Barbera, C.J., [*] Battaglia, Greene, Adkins, McDonald, Watts, Hotten, JJ.
This attorney discipline proceeding involves a lawyer who assisted a husband and wife in creating a revocable living trust, and thereafter engaged in a pattern of misconduct while acting in the fiduciary role of trustee.
Bruce August Kent ("Respondent") was admitted to the Maryland Bar on June 19, 1974. At all times relevant to this case, Respondent maintained a law office in Baltimore County.
The Attorney Grievance Commission of Maryland ("Petitioner") filed a Petition for Disciplinary or Remedial Action against Respondent on April 22, 2015. Petitioner alleged that, as trustee of The McClelland Family Revocable Living Trust ("the McClelland Trust"), Respondent misappropriated funds entrusted to him in his fiduciary capacity, and violated Maryland Lawyers' Rules of Professional Conduct ("MLRPC") 1.1 (Competence), MLRPC 1.7 (Conflict of Interest: General Rule), MLRPC 1.8 (Conflict of Interest: Current Clients: Specific Rules), MLRPC 1.15 (Safekeeping of Property), MLRPC 8.1 (Bar Admission and Disciplinary Matters), MLRPC 8.4 (Misconduct), Md. Rule 16-606.1 (Attorney Trust Account Record-Keeping), Md. Rule 16-609 (Prohibited Transactions), and Md. Code (1989 Repl. Vol. 2010), § 10-306 of the Business Occupations and Professions Article ("Bus. Occ. & Prof.") (Trust Money Restrictions).
This Court transmitted the action to the Circuit Court for Baltimore County and designated the Honorable Colleen A. Cavanaugh to enter findings of fact and conclusions of law. On September 4, 2015, Judge Cavanaugh ("the hearing judge") sanctioned Respondent for failure to respond to Bar Counsel's written discovery requests. The sanctions included, inter alia, precluding Respondent from producing any evidence/witnesses at the disciplinary hearing, and deeming that all allegations in the Petition for Disciplinary or Remedial Action were admitted. On September 21, 2015, a hearing was held, and on October 22, 2015, the hearing judge issued Findings of Fact and Conclusions of Law. The hearing judge concluded "that there [was] clear and convincing evidence to support each of the charged violations" in the Petition for Disciplinary or Remedial Action.
On February 8, 2016, we heard oral argument. For the reasons that follow, we hold that the hearing judge did not abuse her discretion in imposing discovery sanctions, and we order that Respondent be disbarred.
a. The hearing judge's discovery sanction
On May 20, 2015, Charles J. Balint ("Mr. Balint"), counsel for Respondent, accepted service of process, including a copy of the Petition for Disciplinary or Remedial Action. Respondent thereafter obtained an extension of time to file a response to the Petition for Disciplinary or Remedial Action until June 17, 2015, but did not file a response until June 18, 2015.
On July 10, 2015, Mr. Balint and Deputy Bar Counsel ("Bar Counsel") appeared for a scheduling conference, and Bar Counsel hand delivered interrogatories and a request for production of documents to Mr. Balint. Mr. Balint and Bar Counsel agreed to several deadlines that were incorporated into a scheduling order. The order established a deadline for the completion of written discovery by August 17, 2015, and completion of all discovery by September 4, 2015. Respondent was not present at the scheduling conference.
On September 2, 2015, Petitioner filed a Motion for Sanctions for Failure of Discovery, and an accompanying Motion to Shorten Time for Respondent to Respond. According to Petitioner's Motion for Sanctions, Respondent had thirty (30) days to respond to the interrogatories and request for production of documents that were hand delivered on July 10, 2015, and thirty (30) days to respond to an additional request for production of documents that was mailed to Mr. Balint on July 24, 2015. See Md. Rules 2-421(b) and 2-422(c). Despite an understanding between Bar Counsel and Mr. Balint that written discovery responses would be received by August 28, 2015,  no responses were received as of September 1, 2015.
Petitioner alleged that the Motion to Shorten Time to Respond was necessary because "Respondent's failure to provide written discovery greatly prejudice[d] the ability of Petitioner's counsel to prepare to take Respondent's deposition[, ]" which was scheduled, by agreement of counsel, for September 8, 2015. Petitioner also contended that, "[g]iven the short period of time allowed to conduct discovery prior to trial in disciplinary matters, compliance with discovery requirements and deadlines is imperative."
