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Napolitano v. Board of Professional Responsibility

Supreme Court of Tennessee, Nashville

May 24, 2017


          Session in Jackson November 2, 2016

         Montgomery Circuit, No. CC-15-CV-159 Ben H. Cantrell, Special Judge BPR Docket No. 2013-2272-6-AW

         This matter initially originated from a fee dispute between attorney Peter M. Napolitano ("Attorney") and his client Gayle Connelly ("Client"). Client filed a complaint with the Tennessee Board of Professional Responsibility ("the Board") regarding the fee dispute in 2008. The Board dismissed this complaint in 2010 without imposing any sanctions. Client sued Attorney over the fee dispute and, after Attorney was deposed in conjunction with the lawsuit, Client filed a second complaint with the Board in 2012. This second complaint alleged that Attorney had mishandled funds in his trust account and lied under oath. The Board prosecuted this second complaint, resulting in a hearing before a hearing panel ("the Panel"). The Panel determined that Attorney had committed ethical violations related to his trust account and by lying under oath. Accordingly, the Panel imposed sanctions against Attorney, including a five-year suspension of Attorney's law license, with one year of active suspension. Attorney and the Board both sought review in circuit court. The circuit court modified the Panel's sanctions in part but affirmed the five-year suspension.[1] Both Attorney and the Board sought review by this Court, with Attorney seeking a lesser punishment and the Board seeking disbarment. Additionally, both parties disagree with the Panel's order of $7, 500 in restitution to Client. We hold that the five-year suspension is appropriate and that the Panel did not err in ordering $7, 500 in restitution. Accordingly, we affirm the circuit court's judgment but modify it by adding the requirement of a practice monitor during Attorney's probationary period.

         Tenn. Sup. Ct. R. 9, § 1.3 (2013);[2]Judgment of the Circuit Court Affirmed and Modified

          Brian S. Faughnan, Memphis, Tennessee, for the appellant, Peter M. Napolitano.

          A. Russell Willis, Brentwood, Tennessee, for the appellee, Board of Professional Responsibility.

          Jeffrey S. Bivins, C.J., delivered the opinion of the Court, in which Cornelia A. Clark, Sharon G. Lee, Holly Kirby, and Roger A. Page, JJ., joined.



         Factual and Procedural Background

         Client hired Attorney in 2005 to represent her in an employment claim against the Department of the Army ("the Litigation"). Client and Attorney entered into a written fee agreement concerning this representation, and Client paid $22, 000 to Attorney pursuant to this agreement. In September 2007, the parties settled the Litigation for $75, 000, and this sum was paid into Attorney's trust account ("the Litigation Proceeds"). Client and Attorney entered into an agreement regarding the split of the Litigation Proceeds, with Attorney to pay Client $40, 000 and Attorney to retain the $35, 000 balance in full satisfaction of his remaining fees and expenses ("the 2007 Fee Agreement").

         Shortly after entering into the 2007 Fee Agreement, Attorney contacted Client and stated that he had miscalculated his expenses by approximately $1, 800. Attorney asked Client to accept less than the $40, 000 previously agreed upon in order to compensate him for this omitted expense. Client refused to modify the 2007 Fee Agreement. Attorney then refused to pay Client the agreed-upon $40, 000.

         A few days later, Client wrote the administrative law judge who had overseen the Litigation in an effort to rescind the settlement. Client was unsuccessful in this effort. Eventually, in April 2008, she filed a complaint with the Board ("the First Complaint"). Client asserted the following in the First Complaint:

I was awarded $75, 000 in a settlement agreement with the U.S. Army at Fort Campbell, Ky. That amount was deposited in my attorney's trust account. The agreement was that Attorney would retain $35, 000 and forward $40, 000 of the settlement to me. Attorney continues to refuse to pay me my portion. He claims I moved without giving him a forwarding address. I have written to him numerous times to request the settlement and my records. I went to his office on Mar. 28 and he refused to see me and ordered his secretary not to release my files.[3]

(Parenthetical references to enclosures omitted). In due course, Attorney responded to the First Complaint and, eventually, one of the Board's disciplinary counsel told Attorney that he owed Client $16, 715.50. The calculations resulting in this perplexing amount are not in the record.

         By this time, Client had retained another lawyer. After being told by the Board how much it suggested he owed Client, Attorney sent Client's new lawyer a check in the recommended amount along with the explanation that the negotiation of the check would constitute a waiver of all of Client's claims against Attorney. Client refused the check and sought additional action from the Board on the First Complaint. On August 25, 2010, the Board responded to Client as follows:

Your complaint filed with this office has been reviewed and considered. Our inquiry has not revealed sufficient evidence to proceed against the attorney(s) for violations of the Rules of Professional Conduct. Dismissal of the complaint has been recommended, reviewed and approved in accordance with the rules and procedures of the Board.
The proposed dismissal will become final in 30 days in the absence of your written appeal to the Board setting forth specific and detailed grounds and reasons why the proposed dismissal should not become final.

