Attorney Grievance Commission v. Herman

GREENE, Judge. On March 13, 2003, the Attorney Grievance Commission, acting through Bar Counsel, filed a petition with this Court for disciplinary or remedial action against Respondent, Steven P. Herman, charging him with violating Maryland Rules of Professional Conduct (MRPC) 1.3 (Diligence), 1 1.4 (Communication), 2 1.15 (Safekeeping Property), 3 8.1 (Bar Admission and ³⁸² Disciplinary Matters), 4 8.4 (Misconduct), 5 Md.Code (1989, 2000 Replacement Volume), § 10-306 of the Business Occupations and Professions Article, 6 Md.Code (1989, 2000 Replacement Volume), § 10-606(b) of the Business Occupations and Professions Article, 7 Maryland Rule 16-607 (Commingling of funds), 8 ³⁸³ and Maryland Rule 16-609 9 (Prohibited transactions). Pursuant to Maryland Rules 16-752(a) and 16-757(e), we referred the matter to Judge Robert N. Dugan, of the Circuit Court for Baltimore County to make findings of fact and conclusions of law. Judge Dugan held an evidentiary hearing on September 9, 10, and 11, 2003, and concluded that Respondent violated the following Rules of Professional Conduct: 1.3, 1.4, 1.15, 8.4(b), 8.4(c) and 8.4(d), as well as Maryland Code (1989, 2000 Replacement Volume), §§ 10-306 and 10-606(b) of the Business Occupations and Professions Article and Maryland Rules 16-607 and 16-609.

In addition, employing the clear and ³⁸⁴ convincing evidence standard, Judge Dugan found no mitigating factors present in this case to cause Respondent’s misconduct or prevent him from conforming his conduct to the requirements of law and the MRPC. Respondent filed exceptions to the factual findings and conclusions of law. He recommends that the appropriate sanction for his conduct should be an indefinite suspension from the practice of law, with the right to apply for reinstatement after thirty (30) days. The Petitioner did not file exceptions, but recommends the sanction of disbarment.

I. Findings of Fact “Based on the admission of facts filed by the Respondent and the evidentiary hearing on September 9, 10, and 11, 2003, the Court makes the following findings of fact: “1. Respondent was admitted to practice law in New York in 1993 and worked for six months for a small private practice and then opened his own firm and practiced as a sole practitioner from 1993 until 2000 where he handled collections and domestic relations matters. “2. In 1996, the Respondent was engaged by Bruce Stone, manager of collections, to represent Trans Credit America of Westchester, Inc., (hereafter, “TCA”), a collection agency, to handle small claims. A written contingency fee agreement dated January 26, 1996, was signed by Respondent and Stone (Petitioner’s 3, section 6).

Under the agreement, Respondent agreed to represent TCA for payment of fees in the amount of twenty percent (20%) of the funds collected for TCA. TCA would also be responsible for the costs involved in the collections. “3. During times relevant to this matter, Lynn A. Gior-dano was the president of TCA. “4. During the period January 1996 through November 1999, the Respondent was referred approximately four hundred fifty (450) account files by TCA. ³⁸⁵ “5.

In the course of representing TCA, the Respondent received payments from third parties on behalf of TCA. “6. Respondent, in his representation of TCA, would contact the debtors by letter and, if not successful in obtaining payment and, with agreement of TCA, would file suit against the debtors on behalf of TCA and its clients. “7. Respondent set up a filing system to keep track of his collection cases. He would place a file folder in the first file drawer when the initial demand letter was sent.

When he filed suit in the case, Respondent would move the file to the second file drawer. When judgment was entered in the case, he would move the file to the third drawer. Respondent would then move the file to the final drawer when money began to be collected in the case. This complicated system required continued vigilance by the Respondent. “8.

When funds were collected, Respondent placed them in a New York Citibank attorney trust account numbered 43671517. Every four to six weeks, Respondent would take the files from the final drawer, make notations indicating dates and amounts received on the debtor file, and determine what funds were owed to his clients. Respondent would verify the accuracy of his accounting with a computer system before he forwarded funds to clients. “9. Respondent was authorized by TCA to deposit funds collected on behalf of TCA in the trust account and then remit those funds to TCA minus his fee and any court fees or costs advanced by him.

