In the Matter of a Member of the State Bar of Arizona, Richard G. KLEINDIENST, Respondent.
No. SB 60-2. State Bar No. 79-1-S19.
Supreme Court of Arizona, In Banc.
April 23, 1982.
644 P.2d 249
The trial court held that Marston‘s could maintain the action against Gerard, but found that Marston‘s recovery of the balance due under the contract was offset by the damages Gerard suffered by the unsatisfactory workmanship. The finding that Gerard suffered damages due to improper installation and the amount of damages is supported by the evidence, and we will not disturb the trial court‘s finding on appeal. O‘Hern, supra.
MAY GERARD RECOVER THE $10,000 IN LIEU OF DAMAGES?
Although the trial court found that Gerard was damaged in the amount of $6,911.00, Gerard claims that it is also entitled to recover the additional amount of $9,941.32 ($10,000)1 already paid to Marston‘s. We do not agree.
Gerard was partially responsible for the poor condition of the floor. Against the express opposition of Marstоn‘s, Gerard insisted upon using the floor before it was completed. As Father Nanko of Gerard testified on cross-examination:
“Q You didn‘t have any contract for the New Years Eve Party you had there?
“A Sure we did to the extent that people had bought tickets and so forth. We had publicity out.
“Q And the floor still was not done?
“A Right.
“Q And they still told you you were better off not to use it, right?
“A Right.
“Q And you don‘t doubt, do you, that some of the damage that was done to that floor was done in that gun show and that New Years Eve Party?
“A I don‘t think we ever doubted that.
“Q And you had four or five thousand people in there for that gun show?
“A Sure. And some of the probably 10,000. But in our estimation still not done any—
“Q So certainly some of the problems on that floor were caused by you; isn‘t that true?
“A Sure.
“Q And it is also true, isn‘t it, that you kept pushing these people to get the floor done beсause you had commitments?
“A Right.”
We believe the evidence supports the finding of the trial court that the actions of Gerard contributed to the damage to the floor. O‘Hern, supra.
Affirmed.
HOLOHAN, C. J., and FELDMAN, J., concur.
Lesher, Kimble & Rucker by Robert O. Lesher, Tucson, Ryley, Carlock & Ralston by George Read Carlock, Phoenix, for respondent.
GORDON, Vice Chief Justice.
This disciplinary action is before us under
FACTS
Kleindienst‘s alleged misconduct involves a complicated set of circumstances. The relevant transactions revolve around Joseph Hauser and his associates [the Hauser group].
Hauser manipulated and looted legitimate and fraudulent insurance companies and freely assigned insurance contracts and funds from one company to another as fit his purposes. The Hauser group completely owned Family Provider Life Insurance Company, an Arizona corporation, and Great Pacific Corporation, Family Provider‘s parent. Hauser‘s group managed to obtain an agreement with Old Security Life Insurance Company whereby Old Security would “front” insurance for Family Provider and assign 80% of that insurance to Family Provider.1
The Hauser group obtained more inside information and found out that although Old Security had submitted the lowest bid, the Teamsters were leaning towards awarding the contract to Prudential Insurance Company. The group then contacted Thomas Webb, an acquaintance of both Teamster President Frank Fitzsimmons and Kleindienst. Webb knew that Kleindienst and Fitzsimmons were good friends. In fact, Kleindienst had done some legal work for the Teamsters’ pension fund. Believing that Kleindienst would be the best person to influence Fitzsimmons, Webb telephoned Kleindienst and offered him half of the $250,000 fee Webb would receive if Old Security obtained the contract.
Kleindienst agreed to help Webb and Old Security. After calling Fitzsimmons several times and confirming that Old Security was the lowest qualified bidder, Kleindienst asked Fitzsimmons to do whatever was possible to assure Old Security would get the bid. The Teamsters did award the contract (which involved a $23 million premium) to Old Security in April, 1976.
