Attorney Grievance Commission v. Penn

BATTAGLIA, J. Brien Michael Penn, Respondent, was admitted to the Bar of this Court on December 17, 2003. On April 9, 2012, the Attorney Grievance Commission (“Bar Counsel”), acting pursuant to Maryland Rule 16-751(a), 1 filed a “Petition for Disciplinary or Remedial Action” against Penn, which incorporated a complaint from Ira Oring, on behalf of Penn’s former employer, Old Republic National Title Insurance Company (“Old Republic”). Bar Counsel’s petition charged Penn with violating several Maryland Lawyers’ Rules of Professional Conduct to include, 7.5(a) (Firm Names and Letterheads), 2 and 8.4(a)-(d) (Misconduct). 3 Pursuant to Rule 16-757, 4 in an ³²⁴ order dated April 5, 2012, we referred the petition to Judge Thomas F. Stansfield of the Circuit Court for Carroll County for a hearing. At the hearing, Bar Counsel presented testimony from Mr. Oring; Albert Boyce, Senior Vice-President and Counsel for Old Republic; Shonita Mason, Claims Counsel at Old Republic ³²⁵ at the time Penn was employed at Old Republic; and Kristin Sherfey, a notary and Legal Assistant at Old Republic when Penn was employed at Old Republic.

Penn represented himself and testified on his own behalf and also called Jacquelyn Sheree Proctor, Center Manager at H.Q., an affiliate of the Regus Management Group that provided virtual-office space to Penn; and Ashley Bishop, an administrative assistant at Old Republic. Also, various documents were admitted into evidence, included among others, Old Republic’s employee policies; correspondence between Penn and Marco Oliveira, a judgment debtor of Old Republic; an assignment of the Oliveira judgment from Old Republic to Bennett & Kuhn, signed by Penn; an assignment of Old Republic’s interest in a security deed, executed by Lisa D. Gastgeb, to Bennett & Kuhn, also signed by Penn; copies of notes regarding the Oliveira judgment and the Gastgeb security deed that were entered into a database on Old Republic’s computer to track the claims; copies of eighteen $1,000 money orders endorsed by Penn; and bank records and formation documents of Bennett & Kuhn. Thereafter, Judge Stansfield issued the following Findings of Fact and Conclusions of Law, in which he determined that Penn violated Rules 8.4(a), (c), and (d), but did not violate Rules 7.5(a) and 8.4(b): FINDINGS OF FACT[ 5 ] I. General Findings of Fact Brien Michael Penn, hereinafter referred to as “Respondent,” was admitted to the Bar of Maryland on December 17, 2003. On or about April 22, 2008, the Respondent was hired as a claims administrator under the job title “Claims Counsel” for the National Services Group, a division of Old Republic National Title Insurance Company, hereinafter “Old Republic.” The Respondent was hired by Albert Boyce, hereinafter “Boyce,” a Senior Vice President and Counsel for the National Services Group, to serve as a full- ³²⁶ time employee at the Old Republic office located in Columbia, Maryland.

As Claims Counsel, the Respondent’s duties primarily focused upon the response and administration of claims on title insurance policies issued by Old Republic agents. For claims that required curative litigation, the Respondent was responsible for retaining outside counsel to cure title defects and/or defend litigation, as well as the supervision and monitoring of such outside counsel. As an employee and counsel for Old Republic, the Respondent represented his employer, Old Republic, and thus owed a fiduciary duty of good faith and loyalty and was required to act for the benefit of Old Republic at all times. Old Republic is a national title insurance underwriter, incorporated in Minnesota, with its primary office located in Minneapolis, Minnesota.

Old Republic is licensed to do business in Maryland, with a local office in Columbia, Maryland. At the time of the Respondent’s employment with Old Republic, Old Republic employed two (2) other claims administrators in the Columbia office. One was another attorney Claims Counsel, Shonita Mason, hereinafter “Mason,” and the second was a non-attorney claims administrator, Lisa Snowden, hereinafter “Snowden.” Both attorney and non-attorney claims administrators performed essentially the same function, however, attorney employees were expected to function at a higher level of understanding than their non-attorney counterparts. Mr. Boyce was the direct supervisor of all claims administrators in the Old Republic Columbia office.

