State v. Treis , 245 Wis. 479 ( 1944 )

Upon the filing of the referee's report, consisting of his findings and recommendations, defendant moved for an order confirming the referee's report and for judgment dismissing the complaint. The plaintiff filed exceptions to certain of the referee's findings and recommendations, and moved that the defendant be disbarred or that such discipline be imposed as the court might deem just and proper. Briefs were filed and the case was orally argued to the court.

The complaint contained three counts. The alleged misconduct of defendant charged in Count 1 arose out of an action brought by the Employers Mutual Liability Company of Wausau, hereinafter referred to as "the insurance company," against the P D General Contractors, Inc., of Milwaukee, hereinafter referred to as "the contractor." The insurance company was the compensation insurer of the contractor during the year 1938 and for some time prior thereto. In 1939 the insurance company became satisfied that the contractor was not correctly reporting its pay roll as required by its insurance policies. An action was begun May 1, 1939, by the insurance company against the contractor in the circuit court for Marathon county. A summons was issued and upon an affidavit of Mr. Hansen, child auditor of the insurance company, an order to show cause was issued requiring the contractor to submit its books to the insurance company for audit or show cause for failing so to do. Vincent Pacholski and Lawrence Doligalski were the principal stockholders of the contractor, Pacholski being its president, and Doligalski its secretary and treasurer. Myra Czajkowski was employed as bookkeeper during the period under investigation.

On the trial of the present action it was disclosed that the contractor kept two sets of books: One set for the purpose of accounting to the insurance company (the false set); the other, its regular books of account, in which the correct figures of its operations were entered. The defendant Treis was retained by the contractor to represent it in the action brought by the insurance company. This was Treis' first employment by the contractor. John S. Barry, an attorney at law, was associated with Mr. Treis and generally conducted most of the important trial work in which Mr. Treis was retained. The Hansen affidavit, on which the order was entered by the circuit court for Marathon county, and the order to show cause were read to Treis by Mr. Doligalski over the telephone on May 8, 1939. Hearing on the order to show cause at Wausau was set for that date. Mr. Barry being engaged in the trial of a case that day, Mr. Treis, accompanied by his secretary, went to the contractor's office for a conference and to draft affidavits to be used and filed in connection with the hearing on the order to show cause. At the contractor's office Treis was informed by Mr. Doligalski and by the company's bookkeeper, Myra Czajkowski, that the company had shown the Employers Mutual auditors all the books they had at all times for a period of several years. Thereupon, Treis, at the contractor's office, dictated to his secretary affidavits setting forth such facts, which affidavits when transcribed were read by Doligalski and Myra Czajkowski, then signed by them and acknowledged before Treis as notary public.

In Myra Czajkowski's affidavit, among other things, she stated that she was and had been the bookkeeper for the P D Company from May 28, 1936; that during the prior three years she complied with the terms and conditions of the insurance policies by reporting in writing to the insurance company the contractor's total pay roll for the period she was so employed, at intervals of three months to July 1, 1938, and thereafter at monthly intervals; that the insurance company's auditors examined and audited for the years 1936, 1937, and 1938, all of the contractor's books, vouchers, contracts, and documents; that the books and records so examined by them were the only records the contractor had pertaining to said matters, that the same were true and correct.

Doligalski in his affidavit stated that the P D Company had at all times complied with the terms and conditions of the various insurance policies referred to in the affidavit of Mr. Hansen by reporting in writing to the insurance company at intervals of three months from January 1, 1935, to July 1, 1938, and thereafter at monthly intervals, its total pay rolls; that the P D Company at all times permitted the insurance company auditors or any other agent representing the insurance company to examine all of its books, vouchers, contracts, and records of every nature which tended to show the remuneration earned during policy periods by employees of P D Company, or by any other persons for injury, to whom the insurance company may have had a liability under the Workmen's Compensation Act; that plaintiff's auditors and agents did annually examine all of the P D Company's records from January 1, 1935, to and including January 1, 1939; that the books and records so examined by plaintiff's auditors and agents were true, correct, and complete records. He further stated that pursuant to the court order of May 1, 1939, the P D Company produced and submitted to plaintiff insurance company all of its books and records of every kind and nature in its possession or under its control which showed or tended to show the remuneration earned by the employees or by other persons to whom the P D Company may have had a liability under the Workmen's Compensation Act.

