Attorney Grievance v. Nichols

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Attorney G rievance C ommis sion of M aryland v . Ernest S. N ichols AG No. 25, September Term, 2007 HEADNOTE: Indefinite suspension is the appropriate sanction for a respondent who did not seek prop er authoriza tion of the B ankruptcy C ourt befor e taking his fee from a financial settlement, which was property of his client s bankruptcy estate. In the Circu it Court for B altimore C ounty Case No. C-07-009722 IN THE COURT OF APPEALS OF MARYLAND Misc. Docket AG No. 25 September Term, 2007 ATTORNEY GRIEVANCE COMMISSION OF MARYLAND v. ERNEST S. NICHOLS Bell, C.J. Harrell Battaglia Greene Murphy Raker, Irm a S. (Retired , Specially Assigned) Cathell, D ale R. (Retire d, Specially Assigned) JJ. Opinion by Greene, J. Raker, J., Dissents. Filed: June 17, 2008 The Attorney Grievance C ommission of M aryland ( Petitioner ), acting through Bar Counsel and pursuant to M aryland Rule 16-751 (a), 1 filed a Petition For Disciplinary or Remed ial Action a gainst Res ponden t, Ernest S. Nichols on August 14, 2007. The Petition alleged that Respondent, who was admitted to the Bar of this Court on December 13, 1995, violated Rules 1.1 (Com petence), 2 1.3 (Diligence), 3 1.5 (Fees), 4 1.15 (Safekeeping Property),5 1 Maryland R ule 16-75 1 (a) provid es in pertinen t part: (a) Commencement of disciplinary or remedial action. (1) Upon approval of [the Attorney Grievance] Commission. Upon approval or direction of the [the Attorney Grievance] Commission, Bar Counsel shall file a Petition for Disciplinary or Remedial A ction in the Court of Ap peals. 2 MRPC 1 .1 provides: A lawyer shall provid e compe tent represen tation to a clien t. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. 3 MRPC 1 .3 provides: A lawyer shall ac t with reaso nable diligence and pro mptness in representing a client. 4 MRPC 1 .5 (a) provides: A lawyer shall no t make an agreeme nt for, charg e, or collect an unreason able fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following : (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perfo rm the legal service properly; (continued...) (...continued) (2) the likelihood, if apparent to the client, that the acceptance of the particular employme nt will preclude other emp loyment of the lawyer; (3) the fee cus tomarily charg ed in the loc ality for similar legal services; (4) the amount involved and the results obtained; (5) the time limitations imposed by the client or by the circumstances; (6) the nature and length of the professional relationship with the client; (7) the exp erience , reputati on, and ability of the lawyer or lawyers performing the services; and (8) wheth er the fee is f ixed or con tingent. 5 MRP C 1.15 pr ovides in re levant part: (a) A lawyer sh all hold prop erty of clients or th ird persons that is in a lawyer's possession in connection with a representation sepa rate from the lawyer's own property. Funds shall be kept in a separate account maintained pursuant to Title 16, Chapter 600 of the Maryland Rules. Other property shall be identified as such and appropriately safeguarded. Complete records of such account funds and of other property shall be kep t by the lawyer an d shall be preserved for a period of five years after termination of the representation. (b) A lawyer must deposit the lawyer s own funds in a client trust account for the sole purpose of paying bank service charges on that accou nt, but o nly in an a moun t necess ary for tha t purpo se. (c) Unless the client gives in formed c onsent, con firmed in w riting, to a different arrangement, a lawyer shall deposit into a client trust account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred. (d) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this Rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a fu ll accounting regarding such prop erty. (e) When in the course o f represen tation a law yer is in possession of (continued...) -2- 1.16 (d) (Declining or Terminating Representation),6 Rule 8.1 (b) (Bar Admission and Disciplinary Matters), 7 and 8.4 (c) (M isconduc t)8 of the Maryland Rules of Professional (...continued) property in which two or more persons (one of whom may be the lawyer) claim interests, the property shall be kept separate by the lawyer until the dispu te is resolved. T he lawyer shall promp tly distribute all portions of the prop erty as to which the interests are not in dispute. 