Tuesday, August 7, 2018
I posted a comment on the recently filed District of Columbia Hearing Committee report in In re Evan Krame.
I have now had an opportunity to read more closely the 206 page magnum opus.
For those who do not wish to closely read this admittedly lengthy post, my bottom line: Whenever a Respondent is described as a prominent or respected attorney, you can bet your life savings that the accused will be treated with kid gloves and given all benefits of real and imagined doubts.
My confidence in the accuracy of the above statement is based in part of my experiences in this case, which also involved billing fraud allegations.
It started as a disciplinary matter here
Disciplinary Counsel sent Respondent an inquiry letter dated February 7, 2007 requesting that he respond to questions of possible ethical violations raised by an Order that had been issued by the Honorable Peter Wolf in the De’Shawn Brown Special Needs Trust on January 18, 2007 and published on February 5, 2007 in the Daily Washington Law Reporter. DX A6, A7. The investigatory/discovery phase of this proceeding continued over the next nine years.
The investigation was deferred pending the Respondent's appeal of the Wolf and related orders in three matters
There was an extending period of discovery with contested issues
Respondent...objected to certain of Disciplinary Counsel’s requests and subpoenas, filed motions to quash two subpoenas duces tecum (one seeking the hard drive on Respondent’s office computer and one seeking co-counsel’s client file pertaining to Respondent), and appealed certain rulings concerning the production of documents...these motions and appeals were resolved largely adversely to Respondent. Following disagreement about the scope of an Ad Hoc Hearing Committee’s ruling on one issue, Disciplinary Counsel filed a motion for enforcement in the Court of Appeals, which was granted in early 2013. (cites to record omitted)
There was also a failed attempt to resolve the matter by a consent sanction.
The events at issue involve Respondent's payments to himself in Special Needs Trusts administered by the Superior Court Probate Division. There was conflicting expert testimony about the standards and practice in the 1990s.
There was this 1999 order in the Seay trust matter
ORDERED, that a request for compensation, accompanied by a detailed statement of services, shall be submitted by the trustee for the Court’s consideration prior to the payment of any fees to the trustee in this matter, such that the reasonableness of the compensation claimed can be determined...
Respondent thereafter paid himself prior to court approval.
Respondent testified as follows regarding his understanding of the provision set forth in FF 27:
Q. What did you understand that your obligations were going forward in obtaining compensation in the Seay trust?
A. In obtaining compensation for the Seay trust? I was required to prepare and deliver a detailed statement of services, and that once that was delivered to the court, I could pay myself the fees stated therein. That’s in the nature of the way trusts operate.
Tr. 2118; see also Tr. 2116-17. The Hearing Committee does not find by clear and convincing evidence that Respondent’s testimony regarding his interpretation of the October 13, 1999 Order is not credible. (One member of the Hearing Committee, Mr. Kassoff, believes that while Respondent’s interpretation is conceivable, it was not the likely intent of the Court, and since Respondent himself interpreted the order both ways in first awaiting court approval before disbursing his fee, and then in a succeeding year disbursing his fee prior to court approval, he must have recognized the ambiguity and therefore should have sought clarification from the court.)
Does "not find by clear and convincing evidence that [his] testimony...is not credible?"
Interesting standard for evaluating credibility.
Throughout the two attorney committee members accept the attorney's various explanations as credible.
A double payment from fiduciary funds
On or about January 2, 2002, Respondent disbursed $7,178.50 from the trust to his firm, Altman & Krame, which had been established in mid-2001. AA; DX B57 at 16; DX K14 at 4; see also FF1. Respondent acknowledges that this was a duplicate disbursement for the fees sought in the February 8, 2001 fee petition. AA; DX A4 at 10, ¶31 (“Admitted that Respondent paid himself twice for the same services. The second fee payment was a mistake.”); DX A69 at 1, 5; Tr. 892...
Respondent returned funds from his firm’s account to the trust in the amount of $7,090.05 on or about November 30, 2010, upon discovering the duplicate disbursement while reviewing his records during the investigatory phase of this proceeding.
The committee repeatedly credits his testimony regarding a series of "inadvertent" errors in paying himself.
