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Commonwealth of Massachusetts

NO. BD-2002-065


S.J.C. Order of Indefinite Suspension entered by Justice Sosman on October 23, 2002, with an effective date of November 22, 2002.1


On October 29, 2001, bar counsel filed a five-count petition for discipline against the respondent. On February 27, 2002, the petition for discipline against the respondent was consolidated for hearing with a petition for discipline filed against Edmund E. Fleming. Mr. Fleming subsequently filed an affidavit of resignation and was disbarred. Matter of Fleming, S.J.C. No. BD-2002-004 (September 4, 2002) (Spina, J.)

On August 14, 2002, the respondent and bar counsel filed a stipulation of facts that the respondent agreed would be established by a preponderance of the evidence at a hearing. In summary, the respondent agreed that the following facts would be established at a hearing on the petition for discipline.

Between 1979 and 1981, Herbert Kent, through an entity called the United States Investment Co., Ltd., (USIC), conducted a fraudulent investment scheme involving the investment in and trading of commodity futures. Approximately 680 investors invested $7 million through USIC, most of which was lost or dissipated.

In April 1981, the Commodity Futures Trading Commission (CFTC) filed a complaint in the United States District Court for the District of Massachusetts seeking injunctive relief and the appointment of a receiver. The court appointed Edmund E. Fleming, then a member of the bar of the commonwealth, as receiver. As receiver, Fleming was obliged to marshal the assets and property of Kent and USIC, prosecute claims on behalf of USIC, liquidate the receivership estate if necessary, and account for the receivership assets to the court.

Fleming was required to petition the court for permission to use receivership funds for any purpose. After March 5, 1982, Fleming did not petition the court for permission to take compensation or reimburse expenditures connected to the receivership. By May 24, 1984, Fleming had completed the seizure and liquidation of USIC assets, which then totaled about $592,580. Fleming did not then file an accounting of the assets with the court and did not propose a distribution of the assets to the investors.

In the late winter or spring of 1982, Fleming hired the respondent. The respondent was then in her last year of law school. The respondent was admitted to the practice of law on December 17, 1982.

By the time the respondent was hired, Fleming had already commenced, without court authorization, to use receivership assets to pay salaries for his employees and defray general office expenses. By 1983, Fleming had delegated to the respondent the day-to-day responsibility for managing the receivership. To the extent that she was supervised, the respondent was encouraged by Fleming to use receivership assets to pay salaries, vacation time, office expenses, rent, and the costs of clerical help and office equipment.

In 1983, the respondent worked for Fleming as an independent contractor. She received $18,200.70 of USIC funds for about 207 hours of work attributed to USIC. An additional amount of unrecorded time was spent on purely clerical matters.

From about 1984 until about January 1993, except for 1986, the respondent and Fleming had an agreement in which the respondent received a weekly payment characterized as a “salary” and the use of Fleming’s office, equipment, and clerical help for cases she brought into the office. In return, the respondent worked on Fleming’s cases and paid him 80% of the fees she earned from her own clients. Except for 1987, the respondent’s weekly payment or salary was paid entirely from USIC funds. The respondent’s salary included paid vacation, and there was no deduction for days the respondent did not work.

The respondent left Fleming’s office in about August 1985 to work for another firm. In January 1987, she returned to work for Fleming. She and Fleming then began to hold themselves out as the firm of Fleming & Galat. In 1989, Fleming and the respondent opened an office under the name of Fleming & Galat in Newburyport, Massachusetts. The respondent carried on the private practice of law from this office. In January 1993, the respondent severed her business relationship with Fleming; she continued, however, to hold herself out as “Fleming & Galat”.

The vast majority of the respondent’s time from 1984 through 1995, except for 1986, was spent on her own personal cases and Fleming’s cases other than USIC. The respondent’s work during this period included representing Fleming personally in a number of civil cases pending in a variety of courts. Most of the work the respondent performed for USIC was purely clerical and administrative. The respondent kept either no or inadequate records of the time she spent on USIC matters.

After opening the Newburyport office, the respondent had custody of the USIC bank accounts. Fleming authorized the respondent to sign his name to checks drawn on the USIC checking account and to make transfers among the several accounts that Fleming had opened as USIC’s receiver. There was no court order authorizing the respondent to manage or disburse USIC funds.

From January 1989 to December 1992, with Fleming’s approval, the respondent intentionally used USIC funds to pay herself $500 per week. From time to time, she paid herself interest-free advances on her “salary”, which were repaid by deductions from subsequent pay checks drawn on USIC. The respondent issued checks to herself for weeks when she was on vacation and for days when she was not in the office or otherwise unable to perform services for USIC. The respondent also used USIC funds to pay all of the office rent and for secretarial services. She used USIC funds to pay a Christmas bonus to the secretary. USIC also paid for professional liability insurance for the respondent and Fleming in at least 1991 and 1992. The respondent did not intend to deprive USIC of the funds, but deprivation resulted.

