Attorney Grievance Commission v. Katz

ADKINS, J. On April 7, 2014, Petitioner, Attorney Grievance Commission (“AGC”), acting through Bar Counsel, filed a Petition for Disciplinary or Remedial Action against Respondent, Gerald Isadore Katz. Bar Counsel charged Katz with violating Maryland Lawyers’ Rules of Professional Conduct (“MLRPC”) 8.4(a), (b), (c), and (d), 1 stemming from his failure to timely file ³⁹⁴ federal income tax returns and pay the appropriate amount of federal income taxes due in tax years 1996 through 2010. As permitted by Maryland Rule 16-752(a), we referred the Petition to the Honorable Richard E. Jordan of the Circuit Court for Montgomery County to conduct an evidentiary hearing and make findings of fact and proposed conclusions of law. Following a two-day hearing conducted on September 2-3, 2014, Judge Jordan dictated into the record his findings of fact and proposed conclusions of law.

On September 24, 2014, Judge Jordan issued an Order adopting the transcribed statement of his oral findings and proposed conclusions. Judge Jordan found by clear and convincing evidence that Katz violated MLRPC 8.4(a), (b), and (d). THE HEARING JUDGE’S FINDINGS OF FACT Judge Jordan found the following facts by clear and convincing evidence. Katz was admitted to the Maryland Bar on June 2, 1983.

Over the course of his 38-year legal career, Katz practiced law in Maryland, Virginia, and the District of Columbia. At the time of the hearing, Katz was a member in good standing of the bars of Virginia and the District of Columbia, but was indefinitely suspended from the practice of law in Maryland. This indefinite suspension was the result of Katz’s failure to file Maryland state tax returns. 2 In November 2012, Katz signed an Agreed Order in a civil tax action pending against him in the United States District Court for the District of Maryland. In this Order, Katz and the federal government consented to entry of a tax judgment against Katz in the amount of $5,462,935.25, which represent ³⁹⁵ ed the amount of federal income tax owed between tax years 1996 and 2009, plus interest and penalties.

Katz agreed to pay a lump sum of several hundred thousand dollars against the judgment, but as of the time of the hearing before Judge Jordan, Katz had made no such payment. Katz also agreed to make monthly payments in accordance with a payment plan, and he was complying with that aspect of the agreement. Katz filed late tax returns for tax years 1996 through 2005 and 2007 through 2010, and “grossly underpaid” his income taxes for tax years 1996 through 2010. In the table below, we summarize the hearing judge’s findings regarding Katz’s late filings and underpayments: AMOUNT OP INCOME (rounded to TAX DATE TAX the lower TAX PAYMENTS YEAR RETURNS FILED thousand) ASSESSMENT MADE 1996 March 16,2001 $788,000 $315,433 $123,000 1997 March 16,2001 $661,000 $263,239 $91,000 1998 March 16,2001 $390,000 $146,812 $1,200 1999 March 16,2001 $673,000 $269,819 $23,000 2000 May 28,2002 $478,000 $161,318 $41,000 2001 October 1,2003 $477,000 $166,711 $15,200 2002 February 16,2007 $319,000 $103,208 $80,000 2003 February 16,2007 $268,000 $82,525 $2,050 2004 February 16,2007 $592,000 $205,070 $1,800 2005 February 16,2007 $573,000 $184,299 $1,850 2006 3 $758,000 $267,014 $145,648 2007 May 9,2008 $768,054 $236,528 $- 2008 June 4,2010 $565,000 $186,840 $61,368 ³⁹⁶ 2009 December 21,2010 4 $736,000 $248,424 $29,106 2010 September 26,2011 $874,000 $284,539 $1,800 Totals: $8,920,054 $3,121,779 $618,022 Although the hearing judge did not explicitly state this figure on the record, simple subtraction shows that Katz underpaid his federal income taxes by $2,503,757.

