Kentucky Bar Association v. John Greene Arnett Jr

TO BE PUBLISHED
,i5ujartittr Courf qAtufurltv
2015-SC-000153-KB
KENTUCKY BAR ASSOCIATION MOVANT
V. IN SUPREME COURT
JOHN GREENE ARNETT, JR. RESPONDENT
OPINION AND ORDER
The Respondent, John Greene Arnett, Jr., was admitted to the Kentucky
Bar on October 21, 1976. His KBA Member Number is 01745 and his bar
roster address is 6900 Houston Road, Building 600, Suite 23, P.O. Box 1178,
Florence, Kentucky 41022. He is alleged to have committed numerous
violations of the Rules of Professional Conduct. The Kentucky Bar Association's
Board of Governors has recommended that he be permanently disbarred for his
misconduct. This Court adopts the recommendation.
I. Background
A. Underlying conduct and charges.
Arnett's misconduct came to light in the course of an investigation of his
use of client funds by the Boone County Sheriff's Department. Arnett had been
retained by Robert Shane Hamblin in February 2012 to represent him in a
divorce proceeding and received $75,000.00 in marital funds to hold in trust
pending final division of the couple's assets. Arnett placed the funds in his
IOLTA account. As part of the divorce settlement, Hamblin was directed to pay
his ex-wife one-half of the funds being held by Arnett. Hamblin instructed
Arnett to release those funds to the ex-wife. Arnett, however, refused to
disburse the finds.
In November 2012, the client retained another attorney to finalize the
divorce proceedings. That counsel notified Linda Talley Smith,
Commonwealth's Attorney for Gallatin and Boone Counties, of the situation.
Smith requested an investigation, which was conducted by Detective Joshua
Quinn of the Boone County Sheriff's Department. The detective obtained the
records of Arnett's trust account and found that the account was completely
empty. Inquiry Com'n v. Arnett, 439 S.W.3d 168, 169 (Ky. 2014).
This led to a disciplinary proceeding. While the disciplinary matter was
being investigated, Arnett was temporarily suspended from the practice of law
as of August 21, 2014. Id. at 170. That suspension is still in effect.
The criminal investigation in Boone County had a domino effect. Several
other victims were discovered, leading to a multiple-count felony indictment in
the Boone Circuit Court in Criminal Action No. 14-CR-00368 on April 12,
2014, and five separate disciplinary actions against Arnett, which are the
subject of this matter.'
1. KBA File 22465
Arnett represented an estate in Owsley County, Kentucky. The decedent
owned land in Ohio, and Arnett contacted an Ohio attorney to file an ancillary
proceeding in that state to have the property sold. The closing took place on
January 17, 2013, and a check for the proceeds (approximately $110,000) was
1 The disciplinary action that led to Arnett's temporary suspension is not
included in this case.
2
issued and made payable to the estate. The executor signed an agreement for
Arnett to hold the funds in an escrow account pending a determination of taxes
potentially due in Ohio. In July 2013, Arnett was notified that no taxes were
due from the Ohio portion of the estate, and in August of that year he advised
the Ohio attorney that he was having an accountant review the matter. The
Ohio attorney was unable to reach Arnett after that time. The funds were never
properly disbursed.
This conduct served as a part of the basis for the felony indictment
issued April 12, 2014, regarding theft by unlawful taking, $10,000 or more in
violation of KRS 514.030.
The Inquiry Commission issued a two-count charge in this case alleging
that Arnett violated SCR 3.130-8.4(b) 2 by failing to properly disburse the funds
held in his escrow account in violation of KRS 514.030, and SCR 3.130-8.4(c) 3
bydepositngclfuhesrowacntdfilgomake
proper disbursement of those funds.
2. KBA File 22570
Arnett handled an automobile-accident case for Michael Romes. The
original accident occurred in 1997, and the case was settled for $900,000.
Respondent was entitled to a fee of $300,000 and took an additional $100,000,
informing Romes that he was required to hold $100,000 in escrow in case the
insurance company required a refund at some point in time. Romes did not
2 SCR 3.130-8.4(b) states that it is professional misconduct for a lawyer to
"commit a criminal act that reflects adversely on the lawyer's honesty, trustworthiness
or fitness as a lawyer in other respects."
3 SCR 3.130 - 8.4(c) provides that it is professional misconduct for a lawyer to
"engage in conduct involving dishonesty, fraud, deceit or misrepresentation."
3
question the arrangement until he was informed in late 2013 that Arnett was
in the Boone County jail and he spoke with the sheriff's detective handling the
ongoing investigation. Romes was informed by the detective that Arnett's
escrow accounts were essentially empty. Romes then filed a complaint with the
Kentucky Bar Association.
