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Commonwealth of Massachusetts

NO. BD-2001-076

IN RE: ROBERT I. TATEL

S.J.C. Order of Term Suspension (18 months) entered by Justice Ireland on January 3, 2002, with an effective date of February 4, 2002.1

BOARD MEMORANDUM2

A hearing committee has recommended that the respondent, Robert I. Tatel, be suspended for eighteen months for misconduct involving breach of an escrow agreement, making deliberate misrepresentations to another attorney, failing to file a currency transaction report (CTR) required under a federal statute, and improperly holding client funds in a location other than a client funds account. The respondent has appealed. He now admits the first and last of these charges, but denies engaging in fraud or having any obligation to file a CTR. He asks that we recommend no sanction greater than public reprimand or, in the alternative, that the matter be remanded for rehearing. Bar Counsel urges adoption of the hearing committee's report and recommendation. Oral argument was held before the full Board. For the reasons set out below, we adopt the hearing committee's findings of fact, modify its conclusions of law, and adopt its recommendation for discipline.

Factual Background

While we adopt and incorporate by reference the hearing committee's subsidiary findings of fact, we set out below a precis adequate for purposes of this appeal, reserving certain details for later discussion as necessary.

In early May of 1996 the respondent's client engaged him to handle the purchase of a retail store called Crosswalks Ice Cream. After receiving copies of the asset purchase agreement from Attorney Michael Smith, the sellers' counsel, the respondent checked UCC records at the Secretary of State's office to determine whether any liens had been recorded against Crosswalks Ice Cream. He found none. His client paid the deposit under the agreement and began operating the store on May 14th. The closing was scheduled for May 17th.

The day before the closing the client discovered that the sellers still owed money to the store's previous owners (creditors), who had recorded a lien on the business assets (though against the sellers in their individual names, not in the name of the business). The respondent brought up the lien at the closing. Because the respondent's client wanted to complete the purchase anyway, the parties agreed orally that the respondent would hold the sale proceeds in escrow and pay the sellers whatever remained of the proceeds after paying off the lien.

The respondent then took possession of the purchase money his client had brought to the closing. Those funds comprised $15,000 in cash and a bank check in the amount of $11,500. The client agreed that the respondent would hold these funds in a strong box in his office. The respondent did not file a CTR under 26 U.S.C. § 6050I with respect to the cash he had received. He knew that his bank would have filed a CTR identifying the source of the cash if he had deposited the money into his IOLTA account. On May 20th, as required under the asset purchase agreement, the client gave the respondent as escrow agent an additional $5,000 in cash, which represented a hold-back to cover any other unpaid business obligations owed by the sellers. This brought the amount the respondent was holding in escrow to $31,500.

Also on May 20th, Attorney Deirdre Keefe, counsel for the creditors, called the respondent and demanded payment of the debt secured by the lien. Two days later, the respondent wrote to Smith stating that his client was "seeking a reduction in the purchase price of $5,000 for [the buyer's] inconvenience and additional cost incurred in consummating this transaction." Neither Smith nor the sellers responded to this demand. On May 31st, Keefe informed the respondent that her clients were unwilling to reduce the amount of the debt, and she demanded payment in the amount of $24,717.55 by June 4th.

On June 5th, the respondent faxed a letter to Smith stating his intention to make the following disbursements from the sale proceeds on June 10, 1996:

Deirdre Keefe, Attorney for [lien creditors] $24,717.55
Dept. of Revenue (Comm of Mass.) $42.40
Taylor of New England $329.58
City of Newton $266.42
Dept. of Revenue (Comm of Mass.) $116.85
Boston Edison $476.64
[The buyer, respondent's client] $5,000.00
Tax escrow $5,000.00

The letter misrepresented in three respects the obligations owed and payments to be made from the sale proceeds under both the asset purchase agreement and the oral escrow agreement. First, because the $5,000 buyer's hold-back was to cover any unpaid bills, including the vendors and tax authorities enumerated on the list, adding those specific obligations to the list amounted to double counting. Second, the respondent knew the sellers had not acceded to his demand that his client be paid an additional $5,000 from the proceeds, which is reflected in the penultimate item on the list. And third, except for the debt to DOR, all the other specific obligations had been paid by the sellers before the closing.