The table also reflects that he filed his returns from one to five years late. Notwithstanding his failure to timely file his returns and pay his taxes, Katz was “forthrightly aware of his obligation to file taxes in a timely manner and to pay what was due in taxes.” Moreover, Katz’s tax “shortcomings” continued even after he began addressing his deficiencies with the Internal Revenue Service (“IRS”). While Katz was negotiating with the IRS, he owed $284,539 in income taxes for tax year 2010, but “astoundingly” 4 5 only paid a meager $1,800. Regarding the criminal nature of Katz’s conduct, the hearing judge found that Katz “unquestionably” violated 26 U.S.C. § 7203 (2012) by willfully failing to pay his taxes and timely file his tax returns 6 : ³⁹⁷ And the court finds by — unquestionably finds that [Katz] did willfully fail to file on time and, more significantly perhaps, did willfully fail to pay estimated tax on time as required by law and, by not only clear and convincing evidence but by a standard of proof beyond a reasonable doubt, finds that [Katz] did commit a criminal act or acts [from 1996 to 2010], despite the fact that he was not charged by the federal government.

THE HEARING JUDGE’S CONCLUSIONS OF LAW The hearing judge concluded that Katz’s misconduct violated MLRPC 8.4(b) because he committed criminal acts under 26 U.S.C. § 7203 , and these criminal acts reflected adversely on his trustworthiness and fitness as a lawyer: The court ... find[s] that [Katz’s violation of 26 U.S.C. § 7203 ] reflect[s] adversely on his trustworthiness and his fitness as a lawyer in other respects in that the failure repeated and in such extreme, given the amount of income and the deficiencies of payments ... that does reflect on ... Katz because a lawyer has to be trusted. Somebody that does not take care of one of the most basic duties as a citizen, particularly as a lawyer, to pay income taxes on time and in reasonable amounts on estimates is somebody who cannot be fully trusted as a lawyer. The hearing judge also concluded Katz’s misconduct violated MLRPC 8.4(d) because it was prejudicial to the administration of justice: The court does find by clear and convincing evidence that [Katz’s] conduct was prejudicial to the administration of justice in that an attorney is, if anything, held to an even higher standard than a layperson in being the face of the law, of being a person to be trusted and see that the law is ³⁹⁸ honored.

The conduct here does show a disregard for the law, the government, and for one’s own responsibility. Because Katz violated MLRPC 8.4(b) and (d), Judge Jordan also concluded that Katz violated MLRPC 8.4(a): With respect to 8.4(a), it appears to the court that once you violate one of the rules of professional conduct, then you, therefore, violate (a), so the court will find a violation of 8.4(a). The hearing judge did not conclude, however, that Katz violated MLRPC 8.4(c) because he did not find by clear and convincing evidence that there was dishonest conduct: [T]he court has significant concerns that [Katz’s conduct reflects] a strategy over the years to minimize tax exposure, but the evidence is lacking to enable the court to find by clear and convincing evidence that dishonesty, fraud, deceit, or misrepresentation was the level to which ... delaying tactics or even gaming the system rose to the level of misconduct under 8.4(c). Judge Jordan also found that Katz’s law firm filed “accurate” IRS Schedule K-l’s 7 to report Katz’s share of his law partnership’s income and explained that this conduct militated against a finding that Katz engaged in dishonest conduct.

Judge Jordan concluded that Katz’s lack of prior discipline over his lengthy legal career and his acceptance of responsibility were mitigating factors weighing in his favor: [I]t is in ... Katz’s favor that he has been an attorney for 38 years, that he’s been successful, that he’s not had charges before. It’s in his favor that he’s forthrightly accepted responsibility for his shortcomings. He hasn’t come in and tried to tell the court that he was ... under stress, using alcohol, had family problems.

And that is a substantially beneficial fact for ... Katz. ³⁹⁹ ... And while the Court’s flabbergasted at the extreme underpayment and repeated conduct here, it is to ... Katz’s credit that he’s practiced for 38 years otherwise without blemish.

