2008 WI 13
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Case No.: |
2006AP2461-D |
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In the Matter of Disciplinary Proceedings Against Phaidra S. Knight, Attorney at Law: Office of Lawyer Regulation, Complainant, v. Phaidra S. Knight, Respondent. |
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DISCIPLINARY PROCEEDINGS AGAINST KNIGHT |
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Opinion Filed: |
February 26, 2008 |
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Concurred: |
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Dissented: |
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2008 WI 13
notice
This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports.
ATTORNEY disciplinary proceeding. Attorney's license suspended.
¶1 PER CURIAM. We review the referee's[1]
report and recommendation that the license of Attorney Phaidra S. Knight to
practice law in
¶2 Attorney Knight was admitted to the practice of law in
¶3 On October 9, 2006, the Office of Lawyer Regulation (OLR) filed a complaint against Attorney Knight alleging seven separate counts of professional misconduct arising out of Attorney Knight's solicitations and representations of individuals that might have claims to funds that had escheated to the state and were being held by the Wisconsin State Treasurer. The OLR made multiple attempts to serve Attorney Knight personally with authenticated copies of the complaint and order to answer, but the attempts were unsuccessful. Ultimately, the OLR served Attorney Knight pursuant to SCR 22.13(1) by sending an authenticated copy of the complaint and order to answer to Attorney Knight at the most recent address she had furnished to the State Bar of Wisconsin.
¶4 After Attorney Knight failed to file an answer to the complaint, an OLR representative was able to contact her by telephone, at which time Attorney Knight provided a new current mailing address. The OLR then filed and served a notice of motion and motion for default. At the time and place set forth in the notice of motion, the OLR appeared but Attorney Knight did not appear. The referee adjourned the default hearing for a short time and instructed the OLR counsel to attempt one more time to contact Attorney Knight. Although the OLR counsel left a voice-mail message instructing Attorney Knight to contact the OLR immediately, Attorney Knight did not respond. When the hearing reconvened, the referee granted the OLR's motion for default.
¶5 By virtue of Attorney Knight's default, the allegations contained in the OLR's complaint were deemed admitted. The referee subsequently filed a report that contained factual findings in accord with the allegations of the complaint. The referee also concluded that those factual findings proved that Attorney Knight had committed the seven counts of professional misconduct alleged by the OLR.
¶6 Because no appeal has been filed from the referee's report, we
proceed with our review of the matter pursuant to SCR 22.17(2).[2] In conducting our review, we uphold a
referee's findings of fact unless they are shown to be clearly erroneous. See In re Disciplinary Proceedings
Against Sosnay, 209
¶7 The factual findings in this case state that while Attorney Knight
was working in the office of former Wisconsin State Senator Gary George, she
met an individual by the name of Calvin Eleby, Jr. (Eleby). Eleby operated a governmental affairs
consulting business in
¶8 Attorney Knight knew that Eleby did not hold a license to practice
law in
¶9 For example, in March 2000 Eleby used Attorney Knight's name and attorney number to file a petition in the Polk County circuit court for the release of escheated funds to Eleby's client, M.E. The court granted the petition and ordered the state to release $30,695.33 to M.E. Eleby convinced the treasurer's office to issue the check in the name of his trust account. In addition to receiving the agreed-upon attorney fee, Eleby improperly misappropriated an additional $10,236.90 for his own purposes, falsely telling M.E.'s family that he was required to pay those funds to the other side of the decedent's family. Eleby was later charged criminally for this theft and admitted his wrongdoing. Although Attorney Knight had allowed Eleby to use her name and attorney number on the probate petition, which ultimately led to the conversion of funds, Attorney Knight had no contact with M.E. and received no part of the attorney fee arising out of Eleby's representation of M.E.
¶10 In October 2001 Eleby signed Attorney Knight's name to a petition
he filed in the
¶11 In February 2002 Eleby was hired by J.M. to recover escheated funds. Eleby filed a petition to that effect in the
¶12 Attorney Knight authorized Eleby to pick up the check and to send the appropriate funds to J.M. Eleby endorsed the check on behalf of Attorney Knight and paid her a few hundred dollars for her time and gas expenses. Eleby did not pay any of the funds to J.M., but instead misappropriated all of the remaining funds for his own benefit. When the OLR later questioned Attorney Knight about whether she had taken any actions to ensure that J.M. had received his funds, she indicated that she had asked Eleby about the matter only a couple of times shortly after he had endorsed the state treasurer's check. Attorney Knight stated that Eleby had told her on the second occasion that he had delivered a check to his client. Because Attorney Knight had no contact information for J.M., she could not directly inquire of J.M. whether he had received his funds. Attorney Knight simply assumed that Eleby had distributed them properly.
