Brown, In re

Citation12 Cal.4th 205,906 P.2d 1184,48 Cal.Rptr.2d 29
Decision Date18 December 1995
Docket NumberNo. S046753,S046753
CourtUnited States State Supreme Court (California)
Parties, 906 P.2d 1184, 95 Cal. Daily Op. Serv. 9677, 95 Daily Journal D.A.R. 16,769 In re John Michael BROWN, on Discipline.

Ephraim Margolin, Bradford L. Battson, San Francisco, Slatter & Slatter, and Lindsay Kohut Slatter, Santa Cruz, for petitioner.

Mark Torres-Gil and Julie W. Stainfield, Diane C. Yu, Richard J. Zanassi, San Francisco, for respondent.

THE COURT: *

On our own motion, we review an order of the State Bar Court publicly reproving John Michael Brown, an attorney admitted to practice in this state. The public reproval is based on Brown's conviction of three misdemeanor counts of failure to remit to the state certain funds withheld from the wages of his law corporation's employees (Unemp.Ins.Code, § 2118). The conduct underlying the convictions spanned more than two years and by the end of that period Brown had misappropriated approximately $36,000 in withheld wages that should have been paid to the state. In our order granting review, we directed that in their briefs the parties address "the adequacy of public reproval as discipline for the crimes of which John Michael Brown was convicted."

In this court, the State Bar's Office of Trial Counsel has argued that appropriate discipline in this case would include one year of actual suspension from the practice of law. For the reasons set forth below, we conclude that while public reproval is not adequate discipline, one year of actual suspension would be excessive, particularly in light of the demonstrated mitigating circumstances, including over twenty years of law practice without prior discipline. Accordingly, we shall order Brown suspended from the practice of law for two years and stay the suspension on conditions that include sixty days actual suspension.

I
A. Background

Brown has no prior record of discipline. He was admitted to the practice of law in California on December 23, 1966. After admission, he was employed for one year as a superior court research attorney and for another year as a deputy district attorney. Brown then joined a law firm specializing in plaintiffs' personal injury litigation, eventually becoming a partner. Upon the firm's dissolution in 1978, Brown established a sole practice. In 1985, Brown incorporated his law practice as J. Michael Brown Professional Corporation.

B. Facts Underlying the Convictions

As an employer that paid wages to employees (including Brown himself), Brown's law corporation was subject to this state's employment tax laws and registered as an employer with the Employment Development Department (EDD). Brown understood that his law corporation was legally obligated to withhold from the wages of its employees state income tax, employment training tax, disability tax, and unemployment insurance contributions, and to remit these withheld wages to the state on a quarterly basis, together with quarterly tax returns. From the beginning of his sole practice in 1978 through the first quarter of 1988, Brown withheld and timely paid all state taxes and submitted the required quarterly returns.

From April 1, 1988, through September 30, 1990, Brown withheld from the wages of his law corporation's employees the amounts required to satisfy state tax obligations, but he did not remit these funds to the state, nor did he submit any of the required quarterly returns. Instead of remitting the withheld wages to the state, Brown used this money to satisfy his personal debts. In all, Brown failed to remit $34,253.53 in state income and disability tax withholdings and $1,769.11 in unemployment insurance contributions and employment training taxes. During this period, the employees of Brown's law corporation included himself, a secretary, and a paralegal. 1 Most of the unremitted funds had been withheld from Brown's own salary, but the record does not disclose the exact allocation as between Brown's salary and those of the other employees.

On March 1, 1990, the EDD contacted Brown about the overdue quarterly returns for the second quarter of 1988 through the fourth quarter of 1989. Brown blamed the problem on his accountant, 2 and he promised to retain a new accountant and to give the EDD a progress report no later than March 9, 1990. On May 11, 1990, the EDD telephoned Brown and left a message for him to contact the EDD. On July 19, 1990, the EDD was able to contact Brown and advise him of his tax liability. Brown said he would call back after checking with his accountant. At a meeting on August 2, 1990, Brown paid $1,089.25 toward his tax liability and represented that he had no other funds with which to make further payment on this obligation. On August 7, 1990, Brown called the EDD to cancel a meeting scheduled for that day. He said he would submit the overdue returns later that week. On August 16, 1990, the EDD sent Brown a five-day demand letter for withheld taxes and contributions. On August 21, 1990, Brown told the EDD that he had received the demand letter and that he would submit the quarterly tax returns on August 28 or 29. On September 12, 1990, the EDD received, without further payment, the overdue quarterly returns through the fourth quarter of 1989.

