Office of Lawyer Regulation v. Erhard (In Re Erhard) , 383 Wis. 2d 628 ( 2018 )

2018 WI 95
SUPREME COURT OF WISCONSIN
CASE NO.: 2017AP1275-D
COMPLETE TITLE: In the Matter of Disciplinary Proceedings
Against Michael P. Erhard, Attorney at Law:
Office of Lawyer Regulation,
Complainant,
v.
Michael P. Erhard,
Respondent.
DISCIPLINARY PROCEEDINGS AGAINST ERHARD
OPINION FILED: September 12, 2018
SUBMITTED ON BRIEFS:
ORAL ARGUMENT:
SOURCE OF APPEAL:
COURT:
COUNTY:
JUDGE:
JUSTICES:
CONCURRED:
DISSENTED:
NOT PARTICIPATING: DALLET, J., did not participate.
ATTORNEYS:
2018 WI 95
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2017AP1275-D
STATE OF WISCONSIN : IN SUPREME COURT
In the Matter of Disciplinary Proceedings
Against Michael P. Erhard, Attorney at Law:
Office of Lawyer Regulation, FILED
Complainant,
SEP 12, 2018
v.
Sheila T. Reiff
Clerk of Supreme Court
Michael P. Erhard,
Respondent.
ATTORNEY disciplinary proceeding. Attorney's license
suspended.
¶1 PER CURIAM. We review the report of Referee William
Eich, in which he found, based on the admissions of Attorney
Michael P. Erhard, that Attorney Erhard had committed 11 counts
of professional misconduct, and in which he recommended that
Attorney Erhard's license to practice law in this state be
suspended for a period of six months. After carefully reviewing
the matter, we accept Attorney Erhard's admission that he
committed the first ten counts of misconduct alleged in the
No. 2017AP1275-D
complaint filed by the Office of Lawyer Regulation (OLR). We do
not decide whether Attorney Erhard's conduct in obtaining a
cashier's check made payable to a third party constitutes a
violation of former Supreme Court Rule (SCR) 20:1.15(e)(4)a, as
alleged in Count 11, because that determination would not change
the level of discipline we impose. We conclude that a
suspension of three months is the appropriate level of
discipline to be imposed under the particular facts of this
case. As the OLR advises that there are no client funds to
restore, we do not impose any restitution award. We do require
Attorney Erhard to pay the costs of this disciplinary
proceeding, which were $3,190.26 as of April 17, 2018.
¶2 Attorney Erhard has been admitted to the practice of
law in Wisconsin since August 1973. He has practiced in a
number of private law firms since his admission. At the time of
the events underlying this disciplinary proceeding, Attorney
Erhard was a member of Erhard and Payette, LLC in Madison. That
firm is no longer in existence.
¶3 Attorney Erhard has been the subject of professional
discipline on one prior occasion. In 2002 he was privately
reprimanded for professional misconduct that consisted of
acquiring a proprietary interest in a client matter, making
misrepresentations in a complaint filed in connection with the
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No. 2017AP1275-D
client matter, and failing to notify the client when the civil
action had been dismissed. Private Reprimand 2002-3.1
¶4 The OLR filed its complaint alleging 11 counts of
misconduct in July 2017. Attorney Erhard's answer and
affirmative defenses admitted most of the allegations of the
complaint, but did object to a number of factual allegations and
did provide some additional explanatory information. Despite
those objections, Attorney Erhard's answer admitted all 11
counts of misconduct.
¶5 All of the allegations of misconduct in this matter
arise out of Attorney Erhard's handling of his firm's client
trust account. The Erhard and Payette firm maintained both a
client trust account and an operating account for the business
of the firm. Initially, those accounts were maintained at Chase
Bank. On May 16, 2014, Attorney Erhard opened a new client
trust account at Johnson Bank. For a few months, both trust
accounts were in existence.2 On August 14, 2014, the law firm
closed the Chase Trust Account.
¶6 It appears that Attorney Erhard was the person at the
firm primarily in charge of the client trust account. He signed
1
Copies of private reprimands are ordinarily available on
the court's website. This reprimand is not available on the
court's website, but a copy could be obtained by contacting the
OLR.
2
For the sake of brevity and clarity, this opinion will
refer to the two client trust accounts as the Chase Trust
Account and the Johnson Trust Account.
3
No. 2017AP1275-D
checks drawn on the account and made the electronic transfers to
and from the account that are the subject of this proceeding.