At the hearing on the order to show cause, in the circuit court at Wausau on May 9, 1939, the two affidavits mentioned were presented to the court by Mr. Barry, whereupon the order to show cause was dismissed. It appears that on that day Mr. Barry and the attorney representing the insurance company made arrangements for an adverse examination of Doligalski and Myra Czajkowski and for the production of the books of the P D Company before Court Commissioner ROLAND J. STEINLE on May 18, 1939. On May 18th and 20th adverse examinations of Doligalski and Czajkowski were had, Mr. Barry appearing for the P D Company. Both parties testified in substance to the facts as stated in their respective affidavits of May 8th. At the hearing on the order to show cause Mr. Barry had requested that the insurance company furnish him with a statement of the company's claim. This was not furnished until August 23, 1939, on which date the statement rendered showed a claim in excess of $4,000, claimed to be due for premiums which had not been paid by the contractor. That day the auditors of the insurance company called at the contractor's office and there found the bookkeeper working upon a "job-cost ledger" which they claimed had never previously been made available for inspection. The bookkeeper claimed that the so-called "job-cost ledger" was kept for the purpose of figuring costs on jobs and for the purpose of keeping a record of the subcontractors on contracts of the P D Company. She further claimed that said book was audited twice yearly by the insurance company's representative having charge of the audit of subcontractors' accounts.

Mr. Barry's request for a statement of the insurance company's claim was for the purpose of having it checked by an auditor to determine its correctness. At this time neither Treis nor Barry had any knowledge or suspicion that their client or its bookkeeper had misrepresented the facts to them. When they learned that the insurance company's auditors claimed that they had not theretofore seen this job-cost ledger, they made inquiry of the bookkeeper, who informed them that the ledger had been available to the insurance company's auditors on every occasion of their audit and that it contained nothing different than or inconsistent with the other books of the company. Both Treis and Barry believed the facts given them by their client and its bookkeeper to be true and correct. Subsequent to the examination of the job-cost ledger by the auditors of the insurance company on August 23, 1939, on the 26th day of August, 1939, based upon the affidavits of said auditors, contempt proceedings were instituted in the circuit court for Marathon county against Lawrence Doligalski and Myra Czajkowski. The order in these proceedings was returnable before said court on the 5th day of September, 1939. In connection with the contempt proceedings and on September 2d Doligalski and Myra Czajkowski made affidavit that the facts stated in their respective affidavits of May 8, 1939, were true and correct; that the job-cost ledger had been frequently examined by auditors of the insurance company. The job-cost ledger was produced by Mr. Barry in court on the contempt hearing. At Wausau Mr. Barry was told by the attorneys for the insurance company that they had evidence procured from Washington, D.C., of pay rolls greatly in excess of those which the contractor had submitted to them. During the contempt proceedings Barry expressed his doubt and his mistrust of his clients to them while at Wausau. On the way back from Wausau Mr. Barry finally got an admission from the bookkeeper that fraud had been practiced on the Employers Mutual Liability Company for years. This fact was reported by Barry to Treis upon his return to Milwaukee.

Treis and Barry did not learn of the two sets of books being kept by their client until September 6, 1939, the day following the contempt hearing at Wausau. Whereupon the correct set of books was, on the advice of the said attorneys, turned over to the auditors of the insurance company, and a settlement was promptly made on the basis of a complete audit of the correct set of the contractor's books. As to Count 1 of the complaint, the referee said:

"In my opinion, the evidence is clearly inadequate to sustain a conviction of unethical conduct on the part of the defendant, Jerome F. Treis, nor of the more serious charge of suborning perjury and obstructing justice. . . .

