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Commonwealth of Massachusetts

Public Reprimand No. 2002-15



IN RE: DAVID A. HOICKA

Order (public reprimand) entered by the Board July 19, 2002.

APPEAL PANEL REPORT


In the spring of 1992, Bette O'Connor faced a series of business reverses and attendant legal problems. For years she had owned and run a telephone answering service for health care providers called Physician's Answering Service, Inc. (Physicians). Physicians and O'Connor were subject to a number of claims: (1) John and Francis Lamb were seeking to enforce a $44,000 judgment against O'Connor through an action to reach and apply Physicians' assets, (2) the NLRB had obtained a judgment and a civil contempt order against both of them, and (3) both O'Connor and Physicians owed substantial sums to the IRS and other creditors.

O'Connor had sought to evade these claims by forming a new corporation called Medical Message Center, Inc. (Medical Message) to run her answering service. She arranged for one of her employees, Patricia Farry; falsely to hold herself out as the new corporation's sole owner. The two had a falling out. Farry was now negotiating to sell Medical Message's assets to a competitor named Ansaphone, from whom it subleased office space.

In April 1992, O'Connor sought legal assistance from the respondent, David A. Hoicka. He had been admitted to the practice of law less than a year earlier. The respondent undertook a number of actions to assist O'Connor and Medical Message:

(1) He conducted a transaction by which all of the assets of Medical Message were transferred to Julia Taylor, who had done work for the respondent on occasion. The transfer was made to assist O'Connor with her ongoing disputes with Farry and Ansaphone, and to keep Medical Message in business so as to permit O'Connor's continued employment. Sometime thereafter, Taylor appeared regularly at the company's offices and assisted in managing it.

(2) He served Farry with a Chapter 93A demand letter. Farry withdrew her claim to ownership of Medical Message after receiving the letter.

(3) He filed suit against Ansaphone, which had been threatening to take over Medical Message's client base and was refusing to renew its sublease. The respondent obtained injunctive relief against Ansaphone and eventually settled the suit by paying Ansaphone $3,000.

(4) He negotiated the sale of O'Connor's Corvette.

(5) He defended O'Connor in the Cambridge District Court against charges of operating an unregistered and uninsured automobile. The charges were dismissed on payment of court costs.

(6) He responded on Medical Message's behalf when the Lambs served a subpoena on the company. The Lambs sought documents and Taylor's deposition as its president. The respondent defended the deposition and drafted an affidavit by O'Connor attesting that she had sold the corporation to Taylor and retained no ownership interest in it.

(7) He responded to an inquiry by the NLRB as to whether Medical Message was liable as a "successor" to Physicians under the federal judgment and still unpurged civil contempt order. The respondent replied that O'Connor had no ownership interest in Medical Message, that Taylor was its sole owner and a purchaser for value, and that Taylor had had no notice of the NLRB's claim. The claim was eventually settled.

In early 1993 Taylor and O'Connor had a falling out over the operation of Medical Message. The respondent and Taylor sent a series of written warnings to O'Connor and demanded that she produce financial information, including a full accounting. When O'Connor did not do so, the respondent instructed the corporation's banks not to honor checks signed by O'Connor. O'Connor resigned her employment at the end of March 1993. The respondent then sent her letters confirming her resignation and declaring that her position had been terminated. This left Taylor in full control of Medical Message.

Meanwhile, the respondent had not been paid for all of his services. As of late April 1993, after crediting payments made, the respondent was owed about $49,000 by Medical Message. He then drafted a UCC 1 financing statement that purported to grant his law firm a security interest in all of the corporation's property. At his request, Taylor executed the financing statement as president of Medical Message, and the respondent filed it on or about April 28, 1993.

Medical Message ceased operations in October 1993. Taylor terminated the respondent as its counsel and advised him that his outstanding invoices for past legal work would not be paid. The respondent immediately undertook to exercise his rights under the UCC in an effort to collect his fees. To that end, he executed a bill of sale transferring the assets of Medical Message to a corporation of which he was sole shareholder. He also assigned his claim for fees to that corporation. He then brought suit against Medical Message on behalf of his corporation. In 1995 judgment entered in the respondent's favor in the amount of $40,000. It remains unpaid.

