FOR THE RESPONDENT FOR THE INDIANA SUPREME COURT
DISCIPLINARY COMMISSION
Robert L. Thompson Donald R. Lundberg, Executive
Secretary
Fort Wayne, Indiana Dennis K. McKinney
115 West Washington Street
Indianapolis, Indiana 46204
IN THE
SUPREME COURT OF INDIANA
IN THE MATTER OF )
) CASE NO. 02S00-0102-DI-94
FRANKLIN A. WEBSTER )
DISCIPLINARY ACTION
October 23, 2002
Per Curiam
Attorney Franklin A. Webster failed to keep a client adequately
informed about the status of the client’s legal matters and commingled with
his own money funds in which both he and the client claimed an interest.
For that, we find today that he should be suspended from the practice of
law.
This case commenced with the filing of the Indiana Supreme Court
Disciplinary Commission’s Verified Complaint for Disciplinary Action. This
Court then appointed a hearing officer who conducted a full evidentiary
hearing and thereafter filed with this Court his findings of fact and
conclusions of law. The Commission has petitioned this Court for review of
those findings, pursuant to Ind.Admission and Discipline Rule 23(15),
therein arguing that the hearing officer should have found that the
respondent, in addition to commingling client funds with his own, converted
the funds as charged by the Commission in its complaint. Where a party
petitions this Court for review of the hearing officer’s report, our review
is de novo in nature and entails examination of the entire record
presented. Matter of Wilder, 764 N.E.2d 617 (Ind. 2002).
The respondent was admitted to the bar of this state in 1961 and
practices law in Fort Wayne, Indiana. We now find that Summit Account and
Computer Service, Inc., d/b/a General Collections, Inc. ("GCI"), was a
licensed Indiana collection agency in Fort Wayne, and the respondent was
the principal owner, president, and administrative officer of GCI. He was
also the sole proprietor of Frank A. Webster & Associates, which conducted
a collection-law practice. The respondent and GCI shared the same address
but maintained separate offices, telephone lines, bank accounts, records,
and accounting systems.
A leasing company which financed the purchase of business personal
property through leases generated enough delinquent accounts that it
employed several lawyers and collection agencies for its collection work.
The leasing company contacted the respondent to establish direct referral
of accounts. The respondent advised the leasing company that the referral
should be to GCI. The leasing company's forwarding letter, sending
accounts directly to GCI for collection, set forth the commission
applicable in the event of successful collection; however, it did not cover
or pertain to the question of fees for defense of counterclaims, pursuing
claims in bankruptcy, appeals, replevin actions for the recovery of
personal property, and other special services associated with the accounts.
On November 2, 1989, the respondent wrote to the leasing company,
advising that he would charge additional fees for the defense of counter
claims over and above contingent commissions and fees. Shortly thereafter,
the respondent began billing the leasing company for defending counter
claims.
On February 15, 1990, the leasing company advised the respondent that
it would
not pay attorney fees for the defense of counter claims, and that the
respondent should return all files if he would not work under those
conditions. By that time, the respondent was working on approximately 123
of the leasing company’s accounts and, in cases filed on those accounts,
had defended counter claims and performed other special services for which
payment was not expressly addressed in the various contracts and forwarding
letters from the leasing company. Thereafter, the respondent wrote to the
leasing company, advising that when it terminated his services in any case,
he would be entitled to be paid on a quantum meruit basis for services
rendered. The respondent also advised the leasing company of his right to
an attorney's lien for unpaid fees. The respondent and GCI continued to
work on the leasing company’s collection cases. Before the fee dispute
arose, the respondent generally responded to telephone and written
inquiries from the leasing company in a timely manner. After the fee
dispute arose, the respondent often failed to respond to such inquiries in
a timely manner.
The respondent continued to collect money on the delinquent accounts
and he forwarded some of that money to the leasing company. Late in the
period that he worked on collecting the leasing company's delinquent
commercial lease accounts, the respondent held between $20,000 and $30,000
that he had collected on the leasing company's accounts in excess of the
amount to which he was entitled as fees for collection of the accounts, as
provided in the leasing company’s forwarding letter. The respondent
claimed that he was entitled to the disputed funds as attorney's fees for
the quantum meruit value of special legal services he provided in defending
counterclaims, taking an appeal and the like. The respondent, long after
he started withholding disputed funds, advised the leasing company that he
held the funds pursuant to an attorney's retaining lien, pending agreement
as to, or determination of, the amount owed to the respondent for the
special services which he had provided. Originally, he held the funds in
GCI’s office account. He later transferred the funds to his law office
account and then to his personal custodial retirement account.
