2014 WI 126
SUPREME COURT OF WISCONSIN
CASE NO.: 2012AP1827-D
COMPLETE TITLE: In the Matter of Disciplinary Proceedings
Against John J. Carter, Attorney at Law:
Office of Lawyer Regulation,
Complainant-Respondent,
v.
John J. Carter,
Respondent-Appellant.
DISCIPLINARY PROCEEDINGS AGAINST CARTER
OPINION FILED: December 12, 2014
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: September 10, 2014
SOURCE OF APPEAL:
COURT:
COUNTY:
JUDGE:
JUSTICES:
CONCURRED:
DISSENTED:
NOT PARTICIPATING: PROSSER, ROGGENSACK, JJ., did not participate.
ATTORNEYS:
For the respondent-appellant, there were briefs by Franklyn
M. Gimbel, Kathryn A. Keppel, and Gimbel, Reilly, Guerin & Brown
LLP, Milwaukee, and oral argument by Franklyn M. Gimbel.
For the complainant-respondent, there was a brief by
Matthew J. Price, and Foley & Lardner LLP, Milwaukee, and oral
argument by Matthew J. Price.
2014 WI 126
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2012AP1827-D
STATE OF WISCONSIN : IN SUPREME COURT
In the Matter of Disciplinary Proceedings
Against John J. Carter, Attorney at Law:
Office of Lawyer Regulation, FILED
Complainant-Respondent,
DEC 12, 2014
v.
Diane M. Fremgen
Clerk of Supreme Court
John J. Carter,
Respondent-Appellant.
ATTORNEY disciplinary proceeding. Attorney's license
suspended.
¶1 PER CURIAM. We review a referee's report and
recommendation concluding that Attorney John J. Carter violated
the rules of professional conduct in connection with his
representation of N.N. The referee recommended that this court
impose a three-year suspension of Attorney Carter's law license
and that it require Attorney Carter to pay full costs in
connection with this matter, which total $6,680.62 as of
September 24, 2014. We adopt the referee's findings of fact,
No. 2012AP1827-D
conclusions of law, and recommendation regarding discipline and
costs.
¶2 Attorney Carter was admitted to practice law in
Wisconsin in 1974. He has no disciplinary history.
¶3 On August 16, 2012, the Office of Lawyer Regulation
(OLR) filed a complaint against Attorney Carter alleging 11
counts of professional misconduct arising out of his
representation of his former client, N.N. Attorney Carter filed
an answer and Christine Harris Taylor was appointed as referee
in the matter.
¶4 Attorney Carter later entered a stipulation by which
he withdrew his answer; pled no contest to the 11 counts of
misconduct charged in the OLR complaint; and agreed that the
referee could use the allegations of the complaint as a factual
basis for the referee's determination of misconduct. Attorney
Carter reserved his right to argue the appropriate sanction.
After a hearing, the referee filed a report recommending the
above-stated discipline and finding the following facts.
¶5 Attorney Carter represented N.N. in the sale of her
business. Attorney Carter and N.N. did not enter into any
written fee agreement for this work. In January 2009, the buyer
of N.N.'s business wired a significant portion of the sale
price——$112,500——into Attorney Carter's trust account. Despite
N.N.'s repeated requests, Attorney Carter did not release this
amount to N.N. Over the course of the next few months, Attorney
Carter converted a total of $72,053.59 of N.N.'s funds held in
2
No. 2012AP1827-D
trust: $32,400 to his own purposes and $39,653.59 attributable
to third party purposes.
¶6 In answer to N.N.'s repeated requests for her funds,
Attorney Carter lied to N.N., telling her that he had placed her
funds in various short-term investment instruments which had not
yet matured. Attorney Carter maintained this lie for many
months.
¶7 Occasionally, Attorney Carter made payments to N.N. of
her funds held in trust. These periodic payments totaled just
over $90,000 by September 2009.
¶8 During the first year of his work for N.N. related to
the sale of her business, Attorney Carter did not send N.N. any
bills for his work, despite N.N.'s several requests for a bill.
Without informing N.N., Attorney Carter issued a $5,000 trust
account check to himself. The check bore a notation that it was
for a partial fee payment for the N.N. matter. Attorney Carter
also requested and received from N.N. two checks totaling $7,000
as payment for fees.