Based on this conduct, the Inquiry Commission issued a three-count
charge in this case alleging that Arnett violated SCR 3.130-1.5(c) 4 by failing to
provide a written statement to his client showing the remittance to the client
and its method of determination at the conclusion of the contingent fee matter;
SCR 3.130-8.4(c) 5 by failing to properly handle or account for the $100,000
deposited in his escrow account and belonging to Romes; and SCR 3.130-
8.4(b) 6 by committing theft by unlawful taking of more than $10,000 in
violation of KRS 514.070.
3. KBA File 22678
Arnett handled a guardianship case in Boone District Court styled In re
Michael Mallory, Case No. 01-H-00008. In the course of that representation
Arnett received substantial funds to be held on behalf of Diana Mallory as the
Guardian and Conservator for her husband, Michael Mallory. Certain bills were
4 SCR 3.130-1.5(c) states: "Upon conclusion of a contingent fee matter, the
lawyer shall provide the client with a written statement stating the outcome of the
matter and if there is a recovery, showing the remittance to the client and the method
of its determination."
5 SCR 3.130-8.4(c) provides that it is professional misconduct for a lawyer to
"engage in conduct involving dishonesty, fraud, deceit or misrepresentation."
6 SCR 3.130-8.4(b) states that it is professional misconduct for a lawyer to
"commit a criminal act that reflects adversely on the lawyer's honesty, trustworthiness
or fitness as a lawyer in other respects."
4
not paid and falsified records were submitted to the Boone District Court,
Probate Division, showing non-existent balances on the trust account
containing the funds held in escrow. The indictment issued by the Boone
Circuit Court charges that between 2005 and 2014 Arnett failed to disburse
the sum of $291,341.16. The falsified statements consisted of four documents,
originally from the First Financial Bank, that were altered and submitted to the
Probate Court in 2010, 2011, 2012, and 2013. The initial complaint was filed
by Judge Charles T. Moore who was handling the probate matter. Arnett did
not respond to the bar complaint despite receiving notice that the Inquiry
Commission required information about the complaint and that he could face
. an additional charge of misconduct for failing to respond.
Based on this conduct, the Inquiry Commission issued a four-count
charge alleging that Arnett violated SCR 3.130-3.3(a)(3) 7 by tendering altered or
forged bank statements to the Boone District Court; SCR 3.130-8.1(b) 8 by
failing to respond to the bar complaint; SCR 3.130-8.4(b) by committing theft
in violation of KRS 514.07 and four counts of criminal possession of a forged
instrument in violation of KRS 516.060; and SCR 3.130-8.4(c) by
misappropriating funds from the guardianship.
7 SCR 3.130-3.3(a)(3) states a lawyer shall not knowingly "offer evidence that
the lawyer knows to be false. If a lawyer, the lawyer's client, or a witness called by the
lawyer, has offered material evidence and the lawyer comes to know of its falsity, the
lawyer shall take reasonable remedial measures, including, if necessary, disclosure to
the tribunal. A lawyer may refuse to offer evidence, other than the testimony of a
defendant in a criminal matter, that the lawyer reasonably believes is false."
8 SCR 3.130-8.1(b) provides that a lawyer shall not "knowingly fail to respond to
a lawful demand for information from an admissions or disciplinary authority."
5
4. KBA File 22697
Arnett was hired by Thomas Kennicott as counsel in a domestic-relations
matter and was paid a retainer. In September 2013, Arnett requested an
additional $3,000 to proceed with the matter. After paying that amount,
Kennicott was unable to get in touch with Arnett with the exception of a single
email dated October 15, 2013. Kennicott's complaint alleged that from that
point forward no additional work was performed, none of his attempts to reach
Arnett were successful, and he received no response to emails and phone calls.
Kennicott also reported that he was required to hire new counsel and go into
debt to pay the new counsel $4,000 to proceed and finalize the divorce case.
Arnett did not respond to the bar complaint despite receiving notice that the
Inquiry Commission required information about the complaint and that he
could face an additional charge of misconduct for failing to respond.
Based on this conduct, the Inquiry Commission issued a four-count
charge alleging that Arnett violated SCR 3.130-1.4(a)(4) 9 by failing to return
calls or reply to emails from Kennicott about the status of his case; SCR 3.130-
1.16(d) 10 by failing to refund the fees advanced to him that had not been
earned because Arnett essentially abandoned the representation; SCR 3.130-
8.1(b) by failing to respond to the bar complaint; and SCR 3.130-8.4(c) by
9 SCR 3.130-1.4(a)(4) states that a lawyer shall "promptly comply with
reasonable requests for information."
10 SCR 3.130-1.16(d) states that "upon termination of representation, a lawyer
shall take steps to the extent reasonably practicable to protect a client's interests,
such as giving reasonable notice to the client, allowing time for employment of other ,
counsel, surrendering papers and property to which the client is entitled and
refunding any advance payment of fee or expense that has not been earned or
incurred."
6
collecting the $3,000 from Kennicott, performing no services to earn it, and yet
failing to refund it.
