Iowa Supreme Court Attorney Disciplinary Board v. Brian Michael Green ( 2016 )

IN THE SUPREME COURT OF IOWA
No. 16–1551
Filed December 16, 2016
IOWA SUPREME COURT ATTORNEY DISCIPLINARY BOARD,
Complainant,
vs.
BRIAN MICHAEL GREEN,
Respondent.
On review of the report of the Grievance Commission of the
Supreme Court of Iowa.
Grievance commission reports respondent committed ethical
misconduct and recommends the revocation of the attorney’s license.
LICENSE REVOKED.
Tara M. van Brederode and Amanda K. Robinson, Des Moines, for
complainant.
Brian Michael Green, Des Moines, pro se.
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ZAGER, Justice.
The Iowa Supreme Court Attorney Disciplinary Board (Board) filed
a complaint charging an attorney with violations of two of our ethical
rules. The attorney did not answer the complaint, and the facts of the
complaint were deemed admitted pursuant to rule 36.7. See Iowa Ct. R.
36.7. After a hearing, which the attorney failed to attend, the Grievance
Commission of the Supreme Court of Iowa (commission) found the
attorney violated our ethical rules and recommended we revoke the
attorney’s license. Upon our de novo review, we conclude the Board
proved by a convincing preponderance of the evidence a violation of rule
32:8.4(c) and resulting misappropriation. Accordingly, we revoke the
attorney’s license to practice law.
I. Background Facts and Proceedings.
Attorney Brian Green was licensed to practice law in Iowa at the
time of the actions in this case. Because Green failed to file an answer to
the Board’s complaint, the facts as alleged in the complaint are admitted.
See Iowa Ct. R. 36.7; see also Iowa Supreme Ct. Att’y Disciplinary Bd. v.
Kallsen, 814 N.W.2d 233, 236 (Iowa 2012). The facts alleged in the
complaint are as follows.
Green rented office space from Troy Strawhecker (Strawhecker)
and James Myers (Myers) in the name of his company, Third Inning
Solutions (3IS, L.L.C.). Strawhecker and Myers are commercial real
estate developers in central Iowa and Nebraska. After a few months,
Strawhecker and Myers approached Green for help raising equity for a
business project. While the majority of the services Green provided to
Strawhecker and Myers involved raising equity, he did provide legal
services to them on an occasional basis. Generally, Strawhecker and
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Myers utilized the services of other attorneys for their regular, ongoing
business needs.
Green provided legal consultation and also drafted incorporation
documents for at least one business for Strawhecker and Myers. In early
2012, Strawhecker and Myers approached Green about a potential
business venture with a prosthetics company, GMS of Rochester, Inc.
(GMS). They agreed to create a management company, Summit Quest
Holdings, L.L.C. (Holdings), with Green acting as the Chief Executive
Officer (CEO). The business arrangement was to be between
Strawhecker and his limited liability company, Strawhecker
Development1, L.L.C. (collectively Strawhecker); Myers and his limited
liability company, Archangel Development, L.L.C. (collectively Myers);
and Green and a limited liability company under his control, 3IS, L.L.C.
(collectively Green).
In February 2012, Green represented to Strawhecker and Myers
that he had created Holdings. Each of them was to hold equal ownership
interest in Holdings and share equally in the business income and profits
of Holdings. The intent was that Holdings would enter into an agreement
with GMS to provide management services for a period of time, with the
ultimate goal of finding a buyer for this business.
While Green represented to Strawhecker and Myers that he had
created Holdings to accomplish this goal, Green never incorporated
Holdings. Instead, Green created Summit Quest Capital, L.L.C. (Capital),
a Delaware limited liability company with its principal place of business
in Polk County, Iowa. Green and his wife were the sole members.
Unbeknownst to Strawhecker and Myers, Green entered into an exclusive
management agreement with GMS on June 1, 2012, utilizing his
personal company, Capital, rather than the agreed upon Holdings.
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Also in June 2012, Green asked Strawhecker to personally
guarantee a residential lease in Rochester, Minnesota. Green told
Strawhecker he needed the accommodations in order to perform services
under Holdings’ agreement with GMS. Green apparently could not
secure the lease without a guarantor based on his poor credit. Green
never made any of the monthly lease payments. Strawhecker had to
terminate the lease and was personally responsible for approximately
$2700 in rent due to Green defaulting on the lease.
Between June 1, 2012, and February 11, 2013, Green represented
to Strawhecker and Myers that he was performing CEO duties on behalf
of Holdings. At various times throughout this time period, both
Strawhecker and Myers requested documentation about Holdings, GMS,
and the agreement between the parties. Green failed to produce any
information or documentation. Pursuant to the agreement with GMS,
Green received monthly payments of $27,500 as the agent for Capital.
