Lessons in Reality: Five Ethical Takeaways from the Downfall of Girardi Keese

Thomas (“Tom”) Girardi, a former plaintiff’s attorney in Los Angeles, California, and the founder of the law firm Girardi & Keese (d/b/a Girardi Keese), was once known as the inspiration behind the film “Erin Brockovich” and for his high-profile representation of the families of victims of the Lion Air crash in 2018. Over the last two years, however, his career has served a different purpose — a case study in legal ethics.

On December 18, 2020, creditors of Girardi Keese, including former named partner Robert Keese, filed an involuntary chapter 7 petition against the law firm in the United States Bankruptcy Court for the Central District of California. [1] The involuntary filing claimed over $6.5 million of liabilities owed to the three petitioners. [2] Within a week of filing the involuntary petition, the petitioners requested that the court appoint an independent trustee to handle the estate. Their motion was granted on January 4, 2021 following no objections. [3]

The involuntary bankruptcy filing against Girardi Keese was no surprise, as Tom Girardi and his firm have faced numerous lawsuits surrounding his alleged theft of his client’s settlement money and other egregious ethical, and arguably criminal, violations. Four days prior to the filing of the involuntary bankruptcy petition, a federal judge in Chicago entered a civil contempt order against Girardi and his firm for stealing $2 million in settlement proceeds that belonged to the families of four victims of the Lion Air plane crash, stating that it “is disturbing when people who get [settlement money] and have it in trust don’t keep it in trust and instead spend it otherwise.” [4]

In July 2022, Edelson PC, the assignee of the Lion Air clients and the former co-counsel of Girardi Keese, filed a lawsuit against Girardi’s reality television star wife, Erika Girardi (a/k/a Erika Jayne), former attorneys of Girardi Keese and others. The lawsuit alleges that Girardi Keese stole more than $100 million from the firm’s clients, vendors and co-counsel and used it to, among other things, fund personal operating accounts, repay lenders for outstanding debts and purportedly bribe former judges responsible for allocating settlement money. [5] Edelson PC went as far to say that Girardi Keese was “little more than a criminal enterprise, disguised as a law firm.” [6] The case (Case No. 22-03977) remains pending in the United States District Court of the Northern District of California.

The California State Bar disbarred Tom Girardi on June 1, 2022. [7] In connection with the disbarment, the Supreme Court of California ordered Tom Girardi to pay $2,282,507 (plus ten percent interest) to various clients whom Girardi had previously stolen settlement money from. [8]

The downfall of Tom Girardi and Girardi Keese serves as a reminder for us all on the importance of upholding the ethical pillars of the legal profession — starting with these five ethical takeaways.

1. Ethical Violations May Force Firms into Bankruptcy. The filing of the involuntary chapter 7 bankruptcy petition followed various allegations, and judicial findings, of egregious ethical violations — including stealing client’s settlement money, defrauding creditors and repeatedly lying to clients. These ethical violations and the mismanagement resulting therefrom, encouraged creditors to file an involuntary bankruptcy petition and to request the appointment of a trustee in order to operate the law firm during the bankruptcy proceeding. [9]
2. Ethical Misconduct May Affect Your Family. Ethical violations committed by an attorney can quickly affect friends and family. In connection with the involuntary bankruptcy case, the chapter 7 trustee motioned for the retention of special counsel to investigate possible fraudulent transfers from Girardi Keese to Tom Girardi’s estranged wife, Real Housewives of Beverly Hills star Erika Jayne. [10] Additionally, Edelson PC named Erika Jayne as a defendant in a racketeering suit filed in July 2022. In the complaint, Edelson PC alleged that “Erika knew of the scheme, intended to participate in it and — critically — share in its profits, both directly and through her wholly-owned company, EJ Global,” as financial records purportedly show that more than $25 million of her expenses were funded by Girardi Keese. [11]
3. Keep Client’s Money Separate from Your Own. As stated by federal court Judge Thomas M. Durkin, “you learn in law school…when you get money that belongs to a client, you put it in an escrow fund and don’t touch it. It only goes to the client.” [12] In that vein, Rule 1.15 of the Model Rules of Professional Conduct requires attorneys to safeguard clients property in a client trust account, notify clients when client funds such as settlement monies are received, and “promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive[.]” Girardi Keese, however, failed to do just that, including in the face of court orders directing funds to be deposited in client trust accounts. Judge Durkin concluded in an oral hearing that “money seem[ed] to be leaving certain areas in a way that [was] disturbing” — Girardi Keese did not “keep it in trust and instead spen[t] it otherwise”, which was “a serious ethical violation” and “probably illegal.” [13]
4. A Lack of Malpractice Insurance Can Be a Problem. While not necessarily an ethical violation, the failure to maintain malpractice insurance only emboldens the power imbalance between attorneys and their clients. In this case, neither Tom Girardi nor Girardi Keese carried malpractice insurance. [14] The lack of insurance left Girardi’s clients with insufficient resources to recover from and added to the urgency of the involuntary bankruptcy filing against Girardi Keese. While rules regarding malpractice insurance vary by state, law firms and practitioners should carefully consider malpractice insurance.
5. Remember the Duty to Report. Rule 8.3 of the Model Rules of Professional Conduct requires an attorney to report any known violation of the Rules of Professional Conduct that “raises a substantial question as to that lawyer’s honesty, trustworthiness or fitness.” While not adopted in California, attorneys should remain vigilant when potential malfeasance is suspected and review their jurisdiction’s rules carefully.

As the future of Girardi Keese and its founder, Tom Girardi, continue to be written, it is all but certain that additional ethical lessons remain to be uncovered.