In re Hyland

RAKER, Judge. Applicant seeks admission to the Bar of Maryland. We must decide whether the applicant presently possesses the requisite moral character to justify his admission. The applicant filed an application for admission to the Bar on July 1, 1993, and passed the July bar examination.

On his application, he disclosed that in 1986 he was convicted of fifteen counts of failure to file state sales tax returns 1 arising ⁵²³ from his operation of a restaurant in Philadelphia, Pennsylvania. He also disclosed that he had failed to pay Federal payroll withholding taxes in connection with the same restaurant operation. Rule 2 of the Rules Governing Admission to the Bar of Maryland requires every applicant to file with the State Board of Law Examiners (“Board”) an application that includes an authorization for release of confidential information pertaining to character and fitness for the practice of law to a Character Committee (“Committee”), the Board, and this Court. 2 If the Board determines that the applicant meets the pre-legal education requirements, the Board is required to forward the character questionnaire portion of the application to a Character Committee created by Rule 17. Rule 2(d).

Upon receipt of the character questionnaire, the Character Committee is required by Rule 5(b) to interview the applicant, verify the facts contained in the questionnaire, contact the references, make any further investigation it deems necessary or desirable, and then evaluate the applicant’s character and fitness for the practice of law. The Committee shall then transmit to the Board a report of its investigation and a recommendation as to the approval or denial of the application for admission. If the Committee concludes that there may be grounds for recommending denial of the application, it shall notify the applicant and schedule a hearing, on the record, affording the applicant the right to testify, present witnesses and to be represented by counsel. Rule 5(b)(2).

After the hearing, the Committee is required to transmit a written report to the Board and the applicant containing findings of fact on which its recommendation is based and a statement supporting the conclusion. Rule 5(b)(2). ⁵²⁴ Rule 5(c) provides that if the Board concludes that there may be grounds for recommending denial of the application, the Board must “afford the applicant the opportunity for a hearing on the record made before the Committee.” If the Board decides to recommend denial of the application, it shall give the applicant the opportunity to withdraw the application. Rule 5(c). If the applicant decides not to withdraw the application, this Court “shall require the applicant to show cause why the application should not be denied.” Rule 5(d).

Rule 5(a) sets forth the burden of proof in these proceedings: The applicant bears the burden of proving to the Character Committee, the Board and the Court the applicant’s good moral character and fitness for the practice of law. Failure or refusal to answer fully and candidly any question set forth in the application or any relevant question asked by a member of the Character Committee, the Board, or the Court is sufficient cause for a finding that the applicant has not met this burden. The applicant submitted his application for admission to the Bar in accordance with this procedure. Pursuant to Rule 5, his application was referred to the Character Committee for the Eighth Judicial Circuit.

After a hearing on February 24, 1994, the Committee unanimously determined that the applicant had met his burden to prove that he possesses the requisite moral character and fitness to practice law and, accordingly, recommended that the applicant be admitted to the Bar. The Committee concluded that the applicant “has accepted responsibility for the non-payment of the Pennsylvania sales tax and the Federal withholding taxes.” The Committee further found that [w]ith respect to the Pennsylvania tax liability, [applicant] served the required time in jail and has fully paid the taxes owed. Although the Federal tax liability is still outstanding and represents a considerable sum, [applicant] has con ⁵²⁵ firmed that, when gainfully employed, he intends to make serious efforts to discharge this obligation. [Applicant] appears to be a mature and sincere individual. He recognizes and appreciates his lack of judgment in failing to pay in a timely and diligent manner the Pennsylvania state sales taxes and the Federal withholding taxes during the ownership of his restaurant.

Noting that eight years had passed without any repetition of this conduct or similar conduct by the applicant, his honorable service in the California legal community during and following law school and his successful completion of law school, the Committee recommended the applicant be admitted to the Maryland Bar. The State Board of Law Examiners then held a hearing on the matter, pursuant to Rule 5(c). The applicant testified before the Board but presented no witnesses. A majority of the panel, with two members dissenting, recommended that the applicant not be admitted to the Maryland Bar.

The majority of the Board concluded that the applicant had failed to demonstrate the financial responsibility and integrity which are key elements of the character and fitness necessary for admission to the Maryland Bar. The applicant supplied ample evidence in his testimony that he does not appreciate the seriousness of the pattern of activities which gave rise to these proceedings. Troubling issues of candor and credibility are raised by much of his testimony. The Board identified specific evidence of these deficiencies in its report to this Court.

The Board found that 1) the applicant’s testimony before the Board substantially contradicted material elements of his testimony before the Character Committee, 2) the applicant’s testimony before both the Character Committee and the Board included inconsistencies and hedged or evasive statements, and 3) the applicant failed to provide clear and convincing evidence that he presently possesses the ⁵²⁶ good character and fitness necessary for admission to the Maryland Bar. The applicant elected not to withdraw his application. Pursuant to Rule 5(d)(1), we scheduled a hearing requiring the applicant to show cause why his application should not be denied. I. The applicant was born on October 15,1950, in Philadelphia, Pennsylvania.