"I cannot find from the records made in Count 1 that the evidence justifies or supports the charges contained in this count, and I recommend, therefore, that the defendant, Jerome F. Treis, be completely exonerated."

Count 2 of the complaint alleged on information and belief that the defendant was guilty of soliciting legal employment. On the trial this charge was withdrawn, and no further reference will be made to it.

Count 3 alleged on information and belief that the defendant oppressively used, perverted, and abused the lawful process of the courts of Milwaukee county, and by reason thereof overreached and took advantage of numerous poor persons to his advantage in the following manner: That the defendant occupied an adjoining office with the Consolidated Discount Corporation, a finance corporation largely owned by defendant's wife, and to which defendant from time to time advanced substantial sums of money (defendant and his wife owned one half or one hundred fifty shares of the outstanding capital stock of the Consolidated Discount Corporation); that the Consolidated Discount Corporation employed defendant as its attorney; that it was the practice of defendant in connection with accounts turned over to him for collection to institute proceedings and enter judgment in the courts of Milwaukee county; that upon entry of judgment defendant, through his employees, would solicit the defendants in said actions to procure loans from the Consolidated Discount Corporation, secured by mortgages upon personal property exempt from seizure and sale on execution, for the purpose of paying such judgments; that the contracts and mortgages used by the Consolidated Discount Corporation were prepared by defendant, and provided for the payment of unreasonable, exorbitant, and unfair charges and attorneys' fees; that said Consolidated Discount Corporation immediately upon default in the payments required under such contracts employed defendant to institute proceedings to enforce payment; that defendant, with threat of repeated garnishment, replevin, or other legal process, regularly compelled the refinancing of such loans through said Consolidated Discount Corporation in greatly increased amounts for his own benefit.

As to this count, the findings of the referee are in substance as follows: That Consolidated Discount Corporation was a regularly organized Wisconsin corporation, organized for the purpose of conducting a small-loan business under the statutes, duly licensed under the law, and used in the conduct of its business printed forms of a nature and kind generally used in similar business concerns throughout the country; that the forms used were submitted in advance to the banking commission of Wisconsin and were approved by said commission; that the rates of interest and most of the charges and fees stipulated for, demanded, and collected were those fixed either by law, by rules of the banking commission, or by the courts in cases where transactions of the company found their way into the courts; that said corporation was organized by defendant Treis who acted as the attorney for said corporation; that the Consolidated Discount Corporation and defendant's law offices were conducted in close proximity and were closely allied; that both offices had a common waiting room, the same receptionist, a common telephone, and the same office manager; that defendant was in a position to dominate and did dominate the business and policy of the Consolidated Discount Corporation; "that Treis consulted Mr. Rogers, the attorney for the Bar Commission, and Mr. Carbys, a member of the Bar Commission, in regard to the propriety of having a law office adjacent to the Consolidated Discount Corporation office; that the two attorneys thus consulted in regard to said matter, disclaimed knowledge as to whether the arrangement was improper or not; declined to express an opinion on it one way or another and neither expressly nor by implication condemned the arrangement. That defendant Treis, in thus consulting the said attorneys for advice on the subject, was acting in good faith and that defendant Treis was in good faith desirous of avoiding any breach of professional ethics in the matter of the location and maintenance of his office as he did maintain it;" that there was and is no impropriety in an attorney conducting his regular practice in offices adjoining those of a company organized and controlled by him; that the professional income of defendant from business which he derived from the Consolidated Discount Corporation was 2.15 per cent of his total professional income in the year 1938, 2.03 per cent in 1939, 2.12 per cent in 1940, and 4.23 per cent in 1941; that matters in general pertaining to the methods employed by finance companies in and around Milwaukee, the forms used by such companies in the conduct of their business, the rates of interest and charges, and all kindred matters formed the subject of a hearing before the state banking commission in February, 1939, that the affairs in all particulars of the Consolidated Discount Corporation, as well as of similar organizations, were gone into extensively at said hearing; that at the conclusion of said hearing and in a decision of the banking commission dated March 22, 1939, the commission concluded to take no action at that time to suspend or revoke the permit under sec. 115.07, Stats., or the license issued under sec. 115.09, since the commission's findings showed that the practices engaged in by the Consolidated Discount Corporation were those also engaged in by other similar institutions in Milwaukee county; that in respect to the specific cases cited in the hearing before the referee and at earlier hearings before other bodies in support of the validity of Count 3 against defendant Treis "it is herewith found generally: That the cases cited were not typical cases, illustrating the routine run of the business of the Consolidated Discount Company; nor of the business transacted by defendant Treis in regard to legal matters concerning which the Consolidated Discount Company might consult him from time to time; that the cases cited were not in any sense routine cases but were only isolated and rare cases; and that in the main, the cases cited involved a series of desperate financial situations of persons whose affairs had reached a state of hopeless financial chaos."

