Attorney Grievance Commission v. Webster

⁶⁶⁵ RAKER, Judge. Acting through Bar Counsel, the Attorney Grievance Commission filed a petition for disciplinary action against Arthur Dixon Webster for violations of the Rules of Professional Conduct. Pursuant to Maryland Rule 16-709(b) 1 we referred the matter to Judge Thomas C. Groton, III of the Circuit Court for Wicomico County to make findings of fact and conclusions of law. Following an evidentiary hearing, Judge Groton concluded that Webster had violated Rule 1.7(b) (Conflict of Interest: General Rule), 2 Rule 1.8(a) (Conflict of Interest: Prohibited Transactions), 3 Rule 1.15(a) (Safekeeping Property), 4 Rule 8.1(b) (Bar Admission and Disciplinary Matters) ⁶⁶⁶ 5 of the Maryland Rules of Professional Conduct, and Maryland Rules 16-607(a) (Commingling of Funds) 6 and 16-609 (Prohibited Transactions). 7 We set forth those findings and conclusions as follows: FINDINGS OF FACT “The Court makes the following findings of fact by clear and convincing evidence.

Arthur D. Webster was admitted to the Maryland Bar on November 9, 1979. He presently practices law in a small firm, consisting of two.other attorneys, one of whom is his father. His law office is located at 300 West Main Street, Salisbury, Maryland. Three attor ⁶⁶⁷ neys, John Nason, Esquire, Steve Hearne, Esquire both of Salisbury, and Paul Bekman, Esquire, the current President of the Maryland State Bar Association, appeared at trial to testify as to Arthur D. Webster’s honesty, good character, and practice of law “with adherence to the highest degree of ethical conduct.” “In August 1989, David F. Brown consulted Respondent and requested he prepare a promissory note in the amount of $47,525.98 to secure an existing debt owed to him by Walter J. Hovatter.

Mr. Hovatter and his wife executed the note, hereinafter referred to as the “David Brown Note” on August 18, 1989. Shortly thereafter, Mr. Webster and Mr. Hovatter discussed Mr. Hovatter’s need for additional funds to build a facility which would better equip Mr. Hovatter to perform a large and lucrative contract with Dresser Industries, a company located in Salisbury, Maryland. Mr. Hovatter, at the time of his testimony in this matter, was being housed at the Maryland House of Correction Annex as a result of a sentence received upon pleading guilty to the contract killing of a race horse. “Mr. Hovatter, through his testimony and demeanor on the stand, made clear that he blames Mr. Webster for many of his financial problems, ironically so, in that the majority of funds lent by Mr. Webster to Mr. Hovatter were never repaid by Mr. Hovatter. The loans made to Mr. Hovatter by Mr. Webster are as follows: DATE OF LOAN AMOUNTS BORROWED MATURITY DATE AMT.

DUE ON LOAN 8/25/89 $ 6,000.00 11/15/89 $10,000.00 9/1/89 $ 3,000.00 11/15/89 $ 5,000.00 9/15/89 $ 7,200.00 11/15/89 $ 9,000.00 9/22/89 $ 5,200.00 11/15/89 $ 7,000.00 10/10/89 $12,000.00 11/25/89 $ 8,000.00 1/10/90 $ 8,000.00 TOTAL $33,408.00 TOTAL $47,000.00 With the exception of the $7,200.00 amount lent on September 15, 1989, all the above loans were made by checks drawn by Respondent on an account titled “Arthur D. Webster Escrow Account.” (Hereinafter referred to as “old ⁶⁶⁸ escrow account.”) From 1982 until 1986, Mr. Webster used the.“old escrow account” as his attorney trust account for the deposit of funds received from clients and third persons in connection with legal representations. In 1986 however, Mr. Webster formed a new law firm and contemporaneously therewith opened a new attorney trust account for the deposit of funds held in connection with his new firm’s legal work. (Hereinafter referred to as “the new account.”) Subsequent to the formation of the new firm, Mr. Webster did not use the “old escrow account” to deposit funds received in connection with his legal representations. “The old escrow account” was used for Mr. Webster’s miscellaneous business and personal purposes. Respondent deposited his own funds in this account and it is from this “old escrow account” that loans were made to Mr. Hovatter as set forth above. “Mr. Hovatter was presented as a talented machinist but, despite this talent found himself in financial difficulties causing him to obtain loans from David Brown in 1987 and 1988.

Having failed to pay those loans in a timely manner, Mr. Brovra hired Mr. Webster to prepare the previously referred to promissory note in the amount of $47,525.98. A discussion in late summer, 1989, by and between Mr. Hovat-ter and Mr. Webster regarding additional loans resulted in Mr. Webster initially providing Mr. Hovatter with an amount of $6,000.00 for which Mr. Hovatter offered to repay the principal amount in addition to a $4,000.00 payment for interest, all due and payable in November of 1989. Mr. Webster testified that he viewed this as a commercial loan and that the interest payment of $4,000.00 was therefore not illegal. Prior to making this loan, Mr. Webster did contact references of Mr. Hovatter’s which included Dick Berstein, a business person for whom Mr. Hovatter had worked and who indicated to Mr. Webster that Hovatter was the best machinist he had ever seen.