The agreement between Strawhecker, Myers and Green was that
Holdings would receive this $27,500 per month and Green would be
compensated $12,000 per month as CEO. The remaining amounts
would be equally divided between Strawhecker and Myers. Despite their
agreement, Green disbursed little or nothing to Strawhecker and Myers,
even after they requested disbursements. Ostensibly from Holdings,
both received from Green reimbursement for several business
expenditures—$5000 and $7500, respectively. Later, Strawhecker and
Myers requested a distribution of income from Green. When Green was
unwilling or unable to disburse any money, they requested accountings
from Green to determine where the funds were going. No accountings
were ever provided. Strawhecker and Myers also requested information
regarding the services provided to GMS and status reports of Green’s
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activities under the contract. Green did not provide the information or
status reports.
On or about February 11, 2013, GMS informed Strawhecker and
Myers it was terminating the management agreement. GMS alleged that
Green violated multiple terms of the agreement, including but not limited
to making false representations to GMS, violating policies under the
agreement, and “massive” wage and benefit misappropriations. After
they received this information from GMS, Strawhecker and Myers
learned for the first time that Green never created Holdings. Instead, all
the funds paid by GMS were received by Green on behalf of Capital and
misappropriated by Green. None of the proceeds remained in Capital.
Strawhecker and Myers learned that the monthly checks of $27,500 were
written directly to Green, rather than to the company that they thought
Green had incorporated. Despite repeated requests for more
information, Green never communicated with Strawhecker or Myers and
refused to provide any information regarding the creation of the business
entities or the agreement. Strawhecker and Myers filed their complaint
with the Board on February 11, 2014.
Green wrote the Board a letter in which he generally denied
Strawhecker and Myers’s allegations but concluded as follows
However, I no longer live in Iowa. I haven’t practiced
law in over four years and my license has been on inactive
status for about three years. I have no desire to practice law
now or in the future. As such, to save the State of Iowa, the
Disciplinary Board and all of the parties’ time and resources
(of which I don’t have any), I am willing to voluntarily give up
my law license in perpetuity to resolve this matter.
The Board filed its complaint on March 23, 2016, alleging that
Green violated rules 32:8.4(c) (dishonesty, fraud, deceit, or
misrepresentation) and 32:1.8(a) (business transactions with clients).
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Green was served with the complaint on April 1. Green failed to timely
file an answer within twenty days from completed service and was
commanded by the commission to file an answer by May 3. See Iowa Ct.
R. 36.7. Green again failed to file an answer. On May 4, the Board
moved for a ruling pursuant to Iowa Court Rule 36.7 determining that
the allegations contained in the complaint were considered admitted due
to Green’s failure to file an answer. See id. On May 16, the commission
granted the order and considered the allegations in the complaint
admitted.
On June 9, the Board served eight interrogatories and a request to
produce documents on Green. The answers to the discovery requests
were due by July 11, but Green did not timely answer the
interrogatories. The Board filed a motion to compel on July 26. On
August 9, the commission ordered Green to serve his responses and
produce documents by August 11. No response was ever received.
The commission held a hearing on August 15. Green was not
present at the hearing, nor was he represented by counsel. He did not
request a continuance or an alternate way to participate in the hearing.
The hearing was briefly postponed to allow Green extra time in case he
was late, but Green never appeared.
After the hearing, the commission filed its proposed findings of
fact, conclusions of law, and recommendation of sanction on August 29,
and filed an amended version on September 16. The commission found
that Green violated rules 32:8.4(c) (dishonesty, fraud, deceit, or
misrepresentation) and 32:1.8(a) (business transactions with clients).
The Board raised the doctrine of issue preclusion because Green was
7
found civilly liable for the same conduct. 1 However, because the final
order in the case was entered as a result of a default and not as a final
judgment on the merits, the commission did not apply issue preclusion
to the district court judgment. Based on the commission’s finding of
ethical violations and the misappropriation of funds, the commission
recommended that Green’s license to practice law be revoked.
II. Standard of Review.
We review attorney disciplinary cases de novo. Iowa Supreme Ct.
Att’y Disciplinary Bd. v. Weiland, 885 N.W.2d 198, 205 (Iowa 2016). “The
Board must prove attorney misconduct by a convincing preponderance of
the evidence, a burden greater than a preponderance of the evidence but
less than proof beyond a reasonable doubt.” Iowa Supreme Ct. Att’y
Disciplinary Bd. v. Att’y Doe No. 792, 878 N.W.2d 189, 193 (Iowa 2016)
(quoting Iowa Supreme Ct. Att’y Disciplinary Bd. v. Cross, 861 N.W.2d
211, 217 (Iowa 2015)). While we give the findings and recommendations
of the commission respectful consideration, we are not bound by them.
