Attorney Grievance Commission v. Kramer

CHASANOW, Judge. Once again we are called upon to discharge an unpleasant obligation and discipline a Maryland attorney. Richard E. Kramer has been a member of the Maryland bar since 1973. Kramer, who is both a businessman and a lawyer, stands accused of violating the following Disciplinary Rules contained in the Code of Professional Responsibility 1 , which was in effect at the time of the events that now bring him before us: DR 1-102 Misconduct.

(A) A lawyer shall not: (4) Engage in conduct involving dishonesty, fraud, deceit, or misrepresentation. (6) Engage in any other conduct that adversely reflects on his fitness to practice law. DR 9-102 Preserving Identity of Funds and Property of a Client. ⁴² (B) A lawyer shall: (1) Promptly notify a client of the receipt of his funds, securities, or other properties. (3) Maintain complete records of all funds, securities, and other properties of a client coming into the possession of the lawyer and render appropriate accounts to his client regarding them.

(4) Promptly pay or deliver to the client as requested by a client the funds, securities, or other properties in the possession of the lawyer which the client is entitled to receive. Bar Counsel for the Attorney Grievance Commission also contends that Kramer violated Maryland Code (1957, 1987 Repl.Vol.), Article 10, § 44, which governed the handling of escrow funds by attorneys when the alleged transgressions at issue took place. 2 The Facts Kramer and Howard E. Mirsky were in the mortgage brokering business together. Through their joint enterprises — a corporation named 20-20 Ltd., which also traded as Commerce Credit, and a partnership called 20-20 Partnership — they put individual borrowers and lenders together. As security, a borrower would give a lender, who was also described as an investor, a mortgage interest in real property.

Usually Kramer would prepare the deeds of trust, which he would sign as an attorney, and conduct the settlements on the transactions. On occasion Kramer was asked to file foreclosure proceedings for 20-20 Ltd. Under the normal arrangement, Kramer and Mirsky would collect monthly payments from the borrowers — sometimes at an interest rate of 24 percent or higher — and pay the investors. For their services, Kramer and Mirsky would charge the ⁴³ borrowers settlement fees of $300 to $1,000 at the outset and then a $5.00 fee for each loan payment collected. One of their regular investors was Michael A. Levitt, who decided to get into the lending business after inheriting some money from his father in 1980.

Levitt knew Mirsky from his college days at the University of Baltimore in the mid-1960s and had also been acquainted with Kramer, though for a shorter period of time. During the early 1980s, Levitt made more than 25 loans through Kramer and Mirsky. According to Levitt, sometimes Mirsky would telephone him with a potential borrower; sometimes Kramer would make the call. Levitt would be told how much the loan was for, its purpose, and whether he would receive a first, second, or third mortgage on the securing property.

Checks would come from either Kramer or Mirsky. Kramer was the only person who would settle on the loans. Levitt said that he was promised that the loans were guaranteed and that he was to get his regular payments from Mirsky and Kramer, even if the borrower had not lived up to his part of the deal; the partners would pursue a delinquent borrower. When a loan was eventually paid off, Levitt was to receive the remainder of his outstanding principal.

Levitt thought everything was going smoothly until he received a telephone call in September of 1983. Something was wrong, he was told; Kramer and Mirsky wanted to meet with him immediately. 3 At a meeting held in his Baltimore County home, Levitt was informed that some of his loans had previously been paid in full, but his money had not been returned to him because Mirsky had used it to speculate in the stock market. Mirsky’s talent for picking Wall Street winners had been poor; Levitt’s capital was now gone, and the partners could not currently repay the ⁴⁴ missing money. According to Levitt, Kramer “looked me right in the eye and said, T guarantee you you’ll get every penny of your money.’ ” Kramer denies that he ever made such a promise.