The respondent and GCI at all times maintained the funds in accounts
available for payment to the leasing company upon the determination of the
amount of the respondent’s special attorney's fees and the amount due to
the leasing company. In October 1992, the leasing company sued GCI and the
respondent for money the leasing company claimed had been collected on its
behalf by GCI or the respondent but not paid to the leasing company. The
respondent filed a counter claim for attorney fees he claimed to be owed
for uncompensated work he had done in representing the leasing company in
the collections cases.
In the civil suit, the respondent argued that he was entitled to
$19,145.34 of the funds. The trial court determined that he was entitled
to approximately $11,000 as the quantum meruit value of the special legal
services he provided to the leasing company. The trial court’s judgment
included the following conclusions of law:
14. As an excuse for not promptly remitting to [the leasing company,]
[the leasing company's] share of collections made, Webster claimed an
attorney's lien on the funds collected.
18. Webster, therefore, had the right to retain possession of monies
from all accounts collected by him on behalf of [the leasing company]
as an attorney's lien until his fees for special services performed by
him for the benefit of [the leasing company], such as appeals,
bankruptcy litigation, replevin, and defense of counter claims, had
been paid.
19. In spite of the fact that Webster's notice to Plaintiff of his
claim of an attorney's lien was made long after he started withholding
funds collected for [the leasing company] and was not specific as to
the accounts or amounts affected, the lien was valid.
23. Webster's payments to himself of disputed, and not previously
judicially established, attorney fees out of funds collected for [the
leasing company] without the consent and knowledge of [the leasing
company] constituted criminal conversions under I.C. 35 - 43 - 4 – 3.
When the trial court's judgment was final and after the respondent’s
unsuccessful appeal of the trial court's judgment to the Indiana Court of
Appeals and his unsuccessful petition for transfer to the Indiana Supreme
Court, he withdrew the remainder of the funds from his retirement account
and paid the remainder to the leasing company, with interest and attorney's
fees. He reported the funds he withdrew from his retirement account to pay
the leasing company as income to him on his 1998 U.S. Individual Income Tax
Return in the form of a taxable gross distribution from his retirement
account.
The hearing officer found that the respondent violated
Ind.Professional Conduct Rule 1.4(a)[1] by failing to keep his client
adequately informed as to the status of the collection matters after the
fee dispute arose; Prof.Cond.R. 1.15(b)[2] by failing promptly to notify
the client of funds he had collected on its behalf but that he was keeping
pursuant to his attorney retaining lien for uncompensated legal services;
and Prof.Cond.R. 1.15(c)[3] for depositing the disputed funds in a non-
trust account containing the respondent’s own funds. We agree and find
that the respondent violated Professional Conduct Rules 1.4(a), 1.15(b),
and 1.15(c).
The hearing officer further concluded that the respondent did not
violate Prof.Cond.R. 8.4(b), which prohibits lawyers from committing
criminal acts which reflect adversely on their honesty, trustworthiness, or
fitness as lawyers in other respects, by converting the client’s funds.
Specifically, the hearing officer found that a finding of criminal
conversion requires proof of both unauthorized control over property of
another and that the unauthorized control was knowing or intentional.[4]
The hearing officer found that the respondent’s claim of entitlement to the
funds as attorney's fees for the quantum merit value of special legal
services he provided demonstrates the respondent’s lack of “knowing and
intentional” unauthorized control of the client’s funds. He found that the
respondent notified the client of his assertion of an attorney’s retaining
lien, that the respondent did not use the funds for purposes unrelated to
the client, and that when the trial court determined that a portion of the
funds belonged to the client, the respondent promptly remitted them to the
client.
In its petition for review, the Commission argues that the
respondent’s transfer of the disputed funds from the GCI account, first
into his general law office operating account and later to his retirement
account, constituted conversion.
The respondent retained control of the disputed funds pursuant to a
good faith assertion of an attorney’s retaining lien. We note that such
liens are recognized both by statute and case law.[5] However, the
assertion of such a lien does not authorize an attorney to transfer funds
to personal use. The respondent’s ignorance about his rights relative to
asserting a lien was sufficiently profound to avoid our finding that he
knowingly exercised unauthorized control over the disputed funds.