         Client appealed to the Board. On November 3, 2010, the Board responded as follows: "Your appeal of the previous disposition of your complaint has been reviewed by the Board. The grounds for your appeal were fully considered. The Board has approved the prior disposition of your complaint which is now final and closed."

         In March 2011, Client filed a lawsuit against Attorney in an attempt to recover the money she claimed she was due. Pursuant to the lawsuit, Client's new lawyer deposed Attorney in September 2012. During the deposition, and while under oath, Attorney stated that none of the Litigation Proceeds remained in his trust account. Attorney also made statements while under oath regarding previous ethical violations, previous bankruptcies, and IRS liens. Convinced that Attorney had (1) mishandled his trust account with regard to the Litigation Proceeds and (2) lied under oath during the deposition, Client's new lawyer filed a second complaint with the Board on behalf of Client in November 2012 ("the Second Complaint").

         Following its investigation of the Second Complaint, the Board filed its petition for discipline in November 2013 ("the Petition"). The Petition alleged that Attorney violated Tennessee Supreme Court Rule 8, Rule of Professional Conduct ("RPC") 1.15 by his handling of the Litigation Proceeds; RPC 3.3 and 4.1 by testifying falsely during his deposition; and RPC 8.4 by engaging in professional misconduct.

         In August 2014, prior to the hearing on the Petition, Client and Attorney entered into a written settlement agreement disposing of the lawsuit that Client filed against Attorney in 2011 ("the Fee Dispute Settlement"). Pursuant to the Fee Dispute Settlement, Attorney was to pay Client $18, 500 on or before August 12, 2014, followed by ten periodic payments of $750 each.[4] The payment of these latter sums was to be postponed if Attorney was suspended, "until six (6) months have passed from when his law license is reinstated and if it is not reinstated, no additional payments shall be due."

         The Hearing on the Petition

         At the hearing before the Panel, Attorney testified and conceded that he had made errors with respect to his trust account concerning the Litigation Proceeds. However, when questioned about removing the Litigation Proceeds from his trust account, Attorney testified, "I still to this day do not agree or admit that I ever converted funds. Whatever moneys I withdrew for myself, I have always believed that, as I believe today, was legitimately my money."

         During the hearing, the Board established that the following questions and answers took place during Attorney's deposition:

Q. Okay. Any Bar complaints related to your New York license?
A. No.
. . . .
Q. Okay. Any lawsuits whatsoever with clients or former clients related to your practice in New York?
A. No.
. . . .
Q. Have you or any of your businesses ever filed for bankruptcy protection?
A. No.
. . . .
Q. Okay. Any liens ever filed against you?
A. Not that I can recall.
Q. Okay. You'd remember that if it had happened.
A. I imagine I would if I knew about it.

         Related to this testimony, the Board established during the hearing that Attorney's license to practice law in the State of New York had been suspended for a period of five years commencing in January 1994 for misappropriating funds from an escrow fund in a real estate transaction and for giving false testimony under oath in connection with the ensuing investigation; that Attorney had filed for personal bankruptcy protection in 1993 and again in 2003; and that the IRS had filed liens against two parcels of real estate that Attorney owned in Montgomery County, Tennessee. Attorney had referenced the debt secured by one of these liens in one of the schedules that he filed in conjunction with his first bankruptcy.

         When questioned during the hearing about his answers to these questions, Attorney explained that he thought Client's attorney already knew about the New York suspension. As to the bankruptcies, Attorney stated that he thought he was being asked only about business, as opposed to personal, bankruptcies. Attorney maintained that he had never received notice of the IRS liens.

         Attorney called several witnesses to testify on his behalf. Judge John H. Gasaway, III, a circuit judge in the judicial district in which Attorney practiced, testified about his experience with Attorney's conduct in his court. Judge Gasaway testified that Attorney's demeanor was appropriate, he came to court prepared, he adduced and objected to evidence appropriately, and appeared to have good relationships with his clients. Judge Gasaway stated that he considered Attorney "to be a truthful person." Judge Gasaway also explained that Attorney assisted the trial courts by preparing a document that was helpful in resolving domestic relations matters that involved members of the military.

         Timothy K. Barnes, juvenile judge, testified that Attorney was very helpful in accepting appointments in juvenile court. Attorney had previously assisted Judge Barnes when Judge Barnes was in private practice, and Judge Barnes had "no reason to believe that [Attorney] was anything other than . . . an upright, upstanding member of the Bar."

         Wayne Hibbeler testified that he practiced law with Attorney in the same office for about eighteen months when Mr. Hibbeler was a newly-licensed lawyer. Several years later, Mr. Hibbeler began practicing with Attorney again. Mr. Hibbeler stated that Attorney had been very helpful to him when he began practicing, and he was happy to begin working with Attorney again later in his career. Mr. Hibbeler described Attorney as a mentor to younger lawyers.

