N.C. St. B. v. Key

903 S.E.2d 413

The NORTH CAROLINA STATE BAR, Plaintiff,

v.Mark A. KEY, Attorney, Defendant.

No. COA23-866

Court of Appeals of North Carolina.

Filed June 18, 2024

Appeal by Defendant and cross-appeal by Plaintiff from order entered 20 February 2023 by the Disciplinary Hearing Commission of the North Carolina State Bar. Heard in the Court of Appeals 16 April 2024. Wake County, No. 21 DHC 23

The North Carolina State Bar, by Interim Counsel Carmen H. Bannon and Deputy Counsel Savannah B. Perry, for Plaintiff-Appellee/Cross-Appellant.

Mark A, Key, Pro se, Defendant-Appellant/Cross-Appellee.

COLLINS, Judge.

Mark Key ("Defendant") appeals, and the North Carolina State Bar ("Plaintiff") cross-appeals, from an order of discipline entered by the Disciplinary Hearing Commission of the North Carolina State Bar ("DHC") suspending Defendant’s law license for five years and allowing him to seek a stay of the balance of the suspension after three years if he complies with certain conditions. For the reasons stated herein, we affirm in part, dismiss in part, and vacate and remand in part.

I. Procedural Background

Plaintiff filed a complaint against Defendant on 30 September 2021. Defendant filed three separate motions to extend his time to answer the complaint, which were granted. Defendant filed an answer on 22 December 2021.

The DHC entered an order on 6 May 2022 scheduling the disciplinary hearing for 28 November through 2 December 2022. The DHC entered a consent order on 7 July 2022 setting the discovery deadline for 7 October 2022. Defendant filed a motion to stay the disciplinary proceedings pending the outcome of an ongoing federal investigation into his tax-related crimes, which was denied.

Plaintiff served its first requests for admission, first set of interrogatories, and first request for production of documents on 29 July 2022. Defendant served his responses to Plaintiff's first requests for admission on 26 August 2022 but did not timely respond to Plaintiff's first set of interrogatories or first request for production. Plaintiff served its second request for production on 2 September 2022. Defendant sent Plaintiff an email containing five PDF attachments on 12 September 2022 but did not indicate how the documents were responsive to Plaintiff's first request for production. Defendant served his responses to Plaintiff's first set of interrogatories on 14 September 2022.

Plaintiff filed a motion to compel on 16 September 2022, alleging that Defendant’s responses to Plaintiff's first set of interrogatories and first request for production "are wholly inadequate and are not consistent with the rules or warranted by existing law." Plaintiff also filed a motion to determine the sufficiency of Defendant’s responses to Plaintiff's first requests for admission, alleging that "[m]ost of Defendant’s responses to Plaintiff's [requests] are inadequate, inconsistent with the rules governing discovery, and not warranted by existing law." Plaintiff filed a second motion to compel on 13 October 2022, alleging that Defendant did not respond to Plaintiff's second request for production.

The DHC entered an order on 19 October 2022 granting Plaintiff's motion to compel and ordering Defendant to fully respond to Plaintiff's first set of interrogatories and first request for production within three business days. Defendant delivered his responses to Plaintiff's first set of interrogatories and first request for production via a USB drive on 21 October 2022. Three days later, Plaintiff notified Defendant that it could only access certain documents on the USB drive. Defendant sent Plaintiff an email the following day containing 39 PDF attachments but did not indicate how the documents were responsive to Plaintiff's first request for production.

The DHC entered an order on 1 November 2022 granting Plaintiff's second motion to compel and ordering Defendant to respond to Plaintiff's second request for production by 3 November 2022. The DHC also entered an order on 2 November 2022 finding that Defendant’s responses to Plaintiff's first requests for admission did not comply with Rule 36 of the North Carolina Rules of Civil Procedure and ordering Defendant to correct his responses within three business days. Defendant did not respond to Plaintiff's second request for production and did not correct his responses to Plaintiff's first requests for admission. As a result, the DHC entered an order on 7 November 2022 deeming certain requests for admission admitted.

Plaintiff filed a motion for sanctions on 8 November 2022, alleging that Defendant's responses to Plaintiff's first set of interrogatories were "evasive, incomplete, or non-responsive"; Defendant’s responses to Plaintiff’s first request for production did not in- dicate how the documents were responsive to Plaintiff's requests and Defendant failed to produce most of the requested documents; and Defendant failed to respond to Plaintiff's second request for production. Plaintiff requested that the DHC enter an order prohibiting Defendant from introducing into evidence or objecting to the admissibility of any documents that would have been responsive to its requests for production. The DHC denied the motion.

