Opinion ID: 2604440
Heading Depth: 1
Heading Rank: 12

Heading: The Charge of Improper Use of Trust Funds in Payment of Services in the Defamation Cases

Text: This is by far the most serious of all the charges laid by the Bar complaint in Case 597. The other three charges are, in a sense, merely collateral to it. The first meeting between the defendant and the 17 prospective plaintiffs in the defamation case was had at the home of Mrs. Hatfield, in Dayton, Oregon, on January 24, 1952. She was one of the ex-members of the Auxiliary. A few days previously, Mrs. Ostrander, the leading and aggressive spokesman in the cause of the ex-members of the Auxiliary, had gone with Mrs. Hatfield to Mr. Reinmiller's office, in Portland, where and when they had outlined their grievances against certain persons in one of the Chapter factions. This resulted in arousing Mr. Reinmiller's interest in their complaints and the meeting had at the Hatfield home with all of the group represented by Mrs. Ostrander was arranged. After an explanation by Mr. Reinmiller at that January meeting of what he expected to accomplish in their behalf, all signed the retainer agreement which he had prepared before coming and whereby Messrs. Reinmiller and William B. Murray, as co-counsel, were hired to bring the action in their behalf, looking to reparation for the damages they claimed to have sustained by reason of the conduct of those who were subsequently made parties defendant. The 17 women signed in their individual capacities. But the agreement, as prepared by Mr. Reinmiller, also carried a place for the signature of the Disabled American Veterans Auxiliary, Unit 6. This was also executed under his direction in behalf of the Unit by two of the ladies present. Mrs. Richards signed as President and Mrs. Ostrander as Secretary. This signature by the Unit presents a unique and anomalous situation, inasmuch as Unit 6 had had its charter cancelled by official action of the national or parent body of the Auxiliary, effective as of August 20, 1950, and as far as the record here shows, the charter was never returned. Indeed, this fee agreement which Mr. Reinmiller had drawn opened with the following words: You are hereby authorized to take up and handle our litigation resulting from the cancellation of our Charter   . (Emphasis ours.) We give this phase of the retainer agreement more than passing attention because of what is hereinafter said about an item of $800 which was apparently loaned or given to the Association by the Auxiliary prior to the time of the charter cancellation. This item attains some importance as we shall later learn from Mr. Reinmiller's use of it as a last-minute device made the last day of the hearing in an abortive attempt to exonerate himself from the charge of misusing trust funds to secure payment of fees for services in the defamation cases. But, first, we turn back to the retainer agreement. The provision for the payment of services read: In payment for your services, you are to receive the minimum fee as fixed by the Oregon State Bar through its Advisory Schedule of Minimum Fees and Charges, of September 28, 1951, plus a reasonable hourly charge where services rendered are unscheduled. We understand that we are to prepay the costs and expenditures involved in these matters. Either before or possibly after the contract with Mr. Reinmiller was signed, but nevertheless, at Mrs. Hatfield's home on January 24, 1952, there was some discussion in Mr. Reinmiller's presence as to how moneys for the services and expenses would be raised. There is somewhat of a variant between the testimony of those present as to the plan. This much, however, seems to be clear. They would start, as they did, to raise $100 for Mr. Reinmiller's expenses. It also appears that there was a general accord that he should have the $800 which the Auxiliary had in 1950 placed at the disposal of the Association, if and when it might be returned by the Association. One of the difficulties encountered in our examination of the record was to ascertain exactly upon what terms the $800 was originally given to or received by the Association. It is variously said by some of the witnesses that it was a loan, or a loan to be repaid only if the finances of the Association would permit. Again, there is evidence in the office files of Mr. Reinmiller, introduced by him, that it was only a gift. The latter description of the $800 item appears on a statement made by Mrs. Ostrander in a report which she prepared, showing receipts and disbursements made by her in behalf of the Association from funds in her hands, including moneys of her own which she had advanced it. In this report the controversial item is listed as: D.A.V. Aux. gift 1950  $800. (Ex. 1, a voluminous file of miscellaneous documents and papers from Mr. Reinmiller's office bearing on the defamation actions.) If a gift, there was no obligation on the Association's