¶13 In July 2002 Eleby again signed Attorney Knight's name to a petition in the Racine County circuit court seeking to claim escheated funds from the estate of E.S. Eleby mailed these documents to the circuit court under cover of a letter that bore the heading "Phaidra S. Knight, Eleby Governmental Affairs." As noted above, Attorney Knight and Eleby never practiced together in the same law firm or even shared office space. In a subsequent letter, Eleby informed the court that he was working "on behalf of Attorney Phadria [sic] S. Knight." In August 2002 Eleby signed Attorney Knight's name to a motion requesting the court to allow Eleby to appear pro hac vice in the estate of E.S. matter. The court granted the motion and subsequently granted the petition, authorizing the release of $43,068.97 to the heirs of E.S. that Eleby was representing. Shortly thereafter, Attorney Knight sent an e-mail message to the treasurer's office stating that because she would be unavailable for the next three weeks, the treasurer's office should send the check to her in care of Eleby at Eleby Governmental Affairs. The treasurer's office complied, sending to Eleby the check for $43,068.97 made payable to "Phaidra Knight Trust FBO Heir c/o Calvin Eleby." Although Eleby properly distributed some of the funds, he illegally converted $10,165.56 for his own use.
¶14 In March 2003 J.A. and P.G. retained Eleby to recover certain
escheated funds from a
¶15 J.A. and a representative of P.G. subsequently contacted Eleby several times about receiving the funds that belonged to them. The representative of P.G. told Eleby that she would soon report to the state authorities Eleby's failure to distribute the funds. On August 30, 2003, Eleby sent a check for $3,250 to P.G. He deducted from this check his total fees, including those fees that were the responsibility of J.A. Eleby never sent any payment to J.A.
¶16 In addition to cases in which Attorney Knight allowed Eleby to use
her name and attorney number to practice law in
I have located your unclaimed share of the escheated
estate of [decedent] in the amount of $[xxx].
In accordance with the Chapter 863 of the
¶17 Attorney Knight sent these letters to individuals without being sure that she was in fact contacting the person with a legitimate claim to the escheated money and without asking for confirmation of the recipient's identity. In addition, she sent some of these form letters to more than one individual with the same name. Further, her letter did not contain any qualification as to whether the recipient was in fact entitled to claim the escheated funds. None of the form letters Attorney Knight sent were labeled as an advertisement, and Attorney Knight did not file a copy of those letters with the OLR.
¶18 Attorney Knight opened a client trust account in June 2000, but maintained it for less than two months. She did not deposit any funds into the account or withdraw any funds from the account while it was open. Instead of using a trust account, on some occasions when she received a check on behalf of a client in an escheated funds matter, she would cash the check from the state treasurer and obtain a cashier's check or money order for the amount she calculated was owed to the client under her retainer agreement. She would send the cashier's check or money order to the client and would retain the remaining amount of the original check as payment for her attorney fee and expenses.
¶19 One case in which Attorney Knight pursued escheated funds by herself was her representation of G.F. Attorney Knight filed a petition to recover escheated funds on behalf of G.F. in June 2000. Within a few weeks the petition was granted and the state treasurer issued a check in the amount of $5,708.19 to "Knight, Phaidra Trust FBO [G.F.]." In the course of its later investigation, the OLR repeatedly requested proof that Attorney Knight had disbursed the proper amount of funds to G.F. Although Attorney Knight promised to provide a receipt confirming G.F.'s receipt of the funds, she never produced any such receipt.
¶20 Similarly, in November 2000 Attorney Knight received a check on behalf of client E.C. for $10,945.07 due to a successful claim for recovery of escheated funds. The check was made payable to "Trust Acct Atty. Phaidre [sic] Knight FBO [E.C.]." As was the case with G.F., the OLR later requested proof that E.C. had received her proper share of these funds. Although Attorney Knight again claimed that she had a receipt confirming payment to E.C. and promised to send it to the OLR "right away," she never produced any such receipt.
¶21 The various situations involving Eleby's pattern of illegal conduct
began to come to light in the summer and fall of 2003. In July 2003 J.M. consulted an attorney, who
contacted Eleby about the funds due to J.M.
Eleby replied that he could not disburse the funds to J.M. at that time
because they were in Attorney Knight's account and she was out of the country
for several weeks. In September the
attorney contacted Attorney Knight directly and raised the possibility of
contacting the police and lawyer regulation authorities. Attorney Knight then spoke with Eleby, who
admitted that he had spent J.M.'s money.
