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Attorney Grievance Commission of Maryland v. Gracey

Court of Appeals of Maryland

May 20, 2016


          Argued: March 3, 2016

         Circuit Court for Baltimore County, Maryland Case No. 03-C-15-006503

          Barbera, C.J. [*] Battaglia Greene Adkins McDonald Watts Hotten JJ.


          Battaglia, J.

         Petitioner, the Attorney Grievance Commission of Maryland ("Commission"), through Bar Counsel, filed in this Court a Petition for Disciplinary or Remedial Action ("Petition") on May 27, 2015, against Respondent, Wayne Gordon Gracey, as a result of it having received complaints against Gracey from BB&T Bank, Daletia Chung and Catherine and Peter Adams. In its Petition, the Commission alleged that Respondent violated Maryland Lawyers' Rules of Professional Conduct ("MLRPC") 1.15(a), (c) and (e) (Safekeeping Property);[1] 1.16(d) (Declining or Terminating Representation);[2] 5.3 (a), (b) and (c) (Responsibilities Regarding Nonlawyer Assistants);[3] 7.3(a) (Direct Contact with Prospective Clients);[4] 8.1(a) and (b) (Bar Admission and Disciplinary Matters);[5] and 8.4 (a), (b), (c), and (d) (Misconduct).[6]

         Pursuant to Maryland Rules 16-752(a) and 16-757(c), [7] this Court designated the Honorable Judge Susan Souder ("the hearing judge") to hear the matter and make findings of fact and conclusions of law. On August 14, 2014 Gracey was served with the Petition, our Order, Petitioner's First Set of Interrogatories, Petitioner's First Request for Production of Documents and Petitioner's First Request for Admission of Fact and Genuineness of Documents to which Bar Counsel requested that Gracey answer within ten days. Gracey did not respond and Bar Counsel sent another letter on September 9, 2014 requesting that Gracey respond to the complaint within seven days to which Gracey responded. Gracey also failed to respond to another request from Bar Counsel which requested copies of the client file for the Adamses and trust account records demonstrating that the legal fees were held in trust.

         The hearing judge conducted an evidentiary hearing on December 9 and 10, 2015 during which Bar Counsel presented testimony from Daletia Chung and Catherine Adams. Gracey represented himself and testified on his own behalf. In addition, both Bar Counsel and Gracey submitted substantial documentation, which was received in evidence, including Gracey's bank records from BB&T Bank, various correspondence between Ms. Chung and the Gracey Law Firm and between Ms. Chung and her bank, as well as a retainer agreement and various correspondence between the Adamses and the Gracey Law Firm.

         The essence of BB&T Bank's complaint was that Gracey defrauded it of $24, 683 by creating payments for services not rendered for fictitious client accounts which were deposited into one of seven checking accounts opened by Gracey for which he was the sole signatory and none of which was an attorney trust account; deposits in these accounts were subject to almost immediate withdrawal, because the Bank permitted the use of an electronic network for direct payment known as the "Automated Clearing House" ("ACH").[8] Between November 2013 and May 2014, $191, 117 in ACH deposits were made by Gracey's firm to one of Gracey's seven checking accounts, but $184, 035 of the deposits were later returned/rejected by BB&T as uncollectible. The majority of the rejected deposits had been from two fictitious individuals: "Yasmine Toye" and a "Richard Jones" who allegedly owed Gracey money and for which payments were being made. After the fraudulent deposits were made and Gracey's account was credited, the money was withdrawn almost immediately from Gracey's account before the bank noticed the error several days later and reversed the credit. The process of defrauding the Bank was repeated to continuously inflate Gracey's account balance.

         Another complaint from Daletia Chung alleged that Gracey deducted funds from Ms. Chung's bank account; Ms. Chung had been a client of Mid Atlantic Regional Law, a firm with which Gracey had previously been associated. Ms. Chung had never signed a retainer agreement or written authorization for Gracey to charge her account. Similarly, a complaint from Catherine and Peter Adams asserted that Gracey deducted money from their account despite their instruction not to withdraw any.

         I. Judge Souder's Findings of Fact and Conclusions of Law

         On December 22, 2015, Judge Souder issued written findings of fact and conclusions of law. Judge Souder concluded, based on clear and convincing evidence, that Respondent violated MLRPC 1.15(a) and (e), 1.16(d), 5.3(c), 8.1(a) and (b), and 8.4(a), (b), (c) and (d). Bar Counsel abandoned the allegation that Gracey violated Rule 7.3 at the evidentiary hearing and "asserted instead that Respondent's employee violated Rule 7.3 and Respondent violated Rule 5.3."

