Attorney Grievance Commission v. Kahl

⁶¹⁹ BELL, C.J. (Retired). The petitioner, the Attorney Grievance Commission of Maryland (the petitioner), acting through Bar Counsel and pursuant to Maryland Rule 16-751(a), 1 filed, pursuant to Maryland Rule 16-751, a Petition for Disciplinary or Remedial Action against Jeffrey David Kahl, the respondent. In that petition, it alleged that the respondent violated Rules 1.15, Safekeeping Property, 2 8.1, Bar Admissions and Disciplinary Matters, 3 and ⁶²⁰ 8.4, Misconduct, 4 of the Maryland Lawyers’ Rules of Professional Conduct (“MRPC”), as adopted by Maryland Rule 16-812; Maryland Rules 16-606.1, Attorney trust account record-keeping; 5 and 16-609, Prohibited transactions, 6 and Maryland ⁶²¹ Code (1989, 2010 Repl, Vol.) § 10-306 of the Business Occupations and Professions Article (“BP”). 7 We ordered, pursuant to Maryland Rule 16-752(a), that the matter be transmitted “to the Circuit Court for Baltimore County, to be heard and determined by Judge Mickey J. Norman, of the Third Judicial Circuit, in accordance with Maryland Rule 16-757.” Although personally served with the Petition for Disciplinary or Remedial Action, Interrogatories and Request for Admissions of fact and Genuineness of Documents, the respondent made no timely response, neither filing an answer to the petition nor otherwise responding to any of the petitioner’s pleadings.

Nevertheless, when the matter came on for a ⁶²² hearing on the merits, he was permitted to participate: the respondent was allowed to, and did, cross-examine witnesses and he was offered the opportunity to submit proposed findings of fact and conclusions of law. He chose not to testify in his defense and he failed to propose findings of fact and conclusions of law for the court’s consideration, however. Following the hearing, the hearing judge made findings of fact, as follows. The respondent, who was admitted to the Maryland Bar on January 3, 2002 and, at all times relevant to this case, maintained an office for the practice of law in Baltimore County, in February 2004, joined with Richard K. Scott, who described the respondent as his best friend, to establish a law partnership, Scott & Kahl, L.L.C. Under their agreement, they were the only attorneys in the firm, “100% of the legal fees generated by them would be shared 50/50 ... everything was 50/50, bills and profits.” The parties received “draws” or salary twice a month, on the 15th and the 30th, to be taken from the firm’s operating account, one of its two bank accounts, the other being an IOLTA, or trust, account.

As explained, without contradiction, by Scott, who was familiar with the procedure for depositing and withdrawing funds from these accounts and whom the hearing judge determined “diligently maintained both bank accounts,” “... fees owed to the Firm for professional services were not paid directly from the trust account. Rather, monies in the trust account that the parties earned were then transferred into the operating account. Any fee disbursements owed to the partners were distributed from the operating account.... [A] Firm’s computer kept the account records on spreadsheets, accessible by either partner----In addition to the bi-weekly salary of $ 1,500, if either partner needed additional funds, ‘the other would take the exact same amount.’ ” In December, 2009, Scott discovered several wire transactions, made in November and December, transferring funds from the firm’s trust account to the respondent’s personal account. Not having been advised of those transactions and ⁶²³ being unable to find evidence that the respondent was owed fees other than his draw, Scott confronted the respondent, who “ ‘told Scott that he had purchased stock options and needed the money right away to pay margin calls.’ ” Accepting the respondent’s expression of remorse, Scott did not further pursue the matter, giving the respondent a second chance.

He did institute additional safeguards against misappropriation: he placed the firm’s checkbook in the office safe, took the respondent’s key to the safe, and reviewed the bank accounts more frequently. Nevertheless, on May 19 and 28, 2010, the respondent transferred $1300 and $2000, respectively, from the firm’s trust account to his personal checking account. As before, Scott was not informed of either transfer, before, or after, it was made. A deposit was also made, by the respondent, “[u]sing a handwritten checking/saving deposit slip,” into the firm’s trust account.

The source of that $1300 deposit is not known and the respondent did not advise Scott of the deposit, either before or after it was made. After confronting the respondent, who neither denied taking the monies nor offered any explanation, Scott terminated the partnership and, thereafter, filed a complaint with the petitioner. During the investigation of the Scott complaint, the respondent admitted making both withdrawals from the firm’s trust account. With respect to the $1300 withdrawal, he claimed it was a mistake, that he intended to withdraw it from the operating account, and that when he realized the mistake, he redeposited the funds into the trust account.