The hearing judge granted the Motion to Shorten Time to Respond on September 2, 2015, and ordered a response by 11 a.m. on September 4, 2015. When no response was received by the September 4 deadline, the hearing judge imposed the following sanctions: the averments in the Petition for Disciplinary or Remedial Action were deemed admitted; Respondent's Response to the Petition for Disciplinary or Remedial Action was stricken; Respondent was precluded from calling any witnesses or presenting any documents at trial; and Respondent was prohibited from asserting any affirmative defenses, mitigation, or extenuation.
On September 8, 2015, Respondent filed a Response to Petitioner's Motion for Sanctions and a Motion to Reconsider. In the Motion to Reconsider, Respondent alleged that Mr. Balint was not in his office from 12:50 p.m. on September 2, 2015, until 9:30 a.m. on September 4, 2015. Thus, Mr. Balint would not have been able to respond by the shortened deadline. In the Response to Petitioner's Motion for Sanctions, Respondent noted that he had been outside of Maryland and had electronically forwarded discovery material to Mr. Balint, who was unable to open the email attachment. The hearing judge denied the Motion to Reconsider without a hearing.
On September 21, 2015, the parties appeared for a hearing on the merits of Respondent's violations. At the outset of the hearing, Mr. Balint informed the judge that Respondent wanted to be heard on the discovery sanctions. Respondent explained that he advised Mr. Balint in June that he had a vacation scheduled on August 22 or 23, 2015. Respondent informed the hearing judge that he received the request for production of documents and interrogatories from Mr. Balint on Friday, August 14, 2015, and had three trials the following week. However, Respondent believed that he had until September 14, 2015, to complete the discovery responses because he thought that the requests had been received on August 14, 2015, the day Mr. Balint sent them to him. According to Respondent, he intended to finish his discovery responses when he returned from vacation on September 6, 2015, and was entirely unaware of the September 4, 2015, deadline for discovery.
The hearing judge again denied Respondent's Motion to Reconsider the discovery sanctions, noting that Respondent had failed to provide "[a] compelling reason to further delay these proceedings that are… on a very tight timeline pursuant to the rules." The hearing judge granted Mr. Balint's motion to withdraw in light of Respondent's representations concerning his counsel. The hearing proceeded with Respondent pro se, and concluded later that day.
b. Respondent's Motion for Reconsideration
On October 14, 2015, after the conclusion of the hearing, Respondent filed a Motion for Reconsideration and for Appropriate Relief with the assistance of new counsel. Respondent requested that the hearing judge strike the order "precluding Respondent from submitting evidence in defense of Petitioner's allegations and deeming as admitted the averments in the Petition for Disciplinary or Remedial Action[.]" Respondent again alleged that "Mr. Balint failed to provide him with Bar Counsel's written discovery requests in a timely manner and to otherwise represent him in a competent manner." Respondent alleged that reconsideration was appropriate where he participated in the September 8, 2015 deposition, "provided Answers to Interrogatories and produced many of the requested records" after the hearing judge's imposition of sanctions, and was currently "in the process of having reconciliations performed for his IOLTA and Trust bank accounts by an accounting/bookkeeping professional" so that he could fully comply with Petitioner's request for documents.
On October 22, 2015, the hearing judge filed a Memorandum Opinion denying Respondent's Motion for Reconsideration. The hearing judge reasoned:
Respondent's discovery violations are severe, substantial and ongoing. To date, Respondent has yet to fully respond to the discovery served upon him on July 10 and July 17, 2015. Respondent proffers that he is "in the process of having reconciliations performed for his IOLTA and Trust bank accounts by an accounting/bookkeeping professional. Respondent anticipates that these reports will be completed, and made available to Bar Counsel within the next twenty (20) days." See Respondent's Motion at pp. 3-4. However, Respondent has had formal notice of these proceedings for nearly five months – since May 20, 2015 – and actual notice of Bar Counsel's inquiry for many months more. Any reconciliation of Respondent's professional banking accounts in preparation for these proceedings should been initiated, at a minimum, before the scheduled hearing date in this matter.
