Like a Daughter

An indefinite suspension with no reinstatement for at least a year was imposed by the Minnesota Supreme Court for misconduct described by the court

The respondent attorney engaged in misconduct by entering into an investment agreement, which amounted to an unsecured $500,000 loan, and several related business transactions with a client in violation of his obligations under the rules of professional conduct regarding conflicts of interest. The attorney also made misrepresentations to a client and opposing counsel in the course of a civil lawsuit, and to the Director during the disciplinary investigation, caused harm to his client, and did not demonstrate genuine remorse for the misconduct. 

The circumstances

The misconduct in this case relates to D.S., who was a member of Severson’s household. D.S.’s childhood history was tragic. When D.S. was 3 months old, her parents were killed in a car accident. D.S. was the sole beneficiary of various insurance proceeds that were placed in a conservatorship administered by her adoptive mother (mother). When D.S. was in high school, she experienced serious conflicts with her stepfather that they could not resolve. As a result, D.S. asked and Severson agreed that she would become a member of the Severson household. The Seversons thereafter treated D.S. like a daughter.

The attorney received the conservatorship proceeds after D. S. became an adult. He used the half million as investment funds on her behalf but got into financial difficulty

In January 2007, D.S. requested that Severson return the $500,000 to her. Because Severson was unable to consummate a sale of the FSSCF stock, Severson was unable to return D.S.’s principal. By 2008, Severson was in serious financial trouble. Notably, Severson had acquired an equine center in 2007 and later sold the facility for $1.5 million on a contract for deed, but the purchasers defaulted on the contract. Thereafter, Severson assigned his seller’s interest in the equine center to D.S. as security for her principal, and had D.S. sign a $250,000 mortgage regarding their interest in the equine center; but Severson did not explain to D.S. that he had her sign the documents because of his financial difficulties.

D.S. hired an attorney who sought return of the money and an accounting. The attorney responded with false representations that persisted in the disciplinary investigation.

The court rejected the attorney’s claim that D.S. was not his client and thus that there was no Rule 1.8(a) violation.

In sum

We conclude that the referee’s finding that Severson’s motivations were not selfish was not clearly erroneous. Severson testified that he intended to subsidize D.S.’s education through the investment agreement because he knew he could not obtain a 9% return on the investment. Severson also testified that the original purpose for assigning the equine center to D.S. was to provide a source of payment for her inheritance. This testimony supports the referee’s finding that Severson’s motivations were not selfish. In sum, we uphold all but two of the referee’s findings. We conclude the referee clearly erred when he found that Severson misrepresented to his bank that D.S. was his daughter, and clearly erred when he did not find that Severson’s lack of remorse was an aggravating factor…

Severson’s misconduct harmed D.S., who trusted him. It took D.S. several years to recover some of her principal from Severson, she had to hire an attorney in order to do so, and in the end, she lost at least one-third of the principal she had given to Severson…

We conclude that when considered in its totality, Severson’s misconduct is very serious. Severson violated the conflict of interest rules by entering into an investment agreement with a client that involved a substantial sum of money and had terms that were unfair and unreasonable. Severson further violated the rules by having that same client assign and mortgage her interest in a building without disclosing that doing so was for his benefit. These business transactions harmed the client, who had to sue Severson in order to get her money back and in the end did not recover one-third of the principal she had entrusted with Severson. Moreover, Severson committed multiple acts of dishonesty by failing to disclose that the assignment and mortgage of the equine center was for his own personal interest, failing to disclose that he, and not his law firm, generated four invoices he used to try to obtain an offset of the amount he owed the client, and making misrepresentations to the Director. Also, Severson did not exhibit remorse for his misconduct, or the effect his misconduct had on his client. Severson has not cited any case that includes multiple misrepresentations and conflicts of interest, involving a substantial sum of money, in which we have imposed a suspension of less than 1 year. We therefore conclude that the appropriate discipline is an indefinite suspension with no right to petition for reinstatement for a minimum of 1 year.

(Mike Frisch)