Disciplinary Counsel v. Schwartz , 135 Ohio St. 3d 127 ( 2012 )

[Cite as Disciplinary Counsel v. Schwartz, 135 Ohio St.3d 127, 2012-Ohio-5850.]
DISCIPLINARY COUNSEL v. SCHWARTZ.
[Cite as Disciplinary Counsel v. Schwartz, 135 Ohio St.3d 127,
2012-Ohio-5850.]
Attorney misconduct, including engaging in illegal conduct involving moral
turpitude and engaging in conduct involving dishonesty, fraud, deceit, or
misrepresentation—Permanent disbarment.
(No. 2012-0644—Submitted August 21, 2012—Decided December 12, 2012.)
ON CERTIFIED REPORT by the Board of Commissioners on Grievances and
Discipline of the Supreme Court, No. 11-008.
__________________
Per Curiam.
{¶ 1} Robert Leon Schwartz, Attorney Registration No. 0000818, was
admitted to the practice of law in Ohio in October 1964. For most of his legal
career, Schwartz practiced as a sole practitioner specializing in representation of
plaintiffs in personal-injury cases. In a previous disciplinary case, Schwartz was
issued a public reprimand because of a conflict-of-interest situation in which
Schwartz represented both a personal-injury plaintiff and her health insurer. See
Cincinnati Bar Assn. v. Schwartz, 74 Ohio St.3d 489, 660 N.E.2d 422 (1996).
{¶ 2} On June 8, 2010, the United States District Court for the Southern
District of Ohio, Western Division, entered a judgment finding Schwartz guilty of
two felony counts. As a result, we issued an interim suspension of Schwartz’s
license to practice law on August 5, 2010. See In re Schwartz, 126 Ohio St.3d
1526, 2010-Ohio-3605, 931 N.E.2d 127.
{¶ 3} On February 14, 2011, relator, disciplinary counsel, filed a two-
count complaint against Schwartz that parallels the two counts of Schwartz’s
felony conviction. Count One concerns Schwartz’s conviction for mail fraud in
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connection with his scheme to defraud Hadassah Hospital, a beneficiary of the
estate of Beverly W. Hersh, of approximately $2,492,469 between May 5, 2005,
and May 6, 2009. Count Two concerns the filing of a false tax return for tax year
2007, in which Schwartz failed to report three types of income: income he paid
himself from the Hersh trust, income he diverted from the trust to care for his
mother, and income from other legal fees.
{¶ 4} The complaint went to hearing before the panel on December 5,
2011. Schwartz, who was incarcerated, testified by telephone, and an attorney
appeared at the hearing on his behalf. Relator presented a case based on
documentation of Schwartz’s guilty plea in which he stipulated to the factual
bases for his conviction.
{¶ 5} With respect to Count One, the complaint charged, and the panel
and the board found, that Schwartz’s conduct prior to February 1, 2007, the
effective date of the Rules of Professional Conduct, constituted violations of the
Code of Professional Responsibility, specifically DR 1-102(A)(3) (prohibiting a
lawyer from engaging in illegal conduct involving moral turpitude), 1-102(A)(4)
(prohibiting a lawyer from engaging in conduct involving dishonesty, fraud,
deceit, or misrepresentation), and 1-102(A)(6) (prohibiting a lawyer from
engaging in conduct that adversely reflects on the lawyer’s fitness to practice
law). With respect to Schwartz’s conduct on or after February 1, 2007, the
complaint charged, and the panel and the board found, violations of the Rules of
Professional Conduct as follows: Prof.Cond.R. 8.4(b) (prohibiting a lawyer from
committing an illegal act that reflects adversely on the lawyer’s honesty or
trustworthiness), 8.4(c) (prohibiting a lawyer from engaging in conduct involving
dishonesty, fraud, deceit, or misrepresentation), and 8.4(h) (prohibiting a lawyer
from engaging in conduct reflecting adversely on the lawyer’s fitness to practice
law).
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{¶ 6} With respect to Count Two, the false tax return for tax year 2007,
the complaint charged, and the panel and the board found, violations of
Prof.Cond.R. 8.4(b), 8.4(c), and 8.4(h). After weighing the aggravating and
mitigating factors, the panel overruled relator’s recommendation of disbarment
and recommended indefinite suspension with reinstatement conditioned on
Schwartz’s completing his supervised release and making full restitution. The
board adopted the panel’s findings of fact and conclusions of law, but
recommends permanent disbarment.
{¶ 7} We adopt the board’s recommendation, and we order that Schwartz
be permanently disbarred from the practice of law.
