Attorney Grievance Commission v. Sachse

KARWACKI, Judge. The Review Board of the Attorney Grievance Commission directed Bar Counsel to file charges against Douglas T. ⁵⁸¹ Sachse for violating several Rules of Professional Conduct stemming from his actions as trustee of a testamentary trust. Specifically, the Petition for Disciplinary Action alleged that, in approving the issuance and negotiation of five checks drawn upon the corpus of the trust, Sachse had failed to provide competent representation, Rule 1.1 of the Maryland Rules of Professional Conduct, had represented interests in conflict with those owed to the trust, Rule 1.7(b), and had engaged in professional misconduct, Rule 8.4(a) and (c). The Petition further alleged that Sachse had made a false statement of material fact, Rule 8.1(a), and had violated Maryland Code (1989, 1995 RephVol.), § 10-306 of the Business Occupations and Professions Article (BP), which provides: “A lawyer may not use trust money for any purpose other than the purpose for which the trust money is entrusted to the lawyer.” Pursuant to Maryland Rule BV9, 1 we transmitted the case to Judge John 0.

Hennegan of the Circuit Court for Baltimore County to make findings of fact and conclusions of law. Judge Hennegan found that Sachse had violated Rule 1.1 and BP § 10-306, but had not violated Rules 1.7, 8.1, or 8.4. Bar Counsel excepted solely to the hearing judge’s findings of fact and conclusions of law in respect to Rule 1.7(b), and recommended that Sachse be indefinitely suspended, with the right to apply for reinstatement after one year. As conditions upon that reinstatement, Bar Counsel asks that we order restitution of the principal of the trust and that Sachse submit to monitoring by Richard B. Vincent, Director of Lawyer Counseling for the Maryland State Bar Association, for a period of two years.

For the reasons recited below, we shall sustain Bar Counsel’s exception. ⁵⁸² After an evidentiary hearing, Judge Hennegan made the following findings of fact: “Mr. Douglas T. Sachse was admitted to the Maryland Bar on November 9, 1979. He maintains an office for the practice of law with the firm of Turnbull, Mix and Farmer in Towson, Maryland. Shirley Stemler is the daughter of the late Dorothy J. Thompson. Whitney Stemler Riley and Erin Stemler Drew are the daughters of Shirley Stemler.

On or about March 19,1978, Dorothy J. Thompson executed a Last Will and Testament (hereinafter “the Thompson Will”) that provided, inter alia, for the creation of a trust upon Mrs. Thompson’s death to hold one-half of her net estate for the benefit of her daughter, Shirley Stemler, and Mrs. Stemler’s descendants. The Thompson Will specified that Shirley Stemler was to receive net income from the trust in at least quarterly installments during Mrs. Stemler’s lifetime, with the principal and undistributed income to be distributed to Mrs. Stemler’s then living descendants, per stirpes, upon Mrs. Stemler’s death. Mrs. Thompson died on May 13, 1985, and the Thompson Will thereafter was probated in Harford County. Pursuant to the terms of the Thompson Will, a trust (hereinafter “the Stemler Trust”) was established, with County Banking and Trust Company appointed to serve as trustee.

The original corpus of the Stemler Trust was approximately $50,000.00, of which approximately $45,000.00 was invested in blue-chip stocks and $4,500.00 was placed in a certificate of deposit at County Banking and Trust Company. Mr. Sachse had a professional and social relationship with Shirley Stemler dating back to approximately 1980. Sometime in the spring of 1987, Shirley Stemler hired Mr. Sachse to seek removal of County Banking and Trust Company as trustee of the Stemler Trust based on Mrs. Stemler’s dissatisfaction with its investment of the trust assets and the income she was receiving. With the consent of Mrs. Stemler’s two daughters, Whitney Stemler (now Riley) and Erin Stemler (now Drew), who were the only then living residual beneficiaries of the Stemler Trust, the Circuit Court for Harford County ⁵⁸³ approved a Consent Order on May 6, 1987, by which Mr. Sachse became substitute trustee of the Stemler Trust.

Upon his appointment as trustee, Mr. Sachse arranged to have the Stemler Trust’s stock portfolio transferred into an investment account at Alex. Brown & Sons, Inc. (hereinafter “Alex. Brown”). Alex.

Brown received the transferred stock certificates on or about September 18, 1987. Mr. Sachse also received $5,000.00 from redemption of the County Banking and Trust certificate of deposit at the end of December 1987. Out of those funds, Mr. Sachse took $750.00 as a fee for petitioning for appointment of a substitute trustee and for his services as trustee to that point. The remaining $4,250.00 was forwarded to Alex.