The referee recommended that Count 3 be dismissed and that Mr. Treis be exonerated from blame on account thereof. Count 1: The state contends that defendant permitted Lawrence Doligalski and Myra Czajkowski to commit perjury when he knew, or ought to have known, that they were doing so, and by so doing assisted them in obstructing justice. We shall not repeat the facts involved in this count. They are fully set forth in the preceding statement. Neither in its brief nor on the oral argument did the state contend that defendant knew Doligalski and Myra Czajkowski committed perjury or false swearing in any of the affidavits made by them or on their adverse-party examinations. But the state argues that the defendant, having knowledge of the facts stated in the affidavit of Auditor Hansen of the insurance company, on which the circuit court for Marathon county issued its order of May 1, 1939, which included the order to show cause returnable on May 8th, should have made some investigation of the facts rather than rely on the truth of the statements made to him by Doligalski and Czajkowski in the preparation of their affidavits made on May 8th and used at the hearing on the order to show cause. Plaintiff's position is thus stated in its brief:

"An attorney cannot, without violating his oath, prepare and present to the court an affidavit of a client based solely upon his client's statement of the facts therein contained, to him, where:

"(a) He has knowledge that his client has previously made sworn statements concerning the same facts;

"(b) Such statements are matters of public record;

"(c) An inspection of such records would disclose that the affidavit is in fact false;

"(d) He makes no effort to examine such records."

We fail to find anything in the record to indicate that defendant had any knowledge that either Doligalski or Myra Czajkowski had made false statements concerning the facts as given by them to the defendant in the preparation of their affidavits on May 8th, the truth of which facts was at all times claimed by both parties. Defendant did not learn of his client keeping two sets of books for the purpose of defrauding the insurance company until September 6th, the day following the hearing in the contempt proceedings in the circuit court at Wausau. The insurance company attorneys did not disclose to the defendant or Mr. Barry that they had procured certain records from Washington, D.C., showing that the contractor had falsified its pay-roll records; the existence of such records was not disclosed in the affidavit of Auditor Hansen. Defendant had a perfect right to accept as true the information given him by Doligalski and Czajkowski. The practice of the law would indeed be a difficult task if attorneys were not permitted to rely on the truth of facts given them by their clients.

In support of its contention, the state cites Steinberg v.Saltzman (1907), 130 Wis. 419, 428, 110 N.W. 198. In that case the court said:

"The allegations of the complaint on information and belief challenging the validity of appellants' title upon the ground that no license to sell the realty was granted, it is insisted, are not sufficient to raise such question. That seems to be ruled in appellants' favor by [citing cases]. Respondents could easily have ascertained whether there was a record of any license to sell the realty, and, if there was none, have alleged the fact positively."

That case involved an appeal from an order striking out a demurrer. We fail to see its application to the facts in the instant case.

While this is a civil action, triable without a jury (sec. 256.28 (12), Stats.) Count 1 involves moral turpitude. Proof of the allegations must be by clear and satisfactory evidence, or, as said in some cases, by clear, satisfactory, and convincing evidence. See Ziegler v. Hustisford Farmers' Mut. Ins. Co. 238 Wis. 238, cases cited page 241,298 N.W. 610.