The firm employed a paralegal, who was responsible for providing
an accounting firm with the necessary information so that the
accountants could prepare checks for Attorney Erhard's
signature. The accounting firm also maintained the trust
account records for the firm.
¶7 Most of the allegations in the OLR's complaint relate
to Attorney Erhard's handling of trust account funds connected
to two client matters involving civil actions—one on behalf of
E.A. and one on behalf of J.O. We will divide the allegations
between the periods prior to and after the switch of the client
trust accounts from Chase Bank to Johnson Bank.
¶8 With respect to the E.A. matter during the time period
in which the Chase Trust Account was being used, between May 2,
2014, and May 29, 2014, Attorney Erhard made seven disbursements
in the total amount of $200,000 from the Chase Trust Account to
E.A., M.A., S.A., and the law firm's operating account. The
four disbursements to the operating account were made by
electronic transfers. These seven disbursements exceeded the
amount in the Chase Trust Account for the E.A. matter by
$100,000, which resulted in funds from other clients covering
these disbursements.
¶9 On May 30, 2014, a deposit of $537,000 for E.A. was
wired into the Chase Trust Account. This repaid the $100,000
that had been taken from other client accounts and left a
positive balance of $437,000 for E.A. On that same date
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No. 2017AP1275-D
Attorney Erhard made two additional electronic transfers
totaling $125,000 from the Chase Trust Account to the firm's
operating account. In June 2014, Attorney Erhard issued three
checks to E.A., M.A., and S.A. in the total amount of $267,315
and made two electronic transfers in the total amount of
$2,673.38 from the Chase Trust Account to the firm's operating
account. Thus, at the end of these transactions, there was a
balance of $42,011.62 in funds belonging to E.A. in the Chase
Trust Account.
¶10 With respect to the J.O. matter specifically, there
were three particular transactions that formed the basis for
allegations of misconduct. First, on June 25, 2014, Attorney
Erhard purchased two cashier's checks out of the Chase Trust
Account with funds belonging to J.O. The two cashier's checks,
totaling $68,256.75, were made payable to the Wisconsin
Department of Revenue (DOR). Attorney Erhard caused those two
cashier's checks to be sent to the DOR in payment of the income
tax liability for J.O. and his wife. On July 1, 2014, Attorney
Erhard electronically transferred $178,125 from the Chase Trust
Account to the law firm's operating account as payment for legal
fees. On that same date he also electronically transferred
$211,590.15 to J.O.'s checking account.
¶11 The OLR's complaint also contains allegations
regarding the transfer of funds from the Chase Trust Account to
the Johnson Trust Account. On July 2, 2014, the firm's
operating account had a balance of $167,135.33. On that date
Attorney Erhard signed a hand-written check for $400,000 drawn
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No. 2017AP1275-D
on the operating account and payable to the Johnson Trust
Account. The check was deposited with Johnson Bank on that same
date. On July 3, 2014, Attorney Erhard electronically
transferred $400,000 from the Chase Trust Account to the firm's
operating account to cover the check he had deposited the day
before. Nearly all of that $400,000 belonged to nine clients.
After this transfer there remained a balance of $17,986.86 in
the Chase Trust Account.
¶12 On August 1, 2014, Attorney Erhard electronically
transferred $17,000 from the Chase Trust Account to the
operating account. These funds were used to cover a number of
checks and electronic withdrawals from the operating account
that were used to pay business expenses and to pay a $5,000 draw
to Attorney Erhard. On that same date, however, Attorney Erhard
deposited $17,000 from another source to the Johnson Trust
Account to replenish the trust account funds.
¶13 On August 14, 2014, Attorney Erhard transferred the
remaining $986.86 in the Chase Trust Account into the firm's
operating account. As with the earlier movement of the $17,000,
on that same date Attorney Erhard deposited a check from the
operating account into the Johnson Trust Account. With the
transactions on both August 1 and August 14, 2014, Attorney
Erhard effectively moved client funds from one trust account to
the other, but for some reason he routed them through the firm's
operating account.