The respondent’s stewardship of the disputed funds during his
assertion of the lien was defective. Professional Conduct Rule 1.15(c)
clearly provides that, where a lawyer, in the course of a representation,
is in possession of property in which both the lawyer and another person
claim interests, the property is to be kept separate by the lawyer until
there is an accounting and severance of interests. The respondent failed
to keep the funds separate; hence our finding that he violated Prof.Cond.R.
1.15(c). However, we do not find that his commingling of the disputed
funds amounted to their conversion.
We now turn to the issue of proper discipline. The hearing officer
recommended that the respondent be suspended from the practice of law in
this state, but for no more than six months. In other cases in which
lawyers commingled client funds with their own and failed promptly to
notify clients of funds in which the clients had an interest, this Court
has not infrequently imposed a six-month suspension. See, e.g., Matter of
Tracy, 676 N.E.2d 738 (1997) (depositing client funds into lawyer’s
personal checking account, by falsely stating to disciplinary commission
that he had reimbursed the Immigration and Naturalization Service (INS) for
all monies owed to it due to dishonored checks, and by practicing law
before the INS without having an active license to practice law); Matter of
Helmer, 634 N.E.2d 56 (1994) (failing promptly to notify client of receipt
of funds in which client has an interest, failing to promptly deliver funds
to client, and failing to hold property of clients separate from own
property). In the present case, the respondent mishandled substantial
funds in which both he and his client claimed an interest. Although no
permanent financial harm befell the client due to the respondent’s actions,
the funds, held as they were in a nontrust account, were placed at risk due
to the respondent’s handling of them. We also note that the respondent
promptly remitted the disputed funds to the client once the trial court’s
award was final and all attempts at appeal concluded.
We are also cognizant of the fact that the hearing officer found
several factors in aggravation of the respondent’s misconduct, including
his refusal to acknowledge his actual violations of Prof.Cond.R. 1.4(a) and
1.15(b), and his substantial experience in the practice of law at the time
of the misconduct at issue here. In light of all of these factors, we
conclude that a suspension from the practice of law for a period of six
months is appropriate.
It is, therefore, ordered that the respondent, Franklin A. Webster,
is suspended from the practice of law in this state for a period of six (6)
months, beginning December 1, 2002, at the conclusion of which he shall be
automatically reinstated.
The Clerk of this Court is directed to provide notice of this order
in accordance with Admis.Disc.R. 23(3)(d) and the hearing officer in this
matter, and to provide the clerk of the United States Court of Appeals for
the Seventh Circuit, the clerk of each of the United States District Courts
in this State, and the Clerk of each of the United States Bankruptcy Courts
in this state with the last known address of the respondent as reflected in
the records of the Clerk.
Costs of this proceeding are assessed against the respondent.
Shepard, C.J., and Dickson and Sullivan, JJ., concur.
Boehm and Rucker, JJ., dissent as to sanction, and would instead impose a
30-day suspension from the practice of law.
-----------------------
[1] Professional Conduct Rule 1.4(a) provides:
(a) A lawyer shall keep a client reasonably informed about the status of a
matter and promptly comply with reasonable requests for information.
[2] Professional Conduct Rule 1.15(b) provides:
(b) Upon receiving funds or other property in which the client or third
person has an interest, a lawyer shall promptly notify the client or third
person. Except as stated in this rule or otherwise permitted by law or by
agreement with the client, a lawyer shall promptly deliver to the client or
third person any funds or other property that the client or third person is
entitled to receive and, upon request by the client or third person, shall
promptly render a full accounting regarding such property.
[3] Professional Conduct Rule 1.15(c) provides:
(c) When in the course of representation a lawyer is in possession of
property in which both the lawyer and another person claim interests, the
property shall be kept separate by the lawyer until there is an accounting
and severance of their interests. If a dispute arises concerning their
respective interests, the portion in dispute shall be kept separate by the
lawyer until the dispute is resolved.
[4] Indiana Code Section 35-43-4-3 provides :
"A person who knowingly or intentionally exerts unauthorized control over
property of another person commits criminal conversion, a Class A
misdemeanor."
[5] See I.C. 33-1-3-1, which permits an attorney to hold a lien “on any
judgment rendered in favor of any person or persons employing such attorney
to obtain the same . . .” See also Stewart & Irwin v. Johnson Realty, 625
N.E.2d 1305, 1307 (Ind.Ct.App. 1993) (stating, “It is well settled that an
attorney has a right to retain possession of a client's documents, money or
other property which come into the hands of the attorney professionally,
until a general balance due the attorney for professional services has been
paid. . . [citations omitted]. . . The lien is a creature of common law and
depends upon the attorney's possession of certain documents, property or
monies.”)