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holding that the DHC did not violate Rule 403 in admitting evidence when the defendant had not demonstrated an improper basis on which DHC may have considered it
Summary of this case from Watts-Robinson v. SheltonOpinion
No. COA14–703.
03-03-2015
The NORTH CAROLINA STATE BAR, Plaintiff, v. Robert W. ADAMS, Attorney, Defendant.
The North Carolina State Bar, by David R. Johnson and Katherine Jean, for plaintiff-appellee. Sigmon, Clark, Mackie, Hanvey & Ferrell, P.A., Hickory, by Jason White, for defendant-appellant.
The North Carolina State Bar, by David R. Johnson and Katherine Jean, for plaintiff-appellee.
Sigmon, Clark, Mackie, Hanvey & Ferrell, P.A., Hickory, by Jason White, for defendant-appellant.
STROUD, Judge. Robert W. Adams ("defendant") appeals from an order of discipline entered by the North Carolina State Bar Disciplinary Hearing Commission ("the DHC"). The DHC found that defendant had mismanaged his trust account and ordered that defendant's law license be suspended. Defendant argues that (1) the DHC erred in admitting evidence of prior audits' results; (2) substantial evidence does not support the DHC's findings of fact; (3) the DHC's findings of fact do not adequately support its conclusions of law; and (4) the DHC's findings and conclusions do not adequately support its level of discipline. We affirm the DHC's order of discipline.
I. Background
Defendant was licensed by the North Carolina State Bar in 1972. On or about 10 November 1991, the Grievance Committee of the State Bar reprimanded defendant for mismanagement of his trust account. On or about 5 May 1994, the Grievance Committee admonished defendant for failure to file proper accountings in an estate and failure to handle a refinancing transaction properly. On or about 9 August 1996, defendant was reprimanded for failure to respond to a grievance filed by a client. On or about 23 September 1996, pursuant to a random audit, a State Bar auditor examined defendant's trust account and informed defendant of several deficiencies in defendant's management of the account. On or about 30 April 1997, the Grievance Committee censured defendant for failure to notify his clients of a deposition, failure to appear for the deposition, and failure to inform his clients of sanctions ordered.
On or about 6 November 1997, the DHC imposed a two-year stayed suspension on defendant for his neglect of a client's case, failure to communicate with a client, and failure to respond to the grievance. On 7 June 1999, the DHC extended defendant's stayed suspension. On 10 May 2000, based upon defendant's failure to file North Carolina individual tax returns for three prior years, the DHC imposed a three-year suspension with an opportunity for defendant to apply for a stay of the remaining period of the suspension after nine months. On or about 10 October 2008, pursuant to another random audit, a State Bar auditor examined defendant's trust account and informed defendant of several deficiencies in defendant's management of the account. From 1 January 2012 to 1 July 2012, defendant practiced law in Hickory and held client funds in his trust account. Among his areas of practice, defendant represented clients in Social Security Administration cases. Defendant (1) commingled his personal funds with client funds in the trust account, (2) failed to ensure that checks drawn on the trust account showed the client balance, (3) failed to reconcile the trust account quarterly, (4) failed to maintain a record related to the electronic transfers from the trust account showing the name of the client or other person to whom the funds belong, and (5) failed to maintain a ledger containing a record of receipts and disbursements for each person from whom and for whom funds were received and showing the current balance of funds held in the trust account for each such person. See Revised Rules of Professional Conduct of the North Carolina State Bar R. 1.15–2(a), 1.15–2(f), 1.15–2(h), 1.15–3(b)(2), 1.15–3(b)(3), 1.15–3(b)(5), and 1.15–3(d)(1) (2012).
Defendant gave Alltel Wireless ("Alltel"), a cell phone company, bank account information for his trust account in order to pay a former client's cell phone bill. Alltel made drafts from the trust account on 30 January 2012, 16 February 2012, 13 March 2012, and 2 April 2012. On 24 May 2012, Alltel attempted to draft approximately $1,458.98 from the trust account, while the account held client funds, but the transaction was unsuccessful because the trust account held insufficient funds to cover the draft. Defendant's bank issued a notice of non-sufficient funds to the State Bar. On 25 May 2012, Alltel made a successful draft from the trust account for a much lower amount. But defendant did not misappropriate any client funds, since the attempted 24 May 2012 draft was unsuccessful.