With Fleming’s approval, the respondent also used USIC funds to purchase equipment for the Newburyport office. In March 1990, the respondent used $1552.50 of USIC funds to purchase a copier that she appropriated for her own use. In October of the same year, she used USIC funds to purchase a typewriter, again primarily to use for her own cases. A printer costing $576.85 in USIC funds was purchased in November 1990. USIC paid for the maintenance of this equipment as well. The respondent did not intend to deprive USIC of its funds, but deprivation nevertheless resulted.

On two occasions, with Fleming’s permission, the respondent borrowed funds from USIC. In October 1990, she borrowed $50,000, and in August 1992, she borrowed $20,000. On both occasions, the loans were interest-free, unsecured, and undocumented. The respondent repaid both loans within a few weeks by depositing personal funds into the USIC accounts.

Throughout the course of the receivership, the respondent, at Fleming’s direction, carried on the day-to-day communications with the USIC investors. Between May and December 1983 and on occasion thereafter, the respondent sent letters to investors inquiring about the receivership that falsely reported that Fleming would be filing a “final accounting” in the “next two to three months.” In addition, the letters falsely informed the investors that no distribution could be made until “pending litigation” was completed. The respondent knew when she sent these letters that no “final account” was imminent and that there was no “pending” litigation.

Between 1983 and 1991, the respondent and Fleming advised investors that Fleming would be seeking substantial damages from Lind-Waldock, a futures commodity merchant, and the 1st National Bank of Boston, the depository for USIC funds, for losses sustained by the investors. The respondent and Fleming encouraged the investors to rely on the receiver to protect their interests in the lawsuits. In fact, Fleming did not have authority or standing to represent the investors’ interests, the investors’ interests differed from USIC’s, and Fleming’s and the respondent’s personal and financial interests also actually or potentially differed from the investors’ interests and USIC’s interests. The respondent did not disclose these actual or potential conflicts of interests to the investors, and she did not advise them to obtain independent counsel.

In April 1984, Fleming, as receiver, filed two separate actions in federal court seeking damages on behalf of the investors from, respectively, Lind-Waldock and Bank of Boston. Fleming had not been authorized to sue on behalf of the investors and lacked standing to bring these lawsuits. He subsequently amended the claims to assert a class action. In June 1987, the court entered summary judgment for Bank of Boston on the ground Fleming had no authority to assert claims on behalf of the investors. Entry of the judgment was stayed to permit Fleming to request authorization to pursue the investors’ claims, but Fleming never received authorization. On August 26, 1987, the court granted Lind-Waldock’s motion to dismiss the complaint.

In September 1987, Fleming attempted to resuscitate the claims by filing a motion on behalf of one investor to intervene in the class actions and to have Fleming named as class counsel. Neither Fleming nor the respondent informed the other investors of the existence of a class action, the dismissal of the claims, and the attempt to resurrect the claims through one of the investors.

On July 18, 1989, the federal court denied the motion to intervene in the two lawsuits, ruling, among other things, that the motions were untimely and that Fleming was not eligible to serve as class counsel. On about October 30, 1989, the respondent supervised a mass mailing to the investors. The letter was deceptive and misleading, suggesting that case law developed in 1986 and 1987 enunciated a “new theory” that distinguished between the rights of a company in receivership and the rights of investors in and creditors of that company. The respondent knew that the court had dismissed the claims based on cases decided before 1984, when the lawsuits were filed. In addition, the letters falsely implied that the decision to dismiss the claims had been made in September 1989 when the cases had been dismissed in 1987. Finally, the letter did not disclose to the investors that the investor’s attempt to intervene had been denied because the investors had unduly delayed in asserting their rights.

Fleming appealed the district court’s decisions in both cases to the United States Court of Appeals for the First Circuit. The appeal relating to Bank of Boston was abandoned, and the appeal relating to Lind-Waldock was denied on December 19, 1990, in Fleming v. Lind-Waldock, 922 F.2d 20 (1st Cir. 1990). The First Circuit awarded costs to the appellee. Neither Fleming nor the respondent informed the investors of these developments.

In about 1990, Fleming hired a certified public accountant to prepare a compilation of USIC receipts and disbursements to file with the court as his account. From about 1990 through 1995, the respondent provided legal services to USIC, including but not limited to furnishing information to the accountant for the final report and reviewing and revising the reports submitted by the accountant for approval by the receiver.

The respondent failed to appreciate that her attempt to represent USIC created a conflict of interests in several ways: USIC’s interests differed from the interests of the respondent and Fleming, the respondent’s interests differed actually or potentially from Fleming’s, and the respondent’s personal and professional relationship with Fleming interfered with her independent judgment on behalf of USIC. The respondent did not and could not properly seek consent to these various conflicts of interests.

