Disciplinary Proceedings against Krombach

• Decision Date: 22 December 2005
• Docket Number: No. 2004AP60-D.,2004AP60-D.
• Parties: In the Matter of DISCIPLINARY PROCEEDINGS AGAINST Charles K. KROMBACH, Attorney at Law. Office of Lawyer Regulation, Complainant-Respondent, v. Charles K. Krombach, Respondent-Appellant.
• Court: Wisconsin Supreme Court

707 N.W.2d 146

2005 WI 170

In the Matter of DISCIPLINARY PROCEEDINGS AGAINST Charles K. KROMBACH, Attorney at Law.

Office of Lawyer Regulation, Complainant-Respondent, v. Charles K. Krombach, Respondent-Appellant.

No. 2004AP60-D.

Supreme Court of Wisconsin.

Submitted on Briefs October 12, 2005.

Decided December 22, 2005.

For the respondent-appellant there was a brief by Charles K. Krombach, Brookfield.

For the complainant-respondent there was a brief by Charles S. Blumenfield, Milwaukee.

¶ 1 PER CURIAM.

ATTORNEY disciplinary proceeding. Attorney's license revoked.

Attorney Charles K. Krombach appeals from the referee's recommendation that Attorney Krombach's license to practice law in Wisconsin be revoked and that he be required to pay restitution in the amount of $27,135.05. After our own independent review, we adopt the referee's findings of fact and conclusions of law. We also agree that Attorney Krombach's misconduct necessitates that his license be revoked, that he pay restitution, and that he pay the costs of this proceeding.

¶ 2 On January 8, 2004, the Office of Lawyer Regulation (OLR) filed a five-count complaint against Attorney Krombach. Count I alleged that Attorney Krombach's disbursement of trust account funds to himself without prior consent of the client constituted conduct involving dishonesty, fraud, deceit or misrepresentation in violation of SCR 20:8.4(c).¹ Count II alleged a violation of former SCR 20:1.15(d)² by Attorney Krombach's withdrawal of trust account funds prior to an accounting and severance of the interests in the trust account funds. Count III alleged that Attorney Krombach had violated SCR 22.03(6)³ by making misrepresentations to, and failing to cooperate with, the OLR. Count IV alleged that Attorney Krombach had failed to provide a full accounting of trust funds upon request of his client in violation of former SCR 20:1.15(b).⁴ Finally, Count V alleged that Attorney Krombach had violated former SCR 20:1.15(e)(ii)⁵ by making cash withdrawals from his client trust account instead of writing checks drawn on that account.

¶ 3 Attorney Krombach filed an answer that admitted the occurrence of many of the transactions alleged in the complaint, affirmatively claimed that many of the transactions were done with the knowledge and consent of one of the clients and denied that he had engaged in any professional misconduct.

¶ 4 Richard M. Esenberg was appointed referee on February 12, 2004. He scheduled a final hearing on the matter for June 28, 2004. Shortly before the hearing, Attorney Krombach's counsel withdrew from the case, with Attorney Krombach's consent because Attorney Krombach was no longer able to pay the fees. Attorney Krombach and the OLR then entered into a stipulation in which Attorney Krombach admitted most of the factual allegations and the five allegations of misconduct set forth in the complaint. The stipulation reserved the issues of restitution and discipline for further development and argument.

¶ 5 The referee held a one-day hearing concerning certain factual issues and the question of discipline. Following the hearing, the referee allowed Attorney Krombach's therapist to submit a letter concerning his treatment of Attorney Krombach and he allowed the parties to submit evidentiary materials and briefs on the issue of restitution.

¶ 6 The referee then issued his report and recommendation. The referee's report included detailed findings of fact and conclusions of law based on the parties' stipulation and the evidence submitted at and following the hearing. The voluminous findings of fact will be summarized below.

¶ 7 Charles K. Krombach was admitted to practice law in Wisconsin in 1977. His prior disciplinary record includes a private reprimand. Attorney Krombach's license was temporarily suspended on April 6, 2005, for failure to cooperate with two additional investigations. His license has remained suspended until the date of this opinion.

¶ 8 Attorney Krombach began representing John M. on a personal basis in 1994. John M. was apparently a man of fairly modest means, although at one point he did come to own a couple of houses in Milwaukee, a parcel of land in the Town of Cedarburg and another parcel out of state.

