Frabizzio, In re

• Decision Date: 07 May 1985
• Citation: 498 A.2d 1076
• Parties: In re Samuel J. FRABIZZIO, a Member of the Bar of the Supreme Court of the State of Delaware. . Submitted:
• Court: United States State Supreme Court of Delaware

Page 1076

498 A.2d 1076

In re Samuel J. FRABIZZIO, a Member of the Bar of the Supreme Court of the State of Delaware.

Supreme Court of Delaware.

Submitted: May 7, 1985.

Decided: Aug. 30, 1985.

Samuel R. Russell of Biggs & Battaglia, Wilmington, for respondent.

L. Susan Faw, Disciplinary Counsel for the Bd. on Professional Responsibility, Wilmington.

Before McNEILLY, MOORE and CHRISTIE, JJ.

PER CURIAM:

This matter is before the Court pursuant to Rule 9(e) of the Rules of the Board on Professional Responsibility for review of the Board's recommendation to the Court that disciplinary action is warranted against Respondent upon the charge of a violation of DR1-102(A)(4) of the Delaware Lawyers Code of Professional Responsibility which provides that a lawyer shall not engage in conduct involving dishonesty, fraud, deceit, or misrepresentation. The Board's recommendation followed a hearing before a panel of the Board on February 14, 1984. A draft report of the Board was issued on November 14, 1984 to which counsel to Respondent filed exceptions pursuant to former Supreme Court Rule 63(d), (repealed effective July 1, 1984). The Board thereafter amended its draft and filed the following dated January 8, 1985:

FINAL REPORT

I

"The special panel of the Board convened at the direction of the Chairman consisted of Joseph H. Flanzer, Vice-Chairman, Susan C. Del Pesco, Joseph W. Maybee, Richard F. Stokes and F. Alton Tybout find disciplinary action to be warranted upon the charge of a violation of DR1-102 pursuant to a Rule on an Order to Show Cause issued on November 11, 1983 and heard on February 28, 1984. The charge is that the respondent engaged in a conduct involving misrepresentation in violation of DR1-102(4) in that he knowingly prepared and issued different settlement sheets, one to the lender and one to the seller, in a commercial real estate transaction. The findings of fact and conclusions of law concerning this matter are set forth in this report.

"(1) The Order to Show Cause asserts that neither settlement sheet forwarded by the respondent on June 1, 1979, one to City and one to the Lank group, reflected 'the true facts of the transaction.' The panel does not believe it is necessary to resolve that aspect of the charge. Whether there were one or two or more 'transactions' may be considered principally a matter of semantics. The gravamen of the Order to Show Cause concerns the distribution of different settlement sheets, not the matter of which one, if either, was correct."

II

FINDINGS OF FACT

"1. The respondent has a general practice of law with an emphasis on real estate and commercial law. He has been a member of the Delaware Bar since 1971.

"2. Lank was one of the three co-owners of the land sold. Hereafter, the sellers are referred to as the Lank group. Lank was the only one of the owners to testify. The Lank group received from a real estate agent a proposed contract of sale of the land to Landmark Group, apparently a name used by one Paul Linn, for $105,000. The proposed contract provided for $1,000 to be paid at the time of the execution of the contract, $24,000 in cash at the settlement and an $80,000 purchase money mortgage to be subordinate to construction and land development financing to be secured by Landmark. The contract was executed on January 16, 1979. The contract anticipated the building of a housing development.

"3. Thereafter a document was prepared entitled 'Assignment' dated February 16, 1979, purporting to assign Landmark's rights in the contract to Huber for $30,000. That assignment is attached to PX,1F but was not attached to the contract when the Lank group signed it. Lank did later learn that there had been an assignment but this was not a matter of concern to him.

"4. Huber prepared or had prepared a document purporting to be a contract for the sale of the same land by Lank (not the Lank group) to Huber. It recited a sale price of $135,000 and made no reference to a purchase money mortgage. Huber forged Lank's signature on the document. The fraudulent contract is a document clearly prepared by a person familiar with carefully drawn contracts for the sale of land to be used for development.

"5. Huber took the fraudulent contract to City Federal Savings and Loan Association (City) and on the basis of it secured financing. In consideration for a mortgage, he was to obtain $75,000 to finance the purchase of the land and $94,000 for land development. It is clear that the $75,000 was being loaned for the land purchase with the understanding the buyers would put up $60,000. The financing by City was confirmed by letter to Huber dated April 24, 1979. On the same day City also confirmed a construction loan commitment to Huber in the amount of $838,500.