part to repay. If, however, it was a loan, then a relationship of debtor and creditor existed, and the loan was an asset of the Auxiliary before the charter cancellation. If we assume that it was, in fact, a loan, then what right had 17 ex-members to make an assignment of the Auxiliary's ownership of this asset? This question becomes pertinent when we learn that shortly before the charter withdrawal, the Auxiliary claimed to have in excess of 100 members. Continuing the assumption that it was a loan and therefore a subsisting debt of the Association, we must conclude that the ownership of this asset reposed in the national or parent body of Auxiliary Unit No. 6. We find in Exhibit 49A (another voluminous file Mr. Reinmiller introduced in this matter) a letter from national officers of the Auxiliary. This letter tells us that upon a revocation of a unit charter, the National By-laws require that the property, money and effects of the revoked Unit be delivered to the National Adjutant to be held in trust for redelivery to a successor Unit if organized. Without impugning the motives of the 17 women who signed the agreement with Mr. Reinmiller and Mr. Murray, and conceding their possible ignorance of their legal rights in the premises, we must conclude that if the $800 given by the unit to the Association before being divested of its charter was, in fact, a loan, then these ex-members had no power or authority with reference to the disposition of the $800 if and when it was repaid by the Association. We add that the record also is silent as to whether these ladies ever attempted to authorize the Association to pay this loan to Mr. Reinmiller, or that the Association treated it as a loan and not a gift or ever authorized Mr. Reinmiller to liquidate its obligation of $800 to the Auxiliary, if it was, in fact, a debt of the Association. These references to the $800 item are but a prelude to what we will later say concerning Mr. Reinmiller's attempted use of that item. The Association, prior to the dates hereinafter referred to, sold the Memorial Building which it had erected for a sum around $40,000. After paying certain obligations, it invested most of the balance, except $7,000, in securities. On March 7, 1953, Mr. Ostrander, the president of the Association, and another officer, brought the Association's check in the amount of $7,000 to Portland for delivery to Mr. Reinmiller. Mr. Reinmiller being then confined at home, it was delivered to Mr. Murray, his associate, who deposited it on that date in Mr. Reinmiller's clients' trust account. The precise uses which these Association officers indicated that the money was to be applied is not too exact. Mr. Murray, as a witness for Mr. Reinmiller, said Mr. Ostrander told him that this money was set aside to care for    anticipated litigation and to settle accounts with Mr. Reinmiller and between himself [Ostrander] and Mrs. Ostrander. Later, Murray stated that it was also to be used in payment of charges growing out of libel cases. But still later, he testified that when the $7,000 was received, there was no particular mention made that the money was to be used in payment of charges accruing in the libel and slander cases. On March 16, 1953, Mr. Reinmiller drew a check against the trust fund for $2,500, payable to William Murray, who then, in turn, endorsed and returned it to Reinmiller. We are of the opinion that Mr. Reinmiller then and until the Bar's complaint was filed treated that $2,500 as a payment upon services rendered and expenditures made in connection with the defamation cases, with one-half of the amount going to Mr. Murray, according to Murray's testimony. We point to only a few of the record matters which tend to confirm this conclusion. On January 6, 1954, the day before the beginning of the trial in the quo warranto matter, Mr. Reinmiller and Mr. Murray attended a specially called meeting of the directors of the Association in Salem. They brought with them a previously drafted form of minutes for the meeting, prepared by Mr. Reinmiller. This, if adopted, required the approving signatures of all the directors. They were not signed that night, or ever, so far as the record here shows, although Mr. Reinmiller and Mr. Murray testified that they had been told that they had later been signed by some of the Directors. If so, the minutes were not produced nor was one director called by defendant to attest anything upon which Mr. Reinmiller relies in his defense in this case. The significant feature about the minutes which Mr. Reinmiller drew is their content and purpose as revealed by the unsigned copy which was put in evidence. Its overall effect was to confirm all that Mr. Reinmiller had theretofore done with respect to the $2,500 withdrawal from the $7,000 of trust moneys given to him, and also to approve other actions in other matters. It indicates his apprehension about the propriety of his action in