Board of Professional Responsibility Of The Supreme Court of Tennessee v. Michael Gibbs Sheppard

08/13/2018
IN THE SUPREME COURT OF TENNESSEE
AT NASHVILLE
January 10, 2018 Session Heard at Knoxville
BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME
COURT OF TENNESSEE v. MICHAEL GIBBS SHEPPARD
Direct Appeal from the Chancery Court for Williamson County
No. 45692 Robert L. Jones, Judge
___________________________________
No. M2017-00804-SC-R3-BP
___________________________________
This is a direct appeal of a disciplinary proceeding against a Brentwood attorney arising
out of the mismanagement of client funds held in trust. A hearing panel of the Board of
Professional Responsibility determined that the attorney had violated Rules 1.15
(safekeeping property and funds) and 8.4 (misconduct) of the Tennessee Rules of
Professional Conduct. The hearing panel recommended that the attorney be suspended for
sixty days, to be followed by two years of probation under the supervision of a practice
monitor, and that he complete fifteen hours of continuing legal education on law office
management and trust accounting procedures. The chancery court modified the hearing
panel’s decision by increasing the periods of suspension and probation and by imposing
additional conditions of probation. We hold that the hearing panel’s decision was
supported by material and substantial evidence and was not arbitrary, capricious, or an
abuse of discretion. The chancery court, therefore, erred in modifying the hearing panel’s
decision. We reverse the judgment of the chancery court and affirm the hearing panel’s
decision.
Tenn. Sup. Ct. R. 9, § 1.3 (2013)
(currently Tenn. Sup. Ct. R. 9, § 33.1 (d) (2017))
Judgment of the Chancery Court Reversed;
Decision of the Hearing Panel Affirmed
SHARON G. LEE, J., delivered the opinion of the Court, in which JEFFREY S. BIVINS, C.J.,
and CORNELIA A. CLARK, HOLLY KIRBY, and ROGER A. PAGE, JJ., joined.
Alan D. Johnson, Brentwood, Tennessee, for the appellant, Board of Professional
Responsibility.
Edward M. Yarbrough and W. Justin Adams, Nashville, Tennessee, for the appellee,
Michael Gibbs Sheppard.
OPINION
I.
Michael Gibbs Sheppard graduated from law school in 1982. For many years, he
worked for an insurance company in Ohio. In 1999, Mr. Sheppard was admitted to
practice law in Tennessee. Six years later, he and attorney Perry A. Craft founded the law
firm of Craft & Sheppard in Brentwood, Tennessee. Mr. Sheppard was the firm’s
managing partner and was responsible for oversight of the firm’s financial records and
trust account.
Between 2009 and 2013, client funds in three cases were commingled with law
firm funds. Client funds were not maintained in Craft & Sheppard’s trust account but
were transferred electronically to Craft & Sheppard’s operating account to pay expenses.
On November 17, 2014, the Board of Professional Responsibility (“Board”) filed a
Petition for Discipline against Mr. Sheppard, alleging that he had violated Rule 1.15
(safekeeping property and funds)1 and Rule 8.4 (misconduct)2 by, among other things,
1
At the time of the alleged misconduct, Rule of Professional Conduct 1.15 provided:
(a) A lawyer shall hold property and funds of clients or third persons that are in a
lawyer’s possession in connection with a representation separate from the lawyer’s own
property and funds.
....
(d) Upon receiving funds or other property in which a client or third person has
an interest, a lawyer shall . . . promptly deliver to the client or third person any funds or
other property that the client or third person is entitled to receive and, upon request by the
client or third person, shall promptly render a full accounting regarding such funds or
other property.
(e) When in the course of representation a lawyer is in possession of property or
funds in which two or more persons (one of whom may be the lawyer) claim interests, the
property shall be kept separate by the lawyer until the dispute is resolved. The lawyer
shall promptly distribute all portions of the property or funds as to which the interests are
not in dispute.
Tenn. Sup. Ct. R. 8, RPC 1.15 (2013).
2
At the time of the alleged misconduct, Rule of Professional Conduct 8.4 provided:
It is professional misconduct for a lawyer to:
(a) violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce
another to do so, or do so through the acts of another;
....
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failing to maintain client funds in trust and by commingling client funds with law firm
funds. In response, Mr. Sheppard did not dispute that he had mismanaged the trust
account. He submitted, however, that his misconduct was not intentional but the result of
his negligence and inexperience in trust account management. Mr. Sheppard also
contended that the Board should not treat him any differently than his law partner, Mr.
Craft, to whom the Board had issued only a public censure for his misconduct relating to
the firm’s trust account.3
Hearing Panel Proceedings
On August 25, 2016, a hearing panel of the Board convened to hear the parties’
evidence. Testimony focused mainly on the management of client funds received by
Craft & Sheppard from settlements in the Utica, Shedd, and Ali cases.