The respondent billed USIC from January 1993 to August 1, 1995, at the rate of $50 per hour. From August 1, 1995, through December 1995, the respondent billed separate rates of $50 per hour and $100 per hour for mostly clerical or administrative work.

The compilation prepared by the accountant charged the receivership $285,885 in legal fees to Fleming; $179,734.38 in legal fees to the respondent; and for office rent, equipment, salaries, and other charges not attributable to the receivership. The respondent took no action to protect USIC’s interest regarding these charges against its assets.

The report compiled by the accountant was finished by no later than January 1993. The respondent took no action of substance to compel Fleming file the report with the court. The report was not filed until December 7, 1995. Due to the delay, USIC was charged additional expenses.

The report included inflated, unjustified, inaccurate, and otherwise unwarranted charges to the receivership. The respondent did not disclose the fraud to the court. The court called for justification of Fleming’s and the respondent’s fees. Fleming and the respondent created after-the-fact records purporting to record hours spent on the receivership. These records showed intentionally inflated and inaccurate numbers of hours for Fleming. The respondent’s records inflated the number of hours she spent on administrative tasks. The respondent did not protect USIC’s interests in having accurate records provided to the court.

Fleming filed the false and inflated hourly records with the court in January 1996. Although she knew that the records had been filed and that they contained false and exaggerated estimates of time spent on USIC, the respondent never advised the court that the records were not reliable.

The respondent agreed that this conduct violated the following rules of professional conduct. The respondent’s legal fees to USIC were clearly excessive in violation of Canon Two, DR 2-106(A). Her failure to maintain adequate records of time expended on USIC violated Canon Six, DR 6-103(A), and Canon Nine, DR 9-102(B)(3). The respondent commingled personal and USIC funds in the USIC account in violation of Canon Nine, DR 9-102(A). Her misappropriation of USIC funds and property violated Canon One, DR 1-102(A)(4) and (6); Canon Seven, DR 7-101(A)(1)-(3); and Canon Nine, DR 9-102(A) and (B). The respondent’s conduct in borrowing funds from USIC constituted a business transaction with a client without consent in violation of Canon Five, DR 5-104(A). Her conduct in holding herself out as practicing in the law firm of “Fleming & Galat” after December 1992 violated Canon Two, DR 2-102(A).

The respondent’s failure to maintain reasonable communications with the investors and her conduct in communicating false and misleading information to them violated Canon One, DR 1-102(A)(4) and (6); Canon Six, DR 6-101(A)(3); and Canon Seven, DR 7-101(A)(1)-(3). Her participation in concealing from the investors that the attempt to intervene in the class action suit had been denied because it was not timely violated Canon Six, DR 6-102(A). The respondent’s providing legal advice to the investors other than the advice to retain counsel and when their interests did or might reasonably differ from USIC’s interests, her own interests, and Fleming’s interests violated Canon Five, DR 5-101(A) and 5-105(A)-(C), and Canon Seven, DR 7-104(A)(2).

The respondent’s conduct in representing Fleming and USIC concurrently and when USIC’s interests were actually or potentially different from her own interests also violated Canon Five, DR 5-101(A) and 5-105(A)-(C). Her conduct in not pressing for an accounting to be filed with the court; her conduct in not bringing to the court’s attention the fact that the report filed with the court contained false, unjustified, and inflated charges and expenses against the receivership; her conduct in creating false and inflated billing records to justify the legal fees charged to the receivership for her services; and her conduct in not notifying the court that the billing records filed with the court contained false and exaggerated claims for hours worked on the receivership violated Canon One, DR 1-102(A)(4)-(6); Canon Seven, DR 7-101(A)(1)-(3); and Canon Seven, DR 7-102(A)(3)-(7) and (B)(2).

In mitigation, the parties agreed that the respondent was a newly admitted lawyer when she was hired by Fleming and relied on him for guidance in using receivership funds. The respondent considered herself to be Fleming’s employee in handling the receivership and was not the decision-maker. In addition, the parties agreed that the receiver was responsible to the court for management of and accounting for the assets. In light of these and other mitigating circumstances, the parties asked the Board of Bar Overseers to recommend to the Supreme Judicial Court that the respondent be indefinitely suspended.

On September 16, 2002, the Board of Bar Overseers voted to accept the parties’ stipulation and recommendation for discipline. On October 11, 2002, the Board of Bar Overseers filed an information with the county court recommending that the respondent be indefinitely suspended. On October 23, 2002, the Supreme Judicial Court for Suffolk County (Sosman, J.) entered an order indefinitely suspending the respondent, effective thirty days from the date of the order.

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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