Supervisory Partner of Law Firm Disciplined for Failure to Oversee Trust Account

In the Matter of an Anonymous Member of the Bar of South Carolina, No. 27973 (South Carolina May 27, 2020) imposes a non public admonishment on the supervisory partner of a law firm office who failed to oversee the firm’s trust account. The event that triggered the discipline was a series of thefts by an employee of the firm. The employee wrongfully stole funds from the operating and trust accounts. The firm’s insurer reimbursed the firm for the losses and no clients suffered any economic losses. The member of the South Carolina bar failed to supervise the trust account.

The facts:

Morris Hardwick Schneider (MHS) was a multi-jurisdictional real estate closing and default services law firm based in Atlanta, Georgia. In 2014, Nathan Hardwick was MHS’s CEO and held a majority interest in the firm. Hardwick oversaw corporate accounting for MHS and financial and accounting matters for the closing side of the practice from his office in Atlanta. MHS had two other equity partners, Mark Wittstadt and Gerard Wittstadt, who were based in Maryland and headed the firm’s default services practice. None of MHS’s equity partners were licensed to practice law in South Carolina.

In 2014, Respondent served as the managing attorney for MHS’s Dunwoody, Georgia office but was also a non-equity partner in the firm and held the title of President of South Carolina Operations. In that role, Respondent provided oversight and assistance with business development, marketing, communications, hiring, and training in the South Carolina offices located in Columbia and Greenville. However, Respondent was not involved with or responsible for the day-to-day operations of either South Carolina office….

A partner in a law firm is required to make reasonable efforts to ensure the law “firm has in effect measures giving reasonable assurances that all lawyers in the firm conform to the Rules of Professional Conduct.” Rule 5.1(a), RPC, Rule 407, SCACR. Additionally, law firm partners are required to “make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance” that the conduct of non-attorney assistants is compatible with the attorneys’ own professional obligations. Rule 5.3(a), RPC, Rule 407, SCACR.

Rule 417, SCACR, restricts access to South Carolina trust accounts in order to protect the funds contained in those accounts and those to whom the funds belong. Rule 2, Rule 417, SCACR. Only an attorney admitted to practice in South Carolina and individuals directly supervised by an attorney so admitted may have authority to sign checks or transfer funds from a client trust account. Id. Rule 417 also requires monthly reconciliation of all South Carolina trust accounts. Rule 1, Rule 417, SCACR.

In the instant matter, Respondent admits she failed to uphold her responsibilities as a partner in MHS. She failed to make reasonable efforts to ensure the firm’s attorneys and non-attorney staff complied with Rule 417, SCACR, with regard to South Carolina trust accounts. Numerous people who had access to the South Carolina trust accounts were neither licensed to practice law in South Carolina nor directly supervised by an attorney who was, including several attorneys licensed in other jurisdictions and non-attorney staff who worked in the firm’s accounting department in Atlanta. Respondent’s misconduct enabled those with impermissible and unfettered access to misappropriate almost $30 million. Further, the misappropriations were allowed to continue undetected because MHS’s non-attorney accounting staff were in charge of receiving the trust account bank statements and reconciling the accounts. Neither Respondent nor any other South Carolina licensed attorney reviewed the reports or supervised the reconciliation process as required by Rule 417, SCACR.

Accordingly, Respondent admits her conduct in this matter violated Rules 5.1(a) and 5.3(a), RPC, Rule 407, SCACR, and Rule 417, SCACR. Respondent also admits the allegations contained in the Agreement constitute grounds for discipline pursuant to Rule 7(a)(1), RLDE, Rule 413, SCACR (violating or attempting to violate the Rules of Professional Conduct).

Comment: the thefts from the trust account were substantial, $648,937.40. The lawyer is very fortunate that she received a nonpublic reprimand.

Should you have a legal ethics question or concern, do not hesitate to contact us. We can often provide solutions and resources to ethics issues.