O'Connor filed a grievance with Bar Counsel, who brought a six count petition for discipline against the respondent. The key allegation (Count One) was a claim that the sale of Medical Message to Taylor was a straw transaction effected to defraud creditors of O'Connor, who retained beneficial ownership of the business. Two subsidiary charges—that the respondent misrepresented to the Lambs (Count Two) and to the NLRB (Count Three) that the transaction was genuine—are predicated on the validity of the key allegation of the first count. A fourth count charged the respondent with borrowing money from O'Connor and then falsely claiming it was a payment for legal fees. Count Five alleged that the respondent wrongfully assisted in the ouster of O'Connor from her employment by Medical Message while knowing of her beneficial interest in the company and engaged in conflict of interest in doing so. The last count alleged that obtaining and acting on the UCC security interest in Medical Message constituted a scheme to take the company over for himself and a conflict of interest.

The respondent denied all the charges, and the matter was tried before a special hearing officer over seven days. The hearing officer rejected the central charge that the sale to Taylor was a sham to defraud O'Connor's creditors—a finding that wiped out the first three counts. The hearing officer also rejected the fourth count; he found that funds in question represented a fee payment, not a loan. With regard to the fifth count, the hearing officer rejected the charge that the respondent wrongfully assisted in O'Connor's ouster from Medical Message while knowing she retained a beneficial interest in the corporation because, as the officer had found under the first count, Bar Counsel had not shown that O'Connor retained an ownership interest. The officer did find that the respondent violated Canon Five, DR 5 105(A), by taking action adverse to one client (O'Connor) on behalf of others (Medical Message and Taylor). Finally, under Count Six, the hearing officer rejected the claim that the UCC filings and related actions were part of a scheme to take over Medical Message through fraudulent billings. The officer did conclude that the respondent engaged in a conflict of interest in violation of Canon Five, DR 5-101(A), when he induced Taylor to execute the financing statement without having obtained her informed consent. The hearing officer found that the respondent's misconduct was mitigated by his inexperience at the time but aggravated by his lack of candor at the hearing. The officer recommended that he be publicly reprimanded.

Both parties appealed. The respondent seeks dismissal, Bar Counsel disbarment.

1. Bar Counsel's Appeal.

On appeal Bar Counsel quarrels only with the special hearing officer's refusal to find under Count One that the transfer of Medical Message from O'Connor to Taylor was not a sham transaction aimed at concealing O'Connor's continued ownership of Medical Message. As we have noted, that issue was central to most of Bar Counsel's case. He acknowledges that if Count One falls, Counts Two and Three, and everything but the conflict of interest charge in Count Five tumble with it. (Bar Counsel does not dispute the findings made under the fourth and sixth counts.) He maintains that the documentary evidence and the respondent's admissions compel the conclusion that the key transaction was fraudulent.

The principal difficulty Bar Counsel faces is the deference we owe the special hearing officer's credibility findings. "The Board shall review, and may revise, the findings ... of the special hearing officer, . . . paying due respect to [his] role ... as the sole judge of the credibility of the testimony presented at the hearing ." S.J.C. Rule 4:01, § 8(4) (emphasis added). The Board may not disturb the hearing officer's credibility determinations absent clear error. See, e.g., Matter of Provanzano, 5 Mass. Att'y Disc. R. 300, 304 (1987) (credibility determinations not to be disturbed "absent some clear error"). Here the officer heard the testimony of both O'Connor and the respondent, and in almost every important particular he declined to believe O'Connor.

Acknowledging this burden, Bar Counsel seizes on comments made by the hearing officer about the credibility of witnesses testifying before him. Bar Counsel characterizes those comments as an indication "that none of the witnesses who testified before [the hearing officer] had sufficient credibility to resolve the question before him." Bar Counsel's Brief at 7 (emphasis in original) (footnote omitted). From this Bar Counsel deduces that the officer's central finding "does not turn on his assessment of the credibility of the witnesses and is, therefore, entitled to no special deference." Id. (emphasis in original). As a consequence, he insists the Board is in as good a position as the hearing officer to make the finding on the basis of the documentary evidence and the respondent's admissions.

This argument could have force only if all of the testimony was worthless and the hearing officer expressly stated that he was not relying on it in making his findings. That is not what happened here. In the course of noting that the witnesses presented "starkly contrasting versions of the events," the officer observed that "none of the [interested or biased] witnesses was entirely credible . . . ." Hearing Report 1. That is not the same as finding their testimony to be without value or indicating he did not rely on it. While he later reiterated that the respondent's testimony was "not entirely credible," he was harder on O'Connor's, who he found "had very little credibility." Id. 3, 5. If we are to draw inferences from the way testimony is characterized in the report, this suggests the officer found the respondent's to be more credible than O'Connor's. This follows, no doubt, from the realization that O'Connor had lied when she claimed the respondent had backdated the transfer documents—an allegation of the petition for discipline but now apparently abandoned by Bar Counsel.

