In Re Clark

                          SUPREME COURT OF ARIZONA
                                   En Banc

In the Matter of                  )             Arizona Supreme Court
                                  )             No. SB-03-0113-D
RICHARD E. CLARK,                 )
Attorney No. 9052                 )             Disciplinary Commission
                                  )             No. 00-1066
                    Respondent.   )
                                  )             O P I N I O N
__________________________________)

                  REVIEW FROM DISCIPLINARY COMMISSION

            REVERSED IN PART; AFFIRMED IN PART; REMANDED

Richard E. Clark                                                        Scottsdale
     Respondent Pro Se

State Bar of Arizona,                                                       Phoenix
     by   Patricia A. Sallen, Bar Counsel
Attorney for State Bar of Arizona


M c G R E G O R, Vice Chief Justice

¶1         In     this    lawyer      disciplinary   proceeding,        a   hearing

officer concluded that Richard E. Clark violated Rule 42 of the

Rules of the Supreme Court of Arizona, Ethical Rule (ER) 8.4(c)

(stating   that    it    is   professional      misconduct    for   a   lawyer     to

“engage    in   conduct       involving      dishonesty,     fraud,     deceit     or

misrepresentation”)       and    ER    8.4(d)    (prohibiting       lawyers      from

“engag[ing] in conduct that is prejudicial to the administration

of justice”).      The hearing officer recommended censure, one year

of   probation,    and   an    order    of   restitution     to   Clark’s     former

client, Edward Kosac, Jr.          The Disciplinary Commission expressly
adopted the hearing officer’s findings of fact, but recommended

increased discipline and urged that Clark receive a two-year

suspension,      two      years     of    probation,        and    be    ordered        to   pay

restitution.         We     granted       review     to    clarify      the     standard       of

review    that       the        Disciplinary         Commission        must     apply        when

reviewing factual findings of a hearing officer.                              We review this

matter    pursuant        to     Article    VI,      Section      5.3    of     the    Arizona

Constitution and Rule of the Supreme Court of Arizona 59(a).

                                                I.

¶2          The facts, as found by the hearing officer and adopted

by the Disciplinary Commission, are as follows.                                 Clark began

practicing    law      in       Arizona    in    1983     and,    in    the    early     1990s,

represented Kosac in a lawsuit arising out of a real estate

claim (the Kosac lawsuit).                 The lawsuit resulted in a judgment

against Kosac.

¶3          Because         of    factors       unrelated    to    the     Kosac      lawsuit,

Clark    filed   a     petition       for       bankruptcy.        Based       upon     Clark’s

conduct    during         the    Kosac     lawsuit,       conduct       for     which    Clark

received an informal reprimand from the State Bar, Kosac filed a

claim against Clark in bankruptcy court.                          The bankruptcy court

entered a non-dischargeable judgment for Kosac against Clark.

This proceeding arises from Kosac’s attempts to collect that

judgment.




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¶4         Kosac hired attorney Steven W. Cheifetz to collect the

judgment against Clark.               Among other efforts, Cheifetz served

writs of garnishment on three of Clark’s clients, all of whom

denied owing any amounts to Clark.                    Cheifetz next scheduled a

debtor’s   examination      and       served   a   subpoena       upon      Clark.     The

subpoena required Clark to bring to Cheifetz’s office records

identifying     those     clients       who    owed     Clark     money       and    other

financial information related to his legal practice.

¶5         At    the    judgment        debtor’s     exam    in      May    2000,    Clark

informed Cheifetz that, on the previous day, he had formed a

professional      corporation,           Richard      Clark,         P.C.,     and     had

transferred all of the assets from his sole proprietorship law

practice to his professional corporation.                    At both the debtor’s

examination      and      in      his      testimony         during         disciplinary

proceedings,     Clark     stated       that    he    formed      the       professional

corporation to establish a medical reimbursement plan and to

facilitate      payment    of     income       taxes.        During         disciplinary

proceedings,      Clark        also     testified       that         he     formed     the

professional      corporation         to   limit      what      he        believed    were

inappropriate contacts between Cheifetz and Clark’s clients.                           At

the debtor’s examination, Clark indicated that the corporation

had already been garnished by another of Clark’s creditors after

Clark told that creditor about the transfer of assets.