"6. As the transaction ultimately was carried out, Huber received $75,000 from City as proceeds from the mortgage to finance the purchase of the land. He paid the Lank group $24,000 (less certain charges) and executed the $80,000 purchase money mortgage to the Lank group.

"7. Respondent first met Huber in March, 1979. He asked respondent to represent him in the closing. He had the original contract executed by the Lank group with him at that time. He did not have a copy of the assignment at the time he met Huber in April, 1979. Respondent never saw the fraudulently executed contract until after the events constituting the fraud were discovered in March, 1980.

"8. The original contract called for financing to be arranged within 30 days of the date of the contract. It is not clear how that date was extended. However, at some point respondent called Lank requesting additional time for the settlement. He also later called and told Lank that Huber and not Landmark would be the purchaser. This was not a matter of importance so far as Lank was concerned.

"9. Respondent testified that he gave instructions to his secretary about the preparation of the settlement sheet in early May. He did not review the settlement sheet after it was prepared. That settlement sheet showed a sales price of $135,000 and showed no purchase money mortgage. That settlement sheet was forwarded to Huber who returned it shortly thereafter. The respondent's secretary put the settlement sheet in the file without respondent reviewing it at that time.

"10. Respondent testified that he reviewed the settlement sheet forwarded to Huber shortly after it was returned and found that the one which had been sent to Huber was incorrect. At some point the respondent wrote 'cancel for settlement on June 1' on a photocopy of that settlement sheet. The copy of the sheet before the Board which had the original writing on it was itself a photocopy. He testified that he thereafter prepared a settlement sheet showing a sale price of $105,000, a purchase money mortgage of $80,000 and an entry entitled 'PRINCIPAL AMOUNT OF NEW LOANS LAND' $75,000. The balance sheet showed the gross amount due from the borrower to be $115,425.30 (including various charges above the $105,000 sale price) and cash due to the borrower of $9,574.70.

"11. Respondent sent Lank in May the deed for execution by the owners and also three settlement sheets showing a price of $105,000. Lank had the deed executed by the owners and signed the settlement sheets and sent them back to respondent.

"12. Klein was the Delaware attorney handling the real estate settlement on behalf of City. He testified that City's loan of $169,000 was intended to be $75,000 for land acquisition and the remaining for site development. City's understanding, in view of the purported purchase price of $135,000 was that the borrower was putting up $60,000 of his own money. The respondent's own real estate expert, Kristol, believed that City would normally want to know what kind of equity the buyer was going to have in the contract because it is important that the bank determine the ratio of debt to value. The amount of equity in the buyer is important.

"13. Klein reviewed the documents for the closing and noticed an absence of a prohibition against second liens. He spoke to respondent and told him to include a prohibition against further liens on the property. The expert on real estate transactions testifying on behalf of the respondent, Kristol, testified that such a clause is standard in mortgages by most banks since there is almost always a provision against secondary financing without the consent of the lender. Such a provision was in fact inserted in the mortgage.

"14. There is a direct conflict of testimony on the respondent's knowledge concerning the prohibition against secondary financing. Klein testified that there was a specific telephone discussion with Frabizzio on the need for the secondary financing clause and Klein within a week before settlement instructed that it be inserted in the mortgage. Respondent contends that he did not know about the prohibition against secondary liens. However, respondent agrees that the 'rider' containing the 'secondary financing' clause was handed to him by Klein with instructions that it be inserted in the mortgage. He denies discussing it with Klein. Respondent makes no claim that he disclosed to Klein the mortgage to the Lank group.

"15. On June 1, 1979, the settlement sheet showing a sale price of $135,000 and showing no purchase money mortgage was delivered to City following the closing. The settlement sheet showing a sale price of $105,000 was delivered to Lank following the closing. The respondent filed the purchase money mortgage at a time that would make it subordinate to City's mortgage.

"16. The nature of the transaction was such that neither City nor the Lank group would learn of the real transaction involving the other so long as Huber maintained the payments to City on its mortgage and to the Lank group on the purchase money mortgage. Apparently the payments were maintained for some period of time. In 1980, however, the City mortgage went into default. City's counsel,...