applying the money for the benefit of the ex-members of the Auxiliary. Among the recitals in the ratifying resolution included in the Reinmiller draft of the minutes was a whereas clause, reading: Whereas, George C. Reinmiller has heretofore been employed by the corporation to prosecute cases in the Circuit Court of the State of Oregon for Marion County for certain women formerly members of the DAV Women's Auxiliary, and,   . And in the last paragraph of the resolution we find: FURTHER RESOLVED, that the payments heretofore made by the corporation to George C. Reinmiller for attorney's fees, including $2,500.00 paid on account of the handling of the cases of the former members of the Women's Auxiliary to DAV Chapter 6, and all fees heretofore paid by the corporation to said George C. Reinmiller, be, and hereby are, confirmed, approved, and ratified. The clause of the resolution relating to his employment by the Association to prosecute cases for the women runs counter to their signed agreement with him to which we earlier made reference, and counter to their own understanding, as we shall later note. The proposed resolution for the Association directors confirms that he had drawn on the $7,000 for $2,500 to apply on accounts in the cases he had for the women when he had no right to do so, even though it might be said, as it cannot, that the directors could employ trust funds of the Association for such a purpose. A further item of confirmation is to be derived from the accounting he presented to the officers of the Association that same evening. This exhibit reveals the controverted check for $2,500 to Mr. Murray, but without a statement as to the application of the money. The defendant testified: In my mind the equitable thing was to apply it to the women's cases and later said on direct examination that was the way he treated it and considered it. Mrs. Bennett, Mrs. Richards and Mrs. Ostrander, all of the group of ex-members of the Auxiliary who retained him, when called by the Bar testified that he was to get the $800 loan, if and when repaid by the Association, but all denied authorizing him to collect any other part of their fees from the Association. This testimony stands undisputed. We refer to Mr. Reinmiller's letter of September 26, 1955, written to Mr. Duffy, of the Bar Committee, disclosing not only a previous appropriation of $2,500 to the women's accounts, but an attempted justification. He there says:    The total amount received into the office I believe was in excess of $3000 and somewhat less than $4000, which would cover not only fees, but court costs, sheriff's fees and other disbursements as well. That which amounts to in excess of $3000, that is, the part over the $2,500, is represented by smaller amounts received directly from the women from time to time. Mr. Reinmiller's vacillation concerning the $2,500 attains its peak on the last day of the hearing. He had completed his direct testimony at the conclusion of the hearing ten days before. On the opening of the last day and after resuming the stand, his counsel asked permission to address a few more questions. Evidently, the defendant had been reconsidering the unfavorable position in which his previous testimony and certain exhibits had placed him, because he then said:    Now, since there has been a question raised here in this hearing about the corporation wanting this $2,500 applied in the women's cases and since there is no question raised here about the $800 which was loaned by the women to the Building Association being applied on their cases, I am at this time applying $800 of the $2,500 check drawn on my trust account to the women's cases. The remainder of the $2,500 check drawn on my checking account, I am applying to the work of the corporation. This was a last-minute about-face adjustment of accounting records initially made three years before. It was attempted even though Reinmiller then knew or should have known from his own office records, that if a $800 loan had been truly made by the Auxiliary to the Association, his clients did not own that asset, as we have earlier demonstrated. Moreover, he offered no evidence that the Association recognized such an indebtedness to the Auxiliary, or, if it did, that it had authorized him to make payment of the debt from the $7,000 which had been given to him for other purposes. To our minds, it was a last-minute gesture of desperation on the part of one who suddenly realizes his position is untenable. It is an obvious contradiction of his earlier statement that he had learned that the Association's directors had, subsequent to January 6, 1954, approved the minutes which he submitted to them on that date. The defendant, in his briefs, as well as by some of his testimony, attempts to justify his disbursements on the theory that there was a legal obligation on the part of the Association to absorb the expense of the slander litigation