Title: In re Herman

State: oregon

Issuer: Oregon Supreme Court

Document:

No. 18	
May 14, 2015	
273
IN THE SUPREME COURT OF THE 
STATE OF OREGON
In re Complaint as to the Conduct of
DAVID HERMAN, 
OSB #902967,
Accused.
(OSB No. 12111; SC S061840)
En Banc
On review of the decision of a trial panel of the Disciplinary 
Board.*
Argued and submitted on September 16, 2014.
Lawrence W. Erwin, Bend, argued the cause and filed 
the briefs for the Accused.
Mary A. Cooper, Assistant Disciplinary Counsel, Tigard, 
argued the cause and filed the brief for the Oregon State 
Bar.
PER CURIAM
The accused is disbarred, effective 60 days from the date 
of this decision.
______________
	
*   Trial Panel Opinion dated November 15, 2013.
274	
In re Herman
Disciplinary proceedings against the accused arose from a failed business 
venture involving the accused and his two partners. The three men had formed 
a small company to manufacture testing equipment for measuring formaldehyde 
levels in wood products. Because of the accused’s legal expertise in forming cor-
porate entities, his two partners deferred to the accused’s suggestion that their 
company incorporate using a dormant Nevada corporation that the accused had 
already formed. Although the accused’s partners understood their new enter-
prise to be co-owned in equal shares by all three men, when the accused filed 
the necessary documents in Nevada to amend the old corporation, he neverthe-
less retained 100 percent ownership of the new corporation’s stock without his 
partners’ knowledge. After business disagreements arose between the three 
partners, the accused began directing customer payments destined for the com-
pany to outside business entities that he alone controlled, and he eventually dis-
solved the corporation without notice to his partners or any corporate accounting. 
Following a complaint from one of the accused’s partners, a trial panel of the 
Bar’s Disciplinary Board found that the accused had violated Rule of Professional 
Conduct (RPC) 8.4(a)(3) by, among other things, (1) making false and misleading 
statements to Nevada officials in the course of dissolving the corporation; and 
(2) diverting financial assets of the company to his other businesses. As a result of 
those findings, the trial panel disbarred the accused, and the accused sought review. Held: (1) 
the accused violated RPC 8.4(a)(3); and (2) disbarment constitutes the appropriate 
sanction for the accused’s conduct.
The accused is disbarred, effective 60 days from the date of this decision.
Cite as 357 Or 273 (2015)	
275
	
PER CURIAM.
	
In this lawyer disciplinary proceeding, the Oregon 
State Bar (Bar) charged the accused with violating RPC 
8.4(a)(3) (dishonesty and misrepresentation reflecting 
adversely on the accused’s fitness to practice law), arising 
from a failed corporate venture involving the accused and 
two business associates. A trial panel of the Disciplinary 
Board determined that the Bar proved that the accused vio-
lated that rule and that he should be disbarred. The accused 
now seeks review of that decision, which we review de novo. 
ORS 9.536(2); BR 10.6. For the reasons that follow, we agree 
with the trial panel that the Bar proved by clear and con-
vincing evidence that the accused violated RPC 8.4(a)(3) 
and that disbarment is the appropriate sanction.
FACTS
	
The accused was admitted to the Oregon State Bar 
in 1990 and to the Washington State Bar in 1991. In 2003, 
he transferred his Oregon bar membership to inactive sta-
tus; four years later, the Oregon Bar placed him on non-
disciplinary suspension for failure to pay his bar dues. He 
has, since then, remained suspended in both Oregon and 
Washington for continued nonpayment of dues.
	
In early 2008, Schutfort approached the accused 
about starting a business venture with him and another 
person, Alexander, that involved the development, manufac-
ture, and sale of specialized testing containers designed to 
measure formaldehyde levels in composite wood products.1 
The three people subsequently agreed to form a business 
entity for that purpose, called Blue Q Labs (Blue Q), which 
they would co-own in equal thirds. According to testimony 
from the three principals at the trial panel hearing, each 
of them agreed to perform particular roles in Blue Q’s 
	
1  According to the record, formaldehyde—a recognized carcinogen—is 
widely used in the production of wood binding adhesives and resins. In 2007, the 
California Air Resources Board (CARB) approved an airborne toxic control mea-
sure designed to reduce formaldehyde emissions from products such as hardwood 
plywood, particleboard, and medium density fiberboard, as well as the items 
made from those materials. As a result, manufacturers of such products who 
wanted to market them in California needed testing equipment that would help 
them comply with the certification program that was adopted to implement the 
state’s new formaldehyde emission standards.
276	
In re Herman
operations. Alexander—a welder and fabricator whose shop 
was located in Lebanon, Oregon—would fabricate the con-
tainers that physically held wood samples during testing. 
Schutfort would design the testing device’s electronics, 
write its software program, and help market and install the 
devices, as well as train Blue Q customers in their operation. 
For his part, the accused agreed to manage the company’s 
finances, participate in marketing, and perform functions 
ordinarily undertaken by a business’s general counsel, such 
as drafting contracts and sales agreements. The accused 
had experience in conducting large, complex business trans-
actions while in private practice and had himself incorpo-
rated between 10 and 20 businesses.
	
