Office of Lawyer Regulation v. Linda C. Smith
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2008 WI 17 SUPREME COURT CASE NO.: COMPLETE TITLE: OF WISCONSIN 2006AP2112-D In the Matter of Disciplinary Proceedings Against Linda C. Smith, Attorney at Law: Office of Lawyer Regulation, Complainant, v. Linda C. Smith, Respondent. DISCIPLINARY PROCEEDINGS AGAINST SMITH OPINION FILED: SUBMITTED ON BRIEFS: ORAL ARGUMENT: SOURCE OF APPEAL: COURT: COUNTY: JUDGE: JUSTICES: CONCURRED: DISSENTED: NOT PARTICIPATING: ATTORNEYS: March 21, 2008 2008 WI 17 NOTICE This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports. No. 2006AP2112-D STATE OF WISCONSIN : IN SUPREME COURT In the Matter of Disciplinary Proceedings Against Linda C. Smith, Attorney at Law: FILED Office of Lawyer Regulation, Complainant, MAR 21, 2008 v. David R. Schanker Clerk of Supreme Court Linda C. Smith, Respondent. ATTORNEY disciplinary proceeding. Attorney's license suspended. ¶1 PER CURIAM. We review the referee Stanley F. Hack's recommendation that we suspend Attorney Linda C. Smith's license to practice law for a period of two years for professional misconduct. This matter involves 17 allegations of misconduct allegedly committed transaction. Attorney in connection with a failed business Neither the Office of Lawyer Regulation (OLR) nor Smith has appealed the referee's recommendation. No. Therefore, the matter is submitted to the court 2006AP2112-D for review pursuant to SCR 22.17(2).1 ¶2 In conducting our review we will affirm the referee's findings of fact unless they are clearly erroneous. See In re Disciplinary Proceedings Against Sosnay, 209 Wis. 2d 241, 243, 562 N.W.2d 137 (1997). law de novo. See We review the referee's conclusions of In re Disciplinary Proceedings Against Carroll, 2001 WI 130, ¶29, 248 Wis. 2d 662, 636 N.W.2d 718. In accordance with our authority to supervise the practice of law in this state, we determine the level of discipline that is appropriate under the particular circumstances, independent of the referee's recommendation, but benefiting from it. See In re Disciplinary Proceedings Against Widule, 2003 WI 34, ¶44, 261 Wis. 2d 45, 660 N.W.2d 686. ¶3 After independent review of the record, we adopt the referee's findings of fact and conclusions of law. Further, we agree with the referee's recommendation that Attorney Smith's license to practice law in this state be suspended for a period of two years. 1 We also conclude that Attorney Smith should pay SCR 22.17(2) provides: Review; appeal. (2) If no appeal is filed timely, the supreme court shall review the referee's report; adopt, reject or modify the referee's findings and conclusions or remand the matter to the referee for additional findings; and determine and impose appropriate discipline. The court, on its own motion, may order the parties to file briefs in the matter. 2 No. 2006AP2112-D restitution in one matter as set forth herein and should pay the full costs of this disciplinary proceeding. ¶4 Attorney Wisconsin in Smith 1998. was She admitted was to practice in suspended administratively law on November 1, 2004, for failure to pay state bar dues. administratively suspended for failure to complete She was mandatory continuing legal education (CLE) requirements on June 6, 2005. Both suspensions remain in effect. ¶5 The alleged misconduct in this matter derives from two grievances that were filed by three individuals who were all involved with Attorney Smith in a failed business venture to purchase and operate a restaurant. The first grievance was filed jointly by Dawn Schmidt (Schmidt) and Rose Bryan (Bryan). The second grievance was filed by Sandra Connell (Connell). ¶6 against On August 30, 2006, the OLR filed a 17-count complaint Attorney Smith. Attorney Smith was served with the complaint at her then-current address in North Carolina. filed an answer, disciplinary but has proceeding. not participated Eventually, a further default in judgment She this was granted, and the referee's report and recommendation was filed May 9, 2007. ¶7 Attorney The No appeal was filed. record Smith Neillsville, in before 2000, Wisconsin, to us when reflects Attorney practice law. that Schmidt Smith moved Schmidt Attorney Smith's office assistant in December 2000. met to became In the fall of 2001 Attorney Smith proposed to Schmidt that they purchase and operate a restaurant together called the Moonlite Supper 3 No. Club. They Peridot formed a Ventures, limited LLC, to liability undertake company this 2006AP2112-D (LLC) business called venture. Attorney Smith was one of the LLC members and served as attorney and accountant for the LLC. It is undisputed that she completed all the paperwork to create this entity. ¶8 an On October 22, 2001, Attorney Smith and Schmidt made offer to Connell (the realtor was purchase other Terry Moonlite grievant) Wulff in their represented (Wulff). individual the sellers. Counteroffers offers were made