Sunday, June 10, 2018

Sanction Increased For Partner Misappropriation

The Tennessee Supreme Court raised the sanction a bar discipline matter

The appellee, Charles Edward Daniel, a Knoxville lawyer, received his license to practice law in 1991 following his fifteen-year career in law enforcement positions, including a position with the Internal Revenue Service criminal division. From 1991 to mid-2002, Mr. Daniel worked as a solo practitioner, handling mostly workers’ compensation and personal injury cases. In mid-2002 Mr. Daniel and attorney Mike Pemberton formed the law partnership of Daniel Pemberton (the “Partnership”). Mr. Pemberton came to this partnership from another Knoxville law firm where he had served for a time as managing partner. Mr. Daniel and Mr. Pemberton never had a written partnership agreement, and they did not observe formalities in managing the Partnership, including not formalizing any written agreement about how compensation would be handled for cases brought into the Partnership at its inception or how expense advances by any partner would be reimbursed.

Not a good situation when the partnership ends

The Partnership broke up in late 2009 or early 2010. After Mr. Daniel left, another partner, Dana Scott Pemberton, the wife of Mr. Pemberton, took over his financial oversight responsibilities, and QuickBooks had been installed on her computer by January 2010. Mrs. Pemberton soon discovered that from 2006 to 2009, Mr. Daniel had, on several occasions, deposited client settlement checks into the Partnership’s trust account and then written three checks on that account—one payable to the client and two payable to the Partnership. He would then deposit one of the checks payable to the Partnership into the Partnership’s operating account and deposit the second check payable to the Partnership into his own personal account.

As a result

In May 2010, the Pembertons reported these suspicious transactions to the Board of Professional Responsibility. The Board first contacted Mr. Daniel about the allegations on June 22, 2010. Meanwhile, civil litigation was initiated to dissolve the Partnership and divide its assets. The parties reached a confidential settlement of the civil litigation in July 2011.

After charges were filed in May 2014

The Board alleged that he had “willfully and knowingly engaged in a course of conduct whereby he embezzled money from the [P]artnership, misappropriated [P]artnership funds and falsified records in order to conceal his illicit activities.” The Board asserted that Mr. Daniel’s conduct violated subsections (b) and (c) of RPC 8.4

He claimed entitlement to reimbursements

Before the Hearing Panel, Mr. Daniel testified that, for a significant time after the Partnership’s formation, he had advanced funds as needed to cover all of the Partnership’s operating expenses, including compensation for the attorneys and support staff. Mr. Daniel testified that he had kept a handwritten ledger on a yellow legal pad of the amounts he had advanced the Partnership and the amounts he had reimbursed himself for these advances. By the time of the hearing Mr. Daniel had lost this legal pad, however, so it was not submitted into evidence before the Hearing Panel.

Key findings

The Panel finds that Respondent did not make the other partners of the Partnership aware of what he was doing. The Panel finds that the manner in which Respondent repaid himself money to which he thought he was owed was conducted in a way to conceal his actions from his other partners. The Panel finds that Respondent wrongfully took money from the Partnership.

...the Hearing Panel stated that “although the Panel finds that [Mr. Daniel] intended to permanently deprive his partners of the funds that he misappropriated from the Partnership, he did so based upon his sincere belief that these funds were owed to him from the Partnership.” The Hearing Panel then sanctioned Mr. Daniel to a three year suspension but ordered the entire suspension served on probation.

The Board appealed

the Chancery Court concluded that, even construing the Hearing Panel’s judgment as including findings “that equate to criminal intent,” given the multiple mitigating factors, the Hearing Panel did not abuse its discretion by imposing a sanction of suspension with complete probation rather than disbarment.

The court disagreed

In summary, the Hearing Panel failed to find an applicable aggravating factor, the vulnerability of Mr. Daniel’s law partner victims, and the sanction imposed by the Hearing Panel, probating the entire three-year suspension, is out of line with the sanctions in comparable cases. Other than noting that the parties’ civil litigation settlement removed the need for restitution as a probation condition, the Hearing Panel also gave no explanation for why it decided to probate Mr. Daniel’s entire period of suspension. Nor did the Hearing Panel impose any conditions, probation monitoring, or supervision of Mr. Daniel during the probationary period. See Tenn. Sup. Ct. R. 9, § 8.5 (currently Tenn. Sup. Ct. R. 9, § 14) (“Probation shall be used only in cases where there is little likelihood that the respondent will harm the public during the period of rehabilitation and where the conditions of probation can be adequately supervised.”). For all the foregoing reasons, we conclude that the Hearing Panel acted arbitrarily and capriciously by probating the entirety of Mr. Daniel’s suspension.

Thus, to attain an appropriate sanction, comparable to sanctions imposed in other similar cases and reflecting the aggravating and mitigating factors, we modify Mr. Daniel’s three-year suspension to include one year of active suspension followed by probation for the remainder of the suspension.

Knox News reported on the decision.

Daniel left the firm in 2010 after eight years of partnership to open a solo practice, and his former partners discovered the missing money soon afterward. Daniel said the partnership soured over division of a cash settlement he won for the family of Jennifer Hampton, a 21-year-old former homecoming queen from Waterloo, Ala., raped and killed in 2008 by an undocumented immigrant at a West Knoxville motel where the immigrant worked.

(Mike Frisch)

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