Respondent initially claimed that his discovery failures were due to his counsel's failure to send him the discovery requests in a timely fashion; however, three months after those requests were served, discovery is still not complete. This court found Respondent's explanation for his discovery violations incredible at trial and the scant proof offered by Respondent to bolster his claim supports the court's conclusions. See Defendant's Exhibit 1. This court and Petitioner have both been severely prejudiced by Respondent's discovery failures which continue to the date of this opinion and are anticipated to continue, by Respondent's own estimate, through the filing date for this court's findings of fact and conclusions of law. Therefore, the prejudice suffered by Petitioner, this court and Maryland's Court of Appeals due to Respondent's continued delay will not be cured by a simple continuance or postponement of this matter.
c. The hearing judge's findings of fact
On October 22, 2015, the hearing judge filed Findings of Fact and Conclusions of Law. The findings of fact were as follows:
On January 27, 2005, John and Sally McClelland (husband and wife) signed a Trust Agreement drafted by Respondent as their attorney. This agreement established "The McClelland Family Revocable Living Trust" (hereinafter "the McClelland Trust") with John and Sally McClelland designated as Trustees. John McClelland passed away on September 20, 2008. On October 11, 2010, Sally McClelland signed a Trustee Renunciation by which she relinquished her positon as the surviving Trustee of the McClelland Trust to Respondent, who was named in the original Trust Agreement to be appointed as Successor Trustee in the event John and Sally McClelland could no longer serve as trustee(s) "due to physical or mental incapacity, or death."
On March 1, 2011, Respondent opened a checking account in the name of the McClelland Trust (account number ending in 8938) at First Mariner Bank. The McClelland Trust also held additional assets, including funds invested in a brokerage account. From the time he took over as Successor Trustee in October 2010, Respondent was responsible for McClelland Trust financial accounts and for managing any funds entrusted to him in the fiduciary role of trustee.
From the time he took over as trustee, Respondent regularly deposited funds he received on behalf of the McClelland Trust into his attorney escrow account, which was also maintained at First Mariner Bank (account number ending in 1962), instead of depositing such funds into the McClelland Trust checking account. Respondent's escrow account at First Mariner was an account maintained pursuant to Title 16, Chapter 600 of the Maryland Rules. From October 2010 through September 2013, Respondent incrementally deposited $281, 651.95 of McClelland Trust funds into his attorney escrow account.
On December 17, 2010, Respondent made a loan in the amount of $40, 000 to Mangia Bene, LLC, a business entity owned by Greg Orendorff, one of Respondent's clients, by issuing a check drawn on Respondent's attorney escrow account. Respondent designated this transaction as a loan of McClelland Trust funds from his escrow account. Respondent did not engage independent legal counsel to represent the McClelland Trust regarding the $40, 000.00 loan he made as trustee to a legal clients' business entity, nor did he advise the loan recipient in writing of the desirability of seeking independent legal advice before entering into a financial transaction with Respondent in his capacity as trustee of the McClelland Trust.
By November 2011, Respondent no longer maintained the accrued balance of McClelland Trust funds in his attorney escrow account. Bar Counsel's investigator, Mr. Fiedler, testified concerning his analysis of escrow account bank records obtained by subpoena from First Mariner Bank and the Quicken Register report Respondent provided in the course of Bar Counsel's investigation. From those records, Mr. Fiedler was able to compile a "Negative Balance Chart" (Tab 24 of Petitioner's Exhibit 1) demonstrating that on November 25, 2011, the overall balance in Respondent's escrow account was only $88, 572.21 at a time when Respondent should have been holding $95, 443.73 in the account solely for the McClelland Trust client matter.
The McClelland Trust negative balance subsequently increased. By March 2012, Respondent's overall escrow account balance was drawn down to an amount under $17, 000.00. No significant disbursements of McClelland Trust funds occurred during this period. As just one snapshot of the deficiency in McClelland Trust funds, on March 21, 2012, the overall balance in Respondent's escrow account was at $16, 300.90. At that time, he should have still had $91, 693.73 in the account solely for the McClelland Trust matter. Respondent therefore has an escrow account deficiency of $75, 392.83 with regard to the individual client matter of the McClelland Trust.
Mr. Fiedler pointed out in his testimony that Respondent personally benefited from the misappropriation of McClelland Trust funds. From November 17-25, 2011, Respondent issued four checks totaling $13, 734.00 payable to himself, including two checks (numbered 3108 and 3113) with no memo notation identifying any client matter. This issuance of such checks contributed to the initial negative balance on McClelland Trust funds on November 25, 2011. Thereafter, throughout 2012 and 2013, Respondent continued to draw checks payable to himself, including many that included no memo notation.
