Opinion ID: 4577870
Heading Depth: 3
Heading Rank: 1

Heading: H., A.M., and D.M.

Text: 39. It is clear that at the time the stock purchase agreement was executed, A.M. and D.M. were buying A.H.'s limousine business and not his promise to work for them after the business was transferred to them. 40. By May 28, 2004, A.M. and D.M. paid A.H. $105,000 as agreed. Then, during the month of June, 2004, A.M. and D.M. paid A.H. another $24,420. All totaled by the end of June, A.M. paid A.H. $129,420 of the agreed $550,000 purchase price. 41. After signing the stock purchase agreement, A.M. formed a corporation for his limousine business. 42. On June 29, 2004, A.M. went to A.H.'s office after hours to review information related to the limousine business. At that time, A.M. came across an April 15, 2004, a cell phone invoice which referenced the chapter seven bankruptcy petition. A.M. was unaware of the bankruptcy until that time. As a result, A.M. hired a private investigator to investigate details about the bankruptcy. The private investigator found detailed information regarding the bankruptcy, including Schedule B of the bankruptcy filings where A.H. listed the limousine business at zero value. On July 2, 2004, A.M. informed the respondent that A.H. filed for bankruptcy. 43. On July 2, 2004, the respondent obtained and reviewed copies of the bankruptcy filings. When the respondent reviewed A.H.'s bankruptcy filings, he noticed that A.H. attributed zero value to the limousine business on Schedule B of the bankruptcy filings. That day, the respondent met with A.H., A.M., and D.M. The respondent recommended rescheduling the closing date in order to research the impact the 8 bankruptcy action had on the stock purchase agreement. The parties mutually agreed to reschedule the closing based on the respondent's recommendation. 44. After A.M. told the respondent about A.H.'s bankruptcy, the respondent was on notice that his two clients were in direct conflict with one another. The respondent did not withdraw from the representation; rather, the respondent negotiated a different deal between the parties. Further, the respondent did not seek and obtain his clients' consent to continue the joint representation after consultation regarding the conflict. 45. On this subject, the bankruptcy court found that the respondent: 'suggested that the problems posed by [A.H.]'s bankruptcy could be avoided if the transaction was recharacterized as a sale of services instead of a sale of the business or a sale of assets. To that end he prepared a [second agreement] (which was backdated to May 28 even though it was signed on or about July 6) wherein [A.H.] agreed to provide his services to [A.M.]'s limousine company for one year in exchange for $300,000 plus incentive payments based on the performance of [A.M.]'s new limousine company. Like the Stock Purchase Agreement, the [second agreement] included a covenant not to compete; unlike the Stock Purchase Agreement, the [second agreement] specified that $50,000 of the sale price was attributable to the covenant. Despite purporting to be a services agreement, the [second agreement] contains many provisions one would expect to see only in a contract for the sale of a business or its assets.' In the second agreement, A.M.'s corporation replaced A.M. and D.M. as the party named on their side of the transaction. The purchase price was reduced to $300,000 because A.M. could not verify the net income A.H. indicated the limousine business generated. The next day, A.H. and A.M. signed the second agreement and A.M. paid A.H. $171,000, the balance of the purchase price under the second agreement. 9 46. Toward the end of July, 2004, A.M. discovered that the operations and finances of the business did not live up to A.H.'s representations. A.M. returned the office keys, abandoned the business, and attempted to rescind the transaction. A.H., however, refused to return any of A.M.'s money. A.H. apparently retained whatever tangible assets had been purportedly sold to A.M. and continued to operate the limousine business. 47. A.H. met with the respondent to discuss his options. The respondent suggested that A.H. consult with legal counsel and the respondent referred A.H. to Cynthia (Grimes) Norton. (Since that time, Ms. Norton took the federal bankruptcy bench.) In late July, 2004, the respondent called Ms. Norton and let her know that A.H. would be calling for advice about a transaction involving a limousine deal in connection with his chapter seven bankruptcy case. Specifically, the respondent told Ms. Norton that the transaction had been structured as a sale of assets but was going to be restructured as something else because the seller was in bankruptcy. Ms. Norton told the respondent that she did not think that restructuring would work but she would talk with A.H. 48. That same day, A.H. called Ms. Norton on her cell phone and discussed the situation with A.M. While Ms. Norton had A.H. on the phone, Ms. Norton pulled up A.H.'s bankruptcy case. She noted that an adversary proceeding was pending. Ms. Norton told A.H. that he needed to inform his attorney of the situation so that the trustee could be informed. Ms. Norton did not undertake to represent A.H. 49. On July 26, 2004, A.H. met with his bankruptcy attorney, told his attorney about the second agreement, and provided him with a copy of the second agreement. A.H. did not disclose the existence of the stock purchase agreement to his attorney. 