Board of Overseers of the Bar v. Scott G. Adams
Download Download Decision (PDF)
Docket No.: GCF No. 10-035
Issued by: Panel E of the Grievance Commission
Date: January 5, 2012
Respondent: Scott G. Adams
Bar Number: 008019
Disposition/Conduct: Conduct Involving Dishonesty, Deceit and Misrepresentation
REPORT OF FINDINGS AND ORDER PANEL E OF THE GRIEVANCE COMMISSION
On September 27 and November 29, 2011, with due notice, Panel E of the Grievance Commission conducted a public disciplinary hearing pursuant to Maine Bar Rule 7.1(e)(2)(E), concerning alleged misconduct by the Respondent, Scott G. Adams. This disciplinary proceeding had been commenced by the filing of a Disciplinary Petition by the Board of Overseers of the Bar (the Board) on September 30, 2010.
At the hearing, the Respondent was represented by Attorney Peter J. DeTroy and the Board was represented by Assistant Bar Counsel Aria Eee. The Panel heard a total of five witnesses, including the complainant, Attorney Judy Metcalf, and the Respondent. The Panel admitted a total of 75 exhibits, Board Exhibits 1 – 45, and Respondent’s Exhibits 1 – 30. Having considered all the evidence and arguments of counsel, the Panel makes the following findings and disposition.
Scott G. Adams was admitted to practice in 1980 and has maintained a practice to the present, concentrating on estate and tax matters in East Boothbay, Maine. The Respondent also qualified as a Certified Public Accountant in 1974 and has maintained his license as a CPA also.
The events of the instant grievance arise out of the filing, hearing, and disposition of an earlier grievance (Board v. Adams, GCF No. 08-174), which was disposed of by the Report of Findings and Order of Panel D of the Grievance Commission, dated May 6, 2009 [hereinafter ‘Panel D Report’]. Panel D found, in part:
On May 12, 2008, Attorney Adams self-reported to the Board that he had violated Maine Bar Rule 3.6(a)(3) of the Code of Professional Responsibility [since abrogated and replaced by the Maine Rules of Professional Conduct]. Specifically, Adams reported that in the course of advising the Personal Representative (PR) for the Brownell estate, he failed to timely file a federal estate tax return, or request an extension of the same. Adams also failed to recommend timely payment of the federal estate tax due, all of which resulted in significant monetary penalties and interests, potentially totaling costs to the estate of approximately $ 134,000.00. While Attorney Adams did request a reduction in the assessed penalties, the IRS has not yet responded to that request. At the disciplinary hearing, Attorney Adams expressed remorse for his actions and oversight. In January of 2008, upon recognizing his error, Attorney Adams committed to reimburse the estate for losses incurred due to his neglect. In that regard, by early May of 2008 Attorney Adams, prior to the initiation of this action remitted $ 50,000 to the estate. Certainly, his efforts are important and the Panel expects that Attorney Adams will finalize any actions to fully reimburse the estate.
Panel D Report, at 2. [emphasis added] In its Conclusions, Panel D went on to say:
While the injury to the client due to potential IRS penalties and interest appears significant, it is apparent that Attorney Adams has committed to making his client whole. Finally, in view of the remorse expressed by Attorney Adams and the isolated nature of the misconduct, the Panel finds little or no likelihood of a repetition of the misconduct. Accordingly, the Panel hereby dismissed the complaint with a warning to Attorney Adams to avoid any such delays in addressing the consequences of his actions in the future.
For reasons only partly related to the Respondent’s actions, the principals in the Brownell estate had earlier determined to replace the family PR with an attorney as PR, who would be neutral. They agreed on Attorney Martin L. Eisenstein, of Brann & Issacson, who was appointed in April, 2009. Attorney Eisenstein made a preliminary review of the returns prepared by the Respondent, and determined that a complete ‘overhaul’ of the Estate’s financial records, and amendment of the returns were in order. The Estate was by then under notice of an IRS audit. He retained another attorney and an experienced paralegal at his firm, and conducted such an overhaul, which resulted in an amended return showing significantly different amounts. The IRS accepted this amended return at the audit, and the total penalties and interest the Estate owed was settled on January 29, 2010. (see, Respondent Exhibit 28, the closing letter from the IRS.)
Meanwhile, noting that the Estate had only the earlier payment of $ 50,000 from the Respondent, and no security for what would clearly be a significant obligation, Attorney Eisenstein retained Attorney Daniel A. Nuzzi of his firm to sue the Respondent and obtain attachment of Respondent’s assets to secure payment of his obligation. The Complaint and motion for attachment were filed in the Superior Court on or shortly after June 12, 2009, less than thirty days after the issuance of the Panel D report. There was little if any discussion by Attorneys Eisenstein and Nuzzi with the attorney then representing the Respondent, about voluntarily obtaining security or about settling on a figure of the amount that Respondent owed the Estate. At any rate, it would have been difficult to settle on an amount at that time, as the IRS audit was not settled until the following January, and both parties understood that the Respondent owed also the attorney’s fees and expenses for the work necessary to redo the returns and support them in the audit. This work had not been completed at the time of the complaint and motion for attachment.
