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24816 - In the Matter of H. Jackson Gregory

Davis Adv. Sh. No. 26
S.E. 2d

THE STATE OF SOUTH CAROLINA

In the Supreme Court





In the Matter of H. Jackson

Gregory, Respondent.





Opinion No. 24816

Heard May 13, 1998 - Filed July 20, 1998





30 DAY SUSPENSION





Wilburn Brewer, Jr., of Nexsen Pruet Jacobs &

Pollard, of Columbia, for respondent.





Attorney General Charles Molony Condon and

Assistant Deputy Attorney General J. Emory Smith,

both of Columbia, for complainant.





PER CURIAM: In this attorney disciplinary matter, a three-member

hearing panel found Respondent H. Jackson Gregory committed misconduct

as described below. The panel recommended a sixty-day suspension. On

review, the Investigative Panel adopted the hearing panel's findings of facts

and conclusions of law. It also recommended a sixty-day suspension. We

agree with the panel's findings and conclusions as to misconduct. 1 However,

we find Respondent's acts warrant a 30 day suspension from the practice of

law.2





THE LUTHI MORTGAGE/FALLAW MATTER




1 Respondent has essentially admitted to the misconduct found by the

panel. His only real contention regards the appropriate sanction.



2 Respondent is currently on interim suspension in an unrelated matter;

we emphasize that the current 30-day suspension shall have no effect upon

Respondent's interim suspension.

p.8


IN THE MATTER OF GREGORY





In 1991 Luthi Mortgage Company ("Luthi") hired Respondent to conduct

a title search and close a loan on a piece of residential real estate. At the

time, the owner of record was Maxine Fallaw. However, a man named. Lloyd

Prevette had applied for the mortgage. By means of a convoluted

arrangement, the specific terms of which have never been determined,

Prevette was to gain title to the property in trust and then mortgage it as

trustee.3





Luthi was aware Prevette was mortgaging the property as trustee.

However, it is unclear how much it, or Respondent, knew about the

underlying arrangement between Fallaw and Prevette. Luthi's witness

testified the company agreed Prevette could borrow the money in trust so

long as Respondent verified the validity of the trust, gave them a copy of the

trust agreement, and provided written authorization for Prevette to mortgage

the property. Luthi claimed it never knew who the beneficiary of the trust

was.



At the closing, the following documents, all drafted by Respondent, were


3 Fallaw had an outstanding mortgage on this property, wanted some

alternative financing, and was having difficulty getting lender approval. A

real estate broker introduced her to Prevette. She and Prevette came to an

agreement, the terms of which have been hotly disputed.





Fallaw claimed Prevette was helping her procure a "reverse mortgage"

whereby Prevette would pay off her mortgage, make certain desired

improvements, and allow her to live there in exchange for receiving title

when she died or left. Prevette claimed Fallaw agreed to deed the property

to him and he would mortgage it. The mortgage proceeds would be used to

pay off Fallaw's outstanding mortgage, make the improvements, and pay

Prevette a fee. Fallaw would live on the property, make the loan payments,

pay the property taxes and insurance, and maintain the property. When the

entire loan was paid in full, Prevette would deed the property back to Fallaw.

A written agreement embodying the terms as stated by Prevette was

introduced into the record. Respondent claimed he was unaware this

agreement existed until much later, when it was produced during the course

of the civil litigation described infra.





The panel did not find credible Fallaw's testimony that she never

signed this agreement. Nor did they find credible Fallaw's testimony that

she did not realize she was deeding her property to Prevette and he was

mortgaging it.

p.9


IN THE MATTER OF GREGORY





executed:

(1) a deed transferring title to the property from Fallaw to

Prevette as trustee with stated consideration of "One Dollar

and the assumption of a mortgage to Commercial Credit

Corporation with a balance of $27,300;"





(2) a promissory note to Luthi in the amount of $65,012.81,

signed by Prevette, both as trustee and individually;





(3) a mortgage by Prevette to Luthi in the amount of

$65,012.81, signed by Prevette, both as trustee and

individually;





(4) a Land Trust Agreement creating a trust comprised of the

property, designating Prevette as trustee and Fallaw as

sole beneficiary; and





(5) an Assignment of Beneficial Interest in Land Trust

transferring all of Fallaw's beneficial interest in the newly-

created land trust to Prevette.





After the closing, Respondent deposited the loan proceeds into his trust

account and made disbursements, the details of which will be discussed infra.

He never sent Luthi the requested trust documents or written authorization

for Prevette to mortgage the property. Fallaw continued to live in the house.