6 MRPC 1.16 (d) provides Upon termination of representation, a lawyer shall take steps to the extent rea sonably practic able to protect a client s interests, such as giving reas onable no tice to the client, allowing time for employment of other co unsel, surren dering pap ers and pro perty to which the client is entitled and refunding any advance payment of fee or expense that has not been earned or incurred. The lawyer may retain papers relatin g to the client to the extent permitted by other law. 7 MRP C 8.1 pro vides in relev ant part: An applicant for admission or reinstatement to the bar, or a law yer in connection with a bar a dmission a pplication or in connection with a disciplinary ma tter, shall not: *** (b) fail to disclose a fact necessary to correct a misapprehension known by the person to have arisen in the matter, or knowin gly fail to respond to a lawful demand for information from an admissions or disciplinary authority, except that this Rule does not require disclosure of information otherwise protected by Rule 1.6. 8 MRPC 8 .4, in relevant part, provides: It is professional misconduct for a lawyer to: *** (c) engage in conduct involving dishonesty, fraud, deceit or misrep resenta tion[.] -3- Conduct ( MRPC ) during his representation of Charles Caralle in connection with a personal injury claim and in Chapter 7 bankruptcy proceedings. Pursuant to Maryland Rules 16-752 (a)9 and 16-757 (c), 10 we referred the matter to the Hon orable La wrence R . Daniels of the Circuit Court for B altimore County to condu ct an evidentiary hearing and to submit to this Court proposed findings of fact and conclusions of law. Respondent did not answer the Petition, as req uired by M aryland Rule 16-754,11 and, therefore, an Order of Default was 9 Maryland Rule 16-752 (a) states: (a) Order. Upon the filing of a Petition for Disciplinary or Remedial Action, the Court of Appeals may enter an order designating a judge of any circuit court to hear the action and the clerk responsible for maintaining the record. The order of designation shall require the judge, after consultation with Bar Counsel and the a ttorn ey, to enter a scheduling order defining the extent of discovery and setting dates for the completion of discovery, filing of motions, and hearing. 10 Maryland R ule 16-75 7 (c) states in p ertinent part: (c) Findings and conclusions. The judg e shall prepare and file or dictate into the record a statement of the judg e s finding s of fact, including findings as to any evidence regarding remedial action, and conclusions of law. 11 Maryland Rule 16-754, entitled Answer, states: (a) Timing; contents. Within 15 days after being served with the petition, unless a different time is ordered, the respo ndent sha ll file with the designated clerk an answer to the petition and serve a copy on the petitio ner. Sections (c) and (e) of Rule 2-323 apply to the answer. Defens es and ob jections to the petition, includ ing insufficiency of service, sh all be stated in the answer and not by preliminary motion. (b) Procedural defects. It is not a defe nse or grou nd for ob jection to (contin ued...) -4- entered against him and the matter was schedu led for a n evide ntiary hea ring. See Maryland Rule 2-613 (b). 12 Although notified by the clerk of the court that the order of default had been e ntered, see Maryland Rule 2-6 13(c), 13 Respon dent did not mov e to vacate the order, as allowed by Rule 2-61 3(d). 