In 2003, Utica, an insurance company, hired Mr. Sheppard to represent its interests
in a subrogation claim arising out of a fire loss. After Craft & Sheppard was established,
Utica became a client of the firm and Mr. Craft began handling the matter. Mr. Craft
eventually settled the case for $145,000, which was deposited in the firm’s trust account
in early February 2011. Utica and Craft & Sheppard disagreed about the amount of the
attorney fee to be deducted from the settlement funds.4 Neither party had a copy of the
fee agreement. The funds should have remained in trust until Utica and the firm resolved
the fee dispute. See Tenn. Sup. Ct. R. 8, RPC 1.15(e). However by February 15, 2011, the
funds in the trust account had fallen to $48,701.98; by February 28, 2011, the balance
was only $7,077.58.
On April 26, 2011, Mr. Sheppard sent Utica an email stating, “[t]he settlement
funds reside in our trust account and no one has ‘used’ these funds.” Yet bank records
reflected that the firm’s trust account balance on that date was only $104,850.62. In June
(c) engage in conduct involving dishonesty, fraud, deceit, or misrepresentation[.]
Tenn. Sup. Ct. R. 8, RPC 8.4 (2013).
3
The Board had publicly censured Mr. Craft on October 29, 2014, noting that his failure to
maintain clients’ funds “in the firm’s trust account for the duration of the representation” violated Rule
5.1 of the Rules of Professional Conduct. Broadly, Rule 5.1 requires a partner in a law firm to make
reasonable efforts to ensure that the firm complies with the Rules of Professional Conduct and to take
remedial action to avoid or mitigate consequences from violations of the Rules of Professional Conduct of
which the partner is aware. See Tenn. Sup. Ct. R. 8, RPC 5.1 (2013).
4
According to Mr. Sheppard, Craft & Sheppard initially retained a third of the $145,000 and sent
Utica a check for the balance, understanding the parties had a contingency fee agreement. Utica objected
and claimed it was entitled to $130,000 pursuant to a “blended rate” agreement. Craft & Sheppard
stopped payment on the check.
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2011, Mr. Craft emailed Utica assuring it that “your funds are safe and secure in the
firm’s trust account.” The funds, however, were not safe and secure. Eventually, Utica
and Craft & Sheppard settled their fee dispute for $130,000, each partner agreeing to pay
Utica one-half of that amount. Mr. Sheppard filed for bankruptcy protection in March
2014, listing Utica as a creditor. He later settled his obligation to Utica for $27,000.
According to Mr. Sheppard, Mr. Craft paid Utica only $30,000 of his share of the debt.
In the second case, Donna Shedd hired Craft & Sheppard to handle a wrongful
death lawsuit against a doctor and a hospital, arising out of her daughter’s death. In July
2009, during the trial of the case, Ms. Shedd’s claim against the doctor was settled for
$1,000,000; the case against the hospital resulted in a defense verdict. Craft & Sheppard
deposited the settlement funds in the trust account. The firm withdrew its one-third
contingency fee and paid litigation expenses, leaving about $400,000 in the trust account
for Ms. Shedd’s share of the settlement. Shortly after Craft & Sheppard received the
settlement funds, the father of Ms. Shedd’s deceased daughter moved to intervene in the
lawsuit seeking one-half of the settlement proceeds. The trial court denied the request and
the father appealed. Mr. Craft represented Ms. Shedd on appeal.5
In mid-December 2009, while the appeal was pending, the firm paid Ms. Shedd
$200,000 from the trust account, which was roughly one-half of the remaining settlement
funds. Therefore, the trust account balance should have been at least $200,000. Yet on
December 18, 2009, the balance was $56,830.19; on February 26, 2010, there was only
$11,497.29 in the trust account; on March 29, 2013, the balance fell to $8,281.39; and by
April 29, 2013, the trust account balance was $9,357.59. On July 11, 2013, Craft &
Sheppard paid Ms. Shedd $208,022.37 after Mr. Sheppard borrowed $125,000 to cover
the deficit in the firm’s trust account.
In the Ali case, Craft & Sheppard deposited $400,000 in its trust account from the
settlement of the personal injury claim in late December 2009 and withdrew its attorney
fee. Mr. Craft, who had handled the matter, entered into an arrangement to “slow pay”
the client’s portion of the settlement proceeds. As of February 26, 2010, the trust account
balance was only $11,497.29, far less than the amount of client funds that should have
been in the trust account. Eventually, Craft & Sheppard overpaid the Ali client more than
$27,000.
Mr. Sheppard admitted in his testimony before the hearing panel that he had
mismanaged the trust account by allowing client funds to be improperly transferred into
the firm’s operating account. He explained that his actions were not intentional but the
result of lack of oversight, inexperience in trust account management, inadequate
recordkeeping, personal family and financial problems, and lack of knowledge of Mr.
5
See Shedd v. Cmty. Health Sys., Inc., No. W2010-02140-COA-R3-CV, 2010 WL 4629020, at *1
(Tenn. Ct. App. Nov. 12, 2010), perm. app. denied (Tenn. Apr. 13, 2011).
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Craft’s arrangements with his clients. According to Mr. Sheppard, Mr. Craft mainly
handled the Utica, Shedd, and Ali cases, and Mr. Sheppard was unfamiliar with the
financial details of the cases. For example, Mr. Craft arranged the gradual payout of the
Ali settlement without informing Mr. Sheppard, which resulted in an overpayment to the
client.