DISCUSSION Standard Of Review Our standard of review in attorney discipline matters is well-settled: In attorney discipline proceedings, this Court has original and complete jurisdiction and conducts an independent review of the record. We accept a hearing judge’s findings of fact unless we determine that they are clearly erroneous. Pursuant to Maryland Rule 16 — 759(b)(1), we review the hearing judge’s proposed conclusions of law without deference. Thus, the ultimate determination ... as to an attorney’s alleged misconduct is reserved for this Court.

In that regard, we examine the record to ascertain whether there was sufficient evidence to support the hearing judge’s legal conclusions, by a clear and convincing standard of proof. Att’y Grievance Comm’n v. Cocco, 442 Md. 1, 8 , 109 A.3d 1176, 1180 (2015) (ellipses in original) (internal citations and quotation marks omitted). Exceptions And Conclusions Of Law In attorney discipline proceedings, parties are permitted to file “(1) exceptions to the findings and conclusions of the hearing judge and (2) recommendations concerning the appropriate disposition.” Md. Rule 16-758(b). Bar Counsel filed exceptions to the hearing judge’s findings of fact and proposed conclusions of law.

Specifically, Bar Counsel excepts to several figures within the hearing judge’s recitation of the amount of taxes Katz owed and paid for tax years 1996 through 2010. 8 ⁴⁰⁰ Bar Counsel also excepts to the hearing judge’s conclusion that Katz did not violate MLRPC 8.4(c). For his part, Katz did not except to the hearing judge’s findings of fact, but he did except to the hearing judge’s conclusions of law, arguing his conduct did not violate MLRPC 8.4(a), (b), and (d). Whether Katz Violated MLRPC 8.4(c) Katz relies on Attorney Grievance Commission v. Worthy, 436 Md. 633 , 84 A.3d 113 (2014), to argue the hearing judge was correct in not finding a violation of 8.4(c). In that case, this Court concluded that an attorney who willfully failed to timely file his federal tax returns did not violate 8.4(c).

See id. at 641-43 , 84 A.3d at 118-19 . Worthy , however, is readily distinguishable from this case. In Worthy , the attorney failed to timely file his federal returns for only two years: 2006 and 2007. Id. at 639 , 84 A.3d at 117 .

Moreover, the hearing court found that “during the period of time when those returns were due, Mr. Worthy had lost some of his financial records and had to order additional bank records. Those records were insufficient to adequately prepare the returns.” Id. In this case, Katz failed to timely file his returns for 14 years, and there is no evidence that his repeated failure to file his returns resulted from his loss of financial records. Due to these marked differences in facts, Worthy provides no help for Katz.

To support its argument that Katz violated MLRPC 8.4(c), Bar Counsel relies on Attorney Grievance Commission v. ⁴⁰¹ Atkinson, 357 Md. 646 , 745 A.2d 1086 (2000). We agree that Atkinson is instructive because it also dealt with an attorney’s willful failure to file income tax returns and pay income taxes over a protracted period of time. In Atkinson, Bar Counsel charged attorney Rena Vaughn Atkinson with several violations of the MLRPC arising out of her failure to file and pay federal and state income taxes for tax years 1986 through 1996. Id. at 647 , 745 A.2d at 1087 .

The Circuit Court for Prince George’s County found that Atkinson willfully failed to file or pay federal and state income taxes over this 11-year period. Id. at 650 , 745 A.2d at 1088 . After Bar Counsel initiated disciplinary proceedings against Atkinson, she filed returns for every year starting in 1986, except for 1988. Id. at 649 , 745 A.2d at 1088 .

Although Atkinson remedied, for the most part, her failure to file returns, she still owed $93,000 in back taxes and penalties and made only one payment of $15,546.61 toward that balance. Id. This Court agreed with the hearing judge’s conclusion that Atkinson’s misconduct violated MLRPC 8.4(c). Id. at 656 , 745 A.2d at 1091 .