The September 1990 submission did not include returns for the first and second quarters of 1990, which were then also overdue. Brown promised the EDD he would send these returns (together with a financial statement verifying his claimed inability to pay the underlying tax obligations) by October 5, 1990. He did not do so. On October 15, 1990, he told the EDD he would mail these documents the next day. He again failed to do so. On October 26, 1990, Brown told the EDD he was having difficulty contacting his accountant.

On November 14, 1990, Brown sent the EDD an incomplete financial statement. On December 15, 1990, he submitted, also without payment, the overdue wage returns for the first three quarters of 1990.

In January 1991, Brown was charged by criminal complaint with 10 counts of failing to account for and pay over wage withholdings for state taxes and contributions in violation of Unemployment Insurance Code section 2118. 3 In May 1991, Brown entered a plea of nolo contendere to three counts of violating Unemployment Insurance Code section 2118. The trial court granted probation for a period of three years on conditions that included full restitution to the EDD and performing 1,000 hours of volunteer service. Brown completed restitution, including penalties and interest, in April 1992.

C. Mitigating Circumstances
1. Health problems

In late 1987, Brown began to experience frequent, painful, and severe diarrhea, associated with fatigue and weight loss. 4 Brown Brown's illness did not result in hospitalization or frequent medical consultations or treatments. Throughout the relevant period, Brown's work schedule and his community and professional activities continued at, or close to, their normal pace.

found it difficult to concentrate on his law practice and other obligations; he was constantly irritable. Because he feared the diagnosis would be cancer, and because he no longer had health insurance, Brown put off medical appointments and recommended diagnostic procedures. In January 1989, a gastroenterologist diagnosed Brown's condition as celiac sprue, a disorder characterized by malabsorption, abnormal small-bowel structure, and intolerance to gluten, a protein found in wheat and other cereal grains. Brown's health began to improve once he was placed on a gluten-free diet.

2. Financial difficulties

In 1984, Brown finalized a structured settlement on behalf of a client under which Brown would receive deferred fees in the amount of $100,000 or more per year for five years. With these anticipated payments and an earning history of more than $100,000 per year in his sole practice, Brown felt sufficiently financially secure to embark on a project involving the purchase of a 5.3-acre parcel of land for $190,000 on which Brown planned to build his 4,600-square-foot "dream home" with adjoining stables and barn. Brown and his second wife planned to operate the stables as a business to breed show quality Arabian horses. Brown had no previous experience in property development, construction, or breeding horses for profit. At the outset, Brown estimated the project's total cost at $475,000.

When he undertook this project, Brown had no long-term savings other than $37,000 in a pension plan, and he had a $1,000-per-month support obligation to his former wife and their children. Brown sold his existing house and invested the $70,000 proceeds in the project. He rented a trailer for his family to live in and moved it onto the property.

Construction began in April 1987. Brown soon experienced financial difficulties, which he attributed in part to unanticipated construction costs and in part to a decline in income from his law practice.

After noticing what he believed to be construction defects, Brown entered into a dispute with the general contractor. In August or September of 1987, the general contractor ceased work on the project and Brown took over the general contractor's duties himself. In December 1987, Brown brought suit against the general contractor for construction fraud, but he never recovered anything, apparently because the contractor went into bankruptcy. Brown completed construction on the house and moved his family into it during 1988. The entire project ended up costing over $700,000, instead of the anticipated $475,000. 5

In September 1989, the bank from which Brown had obtained the construction loan for his project recorded a notice of foreclosure on its trust deed. To prevent foreclosure, Brown filed a chapter 11 reorganization petition in October 1989.

Brown attributed the decline in income from his law practice in part to the effects of his illness (celiac sprue) and in part to certain changes in the law that made it more...

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