The hearing officer's characterization of the testimony tells us far less than the actual findings made and the bases given for them in the hearing officer's report. The report contains multiple references not just to documentary evidence, but to live testimony as well. The officer obviously believed some of the testimony given by the "not entirely credible" witnesses who appeared before him. There is, for example, a square finding crediting Taylor's testimony that she considered herself the owner of Medical Message after the disputed transfer was made. Id. 25 (citing 2 Tr. 180). That belief is inconsistent with O'Connor's rejected claim that she remained the owner and that everyone involved understood as much. The officer also accepted testimony that O'Connor trained Taylor to manage the business, consulted her regarding business decisions, and followed her instructions and directions. Id. 25 (citing testimony of O'Connor and Taylor). These are subsidiary findings, based on credibility determinations, tending to support the conclusions drawn from review of the documents. Where credibility determinations are bound up in the findings to such an extent, disregarding them as Bar Counsel suggests would trench impermissibly on the hearing officer's role as "sole judge" of the credibility of witnesses testifying before him. See Matter of Hachey, 11 Mass. Att'y Disc. R. 102, 103 (1995) (hearing committee's findings analogous to Jury's; credibility findings may not be disturbed unless "wholly inconsistent" with other findings).

Further, the principal document on which Bar Counsel relies for a contrary finding does not compel a contrary conclusion. After the transaction was consummated and the respondent had staved off threatened action by Ansaphone, the respondent wrote O'Connor a letter in which he gave notice of his inability "to continue a productive attorney client relationship" with her:

Our working relationship was initiated when I was retained for legal services primarily relating to Patricia Farry's taking over Medical Message Inc. in the spring, in order to get back your interest in the company. This has now been done. As a result of my work, You now have your company back, there is a positive cash flow, you have new quarters leased on Lewis Wharf, equipment installed, employees reporting for work.

Ex. 147 (emphasis added). The italicized language in the letter, Bar Counsel argued to the hearing officer and continues to assert on appeal, supports his charge that the transfer was fraudulent and that the respondent understood O'Connor would remain the beneficial owner.

The hearing officer acknowledged the letter's import: "Were there other solid evidence to support the charge, I might be inclined to agree." He described the language at issue as "ambiguous, given the context," and found the phrasing "consistent with the fact that O'Connor got her company back from Farry, that the company relocated and continued in business, with a positive cash flow and a salary for O'Connor—essentially all of the benefits ever received from the company's business." Hearing Report 28.

Bar Counsel's reliance on another passage in the same letter epitomizes the ambiguities the hearing officer rightly found in the documents and other evidence. Near the end of the letter, the respondent declared that "[i]f Ms. Taylor does not receive return telephone calls from you..., Ms. Taylor will resign as officer/director of Medical Message Center Inc in the early part of next week." Bar Counsel argues, reasonably enough, that the passage clearly implies that "Taylor is an officer who will resign if offended by O'Connor, not an owner who might discharge O'Connor." Yet both the respondent and O'Connor acted as if the obverse were true just eleven months later, when O'Connor proffered her own resignation—an action hardly consonant with ownership—and the respondent accepted it. See Hearing Report 60 and portions of record cited. As the hearing officer noted, "[e]ven the voluminous documents offered by the parties are not entirely reliable. Both the Respondent and [O'Connor] admitted that they did not always say what they meant, nor did they always mean what they said, in various documents." Id. 1. Where the documents are as Janus faced as witness' credibility was mixed, we cannot fault the hearing officer for making findings against the party who bore the burden of persuasion. It seems evident to us, as it apparently was to the hearing officer, that it is all but impossible to determine what the parties really intended by the transaction. He was confident only that Bar Counsel had not proved his case. Under all these circumstances, we find no basis for substituting our judgment for the hearing officer's.

2. The Respondent's Appeal.

The respondent objects to the findings under the fifth and sixth counts that he engaged in conflicts of interest. His objections are both substantive and procedural. We reject them.

With regard to both counts, the respondent first maintains that the findings of Canon Five violations are at variance with the charges in the petition. Relying on In re Ruffalo, 390 U.S. 544 (1968), and Matter of Brower, I Mass. Att'y Disc. R. 45, 47 (1979), he argues that the findings must be stricken because the misconduct was not charged. He makes the undisputed point that the heart of Bar Counsel's case, and the basis on which it was tried, was not conflict of interest but a claim that he engaged in a series of deliberately dishonest transactions aimed at defrauding creditors and stealing the business from O'Connor and later Taylor. Given that central focus, he claims he was denied due process because the petition did not put him on fair notice that the conflict issues were before the hearing officer.