50. That same day, A.H.'s attorney wrote to the bankruptcy trustee and provided him with a copy of the second agreement. 'Enclosed please find a copy of the Intrust Bank statement requested by your office in the [A.H.] case, which was provided to me today, July 26, 2004. If you will determine the balance due to the bankruptcy estate, I 10 believe that [A.H. and his wife] will turn over those funds in a timely manner. 'Additionally, I have enclosed a copy of an agreement entered into postpetition by [A.H.]. [A.H.] is concerned that his failure to advise you of this agreement is a violation of his duties under the bankruptcy law. My understanding of the agreement is that it is an agreement not to compete and to provide consultation to [A.M.] and Kansas City Limousine & Budget Limousine. As such, I do not believe that any income derived from this agreement is property of the bankruptcy estate. '[A.H. and his wife] are very eager to finalize their bankruptcy case. I note that discharge was entered in the case on May 18, 2004. Please advise.' 51. The bankruptcy trustee reviewed the second agreement and concluded that despite the large amount of money being paid to A.H., the payment appeared to be for services and did not constitute property of the estate. 52. About that same time A.M. complained to the Johnson County District Attorney about what he believed to be A.H.'s fraudulent conduct. An investigation was initiated and in early 2005, an investigator met with the bankruptcy trustee. The investigator provided the bankruptcy trustee with a copy of the stock purchase agreement. This was the first time the bankruptcy trustee saw the stock purchase agreement. 53. In January, 2005, the respondent assisted A.H. with selling the limousine business again. 54. On April 28, 2005, Christopher Redmond wrote to the respondent regarding the sale of the limousine business from A.H. to A.M. In the letter, Mr. Redmond asserted that A.H. converted bankruptcy estate property by selling the business to A.M. Mr. Redmond characterized the second agreement as 'an attempt to defraud.' 11 55. On December 7, 2005, Mr. Redmond filed an adversary proceeding. Ultimately, A.H., A.M., D.M., A.M.'s corporation, the respondent, and other individuals and entities were joined as defendants. 56. In the adversary proceeding, the court concluded that the entire $300,420 paid by A.M. was for the business and became bankruptcy estate property. Specifically, the court found that the $129,420 was paid pursuant to the stock purchase agreement in contemplation of A.M.'s receipt of the company's assets. The court also found that the parties' intent was not changed by the execution of the second agreement. The court characterized the second agreement as a 'sham.' The court also stated, '[t]he Agreement was a thinly disguised subterfuge designed to secure the transaction's true nature; the artifice was specifically designed to skirt the bankruptcy laws.' The court also found that the $171,000 A.M. paid A.H. at closing was likewise property of the bankruptcy estate. Ultimately, the court revoked A.H.'s discharge in bankruptcy. 57. After lengthy negotiations, on March 7, 2007, Mr. Redmond, A.M., D.M. and A.M.'s corporation entered into a settlement agreement. 58. Then, on July 8, 2014, Mr. Redmond and the respondent entered into a settlement agreement. To settle the matter, the respondent paid Mr. Redmond $250,000. 59. A.M. and D.M. filed suit against the respondent and A.H. Included in the allegations in the petition was a claim for legal malpractice against the respondent. In 2018, the case went to trial. The jury found the respondent to be 20% at fault, A.M. and D.M. to be 44% at fault, and A.H. to be 36% at fault. 60. On February 25, 2016, A.M. filed a complaint with the disciplinary administrator regarding the respondent. On April 11, 2016, the respondent provided a written response to A.M.'s complaint. In this final hearing report, the hearing panel has referenced relevant items of evidence from the adversary proceeding as well as the lawsuit filed by A.M. and D.M. For purposes of the disciplinary proceeding, a detailed recitation of the history of the two lawsuits is not relevant to the allegations in the formal complaint filed in this case. 12 Conclusions of Law 61. Based upon the findings of fact, the hearing panel concludes as a matter of law that the respondent violated KRPC 1.1 (competence), 1.2(c) (scope of representation), 1.7 (conflict of interest), 2.1 (exercise independent judgment), and 8.4(d) (conduct prejudicial to the administration of justice), as detailed below. 