In Re Petition for DISCIPLINARY ACTION AGAINST Larry S. SEVERSON, a Minnesota Attorney, Registration No. 99363

STATE OF MINNESOTA
IN SUPREME COURT
A13-1382
Original Jurisdiction Per Curiam
Dissenting, Anderson, J. and Gildea, C.J.
In re Petition for Disciplinary Action
against Larry S. Severson, a Minnesota Filed: February 18, 2015
Attorney, Registration No. 99363 Office of Appellate Courts
________________________
Martin A. Cole, Director, Joshua H. Brand, Assistant Director, Office of Lawyers
Professional Responsibility, Saint Paul, Minnesota, for petitioner.
Eric T. Cooperstein, Law Office of Eric T. Cooperstein, PLLC, Minneapolis, Minnesota,
for respondent.
________________________
SYLLABUS
The respondent attorney engaged in misconduct by entering into an investment
agreement, which amounted to an unsecured $500,000 loan, and several related business
transactions with a client in violation of his obligations under the rules of professional
conduct regarding conflicts of interest. The attorney also made misrepresentations to a
client and opposing counsel in the course of a civil lawsuit, and to the Director during the
disciplinary investigation, caused harm to his client, and did not demonstrate genuine
remorse for the misconduct. Based upon these violations of the rules of professional
conduct, the appropriate discipline is an indefinite suspension from the practice of law
with no right to petition for reinstatement for 1 year.
1
OPINION
PER CURIAM.
In July 2013 the Director of the Office of Lawyers Professional Responsibility
filed a petition for disciplinary action alleging that respondent Larry S. Severson violated
the rules of professional conduct by entering into an investment agreement with a client,
D.S., and having D.S. sign an assignment and mortgage without disclosing his personal
interest. The Director also alleged that Severson made several misrepresentations to
D.S., to opposing counsel in connection with a civil lawsuit to be brought by D.S., and to
the Director. Following a hearing, the referee made findings of fact and conclusions of
law that Severson engaged in the majority of the misconduct alleged in the petition and
that Severson’s lack of remorse was not an aggravating factor. The referee recommended
that Severson be suspended from the practice of law for 90 days. Because we conclude
the referee clearly erred in finding that Severson’s lack of remorse was not an
aggravating factor, and that the referee’s recommended discipline does not sufficiently
account for the seriousness of Severson’s misconduct, we indefinitely suspend Severson
from the practice of law with no right to petition for reinstatement for 1 year.
Severson was admitted to practice law in Minnesota in 1975, and was a
shareholder in the law firm of Severson, Sheldon, Dougherty and Molenda, P.A. (law
firm) until 2012. Severson recently started a new law firm with two other attorneys.
Severson was also engaged in extensive business dealings in car dealerships, banks, and
commercial real estate redevelopment projects.
2
The misconduct in this case relates to D.S., who was a member of Severson’s
household. D.S.’s childhood history was tragic. When D.S. was 3 months old, her
parents were killed in a car accident. D.S. was the sole beneficiary of various insurance
proceeds that were placed in a conservatorship administered by her adoptive mother
(mother). When D.S. was in high school, she experienced serious conflicts with her
stepfather that they could not resolve. As a result, D.S. asked and Severson agreed that
she would become a member of the Severson household. The Seversons thereafter
treated D.S. like a daughter.
Investment Agreement
When D.S. turned 18 in April 1996, she was informed by her mother that the
conservatorship should be closed, and the funds transferred to D.S. D.S. discussed the
matter with Severson, and Severson told her that his law firm could assist her. D.S. also
discussed with Severson how to invest the funds she would be receiving from the
conservatorship. She told Severson she wanted to go to college and use the inheritance to
pay for college. Severson offered to invest D.S.’s inheritance and pay her 9% interest
annually to cover her living expenses and tuition.
Severson’s law firm prepared the documents necessary to close the
conservatorship. A paralegal and an associate at the firm performed most of this work,
although Severson was listed as an attorney on court filings. The conservatorship was
closed on May 31, 1996, and on June 5, 1996, $541,868 was deposited in the law firm’s
trust account for D.S.
3
Severson prepared an investment agreement that was signed by D.S. and Severson
on June 4, 1996. The investment agreement provided that Severson would invest the
principal of approximately $500,0001 for 48 months “in mortgages, securities, and other
interest generating investments,” pay D.S. a fixed return of 9% annually, and then return
the principal to D.S. at the end of 48 months. Severson also prepared a power of
attorney, which D.S. signed, appointing himself as the attorney in fact for D.S. with
respect to funds held in several bank accounts.
D.S. initially attended college at Mount Holyoke College in Massachusetts, and
then transferred to Saint Catherine University in Saint Paul to be closer to her ailing
mother, who died in 2000. As a result of the transfer and the emotional toll of her
mother’s death, D.S. did not graduate from college in 2000. As contemplated by the
agreement, D.S. and Severson orally agreed to extend the investment agreement, but at a
reduced interest rate of 8%.
Severson testified that he did not recall where he invested D.S.’s money between
1996 and 2002. In 2002, Severson used all of D.S.’s money and $250,000 of his own
funds to purchase 482 shares of a bank holding company, Financial Services of Saint
Croix Falls, Inc. (FSSCF).
The law firm did other legal work for D.S. Severson arranged for another attorney
at his firm to prepare estate planning documents for D.S, which were executed in 2000.
1
The same day $541,868 was deposited in the trust account, $41,856 was
withdrawn and allegedly paid to D.S., although neither D.S. nor Severson has any
specific recollection regarding this withdrawal. In any case, the parties do not dispute
that about $500,000 remained in the trust account for D.S.
4
Between 2004 and 2007, Severson represented D.S. in a dispute she had with a former
landlord over a security deposit. In 2006, Severson drafted a contract for a business D.S.
started and filed the necessary documents to form a limited liability corporation.