Webster additionally discussed the matter with Scott Campbell of Dresser Industries who verified that, in fact, Mr. Hovatter had been awarded substantial contracts with Dresser Industries. ⁶⁶⁹ “With the exception of the $7,200.00 amount lent on September 15, 1989, all the loans, as set forth above, were made by checks drawn on Respondent’s “old escrow account” titled “Arthur D. Webster Escrow Account.” “Despite Mr. Hovatter’s contracts with Dresser Industries, he continued to experience financial difficulties to such an extent that he approached Mr. Webster and requested that Mr. Webster deposit Mr. Hovatter’s checks from Dresser in the Respondent’s account and make various disbursements to or on behalf of Mr. Hovatter. Mr. Webster placed these funds in the “old escrow account” and made disbursements to Mr. Hovatter’s creditors as well as Mr. Hovatter himself. “Subsequent to that, Mr. Brown contacted Mr. Webster and requested that he attempt to collect on the “David Brown Note” from Mr. Hovatter. Mr. Webster was able to get Mr. Hovatter to make a series of small payments to Mr. Brown, but the note remained badly in default. Sometime prior to September 1, 1990, Mr. Webster purchased the “David Brown Note” at 75% of its then current value. “The Respondent provided Mr. Hovatter with numerous legal services which were as follows: (a) in June, 1990, Mr. Webster appeared on Mr. Hovat-ter’s behalf in a district court collection action brought against Mr. Hovatter by a trade creditor, Salisbury Special Tool Company; (b) on an unknown date in mid-1990, Mr. Webster attended a half-hour meeting with Roy Meyers, another creditor of Mr. Hovatter, in an unsuccessful attempt to renegotiate the terms of Mr. Hovatter’s debt to him in connection with Mr. Hovatter’s purchase of a farm in Pennsylvania; (c) in the fall of 1990, Mr. Webster made a number of phone calls to Ford Motor Credit Company in connection with its ongoing disputes with Mr. Hovatter concerning that company’s attempt to collect money from Hovatter and to repossess his Ford truck; and ⁶⁷⁰ (d) in December of 1990, Mr. Webster appeared in the Maryland District Court in connection with criminal charges against Mr. Hovatter for the battery of Jeff Wade, who owed Mr. Hovatter $600.

There is no evidence that Mr. Webster was paid in connection with his representation of Mr. Hovatter in these matters. “Mr. Hovatter’s financial problems continued, which resulted in Mr. Hovatter approaching Mr. Webster in the fall of 1990, and requested that he become a signatory on Mr. Hovatter’s personal checking account and that Mr. Webster oversee Mr. Hovatter’s financial affairs through use of this account. Mr. Webster took possession of the checkbook and wrote checks to Mr. Hovatter’s creditors as directed by Mr. Hovatter. This arrangement was terminated within approximately one month when Mr. Webster learned from the bank that the account had been overdrawn as a result of checks written by Mr. Hovatter without the knowledge of Mr. Webster, as a series of checks had been withheld from the checkbook by Hovatter. In the spring of 1991, Mr. Webster prepared a document which purported to set forth all of the loans Respondent had made to Mr. Hovatter and the interest due to date.

The only record or documentation that the Respondent maintained of these loans were the canceled checks. At least two of the loans listed, $1,700.00 on October 20, 1989, and $1,300.00 on March 9, 1990, were funds given to Mr. Hovatter in exchange for checks which Hovatter had given to the Respondent, and that the Respondent placed in his “old escrow account.” The Respondent included these amounts plus interest charges on the document that he provided Mr. Hovatter, listing all of the outstanding loans. The document reflected that Mr. Hovat-ter owed to the Respondent $80,558.00 for direct loans from the Respondent. “Mr. Hovatter requested Respondent to provide a full accounting of the monies that had been deposited with the Respondent. The Respondent prepared a document which showed receipt of two checks from Dresser Industries total ⁶⁷¹ ing in excess of $32,000.00 and disbursements made by the Respondent on behalf of Mr. Hovatter.

Respondent did not account for all of the checks received from Mr. Hovatter and deposited to the Respondent’s “old escrow account” between October, 1989 and February, 1991 or disbursements made by the Respondent on Mr. Hovatter’s behalf. Had such a complete accounting been made, it seems apparent that the amounts of $1,700.00 and $1,300.00 listed as loans would have been revealed to have, in fact, been funds that at all times belonged to Mr. Hovatter that had been deposited in the Respondent’s “old escrow account” and later paid out to Mr. Hovatter from that account. Mr. Hovatter disputed the amount Respondent claimed was due and refused to sign the Note prepared by Mr. Webster evidencing that debt. “In July of 1991, Mr. Webster filed a confessed judgment action on the David Brown Note against Mr. Hovatter in the Circuit Court for Wicomico County. The Respondent had garnishments served on several businesses which owed Mr. Hovatter money, including Dresser Industries.