Judge Souder's Findings of Fact and Conclusions of Law state:
Respondent is proud of his admission to the Maryland Bar in January 1985. He became a lawyer to help people; and, he has found assisting clients in terrible financial distress a rewarding career. It was undisputed that Respondent has assisted many clients without being paid for his services. This grievance proceeding is the first one filed against Respondent in his thirty years of practice.
In April 2013, Respondent began working at the Mid Atlantic Regional Law Group, LLC ("MAR"). MAR closed in August of 2013, and Respondent established Wayne Gordon Gracey Esquire and Associates, LLC (hereinafter "the Firm"). Respondent employed nearly all of the employees from MAR, including Kurt Rehak, Chamari Willis, Eric Kiik, Sang Yi, and Warren Gantt. The Respondent also obtained certain property from MAR, including computers containing client information, physical client files, software, databases, MAR's phone number, and email addresses.
With Respondent's knowledge, Respondent's employees, including Mr. Gantt, Mr. Rehak, and Mr. Willis, directly solicited potential clients by telephone, met with those potential clients in-person, explained the bankruptcy process, explained the Firm's retainer agreement, signed clients up, and sometimes collected money from those clients. Respondent was aware that this direct solicitation of clients was wrong, but did not put a stop to the solicitation because he did not know how to generate sufficient income without violating the Maryland Lawyers' Rules of Professional Conduct.

         Complaint from BB&T

         On November 1, 2013, Respondent and Mr. Rehak went to BB&T Bank and opened multiple bank accounts, many of which had corresponding ATM/debit cards. Respondent was the only signatory on those bank accounts.

BB&T offered a service which provided that transfers from Automated Clearing House (or "ACH") deposits would be almost immediately available for use by the Firm. At Mr. Rehak's insistence, Respondent's Firm took advantage of this service. Between November 2013 and May 2014, $191, 117 in electronic transfers were deposited into Respondent's BB&T accounts, $184, 035 of which were returned for "no account/cannot locate." In other words, Respondent's employees electronically communicated to BB&T that a credit card or its information was provided to the Firm in payment of services and BB&T credited the Firm's account in the amount of the payment almost immediately. Once the bank credited the Firm's account with the amount of the ACH deposit, Respondent's employee(s) would quickly transfer the funds to another Firm account. Checks and/or withdrawals then spent the amounts generated by these fraudulent transactions. In fact, the credit card information provided to BB&T was not accurate and in many instances there was no actual credit card account as communicated by the Firm.
On multiple occasions, the Firm advised BB&T it had received payments by way of credit cards from a "Yasmine Toye" and a "Richard Jones." The individuals were fictitious. The multiple deposits for "Yasmine Toye" totaled $140, 519. Credits for "Toye" and "Jones" totaled $166, 519 of the $184, 035 returned, or rejected, transactions with BB&T.
Respondent recognized that something was not right with the Toye transactions, and Respondent asked Mr. Rehak to stop making the deposits; but, the deposits continued. Respondent did not know who Richard Jones was, and he noticed that the deposits from Richard Jones were being returned for "no account/cannot locate, " but Respondent did not question Mr. Rehak about the returns, nor did Respondent investigate the transactions.
Respondent reviewed the Firm's bank accounts regularly, and saw that there were often low or negative balances in the accounts. Respondent knew that funds from ACH deposits became available almost immediately. Respondent did question Mr. Rehak about the bank account activity, including the large number of returned items; but, Respondent did not terminate Mr. Rehak's employment because the Firm was operating out of Mr. Rehak's basement. Respondent also did not stop Mr. Rehak from accessing bank accounts, from managing the Firm's finances, or from soliciting clients. BB&T closed Respondent's bank accounts in June 2014. Due to the fraud scheme carried on by ACH deposits from accounts that did not exist or could not be located, BB&T suffered a loss of $24, 683. Respondent has not made any restitution payments to BB&T.
Respondent used thousands of dollars from the BB&T accounts, which had been artificially inflated by the fraud scheme that was perpetrated by Respondent and his employees. From Respondent's payroll account (account number ending in 5629), Respondent signed and then cashed or deposited over $11, 000 in checks to himself personally. From Respondent's expense account (account number ending in 5653), Respondent wrote checks payable to himself. In addition, from Respondent's filing fee account (account number ending in 2267), Respondent also wrote checks payable to himself; and, Respondent did not note that the checks were for any client matter or associate the checks with any client. From Respondent's operating account (account number ending in 5491), Respondent made and endorsed numerous cash withdrawals, without making any indication as to the purpose of the funds. Despite the number of accounts that Respondent maintained, none was a client trust account.