California Dismisses Claims Against Lawyer Who Acted As Trustee for Elderly Client

It is a rare week when I do not read about the abuse of an elderly person by a lawyer – or by someone the lawyer created a power of attorney for. In the case of Drexel Andrew Bradshaw, 16-O-15558, the State Bar Court of California dismissed all charges against Bradshaw. This case is somewhat scary for lawyers because it should not have been brought at all. Bradshaw had to do a great deal of work to extricate himself from the wrongful charges. Indeed, he must have lost quite a bit of sleep as well.

Bradshaw was named as a trustee of a client’s trust. When the elderly client became incapacitated, Bradshaw obtained nursing care for the client and had repairs made to the client’s home. As Trustee, Bradshaw retained a contractor. Previously, Bradshaw had incorporated the contractor. Bradshaw had no ownership interest in the contractor. (If Bradshaw had been the owner of the contractor, retaining the contractor would have violated his fiduciary duty to the trust and his client and would have constituted self-dealing). Because he had no ownership interest in the contractor, there was no self-dealing.

The California State Bar believed that by retained a contractor who he had incorporated, Bradshaw had engaged in self-dealing and a conflict of interest. The hearing panel recommended disbarment. Bradshaw appealed.

On appeal, the Review Department dismissed all of the charges against Bradshaw.

The Review Opinion states:

Upon our independent review of the record (Cal. Rules of Court, rule 9.12), we do not find clear and convincing evidence to support culpability as to the charged misconduct. We reject OCTC’s premise that Bradshaw wanted to start a construction company and used his position as trustee to start his “corrupt” enterprise. Bradshaw served as the successor trustee for a client years after his firm drafted the client’s trust and estate plan, and only after the first two successor trustees were unable to serve. He managed the trust according to its stated purposes and terms in a reasonable and proper manner, including engaging a certified specialist in probate and trust law to assist him in his duties. Further, he adhered to his client’s clearly expressed desires to be cared for in her San Francisco home, and that the equity in the home be used to accomplish that goal. To that end, Bradshaw used the trust assets, which consisted mostly of the home’s $1.6 million equity, to provide his client with quality nursing care and for necessary repairs to ensure her safety in the home, which was built over 100 years ago. For most of the construction projects, Bradshaw hired Bay Construction, a licensed contracting company that he incorporated on behalf of Juan Gonzalez, the owner, who had previously done work for Bradshaw and to whom Bradshaw had provided other assistance in establishing the company. In total, the trust paid BayConstruction

$157,246.76 for various construction projects, including replacement of the back stairs and repair of the home’s foundation, all done competently and at fair market value.

The evidence in the record fails to establish that Bradshaw engaged in any of the acts as alleged by OCTC. Accordingly, we dismiss this proceeding with prejudice. (See In the Matter of Kroff (Review Dept. 1998) 3 Cal. State Bar Ct. Rptr. 838, 839 [dismissal of charges for want of proof after trial on merits is with prejudice].)

In other words, retaining a former client to do construction work on a home does not constitute a breach of trust or a breach of fiduciary duty. It concerns me that the California disciplinary authorities did not understand the significance of the fact that the lawyer had no ownership interest in the contractor. It is unfortunate that this case was brought at all.

Ed Clinton, Jr.

http://www.clintonlaw.net

The Bradshaw decision is located here: http://www.statebarcourt.ca.gov/Review-Department-Dispositions/Non-Published-Opinions

The ARDC Hearing Board Has Decided Novoselsky II – And Recommended Disbarment

The ARDC Hearing Board has weighed in on the second case that it filed against David Novoselsky, In re David Alan Novoselsky, 2015 PR 00007 (“Novoselsky II”). The Hearing Board has recommended that Novoselsky be disbarred.

The ARDC has been in continuous litigation with David Novoselsky since 2011. In Novoselsky I, decided on September 21, 2015, the Supreme Court ordered a six month suspension. By the time Novoselsky I was decided, the ARDC had already filed Novoselsky II.