Shortly after the contract was awarded, Hauser, accompanied by two members of the Hauser group named John Boden and Brian Kavanagh, went to Kleindienst‘s offices at his then law firm in Washington, D.C. There, Hauser had Boden give Kleindienst a check for $250,000 to split with Webb. At this time, it was revealed to Kleindienst that he had been working for Great Pacific rather than Old Security. After explaining Great Pacific‘s interest in Family Provider and Family Provider‘s reinsurance agreement with Old Security, Hauser asked Kleindienst to be general counsel for Great Pacific. Kleindienst accepted.2
At about this time, the Hauser group, through Great Pacific, was negotiating with American Financial Corporation to buy American Financial‘s wholly owned subsidiary, Great American Life Insurance Company [GALICO]. Because GALICO was a New Jersey insurance corporation, the New Jersey Department of Insurance had to approve the sale. The Hauser group concocted a scheme to bolster Great Pacific‘s balance sheet so that the New Jersey authorities would give their approval to the GALICO transaction. On May 1, 1976, Family Provider declared a $1.8 million dividend in favor of Great Pacific, its parent. Family Provider normally had only minimal capitalization, and it paid the dividend mostly out of the initial premiums received on May 10 by Old Security from the Teamsters. Without Old Security‘s knowledge, Kavanagh had $1.5 million of the initial $1.7 million premium transferred to Family Provider‘s account.
The Arizona Department of Insurance received information about the Family Provider dividend paid to Great Pacific. Because Family Provider at the end of 1975 had only minimal capitalization and no record of ever writing аny insurance business, the Arizona Department of Insurance‘s curiosity was aroused. The department investigated the declaration of the dividend. J. N. Trimble, Director of the department, met with Boden and his lawyers on May 18, 1976 and ordered the dividend money returned to Family Provider within 48 hours.
American Financial was holding $1.1 million of the dividend as earnest money for part of the GALICO sale. The Hauser group prevailed upon Klekamp and Evans to assign that part of the sale to Family Provider and deposit the $1.1 million in an account in Family Provider‘s name in the Provident Bank of Cincinnati, Ohio, a subsidiary at the time of American Financial. The group also deposited $700,000 in a Family Provider account in the Diplomat Bank of Washington, D.C.
On May 20, 1976, Kleindienst sent a telegram to Trimble advising him of the return of the funds. Kleindienst also arranged for officers of each bank to send telegrams to Trimble advising that the funds were on deposit in Family Provider‘s name and were unencumbered. When the banks sent the telegrams, however, only the Diplomat Bank telegram affirmatively stated that the funds on deposit there were unencumbered; the Provident Bank telegram was silent on the matter of encumbrance. Trimble did not receive any of this information in writing until after the 48 hour deadline had passed, so he ordered a formal hearing on the matter.
The Arizona Department of Insurance hearing took place in Phoenix, Arizona on May 24, 1976. Boden testified at the hearing on behalf of Family Provider. Kleindienst attended as counsel for Great Pacific; Paul Madden of the Phoenix law firm of Lewis & Roca represented Family Provider.3 Boden testified that the funds had been returned unencumbered and no new dividend would be declared without the department‘s approval. As a result of the hearing, no action was taken against Family Provider at that time.
Although Kleindienst contests the issue, the funds in the Provident Bank apparently were still encumbered by American Financial. Late in the day on May 19, Kavanagh signed two letters that a secretary in Kleindienst‘s firm had typed. American Financial had assigned part of the sale to Family Provider and had allowed the $1.1 million put up by Great Pacific to be deposited in Family Provider‘s name, but as the letters acknowledged, American Financial still had a right to those funds as a down payment for the pending sale.
Subsequently, the New Jersey authorities refused to approve the GALICO sale. When that sale fell through, Hauser set Kleindienst to work on finding another insurance company to buy, which he did eventually find. During the sale of that сompany, the proverbial roof finally fell in on Hauser‘s group. Members of Hauser‘s group and Kleindienst became the subject of a United States Senate investigation and were also named as defendants in a multitude of civil suits.
A person aware of Kleindienst‘s involvement in the investigation and the suits requested the State Bar of Arizona to look into Kleindienst‘s conduct. During the
COUNTS II and VI4
Counts II and VI allege that since the time it was incurred, Kleindienst either knew or had suspicions about the encumbrance retained by American Financial on the Family Provider funds in the Provident Bank. Count II additionally alleges that Kleindienst failed to correct Boden‘s testimony before Trimble on May 24, 1976 that the funds were unencumbered and lied about his knowledge or suspicions of an encumbrance when he was deposed by the State Bar on April 14, 1978. These charges are not supported by the evidence, so we must dismiss them.