Brown for investment on behalf of the Stemler Trust. In August 1987, Mr. Sachse, at the request of Mrs. Stemler, filed a petition to have the Stemler Trust terminated and to allow distribution of the principal to Mrs. Stemler’s two daughters prior to Mrs. Stemler’s death. The Circuit Court for Harford County denied that petition on August 16, 1990. As of the time that the petition to terminate the trust was denied, the total market value of the stocks held in the Alex.

Brown investment account was in excess of $70,000.00. From September 1987 through August 1990, Shirley Stemler received periodic distributions of dividend and interest income by transfer from the Stemler Trust investment account into a separate account held at Alex. Brown in the name of Mrs. Stemler individually. Beginning in September 1990 and continuing through August 1991, several distributions were made from the Alex.

Brown investment account by way of checks made payable to Mr. Sachse as follows: Date Check No. Amount (i) September 7, 1990 2022318 $19,472.98 (ii) February 20, 1991 2174207 $18,758.78 2175800 $16,255.89 (iii) April 30,1991 2176459 $ 2,000.00 (iv) July 29,1991 6480069 $15,272.70 (v) August 5,1991 Total $71,760.35 ⁵⁸⁴ The distributions from the Alex. Brown account depleted the principal to the Stemler Trust, leaving a balance of only eight cents ($0.08) in the account as of August 30, 1991. With the exception of Check No. 2174207, drawn on February 20, 1991, and Check No. 2175800, drawn on April 30, 1991, 2 Mr. Sachse acknowledges that he authorized the above listed distributions and endorsed the checks over to Shirley Stemler with knowledge that she planned to invest the funds in a company known as Autel Corporation. 3 Mr. Sachse prepared Articles of Incorporation for Autel Corporation in 1987. Mr. Sachse had no further active involvement in the operations and activities of Autel Corporation from the time of its incorporation in 1987 through September 1990, when he began releasing Stemler Trust funds to Shirley Stemler for investment in the corporation.

Mr. Sachse obtained no financial data about Autel Corporation before releasing Trust funds to Shirley Stemler for investment in the corporation. Mr. Sachse did not obtain any formal security from Shirley Stemler or anyone else to protect the Stemler Trust’s “investment” in Autel Corporation. After he began releasing Trust funds to Shirley Stemler for investment in Autel Corporation, Mr. Sachse never requested or received an accounting of those funds. ⁵⁸⁵ Shirley Stemler took the position that the Trust funds were for her personal use as she deemed appropriate. Fred Eisenbrandt handled the trust account for the [Stemler] Trust.

He recalls the distribution of the funds. He states that the sale of the stock could not have occurred without authorization from the Respondent. It was standard procedure at Alex. Brown for sales of stock to occur only at the request of the account holder.

Mr. Sachse began drinking on a regular basis at the law firm when they developed a habit of taking off Friday afternoons and drinking at lunch into the late afternoon. This continued and eventually extended into other days of the week, i.e. Thursday. He eventually had an affair with his current wife while married to his first wife that produced a child with cerebral palsy and a hearing impairment.

Obviously, this led to difficulties with the marriage and increased drinking. The marriage ultimately broke down, a separation resulted and the Respondent’s drinking became more severe in an effort to sleep and deal with his emotional problems and dilemma[s]. His social worker feared he was suicidal and it was clear he had no judgment or ability to make sound decisions. As a result, he was admitted to Sheppard Pratt’s substance abuse program.

Subsequently, he was released, got control of his substance abuse and emotional problems, and has been sober since his discharge from Sheppard Pratt Hospital. Upon his release he attempted to obtain an executed note from Shirley Stemler and Karl Keffer [with whom Shirley Stemler had approached Mr. Sachse about investing in Autel Corporation]. He purchased life insurance policies and executed an indemnity deed of trust to protect the trust corpus. Respondent admits that he would not invest any of his personal assets in the Autel Corporation.” Based upon these findings, Judge Hennegan concluded that Sachse had “failed to use the knowledge, skill, thoroughness and preparation reasonably necessary for the protection of the ⁵⁸⁶ Trust or its beneficiaries” in violation of Rule 1.1 4 and BP § 10-306.