14 Respondent, however, did appear at the December 20, 2007 11 (...continued) a petition that procedural defects may have occurred during disciplinary or remedia l proceedin gs prior to the filing of the petition. (c) Failur e to an swe r. If the time for filing an answer has expired and the respondent has failed to file an ans wer in acc ordance w ith section (a) of this Rule, the court shall treat the failure as a default and the p rovision s of R ule 2 -613 shall app ly. 12 Maryland Rule 2-613(b) provides: (b) Order of default . If the time for pleading has expired and a defendant has failed to plead as provided by these rules, the court, on written request of the plaintiff, shall enter an order of default. The request sha ll state the last kno wn add ress of the d efendan t. 13 Maryland Rule 2-613(c) provides: (c) Notice. Promptly up on entry of an order of d efault, the clerk shall issue a notice informing the defendant that the order of default has been entered and that the defendant may move to vacate the order within 30 days after its entry. The notice shall be mailed to the defendant at the address stated in the request and to the def endant's attorney of record, if any. The court may provide for additional notice to the de fenda nt. 14 Maryland Rule 2-613(d) provides: (d) Motion by defendant. The defendant may move to vacate the order of defau lt within 30 d ays after its entry. The motion shall state the reasons for the failure to plead and the legal and factual basis for the defense to the claim. -5- hearing.15 On January 29, 2008, Judge Daniels issued findings of fact and conclusions of law, in which he found that Respondent violated Rules 1.1, 1.3, 1.5 (a), 1.15 (a), 1.15 (d) and (e), 1.16 (d), 8.1(b), but not Rule 8.4 (c). Judge Daniels findings of fact and conclusions of law read in pertin ent part: The Respon dent, Erne st S. Nichols, Esquire, is a member of the Maryland Bar, with an office in Bel Air, M aryland. Cha rles Caralle retained Mr. Nichols to represent him in connection with personal injuries sustained in an autom obile accide nt in 2003 . Mr. Cara lle subseque ntly retained Mr. Nichols to represent him to file a petition for d ischarge in ba nkru ptcy. Mr. Nichols prepared and filed the bankruptcy petition, which failed to identify the personal injury claim as an asset. M r. Nichols later disclosed the personal injury claim to the Bankruptcy Trustee, Bud Stephen Tayman, Esquire, at the meeting of creditors. Mr. Tayman's office wrote to Mr. Nichols on September 29, 2003, to determine the status of the personal injury case. On October 6, 2003, Mr. Nichols wrote to Mr. Tayman, stating that the case was still unsettled, that he believed that the medical bills exceeded the policy limits and tha t it was unlikely that Mr. Caralle would receive any money from the case. The Bank ruptcy C ourt disc harged Mr. Caralle's debts in la te 2003. Mr. N ichols negotiated a settlement for policy limits, which was, in fact, $100,000.00. Mr. Caralle signed a release on January 23, 2004. Mr. Taym an wrote to Mr. N ichols on February 29, 2004, inquiring about the status of the case. On M arch 15, 2004, M r. Nichols replied to Mr. Tayman, informing him that the case had 15 The averments contained in the Petition For Disciplinary or Remedial A ction were admitted at the hearing, and Respondent was not permitted to deny or contradict the averments. See Maryland Rule 2-323 (e). Respondent, however, contested Bar Counse l s proposed conclusion of law concerning Rule 8.4 (c ). Upon considering Responden t s argument regarding his conduct and Rule 8.4 (c), the hearing judge concluded that Responden t s conduct did not violate R ule 8.4 (c). -6- settled for $100,000.00, that he disbursed $43,279.29 to himself for attor ney's fees and expenses, and that he disbursed $ 30,000.00 to M r. Caralle. He stated that he retained the remaining portion of the settlement proceeds in his escrow account to pay medical bills. The Bankru ptcy Trustee m ade severa l attempts to discuss this matter with Mr Nichols. He informed Mr. Nichols that the proceeds of the settlement of the personal injury claim were an asset of the Bankruptcy estate and that Mr. Nichols could not take a fee without approval of the B ankrup tcy Cour t. Mr. Taym an believed that M r. Nichols should have turned over the remaining funds to him. Mr. Caralle discharged Mr. Nichols in August 2005, and directed him to send a cop y of his file to Ca ralle 's new attor ney, Thomas Dolina, Esquire. Mr. Nichols claims he sent the file to Mr. Dolina on Febru ary 21, 2006. M r. Caralle filed a malprac tice suit against Mr. Nichols. In April 2006, he filed a complaint with the Attorney Grievance Commission. Mr. Nichols forwarded a