The charges in Novoselsky II arose out of the death of Claudia Zvunca. The respondent was alleged to have engaged in a lengthy series of violations of the Rules of Professional Conduct related to the Zvunca litigation, including the filing of multiple frivolous lawsuits against other attorneys involved in the Zvunca litigation. The Hearing Board, after a trial lasting several days, found that the respondent engaged in all of the charged misconduct.

The ARDC recommended disbarment and explained the rationale for its decision as follows:

“In arriving at the appropriate discipline, we consider those circumstances which may mitigate and/or aggravate the misconduct. In re Gorecki, 208 Ill. 2d 350, 360-61, 802 N.E.2d 1194 (2003). We have little to consider in the way of mitigation in this case other than Respondent’s cooperation in these proceedings. While he expressed some regret for certain of his actions, such as remarks made to Judges Zwick and Connors, his contrition did not encompass the misconduct for which he was actually charged, that being his frivolous filings, his efforts to embarrass or burden other counsel, or his dishonest statements.

The aggravating circumstances, on the other hand, are extremely serious and expansive. Notably, Respondent did not recognize his misconduct to be improper, express remorse for his actions, or apologize to the many attorneys whose lives he disrupted. See In re Lewis, 138 Ill. 2d 310, 347-48, 562 N.E.2d 198 (1990).

We also consider the fact that Respondent’s actions were not limited to an isolated instance of misconduct; rather, he engaged in a pattern of wrongdoing which extended over the course of several years. See In re Smith, 168 Ill. 2d 269, 659 N.E.2d 896 (1995). While only two client matters were involved, Respondent’s initiation of frivolous issues and proceedings complicated those matters to extreme levels and expanded the sphere of litigation to include additional courts and judges at the trial and appellate levels in both federal and state courts.

Respondent’s motivation for engaging in the misconduct, which we see as having been purely for personal gain, is another aggravating factor we consider. As to the Zvunca proceedings, the Administrator argued throughout the hearing that Respondent was attempting to disrupt the existing attorney/client relationships in the wrongful death litigation and insert himself into the proceedings as counsel for the plaintiff in order to reap large fees for himself. We believe this to be true, but in reviewing both the Zvunca and Kuc litigation we conclude his motivation was also rooted in his own over-zealous desire to beat down and out-trick his opponents by any means and at any cost, whether that cost was to his own clients or, ultimately, to himself. His determination to control the proceedings and his refusal to accept defeat was displayed repeatedly by his filing and re-filing of meritless cases, his endless motions for substitution of judges, his specious requests for reconsideration and appeals, and other behavior which a reasonable attorney would recognize as meritless and contumacious. Not only did Respondent not recognize his initial wrongful conduct, the imposition of sanctions seemed to have no effect in reforming his behavior.

With respect to those sanction awards, the evidence showed that Respondent racked up thousands of dollars of sanctions imposed by a federal judge and two separate circuit court judges. Respondent is in bankruptcy and most of the sanction orders remain unsatisfied.

While the foregoing factors are egregious and will impact our ultimate determination, the most disturbing factor that aggravates Respondent’s conduct is the astonishing amount of harm he caused to numerous individuals, including clients and opposing attorneys. See In re Saladino,

71 Ill. 2d 263, 375 N.E.2d 102 (1978) (discipline should be “closely linked to the harm caused or the unreasonable risk created by the

lack of care”).