On 10 July 2013, the State Bar filed a complaint against defendant alleging that defendant had mismanaged his trust account from 1 January 2012 to 1 July 2012. Defendant failed to file an answer or any responsive pleading. On 10 December 2013, the DHC entered a default judgment against defendant, thus admitting the State Bar's allegations at the adjudicatory phase. On 10 January 2014, the DHC held a hearing on the disposition phase to determine the appropriate level of discipline. On 3 February 2014, in its order of discipline, the DHC imposed a four-year suspension with an opportunity for defendant to apply for a stay of the remaining period of the suspension after two years if he complies with certain conditions. On 27 February 2014, defendant gave timely notice of appeal. II. Admission of Evidence
Defendant contends that the DHC erred in admitting the results of two prior audits, in contravention of North Carolina Rules of Evidence 404(b) and 403. N.C. Gen.Stat. § 8C–1, Rules 403, 404(b) (2013).
A. Standard of Review
We review de novo the DHC's decision to admit evidence under Rule 404(b). See State v. Beckelheimer, 366 N.C. 127, 130, 726 S.E.2d 156, 159 (2012) (discussing Rule 404(b) in the context of a criminal trial); N.C. Gen.Stat. § 8C–1, Rule 404(b). But we review the DHC's Rule 403 determination for an abuse of discretion. See Beckelheimer, 366 N.C. at 130, 726 S.E.2d at 159 ; N.C. Gen.Stat. § 8C–1, Rule 403. "An abuse of discretion results where the court's ruling is manifestly unsupported by reason or is so arbitrary that it could not have been the result of a reasoned decision." State v. Ward, 364 N.C. 133, 139, 694 S.E.2d 738, 742 (2010) (quotation marks omitted).
B. Analysis
Attorney discipline cases have two phases: (1) an adjudicatory phase in which the DHC determines whether the defendant committed the misconduct; and (2) a disposition phase in which the DHC determines the appropriate discipline. N.C. State Bar v. Talford, 356 N.C. 626, 634, 576 S.E.2d 305, 311 (2003). In a hearing before the DHC, the North Carolina Rules of Evidence govern the admissibility of evidence. 27 N.C. Admin. Code § 1B.0114(t) (2014) ; N.C. State Bar v. Mulligan, 101 N.C.App. 524, 527, 400 S.E.2d 123, 125 (1991). Rule 404(b) provides in pertinent part:
Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show that he acted in conformity therewith. It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake, entrapment or accident.
N.C. Gen.Stat. § 8C–1, Rule 404(b). This list of permissible purposes is not exclusive, and evidence of other crimes, wrongs, or acts is admissible so long as it is relevant to any fact or issue other than the defendant's character to act in conformity therewith. State v. Gordon, –––N.C.App. ––––, ––––, 745 S.E.2d 361, 364, disc. rev. denied, 367 N.C. 255, 749 S.E.2d 859 (2013). Defendant argues that the prior audits' results, which indicate several deficiencies in defendant's management of his trust account, were inadmissible under Rule 404(b). Defendant asserts that this evidence was not proffered to show intent, knowledge, or absence of mistake, because, in its default judgment at the adjudicatory phase, the DHC had already determined that defendant had violated the Rules of Professional Conduct.
But during the disposition phase, the DHC will consider "any evidence relevant to the discipline to be imposed." 27 N.C. Admin. Code § 1B.0114(w). "[I]ntent of the defendant to commit acts where the harm or potential harm is foreseeable" is a factor that the DHC considers in imposing suspension, and "a pattern of misconduct" is a factor that the DHC considers in all cases. Id. § 1B.0114(w)(1)(B), (3)(F). The prior audits' results were relevant to these two factors and were not used to show defendant's propensity to mismanage his trust account, because the DHC had already determined that defendant had committed that misconduct. Accordingly, we hold that the DHC did not violate Rule 404(b) in admitting this evidence. See Gordon, ––– N.C.App. at ––––, 745 S.E.2d at 364 ; N.C. Gen.Stat. § 8C–1, Rule 404(b).
