Attorney Grievance Commission v. Costanzo

PER CURIAM. Petitioner, the Attorney Grievance Commission, acting through its Bar Counsel, filed a Petition for Disciplinary or Remedial Action against Frank M. Costanzo, 1 charging him ²³⁷ with various violations of the Maryland Lawyers’ Rules of Professional Conduct (“MLRPC”), other of the Maryland Rules, and provisions of the Maryland Code (which we shall enumerate infra) arising from his representation of seven clients, each of which filed complaints with the Commission. The matter was assigned to a judge of the Circuit Court for Baltimore City for an evidentiary hearing and to make findings of fact and conclusions of law regarding the matters asserted in the Petition. Costanzo was constructively served, through the Client Protection Fund, with a copy of the Petition, a Writ of Summons, and this Court’s order assigning the matter for hearing.

Costanzo did not file an answer or other response to the Petition. 2 Bar Counsel sought, and the hearing judge grant ²³⁸ ed, an order of default. A hearing was held on September 18, 2009, on Bar Counsel’s ex parte proof. Costanzo did not appear. Bar Counsel, at the hearing, abandoned five of the complaints and produced evidence only as to the remaining two, those of Gilbert Hoffman and Louis Haug.

The hearing judge, on November 5, 2009, filed his written opinion, in which he concluded that Bar Counsel proved, by clear and convincing evidence, each violation alleged against Costanzo in his representation of Hoffman and Haug. No mitigating circumstances were found. No exceptions were filed to the judge’s Findings of Fact and Conclusions of Law. Bar Counsel recommended disbarment as the appropriate sanction.

In addition to filing nothing, Costanzo failed to appear for oral argument before this Court. We agreed with Bar Counsel’s recommendation and entered, on February 9, 2010, an Order disbarring Costanzo, with the Court’s opinion to follow. This is that opinion explaining why we decided that disbarment was the appropriate sanction. Complaint of Gilbert Hoffman In its Petition, Bar Counsel alleged that Costanzo agreed on May 30, 2007, to represent Hoffman in a breach of contract matter against an entity named Davidson & Associates.

Hoffman claimed to have hired Davidson & Associates to assist him in obtaining a patent on a product idea for a “golf ball finder” device. Although Hoffman paid $9,000 as a retainer to Costanzo, Costanzo performed no services for Hoffman, failed to refund or account for the retainer, and terminated his representation of Hoffman on March 28, 2008. Moreover, Costanzo failed to respond to Bar Counsel’s written request for information responsive to Hoffman’s complaint. ²³⁹ Based on these allegations, Bar Counsel charged Costanzo with the following violations: MLRPC Rule 1.1. Competence.

A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. Rule 1.2. Scope of Representation and Allocation of Authority Between Client and Lawyer.

(a) Subject to paragraphs (c) and (d), a lawyer shall abide by a client’s decisions concerning the objectives of the representation and, when appropriate, shall consult with the client as to the means by which they are to be pursued. A lawyer may take such action on behalf of the client as is impliedly authorized to carry out the representation. A lawyer shall abide by a client’s decision whether to settle a matter. In a criminal case, the lawyer shall abide by the client’s decision, after consultation with the lawyer, as to a plea to be entered, whether to waive jury trial and whether the client will testify.

(b) A lawyer’s representation of a client, including representation by appointment, does not constitute an endorsement of the client’s political, economic, social or moral views or activities. (c) A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent. (d) A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law. Rule 1.3.

Diligence. ²⁴⁰ A lawyer shall act with reasonable diligence and promptness in representing a client. Rule 1.4. Communication. (a) A lawyer shall: (1) promptly inform the client of any decision or circumstance with respect to which the client’s informed consent, as defined in Rule 1.0(f), is required by these Rules; (2) keep the client reasonably informed about the status of the matter; (3) promptly comply with reasonable requests for information; and (4) consult with the client about any relevant limitation on the lawyer’s conduct when the lawyer knows that the client expects assistance not permitted by the Maryland Lawyers’ Rules of Professional Conduct or other law.

(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation. Rule 1.15 Safekeeping Property. (a) A lawyer shall hold property of clients or third persons that is in a lawyer’s possession in connection with a representation separate from the lawyer’s own property. Funds shall be kept in a separate account maintained pursuant to Title 16, Chapter 600 of the Maryland Rules, and records shall be created and maintained in accordance with the Rules in that Chapter.