in which he represented the former members of the Auxiliary. At times he refers to the women as employees, and again rests upon what is no more nor less than a moral obligation because of their help in raising funds for the Association as they and whomsoever else were members of the Auxiliary did in the halcyon days of their charter membership. This is, indeed, a surprisingly fallacious and untenable argument for any lawyer to advance as a justification for the distribution of trust funds under the circumstances present here. Its weakness is compounded by the fact that he was the chief beneficiary of the disbursements which he made directly to himself. We do not gainsay the value of these women of the Auxiliary to the Association, nor attempt to minimize in any respect the many good things they unselfishly did for the Association. But in so doing, they labored as other women labor in behalf of churches, schools and other charitable and public institutions to whose causes they are dedicated and do so without the expectation of the species of aid that the defendant now demands in their behalf. To their honor and credit, they, as their contract with Mr. Reinmiller reveals, expected to pay their own bill without the aid of the Association, and, as their testimony shows, never authorized him to appeal to the Association for such help. 11. All property of any kind held by the Association by reason of its chartered character is impressed with a trust, and, as such, can be employed only for the charitable purposes and objects for which the Association was incorporated and for expenses of administration necessary to accomplish those ends. No part of the Association funds could be legally expended on the litigation in which these women were engaged. Even if Reinmiller had been fortified with a resolution on the part of the directorate to spend trust funds for such purposes, it could not operate to legally ratify such a use. 12. Mr. Reinmiller, as an attorney, and more so because of being an attorney of long practice in Oregon and in Nebraska, before coming to this state, is chargeable with knowledge of the legal impropriety of expenditures of the kind he here seeks to justify on his part. It also exhibits a want of professional responsibility to his client the Association and its officers who were dependent upon his superior knowledge of the law. Had they given heed to his urgent advice and adopted then or later a resolution of the kind tendered by him to the corporate officers at their meeting of January 6, 1954, it would have been an act ultra vires on their part, exposing the officers to possible personal liability against which their plea of good motive and honest intent would have been no defense. That date, we note, was on the very eve of the day before the quo warranto trial, wherein their right to hold office as the directors was the principal issue. In short, in Reinmiller's eagerness to build a tenuous defense for himself, he was ready to expose the officers of the Association to charges of misfeasance and the possibility of actions to recoup the misapplied funds of the Association. If he had need to supplement his knowledge of the applicable law, he would have discovered the essence of the principle which here controls in the Association's By-laws, which provide:  ARTICLE SEVEN. The assets and funds of the corporation may be received from gifts or bequests and otherwise, and shall be held and used by the Board of Directors for the purpose only of this corporation and not otherwise, and shall be held and administered in trust for the purposes of this corporation and its objects. How could he escape knowledge of it during his long period of service to the Association? And how can he now with good conscience argue against its plain impact in the instant matter? Before closing our comment on this charge, we think it in order to observe that Mr. Reinmiller issued two other checks against the trust funds in his possession in payment of expenses directly and entirely incident to the defamation cases. We point them out although no reference is made to them in the Bar complaint or argument. They are subject to the same condemnation that we apply to the $2,500 check and for the same reasons. In defendant's accounting to the Association on January 6, 1954, to which we have already made reference, will be found two other checks, both dated March 27, 1953: one to the County Clerk of Marion County for $190.40 and one to the Sheriff of that county for $27.66. The first was for filing fees and the second for service of summonses and complaints in the litigation in which the former Auxiliary members were plaintiffs. They also appear as photostatic exhibits appended to defendant's answer to the complaint of the Bar. Thus, he is responsible for a misuse of trust funds totaling $2,718.06. 13. We find that the Bar has sustained this charge, the third in its complaint in Case 597.