In the course of discussions, the accused suggested 
that, rather than form a new corporation, the principals 
should make use of a dormant Nevada corporation—Vintrak 
Information Systems (Vintrak)—that the accused already 
owned. According to the accused, his accountant had advised 
him that amending Vintrak’s articles of incorporation—
thereby turning that corporation into Blue Q Labs, Inc.—
would allow the new business to take advantage of finan-
cial losses that had been stranded on the books of Vintrak. 
Schutfort and Alexander had confidence in the accused and 
his legal acumen, and they accepted his recommendation.2
	
In March 2008, the accused amended Vintrak’s 
articles of incorporation by filing a certificate of amendment 
with the Nevada Secretary of State. As a result, the name of 
the corporation formally was changed to Blue Q Labs, Inc. 
Alexander, Schutfort, and the accused were listed in the cer-
tificate as directors, and the entity’s purpose was redefined, 
in part, as “any lawful activity related to the construction, 
rental, modification, repair and sale of environmental test 
chambers and associated equipment and training.” However, 
as the accused would acknowledge at the trial panel hear-
ing, the formalities that ordinarily attend the formation 
and operation of a corporation—for example, the adoption 
	
2  When asked, for example, why he did not seek more information about cor-
porate matters such as the company’s bank account, Schutfort replied that he had 
trusted the accused because the accused “was the lawyer that took care of that 
type of business.”
Cite as 357 Or 273 (2015)	
277
of bylaws, the issuance of stock to the three principals, the 
election of officers, and the conduct of meetings—were not 
observed.
	
Instead, some aspects of the old corporation 
remained unchanged. The accused, for example, had been 
Vintrak’s sole corporate officer, occupying the positions of 
president, secretary, and treasurer. After the certificate of 
amendment was filed in Nevada, no new officers were elected. 
In addition, the accused apparently had been the sole share-
holder of Vintrak. Vintrak’s original articles of incorpora-
tion authorized the issuance of 1,000 shares of stock, and 
the Nevada certificate of amendment indicated that Vintrak 
stock had been issued. A corporate law expert who testified 
at the accused’s trial panel hearing stated that, after the 
articles of incorporation were amended, stock ownership 
in Vintrak became stock ownership in Blue Q. Despite the 
agreement of its principals that they would own the busi-
ness in equal thirds, Blue Q issued no stock after it came 
into existence. Instead, Blue Q’s 2008 and 2009 Subchapter 
S corporate tax returns indicated that the accused was its 
sole shareholder.
	
After the creation of Blue Q, the accused opened a 
bank account for the new business at US Bank, to which 
the accused, Schutfort, and Alexander initially had access. 
Despite the fact that the accused had retained all formal 
positions of corporate authority after the articles of incor-
poration were amended, Alexander and Schutfort were 
listed on the account application as Blue Q’s president and 
vice-president. The new bank account was used to pay man-
ufacturing expenses associated with fabricating the testing 
containers and to receive deposits that accompanied cus-
tomers’ product orders.
	
From the start, Blue Q’s business was brisk. Initial 
wire deposits for customer orders in July 2008 totaled more 
than $38,000; over the next five months, deposits totaling 
an additional $275,000 were made into Blue Q’s account at 
US Bank. Demand, however, quickly outpaced the compa-
ny’s ability to produce a reliable product and fill orders in a 
timely manner. A production-related bottleneck arose in the 
fabrication process, for which Alexander was responsible. 
278	
In re Herman
As Alexander later would testify, “I told them I needed 
more help. I needed money. We needed more help to build.” 
No assistance materialized, however. Instead, in the final 
months of 2008, the accused began subcontracting container 
fabrication to outside machine shops in Idaho, an arrange-
ment that the accused did not disclose to Alexander and was 
intent on keeping secret from him, if possible.3
	
Shortly thereafter, the relationship among the 
three principals worsened. At the trial panel hearing, the 
principals offered divergent accounts of events that would 
lead to the dissolution of Blue Q. The accused testified that, 
in late February 2009, he, Schutfort, and Alexander met 
at Alexander’s shop in an effort to sort out the company’s 
fabrication problems. According to the accused, Alexander 
disagreed with the accused’s opinion that Blue Q’s success 
depended on a “turnaround” of Alexander’s commitment to 
manufacturing a quality product. Instead, according to the 
accused, the meeting ended with Alexander quitting the 
corporation:
“He finally got irritated and said, ‘I’m not going to listen to 
this anymore. I’m done with it. I won’t discuss it anymore. 
You bring it up again, you’re not going to like my response.’
	
“And I think—you know, at that point I said—I said 
words to the effect, ‘Then it’s over. We’re done. We’ve got to 
turn it off, send people their money back, beg forgiveness or 
whatever.’
	
“And he says, ‘I don’t care what you do. I’m not going 
forward with this. I’m not giving you any commitments, 
and I’m not going to do anything else.’ 
”
The accused further testified that he and Schutfort then 
decided that, with Alexander out of the picture, they con-
stituted a quorum of the board of directors for the purpose 
of conducting corporate business. Accordingly, they jointly 
decided to end Blue Q’s operations and form another entity 
to continue the business of producing and marketing the 
	
3  The accused asked Schutfort in a November 2008 e-mail about a customer 
order, “[D]o we trust [Alexander] to send a unit from Lebanon in a timely man-
ner, or do we do the sure thing and send one from Idaho? If we send one from 
Idaho then you would have to communicate to [the customer,] not to communicate 
[with Alexander]. That might prove tricky.”
Cite as 357 Or 273 (2015)	
279
testing devices. In the accused’s words, “[We] reorganized 
and Mr. Alexander was not involved.”
	