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¶6           Cheifetz subsequently served a writ of garnishment on

Richard Clark, P.C. in connection with the proceedings in the

United States Bankruptcy Court for the District of Arizona.1                       In

the interim, Kosac filed the State Bar complaint that led to

these proceedings.

¶7           The State Bar filed a formal complaint against Clark

in   December       2001,   charging    him      with    one   count    of   conduct

involving     dishonesty,      fraud,      deceit      or   misrepresentation      in

violation      of    ER     8.4(c)   and       one    count    involving     conduct

prejudicial to the administration of justice in violation of ER

8.4(d).      After conducting a several-day hearing, the hearing

officer issued his report.

¶8           Before    concluding      that     Clark’s     conduct    violated   the

Arizona      Rules     of     Professional           Conduct   and     recommending


      1
          Upon the suggestion of the bankruptcy judge, Kosac
transferred his case against Clark from the bankruptcy court to
the superior court.     The superior court found that Clark’s
conduct with regard to the transfer of assets constituted a
fraudulent conveyance in violation of Arizona Revised Statutes
(A.R.S.) section 44-1004 (2003). That statute provides:

          A transfer made or obligation incurred by a debtor is
          fraudulent as to a creditor, whether the creditor’s
          claim arose before or after the transfer was made or
          the obligation was incurred, if the debtor made the
          transfer or incurred the obligation . . . [w]ith
          actual intent to hinder, delay, or defraud any
          creditor or the debtor.

A.R.S. § 44-1004.A.1.   Subsection B lists a number of factors
that the court may consider to determine actual intent. A.R.S.
§ 44-1004.B.

                                           4
discipline, the hearing officer made several findings related to

Clark’s      state    of     mind.     Those      findings     are    critical    to   our

review.

¶9            Throughout his factual findings, both those related to

the    alleged       misconduct        and     those      related      to    appropriate

discipline,         the    hearing     officer      found      that    Clark     did   not

knowingly      or    intentionally         violate       his   ethical      duties.    In

evaluating         Clark’s    motive    for       transferring        property    to   his

professional corporation, the hearing officer stated that he had

no doubt that Clark, “in his heart of hearts,” believed that the

property he transferred to his professional corporation had no

value.       Nevertheless, the hearing officer concluded that Clark’s

conduct constituted a fraudulent transfer in violation of A.R.S.

section      44-1004       because   the     professional       corporation      did   not

give Clark fair consideration for the transferred property.                            The

hearing officer also expressly found that Clark’s conduct did

not    involve       dishonesty,       deceit       or    misrepresentation.           In

recommending discipline, the hearing officer stated that Clark

“negligently violated a duty to the courts and to his former

client” and that “his mental state did not demonstrate a state

of    mind    of    maliciousness      or    avarice.”           In    determining     the

appropriate sanction to impose, the hearing officer looked to




                                              5
the ABA Standards for Imposing Lawyer Sanctions (Standards)2 and

recommended discipline that is appropriate when a lawyer acts

negligently rather than intentionally.3                  The mitigating factors

found    by   the    hearing    officer       included     absence    of   a     prior

disciplinary record (Standard 9.32(a)) and absence of a selfish

or   dishonest      motive     (Standard      9.32(b)).       In     addition,     the

hearing officer rejected the State Bar’s argument that he should

find, as aggravating circumstances, prior disciplinary offense

(Standard     9.22(a)),      selfish   or       dishonest     motive       (Standard

9.22(b)),     substantial       experience       in   the     practice      of     law

(Standard     9.22(i)),      and   indifference       to    paying     restitution

(Standard 9.22(j)).

     2
          This court has held that the Standards provide
suitable guidelines for determining the appropriate sanctions
for lawyer misconduct. See, e.g., In re Shannon, 179 Ariz. 52,
68, 876 P.2d 548, 564 (1994) (stating that “[w]e look to the
American   Bar  Association’s  Standards  for   Imposing  Lawyer
Sanctions . . . for guidance in determining the appropriate
sanction to impose” (citing In re Tarletz, 163 Ariz. 548, 554,
789 P.2d 1049, 1055 (1990))); In re Kaplan, 179 Ariz. 175, 177,
877 P.2d 274, 276 (1994) (stating that “[i]n determining the
appropriate sanctions, the Court considers the American Bar
Association’s Standards for Imposing Lawyer Sanctions a suitable
guideline” (citing In re Rivkind, 164 Ariz. 154, 157, 791 P.2d
1037, 1040 (1990))).
     3
          Standard 4.63 provides that “[r]eprimand [censure in
Arizona] is generally appropriate when a lawyer negligently
fails to provide a client with accurate or complete information,
and causes injury or potential injury to the client.” Standard
6.13 provides that “[r]eprimand is generally appropriate when a
lawyer is negligent either in determining whether statements or
documents are false . . . and causes injury or potential injury
to a party to the legal proceeding, or causes an adverse or
potentially adverse effect on the legal proceeding.”