         Ross H. Hicks, also a circuit judge in the judicial district in which Attorney practiced, testified that he had known Attorney since 2002, when he became a judge. Judge Hicks stated that he had had some professional contact with Attorney over that time "at least once a week." Judge Hicks described Attorney as "very candid." He had never known Attorney to misrepresent facts and had had "no occasion to question" Attorney's honesty or integrity. Judge Hicks reiterated that Attorney had been very helpful to the courts dealing with domestic relations matters involving military personnel.

         Attorney Gary F. Baumann testified that he worked for the United States Army in Fort Campbell as "environmental and ethics counsel." Prior to that position, he was the "labor and employment counsel" and, in that capacity, had many professional dealings with Attorney. Mr. Baumann testified that, in all of his dealings with Attorney, Attorney had "been nothing but truthful and forthcoming."

         Steven Joseph Farkas testified that he hired Attorney to represent him in 2012 on an employment matter. Mr. Farkas was very pleased with Attorney's work.

         Mark Totten testified that he was the pastor of Attorney's church. Attorney had discussed with him Attorney's dispute with Client, and Mr. Totten described Attorney's demeanor as "remorseful."

After the hearing, the Panel entered the following Findings of Fact:
[Attorney] was licensed to practice law in the State of New York in 1981. In 1993, his New York license was suspended for five years based on missing funds from his escrow account and giving false testimony in the course of the investigation.
[Attorney] has been a licensed attorney in the State of Tennessee since 2002. His only prior discipline in Tennessee was a private reprimand related to an overdraft of his Trust account.[5]
On December 23, 2005, [Client] retained [Attorney] to represent her in a civil service employment claim against the Department of the Army. [Client] signed a written fee agreement, which provided that [Attorney] was to be compensated at the rate of $200.00 [per hour], support staff at $35.00 per hour, and that [Client] was to be responsible for all other expenses. [Client] paid [Attorney] $5, 000.00 towards his retainer fee.
On June 20, 2006, [Client] paid an additional $8, 000.00 to [Attorney], for a total payment of $13, 000.00.
The retainer fees paid by [Client] were deposited to [Attorney]'s firm trust account and drawn down until the retainer was exhausted on July 21, 2006.
[Client] paid an additional $9, 000.00 to [Attorney] on or about September 4, 2006, for a total payment of $22, 000.00.
A bench trial was held on [Client]'s employment claim and on or about June 22, 2007, she was awarded $25, 000.00 pursuant to a Preliminary Decision by an Administrative Law Judge. Such decision also directed [Client]'s attorney, [Attorney], to file a verified statement of attorney fees and costs.
[Attorney] prepared a Motion for [Attorney]'s Fees and Expenses which he filed on July 27, 2007. According to his Motion, [Attorney]'s fees totaled $49, 957.50 and his expenses were $7, 120.83 for a total bill of $57, 078.33.
After submission of the Motion for Attorney's Fees, [Client] and [Attorney] entered into settlement negotiations with the Army regarding a global settlement of the case whereby [Client] would waive her right to appeal, would be reimbursed her attorney's fees and expenses, would have certain compensatory time she had earned restored, and would have a poor performance review removed from her personnel file.
On September 18, 2007, [Attorney] sent an e-mail to [Client] explaining how the Army's global settlement offer of $75, 000 would be divided. He erroneously stated that his total fees and expenses were $56, 358.33 (rather than $57, 078.33 as stated in his Motion). He estimated that the time to finalize the settlement would require additional fees of $2, 000.00, which he added to his fee amount. He then erroneously deducted $21, 000.00 for prior payments by [Client] (rather than $22, 000.00) and summarized that the total of unpaid fees and expenses that [Client] would owe was $37, 642.00. (Technically, the amount that she would have owed at such time would have been $57, 078.33 plus $2, 000.00 minus $22, 000.00 or $37, 078.33). "In an effort to make the settlement option more appealing, " [Attorney] then offered to compromise and accept a reduced amount for fees and expenses of $35, 000.00, from which he would pay all expenses, so that [Client] would "get a check for $40, 000.00 (even)." [Client] testified that [Attorney] represented to her that she would owe nothing further to [Attorney] if she accepted the $75, 000.00 offer and paid him $35, 000 of the settlement.
[Client] authorized [Attorney] to accept the $75, 000.00 settlement offer on this basis and the parties began to work on a written settlement agreement.
On September 21, 2007, [Client] and [Attorney] executed a written negotiated Release and Settlement Agreement which provided for a lump sum payment of $75, 000.00. The Settlement Agreement included [Client]'s compensatory award of $25, 000.00 and reimbursement of the attorney's fees and expenses reflected in [Attorney]'s Motion. [Client]
also waived her right of appeal, received 300 hours of compensatory time, and had the prior performance review removed from her personnel record.
The $75, 000 settlement proceeds were deposited into [Attorney]'s Trust account on October 16, 2007 and [Attorney] sent [Client] an e-mail ...

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