Upon their hiring, the claims administrators, including the Respondent, were provided a copy of an employee handbook which outlined and described the company policies of Old Republic, including the Code of Business Conduct and Ethics, Conflict of Interest, Internet and Email Use, and E-mail Policy. Old Republic policy prohibited employees from engaging in employment or outside activities that would be construed as not acting in the best interest of the company. Old Republic policy required that any employee serving as a director of a firm having dealings with Old Republic must disclose that fact to Old Republic so ³²⁷ that it may determine whether the situation presents a conflict of interest.

II

New York Unrecorded Mortgage Claims As Claims Counsel, Respondent was assigned to oversee claims in multiple states, including Georgia, Florida, New York, California, and Nevada. Part of his responsibility as Claims Counsel included hiring or retaining outside counsel in those jurisdictions to represent the insured of Old Republic in filing claims or correcting title defects. Although, as Claims Counsel, the Respondent was given some amount of discretion in the retention of outside counsel in the various jurisdictions, the Respondent was not permitted to conduct business transactions for his own benefit with Old Republic, either directly or indirectly through outside counsel, particularly without prior approval from his direct supervisor, Mr. Boyce. The Respondent, in his capacity as Claims Counsel for Old Republic, had access to various vendors that Old Republic used and to various confidential, proprietary information of Old Republic, all of which were to be used for the benefit of Old Republic, without any self-interest or self-dealing.

In January 2009, Respondent formed a Delaware limited liability company named Bennett & Kuhn, LLC, hereinafter “B & K.” Respondent obtained a Federal EIN number for the company, leased a virtual office with a Washington, DC address, and published a website for the company that identified the Respondent as the owner and operator of the company. This entity was created by the Respondent to become involved in the legal work performed by the outside counsel retained by the Claims Counsel at Old Republic. As part of the responsibilities of Claims Counsel at Old Republic, the Respondent frequently administered claims involving unrecorded mortgages. These claims were typically resolved by retaining local counsel to file an action for declaratory relief on behalf of the insured mortgage lender.

In January 2009, Respondent, on behalf of Old Republic, retained an attorney in Buffalo, New York, Jonathan S. ³²⁸ Hickey, Esquire, hereinafter “Hickey,” with the law firm Burden, Gulisano & Hickey LLC. The respondent advised Hickey that another law firm, Respondent’s firm B & K, would be responsible for preparing the initial pleadings and exhibits and would send the invoices to Hickey, who would then incorporate these fees in his monthly invoices to Old Republic. In nine separate cases from January 2009 to December of 2009, Respondent prepared pleadings by and through his company, B & K. The fees for these services were charged to Hickey’s law firm in New York, and Hickey subsequently incorporated these fees into his invoices to Old Republic. The Respondent, as Claims Counsel for Old Republic, approved for payment by Old Republic a total of nine monthly invoices from Hickey’s firm that included B & K invoices that Respondent created and sent to Hickey.

Old Republic paid Hickey’s firm, and then Hickey’s firm paid B & K a total of $4,725 in fees, which were then deposited into the B & K business account. At no time did Respondent ever disclose to anyone at either Hickey’s firm or at Old Republic that B & K was his own firm. At no time prior to the initiation of this arrangement did the Respondent attempt to obtain approval to conduct business in this manner and receive payment for these services from Mr. Boyce or anyone else at Old Republic. At no time during the time frame in which the Respondent was receiving compensation for his services directly related to the claims administration of Old Republic matters did the Respondent inform Mr. Boyce or anyone else at Old Republic of this arrangement.

Though Respondent asserts that these transactions were fair and reasonable to Old Republic, and Boyce and Mason both concurred that the flat rate charged by the Respondent was a very reasonable rate as compared to those charged by other outside counsel, the arrangement the Respondent had created with Hickey amounted to self dealing, and the Respondent took significant steps to avoid Old Republic discovering that portions of the fees the Respondent was approving as Claims Counsel ³²⁹ were to be distributed to a company with which he had a relationship.

III

Old Republic Collection Assignments a. The Oliveira Matter After Respondent’s termination from employment, Old Republic discovered that Respondent assigned a judgment that was owed to Old Republic by judgment debtors Marco and Jennifer Oliveira, hereinafter referred to as “Oliveira Judgment” or “Oliveira,” to his own firm, B & K. Old Republic obtained a judgment against Oliveira in the amount of $ 234,880 as a result of disbursements that it made to settle a claim. The Respondent, as Claims Counsel, was assigned the task of instituting recovery efforts on the judgment on behalf of Old Republic. On or about October 15, 2008, Respondent, on behalf of Old Republic, took the deposition of Marco Oliveira, during which the Respondent and Mr. Oliveira reached an agreement regarding payments on the judgment.

