Filed: June 1, 2001

IN THE SUPREME COURT OF THE STATE OF OREGON

In Re Complaint as to the Conduct of

DANIEL Q. GALLAGHER,

Accused.

(OSB 98-12; SC S47248)

On review of the decision of a trial panel of the Disciplinary Board.

Argued and submitted November 6, 2000.

Daniel Q. Gallagher, Winston, argued the cause and filed the briefs in propria persona.

Mary A. Cooper, Assistant Disciplinary Counsel, Lake Oswego, argued the cause and filed the briefs for the Oregon State Bar.

Before Carson, Chief Justice, and Gillette, Durham, Kulongoski, Leeson, and Riggs, Justices.*

PER CURIAM

The accused is suspended from the practice of law for two years, commencing 60 days from the date of filing of this decision.

*Van Hoomissen, J., retired December 31, 2000, and did not participate in the decision of this case; De Muniz, J., did not participate in the consideration or decision of this case.

PER CURIAM

The Oregon State Bar (Bar) charged the accused by formal complaint with violating Code of Professional Responsibility Disciplinary Rule (DR) 1-102(A)(3) (prohibiting conduct involving dishonesty, fraud, deceit, or misrepresentation) (two counts); DR 1-103(C) (requiring cooperation with Bar investigation) (two counts); and DR 9-101(A) (requiring deposit and maintenance of client funds in trust account). In its first cause of complaint, the Bar alleged that the accused violated DR 1-102(A)(3) by attempting to accept a settlement offer made by opposing counsel when the accused knew that opposing counsel mistakenly had offered too much money and by failing to respond truthfully to the Bar's subsequent letter and in the Local Professional Responsibility Committee (LPRC) interview; DR 1-103(C) by failing to respond truthfully to the Bar and the LPRC; and DR 9-101(A) by failing to maintain in his trust account the funds that opposing counsel mistakenly had sent. In its second cause of complaint, the Bar alleged that the accused violated DR 1-102(A)(3) and DR 1-103(C) by failing to respond truthfully during a Bar deposition. A trial panel of the Disciplinary Board determined that the accused had violated all those rules and imposed a two-year suspension. Given that sanction, review by this court is automatic. ORS 9.536(2); BR 10.1. On de novo review, ORS 9.536(3); BR 10.6, we conclude that the accused committed two violations of DR 1-102(A)(3) and two violations of DR 1-103(C), and impose a two-year suspension.

We find the following facts. In 1996, the accused represented Driscoll in two contract disputes. In the first contract, Driscoll, who owned a livestock business, had contracted with Hanna to have two of Hanna's mares bred to one of Driscoll's stallions. In the second contract, Driscoll had sold a horse to Hanna. Hanna had taken possession of that horse and had executed a promissory note as payment. Hanna eventually defaulted on both contracts.

In March 1996, the accused and Hanna's lawyer, Martinis, began settlement negotiations. On May 16, 1996, Martinis sent a settlement offer to the accused and enclosed two cashier's checks. One check, numbered 2827681, was in the amount of $1,610 and had the notation "Bay poco filly * * * paid in full" on its face. The other cashier's check, numbered 2827682, was in the amount of $600 and had the notation "Breeding fee * * * paid in full." Martinis also included a general release form with the checks. The accused communicated the settlement offer to Driscoll; Driscoll rejected it, and the accused returned the checks.

In June 1996, the accused filed a breach of contract action on Driscoll's behalf. Negotiations resumed. Soon, the parties seemed close to settlement: They both agreed that Hanna would pay Driscoll $1,400 in breeding fees and that Hanna would return the horse. The only point of dispute was whether Hanna also would pay Driscoll's attorney fees.

On November 21, 1996, the accused sent a settlement offer to Martinis with the following terms: (1) Hanna pays Driscoll $1,400 for breeding fees; (2) Hanna pays Driscoll's attorney fees; (3) Hanna returns the horse if a veterinarian finds the horse to be in good health, but if the horse is in poor health, then Hanna pays the balance of the purchase price; (4) Driscoll delivers the breeding certificates to Hanna; and (5) Driscoll dismisses the lawsuit.

On November 25, 1996, Martinis sent a letter in reply to the accused. That letter, and the accused's conduct in reaction to that letter, form the bases for the DR 9-101(A) charge and for one of the DR 1-102(A)(3) charges. The November 25 letter stated, in part:

"Please be advised that your client's counter offer set forth in your letter to me dated November 21, 1996 is rejected. Under no circumstances will my client agree to pay your client's attorney fees. All other points of your counter offer are acceptable.

