In re Disbarment of Tracy

• Decision Date: 27 March 1936
• Docket Number: 29,482
• Citation: 266 N.W. 88,197 Minn. 35
• Parties: IN RE DISBARMENT OF ITHAMAR TRACY
• Court: Minnesota Supreme Court

266 N.W. 88

197 Minn. 35

IN RE DISBARMENT OF ITHAMAR TRACY

No. 29,482

Supreme Court of Minnesota

March 27, 1936

Rehearing Denied. May 8, 1936, Reported at 197 Minn. at 47.

Proceeding for the disbarment of Ithamar Tracy, an attorney at law. The matter was originally referred to the Honorable John A Roeser, one of the judges of the seventh judicial district and subsequently, upon filing of supplemental charges, to the Honorable Gustavus Loevinger, one of the judges of the second judicial district, both of whom filed findings of fact. Judgment of disbarment ordered.

SYLLABUS

Attorney and client -- disbarment -- misconduct as to client.

1. Attorney, engaged in the business of liquidating the indebtedness of small debtors, disbarred for soliciting business; wilfully assuming a status wherein his personal interest was opposed to that of his client without so advising the latter; deliberately making exploitation of, rather than service to, clients his professional objective; and by so conducting his practice as to subject the legal profession to disrepute.

Attorney and client -- conduct of attorney in general.

2. It does not follow that because certain conduct is usual or permissible in commercial business it is also permissible to a lawyer. That is because his vocation is a profession, with established standards of professional conduct, rather than a mere business.

Attorney and client -- disbarment -- proceedings -- statute.

Constitution -- legislative powers -- encroachment on judiciary.

3. 1 Mason Minn. St. 1927, § 5697, subd. 2, providing a two-year period of limitation for the bringing of disciplinary proceedings against an attorney, held unconstitutional as an attempted invasion by the legislature of the judicial field.

Oscar G. Haugland and Thomas E. Sands, Jr., for State Board of Law Examiners.

F. M. Miner and Ithamar Tracy, for respondent.

OPINION

PER CURIAM.

The accusations of misconduct against Mr. Tracy were made by three petitions of the State Board of Law Examiners, the original having been followed by two supplements. The evidence under the first was taken before the Honorable John A. Roeser, judge of the seventh judicial district, as referee, and that under the supplemental petitions before the Honorable Gustavus Loevinger, judge of the second judicial district. Our consideration of the case has been much aided by their exhaustive findings of the facts.

Mr. Tracy is now past 40 years of age. He was admitted to practice in 1918. For all but less than a year since, he has been much engaged in Minneapolis in a business the nature of which will be discussed later. "He appears to be a man of more than average intelligence, more than ordinary initiative and more than usual vigor in pursuit of personal or professional objectives. He seems to be resourceful, aggressive, bold, persistent, determined." With such qualities, it is strange that he had to make testimonial admission of utter ignorance not only of the tenor but also of the existence of the "Canons of Ethics" of his profession as adopted by the American Bar Association and the Minnesota State Bar Association. The comprehensive character of that ignorance continued until the chairman of the committee on ethics of the State Bar Association handed him a copy of the "Canons" in 1931. Judge Loevinger has this to say of his appearance as a witness on his own behalf: "At times it seemed that he was willing to resort to evasion, equivocation or subterfuge to gain an advantage or to escape from a difficulty."

The charges grow out of Mr. Tracy's activities as a liquidator of the indebtedness of small debtors, most of them in the ranks of labor. That sort of business he procured through systematized solicitation. The facts cannot be made to appear better than by quoting the findings of Judge Loevinger:

"During the years 1928, 1929 and a substantial portion of 1930 Tracy, in connection with his law practice, engaged in the business of rendering financial aid to involved debtors * * * workingmen and women receiving salaries or wages who had become indebted to a number of creditors and who sought relief from worry, embarrassment, suits and garnishments through Tracy's services. In order to induce such persons to consult him * * * Tracy solicited their patronage by advertisements in newspapers, by letters, cards and printed matter sent through the mails and by personal interviews. * * * During a substantial part of 1931 Tracy solicited legal patronage by sending out pamphlets advocating changes in the garnishment laws beneficial to employed persons and containing a picture of himself and a reference to his skill and zeal on behalf of persons garnished. * * *