Defendant next contends that the prior audits' results were inadmissible under Rule 403. See N.C. Gen.Stat. § 8C–1, Rule 403. Rule 403 provides: "Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence." Id. "Unfair prejudice" means "an undue tendency to suggest decision on an improper basis, commonly, though not necessarily, [on] an emotional one." State v. Cunningham, 188 N.C.App. 832, 836, 656 S.E.2d 697, 700 (2008).
As discussed above, the prior audits' results were relevant to the factors of "intent of the defendant to commit acts where the harm or potential harm is foreseeable" and "a pattern of misconduct[.]" See 27 N.C. Admin. Code § 1B.0114(w)(1)(B), (3)(F). Defendant has not demonstrated an improper basis on which the DHC may have considered this evidence. See Cunningham, 188 N.C.App. at 836, 656 S.E.2d at 700. We hold that the evidence's probative value was not substantially outweighed by the danger of unfair prejudice or needless presentation of cumulative evidence. See N.C. Gen.Stat. § 8C–1, Rule 403. Accordingly, we hold that the DHC did not violate Rule 403 in admitting this evidence. III. Order of Discipline
A. Standard of Review
We review the DHC's order of discipline under the "whole record" test. Talford, 356 N.C. at 632, 576 S.E.2d at 309.
[We] determine if the DHC's findings of fact are supported by substantial evidence in view of the whole record, and whether such findings of fact support its conclusions of law. Such supporting evidence is substantial if a reasonable person might accept it as adequate backing for a conclusion. The whole-record test also mandates that the reviewing court must take into account any contradictory evidence or evidence from which conflicting inferences may be drawn. Moreover, in order to satisfy the evidentiary requirements of the whole-record test in an attorney disciplinary action, the evidence used by the DHC to support its findings and conclusions must rise to the standard of clear, cogent, and convincing. Ultimately, the reviewing court must apply all the aforementioned factors in order to determine whether the decision of the lower body, e.g., the DHC, has a rational basis in the evidence.
Id., 576 S.E.2d at 309–10 (citations, quotation marks, and footnotes omitted).
We consider three questions to determine if the DHC's decision has a "rational basis in the evidence": (1) Is there adequate evidence to support the order's expressed findings of fact? (2) Do the order's expressed findings of fact adequately support the order's subsequent conclusions of law? (3) Do the expressed findings and conclusions adequately support the lower body's ultimate decision? Id. at 634, 576 S.E.2d at 311. "[T]he mere presence of contradictory evidence does not eviscerate challenged findings, and the reviewing court may not substitute its judgment for that of the [DHC]." N.C. State Bar v. Key, 189 N.C.App. 80, 84, 658 S.E.2d 493, 497 (2008). The DHC determines the credibility of the witnesses and the weight of the evidence. N.C. State Bar v. Ethridge, 188 N.C.App. 653, 665, 657 S.E.2d 378, 386 (2008).
The DHC must support its punishment choice with written findings that are consistent with the statutory scheme of N.C. Gen.Stat. § 84–28(c). Talford, 356 N.C. at 638, 576 S.E.2d at 313 ; see also N.C. Gen.Stat. § 84–28(c) (2013). The order must also include adequate and specific findings that address how the punishment choice (1) is supported by the particular set of factual circumstances and (2) effectively provides protection for the public. Id., 576 S.E.2d at 313.
B. Findings of Fact
Defendant contends that Findings of Fact Regarding Discipline 7 and 8 are not supported by substantial evidence. Those findings of fact state:
7. The Alltel draft on [the trust account] created the potential for significant harm to clients of Defendant with entrusted funds in [that account].
8. Defendant's failure to comply with the State Bar's regulations related to his trust account has the potential to cause significant harm to clients of Defendant and to the public's perception of the legal profession.