The trial of the instant action was by a referee who was directed by order of this court to try the issues and report his findings of fact and recommendations. Sec. 270.35, Stats., so far as here material, provides:

"The trial by referee shall be conducted in the same manner as a trial by the court. . . . When the reference is to report the facts the report shall have the effect of a special verdict."

The referee's findings and recommendations show a careful study and analysis of all the evidence. The findings and recommendations are amply sustained by the evidence. The findings and recommendations of the referee as to Count 1 must be approved.

Count 3: This count charges that defendant oppressively used, perverted, and abused the lawful processes of the courts of Milwaukee county, and by reason thereof overreached and took advantage of numerous poor persons to his advantage. It is further alleged that it was the practice of the defendant in connection with accounts turned over to him for collection to institute proceedings thereon and enter judgment in the courts of Milwaukee county; that upon the entry of judgment defendant, through his employees, would solicit the defendants in said actions to procure loans from the Consolidated Discount Corporation. It is further alleged that the contracts and mortgages used by the Consolidated Discount Corporation were prepared by defendant and provided for the payment of unreasonable, exorbitant, and unfair charges and attorneys' fees.

The Consolidated Discount Corporation was organized August 21, 1935, and received its charter. Its capital stock was five hundred shares of no-par value. Defendant is secretary and treasurer. Defendant and his wife own fifty per cent of the common capital stock. The corporation did very little business during the years 1935, 1936, and 1937. On November 16, 1937, the banking department issued a loan license to the corporation, under secs. 115.07 and 115.09, Stats. (The rate of interest prescribed by these sections is substantially less than the chapter licensing small-loan companies.) Loans were primarily made on automobiles; only in rare instances was household furniture taken as collateral. On March 18, 1939, the banking department issued a sales-finance-company license as prescribed by sec. 218.01. From this date on, the Consolidated Discount Corporation became extensively engaged in buying automobile-dealer contracts and loaning to automobile dealers on automobiles on their floor for retail. To finance its business Consolidated Discount Corporation found it necessary to borrow large sums of money. Defendant's parents at times loaned the company in excess of $25,000. Defendant made loans to the company of between $9,000 and $10,000. Zimmermann and his relatives made substantial loans. Loans were also procured from the banks. To secure the bank loans the Consolidated Discount Corporation pledged their commercial paper as security and the banks required that such collateral be kept current. The Consolidated Discount Corporation, through its regular employees, looked after its collections, and only turned over to the defendant such accounts as required legal services. Defendant testified that this occurred about fifty times. In view of the volume of business transacted, this would indicate an exceptionally small number of cases of loans made by the Consolidated Discount Corporation which required legal services.

In 1937 when the Consolidated Discount Corporation applied for a license under secs. 115.07 and 115.09, Stats., it submitted to the banking department a copy of its note and mortgage, which contained a provision that the borrower would pay, upon default, an attorney fee of twenty-five per cent of the amount then unpaid. This note and mortgage were approved by the banking department. In 1940 the company voluntarily reduced the attorney fee to fifteen per cent. In June, 1941, at the request of the banking department the note and mortgage were changed by eliminating the fifteen per cent attorney fee and in place thereof inserting, "together with statutory costs and disbursements." The recommendation for the elimination of attorney fees in the note and mortgage was made by the banking department to all finance companies operating in the state. Consolidated Discount Corporation immediately complied with the request.

The state's contention that defendant, through his connection with the Consolidated Discount Corporation and the legal business received from it, collected unreasonable attorney fees on such items of business is not borne out by the record. Exhibit 153 is an itemized statement of fees actually charged or received by defendant on thirty-seven cases investigated by the banking commission. It is interesting to note that the total taxable attorney fees, as per notes, amounted to $2,764.86. The attorney fees actually received amounted to $422.36. The average percentage of attorney fees collected, as to total unpaid balances on all thirty-seven accounts, was 6.16 per cent.