¶9 In late October 2009, Attorney Carter sent N.N. a bill
for his work. The bill listed a subtotal of $66,930 in fees,
for 223.1 hours of work at $300 per hour. The bill then listed
a 25% reduction in the number of hours worked, which reduced the
total to $50,400. From that figure, Attorney Carter subtracted
$7,000 for the two checks that N.N. had sent him for fees, for a
total net due of $43,400. The bill was itemized by general
categories of work ("Correspondence," "Meetings," "Telephone
Conferences," "Draft/Review Documents," "Research") rather than
3
No. 2012AP1827-D
by specific entries. The billing statement made no reference to
the $5,000 in fees that Attorney Carter had paid himself,
without N.N.'s knowledge, out of his trust account.
¶10 N.N. was surprised to receive the $43,400 bill from
Attorney Carter, as she believed the two had never agreed to the
terms of Attorney Carter's fees, and his $300 hourly rate was
considerably higher than the rates he had charged her in
previous legal matters.
¶11 When N.N. objected to the bill, Attorney Carter became
defensive and adversarial. He claimed that N.N. had
strategically not insisted upon a written fee agreement so that
she could later dispute his fees. He threatened to take the fee
dispute to court. He refused to release the remainder of N.N.'s
funds in his trust account until the fee dispute was resolved.
¶12 Ultimately, N.N. agreed to pay a total of $38,970 for
Attorney Carter's work. N.N. and Attorney Carter agreed that
Attorney Carter would offset that amount by the $7,000 in checks
that N.N. had already sent him for fees, and by the amount of
N.N.'s funds that remained in Attorney Carter's trust account.
The amount of fees still owing after these offsets was
$8,079.89. N.N. sent Attorney Carter a check for that amount.
At the time she sent this check, N.N. was still unaware that
Attorney Carter had unilaterally withdrawn $5,000 from his trust
4
No. 2012AP1827-D
account as a partial fee payment. The record is unclear as to
whether N.N. ever became aware of this withdrawal.1
¶13 Based on the stipulated facts set forth above,
Attorney Carter pled no contest to the following seven counts of
misconduct:
Count 1: By failing to enter into a written fee
agreement with N.N. for his representation of her in
the sale of her business and other matters, Attorney
Carter violated Supreme Court Rule (SCR) 20:1.5(b)(1).2
Count 2: By failing to promptly disburse N.N.'s
$112,500 in sale proceeds pursuant to her requests,
and by refusing to release the balance of such sale
1
The parties have informed us that N.N. died before the OLR
filed its complaint against Attorney Carter.
2
SCR 20:1.5(b)(1) provides:
The scope of the representation and the basis or
rate of the fee and expenses for which the client will
be responsible shall be communicated to the client in
writing, before or within a reasonable time after
commencing the representation, except when the lawyer
will charge a regularly represented client on the same
basis or rate as in the past. If it is reasonably
foreseeable that the total cost of representation to
the client, including attorney's fees, will be $1000
or less, the communication may be oral or in writing.
Any changes in the basis or rate of the fee or
expenses shall also be communicated in writing to the
client.
5
No. 2012AP1827-D
proceeds to her until they had resolved their fee
dispute, Attorney Carter violated SCR 20:1.15(d)(1).3
Count 3: By failing to respond to N.N.'s requests for
the status of her funds, Attorney Carter violated
SCR 20:1.4(a)(4).4
Count 4: By failing to advise N.N. that he had
withdrawn $5,000 in fees without providing her any
notice whatsoever, Attorney Carter violated
SCR 20:1.15(g)(1).5
3
SCR 20:1.l5(d)(1) provides:
Upon receiving funds or other property in which a
client has an interest, or in which the lawyer has
received notice that a 3rd party has an interest
identified by a lien, court order, judgment, or
contract, the lawyer shall promptly notify the client
or 3rd party in writing. Except as stated in this
rule or otherwise permitted by law or by agreement
with the client, the lawyer shall promptly deliver to
the client or 3rd party any funds or other property
that the client or 3rd party is entitled to receive.