This court finds by clear and convincing evidence that Respondent knowingly and intentionally misappropriated funds entrusted to him as trustee of the McClelland Trust and that he derived personal benefit from the use of the misappropriated funds.
As averred in paragraph 10 of the original and amended petitions, Respondent also drew numerous checks to cash on his attorney escrow account[.]… Petitioner does not contest that the cash obtained from these checks was deposited into Sally McClelland's personal checking account at Wachovia (later Wells Fargo) Bank during her lifetime, but the drawing of checks payable to cash nevertheless constituted a prohibited transaction under Maryland Rule 16-609b.
Sally McClelland passed away on March 24, 2013. At the time of her death, the McClelland Trust checking account at First Mariner Bank had a balance of only $303.40. On April 24, 2013, Respondent deposited $41, 664.87 to the McClelland Trust checking account, constituting the aggregate sum from three separate bank accounts maintained by Sally McClelland at the time of her death.
On April 24, 2013, Respondent issued check number 1204 drawn on the McClelland Trust checking account in the amount of $11, 602.00 payable to Duda-Ruck Funeral Home of Dundalk in payment of Sally McClelland's funeral expenses. On the same date, he issued a check number 1203 drawn on the McClelland trust checking account in the amount of $3, 000.00 payable to "Herkimer Street LLC, " a forfeited business entity of which Respondent and his wife Marjorie were the sole members. Respondent knowingly issued this check as an unauthorized disbursement of McClelland Trust funds for his personal benefit.
On May 11, 2013, Respondent issued a check number 1205 drawn on the McClelland Trust checking account in the amount of $10, 000 payable to "Kenwalls II, LLC." The memo line on the check identified it as "Loan." Kenwalls II, LLC is a business entity owned and organized by Brian E. Walls, Respondent's son-in-law, to purchase, remodel and sell homes. Respondent did not engage independent legal counsel to review the terms of the transaction on behalf of the McClelland Trust when making this loan to his son-in-law's business.
On May 31, 2013, Respondent authorized a $15, 000.00 wire transfer of funds from the McClelland Trust checking account to Brian Walls. This transaction was designated as a loan secured by a mortgage on a parcel of real property Mr. Walls owned in Camden County, Missouri. Respondent did not engage independent legal counsel to review the terms of the transaction on behalf of the McClelland Trust when making this personal loan to his son-in-law.
In August 2013, legal counsel for First Mariner Bank wrote to Bar Counsel to report concerns about the activity in the McClelland Trust checking account, including issuance of the checks to Herkimer Street LLC and Kenwalls II LLC and the wire transfer to Brian Walls. In response to Bar Counsel's initial inquiry letter, Respondent, through counsel, falsely claimed that the $3, 000.00 check to Herkimer Street LLC "was drawn on the wrong account" in error. Only after receiving notice of the complaint did Respondent return $3, 000.00 to the McClelland Trust checking account by depositing a check (drawn on the Kenwalls II, LLC checking account) on September 26, 2013.
Following commencement of Bar Counsel's investigation. Respondent obtained repayments of the three outstanding loans of McClelland trust funds from Mangia Bene LLC, Kenwalls, II LLC and Brian Walls.
In the course of Bar Counsel's investigation, Respondent provided an accounting of McClelland Trust funds that did not accurately account for all funds entrusted to him in a fiduciary capacity. Respondent did not create and maintain a client matter record that complied with the requirements of Maryland Rule 16-606.1(a)(3) for the McClelland Trust funds in his attorney escrow account.
On April 4, 2013, Respondent deposited a check issued by Pershing/Founders Financial Securities LLC, payable to "The McClelland Family Rev. Trust" in the amount of $15, 000.00, into his attorney escrow account. Respondent did not include that deposit in the accounting of McClelland Trust funds provided to Bar Counsel's investigator in January 2014 during the investigation of the complaint prior to the filing of public charges (Tab 17 of Petitioner's Exhibit 1). Respondent added the $15, 000.00 deposit to a revised 'McClelland-IOLTA Report" (Tab 25) he produced to Petitioner when he appeared for his deposition in this matter on September 8, 2015.
d. The hearing judge's conclusions of law
Based on the above findings of fact, the hearing judge concluded that there was clear and convincing evidence that Respondent had violated MLRPC 1.1, 1.7, 1.8(a), 1.15(a) and (d), 8.1(a), 8.4(a)-(d), Maryland Rules ...