Lawyer As Trustee Sanctioned In Kentucky

The Kentucky Supreme Court has ordered a five-year suspension for an attorney’s misconduct as a trustee.

The court overruled aspects of two prior cases

Before delving into our analysis of the other issues in this case, we point to this Court’s prior opinions involving an attorney’s service as fiduciary. Longstanding case law holds that an attorney who serves as fiduciary and as attorney may only receive one fee for his services.

In the case at bar, Calvert did not act in a dual capacity as both Trust attorney and Trustee. However, Calvert was employed by his father, Calvert Sr. when he was named Trustee. His father served as the Trust’s attorney. Therefore, from the creation of the Trust in 1996 until Calvert left his father’s employ in 2002, Calvert Sr.’s law practice employed both the Trust’s fiduciary and attorney.

The opinions in Profumo and Clay both express an exception to the double-dipping prohibition: when the testator or settlor explicitly names the attorney to serve as both fiduciary and attorney. Both opinions hold that a double fee is permitted in those circumstances. Profumo, 931 S.W.2d at 152; Clay, 444 S.W.2d at 127. While we agree that a testator or settlor’s right to name the same attorney to serve as both a trust’s trustee and attorney, we disagree that the attorney may receive fees for both. Therefore, we overrule the aspect of both opinions allowing the attorney/trustee double compensation.

Calvert was not charged in relation to any double dipping from the Trust—and we do not have any potential bar complaints against his father in this case. But, to be clear, we hold that double-dipping is never permitted. Doing so in future cases may subject an offending attorney to severe discipline.

Here, the misconduct involved failure to account and dishonesty

From June 2009 to May 2013, the evidence from the Traditional Bank account records shows that Calvert took over $91,000 from the Trust for personal use without justification. It is undisputed that he used Trust funds to pay his cell phone bill on two different occasions. The Trial Commissioner described this as “a deliberate act that cannot logically be characterized as negligence.”

The court

To justify Calvert’s argument that the Trust owed him more than $90,000 he took in “fees” between 2009 and 2013, the KBA’s Office of Bar Counsel points out that “the Trust would have to have generated nearly $1,800,000.00 in appreciated principal added to the principal or income.” Calvert did not present any evidence to confirm such an increase—and, by his own admission, could not present such evidence, as it did not exist.

The misrepresentations Calvert made were not limited to the time period covered by the Traditional Bank Records. Calvert represented to the beneficiaries that he had received just over $27,000 in Trustee fees from 1998 through 2002. In fact, he had paid himself almost $45,000 during that time period.

After a thorough examination of the extensive record in this case, we find the evidence supports the Trial Commissioner’s and Board’s conclusions that Calvert violated SCR 3.130-8.4(c) by engaging “in conduct involving dishonesty, fraud, deceit or misrepresentation.”

The court found mitigation and aggravation

While Calvert presented this medical evidence, he presented no evidence as to how his mental state at the time contributed to his various actions constituting misconduct as Trustee. Calvert also fails to point to any current mental health treatment plans apart from his assertion that he gained coping skills through his therapy sessions. Any mitigation this provides would only lessen Calvert’s sanction for extensive, long-term misconduct concerning the Trust from permanent disbarment to the five-year suspension recommended by the Trial Commission and a unanimous Board. We impose that sanction today and require Calvert to participate in KYLAP and pay the costs of this action.

(Mike Frisch)