"Involved debtors engaging the services of Tracy were generally asked to sign an application, a statement and a contract in the form or substantially in the form of Exhibit C attached to the petition herein. The contract was usually accompanied by a note signed by the debtor and generally by one or more co-signers, usually the wife, a relative, a friend or a fellow employe. Sometimes additional security was obtained in the form of an assignment of wages or a chattel mortgage on the household furniture or an automobile. The amount of the contract and note was usually arrived at by adding to the total indebtedness of the debtor approximately 10 to 30 per cent of such indebtedness as a 'carrying' or financing charge or a service charge. The amount of the financing or service charge depended on such factors as the amount of the note, the security and the length of time required by the client to pay up in full. Tracy, in addition to the charge above mentioned, retained as additional compensation any discounts received from creditors with whom a cash settlement was made. Settlement was made with each creditor on the best terms obtainable and independently of the other creditors. Creditors whose accounts could not be compromised were generally prorated. Sometimes the creditors were divided into two groups, one with whom settlements were to be negotiated and one whose members were to be prorated. By prorating is meant that a creditor received a proportionate share of the periodic (weekly, biweekly or monthly) payments made by the debtor to Tracy until all the creditors were paid in full with no deductions or discounts. Tracy got the money to pay the creditors from the proceeds of the notes given him by the debtors, which he negotiated, and from the periodic payments of his clients."

Accompanying each contract, on a printed form, was an "application for services of Ithamar Tracy in the adjustment, liquidation or payment of my bills and accounts payable." Completely filled in, it would give the reader much of the personal history of the signer and his whole status as to family, income, property, life insurance, etc. The whole would be very useful to a creditor subsequently wanting to collect a debt from the signer. Much of it was practically useless to a lawyer wanting only to serve him professionally. The last "question" of this so-called application was No. 14, reading thus:

"I authorize you to obtain such information as you may require concerning the statements made in this application and agree that the application shall remain your property whether or not your services are obtained."

Mr. Tracy has not invited our attention to anything to explain, to say nothing of justifying, that authorization. The point is that any right-minded lawyer, having properly obtained so much written information concerning one intending to become his client, would have perceived the impropriety of retaining the document in his possession if the relationship of attorney and client was not in fact entered into.

Again quoting Judge Loevinger:

"The effect of the making of these arrangements was to lull the debtor into a sense of security. He believed he had put his affairs into the hands of a lawyer, who would raise sufficient money on his note to pay in full the bills to be settled and who would protect him from hounding collectors or garnishment levies. He had in fact for the time being at least more than doubled his then outstanding obligations; he made himself liable for the payment of double interest; he left it to the discretion of Tracy to assert or not to assert any offset or defense to any of his listed debts; he assigned the benefits of any offset or defense successfully asserted by Tracy to the latter; if any of his original debts were unsecured he in effect converted them into secured debts through the system of co-signers on his note; he in effect by the same system made his whole indebtedness plus the financing or service charges not dischargeable by his own bankruptcy. He had in effect made a contract employing Tracy as his attorney terminable only at the will of Tracy. Tracy by becoming guarantor of his client's note for the raising of funds to pay his client's bills inevitably put himself into a position in which his client's default would affect him adversely, independently of the professional relationship. Under the contract it was to the financial advantage of Tracy to settle with his client's creditors for as small a fraction of their claim as possible, regardless of the wishes or interests of his client and by whatever argument might be most persuasive. The larger the discount the greater the profit of Tracy and the greater the possible injury to the credit of the client. Tracy usually took an assignment of any account that was paid or settled. Regardless of the amount of the discounts to Tracy, clients were required to pay him the bills in full. Tracy testified that although the notes given by clients bore interest, the only time he asked them to pay interest was when he had to sue. Tracy, in...