4
SCR 20:1.4(a)(4) provides that a lawyer shall "promptly
comply with reasonable requests by the client for information."
5
SCR 20:1.15(g)(1) provides:
At least 5 business days before the date on which
a disbursement is made from a trust account for the
purpose of paying fees, with the exception of
contingent fees or fees paid pursuant to court order,
the lawyer shall transmit to the client in writing all
of the following:
a. an itemized bill or other accounting showing
the services rendered;
b. notice of the amount owed and the anticipated
date of the withdrawal; and
(continued)
6
No. 2012AP1827-D
Count 5: By failing to hold at least $72,053.59 of
N.N.'s funds in trust and converting them to his own
purposes or for third party purposes without her
knowledge or consent, Attorney Carter violated
SCR 20:1.15(b)(1)6 and SCR 20:8.4(c).7
Count 6: By engaging in an ongoing scheme for months
of making repeated misrepresentations to N.N. that he
had invested on her behalf the balance of her $112,500
in various investment instruments, when in fact he had
never made any such investments and had already
converted her funds for his own or third party
purposes, Attorney Carter violated SCR 20:8.4(c).
c. a statement of the balance of the client's
funds in the lawyer trust account after the
withdrawal.
6
SCR 20:1.15(b)(1) provides:
A lawyer shall hold in trust, separate from the
lawyer's own property, that property of clients and
3rd parties that is in the lawyer's possession in
connection with a representation. All funds of
clients and 3rd parties paid to a lawyer or law firm
in connection with a representation shall be deposited
in one or more identifiable trust accounts.
7
SCR 20:8.4(c) provides that it is professional misconduct
for a lawyer to "engage in conduct involving dishonesty, fraud,
deceit or misrepresentation."
7
No. 2012AP1827-D
Count 7: By failing to respond to N.N.'s requests for
a billing statement, Attorney Carter violated
SCR 20:1.5(b)(3).8
¶14 During the course of the OLR's investigation into
N.N.'s grievance, the OLR requested Attorney Carter's 2009 trust
account records. The OLR's review of the records revealed
deficiencies that led to the following four counts of
misconduct, to which Attorney Carter also pled no contest:
Count 8: In September 2009, Attorney Carter made an
unidentified deposit to his trust account by telephone
transfer in the amount of $2,500. Carter was unable
to identify to the OLR the reason for this transfer,
but his business account bank statements confirm the
funds came from him. By making this telephone
transfer to his trust account, Attorney Carter
violated SCR 20:1.15(e)(4)b.9
8
SCR 20:1.5(b)(3) provides, "A lawyer shall promptly
respond to a client's request for information concerning fees
and expenses."
9
SCR 20:1.15(e)(4)b. provides:
No deposits or disbursements shall be made to or
from a pooled trust account by a telephone transfer of
funds. This section does not prohibit any of the
following:
1. wire transfers.
2. telephone transfers between non-pooled draft
and non-pooled non-draft trust accounts that a lawyer
maintains for a particular client.
8
No. 2012AP1827-D
Count 9: Another of Attorney Carter's clients, K.S,
received $2,000 monthly payments related to K.S.'s
sale of a business interest. Attorney Carter
represented K.S. with respect to this sale. Rather
than depositing the monthly payments in his trust
account and then disbursing the funds to K.S. by
issuing checks from the trust account, Attorney Carter
channeled the funds through his own business account
on at least ten occasions, thereby violating
SCR 20:1.15(b)(1).
Count 10: By failing to maintain trust account
records showing the required information, including a
transaction register, subsidiary client ledgers,
deposit records, canceled checks, and monthly account
reconciliations, Attorney Carter violated
SCR 20:1.15(f)(1).10
10
SCR 20:1.15(f)(1) provides:
Complete records of a trust account that is a
draft account shall include a transaction register;
individual client ledgers for IOLTA accounts and other
pooled trust accounts; a ledger for account fees and
charges, if law firm funds are held in the account
pursuant to sub. (b)(3); deposit records; disbursement
records; monthly statements; and reconciliation
reports, subject to all of the following:
a. Transaction register. The transaction register
shall contain a chronological record of all account
transactions, and shall include all of the following:
1. the date, source, and amount of all deposits;
(continued)
9
No. 2012AP1827-D
2. the date, check or transaction number, payee
and amount of all disbursements, whether by check,
wire transfer, or other means;
3. the date and amount of every other deposit or
deduction of whatever nature;
4. the identity of the client for whom funds were
deposited or disbursed; and
5. the balance in the account after each
transaction.