Every four to six weeks during his relationship with TCA, Respondent would make disbursements and send reports to TCA. “10. From 1996 through 1998, TCA was satisfied with Respondent’s services. “11. In the middle of 1999, the relationship between Respondent and TCA changed. Reports and disbursements to TCA became less frequent.

Respondent would generate reports for TCA that indicated the status of certain cases but not always the amount of funds collected or breakdown of fees. ³⁸⁶ “12. Around this time, Respondent’s computer system failed and as a result, Respondent collected funds in a number of TCA cases that did not appear as monies received and were not disbursed to TCA. “13. Respondent testified that he continued to make notations on the debtor files but he couldn’t remember if he made some of the notations contemporaneously with the collection of funds or if he made them at some later date when he attempted to reconcile the TCA files. “14. Respondent’s secretary left around this time and he began to perform the routine administrative tasks himself.

As a result, files were not placed in the right drawers and his office fell into disarray. “15. Respondent never informed TCA of the office management problems he was having in 1999. “16. Around that same time, communication between Mr. Stone and Respondent became strained. Mr. Stone and Respondent argued about the management of TCA cases for collections under $1,000.00.

Respondent wanted to decrease the number of collection cases under $1,000.00 because they were cost-prohibitive, while Mr. Stone maintained that Respondent was obligated to take every case forwarded to him. “17. Mr. Stone and Respondent also disagreed about the management of the Piermantoni file. In 1997, TCA referred a case to Respondent regarding debt owed by Nelson Piermantoni. When the complaint was filed in this case, Mr. Stone maintained that he served the debtor with a summons on March 27, 1997 and that Respondent failed to diligently pursue this case.

The Court believes the testimony of Respondent and finds that he was legitimately concerned about whether or not Mr. Piermantoni had actually been appropriately served. The Court finds that re-service was proper in order for this case to proceed. The Court does not believe the testimony of Mr. Stone that Respondent ever agreed that there was no problem with service. “18. In the summer of 1999, Respondent telephoned Mr. Stone and informed him that he intended to move his family ³⁸⁷ to Maryland in spring of 2000 and therefore TCA should obtain new counsel.

The Court believes the testimony of Respondent and finds that Mr. Stone was aware of this pending move. The Court does not believe the testimony of Mr. Stone that he was unaware that Respondent was moving until early 2000. “19. In preparation for his move to Maryland, Respondent wanted to remove himself as attorney of record from TCA cases. The process in New York required an attorney to file a Motion to Strike in each case.

The procedure in New York would have required multiple court appearances and would have been very time consuming. With 200 open eases, and without the consent of TCA to withdraw his appearance as counsel, Respondent was placed in a difficult position in order to remove himself as attorney of record. Because of aforesaid difficulty in striking his appearance, he decided to continue to handle the cases. “20. In November of 1999, TCA’s president Lynn Gior-dano wrote to Respondent requesting information regarding numerous debtor files including a list of cases prepared by Stone.

(Petitioner’s 3, section 20). “21. Around December 1999, Respondent wrote a report and sent payment to TCA. (Petitioner’s 3, section 18). “22. After 1999, no new accounts were sent to Respondent from TCA. “23.

In spring of 2000, Respondent moved to Maryland and began to practice law in this State. Respondent brought the TCA files to Maryland and opened, on attorney trust account numbered 003931060653 at Bank of America. “24. Respondent maintained both the Citibank trust account and the Bank of America account through August of 2001. “25. Respondent made several return trips to New York for court appearances after his move to Maryland. “26.

Respondent continued to have difficulty with his filing system and did not review and account for all TCA files after he moved to Maryland. ³⁸⁸ “27. No disbursement or report of collections was sent to TCA from December 1999 through January of 2001. “28. On or about February 14, 2001, the Respondent received a letter from Petitioner that included a copy of a complaint from Lynn A. Giordano. (Petitioner’s 3, section 2). “29.

On or about March 2, 2001, Respondent wrote to Petitioner and included a copy of a letter dated January 5, 2001 from Respondent to TCA. Respondent’s letter of January 5, 2001, stated that payment was enclosed in the amount of $7,698.46. However, that amount was not received until March of 2001. A check in the amount of $5,698.46 was drawn on the Bank of America account, and a check in the amount of $2,000.00 was drawn on the Citibank account.