The list of persons or entities who were damaged by Respondent’s conduct include:

Cristina Zvunca – Respondent’s maneuverings delayed the progression of her case and her recovery. After seizing control of the litigation, he agreed to settle the case for an amount less than what had been discussed by the parties, and for less than the ultimate settlement amount;

Jeanine Stevens, Marina Ammendola and John Cushing – the attorneys spent a vast amount of time responding to Respondent’s motions and lawsuits, paid thousands of dollars in fees to other attorneys to defend them against spurious allegations, suffered increases in their malpractice insurance premiums, and had less time to spend on their other client matters;

Stevens and Ammendola – both testified they continue to suffer embarrassment and answer inquiries about the unfounded allegations made against them, which were not only personal and offensive in nature but, as to Stevens, could have subjected her to an unwarranted investigation by child services or worse;

Gus Santana – incurred attorney’s fees in defending himself against baseless motions and accusations and was embarrassed by the proceedings, which took time away from his other clients;

Eugene Kuc – received bills from Respondent’s firm which included work for the sanctions proceedings against Respondent. Further, he had to reimburse his mother’s estate when payments made to Respondent were not approved by the court and Respondent refused to refund the overage.

James Ayres – had to defend a lawsuit brought by Respondent seeking contribution for the sanctions imposed against Respondent and his law firm, and no longer has a relationship with his family member Eugene Kuc;

Multiple courts – both federal and state judges had their dockets taxed by frivolous litigation that took time away from their other cases. Judges Propes and Connors testified to the tremendous amount of time spent in reviewing pleadings and transcripts.

In addition, as discussed in a previous section, Respondent’s actions played a part in Judge Locallo’s order of September 2009 which removed the key players from the wrongful death litigation. That order was ultimately reversed, causing months of proceedings and the settlement of the case to be unwound.

As a final factor for consideration, Respondent was suspended for six months in 2015 for engaging in misconduct which included, among other things, making dishonest statements and using means that have no substantial purpose other than to embarrass or burden third parties. The misconduct in that case occurred between 2003 and 2011, and was charged in a complaint filed in 2011 and amended in 2012. The Hearing Board report indicates the Administrator was investigating Respondent’s conduct in that case and requesting information from him as early as February 2009. (Hearing Bd. Rpt. at 46, 97). The conduct charged in the present case occurred between mid-2008 and mid-2011.

Prior discipline weighs most heavily against an attorney when he or she commits additional misconduct after the Supreme Court has imposed discipline, thereby indicating a failure to learn from the previous misconduct. In re Starr, 06 CH 78, M.R. 23127 (Sept. 22, 2009) (Review Bd. at 9). Given the timing of the misconduct and prior discipline in the present case, Respondent is not a recidivist in the ordinary sense and therefore his prior discipline merits less weight than in a typical case involving a repeat offender. See In re Starr; In re Brown, 04 CH 73, M.R. 22127 (Mar. 17, 2008) (Review Bd. at 16). The Court has stated, however, that it is appropriate to consider the totality of an attorney’s discipline even when he or she is not a typical recidivist. In re Teichner, 104 Ill. 2d 150, 166-68, 470 N.E.2d 972 (1984). Further, we believe from early 2009 onward, Respondent should have been particularly cognizant of his ethical obligations since he was under investigation for his prior offenses at that time. See In re O’Brien, 2015PR00023, M.R. 28493 (Mar. 20, 2017) (Hearing Bd. at 35). Given the foregoing

circumstances, we conclude Respondent’s earlier discipline deserves some consideration, but the weight we give it is minimal compared to the other aggravating factors.

The Administrator urged us to recommend that Respondent be disbarred and cited several cases in support of her position. Respondent, on the other hand, argued that no misconduct occurred and therefore no sanction is warranted.

The Administrator presented the following cases, which we view as instructive. In In re Zurek, 99 CH 45, M.R. 18164 (Sept. 19, 2002), the attorney was disbarred for misconduct arising out of a dispute with his former employer. After filing frivolous pleadings which led to sanctions, the attorney then made false and unfounded accusations against the judge and opposing counsel. He also made offensive remarks to a deponent during a deposition. The attorney’s misconduct was aggravated by his conduct during the disciplinary proceedings, including filing frivolous pleadings. In In re Konan, 05RC1503, M.R. 20127 (May 20, 2005), a reciprocal discipline case, the attorney was disbarred for pursuing positions that lacked merit, filing an unfounded motion for sanctions, and attempting to mislead the Court. In aggravation, he showed no remorse for conduct which resulted in five sanction orders and a contempt finding, and he had been previously reprimanded. In In re Ditkowsky, 2012PR00014, M.R. 26516 (Mar. 14, 2014) the attorney was suspended for four years until further order of court for making false statements and sending hundreds of emails falsely alleging corruption and criminal conduct by guardians ad item and judges in order to gain an advantage in a guardianship proceeding. The attorney’s previous discipline twenty years earlier was given little weight.