b. Individual client ledgers. A subsidiary ledger
shall be maintained for each client or 3rd party for
whom the lawyer receives trust funds that are
deposited in an IOLTA account or any other pooled
trust account. The lawyer shall record each receipt
and disbursement of a client's or 3rd party's funds
and the balance following each transaction. A lawyer
shall not disburse funds from an IOLTA account or any
pooled trust account that would create a negative
balance with respect to any individual client or
matter.
c. Ledger for account fees and charges. A
subsidiary ledger shall be maintained for funds of the
lawyer deposited in the trust account to accommodate
monthly service charges. Each deposit and expenditure
of the lawyer's funds in the account and the balance
following each transaction shall be identified in the
ledger.
d. Deposit records. Deposit slips shall identify
the name of the lawyer or law firm, and the name of
the account. The deposit slip shall identify the
amount of each deposit item, the client or matter
associated with each deposit item, and the date of the
deposit. The lawyer shall maintain a copy or duplicate
of each deposit slip. All deposits shall be made
intact. No cash, or other form of disbursement, shall
be deducted from a deposit. Deposits of wired funds
shall be documented in the account's monthly
statement.
e. Disbursement records.
(continued)
10
No. 2012AP1827-D
1. Checks. Checks shall be pre-printed and pre-
numbered. The name and address of the lawyer or law
firm, and the name of the account shall be printed in
the upper left corner of the check. Trust account
checks shall include the words "Client Account," or
"Trust Account" or words of similar import in the
account name. Each check disbursed from the trust
account shall identify the client matter and the
reason for the disbursement on the memo line.
2. Canceled checks. Canceled checks shall be
obtained from the financial institution. Imaged checks
may be substituted for canceled checks.
3. Imaged checks. Imaged checks shall be
acceptable if they provide both the front and reverse
of the check and comply with the requirements of this
paragraph. The information contained on the reverse
side of the imaged checks shall include any
endorsement signatures or stamps, account numbers, and
transaction dates that appear on the original. Imaged
checks shall be of sufficient size to be readable
without magnification and as close as possible to the
size of the original check.
4. Wire transfers. Wire transfers shall be
documented by a written withdrawal authorization or
other documentation, such as a monthly statement of
the account that indicates the date of the transfer,
the payee, and the amount.
f. Monthly statement. The monthly statement
provided to the lawyer or law firm by the financial
institution shall identify the name and address of the
lawyer or law firm and the name of the account.
g. Reconciliation reports. For each trust
account, the lawyer shall prepare and retain a printed
reconciliation report on a regular and periodic basis
not less frequently than every 30 days. Each
reconciliation report shall show all of the following
balances and verify that they are identical:
1. the balance that appears in the transaction
register as of the reporting date;
(continued)
11
No. 2012AP1827-D
Count 11: By issuing numerous trust account checks
without including the client matter and purpose of
such checks on the memo line, Attorney Carter violated
SCR 20:l.15(f)(l)e.1.
¶15 The referee held a one-day hearing on sanctions.
Several witnesses testified as to Attorney Carter's good
character and reputation, as well as his long-time community
involvement. Attorney Carter also testified. He admitted that
he used funds from N.N.'s legal matter as a way to relieve
significant financial pressures caused by a failed business
investment. He admitted that he erred in managing his trust
account. He admitted that his trust account records reflect
that he converted to himself at least $32,400 of N.N.'s funds
and converted for third party purposes approximately $39,600 of
N.N.'s funds. He admitted that his claim that he had invested
N.N.'s funds was a lie.
¶16 In her report, the referee recommended a three-year
suspension of Attorney Carter's license. The referee wrote that
Attorney Carter's misconduct ranged from trust account
2. the total of all subsidiary ledger balances
for IOLTA accounts and other pooled trust accounts,
determined by listing and totaling the balances in the
individual client ledgers and the ledger for account
fees and charges, as of the reporting date; and
3. the adjusted balance, determined by adding
outstanding deposits and other credits to the balance
in the financial institution's monthly statement and
subtracting outstanding checks and other deductions
from the balance in the monthly statement.