Mr. Sheppard insisted that he tried to keep Mr. Craft informed about the firm’s
finances by presenting him with written financial reports almost every day. The two
reports admitted into evidence consist of one-page spreadsheets showing only the date,
recipient, and amount of outstanding checks, as well as the balance of each of the firm’s
three bank accounts, including the firm’s trust account.
Mr. Sheppard denied intentionally misleading Utica when he assured it that the
disputed funds remained in the trust account. He explained that he did not realize the
gravity of his mismanagement until he had to borrow money to pay the settlement
proceeds owed to Ms. Shedd. Mr. Sheppard also noted that he had continued working to
pay off the substantial debt owed to the firm’s creditors.
Mr. Craft testified that he trusted Mr. Sheppard to manage the firm’s finances. He
denied ever seeing or accessing the firm’s bank account records or making any online
transfers between the trust account and the operating account, and claimed to have relied
exclusively on Mr. Sheppard for financial information. According to Mr. Craft, only Mr.
Sheppard or his son had access to the online bank account records. Mr. Craft left the firm
in July 2013.
A former Craft & Sheppard paralegal who worked for Mr. Craft after he left the
firm testified that the firm’s financial records were on a laptop computer maintained by
Mr. Sheppard’s son.
A lawyer who had previously worked as a law clerk at Craft & Sheppard and a
former client both testified that Mr. Sheppard had a good reputation for veracity and
worked hard for his clients. They also attested to the substantial amount of pro bono work
Mr. Sheppard did for individuals, especially veterans and teachers.
The hearing panel found that Mr. Sheppard had failed to properly maintain and
monitor client trust accounts, which resulted in the commingling of client funds, use of
client funds to pay for operating expenses, and a diminished balance of client funds in the
trust account. The hearing panel concluded that these actions constituted “knowing”
violations of Rules of Professional Conduct 1.15 and 8.4, and that Mr. Sheppard
“knowingly misled” at least one client about the status of the client’s trust funds. The
hearing panel, however, found no proof of “intentional acts” that benefited Mr. Sheppard
to the detriment of others or of “acts or omissions [that] seriously injured his clients.”
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Having determined that Mr. Sheppard knowingly violated his duty to safeguard
client property and knowingly engaged in misconduct in violation of the Rules of
Professional Conduct, the hearing panel considered evidence of aggravating and
mitigating factors listed under the American Bar Association Standards for Imposing
Lawyer Sanctions (the “ABA Standards”) before determining the appropriate sanction.
The hearing panel found no proof of any aggravating factor. On the other hand, it found
“significant” evidence of the following mitigating factors: absence of prior discipline;
absence of a dishonest or selfish motive for Mr. Sheppard’s knowing violations; a good
faith effort to rectify a violation by borrowing funds; inexperience in accounting and
office management; good character and pro bono efforts; remorse; and a significant
length of time between the misconduct and the date of the hearing. The hearing panel also
considered the Board’s public censure of Mr. Craft as a mitigating factor, having
previously noted that the public censure imposed on Mr. Craft created a “grave concern”
about the consistency of the sanctions.
The hearing panel determined that Mr. Sheppard should be suspended from the
practice of law for sixty days, after which he would be on probation for two years. During
the probationary period, a practice monitor would be required to supervise Mr.
Sheppard’s accounting and management practices and make regular reports to the Board.
The hearing panel also determined that Mr. Sheppard should complete fifteen hours of
continuing legal education on law office management and trust account procedures.
Chancery Court Proceedings
The Board sought review of the hearing panel’s decision in the Williamson
County Chancery Court, contending that the ruling was arbitrary, capricious, and
characterized by an abuse of discretion, as well as unsupported by the evidence; and that
the hearing panel’s factual findings and legal conclusions warranted disbarment.
Following a hearing in February 2017, the chancery court held that the hearing
panel’s decision to suspend Mr. Sheppard for knowingly mismanaging client funds did
not conflict with the ABA Standards. The chancery court affirmed all mitigating factors
identified by the hearing panel. Echoing the hearing panel’s concern about the sanction
imposed on Mr. Craft, the chancery court noted that a longer suspension for Mr.
Sheppard would have been appropriate but for the lighter sanction imposed on Mr. Craft.
The chancery court, however, found that there was substantial evidence of two
aggravating factors: dishonest or selfish motive and substantial experience in law. And
the chancery court found that “there was harm” to Utica.
Based on these findings, the chancery court modified the hearing panel’s ruling.
The chancery court decided that Mr. Sheppard should be suspended for one year, with the
first sixty days to be served on active suspension and the remainder to be served on
probation. After the one-year suspension period, Mr. Sheppard was to be on probation for
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another five years, with the first two years supervised by a practice monitor. Additionally,
the chancery court prohibited Mr. Sheppard’s participation in cases involving trust funds
exceeding $5,000 during the five-year probation period, unless he associated counsel to
assist him.
Supreme Court Review
The Board appeals to this Court and argues that both the hearing panel and the
chancery court incorrectly identified and applied the ABA Standard applicable to Mr.