In Talford, the North Carolina Supreme Court discussed the difference between "potential harm" and "significant potential harm" within the context of a defendant's mismanagement of his trust account. Id. at 640, 576 S.E.2d at 314–15. There, the defendant had commingled his personal funds with client funds in his trust account and had made several withdrawals from the account that were in excess of those funds to which he was entitled. Id., 576 S.E.2d at 314. But no client suffered a loss or a financial setback, since the defendant maintained enough personal funds in the account to cover any amounts due to clients. Id., 576 S.E.2d at 314. The North Carolina Supreme Court held that, within the confines of these circumstances, the defendant's misconduct had created "potential harm" to clients but had not created "a risk of significant potential harm" to clients. Id. at 640–41, 576 S.E.2d at 314–15. The Court ultimately held that the DHC's order of discipline did not have a "rational basis in the evidence" because (1) the order failed to provide either pertinent findings of fact or conclusions of law that addressed the statutory factors delineated in N.C. Gen.Stat. § 84–28(c) ; and (2) inadequate evidence supported the findings of fact and conclusions of law that would be necessary to justify the DHC's punishment choice. Id. at 642, 576 S.E.2d at 315–16.
The default judgment here established the facts as alleged in the State Bar's complaint that defendant (1) commingled his personal funds with client funds in the trust account, (2) failed to ensure that checks drawn on the trust account showed the client balance, (3) failed to reconcile the trust account quarterly, (4) failed to maintain a record related to the electronic transfers from the trust account showing the name of the client or other person to whom the funds belong, and (5) failed to maintain a ledger containing a record of receipts and disbursements for each person from whom and for whom funds were received and showing the current balance of funds held in the trust account for each such person. See Revised Rules of Professional Conduct of the North Carolina State Bar R. 1.15–2(a), 1.15–2(f), 1.15–2(h), 1.15–3(b)(2), 1.153(b)(3), 1.15–3(b)(5), and 1.15–3(d)(1). The default judgment also established that on 24 May 2012, Alltel had attempted to draft approximately $1,458.98 from the trust account, while the account held client funds, but that the transaction was unsuccessful only because the trust account held insufficient funds to cover the draft.
Relying on Talford, defendant contends that his misconduct did not cause "significant potential harm" as stated in Findings of Fact Regarding Discipline 7 and 8, because no client funds were misappropriated. See Talford, 356 N.C. at 640, 576 S.E.2d at 314–15. Talford, however, is distinguishable for two reasons. First, in Talford, the DHC's order failed to provide either pertinent findings of fact or conclusions of law that addressed the statutory factors delineated in N.C. Gen.Stat. § 84–28(c). Id. at 642, 576 S.E.2d at 315–16. To satisfy N.C. Gen.Stat. § 84–28(c), an order imposing suspension or disbarment must show (1) how a defendant's actions resulted in significant harm or significant potential harm; and (2) why suspension and disbarment are the only sanction options that can adequately serve to protect the public from potential future transgressions by the defendant. Id. at 638, 576 S.E.2d at 313. In Talford, the DHC's order addressed neither statutory factor. Id. at 639, 576 S.E.2d at 314. The DHC limited its findings of fact regarding discipline to "six conclusory statements about the aggravating and mitigating factors surrounding defendant's misconduct." Id., 576 S.E.2d at 314.
In contrast, here, the DHC's order includes findings of fact and conclusions of law that satisfy N.C. Gen.Stat. § 84–28(c). See id. at 638, 576 S.E.2d at 313. The DHC's order includes findings and conclusions that address the first issue and explain how defendant's actions resulted in significant potential harm:
[Finding of Fact Regarding Discipline] 4. Defendant's mismanagement of his trust
account resulted in numerous violations of the Rules of Professional Conduct.
...
6. The attempt by Alltel to draft $1,458.98 from [the trust account] on May 24, 2012 failed because [the trust
account], though containing entrusted funds, had insufficient funds to cover the Alltel draft.
7. The Alltel draft on [the trust account] created the potential for significant harm to clients of Defendant with entrusted funds in [that account].
8. Defendant's failure to comply with the State Bar's regulations related to his trust account has the potential to cause significant harm to clients of Defendant and to the public's perception of the legal profession.
....
[Conclusion of Law Regarding Discipline] 4. Defendant['s] misconduct resulted in potential significant harm to his clients by placing entrusted client funds at risk of misapplication and misappropriation.
5. Defendant's failure to properly maintain, manage and handle entrusted funds betrays a vital trust that clients and the public place in attorneys and the legal profession.