On November 19, 2004, Respondent filed a Petition for Compensation “for allowance of attorney fees” seeking authorization of $13,141.81 for services provided between January 1, 2002 and December 31, 2003. UF at ¶49; DX B63 at 4. In this Petition, Respondent requested a fee calculated as one percent of the total value of the trust. AA; UF at ¶49; DX B63 at 1, 4. Respondent did not attach or subsequently submit a statement of services. AA; DX B27 at 1- 2; DX B63 at 1-7; see also FF 25. At this time, Respondent’s fees in most of the other special needs trusts that he was administering were being determined as a percentage of trust assets with the amount of the compensation reported in the annual account; when Respondent filed this Petition, Seay was the exception. RX 7, RX 8.
The November 19, 2004 Petition was the first time that Respondent asked the court to authorize trustee fees for the Seay trust based on one percent of the trust assets.
Respondent's testimony here was the subject of dispute as the non-attorney found his explanations troubling.
One member of the Hearing Committee is troubled by this testimony. This member suspects that Respondent’s omission of the second sentence was likely to have been intentionally misleading, if not downright deceitful, since the change being requested was from an hourly basis to a percentage basis; because, in this member’s view, the second sentence of the compensation provision refers to the hourly basis of trustee compensation, it should have been included to allow the court to decide whether it applied to all fees or only to fees for non-legal services. See Separate Statement of Mr. Kassoff.
As to the percentage payment
In the January 24, 2005 Memorandum and Order, Judge Wolf denied Respondent’s request that he be permitted to calculate his fees as one percent of the total trust assets or as an “automatic commission” and required Respondent to file a fee petition for court approval because “the quoted trust language [in the compensation provision], on balance in this case, does not allow for a commission form of compensation.” Id. at 3 (emphasis in original). Judge Wolf also denied Respondent’s request that he merely notify the court of trustee fees in the annual accounts. UF at ¶53; DX B65 at 1, 3.
Respondent sought reconsideration and was paid for his work. Supervision of the trust was later transferred to Maryland.
The payment arrangement in the Brown SNT, involving a child who required round-the-clock care
A Trustee shall be entitled to reasonable compensation for his or her services as Trustee hereunder, consistent with industry standards which may be expressed as a percentage of Trust assets, but all trustee compensation must be approved by the Probate Division of the Superior Court.
The court order establishing the trust provided
A Trustee shall be entitled to reasonable compensation for his or her services as Trustee hereunder, consistent with industry standards, which may be expressed as a percentage of Trust assets. All trustee compensation is subject to review by the Superior Court, to be approved if reasonable and modified if unreasonable. In considering the reasonableness of fees reported in the accounting by the Trustee, the Court may consider the industry practice and any other factors.
Respondent paid himself quarterly fees calculated on the percentage, drawing a judicial response
In a Memorandum Order signed on January 20, 2006 and recorded on January 24, 2006, Judge Wolf deferred approval of the Second Account and ordered Respondent to file “a thorough explanation of the ‘quarterly fees’ totaling $6,737.88 specified in Schedule H so that the court may determine their reasonableness.” AA; UF at ¶69; DX C26 at 1-2. Judge Wolf noted that Judge Wertheim had approved quarterly fees reported in the First Account “before this Division began focusing on the recent attempts by various trustee-counsel to operate on a commission system, essentially without court approval of fees or commissions.” UF at ¶69; DX C26 at 1-2; but see FF 12 (finding that there is no evidence in the record in this matter that any such rule has ever been adopted and that there are no such rules in the Probate Division Rules); see generally FF 6-13.
Respondent was unable to submit time records
In the July 20, 2006 Memorandum Order, Judge Wolf approved $5,320.41 of Respondent’s $6,737.88 request for fees and ordered him to repay to the trust disallowed fees of $1,417.47 no later than September 15, 2006, AA; UF at ¶77; DX C30 at 2-3.
Respondent appealed and moved to stay the repayment order but another mistake in Respondent's favor
On September 24, 2006, $1,447.17 was disbursed from the Brown trust to Respondent’s firm – $29.70 more, because of a transposition of a 4 and a 1, than the $1417.47 the court had ordered Respondent to deposit into the Brown trust. AA; DX A4 at 21-22; ¶75; DX K40 at 1, 6, 25; Tr. 1466-1471. The memo line of the trust check noted: “misc. expense reimb.” AA; DX K40 at 25.
Respondent testified that Ms. Stewart drew the check for his signature and that he “didn’t double-check her work carefully . . . .” Tr. 1470-71. “It was a complete mistake on her part, and it was my failure, unfortunately, in not double-checking her work that day and signing the check.” Tr. 1505; see also Tr. 1498-99, 1620. The Hearing Committee credits Respondent’s testimony in this regard.