Eventually Levitt learned that several of his loans, total-ling well over $100,000, had been paid off without his knowledge and the proceeds squandered. Levitt filed suit in the Circuit Court for Baltimore County, naming as defendants 20-20 Ltd., Mirsky, and Kramer — both individually and trading as Commerce Credit. 4 Mirsky failed to plead to the complaint, and a default judgment was entered against him in the amount of $116,816.68 in compensatory damages and $10,000.00 in punitive damages. A jury found in Levitt’s favor against Kramer and the business. Kramer and 20-20 Ltd. 5 were ordered to pay compensatory damages of $198,539.50 and punitive damages of $162,500.00 plus interest and costs.

On appeal, the damage awards were vacated because the trial judge had allowed Kramer’s Fifth Amendment pleas to Levitt’s requests for admissions to be deemed admissions. Kramer v. Levitt, 79 Md.App. 575, 582-87 , 558 A.2d 760, 764-766 , cert. denied, 317 Md. 510 , 564 A.2d 1182 (1989). But the Court of Special Appeals found that “[t]he properly admitted uncontroverted evidence in the instant case established, as a matter of law, that [Kramer] had breached his duty to deliver money to [Levitt] which he had collected as [Levitt’s] agent and trustee.” Id. 79 Md.App. at 589 , 558 A.2d at 768 . The appellate court sent the case back to Baltimore County for a new trial ⁴⁵ solely on damages.

The case was eventually settled for $60,000. The above facts are relatively clear and uncomplicated. For our purposes, however, we must dig deeper. This is where we find matters murky.

We are troubled by the lack of relevant information in the record, especially when it stems from Kramer’s forgetfulness, which he attributed to his being a recovering alcoholic. At his deposition, he could not remember (1) if he was a shareholder in 20-20 Ltd., a company he had formed, (2) whether he was a signatory on a Fairfax Savings bank account in the name of 20-20 Ltd., (3) the nature and purpose of that account, (4) how and when 20-20 Ltd. came to an end, (5) where 20-20 Ltd. kept its business records, (6) from whom he leased his law office, (7) who was regularly on the first floor of the two-story Baltimore County townhouse in which he had his law office, (8) either the names of his secretaries from 1982 to the present or the periods of time they worked for him, (9) whether debtors would pay to 20-20 Ltd. rather than to himself, or (10) whether he ever found money in his escrow account that he couldn’t identify as belonging to someone and couldn’t explain how it got into his account. Kramer’s records for the pertinent period of time are also virtually nonexistent. Kramer testified that he abandoned his law practice and left the Baltimore area on the last day of November, 1982, apparently as a result of mounting personal problems.

He was an alcoholic, and his second marriage was in tatters. Kramer freely admitted at the hearing below that he ran away from his troubles; his attorney told us at oral argument that Kramer “got a bellyful of life” and left the area. Kramer ended up in Atlanta, where he worked for a while as a bartender. He cut his ties to life in Maryland so completely that his father had to hire a private detective to track him down.

Eventually, in June of 1983, Kramer came back to Maryland and, according to his testimony, found that many of his files had vanished and that Mirsky had misappropriated Levitt’s money and squandered it on poor ⁴⁶ investments. Three months later, Kramer and Mirsky met with Levitt and disclosed the defalcation. FINDINGS OF FACT AND CONCLUSIONS OF LAW Judge Eugene M. Lerner, whom we assigned to hear the case against Kramer pursuant to Maryland Rule BV9, found that, while much of the misappropriation took place after Kramer had left the state, Kramer’s “connection with the mortgage brokering business was such that he either knew or should have known of the fraudulent activities that were underfoot.” Judge Lerner found that Kramer had violated DR 1-102(A)(4) by engaging in conduct involving dishonesty, fraud, deceit, and misrepresentation with respect to the Levitt loans. The basis for this finding was Judge Lerner’s observation that Kramer should have known of Mirsky’s misdeeds because of his intimate involvement in their joint businesses.

