Noncompliance and ethics violations — Lawsuit and Examiners’ report allege issues at State Bar

When Alabama State Bar Executive Director Phillip McCallum resigned on Oct. 23, 2020, a little over a month before he would be found guilty of 17 violations of state ethics laws, it went nearly unnoticed across the state.

The Bar’s electronic newsletter “The Scoop” noted the departure, lauding his three years of service and pledging “to continue the positive trajectory Phillip began.” The only mention of the matter in Alabama media came more than five months later when Montgomery TV station WSFA ran a small story reporting that McCallum was fined $100,000 by the Alabama Ethics Commission for his violations, but faced no criminal prosecution from the Attorney General’s Office.

With that, the former director of a high-profile state agency seemingly sailed quietly off into private practice, avoiding public scrutiny of his actions or those of the State Bar. But a report from the Alabama Examiners of Public Accounts was made public on May 27 that raises new questions about what has been happening at the State Bar. And last week, former employee Katherine Church filed suit against both McCallum and the Bar, alleging, among other things, that she was repeatedly ordered by McCallum to handle personal tasks for him while on the clock, in violation of state law.

The complaints against McCallum that resulted in him being found guilty of 17 ethics violations remain hidden by the Ethics Commission, but the Examiners’ report and Church’s lawsuit together paint a picture of a situation in which rules and regulations appear to have been broken with regularity and call into question the response of the Bar and Attorney General’s Office in particular.

Church’s lawsuit also raises questions about whether Bar leaders knowingly “spiked” salaries for retiring employees in an effort to artificially inflate the benefits they would receive from the Retirement Systems of Alabama (RSA).

The Examiners’ report provides details of 11 instances of the Bar Association’s noncompliance with state laws and regulations of varying degrees of seriousness. It found the commission:
• Did not verify five employees’ employment eligibility through E-Verify by the third business day;
• Did not adhere to State Personnel Rules to ensure that employees are paid correctly for leave upon separating from the agency;
• Executed separation agreements for three former employees during the examination period without statutory authority;
• Does not have effective internal controls to accurately review contracts for compliance with state laws;
• Reimbursed six vendors for professional services without executing contracts;
• Issued payments to vendors for legal services prior to the contracts being reviewed by the Contract Review Permanent Legislative Oversight Committee;
• Reimbursed attorneys for legal services at an hourly rate that exceeded the $195 per hour rate set by the governor;
• Did not post notice of a meeting held on July 17, 2021, to the Secretary of State’s Office website;
• Did not follow the procedures for convening an executive session;
• Did not maintain accurate records for two commission meetings; and
• Did not submit information pertaining to board and commission members to the secretary of state.

Exact details of many of these non-compliance issues aren’t made clear in the Examiner’s report, including the names of the individuals, companies and law firms involved. But it does appear the Bar Association did what it could to help make McCallum’s fall from grace less jarring. The report points out post-resignation payments to someone it calls “Employee 1,” but resignation dates and payroll disbursements match state records for McCallum.

According to the report, the Bar Association continued paying McCallum’s salary of $10,273.42 every two weeks until the end of 2020, despite his resignation on Oct. 23. He also continued receiving benefits, retirement contributions, health care and vacation/sick leave after his resignation.

The Bar Association also paid McCallum $37,437 in August 2021, roughly 10 months after he resigned. The Bar has not explained why he received those perks after resigning while under investigation by the Ethics Commission.

According to the report, the State Bar also negotiated separation agreements in 2021 with two other employees in which they continued receiving payroll and benefits for about three months after leaving employment. “Employee 2” received more than $31,000 in pay after leaving the Bar, and “Employee 3” took home more than $67,000.

