The Florida Bar v. Charles Paul-Thomas Phoenix

Supreme Court of Florida
____________
No. SC17-585
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THE FLORIDA BAR,
Complainant,
vs.
CHARLES PAUL-THOMAS PHOENIX,
Respondent.
January 28, 2021
PER CURIAM.
We have for review a referee’s report recommending that Respondent,
Charles Paul-Thomas Phoenix, be found guilty of professional misconduct and
suspended from the practice of law for ninety days. We have jurisdiction. See art.
V, § 15, Fla. Const. We approve the referee’s findings of fact and
recommendation as to guilt. We also conclude that the referee considered the right
aggravating and mitigating factors in applying the standards for imposing
sanctions. Yet we disapprove of the referee’s recommended sanction and order
instead that Respondent be suspended from the practice of law for two years.
I
This case arises from Phoenix’s involvement with Cay Clubs Resorts and
Marinas (Cay Clubs), a company that pitched to investors the opportunity to buy
and profit from the management of vacation rental units. Phoenix was Cay Clubs’s
lawyer, in one way or another, from 2005 until 2007. The trouble is, Cay Clubs
turned out to be a Ponzi scheme: it made so-called “leaseback” payments to initial
investors using money from new investors and failed to disclose this practice on
federal mortgage loan documents. As Senior Vice President and General Counsel
of Cay Clubs, Phoenix knew about and participated in Cay Clubs’s Ponzi scheme.
When the scheme collapsed, the U.S. Attorney’s Office for the Southern District of
Florida (USAO) investigated and prosecuted Cay Clubs’s executives and legal
representatives. Phoenix cooperated with the USAO in exchange for its agreement
that he would not be prosecuted. He never told The Florida Bar (Bar) about that
agreement. Years later, the Bar found out and initiated disciplinary proceedings
against Phoenix for his role in Cay Clubs’s Ponzi scheme. Phoenix has repeatedly
denied any wrongdoing. He challenges virtually all elements of the proceedings as
improper and specifically alleges that the referee’s findings of fact are not
supported by competent evidence.
A
Nobody disputes that Phoenix entered into a non-prosecution agreement
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with the USAO on March 10, 2014 (NPA), so that seems to be a good place to
begin our analysis. As it turns out, in determining whether Phoenix’s conduct
merits a longer suspension, we need consider nothing else.
On its face, in its first paragraph, the NPA provides that the USAO will “not
criminally prosecute [Phoenix] for any crimes related to [his] participation in the
criminal conduct set forth” in an attachment to the NPA. There is no ambiguity
about whether the conduct it recounts is criminal in nature. It is. Phoenix may
have avoided prosecution for his involvement in that criminal conduct, but by
entering into the NPA, Phoenix “admits, accepts, and acknowledges responsibility
for the conduct set forth” in the agreement.
Among the things Phoenix admits in the agreement is the fact that Cay Clubs
“did not heed his advice at times with regard to the sale and marketing of the
investment” and that he “continued to work as a lawyer for the company despite
the principals ignoring his advice, because he enjoyed his generous remuneration
and other benefits associated with his role at the company.” Phoenix “received and
commented on marketing materials where fixed rates of return and leaseback
payments were promised to potential investors well after he had advised the Cay
Clubs principals to halt this practice and had obtained opinions from outside
counsel concerning whether the investment was a security.”
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What is more, Phoenix knew that the “leaseback payments made to investors
were concealed from lenders on [real estate] closing documents, including by not
listing the payment on the Settlement Statement or HUD-l,[1] when closings were
conducted and lender financing was obtained.” Phoenix “was also aware that if the
leaseback payments were disclosed . . . that some or all of the transactions would
not have been approved by the lender without more information.” The closings
“took place in Phoenix’s law office” and “at no point during these closings were
the leaseback payments listed” on the HUD-1 closing statements.
Phoenix was also aware that Cay Clubs was “teeter[ing] on the edge of
insolvency” yet continued to use “false and misleading” marketing that
“promis[ed] a rosy financial picture.” Indeed, in Phoenix’s own view, “there came
a time during the course of the operation of Cay Clubs where it could be fairly
described as a ‘Ponzi Scheme’ due to its inability to pay existing leaseback
obligations without new investor money.” Investors began to complain that
leaseback payments were not being made, yet Phoenix did not disclose Cay
Clubs’s “inability [to] make leaseback payments . . . to lending institutions or
future investors when ongoing marketing and financing activities took place.”