                                          6
¶10         Based on these Standards, the mitigating factors, and

the    absence        of     any    aggravating          circumstances,       the      hearing

officer recommended discipline that included censure, one year’s

probation, and restitution.

¶11         The        Disciplinary            Commission      adopted        the      hearing

officer’s findings of fact in their entirety, but modified de

novo   what      it        described      as    his      conclusions     of     law.       The

Disciplinary Commission held that Clark’s conduct was knowing,

if not intentional, rather than negligent, and caused actual

injury to Kosac and to the legal system.                            Further disagreeing

with the hearing officer, the Disciplinary Commission found de

novo    four     aggravating             factors:     prior    disciplinary         offenses

(Standard      9.22(a)),           dishonest        or    selfish      motive       (Standard

9.22(b)),      substantial           experience          in   the    practice        of    law

(Standard      9.22(i)),           and     indifference       to    making      restitution

(Standard 9.22(j)).                The Disciplinary Commission also disagreed

with the hearing officer’s finding of two mitigating factors:

absence of a prior disciplinary record (Standard 9.32(a)) and

absence of a selfish or dishonest motive (Standard 9.32(b)).

Considering Clark’s intentional misconduct in conjunction with

the    factors        present        in     aggravation        and     mitigation,         the

Disciplinary Commission recommended a two-year suspension, two

years of probation with terms and conditions, and restitution.




                                                7
¶12           This    court       granted        review      to   determine       whether   the

Disciplinary Commission may reject a hearing officer’s factual

findings absent a determination that the findings were clearly

erroneous.       Based on the analysis below, we conclude that it may

not.

                                                 II.

¶13           Clear standards govern the Disciplinary Commission’s

review     of    a    hearing        officer’s          factual        findings    and    legal

conclusions.          In reviewing questions of law, the Disciplinary

Commission       applies      a     de    novo     standard       of    review,     but   “[i]n

reviewing       findings      of     fact        made   by    a   hearing       officer,    the

commission shall apply a clearly erroneous standard.”                                Ariz. R.

Sup. Ct. 58(b).4             In In re Tocco, 194 Ariz. 453, 456 ¶ 9, 984

P.2d   539,     542    (1999),       this    court       stated:         “The     Disciplinary

Commission adopted the hearing committee’s findings of fact in

their entirety.         It then independently made additional findings.

This it may not do under current rules.”                          In this action, as in

Tocco, the Disciplinary Commission adopted the hearing officer’s

findings        of    fact     in        their     entirety.            Nevertheless,       the

Disciplinary Commission then effectively disregarded the hearing

officer’s findings related to Clark’s state of mind.

       4
          When the Disciplinary Commission engaged in its review
of the hearing officer’s factual findings and legal conclusions
in this case, this rule was numbered Rule of the Supreme Court
of Arizona 53(d)(2). This change in numbering has no bearing on
our decision.

                                                  8
 ¶14           Determining       a    person’s          mental        state        requires       the

resolution      of     questions      of     fact.           See     Republic      Ins.     Co.    v.

Feidler,    178       Ariz.   528,        531,   875     P.2d        187,    190    (App.     1993)

(stating       that    “intent       to    injure       is     a   fact      question”).          In

disciplinary proceedings, a respondent’s mental state can both

determine whether an ethical violation occurs and affect the

appropriate discipline for a violation.

                                                 A.

