People v. Brown

461 P.3d 683

The PEOPLE of the State of Colorado, Complainant,

v.Larry Dean BROWN, #17409, Respondent.

Case Number: 18PDJ067

Office of Presiding Disciplinary Judge of the Supreme Court of Colorado.

July 17, 2019

OPINION AND DECISION IMPOSING SANCTIONS UNDER C.R.C.P. 251.19(b)

WILLIAM R. LUCERO, PRESIDING DISCIPLINARY JUDGE

Larry Dean Brown ("Respondent") recklessly converted disputed funds that he held in his trust account. He made misrepresentations to the client about the status of those funds. He then intentionally made several material misrepresentations to the bankruptcy court about the disputed funds. Later, he intentionally disobeyed the bankruptcy court's order to turn over the disputed funds, prejudicing the administration of justice. Respondent's misconduct warrants disbarment.

I. PROCEDURAL HISTORY

On October 23, 2018, Erin R. Kristofco, Office of Attorney Regulation Counsel ("the People"), filed a complaint with Presiding Disciplinary Judge William R. Lucero ("the PDJ"), alleging that Respondent violated Colo. RPC 1.15A(a) (Claim I), 1.15A(c) (Claim II), 3.3(a)(1) (Claim III), 3.4(c) (Claim IV), 8.4(c) (Claim V), and 8.4(d) (Claim VI). Respondent filed an answer through his counsel, James M. Meseck and Dmitry B. Vilner, on November 13, 2018. The PDJ then set a two-day trial for late February 2019.

In early January 2019, the People filed a motion for summary judgment on all six claims pleaded in the complaint. The parties then fully briefed the motion, which the PDJ decided on February 15, 2019, granting summary judgment as to Claims I and II but denying summary judgment as to Claims III-VI.

Shortly thereafter, the PDJ continued the hearing slated for late February and stayed all pending deadlines due to an emergency in Meseck's family. The hearing was later reset for May 21-22, 2019.

The May hearing, held under C.R.C.P. 251.18, was heard by a Hearing Board comprising the PDJ, lawyer James L. Cox Jr., and citizen member Laurie Albright. Kristofco represented the People, and Respondent appeared with his counsel. A sequestration order was entered. The Hearing Board considered stipulated exhibits S1-S30 and the testimony of Respondent, Maria Flora, John Smiley, Karen Bershenyi (who also served as the People's advisory witness), Mark Andrews, Rhonda L. Werth-Hathaway, Elizabeth Granado, who testified via telephone, and Jessica Deal.

II. FACTUAL FINDINGS AND LEGAL CLAIMS

Respondent was admitted to practice law in Colorado on May 26, 1988, under attorney registration number 17409. He is thus subject to the jurisdiction of the Colorado Supreme Court and the Hearing Board in this disciplinary proceeding.¹

Findings of Fact²

Respondent, a Colorado native who belonged to a military family, grew up in Europe as his family was transferred to various posts. He returned to the United States to attend the U.S. Merchant Marine Academy. He then served in the Vietnam War as a naval pilot, and thereafter spent four years in the reserves. After an honorable discharge from the military, Respondent worked for a few years in real estate and as a commercial pilot for Continental Airlines. In 1985, he matriculated at the University of Denver College of Law.

After graduating from law school in 1988, Respondent formed L.D. Brown, P.C. ("the Firm"), of which he is the founder and sole owner. He has always exercised exclusive control of the Firm's trust account. Immediately after law school Respondent dabbled in real estate, small business, and bankruptcy law; in the mid-1990s he began specializing in bankruptcy work, and he now spends most of his time handling an equal number of Chapter 7 and Chapter 13 bankruptcies.³

Virginia Werth's Chapter 7 Bankruptcy

Virginia Werth retained the Firm for bankruptcy assistance sometime in 2013. Respondent oversaw the case, which was primarily staffed by Helen Arnold, an experienced bankruptcy practitioner in her own right.

As Respondent remembered, Werth, a widow, had been involved in a failed business venture and consequently was being sued both by Wells Fargo Bank and by her own family members to recover funds that she lost while operating her business. Respondent testified that these family members were "vindictive" and "wanted to get their pound of flesh."

On December 26, 2013, the Firm filed for Chapter 7 bankruptcy relief on Werth's behalf. Harvey Sender, a Chapter 7 trustee ("Trustee"), was appointed to administer Werth's bankruptcy estate. The Trustee hired Maria Flora, a Colorado bankruptcy lawyer, to represent the Trustee's interests in Werth's matter. According to Respondent, the bankruptcy was relatively straightforward until one of Werth's relatives alerted the Trustee that Werth might have an ownership interest in a beachfront property in Guaymas, Sonora, Mexico ("the Mexico Property").