check to Mr. Tayman in the amount of $33,962.38 on August 31, 2006, representing the funds retained from the settlement proceeds. Although Mr. Tayman has repeate dly explained that Mr. Nichols is not entitled to his attorney's fee without approval of the Bankruptcy Court, Mr. Nichols did not return that fee. Attorney Grievan ce Com mission Inv estigator, Sterling H. Fletcher, interviewed Mr. Nic hols on A ugust 23, 2 006. At that meeting, Mr. Fletcher asked Mr. Nichols to produce records concerning his escrow account and the transactions related to Mr. Caralle's case. M r. Nichols promised to submit the documents by September 16, 2006. Assistant Bar Co unsel wro te to Mr. N ichols on O ctober, 11, 2 006, to request the re cords. M r. Nichols fa iled to respon d to that requ est. The Petitioner alleges that Mr. Nichols violated Maryland Rules of Professional Cond uct 1.1 ( comp etence ), 1.3 (diligen ce), 1.5 (a) (fees), 1.15 (safekeeping of property), 1.16 (d) (declining or terminating representation), 8.1 (b) (bar admission and disciplinary matters) and 8.4 (c) (miscon duct). Mr. Nichols failed to com petently represent his client, Mr. Caralle, by failing to include his personal injury claim as an asset when he prepared the bankruptcy petition, by failing to notify the Bankruptcy Trustee of the settlement before funds were disbursed, and by disbursing a large portions of the settlement funds when the Bankruptcy Trustee had a claim to the funds. Respondent's conduct violated R ule 1.1 of th e Maryland Rules of Profession al Condu ct. -7- At several points in the representation, Respondent failed to act diligently on behalf of his client in violation of Rule 1.3. He did not promptly notify the Tru stee of the se ttlement of th e persona l injury case. He took a year and a half to deliver the retained funds to the Trustee. He did not respond to the Trustee's messages. He took an inordinate amount of time to forward the client's file to new counsel. Respondent's fee was unreasonable, in violation of Rule 1.5(a) of the M aryland Rules of Professional Conduct. Respondent was required to obtain permission of the Bankruptcy Cou rt before taking a fee from the settlement proceeds. He failed to obtain that permission and did not return the fee. Respondent failed to notify promptly the Bankruptcy Trustee that he had received the settlement funds even though he w as aware of the claim of the bankru ptcy estate. He d isbursed $3 0,000.00 to his client despite the Trustee's claim to those funds. He disbursed attor ney's fees and costs to himself even though his fee had not been approved. He then retained over $33,000 for a year and a half before turning the funds over to the Trustee. By this conduct, Respondent violated Rule 1.15 (d) an d (e). Respondent violated Rule 1.16 (d) of the Maryland Rules of Professional Conduct by failing to forw ard the client's file to his new attorney f or a per iod of s ix mon ths. Respondent violated Rule 8.1 (b) by failing to produce bank records regarding his handling of the settlement funds despite the requests of the Commission Investigator and Assistant Bar Counsel Respondent is alle ged to ha ve en gaged in acts of disho nesty, deceit and misrepresentation in violation of Rule 8.4 (c) of the Maryland Rules of Prof essional C onduct. H is initial failure to disclose the existence of the personal injury claim appears to have been inadvertent since he disclosed the claim to the Trustee at the meeting of creditors. The Respondent believed th at the policy limits would be insufficien t to cover his c lient's medical b ills when he made that representation to the Trustee. After he made that representation and obtained h is clien t's dis char ge in bankrup tcy, Respondent failed to inform the Trustee that he was settling the cas e for a sub stantially larger amount u ntil after he m ade the im proper disb ursemen ts to himself and his clien t, and then o nly afte r the Trustee mad e an i nquiry. The Court find s that there is no t clear and co nvincing e vidence to establish that R esponde nt's conduc t, under these circumstances, was dishonest or deceitful. According ly, the Court finds that Respondent -8- did not violate Rule 8.4. In