The respondent sent a copy of the June 5th letter to Keefe. He also spoke to Keefe by telephone. During that conversation he misrepresented that there would be insufficient funds to pay her clients in full and asked her to accept $23,000 to settle the matter. When Keefe asked why the buyer was receiving $5,000 from the sale proceeds, the respondent did not tell her this figure represented his unaccepted, unilateral proposal to reduce the purchase price. Instead, he falsely claimed that it represented a payment for some product, to change the locks, and for a third item. The committee found that the respondent's purpose in sending the deceptive list of expenses to Keefe, and in making oral misrepresentations to her regarding them, was to mislead her into believing there were insufficient escrow funds available to pay her clients' entire claim.

The deception apparently worked. Keefe's clients agreed to accept $23,000. On June 13th, Keefe and the creditors appeared in the respondent's office. The respondent paid them $23,000 as follows: $10,000 in cash, a check for $11,500 drawn on his IOLTA account (he had deposited his client's $11,500 bank check into his IOLTA account a week earlier), and a bank check in the amount of $1,500. The committee found that he deliberately structured the payments in this way to avoid the currency transaction reporting requirements of 26 U.S.C. § 6050I.

After the closing with Keefe and the creditors, the respondent still held $8,500 in escrow. At his client's direction and without notice to or authority from the sellers or Smith, the respondent turned those funds over to his client. The sellers later sued the respondent and his client. That action was eventually settled when the respondent paid the sellers $8,500.

Conclusions of Law

The hearing committee concluded that the respondent's breach of the escrow agreement by paying the $8,500 balance to his client, and his misrepresentations to Keefe regarding the availability of funds to pay the creditors, were violations of Canon One, DR 1-102(A)(4) and (6) (conduct involving fraud, deceit, dishonesty, or misrepresentation and reflecting adversely on fitness to practice).

Rejecting the respondent's contention that the federal statute does not requre an escrow agent to file a CTR, the committee concluded that his failure to do so when he received more than $10,000 in cash from his client was in violation of Canon One, DR 1-102(A)(4) and (6) (conduct involving fraud, deceit, dishonesty, or misrepresentation and reflecting adversely on fitness to practice), and Canon Seven, DR 7-102(A)(3) and (7) (concealing that which he is required by law to reveal and assisting a client in an illegal or fraudulent act).

Finally, the committee concluded that, by failing to obtain his client's written consent to hold his funds in a location other than a client funds account, the respondent violated Canon Nine, DR 9-102(A) (all funds held in trust shall be deposited in client funds accounts maintained by the attorney or elsewhere with the written consent of the client).

The Respondent's Appeal

1. Breach of escrow agreement. On appeal the respondent does not dispute the committee's findings that he held the closing proceeds pursuant to an escrow agreement made at the closing or that he breached that agreement by giving the remaining $8,500 to his client. He contends, rather, that the committee misunderstood his argument regarding the escrow. His position, he argues, was not that he had not entered into an escrow agreement, but that he contested the terms of that agreement. As best we understand his position, he claims he held the funds not just to cover the secured debt and any other unpaid obligations of the sellers, but also to ensure that all the terms of the asset purchase agreement were performed by the sellers.

There are a number of problems with this argument, not the least of which is that it is largely irrelevant. Whatever its precise terms, the oral escrow agreement was breached by the respondent when he paid the remaining proceeds over to his client without their consent. This even he now admits, for he acknowledges he "used bad judgment and acted illegally" in doing so. (Respondent's Brief on Appeal at 12) It follows, therefore, that his breach violated Canon One, DR 1-102(A)(6). See Matter of Dittami, 9 Mass. Att’y Disc. R. 102, 102 (1993).

Second, the respondent did deny, and with much persistence, that he had entered into an escrow agreement. In his answer to the petition for discipline, he flatly "denie[d] that he entered into a oral escrow agreement with Smith at the closing." (Answer 12) At the hearing his direct testimony was that there were no discussions with Smith about the sale proceeds "[o]ther than [to] represent to Mike Smith that I was gonna hold the money." (2 Tr. 103) He later admitted on cross-examination that he held the funds in "escrow" (2 Tr. 215-216), and he acknowledged as much in his proposed findings. (See Respondent's Requests for Findings I, 1) Given his own inconsistency on the point, it ill behooves him now to claim that the committee "misunderstood and/or misinterpreted important parts [his] testimony thereby creating issues not in dispute." A committee confronted with so inconsistent a witness cannot be faulted for questioning his credibility.