This Court is the ultimate trier of law and fact in an attorney disciplinary proceeding. In re Moore, 110 Ariz. 312, 518 P.2d 562 (1974). Before an attorney may be disciplined, the evidence of that attorney‘s ethical misconduct must be clear and convincing. Id.
The Disciplinary Board of the State Bar, by a vote of 5-4, found true the allegations in Counts II and VI. State Bar counsel alleged that Kleindienst knew of the encumbrance through: (1) knowledge of the encumbrance letters signed by Brian Kavanagh on May 19, 1976; (2) a conversation with James Evans on May 20, 1976; and (3) a conversation with Paul Madden just before the hearing with the Arizona insurance authorities on May 24, 1976. The evidence does not clearly and convincingly establish such knowledge.
Brian Kavanagh signed two letters on May 19, 1976 that acknowledged American Financial‘s retention of an encumbrance against the Family Provider funds in the Provident Bank. No one testified that he or she ever showed the letters to Kleindienst or discovered that Kleindienst had personal knowledge of them. Janice Swalеs, a secretary in the law firm to which Kleindienst belonged at the time of these transactions, testified that she typed the letters for Kavanagh. She stated that Kleindienst left the office on May 19 before she typed the letters, and, per the firm‘s policy, she made no copies of the letters because they were typed for an outsider.
The conversation with Evans allegedly ties in to the Kavanagh letters. Evans had personal knowledge of the Kavanagh letters when they were drafted and signed. W. Donald Gray, an investigator for the United States Senate, talked to Evans in November of 1976. Gray stated that Evans told him that Evans and Kleindienst had discussed the Provident Bank funds on May 20, 1976. The language of the telegram that Provident Bank would send to Trimble was also discussed. During the conversation, Evans allegedly told Kleindienst that the telegram could not state that the funds were unencumbered because both he and Kleindienst knew that they were not. Evans also gave the Arizona Attorney General‘s Office a written statement on April 17, 1978. In that statement, Evans indicated that he had told Kleindienst the telegram could not say that the funds were unencumbered. But Evans’ statement is ambiguous as to whether he told Kleindienst the reason the language could not be included was because the funds were encumbered. At the time he was deposed for the State Bar hearings in this matter, however, Evans professed no present recollection of the content of his conversation with Gray or of his statement to the Arizona Attorney General.
On May 21, 1976, Kleindienst, reрresenting Great Pacific, and Paul Madden, representing Family Provider, had phone conversations concerning the hearing with the Arizona insurance authorities scheduled for May 24, 1976. Madden testified that he pointed out to Kleindienst that the Diplomat Bank telegram stated that the Family
Kleindienst denies knowledge of the encumbrance before November of 1977. Further, a jury that considered criminal charges against Kleindienst arising from the same perjury allegations acquitted him. The only direct evidence against Kleindienst—Gray‘s testimony about his conversation with Evans and Evans’ statement to the Attorney General—is inadmissible hearsay. After a thorough review of the record, we conclude that the evidence of Kleindienst‘s alleged misconduct in Counts II and VI is not clear and convincing.
COUNTS IV and V
Counts IV and V, which were sent to us by a 6-3 vote of the Disciplinary Board, concern the location of the deposit of the Family Provider funds when Great Pacific returned the $1.8 million dividend to Family Provider. Kleindienst gave a deposition on October 28, 1977 in the civil case of Old Security Life Insurance Company v. National American Life Insurance Company and gave another deposition on April 14, 1978 in the course of these disciplinary proceedings. The State Bar charged that Kleindienst either knew or believed his testimony in both these depositions was untrue when he unequivocally stated that he never had a conversation with anyone about whether the dividend funds should be deposited in an Arizona bank rather than in out-of-state banks. This misconduct is alleged to be in violation of
“A lawyer shall not:
“1. Violate a Disciplinary Rule.
“2. Circumvent a Disciplinary Rule through actions of another.