"I enclose herein two cashier's checks numbered 2827681 and 2817682 [sic] in the amounts of $1,610.00 and $600.00, respectively. These checks are submitted to you in full satisfaction of the above-referenced matter.

"Your client's acceptance and negotiation of these checks, however, is conditioned upon her full performance of her end of the settlement agreement as specified in her counter offer, together with executing mutual general releases in this matter."

As stated in the letter, Martinis enclosed two cashier's checks. Martinis did not include a release form with the letter.

On December 2, 1996, the accused met with Driscoll to consider the offer. At the trial panel hearing, Driscoll testified that: the accused showed her the two cashier's checks, and she recognized them as the same checks that she had rejected previously; she expressed concern that, if she endorsed the check that had the notation "Bay poco filly * * * paid in full," then Hanna would not return the horse; and that the accused assured her that Hanna would return the horse and urged her to endorse both checks. Although the accused testified to a different version of the December 2 meeting, the trial panel expressly found Driscoll to be credible. We accept that credibility finding.

Near the end of their December 2, 1996, meeting, Driscoll endorsed the two cashier's checks and instructed the accused to give half of the total amount ($1,105) to her and to put the other half toward the attorney fees that she owed him. (1) That same day, the accused deposited the cashier's checks in his trust account and drew checks on that account, one in the amount of $1,105 payable to Driscoll and another, also in the amount of $1,105, payable to himself. The accused immediately deposited his check for $1,105 into his personal checking account.

The next day, December 3, 1996, the accused sent a letter to Martinis, purporting to accept the November 25, 1996, offer and reciting the following terms of settlement:

"1. Your client will pay the $1,610.00 breeding fees.

"2. Your client will pay $600.00 stud service, mare care, and insurance.

"3. Your client will have the horse checked by a licensed Oregon veterinarian, supply my client with a copy of the report, and will pay for the report.

"4. If the report is that the horse is in good health, your client will deliver the horse to a prearranged location in the Eugene area. If the horse is unsatisfactory to Ms. Driscoll, your client will pay the balance of the purchase price already agreed to by the parties.

"5. If the terms above are met, the breeding certificate will be delivered to your client, the lawsuit will be dismissed, and a letter of satisfaction will be signed by Ms. Driscoll."

The accused enclosed a stipulated dismissal for Martinis's signature, but did not enclose an executed general release, as Martinis's November 25 letter had required. On December 6, 1996, however, Driscoll signed a statement that the accused had drafted that repeated the above terms. The accused then sent the signed statement to Martinis. Driscoll testified to the trial panel that she expressly questioned the use of the term "stud service" in the statement, as that term was redundant with the term "breeding fees." The accused told Driscoll that that was not important.

When Martinis and his client received the accused's December 3, 1996, "letter of acceptance," they realized that Martinis had erred by offering the two cashier's checks and return of the horse, as the checks, which totaled $2,210, represented $810 more than the amount for which Hanna was willing to settle ($1,400) if she could not keep the horse. On December 6, Martinis telephoned the accused and sent him by facsimile a letter stating that he (Martinis) had made a serious mistake. Martinis asserted that the parties still had not reached a settlement, unless Driscoll was willing to accept the $2,210 in complete settlement of both contract claims. Martinis asked the accused to return the cashier's checks if Driscoll would not accept $2,210 in settlement.

The accused responded by letter dated December 6, 1996, stating that Driscoll already had accepted the terms offered in Martinis's November 25 letter, i.e., $2,210 and return of the horse. The accused asserted that Hanna's failure to return the horse would be a breach of the parties' settlement agreement.

Martinis sent another letter to the accused and telephoned him several times to reiterate that the parties had not settled and that the accused had acted wrongfully by permitting Driscoll to cash the checks. In those communications, Martinis pointed out that his November 25 offer letter and the accused's December 3 "acceptance" letter contained different terms. Specifically, in his December 3 letter, the accused had asserted that the $600 check represented the settlement for "stud service, mare care, and insurance." In the parties' previous letters, however, there was no mention of either "stud service" or "mare care." Martinis asked the accused to return the $2,210. The accused replied that he was acting in good faith by retaining the $2,210 and insisting on return of the horse. He appeared to recognize, however, that Martinis had offered too much: "As for the offer and acceptance, there was no obligation on you to offer additional funds. You did offer additional funds with no further conditions. Ms. Driscoll accepted the offer."