(Petitioner’s 3, Section 4). The March 2, 2001 letter also indicated that Respondent had not turned over the collected funds because he was waiting for TCA to acknowledge that they had received the files he returned and provide a status report at which time he would turn over the funds held in escrow and the matter would be closed. (Petitioner’s 3, Section 3, page 2). “30. On August 20, 2001, Respondent notified Petitioner that a total of $10,245.82 had not been remitted to TCA.

(Petitioner’s 8, page 5). “31. The $10,245.82 was owed to TCA as a result of collections made by Respondent prior to November 1999. (Petitioner’s 8, page 5). “32. As of August 20, 2001, according to Respondent’s financial records for both bank accounts that were turned over to Petitioner, Respondent was not holding in trust the $10,245.82 described in his letter of that date. “33.

On or about February 15, 2002, Respondent paid TCA $10,245.82. (Petitioner’s 8, page 6). Respondent obtained a home equity loan in order to pay the funds remitted to TCA. “34. Respondent continued to receive funds on behalf of TCA after March 6, 2001 (Petitioner’s 8, page 6). ³⁸⁹ “35.

On or about September 4, 2001, Respondent paid TCA $3,411.22. (Petitioner’s 8, page 6). “36. Although Respondent was authorized to take his fee only when making disbursement to TCA, he sent no funds to TCA from December 1, 1999 until March 2001. During that time, Respondent continued to disburse funds from the trust account to himself and his wife (Petitioner’s 3, section 51).

Petitioner would often use the ATM card, provided to him when he obtained the Citibank account, to withdraw funds from that account. “37. In March of 2001, Respondent deposited a personal check for $1,000.00 into his attorney trust account with Bank of America in order to obtain new copying equipment for his Maryland office. Respondent then wrote a check from that account to cover the cost because the supplier would only take an attorney’s trust check. “38. All monies due and owing to TCA by Respondent have been paid. “39.

In 1999, Respondent was suffering through personal hardship. Shortly after the birth of their son Max, Respondent’s wife had a sequence of three miscarriages. Respondent’s relationship with is wife began to deteriorate, and he began to heavily consume alcohol. “40. In order to spend more time with his family, Respondent began to go to the office late at night after his wife and son had gone to bed in order to do filing and other office work.

As his drinking worsened and his marital problems escalated, Respondent began to spend less time at the office at night and fell further behind in his office maintenance. Respondent also cut back on his hours during the day, reserving that time for court appearances and answering telephone calls. As a result, his office was not properly managed with regard to adequately keeping track of his collection files. “41. Respondent offered the testimony of Dr. Mark Lipton, a clinical psychologist who has been treating Respondent since July 30, 2002.

The Court adopts the findings of ³⁹⁰ Dr. Lipton regarding his discussion of Respondent’s psychosocial history and psychological makeup. Dr. Christiane Tellefsen, a forensic psychiatrist, provided similar testimony as a rebuttal witness for the Petitioner. Both experts testified that Respondent abused alcohol, suffered from mild depression, and was having marital problems at times relevant to this proceeding. They disagreed on the issue of intent.

However, intent is an ultimate issue of fact for the trier of fact to determine and is not within the proper range of opinion to be offered by these experts. The decision of this Court is not based on the conclusions of either expert witness, but rather arrived at it [sic] independently based on all of the evidence. “42. The Court finds that Respondent cooperated with the investigation in this matter. He was never directly asked about maintaining other files and he did not deliberately conceal any files or information from Petitioner.

Respondent may have been negligent and careless in his handling of files, but he did not interfere with the Petitioner’s investigation. Respondent 'has expressed remorse throughout the grievance process and has paid TCA all funds owed. Conclusions of Law “Petitioner alleges that Respondent violated Maryland Rules of Professional Conduct, (hereinafter MRPC), Rules 1.3, 1.4, 1.15, 8.1, 8.4(b),(c), & (d). The Petitioner also alleges that the Respondent violated Maryland Code Annotated, Bus.

Occ. & Prof. Art., § 10-306 and 10-606(b) and Maryland Rules 16-607 and 16-609. “From 1996 to mid-1999, TCA was satisfied with Respondent’s representation. During that time, Respondent was referred nearly 450 collection cases by TCA. Respondent created a unique and rather unorthodox filing system that tracked each case at various points until the case was closed out and disbursements were made.