This Court determined the hearing judge was “correct in characterizing [Atkinson’s] particular misconduct as dishonest, if only because of the substantial duration in time over which she failed to pay both state and federal income taxes.” Id. at 655 , 745 A.2d at 1091 (first emphasis added). The Court continued that “[t]he repeated failure to file tax returns — particularly when it spans an uninterrupted period of over ten years — is not a minor criminal offense, is a dishonest act, and reflects adversely on a lawyer’s honesty, trustworthiness and fitness to practice law.” Id. (emphasis added). Additionally, the Court clarified that “[a] conviction for tax evasion is not a necessary predicate to support a finding of dishonesty.” Id. at 655-56 , 745 A.2d at 1091 .

Here, Katz also repeatedly failed to file tax returns. He grossly underpaid his federal income taxes for 15 years and failed to timely file his returns for 14 of those years. If Atkinson’s 11-year period of misconduct qualifies as a “substantial duration” of time, then so, too, does Katz’s 15-year ⁴⁰² period. Id.

Although Katz was not convicted of tax evasion for these years, such a conviction is not required for us to conclude that Katz violated MLRPC 8.4(c). Id. The factual conclusion of the hearing judge, who declined to find dishonest intent, is overridden by the holding in Atkinson that “[t]he repeated failure to file tax returns ... is a dishonest act” as a matter of law. Id. at 655 , 745 A.2d at 1091 .

Katz’s attempts to distinguish Atkinson are unavailing. First, Katz argues that Atkinson never filed her tax returns, whereas Katz did file his tax returns, “albeit late.” Atkinson did in fact file her returns, although much belatedly, and at the request of an IRS agent. See Atkinson, 357 Md. at 649 , 745 A.2d at 1088 (“[Atkinson] has since filed [a] return for each year from 1986 through to the present, except for 1988.” (second alteration in original)). We are not persuaded that the difference between Katz’s filing from one to five years late for a period of 14 years and Atkinson’s misconduct works in Katz’s favor in any meaningful way.

Second, Katz argues that Atkinson never engaged with the IRS to establish a payment plan to rectify her tax deficiencies. Here, although the hearing judge found that Katz engaged with the IRS, Katz’s tax deficiencies “continued even after he was addressing with the IRS his tax problems.” The hearing judge specified “[t]hat is not a factor that weighs in [Katz’s] favor.” Atkinson is not the only case in which we have concluded an attorney violated MLRPC 8.4(c) after having willfully failed to file tax returns and pay taxes over a period of multiple years. In Attorney Grievance Commission v. Worsham, attorney Michael Craig Worsham failed to file federal and state income tax returns and pay income taxes for tax years 2005 through 2012. 441 Md. 105, 110-12 , 105 A.3d 515, 518-19 (2014). The hearing judge found that Worsham carried out this misconduct “willfully, knowingly, and purposefully.” Id. at 117 , 105 A.3d at 522 .

Relying on Atkinson, we concluded Worsham’s misconduct violated MLRPC 8.4(c). Id. at 129 , 105 A.3d at 529 . In reaching this conclusion, we recited the rule from ⁴⁰³ Atkinson that “the repeated failure to file income tax returns is ‘a dishonest act.’ ” Id. (emphasis added) (citation omitted).

In Attorney Grievance Commission v. Tayback, attorney Matthew G. Tayback willfully failed to timely file his federal and state income tax returns for tax years 1987 through 1989 and 1990 through 1993, resulting in $118,000 in unpaid federal income taxes. 378 Md. 578, 583 , 837 A.2d 158 , 161 (2003). The hearing judge found that, due to a lack of dishonest intent, Tayback’s misconduct did not violate MLRPC 8.4(c), and Bar Counsel took exception to that finding. Id. at 590-91, 837 A.2d at 165-66 . We sustained Bar Counsel’s exception, relying on the rule from Atkinson.