Accordingly, the Estate’s motion requested attachment in the amount of $ 309,172.10. In his affidavit in support, Attorney Eisenstein asserted that the total federal and state interest and penalties was revealed in “an initial analysis” to be “approximately $ 244,767.00.” Similarly, he stated that “it is anticipated that the legal costs alone for this endeavor [correcting the returns] will be $ 75,000 to $100,000.” Respondent’s Exhibit 9, Motion for Attachment June 12, 2009, at 5.
These amounts are far greater than any amount the Respondent had believed would reasonably reflect the actual damages his actions had caused the Estate. He immediately retained Attorney Jonathan Hull to defend the action and to resist attachment in the increased amounts.
Attorney Hull thought of the case as an ordinary civil litigation arising out of an alleged act of negligence, the moral equivalent of a personal injury case arising out of an automobile accident. He chided the Respondent for his earlier voluntary payment of $ 50,000, as violating the principle against settling piecemeal, and thereby losing the leverage inherent in the ability to hold up settlement.
He argued in Superior Court that the Estate was requesting attachment in an excessive amount. Attorney Hull also informed the Estate of what he believed to be Respondent’s real estate holdings, their appraised value, and the amount of mortgages. Attachment A to Board Exhibit 29, Letter from Attorney Hull to Attorney Nuzzi dated July 15, 2009. This letter was based on information supplied by the Respondent in an email to Attorney Hull dated July 7, 2009. Respondent’s Exhibit 30.
He was surprised to learn from Attorney Nuzzi at a status conference, that the Respondent, by deeds dated June 18, 2009, had conveyed three parcels of real estate into a closely held corporation, WEOALOT, LLC., which was incorporated on June 5, 2009. These conveyances fall after counsel for the Respondent was notified of the suit and motion for attachment (June 12, 2009) and before the granting of the motion for attachment (October 29, 2009). The conveyance to WEOALOT was not mentioned in Attorney Hull’s July 15, 2009 letter. The Respondent had received a copy of that letter. Had Brann & Isaacson not done an updated registry search, WEOALOT would not have been subject to the attachment. As it was, Attorney Hull did not resist the amendment of the complaint and the attachment to include WEOALOT as a defendant. See, Board Exhibit 30.
The Respondent testified that WEOALOT was not an attempt to avoid the imposition of attachment, but rather a routine matter of placing his rental properties under separate ownership, a result of the recommendation of his bank, which predated by months any inkling he had of the suit and attachment.
Attorney Hull sought discovery of the billing records which might support the Estate’s claim for attorney’s fees for the work necessary to redo the returns and settle with the IRS, work for which both parties believed the Respondent was liable. Clearly, there were many other areas of legal work performed by Brann & Isaacson for the Estate, for which Respondent would have no liability. One example would be the legal work to prosecute the suit and attachment themselves, which under the American Rule are not compensable. Attorney Hull filed a Request for Production of Documents on January 8, 2010. Attorney Nuzzi raised various objections, and the first meaningful response was filed on March 30, 2010. Attorneys Hull and Nuzzi went back and forth, agreeing to some items and disputing others. This process was still ongoing when the parties met on June 2, 2010, for a judicial settlement conference. The Estate’s March 30 response arguably supported an attorney’s fee award of $ 72,517.83, and the Estate entered the settlement conference requesting “approximately $ 42,000” in fees. Respondent’s Exhibit 23. Attorney Hull first acknowledged fees chargeable to the Respondent in the amount of $ 13,213.00, in a letter on April 9. Respondent’s Exhibit 22. This is also the amount he brought into the settlement conference.
The parties settled at the June 2 conference for a total of $ 155,000; with credit for the $ 50,000 earlier paid, the Respondent paid the Estate another $ 105,000, part immediately, and the balance within 30 days. Respondent made timely payments under the settlement. The settlement agreement, dated June 11, 2009, Respondent’s Exhibit 27, does not allocate the total between IRS penalties and interest, and the attorney fees.
The Position of the Board: The Board argues that the Respondent violated Maine Bar Rule 3.7(e)(1)(1), which stated:
3.7 Conduct During Litigation (e) Adversary Conduct. (1) In appearing in a professional capacity before a tribunal, a lawyer shall:
(i) Employ, for the purposes of maintaining the causes confided to the lawyer, such means only as are consistent with the truth, and shall not seek to mislead the judge, jury, or tribunal by any artifice or false statement of fact or law.