When he received payments, Respondent deposited the funds into an attorney trust account, made a notation on the debtor file, and after ³⁹¹ verifying the accounting with a computer system, he would forward the funds to TCA along with reports indicating the status of various cases. “However, in mid-1999 Respondent’s system of maintaining files began to fail. His disbursement of funds and status reports became less frequent even though he continued to receive funds on behalf of TCA. His office and filing fell into disarray, his computer system failed, and he began to endure personal problems. “From December 1999 to March 2001, Respondent did not report and disburse funds owed to TCA. By doing so, Respondent violated MRPC 1.3 by failing to keep accurate records relating to the trust accounts and failing to promptly account for and disburse funds received on behalf of TCA.

The Court believes that Respondent had a difficult and demanding client, but that was all the more reason for him to accurately account for each file and keep his client informed. “Respondent violated MRPC 1.4 by failing to keep his client reasonably informed about the status of each case and failing to promptly comply with reasonable requests. In November 1999, the president of TCA sent Respondent a letter requesting updated information about many TCA files. Respondent sent a letter and payment in December, but failed to provide information about all files requested. He continued to receive funds on behalf of TCA but made no report of funds received for over a year.

By not promptly notifying TCA of funds received on their behalf or providing a full accounting regarding the funds collected, Respondent violated MRPC 1.15(b). “Respondent ignored his improper use of the trust funds. Without accounting for the funds collected on behalf of TCA, he continued to withdraw money from the attorney trust funds through the use of his ATM card, checks made out to himself and his wife, and one check drawn on the funds for the purchase of a copier. Respondent maintains that some of the money he withdrew represented his fees and reimbursements. However, TCA was never provided ³⁹² an accurate accounting that would indicate a severance of TCA’s interest from Respondent’s fees and reimbursements.

Respondent thereby violated MRPC 1.15(c). After TCA requested an updated accounting in November 1999, Respondent should have been aware that he was not entitled to money that he was spending. “The Court finds it difficult to accept that Respondent could mistake $20,000.00. the approximate amount repaid to TCA, for his 20% contingency fee plus costs. Respondent would have had to collect approximately $100,000.00 on behalf of TCA to justify such an accounting error. Nothing in the record indicates that the balance in the attorney trust fund was close to that amount.

This is further evidence of Respondent’s failure to maintain the attorney trust funds in compliance with the law. “The record does reflect that at some point, the attorney trust funds fell below the amount owed to TCA On August 20, 2001, Respondent was aware that he owed TCA $10,245.82 for collections made prior to November 1999. However, according to the financial records turned over to Petitioner, Respondent did not have $10,245.82 in trust. This evidence is supported by Respondent’s admission that when he realized he did not have sufficient funds to pay the amount owed to TCA, he borrowed $10,245.00 in the form of a home equity loan and deposited the money into his trust account. Additionally, in March of 2001, Respondent deposited a personal check in the amount of $1,000.00 to cover the cost of a copier for his office.

Based on these findings, there is clear and convincing evidence that Respondent violated MRPC 1.15, Maryland Rules 16-607 & 16-609. “The Court finds by clear and convincing evidence that Respondent intentionally and willfully used funds for a purpose other then the purpose authorized by the client in violation of Bus. Occ. & Prof. Article §§ 10-306 and 10-606. He intended at some future date to properly account for all the money owed to TCA, but at some point prior to the move to Maryland, he had to realize that he was not entitled to be spending some of these collections funds.

Respondent ³⁹³ intended to borrow the money owed to TCA and at some future date make a full accounting with his client. The November 1999 letter from TCA should have put him on notice that there may have been errors in his accounting system. Even if he didn’t have certain files or misplaced them as a result of his filing system, after [being] given notice by TCA, he should have made every effort to search for the files and attempt to reconcile the accounts requested. He also should have ceased spending any funds from his escrow account. “Furthermore, the Court does not believe Respondent’s testimony that he can’t remember if he made entries on the debtor files contemporaneously when he collected TCA funds or at a later date.