The Mexico Property was originally purchased in the 1980s by Werth's now-deceased husband, Ronald Werth, and two other of his family members, with each purchaser taking a one-third share. Mexican law prohibits foreign nationals from owning beachfront property, so the title to the Mexico Property was held in a trust, which named a Mexican financial institution as trustee and the three purchasers as beneficiaries.⁴ When Ronald Werth passed away in 2004, his one-third beneficiary interest was distributed to the Ronald J. Werth Family Trust ("the Family Trust").⁵ A few years after her husband died, Werth petitioned a Mexican court to transfer the Family Trust's one-third interest in the Mexico Property to Werth individually. Around October 2007, a judgment entered in the Mexico proceeding, distributing the Family Trust's interest to Werth individually.

The Mexico Property sold on May 20, 2014. Three days later, the Firm entered into a separate fee agreement and established an attorney-client relationship with Rhonda Werth-Hathaway, Werth's daughter and trustee for the Family Trust.⁶ Four days after that, $22,060.81 in partial proceeds from the closing of the Mexico Property was wired into Respondent's trust account.⁷ On October 28, 2014, another $30,000.00—the balance of the proceeds from the sale of Werth's one-third interest in the Mexico Property—was wired into Respondent's trust account.⁸ In all, Respondent was given $52,060.81 from the sale to hold in his trust account.⁹ Werth-Hathaway, as trustee of the Family Trust, authorized Respondent to use those proceeds to pay the Firm's legal fees in Werth's bankruptcy proceeding.

In June 2014, Flora, on the Trustee's behalf, conducted Werth's bankruptcy examination, which is akin to a deposition in civil litigation. Flora recalled Werth's testimony as generally vague but definitive as to the ownership of the Mexico Property: it belonged to the Family Trust, Werth claimed. When Flora learned that the Mexico Property had already been sold,¹⁰ she filed an adversary action in autumn 2014 to force the turnover of the sale proceeds to the bankruptcy estate. In the ensuing litigation, Werth took the position that the Mexico Property was an asset of the Family Trust; that she therefore never owned the Mexico Property proceeds; and that as such the proceeds were not part of her bankruptcy estate.

Respondent's Trust Account Balances

In mid-2014, Respondent began to make the first of several disbursements from his trust account to his operating account with electronic notations like "Werth Fam Trust," "werth," and "Wer Fam Tst."¹¹ At the disciplinary hearing, Respondent repeatedly insisted that these entries did not relate to any specific client matter; they had "no correlation to where the money was from or who it was being held for or anything else," he insisted. Rather, he declared, the online banking system required him to electronically populate a memo line, so these notations were often "meaningless." Sometimes, he said, they were merely intended as "a trigger, a reminder, a checkpoint" to prompt him to reconcile his bank statements with his accounting system. The Hearing Board finds this explanation patently incredible and cannot give it any credence. We find that these notations are what they appear to be on their face: Respondent's shorthand notes documenting transfers to his operating account of funds that he was holding in trust for Werth's benefit.

Respondent made his first such withdrawal on August 1, 2014, in the amount of $5,000.00, which he notated "Werth Fam Trust."¹² The second transfer came a little more than three weeks later, on August 25, with a deposit of $2,500.00 into his operating account. This transfer was marked in his trust account bank records simply as "werth."¹³ Troublingly, on September 10, 2014, the Firm sent Werth-Hathaway an invoice through August 2014 reflecting a total of $5,863.15 in billed fees and costs—significantly less than the $7,500.00 with "Werth" notations that he had already withdrawn from his trust account.¹⁴ Respondent testified that he did not reference invoices when he made transfers from his trust account—he would simply estimate how much to transfer to his operating account based on his own "mental recordkeeping" of the amounts that should have been billed.

In early December 2014, Respondent withdrew another $5,000.00 from his trust account, with the memo line electronically marked "Werth Fam Trust."¹⁵ At the end of that month, the Firm sent Werth-Hathaway a second invoice for $5,370.00 in legal fees and costs.¹⁶ So, by year's end 2014, the Firm had invoiced Werth-Hathaway around $11,233.15; yet by the same date Respondent had withdrawn from his trust account $12,500.00 in funds electronically earmarked as related to Werth.

On May 21, 2015, Respondent withdrew $3,500.00 from his trust account.¹⁷ This withdrawal contained the entry "werth."¹⁸ In September 2015, he transferred another $3,000.00 out of his trust account and into his operating account, accompanied by the annotation "Werth 3."¹⁹

In early November 2015, the Firm issued a third invoice, this time for $11,183.44.²⁰ The three invoices through November 2015...