Monday, December 3, 2018

Attorney Absolved Of Armenian Genocide Settlement Funds Misappropriation

Dismissal of ethics charges has been ordered by the California State Bar Court Review Department

In this contested proceeding, Rita Mahdessian was charged, inter alia, with misappropriating in excess of $385,000 in cy près settlement funds awarded to a California nonprofit corporation established for the education and remembrance of the Armenian Genocide of 1915–1918, and with misleading the district court judge who approved the award. The hearing judge dismissed the charges of misleading the judge, but found that Mahdessian committed acts of moral turpitude by both (1) misappropriating $30,000 from the nonprofit, and (2) engaging in tax fraud by falsely reporting this and another $26,000 in taxable payouts to her children and their law school as donations or loan repayments, charges that were not contained in the Notice of Disciplinary Charges (NDC). Considering Mahdessian’s three prior disciplinary suspensions, the hearing judge recommended disbarment.

Both Mahdessian and the Office of Chief Trial Counsel of the State Bar (OCTC) appeal. OCTC supports the hearing judge’s disciplinary recommendation, does not challenge the considerable narrowing of the misappropriation charge, and requests review only as to the limited issue of whether Mahdessian engaged in additional acts of moral turpitude, by withholding material information from the district court judge.

Mahdessian disputes culpability and requests a full dismissal. Her argument is twofold: (1) OCTC did not charge her with either tax-related transgressions or breach of fiduciary duties; and (2) the evidence falls short of establishing the actual charged allegations of misappropriation and misrepresentation because (a) the nonprofit board approved all at-issue fund transactions, and (b) Mahdessian did not file any pleadings, make any court appearances, or have any proven duty to provide information to the district court judge.

Upon our independent review (Cal. Rules of Court, rule 9.12), we too find fatal deficiencies in the notice and evidentiary record in this case. Conduct in the nature of tax fraud was not alleged in the NDC against Mahdessian. Moreover, we find no clear and convincing evidence to support culpability as to the charged misconduct. The evidence fails to establish that Mahdessian made any unauthorized fund withdrawals from the nonprofit or that she was ever involved in the district court litigation such that she had an obligation to disclose information. Accordingly, we dismiss this proceeding without prejudice.

Background

Mahdessian was admitted to the practice of law on November 20, 1989. At all times pertinent to this proceeding, Mahdessian and her husband, Yeghiayan, practiced law together at the variously named Yeghiayan and Associates, Yeghiayan Law Corp., and Law Offices of Vartkes Yeghiayan. Since 2009, Mahdessian has maintained her own law practice under the name Law Offices of Rita Mahdessian.

Yeghiayan, on behalf of Yeghiayan and Associates, was counsel of record and co-lead counsel in two class actions lawsuits filed in 1999 and 2002—Marootian, et al. v. New York Life Insurance Company, Case No. C99-12073 CAS (MCx) (NYLIC class action) and Kyurkjian, et al. v. AXA, S.A., et al., Case No. 2:02-cv-01750 (AXA class action). The litigation was brought on behalf of heirs and descendants of victims of the Armenian Genocide of 1915–1918, seeking to enforce survivor benefits under life insurance policies sold by New York Life and AXA. The cases were eventually related and singly assigned to the Honorable Christina A. Snyder of the United States District Court for the Central District of California.

One case settled for $20 million; the other for $17.5 million.

Mahdessian was an attorney with Yeghiayan and Associates. Her name appeared on the docket in the AXA class action as one of many “lead attorney[s] to be notified.” She testified that her name was entered into PACER’s electronic case filing system at some point by the law firm so that she could receive notices about the case. No evidence was produced at the disciplinary trial that she directed any of the civil litigation, filed any pleadings, or appeared in court in any representative capacity in either class action matter. Rather, it was Yeghiayan and two other lead class counsel who had these roles.

One of the other class counsel was Mark. Geragos.

She was involved in charitable foundations set up to administer the funds

Evidence is undisputed that a substantial portion of CAR’s funding came directly from Yeghiayan, frequently in the form of loans to the organization, and that he, Mahdessian, and their children did considerable work for CAR and incurred expenses for work-related activities. Further, as attested to by several witnesses, CAR’s Executive Committee knowingly approved all at-issue transactions in this case with no evidence of improper or undue influence from Mahdessian.

