Attorney Grievance v. Blatt

Attorney Grievance Commission v. Stuart R. Blatt Misc. Docket AG No. 42, September Term 2017 Attorney Discipline – Misappropriation of Client Funds – Mishandling of Attorney Trust Account – Disbarment. Disbarment is the appropriate sanction when an attorney failed to represent clients competently and diligently and to communicate with them adequately concerning the matters that the clients had assigned to the collections practice at the attorney’s firm, which was supervised by the attorney; the attorney failed to adequately supervise attorney and clerical staff at his firm, to the detriment of his clients; and the attorney mishandled the proceeds obtained on behalf of those clients and misappropriated some of those funds. MLRPC 1.1, 1.3, 1.4, 1.15(a), (c) & (d), 1.16(d), 5.1(a) & (b), 5.3(a)–(c), 8.4(a), (c) & (d).

Circuit Court for Baltimore County Case No. 03-C-17-011570 IN THE COURT OF APPEALS Argument: January 31, 2019 OF MARYLAND Misc. Docket AG No. 42 September Term, 2017 _________________________________ ATTORNEY GRIEVANCE COMMISSION OF MARYLAND V. STUART R. BLATT _________________________________ Barbera, C.J., Greene McDonald Hotten Getty Wilner, Alan M. (Senior Judge, Specially Assigned) Adkins, Sally D. (Senior Judge, Specially Assigned), JJ. _________________________________ Opinion by McDonald, J. Pursuant to Maryland Uniform Electronic Legal Materials Act _________________________________ (§§ 10-1601 et seq. of the State Government Article) this document is authentic. 2019-06-06 Filed: May 22, 2019 08:31-04:00 Suzanne C. Johnson, Clerk A law license authorizes an attorney to invoke the coercive powers of a court in furtherance of the interests of the attorney’s client with consequences that can be devastating, even if fair, to the adverse party.

Under the ethical rules governing attorneys, that authority must be exercised competently, diligently, and honestly, with adequate supervision of subordinate employees who assist the attorney, and in compliance with the attorney’s fiduciary responsibilities to the client. By the account in the record before us, Respondent Stuart R. Blatt was for many years a respected member of the bar and a leader in the field of creditors rights and debt collection. However, during the past decade his practice fell on hard times and, in what must have seemed a cruel twist of fate, he became one of those he sued and otherwise pursued for a living – a defaulting debtor. As a result, he made unfortunate choices that violated the ethical rules governing attorneys – for example, using legal process to collect a debt on behalf of a client by garnishing wages earned by the debtor, but diverting the proceeds to pay his firm what it had not earned.

There is no indication in the record before us that these violations were the product of a grand fraud scheme, as opposed to an effort to find a path out of a confluence of unhappy events, both personal and professional. Nevertheless, in carrying out our charge to protect the public from errant lawyers, we must disbar Mr. Blatt from the practice of law in Maryland. I Background A. Procedural Context On November 20, 2017, the Attorney Grievance Commission (“Commission”) through Bar Counsel filed with this Court a petition for disciplinary or remedial action against Mr. Blatt, alleging that he had violated numerous provisions of the Maryland Lawyers’ Rules of Professional Conduct (“MLRPC”) in effect at the time of the alleged misconduct.1 In particular, Bar Counsel alleged that he had violated Rule 1.1 (competence); Rule 1.3 (diligence); Rule 1.4 (communication); Rule 1.15(a), (c) & (d) (safekeeping property); Rule 1.16(d) (declining or terminating representation); Rule 5.1(a) & (b) (responsibilities of partners, managers, and supervisory lawyers); Rule 5.3(a), (b) & (c) (responsibilities regarding non-lawyer assistants); Rule 8.1(a) (bar admission and disciplinary matters); and Rule 8.4(a), (c) & (d) (misconduct). Pursuant to Maryland Rule 19-722(a), this Court designated Judge Vicki Ballou- Watts of the Circuit Court for Baltimore County to hold a hearing, make findings of fact, and provide conclusions of law as to the alleged violations by Mr. Blatt.

