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Commonwealth of Massachusetts

S.J.C. No. BD-2005-057

IN RE: PAUL D. McCARTHY

S.J.C. Judgment of Term Suspension entered by Justice Cordy on August 18, 2005 1

MEMORANDUM OF DECISION

Paul D. McCarthy, the respondent attorney, is before the court on an Information with the Vote and Recommendation of the Board of Bar Overseers (board), which recommends that McCarthy be suspended from the practice of law for three months, subject to the condition that reinstatement not be permitted until McCarthy takes and passes the Multistate Professional Responsibility Exam (MPRE) and completes a Continuing Legal Education (CLE) course on real estate law acceptable to bar counsel. The board recommends this sanction for McCarthy's violations of Mass R. Prof. C. 1.7(b), 1.16(a)(l), 1.2(a), 1.3, 1.4(b), and 1.1, during his representation of a couple during their purchase of a two-family house in Lawrence. The matter came before me for a hearing on August 10, 2005. I have carefully reviewed the entire record of proceedings in this case, including the hearing committee report and the appeal panel report, which the board adopted. McCarthy argues that a three-month suspension is excessive, and that a private admonition or public reprimand would be adequate. I conclude that the board's recommendation is an appropriate sanction for McCarthy's misconduct.

1. Background. The hearing committee found the following facts, which McCarthy does not materially challenge.2 Judy Mund and Robert Brennan (clients) were prospective homebuyers and first met McCarthy in November 2000 at a first-time homebuyer seminar presented by H&R Block Mortgage Corporation (H&R Block). McCarthy was serving as the moderator for the seminar, and was introduced as an attorney experienced in real estate matters who represented H&R Block at closings. At the seminar, McCarthy did not explain any potential conflicts of interest that could occur between buyers, attorneys for lenders like himself, real estate agents, and lenders like H&R Block.

The clients later contacted Buyer's Choice Realty and engaged a buyer's broker, Tacheryn McCarthy (Tacheryn), who is McCarthy's wife.3 Tacheryn emphasized to the clients the need for legal representation in real estate transactions, and, in response to the clients' question, indicated that they could engage McCarthy as their attorney or whomever they chose. Meanwhile, the clients had obtained pre-approvals from H&R Block to purchase a two-family house with rental income. On February 15, 2001, Tacheryn showed the clients a two-family house in Lawrence, and McCarthy was also present at the property and was introduced to the clients as Tacheryn's husband. After speaking with Tacheryn about their desire to purchase the property without tenants, the clients decided to make an offer, which Tacheryn prepared and was accepted by the sellers, but did not include any provision with respect to the existing tenant. That day, Tacheryn communicated the importance of having an attorney to review the purchase and sale agreement for the property, and the clients agreed to engage McCarthy for this purpose. By this time, the hearing committee concluded, the clients knew that McCarthy and Tacheryn were married, McCarthy would serve as the closing attorney for H&R Block, Tacheryn would receive a commission on the sale, and McCarthy would be compensated for his legal work, but McCarthy neglected to mention any potential conflicts of interest between the various parties involved in the transaction.

McCarthy reviewed the purchase and sale agreement prepared by the sellers and suggested changes to the agreement, which the seller approved. The agreement reflected the clients' requirement that the existing tenant would vacate the premises by the closing. At the signing of the agreement on March 4, 2001, McCarthy apparently made some attempt to explain his role in the transaction, although he did not engage in a thorough discussion with the clients nor obtained their informed consent to his representation given his financial interest and the financial interests of his wife and H&R Block in the completion of the transaction.

On May 16, 2001, Tacheryn and the clients went to the Lawrence property for a final walkthrough before the closing and discovered that a tenant was still residing in one unit of the house.4 Because the clients had expected the tenant to have vacated the unit before the closing, a flurry of discussion ensued between the clients, Tacheryn, and McCarthy; after a cursory discussion of legal options with McCarthy, the clients eventually decided to go forward with the closing despite the presence of the tenant. This decision was in part based on their belief and understanding that McCarthy would assist them with the holdover tenant problem after the closing and that the problem would be easily resolved.5

The closing on the Lawrence property occurred as scheduled on May 18, 2001, at McCarthy's office. Tacheryn received her commission, and McCarthy disbursed to himself various fees earned in representing H&R Block, including a fee for title insurance that he did not explain to his clients he would receive.

Shortly after the closing, the clients decided to offer the holdover tenant a new lease and contacted another lawyer, who drafted a lease for the tenant at a substantially higher rent. The tenant refused the new lease, and the clients contacted McCarthy to discuss eviction. McCarthy said that he would require a $1,000 retainer to represent them during the eviction process, but he urged the clients to engage another attorney to handle the eviction because he was not comfortable offering advice on the matter. The clients engaged another attorney to represent them during the eviction. That attorney also sent a demand letter to McCarthy. Before an eviction could proceed, the tenant left the property voluntarily.