The short answer to this claim, as Bar Counsel noted during argument, is that the cases the respondent cites stand only for the proposition that the relevant count of the petition must charge him with violating the disciplinary rule the factfinder finds he violated. This the petition specifically and squarely does. Count Five charged, among other things, that he engaged in "conflict of interest in violation of Canon Five, Disciplinary Rules 5 101(A) and 5 105(A) and (B)," and Count Six charged, among other things, that he engaged in "conflict of interest in violation of Canon Five, Disciplinary Rules 5 1O1(A)."

Further, there was no unfair surprise in the findings made under these rules. The conflict charges are based on the same operative facts and are, in essence, lesser included offenses should the hearing officer reject, as it turned out he did, Bar Counsel's central and more serious allegations. A comparison to the facts in Ruffalo makes this clear.

In Ruffalo, the Supreme Court set aside an order of disbarment based on a wholly new charge that had been added after testimony had been heard on other charges. That is not what happened here. The instant situation is more analogous to that in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985), in which a lawyer had been disciplined for publishing a prohibited form of advertisement the Supreme Court deemed protected commercial speech. Zauderer had also been cited for representing in the ad that there would be no fees if there were no recovery, a claim the disciplinary authority found deceptive because the contingent fee rule required that losing clients be liable for costs. Like the respondent here, Zauderer argued that, although this allegation could be found in the petition, it was never argued by the prosecutor. Distinguishing Ruffalo, the Court found no due process violation: the rule was charged and only the theory of liability changed. 471 U.S. at 654. "[A] disciplinary authority may find an attorney's conduct deficient on an entirely different theory from the one argued by the investigative or prosecuting agency." Matter of Saab, 406 Mass. 315, 323 324, 6 Mass. Att'y Disc. R. 278, 287 (1989) (describing the holding in Zauderer). Absent a "complete lack of notice" as to the rule charged, there is no violation of due process. Id. Cf. Langlitz v. Board of Registration of Chiropractors, 396 Mass. 374, 377 (1985).

Here Bar Counsel did in fact argue that the conflict of interest charges in Count Five would remain if the hearing officer rejected the fraud charges. See 8 Tr. 62 69. Furthermore, the respondent has made no showing how he "was prejudiced in presenting his case or in defending against the charges." Matter of Leary, 5 Mass. Att'y Disc. R. 217, 218 n.1 (1987). Compare Bar Counsel v. Doe (Fordham), 11 Mass. Att'y Disc. R. 501, 506 07 (1995), rev'd on other grounds, Matter of Fordham, 423 Mass. 481, 12 Mass. Att'y Disc. R. 162 (1996) (upholding hearing committee's refusal to make finding on matter Bar Counsel had advised respondent before hearing "was not an issue"). Under these circumstances, the respondent was not denied due process.

Substantively, the hearing officer rightly found a conflict of interest under both counts. As to Count Five, it is plain that the respondent represented Message Management and Taylor in a matter adverse to O'Connor, then a former client, when he demanded an accounting from her, directed banks not to honor her checks, formally accepted her resignation from the company, and gave notice of the termination. Obviously, these actions were substantially related to the subject of his prior representation of O'Connor, which intimately concerned her employment by Medical Message. That is sufficient to make out a successive conflict of interest in violation of DR 5 105(A). See Adoption of Erica, 426 Mass. 55, 61 (1997); Admonition No. 02 13 March 13, 2002), Board Memorandum at 11. The respondent's contention that successive conflicts must be charged under Canon Four instead of Canon Five is without merit. See, e.g., Matter of the Discipline of an Attorney, 3 Mass. Att'y Disc. R. 104, 108 (1982).

As to Count Six, the respondent does not dispute that he prevailed upon Taylor, a client at the time, to execute a UCC financing statement in order to secure payment of his fee. This posed an obvious conflict of interest. Where "the exercise of his professional judgement on behalf of his client will or reasonably may be affected by his own financial, business, property, or personal interests," the respondent may not proceed without "the consent of his client after full disclosure." Canon Five, DR 5 101(A). See,e.g., PR 87-13, 5 Mass. Att'y Disc. R. 498 (1987); 1 Restatement of the Law (Third) Governing Lawyers § 43(4) and comment I, at 311 (2000) ("When a lawyer obtains the security interest after commencing the representation, the arrangement is subject to close scrutiny …”); C.W. Wolfram, MODERN LEGAL ETHICS § 9.6, at 562 (1986).

