Attorney Grievance Commission v. Tomaino

RODOWSKY, Judge. The respondent, Mark M. Tomaino (Tomaino), has been found to have violated Rule 8.4(c) of the Maryland Rules of Professional Conduct (MRPC) by engaging “in conduct involving dishonesty, fraud, deceit or misrepresentation.” He has also been found to have violated a medley of rules and statutes concerned with protecting trust funds. Specifically these are MRPC 1.15, dealing with the safekeeping of clients’ property, and Maryland Code (1989, 2000 Repl.Vol.), § 10-306 of the Business Occupations and Professions Article (BOP) (“A lawyer may not use trust money for any purpose other than the purpose for which the trust money is entrusted to the lawyer.”). MRPC 1.15 incorporates the requirements for maintaining trust accounts and the prohibitions against commingling found in Chapter 600, “Attorney Trust Accounts,” of Title 16 of the Maryland Rules of Procedure.

Further, Tomaino ⁴⁸⁵ has been found to have engaged in a conflict of interests which resulted in very substantial liability against the law firm which employed Tomaino as an associate attorney. There are no exceptions of any consequence. We shall disbar. With approximately five years of experience as an associate in the corporate departments of two other large Baltimore law firms, Tomaino was hired as a lateral with portables by Weinberg & Green (W & G) in August 1990.

His arrangement was a salary plus fifteen percent of the fees collected for services by W & G for clients produced by Tomaino. He left W & G in late 1991 to work in the legal department of Bausch & Lomb in Rochester, New York. The professional carnage that Tomaino left behind in Baltimore began to be uncovered when W & G was sued in 1993 as an outgrowth of the transaction involving the conflict of interests violation (hereinafter, the GeneSys transaction). W & G’s preparation of discovery responses in that litigation revealed, or lead to the revelation of, improprieties in Tomaino’s handling of funds in four other transactions unrelated to GeneSys.

The GeneSys litigation involved at least four proceedings in the Circuit Court for Baltimore County, namely, a temporary restraining order hearing before Judge Thomas A. Bollinger, an interlocutory injunction hearing before Judge Dana M. Levitz, a trial on certain issues before Judge Joseph F. Murphy, Jr., and a jury trial in a protracted case before Judge Lawrence R. Daniels that concluded about December 1996. Although Bar Counsel had been aware of this litigation, Bar Counsel understandably did not undertake a full investigation until those proceedings had concluded. When Bar Counsel completed his investigation, Tomaino waived hearing before an Inquiry Panel. We referred the petition for disciplinary action to Judge Edward J. Angeletti of the Circuit Court for Baltimore City for hearing and findings of fact.

The only witnesses at this hearing were the managing partner of W & G, an investigator for Bar Counsel, and respondent. Judge Angeletti found violations in five transactions which we shall call IRM-Insurance Funds, IRM- ⁴⁸⁶ Signet Funds, Harrogate, GeneSys, and National Head & Neck. Tomaino admitted most of the material facts at the hearing before Judge Angeletti. In this Court Tomaino acknowledged that “the facts that make up this conduct by and large have not been questioned below.” In our description of the transactions, set forth below, we have attempted to give effect to many of Tomaino’s exceptions.

These, however, relate to matters of detail and do not challenge matters of substance. 1 Tomaino acknowledges that the basic facts in the GeneSys transaction support the finding of a MRPC 8.4(c) violation. With respect to the other four transactions, Judge Angeletti found that “[tjhese other acts of misconduct constitute misappropriation of funds and misuse of trust money entrusted to [Tomaino].” Judge Angeletti further said that “[t]hese violations were knowing and willful on the part of [Tomaino] and further deceitful in his not disclosing receipt of these funds to the appropriate parties.... ” Tomaino’s review of the transactions, in connection with his ■discussion of an appropriate sanction, presents as facts his characterization of the transactions. We shall treat Tomaino’s version of the facts as presenting exceptions. Our presentation of Tomaino’s position with respect to sanctions is deferred to the section of this opinion so headed.

IRM-Insurance Funds One of the clients that Tomaino brought to W & G was Institute of Resource Management, Inc. (IRM). IRM was a beneficiary of a life insurance policy on one of its employees. When that employee died in October 1990 there were competing claims to the proceeds. IRM received $100,000 of the proceeds which Tomaino placed in his personal account at Legg Mason, a stock brokerage and mutual funds firm.