The $2000, he explained, were donations to help defray the funeral expenses of his late brother in law, which were deposited in the trust account on the advice of “ ‘a husband and wife team [attorneys],’ ” that was handling his brother in law’s estate. According to the respondent, he gave the $2000 to Scott, in a white envelope, for deposit in the trust account. Scott denied ever receiving such an envelope from the respondent. The petitioner requested the respondent’s financial records, that is, his personal account at Bank of America.

Although he ⁶²⁴ was reminded to provide the requested records, he never did so. The records were subpoenaed, prompting the respondent to advise the petitioner, contrary to an earlier representation, that the records had already been sent, that “he had just requested copies of the records from the bank.” The respondent, on occasion, accepted representation and fees, but did not report either in accordance with firm policy, thus mishandling funds entrusted to the firm or fees owed to the firm. One such example was that involving Keith Hoyle, whom the respondent agreed to represent in a speeding case. Although the respondent was paid $200 for the representation, “there was no record of the Respondent receiving or recording the fee in the Firm’s books.” Another example involved fees owed the firm by the Public Defender for representation in conflict cases: “Scott discovered that, on October 20, 2009, a deposit of $ 1, 292.00 was made to the Firm’s trust account.

That same day, $ 1, 292.00 was transferred from the trust account to the Respondent’s personal account at Bank of America. The Firm did not have a record of the receipt or disbursement of these funds. Scott researched the matter and determined that a check in the amount of $ 1, 292.00 was received from the State of Maryland, payable to the Firm. Scott’s investigation of those funds revealed that the check was for services provided to the Office of the Public Defender by the Firm.

Based on his years of practice with the Respondent, Scott is familiar with Respondent’s handwriting. He observed that the Respondent endorsed the deposited check, and the Respondent wrote the deposit slip for the transaction.... The check for $ 1, 292.00 was fee income, and should not have been deposited into the trust account. Even if the Respondent had mistakenly deposited those funds into the trust account, he failed to follow established Firm procedure and policy to transfer those funds to the operating account before dispersing those funds as fee income.” ⁶²⁵ Two other examples are the $1000 paid to the respondent by a Mr. German, for which there was no “paper transaction,” indicating a deposit and the $600 Mr. Pedro Corona paid to the respondent for representation.

When the claims of the other people, who contacted Scott, informing him that they paid the respondent for legal services, is taken into account, Scott’s “uncontradicted testimony is that the Respondent may have misappropriated between $40,000-$50,000 in fees owed to the Firm.” Finally, the respondent, without Scott’s knowledge or consent, intercepted a credit/debit card issued on the firm’s operating account, and used it to withdraw $200 from an ATM in Maryland, on July 19, 2009. Citing an unspecified emergency in New Jersey, the respondent admitted to the withdrawal. His explanation for the withdrawal in Maryland-that it was to repay a loan from his aunts and uncles-was determined by the court to lack credibility. From the foregoing, Judge Norman drew conclusions of law, as follows: “This Court finds by clear and convincing evidence that during the period 2009 through 2010, the Respondent converted, for his personal use, fees owed to the Firm.

On occasion, during the period 2009 through May 2010, the Respondent transferred funds from the Firm’s attorney trust account to his personal bank account. During the period 2009 through June 2010, the Respondent used trust funds maintained in the Firm’s attorney trust account for unauthorized purposes.... The Respondent did not inform Scott of the subject-matter transfers. “The Respondent failed to maintain and complete records of the transfers he made from the Firm’s attorney trust account to his personal bank account.... “During the period 2009 through June 3, 2010, Respondent engaged in conduct involving dishonesty, deceit, and/or misrepresentation in his dealings with Scott.... ⁶²⁶ “This Court finds by clear and convincing evidence that the Respondent knowingly made a false statement of material fact to Bar Counsel, when he testified on December 6, 2010, that he gave $2, 000 in cash to Scott to be deposited to the Firm’s trust account. The Respondent represented that he discussed the funds, i.e. the purported donations to defray the cost of his brother-in-law’s funeral, with two lawyers who advised him to put the funds in the Firm’s trust account....