The payment to the trust was made after the stay was denied.
A $200 payment was made from the trust for the filing fee in the (failed) appeal. Judge Wolf ordered him to repay it "forthwith"
Respondent testified that he understood “forthwith” to mean “quickly” but that he did not pay the $200 “[b]ecause I believed that that went to the heart of my ability as a trustee to file an appeal and get some clarity about Judge Wolf’s orders.” UF at ¶96; Tr. 1431. Respondent knew that his refusal to pay the $200 violated the court’s order: “I knew I wasn’t in compliance because I believed [Judge Wolf] was wrong and it went to the ability to – it denied my ability – that was the core issue that I was appealing, the power of the trustee . . . . In hindsight, I think I should have paid it back. At the time I thought I was right.” UF at ¶97; Tr. 1432. Respondent also testified, with respect to Mr. Varrone’s December 18, 2006 letter; (FF 93), that the decision not to restore the $200 filing fee to the trust forthwith was his decision “[a]bsolutely.” Tr. 1426.
It went unpaid
In his testimony, Respondent acknowledged that he, not Mr. Varrone, was obligated to return the $200 to the Brown trust. UF at ¶101; Tr. 1437. Respondent did not promptly deposit the $200 into the trust nor promptly file the restated [Fourth] account with the court. UF at ¶101; Tr. 1438...
Respondent identified the $200.00 as an asset of the trust – specifically, a receivable pending appeal – on every account filed prior to the appeal, on both the schedule showing the assets of the trust at the beginning of the accounting period (Schedule A) and the schedule showing assets of the trust at the end of the accounting period (Schedule L)...
After the appeal was lost
On September 1, 2009, after Mr. Varrone confirmed that Respondent had not returned the $200 to the Brown trust, he advised Respondent in an email:
[With regard to] the $200.00, on which the fate of the Western World hangs in the balance, I have calculated interest on that amount based on the D.C. judgment interest rate. The interest is calculated through Friday, 9/4. The worksheet is attached. You should pay the amount shown into the trust by Friday, and file a praecipe to that effect, per Judge Wolf’s 1/18/07 Order. Please note that, the order required the $200.00 to be paid ‘forthwith’. I hope that this does not become an issue going forward.
The trust was repaid with interest a few days later.
The next petition for compensation drew this judicial response
In his January 18, 2007 Memorandum Order, Judge Wolf determined that $8,700 of the fees covered compensation for 29 hours of Respondent’s, or his staff’s, time spent litigating trustee fee issues. UF at ¶111; DX C40 at 4. He found Respondent’s request for these fees to be “a direct violation of a court order” and for “time spent solely to benefit himself and not the trust beneficiary.” UF at ¶111; DX C40 at 4. Judge Wolf disallowed $8,700 and imposed the “stiff” sanction of reducing the remaining fees by 15 percent. UF at ¶111; DX C40 at 4, 8.
Respondent knew that his November 22, 2006 Petition compensation violated the court’s May 9, 2006 order. UF at ¶112. In his testimony, he acknowledged that he “was directed not to submit any future requests, and I did submit a future request. I did.” Tr. 1593; see also Tr. 1591-97; 1602. Respondent testified he did so because
My judgement at that time was in the context of the totality of this order and the prior order, which ordered me or asked me or directed me to give an explanation of my services to the court. That one order said, [g]ive an explanation. The other order says, much later, [d]on’t report what you did, we’re not going to pay you for it.
It was my judgment at the time that that was conflicting and I needed to show the court this is the time I spent answering the court’s question...
The disallowance was affirmed on appeal.
The Baker SNT provided for compensation
Article Seven, Section B of the proposed trust instrument, “Trustee Compensation,” provided that the trustee would be entitled to reasonable compensation consistent with industry standards, that the fee could be expressed as a percentage of trust assets and that the trustee’s compensation was subject to court review upon petition by an interested party.
Judge Franklin Burgess approved compensation capped at one percent subject to court approval
Respondent testified at the hearing that he understood the cap of one percent constituted permission to calculate his fees at a one percent rate rather than on an hourly basis:
[P]ercentage compensation would be permissible. Otherwise, why would we have a one-percent cap? It would be irrelevant if we were billing on an hourly basis. There is no need to mention a one-percent cap if it was an hourly basis only compensation system. Tr. 2286-87; see also Tr. 775-76.