summary, this [c]ourt finds by clear and convincing evidence that the R espon dent, E rnest S. N ichols, E squire, violated Rule 1.1, 1.3, 1.5 (a), 1.15 (d) and (e), 1.16 (d), 8.1 (b) of the Marylan d Rule s of Pro fession al Con duct. Neither Respondent nor Bar Counse l filed exceptions to the hearing c ourt s findings of fact or conclusions of law . Thus, pursuant to M aryland Rule 16-759 (b )(2),16 we elect to treat the findings of fact as established for the purpose of determining appropriate sanctions, if any. See Attorney Grievance Comm ission v. Elmendorf, 404 Md. 353, 360, 946 A.2d 542, 546 (2008); Attorney Grievance Commission v. Logan, 390 Md. 313, 319, 888 A.2d 359, 363 (2005). After a review of the record, we are satisfied that the hearing judge s findings of fact are not clearly erro neous . See Attorn ey Grieva nce Com mission v. D unietz, 368 Md. 419, 428, 795 A.2d 706, 711 (2002) (noting that despite neither the respondent nor Bar Counsel taking exceptions to the hearing judge s factual find ings, the Co urt shall review the factual findings to ensure that they are not clearly erro neous ). Moreover, up on a our de novo review of the hearing court's conclusions of law, we hold that the conclusions of law are supported by clear and convincing evidence. Maryland R ule 16-759 (b)(1); 17 Dunietz, 368 Md. at 428, 16 Maryland R ule 16-75 9 (b)(2) pro vides in relev ant part: (B) Revie w by Cour t of Ap peals. *** (2) Findings of Fact. (A) If no exceptions are filed. If no exceptions are filed, the Court may treat the findings of fact as established for the purp ose o f det ermining approp riate sanc tions, if a ny. 17 Maryland R ule 16-75 9 (b)(1) pro vides: (contin ued...) -9- 795 A.2d at 711. We are thus left only to resolve the question as to the appropriate sanction to be imposed. Bar Counsel recommends an indefinite suspension. Bar Counsel contends that Responden t s unauthor ized taking of a fee w ithout appro val of the B ankruptcy C ourt is analogou s to the taking of a fee from an estate w ithout com plying with the relevant statu te or obtaining permis sion of the Orp hans C ourt. Bar Counsel then points to several recent cases where we indefinitely suspended an attorney for the unauthorized taking of fees without appropriate judicial approval: Attorney Grievance Commission v. Kendrick, 403 Md. 489, 943 A.2d 11 73 (2008); Attorney Grievance Commission v. Seiden, 373 Md. 409, 818 A.2d 1108 (2003); Attorney Grievance Commission v. Thompson, 376 Md. 500, 830 A.2d 474 (2003); Attorney Grievance Commission v. Eisenstein, 333 Md. 464, 635 A.2d 1327 (1994). Respondent makes no recommendation as to sanction; however, he does request that we take into co nsideration the pote ntial hardship a suspens ion wou ld have on his family becau se he is th e sole p rovide r. It is well settled th at our obliga tion in disciplin ary matters is to protect the public and maintain the public s c onfidenc e in the legal system rather than to punish the attorney for miscon duct. Attorney Grievance Commission v. Ward, 394 Md. 1, 32-33, 904 A.2d 477, 17 (...continued) (B) Review by Court of Appeals. Conclusions of law. The Court of Appea ls shall review de nov o the circuit court judge s conclusions of law. -10- 496 (2006). This Court s goal when imposing sanctions[,] is to maintain the integrity of the legal profession and to prevent misconduct by other attorneys. Id. at 33, 904 A.2d at 496. The severity of the sanction depends on several things, including the circumstances of each case, the intent to which the acts were committed, the gravity, nature and effects of the violations as well as any mitigating factors. Id. To be sure, we have stated that the grav ity of miscond uct is not measured solely by the number of rules broken but is determine d largely by the lawyer s conduct. Attorney Grievance Commission v. Briscoe, 357 Md. 554, 568, 745 A .2d 103 7, 1044 (2000 ). Violations of the Rules stemming from the taking of fees without prior consent of the appropriate judicial authority has warranted both disba rments an d suspens ions in prior cases before this Court. In our most recent case, Attorney Grievance Commission v. Kendrick, 403 Md. 489, 943 A.2d 