The Board also argues that the Respondent violated Maine Rule of Professional Conduct 8.4:
8.4 Misconduct It is professional misconduct for a lawyer to: (a) violate or attempt to violate any provision of either the Maine Rules of Professional Conduct or the Maine Bar Rules, or knowingly assist or induce another to do so, or to do so through the acts of another; (b)..... (c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation; (d) engage in conduct that is prejudicial to the administration of justice.
The Maine Rules of Professional Conduct became effective August 1, 2009, replacing the Maine Bar Rules.
The Board argues that the Respondent’s misconduct consisted of two related actions:
First, the Board alleges that the Respondent’s action in forming WEOALOT, LLC, and conveying his real estate to it, while aware that the Estate was seeking an attachment, “[was] deceptive and arguably amounted to a fraudulent conveyance, in violation of M.R. of Prof. Conduct 8.4(c).” Disciplinary Petition, September 30, 2010, ¶19.
Second, the Board alleges that the “A review of the docket record [of the lawsuit by the Estate] reveals that the attachment and lawsuit were vigorously contested and defended by Adams. Thus, his April 27, 2009, assurances to the Grievance Commission Panel [D] were arguably disingenuous and/or deceiving in violation of then applicable M.Bar R. 3.7(e)(1)(i).” Id, ¶ 24.
The Position of the Respondent:
The Respondent characterizes the Board as complaining that he “fought too hard” in defending himself against the Estate’s lawsuit which was seeking excessive damages. He argues that his commitment at the Panel D hearing to make the Estate whole was made in good faith and, in fact, he met his commitment with reasonable promptness as soon as the amount of damages was agreed. He points to the timing of events. The IRS settlement did not occur until January 29, 2010. By then, the Estate had begun its lawsuit and attachment, for an amount that was demonstratively excessive, when compared to the eventual settlement.
The Respondent dismisses the creation and conveyance of property to WEOALOT, LLC, as unrelated to his controversy with the Estate. He never used it to obstruct the collection of his obligation, which he paid promptly as soon as the amount was settled.
We will first discuss the Board’s second allegation of misconduct, that the Respondent’s vigorous defense of the lawsuit and the thirteen month delay in his actually making payment to the Estate constituted reneging on his statements to Panel D at the hearing on GCF # 08-174, in violation of Maine Bar Rule 3.7(e)(1)(i).
The Respondent’s intention to pay the Estate for its loss is referenced throughout the April 27, 2009, hearing before Panel D. The most explicit statement is:
Mr. Bagdoyan [a Panel D member]: Your plan is that the entire amount of the penalty and interest, whatever it is, is going to be paid back? Mr. Avantaggio [Respondent’s counsel]: Yes.
Respondent’s Exhibit 1, p. 18. Maine Bar Rule 3.7(e)(1)(i), states in relevant part, “[A lawyer] … shall not seek to mislead the judge, jury, or tribunal by any artifice or false statement of fact or law.”
The Respondent’s undertaking to Panel D was to pay amount of the interest and penalties after it was settled by the IRS; this did not occur until January 29, 2010. That is the earliest date that Respondent could have been expected to make a payment. In the meantime, in June 2009, the lawsuit was commenced and the attachment requested, for amounts far larger than the Respondent expected. He settled the lawsuit, and paid the Estate within about four and one half months after January 29.
Respondent defended the lawsuit; it is not possible to read his undertakings to Panel D as being a waiver of his right to do so. Attorney Hull’s defense was vigorous, especially so on the issue of attorney’s fees. However, his actions were not dilatory. He could not be expected to advise his client to settle, until he had reviewed documentation adequately supporting the charges, and assigning the charges to the portion of the Brann & Isaacson work for the Estate which was caused by the Respondent’s negligence. The Estate only began to produce documentation on March 30, and approximately two months later, the Respondent settled.
This Panel does not view the Respondent’s subsequent conduct as compelling an inference that his undertakings to Panel D were “misleading or false statement of fact.” Accordingly, This Panel holds that the Board did not prove that Respondent violated Maine Bar Rule 3.7(e)(1)(i).
The Respondent’s actions and inactions in the matter of the conveyances to WEOALOT are a different matter. He signed the conveyances on June 18, and less than three weeks later, by email on July 7, 2009 he misinformed Attorney Hull of the ownership status of these parcels of real estate. His actual words are: “Jon, as requested, my wife and I have interests in the following Maine properties…” Respondent’s Exhibit 30. He knew, or should have known, that this information would be sent on to Attorney Nuzzi; and in fact it was, by Attorney Hull’s letter of July 15. Exhibit A to Board Exhibit 29. He was a copy addressee to this letter, and he took no action to correct the misstatement. Attorney Hull in good faith repeated the misstatement to the Superior Court, when he based his Motion to Limit Attachment and Trustee Process dated January 11, 2010, on the misstatements in the July 15 letter. Board Exhibit 29.