He graduated from high school in 1968 and attended one semester of college before enlisting in the United States Air Force. Following an honorable discharge from the military, he returned to college and received a Bachelor’s, degree in 1977. He worked as a manager for several Philadelphia restaurants from 1978 to 1989. Thereafter, he attended law school in California and, in 1993, became a member of the Bar of that State.

He applied for admission to the Bar of Maryland on July 1, 1993, and passed the July 1993 bar examination. Final action on his application was deferred pending investigation of his moral character. The applicant pled guilty in the Court of Common Pleas of Dauphin County, Pennsylvania, on January 23,1986, to fifteen counts of failure to remit sales taxes in violation of Pennsylvania state law. The Commonwealth nolle prossed fifteen other counts.

The applicant also failed to remit to the federal government employee income tax withholdings in the mid-1980’s and owes the Internal Revenue Service approximately $125,000, composed of principal, penalties, and interest. The applicant's criminal conviction and related tax problems arose out of his management of the Hoffmann House, a restaurant in Philadelphia, Pennsylvania. In December 1979, the applicant and his father collaborated to purchase the restaurant, which was under bankruptcy protection at the time. Although the applicant’s father was the sole owner of the shares of the restaurant corporation, the applicant was solely responsible for managing the operations of the restaurant, including all bookkeeping, tax filings, and payments. ⁵²⁷ The applicant was required to remit monthly sales taxes to the Commonwealth of Pennsylvania and quarterly employee income tax withholdings to the Internal Revenue Service.

He filed the tax returns and remittances when the restaurant was profitable in the early 1980’s; thereafter, however, business at the restaurant declined. As revenues declined, the applicant failed to remit the sales taxes and corporate tax to Pennsylvania and the employee payroll withholding taxes to the I.R.S. and, eventually, he stopped filing tax returns. Following an audit of the restaurant records for the tax years 1983 to 1985, Pennsylvania authorities notified the applicant of the amount of sales taxes due and of the criminal penalties for failure to pay these taxes. He received notices of delinquency from Pennsylvania and the I.R.S. but ignored them; he explained that he hoped that business would improve in the future and enable him to bring the tax accounts current.

He was arrested and charged with criminal violations of the state code. In a written narrative that he submitted to the Board in support of his application, he explained: Although the State continued to give me notice of the criminal penalties for failure to file, I ignored their warnings as bureaucratic paper shuffling. I was, unfortunately, mistaken in my belief. H* Hi H« Hs H* I don’t wish to make any excuses for my improper actions while owner and manager of the Hoffmann House.

Looking back on those years, I realize I was simply overwhelmed by the daily activities of the restaurant business. In addition to acting as manager, responsible for all bookkeeping and accounting, I was the chef of the restaurant, cooking both lunch and dinner, six days a week. When the business turned out to be unprofitable, I was unwilling to face the obvious fact that the restaurant should be closed. On January 23, 1986, he pled guilty in the Court of Common Pleas of Dauphin County, Pennsylvania, to fifteen counts of the misdemeanor offense of failure to remit sales taxes from ⁵²⁸ May 1983 through July 1984.

He was sentenced to four to twelve months in Dauphin County Prison, Harrisburg, Pennsylvania, and was paroled because of prison overcrowding after serving forty-five days. He successfully completed probation, which required the payment of $19,365 in restitution for delinquent sales taxes. The Internal Revenue Service did not institute criminal proceedings but instead assessed penalties against the applicant for failing to remit employee income tax withholdings in the mid-1980’s. In the late 1980’s, the I.R.S. attempted to collect the debt through tax liens and wage garnishments.

According to the applicant, the I.R.S. considers this debt “uncollectible” pending his full-time employment and the scheduling of a payment plan. At the time of the hearing before the Board, the applicant’s debts exceeded $199,000, including roughly $125,000 due to the I.R.S.; $13,754 due to the Commonwealth of Pennsylvania; $54,703 due to the Student Loan Marketing Association; and approximately $6,000 in credit card debt. The applicant graduated from Western State University College of Law, located in San Diego, California, on December 20,1992 and received a degree of Juris Doctor. During these years, he served as an unpaid intern in the San Diego Superi- or Court pre-trial services unit, the San Diego Public Defender’s Office, and the San Diego City Attorney’s Office.