Severson’s Financial Difficulties
In January 2007, D.S. requested that Severson return the $500,000 to her. Because
Severson was unable to consummate a sale of the FSSCF stock, Severson was unable to
return D.S.’s principal. By 2008, Severson was in serious financial trouble. Notably,
Severson had acquired an equine center in 2007 and later sold the facility for $1.5 million
on a contract for deed, but the purchasers defaulted on the contract. Thereafter, Severson
assigned his seller’s interest in the equine center to D.S. as security for her principal, and
had D.S. sign a $250,000 mortgage regarding their interest in the equine center; but
Severson did not explain to D.S. that he had her sign the documents because of his
financial difficulties.
Additionally, Prosperan Bank, the mortgage holder on one of Severson’s real
estate projects, threatened to foreclose on the mortgage when Severson’s partner in the
project declared bankruptcy. To avoid foreclosure, Severson had D.S. assign her seller’s
interest in the equine center to Prosperan, telling her that it would help him repay her
principal. The assignment represented, among other things, that D.S. was Severson’s
daughter and that she would benefit from the forbearance of the mortgage foreclosure.
5
Subsequently, D.S. received a delinquent tax notice in 2009 on the equine center, and in
2010 the mortgage holder brought a foreclosure action naming D.S. as a co-defendant.2
Misrepresentations
D.S. hired an attorney who sent a demand letter in October 2009 to Severson
seeking return of the $500,000 and an accounting. Severson responded that he owed D.S.
about $410,000, subject to a final accounting. Severson’s accountant determined the
amount owing was $371,363 after subtracting four legal invoices purportedly from the
law firm to D.S. for services rendered. The Director discovered, however, that the four
legal invoices were not prepared by the law firm; instead the invoices were prepared by
Severson for the final accounting. In July 2010, D.S. sued Severson seeking return of her
principal. The case was settled in December 2010 for $435,000, from which $135,000
was paid by D.S. for attorney fees. Thus, D.S. recovered only $300,000 of the $500,000
she had originally given to Severson.
Severson’s misconduct was reported to the Director. During the disciplinary
investigation Severson stated, through counsel,3 in response to a question from the
Director, that D.S.’s funds were, at all times, invested in FSSCF stock. The Director
pressed Severson for documentary proof because Severson’s statements were inconsistent
with Severson’s filings with the Secretary of State. Severson retracted his statement, and
2
In September 2009, Severson lowered the interest rate in the investment agreement
from 8% to 7% because of his financial difficulties. Severson informed D.S., and she
acquiesced to the change.
3
Severson retained new counsel to represent him before our court.
6
stated he did not know where D.S.’s funds were invested from 1996 until 2002. Severson
forwarded the four legal invoices to the Director but failed to disclose that the invoices
were prepared for the final accounting.
The Director filed a petition for disciplinary action alleging multiple acts of
misconduct: (1) Severson entered into an investment agreement with D.S. in 1996, in
violation of Minn. R. Prof. Conduct 1.7(b) (1996) and 1.8(a) (1996); (2) Severson
misrepresented that checks issued from D.S.’s funds in 1996 were used for real estate
purchases, in violation of Minn. R. Prof. Conduct 8.4(c);4 (3) Severson assigned his
seller’s interest in the equine center to D.S. and then had D.S. assign and mortgage her
interest in the equine center to two of Severson’s creditors, in violation of Minn. R. Prof.
Conduct 1.7(a)(2), 1.7(b), and 1.8(a); (4) Severson acted dishonestly by having D.S.
assign and mortgage her interest in the equine center to his creditors without disclosing
that his financial insecurity necessitated the assignments, in violation of Minn. R. Prof.
Conduct 8.4(c); (5) Severson misrepresented to Prosperan that Severson was his
daughter, in violation of Minn. R. Prof. Conduct 8.4(c); (6) Severson made
misrepresentations to opposing counsel and to the Director when he submitted misleading
invoices ostensibly from his law firm to reduce the amount of money it appeared he owed
D.S., in violation of Minn. R. Prof. Conduct 8.1(a) and (b), and Minn. R. Prof. Conduct
8.4(c); and (7) Severson made misrepresentations to the Director that at all times D.S.’s
4
Unless otherwise indicated, citations to the Minnesota Rules of Professional
Conduct are to the rules currently in effect.
7
funds were invested in FSSCF stock, in violation of Minn. R. Prof. Conduct 8.1(a) and
(b).
The referee concluded that Severson engaged in acts of misconduct (1), (3), (4),
(5), (6), and (7) described above in violation of the applicable rules of professional
conduct but found no violation with respect to act of misconduct (2). The referee also
found that remorse was neither an aggravating nor a mitigating factor. Further, the
referee found that Severson’s repayment of D.S. was both an aggravating and mitigating
factor; and that Severson’s charitable contributions, pro bono work, and community
service mitigated his misconduct. The referee recommended a 90-day suspension
without the requirement that Severson petition for reinstatement.
I.
The Director bears the burden of proving professional misconduct by clear and
convincing evidence. In re Voss, 830 N.W.2d 867, 874 (Minn. 2013). When either party
timely orders a transcript of the referee’s hearing, as the Director did here, the referee’s
findings and conclusions are not conclusive. Rule 14(e), Rules on Lawyers Professional
Responsibility (RLPR); Voss, 830 N.W.2d at 874. But we give “great deference” to the
referee’s findings and will uphold those findings if they have evidentiary support in the
record and are not clearly erroneous. Voss, 830 N.W.2d at 874. A referee’s findings are
clearly erroneous only when they leave this court “with the definite and firm conviction
that a mistake has been made.” In re Coleman, 793 N.W.2d 296, 303 (Minn. 2011)
(citations omitted) (internal quotation marks omitted).
8
Severson argues that the referee erred in concluding that he violated the conflict of
interest rules when he entered into the investment agreement with D.S.5 Also, the parties
dispute the referee’s findings related to the misrepresentations involved in acts of
misconduct (2), (4), (5), and (7). Further, the Director disputes the findings that remorse
was not an aggravating factor, and that Severson was not motivated by selfishness. We
will discuss each issue in turn.
A.
Severson first argues that the referee erred in finding that he violated the conflict
of interest rules when he entered into the investment agreement with D.S.6 According to
Severson, no attorney-client relationship existed at the time the investment agreement
was executed, and therefore the conflict of interest rules did not apply to him. To answer
the question presented, we must determine whether an attorney-client relationship existed
during the relevant time period, and if it did, whether the conflict of interest rules were
violated.