Other property shall be identified specifically as such and appropriately safeguarded, and records of its receipt and distribution shall be created and maintained. Complete records of the account funds and of other property shall be kept by the lawyer and shall be preserved for a period of at least five years after the date the record was created. Rule 1.16. Declining or Terminating Representation. ²⁴¹ (d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client’s interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee or expense that has not been earned or incurred.

The lawyer may retain papers relating to the client to the extent permitted by other law. Rule 8.1. Bar Admission and Disciplinary Matters. An applicant for admission or reinstatement to the bar, or a lawyer in connection with a bar admission application or in connection with a disciplinary matter, shall not: (b) fail to disclose a fact necessary to correct a misapprehension known by the person to have arisen in the matter, or knowingly fail to respond to a lawful demand for information from an admissions or disciplinary authority, except that this Rule does not require disclosure of information otherwise protected by Rule 1.6.

Rule 8.4 Misconduct. It is professional misconduct for a lawyer to: (c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation; (d) engage in conduct that is prejudicial to the administration of justice[.] Other Maryland Rules Rule 16-609 — Prohibited Transactions An attorney or law firm may not borrow or pledge any funds required by these Rules to be deposited in an attorney trust account, obtain any remuneration from the financial institution for depositing any funds in the account, or use any funds for any unauthorized purpose. An instru ²⁴² ment drawn on an attorney trust account may not be drawn payable to cash or to bearer. Maryland Statutes Md.Code, Bus.

Occ. & Prof. Article. § 10-306. Misuse of trust money. A lawyer may not use trust money for any purpose other than the purpose for which the trust money is entrusted to the lawyer.

By a standard of clear and convincing evidence (Md. Rule 16 — 757(b)), the hearing judge rendered the following findings of fact, based on Bar Counsel’s evidence, regarding the Hoffman complaint: 1. The Complainant, Gilbert Hoffman, retained Respondent to represent him in a lawsuit to recover damages he allegedly suffered because of the failure of Davidson Company to develop and market his concept for a golf-ball finder. This finding is supported by the Complainant’s testimony, retainer agreement, and copy of a personal check which listed the Respondent as the payee and was signed by the Complainant. The check was in the amount of $9,000.00. 2.

On May 30, 2007, Respondent, on behalf of his law firm, Thomas, Connelly & Costanzo, entered into a fee agreement whereby Respondent would represent Complainant for a fee of $9,000.00 plus 24 percent of any amount obtained as a result of settlement and 33.3 percent of any amount obtained as a result of trial. 3. The Fee Agreement provided that the fee was “nonrefundable” and earned and payable on 5/30/09 [sic], the date on which the agreement was signed. 4. On May 30, 2007, Complainant gave the Respondent a check for $9,000.00 as the retainer required by the Fee Agreement. 5. Respondent prepared a draft complaint which he forwarded to Complainant for comment.

This draft complaint listed Blue Marlin D/B/A Scout and PDC, Co. as ²⁴³ the Defendants. This draft complaint had nothing to do with the Davidson Company, which the Complainant retained Respondent to sue. 6. After Respondent prepared this document, Complainant was unable to consistently communicate with Respondent. There were some emails, but they were woefully inadequate to the legal assignment at hand. 7.

In an email dated November 22, 2007, Respondent advised Complainant that he was in India trying to adopt a child and that complications with this matter had required a massive amount of time away from his office. In the email, he asked for Complainant’s patience and stated that he would like to keep him as a client. 8. Complainant did not hear from Respondent for several months afterwards. Complainant sent emails to Respondent without receiving any responses. 9.

On March 14, 2008, Respondent advised Complainant that he was home and that he would have a complaint to him that day with a summary of how they would move forward. 10. Respondent did not follow through on this promise. Moreover, Respondent never provided a complaint or a summary of how he planned to proceed in the case. Respondent never filed suit in this case. 11.

Beginning on March 25, 2008, in a series of emails, Complainant requested a refund of his retainer. 12. On March 28, 2008, Respondent told Complainant in an email, “I will refund your retainer and will pass the case seamlessly to forwarding counsel.... ” 13. Respondent never refunded any part of Complainant’s retainer. 14. Respondent never filed a complaint on Complainant’s behalf.

Further, due to financial difficulties as a result ²⁴⁴ of Respondent’s failings, Complainant never got his invention on the market (Internal footnotes omitted.) Based on these findings, the hearing judge concluded as follows regarding the alleged violations: 1. Respondent violated Rules 1.1, 1.2, 1.3, and 14. The evidence demonstrates that in the eleven months after Complainant retained Respondent, the Respondent prepared a draft complaint for Mr. Hoffman and took no further action after receiving his comments. The draft complaint had nothing to do with the reason Complainant retained Respondent.