Mr. Hovat-ter retained Steven Hearne, Esquire of Salisbury, Maryland who filed a Chapter 11 bankruptcy proceeding on Mr. Hovatter’s behalf. Mr. Hearne on behalf of Mr. Hovatter wrote to Mr. Webster that Hovatter did not dispute the principal amounts or the dates of any of Mr. Webster’s loans; however, he did take exception to the annualized rates of interest on the loans. “Mr. Webster filed a proof of claim in Mr. Hovatter’s bankruptcy case for over $100,000.00 in unpaid principal and interest. As a result of negotiations between Mr. Webster and Mr. Hearne on behalf of Mr. Hovatter, an agreement was reached. Mr. Hearne would prepare two notes, one note in the amount of $35,000.00 representing Mr. Hovat-ter’s indebtedness on the “David Brown Note” and the other note in the amount of $60,000.00 representing Mr. Hovatter’s indebtedness on the direct loans from Mr. Webster.

The notes were signed in late January, 1992 by both Mr. Hovatter and his wife after their bankruptcy had been ⁶⁷² dismissed for failure to make required payments. Mr. Hovatter later repudiated this agreement, subsequently had a dispute with Mr. Hearne and discharged him as his attorney. “In February, 1992, Mr. Hovatter filed a complaint with the Attorney Grievance Commission concerning Mr. Webster’s handling of monies that Mr. Hovatter had provided him through checks received from Dresser Industries and that Mr. Webster had deposited in his “old escrow account.” Mr. Webster provided a written response to Mr. Hovatter’s complaint. As a result, Robert P. Conrad, Esquire, Assistant Bar Counsel, advised Mr. Hovatter and Mr. Webster that no further action would be taken on the complaint. “Dresser Industries, in March of 1992, was holding a substantial amount of money due to Mr. Hovatter for work performed. Such funds were being withheld based upon the earlier garnishment filed by the Respondent in the confessed judgment action.

A note reflecting an indebtedness of $95,000.00 was prepared by Mr. Webster for Mr. Hovatter and his wife’s signature. Despite Mr. Hovatter’s release or discharge of Mr. Hearne as his attorney, Mrs. Hovatter asked Mr. Hearne to review the new $95,000.00 note. In addition to the note, a mutual release was prepared. Both the note and the release were signed by the Hovatters.

Mr. Hovatter denies having signed the mutual release despite evidence to the contrary. The Hovatters made the first payment on the $95,000.00 note but did not make any further payments. As a result of the default, Mr. Webster thereafter filed a confessed judgment action on the $95,-000.00 note. As a result, the Hovatters sought the representation of Royal G. Shannonhouse, Esquire and Leonard Moodispaw, Esquire who moved to vacate the judgment by confession. “Mr. Moodispaw filed a complaint with the Attorney Grievance Commission on behalf of the Hovatters, which complaint gives rise to this disciplinary proceeding against Mr. Webster.

The Attorney Grievance Commission made requests of the Respondent to produce records for the “old ⁶⁷³ escrow account.” A subpoena for production of such records was served on the Respondent in August, 1994. The Commission did receive some documents as of January 3, 1995, but not a complete record as had been requested. It was not until sometime later in 1995 that a complete record of the “old escrow account” was received by the Commission from Peninsula Bank. CONCLUSIONS OF LAW “Rule 1.15(a).

Mr. Webster committed a violation of Rule 1.15(a) by commingling funds of Mr. Hovatter, with personal funds of his own in a client trust account. Although the escrow account at Peninsula Bank of Mr. Webster was (old escrow account) from a former practice, it was still in use and entitled Arthur D. Webster Escrow Account, and therefore should have been treated as a clients’ trust account or it should have been closed. Additionally, the Respondent failed to maintain records of this account. “Rule 1.7(b). Mr. Webster committed a violation of Rule 1.7(b).

Mr. Webster made numerous loans to Mr. Hovatter during the time that David Brown had hired Mr. Webster to collect from Hovatter monies past due on Mr. Brown’s loan to Mr. Hovatter. There is no evidence that Mr. Brown was in any manner advised of Webster’s relationship with Ho-vatter and that Brown thereafter consented. “Rule 1.8(a). Mr. Webster violated Rule 1.8(a) in that during such time that he represented Mr. Hovatter in numerous matters, he was engaged in lending money to Mr. Hovatter without providing Mr. Hovatter advice that he should seek the advice of independent counsel in reference to these loans. “Mr. Webster’s representation of Mr. Hovatter was as follows: The Respondent entered his appearance on behalf of Mr. Hovatter in Wicomico County District Court collection actions brought by Salisbury Special Tool and Sears Roebuck & Co. The Respondent represented Mr. Hovatter at trial in the District Court of Maryland for Wicomico ⁶⁷⁴ County in August of 1990 in reference to the Salisbury Special Tool collection action.