BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF TENNESSEE
CHARLES EDWARD DANIEL
January 10, 2018 Session
Appeal from the Chancery Court for Knox County No.
2014-2315-2-AJ Hon. Telford G. Forgety, Jr., Chancellor
direct appeal arises from a disciplinary proceeding against a
Knoxville attorney. A hearing panel ("Hearing
Panel") of the Board of Professional Responsibility
("Board") found that the attorney had violated Rule
8.4(b) and (c) of the Tennessee Rules of Professional Conduct
("RPC") by misappropriating funds from his law
partnership in a manner intended to conceal his actions from
his law partners. The Hearing Panel suspended him from the
practice of law for three years but ordered the entire
suspension served on probation. We conclude that the Hearing
Panel did not abuse its discretion by suspending rather than
disbarring the lawyer but did abuse its discretion by
probating the entire suspension. Accordingly, we modify the
Hearing Panel's judgment to include one year of active
suspension. In all other respects, the Hearing Panel's
judgment is affirmed.
Sup. Ct. R. 9, § 1.3 (2013) (currently Tenn. Sup. Ct. R.
9, § 33.1(d) (2017)) Direct Appeal; Judgment of the
Chancery Court Affirmed As Modified
D. Johnson, Brentwood, Tennessee, for the appellant, Board of
Professional Responsibility of the Supreme Court of
Douglas Nichol, Knoxville, Tennessee, for the appellee,
Charles Edward Daniel.
Cornelia A. Clark, J., delivered the opinion of the Court, in
which Jeffrey S. Bivins, C.J., and Sharon G. Lee, Holly
Kirby, and Roger A. Page, JJ., joined.
CORNELIA A. CLARK, JUSTICE
Factual and Procedural Background
appellee, Charles Edward Daniel, a Knoxville lawyer, received
his license to practice law in 1991 following his
fifteen-year career in law enforcement positions, including a
position with the Internal Revenue Service criminal division.
From 1991 to mid-2002, Mr. Daniel worked as a solo
practitioner, handling mostly workers' compensation and
personal injury cases. In mid-2002 Mr. Daniel and attorney
Mike Pemberton formed the law partnership of Daniel Pemberton
(the "Partnership"). Mr. Pemberton came to this
partnership from another Knoxville law firm where he had
served for a time as managing partner. Mr. Daniel and Mr.
Pemberton never had a written partnership agreement, and they
did not observe formalities in managing the Partnership,
including not formalizing any written agreement about how
compensation would be handled for cases brought into the
Partnership at its inception or how expense advances by any
partner would be reimbursed.
its inception in 2002 until his departure, Mr. Daniel managed
and supervised the Partnership's finances, including
handling the operating and trust accounts, receiving and
accounting for money, making deposits, reviewing and
reconciling bank statements, managing day-to-day financial
operations, making payroll, paying bills, making payments to
third parties and clients, and maintaining and reporting on
case expenses. Mr. Daniel used QuickBooks to perform these
tasks, and QuickBooks was installed only on Mr. Daniel's
Partnership broke up in late 2009 or early 2010. After Mr.
Daniel left, another partner, Dana Scott Pemberton,
wife of Mr. Pemberton, took over his financial oversight
responsibilities, and QuickBooks had been installed on her
computer by January 2010. Mrs. Pemberton soon discovered that
from 2006 to 2009, Mr. Daniel had, on several occasions,
deposited client settlement checks into the Partnership's
trust account and then written three checks on that
account-one payable to the client and two payable to the
Partnership. He would then deposit one of the checks payable
to the Partnership into the Partnership's operating
account and deposit the second check payable to the
Partnership into his own personal account.
2010, the Pembertons reported these suspicious transactions
to the Board of Professional Responsibility. The Board first
contacted Mr. Daniel about the allegations on June 22, 2010.
Meanwhile, civil litigation was initiated to dissolve the
Partnership and divide its assets. The parties reached a
confidential settlement of the civil litigation in July 2011.
three years after the civil litigation settled, on May 2,
2014, the Board filed a petition for discipline against Mr.
Daniel. The Board alleged that he had
"willfully and knowingly engaged in a course of conduct
whereby he embezzled money from the [P]artnership,
misappropriated [P]artnership funds and falsified records in
order to conceal his illicit activities." The Board
asserted that Mr. Daniel's conduct violated subsections
(b) and (c) of RPC 8.4, which state:
It is professional misconduct for a lawyer to:
* * *
(b) commit a criminal act that reflects adversely on the
lawyer's honesty, trustworthiness, or fitness as a lawyer
in other respects;
(c) engage in conduct involving dishonesty, fraud, deceit, or
Hearing Panel held a hearing on March 1 and 2, 2016. The
Board called Mr. and Mrs. Pemberton to testify and submitted
bank records documenting the suspicious transactions from
2006-2009. Mr. Daniel testified on his own behalf and called
various witnesses, many of them attesting to his good
character. Mr. Daniel's defense was that the Partnership
owed him a great deal of money for operating expenses he had
advanced and partner draws he had skipped when the
Partnership lacked funds. He maintained that he had merely
reimbursed himself when funds became available from
settlements by writing checks on the Partnership trust
account payable to the Partnership and then depositing those
checks into his personal account. Mr. Daniel submitted
settlement agreements with clients and a spreadsheet showing
fees and expenses for cases that purported to account for all
of the withdrawals from the Partnership's trust account.