Sheppard’s ethical violations; failed to consider appropriate aggravating and mitigating
factors; and erred by recommending suspension rather than disbarment. The Board also
contends that the chancery court impermissibly modified the sanction imposed by the
hearing panel.
Mr. Sheppard argues that the Board is seeking to have this Court reweigh the
hearing panel’s findings of fact; that the hearing panel did not abuse its discretion and
appropriately relied on the applicable ABA Standards; and that the hearing panel’s
sanction was consistent with sanctions imposed in similar cases. In addition, Mr.
Sheppard submits that the chancery court erroneously modified the hearing panel’s
ruling.
II.
Standard of Review
This Court has the inherent and undisputed power to regulate and supervise the
practice of law in Tennessee. Hyman v. Bd. of Prof’l Responsibility, 437 S.W.3d 435, 444
(Tenn. 2014) (citing In re Burson, 909 S.W.2d 768, 772–73 (Tenn. 1995)). Our duty to
regulate this state’s legal practice includes the ultimate responsibility of enforcing our
rules of professional conduct. Garland v. Bd. of Prof’l Responsibility, 536 S.W.3d 811,
816 (Tenn. 2017). The Board derives its authority and functions from this Court. Id.
(citing Brown v. Bd. of Prof’l Responsibility, 29 S.W.3d 445, 449 (Tenn. 2000)). Thus,
lower courts may review only the actions of hearing panels of the Board to the extent
expressly authorized by this Court. See Brown, 29 S.W.3d at 449 (quoting Fletcher v. Bd.
of Prof’l Responsibility, 915 S.W.2d 448, 450 (Tenn. Ct. App. 1995)).
Our appellate standard of review for a disciplinary decision is the same as that
applied by a trial court. Bd. of Prof’l Responsibility v. Reguli, 489 S.W.3d 408, 417
(Tenn. 2015) (citing Moncier v. Bd. of Prof’l Responsibility, 406 S.W.3d 139, 150 (Tenn.
2013)). A trial court reviews a hearing panel’s judgment “on the transcript of the
evidence before the hearing panel and the hearing panel’s findings and judgment.” Tenn.
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Sup. Ct. R. 9, § 1.3 (2013); accord Tenn. Sup. Ct. R. 9, § 33.1(b) (2014).6 The trial court
may reverse or modify the judgment when
the rights of the petitioner have been prejudiced because the panel’s
finding, inferences, conclusions, or decisions are: (1) in violation of
constitutional or statutory provisions; (2) in excess of the panel’s
jurisdiction; (3) made upon unlawful procedure; (4) arbitrary or capricious
or characterized by abuse of discretion or clearly unwarranted exercise of
discretion; or (5) unsupported by evidence which is both substantial and
material in light of the entire record.
Tenn. Sup. Ct. R. 9, § 1.3 (2013); Bd. of Prof’l Responsibility v. Love, 256 S.W.3d 644,
653 (Tenn. 2008). That said, “the trial court may not substitute its judgment for that of
the panel as to the weight of the evidence on questions of fact.” Bd. of Prof’l
Responsibility v. Allison, 284 S.W.3d 316, 322 (Tenn. 2009); see also Hughes v. Bd. of
Prof’l Responsibility, 259 S.W.3d 631, 652 (Tenn. 2008) (Holder, J., concurring and
dissenting) (“[T]rial courts are no longer permitted to reweigh the evidence.”).
In deciding whether substantial and material evidence supports a hearing panel’s
decision, the reviewing court examines “whether the evidence furnishes a reasonably
sound factual basis for the decision being reviewed.” Sallee v. Bd. of Prof’l
Responsibility, 469 S.W.3d 18, 36 (Tenn. 2015) (quoting Sneed v. Bd. of Prof’l
Responsibility, 301 S.W.3d 603, 612 (Tenn. 2010) (internal citations omitted)).
Ultimately, the basis for a trial court’s modification of a hearing panel’s decision “must
be found in the enumerated circumstances listed in Tennessee Supreme Court Rule 9,
section 1.3.” Love, 256 S.W.3d at 652.
The Board, as the party challenging the hearing panel’s decision, has the burden of
showing that the hearing panel abused its discretion. Reguli, 489 S.W.3d at 418 (citing
Ballard v. Herzke, 924 S.W.2d 652, 659 (Tenn. 1996)). A hearing panel abuses its
discretion by “appl[ying] an incorrect legal standard, or reach[ing] a decision which is
against logic or reasoning that causes an injustice to the party complaining.” Id. (quoting
Sallee, 469 S.W.3d at 42) (alterations in original). Under this deferential standard of
review, where reasonable minds can disagree over the propriety of a hearing panel’s
decision, we will uphold the ruling. Sallee, 469 S.W.3d at 42 (quoting State v. Scott, 33
S.W.3d 746, 752 (Tenn. 2000)).
Mr. Sheppard does not challenge the hearing panel’s findings that he violated
Rules of Professional Conduct 1.15 and 8.4. Thus, the crux of this appeal is the proper
sanction for Mr. Sheppard’s misconduct. We, therefore, will examine the hearing panel’s
6
Because the initiating complaints were filed in 2013, we apply the pre-2014 version of Rule 9.