Third, the committee did not misunderstand his claim that the oral escrow agreement conditioned payment to the sellers on their performance of all the terms in the asset purchase agreement. The committee rejected it. There was substantial evidence on which to do so. The other party to the escrow agreement, Smith, testified that the escrowed funds were to be paid over to the sellers once the UCC lien was satisfied. (1 Tr. 44) Credibility determinations are the sole province of the hearing committee, see S.J.C. Rule 4:01, § 8(4), and we may not disturb them absent obvious error. See, e.g., Matter of Hachey, 11 Mass. Att’y Disc. R. 102, 103 (1995) (credibility findings may not be disturbed unless “wholly inconsistent” with other findings). It is not surprising that the committee credited Smith's testimony and discredited the respondent's, which was considerably less consistent in most respects. Furthermore, Smith's version makes more sense given the circumstances of the closing: the buyer was already running the business, and the asset purchase agreement contemplated holding back only $5,000, not the entire purchase price, to ensure performance of minor obligations like those mentioned by the respondent. Under these circumstances, it would be odd to incorporate—and without any writing whatsoever—all the terms of the asset purchase agreement into an oral escrow agreement that arose solely because a specified lien was unsatisfied.

Finally, even if the respondent were right that the sellers had breached the asset purchase agreement (and we are not suggesting that he was), and even if all its terms had magically been incorporated into the oral escrow agreement, an escrow agent's duty on breach is not to give the funds to his client. This the respondent now concedes. Accordingly, we find no error in the hearing committee's findings of fact or conclusions of law with respect to the breach of fiduciary duties under the escrow agreement.

2. Misrepresentations to Keefe. The hearing committee determined, as the respondent himself summarizes its findings, that he "intentionally deceived Keefe by overstating adjustments so she would believe there were insufficient monies escrowed to pay her clients in full." He objects to these findings on the grounds that the committee should not have relied on Keefe's testimony as to the oral misrepresentations and that he never stated in his June 5th letter that the list of disbursements had been agreed to by the sellers. Neither objection has merit.

First, the committee heard the witnesses and chose to believe Keefe instead of the respondent. While, as we have already noted, the scope of our review of credibility determinations is exceedingly narrow, see S.J.C. Rule 4:01, § 8(4), this swearing contest was not even close. The respondent testified that he could not recall whether Keefe had questioned him about the scheduled $5,000 disbursement to his client or what he had said to her about it. Keefe, on the other hand, had a clear recollection of having questioned him about the disbursement. Consulting notes she had taken of the conversation, she testified that he did not advise her that it was merely a proposal he had made to the buyers, but had told her instead that the disbursement was to pay for some product, to change the locks, and for a third item she could not recall. She also testified that he did not inform her that the $5,000 hold-back figure represented a fund out of which most of the specific disbursements would be paid (if they had not already been paid). In weighing the respondent's self-interested claim that he could not recall the conversation against Keefe's specific recollection of having asked precisely the questions a good lawyer in her situation would have asked, the hearing committee did not err in deciding to credit Keefe.

Second, the respondent gains little by claiming the June 5th letter contains no affirmative representation that the scheduled disbursements had been agreed to by the sellers. The salient point is that it contained no qualifier at all, thereby deliberately inviting, once forwarded to Keefe, the false inference that they were actual disbursements he planned to make on June 10th. The letter was written one day after the deadline Keefe had set for paying off the lien. Sending it to Keefe while in the midst of negotiating a lower payment figure made that false inference all the more inviting. Further, it contained amounts already paid and double counted by listing both the hold-back amount and the expenses covered by the hold-back. Any doubt on this score dissipates in the light of testimony of Keefe, to whom the respondent affirmatively represented that there were not enough escrow funds to pay the lien in full. When she questioned him narrowly about the disbursements, he falsely reassured her by making oral misrepresentations. There was no error.