Further, when Cay Clubs sought outside legal advice, Phoenix was aware that
1. A HUD-1 Settlement Statement is a federal mortgage lending form on
which creditors or their closing agents disclose all charges imposed on buyers and
sellers in consumer credit mortgage transactions.
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“significant aspects of the Cay Clubs business and marketing efforts were not
disclosed to the outside lawyers.” In accordance with the advice from that counsel,
Cay Clubs “put into place certain policies or procedures on paper,” yet Phoenix
knew that the “ongoing marketing activities . . . were contrary to the
representations made to outside counsel.”
Phoenix “actively participated in the effort to try to incorrectly characterize
the nature of the business.” “The Cay Clubs principals made great efforts to avoid
regulation under the securities laws, and Phoenix assisted in these efforts.”
Phoenix knew that “Cay Clubs operated in a fraudulent manner, and that investors
and others were defrauded through the making of false and misleading promises
concerning the safety of the investment.” “Phoenix was aware that [Cay Clubs’s]
practices constituted a fraud on the lending institutions involved and these
practices could be fairly described as mortgage fraud.”
Finally, Phoenix agreed that he had “not always been forthcoming” with
federal regulators “because he did not want to be held accountable for the
misconduct at Cay Clubs, or the fraud that took place against the investors and the
lending institutions.” Phoenix agreed that in the federal investigation he had
“minimized his role and knowledge of the events, and ha[d] sought to avoid his
own liability.”
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B
Knowing all this, and knowing that he had admitted it, Phoenix nonetheless
did not report the NPA or his work with Cay Clubs to the Bar. In March 2017, the
Bar filed a complaint with this Court against Phoenix for his role representing Cay
Clubs. The complaint alleged that Phoenix’s conduct violated two Rules
Regulating the Florida Bar (Bar Rules): 4-1.16 (“[A] lawyer . . . shall withdraw
from the representation of a client if . . . the representation will result in violation
of the Rules of Professional Conduct or law; . . . the client persists in a course of
action involving the lawyer’s services that the lawyer reasonably believe is
criminal or fraudulent . . . or the client has used the lawyer’s services to perpetrate
a crime or fraud. . . .”) and 4-4.1 (“[I]n the course of representing a client a lawyer
shall not knowingly . . . make a false statement of material fact or law to a third
person; or . . . fail to disclose a material fact to a third person when disclosure is
necessary to avoid assisting a criminal or fraudulent act by a client . . . .”). The
complaint also alleged a lack of honesty by Phoenix.
This Court referred the Bar’s complaint to a referee for a hearing and
recommendation.2 The original referee did not make findings of fact or
2. Later, during the original proceedings before a referee, the Bar
additionally argued that Phoenix violated Bar Rule 4-8.4(c) (“[A] lawyer shall not
. . . engage in conduct involving dishonesty, fraud, deceit, or misrepresentation . . .
.”).
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recommendations as to guilt. Instead, the referee recommended that Phoenix
attend a diversion program. The Bar challenged the original referee’s report. This
Court disapproved the report and sent the case back to the referee for additional
proceedings. We required the referee to issue findings of fact and determined that
Phoenix was not eligible for diversion because his alleged misconduct was not
“minor.”
On remand, the chief judge of the Twelfth Judicial Circuit appointed herself
as referee; the original referee had retired and was not eligible to serve as a senior
judge. The successor referee reviewed all pleadings, exhibits, transcripts, and
briefs filed; afforded each side ninety minutes to present any relevant arguments,
testimony, or evidence for her consideration; and conducted a sanctions hearing
where Phoenix presented live testimony from sixteen character witnesses, the
testimony of two witnesses by telephone, and testified on his own behalf.
In her report and recommendation, the successor referee recommended that
Phoenix be found guilty of violating the Bar Rules charged in the complaint and
proceedings. She found that, as counsel for Cay Clubs, Phoenix failed to withdraw
as counsel despite knowing that he aided his client in committing fraud, concealed
the true nature of Cay Clubs’s business, and failed to be truthful in statements to
others. The successor referee based these findings on the “Non-Prosecution
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Agreement and supporting evidence.” As a sanction, the referee recommended
that Phoenix be suspended for ninety days.