Alexander gave a very different account in his tes-
timony before the trial panel. When asked if had resigned 
from Blue Q or otherwise indicated that he wanted nothing 
more to do with the business, Alexander answered “no” to 
both questions. Likewise, Schutfort testified that he never 
voted to reorganize or dissolve Blue Q and that he had not 
participated in a separate meeting with the accused to con-
sider doing so.
	
At about the same time as the meeting at Alexander’s 
shop, the accused began making changes in Blue Q’s oper-
ations, many without Schutfort’s or Alexander’s knowledge. 
Among other changes, the accused removed Alexander as 
a signatory on Blue Q’s bank account.4 The accused also 
began directing customers to make payments to other busi-
ness entities that the accused owned or controlled. In late 
February 2009, the accused explained in e-mails to Blue Q’s 
customers that the diversion of payments was necessary 
because Blue Q recently had been the victim of bank fraud; 
according to the accused, Blue Q needed to protect its funds 
in a new account. In his deposition in this case, however, the 
accused gave a different explanation. He testified that the 
diversion was necessary because Blue Q had experienced 
problems in qualifying to engage in foreign wire transfers. 
The accused did not produce any evidence to corroborate 
either of those different explanations.
	
By March 2009, Blue Q customers were making 
payments on Blue Q invoices to two entities that the accused 
owned or controlled, Equine Management, Inc. (EMI), and 
Carbcert LLC (Carbcert). In an e-mail instructing a cus-
tomer to make future payments to Carbcert, the accused 
explained that the company simply had changed its name. 
	
4  Alexander discovered the change when he went to the bank to find out 
whether the account contained sufficient funds to cover a business check that he 
needed to write. That discovery apparently did not cause Alexander immediately 
to question his status in the company. As he later would testify:
“Well, we weren’t quitting. We were still going to build. I mean, we were 
still building. Just because [the accused] took us off the account, took me off 
the account—I didn’t know exactly why. I trusted him that there was some 
reason.”
280	
In re Herman
In reality, however, Carbcert was a new business entity cre-
ated and owned by the accused.
	
On March 9, 2009, the accused closed Blue Q’s US 
Bank account without notice to Alexander and Schutfort. 
On March 19—also without notifying Alexander and 
Schutfort—the accused filed a certificate of dissolution for 
Blue Q with the Nevada Secretary of State. In that docu-
ment, the accused stated that he held all officer positions 
in the corporation and that he was its sole director. The 
certificate was accompanied by a resolution in which the 
accused represented that a quorum of Blue Q’s directors had 
met and resolved to dissolve the corporation; the accused 
also represented that no Blue Q stock had been issued and, 
therefore, the accused alone was authorized under Nevada 
law to approve the dissolution and had done so.5
	
In winding up Blue Q’s affairs, the accused made no 
accounting of corporate assets or liabilities to Alexander and 
Schutfort, and they did not receive any distribution follow-
ing Blue Q’s dissolution. Schutfort testified that he did not 
learn that Blue Q no longer existed until sometime in mid-
2009. Shortly thereafter, in June 2009, Alexander formed a 
new company called Blue Q Labs LLC to continue manufac-
turing formaldehyde testing devices. That enterprise briefly 
included Schutfort as well.
	
In 2010, Alexander complained to the Bar about 
the accused’s conduct. After an investigation, the Bar 
filed a formal complaint against the accused that charged 
him with multiple violations of RPC 8.4(a)(3).6 In a single 
charge, the complaint alleged that the accused engaged in 
dishonest conduct by excluding Alexander and Schutfort 
from Blue Q’s business, diverting Blue Q assets to his own 
	
5  Nevada Revised Statute (NRS) 78.580(1) provides:
“If the board of directors of any corporation organized under this chapter, 
after the issuance of stock or the beginning of business, decides that the cor-
poration should be dissolved, the board may adopt a resolution to that effect. 
If the corporation has issued no stock, only the directors need to approve the 
dissolution. If the corporation has issued stock, the directors must recom-
mend the dissolution to the stockholders. The corporation shall notify each 
stockholder entitled to vote on dissolution, and the stockholders entitled to 
vote must approve the dissolution.”
	
6  We set out the text of that rule below.
Cite as 357 Or 273 (2015)	
281
businesses, and filing false corporate dissolution documents 
with the Nevada Secretary of State. In addition, the com-
plaint alleged that the accused contracted with other com-
panies to perform services previously performed by Blue Q, 
and withheld the proceeds from these contracts from 
Alexander and Schutfort.
	
As noted, a trial panel of the Disciplinary Board 
found that the Bar proved that the accused violated RPC 
8.4(a)(3). The trial panel found, based on the accused’s 
demeanor at the hearing, that his testimony generally was 
not credible.7 Specifically, the trial panel found that the 
accused intentionally had
“filed documents that did not reflect the true state of the 
corporation at a time he did not have the authority to dis-
solve it. We have found the Accused also closed the bank 
account for Blue Q Labs, Inc. without authority. We have 
also found the Accused diverted funds that were to go to 
Blue Q Labs, Inc to Equine Management, a company he 
controlled. Finally, we have found [the accused diverted] 
some of this money and some assets of Blue Q Labs, Inc. to 
a new company called Carbcert. His actions were dishonest 
and deceitful; the statements in the documents were false. 
His actions breached the duty he owed to the directors of 
Blue Q Labs, Inc.”
The trial panel further found:
	
“Although it is unknown whether the business would 
have eventually turned successful, that opportunity was 
removed by the unilateral actions of the Accused. Whether 
the injury was actual or potential, injured his partners 
were. Each had put substantial time into the venture and it 
was taken away. The Accused was trusted by Mr. Alexander 
and Mr. Schutfort and that trust was violated.”8
	
7  Among other things, the trial panel noted that the accused appeared fur-
tive on the witness stand, providing testimony that often was self-contradictory, 
unresponsive or evasive, and frequently so lengthy and unnecessarily detailed as 
to “cross[ 
] the line from explanation to obfuscation.”
	