the Hearing Panel, Mr. Daniel testified that, for a
significant time after the Partnership's formation, he
had advanced funds as needed to cover all of the
Partnership's operating expenses, including compensation
for the attorneys and support staff. Mr. Daniel testified
that he had kept a handwritten ledger on a yellow legal pad
of the amounts he had advanced the Partnership and the
amounts he had reimbursed himself for these advances. By the
time of the hearing Mr. Daniel had lost this legal pad,
however, so it was not submitted into evidence before the
Hearing Panel. Nevertheless, Mr. Daniel testified that Mr.
Pemberton was aware of the handwritten ledger, explaining
that he had shared it and discussed it with Mr. Pemberton
periodically. Mr. Daniel testified that he had believed it
was appropriate to reimburse himself amounts he was owed by
writing checks from the Partnership trust account payable to
the Partnership and then depositing those checks into his
personal account. Mr. Daniel testified that he had discussed
the withdrawals and method of reimbursement with Mr.
Pemberton. Mr. Daniel denied taking client
money. Mr. Daniel acknowledged that he had not
maintained the most straightforward accounts because he
"was not a bookkeeper" but stated that he had done
"the best [he] could do."
Pemberton, by contrast, denied knowledge of either the
handwritten ledger Mr. Daniel claimed to have maintained or
Mr. Daniel's method of reimbursing himself by depositing
checks payable to the Partnership in his personal account.
Both of the Pembertons testified that they had relied on Mr.
Daniel to handle all financial oversight of the Partnership
until he left and Mrs. Pemberton had taken over those duties.
Mr. Pemberton testified that the partners had held brief,
formal meetings only four or five times a year to discuss the
state of the Partnership, including budgetary issues.
Pemberton admitted drafting memos for those meetings
summarizing, among other things, the Partnership budgets.
Although none of the memos were introduced into evidence, Mr.
Pemberton conceded that he had accessed the Partnership's
accounting software to prepare the memos. He emphasized,
however, that "[a]ll the financial information that we
got, other than me running the P[rofit] & L[oss] and
running the accounts receivables . . . came from Mr.
Daniel" at least until January 2010.
Pembertons also disputed Mr. Daniel's claim that the
Partnership owed him money after 2006. According to the
Pembertons, the Partnership had fully reimbursed Mr. Daniel
and all of the partners by 2006 for funds advanced to the
Partnership and back draws missed. The Pembertons maintained
that they had confirmed the Partnership was
"square" with Mr. Daniel in conversations that they
had with him. To support this assertion, they pointed to a
December 5, 2005 check Mr. Daniel had received in the amount
of $236, 574.31. This check was in addition to the draws Mr.
Daniel and the other partners had received from the
Partnership at the same time.
contrast, Mr. Daniel testified that the December 5, 2005
check was the first time the Partnership had enough funds to
reimburse him any of the funds he had advanced or draws he
had skipped. Mr. Daniel testified that the December 5, 2005
check only reimbursed him for funds he had advanced on the
cases that settled in 2005. He asserted that this check was
not sufficient to reimburse him for all funds he had advanced
the Partnership since its inception and was not enough to
repay him the entire amount he was owed.
the disagreement about the amounts the Partnership owed Mr.
Daniel arose from Mr. Pemberton's and Mr. Daniel's
conflicting understanding of how fees on cases Mr. Daniel
brought to the Partnership in 2002 were to be shared with the
Partnership. Again, Mr. Daniel and Mr. Pemberton had no
written agreement addressing this issue, which would have
simplified matters before the Hearing Panel. But the proof
was undisputed that, regarding fees on cases Mr. Pemberton
brought to the Partnership, the fees were allocated according
to the percentage of work performed on each case before and
after formation of the Partnership. Mr. Daniel testified that
the same arrangement applied to fees on cases he brought to
the Partnership. Mr. Daniel's testimony about the fee
allocation was supported by that of attorney Tom Overton, who
was collaborating with Mr. Daniel on his biggest cases when
the Partnership was formed in 2002.
other hand, Mr. Pemberton testified that, with the single
exception of the large case, or set of cases, that Mr. Daniel
was working on with Mr. Overton in 2002, Mr. Daniel had
agreed to split final fees on his pre-existing cases equally
with the Partnership when each case was resolved. Mr.
Pemberton's testimony was supported by the following
testimony Mr. Daniel gave in a 2004 deposition during his
divorce proceedings, which the Board introduced into
Q: When it was just Mike [Pemberton] and you, how did you
divide the income?
Mr. Daniel: We just split it up even.
Q: So, it was 50/50 from day one?
Mr. Daniel: Yes, ma'am, as best I remember, it was.
Q: Okay, before [Mr. Pemberton] came and you were a sole
practitioner and you had cases that were-you were already
working when he came, did you divide the income from those
cases or did you retain ...