62. The hearing panel notes that KRPC 1.2 (scope of representation) and KRPC 1.7 (conflict of interest) have been amended since the respondent engaged in the misconduct. The hearing panel is relying on the rules that were in effect at the time the respondent engaged in the misconduct. KRPC 1.1 63. Lawyers must provide competent representation to their clients. 'Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.' The respondent failed to provide A.M. with competent representation. In the engagement letter, the respondent agreed to advise A.M. (as well as A.H.) regarding the transaction. Despite his agreement to advise A.M., the respondent failed to competently advise A.M. regarding the transaction. The respondent was unaware that A.H. filed bankruptcy and listed the limousine business as an asset with a $0 value. Further, at the hearing on the formal complaint, the respondent admitted that he would not counsel a client to enter into the agreements involved in this matter because there are no barriers to enter the limousine service market. Moreover, the respondent admitted that he was not versed in bankruptcy. Clearly, the respondent failed to give A.M. (as well as A.H.) competent counsel regarding the transaction particularly in light of the bankruptcy case. The hearing panel concludes that the respondent failed to provide competent representation to A.M., in violation of KRPC 1.1. 13 KRPC 1.2(c) 64. In 2004, KRPC 1.2(c) remained in its original form and provided that '[a] lawyer may limit the objectives of the representation if the client consents after consultation.' In this case, the respondent did not obtain A.M.'s consent to limiting his representation. In fact, the engagement letter provided to the contrary. The engagement letter clearly stated that the respondent would 'advise both [A.H.], as the seller, and [D.M. and A.M.], as the purchasers'. A.M. relied on the language in the engagement letter that he would advise A.M. regarding the transaction. A.M. retained the respondent to prepare all the necessary documents and to advise him on the deal. Nowhere in the respondent's engagement letter does the respondent indicate that he is limiting his representation or serving as a 'mere scrivener.' The respondent admitted that he advised the parties on matters during the representation. Upon review of this same issue, the bankruptcy court concluded that the respondent's assertion that he was a mere scrivener came 'close to being so utterly implausible in light of conceded or irrefutable evidence that no rational person could believe [it].' Accordingly, the hearing panel concludes that the respondent violated KRPC 1.2(c), as it existed in 2004. KRPC 1.7 65. In 2004, KRPC 1.7 provided: '(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless: (1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and (2) each client consents after consultation. '(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to 14 another client or to a third person, or by the lawyer's own interests, unless: (1) the lawyer reasonably believes the representation will not be adversely affected; and (2) the client consents 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. Consultation was and still is defined in the rules as 'communication of information reasonably sufficient to permit the client to appreciate the significance of the matter in question.' 66. In the engagement letter, the respondent purported to comply with KRPC 1.7. The respondent stated that he had disclosed 'the potential conflicts . . . [and] after acknowledging such conflicts you all agree to waive any such conflict and retain us nonetheless.' Based on the record before it, the hearing panel concludes that the provision in the engagement letter does not satisfy the consent after consultation requirement of KRPC 1.7. 67. First, as of July 1, 2014, when the respondent learned of A.H.'s bankruptcy, the respondent was placed on actual notice of a direct conflict of interest between his two clients. The respondent was prohibited from continuing to represent both clients, unless each client consented after consultation. The respondent did not withdraw from the representation nor did he obtain each client's consent after consultation. Rather, as found by the bankruptcy court, the respondent suggested to A.M. and A.H. that he draft a second agreement to attempt to work around the bankruptcy. As such, the hearing panel concludes that the respondent violated KRPC 1.7(a). 