trial was made Tuesday following a pretrial conference. A formal hearing is set for Jan. 24.
The client suffering the largest loss pointed to by the State Bar in its notice of disciplinary charges was Josephine Nguyen. She was to receive $2,315,000 from a settlement, but got nothing.
Whether she will recoup any appreciable amount is doubtful; on Aug. 3, creditors filed a petition in the Central District of California to place Layfield’s former law firm, Layfield & Barrett, APC (“L&B”), in bankruptcy.
(Nguyen’s claim was removed from the bankruptcy court and her lawsuit is pending in Orange Superior Court.)
In his Oct. 31 response to the charges, Layfield said, with respect to Nguyen and two other alleged victims:
“If any funds were incorrectly transferred from any of the firm’s trust accounts to the firm’s operating accounts, it was done under a good faith belief that monies were available to do so.”
He did not cite any authority for removal of settlement funds from a trust account.
However, he did set forth a reason for the removals, in an attachment to his answer, saying that General Counsel Todd Wakefield and Chief Financial Officers Jeff Pannebaker “would tell Layfield he needed to transfer money from [client trust] accounts to Operating accounts to make payroll and other expenses. He insisted:
“Layfield assumed there was sufficient money in these accounts all the way until late January 2017.”
Layfield’s Response
In his response to the charges, Layfield, who was president and 90 percent owner of L&B, blamed others for the demise of the firm and any defalcations.
“Rather than conduct a full and complete investigation into the allegations, the State Bar Investigators and Prosecutor chose to grandstand and prematurely bring charges,” Layfield charged. “Had the State Bar acted appropriately in the investigation of these matters, they would have discovered that others were truly responsible for the misconduct alleged and that Respondent was doing everything that would and should be expected of an attorney under the circumstances.”
He insisted that he had delegated financial operations to others and knew of no improprieties. Layfield declared that when he learned “of the misconduct of others at L&B,” he tried to straighten it all out, plunked more than $500,000 of his own money in company coffers, and “actively worked to resolve any and all issues” until the trustee in bankruptcy halted his efforts which, he asserted, would have resulted in paying off debts.
Forming New Firm
Joseph Barrett had been his law partner, with a 10 percent interest in the firm. Layfield alleged that he, Barrett and Wakefield agreed to form a new firm, to which L&B would direct its clients—enabling it to pay off its creditors with hefty referral fees—and they would purchase a 45 percent interest in it from him for $8 million.
Rather than honoring this agreement, he complained, Barrett and Wakefield cheated him out of the $8 million by setting up their own firm, dubbed “The Barrett Law Firm.”
He alleged:
“Following the formation of Barrett Law, Barrett and Wakefield met with State Bar Prosecutor Eli Morganstern…in an attempt to cause Morganstern to take over the operations of L&B under false pretenses. They told Morganstern that L&B was not operational and needed to be taken over despite knowing these claims were false. Morganstern allowed Barrett and Wakefield to send hundreds of letters to clients of L&B, defense counsel assigned to cases L&B was handling and insurance adjusters that owed money to L&B in an attempt to steal money from L&B and its creditors.”
Deprivation of Funds
Layfield continued:
“Barrett also conspired with other attorneys and filed false declarations with State Court Judges claiming that L&B was not operational and was being shut down by the State Bar. Barrett and Wakefield used these letters and declarations to convince these parties to withhold millions in dollars of checks owed to L&B for earned fees and costs. These actions deprived L&B creditors and L&B of the money needed to continue operations. These actions harmed L&B clients because it caused L&B to be unable to collect funds and hire the needed accountants and professionals to finalize accounting projects that were necessary for Respondent to discharge is obligations properly and mitigate any damages to clients.”
Layfield maintained:
“The simple fact that the State Bar Prosecutor assisted a private party and competitor of Respondent with diverting millions of dollars in funds away from L&B is enough to warrant terminating sanctions and an immediate investigation into whether charges should be levied against the State Bar Prosecutor for violating the most basic rules of the investigative process.”
The State Bar Office of Trial Counsel was not induced to remove Morganstern from the case.
Layfield’s Attachment
In the attachment to his response, Layfield set forth a chronology of events. In it, he denigrated both Barrett and Wakefield.
He represented that Barrett contacted him in “mid-2015” when he was “being forced out” of the firm headed by Brian Kabateck (now Los Angeles County Bar Association president-elect) “and had nowhere to go.” Layfield said that Barrett, despite being president of the Consumer Attorney Lawyers Association of Los Angeles, “had no clients” and “had some residual issues from his employment at the Cochran Firm” where “there had been allegations of massive fraud.”
Wakefield, he said, applied for a position as a project manager in 2013 and he turned him down, but hired him as general counsel in 2015. Layfield said of the 2013 interview:
“…Wakefield had confessed to not practicing law for the last 2 years as result of suffering from both a cocaine and alcohol addiction problem and just coming off a long rehab stint. Wakefield confessed to Layfield about misappropriating client funds, various bar complaints and entering into a settlement with the Utah State Bar….Layfield perceived Wakefield as being a huge risk to the firm and unstable. When Wakefield contacted Layfield about the General Counsel position two years later, Wakefield convinced Layfield that he had overcome his issues and that he could be a positive contributor to the L&B Firm.”
Pulled in Revenues
The summary declares:
“When necessary, Layfield could try cases against the most talented lawyers in the country and win large verdicts.”
It tells of him bringing in large settlements including one “for $3.9 million in August 2016”—which would have been in Nguyen’s case.
“The allegation that Layfield ‘stole’ client funds is not accurate—rather it was misreporting by Wakefield and directions by Wakefield and Pannebaker to transfer funds to operating accounts as well as a failure to settle, manage and collect funds that led to the shortfalls,” the summary says.
Layfield has recently been in Florida and Costa Rica. The most recent address the State Bar has for him is in Utah.
Copyright 2017, Metropolitan News Company