Judge Ballou- Watts conducted an evidentiary hearing over several days in August 2018. Following that hearing, Bar Counsel withdrew the charge of a violation of Rule 8.1(a). In a written 1 Effective July 1, 2016, the MLRPC were renamed the Maryland Attorneys’ Rules of Professional Conduct and recodified in Title 19 of the Maryland Rules. For simplicity, and because the alleged misconduct occurred prior to the recodification, we shall use the shorter designations of the MLRPC throughout this opinion – e.g., “Rule 8.4” rather than “Maryland Rule 19-308.4.” 2 opinion, Judge Ballou-Watts found that Mr. Blatt had committed all of the other alleged violations.

Mr. Blatt filed a number of exceptions to the hearing judge’s Findings of Fact and Conclusions of Law. Bar Counsel did not file any exceptions and recommended that we disbar Mr. Blatt. This Court heard oral argument from Bar Counsel and Mr. Blatt on January 31, 2019. B. Facts When no exception is made to a hearing judge’s finding of fact, we accept it as established.

Maryland Rule 19-741(b)(2)(A). When a party excepts to a finding, we must determine whether the finding is established by the requisite standard of proof – in the case of an allegation of misconduct, clear and convincing evidence. Maryland Rules 19- 741(b)(2)(B), 19-727(c). We summarize below the hearing judge’s findings and other undisputed matters in the record.

We address Mr. Blatt’s exceptions in relation to the findings to which they pertain. Mr. Blatt’s Early Career Mr. Blatt is a 1970 graduate of the University of Baltimore School of Law and became a member of the Maryland bar in June 1972. Mr. Blatt has also been admitted to the District of Columbia and New York bars. Early in his career, Mr. Blatt served briefly as an in-house counsel to a credit card company and later as an in-house counsel for a department store chain.

After six years at the department store chain, Mr. Blatt worked briefly for two law firms before opening his own firm. Following a brief stint with another firm, he struck out on his own again in the mid-1990s. 3 Over the course of his career, Mr. Blatt focused his practice on creditors rights and debt collection. He is a founder of the National Creditors Bar Association and served as its president. He was also involved in other organizations related to creditors rights and debt collection.

Merging the Practice into the Margolis Firm Following a health scare in 2000, Mr. Blatt sought to merge his law practice with that of another firm. He ultimately brought his creditors rights practice to a Baltimore County firm then known as Margolis, Pritzker and Epstein, P.A. At that time, the firm had a general practice that included personal injury and family law litigation, as well as the representation of automobile dealerships, construction companies, and small businesses, but the firm did not have a creditors rights practice. Within a couple years, Mr. Blatt became a principal in the firm, which was renamed Margolis, Pritzker, Epstein & Blatt, P.A. For a decade, the Margolis firm thrived. By the time of the events pertinent to this case, the two remaining active principals in the firm were Mr. Blatt and Jeffrey Pritzker.

The creditors rights practice, which was overseen by Mr. Blatt, came to dominate the firm by many measures. By 2010, it accounted for approximately 85% of the firm’s revenues (as well as most of its expenses) and employed a large administrative staff. At its peak, the creditors rights practice had more than 70 employees who used a state-of-the-art computer software system and managed 26,000 files. Mr. Blatt signed all complaints initiating collection actions and supervised the associate attorneys who litigated those actions.

His wife, Sharon Blatt, who had been a clerical employee in the creditors rights 4 practice, became its office manager. The firm also opened a Virginia office devoted to its creditors rights practice in 2010 or 2011. The Decline of the Margolis Firm The firm began a downward spiral when Citibank, Mr. Blatt’s largest client for many years, decided to reduce the number of law firms to which it referred collection matters and stopped referring business to the Margolis firm. Other clients made similar decisions.