To establish a violation of the conflict of interest rules, the Director must first
prove the existence of an attorney-client relationship at the time of the alleged wrongful
conduct. See In re Perry, 494 N.W.2d 290, 294 (Minn. 1992) (concluding that if there
was no attorney-client relationship, there could be no violation of Rules 1.4 and 1.7). An
attorney-client relationship may arise under either a contract or a tort theory. Id. Neither
5
Severson does not dispute that he violated the conflict of interest rules in act of
misconduct (3) and does not dispute the misrepresentation in act of misconduct (6).
6
This contention relates to act of misconduct (1).
9
party challenges the referee’s finding that “[a]t the time of the [1996] Agreement, there
was no express or implied agreement to enter into an attorney-client relationship.”
Therefore, the appropriate analytical framework for determining whether an attorney-
client relationship existed is under the tort theory.
An attorney-client relationship is created under the tort theory “whenever an
individual seeks and receives legal advice from an attorney in circumstances in which a
reasonable person would rely on such advice.” Perry, 494 N.W.2d at 295 (citation
omitted) (internal quotation marks omitted). Generally, whether an attorney’s advice
could be relied upon to establish an attorney-client relationship is a question of fact.
Admiral Merchs. Motor Freight, Inc. v. O’Connor & Hannan, 494 N.W.2d 261, 266
(Minn. 1992). We look to the surrounding communications and circumstances to
determine whether reliance on an attorney’s advice was reasonable. Id. at 265. It is
incumbent on the lawyer to clarify any ambiguity. Geoffrey C. Hazard, Jr. et al., The
Law of Lawyering § 2.5 (3d ed. Supp. 2013) (referring to Section 14 of the Restatement
of the Law Governing Lawyers). The need to clarify any ambiguity is especially
important when lawyers step outside the practice of law and provide non-legal services,
such as business and investment services.
There is ample evidence in the record to support the referee’s conclusion that D.S.
sought legal services from Severson. D.S. approached Severson to help her close the
conservatorship and invest her money, and Severson indicated that his law firm could
10
assist her.7 Further, D.S. testified that she asked Severson for help in investing her
money because he was an attorney. Severson’s statement that his law firm could help
D.S. provides additional evidence that the services D.S. was seeking were legal in nature.
The record further shows that D.S. received legal advice from Severson. Along
with the investment agreement, Severson prepared and then had D.S. sign a power of
attorney that made him attorney in fact for D.S. with respect to several bank accounts.
While a power of attorney does not need to be drafted by a lawyer, it is a legal document
that lawyers typically draft for clients. Cf. Perry, 494 N.W.2d at 295 (concluding that
preparing trust and trust amendment documents and letter to opposing counsel “are
commonplace in the legal community”).
Finally, the record establishes that a reasonable person in D.S.’s shoes would have
relied on the legal advice Severson provided to D.S. D.S. asked Severson for help, and
Severson told D.S. that his law firm could help her. Thus, it was Severson’s own words
7
The referee based his finding of an attorney-client relationship on the fact that
Severson’s law firm performed legal work in order to close the conservatorship and D.S.
was sent a bill for this work. Severson argues that D.S.’s mother, the conservator, was
actually the firm’s client. He notes that D.S.’s mother met with the paralegal four times
in order to prepare documents for closing the conservatorship and that his law firm
ordinarily considered the conservator, not the conservatee, the client when a
conservatorship was closed.
Because there is sufficient evidence in the record that Severson performed legal
work for D.S. with respect to investing her funds, including drafting the power of
attorney, it is not necessary to examine the legal work performed for the closing of the
conservatorship to determine whether an attorney-client relationship existed when the
investment agreement was signed. Also, it is not necessary to decide whether Severson’s
firm represented D.S. with respect to the closing of the conservatorship, and we express
no opinion on that topic.
11
that indicated he was going to perform legal work for D.S. The power of attorney form,
which was signed in order to assist Severson in investing D.S.’s money, has a stamp on
the bottom of it indicating it was drafted by Severson’s law firm. Severson never told
D.S. that he was not acting as her lawyer when he drafted this legal document. In
addition, the funds from the conservatorship that Severson was going to invest for D.S.
were transferred into Severson’s law firm’s client trust account. Based on all of these
facts, the referee did not clearly err when he concluded that it was reasonable for D.S. to
have relied on Severson’s legal advice.
In summary, the referee’s findings that D.S. sought legal advice from Severson to
help her close the conservatorship and invest her money; that she received legal advice
from Severson, including the execution of the power of attorney; and that it was
reasonable for D.S. to have relied on this legal advice are supported by the record.
Consequently, the referee did not clearly err when he found that an attorney-client
relationship existed between D.S. and Severson when they executed the investment
agreement.
B.
We next examine whether the referee’s finding that Severson violated the conflict
of interest rules is supported by the record. Rule 1.7, as it existed in 1996, provided that
an attorney was prohibited from representing a client if the representation would be
“materially limited . . . by the lawyer’s own interests.” Minn. R. Prof. Conduct 1.7(b)
(1996). The prohibition did not apply if: “(1) the lawyer reasonably believ[ed] the
representation [would] not be adversely affected; and (2) the client consent[ed] after
12
consultation.” Id. An attorney was also prohibited from entering into a business
transaction with a client unless: (1) the terms of the transaction were fair and reasonable
and were communicated to the client in writing in a manner understandable to the client;
(2) the client was given a reasonable opportunity to seek the advice of independent
counsel in the transaction; and (3) the client consented in writing. Minn. R. Prof.
Conduct 1.8(a) (1996).
Severson violated Rules 1.7(b) and 1.8(a) when he entered into the investment
agreement with D.S.8 Severson had a concurrent conflict of interest because his
representation of D.S. in the drafting and execution of the power of attorney was
materially limited by Severson’s own personal interests in the investment agreement. See
Minn. R. Prof. Conduct 1.7(b) (1996). D.S. did not consent to the conflict of interest.