in the name of the LLC. names. and The amended The LLC was unable to obtain conventional financing, so the parties negotiated a land contract. setting Attorney Smith drafted and signed the amended offer forth these January 21, 2002. terms. The offer was accepted on Attorney Smith handled all the negotiations and drafted the land contract and closing statement for the deal, which closed on February 13, 2002. ¶9 The referee found that Schmidt had no money to invest in the LLC venture, and that it was Schmidt's understanding that Attorney explained Smith that would she advance would the work initial in the capital. restaurant Schmidt and that Attorney Smith would do everything else. ¶10 Attorney Smith and Schmidt ran the restaurant jointly for about a month, from February 14, 2002, until March 2002. In March 2002 Attorney Smith informed Schmidt that Attorney Smith needed to withdraw from the LLC. Attorney Smith told Schmidt that she would need to pay Attorney Smith $5,060 to compensate her for the money Attorney Smith had invested in the business. 4 No. 2006AP2112-D Attorney Smith told Schmidt that a judge was pressuring her to close some estates, and Attorney Smith needed the money so it could be put back in her trust account to close the estates. ¶11 Schmidt stated that she did not believe she had any choice but to buy Attorney Smith out. Accordingly, Schmidt borrowed $5,060 from her aunt and agreed to allow Attorney Smith to withdraw from the LLC. ¶12 After the buy out, Schmidt hired a certified public accountant to audit the financial condition of the restaurant. Schmidt was informed that Moonlite's business checking account had a negative balance of $13.56, that there was a total of $21,093.49 in cash not accounted for, and $3,777.51 in accounts payable due to vendors, as well as unpaid taxes, unpaid wages and $3,468.12 due to Connell for inventory. restaurant until August 2002 when she Schmidt ran the closed it due to insolvency. ¶13 Attorney Smith closed her Neillsville law office in December 2003 and left Neillsville the next month. ¶14 numerous As noted, the complaint filed by the OLR contained allegations questionable business of misconduct related transactions to involving a variety Attorney of Smith. These incidents will be discussed seriatim. Improper Administration of Estate. ¶15 improper The referee transactions found in that Attorney connection with Smith an engaged estate she in was administrating in Clark County circuit court, In the Estate of William M. Jones, No. 2001PR73. The decedent, Mr. Jones, had no 5 No. known heirs and his estate had minimal assets. Mid-Wisconsin Bank filed a claim against 2006AP2112-D In November 2001 the Jones estate because of a lien they held on a truck Mr. Jones had owned. February 6, 2002, Attorney Smith wrote trust account On check number 1137 in the amount of $1,475 to Mid-Wisconsin Bank to satisfy the bank's claim against the Jones estate. However, when she wrote this check, no funds from the Jones estate were on deposit in Attorney Smith's trust account. She later explained that she did not want the estate to lose the vehicle and that is why she satisfied the lien. ¶16 She apparently then told Bryan, Schmidt's mother, that she had purchased a truck for snowplowing (presumably for the restaurant), and asked Bryan to put the title for the truck in Bryan's name. Bryan refused. Attorney Smith eventually induced Schmidt to pay her $1,475 for the truck as part of the buy out of Attorney Smith's interest in the LLC. Failure to Pay Real Estate Commission. ¶17 The OLR alleged and the referee found that Attorney Smith breached an agreement to pay a real estate commission of $8,400 in connection with the restaurant purchase. Attorney Smith first asked Wulff, the real estate agent, if he would allow the LLC to delay paying his commission until the balloon payment on the land contract came due in one year. At that time, Wulff had a legal retainer agreement with Attorney Smith for his real estate business she was representing some of his clients in other ongoing real estate 6 matters. Nonetheless, No. 2006AP2112-D Attorney Smith neither reduced this payment agreement to writing nor obtained a written conflict waiver from Wulff. Failure to Pay for Inventory. ¶18 Smith The OLR's apparently complaint agreed alleged to pay further that the Connell, Attorney seller's representative, for the consumable inventory remaining at the restaurant at the time of purchase. closing statement, drafted by However, the land contract Attorney reference to Connell's inventory. Smith, contained no Before the closing, Attorney Smith, Schmidt, Connell and a few other individuals inventoried the consumable goods that would be transferred to the LLC. Attorney Smith had the inventory sheets before the closing and allegedly took them to her office to be typed. At Attorney Smith's request, Connell provided Attorney Smith with receipts for each of the items on