The hearing committee correctly found that the respondent made deliberate misrepresentations to Keefe, both orally and in the June 5th letter, in violation of Canon One, DR 1-102(A)(4) and (6).

3. Currency transaction reports. With regard to the handling of cash at the closings on both the asset purchase agreement and the lien payoff, the hearing committee drew two distinct conclusions: first, that the respondent violated 26 U.S.C. 6050I by not filing a CTR, and, second, that he was not candid or honest in his testimony about his knowledge of the statute's requirements or his intentions in structuring the payment to Keefe. After careful review of the committee's analysis and the arguments of the parties, we reject the former and adopt the latter.

Section 6050I provides that "[a]ny person . . . who, in the course of [a] trade or business, receives more than $10,000.00 in cash in 1 transaction (or 2 related transactions)" shall file a CTR identifying the name, address, and tax identification number of the person from whom the cash was received, the amount received, and the date and nature of the transaction. We believe it is a difficult and (in our minds) unanswered question whether the statute required the respondent to file a CTR. He produced an expert witness who testified that no CTR needed to be filed because the respondent had received the cash as an escrow agent and not for his own benefit as part of services performed in his trade or business. Bar Counsel (and the committee) rely on what they term the plain language of the statute and the wording of an IRS form, but at argument before us Bar Counsel could cite no case directly addressing the issue. Some members of the Board with experience with the federal statute in question had reached the opposite conclusion regarding escrow holders. Given our own uncertainty and the absence of decisional law on point, it would be unfair to discipline the respondent for violating the statute—if indeed he did. We therefore strike the conclusion that he violated Canon One, DR 1-102(A)(4) and (6) (conduct involving fraud, deceit, dishonesty, or misrepresentation and reflecting adversely on fitness to practice), and Canon Seven, DR 7-102(A)(3) and (7) (concealing that which he is required by law to reveal and assisting a client in an illegal or fraudulent act).

At the same time, the respondent certainly acted like a man who thought he had to file a CTR and was doing his best to avoid it. That, of course, is not unethical if the statute does not apply. But he also was not candid in his testimony about his actions. Before the hearing committee, he dissembled about his knowledge of the statute and about the motives underlying his conduct. When he first received $10,000 in cash from his client, he did not deposit it in his IOLTA account. He admitted he knew that if he did, his bank would file a CTR disclosing the source of the cash. Under these circumstances, the committee was justified in finding that he was not candid with them when he claimed that he had no knowledge or understanding of the requirements of § 6065I in May of 1996.

The evidence that he knowingly structured the payoff of the lien to avoid the strictures of § 6065I is even stronger. On June 7, 1996, he finally deposited his client's $11,500 bank check into his IOLTA account, but not the cash he was holding. The next day Keefe confirmed that her clients would accept the lower payoff figure. He then used a portion of the cash to purchase a $1,500 bank check. On June 13th, when Keefe and her clients showed up to accept a payoff of the lien, the respondent gave Keefe $10,000 in cash, the $1,500 bank check, and a check drawn on his IOLTA account in the amount of $11,500 (funded by the deposit of $11,500 bank check deposited on June 7th).

The respondent testified that he did not structure the transaction to avoid the CTR requirements. Keefe, he claimed, was aware that he was holding cash and had asked that she receive $10,000 in cash. Keefe denied this. The committee believed her, not the respondent. Again, we may not trench on the committee's province as the sole judge of credibility, and in his brief on appeal the respondent himself does not ask us to do so. The committee's determination also comports with the respondent's manifest reluctance to deposit the cash when he received it at the May 17th closing on the purchase of the business. The committee rightly found that the respondent structured the transaction to avoid any obligation to file a CTR and then lied about it to the hearing committee. His lack of candor was thus an appropriate factor to consider in aggravation of his misconduct. See Matter of Eisenhauer, 426 Mass. 448, 455, 14 Mass. Att’y Disc. R. 251, 260 (1998); Matter of Friedman, 7 Mass. Att’y Disc. R. 100, 103 (1991).