Her outstanding mortgage was paid and the improvements to the property

were made.





However, no payments on Luthi's mortgage were ever made, resulting

in Luthi instituting a foreclosure action in July 1992. Prevette, the sole

named defendant, defaulted and the master foreclosed in December 1992.

The property was sold to Luthi at a foreclosure sale in February 1993.

Ultimately, the foreclosure was nullified by court order after Fallaw filed a

civil lawsuit against Luthi, Prevette, and Respondent on various causes of

action. Judgments were rendered against Prevette and Respondent in this

lawsuit. While the case was on appeal, all parties entered into a settlement

agreement which resulted in Fallaw getting her property back with a new

mortgage.





The panel found Respondent committed misconduct in two areas of this

transaction. First, it found Respondent violated Rule 1.1, Rule 407, SCACR,

p.10


IN THE MATTER OF GREGORY





in drafting the trust documents used at closing. Second, it found Respondent

violated Rule 1.5, Rule 407, SCACR, in disbursing the loan proceeds.4

Respondent does not dispute these findings, candidly admitting mistakes were

made in both areas.





Rule 1.1 requires an attorney to provide competent representation to

a client. "Competent representation requires the legal knowledge, skill,

thoroughness and preparation reasonably necessary for the representation."

Rule 1.1, Rule 407, SCACR. Respondent was hired to paper a complicated

real estate transaction, a primary component of which was to set up a land

trust.5 He drafted a trust agreement whereby Prevette as trustee held legal

and equitable title, and Fallaw as beneficiary retained an equitable interest.

However, after creating this trust, he destroyed it with the assignment

agreement. This assignment conveyed the equitable interest Fallaw had

retained back to Prevette, thus merging the legal and equitable interests and

as a practical matter ending the trust. We agree with the panel's finding

there was no justification for this assignment agreement, which gave Prevette

full title to the property to the detriment of Fallaw6 and, ultimately, Luthi.

Furthermore, Respondent did not comply with his client's request for certain

important documents, and has offered no explanation for his failure to do so.

As the hearing panel stated in its report:




4 The complaint additionally alleged Respondent misappropriated client

funds; failed to account; and committed criminal acts or conduct involving

moral turpitude, fraud, deceit or dishonesty. Rules 1.1; 1.15; 8.4; Rule 407,

SCACR. We agree with the panel's finding there is no clear and convincing

evidence Respondent violated these provisions and therefore do not further

address the allegations.



5 We decline to address the merit, or lack thereof, of this type of trust

arrangement, or the decision to use it in this case. We are concerned with

Respondent's actions in attempting to create it once the decision had been

made.



6 The extent of Respondent's duty to Fallaw is unclear given the fact he

was not technically representing her. The Complainant presented expert

testimony that typically an attorney in a residential real estate closing owes

some attorney-client duties to borrower, lender, and seller. Regardless of any

duties arising as a matter of law from this transaction, we find Respondent

clearly undertook some duty toward Fallaw; his own testimony was that he

drafted the trust documents for her protection.

p.11


IN THE MATTER OF GREGORY





Although we do not find that Respondent knowingly participated

in a fraud, his sloppiness in handling the closing and his lack of

thoughtfulness in the documents he created for this transaction

enabled Prevette to take great advantage of Fallaw, who

obviously could not understand complicated legal documents and

who came to suffer almost a catastrophic loss from the actions of

Prevette. . . . At the very least, the incompetence with which

Respondent handled this transaction facilitated [Prevette's]

fraudulent attempt and embroiled Respondent's client, Luthi, in

an embarrassing and expensive civil action. Furtherrnore, if

Respondent had only complied with Luthi's request to send it the

trust agreement before the closing, Luthi probably would have

either objected to the trust arrangement prior to the closing,

required clarification of the parties' respective responsibilities, or

at least brought Fallaw into the later foreclosure suit. Any of

these actions would have simplified things considerably.





We find Respondent's representation as the closing attorney in this matter

fell below the standards set forth in Rule 1.1, Rule 407, SCACR.7





The panel also found misconduct regarding Respondent's disbursement

of the loan proceeds. Respondent admits he failed to disburse $1000 from the

$45,000 check he deposited into his trust account. He claims the difference

was an inadvertent accounting oversight, the money was left in his trust

account, and he is ready and willing to give it to whomever is entitled to it.