On February 13, 1997, Martinis sent a letter to the Bar, recounting the accused's conduct during the settlement negotiations and asserting that the accused had violated DR 1-102(A)(3) and (4). The Bar requested a response from the accused, and, on March 12, the accused requested additional time to respond. The Driscoll matter was scheduled for arbitration on March 21, and the accused believed that the results of the arbitration might affect the issues in the Bar complaint. The Bar granted that request.

On February 25, 1997, the accused drew a check for $850 from his personal checking account and deposited it into his trust account.

The arbitrator ultimately ruled that Martinis's offer of the checks and Driscoll's subsequent cashing of the checks were an accord and satisfaction. The arbitrator dismissed all other claims between the parties and awarded Hanna, as the prevailing party, $3,748 in attorney fees. (2)

The accused's response to the Bar complaint and the subsequent Bar investigation form the bases for the second DR 1-102(A)(3) charge and for both DR 1-103(C) charges. In his response, the accused stated that: (1) he had discussed the "ambiguity" in the November 25, 1996, letter with Driscoll and that Driscoll, not he, had made the decision to cash the checks; (2) due to the ambiguity in the November 25 letter, Driscoll left the $810 "overpayment" in the accused's trust account; and (3) Martinis never requested return of the funds, just of the actual cashier's checks.

LPRC investigators later interviewed the accused. The accused brought a copy of his trust account ledger for the Driscoll matter. The accused had redacted the ledger before bringing it to the interview; he had blackened out the descriptions of most of the various debits and credits, as well as the amounts of some transactions. The redacted ledger showed that two cashier's checks totaling $2,210 were deposited on December 2, 1996, and that a check had been issued to Driscoll in the amount of $1,105 on that date. The ledger, however, failed to show the additional December 2, 1996, check of $1,105 payable to the accused. The ledger also failed to show the $850 deposit on February 25, 1997. Relying in part on the ledger, the accused told the investigators that the $810 overpayment had remained in his trust account since December 2. Although the parties dispute certain additional statements that the accused made during his LPRC interview, the trial panel found that the LPRC investigators' testimony was more credible than the accused's testimony. As with the credibility finding respecting Driscoll, we accept the trial panel's credibility finding respecting the LPRC investigators. We therefore find that the accused also told the LPRC investigators that: (1) at the time he received the checks, he knew that there had been a mistake as to the amount of the checks; (2) he knew that, because of that mistake, negotiating the checks was dishonest; and (3) Driscoll, not he, insisted on negotiating the checks and on attempting to keep the $2,210.

The Bar later deposed the accused. During his deposition, the accused admitted that his earlier assertions that he had retained $810 in his trust account were inaccurate. He stated that he had held the $810 in his personal savings account. The accused also told Bar counsel that the $810 remained in his personal savings account until he deposited $850 back into his trust account on February 27, 1997.

At the trial panel hearing, the Bar introduced into evidence the accused's personal checking account and trust account records. The records showed that the accused had drawn a check on his trust account on December 2, 1996, in the amount of $1,105, payable to himself. The records showed that the accused had deposited that check into his personal checking account on December 2, 1996. The records also showed that, on a number of occasions between December 2, 1996, and February 25, 1997, the balance of his personal checking account fell below $810. At the hearing, the accused testified that he did not know why his trust account ledger failed to show the $1,105 check payable to him. He also testified that he never told the LPRC investigators that he knew that negotiating checks that were sent by mistake was dishonest.

As noted, the trial panel found that the accused had violated the disciplinary rules as alleged in the complaint, and it imposed a two-year suspension. On review, the Bar argues that the trial panel correctly concluded that the accused violated the disciplinary rules as alleged. The Bar argues that the appropriate sanction is at least a two-year suspension, but that the misconduct might justify disbarment. The accused argues that he committed no violations and that, even if he did, then the proper sanction is a reprimand.

We turn first to whether the accused violated DR 1-102(A)(3) by his conduct regarding Martinis's November 25, 1996, letter. DR 1-102(A)(3) provides: "It is professional misconduct for a lawyer to * * * [e]ngage in conduct involving dishonesty, fraud, deceit or misrepresentation[.]" DR 1-102(A)(3) sets out four different legal theories: dishonesty, fraud, deceit, and misrepresentation. In re Brandt/Griffin, 331 Or 113, 138, 10 P3d 906 (2000). The Bar proceeds on the theory that the accused acted dishonestly. This court has defined dishonesty as a "'[d]isposition to lie, cheat or defraud; untrustworthiness; lack of integrity.'" In re Hockett, 303 Or 150, 158, 734 P2d 877 (1987) (quoting Black's Law Dictionary, 421 (5th ed 1979)). This court also has suggested that the proper approach to defining the conduct that constitutes "dishonesty" is on a case-by-case basis. See Hockett, 303 Or at 159 (noting with approval that courts of other jurisdictions determine whether acts constitute dishonesty on case-by-case basis).

