ATTORNEY GRIEV. COMM'N OF MARYLAND v. Sliffman

McAULIFFE, Judge. The events giving rise to this attorney disciplinary action occurred in 1985 and 1986. At that time, the respondent, Marc H. Sliffman, was practicing law by himself in Montgomery County, Maryland. At least 50 percent of respondent’s practice involved settlements of real estate transactions, and half of those cases were referred to him by General Mortgage Services (GMS), a mortgage broker.

An investigation by the Maryland Attorney General’s office into GMS’ business practices revealed that the company had qualified borrowers for loans by altering various pre-approval documents required by lenders, and had otherwise engaged in fraudulent practices. In October 1987, principals of GMS pled guilty to conspiracy to commit theft over $300. One of the convicted principals, Ellen Ballman, had referred a substantial number of GMS settlements to respondent. The Attorney Grievance Commission conducted an investigation of respondent’s handling of settlements involving ⁵¹⁷ GMS, and in 1991 filed a Petition for Disciplinary Action, charging violation of a number of disciplinary rules of the Code of Professional Responsibility, 1 arising out of three settlements conducted by respondent.

We transmitted the charges to Judge James L. Ryan for hearing. Judge Ryan filed a written statement of his findings of fact and conclusions of law. Bar Counsel and respondent have each filed exceptions to certain of those findings and conclusions, which we shall decide as we separately discuss the three settlements. I. The Panayappan Settlement Mr. and Mrs. Ramanthan Panayappan (hereinafter Panayappan) contracted for the purchase of a newly constructed home and placed their existing home on the market, planning to finance the purchase of the new home in part with a loan and in part with the proceeds received from the sale of their existing home.

When their existing home did not sell and the time for settlement on the new home drew near, Panayappan turned to GMS for assistance. The principals of GMS decided that Panayappan should refinance his existing home in order to obtain the cash needed to settle on the new home. GMS had apparently obtained a loan commitment from Numérica Financial Services, Inc. for the major portion of the purchase price, and proposed to handle the refinancing through ICA Mortgage Corporation. Martha Kushner, who was the president of GMS, realized that in making loans of the size contemplated for the refinancing, lenders were reluctant to approve a transaction that resulted in the borrower receiving a large cash sum.

Accordingly, she fraudulently “created” an existing encumbrance of $110,446; that is, she falsely reported to the lender the existence of a mortgage or deed of trust in that ⁵¹⁸ amount, and represented that the loan proceeds would in part be used to pay that encumbrance. Bar Counsel contended that respondent was aware of and facilitated this fraudulent conduct. Respondent and Ms. Kushner denied that respondent had any knowledge of the scheme. Ms. Kushner testified that as the mortgage broker, she sent to respondent a package of material showing a bona fide transaction, and that she then altered the settlement sheets and created other documents in her dealings with the lender.

Judge Ryan found “suspect” the action of respondent in returning the loan package to GMS instead of directly to the lender, but concluded there was no clear and convincing evidence that respondent knew the documents were going to be altered by GMS. Bar Counsel did not except to this finding. There were additional problems with the Panayappan settlements. Settlement on the purchase of the new home began on 30 August 1985, prior to settlement on the refinancing.

Although settlement was not completed on 30 August because Panayappan did not have the required funds, some of the required documents were signed and Panayappan was allowed to move into the new home. One of the documents executed on 30 August was a certification, signed by respondent, that settlement had been completed on that date. Bar Counsel contends that the existence of this document was a misrepresentation by respondent, in violation of DR 1-102(A)(4) (a lawyer shall not engage in conduct involving dishonesty, fraud, deceit, or misrepresentation). Although Judge Ryan found that respondent had not forwarded the certificate to the lender, but had retained it in his files, he concluded that this constituted a misrepresentation because respondent knew his files were subject to periodic audits by title companies.

Respondent excepted to this finding, and we sustain the exception. There is not sufficient evidence of record to support a finding by clear and convincing evidence that respondent’s retention in his own file of a certificate of ⁵¹⁹ completion erroneously executed at the incomplete settlement of 30 August did, or was intended to, misrepresent a material fact to anyone. Settlement of the purchase of the new home was put on hold, pending settlement of a refinancing. On 5 September, Panayappan appeared at respondent’s office for settlement of the refinancing.

At that point, with the figures available on both transactions, it became apparent that Panayappan would not have sufficient funds to settle on the purchase of the new home even after the refinancing was completed. According to respondent, Panayappan lacked approximately $32,000 after exhausting his personal funds. On or about 21 September, respondent prepared an agreement and a promissory note for the signature of Panayappan. The note was in the amount of $32,000, with interest at the rate of $300 per month until paid.

The name of the lender was left blank in each instrument. Respondent testified he hoped to find someone who would lend the money to Panayappan, but if he could not, he planned to act as the lender. Panayappan signed the note and agreement without knowing who the lender would be. Respondent acted as lender.

Although the note recited a principal indebtedness of $32,000, respondent advanced only about $8,300 2 to complete the settlement. Respondent advanced this money from his attorney trust account, but contends that the funds represented earned fees that he had retained in that account, and thus was his money and not that of other clients. Respondent testified that he was able to settle Panayappan’s transaction without a greater outlay of cash because: 1) part of what Panayappan owed represented fees and charges due to respondent, which he deferred by, ⁵²⁰ in effect, lending that amount to Panayappan; and 2) respondent did not immediately pay off four unsecured loans owed by Panayappan, totaling $17,820.74, which the refinancing lender had required be paid as a condition of the loan. Respondent undertook, as the undisclosed party to the agreement with Panayappan, to be responsible for the payment of those loans “if required by ICA Mortgage Corporation ... or if in his sole and absolute discretion he believes that it is necessary to pay these amounts____” Panayappan agreed to, and did, make the required periodic payments on these unsecured loans.