¶ 9 In 1997, John M. and his two sons, John P. and Michael, agreed to develop and subdivide the Cedarburg parcel. The three retained Attorney Krombach to form a limited liability company (LLC) for that purpose. The LLC borrowed funds from AVCO Financial Services to pay for development expenses. Attorney Krombach deposited $45,610.69 of the AVCO loan proceeds into his client trust account. On the same day, Attorney Krombach wrote a trust account check to himself in the amount of $7565.28, primarily for John M.'s outstanding personal attorney fees. The referee concluded that, although these were LLC funds that were being used to pay John M.'s personal attorney fees on other matters, it appears that the members of the LLC approved of this payment to Attorney Krombach. At least, the referee could not affirmatively conclude that this payment was unauthorized or improper.

¶ 10 Beginning shortly thereafter, Attorney Krombach made a number of disbursements from the LLC's funds in his trust account. For example, on August 27, 1997, he wrote a $500 check payable to "Cash," which he endorsed and cashed the same day. Attorney Krombach claims that he delivered this cash along with another $1000 check to John M. on the same day. He claims that the cash and the check represented loans from the LLC to John M. Although the referee could not conclude that John M. did not receive the money, there is no doubt that these disbursements were unauthorized at the time because the agreement among the members of the LLC was that any disbursement of $1000 or more required the approval of two members. Attorney Krombach has produced no evidence that anyone other than John M. approved of these "loans" at the time they were made.

¶ 11 During the following months, Attorney Krombach made a substantial number of payments to himself out of the LLC trust funds. The referee found that Attorney Krombach repeatedly paid himself from LLC funds on non-LLC matters involving only John M. personally. Attorney Krombach has produced no written authorization for these payments and has not alleged that anyone other than John M. gave him verbal authorizations, although John M. did not have such authority by himself. Indeed, when Attorney Krombach requested permission from John P. to pay his father's personal legal fees out of the LLC's funds, John P. expressly denied that permission.

¶ 12 Although these payments to Attorney Krombach from the trust funds were not authorized at the time they were made, there was some evidence that John P. and Michael, the other LLC members, ratified these payments after the fact. John P. acknowledged that he received statements regarding the use of the trust funds that would have indicated the amount of these payments. Although these trust statements may not have explicitly communicated the fact that these monies were being used to pay his father's personal legal fees, John P. did admit that he knew that his father's personal legal bills had been paid up to date as of July 1999, presumably from LLC trust funds.

¶ 13 Because Attorney Krombach was unsuccessful in obtaining governmental approval to subdivide the Cedarburg parcel, the LLC members decided to suspend payments on the AVCO loan, causing the property to go into foreclosure. By September 1998 the AVCO loan proceeds had been almost depleted, with nearly $26,000 of the original $45,610.69 having been paid to Attorney Krombach. Ultimately, the LLC was able to sell the parcel at what Attorney Krombach described as a "fire sale" price.

¶ 14 Attorney Krombach produced two invoices dated July 1, 1999, the date of the closing for the sale of the Cedarburg property. The first invoice was in the amount of $7752.62 and the second was in the amount of $4082.18. These invoices were apparently paid out of the proceeds of the closing.

¶ 15 After payment of the AVCO loan and other outstanding expenses, the LLC received $83,879.48 in proceeds from the sale, all of which was initially deposited into Attorney Krombach's trust account. Attorney Krombach then disbursed $31,915.81 to John P. as guardian for his father. In addition to the payment of the two invoices identified above dated July 1, 1999, Attorney Krombach also wrote himself a check in the amount of $1963.67 on the date of closing, although he has never presented any invoice to justify this payment. The remaining $50,000 was retained in Attorney Krombach's general trust account until August 13, 1999, when the funds were transferred to a separate money market trust account controlled by Attorney Krombach.

¶ 16 Following the establishment of the money market account, Attorney Krombach engaged in a series of improper transactions. On August 13, 1999, he wrote a $1000 check to himself out of the money market account. Although this payment was allegedly for legal fees, Attorney Krombach could produce no documentation to show that he was owed outstanding fees anywhere near this amount. On August 20, 1999, Attorney Krombach wrote another check to himself in the amount of $2000. Although the $1000 and $2000 amounts were later credited toward fees for services provided to the LLC, Attorney Krombach's invoices show that those services were provided almost entirely after the date of the checks.

¶ 17 On September 14, 1999, Attorney Krombach wrote another check drawn on the money market account for $2000. Although Attorney Krombach's subsequent accounting claimed that this was for "JMR cash," the referee found that no cash was ever given to John M. at this time. Attorney Krombach's time entries on his invoice indicate that John M. requested a personal loan from the remaining LLC funds at this time, but that Attorney Krombach denied his request. Attorney...