In re Disciplinary Proceeding Against McGrath

• Decision Date: 22 August 2013
• Docket Number: No. 201,115–2.,201,115–2.
• Citation: 308 P.3d 615,178 Wash.2d 280
• Parties: In the Matter of the DISCIPLINARY PROCEEDING AGAINST Thomas F. McGRATH, an Attorney at Law.
• Court: Washington Supreme Court

178 Wash.2d 280

308 P.3d 615

In the Matter of the DISCIPLINARY PROCEEDING AGAINST Thomas F. McGRATH, an Attorney at Law.

No. 201,115–2.

Supreme Court of Washington, En Banc.

Argued June 11, 2013.

Filed Aug. 22, 2013.

Kurt M. Bulmer, Attorney at Law, Seattle, WA, for Petitioner.

Joanne S. Abelson, Washington State Bar Assc., Seattle, WA, for Respondent.

STEPHENS, J.

[178 Wash.2d 284]¶ 1 Thomas F. McGrath appeals the unanimous recommendation of the Washington State Bar Association (WSBA) Disciplinary Board (Board) that he be disbarred. The hearing officer found that McGrath willfully and intentionally filed fraudulent documents in the bankruptcies of his wife and her corporation, presented his own false creditor claims, and used his trust account to hide assets from his and his wife's creditors in violation of federal law and Washington's Rules of Professional Conduct (RPC).

¶ 2 McGrath argues that his acts did not violate the law or the RPCs and asks us to reverse the hearing officer's credibility determinations and adopt his version of the facts. The hearing officer's credibility determinations and findings of fact are supported by substantial evidence, and his conclusions of law are correct. The record supports the finding of multiple aggravating factors and no mitigating factors. Disbarment is the presumptive sanction and is not disproportionate. We accept the Board's unanimous recommendation and disbar McGrath.

FACTS AND PROCEDURAL HISTORY

¶ 3 McGrath was admitted to practice in the state of Washington in 1970 and did primarily creditor collection work early in his career. He later worked in the mortgage business as a loan officer and then moved into bankruptcy practice, representing debtors and creditors. By 2009, McGrath's practice focused on consumer bankruptcy and creditor collections.

¶ 4 The events leading up to this discipline action are familiar to the court in light of McGrath's 2012 discipline action. In re Disciplinary Proceeding Against McGrath, 174 Wash.2d 813, 280 P.3d 1091 (2012)( McGrath II). They center around McGrath's representation of his wife, Melinda Maxwell, and her corporations, including Chiropractic Wellness Center at Capitol Hill P.S. Inc. and Chiropractic Wellness Center, Inc. (collectively CWC). McGrath represented Maxwell in forming these corporations. The two married in 2001, and since 2000, McGrath has represented Maxwell and CWC in various matters and has served as CWC's corporate secretary and registered agent.

The Ellison Litigation

¶ 5 McGrath and cocounsel John Peick represented Maxwell and CWC in litigation against a former CWC employee, chiropractor Katherine Ellison, that began in 2005. CWC sued Ellison when she left her job and allegedly took patients with her. Ellison raised discrimination, equal pay act, and other tort claims in her counterclaim. The trial court dismissed CWC's claims on summary judgment and the jury found for Ellison on her counterclaims in July 2008. In October, the court entered judgment that exceeded $500,000 against Maxwell, CWC, and the McGrath/Maxwell marital community. In November 2008, McGrath told Ellison's lawyer that he would declare bankruptcy if Ellison tried to collect.

¶ 6 Complaints about McGrath's conduct in discovery during the Ellison litigation resulted in his most recent discipline.¹ The hearing officer found that McGrath “intentionally and repeatedly obstructed and delayed litigation by failing to respond to discovery requests” and falsely certified that he had made a reasonable inquiry into the accuracy of responses he did give. McGrath II, 174 Wash.2d at 815, 280 P.3d 1091. The Board recommended that he be suspended from practice for 18 months. Id. at 816–18, 280 P.3d 1091. We agreed, finding that McGrath's refusal to obey court orders and perform discovery obligations was “egregious, intentional, and in bad faith.” Id. at 833, 280 P.3d 1091.

¶ 7 Although our July 12, 2012 opinion was not final at the time of the 2011 disciplinary hearing in this case, the WSBA asks us to take judicial notice of it under Evidence Rule (ER) 201. McGrath does not object, and this prior discipline is not subject to reasonable dispute. ER 201(b), (f). Consequently, we take judicial notice of McGrath's most recent disciplinary action. See In re Disciplinary Proceeding Against Marshall, 167 Wash.2d 51, 83, 217 P.3d 291 (2009)( Marshall II) (taking judicial notice of prior discipline that became final after the hearing).