Respondent was supposed to pursue legal action against Davidson for failing to develop a golf-ball finder. Respondent prepared a draft complaint against Blue Marlin and PDC. By failing to file suit on Complainant’s behalf, Respondent violated Rules 1.1, 1.2, and 1.3. Attorney Grievance Comm’n v. McCulloch, 404 Md. 388 [ 946 A.2d 1009 ] (2008) (where attorney’s failure to pursue client’s divorce case after filing suit was found to violate all three rules).

Respondent’s failure to do anything more than prepare a draft complaint during the course of the representation shows a lack of competence in violation of Rule 1.1 and a lack of diligence in violation of Rule 1.3. Respondent’s failure to carry out the purpose of the representation is a violation of Rule 1.2. Respondent’s failure to communicate with Complainant for several months from November 2007 to March 2008 is a violation of Rule 1.4(a)(2), which requires attorneys to keep clients reasonably informed about the status of their matters. 2. Respondent’s conduct violates Rule 1.15(a), Rule 1.16(d), Rule 8.4, Md. Bus.

Occ. & Prof. Code Ann. § 10-306, and Rule 1.5.[ 3 ] ²⁴⁵ Based on Respondent’s failure to refund Complainant any money from the $9,000.00 retainer and his statement to the Florida Bar admitting that he misappropriated client funds, it is inferable that he spent Complainant’s money. Attorney Grievance Comm’n v. Duvall, 384 Md. 234 [ 863 A.2d 291 ] (2004)(where the hearing judge infers from passage of time and lack of accounting to client that trust funds were expended by attorney). This conduct violates the requirement of Rule 1.15(a) that Respondent keep his own property separate from that of his clients.

It also violates the requirement of Rule 1.16(d) that an attorney return any unearned fee at the termination of the representation. Attorney Grievance Comm’n v. Tinsky, 377 Md. 646, 652 [ 835 A.2d 542 ] (2003) (where Respondent was found to violate Rule 1.16(d) by failing to return unearned fees when he abandoned his practice). The advance retainer payment made by Mr. Hoffman was trust money within the meaning of Md. BOP § 10-306, which should have been deposited in a trust account pursuant to Md. BOP § 10-306. Respondent’s use of these funds for his own purposes is a breach of fiduciary duty in violation of Rule 8.4(c) and a misuse of trust money in violation of Rule 16-609 and BOP § 10-306.

Attorney Grievance Comm’n v. McCulloch, 404 Md. 388 [ 946 A.2d 1009 ] (2007)(where attorney’s expenditure of advance fee payment was found to violate Rule 8—4(c)); (Attorney Grievance Comm’n v. Roberts, 394 Md. 137 [ 904 A.2d 557 ] (2006))(where expenditure of funds due to medical providers from personal injury settlements violated Rules 1.15(a) and 8.4(c), Rule 16-609, and BOP § 10-306). It is not a defense to Respondent’s use of the advance fee payment for his own purposes that the Fee Agreement stated that it was non-refundable. The Court of Appeals has stated in a case in which it was not directly presented with the issue that such provisions in fee agreements “would most likely violate Rule 1.5,” which prohibits unreasonable fees, because it is unreasonable for an attorney to enter into a fee agreement which provides that he will be paid for ²⁴⁶ work not performed. Attorney Grievance Comm’n v. Briscoe [ 357 Md. 554 ], 745 A.2d 1037 , 1042 n. 13 [13] (Ct. of App.2000).

Because the advance fee payment belonged to the client until Respondent earned it, his appropriation of it to his own use violates the rules and statute Petitioner has cited. Complaint of Louis C. Haug Bar Counsel’s Petition alleged that, in August 2006, Haug retained Costanzo to defend him in a suit filed by the U.S. Securities & Exchange Commission (“SEC”) in the U.S. District Court for the Middle District of Florida. The SEC claimed that Haug and one Edward Diggs had marketed unregistered securities. As the result of mediation, a settlement in concept was reached whereby Haug agreed to pay $50,000, subject to submission of personal financial statement and execution of a formal settlement agreement.

To effectuate the proposed settlement, Haug wired $50,000 into Costanzo’s trust account on January 29, 2007. In mid-February 2007, Haug also delivered to Costanzo an additional $650 in post-settlement interest on the $50,000. Additionally, at Costanzo’s request, Haug sent him $1,500, representing Haug’s share of the mediator’s fee. Between April 2007 and March 2008, Haug did not receive any communications from Costanzo.