We also considered In re Romanski, 03 CH 90, M.R. 20589 (Jan. 13, 2006) in which the attorney was suspended for three years for advancing a frivolous claim in connection with a personal dispute and then continuing to assert the claim after it was rejected by the court. He also communicated with a represented party, made misrepresentations to the court, and took actions intended to force the removal of a judge, including manufacturing a conflict that would require the judge to recuse himself. The Review Board was especially concerned with the attorney’s attempted manipulation of the court system and his inability to recognize his wrongdoing. (Review Bd. at 15). As in the instant case, the attorney expressed no remorse and refused to acknowledge the wrongfulness of his calculated plan. In contrast to the instant case, the attorney’s actions involved only one dispute, he filed no lawsuits against counsel, and the harm was confined to legal costs of the opposing party and the risk of damage to the judge’s reputation.

We are aware that cases involving frivolous pleadings or actions taken for purposes of harassment, when those actions were not accompanied by dishonesty or severe aggravating circumstances, have resulted in only mild sanctions. See In re Messina, 2014 PR00002, M.R. 28368 (Jan. 13, 2017) (Review Bd. at 22-23). Those cases do not apply here. The calculated scheme employed by Respondent in both the Zvunca and Kuc cases, which resulted in far-reaching and damaging consequences, sets this case apart. In particular, while we recognize the Zvunca case was complicated long before Respondent entered it, the tangled web that ensued was prompted by Respondent, for Respondent. As a result, several courts were burdened, progress in numerous cases was delayed, unnecessary fees were incurred, professional anxiety was induced, and professional and personal time was stolen.

Respondent knowingly engaged in a sustained campaign of unfounded litigation and manipulation and failed to conform his actions to the requirements of the professional rules after adverse rulings by courts. Despite his testimony that he has now changed and will no longer engage in destructive behavior, his failure to be deterred by sanctions and his recent activity in a federal case in Wisconsin speak to the contrary. In light of the misconduct that occurred and the relevant case law, and in order to protect the public and the integrity of the profession, we conclude that disbarment is warranted.

Accordingly, we recommend that Respondent David Alan Novoselsky be disbarred.”

Update on September 21, 2020, the Illinois Supreme Court entered an order disbarring Novoselsky.

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https://www.clintonlaw.net/legal-ethics.html

You Cannot Sue Disciplinary Authorities For Refusing to Prosecute

The case comes from Vermont, captioned In re John Paul Faignant, Esq., 2019 VT 19. In attorney discipline proceedings, a client may decide to institute a grievance against a lawyer by filing with the appropriate state agency. That agency then may investigate and has absolute discretion as to whether it wishes to bring a formal complaint agains the lawyer. Here, a lawyer, presumably Mr. Faignant, requested that the Vermont Bar discipline another attorney. T

In this case, a lawyer made a request for an investigation of another attorney. Vermont Bar Counsel chose to dismiss the close the file. The petitioner then filed a Petition for Extraordinary Relief with the Vermont Supreme Court requesting that it order Bar Counsel to reopen the case. The Vermont Supreme Court, like all other courts which have considered such claims, denied the request and dismissed the Petition for Extraordinary Relief on the ground that the petitioner lacked standing to pursue the matter.

The Petitioner does not have standing because the only party who could be harmed by the outcome of the case is the lawyer subjected to discipline.

Simply put, Bar Counsel had absolute discretion as to whether to proceed further with the grievance and chose not to do so.