Whether the creation of WEOALOT, LLC, and the conveyances thereto arose innocently from a suggestion by the bank, or not, is a red herring. Whatever the Respondent’s motivation for the creation of WEOALOT and the conveyances, the effect on the litigation of Respondent’s misstatement to his attorney would be the same. If the conveyance had not been detected by Attorney Nuzzi, the attachment entered on October 29, 2009, would not have prevented the Respondent from conveying this real estate, which had considerable equity, through WEOALOT, free of the attachment. If the Estate then had to chase down the property through an action for fraudulent conveyance, it may have ultimately prevailed, but only after additional delay, risk, and expense. This Panel finds that the Respondent violated Maine Bar Rule 3.7 and Maine Rules of Professional Conduct 8.4, when he:
• Misled Attorney Hull on his ownership of the three parcels of real estate though his email dated June 18, 2009; • Took no action to correct the misstatement in Attorney Hull’s letter to Attorney Nuzzi dated July 15, 2009; and • Took no action to correct the misstatement when repeated by Attorney Hull to the Court in his Motion to Limit Attachment and Trustee Process on January 11, 2010.
M. Bar. R. 2(a) provides that the purpose of bar disciplinary proceedings is not punishment, but rather the protection of the public from attorneys who, by their conduct, have demonstrated that they are unable, or likely to be unable, to discharge properly their professional duties. Among the factors to be considered in imposing disciplinary sanctions are: the duty violated, the lawyer’s mental state, the actual or potential injury caused by the lawyer’s misconduct and the existence of any aggravating or mitigating circumstances. M. Bar R. 7.1(e)(3)(C).
The first factor is whether duty breached is owed to the client, the public, the legal system, or the profession. Id, (i). The Respondent’s dishonest misstatement was first communicated to Attorney Hull, who suffered the embarrassment of being publicly caught in the misstatement (and the possibility of his credibility being diminished among his colleagues), then to Attorney Nuzzi, representing the Respondent’s former client, which might have been materially injured by the misstatement, and finally to the Court. The Respondent’s duty to his client, the public, the legal system and the profession were all implicated by his misconduct.
The second factor is whether the attorney acted intentionally, knowingly, or negligently. Id, (ii). The Respondent at the least acted “knowingly” in omitting reference to the conveyances to WEOALOT in his email to Attorney Hull.
The third factor is the amount of injury actually or potentially caused by the misconduct. Id, (iii). The actual injury to the Estate was slight, because Attorney Nuzzi’s diligence brought the conveyances to light in time to appropriately modify the attachment. Potentially, the injury could have been greater, because it could have affected the timing and expense of the Estate’s recovery under the attachment.
There was another injury caused by the Respondent’s dishonest statement, even though it was detected and corrected. The tenor of the exchanges between the attorneys in the attachment lawsuit was unnecessarily acrimonious. In part this is the result of Attorney Hull’s belief that the Estate’s resistance to discovery of the legal billings was specious and dilatory. However, the result of the Respondent’s misstatement regarding his real estate holdings, and its detection, was to contribute to the acrimony, for it contributed to a belief in the Estate’s part that his defense was dilatory. All of this may have delayed the settling of the lawsuit, which would have increased the expense and uncertainty suffered by the heirs.
The Panel concludes that the appropriate disposition of this case is a Public Reprimand of Scott G. Adams, Esq. which is now each hereby issued and imposed upon him pursuant to M. Bar R. 7.1(e)(3)(C), (4).
For the Grievance Commission
Victoria Powers, Esq., Chair
John C. Hunt, Esq.
Marjorie M. Medd
1Also involved were income tax returns of the Estate prepared by the Respondent.
2In April 2008, the Estate had made a payment to the IRS of $ 131,000; the entire tax, penalties, and interest has now been paid.
3It should be noted that the claim of $ 75 – 100,000 was for legal costs to redo the returns, while the Respondent had charged approximately $ 14,000 to produce them in the first instance. In like vein, the claim for $ 245,000 for interest and penalties was at least $ 100,000 greater than Respondent’s estimate and the amount referenced in the Panel D Report.
4This is a single course of conduct, which bridged the abrogation of the Maine Bar Rules and their replacement by the Maine Rules of Professional Conduct, on August 30, 2009. That change did not materially change the scope of prohibited conduct, as it affects the Respondent’s action.
5“A person acts knowingly with respect to the result of a person’s conduct when the person is aware that it is practically certain that the person’s conduct will cause such a result.” 17-A M.R.S. § 35(2). Compare, “A person acts intentionally with respect to the result of a person’s conduct when it is the person’s conscious object to cause such a result.” Id, 35(1).