II
On review, Phoenix challenges the appointment of a successor referee,
alleges that the statute of limitations has expired, disputes the legality of the Bar
Rule 4-8.4(c) charge, challenges the lack of evidentiary hearing before the
successor referee, alleges that the burden of proof was improperly shifted,
challenges the successor referee’s findings of fact and recommendation as to guilt,
and challenges the successor referee’s recommended sanction as too harsh. The
Bar filed a notice challenging the referee’s recommended sanction as too lenient.
A
Phoenix’s first five claims do not amount to much, so we address them
briefly.
First, we find the appointment of a successor referee was proper. Phoenix
cites no authority to support his claim that the same referee must handle a case on a
remand for further proceedings. The Bar Rules contain no such requirement. Nor
did Phoenix object to the appointment of a successor referee until his appeal to this
Court, and therefore he did not preserve this issue for review as we have held he
must. Fla. Bar v. Picon, 205 So. 3d 759, 764 (Fla. 2016).
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Second, the statute of limitations had not run when the Bar initiated its
proceedings in this matter. The Bar is required to open an investigation “within 6
years from the time the matter giving rise to the investigation is discovered or, with
due diligence, should have been discovered.” Bar Rule 3-7.16(a)(1). Phoenix’s
misconduct occurred from 2005 to 2007. The Bar received the NPA in 2014 and
initiated this matter in 2017. It is true that the NPA was not a “determination or
judgment of any criminal offense” that would, under the Bar’s rules, have clearly
required Phoenix to have reported his admitted misconduct. Bar Rule 3-7.2(e).
And yet this would have been a different case had Phoenix acted more forthrightly,
as an officer of the court, and brought the NPA to the Bar’s attention. He did not.
On these facts, we cannot say the Bar failed to exercise due diligence in
discovering Phoenix’s participation in criminal misconduct, and we find that its
complaint was timely filed in 2017 after its 2014 discovery of the NPA.
Third, Bar Rule 4-8.4(c) was properly charged. Generally, as a matter of
due process, the Bar’s complaint must allege all rule violations the Bar seeks to
prosecute. In re Ruffalo, 390 U.S. 544, 552 (1968) (“[A]bsence of fair notice as to
the reach of the grievance procedure and the precise nature of the charges deprived
petitioner of procedural due process.”). However, the violation of specific Bar
Rules not named in the complaint may be considered if such misconduct is “within
the scope of the Bar’s accusations” and the attorney was “clearly notified of the
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nature and extent of the charges pending against him or her.” Fla. Bar v.
Townsend, 145 So. 3d 775, 781 (Fla. 2014). Bar Rule 4-8.4(c) involves “engaging
in conduct involving dishonesty, fraud, deceit, or misrepresentation.” The Bar’s
complaint clearly accuses Phoenix of engaging in such conduct both when he
represented Cay Clubs and during the federal investigation of Cay Clubs. Further,
the Bar argued that Phoenix violated Bar Rule 4-8.4(c) in the original proceedings
and in all subsequent appeals. For years Phoenix has been on notice that the Bar’s
charges include a violation of Bar Rule 4-8.4(c).
Fourth, the successor referee acted permissibly when she decided not to
conduct a second evidentiary hearing. “Due process in Bar disciplinary
proceedings requires that an accused attorney be given a full opportunity to explain
the circumstances of an alleged offense and to offer testimony in mitigation
regarding any possible sanction.” Fla. Bar v. Baker, 810 So. 2d 876, 879 (Fla.
2002). Phoenix had a full opportunity to explain, with ninety minutes of oral
argument and presentation of eighteen character witnesses to the successor referee.
What is more, Phoenix consented to shorter proceedings before the second referee
based on her review of the prior proceedings’s transcript. A party cannot invite
supposedly improper proceedings and later complain that the proceedings were
improper. See, e.g., Lowe v. State, 259 So. 3d 23, 50 (Fla. 2018) (a party may not
invite error and then be heard to complain of that error on appeal).