68. Second, the respondent never disclosed to A.M. his previous personal and professional relationship with S.L. and his previous professional relationship with 15 IFC. It is clear that the respondent's previous personal and professional relationship with S.L. and his previous professional relationship with IFC, may have materially limited the respondent's representation of A.M. in this case. The respondent did not explain the conflict to A.M. nor did he seek or obtain A.M.'s consent to this conflict. The hearing panel concludes that the respondent's failure in this regard amounts to a violation of KRPC 1.7(b). KRPC 2.1 69. Lawyers must exercise independent professional judgment and render candid advice. KRPC 2.1. In this case, the respondent failed to exercise independent professional judgment and render candid advice to A.M. when he failed to advise A.M. of the potential and actual problems with entering the agreements. The respondent's judgment was influenced by the economic factors relevant to the entire situation, particularly so given his previous relationships with S.L. and IFC. The respondent's failure to exercise independent professional judgment and candid advice is particularly egregious after the respondent learned of A.H.'s bankruptcy. Moreover, the respondent testified that he would not have advised 'an independent' client to proceed as A.M. proceeded because there are no barriers to enter the limousine service business. As A.M.'s attorney, under KRPC 2.1, the respondent owed him the duty to exercise independent judgment and render candid advice. The hearing panel concludes that the respondent failed to do so in violation of KRPC 2.1. KRPC 8.4(d) 70. 'It is professional misconduct for a lawyer to . . . engage in conduct that is prejudicial to the administration of justice.' Rule 8.4(d). The respondent engaged in conduct that was prejudicial to the administration of justice when he drafted the second agreement in an attempt to circumvent the bankruptcy case. The respondent knew that the assets of the limousine service, regardless of their value, were part of the bankruptcy estate. The hearing panel agrees with the bankruptcy court that attempting to restructure the deal was 'a thinly disguised subterfuge designed to secure the transactions true nature; 16 the artifice was specifically designed to skirt the bankruptcy laws.' The respondent's attempt to skirt the bankruptcy laws violated KRPC 8.4(d). 71. In 1982, the Kansas Supreme Court considered an attorney disciplinary case that presented a similar factual scenario. The respondent in State v. Callahan, 232 Kan. 136 (1982), represented both parties, L.L. and R.F., in a land transaction. L.L. had been the respondent's long time client and was also the respondent's business partner. L.L. suggested to R.F. that the respondent handle the transaction for both of them. R.F. agreed and the respondent drafted two contracts for L.L. and R.F. Relying on Mr. Callahan's advice, R.F. executed the contracts. The terms were favorable to L.L. and ultimately, L.L. did not pay the balance on the land. R.F. believed that the respondent had secured her interest in the land by recording a lien on her behalf. Unbeknownst to her, the respondent did not record a lien and R.F. did not have a secured interest in the property. In the disciplinary proceeding, the respondent argued that he did not represent R.F., but rather he was a 'mere scrivener.' 72. The Court summarized the case as follows: '. . . [R.F. and her family] relied upon respondent to represent them as their lawyer rather than as a mere scrivener. He failed to disclose his close business ties with [L.L.] and to exercise his independent professional judgment [on] behalf of . . . [R.F. and her family] in preparing the contracts for the sale. His delay in apprising [R.F. and her family] that they had no foreclosable interest was less than an honest representation.' 73. Callahan is remarkably similar to the case at hand. Callahan and the respondent both failed to exercise independent professional judgment on behalf of their clients in rendering advice and drafting the agreements. Callahan and the respondent drafted documents which were unfavorable to one of their clients in favor of their other client. The injured parties in both cases, R.F. and A.M., relied to their detriment on their attorneys to provide independent professional judgment and candid advice regarding the transaction. Callahan argued, as the respondent does here, that he was a mere scrivener. 17 Callahan had an existing relationship with the other party who stood to gain if the transaction was completed. Here the respondent had an existing relationship with S.L. and IFC who both stood to benefit if the agreements were entered. Callahan delayed informing R.F. that she did not have a secured interest in the property. Here, the respondent never informed A.M. of the loss he would suffer because the limousine business was part of the bankruptcy estate. 