See Cody v. Bd. of Prof’l Responsibility, 471 S.W.3d 420, 424 n.9 (Tenn. 2015).
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decision in light of the applicable ABA Standards, evidence of aggravating and
mitigating factors, and sanctions imposed in similar cases.
ABA Standards
We begin by considering the applicable ABA Standards. The Board contends that
both the hearing panel and the chancery court incorrectly identified and applied the ABA
Standard applicable to Mr. Sheppard’s ethical violations. Mr. Sheppard disagrees.
A hearing panel must consider the applicable ABA Standards when determining
the proper discipline for attorney misconduct. Walwyn v. Bd. of Prof’l Responsibility, 481
S.W.3d 151, 166 (Tenn. 2015) (citing Tenn. Sup. Ct. R. 9, § 8.4). The ABA Standards
provide “‘guideposts’ for attorney discipline but are not considered ‘rigid rules that
dictate a particular outcome.’” Bd. of Prof’l Responsibility v. Barry, No. M2016-02003-
SC-R3-BP, 2018 WL 914798, at *8 (Tenn. Feb. 16, 2018) (quoting Hyman, 437 S.W.3d
at 447). “[A]nalysis of the proper discipline involves two steps: first, identify the
presumptively appropriate sanction applicable to the established misconduct, and then
consider whether that sanction should be increased or decreased due to aggravating and
mitigating circumstances, if any.” Bd. of Prof’l Responsibility v. Cowan, 388 S.W.3d 264,
268 (Tenn. 2012); see also ABA Standard 9.1. Absent mitigating or aggravating factors,
the presumptive sanctions apply. Talley v. Bd. of Prof’l Responsibility, 358 S.W.3d 185,
194 (Tenn. 2011). Tribunals should also consider the duty violated by the lawyer, the
lawyer’s mental state, and actual or potential injury caused by the lawyer’s misconduct.
ABA Standard 3.0; see also Cowan, 388 S.W.3d at 268. “[T]he severity of the
presumptive sanction varies depending upon the lawyer’s mental state—whether the
lawyer acted intentionally, knowingly, or negligently—and the seriousness of the actual
or potential injury caused by the lawyer’s misconduct.” Maddux v. Bd. of Prof’l
Responsibility, 409 S.W.3d 613, 624 (Tenn. 2013).
The hearing panel determined that Mr. Sheppard knowingly violated his duty to
safeguard client property and knowingly engaged in misconduct in violation of Rules of
Professional Conduct 1.15 and 8.4. Therefore, ABA Standard 4.1 applies. The
appropriate sanctions for an attorney’s failure to preserve client property under ABA
Standard 4.1 are as follows:
4.11 Disbarment is generally appropriate when a lawyer knowingly
converts client property and causes injury or potential injury to a client.
4.12 Suspension is generally appropriate when a lawyer knows or should
know that he is dealing improperly with client property and causes injury or
potential injury to a client.
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4.13 Reprimand is generally appropriate when a lawyer is negligent in
dealing with client property and causes injury or potential injury to a client.
4.14 Admonition is generally appropriate when a lawyer is negligent in
dealing with client property and causes little or no actual or potential injury
to a client.
The hearing panel did not expressly state whether it relied on ABA Standard 4.11
(disbarment) or 4.12 (suspension) but concluded that a suspension was appropriate. The
chancery court found that both ABA Standards 4.11 and 4.12 applied. The Board argues
that only ABA Standard 4.11 applies and that, therefore, the hearing panel and the
chancery court erred by finding that suspension, not disbarment, was the appropriate
sanction. We disagree.
In its written decision, the hearing panel did not specifically reference the ABA
Standards. Yet the record reflects that the hearing panel relied on the ABA Standards in
assessing the appropriate sanction. At the outset of the disciplinary hearing, the hearing
panel specifically asked the parties to address “concepts such as knowing . . . [and]
fraudulent” under the ABA Standards. Later, in its written decision, the hearing panel
incorporated language from the ABA Standards in discussing Mr. Sheppard’s misconduct
as well as relevant aggravating and mitigating factors. The hearing panel stated, for
example, that it had heard proof about and considered “whether or not Mr. Sheppard’s
acts or omissions were intentional, knowing or negligent; . . . whether or not clients or
others were seriously injured by the acts or omissions of Mr. Sheppard[;] and . . . whether
or not there were either aggravating or mitigation circumstances requiring further action
in consideration of a sanction.” This language tracks that of ABA Standard 4.1 and leaves
little doubt that the hearing panel actively considered the appropriate ABA Standards.
The hearing panel’s omission in its written decision of its reliance on a specific
ABA Standard is not a fatal flaw because the hearing panel’s decision comports with the
appropriate ABA Standards. In language tracking that of ABA Standard 4.12, the hearing
panel found that Mr. Sheppard “knew or should have known” that his “improper trust
fund management,” which resulted in commingling client funds and using them to pay
expenses of the firm, violated his ethical duties to clients. The record supports these
findings. Mr. Sheppard admitted during his testimony that the firm’s trust account
balance fell below the amount owed to clients on many occasions. He attributed this
conduct to his inexperience in accounting and denied any intentional or knowing
misappropriation.