Thus, we concluded that Tayback’s misconduct violated MLRPC 8.4(c). Id. at 591-92 , 837 A.2d at 166 . In sum, based on Atkinson, Worsham, and Tayback, we conclude that Katz’s repeated, willful failure to pay his federal income taxes and timely file his federal income tax returns represents dishonest conduct that violated MLRPC 8.4(c). Accordingly, we sustain Bar Counsel’s exception.

Whether Katz Violated MLRPC 8.4(b) To establish a violation of MLRPC 8.4(b), Bar Counsel must prove two elements by clear and convincing evidence: (1) Katz committed a criminal act; and (2) that criminal act reflects adversely on his honesty, trustworthiness or fitness as a lawyer in other respects. Att’y Grievance Comm’n v. O’Toole, 379 Md. 595, 610 , 843 A.2d 50, 59 (2004); MLRPC 8.4(b). Katz argues Bar Counsel did not prove either of these elements. We are not persuaded.

Katz highlights that he was never charged criminally under 26 U.S.C. § 7203 , contending his lack of criminal conviction precludes a violation of 8.4(b). We have consistently held that “so long as there is clear and convincing evidence of facts constituting a criminal offense, there need not be a criminal conviction in order to find that an attorney violated MLRPC 8.4(b).” Worsham, 441 Md. at 129 , 105 A.3d at 529 . Here, Judge Jordan found by clear and convincing evidence that ⁴⁰⁴ Katz willfully failed to pay his federal income taxes or timely file his federal income tax returns. Based on our independent review of the record, this finding was not clearly erroneous, and we will not disturb it.

See Attorney Grievance Comm’n v. Ugwuonye, 405 Md. 351, 368 , 952 A.2d 226, 236 (2008) (“Factual findings by the hearing judge will not be interfered with if they are founded on clear and convincing evidence.” (citation omitted)). The willful failure to file federal income tax returns or to pay federal income taxes is a criminal act under 26 U.S.C. § 7203 . Worsham, 441 Md. at 129 , 105 A.3d at 529 . Katz relies on Attorney Grievance Commission v. Post, 350 Md. 85 , 710 A.2d 935 (1998) and Atkinson, supra, to argue that his misconduct does not reflect adversely on his trustworthiness and fitness as a lawyer.

In Post , attorney Alan Franklyn Post failed, for a period of four years, to timely file withholding income tax returns, to remit the taxes withheld from his employees’ wages, and to hold the withheld taxes in trust. Post, 350 Md. at 87-88 , 710 A.2d at 936 . Post arranged a payment plan with the Maryland Comptroller to rectify the deficiencies, but his payments against the plan were consistently late. Id. at 89-90 , 710 A.2d at 937 .

In some instances, Post failed to make any payments at all. Id. Although Post and Bar Counsel stipulated that Post “did not intend to defraud the Comptroller or to deprive the Comptroller permanently of the funds,” Post acknowledged, and the hearing judge found, “that the withheld funds were not placed in his payroll account on multiple occasions due to his cash flow problems and that he used the funds withheld from his employees’ wages to pay business expenses of the law firm.” Id. at 91 , 710 A.2d at 937-38 . The hearing judge concluded that Post’s misconduct violated MLRPC 8.4(b) and (d), and Post excepted with respect to MLRPC 8.4(b).

Id. at 92, 94 , 710 A.2d at 938, 939 . This Court agreed with Post and sustained his exception, concluding that although Post’s misconduct was prejudicial to the administration of justice, it did not “reflect! ] adversely on his fitness as a lawyer.” Id. at 99 , 710 A.2d at 942 . We explained that the only basis for the hearing judge’s conclusion that ⁴⁰⁵ Post’s misconduct did “reflect adversely on his fitness as a lawyer is that failure to practice what one preaches undermines one’s credibility as a provider of legal counsel. But that is simply another way of saying that the administration of justice may be prejudiced.” Id.

We also highlighted that the hearing judge “diagnosed the problem as one involving [Post’s] office management skills rather than ‘his performance or abilities as an attorney.’ ” Id. We see several material differences between Post and this case. The sheer difference in the amount of taxes owed by Katz, as compared to