8  The trial panel made no express findings as to whether the accused con-
tracted with outside companies for the manufacture of the testing devices and 
withheld proceeds from the sale of those devices from Blue Q or his associates. 
Nor is that allegation a primary focus of the parties’ arguments on review. 
Accordingly, we do not consider it in our analysis.
282	
In re Herman
	
Based on its assessment of the accused’s conduct, 
the trial panel concluded that the appropriate sanction is 
disbarment:
	
“In this case, the dishonest conduct began when the 
incorporation paperwork did not issue shares to each part-
ner. It included filing a tax return with the Accused as 
the only shareholder. It included filing false documents to 
dissolve the corporation. It also included closing down the 
bank account without notice to his partners and diverting 
funds of the business to his personal businesses.”
	
On review, the accused argues that the complaint 
should be dismissed or, alternatively, that either a repri-
mand or a short suspension should be imposed for any viola-
tion of RPC 8.4(a)(3).
DISCUSSION
	
RPC 8.4(a)(3) provides:
	
“(a)  It is professional misconduct for a lawyer to:
	
“* 
* 
* 
* 
*
	
“(3)  engage in conduct involving dishonesty, fraud, 
deceit or misrepresentation that reflects adversely on the 
lawyer’s fitness to practice law[.]”
As discussed below, the accused argues that the Bar did not 
prove by clear and convincing evidence that he improperly 
excluded Alexander and Schutfort from Blue Q’s business 
affairs, that he diverted Blue Q’s assets for his own use, or 
that he filed documents with the Nevada Secretary of State 
that contained misrepresentations. Because they are inter-
twined, we discuss the first two arguments jointly.
	
According to the accused, the only “assets” to which 
his associates might have been entitled were their propor-
tionate shares of any Blue Q profits remaining after the 
winding up of corporate affairs. The accused asserts that 
the Bar failed to prove that he improperly diverted any such 
assets; in particular, the accused relies on the trial panel’s 
determination that the Bar failed to prove that the accused 
actually owed anything to Schutfort or Alexander.9 Instead, 
	
9  In its analysis of the appropriate sanction, the trial panel made the follow-
ing observations:
Cite as 357 Or 273 (2015)	
283
the accused argues, any sums that he diverted to his own 
businesses constituted repayments of loans that he had 
advanced to or on behalf of Blue Q. Thus, the accused rea-
sons, the Bar did not show by clear and convincing evidence 
that he wrongfully diverted any funds belonging to Blue Q, 
Schutfort, or Alexander.
	
We agree with the accused that the corporate 
bank statements, accounting ledgers, correspondence, and 
cancelled checks that make up large parts of the lengthy 
record do not provide clear and convincing evidence that 
he converted assets that Alexander and Schutfort neces-
sarily were entitled to receive in the form of distributions. 
That said, a number of entries in Blue Q’s corporate ledgers 
bear on our analysis of the charges against the accused. 
According to Blue Q’s 2008 general ledger, for example, the 
company was owed substantial sums by business entities 
owned or controlled by the accused: from EMI, approxi-
mately $411,000, plus a promissory note from EMI for an 
additional $63,900; from an entity known as the Lazy J, 
$13,000; from Idaho Transportation Equipment, approxi-
mately $58,000; and from the Whitehorse Ranch, $85,000. 
In winding up Blue Q’s financial affairs, the accused did not 
account for those booked assets; instead, he removed them 
from Blue Q’s asset ledger and “reclassified” them on the 
Blue Q balance sheet as a loan from the accused to Blue Q.10
	
On the other side of the ledger, Blue Q’s 2008 finan-
cial records showed that the accused had loaned significant 
sums to Blue Q to pay its operating expenses.11 Specifically, 
in 2008, the ledger showed that the accused paid more than 
“We do not find the Bar has proven indifference to making restitution. 
ABA Standard 9.22(j). The Bar has not proven money was owed to either 
Mr. Alexander or Mr. Schutfort. The Bar’s own expert did not identify an 
amount of money that should have been paid to either person. While the Bar 
makes that argument, we do not find the testimony of their expert supports 
the argument. Mr.  Schutfort has made no claim against the Accused for 
money.”
Those observations were not made in connection with the trial panel’s analysis of 
whether the accused violated RPC 8.4(a)(3).
	
10  For a further explanation, see 357 Or at 284 n 12, below.
	
11  In contrast, it appears to be undisputed that neither Schutfort nor 
Alexander contributed funds to Blue Q, other than smaller amounts for which 
they were subsequently reimbursed.
284	
In re Herman
$103,000 of Blue Q’s operating costs and then used EMI to 
cover more than $52,000 in additional business expenses, for 
an approximate total of $155,000. During the same period, 
the ledger indicated that the accused withdrew approxi-
mately $56,000 from the Blue Q account and transferred an 
additional $175,000 from that account to EMI. The result-
ing total—approximately $231,000—was approximately 
$76,000 greater than the total advances that the accused 
and his own businesses purportedly made to or on behalf of 
Blue Q during the same period.
	