¶15            The     hearing       officer’s          finding            that    Clark      acted

negligently      rather       than    intentionally             or    knowingly       determines

whether he violated ER 8.4(c).                        As the State Bar recognizes, a

lawyer     cannot      violate       ER     8.4(c)        by       acting     negligently;         a

violation of ER 8.4(c) must rest upon behavior that is knowing

or intentional and purposely deceives or involves dishonesty or

fraud.     See Ariz. R. Sup. Ct. 42, ER 1.0(d) (defining “fraud” or

“fraudulent” as conduct that “has a purpose to deceive”); In re

Owens, 182 Ariz. 121, 125, 893 P.2d 1284, 1288 (1995) (stating

that     “ER     8.4(c)       requires           dishonesty,           fraud,        deceit        or

misrepresentation, not just negligence”).                              Because a violation

of ER 8.4(c) requires knowing or intentional misconduct, the

factual     finding      that        Clark’s          conduct        was    merely     negligent

necessarily establishes that both the hearing officer and the

Disciplinary Commission erred in concluding that Clark violated

that   ethical        rule.      The       Disciplinary            Commission        erroneously


                                                 9
reasoned that, because ER 8.4(c) requires knowing or intentional

conduct, the hearing officer’s conclusion that Clark violated ER

8.4(c)    permitted        the    Disciplinary      Commission     to    ignore     the

factual       finding    that     Clark   acted     negligently.         The   factual

finding       must   precede     and    support    the   legal   conclusion.         We

therefore vacate the Disciplinary Commission’s conclusion that

Clark violated          ER 8.4(c).

                                           B.

¶16            Whether     Clark’s      negligent     mental     state    permits     a

conclusion       that    he    violated    ER     8.4(d),   however,      presents    a

different question.              Although this court has not specifically

addressed the issue of the requisite mental state for ER 8.4(d),

the rule does not require a mental state other than negligent.

If the Ethical Rules require a higher mental state, they usually

specify the mental state required.                    See, e.g., Ariz. R. Sup.

Ct.     42,     ER    8.4(f)      (describing       misconduct     as     “knowingly

assist[ing] a judge or judicial officer in conduct that is a

violation of applicable Code of Judicial Conduct or other law”)

(emphasis added).

¶17            In the current action, the hearing officer found that

Clark     negligently         engaged     in    conduct     prejudicial        to   the

administration of justice and thus violated ER 8.4(d).                         Clark’s

act of transferring assets to his professional corporation and

notifying another creditor of the transfer may have deprived


                                           10
Kosac of partial recovery on his judgment.                         We agree with the

hearing       officer    and    the    Disciplinary         Commission     that     Clark’s

negligent conduct and its impact supported a conclusion that his

conduct       was    prejudicial       to    the    administration    of     justice     in

violation of ER 8.4(d).

                                              C.

¶18            The Disciplinary Commission also erred by effectively,

although not expressly, rejecting the hearing officer’s factual

findings        central        to     determining           appropriate      discipline.

Although       the    hearing       officer     specifically       found     that    Clark

lacked    a    selfish    or    dishonest          motive   and   rejected    the    State

Bar’s argument that Clark exhibited an indifference to affording

restitution, the Disciplinary Commission found Clark’s selfish

or    dishonest       motive     and    indifference         to   restitution       to   be

aggravating circumstances.                  Just as the Disciplinary Commission

may not ignore the hearing officer’s findings of fact to support

a different conclusion as to misconduct, it may not reject the

hearing officer’s findings of fact related to discipline unless

it determines that the factual findings are clearly erroneous.5

In determining the appropriate sanction for Clark’s violation of

      5
          Other aggravating and mitigating circumstances that
the Disciplinary Commission regarded differently than did the
hearing officer, such as the effect of prior disciplinary
proceedings and substantial experience in the practice of law,
did not depend upon factual findings.        The Disciplinary
Commission was entitled to weigh or characterize such factors
differently than did the hearing officer.

                                              11
ER 8.4(d), therefore, the Disciplinary Commission must rely upon

the hearing officer’s factual findings related to mitigating and

aggravating    circumstances,    unless   those   findings   are   clearly

erroneous.

                                   III.

 ¶19         For the foregoing reasons, we reverse the Disciplinary

Commission’s conclusion that Clark violated ER 8.4(c), affirm

its conclusion that Clark violated ER 8.4(d), and remand to the

Disciplinary Commission to consider the appropriate discipline

for Clark’s violation of ER 8.4(d).



                                ____________________________________
                                Ruth V. McGregor, Vice Chief Justice


CONCURRING:


__________________________________
Charles E. Jones, Chief Justice


__________________________________
Rebecca White Berch, Justice


__________________________________
Michael D. Ryan, Justice


__________________________________
Andrew D. Hurwitz, Justice




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