Rule 1.15 requires a lawyer to "promptly deliver to the client or third

person any funds or other property that the client or third person is entitled

to receive." It is clear that, regardless of Respondent's intent, he violated

this rule. At the very least, Respondent's actions demonstrate a lack of the

due care required of attorneys when dealing with trust funds. See Rule 1.15


7 Respondent also admitted he made mistakes in drafting the land trust

agreement. He used an agreement drafted five years earlier for another

transaction, merely removing the first page, copying the property's legal

description, and having the parties sign blank pages at the end. As a result,

the trust agreement Prevette and Fallaw executed made the law of Ohio

applicable (instead of South Carolina) and had a life of twenty years (instead

of one). Respondent stated he "got in a hurry" because everyone was in a

rush to close. Though no harm to the parties resulted from Respondent's

sloppiness, we find his inattention to detail further demonstrates his failure

to provide competent representation, in violation of Rule 1.1.

p.12


IN THE MATTER OF GREGORY





cmt., Rule 407, SCACR ("A lawyer should hold property of others with the

care required of a professional fiduciary"). Regarding the issue of who should

receive these additional funds, all injured parties in this transaction have

now been compensated as a result of the related civil litigation. Therefore,

we order that Respondent turn the funds over to the Lawyers' Fund for

Client Protection of the South Carolina Bar.





THE MULL MATTER





Mull hired Respondent to set up land trusts for three pieces of real

estate. The designated trustee was Mary Funderburk, the wife of a business

associate of Mull's. Respondent prepared the necessary deeds transferring

title and had at least two of them signed and recorded.8 However, the land

trust agreements were never executed. Respondent testified Mrs. Funderburk

never came to his office to sign the trust agreements, despite his repeated

attempts to get her to do so. Ultimately, Mull terminated Respondent's

representation and had to get the properties transferred back in his name.





The panel found Respondent's violated Rule 1.1, Rule 407, SCACR, in

recording the deeds to Mrs. Funderburk without first (or contemporaneously)

having the trust documents executed.9 It relied in part on the complainant's

expert witness, who opined deeding the property to a trustee without an

accompanying land trust agreement would constitute incompetent

representation because there would be no written evidence of the beneficiary's

retained interest. We agree. Respondent's actions created the potential for

severe prejudice to his client's rights in the property. As it was, his conduct

necessitated Mull going to further effort and expense to regain title once the




8 It is unclear from the record whether the deed to the third property was

ever recorded.



9 The complaint alleged Respondent failed to act with reasonable diligence

and promptness; failed to keep the client informed and comply with

reasonable requests for information; failed to deliver funds or property to a

client; and failed to deliver a full accounting. Rules 1.3; 1.4(a); 1.15; Rule

407, SCACR. These allegations stemmed from Respondent's representation

of Mull in the land trust and other matters. We agree with the panel's

finding there is no clear and convincing evidence Respondent violated these

additional provisions and therefore do not further address the allegations.



p.13


IN THE MATTER OF GREGORY

arrangement fell through.10





CONCLUSION

For the foregoing reasons, we find Respondent's representation in the

above matters violated Rules 1.1 and 1.5, Rule 407, SCACR.11 His actions

constitute professional misconduct. See Rule 413, SCACR (defining

misconduct as actions violating the Rules of professional Conduct, see ¶B;

conduct tending to bring legal profession into disrepute, see ¶D; conduct

demonstrating lack of professional competence, see ¶E). 12





We find the appropriate sanction for Respondent's conduct is a 30 day

suspension. In addition, Respondent is ordered to enroll in and complete the

Law Office Management Assistance Program (LOMAP). Finally, Respondent

shall, within ten days from the date of this opinion, remit $1000 representing

the undisbursed amount of closing funds in the Luthi Mortgage/Fallaw matter

to the Lawyers' Fund for Client Protection of the South Carolina Bar.





30 DAY SUSPENSION.




10 We summarily dismiss Respondent's argument he cannot be found in

violation of Rule 1.1 because the complaint did not specifically allege it. A

liberal reading of the complaint shows its asserted violations of specified rules

were not intended to be exclusive. Furthermore, Respondent was fully aware

this was an issue before the panel at the hearing.



11 Respondent was also charged with misconduct arising from his

representation of a third client. The panel found no misconduct as to this

matter and the complainant did not except to this finding. We agree there

is no clear and convincing evidence of misconduct and therefore decline to

address these allegations.



12 The order adopting the new Rules for Lawyer Disciplinary Enforcement

provided that any disciplinary case in which a hearing had been held by a

hearing panel prior to January 1, 1997, would continue to conclusion under

the former Rule on Disciplinary Procedure. As the panel hearing in this case

was held December 10-11, 1996, citations to Rule 413, SCACR, will be to the

former Rule on Disciplinary Procedure.





p.14