To further complicate matters, Blue Q’s financial 
accounting records show that the corporation owed a debt of 
more than $200,000 to the accused when it began operations. 
The record includes no explanation for that debt. However, 
the corporate ledger discloses that the accused later routed 
more than $160,000 in proceeds from an unrelated business 
transaction—the sale of mill property—through Blue Q’s 
books, categorizing that transfer as partial repayment of the 
$200,000 debt noted above. Thus, confusingly, the accused 
appears to have used his own money to partially discharge 
a sizeable debt that—at least according to the corporate 
financial records—was personally owed to him by Blue Q.
	
In the absence of a coherent explanation for the var-
ious transactions described above, it is practically impossi-
ble to ascertain whether they were legitimate, fictional, or 
some mix of truth and subterfuge. When the accused was 
asked about them at the trial panel hearing, his answers 
generally were confusing or unresponsive.12 What is clear is 
	
12  The accused denied that he had taken any money that belonged to 
Alexander or Schutfort; he explained that a “running tally” in his head showed 
that he was “significantly behind” when comparing what he had put into Blue Q 
and what he was getting out of it. On review, the accused asserts that, according 
to Blue Q’s records, Blue Q owed $509,480 to him and his related companies as of 
March 31, 2009. That amount is reflected in a current asset entry on a March 31, 
2009, balance sheet that is described as “loans from David Herman”; it appears 
to be an updated consolidated total of the balances of the various debts shown as 
owed to Blue Q by the accused’s companies on Blue Q’s December 31, 2008, bal-
ance sheet. As of December 31, 2008, that total was $566,897, according to the 
current asset column of Blue Q’s balance sheet.
	
With the possible exception of the transfers of funds between Blue Q and 
EMI described above, there is no indication in Blue Q’s general ledger or any of 
its other financial records for 2008 or 2009 that transactions with the accused’s 
other companies that were reflected in Blue Q’s current assets as of December 31, 
Cite as 357 Or 273 (2015)	
285
that, without consulting his business associates, the accused 
intermingled his personal and related-business financial 
affairs with the corporate affairs of Blue Q to the point that 
an accurate accounting of who owed what to whom would 
be very difficult to reconstruct. That inadequately explained 
practice provides context to the trial panel’s determination 
that the accused improperly diverted corporate assets.
	
As discussed, the record shows that, shortly after 
the February 2009 meeting at Alexander’s shop, the accused 
began instructing Blue Q clients to withhold payments owed 
to Blue Q and, ultimately, to redirect those payments to 
accounts owned by EMI or Carbcert.13 The accused chal-
lenges the significance of those facts. Although he admits 
that some Blue Q funds were paid to EMI, he asserts that 
that was done “to facilitate winding up of the corporate 
affairs of Blue Q Labs, Inc.” The difficulty with that asser-
tion is that what the accused describes as “winding up” was 
not undertaken pursuant to an authorized dissolution of 
the corporation. Instead, at best, it can be characterized as 
unauthorized self-help.
	
Although the accused testified that he wound up 
Blue Q’s affairs based on Alexander’s voluntary departure 
and Schutfort’s consent, the trial panel disbelieved that tes-
timony. Instead, the trial panel credited both Alexander’s 
testimony that he did not quit Blue Q at that time and 
Schutfort’s testimony that he and the accused did not con-
fer as remaining corporate directors and vote to reorganize 
Blue Q. This court defers to such credibility findings when, 
as here, they are based on the trial panel’s own observations 
2008, occurred after Blue Q began operating that year. Thus, to the extent that 
the $509,540 entry in the March 31, 2009, balance sheet is relevant to any issue 
before us, it appears to reflect a bookkeeping entry whereby the accused claimed 
credit for pre-Blue Q financial obligations that his related companies may have 
owed to Vintrak. Because the record with respect to that possibility was not 
developed in the trial panel proceedings, we do not consider it further. However, 
we reiterate that there is no indication in the record that that amount—or any 
amount remotely approximating it—was advanced to Blue Q by the accused or 
any of his related entities after Blue Q began its operations in 2008.
	
13  Although the precise amount of Blue Q receivables that the accused 
diverted is not clear, the record includes correspondence from the accused to a 
Blue Q customer directing payment of a Blue Q invoice to Carbcert, as well as a 
remittance from a Blue Q customer to EMI.
286	
In re Herman
of the accused’s demeanor and the manner in which he tes-
tified. In re Phinney, 354 Or 329, 333, 311 P3d 517 (2013). 
Moreover, we note the discrepancy between the accused’s 
account of an agreement to reorganize the corporation and 
the absence of any corporate records documenting either 
that purported decision or an accounting of the winding up 
of Blue Q’s affairs. In short, we agree with the trial panel 
that the accused’s testimony that he diverted Blue Q assets 
to his own businesses as part of an authorized winding up of 
corporate affairs is not credible. Instead, clear and convinc-
ing evidence supports the trial panel’s determination that 
the accused engaged in dishonest conduct when he diverted 
customer payments from Blue Q to EMI and Carbcert.
	
The accused remonstrates that, because Schutfort 
received courtesy copies of e-mails instructing Blue Q cus-
tomers to send payments to EMI and Carbcert, there is no 
evidence that he acted with fraudulent intent.14 Those argu-
ments miss the mark. When Schutfort received copies of 
e-mails revealing that customers were paying EMI rather 
than Blue Q, the accused assured Schutfort that “[the 
Accused] was the lawyer and there was some advantage to 
doing that.” Schutfort believed him. Moreover, Alexander was 
not aware of the accused’s actions. Nor were Schutfort and 
Alexander aware of the larger context in which those actions 
were taking place. For example, the two were unaware that 
they were not shareholders in Blue Q; each believed that 
he owned a one-third interest in the corporation. Nor were 
they aware that the accused was in the process of dissolving 
Blue Q or that they would not receive an accounting of the 
assets being diverted to EMI and Carbcert.
	