In an attempt to shore up its finances, the firm cut staff dramatically and moved its banking relationship from Wells Fargo to a smaller bank – Revere Bank. Nonetheless, the firm proved unable to pay its bills and, during the summer of 2014, was evicted from its offices at 110 West Road in Towson. The firm obtained new office space in Towson. In November 2014, Mr. Pritzker left the firm and opened a solo practice at a different location.

The remnant of the firm devoted to the creditors rights practice remained in the new Towson office until January 2015 when the electricity was shut off due to unpaid utility bills. The Virginia office of the firm closed the following month. Mr. Blatt made an effort to move his creditors rights practice to another law firm known as the Steve Peroutka Law Group, and moved equipment and files to that firm while still negotiating their relationship. However, the Peroutka firm became concerned that Mr. Blatt was not being transparent in the transfer of clients and matters.2 Eventually, the 2 Mr. Blatt excepts to the hearing judge’s conclusion that he failed to communicate with the Peroutka firm about client files, but he provided no alternative account of that relationship.

He argues that he had health issues during his firm’s demise and that he should not be held responsible for the firm’s woes. This argument appears to be more a matter of mitigation than a defense to the allegations of misconduct. 5 arrangement fell through and two longtime employees of Mr. Blatt’s debt collection practice helped him move his files from the Peroutka firm to his home in early May 2015. Financial Mismanagement Mr. Blatt’s mismanagement of, and misappropriation from, certain accounts at the Margolis firm during its decline is at the core of many of the charges against him. Revere Bank, as a condition of providing a loan to the Margolis firm, had required that the firm move its accounts to the bank.

As a result, the debt collection practice maintained its accounts at Revere Bank. The firm’s loan from Revere Bank was repaid by means of debits charged to the firm’s operating account. Mr. Blatt had signature authority with respect to the firm’s bank accounts, as did Mr. Pritzker and Sharon Blatt. Britni MacDonald was the financial manager at the Margolis firm for the last three years of its existence and later moved with Mr. Blatt to the Peroutka firm.

At the Margolis firm, she was supervised by Sharon Blatt. She was familiar with the flow of funds collected by the firm for its clients and described those practices at the hearing in this case.3 The firm maintained several accounts as repositories for collected debts. Funds collected for larger clients were deposited into accounts specifically designated for each of those clients. Funds collected for smaller, less lucrative clients were aggregated in an account called the “General Collections Account,” which Ms. MacDonald characterized as “a catch-all account.” According to Ms. MacDonald, within a day after collected funds 3 Mr. Pritzker also testified at the hearing, as did a representative of the Peroutka firm.

Bar Counsel also presented the testimony of representatives of four clients who had filed complaints about Mr. Blatt. Mr. Blatt testified on his own behalf. 6 were deposited into one of these accounts, she would withdraw the portion of the amount collected that equaled the firm’s legal fee. The remainder of collected funds would be remitted from these accounts to clients, along with a detailed accounting, on a weekly basis for larger clients and on a monthly basis for smaller clients. Although the General Collections Account received and held client funds, it was not established as an attorney trust account.

Ms. MacDonald testified that she was directed – on various occasions by Mr. Blatt, Mr. Pritzker, or Sharon Blatt – to “borrow” money from these accounts on behalf of the firm when the firm needed money for payroll or its other bills. As a result, the General Collections Account sometimes had insufficient funds to pay the monthly remittances to all of the firm’s smaller collections clients. Ms. MacDonald would receive instructions from Sharon Blatt, who had consulted with Mr. Blatt and Mr. Pritzker, as to which clients would be paid and which would not. When the Margolis firm began experiencing severe financial distress in 2014, it opened an account entitled the “General Collections II Account,” which was labeled an escrow account and which was not subject to being debited by Revere Bank for repayment of the firm’s loan.

Although labeled an “escrow” account, the General Collections II Account was not established and maintained as an attorney trust account. Rather, it functioned more as an operating account. At times, client funds were transferred from the General Collections Account to the General Collections II Account. 7 At the end of May 2015, more than $50,000 remained in the General Collections Account. According to Ms. MacDonald, those funds consisted entirely of client funds, as legal fees related to those collections had already been removed from the account.