The report says that in two of these three instances, the former employees signed non-disclosure agreements in return for the additional payments. The Examiners’ report called all three agreements “unauthorized,” pointing out that the Commission of the Alabama State Bar “does not have the statutory authorization to execute separation agreements.”
“It is noted, the separation agreements with two of the former employees contained a ‘confidentiality and non-disparagement’ clause, which required the employees to keep confidential the existence of the agreement and refrain from disclosing its terms, contents, benefits to employees, conditions, proceedings and negotiations,” the report said. It went on to list the additional benefits received by McCallum and the other two former employees after their departures.

When contacted for this story, McCallum said he had just learned of Church’s lawsuit and was not ready to comment on it, and said the issues pointed out in the Examiners’ report took place after he left.

“The Examiner of Public Accounts, that’s stuff that was done after I left, so I really have nothing to help you with on that. As far as the Katherine Church complaint, I just became aware of that and haven’t had a chance to evaluate it myself really. I need to look at that,” he said.

Asked why he was paid $37,437 by the Bar last August, McCallum demurred.

“A lot of that stuff I know it’s in the record. You can see it and read it and look at it for yourself. Give me a little time and I’ll consider talking to you about it. Right now, I just have no comment on that stuff. I was not a part of that process at all,” he said.

Current State Bar Association Executive Director Terri Lovell returned an email late last week to say she would follow up on Lagniappe’s questions, but no response was received from her prior to deadline.

Like a ‘personal servant’
McCallum was hired as the State Bar’s executive director in January 2017, leaving the Birmingham firm he helped found — McCallum, Methvin & Terrell P.C. — to take the $250,000-a-year position. It was a homecoming of sorts, as he had served as the elected president of the Bar Association from 2012-13.

Announcing his appointment as executive director, McCallum’s alma mater, Samford University, quoted him in a short article saying his major focus would be on holding the association to the highest standards.

“I now embrace the opportunity to serve our Bar in helping lawyers maintain the highest of ethical standards as they deliver critical services to the people and businesses of Alabama,” he’s quoted as saying in the 2017 article.

However, according to Church’s lawsuit, the way the Bar was run prior to McCallum’s appointment as executive director and after were dramatically different. For Church, McCallum’s arrival brought a move from the volunteer lawyer program to the Bar administrative division. In her suit, she claims McCallum liked the work she was doing and wanted her to work directly for him. But she alleges it wasn’t long after she changed positions that McCallum began treating her like his “personal servant.”

Church claims she was asked to pick up McCallum’s dry cleaning, schedule his dental appointments, purchase tickets to sporting events for him, renew his personal car tags, book airline tickets for him and his family, find a used bicycle for his son, pick up his lunch and run personal errands for McCallum and his family, among other things. Church also claims she was made responsible for taking care of matters related to McCallum’s “Vestavia Hills Tailgate” group, organizing finances and sending out a weekly email related to the group’s college football parties.

While administrative assistants in private law firms sometimes end up handling personal matters for their employers, it is strictly prohibited for state employees to be tasked with such duties.

Alabama Code 36-25-5 states: “A public official/employee is prohibited from soliciting use of, using or causing to be used public time, labor or property under his or her discretion or control for his or her private or business benefit.”

‘Two-year bump’
A good bit of Church’s suit is focused on what she describes as McCallum’s promise to allow her to continue working at the Bar for another year, but then rescinding the offer. According to the suit, Church was offered what was called “salary enhancement” or a “two-year bump” to retire, but was told she could stay on longer.

Former Bar employees speaking on condition of anonymity described the “two-year bump” as a policy informally adopted by the Bar Commission after RSA ended the Deferred Retirement Option Plan (DROP). According to RSA Assistant Legal Counsel Neah Mitchell Scott, DROP was created in 2002 and ended in 2011 and offered longtime RSA members a way to draw retirement dollars while still collecting a paycheck as well. Proponents said the program helped keep longtime teachers and government employees working for a few more years.

“The DROP program allowed active RSA members who were 55 years or older and had 25 years of service to retire, but the member could continue working with the same employer and draw a salary,” Scott explained. “The retirement pay would be paid into a special interest-earning account while the member was active and drawing a salary. The member was eligible to participate for three to five years.”

