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Click here for the full text of this decision FACTS:On Jan. 9. 2003, the Federal Trade Commission filed a complaint in the district court against various businesses led by Kyle Kimoto and Kimoto’s primary operating company, Assail Inc., for allegedly being engaged in an illegal telemarketing scheme. On the same day the complaint was filed, the district court issued an ex parte temporary restraining order not only enjoining the defendants from further telemarketing activities but also freezing the individual and corporate assets of all defendants. The district court also appointed Robb Evans & Associates (REA) to act as receiver. A preliminary injunction issued Feb. 4, 2002, restated the same terms as the TRO, except that it added a new company, Valdine Management, to the list of entities whose assets should be frozen. REA took control of Assail’s principal place of business in Utah on Jan. 15, and Kimoto retained Robert Draskovich to defend him in the FTC matter as well as in any potential criminal matters. Draskovich received a $200,000 retainer the next day from Alliance Solutions Inc. and another $10,000 was transferred to him on Jan. 21 from Valdine. The FTC settled its claims with Kimoto and Assail on Sept. 22 for $106 million. As all of Kimoto’s assets would have to be liquidated to satisfy the judgment, the stipulated judgment allowed Kimoto’s attorneys to apply for fees from REA. Draskovich applied to retain the funds he received from Alliance and Valdine. The FTC and REA opposed the application, and the district court granted their motion to order Draskovich to turn over the entire retainer. Meanwhile, after the FTC took control of Assail on Jan. 15, an employee mentioned that Assail was installing certain joint equipment with Valdine, which shared an office complex with Assail. Further on-site investigation by REA revealed that the equipment would allow Assail and Valdine to be fully integrated to enable further telemarketing operations. Two weeks after REA’s visit, Valdine’s president, Steven Henriksen, paid approximately $500,000 to various attorneys to provide legal representation and paid himself $130,000 in bonuses. On Jan. 20, Dean Kajioka was paid $60,000 for an initial retainer; two days later, he was paid another $50,000. Kajioka called REA on Jan. 23 to object to REA’s assumption of possession and control of Valdine, noting that Valdine had not been named in the FTC’s original petition. REA responded that it believed Valdine was an affiliated entity of Assail and that Valdine was named in the temporary injunction. REA demanded that Kajioka return the full retainer, and when Kajioka refused, the FTC and REA filed motions on Aug. 21 asking the district court to hold a show cause order on why Kajioka and Henriksen should not be held in contempt. A hearing on the motions was held Oct. 2. Though Kajioka refused to testify under oath, he made an unsworn statement in open court that he had been retained to represent Henriksen on Jan. 20 and had received $60,000 that day. He said representation was to be for potential criminal and civil matters. Henriksen invoked the Fifth Amendment and did not testify. The district court found Henriksen in contempt, but not Kajioka. Instead, the district court found that, because no criminal prosecution had been initiated, Kajioka could not have earned the entire $60,000 for services rendered in connection with Henriksen’s potential criminal liability. The district court allowed Kajioka to retain $10,000 for services rendered and ordered him to return the remaining $50,000 to REA, lest he then be held in contempt after another show cause hearing. Both Draskovich and Kajioka appeal the district court’s ruling related to their fees. HOLDING:Affirmed. After confirming that it does have jurisdiction over these appeals, the court rules that the district court did not err when it found Draskovich and Kajioka improperly accepted and maintained possession of the retainers. The court first finds that the fees paid the attorneys came out of funds that were subject to the district court’s freeze order on Jan. 9. Next, the court considers whether the attorneys had a duty to ask about the source of the fees they were paid when they were put on notice that their fees may have derived from a pool of frozen assets. The court acknowledges that it has not directly addressed this question before. Nonetheless, the court says there are “several reasons” why it believes such a duty does exist. One reason is that accepting a fee from a pool of assets frozen by a court order is sufficiently akin to accepting a fee from the proceeds of criminal activity. Another reason is that the court adheres to the well-established doctrine that an attorney is an officer of the court who owes a duty far in excess of any duty a lay citizen owes. To hold that an attorney does not have a duty to investigate the source of his fees in a case like this “would essentially be a statement that an officer of the court has no duty to investigate whether he himself is violating a valid court order.” The court refers to similar cases from the 6th and 9th U.S. Circuit Courts of Appeals, as well as provisions of the Racketeer Influenced and Corrupt Organizations Act and the Continuing Criminal Enterprises Statute, that militate in favor of the court’s adoption of an attorney’s duty in cases such as this. Having confirmed that a duty to inquire existed, the court then examines whether each attorney in this case discharged that duty. The court finds that the circumstances of Draskovich’s fee payment should have alerted him that something was awry. He knew that his client was accused of perpetrating massive telemarketing fraud, that all of his assets were frozen, and that supposedly unrelated third parties were paying his fees, the court states. These facts should have raised Draskovich’s suspicions. The court says that Kajioka may not have been “quite as culpable” as Draskovich, as evidenced by the district court’s finding that he could keep some of the fees he was paid. However, during Kajioka’s Jan. 23 call with REA, he was given information that put him on notice that REA probably did not simply knock on the wrong door. This notice triggered a duty of inquiry, which Kajioka did not discharge. Any claim he may have for work completed before the Jan. 23 call with REA is accounted for by the $10,000 the district court awarded him. In closing, the court rejects the attorneys’ arguments that they were denied due process or that their clients’ Sixth Amendment rights were violated. Although the court has not confronted directly the issue of what process is due where a receiver and a nonparty claim the same property, the court relies on a 9th Circuit decision that found due process was satisfied by summary proceedings, as were held in this case, so long as there is adequate notice and opportunity to be heard, which there was in both Draskovich’s and Kajioka’s cases. OPINION:King, C.J.; King, C.J., Garza and Benavides, JJ.

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