This agreement was such that Oliveira was to make payment of $100,000 over a four (4) year period, the judgment would be released. Subsequently, Old Republic received a total of $35,000 from Oliveira. On October 16, 2009, Respondent prepared and signed an Assignment of Judgment for Old Republic, assigning the judgment from Old Republic to his own firm B & K. Although the assignment provided that the judgment was “being assigned by the Assignor to the Assignee for good and valuable consideration,” Respondent did not pay any consideration to Old Republic for the assignment. On October 27, 2009, Respondent prepared and sent a letter to Oliveira stating that the judgment had been assigned to B & K, and offering to release the remaining balance if a payment of $18,000, approximately 30% of the remaining judgment, was made to B & K, mailed to B & K’s Washington D.C. address, by December 18, 2009.

The Respondent did not have any authority to execute an Assignment on behalf of Old Republic. The Assignment ³³⁰ and subsequent settlement of the judgment to $18,000 was made by the Respondent without Old Republic’s knowledge or consent. The Respondent never advised Boyce or anyone at Old Republic that he had assigned the Oliveira judgment to his own firm B & K, and subsequently settled it for $18,000, to be paid to B & K. The Respondent took steps to conceal the assignment from Old Republic, including filing misleading reports in the Master File Report, where claims counsel of Old Republic were required to keep updated notes concerning ongoing matters. On December 11, 2009, Oliveira sent $18,000 in money orders to Respondent, after the Respondent was fired from Old Republic.

These money orders were never deposited into any B & K account. Instead, respondent restrictively endorsed each money order to the order of Old Republic, and mailed them directly to Old Republic. It can not be shown, as the petitioner contends, that this endorsement was made only as a consequence of the Respondent learning of the impending civil case and professional complaint against him. It is the finding of this Court that the Respondent engaged in self-dealing and did assign this judgment to his own company, B & K, without the proper authorization from or notification to Old Republic.

Furthermore, the Respondent took measures to mislead and conceal this assignment from Old Republic. However, the Court can not find, based on the facts presented, that the Respondent intended to permanently deprive Old Republic of the balance of this settlement for his own benefit, and therefore can not conclude that a conversion or theft had occurred. b. The Gastgeb Matter After respondent’s termination of employment, Old Republic further discovered that Respondent assigned another Old Republic asset to B & K for no consideration. The Respondent executed an undated Assignment of Security Deed from Old Republic on behalf of Old Republic, assigning Old Republic’s interest in the security deed executed by ³³¹ Lisa Gastgeb, hereinafter “Gastgeb,” to his own firm B & K. The Respondent did not pay any consideration for this assignment.

The Respondent never advised Boyce or anyone at Old Republic of the Assignment of Security Deed. The Respondent, as Claims Counsel of Old Republic, never had authority from Old Republic to assign the security deed. Again, Respondent took steps to conceal the assignment from Old Republic, including omissions and misleading reports in the Master File Report. The Respondent was fired before any collection efforts were made on the Gastgeb matter.

An assignment of the Gastgeb Security Deed from B & K back to Old Republic was later executed and recorded. No amounts of money were ever received by B & K. Therefore, this Court again finds that the Respondent acted in a self-dealing manner and acted to conceal this self-dealing. However because the Respondent did not take possession of any money or property owed to Old Republic, the Court again can not go so far as to say the Respondent had committed a theft or misappropriation from Old Republic without evidence to support the claim that he intended to do so. CONCLUSIONS OF LAW The clear and convincing evidence presented to the court in this case demonstrates to the Court that the Respondent engaged in self-dealing while employed at Old Republic as Claims Counsel when he created the company B & K and devised a scheme to receive payment from Old Republic to this company for preparing pleadings as an outside counsel.

The Respondent never disclosed his relationship with B & K to Boyce nor anyone else at Old Republic. The Respondent was never authorized to engage in self-dealing transactions while employed at Old Republic. He was never authorized to refer Old Republic work to his own company B & K and accept fees paid by Old Republic. He was never authorized to assign assets of Old Republic to B & K to assist in collection.