“3. Engage in illegal conduct involving moral turpitude.
“4. Engage in conduct involving dishonesty, fraud, deceit, or misrepresentation.
“5. Engage in conduct that is prejudicial to the administration of justice.
“6. Engage in any other conduct that adversely reflects on his fitness to practice law.”
We find that the evidence against Kleindienst on these counts is clear and convincing, аs required by In re Moore, 110 Ariz. 312, 518 P.2d 562 (1974). Trimble, Director of the Arizona Department of Insurance, never told Boden or anyone associated with Family Provider that the dividend paid to Great Pacific had to be returned to an Arizona bank. But Donald O‘Dean, the department‘s chief examiner, told Robert Moya, a law partner of Paul Madden and another attorney for Family Provider, that the funds would have to be deposited in an Arizona bank to comply with the department‘s ordered refund. Moya testified that he talked over the telephone with Kleindienst on May 20, 1976. Moya informed Kleindienst that the Arizona insurance authorities were demanding that Family Provider not only regain the $1.8 million dividend within 48 hours but that Family Provider deposit the funds in an Arizona bank. According to Moya, Kleindienst adamantly refused to comply with this requirement (and used a well-known four-letter expletive in doing so).5
Kleindienst had also discussed the matter with members of the Hauser group. Boden, in testimony before the United States Senate and in a deposition, indicated that whether the funds should be returned to Arizona was a topic of discussion during the meetings between the members of the Hauser group and Kleindienst concerning the dividend problem. According to Boden, Kleindienst opined that the dividend must be returned to Family Provider to avoid troublе with the Arizona insurance authorities but that it should not be deposited in an Arizona bank because Trimble might freeze the funds.6
In the relevant depositions, Kleindienst denied any participation in these conversations. At the hearing before the State Bar, Kleindienst at first repeated his absolute denial of such conversations. Then, he equivocated and indicated that he would not remember if such conversations took place because they would have been immaterial given that Trimble never required a deposit of the funds in Arizona.
Kleindienst does admit that he can think of no reason why Moya, Madden, or Boden would lie to discredit him. The record also discloses to us no reason why these men would not have told the complete truth about Kleindienst. Kleindienst, however, has a motive to conceal the truth. He had earned $125,000 for his law firm for approximately five hours of work on the Teamsters’ insurance contract. His continued relationship with Hauser promised to be lucrative. By Kleindienst‘s own testimony, the reason he went to the hearing in Arizona was to impress his new clients on his home ground. Kleindienst‘s claim at the State Bar hearing that the conversations would have been about an immaterial subject is not consistent with the evidence. At the time Kleindienst was first questioned about his participation in the Department of Insurance hearing and return of the dividend, he did not know that Moya was mistaken and Trimble had not ordered the money to be returned to Arizona. All Kleindienst knew when first questioned was what Moyа had told him; because Moya said the department had ordered the funds returned to Arizona, the conversations in question were at that time material. Thus, to protect his financial interest, Kleindienst had a motive to keep Trimble from interfering with his client‘s funds, and when the matter first came to light, he did not know that he or his client would suffer no consequences as a result of his advice to keep the funds out of Arizona and away from Trimble. Kleindienst had reason to conceal the truth initially and was then trapped by that story when he later learned that Trimble had not required a return of the dividend to Arizona banks.
The best support Kleindienst can muster for his defense is that the jury that considered the criminal charges arising from the same alleged perjury acquitted him. Although seriоus consideration should be given to a jury‘s verdict of acquittal of an attorney for the same conduct that is the subject of bar disciplinary proceedings, see Siegel v. Committee of Bar Examiners, 10 Cal.3d 156, 110 Cal.Rptr. 15, 514 P.2d 967 (1973), the acquittal is not conclusive of any fact in the bar proceedings, especially when there is substantial evidence contrary to the
DISCIPLINE
The Disciplinary Board recommended that Kleindienst be suspended from the practice of law for one year. Discipline against an attorney has two purposes: (1) to protect the public from unethical attorneys; and (2) to deter other attorneys from engaging in unethical conduct. In re Stout, 122 Ariz. 503, 596 P.2d 29 (1979). The recommendation of the State Bar is entitled to serious consideration, In re Moore, 110 Ariz. 312, 518 P.2d 562 (1974); In re Macdonald, 56 Ariz. 120, 105 P.2d 1114 (1940). We have found true two counts of unethical conduct by Kleindienst. In addition, we have previously disciplined Kleindienst by censuring him in 1974. In the instant case, we believe the recommended discipline will serve its intended purposes.