The hearing officer found that the respondent did not obtain Taylor's informed consent to the transaction. The respondent rejoins that the officer should have credited his own uncontroverted testimony that he did obtain her consent. That credibility determination was for the hearing officer, who no doubt weighed Taylor's lack of sophistication (she had a ninth grade education) in making it. He was not compelled to accept the respondent's testimony just because it was not contradicted by other testimony. See, e.g., Matter of Saab, 406 Mass. 315, 328 329, 6 Mass. Att'y Disc. R. 278, 292 (1989).

The respondent's other objections do not warrant extended discussion. There was no error in the hearing officer's determination to weigh in aggravation the respondent's lack of candor at the hearing. The respondent falsely denied representing O'Connor on several occasions during the hearing—denials plainly at odds with unequivocal representations made in the Chapter 93A demand letter he sent to Farry as well as with the testimony of the one witness whose testimony the officer found fully credible. Nor is there any suggestion in the record, despite the respondent's contention on appeal, that he was denied "input" into issues relating to mitigation, aggravation, and lack of candor. Accordingly, we deny his appeal from the officer's findings of fact and conclusions of law.

3. The Appropriate Sanction.

In recommending that the respondent be publicly reprimanded, the hearing officer properly distinguished those cases in which lawyers had been suspended for conflicts of interest. Here there was no predacious self dealing as in Matter of Pike, 408 Mass. 740, 6 Mass. Att'y Disc. R. 256 (1990), no collusion with one client to the detriment of another as in Matter of Thurston, 13 Mass. Att'y Disc. R. 776 (1997), and no disclosure of client confidences while siding with one corporate faction against another as in Matter of Wise, 433 Mass. 80, 16 Mass. Att'y Disc. R. 416 (2000). Nor was this an egregious conflict causing substantial injury to clients or innocent third parties. See, e.g., Matter of Tobin, 7 Mass. Att'y Disc. R. 290 (1991). The hearing officer thus was right to reject Bar Counsel recommendation—apparently abandoned on appeal—that a two year suspension be imposed if the central fraud allegations failed.

The hearing officer characterized the choice between public reprimand and admonition as a close question. We disagree. It is true, as the officer noted, that the respondent was an inexperienced attorney, see Matter of Pike, supra, 408 Mass. at 744 n.4, 6 Mass. Att'y Disc. R. at 260 n.4, caused no ultimate harm, and represented a difficult client whose legal problems were numerous and complex. At the same time, the respondent engaged in two distinct conflicts of interest, acting adversely toward two different clients, at different times, and in separate transactions. The second of these conflicts, obtaining the UCC financing statement without adequate disclosure to Taylor, would itself warrant an admonition. See, e.g., Matter of Lake, 428 Mass. 440, 14 Mass. Att'y Disc. R. 418 (1998).

Moreover, the conflicts show a pattern that evidences an inappropriate willingness to ally himself with whichever client it was expedient to represent at the moment. He looked out for his own interests first, both by siding with whoever was in charge and could pay him and by obtaining a security interest without adequate regard for his fiduciary responsibilities. That pattern warrants public discipline.

Most telling, however, was the respondent's lack of candor at the hearing. Lawyers are obligated to cooperate with bar discipline proceedings, see S.J.C. Rule 4:01, § 3, and the failure to conduct oneself with candor when under oath at the hearing is especially troubling. This is not punishment for vigorously contesting charges against him. Here the respondent flatly denied representing O'Connor in the face of statements to the contrary in his own correspondence. "[T]he board must consider a respondent's lack of candor ... in formulating a recommendation for discipline." Matter of Eisenhauer, 426 Mass. 448, 455, 14 Mass. Att'y Disc. R. 251, 260 (1998); see Matter of Friedman, 7 Mass. Att'y Disc. R. 100, 103 (1991). The lack of candor removes all doubt that the appropriate sanction is a public reprimand.

Conclusion.

For all of the foregoing reasons, we adopt the special hearing officer's findings of fact, conclusions of law, and recommendation that the respondent, David A. Hoicka, be publicly reprimanded.

Respectfully submitted,

Mitchell H. Kaplan
Appeal Panel Chair

Robert J. Guttentag
Panel Member

Elizabeth N. Mulvey
Panel Member

Dated: May 7, 2002



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