the inventory. Attorney Smith later told the the OLR that inventory as it "Ms. was Connell her oversaw merchandise and counting she held of the all the invoices." ¶19 After the restaurant opened, Connell asked Attorney Smith several times for the inventory total and the amount owed to her. complete. Each time Attorney Smith told her it was not yet Connell never received payment for the consumable inventory she transferred to the LLC. Subsequent accounting indicated the consumable inventory totaled $3,468.12. Liquor License. ¶20 Bryan to According to the OLR complaint, Attorney Smith asked apply for the Class 7 B liquor license, ostensibly No. 2006AP2112-D because Attorney Smith had an OWI ordinance violation charge pending against her, and Schmidt had an old felony conviction. However, Attorney Smith told the OLR that she never spoke with Bryan about placing the liquor license in Bryan's name and asserted she told Schmidt it was Schmidt's responsibility to arrange for a liquor license. ¶21 Bryan stated that she applied for a liquor license at Attorney Smith's request on January 28, 2002. Valley approved the request, but a license The Town of Pine was not issued because Bryan withdrew her application after Attorney Smith told her that she had negotiated with Connell to leave the liquor license in Connell's name until it expired in June 2002. Attorney Smith later told the OLR that she did not know that the liquor license had remained in Connell's name until it expired in June 2002. Such an arrangement would be contrary to state law.2 Buy out. ¶22 On April 17, 2002, Schmidt and Bryan went to Attorney Smith's office to complete the buy out. 2 Attorney Smith did not Wisconsin Stat. § 125.04(1) provides that no person may sell alcoholic beverages without the appropriate license. The Moonlite restaurant operation required a retail Class B liquor license. Sections 125.04(13) and 125.66(1) provide for criminal penalties for violations of § 125.04(1). Wisconsin case law has interpreted § 125.04(1) to require the actual owner of the Class B premises to possess the license in his/her own name. See State v. Eastman, 148 Wis. 2d 254, 435 N.W.2d 278 (Ct. App. 1988). 8 No. advise Schmidt to obtain independent legal 2006AP2112-D advice regarding Schmidt's purchase of the LLC from Attorney Smith. ¶23 According to the OLR complaint, Attorney Smith prepared and presented Schmidt with a number of documents during the meeting. On Attorney Smith's advice, Bryan replace Attorney Smith as a member of the LLC. gave Schmidt two boxes that supposedly financial records for Moonlite. agreed to Attorney Smith contained all of the At the meeting, Attorney Smith commented to Schmidt and Bryan that she would now be able to put her clients' money back in her trust account. Trust Account Infractions. ¶24 The OLR alleged that Attorney Smith committed numerous trust account infractions, including using money from her trust account to cover various expenditures made in connection with the restaurant purchase, and using the proceeds obtained from Schmidt in the buy out to replace some of these funds. example, Attorney Smith used monies from her client account to pay the amount due at the land contract closing. For trust She also used monies from her client trust account to belatedly pay for the appraisal of the Moonlight property. buy out appeared check to that the pay back ledgers the in Jones those She used Schmidt's truck client loan. It also matters had been altered. Thiede Matter. ¶25 Smith also used funds from her client trust account belonging to Erwin Thiede to help finance the Moonlite purchase. Thiede, now deceased, was a client of Wulff's, the real estate 9 No. agent. 2006AP2112-D Thiede had listed several properties with Wulff to sell. Attorney Smith handled a real estate closing for Thiede in July 2001. in Attorney Smith held some of the proceeds from the buyer her trust clouding the account title. pending Wulff clearing secured up the liens that releases were from the judgment creditors himself in the fall of 2001 because Attorney Smith failed to do it. By December 2001 Wulff had completed all the work necessary to complete the real estate transaction. ¶26 On January 9, 2002, a balance of $4,294.99 remained in Thiede's account. Beginning in January of 2002 and continuing for several months, Thiede and Wulff began asking Attorney Smith for the balance of the proceeds due Thiede. Wulff asked Attorney Smith several times to disburse the balance, but she failed to do so. Thiede eventually withdrew two other properties he had listed for sale with Wulff, and Wulff lost Thiede as a customer. ¶27 On April 19, 2002, two days after Attorney Smith deposited Schmidt's $5,060 in her personal account, she wrote a personal check to "Client Trust" in the amount of $4,000 and deposited it in her trust account. The memo line on the check reads "Moonlite." ¶28 A few days after depositing the $4,000 check, Attorney