Panayappan ultimately paid these loans in full, so respondent did not advance any of his own funds in connection with them. Nine months after Panayappan signed the $32,000 note, he arranged an equity loan and asked respondent for a payoff figure on his loan. Respondent advised Panayappan that $15,819.90 would be required to satisfy the loan, and Panayappan paid that amount. According to Panayappan, respondent did not provide any explanation or accounting of the advances or charges that made up this amount, nor did respondent tell Panayappan that respondent was the lender.

According to respondent, the amount paid by Panayappan represented the initial advance made by respondent, interest on the loan, respondent’s fees and charges, and attorney’s fees for additional services in connection with the loan. Judge Ryan concluded that respondent violated several disciplinary rules. First, he found that respondent violated DR 1-102(A)(4) by misrepresenting to ICA Mortgage Corporation that the four unsecured loans owed by Panayappan had been paid from the proceeds of the refinancing. Respondent does not except to this finding, and the record provides ample support for it.

The lender’s instructions were clear: settlement of the loan was conditioned on payoff of these specified loans. Respondent violated the lender’s instructions by not paying those loans, and misrepresented to the lender that he had done so. Through the separate agreement with Panayappan, respondent kept an option to immediately pay those loans if he had to, but ⁵²¹ because they were not recorded encumbrances and because Panayappan made the monthly payments, no one was the wiser and respondent apparently felt no obligation to pay them. Judge Ryan also found that respondent violated DR 5-104(A) by entering into the loan agreement with Panayappan.

DR 5-104(A) provided: A lawyer shall not enter into a business transaction with a client if they have differing interests therein and if the client expects the lawyer to exercise his professional judgment therein for the protection of the client, unless the client has consented after full disclosure. Judge Ryan found: The testimony was that when it became apparent Mr. Panayappan would not be able to come up with enough money to complete the purchase of his new home, Mr. Sliffman, without disclosing himself as the lender, loaned the sum of $8,300.00 to Mr. Panayappan from fees being maintained by him in his escrow account____ While it was Mr. Panayappan’s testimony that he consented to the terms of repayment and was satisfied with the transaction, it is clear to the court that Mr. Sliffman’s interests differed from his client’s and that he did not disclose to Mr. Panayappan the circumstances of the transaction. The fact that Mr. Sliffman received $15,-819.90 from his client approximately nine months after making a loan of $8,300.00 is clear and convincing evidence of their differing interests. Respondent excepted to this finding, contending that he did nothing more than assist a client who was desperate to settle.

We overrule respondent’s exception, finding the evidence sufficient to support the hearing judge’s conclusion. Judge Ryan may have been slightly inaccurate in his assessment of the principal amount loaned to Panayappan; as we indicated in note 2, above, the actual cash advance was probably $9,118.55, rather than $8,300. Additionally, it ⁵²² appears that respondent “loaned” Panayappan an amount equal to the fees respondent was due from the settlements. This does not affect the validity of Judge’s Ryan’s finding.

There was no “full disclosure” in this case. Indeed, as Judge Ryan found, respondent never disclosed to Panayappan that respondent was the lender. That respondent’s interests in the loan transaction differed from those of his client is demonstrated by the fact that respondent charged his client 11.25 percent per annum interest on the principal sum of $32,000, although at the time he computed the interest respondent knew that nothing approaching that principal amount had ever been advanced. Moreover, in addition to the interest charges, respondent added some substantial but undisclosed “attorney’s fees” for his efforts in connection with this loan.

The term “differing interests” within the meaning of DR 5-104 has been held to include “every interest that will adversely affect either the judgment or loyalty of a lawyer to a client, whether it be a conflicting, inconsistent, diverse, or other interest.” Committee on Prof. Ethics, Etc. v. Mershon, 316 N.W.2d 895, 988 (Iowa 1982). See also Attorney Griev. Comm’n v. Baker, 285 Md. 45, 48 , 399 A.2d 1347 (1979) (court found “differing interests” where attorney, who was undisclosed stockholder in corporation needing money, arranged for client to loan money to corporation); People v. Stineman, 716 P.2d 1079, 1082 (Colo.1986) (by making a loan to a client, attorney entered into an agreement that would allow his professional judgment to be affected by his own financial interest, thereby violating DR 5-104); In re Bishop, 297 Or. 479 , 686 P.2d 350, 354-55 (1984) (“differing interests” found where attorney co-signed loan for client, thereby putting them in potential debt- or/creditor situation).

We need not go as far as the holdings in those cases to find that respondent’s conduct here violated DR 5-104. The hearing judge further found that respondent, in violation of DR 9-102(A): ⁵²³ commingled his own funds with clients’ funds in his escrow account and failed to keep an accurate account of what funds in the account were escrow funds and what funds were his fees. DR 9-102 provided in pertinent part as follows: (A) All funds of clients paid to a lawyer or law firm, other than advances for costs and expenses, shall be deposited in one or more identifiable bank accounts maintained in the state in which the law office is situated and no funds belonging to the lawyer or law firm shall be deposited therein except as follows: (1) Funds reasonably sufficient to pay bank charges may be deposited therein. (2) Funds belonging in part to a client and in part presently or potentially to the lawyer or law firm must be deposited therein, but the portion belonging to the lawyer or law firm may be withdrawn when due unless the right of the lawyer or law firm to receive it is disputed by the client, in which event the disputed portion shall not be withdrawn until the dispute is finally resolved.

(B) A lawyer shall: $ * * * # * (3) Maintain complete records of all funds, securities, and other properties of a client coming into the possession of the