         Complaint from Daletia Chung

Ms. Daletia Chung retained MAR in September 2012, and pursuant to her retainer agreement, MAR deducted $100 from Ms. Chung's bank account each month for the retainer. In June 2013, MAR increased the deductions to $115 per month. Beginning in October 2013, Respondent began to deduct funds from Ms. Chung's account on a monthly basis, even though Ms. Chung had not signed a retainer agreement with Respondent and Respondent had no written authorization to charge Ms. Chung's account.
In March 2014, Ms. Chung advised Respondent that there had been wrongful withdrawals from her account and that she had never been informed that her file was transferred to the Firm. She requested a refund. Mr. Kiik responded that Ms. Chung did not have an agreement with the Firm, and that she would need to contact someone from MAR about withdrawals by MAR. Mr. Kiik also represented that the Firm had obtained Ms. Chung's credit report, which he sent to Ms. Chung, and had reviewed her file. In fact, the credit report the Firm provided to Ms. Chung was the same credit report that MAR had obtained in September 2012. The Firm provided Ms. Chung with a retainer agreement; but, Ms. Chung never signed the agreement. Mr. Kiik informed Ms. Chung that the Firm could only refund Ms. Chung the amounts that the Firm had withdrawn from her account; but, the Firm never provided any refund to Ms. Chung. Recognizing that the Firm was not authorized to withdraw funds from her account, Ms. Chung's bank refunded her the $501 that Respondent's Firm had withdrawn.
Respondent reviewed emails between Ms. Chung and Mr. Kiik, and was aware that there was a fee dispute. Respondent took no steps to resolve the matter, did not provide a refund to Ms. Chung, and did not deposit the disputed amount into a client trust account. Respondent admitted that the funds withdrawn from Ms. Chung's account were not deposited or maintained in trust, and there was no informed consent confirmed in writing from Ms. Chung to deposit the funds in a non-trust account.
In response to a letter from Bar Counsel, by letter dated June 6, 2014, Respondent stated that his Firm did some preliminary work on Ms. Chung's case including obtaining her credit report and providing it to her. Respondent attached to this letter a copy of Ms. Chung's credit report, which was dated September 6, 2012. This credit report was obtained by MAR, not Respondent's Firm.

         Complaint from Peter and Catherine Adams

In January 2014, Mr. Peter Adams received a phone call from Mr. Gantt, soliciting employment for Respondent's Firm. Mr. Gantt visited the Adamses' home on January 21, 2014, at which point he obtained information regarding the Adamses' assets, expenses, monthly bills, and bank account information. At that time, Ms. Catherine Adams signed a retainer agreement, stating that no deductions should be made from her bank account until she authorized them. At the time Ms. Adams signed the retainer agreement, the portion of the agreement which provided debit amounts that would be made from her account was left blank. Ms. Adams requested copies of the documents she had signed, but none were provided to her.
Though the Adamses signed the agreement, they did not date it, and did not authorize any charges on any specific dates. Rather, Ms. Adams said she would call the Firm when funds were available to authorize payment. Ms. Adams wrote letters to the Firm, dated January 21, 2014 and February 7, 2014. It was disputed whether the first of these letters was actually sent, and the letters were contradictory as to whether the Adamses were decidedly hiring the Firm; but, both letters were clear that the Firm was not to withdraw any money until the Adamses provided authorization. Respondent also contacted the Adamses by telephone, and requested to begin debiting their account, which the Adamses did not authorize. Despite this, Respondent's Firm debited $350 from the Adamses' account. This $350 was not deposited and maintained in a trust account, and it was not deposited in a trust account at the time a fee dispute arose with the Adamses in March 2014. By check dated January 18, 2015, approximately six months after Bar Counsel had contacted Respondent about the Adamses' complaint, Respondent refunded $250 to the Adamses. The balance of $100 was not refunded. Respondent also never provided the Adamses with a copy of their retainer agreement, as they requested, their credit report, or any other documents.
In response to an inquiry from Bar Counsel, by letter dated April 11, 2014, Respondent provided a retainer agreement signed by the Adamses, which stated that a retainer of $500 was paid in February 2014, the specific date being unclear. By letter dated June 20, 2014, Respondent provided to Bar Counsel another copy of a retainer agreement signed by the Adamses, which stated that a retainer of $350 was paid on February 21, 2014. With the exception of these hand-written monetary amounts, the agreements are identical. With these Retainer Agreements, Respondent also provided copies of Written Authorization to Charge Forms, which Ms. Adams signed on January 23, 2014. Both forms show monetary amounts and dates to be charged, but these monetary amounts and dates were not filled in on the form when Ms. Adams signed it.
By letter dated June 10, 2014, Bar Counsel requested copies of the Adamses' client file and trust account records demonstrating that the legal fees were held in trust. The letter also requested that Respondent provide the refund check to the Adamses to the Attorney Grievance Commission, for forwarding to the Adamses. Respondent failed to respond to these demands.
By letter dated August 21, 2014, Bar Counsel notified Respondent that the AGC received a complaint against Respondent from the Adamses, and requested that Respondent respond to the allegations in the complaint within ten days. Respondent failed to respond to this request. By letter dated September 9, 2014, Bar Counsel notified Respondent that no response had been received, and requested Respondent to reply within seven days. Respondent's response was dated September 12, 2014, and was received by the AGC on September 15, 2014.