The Board argues that only ABA Standard 4.11 applies because the hearing panel
found that Mr. Sheppard improperly “knowingly used” client property. Both ABA
Standards 4.11 and 4.12 involve misconduct that causes injury or potential injury to a
client. The key difference is that under 4.11, the lawyer “knowingly converts client
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property,” while under 4.12, the lawyer “knows or should know that he is dealing
improperly with client property.” Whether an attorney knowingly converts client funds or
knows or should know that he is dealing improperly with client funds is a question of
fact—and often a close question for the fact-finder. Here, the hearing panel saw and
heard the witnesses, assessed their credibility, and decided that Mr. Sheppard “knowingly
used [client funds] inappropriately” but not to the level of a knowing conversion. The
decision is supported by material and substantial evidence. We do not substitute our
judgment for that of the hearing panel as to the weight of the evidence on questions of
fact. Under these facts, ABA Standard 4.11 was not the only applicable Standard the
hearing panel could have considered. We conclude that the hearing panel’s decision to
suspend Mr. Sheppard, as provided under ABA Standard 4.12, was supported by material
and substantial evidence and was not arbitrary and capricious.
Ultimately, the hearing panel had the authority to consider both ABA Standards
4.11 and 4.12 in determining the proper sanction for Mr. Sheppard’s misconduct. See Bd.
of Prof’l Responsibility v. Daniel, No. E2017-01170-SC-R3-BP, 2018 WL 2750058, at
*1, *8 (Tenn. June 8, 2018). As we have concluded before, “[t]he ABA Standards ‘are
not designed to propose a specific sanction for each of the myriad of fact patterns in cases
of lawyer misconduct,’ and they are ‘not analogous to criminal determinate sentences.’”
Maddux, 409 S.W.3d at 624 (quoting ABA Standards, Theoretical Framework). Here,
assuming that the hearing panel considered disbarment as the presumptive sanction under
ABA Standard 4.11, it does not follow that a recommendation of suspension would be
improper. The hearing panel was at liberty to recommend suspension as the proper
sanction for Mr. Sheppard upon adequate consideration of aggravating and mitigating
factors and of sanctions imposed in similar cases. As noted in Daniel, “[a]ny other
interpretation would be incongruous with using the ABA Standards as flexible
guideposts.” 2018 WL 2750058 at *8.
Hearing panels should “precisely and clearly identify all ABA Standards that are
relied upon for guidance in determining an appropriate sanction.” Id. This is the best
practice and assists the parties and this Court in its review. Here, however, the ABA
Standards relied on by the hearing panel are readily ascertainable from the record.
On appeal, the chancery court found that both ABA Standards 4.11 and 4.12
applied based on the facts. This was not error. ABA Standard 4.12 applies to Mr.
Sheppard’s mismanagement of client funds, where the hearing panel found that he
“knowingly violated Rule 1.15 . . . in that certain client funds were improperly withdrawn
or transferred to cover other expenses.” See ABA Standard 4.12 (applicable when “a
lawyer knows or should know that he is dealing improperly with client property and
causes injury or potential injury to a client”). In contrast with ABA Standard 4.12,
disbarment under ABA Standard 4.11 is proper in instances where an attorney
“knowingly converts” client property. Although the hearing panel did not expressly
conclude that Mr. Sheppard converted client funds, its findings of fact may reasonably
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support the chancery court’s conclusion that both ABA Standards applied. We therefore
find no error in the chancery court’s conclusion that both ABA Standards 4.11 and 4.12
applied.
The Board also contends that disbarment under ABA Standard 4.11 rather than
suspension is the appropriate sanction because the chancery court found that Mr.
Sheppard’s actions resulted in harm to Utica. We disagree. Both ABA Standards 4.11
(disbarment) and 4.12 (suspension) apply when there is a finding that an attorney’s
conduct “causes injury or potential injury to a client.” See ABA Standards 4.11, 4.12.
Therefore, the fact that there is an injury to the client does not necessitate imposing the
sanction of disbarment rather than suspension.
Aggravating and Mitigating Factors
The ABA Standards list multiple aggravating and mitigating factors for tribunals
to consider in devising the appropriate sanction once a lawyer’s misconduct is
established. ABA Standard 9.1. These factors are, however, “illustrative rather than
exclusive,” and the hearing panel may consider other factors in its discretion. Cowan, 388
S.W.3d at 268 (quoting Lockett v. Bd. of Prof’l Responsibility, 380 S.W.3d 19, 28 (Tenn.
2012)). “[T]he purpose of the ABA Standards is to ‘promote . . . consideration of all
factors relevant to imposing the appropriate level of sanction in an individual case.’”
Lockett, 380 S.W.3d at 28 (quoting ABA Standard 1.3) (emphasis added).
The Board argues that the hearing panel should have found, as did the chancery
court, that substantial and material evidence established the aggravating factors of
dishonesty, selfish motive, and substantial experience in the practice of law. The Board
also contends that the hearing panel erred in considering the more lenient sanction
imposed on Mr. Craft as a mitigating factor and that the chancery court erred in affirming
the mitigating factors found by the hearing panel.