¶14 The OLR's complaint also contains some allegations
regarding the disbursement of funds for E.A. after the firm's
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No. 2017AP1275-D
switch to the Johnson Trust Account. After Attorney Erhard
moved the firm's client trust funds to the Johnson Trust
Account, the balance of trust account funds for E.A. was
$42,011.62. From September 15, 2014, to December 12, 2014,
Attorney Erhard made four disbursements totaling $124,573.62
related to the E.A. matter. One of the four disbursements was a
$10,000 check from the Johnson Trust Account to the firm's
operating account in payment of legal fees. The first of these
four disbursements created a negative balance of nearly $27,000
for the E.A. matter in the Johnson Trust Account. After the
last of the four disbursements, the negative balance had grown
to $82,562. This meant that funds from other clients were used
to cover the four disbursements. Approximately six months after
the last of these four disbursements, Attorney Erhard deposited
$82,562 into the Johnson Trust Account to replenish the funds
belonging to the other clients and eliminate the negative
balance for E.A.
¶15 The OLR's complaint charged Attorney Erhard with
committing 11 separate counts of professional misconduct arising
out of the facts described above. The complaint, however,
alleged multiple counts for the same conduct. For example,
Counts 1, 2, and 3 all alleged that over a roughly three-week
period in May 2014 Attorney Erhard had improperly disbursed from
the Chase Trust Account $100,000 more in connection with E.A.'s
matter than was in the trust account for that client. Count 1
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No. 2017AP1275-D
alleged that this conduct had violated former
SCR 20:1.15(f)(1)b.3 Count 2 alleged that this same conduct had
violated SCR 20:1.15(b)(1).4 Count 3 alleged that this same
conduct had violated SCR 20:8.4(c).5
¶16 Counts 4, 5, and 6 repeated this pattern with respect
to Attorney Erhard's excessive disbursements in connection with
3
Effective July 1, 2016, substantial changes were made to
Supreme Court Rule 20:1.15, the "trust account rule." See S. Ct.
Order 14-07, (issued Apr. 4, 2016, eff. July 1, 2016). Because
the conduct underlying this case arose prior to July 1, 2016,
unless otherwise indicated, all references to the supreme court
rules will be to those in effect prior to July 1, 2016.
Former SCR 20:1.15(f)(1)b provided:
A subsidiary ledger shall be maintained for each
client or 3rd party for whom the lawyer receives trust
funds that are deposited in an IOLTA account or any
other pooled trust account. The lawyer shall record
each receipt and disbursement of a client's or 3rd
party's funds and the balance following each
transaction. A lawyer shall not disburse funds from
an IOLTA account or any pooled trust account that
would create a negative balance with respect to any
individual client or matter.
4
SCR 20:1.15(b)(1) provides:
A lawyer shall hold in trust, separate from the
lawyer's own property, that property of clients and
3rd parties that is in the lawyer's possession in
connection with a representation. All funds of
clients and 3rd parties paid to a lawyer or law firm
in connection with a representation shall be deposited
in one or more identifiable trust accounts.
5
SCR 20:8.4(c) provides: "It is professional misconduct
for a lawyer to engage in conduct involving dishonesty, fraud,
deceit or misrepresentation."
8
No. 2017AP1275-D
the E.A. matter over the period of September to December 2014.
Count 4 alleged that this conduct had violated former
SCR 20:1.15(f)(1)b. Count 5 alleged that this same conduct had
violated SCR 20:1.15(b)(1). Count 6 alleged that this same
conduct had violated SCR 20:8.4(c).
¶17 Count 7 related to Attorney Erhard's routing of the
$400,000 in trust funds through the firm's operating account
when moving the money from the Chase Trust Account to the
Johnson Trust Account on July 3, 2014. The OLR alleged in Count
7 that the electronic transfer of the $400,000 in client funds
to the firm's operating account had violated SCR 20:1.15(b)(1).
¶18 Counts 8 and 9 related to the routing of the $17,000
in client trust funds through the firm's operating account on
August 1, 2014, and the use of those funds for other purposes.
Specifically, Count 8 alleged that the initial transfer of the
$17,000 in client trust funds from the Chase Trust Account to
the operating account and the use of those funds to pay business
expenses and a monthly draw to Attorney Erhard had violated
SCR 20:1.15(b)(1). Count 9 alleged that this same conduct also
had violated SCR 20:8.4(c).
¶19 Count 10 addressed all electronic transfers that
Attorney Erhard had made out of the Chase Trust Account to the
firm's operating account, as well as the July 1, 2014 electronic
transfer from the Chase Trust Account to J.O.'s checking
9
No. 2017AP1275-D
account. This count alleged that the use of such electronic
transfers had been in violation of former SCR 20:1.15(e)(4)c.6
¶20 Finally, Count 11 alleged that Attorney Erhard's
purchase of two cashier's checks payable to the DOR using funds
from the Chase Trust Account had violated former
SCR 20:1.15(e)(4)a.7 The OLR characterized this as two separate
transactions. It alleged that Attorney Erhard first withdrew
cash from the Chase Trust Account and then used that cash to
purchase the two cashier's checks. It alleged that the
withdrawal of cash had constituted the ethical violation.
