|FOR THE RESPONDENT |FOR THE INDIANA SUPREME COURT |
| |DISCIPINARY COMMISSION |
| | |
|Jere L. Humphrey |Donald R. Lundberg, Executive |
|319 West Jefferson St. |Secretary |
|Plymouth, IN 46563 |David B. Hughes, Trial Counsel |
| |115 West Washington Street, Suite 1060|
| |Indianapolis, IN 46204 |
IN THE
SUPREME COURT OF INDIANA
IN THE MATTER OF )
) CASE NO. 50S00-9906-DI-362
MARK E. WAGNER )
DISCIPLINARY ACTION
March 19, 2001
Per Curiam
Attorney Mark E. Wagner charged a homeowner $1,000 to release his
client’s judgment lien (which had earlier been formally avoided in the
homeowner’s bankruptcy) on the homeowner’s residence. For that, along
with the respondent’s false statement to the homeowner’s new lender that
the judgment lien had “apparently” not been avoided in bankruptcy, we
conclude that the respondent engaged in professional misconduct.
This attorney disciplinary case is now before us for final
determination upon the hearing officer’s findings of fact and conclusions
of law. Therein, the hearing officer determined that the Commission failed
to demonstrate by the requisite standard of clear and convincing
evidence[1] that the respondent violated Ind.Professional Conduct Rule
4.1(a) and 4.4,[2] as charged by the Commission in its verified complaint
for disciplinary action. Pursuant to Ind.Admission and Discipline Rule
23(15), the Commission has petitioned this Court for review of the hearing
officer’s report, therein challenging the hearing officer’s findings with
respect to the Prof.Cond.R. 4.4 charge.
Our jurisdiction in this case derives from the respondent’s admission
to the bar of this state in 1975. We now find that the respondent
represented a bank in an action to collect a $9,328.19 judgment against a
couple. The bank’s judgment became a lien, junior to a first mortgage,
against the couple’s marital residence. Thereafter, the couple filed a
petition for Chapter 7 bankruptcy. The petition listed the bank as a
creditor for the judgment amount of $9,328.19. The couple later filed (and
served upon the respondent as counsel for the bank) a “Motion to Avoid
Judicial Lien,” seeking to avoid the lien. The respondent filed a formal
objection, therein asking for the opportunity to verify whether the
couple’s equity interest in the residence exceeded their allowable
statutory exemptions. He later formally withdrew the objection. The
bankruptcy court then issued notice, served upon the respondent, that the
bank’s judicial lien would be deemed avoided if no objection was filed
within ten days. Ultimately, the court issued an order avoiding the lien
and again served the respondent with a copy. That order provided, in
pertinent part:
1. That on or about August 21, 1992, the above-mentioned lienholder
did obtain a Judgment against the debtors . . .
2. Said judgment was in the amount of $9,328.19.
Wherefore, it is hereby ordered, adjudged and decreed that the
respondent’s judicial lien is voided pursuant to 11 U.S.C. Section
522(f) to the extent the lien impairs an exemption to which the debtor
is entitled to [sic].
The subsequent final discharge in bankruptcy had the effect of fully
discharging the couple’s personal liability to the bank.
Following their discharge in bankruptcy, the couple applied for a
home equity loan through a mortgage company. A title company retained to
perform a title search incident to the loan application noted in its report
that the bank’s judgment lien had not been formally released of record.
The title company advised the mortgage company that formal release of the
judgment lien was required before provision of title insurance for the
transaction. In response to the mortgage company’s insistence on the
release of the bank’s judgment lien prior to loan approval, the couple
provided the mortgage company with a copy of the bankruptcy court’s order
avoiding the bank’s lien. Meanwhile, the couple and an agent of the
mortgage company contacted the respondent to ask that the bank execute a
formal release of the judgment lien. By written response, the respondent
advised the mortgage company that, “[t]he lien of the [bank] was apparently
not avoided in [the couple’s] bankruptcy even though it might have been,”
and that, “[the bank] will release the judicial lien it now apparently
holds against the real estate . . . upon receipt of the sum of $1,000.00.”
At the time of that communication, the respondent’s file regarding the
lien was in storage and the respondent did not specifically recall the
circumstances of the case with regard to the lien avoidance. The couple
opted to pay the $1,000 to secure the formal release of the judgment. The
respondent retained for himself $333.33 of the payment as his contingent
fee.
The Commission charged the respondent with violating Ind.Professional
Conduct Rule 4.1(a) by knowingly making a false statement of material fact
to the couple and the mortgage company’s agent during the course of his
representation of the bank, to wit: that the bank’s judgment lien was
“apparently not avoided” in bankruptcy. The respondent was also charged
with violating Prof.Cond.R. 4.4, which provides (in relevant part) that a
lawyer while representing as client shall not use means that have no
substantial purpose other than to burden a third person, by charging the
couple $1,000 to formally release a judgment lien that had already been
avoided in bankruptcy.