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And fifth, the burden of proof did not improperly shift from the Bar to
Phoenix. The Bar must prove by “clear and convincing evidence” that Phoenix
violated each Bar Rule charged. Fla. Bar v. Rayman, 238 So. 2d 594, 597 (Fla.
1970). Phoenix’s own admissions in the NPA are the heart of the Bar’s case. We
find Phoenix’s admissions in that agreement to have been clear and convincing
evidence of his violations within the meaning of our cases.
B
Competent and substantial evidence supports the successor referee’s
findings of fact, which in turn support the referee’s recommendations as to guilt.
This Court’s review is limited to determining whether the factual findings are
“supported by competent, substantial evidence in the record” and does not include
“reweigh[ing] the evidence.” Fla. Bar v. Alters, 260 So. 3d 72, 79 (Fla. 2018)
(citing Fla. Bar v. Frederick, 756 So. 2d 79, 86 (Fla. 2000)). For
recommendations of guilt, this Court’s review is equally limited only to
determining if the referee’s factual findings support the recommendations. Id.(citing Fla. Bar v. Shoureas, 913 So. 2d 554, 557-58 (Fla. 2005)). The referee
based her findings of fact almost entirely on the NPA. Though Phoenix’s
testimony later attempted to downplay these admissions, they are in fact competent
and substantial evidence. The referee’s factual findings support the successor
referee’s recommendations of guilt.
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Bar Rule 4-1.16 requires attorneys to decline or terminate a representation if
the representation results in a violation of the Bar Rules or law, if a client refuses
to stop acting in a criminal or fraudulent manner, or a client has used the lawyer’s
services to perpetrate a crime or fraud. The record demonstrates that Phoenix
should have terminated his representation of Cay Clubs for all three reasons.
Phoenix was aware that Cay Clubs “did not heed his advice at times with regard to
the sale and marketing of the investment” and “continued to work as a lawyer for
the company despite the principals ignoring his advice.” Phoenix “received and
commented on marketing materials where fixed rates of return and leaseback
payments were promised to potential investors well after he had advised the Cay
Clubs principals to halt this practice and had obtained opinions from outside
counsel concerning whether the investment was a security.” Beyond the marketing
materials, Phoenix knew that the “leaseback payments made to investors were
concealed from lenders on [real estate] closing documents . . . when closings were
conducted and lender financing was obtained.” These closings “took place in
Phoenix’s law office” and “at no point during these closings were the leaseback
payments listed” on the required documents. “The Cay Clubs principals made
great efforts to avoid regulation under the securities laws, and Phoenix assisted in
these efforts.” Phoenix knew that Cay Clubs was committing fraud and that his
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services were assisting in that fraud, yet he continued to represent Cay Clubs in
violation of Bar Rule 4-1.16.
Bar Rule 4-4.1 requires attorneys to be truthful in statements to others when
representing a client. Failing to disclose information is considered untruthful if
“disclosure is necessary to avoid assisting a criminal or fraudulent act by a client.”
Phoenix’s actions led directly to misleading investors about Cay Clubs’s “inability
[to] make leaseback payments . . . to lending institutions or future investors when
ongoing marketing and financing activities took place.” When Cay Clubs hired
outside counsel to determine their potential liabilities under securities law, Phoenix
was aware that “significant aspects of the Cay Clubs business and marketing
efforts were not disclosed to the outside lawyers.” Phoenix failed to disclose
information in order to assist Cay Clubs in criminal and fraudulent acts, thereby
violating Bar Rule 4-4.1.
Bar Rule 4-8.4(c) prohibits attorneys from engaging in conduct involving
dishonesty, fraud, deceit, or misrepresentation. Phoenix violated this rule both
through his actions representing Cay Clubs and in the subsequent federal
investigation. As Cay Clubs’s counsel, Phoenix “actively participated in the effort
to try to incorrectly characterize the nature of [Cay Clubs’s] business.” Closings
completed in Phoenix’s law office did not disclose the leaseback payments to
lenders. During the investigation of Cay Clubs, Phoenix admitted that he had “not
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always been forthcoming” with federal regulators “because he did not want to be
held accountable for the misconduct at Cay Clubs, or the fraud that took place
against the investors and the lending institutions.” Phoenix agreed that in his
testimony for the federal investigation he had “minimized his role and knowledge
of the events, and ha[d] sought to avoid his own liability.” Phoenix was dishonest
about the nature of Cay Clubs’s business, helped Cay Clubs commit fraud, was
deceitful towards lending institutions about leaseback payments, and
misrepresented his unlawful actions to federal investigators. That violates Bar
Rule 4-8.4(c).