The DHC's order also includes conclusions of law that address the second issue and explain why suspension is the only sanction option that can adequately serve to protect the public from potential future transgressions by defendant:
[Conclusion of Law Regarding Discipline] 6. The [DHC] has considered issuing an admonition, reprimand or censure but concludes that such discipline would not be sufficient discipline because of the factors noted in paragraphs 1 and 3 of this section and the gravity of the potential significant harm to the clients. The [DHC] further concludes that such discipline would fail to acknowledge the seriousness of the offenses committed by Defendant and send the wrong message to attorneys regarding the conduct expected of members of the Bar in this State.
7. [The DHC] has considered lesser alternatives and concludes that a suspension is appropriate under the facts and circumstances of this case to address the potential for significant harm to Defendant's clients, and for the protection of Defendant's clients and the public.
8. For these reasons, the [DHC] finds that an order imposing discipline less than a suspension of Defendant's law license would not be appropriate.
Unlike the order in Talford, the DHC's order here includes findings of fact and conclusions of law that satisfy the statutory framework of N.C. Gen.Stat. § 84–28(c). See id., 576 S.E.2d at 313.
Second, in Talford, the defendant's misconduct did not result in any potential harm to clients "beyond that attributable to any commingling of attorney and client funds[.]" Id. at 640, 576 S.E.2d at 314–15. There, the trust account contained sufficient personal funds belonging to the defendant to cover obligations owed to or on behalf of clients. Id., 576 S.E.2d at 314. In contrast, here, on 24 May 2012, a third party, Alltel, attempted to draft approximately $1,458.98 from the trust account, while the account held client funds, but the transaction was unsuccessful only because the trust account held insufficient funds to cover the draft. But for the fact that the trust account held insufficient funds, defendant's mismanagement of the trust account would have directly led to the misappropriation of client funds. Unlike in Talford, defendant's misconduct here led to the potential misappropriation of client funds, potential harm that extends well beyond that attributable to commingling alone. See id., 576 S.E.2d at 314–15. In light of these two distinctions, we hold that Talford is distinguishable.
Defendant further contends that substantial evidence does not support Finding of Fact Regarding Discipline 8, because the State Bar proffered no evidence of potential harm to the public's perception of the legal profession. Defendant cites no authority which requires that any particular type of evidence be presented to show potential harm "to the public's perception of the legal profession[,]" nor have we found any such authority. The very purpose of attorney discipline presupposes that attorney misconduct can harm the public and can tarnish the public's perception of the legal profession. See 27 N.C. Admin. Code. § 1B.0101 (2014) ("Discipline for misconduct is not intended as punishment for wrongdoing but is for the protection of the public, the courts, and the legal profession."). In this case, defendant had been publicly disciplined on six prior occasions, including several instances of financial mismanagement, and had been the subject of two trust account audits with deficiencies in both, and yet he still failed to maintain his trust account properly. Defendant's repeated failures to comply with the Rules of Professional Conduct and prior lesser sanctions and the risk of significant harm to clients supports a finding of potential harm to the public's perception of the legal profession. Because defendant's mismanagement of the trust account directly led to the potential misappropriation of client funds, we hold that substantial evidence supports the DHC's Findings of Fact Regarding Discipline 7 and 8 that defendant's misconduct created "the potential for significant harm" to clients and to the public's perception of the legal profession.
C. Conclusions of Law
Defendant next contends that the findings of fact do not adequately support Conclusion of Law Regarding Discipline 1. This conclusion states:
The [DHC] has carefully considered all of the different forms of discipline available to it. In addition, the [DHC] has considered all of the factors enumerated in [ 27 N.C. Admin. Code § 1B.0114(w)(1) ] of the Rules and Regulations of the North Carolina State Bar and concludes the following factors warrant suspension of Defendant['s] license:
a. Intent of Defendant to commit acts where the harm or potential harm is foreseeable;
b. Circumstances reflecting the Defendant's lack of honesty, trustworthiness, or integrity;
c. Negative impact of Defendant's actions on client's or public's perception of the legal profession; and
d. Multiple instances of failure to participate in the legal profession's self-regulation process.