Moreover, the agreement did not provide security for D.S.’s investment, limit the types of
investments Severson could make, or provide for a penalty, or the recovery of her funds,
if Severson did not comply with the agreement. As a result, the referee correctly found
that the absence of these protections in the investment agreement made the agreement
unfair and unreasonable. In re Peterson, 456 N.W.2d 89, 90 (Minn. 1990) (concluding
that the record supported the referee’s finding that an unsecured loan from a client was
not fair and reasonable). Additionally, Severson did not adequately explain the
8
The only challenge Severson makes to the referee’s findings and conclusions that
he violated Rule 1.7 and 1.8 with respect to the investment agreement is his claim that he
did not have an attorney-client relationship with D.S. in 1996. In fact, Severson admits in
his brief to our court that if an attorney-client relationship existed, “then [he] is
responsible for not having complied with the Rule 1.8(a).”
13
investment agreement to D.S. and did not provide her with a reasonable opportunity to
seek advice from independent counsel. See Minn. R. Prof. Conduct Rule 1.8(a) (1996).
We therefore hold that the referee’s conclusion that Severson entered into the investment
agreement with D.S. in violation of Minn. R. Prof. Conduct 1.7(b) (1996) and 1.8(a)
(1996) was not clearly erroneous.
C.
The parties dispute the referee’s findings regarding misrepresentations in four
areas. First, the Director argues the referee erred by finding Severson’s withdrawal of
D.S.’s funds in 1996 from the law firm’s trust account and payment of those funds to
Valley Ford, Inc. did not involve dishonesty, fraud, deceit, or misrepresentation.9
According to the Director, Severson misrepresented that the funds would be invested in
real estate purchases.
Lawyers are prohibited from engaging in conduct that involves “dishonesty, fraud,
deceit, or misrepresentation.” Minn. R. Prof. Conduct 8.4(c). The referee found that in
1996 the law firm issued a check from the trust account holding D.S.’s funds for
$434,000 payable to Valley Ford, Inc. with the notation on the check “Real Estate
purchase.” It is undisputed that the law firm issued a trust account check in 1996 for
$434,000 to Valley Ford, Inc. with the notation “Real Estate purchases.” The Director,
however, failed to prove where the funds were invested between 1996 and 2002.
Severson stated in a letter that he did not save the accounting records for the time period
9
This contention relates to act of misconduct (2).
14
prior to 2002. Also, Severson’s bank records do not indicate where D.S.’s funds were
invested from 1996 to 2002. Severson testified that he did not remember where he
invested D.S.’s funds prior to 2002, at which point he invested them in FSSCF. Without
evidence that the funds were not invested in real estate purchases in 1996, there is no
evidence to support the Director’s position that Severson misrepresented what he had
done with the funds in 1996. Consequently, the referee’s conclusion that the Director
failed to prove that Severson misrepresented in 1996 that the funds were invested in
“Real Estate purchases” was not clearly erroneous.
Second, Severson argues the referee erred by finding he made misrepresentations
to D.S. regarding the equine center property assignment and mortgage in 2008 and
2009.10 The referee found that Severson did not adequately explain the equine center
transactions to D.S, and that he “was motivated in part by his desire to mislead [D.S.] . . .
as to the degree of financial risk she was experiencing while [Severson] had her money.”
Severson admitted that at the time he had D.S. assign and mortgage her interest in
the equine center, he was having serious financial difficulties. Severson had D.S. assign
and mortgage her interest in the equine center to provide security for a personal loan
Severson had outstanding with a creditor. Severson did not explain to D.S. that the
purpose of having her mortgage her interest in the equine center was to provide security
for one of his creditors. Severson admitted that he failed to explain to D.S that he was
having financial difficulties, and that given his financial difficulties, her funds may be at
10
This contention relates to act of misconduct (4).
15
risk. Consequently, the testimony supports the referee’s finding that Severson
intentionally misled D.S. at the time of the assignment.
Third, Severson challenges the referee’s finding that he misrepresented to
Prosperan that D.S. was his daughter during negotiations of an assignment and
forbearance agreement.11 The referee found that the document that assigned D.S.’s
interest in the equine center to Prosperan stated that D.S. was Severson’s daughter.
Additionally, the referee found that Severson’s testimony that he did not notice the
language stating D.S. was his daughter was not credible given the placement of the
language in a separate paragraph of the assignment and “its probable importance to
Prosperan.”
We conclude that the referee’s finding that Severson intentionally misled
Prosperan during the negotiation of the forbearance agreement was clearly erroneous.
There is no evidence that Severson misrepresented to Prosperan that D.S. was his
daughter. Severson did not sign the assignment, and testified he did not notice the
statement in question. Consequently, the referee’s finding is not supported by the record.
Fourth, Severson argues his statements to the Director indicating that D.S.’s funds
were used to purchase FSSCF stock in 1996 were not misrepresentations.12 The referee
found that the Director made repeated efforts to clarify the issue in written
communication with Severson and that Severson intentionally misled the Director by
11
This contention relates to act of misconduct (5).
12
This contention relates to act of misconduct (7).
16
stating D.S.’s money was invested in FSSCF prior to 2002. The finding is supported by
the record. The Director stated in a letter his understanding that D.S.’s money was
invested in FSSCF in the summer of 1996, and explicitly invited Severson to correct any
inaccuracies. Severson responded that D.S.’s “money at all times was invested in
[FSSCF].” Consequently, the referee’s finding that Severson made intentional
misrepresentations in letters to the Director about when D.S.’s money was invested in
FSSCF was not clearly erroneous.
D.
The Director argues that lack of remorse was an aggravating factor. According to
the Director, Severson did not express remorse for any of the proven misconduct and the
remorse he did express related only to the impact his misconduct had on himself and his
family.
The referee found that remorse was neither a mitigating nor an aggravating factor.
Specifically, the referee found that Severson was remorseful about losing his relationship
with D.S., that Severson understood that the loss of that relationship was harmful to D.S.,
and acknowledged his responsibility for extremely poor bookkeeping and his inability to
repay D.S upon her request. But the referee also found that Severson had not
“internalized or expressed remorse” for his misconduct of failing to advise D.S. when
entering into the investment agreement, for his inappropriate investments of D.S.’s
money, for “his extremely troubling attitude in 2008 and 2009” that he did not need to
adequately explain the additional business transactions D.S. entered into related to the
17
equine center, and for the many steps he took in D.S.’s name “to survive the financial
risks he faced.”