In connection with Count 3, in considering defendant's connection with the Consolidated Discount Corporation and the legal business which came to him through such connection, we now have no issue of unethical solicitation of business. That charge has been withdrawn. There was nothing unethical in defendant's organizing the Consolidated Discount Corporation and in becoming an officer thereof and counsel for the corporation. The company was engaged in legitimate business; its operations were under the supervision of the banking commission; its interest rates were fixed by law; and the attorney fees were as per terms of note, or as fixed by the court in instances where judgments were entered. This is not a case involving the relationship of attorney and client. The alleged unethical conduct relates to the defendant's duty as a lawyer toward certain members of the public with whom he had certain transactions, some of a business nature, others of a legal nature.

The defendant's practice was largely of a commercial nature. Claims placed in his hands for collection at times exceeded $500,000. His business prospered and his clients were satisfied with his services. There is no evidence that he at any time improperly used the process of any court in making collections, though in many instances he was obliged to resort to legal action against debtors. It appears that in some instances he advised parties against whom he had taken judgments to apply to the Consolidated Discount Corporation for loans in order that they might satisfy the judgments. In some instances the Consolidated Discount Corporation made such loans on his recommendation. In a number of instances the debtor would borrow from the Consolidated Discount Corporation additional sums for other purposes. Since 1939 the Consolidated Discount Corporation has not accepted as borrowers debtors against whom defendant held judgments for collection. It also appears that prior to 1939 the Consolidated Discount Corporation, in refinancing loans, repeated investigation charges. That appears to have been a general practice on the part of finance companies prior to 1940. It was discontinued by all finance companies on the recommendation of the banking department.

In the investigation of the Consolidated Discount Corporation by the banking department in 1939, it found no overcharges on interest rates. It recommended the elimination of an attorney fee based on percentage, that in lieu of any fixed percentage there be inserted the phrase, "together with statutory costs and disbursements." We find no evidence of any pyramiding, either of attorney fees or charges for investigation, in the renewal of loans, since the investigation by the banking department.

In his recommendation as to Count 3, the referee said:

"The evidence on Count 3 is very extensive. Certain cases are gone into at full length with all of the details accompanying them. In view of the nature of Count 3, wide latitude was given to the. prosecution and to the defense. Again I must say that after listening to the evidence offered in support of Count 3, and after studying the whole record, together with the briefs submitted by counsel, I am unable to find the defendant guilty of the improper conduct charged in Count 3, and accordingly, I recommend that the charges in Count 3 be likewise dismissed and the defendant exonerated."

After careful consideration we are of the view that the referee's findings upon Count 3 are sustained. We attach no significance to the finding heretofore referred to that defendant consulted the attorney for the Bar Commissioners, and an individual commissioner in regard to the propriety of his practices and that the two attorneys thus consulted declined to express an opinion upon the propriety of the arrangement. We have come to this conclusion for two reasons: 1. Charges were then pending against defendant based upon these very practices and orderly procedure precludes at this stage application for advice either to the board or to its attorney or to an individual commissioner. 2. Neither the attorney for the board nor the commissioner was in a position to express any opinion under these circumstances and refusal so to do must be assumed to have been in response to this duty of restraint. Had the record disclosed that defendant made a practice of refinancing items taken by him for collection with the finance company which he largely controlled with the effect and for the purpose of getting fees from the collection of the original item and also for the collection of the note executed to the discount company, an extremely questionable practice would have been disclosed. It appears, however, that considered in relation to the bulk and volume of business there were comparatively few instances where such a criticism could be made of defendant's practices and we are of the view that whatever the vice of the practice, the referee could, upon the evidence conclude that defendant did not habitually or even intentionally indulge in the practices and that it was his purpose in good faith to satisfy all ethical canons in connection with his practice. We have no occasion therefore further to comment on the practices criticized because we appreciate that a variety of circumstances may vary the conclusions reached in any particular instance as to the ethical quality of an attorney's conduct in respect of them. The findings and recommendations of the referee are amply sustained by the evidence and must be approved and confirmed. An order may be entered dismissing the complaint.