The process of reviewing files after the fact and accounting for every deposit would be such an arduous and difficult task that he would have had to remember it. The only reasonable inference is that the Respondent made the entries contemporaneously with the collection of funds and therefore he knew or should have known that he was in possession of money owed to TCA “Despite being aware that his filing system was less than accurate, and that TCA was due money collected, Respondent continued to withdraw money from the trust accounts. Respondent deposited $1,000.00 of personal funds into the Bank of America trust account and borrowed $10,582.00 to cover the deficit in the trust accounts. Respondent’s conduct, which resulted in insufficient funds to pay client obligations, is a breach of his fiduciary duty and an invasion of the assets of his client.

Although the Court is sympathetic to the fact that Respondent had many small collection cases to account for, the clear and convincing evidence is that the Respondent intentionally misappropriated trust funds in violation of Bus. Occ. & Prof. Article §§ 10-306 and 10-606. “For the same reasons discussed above, the Court finds that Respondent had the requisite intent to misappropriate funds which reflects adversely on the lawyer’s honesty, trustworthiness, and fitness as a lawyer in violation of ³⁹⁴ MRPC 8.4(b), (c) & (d). Consistent with the Court’s finding of facts, Respondent was informed by TCA that his accounting may not be accurate and requested information about several accounts.

The Court finds that Respondent engaged in conduct prohibited by MRPC 8.4(b), (c) & (d). “This Court finds by clear and convincing evidence that the Respondent, Steven P Herman, has violated: “1. MRPC 1.3 by not acting with reasonable diligence and promptness in representing TCA; “2. MRPC 1.4 by not keeping TCA informed about the status of the collections matters and promptly complying with reasonable requests for information; “3. MRPC 1.15 by failing to hold the property, specifically monies collected on behalf of TCA, separately from his own property, by failing to promptly notify TCA of funds received on their behalf and failing to keep the property of TCA separate from the fees owed to him until there was a proper accounting and severance of their interests; “4.

MRPC 8.4(b) by intentionally misappropriating funds which reflects adversely on the lawyer’s honesty, trustworthiness and fitness as a lawyer in other respects. No criminal charges have been filed as of this date of this disciplinary procedure and the Court believes that Respondent’s actions are proven by clear and convincing evidence but not beyond a reasonable doubt; “5. MRPC 8.4(c) by engaging in conduct involving dishonesty and misrepresentation; “6. MRPC 8.4(d) as implicated by his misappropriation of funds; “7.

Md.Code Ann., Bus. Occ. & Prof. Art., Sect. 10-306 and 10-606(b) for willfully using trust money for purposes other than the purpose for which the trust money was entrusted to him; “8. Maryland Rule 16-607 by commingling funds in an attorney trust account; and “9.

Maryland Rule 16-609 by using funds deposited in an attorney trust account for unauthorized purposes. ³⁹⁵ “The Court does not believe that Respondent violated MRPC 8.1 For the reasons set forth in finding of fact 44, Respondent did not knowingly make false statements of material fact or fail to disclose information in this disciplinary matter. When he discovered the folders that had been misfiled and that disbursements due TCA had not been forwarded to them, Respondent informed Petitioner of the error and forwarded the funds due TCA.” II. A. Standard of Review This Court has original jurisdiction over attorney disciplinary matters. See Attorney Grievance Comm’n v. Hams, 371 Md. 510, 539 , 810 A.2d 457, 474-475 (2002).

We accept the hearing judge’s findings of fact unless they are clearly erroneous, and we conduct an independent review of the record. Attorney Grievance Comm’n v. Garfield, 369 Md. 85, 97 , 797 A.2d 757, 763-64 (2002). We review the hearing judge’s proposed conclusions of law de novo. See Attorney Grievance Comm’n v. McLaughlin, 372 Md. 467, 493 , 813 A.2d 1145, 1160 (2002).

B. Discussion First, Respondent asserts that the Petition for Disciplinary or Remedial Action should be dismissed because Bar Counsel failed to comply with the time requirements of Rule 16-731. In addition, Respondent contends Judge Dugan erroneously concluded that Mr. Herman’s conduct was either willful or intentional in the use of funds for a purpose other than authorized by the client. Moreover, he posits that any such conclusion is unsupported by the record in this case. On May 1, 2003, Respondent formally answered the Petition for Disciplinary or Remedial Action and pleaded the affirmative defense that Bar Counsel’s failure to comply with Rule