An attorney’s remorse can be a mitigating factor in considering the appropriate
discipline. In re Rooney, 709 N.W.2d 263, 271 (Minn. 2006). Conversely, an attorney’s
lack of remorse can aggravate an attorney’s misconduct. Id. at 271 n.4. To express
remorse, an attorney must express genuine regret and moral anguish for his or her
conduct and the effect it had on others. See In re Fairbairn, 802 N.W.2d 734, 746 (Minn.
2011) (concluding that attorney showed remorse when she testified that “her actions were
‘just not right’ and ‘horrible’ ”); In re Aitken, 787 N.W.2d 152, 163 (Minn. 2010)
(concluding that attorney did not show remorse when he “expressed remorse for the
consequences of his misconduct, but not remorse for his actual misconduct”); In re Panel
File 98-26, 597 N.W.2d 563, 569 (Minn. 1999) (concluding the attorney expressed
remorse when she “repeatedly expressed remorse over her actions” and apologized to
those affected by her conduct); In re Otis, 582 N.W.2d 561, 565 (Minn. 1998)
(concluding it would be unjust to impose reciprocal discipline on an attorney for
misconduct he committed in another state, in part, because he “has expressed remorse for
the pain he caused his clients”); In re McCoy, 447 N.W.2d 887, 891 (Minn. 1989)
(concluding there were no mitigating factors present when “respondent has never
accepted responsibility or expressed remorse for the harms his clients suffered due to his
inexcusable misconduct”).
The referee found, and the record supports the finding that Severson did not
express genuine regret and moral anguish for his misconduct and the effect it had on D.S.
18
Instead, Severson merely expressed regret over the effect the misconduct had on himself.
But remorse requires genuine regret and moral anguish for the effect that the misconduct
had on the victim, not on the attorney. Here, Severson’s regret directed at himself is not
remorse within the meaning of our case law. Also, acknowledging extremely poor record
keeping when Severson’s misconduct does not relate to bad record keeping has little to
do with remorse.
It is true the referee found that Severson expressed remorse for the effect that the
loss of the relationship with Severson had on D.S., and his inability to pay D.S. We have
carefully reviewed the transcript of Severson’s testimony and find no evidentiary support
for those findings. We therefore reject them as clearly erroneous. See In re Coleman,
793 N.W.2d 296, 303 (Minn. 2011) (stating that we will uphold a referee’s factual
finding if it has evidentiary support in the record).
Severson did not express remorse for how his misconduct affected D.S. or others.
Throughout the disciplinary process Severson continued to deny that he committed much
of the misconduct, contending that D.S. was not his client in 1996 and that he did not
notice the misstatements his attorney made to the Director. See In re Nathan, 671
N.W.2d 578, 585 (Minn. 2003) (concluding that attorney failed to express remorse when
he “d[id] not acknowledge his actions were wrong”). Accordingly, we hold that the
referee’s finding that remorse was not an aggravating factor was clearly erroneous.
19
E.
Finally, the Director argues that the referee erred in failing to find that Severson’s
conduct was motivated by selfishness. The Director contends that Severson put his own
financial well-being, as well as that of his other creditors, ahead of D.S.’s.
An attorney’s selfish motive may be an aggravating factor. See, e.g., In re
Fairbairn, 802 N.W.2d 734, 747 (Minn. 2011). In Fairbairn, we considered whether the
referee erred by not finding that the attorney had selfish motives when misappropriating
client funds. Id. We concluded the referee did not clearly err by finding the attorney did
not have a selfish motive because the attorney took the money with the intention of
temporarily borrowing the money and not permanently defrauding clients. Id.
We conclude that the referee’s finding that Severson’s motivations were not
selfish was not clearly erroneous. Severson testified that he intended to subsidize D.S.’s
education through the investment agreement because he knew he could not obtain a 9%
return on the investment. Severson also testified that the original purpose for assigning
the equine center to D.S. was to provide a source of payment for her inheritance. This
testimony supports the referee’s finding that Severson’s motivations were not selfish.
In sum, we uphold all but two of the referee’s findings. We conclude the referee
clearly erred when he found that Severson misrepresented to his bank that D.S. was his
daughter, and clearly erred when he did not find that Severson’s lack of remorse was an
aggravating factor. We now turn to the appropriate discipline.
20
II.
The referee recommended that Severson be suspended from the practice of law for
90 days and that he be required to successfully complete the professional responsibility
portion of the state bar examination. The Director contends that Severson’s violation of
the conflict of interest rules and his misrepresentations warrant an indefinite suspension
for a minimum of 3 years. Severson asks us to adopt the referee’s recommendation.
The purpose of disciplinary sanctions for professional misconduct is not to punish
the attorney, but rather to protect the public, safeguard the judicial system, and deter
future misconduct by the disciplined attorney and other attorneys. In re Rebeau, 787
N.W.2d 168, 173 (Minn. 2010). In imposing the appropriate discipline, four factors
guide us: (1) the nature of the misconduct; (2) the cumulative weight of the disciplinary
violation; (3) the harm to the public; and (4) the harm to the legal profession. Id. We
administer sanctions on a case-by-case basis after considering any aggravating and
mitigating circumstances, but we also look to similar cases to ensure consistent
discipline. Id. at 173-74.
A.
Severson’s misconduct is very serious. Severson entered into multiple business
transactions with a client in violation of the conflict of interest rules. The investment
agreement he entered into with D.S. was essentially an unsecured loan of $500,000 from
D.S. to Severson. Severson did not adequately explain the transaction to D.S. or advise
her to seek independent counsel, and the terms of the agreement were not fair or
21
reasonable.13 Moreover, Severson continued to violate the conflict of interest rules by
having D.S. assign and mortgage her interest in the equine center without adequately
explaining these transactions or their purposes to D.S. and without advising her to seek
independent counsel. Violations of conflict of interest rules merit serious disciplinary
sanctions. See in re Swensen, 743 N.W.2d 243, 247-48 (Minn. 2007) (violations of Rule
1.8(a)). We have suspended attorneys in cases involving conflicts of interest along with
other misconduct. In re Varriano, 755 N.W.2d 282, 291-92 (Minn. 2008).