The Bar’s complaint alleged that the accused’s 
conduct involved dishonesty and misrepresentation that 
reflected adversely on his ability to practice law. Under this 
court’s prior decisions, dishonesty includes a disposition 
to lie, cheat, or defraud; and a lack of trustworthiness or 
integrity. In re Kluge, 335 Or 326, 340, 66 P3d 492 (2003); 
	
14  As already noted, the accused also argues that a concern about wire fraud 
prompted the diversion of Blue Q funds to Carbcert. However, the record shows 
that the accused originally had explained the diversion by telling customers that 
Blue Q had changed its name to Carbcert. In fact, it had not. Simply put, the 
accused’s explanations for those actions are not credible.
Cite as 357 Or 273 (2015)	
287
In re Claussen, 331 Or 252, 260, 14 P3d 586 (2000). Although 
no rule explicitly requires lawyers to be candid and fair with 
their business associates or employers, such an obligation is 
implicit in the prohibitions set out in RPC 8.4(a)(3). See In 
re Murdock, 328 Or 18, 25, 968 P2d 1270 (1998) (so stating 
with regard to former version of rule); In re Smith, 315 Or 
260, 266, 843 P2d 449 (1992) (same). On de novo review, 
we find by clear and convincing evidence that the accused’s 
diversion of Blue Q assets to EMI and Carbcert, and his 
exclusion of his associates from Blue Q’s business affairs, 
demonstrated dishonesty and a lack of trustworthiness that 
seriously reflects adversely on his fitness to practice law and 
violate RPC 8.4(a)(3).
	
We turn to the trial panel’s determination that the 
accused violated RPC 8.4(a)(3) by filing with the Nevada 
Secretary of State “documents that did not reflect the true 
state of the corporation at a time he did not have the author-
ity to dissolve it.” An affirmative representation amounts to 
a misrepresentation under RPC 8.4(a)(3) if it is false, mate-
rial, and knowingly made. In re Summer, 338 Or 29, 38, 105 
P3d 848 (2005). A misrepresentation is material if it would 
or could significantly influence the recipient’s decision-
making process. Id.
	
Again, the accused asserts that the Bar failed to 
prove by clear and convincing evidence that his actions in that 
regard were animated by “fraudulent intent.”  Specifically, 
the accused contends that he was, in fact, the corporation’s 
only director when he filed the certificate to dissolve Blue Q, 
because Schutfort and Alexander had left the company. The 
accused asserts that, as Blue Q’s sole director, he was autho-
rized under Nevada law to dissolve the corporation because 
no stock had been issued. The accused also asserts that, by 
the end of the February 2009 meeting at Alexander’s shop, 
he believed that Alexander had quit Blue Q, that the accused 
and Schutfort constituted a quorum of directors, and that 
they had agreed to “reorganize.”
	
Much of the accused’s argument about the Nevada 
dissolution documents is foreclosed by our earlier finding 
that Blue Q was not dissolved in the manner in which the 
accused testified. Instead, the evidence underscores the 
288	
In re Herman
accused’s misrepresentations. The accused was both an 
experienced business person and attorney who had formed 
and managed a number of corporations. The certificate of 
amendment by which the accused created Blue Q expressly 
named all three principals as directors; yet, less than a year 
later, the documents that the accused filed to dissolve the 
corporation represented to the Nevada Secretary of State 
that the accused was the sole director and that Blue Q’s 
board of directors had adopted a resolution authorizing 
him, as president, to dissolve the corporation. The certifi-
cate also represented that no Blue Q stock had been issued. 
However, those representations were false. The accused 
was not the sole director of Blue Q, and there had been no 
meeting at which the board of directors had voted either to 
reorganize or dissolve Blue Q. Furthermore, contrary to his 
representation to the Secretary of State, the accused was a 
shareholder—indeed, the sole shareholder—of Blue Q, 
despite the fact that he and his associates had agreed to own 
the corporation in equal thirds.15 The accused knew that the 
described representations were false when he made them.
	
The accused’s misrepresentations to the Nevada 
authorities also were material, because they were intended 
to communicate that the accused was authorized to dissolve 
Blue Q in compliance with Nevada law. Finally, those mis-
representations reflected adversely on the accused’s fitness 
to practice law: Not only did they violate the accused’s duties 
to his associates, they were made to a governmental agency 
to achieve a result that the law did not allow. See In re Glass, 
308 Or 297, 779 P2d 612 (1989) (attorney’s registration of 
false business name with Corporation Commission for sole 
purpose of defeating contractor’s capacity to bring action 
against him constituted misrepresentation under disci-
plinary rules).
	
Thus, we find on de novo review that the Bar also 
proved by clear and convincing evidence that, in filing the 
dissolution documents with the Nevada Secretary of State, 
	
15  The trial panel determined that the accused apparently was the sole 
shareholder of Vintrak and that, because no new stock was issued after the 
corporation’s name was changed, the accused remained the sole shareholder of 
Blue Q. As noted, that determination is consistent with Blue Q’s 2008 and 2009 
tax returns.
Cite as 357 Or 273 (2015)	
289
the accused violated RPC 8.4(a)(3) by engaging in conduct 
that constituted dishonesty and misrepresentation that 
reflects adversely on his fitness to practice law.
	