To- ⁴⁸⁷ maino testified that he did this at the instruction of the then owner of IRM, Jerry W. Donahoe (Donahoe), who said he did not want the money tied up in the W & G trust account because he intended to wire the money. The money was wired in two $50,000 transmissions to a law firm in New Orleans which later transferred $50,000 back to Tomaino’s personal account. Tomaino testified that the $50,000 transferred to his personal account was supposed to have been directed to W & G. Nevertheless Tomaino transferred only $40,000 to W & G and retained $10,000 for himself. He testified that Donahoe told him to keep the $10,000 out of appreciation for Tomaino’s having been with Donahoe “ ‘through thick and thin.’ ” Tomaino admitted that he made a “very, very significant, to put it mildly, mistake.” In addition to his general finding of misappropriation, Judge Angeletti specifically stated that this conduct “constituted a misappropriation of funds which [Tomaino], impliedly, held as a fiduciary to his employer,” W & G. In his exceptions Tomaino admits that “retention of the $10,000 was improper,” but he argues that, “rather than a misappropriation from [W & G] who was paid in full, the funds should have gone to the client.” Somewhat contradictorily, in his presentation of the facts, Tomaino submits that his testimony that the client consented is unrebutted and implicitly argues that there was no misappropriation.

Clearly, Tomaino violated the trust account requirements. The funds were not his. The funds were held for Donahoe, and it is immaterial whether they were a retainer for future professional services by W & G or were to be applied by Donahoe for some other legitimate purpose. In either event, the funds should have been placed in the W & G Clients’ Fund Account or returned to the client.

When Tomaino placed the funds in his personal account, he ran the risk that the trier of fact would reject his testimony concerning client consent. Judge Angeletti’s finding that there was a knowing, willful, and deceitful misappropriation of funds is a rejection of To-maino’s attempted justification. ⁴⁸⁸ At the conclusion of his report to us, Judge Angeletti states that “the Donahoe and Wortley gifts, all constitute violation of’ BOP § 10-306. We read this reference to “gifts” as utilizing Tomaino’s characterization to identify the funds, and not as a finding of fact. This is clear from the reference to BOP § 10-306 by which Judge Angeletti concludes that, contrary to that prohibition, Tomaino did “use trust money for [a] purpose other than the purpose for which the trust money [was] entrusted to the lawyer.” IRM-Signet Funds IRM became hard pressed for cash while owned by Donahoe, largely because it was in default on a secured loan to MNC Credit Corp. Donahoe was willing to make an assignment in lieu of foreclosure if he could arrange for a sale of IRM by MNC Credit Corp. to a buyer under terms that would protect Donahoe from personal liability.

He turned to Joseph C. Wortley, Jr. (Wortley) of Liberty Corner, New Jersey. In connection with Wortley’s effort to buy IRM, an escrow account, held by Tomaino and a partner at Piper & Marbury, was established at a financial institution. W & G’s Ethics and Conflicts Committee approved having the escrow held outside of the W & G Clients’ Fund Account because another law firm was also serving as escrow agent. Wortley was ultimately able to purchase IRM from MNC Credit Corp. under circumstances whereby $100,000 from the joint agents’ escrow fund was released.

The entity in which Wortley took the assets of IRM was Liberty Engineering, Inc., a corporation formed for Wortley by Tomaino. The $100,000 from the escrow fund thereby became an asset of Liberty Engineering. In late November 1990 these funds were wired to W & G which disbursed $25,000 each to Donahoe and Wortley. The balance of $50,000 was transferred by W & G to a new escrow account at Signet Bank.

That account was titled, “Marc M. Tomaino, IRM Escrow Account.” In February 1991 Tomaino closed the account at Signet and transferred the funds, then totaling $50,641.18 to his personal account at Legg Mason. In March Tomaino caused $35,641.18 to be disbursed from that account ⁴⁸⁹ on the check of Legg Mason to W & G where it was credited in the Clients’ Fund Account as a retainer from Liberty-Engineering. Of the $15,000 balance, $5,000 was disbursed by Legg Mason in June 1991 for purposes that do not appear in the record. The remaining $10,000 was disbursed by Legg Mason in December 1991, after Tomaino had moved to Rochester, where it apparently was deposited in Tomaino’s account at Chase Bank in Rochester.

Tomaino testified that Wortley told him not to put the $50,000 into the W & G trust account and told him that he could give the $15,000 balance of that $50,000 to his mother-in-law as far as Wortley was concerned. In his exceptions Tomaino points out that Wortley made no claim to the funds when notified of their existence by Tomaino’s present counsel. This is one of the group of transactions in which Judge Angeletti found a misappropriation by Tomaino. As explained in the IRM-Insurance Funds transaction, Judge Angeletti’s finding of violation of MRPC 1.15 and of BOP § 10-306 is supported by the record.

Harrogate IRM owned computer equipment, the purchase of which had been financed by Harrogate Corporation (Harrogate). IRM leased the equipment back to Harrogate which, in turn, subleased the equipment to the Ministry of Defense of the Netherlands. When IRM fell on hard times, it agreed that Harrogate should resell the equipment. The latter did so, producing net proceeds on the resale of $58,405.

In April 1991 Tomaino deposited these funds in an investment account at PaineWebber in his own name and under his own social security number. The funds remained in that account after Tomaino moved to Rochester. By January 1992 the account had grown to $60,600. In that month Tomaino withdrew accumulated earnings of $2,257.38.