Additionally, Severson engaged in multiple acts of dishonesty by:
(1) intentionally misleading D.S. as to the purpose of the real estate assignments in 2008
and 2009, thereby hiding a significant risk of loss to her funds because of his financial
13
Like us, the dissent affirms the referee’s findings that Severson and D.S. had an
attorney-client relationship in 1996 and that Severson violated the conflict of interest
rules when he entered into the investment agreement with D.S. in 1996. When it
discusses the appropriate discipline, however, the dissent does not consider Severson’s
violation of the conflict of interest rules in 1996. It also does not consider the harm D.S.
suffered from entering into the investment agreement with Severson because she had to
sue Severson in order to get her principal back, and in the end, did not receive $200,000
of her money.
Instead, the dissent contends that “the imposition of discipline is more
appropriately focused on” the misrepresentations Severson made to various people. It
focuses on the misrepresentations because “the existence of an attorney-client
relationship in 1996 is tenuous at best.” The dissent’s focus on some of Severson’s
misconduct is contrary to our case law, which requires us to look at all of an attorney’s
misconduct when determining the proper discipline to impose. See, e.g., In re Panel
Case No. 35104, 851 N.W.2d 620, 625 (Minn. 2014) (holding that a panel of the
Lawyer’s Professional Responsibility Board acted arbitrarily and capriciously because it
did not consider the lawyer’s “misconduct as a whole” when it determined what
discipline was appropriate); In re Geiger, 621 N.W.2d 16, 23 (Minn. 2001) (“Even where
no single act of misconduct standing alone warrants severe public discipline, the
cumulative weight and severity of multiple disciplinary rule violations may compel such
discipline.”).
22
difficulties, in violation of Rule 8.4(c); (2) intentionally misleading D.S. that the four
legal invoices were legitimate invoices of the law firm representing money owed by D.S.
that should be deducted from the money Severson owed D.S., in violation of Rule 8.4(c)
and (d); (3) intentionally misleading the Director that the invoices were legitimate
invoices from the law firm, in violation of Rules 8.1 and 8.4(c); and (4) intentionally
misleading the Director that D.S’s money was at all times invested in FSSCF, in violation
of Rules 8.1 and 8.4(c). Making false statements is “misconduct of the highest order and
warrants severe discipline.” In re Ruffenach, 486 N.W.2d 387, 391 (Minn. 1992); see
also In re Lyons, 780 N.W.2d 629, 636 (Minn. 2010) (characterizing making false and
misleading statements to the Director as “serious”).
B.
“[T]he cumulative weight and severity of multiple disciplinary rule violations may
compel severe discipline even when a single act standing alone would not have warranted
such discipline.” In re Oberhauser, 679 N.W.2d 153, 160 (Minn. 2004). When
considering the cumulative weight of the misconduct, we distinguish between “a brief
lapse in judgment or a single, isolated incident” from “multiple instances of mis[conduct]
occurring over a substantial amount of time.” In re Fairbairn, 802 N.W.2d 734, 743
(Minn. 2011) (citation omitted) (internal quotation marks omitted) (concluding that six
separate instances of misappropriation over the course of 13 months constituted more
than “a brief lapse in judgment”).
The cumulative weight of the disciplinary violations begins with Severson’s
misconduct in 1996 when he entered into the investment agreement with D.S, and then
23
continues again in November 2008 when Severson had D.S. assign her vendor’s interest
in the equine center to his creditor. The misconduct continued for 2 years with Severson
making additional misrepresentations to D.S., the Director, and third parties. Severson’s
multiple acts of misconduct over a period of years suggest more than a brief lapse in
judgment. In re Hummel, 839 N.W.2d 78, 82 (Minn. 2013) (concluding that an
attorney’s misconduct was not caused by a brief lapse in judgment because the
misconduct occurred over several months).
C.
Severson’s misconduct harmed D.S., who trusted him. It took D.S. several years
to recover some of her principal from Severson, she had to hire an attorney in order to do
so, and in the end, she lost at least one-third of the principal she had given to Severson.
See In re Coleman, 793 N.W.2d 296, 308 (Minn. 2011) (stating that harm to public and
legal profession requires consideration of the number of clients harmed and the extent of
the client’s injuries). Severson’s misconduct in this case reflects poorly on the profession
as a whole and undermines the public’s trust in lawyers. In re Varriano, 755 N.W.2d
282, 292 (Minn. 2008) (observing that the failure to explain a conflict of interest to a
client “is the sort of behavior that decreases public trust in the profession”); In re
Ruffenach, 486 N.W.2d 387, 391 (Minn. 1992) (“Honesty and integrity are chief among
the virtues the public has a right to expect of lawyers.”).
D.
The referee found that Severson’s extensive community service, charitable
contributions, and pro bono work constitute a mitigating factor. But Severson’s lack of
24
remorse is troubling. Severson presented no evidence that he has any remorse, or even
insight, into the harm he caused D.S. or the profession by his multiple violations of the
conflict of interest rules and multiple acts of dishonesty. Separately, it is troubling that
D.S. was required to commence a lawsuit and incur $135,000 in attorney fees to recover
her funds from Severson.
E.
Finally, we consider prior cases with similar misconduct for guidance. We believe
the most apposite cases are In re Ray, 368 N.W.2d 924 (Minn. 1985) and In re Dillon,
371 N.W.2d 548 (Minn. 1985). In Ray, we suspended an attorney for 3 years who made
multiple investments of clients’ money, with and without the clients’ knowledge or
consent, in investments in which the attorney had a substantial interest. 368 N.W.2d at
924-27. The records of the transactions were inadequate. Id. at 925-26. Several of the
clients profited from the investments. Id. at 925. Much of the money was repaid, though
not all of it. Id. at 925-26. We declined to adopt the referee’s 5-year recommended
suspension due to mitigating circumstances. Id. at 927.
