Attorney Grievance Commission v. Martin

McAULIFFE, Judge. Joseph and Eloise Pickeral (“the Pickerals”) contracted with Life Investors Group, Inc. (“Life Investors”) for investment counseling and service and management of investments. Additionally, they delivered to Life Investors more than $30,000 for investment in an arrangement that was to return the principal plus 30% interest in 90 days. The investment opportunity turned out to be nothing more than a “ponzi scheme” 1 and the money was not returned as promised.

The Pickerals filed a complaint with the Attorney Grievance Commission alleging that unethical conduct by Earl Leroy Martin, a Maryland attorney, had in part precipitated their loss. The Pickerals had consulted with Martin prior to entering into the contract and making the investment, and claim that they relied upon the services provided by him as an attorney. Martin admits that he met with the Pickerals concerning the contract and investment in his law office in Prince George’s County, but contends he did so solely in his capacity as a sales agent for Life Investors and not as an attorney. Martin denies any advance knowledge of the fraudulent nature of the scheme and denies that he has breached any disciplinary rule.

We conclude that the trial judge correctly found the evidence insufficient to show that Martin had engaged in conduct involving dishonesty, deceit, or misrepresentation, but that he was also correct in finding that certain of Martin’s ²⁷⁵ conduct as an agent was subject to the standards of the Code of Professional Responsibility and that Martin failed to meet those standards in two respects. Although the findings of facts and conclusions of law required by Rule BV 11a of the Maryland Rules of Procedure are not as detailed as we would have preferred, we find from a review of the record that the facts are largely uncontested, and that we are able to determine the issues from the uncontested facts. In May of 1983 the Pickerals initiated a financial transaction to obtain approximately $42,000 of the equity in their home, to be used in the construction of a new home. Because payment for the new home would not be required until January of the following year, the Pickerals were interested in a short term investment.

A friend, Ms. Gutterick, informed the Pickerals of a short term, high yield investment that Life Investors had recently and successfully handled for her. The Pickerals attended one of the weekly seminars given by Life Investors in their offices at 4400 Stamp Road, Marlow Heights, Maryland. The seminar was conducted by Toyson Burrus who, it later turned out, was the sole proprietor of Life Investors. 2 Burrus informed those attending the seminar of an investment opportunity with Amy Oil that would return a profit of 30% upon an investment of at least $5,000 for three months. According to Mrs. Pickeral, Burrus also said that Life Investors “had some lawyers ... in the group that we could go to” and that “the lawyers [were] in case we need tax advice or any type of [sic] for our tax purpose and for anything legal we could go to the lawyers that were in the company, in the ²⁷⁶ group.” Mrs. Pickeral further testified that Burrus told the group they could invest by going to any of the lawyers in the building who were members of the group.

Although she could not remember precisely, she believed she had been given a list of agents from which she selected Martin. In explaining why she selected him she said: I think by me going to him as a lawyer then I got the impression well, you know, well if he says it’s okay, that everything is on the up and up, well I thought like by him being a lawyer I know he knows what he’s talking about because he’s not going to get in no shady deal. And that’s why I went on and invested my money. I mean that’s why I went to a lawyer instead of going back to Toyson because he wasn’t a lawyer.

And they said they had lawyers in there. I went directly to a lawyer. The Pickerals met with Martin in Martin’s law office which was located in the same building as the offices of Life Investors. They discussed with him the particular investment in which they were interested.

Martin questioned them concerning their general finances and answered all questions they had concerning Life Investors and the investment. According to Mrs. Pickeral she asked Martin if the company was “okay” and he replied: “Yes, but it’s not always good to put all your eggs in one basket.” Following that meeting, the Pickerals decided to invest $20,000 with Life Investors. After obtaining approximately $42,000 from their financing arrangement the Pickerals made another appointment with Martin. At that second meeting, Martin read to the Pickerals an “investment contract” that provided for the payment of $1,500 to Life Investors in return for which Life Investors promised to provide, for a period of one year, “counseling [sic] in the areas of expertise offered by the firm and its associates” and “service and management of investments and financial affairs.” Additionally, the contract obligated Life Investors “to secure without penalty, or additional cost to the client, a qualified bonding company to protect the client from misrepresenta ²⁷⁷ tion or management of the client’s funds.” The penultimate paragraph of the contract provided as follows: Furthermore, the firm shall provide as part of the client’s retainer, preparation of all income taxes, Lawyer referral service, real estate and insurance.

But the client understands that should any other performance be needed by one of the firm’s associates, a fee proportionate to the services rendered shall be charged. This clause does not, however, make it mandatory that the client use these services, but rather offers them as a complimentary inclusion of the client’s investment package. The Pickerals executed the contract and endorsed the $42,-000 check to Martin. The contract form bore the preprinted name “Earl L. Martin, Esq.” at the top, just above the name and address of Life Investors.

Martin signed the contract on behalf of Life Investors and gave the Pickerals his personal 90 day promissory note for $26,000 3 representing their $20,000 investment plus the $6,000 anticipated interest. Additionally, Martin gave the Pickerals his check for the difference between the amount of the investment and fee and the amount of the check they had endorsed to him. Shortly thereafter, the Pickerals decided to invest an additional $10,000, and met with Burrus at Life Investors for that purpose. Burrus accepted the additional funds and gave the Pickerals a 90 day promissory note of Life Investors for $39,000, representing the total investment of $30,-000 and the promised interest of $9,000.