4. The sanction. The hearing committee recommended that the respondent be suspended for eighteen months. Bar Counsel joins in that recommendation. The respondent seeks an admonition or public reprimand, but this request assumes that we reject the fraud charges, conclude he did not violate the federal statute, and set aside the finding that his testimony lacked candor. We have sustained the fraud charges, and while we have rejected the conclusion that he violated the federal statute, we sustained the committee's findings that he did not comport himself honestly and candidly in testimony at the hearing. In effect, we must choose a sanction for misconduct that differs little from that found by the committee.

As an initial matter, the respondent represents that Bar Counsel offered to recommend a public reprimand if the matter did not go to hearing. Imposing a greater sanction now, he argues, would be to punish him for exercising his right to a hearing, thus implicating concerns about due process and the integrity of bar discipline. We dismiss the dubious notion that we might be bound in some fashion by statements made in settlement negotiations. The Court has advised that the Board must give no "special force" to Bar Counsel's proposed sanction merely because it is embodied in a stipulation. Matter of Luongo, 416 Mass. 308, 313, 9 Mass. Att’y Disc. R. 199, 204 (1993). We can hardly give greater weight to a proposal spurned by a respondent. Even as it applies to Bar Counsel himself, we find no merit to the respondent's argument. He cites no authority for it, and we are aware of none. Parties, including Bar Counsel, are free to weigh the perceived strength of their cases and in the interest of predictability to bargain in good faith based on those assessments. Such dealings are routine in civil and criminal cases alike. We decline the suggestion that we should or could compel Bar Counsel to abide by settlement offers a respondent rejects in favor of rolling the dice.

The breach of fiduciary duties under the escrow agreement alone would normally merit at least an admonition. See Matter of Dittami, supra (1993) (public reprimand for, among other things, making unilateral disbursement from escrow fund); Matter of the Discipline of Two Attorneys, 421 Mass. 619, 12 Mass. Att’y Disc. R. 580 (1996). The fraud committed in the course of the respondent's dealings with Keefe would warrant a six-month suspension. See Matter of Thurston, 13 Mass. Att’y Disc. R. 776 (1997) (six-month suspension for conflict of interest and misrepresentations to one corporate partner to conceal fraud by the other partner and attorney). But for aggravating circumstances, therefore, we might be inclined to recommend a term of suspension longer than six months but shorter than one year.

There is, however, substantial evidence in aggravation of the misconduct. We have already mentioned his lack of candor before the hearing committee, a factor that we "must consider." Matter of Eisenhauer, 426 Mass. 448, 455, 14 Mass. Att’y Disc. R. 251, 260 (1998). Of even greater force is the respondent's disciplinary history. In 1984 he was indefinitely suspended after pleading guilty to criminal misdemeanor charges arising from his sharing legal fees in matters involving the MBTA with the Secretary of Transportation and with an MBTA employee in exchange for their referring the cases to him. Matter of Tatel, 4 Mass. Att’y Disc. R. 138 (1984).

The respondent argues that his prior discipline should not be weighed in aggravation because the conduct "lack[ed] any similarity" to that at issue here. We disagree. As a legal matter, we must give substantial weight to all prior discipline in aggravation, however dissimilar. Matter of Dawkins, 412 Mass. 90, 96, 8 Mass. Att’y Disc. R. 64, 71 (1992) (prior discipline, even if unrelated, is always a "substantial factor" in choosing sanction). Furthermore, the dishonesty that underlies the misconduct in both instances constitutes a troubling similarity that merits full consideration. For that reason in particular, we agree with the committee that the respondent should not be allowed once again to resume the practice of law without testing his fitness through a hearing on reinstatement. We join the hearing committee and Bar Counsel in concluding that an eighteen-month suspension is the appropriate sanction.

Conclusion

For all of the foregoing reasons, we adopt and incorporate the hearing committee's findings of facts, modify its conclusions of law as discussed, and adopt its recommendation for discipline. An Information shall be filed in the Supreme Judicial Court for Suffolk County recommending that the respondent, Robert I. Tatel, be suspended from the practice of law for eighteen months.

Respectfully submitted,

THE BOARD OF BAR OVERSEERS

By: ___________________________
M. Ellen Carpenter
Secretary

Approved: September 10, 2001


1 The complete Order of the Court is available by contacting the Clerk of the Supreme Judicial Court for Suffolk County.

2 Compiled by the Board of Bar Overseers based on the record before the Court.



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