At hearing, the respondent elicited the testimony of two expert
witnesses, lawyers with substantial experience in bankruptcy and insolvency
law. In the opinion of those witnesses, a creditor who holds a judicial
lien has no affirmative obligation to release of record a lien even though
the debt has been discharged in bankruptcy and the lien avoided. They
testified that because the language of a bankruptcy court’s order avoiding
a lien typically states that a given lien is avoided to the extent that it
impairs the debtor’s exemptions, it is the custom of practicing bankruptcy
attorneys to require payment for releasing of record a lien where a title
insurance company requires such a release in order to compensate the
creditor for any remaining lien rights it might have through an incomplete
avoidance of the lien. The creditor’s interest in such a situation is a
function of the value of the property in question, less mortgages. In this
case, since there was nothing in the bankruptcy court’s order indicating a
finding by the court of the value of the couple’s residence or their equity
interest in it, the bank potentially had a surviving in rem interest in the
judgment. Further, the witnesses testified that creditors often charge to
release formally such liens of record because that action is one they have
no affirmative obligation to undertake.
The hearing officer found that the Commission failed to establish
misconduct as to either count. As for the Prof.Cond.R. 4.1(a) charge, the
hearing officer found that the respondent’s use of the word “apparently” in
his missive to the couple indicated something less than total certainty,
and, in any event, the statement was not “material” because the couple
would have had to obtain formal release of the judgment lien regardless of
the respondent’s statement. Recognizing the adversarial nature of debtor-
creditor relations generally and that creditors have no affirmative legal
duty to release judgments of record in bankruptcy situations, the hearing
officer found further that there was no violation of Prof.Cond.R. 4.4,
especially in light of the fact that creditors often demand consideration
for formal release of judgment liens.
The Commission petitioned this Court for review of the hearing
officer’s findings relative to the Prof.Cond.R. 4.4 violation. In support
of its argument that a Prof.Cond.R. 4.4 violation took place, the
Commission argues that in this case, the respondent and his client obtained
leave of the bankruptcy court to investigate the homeowner’s equity
interest in their residence. Following that investigation, the respondent
withdrew his objection to the bankruptcy court’s entry of a lien avoidance
order. Later, when the homeowners and their new lender contacted the
respondent for formal release of that lien, the respondent indicated that
he would charge a fee for that service, although he had no recollection of
the language of lien avoidance order or the value of the homeowner’s equity
interest. Despite his lack of recall, the respondent did not pull the
file from storage to investigate these matters before charging the
homeowners $1,000 formally to release the lien. Because his charging of
the $1,000 had no demonstrable relation to the value of the releasing the
lien (in the form of compensating the bank for any residual lien rights it
might have had, for example), the Commission contends the respondent’s
actions had no purpose other than to burden the homeowners.
Where a party to a disciplinary action challenges the hearing
officer’s findings and conclusions, this Court’s review of the matter is de
novo in nature and involves a review of all matters presented. Matter of
McCord, 722 N.E.2d 820 (Ind. 2000). We are not bound by the findings of
the hearing officer, although they are accorded deference due to the
hearing officer’s unique opportunity for direct observation of witnesses.
Matter of Goebel, 703 N.E.2d 1045 (Ind. 1998).
In this particular case, we accept the hearing officer’s findings, but
disagree with his legal conclusions and conclude that the respondent
violated both Prof.Cond.R. 4.1(a) and Prof.Cond.R. 4.4. With respect to
the Prof.Cond.R. 4.1(a) charge, the uncontroverted facts are that after
being asked by the couple’s new lender to execute a release of the judgment
lien, the respondent advised the couple and the new lender that the lien
was “apparently” not avoided in bankruptcy even though it might have been.
In fact, the lien had been avoided in bankruptcy after the respondent
himself filed in that case both a formal objection prior to the avoidance
(so that he could investigate the value of the couple’s equity interest in
the property) and, later, a formal motion to withdraw that objection. Had
the respondent bothered to review the closed case file in his possession,
those actions would have been apparent. Instead, the respondent told the
couple and the lender that the lien had “apparently” not been avoided, just
prior to informing them that formal release of the lien would requirement
payment of $1,000. Violation of Prof.Cond.R. 4.1(a) requires a lawyer’s
“knowing” false statement of material fact or law to a third person.
“Knowingly,” for purposes of the Rules of Professional Conduct, denotes
actual knowledge of the fact in question, but a person’s knowledge may be
inferred from circumstances. Preamble, Rules of Professional Conduct.
Misrepresentation can occur by failure to act. Comment to Prof.Cond.R.
4.1. Another jurisdiction, applying a provision analogous to Prof.Cond.R.
4.1(a), found that “knowingly” encompasses conduct that is careless and
recklessly negligent. State ex rel. Nebraska State Bar Association v.
Holscher, 230 N.E.2d 75 (Neb. 1975).