With respect to the “time devoted to trust duties” factors, Respondent testified:
. . . I did take that to mean I needed to be cognizant of the hours I was spending and have that information available if the fees were questioned. Tr. 2264.
A majority of the Hearing Committee credits Respondent’s testimony regarding his interpretation of the provision, even though our own interpretation(s) may differ from Respondent’s. The dissenting member, Mr. Kassoff, includes his analysis of this testimony in his Separate Statement.
He was challenged when he sought over $17,000 in compensation and testified
It wasn’t that I needed the money. It was that I was standing up for a princip[le]. I was doing a good job. Other judges had acknowledged that this was an appropriate compensation for that. The same judge acknowledged that. I was outraged, and I was in my mind serving the justice that I thought I was being denied.
In a published Memorandum and Order dated September 28, 2006, Judge Wertheim denied Respondent’s request for trustee fees in the amount of $17,264.18. AA; UF at ¶138; DX A9 at 1. Judge Wertheim found that Respondent acted contrary to Judge Burgess’s direction:
Contrary to the Court’s plain direction, the Trustee has calculated his proposed compensation by starting with his requested one percent and then reasoning backwards to justify it as reasonable, instead of starting with the factors specified by the Court to arrive at a reasonable amount which is then subject to a one percent limitation. The Trustee’s request and reasoning are presented as though his original draft proposal had been approved by the Court and the trust instrument never amended, i.e., as though the Court’s hearings of May 3 and May 24, 2005 had never occurred.
The terms of the trust as amended by Judge Burgess’ comments on May 24, 2005 make it clear that although time devoted to the Trust by the trustee is a relevant factor, it need not be the only factor.
Notably after the compensation was reduced by the court
Respondent had disbursed $12,350.59 from the trust to his firm before the September 28, 2006 Memorandum and Order. UF at ¶140; FF 129. Respondent did not at this time return to the Baker trust the $3,950.59 difference between the $12,350.59 disbursement and the $8,400 that Judge Wertheim authorized upon receipt of the Memorandum and Order. Tr. 778.
Respondent explained that he did not refund the ordered amount because his appeal would lose its "potency"
The Hearing Committee (although not necessarily agreeing with Respondent’s reasoning) credits Respondent’s testimony regarding his reasons for not returning the $3,950 to the trust at this point in time.
The amount was repaid with interest when the appeal was lost.
The extensive analysis of the alleged violations (at least by a majority) largely absolves the Respondent but finds false statements to the court
We think that Respondent’s inflated self esteem, intellectual arrogance and anger over Judge Wolf’s, Judge Wertheim’s and the Court of Appeals’ rulings in the 2007-2009 time period – manifested several times in his testimony – clouded his judgment in the fall of 2009, not only to the point of irresponsibly and baselessly inflating the entries identified above, but also to the point of not seeking advice about and review of the Pre-Bills from his counsel, his accountant, or some other independent, objective professional without a stake in the battle that Respondent and Judge Wolf had waged in the Probate Division.
...on the basis of the foregoing factual and legal analysis and also the case law summarized supra at 87-89, the Hearing Committee recommends that the Board conclude as a matter of law that Disciplinary Counsel has proved by clear and convincing evidence that Respondent recklessly prepared four inaccurate entries in the Pre-Bills submitted with his post appeal fee petitions and thereby violated Rules 8.4(c) and 8.4(d). A majority of the Hearing Committee, however, does not believe that Disciplinary Counsel has proven by clear and convincing evidence that Respondent knowingly prepared the four inaccurate entries. In his Separate Statement, Mr. Kassoff sets forth his views on why he believes a violation of Rule 3.3(a)(1) was also proven and why several other entries in the Pre-Bills violated Rules 8.4(c) and Rule 3.3(a)(1).
A majority of the Hearing Committee does not see any indication of prolonged, repeated, or pervasive misconduct. Mr. Kassoff perceives a pattern of dishonesty.
Mr. Kassoff is the non-attorney.
In sum, and before taking into consideration mitigating factors, I think that, at most, a suspension of approximately nine months with most of it stayed for the four instances of Rule violations here would be consistent with the dispositions in other comparable cases involving recklessly inaccurate court filings and other offenses, along with restitution to the Brown trust in the amount of $510 and restitution to the Baker trust in the amount of $525, for a total of $1,035.