The hearing panel found no evidence of any aggravating factor. It stated,
nonetheless, that Mr. Sheppard “knowingly misled or misrepresented to at least one client
the status of the client’s trust funds.” This finding, however, does not translate necessarily
into a finding of a dishonest or selfish motive behind Mr. Sheppard’s mismanagement of
client funds. This aggravating factor particularly hinges on the credibility of Mr.
Sheppard and his character witnesses, which the hearing panel directly assessed. Mr.
Sheppard denied intentionally misleading Utica, and two witnesses attested to his
reputation for veracity and hard work on behalf of his clients. The hearing panel noted
that his knowing misconduct was “balanced by evidence that, on one occasion, when [he]
discovered the trust funds were inadequate to pay a client the proceeds due them, he
immediately took action . . . to ‘cover’ the unauthorized misuse.” The hearing panel’s
finding that Mr. Sheppard’s misconduct did not result from a dishonest or selfish motive
is supported by substantial and material evidence.
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As to experience in the practice of law, the hearing panel found “significant proof”
that Mr. Sheppard was “inexperienced in Law Office Management or accounting
systems.” While Mr. Sheppard obtained his law degree in 1982, he did not begin
practicing law until 1999. He had no experience managing a trust account when he began
practicing law six years later with Craft & Sheppard. Mr. Sheppard’s financial reports
and “accounting” methods tend to indicate that he was neither experienced nor
sophisticated in office management. The hearing panel’s conclusion is supported by
substantial and material evidence and is not arbitrary, capricious, or characterized by
abuse of discretion.
The chancery court, however, determined that substantial and material evidence
supported a finding of dishonest and selfish motive and of substantial experience in the
practice of law on the part of Mr. Sheppard. While a trial court may consider additional
aggravating or mitigating factors to reverse or modify a hearing panel’s decision, it may
do so only if one of the bases enumerated in Tennessee Supreme Court Rule 9, section
1.3, is present. Lockett, 380 S.W.3d at 23. The “new” aggravating factors found by the
chancery court directly contradict the hearing panel’s express findings that there was no
proof of dishonesty or selfish motive on the part of Mr. Sheppard and significant proof of
his inexperience in law office management. Having determined that the hearing panel’s
findings are supported by the evidence, we conclude that the chancery court erred by
impermissibly reweighing the evidence. See Mabry v. Bd. of Prof’l Responsibility, 458
S.W.3d 900, 903 (Tenn. 2014) (“[T]he trial court does not substitute its judgment for that
of the hearing panel as to the weight of the evidence.”).
The hearing panel also considered, as a mitigating factor, the more lenient sanction
of public censure given to Mr. Craft. We reject the Board’s contention that considering
the sanction imposed on Mr. Craft was improper. As we have observed, the aggravating
and mitigating factors included in the ABA Standards are “illustrative rather than
exclusive,” Cowan, 388 S.W.3d at 268, and “the purpose of the ABA Standards is to
‘promote . . . consideration of all factors relevant to imposing the appropriate level of
sanction in an individual case,’” Lockett, 380 S.W.3d at 28. Mr. Sheppard’s matter came
to the hearing panel after the Board had issued a public censure to Mr. Craft, based on its
finding that Mr. Craft had not personally removed or received client funds from the
firm’s trust account. Mr. Craft and Mr. Sheppard had been law partners for eight years.
Both attorneys had access to the firm’s bank accounts, bank records, and client funds.
Some evidence shows that Mr. Craft partly directed Mr. Sheppard’s control of firm
finances by supplying him with settlement agreements and other financial information.
Mr. Craft testified about his level of involvement with the firm’s finances, but the hearing
panel did not find his testimony credible. Under these circumstances, we cannot say that
either the hearing panel or the chancery court abused its discretion by considering the
lighter sanction imposed on Mr. Craft as a mitigating factor.
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Given the hearing panel’s findings that there were no aggravating factors and
numerous mitigating factors, including the lighter sanction imposed on Mr. Craft, the
hearing panel could have appropriately considered either disbarment or suspension as the
presumptive sanction. We conclude that the hearing panel did not abuse its discretion in
recommending that Mr. Sheppard be suspended, and that the decision is supported by
material and substantial evidence in the record.
Appropriateness of Discipline
We now consider the sanctions imposed by this Court in factually similar cases to
determine whether the hearing panel abused its discretion in recommending that Mr.
Sheppard be suspended rather than disbarred. The Board contends that this Court has
determined that disbarment is appropriate in cases involving mismanagement of client
funds. Mr. Sheppard counters that this Court’s imposition of disbarment in certain cases
does not prevent a hearing panel from recommending a suspension in a case involving
misuse of trust account funds. Under the abuse of discretion standard, the ruling of the
hearing panel “will be upheld so long as reasonable minds can disagree as to propriety of
the decision made.” Sallee, 469 S.W.3d at 42 (internal citations omitted).