In Dillon, the attorney borrowed $65,000 from a client, his former sister-in-law, to
repay a business debt.14 371 N.W.2d at 548-49. The loans were secured by the
14
Severson cites several cases involving misrepresentations to support a 90-day
suspension, contending that when an attorney’s misconduct includes misrepresentations,
“the discipline for the misrepresentation tends to overshadow other misconduct.” We
disagree. It would understate the appropriate discipline to focus solely on Severson’s
misrepresentations and ignore the serious conflict of interest violations he committed that
involved a significant amount of money and harm to the client.
(Footnote continued on next page.)
25
attorney’s contingent fee. Id. at 549. The attorney failed to explain that he was not
acting as the client’s lawyer, or to disclose the adverse nature of their interests in the
agreement. Id. After the client hired another attorney and reached a settlement in the
underlying litigation, the attorney sent a letter to his former client, which included
misrepresentations. Id. Although the attorney repaid some of the money, he still owed
the client over $36,000 at the time of the hearing. Id. We indefinitely suspended the
attorney for a minimum of 1 year. Id. at 552.
Severson’s case is similar to Ray and Dillon because they all involve improper
investment agreements with clients and the failure to comply with the conflict of interest
rules. Dillon, 371 N.W.2d at 548-50; Ray, 368 N.W.2d at 924-96. In all of these cases,
the clients did not receive all of their money back. Dillon, 371 N.W.2d at 549; Ray, 368
N.W.2d at 926. Ray is also similar to Severson’s case because of the existence of
mitigating factors. 368 N.W.2d at 927. Overall, however, this case is more similar to
Dillon because the attorney had a close relationship with the affected client, made
misrepresentations, and the misconduct involved one client. 371 N.W.2d at 549, 552.
(Footnote continued from previous page.)
Severson also cites conflict of interest cases that are distinguishable. Specifically,
he cites to conflict of interest cases involving admonitions in which the attorneys loaned
less than $4,000 to the clients. See In re Fraley, 621 N.W.2d 727, 727 (Minn. 2001)
(order); In re Panel Matter No. 97-22, 425 N.W.2d 824, 825 (Minn. 1988) (affirming the
private admonition of an attorney who made $3,617 in loans to a client). He also cites a
case involving a conflict of interest and misrepresentations, but it does not involve
misrepresentations over the course of years or business transactions with clients
involving significant sums of money. See In re Frauenshuh, 605 N.W.2d 394, 394-95
(Minn. 2000) (order) (publicly reprimanding attorney for entering into assignment of a
contract for deed with a client, altering the assignment and contract for deed after
execution, and making misrepresentations to the Director).
26
We conclude that when considered in its totality, Severson’s misconduct is very
serious. Severson violated the conflict of interest rules by entering into an investment
agreement with a client that involved a substantial sum of money and had terms that were
unfair and unreasonable. Severson further violated the rules by having that same client
assign and mortgage her interest in a building without disclosing that doing so was for his
benefit. These business transactions harmed the client, who had to sue Severson in order
to get her money back and in the end did not recover one-third of the principal she had
entrusted with Severson. Moreover, Severson committed multiple acts of dishonesty by
failing to disclose that the assignment and mortgage of the equine center was for his own
personal interest, failing to disclose that he, and not his law firm, generated four invoices
he used to try to obtain an offset of the amount he owed the client, and making
misrepresentations to the Director. Also, Severson did not exhibit remorse for his
misconduct, or the effect his misconduct had on his client. Severson has not cited any
case that includes multiple misrepresentations and conflicts of interest, involving a
substantial sum of money, in which we have imposed a suspension of less than 1 year.
We therefore conclude that the appropriate discipline is an indefinite suspension with no
right to petition for reinstatement for a minimum of 1 year.
Accordingly, we order that:
1. Respondent Larry S. Severson is indefinitely suspended from the practice
of law in the State of Minnesota, effective 14 days after the date of the filing of this
opinion, with no right to petition for reinstatement for a minimum of 1 year;
27
2. Respondent may petition for reinstatement pursuant to Rule 18(a)-(d),
Rules on Lawyers Professional Responsibility (RLPR). Reinstatement is conditioned on
successful completion of the professional responsibility portion of the state bar
examination and satisfaction of continuing legal education requirements, pursuant to Rule
18(e), RLPR;
3. Respondent shall comply with Rule 26, RLPR (requiring notice of
suspension to clients, opposing counsel, and tribunals); and
4. Respondent shall pay $900 in costs pursuant to Rule 24, RLPR.
28
DISSENT
ANDERSON, Justice (dissenting).
Although I agree with the majority’s conclusion that Severson violated Rules 1.7,
1.8, 8.1, and 8.4 of the Minnesota Rules of Professional Conduct, I respectfully dissent
from the discipline imposed by the majority.
I begin with the observation that determining the appropriate discipline here is not
free from doubt and reaching the appropriate result is more challenging than in some of
our other cases. While we are the final arbiter of discipline, there is no doubt that our
conclusions are informed by the recommendations of the referee. Here the referee
recommended a 3-month suspension, concluding that protection of the public did not
require a longer suspension. The majority effectively decides that not all of the referee’s
findings of wrongful conduct can be affirmed, but decides nonetheless that a longer
suspension is required. I conclude that the referee has the better of the argument here.
“[T]he purpose of [attorney] discipline is not primarily punitive but ‘to guard the
administration of justice and to protect the courts, the legal profession and the public.’ ”
In re Serstock, 316 N.W.2d 559, 561 (Minn. 1982) (quoting In re Hanson, 258 Minn.
231, 233, 103 N.W.2d 863, 864 (1960)). Disciplinary sanctions not only protect the
public from future unethical behavior, but also “deter future misconduct by the
disciplined attorney as well as by other attorneys.” In re Albrecht, 779 N.W.2d 530, 540
(Minn. 2010) (internal quotation marks omitted) (quoting In re Vaught, 693 N.W.2d 886,
890 (Minn. 2005)).
D-1
Some measure of discipline is warranted here. Severson conceded an attorney-
client relationship with D.S. from 2004-2009, and therefore he violated Rules 1.7 and 1.8
during that period, although the referee found that D.S. suffered no losses as a result of
those violations. Severson also concedes that the false invoices had a “misleading
effect,” although he contends that the referee’s findings do not prove that anyone was
actually misled.