Attorney Knight informed J.M.'s current attorney of Eleby's
confession. That attorney contacted the
¶22 The district attorney's office investigated the matter and ultimately obtained an admission from Eleby that he had converted funds in four cases. In two of the matters, which formed the basis of criminal charges against Eleby, the funds that Eleby stole came from checks that had been made payable to Attorney Knight's trust account. Also, Attorney Knight had personally appeared at hearings in two of the cases with Eleby. In another matter, Attorney Knight had personally sent an e-mail to the state treasurer's office to request that the check be sent to her at Eleby's address. Eleby ultimately pled guilty to two felony counts of theft in a business setting. Although Attorney Knight was interviewed as part of the criminal investigation, she was not charged with any criminal offenses.
¶23 On the basis of these factual findings, the referee concluded that
the OLR had properly proven each of the seven counts of professional misconduct
alleged in the OLR's complaint. First,
by agreeing to allow Eleby, who was not licensed to practice law in
¶24 Third, by failing to deposit checks she received from the state treasurer's office for the benefit of her own personal clients into one or more identifiable client trust accounts, Attorney Knight violated SCR 20:1.15(a).[7] Attorney Knight also violated former SCR 20:1.15(e)[8] by failing to prepare complete records of trust account funds or other trust property, including records documenting the disposition of client funds, and to preserve such records for at least six years after termination of the representation.
¶25 Counts five and six relate to the solicitation letters that Attorney Knight sent to potential clients in escheated funds matters. The referee concluded that by failing to conspicuously label such letters with the word "Advertisement," and by failing to file a copy of those letters with the OLR within five days of their dissemination, Attorney Knight had violated SCR 20:7.3(b).[9] In addition, Attorney Knight's solicitation letters stated without qualification that she had located the addressee's unclaimed share of escheated funds when in fact she did not know if she was contacting the correct person. In so doing, the referee concluded that Attorney Knight had made false and misleading statements to potential clients by omitting a fact necessary to make the statement considered as a whole not materially misleading and by creating a false expectation about the results she could achieve, in violation of SCR 20:7.1(a).[10]
¶26 Finally, because Attorney Knight had failed to provide the OLR with documents evidencing payments to certain of her clients after she had asserted that she had located such documents and had promised to provide them to the OLR immediately, the referee concluded that Attorney Knight had violated SCR 22.03(6).[11]
¶27 After independently reviewing the matter, we adopt the referee's findings of fact. We also agree that those facts demonstrate that Attorney Knight committed each of the seven counts of professional misconduct alleged against her.
¶28 With respect to the level of discipline, the referee recommended
that Attorney Knight's license to practice law in
¶29 Concerned that the recommended discipline may not be adequate for the seriousness of the professional misconduct, we directed both Attorney Knight and the OLR to show cause why the discipline should not be a six-month suspension. Attorney Knight failed to file a response to the order to show cause.
¶30 The OLR filed a response that continued to request a 90-day
suspension. The OLR acknowledged that
whether Attorney Knight's suspension should be for 90 days or for a period of
six months or more, which would require a formal petition and hearing for
reinstatement, was a close call. It
stated that it had considered Attorney Knight's conduct to fall between two
cases. Compare In re
Disciplinary Proceedings Against Fischer, 176
¶31 The OLR also stated that the default nature of the disciplinary proceeding may have kept some mitigating factors from being fully disclosed. First, it noted that, with the exception of providing certain documents as discussed below, Attorney Knight had cooperated with the vast majority of the OLR's investigation, including providing a personal interview with the OLR investigators, and had expressed "some remorse." Second, the OLR discovered through its investigation that after learning of Eleby's wrongdoing, Attorney Knight followed up on some cases, cooperated with law enforcement, and personally made payments to clients who had not received the monies that were due to them. The OLR also emphasized that it had uncovered no evidence that Attorney Knight had personally obtained any improper profits from Eleby's misconduct or her own. Indeed, the OLR indicated that because of Attorney Knight's limited experience as a lawyer, it felt that Attorney Knight had looked to Eleby as a mentor, "and therein became somewhat of a victim herself."
¶32 In addition to explaining the basis for its request for a 90-day suspension,
the OLR also reiterated a request that the reinstatement of Attorney Knight's
license to practice law in
¶33 While we acknowledge Attorney Knight's inexperience, her expression
of remorse, her attempts to rectify some of the harm to clients, and the lack
of evidence that she explicitly knew of Eleby's conversion of funds, we cannot
agree with a characterization of Attorney Knight as a "victim." She knowingly allowed an individual who was
not licensed in
¶34 We view Attorney Knight's repeated acts of professional misconduct
as serious breaches of her obligations as an attorney in this state. Based on the totality of the facts before us,
we conclude that Attorney Knight's license to practice law in
¶35 IT IS ORDERED that the license of Attorney Phaidra S. Knight to practice law in Wisconsin is suspended for a period of four months, effective as of the date of this order.