5. KBA File 22721
In April 2013, Arnett was engaged by Terry Walker to represent her in a
divorce. The divorce decree was entered in August of that same year. Following
entry of the decree, a qualified domestic relations order (QDRO) was required.
Walker was asked to pay Arnett an additional $1,500 for preparation of the
QDRO for distribution of retirement assets. Arnett set multiple appointments
for Walker to come to his office and sign the documents but cancelled each one
the day before with an excuse. Walker emailed Arnett on no fewer than six
occasions and telephoned at other times. On December 16, 2013, Ms. Walker
asked for return of the $1,500 fee. The money was not returned.
Based on this conduct, the Inquiry Commission issued a six-count
charge alleging that Arnett violated SCR 3.130-1.3 11 by failing to perform the
services requested in a reasonable time after having been paid to do so; SCR
3.130-1.4(a)(4) by failing to return Walker's calls or emails inquiring about the
status of her case; SCR 3.130-1.5(a) 12 by collecting the $1,500 fee, and then
failing to do the work or return the fee; SCR 3.130-1.16(d) by failing to refund
the advance fee after failing to perform the work for Walker and essentially
abandoning the representation; SCR 3.130-8.1(b) by failing to respond to the
11 SCR 3.130-1.3 states that "A lawyer shall act with reasonable diligence and
promptness in representing a client."
12 SCR 3.130-1.5(a) states: "A lawyer shall not make an agreement for, charge,
or collect an unreasonable fee."
7
bar complaint; and SCR 3.130-8.4(c) by collecting the fee from Walker,
performing no services to earn it, and then failing to refund it.
B. Procedural background
The charges were all served on Arnett. Early in the process, Arnett was
represented by counsel, who communicated with the KBA. For example, in KBA
File 22465, Arnett's counsel replied to the Inquiry Commission's initial
complaint (as distinct from its later formal charge). And in one case, KBA File
22570, the Office of Bar Counsel received some communication with Arnett's
lawyer requesting an extension of time to file an answer. No answer was filed,
however. And no answer was filed in the other cases either. As a result, the
cases were treated as cases of default under SCR 3.210 and were submitted
directly to the Board of Governors. In KBA File Nos. 22465, 22570, 22678,
22697, the Board voted 18-0 (with two recusals) to find Arnett guilty of all the
counts. In KBA File 22721, the Board voted 18-0 (with two recusals) to find
Arnett guilty of five of the six counts; the Board voted 15-3 to find him not
guilty of count III, which alleged that Arnett had charged an unreasonable fee.
The Board then turned to the sanction. The Board considered Arnett's
disciplinary history, which consisted only of his having been temporarily
suspended as of August 21, 2014 as a result of the criminal charges against
him. The Board noted that the aggravating factors in the cases included
Arnett's dishonest or selfish motive, and his substantial experience in the
practice of law. The Board noted that the only mitigating factor was Arnett's
absence of a prior disciplinary history. The Board then voted 18-0 to
recommend permanent disbarment as the appropriate sanction.
8
II. Discussion
Neither the KBA's Office of Bar Counsel nor Arnett has sought review by
the Court under SCR 3.370(7). The next question, however, is whether this
Court should undertake its own review of this matter under SCR 3.370(8). This
Court agrees that Arnett is guilty of the misconduct as found by the Board of
Governors. And, given the magnitude of Arnett's misconduct, which includes
having misappropriated approximately $500,000 of client funds, this Court
agrees that permanent disbarment is the appropriate sanction. Thus, this
Court declines to undertake review pursuant to SCR 3.370(8), and the Board's
decision is adopted in full under SCR 3.370(9)
Order
ACCORDINGLY, IT IS ORDERED THAT:
1. John Greene Arnett, Jr., is found guilty of the above-described
violations of the Rules of Professional Conduct as also found by the
Board of Governors.
2. Arnett is permanently disbarred and his license to practice law in the
Commonwealth of Kentucky is revoked.
3. As required by SCR 3.390, Arnett will, within 10 days after the
issuance of this order of permanent disbarment, notify, by letter duly
placed with the United States Postal Service, all courts or other
tribunals in which he has matters pending, and all of his clients of his
inability to represent them and of the necessity and urgency of
promptly retaining new counsel. Arnett shall simultaneously provide a
copy of all such letters of notification to the Office of Bar Counsel.
9
Arnett shall immediately cancel any pending advertisements, to the
extent possible, and shall terminate any advertising activity for the
duration of the term of suspension.
4. As stated in SCR 3.390(a), this order shall take effect on the 10th day
following its entry. Arnett is instructed to promptly take all reasonable
steps to protect the interests of his clients. He shall not accept new
clients or collect unearned fees, and shall comply with the provisions
of SCR 3.130-7.50(5).
5. In accordance with SCR 3.450, Arnett is directed to pay all costs
associated with these disciplinary proceedings against him, said sum
being $714.54, for which execution may issue from this Court upon
finality of this Opinion and Order.
All sitting. All concur.
ENTERED: June 11, 2015.
10