Scott testified that the Firm’s records did not show the transaction. This Court finds Scott’s testimony, that he neither had knowledge of these funds, nor had he received $2, 000 in cash from the Respondent, to be credible. “The Respondent’s representation that two attorneys instructed him to deposit the $2,000 in the trust account was not corroborated. Both lawyers denied speaking with the Respondent about such funds, and indicated that they would not have advised him to put the funds in the Firm’s operating account. “The source of the $2,000 was certainly material to Bar Counsel’s investigation of the transfers of the trust funds to the Respondent’s personal account. Clear and convincing evidence exists that the Respondent’s statement concerning the $2,000 was a material misrepresentation and that he thereby violated MRPC 8.1(a). “The Respondent’s explanation for the $1,300 transfer on May 19, 2010, was also shown to be a material misrepresentation.

In his December 6, 2010 statement, the Respondent said that on May 19, 2010, he wanted to take a $1,300 advance on his regular draw from the operating account, but mistakenly wrote the trust account number on the withdrawal slip. According to the Respondent, the funds were needed to pay taxes owed on his mother’s property, and that he gave the funds to his brother to pay the taxes. The Respondent testified that the mistake was discovered when Scott questioned him about the transaction, and that he returned the funds to the trust account that same day, May 25, 2010____ However, the Respondent could not have ⁶²⁷ learned from Scott about, and corrected, the error on May 25th, because Scott did [not] know of the $1,300 transaction until after the May 28th transfer of the $2,000. After May 28th, he confronted the Respondent about the $1,300 transfer. “The bank records for the Respondent’s personal account demonstrated that the $1,300 transferred to the personal account on May 19, 2010, was disbursed for what appears to be the Respondent’s living expenses, (i.e. car payments and debit card purchases from grocery stores).

None of the disbursements between May 19th and May 25th were in the amount of $1,300, and none were to the Respondent’s mother or brother.... Additionally, Ramsey [the petitioner’s investigator] interviewed the Respondent’s brother, who did not corroborate the Respondent’s representations that the funds were used to pay their mother’s property taxes. This Court find by clear and convincing evidence that the Respondent made material misrepresentations to Bar Counsel concerning the $1,300 transaction, in violation of MRPC 8.1(a). “This Court finds the Respondent also violated [MRPC] 8.1(b) when he knowingly failed to respond to Bar Counsel’s demands for bank records for his personal account. It was not disputed that on or about December 6.2010, Assistant Bar Counsel requested the Respondent to provide financial records.

On or about February 25, 2011, Ramsey reminded the Respondent that Assistant Bar Counsel requested his financial records. On or about March 31, 2011, the Respondent was again reminded that Assistant Bar Counsel requested that he provide financial records. The Respondent failed to provide the financial records requested by Bar Counsel. The Respondent’s failure to produce the requested records constituted a violation of MRPC 8.1(b).

This Rule is interpreted to require an attorney to respond to letters or telephone calls from a disciplinary authority without the use of a subpoena. Attorney Grievance Commis ⁶²⁸ sion v. Fezell, 361 Md. 234, 248-249 , 760 A.2d 1108, 1115-1116 (2000). “This Court finds by clear and convincing evidence that the Respondent violated BOP § 10-306 when he intentionally used trust funds for unauthorized purposes. Scott testified that the Firm’s trust account was used to hold prepaid fees, and when fees were earned they were deposited to the Firm’s operating account. The Respondent and Scott then received draws from the operating account on the 15th and 30th of the month.

Scott testified that funds were not disbursed from the trust account directly to either him and/or Respondent. “This Court finds by clear and convincing evidence that on two occasions in November 2009, on one occasion in December 2009, and twice in May 2010, the Respondent transferred funds from the trust account directly to his personal account____ Scott testified that the Respondent was not owed funds from the trust account at the time of the transfers. The Respondent admitted that the funds disbursed to his personal account in November and December 2009 were not owed to the Firm.... The fact that the Respondent paid back the $1,300 disbursement made on May 19, 2010, and Scott replaced the other funds in the trust account when he became aware of the transaction, provides further evidence that neither Respondent, nor the Firm, were entitled or authorized to [] take funds in the trust account at the time of the disbursements. “In addition, the Respondent offered no evidence that the disbursements were authorized by the clients or earned by the Firm.... The Respondent’s explanation to Scott for the November and December transactions was that he needed the funds to pay debts owed for the purchase of stock options.

The uncontroverted testimony is that the