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.
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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,
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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