Finally, we consider the appropriate sanction for the 
accused’s ethical violations. In doing that, we follow the ana-
lytical framework set out in the American Bar Association’s 
Standards for Imposing Lawyer Sanctions (ABA Standards) 
(1991) (amended 1992). In re Obert, 352 Or 231, 258, 282 
P3d 825 (2012). In accordance with the ABA Standards, we 
first consider the duty violated, the accused’s mental state, 
and the actual or potential injury caused by the accused’s 
conduct. In re Kluge, 332 Or 251, 259, 27 P3d 102 (2001); 
ABA Standard 3.0. We next determine the existence of any 
aggravating or mitigating circumstances. Kluge, 332 Or at 
259. Finally, we consider the appropriate sanction in light of 
this court’s case law. Id. Our purpose in imposing a sanction 
is to protect the administration of justice from lawyers who 
have failed to properly discharge duties owed to their cli-
ents, the public, the justice system, or the legal profession.
	
Here, the accused violated RPC 8.4(a)(3) and 
breached his public duty as a lawyer to maintain his per-
sonal integrity. ABA Standard 5.1. The record shows that 
the accused excluded his associates from Blue Q’s business 
affairs, intentionally diverted Blue Q receivables to busi-
nesses that the accused alone controlled, and misrepre-
sented his authority to dissolve Blue Q to Nevada govern-
mental officials. See ABA Standards at 7 (“intent” defined as 
“the conscious objective or purpose to accomplish a particu-
lar result”). As a result of that conduct, the accused caused 
actual injury to Alexander and Schutfort by depriving them 
of the opportunity to participate in the windup of Blue Q’s 
business and a proper accounting of Blue Q’s financial 
affairs. Under ABA Standard 5.11(b), disbarment generally 
is appropriate when a lawyer engages in intentional conduct 
that involves dishonesty, fraud, deceit, or misrepresentation 
that reflects adversely on the lawyer’s fitness to practice law.
	
We next consider whether the presence of mitigating 
or aggravating factors affects that preliminary determina-
tion. We find several aggravating factors. First, the accused 
acted with a dishonest or selfish motive. ABA Standard 
290	
In re Herman
9.22(b). Second, he has refused to acknowledge the wrong-
ful nature of his conduct, ABA Standard 9.22(g), arguing 
in effect that he did not have to follow the law but could, 
instead, engage in “self-help” for ends that he believed were 
justified. Finally, the accused has substantial experience in 
the practice of law, having been admitted to the Oregon Bar 
in 1990.
	
In mitigation, the accused argues that his only 
misstep was in placing too much trust in his partners. 
The accused asserts that, after the dissolution of Blue Q, 
Alexander and Schutfort surreptitiously formed Blue Q Labs 
LLC, stole away Blue Q customers, converted devices man-
ufactured by Blue Q, used them to fulfill customer orders as 
Blue Q Labs LLC, and pocketed the receipts. The accused 
contends that either a public reprimand or a 30-day suspen-
sion is appropriate.
	
The trial panel found, however, that the existence of 
Blue Q Labs LLC, had no relevance to its evaluation of the 
accused’s misconduct at issue, and we agree. Blue Q Labs 
LLC was not formed until June 2009, several months after 
the accused diverted Blue Q receivables to EMI and Carbcert, 
and after he filed the Nevada dissolution documents. The 
accused’s acts of dishonesty and misrepresentation—which 
the Bar proved by clear and convincing evidence—were com-
plete with the dissolution of Blue Q. Consequently, in this 
disciplinary context, the subsequent formation of Blue Q 
Labs LLC does not mitigate the accused’s conduct.
	
As a mitigating factor, we acknowledge that the 
accused does not have a prior disciplinary record. Taken 
together, however, the aggravating factors outweigh that 
factor and further support our preliminary determination 
that disbarment is the appropriate sanction.
	
We turn to the applicable case law. As we have rec-
ognized, case-matching in the context of disciplinary pro-
ceedings “is an inexact science.” In re Stauffer, 327 Or 44, 
70, 956 P2d 967 (1998). Still, our prior decisions provide 
some guidance. Those decisions show that where, as here, a 
lawyer has engaged in dishonesty, fraud, deceit, or misrep-
resentation in a business relationship involving an associate 
Cite as 357 Or 273 (2015)	
291
or an employer, the court generally has concluded that dis-
barment was the appropriate sanction.
	
In In re Pennington, 220 Or 343, 348 P2d 774 (1960), 
for example, the accused lawyer secretly withheld a substan-
tial amount of law firm income from his law partner during 
a seven-year period. In addition, despite an agreement to 
equally divide partnership income, the accused filed false 
partnership tax returns to conceal that conduct. When con-
fronted, the lawyer, with the aid of a tax attorney and accoun-
tant, made a full accounting and restitution to his partner, 
paid all back taxes, and pleaded guilty to the crime of fil-
ing fraudulent partnership returns. Neither the Bar nor the 
lawyer’s partner sought to prosecute him for embezzlement; 
indeed, the two partners reconciled and continued their busi-
ness relationship for approximately three more years until 
their partnership was terminated for other reasons.
	