In June 2015, Sharon Blatt made an electronic transfer of $24,500 from the General Collections Account to the General Collections II Account. At approximately the same time, Mr. Blatt issued a check drawn on General Collections II Account to “Stuart Blatt and/or Blatt Law.” The money was deposited into an account at PNC Bank in the name of “Blatt Law Group, LLC.” The PNC account was not designated an attorney trust account. According to Mr. Blatt, he moved the funds from Revere Bank to the PNC account to avoid the possibility that Revere Bank would claim those funds to offset the firm’s debt to Revere Bank. Mr. Blatt testified at the hearing that Ms. MacDonald had told him that the $24,500 all related to the firm’s attorney’s fees.

The hearing judge did not find this testimony credible, in light of Ms. MacDonald’s testimony that attorney’s fees were withdrawn from collected debt funds within a day or so of each deposit into the General Collections Account.4 4 Mr. Blatt excepts to this finding concerning his credibility. He asserts that the account at PNC Bank was an operating account and that, like the General Collections II Account, it was created to avoid the funds being attached by Revere Bank. Of course, it is the hearing judge’s role to decide whether or not to credit a particular witness or particular testimony. Attorney Grievance Comm’n v. Page, 430 Md. 602, 627 (2013).

In any event, even if Mr. Blatt’s motive was to render the funds less susceptible to attachment by a creditor of the firm (i.e., Revere Bank), that does not contradict the hearing judge’s finding that those funds were client funds and that Mr. Blatt was responsible for the handling of the funds collected on behalf of the firm’s clients. 8 Shortly after the transfer of funds from Revere Bank to the PNC account, the Margolis firm defaulted on its loan from Revere Bank. In September 2015, Revere Bank closed various accounts of the firm at the bank, including the General Collections Account, the General Collections II Account, and the firm’s Interest on Lawyer Trust Account (“IOLTA account”), and applied the remaining funds against the firm’s liability for its loan from the bank.5 Mr. Blatt has taken no action to recover any client funds that may have been in those accounts. Mishandling of Client Matters Testimony and evidence introduced at the hearing concerned four specific incidents in which the firm’s clients were harmed by Mr. Blatt’s misconduct. Two of those incidents involved complaints that Mr. Blatt, or attorneys supervised by him, had garnished the wages of a debtor on behalf of a client without remitting the proceeds to the client.

In one of those incidents, the judgment against the debtor was allowed to expire without being renewed, thereby exposing the client to liability to the debtor for a wrongful garnishment. In another incident, Mr. Blatt and attorneys under his supervision failed to file lawsuits on behalf of a client before the pertinent statute of limitations expired and failed to return funds advanced by the client for filing fees related to those cases. A fourth complaint related to Mr. Blatt’s failure to remit amounts collected from a debtor on behalf of a client to that client. 5 The bank collected $371.90 from the General Collections Account, $6,613.43 from the General Collections II Account, and $1,107.48 from the firm’s IOLTA accounts. 9 (1) Complaint of Harvard Drug Group Before its acquisition in 2015 by another company, Harvard Drug Group, LLC, was a Michigan company that distributed prescription and over-the-counter medications to pharmacies, physicians, and other healthcare entities. In 2000, Harvard Drug Group retained Mr. Blatt in a collection matter involving one of its Maryland customers, Alvin Perkins.

On behalf of Harvard Drug Group, Mr. Blatt filed suit against Mr. Perkins, individually and trading as Neighborhood Pharmacies, in the Circuit Court for Prince George’s County. On December 8, 2000, he obtained a judgment in favor of Harvard Drug Group that included $108,521.20 for the principal, $15,092.65 for prejudgment interest, and $16,278.18 for attorney’s fees, plus costs and post-judgment interest. Mr. Blatt began garnishing wages of Mr. Perkins, who then worked for CVS Pharmacy, Inc. Mr. Blatt’s firm regularly forwarded the garnished funds to Harvard Drug Group every two or three months, accompanied by an accounting that explained the disbursement. By 2012, the payments forwarded by Mr. Blatt’s firm became more sporadic.