C
In light of all this, we cannot say that a ninety-day suspension has a
sufficient basis under our cases. “The purposes of attorney discipline are: (1) to
protect the public from unethical conduct without undue harshness towards the
attorney; (2) to punish misconduct while encouraging reformation and
rehabilitation; and (3) to deter other lawyers from engaging in similar misconduct.”
Fla. Bar. v. Dupee, 160 So. 3d 838, 853 (Fla. 2015). The successor referee
correctly relied on Florida Standard for Imposing Lawyer Sanctions (Bar Sanction
Standard) 7.2 (2015) to determine that suspension is the correct sanction in this
case. (“Suspension is appropriate when a lawyer knowingly engages in conduct
that is a violation of a duty owed as a professional and causes injury or potential
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injury to a client, the public, or the legal system.”). Because the standards do not
provide recommendations of suspension length, we look to factually similar cases
to determine the appropriate length. Dupee, 160 So. 3d at 853.
The referee did not err in her assessment of aggravating and mitigating
circumstances. To impose a sanction commensurate with the misconduct, the
referee determines what, if any, mitigating and aggravating factors apply. “[A]
referee’s findings in mitigation and aggravation carry a presumption of correctness
and will be upheld unless clearly erroneous or without support in the record.”
Alters, 260 So. 3d at 82 (quoting Fla. Bar v. Germain, 957 So. 2d 613, 621 (Fla.
2007)). The successor referee found one aggravating factor, Bar Sanction Standard
9.22(g) (2015) (refusal to acknowledge wrongful nature of conduct), and five
mitigating factors, Bar Sanction Standards 9.32(a) (absence of a prior disciplinary
record), 9.32(f) (inexperience in the practice of law), 9.32(g) (character or
reputation), 9.32(i) (unreasonable delay), and 9.32(j) (2015) (interim
rehabilitation). The successor referee rejected the other mitigating factors that
Phoenix offered.
The aggravating factor is supported by the record because, despite having
signed an NPA admitting participation in criminal conduct, Phoenix still argued
that he did not commit misconduct. Further, Phoenix argued that he repeatedly
“tried to right the ship” to prevent Cay Clubs’s fraud, that “as soon as he knew
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[about the Ponzi scheme], he sprung into action” to stop it, and claimed that he was
“the one man who told Cay Clubs [to] shut it down.” The successor referee
characterized Phoenix’s narrative as casting “other Cay Clubs executives in the
role as villain, and himself in the role of hero. Essentially, he argues that he alone
tried to thwart the illegal practices, did so valiantly, and singlehandedly shut down
the sales operations when [his] attempts were ultimately thwarted.” We cannot
square that description of his role with his admissions in the NPA or with his
decision not to bring the NPA to the Bar’s attention.
The mitigating factors are likewise supported by the record. The Bar does
not specifically contest any of the mitigating factors, but highlights that the
character witnesses presented by Phoenix generally did not know him at the time
of the misconduct, so the mitigating testimony is about Phoenix’s current character
or reputation, rather than character or reputation at the time of the misconduct.
Notwithstanding this correct assessment of aggravating and mitigating
circumstances, we find a suspension of ninety days to be so brief as to be without
basis in our law as it has been articulated in similar cases.
Consider the case of Phoenix’s former colleague, who might have been his
codefendant under slightly different circumstances. Fla. Bar v. Callahan, No.
SC17-539, 2017 WL 1409677 (Fla. Apr. 20, 2017). Callahan also worked for Cay
Clubs for a similar length of time and entered into a non-prosecution agreement.