After a hearing, the DHC entered an order of discipline on 20 February 2023 suspending Defendant’s law license for five years and allowing him to seek a stay of the balance of the suspension after three years if he complies with certain conditions. Defendant appealed, and Plaintiff cross appealed.

II. Factual Background

Plaintiff alleged in its complaint that Defendant had engaged in numerous instances of misconduct, detailed below.

A. Tax-Related Crimes

Defendant was the sole owner of The Key Law Office, which was registered as a professional corporation. As owner of The Key Law Office, Defendant employed several employees from 2016 to 2020, including himself. During this period, Defendant committed several tax-related crimes in his capacity as owner of The Key Law Office and in his individual capacity.

Defendant failed to withhold or pay over to the Internal Revenue Service ("IRS") and the North Carolina Department of Revenue ("NCDOR") amounts due for federal and state income taxes on the wages of his employees. Furthermore, Defendant repeatedly failed to file Employer’s Quarterly Federal Tax Returns ("IRS Form 941") to report the amount of Social Security and Medicare taxes ("FICA taxes") withheld from the wages of his employees. During the fourth quarter of 2019, Defendant failed to pay over to the IRS the FICA taxes withheld from the wages of his employees.

Defendant failed to timely file his federal income tax returns from 2015 to 2018. Defendant filed his 2018 federal income tax return in June 2020 and his 2015, 2016, and 2017 federal income tax returns in September 2020. At the time he filed his 2015, 2016, and 2017 federal income tax returns, Defendant failed to pay the taxes due. Defendant also failed to pay the federal income taxes due at the time he filed his 2019 and 2020 returns.

Defendant similarly failed to timely file his state income tax returns from 2015 to 2018. Defendant filed his 2018 state income tax return in June 2020 and his 2015, 2016, and 2017 state income tax returns in August 2021. At the time he filed his state income tax returns, Defendant failed to pay the full amount of taxes due for 2015 and 2016. Defendant also failed to pay the state income taxes due at the time he filed his 2019 and 2020 returns.

B. Employee Taxes

Defendant employed Diamond Zephir as an associate from April to August 2018. Defendant told Zephir that he would pay federal and state income taxes on her behalf but failed to do so. As a result, Zephir owed federal and state income taxes on the wages she earned while employed by Defendant. Defendant also issued a W-2 to Zephir that underreported her wages. When Zephir received the inaccurate W-2 and discovered that Defendant had failed to withhold federal and state income taxes, she contacted Defendant. Defendant assured Zephir that he would issue a corrected W-2 that accurately reflected her wages and tax withholdings but failed to do so.

Zephir asked Defendant to pay the federal and state income taxes she owed, and Defendant refused. Zephir filed suit against Defendant and obtained a judgment for the federal and state income taxes she owed, the tax refund she would have been entitled to if her taxes had been properly paid, and litigation costs. The following day, Defendant filed a Transmittal of Wage and Tax Statement ("IRS form W-3") along with W-2 forms for his 2018 employees. Defendant submitted the W-2 for Zephir that underreported her wages.

C. Trust Accounting

Debra Jordan and her two children retained Defendant to handle a personal injury matter in June 2016. In November 2020, Plaintiff received a report from an insurance adjuster that Defendant had received settlement checks but had not returned executed settlement releases for his clients. Plaintiff opened a grievance file to investigate the report and conducted an audit of Defendant’s trust account. The audit revealed that (1) Defendant failed to ensure that the entrusted funds he received on behalf of the Jordans were deposited into his trust account; (2) when Defendant received payments that were partially legal fees and partially entrusted funds, he did not deposit those payments into his trust account intact; (3) Defendant did not prepare required monthly and quarterly reconciliation reports; (4) Defendant failed to maintain complete and accurate client ledgers; (5) Defendant commingled earned fees and entrusted funds; and (6) Defendant did not promptly pay or deliver clients’ entrusted property to which they were entitled.

D. Representation of T.M.

T.M. retained Zephir in August 2018 to handle an absolute divorce and alimony claim. After Zephir resigned from The Key Law Office, Defendant began representing T.M. Defendant also agreed to represent T.M. in her pending child...