Defendant contends that the DHC's findings of fact do not adequately support its sub-conclusion of law that defendant intended "to commit acts where the harm or potential harm is foreseeable[,]" because he did not authorize the 24 May 2012 draft by Alltel. But the default judgment establishes that, in addition to the unsuccessful 24 May 2012 draft, Alltel had made successful drafts from the trust account on 30 January 2012, 16 February 2012, 13 March 2012, 2 April 2012, and 25 May 2012. The DHC found that defendant "had several months to take action with [his bank] to block the drafts but failed to do so."
Additionally, the DHC made other findings of fact to support its sub-conclusion that defendant intended to commit acts where the harm or potential harm is foreseeable:
[Finding of Fact Regarding Discipline] 1. The State Bar conducted two prior random audits of [the trust account], one in 1996 and the second in 2008. Both audits disclosed deficiencies in Defendant's trust account management practices.
2. Among other deficiencies, both random audits disclosed that at the time of the audits Defendant: 1) did not maintain ledgers for each person or entity from whom or for who[m] trust money was received; and 2) did not conduct quarterly reconciliations.
3. After the 1996 random audit, Defendant wrote to the State Bar agreeing to correct the deficiencies in his trust account management practices including maintaining a ledger and conducting quarterly audits; however, those same deficiencies, as well as the others noted above, continued in the present proceeding.
....
9. Defendant has received prior discipline by the Grievance Committee and the DHC, as follows: 90G0044—Reprimand (noting deficiencies in handling entrusted funds)[.]
In light of its findings on defendant's long history of mismanaging entrusted funds and defendant's failure to block Alltel's repeated drafting of funds from the trust account, we hold that the DHC's findings of fact adequately support its sub-conclusion that defendant intended to commit acts where the harm or potential harm is foreseeable. See id. at 634, 576 S.E.2d at 311.
Defendant further argues that the DHC's findings of fact do not adequately support its sub-conclusion that circumstances reflect defendant's lack of honesty, trustworthiness, or integrity, because he "fully complied" with the State Bar's investigation. But defendant's compliance with the State Bar's investigation does not undermine the DHC's findings that defendant repeatedly mismanaged his trust account, even after prior disciplinary proceedings addressing similar issues of financial mismanagement, and exposed his clients to significant potential harm. These findings adequately support the DHC's sub-conclusion that circumstances reflect defendant's lack of honesty, trustworthiness, or integrity. See id., 576 S.E.2d at 311. Defendant next argues that the DHC's findings of fact do not support its sub-conclusion that defendant's misconduct negatively impacted his clients' or the public's perception of the legal profession. But Finding of Fact Regarding Discipline 8, which states that defendant's misconduct had the potential to cause significant harm to clients and to the public's perception of the legal profession, adequately supports this sub-conclusion. See id., 576 S.E.2d at 311.
Defendant also contends that the DHC's findings of fact do not support its Conclusion of Law Regarding Discipline 4. This conclusion states: "Defendant ['s] misconduct resulted in potential significant harm to his clients by placing entrusted client funds at risk of misapplication and misappropriation." But, as discussed above, substantial evidence supports the DHC's Findings of Fact Regarding Discipline 7 and 8 that defendant's misconduct created significant potential harm to client funds. These findings adequately support Conclusion of Law Regarding Discipline 4. See id., 576 S.E.2d at 311. We hold that the DHC's findings of fact adequately support its Conclusions of Law Regarding Discipline 1 and 4. See id., 576 S.E.2d at 311.
D. Level of Discipline
Defendant further contends that the DHC's findings of fact and conclusions of law do not adequately support its ultimate decision to suspend defendant's license. In order to suspend a defendant's license, the DHC's order must show (1) how the defendant's actions resulted in significant harm or significant potential harm; and (2) why suspension is the only sanction option that can adequately serve to protect the public from potential future transgressions by the defendant. Id. at 638, 576 S.E.2d at 313. As discussed above, the DHC's order here includes findings of fact and conclusions of law that satisfy this requirement. Accordingly, we hold that the DHC's findings and conclusions adequately support its ultimate decision to suspend defendant's license. See id. at 634, 576 S.E.2d at 311.
IV. Conclusion
For the foregoing reasons, we affirm the DHC's order of discipline.
Affirmed.
Judges CALABRIA and McCULLOUGH concur.