Smith wrote trust account check number 1159 in the amount of $3,363.39 to Thiede for the balance of the proceeds due him. On April 22, 2002, Attorney Smith also wrote trust account check number 1157 in the amount of 10 $801.60 to the Clark County No. Treasurer to pay the balance of back property 2006AP2112-D taxes on the Thiede property, which had been due at the time of closing. ¶29 This matter proceeded as a default proceeding. Ultimately, the referee found that the OLR had sustained its burden of proof with respect to each of the 17 allegations of misconduct contained in the complaint. concluded that Attorney Smith As such, the referee committed the following former 20:1.15(a)3 misconduct: ¢ Two counts of violating SCR by failing to safeguard client funds. 3 Effective July 1, 2007, substantial changes were made to the Wisconsin Supreme Court Rules of Professional Conduct for Attorneys, SCR Chapter 20. See S. Ct. Order 04-07, 2007 WI 4, 293 Wis. 2d xv, 726 N.W.2d Ct.R-45 (eff. July 1, 2007); and S. Ct. Order 06-04, 2007 WI 48, 297 Wis. 2d xv, 730 N.W.2d Ct.R.-29 (eff. July 1, 2007). Because the conduct underlying this case arose prior to July 1, 2007, unless otherwise indicated, all references to the supreme court rules will be to those in effect prior to July 1, 2007. This reference to former SCR 20:1.15 applies to misconduct committed prior to July 1, 2004. Former SCR 20:1.15(a) provided: Safekeeping property. (a) A lawyer shall hold in trust, separate from the lawyer's own property, that property of clients and third persons that is in the lawyer's possession in connection with a representation or when acting in a fiduciary capacity. Funds held in connection with a representation or in a fiduciary capacity include funds held as trustee, agent, guardian, personal representative of an estate, or otherwise. All funds of clients and third persons paid to a lawyer or law firm shall be deposited in one or more identifiable trust accounts as provided in paragraph (c). The trust account shall be maintained in a bank, savings bank, trust company, credit union, savings and loan association or other investment institution authorized to do business and located in Wisconsin. The trust 11 No. ¢ 2006AP2112-D One count of violating SCR 20:1.15(b),4 by delaying disbursement of client funds to Thiede. ¢ Two counts of violating SCR 20:1.7(b)5 by representing a client when her representation was materially limited by her account shall be clearly designated as "Client's Account" or "Trust Account" or words of similar import. No funds belonging to the lawyer or law firm, except funds reasonably sufficient to pay or avoid imposition of account service charges, may be deposited in such an account. Unless the client otherwise directs in writing, securities in bearer form shall be kept by the attorney in a safe deposit box in a bank, savings bank, trust company, credit union, savings and loan association or other investment institution authorized to do business and located in Wisconsin. The safe deposit box shall be clearly designated as "Client's Account" or "Trust Account" or words of similar import. Other property of a client or third person shall be identified as such and appropriately safeguarded. If a lawyer also licensed in another state is entrusted with funds or property in connection with an out-of-state representation, this provision shall not supersede the trust account rules of the other state. 4 This reference to former SCR 20:1.15 applies to misconduct committed prior to July 1, 2004. Former SCR 20:1.15(b) provided: 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 in writing. 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 render a full accounting regarding such property. 5 Former SCR 20:1.7(b) states: A lawyer shall not representation of that represent a client may 12 client if the be materially No. 2006AP2112-D own interests in acting as the attorney for the LLC without obtaining written consent from Schmidt, and by entering into the delayed repayment plan with Wulff. ¢ One violation of SCR 20:1.8(e)6 when Attorney Smith personally paid the outstanding lien on the Jones truck, thereby providing financial assistance to a client in connection with pending litigation. ¢ Four dishonesty, counts fraud and of engaging in misrepresentation conduct in involving violation of SCR 20:8.4(c),7 by (1) converting Thiede's trust account funds to pay for the Jones expenditures of truck, the (2) LLC, using and trust (3) by funds to pay the misrepresenting the financial condition of the venture to Schmidt, including (4) limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless: (1) the lawyer reasonably believes representation will not be adversely affected; and the (2) the client consents in writing after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved. 6 Former SCR 20:1.8(e) states "[a] lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation . . . ." 