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A split district ethics committee has thrown out charges against two Mercer County, N.J., lawyers who handled the divorce of a client’s chief executive officer and billed their services to the client under the heading “estate planning.” The District IIIB Ethics Committee found that the client, Memorial Hospital of Salem County, N.J., had not proved by clear and convincing evidence that attorneys Richard Pinto and John Heher acted without its consent, nor that their representation of CEO J. Michael Galvin Jr. was adverse to the hospital. Further, the panel found no evidence of fraud or deceit because the misdesignation of the bills was in response to Galvin’s request to submit them in a discreet manner to avoid gossip. The Dec. 20 decision, in Office of Attorney Ethics v. Heher, IIIB-00-021E, was obtained by the Law Journal last week. Pinto, a partner, and Heher, of counsel, both of Smith, Stratton, Wise, Heher & Brennan of Princeton, N.J., were charged with violating RPC 1.13(e), banning dual representation; 1.7(a)(2), banning adverse representation; and 8.4(c), banning dishonest conduct. From 1992 to 1994, Smith Stratton billed about $317,000 to the hospital in fees and costs for its work on Galvin’s divorce. Pinto led the work, and Heher signed off on the bills. Pinto was also the hospital’s tax lawyer and sat on its executive compensation committee. The ethics panel’s decision came down to a credibility determination, according to chairman Thomas Scattergood, a partner with Scattergood & Hendershot of Mount Laurel, N.J. Committee member Richard Minteer, a Delran, N.J., solo practitioner, joined Scattergood’s opinion while lay member Joan Geary, a Florence, N.J., businesswoman, dissented. On the one hand was hospital board member and compensation committee chairman Robert Shinn, who testified he did not recall discussing with Heher or Pinto paying for the divorce. Board member Ernest Jolly also denied knowledge that the hospital was paying the fees. Jolly said he discovered the unauthorized payments in an audit on becoming chairman in April 1996. Instead, the panel credited testimony by Pinto that he believed Galvin that the board had approved the fees because the board made it clear that Galvin, a past winner of the American College of Healthcare Executives’ “Young Executive of the Year” award and past chairman of the New Jersey Hospital Association, was to be generously compensated. Shinn admitted the board was already paying for Galvin’s personal professional services for estate planning, investment advice, business counseling and real estate. Heher gave consistent testimony. Pinto also said he had Shinn’s approval for the divorce work but did not get it in writing because he saw no conflict. He also pointed to a retirement deal he and Shinn were negotiating for Galvin that would pay for Galvin’s “reasonably required” tax, accounting and legal services, so long as they were provided by the hospital’s counsel. A key exhibit was the unsigned 1993 minutes showing approval by the compensation committee and Shinn of a motion to pay for the divorce through the hospital. There was no explanation why the minutes were not signed. Presenter Catherine Fitzpatrick, a Lawrenceville, N.J., solo practitioner, argued that paying for Galvin’s divorce was adverse to the hospital’s interest because it jeopardized the hospital’s tax-exempt status under the tax code’s private inurement rules, which seek to restrain excessive compensation to corporate insiders. The panel found a lack of competent testimony to support her. Though Heher and Pinto escaped sanctions, the episode was costly. The hospital, a Smith Stratton client for 20 years, discharged the firm in 1996 based on “lack of confidence” shortly after it fired Galvin when an audit uncovered a misappropriation of hospital funds, allegedly including the divorce fees. The firm, Heher and Pinto, ended up as co-defendants with Galvin in a suit by the hospital to recover the defrauded monies. Smith Stratton paid $250,000 toward the $5 million settlement in the case, says Matthew DelDuca, who represented the hospital in the civil suit. DelDuca, a partner with Dechert in Princeton, declines comment. Galvin pleaded guilty last year to failing to pay $118,000 in taxes on $310,000 in hospital funds diverted to his personal use, including legal fees for his divorce. He was fined $5,000 and sentenced to five months in jail. Though the panel found no ethics violations, it chastised Heher and Pinto. They “clearly should have been more careful in dealing with the Hospital and Galvin as dual clients and should have required that the Hospital’s agreements concerning Galvin’s benefits be specifically delineated in writing.” That “would have saved themselves, their firm, the Hospital, the presenter and this Panel a lot of time and expense,” the opinion said. Pinto’s lawyer, fellow Smith Stratton partner William Brennan III, agrees, though he calls the complaint one “that should never have been brought.” William McGuire, a partner with the Tompkins, McGuire, Wachenfeld & Barry in Newark, who represents Heher, did not return a call seeking comment.

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