For the inadequacy of McCarthy's representation of the clients and his failure to obtain their informed consent to his representation in light of the abundant conflicts of interest inherent in the transaction, bar counsel filed a petition for discipline on November 3, 2003. McCarthy filed an answer, and the matter was assigned to a hearing committee, which heard testimony over three days in June 2004. Thereafter, the parties submitted proposed findings of fact, conclusions of law and discipline recommendations. The hearing committee submitted its report to the board on October 18, 2004, recommending a three-month suspension from the practice of law and the condition that McCarthy take the MPRE before reinstatement. McCarthy appealed to an appeal panel of the board, which heard argument from the parties on March 11, 2005. The appeal panel issued its report, adopting the hearing committee report and its discipline recommendation with the condition that McCarthy complete a course in real estate law before reinstatement. On June 20, 2005, the board voted to adopt the appeal panel report and its discipline recommendation.

2. Discussion. The hearing committee and appeal panel concluded that McCarthy's various missteps in his representation of Robert Brennan and Judy Mund during their home purchase violated several rules of professional conduct: (1) McCarthy's representation of the clients without their informed consent after consultation regarding potential conflicts of interest inherent in the transaction violated Mass. R. Prof. C. 1.7(b) [lawyer may not represent client when representation may be materially limited by lawyer's own interest without reasonable belief that representation will be unaffected and informed consent of client]; (2) McCarthy's continued representation of the clients after the holdover tenant problem and the attendant actual conflicts arose violated Mass. R. Prof. C. 1.7(b) and 1.16(a)(1) [lawyer must withdraw from representation when continued representation would violate rule of professional conduct]; (3) in providing inadequate advice and failing to take legal steps to ensure that the property was tenant-free at the time of the closing, McCarthy failed to seek the lawful objective of his clients, Mass. R. Prof. C. 1.2(a), and to act diligently in his representation of his clients, Mass. R. Prof. C. 1.3,6 (4) McCarthy failed to advise the clients that they could insist on a thirty-day extension under the tenant provision of the purchase and sale agreement and that a post-closing eviction of the existing tenant would be costly and lengthy, in violation of Mass. R. Prof. C. 1.4(b) [lawyer must explain matter to extent necessary to permit client to make informed decisions]; (5) McCarthy erroneously advised the clients that they could bring a lawsuit against the seller for breaching the purchase and sale agreement after the closing, in violation of Mass. R. Prof. C. 1.1 [lawyer must provide competent representation].7

The sole issue before this court is the propriety of the recommended three-month suspension. The appeal panel provided the following justifications for imposing a suspension on McCarthy: (1) McCarthy's missteps were in the context of a system that he utilized to attract unsophisticated first-time homebuyer clients, involving his wife as a buyer's broker and a lender he already represented, (2) McCarthy held himself out to the clients as an "expert" in real estate, yet had little understanding of the means available to him to enforce his clients' rights during what was a relatively typical transaction, and (3) McCarthy's deficient representation of the clients led to their injury, at least to the extent of the attorney's fees they incurred to engage a lawyer to handle the holdover tenant's eviction and to send a demand letter to McCarthy. In the view of the appeal panel, these factors distinguished McCarthy's conduct from other cases involving conflicts of interest, which have resulted in private admonitions or public reprimands.

McCarthy argues before this court that the three-month suspension recommended by the board is more severe than sanctions approved during prior bar discipline cases similar to his own and that the appeal panel's interpretation of the facts is flawed. I disagree.

As always, this court must evaluate the recommended sanction to ensure that the sanction ordered is not "markedly disparate from the judgments in comparable cases." Matter of Moore. 442 Mass. 285, 291 (2004), quoting Matter of Folev. 439 Mass. 324, 333 (2003).

The cases advanced by McCarthy as similar to his own are distinguishable and do not persuade me to depart from the board's recommendation. See Matter of Lake. 428 Mass. 440, 442-443 (1998) (admonition where lawyer failed to disclose conflict in serving as estate's real estate broker and attorney resulting in some limited harm to estate); Matter of Fuster. 18 Mass. Att'y Disc. R. 222 (2002) (public reprimand where lawyer served as president of board of directors of charity, provided legal advice to charity on termination of employee, and also represented without disclosure of conflict same employee in divorce proceedings); Matter of Goldberq, 15 Mass. Att'y Disc. R. 223 (1999) (public reprimand where lawyer represented multiple parties at closing and failed to disclose conflict without harm to clients); Matter of Frank. 8 Mass. Att'y Disc. R. 85 (1992) (public censure where lawyer represented husband and wife in divorce proceedings where both parties represented inadequately). As correctly characterized by the appeal panel, the conflicts in these cases were prompted by relatively unusual circumstances. The conflicts here, by contrast, occurred within the broader context of McCarthy's participation in first-time homebuying seminars and have the potential to arise with other clients who work with H&R Block as a lender and his wife as a real estate broker. McCarthy's method of client recruitment requires his constant attention to conflicts issues, prompt disclosure of those potential conflicts to clients, and withdrawal from representation if the conflicts materialize - obligations which McCarthy failed to honor in this case.