In March 1992 he withdrew $8,780.12, leaving a balance of $50,165.29, well below the original $58,405. Thereafter, and no later than January 1993, he transferred the funds, then $51,807.58, to another account held in his own name at Merrill Lynch where it was invested ⁴⁹⁰ in stocks. The funds remained in Tomaino’s account until April 1995 when they totaled $65,494 and were delivered to Tomaino’s present attorney who gave notice to potential claimants. Harrogate and MNC Credit Corp. claimed the funds based on respective security interests in the equipment.

The funds were ultimately divided seventy-two percent to Harro-gate and twenty-eight percent to MNC Credit Corp. Tomaino testified that the principal of Harrogate, James Carrier (Carrier), asked Tomaino to hold the funds in Tomai-no’s name. Carrier was said to be concerned over the effect of a European insolvency on Harrogate’s claim. Tomaino denied that he assisted Carrier in hiding assets from creditors. Tomaino said that Carrier knew that the funds were invested in stocks and that Carrier had never made a demand for the money from April 1991 when the account was initially opened until April 1995 when the account was closed.

Judge Angeletti found Tomaino had violated MRPC 1.15 and BOP § 10-306 by the misappropriation of trust money of Harrogate, and Judge Angeletti specifically found that Tomai-no had “kept the interest.” For the reasons .stated as to the IRM-Insurance Funds transaction, these findings are supported by the record. GeneSys Wortley, the purchaser of IRM, came to play a prominent role in the conflicts violation involved in the GeneSys transaction. Essentially the conflict was generated by a bearer stock option, the background for which is somewhat complex. John J. Meindl, Jr. (Meindl), a client of Tomaino, had owned approximately ninety-five percent of the outstanding capital stock of GeneSys Data Technologies, Inc. (GeneSys), a Maryland corporation.

In November 1988 Meindl sold this stock to Vest, Inc., a Delaware corporation, that was part of a Swiss conglomerate, Omni Finance (Omni). Meindl took a security interest in the stock that he had sold, in order to secure the performance of certain promises made by Vest. After the sale Meindl continued as chief executive officer of GeneSys. Dur ⁴⁹¹ ing the period of Vest’s ownership of GeneSys, the latter acquired the stock of B & B Record Center, Inc. (B & B), one of the owners of which was Charles J. Bauer, Jr. (Bauer).

He became the chief operating officer of GeneSys. Payment of part of the purchase price due from Vest for Bauer’s stock in B & B had been deferred, and Bauer held a security interest in the B & B stock to secure that promise to pay. Also during this period Marc Mathys (Mathys) became chief financial officer of GeneSys. Mathys was an attorney who had been employed in the Omni conglomerate and who knew some of the officers of Omni in Switzerland.

By the fall of 1990 Meindl wanted to reacquire “his” company and had formed the intent, known to Tomaino, to bring Bauer and Mathys into the ownership of GeneSys if Meindl were successful in reacquiring it. Meindl took the position that Vest owed him $730,500 in “deferred purchase price,” under a formula in the GeneSys incentive bonus plan. Vest took the position that it owed nothing because GeneSys had no profits. Tomaino then conceived, or participated in conceiving, a strategy under which Meindl would foreclose on the GeneSys stock and sell the stock at private sale to Wortley, thereby hoping to establish the credit to vest on Meindl’s claim against Vest.

Wortley would then give Meindl an option to reacquire the stock. Tomaino anticipated objection from Vest on the ground that the private sale to Wortley did not satisfy the requirement of § 9-504 of the Uniform Commercial Code that the sale be commercially reasonable. In an attempt to meet that objection Tomaino provided as the purchase price the book value of GeneSys, payable by the assumption by Wortley of the obligations of Vest to Meindl and to Bauer. To the extent that the book value of GeneSys exceeded the obligations of Vest to Meindl and Bauer, Wortley would cause GeneSys to issue preferred stock which Meindl would hold as trustee for Vest.

Meindl’s right to repurchase the stock of GeneSys from Wortley was to be evidenced by a bearer stock option agree ⁴⁹² ment at an option price of $100,000. A bearer form of option was elected in order to conceal from Omni/Vest that Meindl was the optionee, inasmuch as Meindl hoped to negotiate the acceptance by those parties of the preferred stock proposal and thereby avoid any challenge to the private sale. If Meindl’s negotiations with Vest were successful, Meindl would exercise the option and Wortley would be paid $100,000. Vest attempted to block the foreclosure by a temporary restraining order which was granted on March 21, 1991, by Judge Bollinger on condition that Vest post a $100,000 bond.

It was unable to do so, itself having fallen on hard times financially. 2 Meindl proceeded to foreclose and, on March 28, 1991, Wortley, as nominee for