1173 (2008), we imposed an indefinite suspension because an attorney failed to seek Orphans Court approval prior to taking a fee and failed to properly administer the estate. In Attorney Grievance Commission v. Seiden, 373 M d. 409, 818 A.2d 1108 (2003), we imposed an indefin ite suspensio n, with leav e to reapply afte r thirty days, because an attor ney took his fee from the estate w ithout the permission of the O rphans Court. In Attorney Grievance Comm ission v. Thompson, 376 Md. 500, 830 A.2d 474 (2003), we imposed an indefinite suspension because an attorney mishandled the administration of an estate, failed to timely file reports and accounts, failed to pay estate taxes at the time of distribution, and failed to obtain prior approv al of the Orphan s Court before taking fees. In -11- Attorney Grievance Commission v. Sullivan, 369 Md. 650, 801 A.2d 1077 (2002), we disbarred an attorney who, as the personal representative of an estate, failed to administer the estate and took over $50,000 from the estate without prior approval of the Orphans Court. In Attorney Grievance Commission v. Owrutsky, 322 Md. 334, 587 A.2d 511 (1991), we suspended an attorney for three years for his careless and neglectful handling of an estate, his mishandling of estate fun ds, and his taking of fee s without prior court appro val. In Attorney Grievan ce Com mission v. E isenstein, 333 Md. 464, 635 A.2d 1327 (1994), we suspended an attorney for two years for taking a fee in a Longshore and Harbor W orkers Com pensat ion Ac t case be fore the fee ha d been approv ed by an a dminis trative law judge. Under the totality of the circumstances and in light of our relevant prior cases, we conclude that the appropriate sanction in the present case is an indefin ite suspensio n. In this case, the hearing judge concluded, and we agree, that Respondent s misconduct was due neither to dish onesty nor to c riminal con duct, but rather due to lack of diligence as well as incompetence in bankruptcy matters. Indeed, this is Re spondent s first disciplinary proceeding in over thirteen years of practicing law. Resp ondent ac knowle dges his misconduct as he agrees that he did not seek proper authorization from the Bankruptcy Co urt before taking his fee and did not follow federal bankruptcy law in his disbursement of the settleme nt awa rd to his c lient. We cannot say, ho wever th at he has tak en adequ ate steps to rem ediate his co nduct. It appears from the record, for e xample, tha t Respon dent has yet to se ek appro val of his -12- attorney s fee from the Bankru ptcy Court. 18 In addition, R esponde nt failed to co operate w ith Bar Counsel and the Attorney Grievance Commission in answering their demands for inform ation. The su spensio n shall c omm ence th irty (30) da ys after the filing of this Op inion. IT IS SO ORDERED. RESPONDENT SHALL PAY ALL COSTS AS TAXED BY THIS COURT, INCLUDING THE COST OF TRANSCRIPT S, PURSUANT TO MARYLAND RULE 16-761 FOR WHICH SUM JUDGM ENT IS EN TERED IN FAVOR OF THE ATTORNEY GRIEVANCE COMMISSION AGAINST ERNEST S. NICHOLS. 18 Mr. Caralle s personal injury claim became an asset of the bankruptcy estate when he filed his Chapter 7 petition on June 23 , 2003. 11 U.S.C . § 541 (a) (1 ); see also In re USinternetworking, Inc., 310 B.R. 274, 281 (Bankr. D. Md. 2004) (noting that courts have interpreted 11 U.S.C. § 541(a)(1) to include all causes of action that could be brought by a debtor ). Ordinarily, pursuant to 11 U.S.C. § 330, an attorney (or other professional), prior to deducting a fee from the proceeds of a settlement or judgment that is the property of a bankrup tcy estate, must first s ecure the b ankruptcy co urt s approv al. -13- In the Circu it Court for B altimore C ounty Case No. C-07-009722 IN THE COURT OF APPEALS OF MARYLAND Misc. Docket AG No. 25 September Term, 2007 ATTORNEY GRIEVANCE COMMISSION OF MARYLAND v. ERNEST S. NICHOLS Bell, C.J. Harrell Battaglia Greene Murphy Raker, Irm a S. (Retired , Specially Assigned) Cathell, D ale R. (Retire d, Specially Assigned) JJ. Dissenting Opinion by Raker, J. Filed: June 17, 2008 Raker, J., Dissenting: I would impose a suspension of thirty days.

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