This was the case Judge Lerner found, even though most, if not all, of the misappropriation occurred while Kramer was out of state and out of touch. The record before us, however, does not provide clear and convincing evidence that Kramer himself was guilty of fraudulent conduct with respect to the Levitt loans. His records, though sloppy and skimpy, do not prove deceit or misappropriation, especially since the evidence is that the person who used Levitt’s money for speculation was Mir-sky, not Kramer. To be sure, given his participation with Mirsky in the joint business enterprises, Kramer was liable for the money owed to Levitt. 6 In fact, he admitted before Judge Lerner that he was “responsible to a large degree for what happened” because he had failed to supervise what ⁴⁷ had been going on with the books and records.

But this liability alone does not mean that Kramer committed acts that bring him in violation of DR 1-102(A)(4). While Kramer’s conduct may have been negligent in this respect, there was no clear and convincing evidence to establish that he intentionally deceived or defrauded Levitt. Therefore, we find no violation of DR 1-102(A)(4). Attorney Griev.

Comm’n v. Clements, 319 Md. 289, 298 , 572 A.2d 174, 179 (1990). Judge Lemer also found that Levitt was a client of Kramer’s. Kramer disputes this and claims that he had a business relationship, not an attorney-client relationship, with Levitt. Kramer contends that he was the attorney only for 20-20 Ltd. “What constitutes an attorney-client relationship is a rather elusive concept.” Folly Farms I, Inc. v. Trustees, 282 Md. 659, 670 , 387 A.2d 248, 254 (1978).

The relationship does not require a formal fee, Central Cab Co. v. Clarke, 259 Md. 542, 549-50 , 270 A.2d 662, 666-67 (1970), but it can be implied from the facts and circumstances of the given case. See Crest Investment Trust v. Comstock, 23 Md.App. 280, 296 , 327 A.2d 891, 901 (1974). Although Kramer’s status as an attorney motivated and facilitated the business arrangement between Levitt, Mirsky, and himself, there was no clear and convincing evidence that Kramer was acting as Levitt’s attorney in the collection and disbursement of the mortgage loans. We sustain Kramer’s exceptions to this finding.

But even if there was no formal attorney-client relationship with Levitt in the collection of the loans, Kramer would not be relieved of his ethical obligations. It is apparent to us after examining the evidence before us that Judge Lerner was not clearly erroneous when he also concluded that Kramer’s status as an attorney “was one of the reasons [Levitt] decided to enter into business dealings with [Kramer].” Kramer’s position as a lawyer continued to be an important element in the business and in the relationship with Levitt. The record before us shows ⁴⁸ Kramer used law office stationery when corresponding on the subject of Levitt loans, while Mirsky used letterhead for 20-20 Ltd. The record before us also reveals that on occasion Kramer used his attorney escrow accounts for the lending business. Several checks from at least two “Richard E. Kramer Attorney-at-Law escrow accounts” — one at Union Trust Company of Maryland and the other at Fairfax Savings Association — show that these accounts were used as part of the loan business even after Kramer returned to Maryland from his self-imposed exile.

The line between being a lawyer and being an entrepreneur is not always sharp. But for disciplinary purposes, the distinction may not be crucial. See Attorney Griev. Comm’n v. Martin, 308 Md. 272, 282 , 518 A.2d 1050, 1055 (1987); R. Friedman, “The Creation of the Attorney-Client Relationship: An Emerging View,” 22 California Western L.R. 209, 225-27 (1986); Matter of Makowski, 73 N.J. 265 , 374 A.2d 458, 460 (1977) (attorney’s duty “to adhere to the high ethical standards exacted of a lawyer” was not lessened even though the advice was “more of a business than of a legal nature”); Matter of Burton, 472 A.2d 831 , Appendix 836-37 (D.C.App.1984), cert. denied, 469 U.S. 1071 , 105 S.Ct. 563 , 83 L.Ed.2d 504 (disciplinary rules applied “when an attorney abuses his or her fiduciary duty, even where a conventional lawyer-client relationship does not exist.”) We have long made it clear that “sanctionable misconduct by an attorney is not limited to the rendering of professional services.” Clements, 319 Md. at 298 , 572 A.2d at 179 .

As we said in Maryland St. Bar Ass’n v. Agnew, 271 Md. 543, 550 , 318 A.2d 811, 815 (1974): “The professional ethical obligations of an