Exclusive: FBI probing Justice McCaffery over referral fees

Posted: June 12, 2013

The FBI is investigating Pennsylvania Supreme Court Justice Seamus P. McCaffery over fees his wife received for referring clients to personal-injury law firms, The Inquirer has learned.

The investigation is examining 19 referral fees paid to Lise Rapaport, the justice's wife and his chief aide for most of the last 16 years, according to several people with direct knowledge of the investigation.

In March, The Inquirer reported that Rapaport received an $821,000 referral fee in 2012 after a Philadelphia law firm successfully settled a multimillion-dollar medical-malpractice case.

Dion G. Rassias, an attorney for the justice and his wife, called any suggestion that there was a federal investigation "complete nonsense." He also said McCaffery has not done "anything at all improper."

"You're indulging rumors without any facts, which is sad," he said.

A federal investigation of Municipal Court is also underway, according to sources who spoke only on condition that they not be identified. It could not be determined whether the two investigations were related.

Municipal Court, the lower tier in the Philadelphia judicial system, hears drunken-driving cases and minor criminal and civil violations. The federal inquiry into Municipal Court was first reported Sunday by the Legal Intelligencer on its website.

Since 2003, the year McCaffery first ran for the appeals bench, he has reported that his wife has received income from referral fees every year.

Such fees, which are legal in Pennsylvania, are paid to compensate a lawyer for bringing a client to a firm if the litigation is successful. Typically, the referring lawyer gets a third of any fee paid to the firm.

Rassias, along with principals in the firms that received the referrals from Rapaport, described the fees as routine and proper. In a March 1 letter to The Inquirer, Rassias said the justice's wife was sought out by clients because she is a lawyer with an "excellent reputation and magnetic personality."

Rassias said that former clients of Rapaport, dating to when she was in private practice, sought her out for legal advice and that she in turn referred them to other lawyers.

Pennsylvania Chief Justice Ronald D. Castille has sharply criticized the referrals, telling The Inquirer in March that he was troubled that a court aide would be collecting fees while "employed in a judicial chamber."

Interviewed recently, Castille said he has urged fellow justices to consider whether McCaffery might have violated the state Ethics Act if he gave his wife permission to make the referrals and earn the fees.

The Ethics Act bars public officials from using their authority "for the private pecuniary benefit" of their families.

"By giving her permission, he's feathering his own nest," Castille said. "It's an obvious conflict."

Rassias initially said Monday that he would respond to Castille's argument. He did not return subsequent calls for comment.

In another letter to The Inquirer, dated March 14, Rassias said in part that the rule governing court employees called for McCaffery to be the key decision-maker in determining whether aides such as his wife could practice law while employed by the court.

A former city police officer, McCaffery, a Democrat, became a Municipal Court judge in 1994, rising there to become administrative judge, a top position.

He began serving on the state Superior Court in 2004 and on the Supreme Court in 2008. McCaffery is paid $199,606 a year as a justice. As his chief administrative judicial assistant, Rapaport is paid $75,395 a year.

In his personal financial disclosure, which must be filed annually, McCaffery has reported that his wife received payments from settlements or verdicts in matters pursued by eight different law firms.

The most recent disclosure report, filed in May, cited two firms as sources of referral fees. One was SchmidtKramer, based in Harrisburg, which also was a source of referral fees in 2009 and 2011.

State law requires officials to include only the names of those who provide income to the official's household, not amounts or other details.

McCaffery also listed a 2012 payment from the firm of Philadelphia lawyer Leonard Fodera. In this instance, other court records reveal that the firm paid Rapaport $821,000 last year. That was her share of a multi-million-dollar settlement stemming from a civil lawsuit filed by the family of a Northeast Philadelphia boy left severely impaired after treatment at a Philadelphia hospital.

The amount became public only through a provision in the law that requires financial details be publicly stated in settlements involving payments made to minors. The referral fee was a third of the contingency fee paid to the lawyers in the case.

Fodera's firms are listed as a source of referral fees for Rapaport over five years, since 2003, the most of any firm, according to the justice's financial-disclosure reports.

Asked about the investigations, Carrie Adamowski, a spokeswoman for the FBI in Philadelphia, said Monday that under U.S. Justice Department policy, she could not confirm or deny the existence of either.