7 Former SCR 20:8.4(c) states that it is misconduct for a lawyer to "engage in conduct involving dishonesty, fraud, deceit or misrepresentation." 13 No. 2006AP2112-D whether there were adequate funds to pay for the inventory and misrepresenting certain disbursements. One violation of SCR 20:3.3(a)(1)8 because one of these ¢ false statements about a disbursement was made to the court. ¢ Two violations of SCRs 20:8.4(a) and (b),9 respectively, related to her handling of the liquor license. ¢ Five counts of failure to cooperate with the OLR in violation of SCR 22.03(6).10 ¶30 suspension The OLR sought and the referee recommended a two-year of Attorney Smith's license to practice law. Although not described as a mitigating factor by the referee, it is noteworthy that Attorney Smith informed the referee that she was injured by a lightning strike in October 2001 and continues 8 Former SCR 20:3.3(a)(1) provides that a lawyer shall not knowingly "make a false statement of fact or law to a tribunal." 9 Former SCRs 20:8.4(a) and (b) provide: It is professional misconduct for a lawyer to: (a) violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another; (b) commit a criminal act that reflects adversely on the lawyer's honesty, trustworthiness or fitness as a lawyer in other respects[.] 10 SCR 22.03(6) states that "[i]n the course of the investigation, the respondent's wilful failure to provide relevant information, to answer questions fully, or to furnish documents and the respondent's misrepresentation in a disclosure are misconduct, regardless of the merits of the matters asserted in the grievance." 14 No. 2006AP2112-D to suffer health problems including "gradual decline in physical muscle control, memory and stress management" that induced her to close her practice in 2003. subject to discipline. She had not previously been She also disputed some of the allegations, primarily with respect to the amount of knowledge, information and control Schmidt had over the financial aspects of the failed allegations business. were not She made noted until that unemployment compensation from her office. grievants' they after the collected She adds: Lest the Court thinks I take any of these accusations lightly, this is my life and reputation that has been ruined. I have suffered for more than three years with Ms. Schmidt's and her family and friends accusations. I had voiced to OLR in 2004 that I desired to retire my license as I could not afford dues nor attend CLE's for a profession that I could no longer practice. ¶31 Attorney Smith no longer practices law in Wisconsin. ¶32 On issued might an be initial order to consideration show appropriate in of this cause inquiring this matter, whether proceeding. The the restitution OLR responded to the court's order on September 21, 2007. Smith did not respond. court timely Attorney The OLR now recommends this court order restitution to a creditor of one of the estates administered by Attorney Smith, as follows: To Robert Barth, d/b/a Sav-Rite, in the amount of $425.69, together with interest from November 4, 2003. ¶33 The referee's report indicates that Attorney Smith represented in a sworn affidavit that she had disbursed this 15 No. amount to an administered estate creditor when, in adopt the (Sav-Rite) fact, she for had 2006AP2112-D an not estate made such she a disbursement. ¶34 We referee's findings conclusions of law in these matters. Smith's violations Attorneys warrant of a the Rules two-year of of fact and We agree that Attorney Professional suspension of Conduct her license for to practice law in this state, and we conclude that Attorney Smith should be required to pay restitution as set forth herein, as well as to pay the full costs of this disciplinary proceeding which total $3,504.07 as of May 24, 2007. ¶35 IT IS ORDERED that the license of Attorney Linda C. Smith to practice law in Wisconsin is suspended for a period of two years, effective the date of this order. ¶36 IT IS FURTHER ORDERED that within 60 days of the date of this order, Attorney Linda C. Smith shall pay to the Office of Lawyer Regulation the costs of this proceeding. If the costs are not paid within the time specified and absent a showing to this court of her inability to pay those costs within that time, the license Wisconsin of shall Attorney remain Linda C. suspended Smith until to practice further order law in of the court. ¶37 date of IT IS FURTHER ORDERED that that within 60 days of the this order, Attorney Linda C. Smith shall pay restitution to Robert Barth, d/b/a Sav-Rite, in the amount of $425.69, together with interest from November 4, 2003. 16 No. ¶38 2006AP2112-D IT IS FURTHER ORDERED that if she has not already done so, Attorney Linda C. Smith shall comply with the provisions of SCR 22.26 concerning the duties of a person whose license to practice law in Wisconsin has been suspended. 17 No. 1 2006AP2112-D
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