¶21 Attorney Erhard's answer admitted all 11 counts of
misconduct in the OLR's complaint. The answer even admitted the
violation of former SCR 20:1.15(e)(4)a in Count 11, although the
answer disputed that the purchase of the cashier's checks had
constituted a withdrawal of cash from the trust account.
¶22 Given Attorney Erhard's admission of all 11 counts in
the complaint, the only issue that was addressed at the
evidentiary hearing in this proceeding was the appropriate level
of discipline. In addition to testifying himself, Attorney
Erhard called four witnesses, including a federal judge
appearing in response to a subpoena, all of whom had extensive
6
Former SCR 20:1.15(e)(4)c provided: "A lawyer shall not
make deposits to or disbursements from a trust account by way of
an Internet transaction."
7
Former SCR 20:1.15(e)(4)a provided: "No disbursement of
cash shall be made from a trust account and no check shall be
made payable to 'Cash.'"
10
No. 2017AP1275-D
experience with Attorney Erhard as a practicing lawyer and spoke
highly of his competence as a lawyer and his good character and
integrity.
¶23 The referee ultimately recommended a six-month
suspension and the imposition of two conditions on Attorney
Erhard's return to the practice of law following the suspension:
(1) that Attorney Erhard never hold responsibility for any trust
property or trust account in the future and (2) that Attorney
Erhard annually certifies to the OLR that he is not responsible
for overseeing any trust property or trust account. The referee
agreed with the OLR that several aggravating factors——the number
of charges (11), the existence of a "pattern" of misconduct, and
the amount of money involved——required a suspension. On the
other hand, the referee concluded that several mitigating
factors cited by Attorney Erhard——his lack of intent or malice,
the restitution he made by depositing personal funds into the
trust account, and his cooperation with the OLR throughout the
investigation and disciplinary proceeding——required a suspension
shorter than the nine-month suspension sought by the OLR.
¶24 Attorney Erhard filed a motion for reconsideration
that focused on Count 11 regarding the purchase of the cashier's
checks payable to the DOR. He urged the referee to reconsider
the referee's conclusion that Attorney Erhard had admitted,
without qualification, that his purchase of the two cashier's
checks had been a cash withdrawal from the trust account in
violation of former SCR 20:1.15(e)(4)a. He asserted that he had
substantially complied with the spirit and purpose of that rule
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No. 2017AP1275-D
and had not converted or misappropriated any client funds. He
suggested that it would be more appropriate to find that the
manner of the purchase and the nature of the checks had not
complied with the formalities of a different rule, former
SCR 20:1.15(f)(1)e(1). He further asked the referee to reduce
the recommended suspension to one just shy of six months so that
he would not have to go through the formal reinstatement
process.
¶25 The referee denied the reconsideration motion. The
referee refused to amend his report because he stated that
Attorney Erhard had indeed admitted the violation of former
SCR 20:1.15(e)(4)a in Count 11. The referee also refused to
reduce the recommended suspension, stating that he had taken
into account Attorney Erhard's lack of intentional or malicious
conduct in recommending a suspension less than the nine-month
suspension sought by the OLR.
¶26 When we review a referee's report and recommendation
in an attorney disciplinary case, the standard of review we
utilize is well-established. We affirm a referee's findings of
fact unless they are found to be clearly erroneous, but we
review the referee's conclusions of law on a de novo basis. In
re Disciplinary Proceedings Against Inglimo, 2007 WI 126, ¶5,
305 Wis. 2d 71, 740 N.W.2d 125. We determine the appropriate
level of discipline to impose given the particular facts of each
case, independent of the referee's recommendation, but
benefiting from it. In re Disciplinary Proceedings Against
Widule, 2003 WI 34, ¶44, 261 Wis. 2d 45, 660 N.W.2d 686.
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No. 2017AP1275-D
¶27 The first ten counts of alleged misconduct and the
factual allegations supporting those counts do not present any
concerns. Given Attorney Erhard's admission of the allegations,
we adopt the referee's findings of fact and we conclude that
those findings demonstrate that Attorney Erhard committed the
misconduct alleged in Counts 1-10.