Weiland, 885 N.W.2d at 205. We may impose a sanction that is greater
or lesser than recommended by the commission. Id. Because Green
failed to file an answer to the Board’s complaint, the facts as alleged in
the complaint are admitted. See Iowa Ct. R. 36.7; see also Iowa
Supreme Ct. Att’y Disciplinary Bd. v. Strand, 841 N.W.2d 600, 603 (Iowa
2014).
III. Analysis.
As a preliminary matter, issue preclusion does not apply in this
case. Generally, the difference in the burden of proof required in an
1Strawheckerv. Green, Case No. EQCE073916 (Polk Cty. Dist. Ct. Aug. 6, 2013).
Strawhecker and Myers received a judgment totaling $687,727.33 but had not collected
any of the judgment as of the date of the hearing before the commission.
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ordinary civil case and that required in an attorney disciplinary action
results in civil actions not having preclusive effect in disciplinary cases.
Iowa Supreme Ct. Att’y Disciplinary Bd. v. Cepican, 861 N.W.2d 841, 845
(Iowa 2015). Further, we require an issue to be actually litigated before
we apply issue preclusion. Id. “In the case of a judgment entered by
confession, consent, or default, none of the issues is actually litigated.”
Winnebago Indus., Inc. v. Haverly, 727 N.W.2d 567, 572 (Iowa 2006)
(quoting Restatement (Second) of Judgments § 27 cmt. e, at 257 (Am.
Law Inst. 1982)). Because the district court issued a default judgment in
Green’s civil case, the underlying issue was never actually litigated and
issue preclusion does not apply.
A. Rule 32:8.4(c) Violation (Dishonesty, Fraud, Deceit, or
Misrepresentation). Under rule 32:8.4(c), it is a violation of our ethical
rules for a lawyer to “engage in conduct involving dishonesty, fraud,
deceit, or misrepresentation.” Iowa R. Prof’l Conduct 32:8.4(c). An
attorney–client relationship does not need to exist between the attorney
and the person on the receiving end of the attorney’s dishonesty, fraud,
deceit, or misrepresentation in order for us to find a violation of rule
32:8.4(c). Iowa Supreme Ct. Att’y Disciplinary Bd. v. Haskovec, 869
N.W.2d 554, 560 (Iowa 2015).
To find a violation of rule 32:8.4(c), we must find that the attorney
acted with “some level of scienter” rather than mere negligence. Id. This
requires that the attorney acted knowingly, intentionally, or with the aim
to mislead. See, e.g., Iowa Supreme Ct. Att’y Disciplinary Bd. v. Ricklefs,
844 N.W.2d 689, 698–99 (Iowa 2014). An attorney’s “casual, reckless
disregard for the truth” also establishes a violation of the rule. Iowa
Supreme Ct. Att’y Disciplinary Bd. v. Clarity, 838 N.W.2d 648, 656 (Iowa
9
2013) (quoting Iowa Supreme Ct. Att’y Disciplinary Bd. v. Isaacson, 750
N.W.2d 104, 109 (Iowa 2008)).
An attorney violates this rule when he or she commits theft by
appropriation of funds. See, e.g., Iowa Supreme Ct. Att’y Disciplinary Bd.
v. Thomas, 844 N.W.2d 111, 116 (Iowa 2014). An attorney commits theft
by appropriation when he or she
[m]isappropriates property which the person has in trust, or
property of another which the person has in the person’s
possession or control, whether such possession or control is
lawful or unlawful, by using or disposing of it in a manner
which is inconsistent with or a denial of the trust or of the
owner’s rights in such property, or conceals found property,
or appropriates such property to the person’s own use, when
the owner of such property is known to the person.
Id. (quoting Iowa Code § 714.1 (2011)). However, we do not require a
criminal conviction in order to find a violation of our ethical rules. Id.;
see also Comm. on Prof’l Ethics & Conduct v. Hall, 463 N.W.2d 30, 35
(Iowa 1990) (“It is also immaterial that respondent was not charged or
convicted of a crime. A criminal conviction is not a condition precedent
to a discipline proceeding when the facts themselves warrant
discipline.”).