Therefore, we order that Richard G. Kleindienst be suspended from the practice of law for one year to commence sixteen days from the date that this opinion is filed. Further, pursuant to
HOLOHAN, C. J., and HAYS and CAMERON, JJ., concur.
FELDMAN, Justice, concurring in part, dissenting in part.
I concur with the finding that respondent violated
I recognize that the recommendation of the State Bar is entitled to serious consideration and I would ordinarily not deviate from its recommendation. However, as the majority opinion points out, this court is the ultimate trier of both fact and law in disciplinary proceedings (In re Moore, 110 Ariz. 312, 313, 518 P.2d 562, 563 (1974)) and is also required to use its independent judgment in determining the discipline appropriate to the circumstances of each case. In re Steward, 96 Ariz. 49, 55, 391 P.2d 911, 915 (1964). In this case, I believe the Bar recommendation is too lenient because it has failed to consider respondent‘s participation in this entire transaction as part of the circumstances to be considered in imposing discipline. Further, both the Bar and the court have failed to give proper consideration to one of the prime purposes of disciplinary proceedings.
THE INSURANCE FRAUD
There is considerable controversy with regard to just how deeply respondent was involved in the insurance scam which gave rise to these charges. He claims that he was a dupe and a tool rather than a perpetrator of fraud, but an examination of the record makes it impossible to accept that contention in toto. True, the evidence is not clear and convincing that respondent had precise knowledge of the encumbrance on the funds which were being transferred
Beyond question, however, respondent did know quite a bit about what was happening. Taking the evidence in a light most favorable to him, respondent did know that he had been paid one-half of a $250,000 fee in order to influence Frank Fitzsimmons, the Teamsters President, to place the Teamsters Welfare Fund‘s group life insurance policy with a company called Old Security, rather than with the Prudential. In the course of this “work,” respondent learned that while initially he had been “retained” to work for and help Old Security get the insurance business, he had actually been working for Great Pacific, the parent of Family Provider which was to be the alleged reinsurer for Old Security. Thus, at the time his “fee” was paid, respondent knew that he had been given $125,000 for five hours’ work in using his influence to get the president of the union to “persuade” the officers of the union‘s welfare fund to place the fund‘s business with Old Security, which was then going to reinsure with Family Provider. Respondent then learned that Family Provider had written no business of any kind for some time. Respondent learned soon after that his client‘s subsidiary, Family Provider (the alleged reinsurer) had suddenly come into a great deal of money. Since respondent knew from the inquiries of the Arizona Insurance Department that Family Provider had no other income, he must have known that at best this money had to be the reinsurance premium on the Teamsters’ deal. He then learned that Family Provider had declared a dividend in almost the same amount to its parent and his new client (Great Pacific), which was using the money in an attempt to buy the assets of another insurance company (GALICO), which had no relationship whatsoever to the business being written. Family Provider would thus be left with no funds оr reserves for payment of the reinsurance claims.
Respondent had all this information by the time of the hearing before the insurance department. It never seems to have occurred to respondent that a lawyer ought to question the ethical propriety of these transactions and, if unsatisfied about the answers, ought at least to withdraw. See
Not only did respondent persuade the other counsel not to withdraw, but he allayed some of the suspicions of the Director of Insurance by saying at the hearing that he, Kleindienst, would personally see to it that when Family Provider got the funds back it would not again expend them without notice or approval of the Director of Insurance, but would maintain reserves for payment of claims. After making that assurance, respondent did nothing further and, in fact, the funds disappeared again after the hearings were concluded. The record of respondent‘s activities in this entire matter constitutes a tour de force of ethical legerdemain. Through it all, respondent maintained steadfastly that he had no knowledge that anything wrong was being donе because he relied upon Hauser, and saw nothing untoward in the transactions. Respondent seems to have been alone in this conclusion.