¶36 IT IS FURTHER ORDERED that reinstatement of Attorney Phaidra S. Knight's license to practice law in Wisconsin is conditioned on providing written documentation, in a form reasonably acceptable to the Office of Lawyer Regulation, that Attorney Knight has paid to clients E.C. and G.F. all funds to which they are entitled.
¶37 IT IS FURTHER ORDERED that within 60 days of the date of this
order, Attorney Phaidra S. Knight shall pay to the Office of Lawyer Regulation
the costs of this proceeding. If the
costs are not paid within the time specified and absent a showing to this court
of her inability to pay those costs within that time, the license of Attorney Knight
to practice law in
¶38 IT IS FURTHER ORDERED that if she has not already done so, Attorney
Phaidra S. Knight shall comply with the provisions of SCR 22.26 concerning the
duties of a person whose license to practice law in
[1] Attorney Kathleen Callan Brady was appointed to serve as the referee in this matter.
[2] SCR 22.17(2) provides: Review: appeal.
(2) If no appeal is filed timely, the supreme court shall review the referee's report; adopt, reject or modify the referee's findings and conclusions or remand the matter to the referee for additional findings; and determine and impose appropriate discipline. The court, on its own motion, may order the parties to file briefs in the matter.
[3] This is an abbreviation of the term "for the benefit of."
[4] Effective
July 1, 2007, substantial changes were made to the Wisconsin Supreme Court
Rules of Professional Conduct for Attorneys, SCR Chapter 20. See S.Ct. Order No. 04-07, 2007 WI 4,
293
Former SCR 20:5.5(b) states that a lawyer shall not "assist a person who is not a member of the bar in the performance of activity that constitutes the unauthorized practice of law."
[5] Former SCR 20:3.3(a)(1) provides that a lawyer shall not knowingly "make a false statement of fact or law to a tribunal."
[6] Former SCR 20:8.4(a) states that it is professional misconduct for a lawyer to "violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another."
[7] Former SCR 20:1.15(a) (effective
through June 30, 2004) provided:
A
lawyer shall hold in trust, separate from the lawyer's own property, that
property of clients and third persons that is in the lawyer's possession in
connection with a representation or when acting in a fiduciary capacity. Funds held in connection with a
representation or in a fiduciary capacity include funds held as trustee, agent,
guardian, personal representative of an estate, or otherwise. All funds of clients and third persons paid
to a lawyer or law firm shall be deposited in one or more identifiable trust
accounts as provided in paragraph (c).
The trust account shall be maintained in a bank, savings bank, trust
company, credit union, savings and loan association or other investment
institution authorized to do business and located in
[8] The OLR's complaint and the referee's report mistakenly list the appropriate rule in this violation as "SCR 20:1.15(3)," which does not exist. It is clear from the description of the violation in the complaint and report, however, that the OLR and the referee intended to refer to former SCR 20:1.15(e), in effect prior to July 1, 2004. That provision stated as follows:
(e) Complete records of trust account funds and other trust property shall be kept by the lawyer and shall be preserved for a period of at least six years after termination of the representation. Complete records shall include: (i) a cash receipts journal, listing the sources and date of each receipt, (ii) a disbursements journal, listing the date and payee of each disbursement, with all disbursements being paid by check, (iii) a subsidiary ledger containing a separate page for each person or company for whom funds have been received in trust, showing the date and amount of each receipt, the date and amount of each disbursement, and any unexpended balance, (iv) a monthly schedule of the subsidiary ledger, indicating the balance of each client's account at the end of each month, (v) a determination of the cash balance (checkbook balance) at the end of each month, taken from the cash receipts and cash disbursements journals and a reconciliation of the cash balance (checkbook balance) with the balance indicated in the bank statement, and (vi) monthly statements, including canceled checks, vouchers or share drafts, and duplicate deposit slips. A record of all property other than cash which is held in trust for clients or third persons, as required by paragraph (a) hereof, shall also be maintained. All trust account records shall be deemed to have public aspects as related to the lawyer's fitness to practice.
[9] Former SCR 20:7.3(b) states: "A written communication under par. (a) shall be conspicuously labeled with the word 'Advertisement' and a copy of it shall be filed with the office of lawyer regulation within 5 days of its dissemination."
[10] Former SCR 20:7.1(a) states, in part, that "[a] lawyer shall not make a false or misleading communication about the lawyer or the lawyer's services."
[11] SCR 22.03(6) states, "In the course of the investigation, the [attorney's] wilful failure to provide relevant information, to answer questions fully, or to furnish documents and the [attorney's] misrepresentation in a disclosure are misconduct, regardless of the merits of the matters asserted in the grievance."