12
No. 2012AP1827-D
recordkeeping violations "to the most fundamental betrayals of
the attorney-client relationship"——conversion of client trust
funds. The referee noted that Attorney Carter covered up his
conversion of N.N.'s funds by perpetuating a "phony story about
his investment of those funds," and that "[o]nce exposed, Carter
proceeded to hold hostage the distribution of [N.N.'s] trust
funds until Carter and [N.N.] reached an agreement as to the
amount and payment of Carter's attorney's fees." The referee
noted that Attorney Carter "perpetuated his investment charade
to OLR for months" before ultimately acknowledging that he never
invested N.N.'s funds. The referee also found as an aggravating
factor Attorney Carter's lengthy legal experience, particularly
in matters of ethics and professional conduct. (Attorney Carter
served on the Milwaukee County Ethics Board for 28 years; on a
committee for the Board of Attorneys Professional Responsibility
for 20 years; and as a special investigator for the OLR for four
years.) As mitigating factors, the referee noted that Attorney
Carter ultimately pled no contest to all of the charged
misconduct; owes no restitution; enjoys a very positive
reputation in the Milwaukee area; suffers from blindness as a
result of an injury incurred many years ago while on duty as a
police officer; and has expressed genuine remorse for his
actions.
¶17 There is no claim that any of the referee's findings
of fact are clearly erroneous. Accordingly, we adopt them. See
In re Disciplinary Proceedings Against Eisenberg, 2004 WI 14,
¶5, 269 Wis. 2d 43, 675 N.W.2d 747.
13
No. 2012AP1827-D
¶18 The only issue on appeal is whether the recommended
discipline is appropriate. The court may impose whatever
discipline it sees fit, regardless of the referee's
recommendation. See In re Disciplinary Proceedings Against
Widule, 2003 WI 34, ¶44, 261 Wis. 2d 45, 660 N.W.2d 686.
¶19 Attorney Carter asks for either a public reprimand or,
at most, a suspension of less than six months. Attorney Carter
claims that his misconduct, while admittedly significant, caused
N.N. no monetary loss. He claims there is virtually no risk
that he would repeat his misconduct given his personal history,
his age, his acceptance of responsibility, and his remorse for
his misconduct. He further claims that, given his solid
reputation, a reprimand or short suspension will be enough to
deter other lawyers from similar misconduct.
¶20 We disagree. By any measure, and by Attorney Carter's
own admission, Attorney Carter engaged in very serious
misconduct. As we have previously explained:
Misappropriation or conversion of client funds held in
trust is one of the most serious acts of lawyer
misconduct. It violates the fundamental principle of
the lawyer-client relationship——the trust the client
places in the lawyer and upon which the lawyer depends
to properly represent the client. Further, it places
the lawyer's personal pecuniary interest above the
client's interests, which the lawyer has undertaken to
protect and promote, and it does so at the client's
expense. Accordingly, such misconduct should warrant
the imposition of the most severe discipline——the
license revocation.
In re Disciplinary Proceedings Against Bult, 142 Wis. 2d 885,
890, 419 N.W.2d 245 (1988).
14
No. 2012AP1827-D
¶21 Nonetheless, we have cautioned that "license
revocation ought not be imposed indiscriminately in every case
of misappropriation or conversion of client funds, as there are
other factors to consider and no two disciplinary cases present
precisely the same circumstances." Id. at 890-91.
¶22 Thus, the question before the court is whether this
case presents sufficient mitigating circumstances to merit a
sanction short of revocation. It is a close call.
¶23 There are many aggravating factors. Attorney Carter's
conduct involved much more than simple negligence. His conduct
was reckless and highly unprofessional. In answer to N.N.'s
repeated requests for her funds——over $70,000 of which he had
converted——Attorney Carter wove elaborate stories of investment
instruments in which he had supposedly placed her money. These
supposed investments were pure fiction. Not long after N.N.
objected to Attorney Carter's supposed investment scheme,
Attorney Carter took action to create leverage over N.N.: he
sent her a $43,400 legal bill. He refused to release the
remainder of N.N's funds in trust until they reached an
agreement on his fees. He accused N.N. of trying to take
advantage of him by not insisting that he prepare a written fee
agreement listing his hourly rate. These forms of deception and
subterfuge are highly damaging to the public's confidence in the
integrity and trustworthiness of the bar.