This court nevertheless ordered the accused to be 
disbarred. In doing so, the court emphasized the need to 
maintain the public’s confidence in the legal profession:
	
“No one who is admitted into the legal profession may be 
permitted to sully or destroy the right and need of the pub-
lic to impose absolute confidence in the integrity of a law-
yer. Literally thousands of personal and business transac-
tions of unknowing people must be and are entrusted to the 
hands of some lawyer. Money, property and matters of per-
sonal confidence are daily entrusted to the integrity of the 
individual lawyer. In almost all such instances no bond or 
security, other than integrity, is required to assure the pro-
tection or performance of the trust. No member of the Bar 
need consider long wherein his duty lies. True, the rules 
of professional conduct may fill many pages; the opinions 
interpreting some of the rules, many volumes. But in the 
more basic conduct he is called upon to perform, any law-
yer knows the simple rules that he must cling to: Simple 
straightforward honesty and absolute good faith. No less 
will suffice.”
Id. at 347. If the funds at issue had been client funds, the 
court continued, it would not hesitate to impose disbarment 
as a sanction. “The same violation of the fiduciary duty to 
partnership funds,” it concluded, “is no less abhorrent.” Id. 
at 349.
292	
In re Herman
	
In In re Murdock, this court applied similar rea-
soning to a breach of the duty of loyalty arising from an 
employment relationship. In that case, the accused law-
yer was employed as a salaried associate at a law firm. As 
part of his duties, the lawyer represented indigent crimi-
nal defendants through the firm’s contract with the State 
Court Administrator (SCA) and provided other services to 
the firm’s clients on a flat-fee basis. Over a two-year period, 
however, the lawyer converted contract payments owed to 
the firm, as well as payments from the firm’s flat-fee clien-
tele, to his own personal use. Murdock, 328 Or at 23. This 
court concluded that that conduct violated the lawyer’s 
implicit obligation to be candid and fair with his employers, 
as well as the duty of loyalty arising out of the employment 
relationship between the lawyer and the firm. Id. at 25-26. 
The court ultimately concluded that the lawyer must be dis-
barred. Id. at 36.
	
This court recently addressed a similar problem in 
In re Renshaw, 353 Or 411, 298 P3d 1216 (2013), where the 
accused lawyer was a partner with two other attorneys in a 
law firm. Among other things, the accused was responsible 
for processing funds received from clients, paying the firm’s 
bills, and determining if the firm had sufficient revenue to 
make periodic shareholder distributions that augmented 
the partners’ regular monthly paychecks. Beginning in 
2006, however, the accused began making distributions to 
himself, but not to his partners; when they inquired, he told 
them that the firm lacked the funds to make distributions. 
The accused also began using the firm’s credit line to cover 
personal expenses, later coding them in the firm’s account-
ing records so that they appeared to be business expenses. 
In ordering disbarment, this court explained:
	
“The accused owed a fiduciary duty to the other share-
holders in his firm. See In re Pennington, 220 Or 343, 349, 
348 P.2d 774 (1960). He breached that duty when he repeat-
edly took funds that the firm owned and in which the other 
shareholders had an interest.”
Id. at 421.16
	
16  That fiduciary duty extends beyond a lawyer’s professional dealings with 
clients and legal colleagues. In In re Phinney, this court concluded that dis-
barment was warranted where the accused attorney violated RPC 8.4(a)(3) by 
Cite as 357 Or 273 (2015)	
293
	
In cases involving violations of RPC 8.4(a)(3) in 
which this court has imposed a lesser sanction than disbar-
ment, mitigating circumstances were present that do not 
exist in this case. For example, in In re Leisure, 338 Or 508, 
113 P3d 412 (2005), the accused wrote a series of bad checks 
on which she eventually made good, but only after she paid 
NSF fees and was threatened with legal action. In suspend-
ing the accused for 18 months, the court explained:
“The accused’s conduct caused a great deal of inconvenience 
to many people, but it took its greatest toll on the accused 
herself. We conclude, therefore, that the accused should not 
be subject to disbarment, but that she should be subject to 
a lengthy suspension.”
Id. at 527. No similar mitigating factors exist in this case.
	
Two aspects of the accused’s conduct in this mat-
ter do not precisely match the circumstances in Pennington, 
Murdock, Renshaw, and Phinney. First, each of those cases 
involved the theft of assets; as discussed, the bar did not 
prove that the accused here actually stole assets in which, 
after a proper accounting in the winding up of corporate 
affairs, his associates would have been entitled to share. 
However, the accused’s conduct, consisting of his exclusion 
of his associates from the affairs of Blue Q, his diversion of 
corporate assets to his own use, and his unauthorized disso-
lution of the corporation, is comparable to theft in terms of 
its nature and scale of selfish dishonesty.
	
Second, unlike the accuseds in Pennington, Murdock, 
and Renshaw, the accused’s actions in relation to Schutfort, 
Alexander, and Blue Q did not involve a law firm or partners 
who were lawyers. That fact, however, represents a distinc-
tion without a difference. As this court explained in In re 
Stodd, 279 Or 565, 567-68, 568 P2d 665 (1977), we do not dis-
tinguish between a lawyer’s professional and nonprofessional 
roles when dealing with the money or property of others:
	
“Nothing less than the most scrupulous probity in deal-
ing with the funds of others is compatible with admission to 
committing theft by appropriation when he withdrew funds from bank accounts 
belonging to an alumni association for which he served as a volunteer treasurer. 
354 Or at 340-41.
294	
In re Herman
the practice of law. This is a standard that does not permit 
drawing a line between an attorney’s professional and his 
non-professional roles.”
Consistently with that case law, which confirms the prelimi-
nary sanction, we conclude that disbarment is the appropri-
ate sanction.
	
The accused is disbarred, effective 60 days from the 
date of this decision.