The majority concludes that Severson and D.S. had an attorney-client relationship
when they entered into the investment agreement, based on the referee’s finding that
Severson drafted an investment agreement and a power of attorney. Although these
findings and conclusions by the referee are not clearly erroneous, the existence of an
attorney-client relationship in 1996 is tenuous at best. To his credit, the referee agreed,
stating that “a reasonable counter-argument could be made under the facts and especially
under the law.” The referee therefore recommended a 3-month suspension, or a public
reprimand if we concluded that no attorney-client relationship existed in 1996. By
contrast, in the conflict-of-interest cases cited by the majority, the attorney clearly
represented the client before the inappropriate business relationship commenced. See In
re Dillon, 371 N.W.2d 548, 550 (Minn. 1985); In re Ray, 368 N.W.2d 924, 924-26
(Minn. 1985). The results here show the dangers of engaging in business relationships
with those who are arguably clients of the lawyer. That said, because of the unusual
relationship of the parties and the facts underlying and surrounding the execution of the
D-2
power of attorney,1 it is my conclusion that the imposition of discipline is more
appropriately focused on serious, and largely undisputed, violations: the
misrepresentations made to D.S., the Director, and others.
I therefore conclude, based on the record before us, that the referee’s
recommendation of a 3-month suspension is appropriate here, even though there remain
substantial questions about investment decisions made by Severson while handling funds
belonging to D.S. Although the referee’s findings and conclusions are not binding on us,
the referee is in the best position to assess the credibility of witnesses. In this case, the
referee, after hearing the testimony of all of the relevant parties, noted that Severson’s
actions were not “underhanded, malicious, or predatory,” and that he acted in order to
benefit a young woman who was like a daughter to him. 2 The referee made no findings
1
The majority relies on the drafting of both the investment agreement and the
power of attorney in concluding that an attorney-client relationship existed. The power
of attorney is clearly a legal document that may be, and often is, drafted by an attorney,
and that is sufficient evidence of an attorney-client relationship. I see no reason to reach
the question of whether the drafting of the investment agreement also implicates the
attorney-client relationship.
2
I disagree with the majority’s conclusion that Severson’s lack of remorse is an
aggravating factor. The referee, who was in the best position to determine Severson’s
credibility and demeanor, concluded that remorse was neither an aggravating nor
mitigating factor. See In re Moulton, 721 N.W.2d 900, 905 (Minn. 2006) (“Deference to
the referee is particularly appropriate when the findings are based on a respondent’s
demeanor, credibility, or sincerity.” (citing In re Pinotti, 585 N.W.2d 55, 62 (Minn.
1998))). This conclusion is supported by the record because Severson was remorseful
about losing his relationship with D.S. and his inability to repay her in full, but
Severson’s showing of remorse was limited by his decision to deny allegations of
misconduct. I would therefore find that the referee did not clearly err by declining to
consider lack of remorse as an aggravating factor.
D-3
that the unusual facts here constitute a risk to the public requiring more severe discipline
of Severson.
We have imposed the same or lesser penalties on attorneys who committed more
serious acts of dishonesty. See, e.g., In re Czarnik, 759 N.W.2d 217, 224 (Minn. 2009)
(imposing a 3-month suspension on an attorney who lied under oath); In re Jain, 587
N.W.2d 291, 291-92 (Minn. 1999) (order) (imposing a public reprimand and 2 years
supervised probation on an attorney who misrepresented the status of a case to her client
for 9 months); In re Iliff, 487 N.W.2d 234, 235-36 (Minn. 1992) (imposing a 3-month
suspension on an attorney who intentionally misled the Director regarding a fabricated
settlement); In re Ruffenach, 486 N.W.2d 387, 389-91 (Minn. 1992) (imposing a 3-month
minimum suspension on an attorney who falsified two court-ordered financial disclosure
forms and had been disciplined four times in the past). Greater discipline has usually
been reserved for cases in which the attorney intentionally defrauds clients or other
parties. See, e.g., In re Jagiela, 517 N.W.2d 333, 334 (Minn. 1994) (imposing a 6-month
suspension on an attorney who backdated an agreement, submitted the agreement to the
court and opposing counsel, and failed to correct false statements related to the
agreement); In re Boyd, 430 N.W.2d 663, 663-64, 666-67 (Minn. 1988) (imposing a 6-
month suspension on an attorney who forged, backdated, notarized, and filed a warranty
deed and had previously been reprimanded three times). Although Severson made
D-4
potentially misleading statements, the record contains no evidence that any party was
actually misled, let alone misled to their detriment.3
A lawyer’s first responsibility is to represent his client’s interests. There is great
peril for both lawyer and client when, as here, the client’s interests and the lawyer’s
interests are intertwined. Severson’s failure to make his client’s interests the paramount
concern necessitates discipline. Given the unique facts in this record, however, I would
suspend Severson from the practice of law for 3 months as recommended by the referee.
GILDEA, Chief Justice (dissenting).
I join in the dissent of Justice Anderson.
3
The majority concludes “the referee’s finding that Severson made intentional
misrepresentations in letters to the Director about when D.S.’s money was invested in
FSSCF was not clearly erroneous.” This statement is accurate as far as it goes, and I
would not disagree with the court’s conclusion. There are additional facts here, however,
that suggest the materiality of these misrepresentations may be doubtful. It is undisputed
that these communications occurred between Severson’s lawyer during the disciplinary
proceedings and the Director, and the initial letter from the lawyer correctly reported that
this transaction occurred in 2002. Later communications from the lawyer stated this
transaction occurred in 1996 before it was finally reported that the 2002 date initially
disclosed was, in fact, the correct date. The significance of these discrepancies is not
clear. I am more troubled by Severson’s assertion that he does not remember where the
$500,000 entrusted to him by D.S. was invested between 1996 and 2002. The referee
made no findings on the credibility of Severson’s assertion that he does not remember
where this substantial sum of money was invested during that 6-year time period. But we
impose discipline based on facts found and conclusions reached, not speculation.
D-5