On October 15, 2014, Harvard Drug Group received three checks totaling $9,171.34 in one envelope from Mr. Blatt. The three checks were drawn on the General Collections Account under Mr. Blatt’s signature and related to funds garnished from Mr. Perkins’ wages during the period between December 2013 and July 2014. Following receipt of those checks, Harvard Drug Group received no additional payments from Mr. Blatt with respect to the Perkins matter. However, Mr. Blatt’s firm continued to garnish Mr. Perkins’ wages and deposited a total of $7,100.83 into the General Collections Account. 10 In the meantime, the judgment against Mr. Perkins had expired as Mr. Blatt had taken no action to renew the judgment.

In July 2015, Mr. Perkins filed a motion to end the garnishment because the judgment had expired. Mr. Blatt was mailed a copy of the motion at his firm’s former address, although it is unclear whether Mr. Blatt received that copy as he had not updated the court as to his address. In any event, Mr. Blatt did nothing to oppose the motion, to renew the judgment, or to inform Harvard Drug Group. On October 16, 2015, the Circuit Court for Prince George’s County granted Mr. Perkins’ motion.

As part of that ruling, the court ordered Harvard Drug Group to return all amounts garnished from Mr. Perkins’ wages since October 2014. When no payment was forthcoming, Mr. Perkins sought a judgment against Harvard Drug Group for $14,000 plus costs and attorney’s fees. This motion was sent to Mr. Blatt and to Harvard Drug Group’s general counsel in Michigan. When Harvard Drug Group sought to contact Mr. Blatt, they could not find him.

Harvard Drug Group never received any of the funds garnished by Mr. Blatt from Mr. Perkins’ wages after October 2014. The company ultimately settled with Mr. Perkins concerning the funds garnished from him after expiration of the judgment by paying him $15,000 plus $5,000 for attorney’s fees. Mr. Blatt did not make any restitution to Harvard Drug Group with respect to those payments. Mr. Blatt never informed Harvard Drug Group that the Perkins judgment had expired without being renewed and that his firm had continued to garnish Mr. Perkins’ wages on its behalf after October 2014.

Nor did he inform Harvard Drug Group that the Margolis firm had closed, that he was planning to join the Peroutka firm, or that his 11 relationship with the Peroutka firm was later terminated. He failed to provide Harvard Drug Group with a client file or a full accounting of his firm’s work on the Perkins case.6 (2) Complaint of Doris Mayer On August 25, 2011, Doris Mayer obtained a judgment of $16,100.45 against Carter Tuck in a Virginia state court. The attorney who represented her in that case garnished Mr. Tuck’s wages and collected part of the judgment on her behalf but passed away before the matter was completed. After the attorney died, his secretary forwarded Ms. Mayer’s file to an attorney in the Virginia office of Mr. Blatt’s firm.

In August 2014, the firm began attempting to collect the remaining debt from Mr. Tuck. From November 2014 to February 2015, the firm received seven checks totaling $1,102.36 that represented funds garnished from Mr. Tuck’s wages. The checks were deposited in the General Collections Account, but Ms. Mayer was not informed that the checks had been received and none of the funds were sent to Ms. Mayer. Ms. Mayer made at least 20 calls to the firm inquiring about her case, but never was able to speak to an attorney at the firm.

She requested her file on numerous occasions. Ms. Mayer subsequently retained another attorney, Charles Krumbein, to obtain information about her case. On April 20, 2015, while Mr. Blatt’s collections practice was 6 Mr. Blatt excepts to the finding by the hearing judge that he was responsible for the mishandling of the Perkins matter. It was undisputed that Mr. Blatt had originally filed the collection case when he had his own practice and brought the case with him when he moved to the Margolis firm.