74. The Callahan case was decided under the old disciplinary rules. The Court in that case, found that Mr. Callahan violated DR 1-102(A)(4) (conduct that involves dishonesty, fraud, deceit, or misrepresentation), DR 5-105(B) and (C) (conflict of interest), and DR 6-101(A)(3) (neglecting a legal matter). The Court indefinitely suspended Mr. Callahan's license to practice law. 75. Because of the factual similarities between Callahan and the present case, the hearing panel finds the Court's consideration of Callahan to be persuasive. American Bar Association Standards for Imposing Lawyer Sanctions 76. In making this recommendation for discipline, the hearing panel considered the factors outlined by the American Bar Association in its Standards for Imposing Lawyer Sanctions (hereinafter 'Standards'). Pursuant to Standard 3, the factors to be considered are the duty violated, the lawyer's mental state, the potential or actual injury caused by the lawyer's misconduct, and the existence of aggravating or mitigating factors. 77. Duty Violated. The respondent violated his duties to his client to provide competent representation and to refrain from engaging in conflicts of interest. The respondent likewise violated his duty to the legal profession to refrain from engaging in activity that is prejudicial to the administration of justice. 78. Mental State. The respondent knowingly and intentionally violated his duties. 18 79. Injury. As a result of the respondent's misconduct, the respondent caused actual, serious injury. As a result of the respondent's failure to exercise independent professional judgment and render candid advice, A.M. paid A.H. $300,420 for a business which A.H. did not own and which A.H. had previously valued at $0. Additionally, as a result of the respondent's misconduct and in an attempt to recover some of the $300,420 he lost, A.M. filed suit. The litigation lasted nearly 15 years. Aggravating and Mitigating Factors 80. Aggravating circumstances are any considerations or factors that may justify an increase in the degree of discipline to be imposed. In reaching its recommendation for discipline, the hearing panel, in this case, found the following aggravating factors present: a. Prior Disciplinary Offenses. While the respondent had not yet been disciplined at the time the misconduct occurred in this case, the respondent now has a history of prior disciplinary offenses. Specifically, the respondent has been previously disciplined on two occasions.
diversion agreement with the disciplinary administrator's office. In the diversion agreement, the respondent stipulated that he violated KRPC 1.2 (scope of representation), KRPC 1.3 (diligence), KRPC 1.8 (conflict of interest), KRPC 1.15 (safekeeping property), KRPC 3.2 (expediting litigation), and KRPC 8.4 (professional misconduct).
administrator informally admonished the respondent for violating KRPC 1.3 (diligence), KRPC 1.4 (communication), KRPC 5.1 (responsibilities of supervising lawyers), and KRPC 5.3 (responsibilities regarding nonlawyer assistance). 19 b. Dishonest or Selfish Motive. Throughout the extensive litigation on the matter and throughout the disciplinary proceedings, the respondent falsely characterized his role as a mere scrivener. Characterizing his role in this fashion was dishonest. The respondent (improperly) agreed to represent both sides to an agreement. By agreeing to represent A.M., he agreed to provide A.M. with independent and candid advice. Likewise, characterizing his role as a mere scrivener was also selfish. In so doing, the respondent sought to minimize his culpability in this matter. The respondent's dishonest and selfish motivation in this case is a considerable aggravating factor. c. A Pattern of Misconduct. Over the course of years, the respondent repeatedly falsely asserted that his role in the matter was that of a mere scrivener. Because the respondent repeatedly falsely asserted that he was a mere scrivener, he engaged in a pattern of misconduct. d. Multiple Offenses. The respondent committed multiple rule violations. The respondent violated KRPC 1.1 (competence), 1.2(c) (scope of representation), 1.7 (conflict of interest), 2.1 (exercise independent judgment), and 8.4(d) (conduct prejudicial to the administration of justice). Accordingly, the hearing panel concludes that the respondent committed multiple offenses. e. Refusal to Acknowledge Wrongful Nature of Conduct. The respondent has refused to acknowledge any wrongdoing. f. Vulnerability of Victim. A.M. was vulnerable to the respondent's misconduct. He is not an attorney; he relied on the respondent to provide him independent professional judgment and candid advice. g. Substantial Experience in the Practice of Law. The Kansas Supreme Court admitted the respondent to practice law in the State of Kansas in 1987. At the time of the misconduct, the respondent had been practicing law for 17 years. 