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The Bar alleged that Callahan violated three Bar Rules, the same three as Phoenix,
and Callahan agreed to a consent judgment for a one-year suspension. A more
severe sanction for Phoenix is warranted because key factual differences exist
between the cases, including Callahan’s consent judgment. Callahan, through his
law firm, only served as outside counsel to Cay Clubs, while Phoenix worked
directly for Cay Clubs, holding the positions of “Senior Vice President and General
Counsel.” Beyond differing formal titles, Phoenix knew more about, and was
more deeply involved in Cay Clubs’s Ponzi scheme. Unlike Phoenix, Callahan
“was not involved in the internal operation of Cay Clubs or aware of the fraud
being committed in the marketing, sales or financing by the principals.”
Conditional Guilty Plea for Consent Judgment at 2, Callahan, 2017 WL 1409677(No. SC17-539). Callahan received a one-year suspension for knowing about the
leaseback payments, one element of Cay Clubs’s Ponzi scheme, yet “fail[ing] to
obtain additional legal opinions and to withdraw from further representation.” Id.
at 4. In contrast, Phoenix admitted that he was aware of and participated in
multiple facets of Cay Clubs’s Ponzi scheme. Further, Callahan accepted
responsibility by entering into a consent judgment for a one-year suspension, while
Phoenix has consistently refused to acknowledge before the Bar what he
acknowledged in his NPA.
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Phoenix’s case is also similar to Fla. Bar. v. Dupee; the attorney there
argued that she did not know that her client was hiding funds during a divorce
proceeding. 160 So. 3d at 845. We suspended Dupee for one year, primarily
because Dupee knowingly allowed her client to submit incomplete financial
information to the court and opposing counsel. Id. at 854. While the Bar here did
not charge Phoenix with dishonesty towards a tribunal, we find that Phoenix failed
on numerous occasions to act as an officer of the court, including when he
knowingly allowed numerous fraudulent HUD-1 statements to be prepared in his
office—statements without which, he knew, the scheme could not continue.
Fla. Bar v. Hall, 49 So. 3d 1254 (Fla. 2010), is another case that tells us the
suspension recommended here is too light. Hall falsified real estate documents
and, in one important distinguishing episode, forged signatures. Hall admitted to
having committed criminally fraudulent conduct in a deferred prosecution
agreement; the charges against her were ultimately dismissed because she
complied with the agreement. Id. at 1256. We nonetheless found that Hall
“engaged in ongoing, continuous misrepresentations for several years,” and that
disbarment was the appropriate sanction despite the referee’s recommendation of a
ninety-day suspension. Id. at 1261, 1263. There, as here, we do “not look
favorably on those who use their standing as an officer of the court to deliberately
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harm others—especially when they intentionally hurt members of the public for
their own personal gain.” Id. at 1259.
For these reasons, we conclude that Phoenix ought to be suspended from the
practice of law for two years. The suspension will be effective thirty days from the
filing of this opinion so that Phoenix can close out his practice and protect the
interests of existing clients. If Phoenix notifies this Court in writing that he is no
longer practicing and does not need the thirty days to protect existing clients, this
Court will enter an order making the suspension effective immediately. Phoenix
shall fully comply with Rule Regulating the Florida Bar 3-5.1(h). Further, Phoenix
shall accept no new business from the date this opinion is filed until he is
reinstated. Respondent is further directed to comply with all other terms and
conditions of the report.
Judgment is entered for The Florida Bar, 651 East Jefferson Street,
Tallahassee, Florida 32399-2300, for recovery of costs from Charles Paul-Thomas
Phoenix in the amount of $8,569.96, for which sum let execution issue.
It is so ordered.
CANADY, C.J., and POLSTON, LABARGA, LAWSON, MUÑIZ, and
COURIEL, JJ., concur.
GROSSHANS, J., did not participate.
THE FILING OF A MOTION FOR REHEARING SHALL NOT ALTER THE
EFFECTIVE DATE OF THIS SUSPENSION.
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Original Proceeding – The Florida Bar
Joshua E. Doyle, Executive Director, Patricia Ann Toro Savitz, Staff Counsel,
Tallahassee, Florida, and Kimberly Anne Walbolt, Bar Counsel, The Florida Bar,
Tampa, Florida, and Chris W. Altenbernd of Banker Lopez Gassler P.A., Tampa,
Florida,
for Complainant
Patrick John McGinley of Law Office of Patrick John McGinley, P.A., Winter
Park, Florida,
for Respondent
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