The Respondent took measures to conceal the self-deal and assignments of collection ³³² matters from Old Republic and the employees thereof. The Respondent's] intentional, willful, and deliberate conduct violated Maryland Rule of Professional Conduct 8.4(a), (c), and (d). The Court can not find by a showing of clear and convincing evidence that the Respondent committed a criminal act, and therefore finds no violation of Maryland Rule of Professional Conduct 8.4(b). Similarly, the Court does not find by clear and convincing evidence that the Respondent, in the creation of Bennett & Kuhn LLC, used a firm name or professional designation that violates Rule 7.1, and therefore finds no violation of Maryland Rule of Professional Conduct 7.5[.] MITIGATING FACTORS The Respondent submits that the following should be considered as mitigating factors pursuant to the Maryland Rules of Professional Conduct and the comments therein.

The Court will briefly address each such factor as the Respondent has listed. (a) Absence of prior disciplinary record. The Court finds no evidence that any prior disciplinary action has been taken against the Respondent. (b) Absence of a selfish motive.

The Court finds that the Respondent may not have received personal payments from B & K, he still had an ownership interest in this entity and acted to promote that interest through the payment scheme he devised. (c) Cooperation with Bar Counsel. The Court finds no evidence to show that the Respondent failed to cooperate with Bar Counsel’s investigation. (d) Inexperience.

The Court finds that the Respondent had only been admitted to the bar for five and a half years. However, inexperience does not have any bearing upon an ethical violation. ³³³ (e) Character and Reputation. There is no evidence to conclude, other than the facts of this case, that the Respondent was not of good character and reputation. (f) Delay in disciplinary proceedings.

The Respondent was significantly impaired in his ability to defend his case due to the delay in these proceedings. The court does find that Old Republic destroyed or otherwise did not produce any computer files the Respondent may have used to defend himself, other than those used to make the Bar Counsel’s case against him. However, in this Matter, the Court finds that the Respondent has violated his obligation of disclosure and self-dealing and there is no evidence presented to conclude these files would have negated this misconduct. (g) Other penalties or sanctions.

The Respondent argues that this proceeding has damaged his professional standing and future employment prospects. This consideration!; ] does not arise until the Court of Appeals addresses the appropriate sanctions in this matter based upon the findings of this Court. (h) Absence of Harm. The Respondent argues that his employer, Old Republic, was not harmed as a result of his misconduct.

The Court finds that harm to Old Republic does not bear upon the nature of Respondent’s ethical violations this court has found. (i) Remorse. The Respondent did appear to be remorseful for his actions. While there may be considerations of the mitigating factors in this case by the Court of Appeals, this Court.does not see any of the arguments advanced by the Respondent in his proposed Findings of Fact and Conclusions of Law as sufficient to rise to the level that the findings of this Court made by clear and convincing evidence are incorrect. “This Court has original and complete jurisdiction over attorney discipline proceedings in Maryland.” Attorney Grievance v. Rand, 429 Md. 674, 712 , 57 A.3d 976, 998 (2012), quoting Attorney Grievance v. Stern, 419 Md. 525, 556 , 19 ³³⁴ A.3d 904, 925 (2011). “In our independent review of the record, we accept the hearing judge’s findings of fact as prima facie correct unless shown to be clearly erroneous.” Attorney Grievance v. Chapman, 430 Md. 238, 273 , 60 A.3d 25, 46 (2013), quoting Attorney Grievance v. Lara, 418 Md. 355, 364 , 14 A.3d 650, 656 (2011).

Pursuant to Rule 16-759(b)(l), 6 we review the circuit court judge’s conclusions of law de novo. Attorney Grievance v. Jones, 428 Md. 457, 467 , 52 A.3d 76, 82 (2012) (per curiam). Bar Counsel filed no exceptions to Judge Stansfield’s Findings of Fact and Conclusions of Law, but Penn excepted to several of Judge Stansfield’s factual findings. Penn’s primary exception, apparently, is that his defense was adversely impacted by a delay in the proceedings, during which Old Republic destroyed various files, and, as a result, this case should be dismissed.