Other factors also suggest the appropriateness of sanctioning McCarthy with a suspension. In addition to his failure to address conflicts of interest, McCarthy's misconduct included a lack of diligence on behalf of his clients and significant legal misapprehensions, to the client's detriment. I need not decide whether McCarthy intentionally devised a "system" involving his wife and his lender client to recruit unsophisticated clients for his family's personal gain. McCarthy's failure to address the potential and actual conflicts inherent in his real estate practice with these clients must be considered more egregious and deserving of a suspension in light of his corresponding inability to provide his clients with adequate legal advice, particularly with respect to the issue of the holdover tenant. Moreover, the gravity of the misconduct was exacerbated by the clients' reliance on McCarthy's claimed expertise, which ultimately proved inexcusably shallow. See Matter of Pike. 408 Mass. 740, 745 (1990) ("public censure in this proceeding falls far short of what the public interest requires"). Although bar counsel favors a suspension longer than three months, I also agree with the appeal panel that the cases involving longer suspensions involve misconduct more egregious than McCarthy's violations in this case. Such conflicts cases involve intentional self-dealing or the favoring of one client over another, often with substantial harm to clients. See Matter of Wise. 433 Mass. 80, 92 (2000) (six-month suspension where attorney had "vengeful attitude" toward harmed client and "selfish motive"); Matter of Pike, supra at 744-746 (six-month suspension where attorney's "deceitful" and "dishonest" dual representation of lessor and lessee harmed lessee and could never have been ethical, even with disclosure). See also Matter of Thurston, 13 Mass. Att'y Disc. R. 776 (1997) (six-month suspension where attorney's conflict-ridden representation of shareholder and corporations involved "affirmative misrepresentations"); Matter of Taglino. 9 Mass. Att'y Disc. R. 318 (1993) (six-month suspension where attorney's representation of seller and buyer in commercial real estate transaction intentionally harmed seller). These more nefarious circumstances are not present here, as there is no evidence in the record that McCarthy intended to disadvantage his clients or to prey on their lack of sophistication, and the clients experienced relatively little harm, limited to the retainer fee paid to their new lawyer before the holdover tenant voluntarily vacated their property.

The educational elements of the sanction are also proper, in light of McCarthy's apparent ignorance of both real estate law and his ethical obligations. See, e.g., Matter of Wise, supra at 92.

3. Conclusion. For these reasons, the board's recommended sanction is appropriate, and an order shall be entered suspending McCarthy from the practice of law for three months, subject to the condition that reinstatement not be permitted until (1) he has taken and passed the MPRE, and (2) he completes a CLE course on real estate law acceptable to bar counsel.

Robert J. Cordy, Associate Justice

August 18, 2005

FOOTNOTES

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

2 McCarthy has filed no memorandum in this court challenging the factual findings of the hearing committee, which were adopted by the appeal panel and in turn by the Board of Bar Overseers (board). In both his brief before the appeal panel and his argument at the hearing before this court, McCarthy principally challenges in various ways the appropriateness of the recommended sanction.

3 While some witnesses claimed that McCarthy's wife was present at the homebuying seminar the clients attended, the hearing committee did not make a finding as to her presence.

4 Another unanticipated problem arose during the walkthrough. The clients noticed the seller's failure to complete certain repairs suggested during an earlier home inspection. McCarthy subsequently attempted at the clients' behest to secure a holdback from the seller's sale proceeds to cover those repairs. As the purchase and sale included no provision for any repairs, McCarthy was unsuccessful in obtaining any funds from the seller for his clients to complete the necessary repairs. In the course of discussing the repair issue with the clients, McCarthy incorrectly told them that they might have a cause of action to sue the seller for the uncompleted repairs after the closing.

5 Prior to the closing, McCarthy prepared a form document called a "tenant estoppel certificate" commonly used in commercial situations and obtained the tenant's signature on the document through the seller's broker. This certificate indicated that the tenant was paying $800 per month in rent, that he had no option to purchase his unit, and that his tenancy was terminable at will with thirty days notice. McCarthy made no attempt, aside from some comments to the seller at the closing, to enforce the provision of the purchase and sale agreement that the seller was to deliver the property at the closing without tenants.

6 McCarthy argued before the appeal panel that the hearing committee's conclusions about these violations were not supported by substantial evidence. McCarthy's argument rests on the notion that he took reasonable steps and provided adequate advice to the clients before their closing based on his understanding of their objectives. The appeal panel squarely rejected the argument, concluding that the record supported the hearing committee's view of McCarthy's conduct as providing inadequate advice about the holdover tenant, providing assurances that the tenant issue could be resolved after the closing, and then balking at his responsibility to do so when the clients contacted him after the closing. To the extent McCarthy renewed this argument at the hearing before me, I conclude that the appeal panel was correct that substantial evidence supports the hearing committee's conclusions about these violations.

7 McCarthy also advised the clients after the closing that the holdover tenant could not be served a notice to quit before rent is due if the tenant was current on his rent, an incorrect statement of the law and also a violation of Mass. R. Prof. C. 1.1.



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