RSA members would get the extra money as a lump sum upon retirement. But the program was deemed too expensive by Alabama legislators in 2011, who said it was an undue burden on taxpayers.

Former Bar employees said the concept of the “two-year bump” was created by the State Bar Commission to make up for the loss of DROP. It incentivized employees with more than 25 years to stay on staff for a couple of years by increasing salaries by 10 percent in year one and an additional 10 percent in year two. That would have the effect of not only paying the employee more during the two-year span, but would also increase the highest three-year average salary used by RSA to compute retirement payments, as well as increasing the years in service. Both time in service and the highest three-year salary average are used by RSA to compute retirement payouts.

In her suit, Church says despite being told she could get the salary “bump” and stay extra time, McCallum eventually withdrew the offer, claiming the Bar had been told the arrangement was not legal. Scott agreed that such an arrangement wouldn’t have passed the RSA’s smell test.

“We are not familiar with the term ‘two-year bump.’ As you described it, we would not encourage or condone such a practice. If any such two-year bump resulted in pension spiking, then we would investigate and take action,” Scott wrote.

The effect of such a “bump” could be significant. For example, if an employee with 25 years of service retired with the highest three-year average salary of $100,000, his retirement payments would work out to $50,312 per year. But if he worked two more years and received a 10 percent increase each of those two years, his average would rise to $110,333 and the retirement benefit would be $61,308 annually — about $11,000 higher. Over 20 years, that would mean $220,000 more paid out by RSA.

It is not clear how many Bar employees received the “two-year bump,” but in a cursory perusal of payroll records, Lagniappe located one employee whose pay was increased 10 percent in each of his last two years. That individual’s three-year average increased from roughly $175,000 to more than $210,000.

The Bar did not answer questions about the “two-year bump,” how it came to be and whether officials checked with the RSA before implementing it. One former Bar official told Lagniappe it had been approved by Bar commissioners, but was not included in board minutes when it happened. Lagniappe was unable to find any mention of “salary enhancement” or the “two-year bump” in board minutes.

Ethics ruling
On Dec. 2, 2020, the Alabama Ethics Commission found McCallum guilty of 17 minor violations of the Alabama Ethics Law. According to Ethics Commission records, McCallum asked for an administrative resolution, which the commission unanimously approved.

“The commission unanimously approved an administrative resolution of the case and forwarded [it] to the Alabama attorney general. That request has been approved by Steve Marshall, attorney general, state of Alabama,” the records stated.

With Marshall punting on the possibility of any criminal investigation of McCallum’s behavior, the Ethics Commission meted out fines for his various transgressions.

Violations 1-3 resulted in an administrative penalty of $18,000. Violations 4-7 carried an administrative penalty of $24,000, with restitution in the amount of $3,374.84 to the Alabama State Bar. Violations 8-11 carried an administrative penalty in the amount of $24,000, with restitution ordered to be paid by forfeiting all accrued leave to the Alabama State Bar. Violations 12-15 drew a penalty of $24,000, with restitution of $975 to the Alabama State Bar, and Violations 16 and 17 drew a $10,000 penalty with $5,757.49 in restitution to the Alabama State Bar. The total was just over $110,000.

Marshall’s office did not respond to questions about why it opted not to prosecute McCallum.

Church’s lawsuit claims she filed a Bar complaint against him on Sept. 14, 2021, but to date, nothing has happened.

“Plaintiff does not understand why the Bar did not disbar him after he was found guilty of 17 ethics violations,” the lawsuit says. “Not only did they not disbar him and/or suspend Defendant McCallum, but they actually paid him $37,437 on Aug. 19, 2021, 11 months after Defendant McCallum resigned.”

The Bar did not respond to questions regarding why McCallum was paid his salary and benefits after he resigned or why he received a large lump sum so long after he quit. In the state database, the $37,437 was listed under personnel costs as “gross pay.”

McCallum currently works with Schreiber Dispute Resolution in Birmingham.