More Than Just “Atrocious” Record Keeping

The Kansas Supreme Court disbarred an attorney admitted in 1999.

The misconduct involved a client he met through a real estate closing

Following that contact, the respondent and P.M. discovered that they had many things in common. During the period of time that followed, P.M. engaged the respondent as her attorney, they became friends, and they became business associates. On a number of occasions, the respondent and his family traveled on vacations with P.M. Respondent testified he grew to care more for P.M. than his own mother. [Footnote: P.M. testified at the hearing on the formal complaint. She was 82 years old at the time. P.M. suffered an injury in her home in August 2014, and was still in the process of recovering from the injury. The respondent objected to her testimony on the grounds of competency. The competency objection was overruled.

He became her attorney in 2007 and also had limited power of attorney. in addition, he was involved in a family farming business.

The misconduct involved excessive fees, conflicts of interest, violation of the business transactions with clients rule and

Lawyers must safeguard client’s property. KRPC 1.15. In this case, the respondent failed to properly safeguard P.M.’s property—he was unable to account for at least $65,364 or as much as $169,653. Based upon the respondent’s failure to properly account for P.M.’s funds, the hearing panel concludes that the respondent violated KRPC 1.15.

The key transaction

On October 7, 2009, the respondent formally established a limited liability company with P.M., called Madden Ventures, LLC. The respondent and P.M. were each 50% owners of Madden Ventures, LLC. Additionally, there is evidence and testimony that the parties formed a business relationship and acted as partners prior to this date. “

P.M. contributed all the capital to Madden Ventures, LLC, including the proceeds from an IRA. Additionally, the respondent effected the transfer of real property, located in Kansas and elsewhere, owned by P.M. to Madden Ventures, LLC. (The respondent stipulated that he violated KRPC 1.8 by transferring his client’s property to an entity in which he was an owner.)

Despite the 50% ownership interest, the respondent did not contribute any capital to Madden Ventures, LLC. Likewise, the respondent did not transfer any of his real property into Madden Ventures, LLC. Respondent testified his contributions to Madden Ventures, LLC, were his management skills and his financial standing enabling him to guarantee loans for the LLC. Thus, with regard to the Donahey property, notwithstanding that respondent was the seller, settlement agent, and attorney for P.M., the respondent also acquired an ownership interest in the Donahey property as a buyer because of his 50% interest in Madden Ventures LLC.

The Rule 1.8(a) violations

The respondent stipulated that his conduct violated KRPC 1.8(a) in two respects. First, the respondent stipulated that he violated KRPC 1.8(a) by receiving a loan of $15,000, from P.M. Second, the respondent stipulated that he violated KRPC 1.8(a) by transferring P.M.’s property into Madden Ventures, LLC, in which he was an owner. This was not a business relationship where the respondent had contributed a substantial amount of assets to the LLC. He had contributed none. All the risk of loss was on P.M. The hearing panel accepts the respondent’s stipulations and concludes that the respondent violated KRPC 1.8(a)

The court on sanction

After careful consideration, a majority of the court agrees with the office of Disciplinary Administrator that disbarment is the appropriate sanction. The facts, which are undisputed before this court, show a flagrant pattern of misrepresentation, conflict of interest, and exploitation of a vulnerable client over a number of years, all of which resulted in a substantial loss of the client’s property. This is not simply a matter of “atrocious” record keeping, as the respondent characterized it. A minority of the court would follow the hearing panel’s recommendation of indefinite suspension.

Video of the oral argument is linked here. (Mike Frisch)