"We don't confirm or deny the existence or nonexistence of investigations," said Patty Hartman, a spokeswoman for the U.S. Attorney's Office.

It is not uncommon for the FBI and the Justice Department to look into a matter, sometimes for lengthy periods, and to conclude there is no wrongdoing and no need to bring charges.

The inquiries come at a time of heightened federal interest in the Philadelphia courts. In January, a federal grand jury indicted nine former and current Traffic Court judges on charges of fixing tickets.

Late last year, a consultant's report commissioned by officials of the Philadelphia courts suggested that McCaffery had fixed a ticket given to his wife. McCaffery has adamantly denied involvement. He was not among those charged by the grand jury, and the grand jury's indictments include no reference to the ticket involving his wife.

Rapaport holds an undergraduate degree from Harvard University and a law degree from the University of Pennsylvania. Before joining her husband's judicial staff in 1997, she worked for four years as an assistant district attorney and 13 years as a private lawyer specializing in family law.

The Inquirer has reported that McCaffery ruled on a number of cases before the Supreme Court involving firms from which Rapaport had derived referral fees. He did so without advising lawyers involved in the cases about the fee arrangement.

There is no evidence to suggest that he voted on cases in which his wife had received fees.

McCaffery did, however, sit on other cases in which law firms that had received referrals from his wife were representing other clients before the court.

Five authorities on judicial ethics were consulted by The Inquirer for its March article. Lawrence J. Fox, a Philadelphia lawyer who counsels law firms on ethical issues, agreed with Castille and said Rapaport should not have been paid for referrals while serving as her husband's judicial aide.

Fox added, however, that he did not think McCaffery had to disclose the fees to lawyers in cases before him. Two other experts disagreed and called for disclosure: Monroe H. Freedman of Hofstra University Law School and Leslie W. Abramson of the University of Louisville Law School.

Geoffrey C. Hazard Jr., an emeritus professor at the University of Pennsylvania Law School and the Hastings College School of Law in San Francisco, went further. He said McCaffery should not have participated in any case involving a firm that had been a source of referral fees for his wife.

However, Bruce Ledewitz, professor of law at Duquesne University, said he did not think McCaffery was under an obligation to tell litigants about the referral fees.

In three letters to The Inquirer in March and April, Rassias, of the Beasley Firm, strongly defended McCaffery and Rapaport. He said the newspaper had engaged in a "slanderous campaign" to pry into "Ms. Rapaport's legitimate and proper legal business relationships with her colleagues."

Rassias has noted that in 2007, the year Rapaport made the referral that eventually led to the $821,000 fee, she was on unpaid leave from the court. That year, she was a paid staffer in her husband's Supreme Court campaign, receiving a $29,750 salary and a $12,000 post-victory bonus, campaign records show.

And, Rassias said, Fodera's firm had never had a case before the Supreme Court. Moreover, Rassias has also said that McCaffery was under no obligation to disclose the fees in court cases.

A key issue in the disagreement between Castille and McCaffery is what constitutes "the practice of law." Castille said he has told his colleagues on the high court that making a referral is the practice of law. The chief justice noted that under court rules, only a lawyer can be paid a referral fee.

Castille contended that any court aide who wishes to practice law must first obtain permission from the chief justice - himself. Castille said Rapaport never asked for that permission. Had she asked, Castille said, he would have turned her down.

Rassias has said that making a referral is not the practice of law. In fact, he wrote The Inquirer, it is "the antithesis of the practice of law," since the referring lawyer is sending the case to another lawyer.

All five experts interviewed by The Inquirer disagreed with this position. All said making a referral was one form of practicing law.

Rassias also argued, in the March 14 letter to The Inquirer, that there was a "controlling rule" about court aides' practicing law.

Rassias said this rule stipulated that it was up to Rapaport's husband as her direct supervisor, and not the chief justice, to decide whether she could practice law - if referral fees were the practice of law. Rassias called this "the one and only rule on point."

In the recent interview, Castille said reliance on this rule would raise questions under the state Ethics Act.

"Obviously, Lise Rapaport was working these cases out of Seamus' office, and whenever she received a referral fee, it's marital property," Castille said. "That would appear to be just - given those facts - a violation of the Ethics Act."


Contact Craig R. McCoy

at 215-854-4821 or cmccoy@phillynews.com,

or follow on Twitter @CraigRMcCoy.

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