Misconduct
{¶ 8} The facts underlying Schwartz’s conviction for mail fraud and tax
fraud were stipulated to by Schwartz himself as part of the federal court’s
adoption of the plea agreement.
Background
{¶ 9} On or about May 9, 2003, Schwartz was given power of attorney
for the financial affairs of a wealthy elderly friend and client named Beverly W.
Hersh. Schwartz assisted Hersh in preparing several codicils to her will and
arranged for the preparation of three trust agreements and subsequent
amendments thereto by a local Cincinnati law firm.
{¶ 10} Hersh’s estate plan provided that as of December 13, 2003, her
adjusted estate was to be placed in the Beverly W. Hersh Trust, dated September
23, 2003. Thereafter, the estate plan provided for distribution of the adjusted
estate as follows: (1) 20 percent to Hadassah Hospital, (2) 30 percent to the
Beverly W. Hersh Charitable Trust, dated December 13, 2003, and (3) 50 percent
to the Hersh Revocable Trust, dated December 13, 2003. Schwartz was named
executor and trustee for the related trusts.
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{¶ 11} As for the funds of the Beverly W. Hersh Charitable Trust, they
were to be distributed to organizations with Internal Revenue Code 501(c)(3) tax-
exempt status, like Hadassah Hospital, which was a 501(c)(3) organization. The
funds of the Hersh Revocable Trust were to be distributed at the sole discretion of
Schwartz, as trustee, to organizations or to individuals in a manner that would
assist them with overcoming financial and substance-abuse issues and help them
live more fulfilling lives and to provide benefits to those who assisted and
befriended Mrs. Hersh during her life.
{¶ 12} On May 5, 2005, Beverly Hersh died. The estate tax return, which
Schwartz in his capacity as executor and trustee filed on behalf of the Hersh estate
on or about August 2, 2006, indicated that Hadassah Hospital was to receive
approximately $2,502,469, while the Hersh Charitable Trust was to receive
approximately $3,756,703. The remaining residual estate balance of
approximately $6,261,172 was to be disbursed at Schwartz’s direction through the
Hersh Revocable Trust—which was also known as the Hersh Private Trust or the
Hersh Discretionary Trust.
Count One: Fraud and the Hadassah Hospital Bequest
{¶ 13} The essence of Count One, mail fraud, is that Schwartz used the
United States Postal Service in conjunction with defrauding Hadassah Hospital of
the funds it was to have received pursuant to the Hersh estate plan. As part of
Schwartz’s plea, he explicitly agreed that “mandatory restitution in the amount of
at least $2,492,469 will be ordered paid to Hadassah Hospital for the guilty plea to
Count One,” and in conjunction with that agreement, Schwartz expressly
stipulated that “the readily provable fraud loss caused by the defendant was
$2,492,469.”
{¶ 14} By August 2008, Schwartz had disbursed more than $9 million
from the Hersh Discretionary Trust, which was significantly more than 50 percent
of the estate that was allocated under the estate plan. Meanwhile, Schwartz had
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made distributions to recognized charities of less than $50,000 from the Hersh
Charitable Trust. To Hadassah Hospital, Schwartz had made contributions
totaling $210,000. Despite the representations Schwartz made as trustee on the
estate tax return and the benefit the estate enjoyed by virtue of the reporting of
charitable deductions, Schwartz distributed only nominal amounts to Hadassah
Hospital and other charities.
Count Two: Filing False Tax Return
{¶ 15} As for Count Two, Schwartz signed and submitted his tax year
2007 federal individual income tax return on April 14, 2008, knowing it to be
false in that the return omitted a substantial portion of his gross receipts. More
specifically, the falsehood consisted of Schwartz’s failure to report as gross
receipts approximately $806,739, which was composed of (1) money he had paid
to himself from the Hersh trust funds, (2) money he had diverted for the care of
his mother from trust funds, and (3) money he had received from other clients.
Schwartz also agreed that he had filed materially false returns for tax years 2002
through 2006, underreporting gross receipts for those years by approximately
$2,533,515.
Federal Sentence
{¶ 16} The federal district court sentenced Schwartz to a four-year prison
term plus a three-year term of supervised release. Also part of the sentence was
the order that Schwartz pay $3,227,686.12 (consisting of $2,292,469 in restitution
to Hadassah Hospital plus $935,217.12 in restitution to the Internal Revenue
Service).