Despite the respondent’s use of the qualifier “apparently,” we find
that the facts clearly and convincingly demonstrate a violation. The
respondent himself prepared and filed the motion to withdraw his formal
objection to the bankruptcy court’s avoidance of the lien. The respondent
was served a copy of the court’s ultimate notice of avoidance. Those
documents were contained in the respondent’s own files, although the
respondent failed to review those files. Instead, right before demanding
$1,000 to release the lien, he stated that the lien was apparently not
avoided. We find that the circumstances establish the respondent’s
knowledge of his false statement, or at least knowledge that he did not
have any basis to represent that the lien was “apparently” still valid.
The respondent reminds us that the hearing officer found that the
respondent’s assertion that the lien had been avoided was not material
because the couple would have paid the $1,000 to have the record released
regardless of the respondent’s statement. The respondent points out the
couple’s lender/title company had in its file a copy of the bankruptcy
court’s avoidance order, further underscoring the purported immateriality
of the respondent’s statement.
We disagree. Generally speaking, a “material” representation may be
defined as one “relating to matter which is so substantial and important as
to influence the party to whom it is made.” Black’s Law Dictionary, p. 880
(5th Ed. 1979). The fact of the existence or nonexistence of the avoidance
of the lien directly influences the availability of a formal release.
There is no evidence indicating that the respondent knew the contents of
the lender’s/title company’s files. For all he knew, he was advising an
entity with no knowledge as to the lien’s history. The respondent’s
assertion that the lien had not been avoided would tend to support his
later charging a fee to release it.
Professional Conduct Rule 4.4 provides that, in representing a
client, a lawyer shall not use means that have no substantial purpose other
than to burden a third person. The Commission charged that the respondent
violated that rule by charging the couple $1,000 (and keeping 1/3 of that
as his fee) to release the judgment lien. There is no evidence that the
$1,000 fee bore any relation at all to any residual lien right the
respondent’s client may have had above the couple’s equity exemption, and,
in fact, the respondent’s earlier withdrawal of his objection in bankruptcy
court suggests that he concluded no such lien right existed. Further, the
respondent provided no evidence to support the contention that the act of
releasing the lien required $1,000 or even $333 worth of services. Viewed
in its totality, the sequence of events depicts a lawyer who realized that
a former bankruptcy debtor’s unfortunate predicament provided an
opportunity to extract a fee for a simple release of a lien that had
already been avoided in bankruptcy, without regard to the underlying merits
of the matter.
The respondent argues that he should not be punished just because the
couple chose to use an “overly fastidious” title company and lender who,
despite the avoidance of the lien in bankruptcy, required formal release of
record. That argument is without merit. The requirements of a particular
lender or title company do not change the fact that the respondent required
the couple to pay a wholly arbitrary fee to release a debt that had been
formally avoided. The respondent’s characterization of the incident is
that he “facilitated the [transaction] by contacting his principal to see
what they [sic] would be willing to take for the release . . . [h]e obeyed
the wishes of his client within the boundaries of the law.” But merely
because the law does not require a creditor formally to release a fully
satisfied or avoided lien does not permit a lawyer representing that
creditor to extract a fee where no fee is due.
By this opinion today, we do not hold that a legal fee can never be
collected for releasing a lien where that lien has been avoided in
bankruptcy. A legal fee may be appropriate, for example, where the
original creditor has some lien right above the allowed exemptions, where
the cost of procuring the release justifies the fee, or where some other
circumstance supports a fee.
Having found misconduct, we must now assess an appropriate discipline
for it. In making this assessment, we are struck by the hearing officer’s
evaluation of the respondent’s acts: “Simply stated, Respondent and his
client found themselves in an advantageous situation vs. the [couple] and
used that advantage for their financial betterment.” Conversely, we are
also cognizant of the hearing officer’s finding that creditors have no
affirmative legal duty to assist debtors by releasing judgments of record
in these situations, and that the practice of charging a fee to do so,
regardless of the underlying merits, is apparently a common one.
Balancing these two factors, we conclude that a public reprimand is
sufficient here to demonstrate to the respondent, the bar, and the public
that purely opportunistic acts such as those taken by the respondent will
not be tolerated.
Accordingly, the respondent, Mark E. Wagner, is hereby reprimanded
and admonished for his misconduct.
The Clerk of this Court is directed to provide notice of this order
in accordance with Admis.Disc.R. 23(3)(d) 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 clerks of the
United States Bankruptcy Courts in this state with the last known address
of respondent as reflected in the records of the Clerk.
Costs of this proceeding are assessed against the respondent.
-----------------------
[1] Matter of Siegal, 708 N.E.2d 869 (Ind. 1999).
[2] Those provisions are as follow:
Rule 4.1. Truthfulness in Statements to Others
In the course of representing a client a lawyer shall not knowingly:
(a) make a false statement of material fact or law to a third person;
or
(b) fail to disclose that which is required by law to be revealed.
Rule 4.4. Respect for Rights of Third Persons
In representing a client, a lawyer shall not use means that have no
substantial purpose other than to embarrass, delay, or burden a third
person, or use methods of obtaining evidence that violate the legal rights
of such a person.