¶24 There are mitigating factors as well. Attorney Carter
has had no previous disciplinary troubles over the course of his
long legal career. He has earned a solid reputation among his
15
No. 2012AP1827-D
peers and in the community. It appears he repaid most, and
perhaps all, of the money he misappropriated from N.N. (The
record is unclear as to whether he ever accounted for the $5,000
fee payment he withdrew from his trust account without N.N.'s
knowledge.) He has admitted his wrongdoing, pled no contest to
all 11 counts of misconduct, and expressed shame and remorse.
¶25 On balance, we find that there are sufficient
mitigating circumstances to call for a sanction short of
revocation. We agree with the referee's recommendation of a
three-year suspension. We find In re Disciplinary Proceedings
Against Goldstein, 2010 WI 26, 323 Wis. 2d 706, 782 N.W.2d 388
instructive. There, a lawyer received a two-year suspension for
misconduct that included converting nearly $70,000 from three
probate estates for which the attorney served as special
administrator or personal representative. This court noted that
although it will "not hesitate to impose revocation when needed
and many cases involving conversion of funds have warranted
revocation," a two-year suspension was sufficient given the
lawyer's lack of prior discipline over a long legal career, his
acknowledgement of his wrongdoing, and his repayment of the
converted funds to his clients. Id., ¶¶28-29. We agree with
the referee's assessment that a suspension longer than the two-
year suspension imposed in Goldstein is appropriate here in
light of Attorney Carter's "elaborate scheme specifically
employed to avoid his client's demands for distributions of her
trust funds," as well as the fact that he "[held] hostage the
16
No. 2012AP1827-D
distribution of her trust funds until he was successful at
obtaining his attorney's fees."
¶26 We pause to remark briefly on Attorney Carter's claim
that at his age (he was born in 1943), a three-year suspension——
which will require him to petition this court for reinstatement
under SCR 22.28(3)——might effectively end his career. Attorney
Carter generally maintains that it is sad for an otherwise
untarnished career to potentially end this way. We agree with
this sentiment: this is an unfortunate case involving anomalous
behavior from an otherwise ethical lawyer, and we do not relish
deciding it. But we decline to transform this sentiment into
anything more than what it is——a sentiment, not a principle of
law. This court cannot countenance a rule that would soft-pedal
the discipline owed to attorneys who lie to and misappropriate
funds from their clients so long as they do so in the twilight
of their careers.
¶27 No restitution was sought and none is ordered in this
proceeding. We note, however, that any attorney petitioning for
reinstatement from a disciplinary suspension of six months or
more is required to allege and demonstrate that the attorney
"has made restitution to or settled all claims of persons
injured or harmed by [the attorney's] misconduct . . . or, if
not, the [attorney's] explanation of the failure or inability to
do so." SCR 22.29(4m).
¶28 We agree with the referee's recommendation that
Attorney Carter be required to pay the costs of this proceeding,
which total $6,680.62 as of September 24, 2014.
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No. 2012AP1827-D
¶29 IT IS ORDERED that the license of John J. Carter to
practice law in Wisconsin is suspended for a period of three
years, effective January 11, 2015.
¶30 IT IS FURTHER ORDERED that within 60 days of the date
of this order, John J. Carter shall pay to the Office of Lawyer
Regulation the costs of this disciplinary proceeding.
¶31 IT IS FURTHER ORDERED that John J. Carter shall comply
with the provisions of SCR 22.26 concerning the duties of a
person whose license to practice law in Wisconsin has been
suspended.
¶32 IT IS FURTHER ORDERED that compliance with all
conditions of this order is required for reinstatement. See
SCR 22.29(4)(c).
¶33 DAVID T. PROSSER, J., and PATIENCE DRAKE ROGGENSACK,
J., did not participate.
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No. 2012AP1827-D
1