20 81. Mitigating circumstances are any considerations or factors that may justify a reduction in the degree of discipline to be imposed. In reaching its recommendation for discipline, the hearing panel, in this case, found the following mitigating circumstances present: a. The Present and Past Attitude of the Attorney as Shown by His or Her Cooperation During the Hearing and His or Her Full and Free Acknowledgment of the Transgressions. While the respondent fully cooperated with the disciplinary process, the respondent did not acknowledge his transgressions. b. Previous Good Character and Reputation in the Community Including Any Letters from Clients, Friends and Lawyers in Support of the Character and General Reputation of the Attorney. The respondent is an active and productive member of the bar. The respondent also enjoys the respect of his peers and generally possesses a good character and reputation as evidenced by several letters received by the hearing panel. c. Delay in Disciplinary Proceedings. The respondent argued that there was a delay in the disciplinary proceedings. A.M. filed the complaint in 2016. While the litigation remaining pending, and at the request of the respondent, the case was put on hold until after the litigation was resolved. While the disciplinary complaint was not filed at the time of the misconduct, the disciplinary proceedings have not been delayed other than at the request of the respondent. This is not a mitigating factor. d. Imposition of Other Penalties or Sanctions. The respondent settled the dispute with the bankruptcy trustee by paying $250,000. Additionally, following a five day jury trial, the respondent was found to be 20% liable for A.M.'s $171,000 loss. e. Remorse. In his closing argument, counsel for the respondent referenced the respondent's remorse in this case. The hearing panel reviewed the transcript and found the following: 'A. . . . In hindsight, I wish I would have ran. My crazy. I'm so sorry to everybody that I didn't. What I was trying to do, though, was 21 help two people who really wanted to do a deal together, if they came to terms, do a deal under the—under the boundaries of what I was doing. I was just doing what I was asked. Is that a good excuse? No, it's not. Should I have made calls, no I shouldn't have. I've kicked myself for the last 15 years I guess for that. So, no, I should have done things, but I didn't.' 82. In addition to the above-cited factors, the hearing panel has thoroughly examined and considered the following Standards: '4.32 Suspension is generally appropriate when a lawyer knows of a conflict of interest and does not fully disclose to a client the possible effect of that conflict, and causes injury or potential injury to a client. '5.11 Disbarment is generally appropriate when: .... '(b) a lawyer engages in any other intentional conduct involving dishonesty, fraud, deceit, or misrepresentation that seriously adversely reflects on the lawyer's fitness to practice. '5.13 Reprimand is generally appropriate when a lawyer knowingly engages in any other conduct that involves dishonesty, fraud, deceit, or misrepresentation and that adversely reflects on the lawyer's fitness to practice law. '6.11 Disbarment is generally appropriate when a lawyer, with the intent to deceive the court, makes a false statement, submits a false document, or improperly withholds material information, and causes 22 serious or potentially serious injury to a party, or causes a significant or potentially significant adverse effect on the legal proceeding. '6.12 Suspension is generally appropriate when a lawyer knows that false statements or documents are being submitted to the court or that material information is improperly being withheld, and takes no remedial action, and causes injury or potential injury to a party to the legal proceeding, or causes an adverse or potentially adverse effect on the legal proceeding. '7.2 Suspension is generally appropriate when a lawyer knowingly engages in conduct that is a violation of a duty owed as a professional, and causes injury or potential injury to a client, the public, or the legal system.' Recommendation 83. The disciplinary administrator recommended that the respondent be disbarred. Counsel for the respondent recommended that the respondent be reprimanded for the misconduct. 84. Based upon the findings of fact, conclusions of law, the Standards listed above, and In re Callahan, the hearing panel unanimously recommends that the respondent's license to practice law in Kansas be suspended for a period of one year. 85. Costs are assessed against the respondent in an amount to be certified by the Office of the Disciplinary Administrator.