To evaluate the accused's conduct in response to Martinis's November 25, 1996, letter, we first must evaluate that letter. The first paragraph states that "[a]ll other points of your counter offer are acceptable." The "counter offer" to which Martinis was referring included payment of $1,400 and return of the horse. The second paragraph, however, states that Martinis was tendering $2,210 "in full satisfaction" of the parties' dispute and was enclosing checks totaling that amount. Those statements cannot be reconciled. Perhaps Martinis intended to agree to the terms in the accused's offer ($1,400 and return of the horse). Perhaps Martinis intended to offer $2,210 and provide for Driscoll to keep the horse. Or, Martinis might have meant to agree to return the horse and offer an extra $810 to make up for his client's refusal to pay attorney fees. (3) In short, Martinis's intentions were not clear from his November 25, 1996, letter.

When the accused realized that Martinis was under the mistaken impression that Martinis had tendered the amount on which the parties had agreed, (4) the accused had a duty to clarify Martinis's offer before disbursing all the proceeds from the checks. See In re Benett, 331 Or 270, 278, 14 P3d 66 (2000) (holding that accused lawyer violated DR 1-102(A)(3) by negotiating extra settlement checks after failing to correct opposing counsel's belief that prior settlement check had not cleared when accused knew that check had cleared); In re Zumwalt, 296 Or 631, 635-36, 678 P2d 1207 (1984) (holding that accused lawyer violated dishonesty rule by retaining double payment of settlement amount when second settlement check had been sent in error). The accused acted dishonestly in negotiating the checks, disbursing the proceeds, and refusing to return the overpayment when Martinis requested it. As this court previously has stated:

"Conduct by which one lawyer seeks to dupe another lawyer (and the latter's client) tears at the fabric of the legal profession, which can expect to have no better reputation for trustworthiness in the community than that of its worst actors."

In re Porter, 320 Or 692, 707, 890 P2d 1377 (1995).

We also conclude that the accused acted dishonestly in sending his December 3, 1996, letter to Martinis. We agree with the trial panel's characterization of the accused's effort in that regard as a "fabricat[ion of] a new offer and settlement agreement, which included different amounts of money than what was previously discussed and which included terms such as mare care that were never discussed before." The accused's December 3, 1996, letter demonstrates that the accused negotiated the checks and disbursed their proceeds with the knowledge that the parties had not yet reached a settlement agreement. The accused violated DR 1-102(A)(3).

We turn to DR 9-101(A). That rule provides, in part:

"All funds of clients paid to a lawyer or law firm, including advances for costs and expenses and escrow and other funds held by a lawyer or law firm for another in the course of work as lawyers, shall be deposited and maintained in one or more identifiable trust accounts in the state in which the law office is situated. Trust accounts shall be specifically identified by use of the phrase 'Lawyer Trust Account.' No funds belonging to the lawyer or law firm shall be deposited therein except as follows:

"* * * * *

"(2) Funds belonging in part to a client and in part presently or potentially to the lawyer or law firm must be deposited therein but the portion belonging to the lawyer or law firm may be withdrawn when due unless the right of the lawyer or law firm to receive it is disputed by the client in which event the disputed portion shall not be withdrawn until the dispute is finally resolved."

(Emphasis added.) The Bar argues that the accused violated DR 9-101(A) by failing to maintain disputed funds in his trust account. Although the Bar does not specify the amount of money that forms the basis for that charge, we understand the Bar to argue that the accused should have kept the $810 overpayment in his trust account. The Bar contends that those funds belonged to Hanna and, as such, were "other funds held by a lawyer or law firm for another." (5)

In DR 9-101(A), the phrase "other funds held by a lawyer or law firm for another in the course of work as lawyers" modifies the phrase "[a]ll funds of clients paid to a lawyer or law firm." Under general grammatical rules, because it is set off by commas, the phrase "including advances for costs and expenses and escrow and other funds held by a lawyer or law firm for another in the course of work as lawyers" is a nonrestrictive phrase. See Chicago Manual of Style,