Even when an attorney is not criminally charged for theft, the lack
of prosecution does not alter the fact that theft is a violation. Iowa
Supreme Ct. Att’y Disciplinary Bd. v. Khowassah, 837 N.W.2d 649, 654
(Iowa 2013). This is, in part, because we require that allegations of theft
in the context of attorney discipline only be proved by a convincing
preponderance of the evidence. Id. “[A] criminal law defense is not a
defense in a disciplinary proceeding since the purpose of a disciplinary
hearing is not primarily intended to punish the lawyer but rather to
protect the public.” Id. at 655 (quoting Comm. on Prof’l Ethics & Conduct
v. Williams, 473 N.W.2d 203, 206 (Iowa 1991)).
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The range of our sanctions for a violation of rule 8.4(c) spans from
a public reprimand all the way to license revocation. See Cepican, 861
N.W.2d at 844. We ask whether the attorney had a colorable future
claim to the funds or if the attorney engaged in theft of client funds. Id.
(laying out the test for determining whether suspension or revocation is
the appropriate sanction for a rule 32:8.4(c) violation). While the Board
carries the burden of demonstrating misappropriation of funds has
occurred, the attorney has the burden of producing evidence that he or
she had a colorable future claim to those funds. Id.
Because Green failed to file an answer to the Board’s complaint,
the facts as set forth by the Board in the complaint were admitted.
Strand, 841 N.W.2d at 603. Pertinently, the complaint states that Green
“had a history of providing legal assistance/advice” to Strawhecker and
Myers and that “Green entered into a business transaction with his
clients without fully disclosing to the clients the true terms of the
arrangement in writing.” Additionally, the complaint alleges that Green
misrepresented that the legal entity created by him that would be
entering into the relationship with GMS (i.e., Holdings) was one in which
Green, Strawhecker, and Myers would have an equal interest. Instead,
the entity created by Green that contracted with GMS (i.e., Capital) was
solely owned by Green.
Thus, Green made representations to Strawhecker and Myers that
were intended to mislead them into thinking an entirely different
business entity was created. Green misled Strawhecker and Myers into
believing they were creating a business entity with Green and they would
share equally in the business income and profits. In reality, Green
created a separate business entity that only named him and his wife as
members with rights to share in the business income and profits. For
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months, Green represented to Strawhecker and Myers that he was
performing CEO duties on behalf of Holdings. Although they repeatedly
requested documents and accountings, Green refused to produce
documents.
Further, Green misappropriated all of the revenue under the
fraudulent entity (Capital) for himself, disbursing little or nothing to
Strawhecker and Myers. The revenue made from the management
agreement with GMS was not received by Holdings, but was all
misappropriated to the entity controlled by Green, Capital. After Green
dishonestly and fraudulently received the monthly payments under the
agreement, Green misappropriated all of the funds for his own use. None
of the money remained in Capital by the time Strawhecker and Myers
learned of the misappropriation. We agree with the commission. We
hold that the Board proved a violation of rule 32:8.4(c) by a convincing
preponderance of the evidence and that there was a misappropriation of
funds.
B. Sanction. In nearly every case, we revoke the license of an
attorney who converts client funds without a colorable future claim. See
Strand, 841 N.W.2d at 604; Iowa Supreme Ct. Att’y Disciplinary Bd. v.
Stowe, 830 N.W.2d 737, 742 (Iowa 2013) (quoting numerous cases
wherein we held revocation was the appropriate sanction when attorneys
converted client funds); Iowa Supreme Ct. Att’y Disciplinary Bd. v. Nelson,
807 N.W.2d 259, 266 (Iowa 2011) (“It is almost axiomatic that we will
revoke the license of an attorney who converts a client’s funds to his or
her own use.”). We have consistently found revocation the appropriate
sanction in embezzlement cases, even when the embezzled funds were
returned. See, e.g., Iowa Supreme Ct. Bd. of Prof’l Ethics & Conduct v.
Anderson, 687 N.W.2d 587, 590 (Iowa 2004). This is because
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[w]e do not tolerate theft by Iowa lawyers. A license to
practice law is not a license to steal. Revocation is the
appropriate sanction when attorneys convert funds, because
it “is the only way to impress on [the attorney] and others the
seriousness of these offenses.”
Stowe, 830 N.W.2d at 742 (citation omitted) (quoting Comm. on Prof’l
Ethics & Conduct v. Tullar, 466 N.W.2d 912, 913 (Iowa 1991)).
This case involves the misappropriation and theft of funds in
connection with an attorney–client relationship, and like our other such
cases, it requires the same sanction. See, e.g., Strand, 841 N.W.2d at
604. We revoke the license of Brian Green to practice law in this state.
Because we find that Green violated rule 32:8.4(c) and determine that
revocation is the appropriate sanction, it is not necessary to address the
rule 32:1.8(a) violation. Id.
IV. Conclusion.
The license of Brian Green to practice law in the state of Iowa is
hereby revoked.
LICENSE REVOKED.