Moreover, the hearing judge was entitled to credit the testimony of Britni MacDonald, the firm’s financial manager, that Mr. Blatt was responsible for and active in managing the General Collections Account. Mr. Blatt’s stamped signature was on all the checks sent to Harvard Drug Group. 12 working out of the office of the Peroutka firm, a check drawn on the General Collections Account was sent to Ms. Mayer in the amount of $826.76. Mr. Blatt’s stamped signature was on the check. No explanation was provided to her with the check.

On May 4, 2015, Mr. Krumbein wrote Mr. Blatt to inform him that Mr. Krumbein now represented Ms. Mayer, to request her file, and to demand an accounting. No file or accounting was ever provided, and throughout the process neither Mr. Blatt nor any other attorney from his collections practice ever spoke to Ms. Mayer about her case or informed her that the firm was closing.7 (3) Complaint of Montgomery County Employees Federal Credit Union The Montgomery County Employees Federal Credit Union (“the credit union”) provides banking and financial services to its members – county employees and their families. In 2007, the credit union entered into an agreement with Mr. Blatt’s firm to represent it in collection matters. When the credit union would refer a new matter to the firm, the firm would send an acknowledgment signed by Mr. Blatt.

Checks to the credit union representing amounts collected were likewise signed by Mr. Blatt. Through 2014, the firm made regular disbursements to the credit union, each with an accompanying report detailing the debts collected. 7 Mr. Blatt excepts to the hearing judge’s finding that he was responsible for the mishandling of Ms. Mayer’s collection case, noting that he is not a member of the Virginia bar. The testimony of Mr. Pritzker and Ms. MacDonald, however, provided clear and convincing evidence, if believed by the hearing judge, to support the finding that Mr. Blatt was the supervisor of the firm’s collections practice, including the Virginia office. There also appears to be no dispute that the Virginia office of the firm was devoted exclusively to collection matters. 13 On January 28, 2015, the firm sent the credit union a check under Mr. Blatt’s signature drawn on the General Collections Account in the amount of $2,933.06.

Accompanying that check was a “Combination Disbursement and Collection Report” for the period August 6, 2014 through January 16, 2015, which indicated that the firm had collected payments from eight debtors of the credit union during that period. After this payment, Mr. Blatt’s firm sent no additional disbursements or accountings to the credit union. However, the firm continued to collect debts owed to the credit union. In particular, the firm received four additional checks payable to Mr. Blatt from Nathaniel Butler, a debtor of the credit union, in the amount of $200 each over the period from February 2015 to April 2015.

The firm also received a check on behalf of Carlos Gomez, another debtor of the credit union, payable to the firm in the amount of $60. All of these checks were deposited into the firm’s General Collections Account, but no payment or accounting was ever sent to the credit union.8 Mr. Blatt never told the credit union that the Margolis firm had closed, nor did he ever apprise the credit union of his plan to join the Peroutka firm. At the time that the Margolis firm went out of business, it was pursuing approximately 200 collection matters 8 Mr. Blatt excepts to the finding that he was responsible for the funds sent to his firm by the credit union’s debtors that were not paid over, or even accounted for, to the credit union. It was essentially undisputed that Mr. Blatt was in charge of the collections practice, including the General Collections Account.

It was Mr. Blatt’s responsibility to account to the credit union for the funds obtained on its behalf and to inform the credit union that the Margolis firm had closed and that he had moved the collections practice to another law firm. 14 for the credit union. Only five of these accounts were transferred to the Peroutka firm before that firm ended its relationship with Mr. Blatt. Mr. Blatt never provided any files, updates, or accountings to the credit union regarding the status of the credit union’s accounts assigned to the Margolis firm at the time the firm closed.9 When a new collections specialist took over at the credit union in January 2016, she attempted to locate Mr. Blatt, but was unable to find him. The hearing judge found that Mr. Blatt’s failure to provide information to the credit union impaired the credit union’s ability to