After graduation from law school and admission to the Bar of California, the applicant never worked full-time. His explanation for why he did not work was the poor job market and his expectation of moving to Maryland. While waiting for his California bar results, he was a law clerk for an attorney and, after his admission to that Bar, he continued to handle some of her cases. He performed volunteer legal services and represented a few clients, but he did “not establish a strong practice in San Diego because [he] felt that it was ethically improper to be taking on clients and then to ... pass them on to another attorney.” He financed his practice primarily through debt and, in 1993, earned about $3,000.

During the time he lived in California, he had no bank account in his name. In 1994, the ⁵²⁹ applicant and his wife moved to Maryland. At the time of the hearing before this Court, he was employed as a bartender in the District of Columbia. The applicant identifies several aspects of his life since his incarceration that he believes are evidence of his rehabilitation and present good moral character.

He states that he was a successful manager at the White Dog Cafe in Philadelphia from August, 1987 to August, 1989. He emphasizes his commitment to practice law and his hope that a legal career will provide him with the means to repay his debts. He mentions his nomination as a teaching assistant in law school and the experiences he gained working in several legal internships. He notes his membership in the California Bar and his performance of volunteer legal services.

Finally, he highlights the stabilizing effect of his marriage and the positive character recommendations that he has received from the White Dog Cafe, his internships, and a colleague in California.

II

The hearings before the Character Committee and the Board focused on the applicant’s failure to remit the taxes, his failure to reduce his obligation to the I.R.S., and the question of his financial responsibility. The Board found that the applicant’s testimony before both panels included material inconsistencies and evasive statements. We have reviewed the entire record and agree with the conclusions of the Board. The applicant offered several explanations for his failure to remit the taxes and stated that he never thought he would get away with not paying them.

Before the Board, he referred to the choices he faced when business at the Hoffmann House began to decline: “What I chose to do is honor my obligation to those who provided goods and services to the restaurant knowing fully that I was still obligated to pay back the taxes that I owed---- [I]t was the honorable and most moral” choice. Before the Committee, he indicated that operating the restaurant was “quite strenuous” and that the taxes were easy to disregard: “I was completely overwhelmed and tended to ⁵³⁰ ignore that which made the least noise. If they didn’t bother me, I didn’t bother them. I didn’t send them money and they didn’t bother me anymore, and I felt that things were okay.” In his view, Pennsylvania and the I.R.S. could recover their money from the equity in the restaurant.

The Board concluded that the applicant’s testimony was confusing and contradictory on material elements. As examples, the Board cited the applicant’s conflicting explanations before the Committee and the Board as to the amount of restitution paid to Pennsylvania to satisfy the sales tax obligation and the source of the monies. He told the Committee that he made restitution of the sales taxes from the proceeds of the sale of the Hoffman House in the amount of $30,000 and that nothing more was owed to the Commonwealth of Pennsylvania. He told the Board, however, that the $19,365 in restitution was paid by his father.

Contrary to what he told the Committee, the applicant produced for the Board a statement from the office of the Pennsylvania Attorney General indicating that, as of July 27, 1994, there was an outstanding liability in the amount of $13,754 attributable to the Hoffman House. Moreover, the Attorney General document reflects that the account has been referred to a collection agency, which is only done when the Department of Revenue can no longer locate the operator. 3 The Board found the applicant’s testimony conflicting and ambiguous as to whether there was any equity in the Hoffmann House. The applicant’s testimony with respect to the amount of equity in the restaurant was significant because he told the Committee that he satisfied part of the debt obligations from the equity. The Board found, however, that [i]f there were proceeds from equity in the restaurant, it remains unclear as to how much was involved ($30,000 or $19,000 or nothing?) and what happened to the money. ⁵³¹ The Board was very concerned about the applicant’s attitude toward his debts and concluded that the applicant’s failure to work for pay was to avoid garnishment.

His testimony before the Committee suggested that the I.R.S. was successful in obtaining some substantial tax payments through garnishment. The I.R.S. documents he presented to the Board, however, do not support this testimony. Rather, it appears that the I.R.S. was unsuccessful in using garnishment to reduce significantly the applicant’s tax debt. The Board found that the I.R.S. documents show no transactions for the period from August 1987 to August 1989 which reflect garnishment of the applicant’s wages at the White Dog Cafe.

The Board found that the documentation presented at the hearing “suggests that the applicant apparently stopped working at the White Dog Cafe before the I.R.S. collected any significant amount by garnishment.” The Board concluded that [c]omparing the applicant’s testimony before the Character Committee and the Board with the I.R.S. documentation he submitted to the Board creates an uncertain picture of the impact of the garnishment. The only thing that seems clear is that the applicant left Pennsylvania for law school in California in large measure to escape the garnishment. The Board also found that the applicant showed no commitment to pay the full amount of his debt to the I.R.S., which, at the time, amounted to about $114,000 and was accruing interest at twelve percent a year. Although the applicant testified before the Board that he intended to pay his entire I.R.S. debt, in describing the status of the debt, however, he recanted this