Aggravation and Mitigation
{¶ 17} The panel and the board found two aggravating factors:
Schwartz’s prior discipline, see BCGD Proc.Reg. 10(B)(1)(a); and the existence
of a dishonest or selfish motive, see BCGD Proc.Reg. 10(B)(1)(b). In mitigation,
the panel and the board found that Schwartz (1) had made full and free disclosure
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and displayed a cooperative attitude throughout the disciplinary proceedings, see
BCGD Proc.Reg. 10(B)(2)(d), (2) presented character evidence, see BCGD
Proc.Reg. 10(B)(2)(e), and (3) had paid $972,185.03 in restitution up to the time
of the hearing, see BCGD Proc.Reg. 10(B)(2)(c).
Recommended Sanction
{¶ 18} Relator recommended disbarment, relying on four cases.
Disciplinary Counsel v. Bertram, 85 Ohio St.3d 113, 707 N.E.2d 464 (1999);
Disciplinary Counsel v. Sabroff, 123 Ohio St.3d 182, 2009-Ohio-4205, 915
N.E.2d 307; Toledo Bar Assn. v. Ritson, 127 Ohio St.3d 89, 2010-Ohio-4504, 936
N.E.2d 931; Disciplinary Counsel v. Hunter, 106 Ohio St.3d 418, 2005-Ohio-
5411, 835 N.E.2d 707. The panel disagreed, recommending indefinite suspension
on the authority of Disciplinary Counsel v. Smith, 128 Ohio St.3d 390, 2011-
Ohio-957, 944 N.E.2d 1166. The board disagrees with the panel’s recommended
sanction and instead recommends permanent disbarment. Schwartz has filed
objections to the board’s recommendation.
Objections and Disposition
{¶ 19} Schwartz’s objections focus on the sanction: Schwartz urges the
court to adopt the panel’s recommended sanction of indefinite suspension rather
than the board’s recommendation of disbarment. The principal points advanced
by the objections are that (1) another law firm that was engaged to draft estate and
trust documents performed its work in a manner that contributed to Schwartz’s
wrongful acts, (2) the amount of “adjusted estate” and therefore the amount of the
bequest owed to Hadassah Hospital was not known until after Schwartz was
sentenced, and (3) several matters relating to these issues are in litigation.
{¶ 20} We find Schwartz’s objections to be unpersuasive. First of all, we
have stricken the opinion letter on which Schwartz predicates his theory that in
drafting the estate and trust documents, the outside law firm committed errors that
contributed to the wrongs perpetrated by Schwartz. See 132 Ohio St.3d 1468,
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2012-Ohio-3168, 970 N.E.2d 969. Second, Schwartz’s theory that the amount
owed to Hadassah Hospital was unknown conflicts with the facts to which
Schwartz himself stipulated when entering his guilty plea; he expressly
acknowledged in that context that “the readily provable fraud loss caused by the
defendant was $2,492,469.” We decline to accept Schwartz’s post hoc assertions
of factual ambiguity when he clearly and explicitly agreed to the facts in the
criminal proceedings. Finally, we find that the pendency of litigation concerning
aspects of Schwartz’s dealings is irrelevant to our determination of the facts and
the imposition of the proper sanction, given all the circumstances that confront us
in this matter.
{¶ 21} We also find that the panel’s reliance on Disciplinary Counsel v.
Smith, 128 Ohio St.3d 390, 2011-Ohio-957, 944 N.E.2d 1166, was misplaced.
Smith involved an attorney’s conviction for a scheme to conceal income from the
Internal Revenue Service, an aspect not entirely dissimilar from Count Two
against Schwartz. But the present case also presents Schwartz’s fraud in
distributing money intended for Hadassah Hospital. In spite of the decedent’s
plain intent to bestow substantial funds on that charity, in callous dereliction of
the trust and confidence that the decedent had placed in Schwartz to effectuate her
wishes, and in contravention of the recipient’s rights as a beneficiary of the estate
and the trust, Schwartz diverted funds to other purposes. This grievous offense
does not correlate with any wrongdoing alleged in Smith. Accordingly, we find
that the Smith case is not apposite.
Conclusion
{¶ 22} For all the foregoing reasons, we adopt the findings and
conclusions of the board, and we adopt the recommended sanction that Schwartz
be disbarred. We therefore order that Schwartz be permanently disbarred from
the practice of law. Costs are taxed to respondent.
Judgment accordingly.
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O’CONNOR, C.J., and PFEIFER, LUNDBERG STRATTON, O’DONNELL,
LANZINGER, and CUPP, JJ., concur.
KENNEDY, J., not participating.
__________________
Jonathan E. Coughlan, Disciplinary Counsel, and Philip A. King, Assistant
Disciplinary Counsel, for relator.
Robert L. Schwartz, pro se.
______________________
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