In the last week of March 2008, Haug received from the Florida federal court a copy of an order suspending Costanzo from practice before the court for failure to pay Florida Bar dues and failure to answer a show cause order. On top of that, on April 1, 2008, the receiver in the federal SEC court action telephoned Haug to inquire: (1) if he had engaged new counsel yet; (2) why he had not responded to the SEC’s rejection of the settlement agreement, after its review of Haug’s personal financial statement; and (3) whether Haug intended to accept the SEC’s counter-proposal that he pay (over time) an additional $50,000. Haug, dumbfounded, replied he knew nothing about this new information, had not heard from Costanzo for almost ²⁴⁷ a year, and had sent him over $50,000 already. The receiver acknowledged that he also had not heard from Costanzo for several months.

A couple of days after his enlightening conversation with the receiver, Haug received an email from Costanzo. In the email, Costanzo related his pilgrimage to India, getting sick while there, and, for the first time, told Haug about the rejected settlement proposal. Costanzo assured Haug that he maintained in trust all of the funds Haug had sent him. That representation notwithstanding, Costanzo, as of the filing by Bar Counsel of the Petition in April 2009, had not accounted for the funds or refunded any part of the funds to Haug.

Costanzo failed to respond to Bar Counsel’s written request for a reply to Haug’s complaint. Based on these allegations, Bar Counsel charged Costanzo with the following violations: MLRPC (We shall not repeat the verbatim text of any Rule supplied previously in this opinion.) Rule 1.1. Competence. Rule 1.2.

Scope of Representation and Allocation of Authority Between Client and Lawyer. Rule 1.3 Diligence. Rule 1.4. Communication.

Rule 1.15 Safekeeping of Property. (a) Rule 8.1 Bar Admission and Disciplinary Matters. (b) Rule 8.4. Misconduct.

(c) (d) Other Maryland Rules Rule 16-609 — Prohibited Transactions. Maryland Statutes Md.Code, Bus. Occ. & Prof. Art., § 10-306.

Misuse of trust money. ²⁴⁸ By a standard of clear and convincing evidence, the hearing judge rendered the following findings of fact, based on Bar Counsel’s evidence, regarding the Haug complaint: 1. In July 2006, Complainant retained Respondent to represent him in litigation with the SEC. The SEC was seeking monetary damages from Complainant alleging that he had participated in a scheme to defraud. 2. Respondent agreed to represent complainant at an hourly rate of $225.00. 3.

Complainant paid respondent an initial retainer of $50,000.00. 4. Respondent entered into negotiations with the SEC and in late January 2007 reached a tentative agreement whereby Complainant would settle the matter with the SEC for $50,000.00. The settlement was subject to a review of Complainant’s financial statement. 5. On January 29, Complainant wired $50,000.00 to Respondent for him to hold in escrow while the proposed agreement was being reviewed.

Respondent told Complainant that he would keep the funds in his trust account and would wire them to the receiver upon approval of the settlement agreement. 6. In mid-February 2007, Respondent advised Complainant that the receiver wanted post-settlement interest from him. The receiver agreed to accept $650.00 and Complainant gave Respondent a check for this amount. Complainant never received credit for the $650.00 transferred to Respondent for the post-settlement interest. 7.

On February 12, 2007, Respondent advised Complainant that he needed to pay his share of the mediator’s fee, which was $1,500.00. Complainant gave Respondent a check for this amount. Respondent never paid this fee, nor did he reimburse Complainant. 8. Between May and September 2007, Complainant received telephone calls from the mediator’s office about the status of this payment.

When Complainant called Respondent to ask him why he had not paid the mediator, Respon ²⁴⁹ dent advised Complainant that he would take care of the obligation immediately. 9. Eventually, Respondent asked Complainant to pay the mediator directly. Complainant made the payment on September 21, 2007. Respondent never reimbursed the complainant for the initial $1,500.00 payment. 10.

In the last week of March 2008, Complainant received an order from the United States District Court for the Middle District of Florida suspending Respondent from the practice of law for failing to pay dues and for failing to answer a Show Cause Order. 11. On April 1, 2008, Complainant received a call from the receiver asking if he had retained new counsel after Respondent’s suspension. 12. Complainant said that he had just learned of the suspension and had not had time to hire new counsel. The receiver then advised Complainant that this $50,000.00 offer had been rejected