¶28 Count 11, however, is not so easily resolved. We have
not previously decided whether purchasing a cashier's check made
payable to a third party on behalf of a client using funds in an
attorney's client trust account constitutes a withdrawal of cash
in violation of former SCR 20:1.15(e)(4)a. We determine that we
need not do so here because we conclude that a decision on
whether or not there was a technical violation of former
SCR 20:1.15(e)(4)a would not impact the level of discipline we
would impose.
¶29 We now turn to the issue of the appropriate level of
discipline that should be imposed for the ten counts of
misconduct we have found. It is clear that Attorney Erhard
failed to manage his firm's client trust account as he was
ethically required to do. Moreover, this was not a single
occurrence, but a repeated shortcoming. On the other hand, we
conclude that the number of counts of misconduct alleged in the
complaint overstates the instances of misconduct. The complaint
used the same conduct to allege multiple counts. If it had not
done so, there would have been five or six counts instead of 11.
Moreover, there are no allegations here that any client
ultimately suffered lasting harm. The referee found that the
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No. 2017AP1275-D
level of discipline should be mitigated by Attorney Erhard's
lack of intent or malice, and we agree. Attorney Erhard has a
substantial history as a practicing lawyer in this state, and
the testimony that he presented at the evidentiary hearing
supports a conclusion that his failure to manage his trust
account properly was an aberration, rather than an indication of
his character. He has cooperated with the OLR's investigation,
admitted his misconduct, returned all funds to the trust
account, and expressed remorse for his failings.
¶30 Under these specific facts, we determine that a three-
month suspension would accomplish the goals of discipline. We
agree with the referee that a reprimand would unduly depreciate
the seriousness of Attorney Erhard's failings, but we do not
believe that it is necessary to require Attorney Erhard to go
through the formal reinstatement process. While the level of
appropriate discipline must be determined on the basis of the
facts in each case, we have imposed similar levels of discipline
in other cases involving a lawyer's failure to properly hold and
manage client funds in the lawyer's trust account. See, e.g.,
In re Disciplinary Proceedings Against Kitto, 2018 WI 71, 382
Wis. 2d 368, 913 N.W.2d 874 (60-day suspension imposed for five
counts of misconduct, including failing to hold client funds in
trust and converting over $10,000 for the lawyer's personal use,
where lawyer admitted misconduct and had made full restitution);
In re Disciplinary Proceedings Against Clark, 2016 WI 36, 368
Wis. 2d 409, 878 N.W.2d 662 (four-month suspension imposed on
experienced attorney for eight counts of misconduct, including
14
No. 2017AP1275-D
failing to hold client funds in trust, disbursing funds in
excess of amounts held in trust for a particular client, making
cash withdrawals from a trust account, and hiding income or
assets from taxing authorities).
¶31 We do not impose the condition as recommended by the
referee. It is almost impossible for a practicing lawyer to
"never [have] responsibility for any fiduciary or trust property
or account." A client delivering to a lawyer a check for an
advanced fee imposes a fiduciary obligation on that lawyer, even
if the lawyer's obligation is simply to hand over the check to
another person in the law firm that supervises the firm's client
trust account. We do require Attorney Erhard to attend six
credits of continuing legal education on the subject of trust
account management within the next 12 months, as approved by the
OLR.
¶32 As is our usual custom, we also find it appropriate to
assess the full costs of the proceeding against Attorney Erhard.
This case presents no reason for departing from our standard
practice of imposing costs on respondent attorneys on whom
discipline is imposed.
¶33 IT IS ORDERED that the license of Michael P. Erhard to
practice law in Wisconsin is suspended for a period of three
months, effective October 12, 2018.
¶34 IT IS FURTHER ORDERED that Michael P. Erhard shall
attend six credits of continuing legal education on the subject
of trust account management within the next 12 months, to be
approved by the Office of Lawyer Regulation.
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No. 2017AP1275-D
¶35 IT IS FURTHER ORDERED that within 60 days of the date
of this order, Michael P. Erhard shall pay to the Office of
Lawyer Regulation the costs of this proceeding, which are
$3,190.26 as of April 17, 2018.
¶36 IT IS FURTHER ORDERED that Michael P. Erhard shall
comply with the provisions of SCR 22.26 concerning the duties of
an attorney whose license to practice law has been suspended.
¶37 IT IS FURTHER ORDERED that compliance with all
conditions of this order is required for reinstatement. See
SCR 22.28(2).
¶38 REBECCA FRANK DALLET, J., did not participate.
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No. 2017AP1275-D
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