The record establishes that respondent attempted to walk the line between ethical practice and participation in a scam; that he had much to gain and therefore sought to hear no evil, see no evil and speak no evil. As with most who attempt to walk such a fine line, he fell off on the wrong side of the divide and eventually gave false testimony under oath.
This alone warrants imposing severe punishment. However, we must remember that only two or three years before he became involved in the insurance scam, re-
THE PAST RECORD
On March 16, 1974, in United States District Court, respondent entered a plea of guilty to violation of
In the prоceedings now before us, respondent has attempted to make light of his past record. It is not so easily to be dismissed, and our rules permit us to consider it.2
In the various bar proceedings3 which arose from respondent‘s testimony about the ITT cases, it was concluded that Mr. Kleindienst had failed to disclose and had misrepresented the facts while testifying under oath at the Senate hearings. Because his actions had not been taken for personal gain and he had eventually refused to follow the President‘s direct order, he was merely censured for his lack of com-
plete truthfulness. We make witnesses swear that they will tell “the truth, the whole truth and nothing but the truth,” and when they fail to do so, we charge them with perjury. Here we have a lawyer who, by his own admission, had failed to tell the “whole truth” аnd who received only a censure because he had not committed the wrongful act for his own personal gain. That mild, lenient treatment seems not to have made any impression on respondent, for only two years after that censure, he became involved in the insurance scam with the result that he again failed to tell “the truth, the whole truth and nothing but the truth” while under oath.
THE PURPOSE OF DISCIPLINE IN THIS CASE—MAINTENANCE OF THE INTEGRITY OF THE PROFESSION
If, as the court finds—and I concur in the finding—there is clear and convincing evidence of perjury, then despite the jury acquittal, we must assume that respondent did commit the act of perjury and impose proper discipline for that act. Of all the offenses which a lawyer can commit, untruthfulness in judicial proceedings is one of the most egregious. Lawyers are required to be truthful in thеir practice even when not under oath. See
The majority holds that the purpose of discipline is not punishment, but, rather, protection of the public from the offender and deterrence of others. The one-year suspension may or may not satisfy these purposes. No doubt it will have a serious practical effect on respondent‘s future ability to practice law successfully. However, it will not serve another purpose, which I think is of equal importance to those mentioned in the majority opinion.
Over the years, . . . court decisions, while reaffirming the breadth of discretion, have nevertheless focused on a few sali-
ent considerations in determining the appropriate punishment in disciplinary proceedings. These are principally: the maintenance of the integrity of the profession in the eyes of the public, the protection of the public from unethical or incompetent lawyers, the deterrence of other lawyers from engaging in unprofessional conduct . . . .
District of Columbia Bar v. Kleindienst, 345 A.2d at 150 (quoting Hearing Committee Number Three, Report to Disciplinary Board, Bar Docket No. 3-74B at 23) (emphasis added).
The kind of conduct in which respondent has engaged is not worthy of comparison to the practice of law by the vast majority of lawyers who work hard, attempting to the best of their abilities to advance and represent the interests of their clients in a legitimate, ethical and professional manner. The Bar and this court should do more than administer another slap on the wrist to respondent. He should be disbarred, thereby making it clear to the public that this court and the profession as a whole recognize and will maintain the distinction between the practice of law and the practice of anything you can get away with. There are already too many people (and some lawyers) who believe that a good lawyer is one who can produce results through chicanery, deceit, fraud and sharp practice. We cannot “maintain the dignity of the profession in the eyes of the public“—and of the Bar—unless we make it clear that they are wrong.
Notes
“It is unfortunate that the hearing was ever scheduled. The director and the Chief Examiner made it clear to me what had to be done by Family Provider to avoid the hearing. I communicated their requirements to Richard Kleindienst, Family Provider‘s lawyer in Washington, D.C., who indicated to me that he was responsible for handling the dividend matter on behalf of Family Provider. Mr. Kleindienst determined to proceed in a manner other than that requested by the Director of Insurance and the Notice of Hearing followed as a direct result of Mr. Kleindienst‘s actions.”