Although the report below found misappropriation

We note that these findings differ from the judge’s statements on the record at trial, where he expressed concerns about: (1) the evidence supporting misappropriation, asking, “To the extent that I have evidence from multiple witnesses that all of the transactions were approved by the board, how can I conclude there was a misappropriation if I conclude that everything was approved by the board?”; and (2) the relevancy of any tax-related issues under the NDC, inquiring, “What’s the relevancy of the these documents [CAR’s general ledgers] being wrong, listed as a charitable donation? [¶] Have you charged her with filing a false tax return . . . .?” As discussed below, we find the judge’s reactions during trial to the respective lack of notice and evidence in this case to be most apt.

...the hearing judge dismissed the vast majority of the misappropriation allegations against Mahdessian. Since we find that the tax issues were not properly charged in this case, we are left with only the hearing judge’s limited finding that Mahdessian misappropriated $30,000 from CAR. Upon our independent review, we find factual flaws and insufficient evidence to support this finding.

First, the hearing judge found that Mahdessian created a ShareBuilder brokerage investment account using the name and personal information of her daughter without her daughter’s knowledge or permission. Mahdessian, however, testified it was her husband, Yeghiayan, who opened the account for his daughter. Based on the thin evidence presented at trial, we cannot say with certainty that Mahdessian established the account. OCTC produced a copy of an account statement in Mahdessian’s daughter’s name, containing the daughter’s address, social security number, and other identifying information—no other authorized or ancillary users are listed. While OCTC also produced a separate printout showing that email addresses belonging to Mahdessian and Yeghiayan accessed the account, OCTC failed to call a custodian of records from the account to testify. Without any evidence of user verification or information of how this ShareBuilder account was established and operated, and in the absence of any credibility findings, we are left to speculate who created the account.

Second, the hearing judge found that Mahdessian transferred $30,000 of CAR funds into the ShareBuilder account, and purported to justify that transfer with the explanation that it represented a loan repayment from CAR to the daughter when, in fact, no such loan had ever been made. Again, the evidence does not support this finding. Mahdessian’s unrefuted testimony was that her daughter (through the ShareBuilder account) was the secondary recipient of the funds, and that the money was actually Yeghiayan’s. Mahdessian testified that Yeghiayan was owed approximately $40,000 as payment for books he published in Armenia. On October 28, 2009, CAR received an overseas wire payment of $39,971, of which CAR approved and earmarked $30,000 to partially recompense Yeghiayan. According to Mahdessian, Yeghiayan directed that the $30,000 be deposited into the ShareBuilder account, and Mahdessian transferred the money accordingly on October 30, 2009.

Moreover, to the extent CAR’s general ledger listed the transaction as a loan, Karine Ghapgharan (a manager at CAR and the person responsible for recordkeeping in 2009) testified that Mahdessian did not make ledger entries. That was done by Ghapgharan or an outside accountant. Ghapgharan further testified that Mahdessian did not direct whether to characterize a payment as a “loan.” Rather, that decision was made independently, and she indicated it could have been the result of an “English [translation] [¶] problem.” She explained that when someone did work for CAR and they were owed money, whoever was doing the ledger treated it “like a loan . . . . But most of them [were] reimbursement[s] . . . . [¶] Instead of ‘reimbursement’ we wrote ‘loan payment’ [or] ‘loan repayment.’”

Third, the hearing judge found that Mahdessian continued to maintain control over the ShareBuilder funds, which the daughter had no knowledge of until being subpoenaed by the State Bar to testify in this matter. Again, the record does not demonstrate who managed the portfolio or maintained control over the investment funds.

In light of the foregoing, we do not find clear and convincing evidence that Mahdessian misappropriated $30,000 from CAR. CAR, as a nonprofit, is not the subject of these disciplinary proceedings and we have no basis to question the financial decisions of CAR or its board, which approved the transaction. Under the circumstances, and the uncontroverted evidence that CAR knowingly approved the fund transfer, we are unable to find that any unauthorized transaction occurred.

(Mike Frisch)

https://lawprofessors.typepad.com/legal_profession/2018/12/disbarment-has-been-proposed-by-the-california-state-bar-court-review-department-in-this-contested-proceeding-rita-mahdessi.html

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