Concealment of Funds and Fraudulent Encumbrances

¶ 8 After CWC's claim against Ellison was dismissed, but before jury verdict or entry of judgment for Ellison, McGrath took steps the hearing officer found were intended to frustrate Maxwell's and CWC's creditors, particularly Ellison. The day after the Ellison verdict, McGrath filed promissory notes in favor of himself and his law firm, securing these notes by recording a deed of trust against Maxwell's condominium and a Uniform Commercial Code (UCC) financing statement against CWC's property, including its accounts and receivables. One set of notes claimed that Maxwell and CWC owed McGrath and his law firm $75,000 for his work in the Ellison litigation. Another claimed that Maxwell owed $185,500 to Olympic Mortgage Lending Corporation (Olympic),a d/b/a of a corporation wholly owned by McGrath that he falsely listed as having his ex-wife's home address.

¶ 9 At this time, McGrath also began to shift personal and community funds into his trust account, which had the effect of concealing the funds from the trustee and creditors. In November 2007, McGrath withdrew $17,000 from a personal account and deposited it into his trust account, using the funds later to pay Maxwell's legal bill to his cocounsel in the Ellison matter. In March and April 2008, McGrath deposited checks from his personal medical insurance carrier for $5,200 and $1,175, respectively, into his trust account. And in June 2008, McGrath deposited the proceeds from the sale of a boat owned by his and Maxwell's LLC into his trust account, using some of these funds to pay Maxwell's debts and marital debts and transferring the rest to his office operating account.

Misuse of Trust Account

¶ 10 Ellison hired attorney Sarah Atwood in February 2009 to collect her judgment. In June 2009, Atwood netted approximately $22,000 by garnishing bank accounts belonging to Maxwell, CWC, McGrath, McGrath's law firm, and related entities. However, Atwood did not garnish McGrath's trust account.

¶ 11 In response, McGrath and Maxwell began to use McGrath's trust account as the primary personal and corporate account for Maxwell and CWC. For example, in early July 2009 McGrath and Maxwell deposited more than $18,000 of CWC receivables into the trust account. Maxwell also deposited over $8,000 from her personal investment account and used those funds to pay employees, attorney fees, and other expenses. That same month, Maxwell signed McGrath's name to six payroll checks paid on the account, totaling more than $5,000. She later signed McGrath's name to six more checks totaling more than $4,000. Maxwell also paid the mortgage on her condominium from this account.

¶ 12 After filing the bankruptcies, as described below, McGrath continued to allow Maxwell and CWC to transfer personal, community, and corporate funds into his trust account, and to pay obligations directly from that account without disclosing these transfers or funds to the bankruptcy trustee. For example, in August 2009 Maxwell signed McGrath's name to six payroll checks payable on his trust account, totaling more than $4,000. She also deposited checks into the trust account from her insurer for more than $70,000 to cover damage to her condominium.

False and Misleading Bankruptcy Filings

¶ 13 In late July 2009, McGrath obtained an automatic stay of all collection efforts by filing a chapter 7 bankruptcy for Maxwell and a chapter 11 bankruptcy for CWC. A debtor filing for bankruptcy protection has a duty to fully disclose all bankruptcy assets, and the debtor's lawyer must certify that the representations of these assets are true and correct to the best of the lawyer's knowledge after reasonable inquiry. See11 U.S.C. § 707(b)(4)(C), (D); Fed. R. Bankr.P. 9011(b). When the debtor's attorney is also the debtor's spouse, the attorney has an additional duty to disclose and turn over assets of the marital community.

¶ 14 However, the bankruptcy filings submitted by McGrath on behalf of Maxwell and CWC contained numerous misstatements and omissions of material information. For example, McGrath failed to disclose that he was Maxwell's spouse or an officer of CWC or that Olympic was wholly controlled by his corporation. These omissions were significant because transfers to “insiders” come under special scrutiny in bankruptcy proceedings. See11 U.S.C. § 101(31) (defining the term); 11 U.S.C. § 547(b)(4)(B) (allowing a trustee to avoid transfers made to insiders within one year preceding bankruptcy, rather than only 90 days). The court found that McGrath was an “insider” to both bankruptcies and had multiple conflicts of interest as Maxwell's spouse, a CWC officer, and a secured creditor of both estates, and required Maxwell to find new counsel.

¶ 15 McGrath also failed to disclose many assets, including assets Maxwell and CWC had shifted into his trust account. He failed to disclose the sale of a CWC clinic for $50,000 within one year of the filing, the sale of Maxwell's jewelry, the sale of a boat, or the deposit of these funds into his trust account. He failed to disclose Maxwell's transfers from her personal securities account into his trust account or the insurance claim for Maxwell's condominium—a claim that was a “key asset” of the estate. Transcript (TR) at 781.

[178 Wash.2d 289]¶ 16 Because of these omissions, misstatements, and fraudulent encumbrances, the paperwork McGrath filed painted a false picture of bankruptcy estates with limited assets that were either exempt...