Judge Stansfield, however, found that the files would not have negated Penn’s misconduct: (f) Delay in disciplinary proceedings. The Respondent was significantly impaired in his ability to defend his case due to the delay in these proceedings. The court does find that Old Republic destroyed or otherwise did not produce any computer files the Respondent may have used to defend himself, other than those used to make the Bar Counsel’s case against him. However, in this Matter, the Court finds that the Respondent has violated his obligation of disclosure and self-dealing and there is no evidence presented to conclude these files would have negated this misconduct.

Penn asserts that Judge Stansfield erred in determining that the files would not have negated his misconduct based on Penn’s proffer that the files would have proven that Bennett & Kuhn was not a “fictitious” entity; that he “took great care” to maintain a separate existence for Bennett & Kuhn; that ³³⁵ Bennett & Kuhn had separate finances and accounts; that he never received personal compensation from Bennett & Kuhn; that all fees charged by Bennett & Kuhn were reasonable and fair; that the assignments to Bennett & Kuhn were not part of a fraudulent misappropriation scheme; that he did not work on Bennett & Kuhn matters during Old Republic’s business hours while he was an employee; that he never used Old Republic’s resources to work on Bennett & Kuhn matters; that his business with Bennett & Kuhn actually benefited Old Republic by reducing Old Republic’s costs; that his payoff arrangement with Oliveira would have been corroborated; that his belief that he could list himself as an Assistant Vice President on the assignment of the Oliveira judgment would have been documented; and that he had authority to execute assignments as part of his employment with Old Republic. Essentially, prejudice is the gravamen for any dismissal motion to be favorably entertained by this Court in any attorney grievance action; a claim of delay must be accompanied by a showing of prejudice. In Anne Arundel Bar Association, Inc. v. Collins, 272 Md. 578 , 325 A.2d 724 (1974), Collins, an attorney who was alleged to have bribed members of the Board of License Commissioners to influence their decisions regarding two applications for alcoholic beverage licenses, claimed that the disciplinary proceedings against him were barred by limitations and laches, because of the lapse of a four-year period between his indictment and the filing of a grievance petition. In denying his motion to dismiss, we explained that there was no general statute of limitations that applied to disciplinary proceedings against attorneys and that, with respect to laches, we said, “[bjasic to the defense of laches is the need to show some disadvantage or prejudice to the party asserting it.

There must be either prejudice or circumstances making it inequitable to grant the relief sought.” Id. at 584 , 325 A.2d at 728 . Similarly, in Attorney Grievance Commission v. Kahn, 290 Md. 654 , 431 A.2d 1336 (1981), Kahn, who faced allegations of violating numerous provisions of the Disciplinary Rules of the Code of Professional Responsibility, claimed that laches ³³⁶ barred Bar Counsel from proceeding with its disciplinary action when the Review Board had directed that charges be filed against Kahn two years prior to the filing of the petition. We acknowledged that “[w]hile the delay in Kahn’s case was gross and inexcusable — a fact readily acknowledged by newly appointed Bar Counsel during oral argument on the exceptions — we agree with the [hearing judge] that the evidence does not show that Kahn was prejudiced by the delay.” Id. at 684 , 431 A.2d at 1352 . See also Attorney Grievance Comm’n v. Engerman, 289 Md. 330, 346 , 424 A.2d 362, 370 (1981) (per curiam); Attorney Grievance Comm’n v. Owrutsky, 322 Md. 334, 339-40 , 587 A.2d 511, 513 (1991).

In the present case, we agree with Judge Stansfield that the files to which Penn refers would not have negated his misconduct. Penn testified at the hearing in accordance with his proffer before us about what the documents would have proven. Judge Stansfield heard Penn’s testimony and did not find it to be compelling to negate his misconduct, so that the absence of the documents could not be prejudicial. Penn argues that Judge Stansfield did not cite or identify specific evidence with respect to three of the more notable findings: that Penn “took significant steps to avoid Old Republic discovering that portions of fees the Respondent was approving as Claims Counsel” were being distributed to Bennett & Kuhn, that Penn “took measures to mislead and conceal” the assignment of the Oliveira judgment to Bennett & Kuhn, and that Penn “took steps to conceal” the assignment of the Gastgeb security deed to Bennett & Kuhn.

Penn’s exceptions rest on the foundation that Judge Stansfield did not cite the bases from the record to support the finding and that, in fact, the record does not support these findings. A hearing