This Court has affirmed suspension as the proper sanction in multiple cases
involving mismanagement of client funds. See, e.g., Napolitano v. Bd. of Prof’l
Responsibility, 535 S.W.3d 481, 505 (Tenn. 2017) (affirming five-year suspension of
attorney who had converted client funds and lied under oath); Maddux, 409 S.W.3d at
615 (affirming nine-month suspension of attorney who had been previously suspended
for misconduct involving mishandling of client funds); Threadgill v. Bd. of Prof’l
Responsibility, 299 S.W.3d 792, 809 (Tenn. 2009) (affirming year-long suspension of
attorney with a pattern of knowingly converting client funds by “pocketing the entire
amount of a settlement or judgment without informing the client the case had been
resolved”); Nevin v. Bd. of Prof'l Responsibility, 271 S.W.3d 648, 650 (Tenn. 2008)
(affirming six-month suspension of attorney who mishandled client funds but blamed
others for his actions and was unremorseful); Milligan v. Bd. of Prof'l Responsibility, 166
S.W.3d 665, 667 (Tenn. 2005) (modifying sanction from disbarment to two-year
suspension where attorney had repeatedly overdrawn client trust accounts and used client
funds for personal purposes). After a careful review of the record, we consider Mr.
Sheppard’s misconduct to be less egregious than that of the attorneys disciplined in those
cases. Against this background, the sixty-day suspension imposed by the hearing panel is
not arbitrary, capricious, or an abuse of discretion by the hearing panel.
Board of Professional Responsibility v. Allison, 284 S.W.3d 316 (Tenn. 2009),
involved similar facts and is particularly instructive. In Allison, the hearing panel
recommended a sixty-day suspension for attorney James T. Allison, but the trial court
modified the sanction to a public censure. Id. at 319. After reviewing the record, we
agreed with the hearing panel’s findings that Mr. Allison had “commingled his personal
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funds with client funds, paid personal bills out of his trust account, failed to maintain
proper trust account records, and failed to timely respond to Board inquiries.” We noted
that Mr. Allison had previously received a public reprimand for “commingling his
personal funds with trust account funds and for paying personal expenses from his trust
account.” This Court reversed the trial court’s modification of the sanction, concluding
that the sixty-day suspension was warranted under the circumstances. Id.
Like Mr. Sheppard, Mr. Allison had a “good reputation, and it was not proven that
his conduct had a selfish or dishonest motive.” Id. at 327. Unlike Mr. Sheppard, Mr.
Allison had substantial experience in the practice of law, his violations displayed a
pattern of conduct, and he had previously received a reprimand for the same type of
misconduct. Id. This Court affirmed the sixty-day suspension recommended for Mr.
Allison by the hearing panel. Id. at 328. Considering the similarities and differences
between Mr. Sheppard’s misconduct and that of Mr. Allison, we find no error in the
hearing panel’s recommendation to suspend Mr. Sheppard for sixty days and place him
on probation for twenty-four months thereafter.
The Board’s reliance on Skouteris v. Board of Professional Responsibility, 430
S.W.3d 359 (Tenn. 2014), and Rayburn v. Board of Professional Responsibility, 300
S.W.3d 654 (Tenn. 2009), is misplaced. While these two cases involved mishandling of
client funds, they are distinguishable in other important respects. In Rayburn, disbarment
was appropriate where the aggravating factors were the attorney’s “years of practice
experience, pattern of misconduct and neglect, dishonesty with his clients, and delay and
obstruction of the disciplinary proceedings.” 300 S.W.3d at 664. Here, the hearing panel
found no aggravating factors. As to Skouteris, the Board is correct that the attorney’s
misconduct involved the failure to keep sufficient funds in a trust account. The hearing
panel in Skouteris, however, concluded that the attorney had engaged in many acts of
conversion for personal benefit that caused actual client injury and failed to show an
understanding that his conduct was wrong. 430 S.W.3d at 371. Both cases involved
express findings of actual injury to clients and multiple aggravating factors, none of
which are present here.
Mr. Sheppard’s knowing mismanagement of client funds is a serious ethical
violation that merits the imposition of discipline by this Court. A different hearing panel
might have imposed a harsher sanction. Under our deferential standard of review, we
conclude that substantial and material evidence in the record supports the hearing panel’s
decision to suspend rather than disbar Mr. Sheppard, and that the decision is not arbitrary,
capricious, or characterized by an abuse of discretion. Under that same standard of
review, the trial court erred in making new factual findings and substituting its judgment
for that of the hearing panel, without any of the bases enumerated in Tennessee Supreme
Court Rule 9, section 1.3.
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III.
We hold that the hearing panel’s decision was fully supported by substantial and
material evidence and was not arbitrary, capricious, or an abuse of discretion. The
chancery court therefore erred in modifying the sanction imposed by the hearing panel.
We reverse the chancery court’s judgment and affirm the hearing panel’s decision
suspending Mr. Sheppard from the practice of law for sixty days, followed by two years
of probation under the supervision of a practice monitor, and requiring that he take fifteen
hours of continuing legal education on law office management and trust accounting
procedures. We tax the costs of this appeal to the Board of Professional Responsibility of
the Supreme Court of Tennessee.
___________________________
SHARON G. LEE, JUSTICE
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