The Pickerals did not return the original $26,000 note. Several days later, the Pickerals learned from Ms. Gutterick that Life Investors was being investigated and that the assets of the company had been “frozen” pursuant to an injunction obtained by the ²⁷⁸ Office of the Attorney General. On the same day Martin went to the Pickeral’s home, apologized for thé problem and told them he “didn’t know what was going on.” Additionally, he assured them he would see to the return of their money. Martin subsequently returned the $1,500 “retainer” to the Pickerals, and after suit was brought against him, paid them $20,000 from his own funds.

Earl Martin was admitted to the Maryland Bar in 1979. He had previously earned a Bachelor’s Degree in Mathematics from Florida A & M, and had engaged in graduate studies in business at Tulane University and in computer science and operations research at American University. His prior work experience included employment as an agent for Pioneer Western Securities, selling stocks, bonds, mutual funds and insurance, as well as a brief period of employment as a staff attorney for Monumental Life Insurance Company. Martin’s association with Life Investors began in 1979, when he transacted some business with Burrus whom he had known on a personal basis for a number of years.

In order to supplement his income while he developed a general practice of law, Martin became an agent for Life Investors and for a time was given office space in Burrus’ suite. Prior to the time he met the Pickerals, Martin had moved to a separate office in the same building where he maintained an office for the practice of law while continuing to serve as an agent for Life Investors. Martin was first introduced to the high yield “investment package” in December, 1982. He became interested in marketing the investment in April, 1983, when he observed that investors were being paid in accordance with their expectations.

Martin’s understanding of the investment contract offered by Life Investors was that in return for the $1,500 “retainer,” the investor was entitled to receive investment counseling, investment and management services, and certain basic legal services, for a period of one year. A client in need of legal services was expected to contact Life Investors, and would then be referred by Burrus to Martin. ²⁷⁹ The record does not disclose whether Life Investors referred clients to any other attorney. Martin testified that he received at least ten such referrals from Burrus during the period of his association with the company. If the legal service required was not one contemplated by the agreement, Martin would establish a separate fee arrangement with the client — otherwise Martin would render the necessary service and submit his bill to Life Investors for payment.

An exception was made if the client had originally invested through Martin. In that case, Martin received approximately half of the $1,500 “retainer” as a commission, and he was not paid by Life Investors for routine legal services later rendered by him to the client. Martin testified that he had “seen several papers” concerning the high yield investment package, but did not investigate further because he had developed a trust in Burrus over the years, and because he saw investors being paid. He believed a yield of 30% in three months was unusual, but he was familiar with similar returns on syndications for commercial “bridge” loans.

Martin knew that investors were supposed to receive the protection of a fidelity bond, and when asked whether a bond had been secured, he replied: I was told that it was. I even went so far as to inquire as to, I wanted to see the bond. I was assured by Mr. Burrus that they did have a bond but there was always one reason or another as to why I couldn’t see it at that time because he really worked for a gentleman by the name of David Coleman who was in Baltimore. No bond was ever obtained to protect investors.

The petition for disciplinary action filed by the Attorney Grievance Commission charged Martin with violations of the following disciplinary rules: DR 1-102 (dishonesty, fraud, deceit or misrepresentation); DR 2-101 (false, misleading or deceptive publicity); DR 2-103 (improper recommendation of professional employment); DR 3-102 (dividing legal fees with a non-lawyer); DR 3-103 (forming a partnership with a non-lawyer); DR 5-107 (accepting compensation ²⁸⁰ for legal services from one other than the client); and, DR 6-101 (incompetence or neglect). During the hearing before the trial judge, bar counsel abandoned claims of violations of Disciplinary Rules 2-101, 3-102 and 5-107. The trial judge found that Martin had violated Disciplinary Rules 2-103, 3-103 and 6-101. Martin filed exceptions to these findings.

Bar counsel excepted to the failure of the trial judge to find a violation of DR 1-102 and recommended a suspension of thirty days as an appropriate sanction. Bar counsel’s exception rests on two major contentions: (1) that Martin’s conduct in failing to investigate the alleged investment and the existence of a bond was so reckless and wanton as to amount to fraud, deceit or misrepresentation; and (2) that allowing his position as an attorney to be used to induce persons to invest in a scheme that turned out to be fraudulent amounts to conduct that adversely reflects on his fitness to practice law. As to the first contention, we concur with the finding of the trial judge that there is insufficient evidence to demonstrate that Martin knowingly engaged in conduct involving dishonesty, fraud, deceit or misrepresentation. Assuming arguendo that conduct may be sufficiently wanton and reckless so as to be treated as the legal equivalent of fraud, deceit or misrepresentation within the meaning of this disciplinary rule, we do not believe the record mandates such a finding in this case.

Bar counsel’s second contention is unavailing because it paints with too broad a brush. The specific conduct relied upon to demonstrate a lack of fitness