         The Conclusions of Law made by Judge Souder were as follows:

Petitioner alleged that Respondent violated the following Maryland Lawyers' Rules of Professional Conduct ("Rules"): 1.15 ("Safekeeping Property"), 1.16 ("Declining or Terminating Representation"), 5.3 ("Responsibilities Regarding Nonlawyer Assistants"), 8.1 ("Bar Admission and Disciplinary Matters"), and 8.4 ("Misconduct").1 the funds withdrawn from the Adamses' account and from Ms. Chung's account when disputes arose as to those funds, as was required by Rule 1.15(e).

1In the Petition, Petitioner also alleged that Respondent violated Rule 7.3 ("Direct Contact with Prospective Clients"), but Petitioner abandoned this allegation at the December 10, 2015 proceeding, asserting instead that Respondent's employees violated Rule 7.3 and Respondent violated Rule 5.3.

Respondent became aware of the fee dispute with the Adamses on or about March 10, 2014, but Respondent did not refund any of the fee they had paid until approximately ten months later, in violation of Rule 1.16(d). Furthermore, Respondent refunded only $250 at that time, and never refunded the remaining $100, which represented an advance fee or expense that Respondent had not earned. Respondent also did not provide the Adamses with any of the documents they had signed, to which they were entitled. Accordingly, Respondent violated Rule 1.16(d).
Rule 7.3 prohibits lawyers from, by in-person, live telephone, or realtime electronic contact, soliciting professional employment from prospective clients when a significant motive is the lawyer's pecuniary gain, unless the prospective client is a lawyer or has a family, personal, or prior professional relationship with the lawyer. Warren Gantt, a non-attorney employee of Respondent, solicited the Adamses by telephone and in-person. Respondent was aware that Mr. Gantt, as well as Mr. Rehak and Mr. Willis, were soliciting clients by telephone and in-person, but Respondent did not stop the solicitation process. Thus, Respondent violated Rule 5.3(c), which makes lawyers responsible for the conduct of their nonlawyer employees that would be a violation of the Rules if engaged in by a lawyer, if the lawyer knows about and ratifies the conduct.
In response to inquiry from Bar Counsel, by letter dated April 11, 2014, Respondent attached a copy of a retainer agreement signed by the Adamses. In response to another inquiry from Bar Counsel, by letter dated June 20, 2014, Respondent provided a copy of a retainer agreement signed by the Adamses that differed from the one provided in April. Because it is necessary that either one or both of these retainer agreements was false or was altered in some way, Respondent violated Rule 8.1(a) because he knowingly made a false statement of material fact in connection with a disciplinary matter. Respondent also violated Rule 8.1(a) when, by letter dated June 6, 2014, Respondent represented to Bar Counsel that his Firm had pulled Ms. Chung's credit report at her request. Respondent attached a copy of the credit report his Firm had allegedly pulled for Ms. Chung, but the report was the same report that had been pulled by MAR in 2012.
Respondent violated Rule 8.1 (b) by failing to respond to lawful demands for information from a disciplinary authority. Bar Counsel notified Respondent, via letter dated August 21, 2014, that the AGC had received a complaint against Respondent, and requested that Respondent answer the complaint within ten days. After receiving another request from Bar Counsel, by letter dated September 9, 2014, that Respondent respond to the complaint within seven days, Respondent submitted a response to the complaint. Bar Counsel also requested, by letter dated June 10, 2014, that Respondent provide copies of the client file for the Adamses and trust account records demonstrating that the legal fees were held in trust. Respondent failed to provide Bar Counsel with the requested information, in violation of Rule 8.1(b).
Because Respondent violated Rules 1.15, 1.16, 5.3, and 8.1, Respondent also violated Rule 8.4(a). Attorney Grievance Commission v. Nelson, 425 Md. 344, 363 (2012) ("Rule 8.4(a) is violated when other Rules ...

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