Sachse’s admission that he allowed the corpus to be depleted in furtherance of Mrs. Stemler’s investment in Autel, without obtaining security therefor or ascertaining the precise nature of the transaction, provided clear and convincing evidence that Sachse had failed to provide competent representation to the Stemler Trust and its beneficiaries, and his attempts to correct his “errors in judgment” were “too late to avoid the responsibilities required” by the Rule. The hearing judge then rejected Bar Counsel’s assertion that the fact of Sachse’s interest in Autel in conjunction with his representation of Mrs. Stemler constituted a per se conflict of interest under Rule 1.7. 5 Given evidence indicating that Sachse had possibly relinquished his interest, if any, in Autel in 1987 and the fact that the disbursements at issue took place in 1990 and 1991, the court was not persuaded by clear and convincing evidence that the Rule had been violated. Judge Hennegan also rejected Bar Counsel’s claim that Sachse had “knowingly assisted or induced another to violate the rules of professional conduct or engage in dishonesty, fraud, deceit or misrepresentation” in violation of Rule 8.4. 6 Although the ⁵⁸⁷ court found that Sachse’s bouts with depression and alcoholism had clouded his judgment and that he was subject to “extreme pressure” from Mrs. Stemler and her demands for money, the court was not persuaded that Sachse had engaged in professional misconduct within the meaning of Rule 8.4(a) or (c). Judge Hennegan further determined that Sachse had not knowingly made a false statement of material fact in denying that he authorized the sale of the stock in the trust.

Specifically, the court found that Sachse’s acknowledgment of his ultimate responsibility for the investment of trust assets in Autel could not be reconciled with violation of Rule 8.1. “It is hard to believe,” the judge stated, “that [Sachse] would knowingly make a false statement when he accepts full responsibility for the ultimate event. The sale of the stock may be a material [f]act in the distribution of the Trust funds but the denial of it may not be a material fact since there is no denial that the distribution of the funds to Shirley Stemler could easily have been averted by [Sachse] after the sale of the stock.” As we have stated, Bar Counsel has excepted solely to the hearing judge’s failure to find a violation of Rule 1.7(b). Bar Counsel asserts that Sachse’s representation of the Stemler Trust was compromised by his relationship with Shirley Stemler when he authorized the release of trust funds to Mrs. Stemler. Bar Counsel adds that the severity of Sachse’s misconduct was “compounded]” by his failure to arrest further depletion of the trust assets when he ratified an unauthorized distribution from Alex.

Brown on April 30, 1991. “At that point,” Bar Counsel argues, Sachse’s “conduct transcended what might be characterized as simply poor judgment and rose to the level of affirmative participation in Shirley Stemler’s systematic use of trust monies to fund the operations of Autel Corporation.” Bar Counsel further disputes that ⁵⁸⁸ Sachse’s alcoholism may mitigate the egregiousness of his conduct, arguing that “he understood the nature of Shirley Stemler’s conduct yet chose to ratify it rather than taking appropriate remedial measures.” In the management of a trust, a trustee is charged with exercising “the care, skill, prudence, and diligence of an ordinary prudent [person] engaged in similar business affairs and with objectives similar to those of the trust in question.” Maryland Nat’l Bank v. Cummins, 322 Md. 570, 580 , 588 A.2d 1205, 1210 (1991). “All trustees are subject to common law duties and equitable rules or principles.” George G. Bogert, The Law of Trusts and Trustees § 541 (2d ed. rev. 1993). “Perhaps the most fundamental duty of a trustee is that he must display throughout the administration of the trust complete loyalty to the interests of the beneficiar[ies] and must exclude all selfish interest and all consideration of the interests of third persons.” Id. § 543; see also Board of Trustees v. Mayor of Baltimore, 317 Md. 72, 109 , 562 A.2d 720, 738 (1989) (“[T]he general duty of loyalty is well-established in Maryland law.”), cert. denied, 493 U.S. 1093 , 110 S.Ct. 1167 , 107 L.Ed.2d 1069 (1990). “[A] trustee is charged by law with representing the beneficiaries’ interests,” Board of Trustees, 317 Md. at 90 , 562 A.2d at 728 , and is liable for acting to their detriment when the conduct causing the loss “failed to conform to the standard of care and skill applicable to trustees in the administration of the trusts,” Bogert, supra § 541. “It is clear that the trustee’s duty of loyalty extends beyond a prohibition against self-dealing and conflict of interest---Even if the trustee has no personal stake in a transaction, the. duty of loyalty bars him from acting in the interest of third parties at the expense of the beneficiaries.” Board of Trustees, 317 Md. at 109 , 562 A.2d at 738 . Conflicts of interest impair the trustee’s ability to act on behalf of the beneficiaries with independent and disinterested judgment in the administration of the trust, the rationale being that it is generally not possible for the same person to act fairly in two capacities and on behalf of two interests in the same transaction. Bogert, supra § 543. Whether or not a conflict exists must be deter ⁵⁸⁹ mined by the facts of each individual case.

Attorney Grievance Comm’n v. Kent, 337 Md. 361, 379 , 653 A.2d 909, 918 (1995). “In reviewing the multiple findings made by the hearing judge, we accept findings of fact made by the hearing judge if they are supported by clear and convincing evidence, and are not clearly erroneous.”