However, Respondent’s extraordinary record of professional and other public service, the extreme circumstances that surrounded the violations,50 the absence of any material financial loss by or any other prejudice to any beneficiary or other person, the apparent absence of any problems in the intervening seven years and the unlikelihood of any future danger to clients or others all counsel to me a substantial reduction of the presumptive sanction in order to remain consistent here, under all the circumstances, with other dispositions in roughly similar overall circumstances while also deterring other attorneys from engaging in similar misconduct. I therefore recommend that Respondent be suspended from the Bar of the District of Columbia for a period of six months and that at least four months of that suspension be stayed...
Mr. Kassoff''s conclusion that the misconduct was far more extensive than the attorney members is persuasively argued and grounded in the evidence
Unlike the majority, I find that Disciplinary Counsel introduced clear and convincing evidence that Respondent purposely falsified (as opposed to recklessly) his entries in the “PreBills.” Neil Manne, the co-creator of the PCLaw software program, testified as an expert witness and explained that because of the audit feature in the PCLaw program, he could see that Respondent had changed the nature of the original entries. See FF 145. Because of this audit feature, Disciplinary Counsel proved by clear and convincing evidence that Respondent hid and recharacterized time he had spent litigating his fees and, further, added additional time that had not been accounted for originally.
And only he found fee violations
I find that Respondent violated Rule 1.5(a) by seeking compensation for work that had not been completed as characterized and for which he was on notice was not allowed. See Cleaver-Bascombe, 892 A.2d at 403; Bernstein, 774 A.2d at 313; Haupt, 444 A.2d at 326 (appended Board Report).
In conclusion, I find that the majority has erred in not taking into full consideration the unanimously agreed-upon factual findings as described in points two through eight under Section IV-O of the Hearing Committee Report, where all seven points provide an additionally strong basis for the clear and convincing evidence that Respondent’s dishonesty and inflated billing extended well beyond the few examples adopted by the majority. Respondent failed to rebut Disciplinary Counsel’s clear and convincing PCLaw expert testimony that established that Respondent altered the billing entries, and indeed, Respondent admitted that the alterations resulted in a significant increase in payment to himself. In Section IV-P, the majority erred in finding that Disciplinary Counsel had not proven that Respondent sought an unreasonable fee in the petitions at issue. To act contrary to the Court of Appeals, by charging the Brown and Baker Trusts for his time spent on the appeal, and to submit the fee petitions without disclosing the recent addition of noncontemporaneous entries was a violation of Rule 1.5(a).
Kossoff on sanction
Here, a lengthy suspension would be appropriate and consistent with comparable cases. As discussed, supra, I do not believe that Respondent was deliberately false in his testimony before the Hearing Committee or that his dishonesty was flagrant, so disbarment would be an exceedingly harsh and inappropriate sanction. I also do not doubt Respondent’s fitness to practice law, so I would not recommend a fitness requirement here. Given the mitigating factors present, as described supra, I believe a three-year suspension would be too harsh, but an eighteen-month suspension would be appropriate and a comparable sanction for the misconduct involved. Accordingly, I recommend an eighteen-month suspension in light of Respondent’s dishonesty with the courts concerning his compensation and his submission of altered billing records.
I concur in the other members’ recommendations that a portion of the suspension be stayed and recommend that six months of the eighteen-month suspension be stayed.
Attorney member Mims
Although I agree with the conclusions of law in the majority Report of the Ad Hoc Hearing Committee (“H.C. Report”), I disagree with the majority’s conclusion with respect to the Rule 1.15(a) misappropriation charges in the Seay and Brown matters. See H.C. Report at Section IV, C and H. I would find a Rule 1.15(a) violation in the Seay Special Needs Trust based on Respondent’s admitted duplicate fee disbursements (FF 35, 43) and in the Brown Special Needs Trust based on Respondent’s reimbursement of unsubstantiated expenses (FF 80-81, 86). This Hearing Committee member interprets the law to require a finding of misappropriation even in a case where the mistake was the careless mistake of another...
Given the state of the law in the area of misappropriation, I recommend an additional 6- month suspension for the negligent misappropriation charge, bringing my total recommended sanction to 15 months with 3 months of it stayed.
The report may be found at this link. (Mike Frisch)