In re Kleyman

• Decision Date: 09 June 2021
• Docket Number: A20-1304
• Citation: 960 N.W.2d 566
• Parties: IN RE Petition for DISCIPLINARY ACTION AGAINST Howard S. KLEYMAN, a Minnesota Attorney, Registration No. 0056558.
• Court: Minnesota Supreme Court

960 N.W.2d 566

IN RE Petition for DISCIPLINARY ACTION AGAINST Howard S. KLEYMAN, a Minnesota Attorney, Registration No. 0056558.

A20-1304

Supreme Court of Minnesota.

Filed: June 9, 2021

Susan M. Humiston, Director, Amy M. Halloran, Assistant Director, Office of Lawyers Professional Responsibility, Saint Paul, Minnesota, for petitioner.

Howard S. Kleyman, Saint Paul, Minnesota, pro se.

OPINION

PER CURIAM.

The Director of the Office of Lawyers Professional Responsibility filed a petition for disciplinary action against respondent Howard S. Kleyman. The petition alleged numerous acts of misconduct, including misappropriating client funds, knowingly misusing his client trust account to further fraudulent schemes, knowingly making false statements to the Director, and failing to cooperate during the disciplinary investigation. Kleyman failed to file an answer to the petition. As a result, we deemed the allegations of the petition admitted and allowed the parties to file memoranda on the appropriate discipline. Kleyman did not file a memorandum or appear at oral argument. The Director asks that Kleyman be disbarred. We agree that the appropriate discipline is disbarment.

FACTS

Kleyman was admitted to practice in Minnesota in 1971. In October 2020, the Director filed a petition for disciplinary action against Kleyman. After Kleyman failed to file an answer, we deemed the allegations in the petition admitted. In re Kleyman , No. A20-1304, Order at 2 (Minn. filed Dec. 9, 2020); see also Rule 13(b), Rules on Lawyers Professional Responsibility (RLPR) (stating that if the respondent fails to file a timely answer, "the allegations" in the petition "shall be deemed admitted").

The petition for disciplinary action is 38 pages long and sets forth detailed accounts of extensive misconduct by Kleyman. His misconduct falls into three broad categories. First, Kleyman misused his attorney trust accounts and committed other misconduct related to those accounts, including knowingly using these accounts to further fraudulent schemes. Second, he misappropriated client funds. Third, he made knowingly false statements to the Director and did not cooperate in the disciplinary investigation. We summarize the misconduct in each of these categories below.

The first category of misconduct involves Kleyman's misuse of his trust accounts, including his knowing use of those accounts to further fraudulent schemes. In July 2017, Kleyman acted as an escrow agent in the sale of a bank draft between the Hanson Group of Companies (the Hanson Group), represented by Chief Executive Officer Harold Boigues,¹ and GCM Hong Kong Limited (GCM), represented by its president K.F. Kleyman's electronic signature appeared on the contract document, his initials were on all four pages, and a scanned copy of his passport was attached to the document. The document also contained information regarding Kleyman's attorney trust account into which GCM was instructed to deposit the money. K.F. believed that the transaction was legitimate because of the use of Kleyman's trust account.

In August 2017, GCM paid the Hanson Group 50,000€ directly and deposited $168,106.43 (the equivalent of 150,000€) into Kleyman's Wells Fargo trust account. Kleyman paid himself $1,680 of the funds that GCM wired into his trust account for his role as an escrow agent in the transaction. The Hanson Group first provided GCM with a bank draft, which K.F. rejected, and the Hanson Group then presented GCM with another instrument, which K.F. also rejected, believing it to be a fraudulent and postdated personal check.

K.F. contacted both the Hanson Group and Kleyman in November 2017, requesting a refund and referencing his previous requests for a refund. In his response, Kleyman claimed that he had never seen the agreement and did not believe that he had a personal responsibility to K.F. or GCM. He never returned the fee that he was paid for acting as an escrow agent to his trust account after K.F. disputed Kleyman's entitlement to those funds, in violation of Minnesota Rule of Professional Conduct 1.15(b).² Later, Kleyman tried to contract with K.F. to withdraw his complaint to the Director, in violation of Rule 8.4(d).³

In March 2018, Kleyman e-mailed a lending institution, Platform, to disavow any knowledge of the Hanson Group's transactions and any ongoing relationship with the Hanson Group. Kleyman also sent Platform a copy of an e-mail from December 2017, in which the Hanson Group claimed that it inserted Kleyman's signature into the contract with GCM by mistake, and that Kleyman had made no guarantees regarding the transaction. Kleyman requested that Platform assist him in investigating the fraud.

Despite acknowledging the Hanson Group's fraud, Kleyman continued to misuse his trust accounts to facilitate transactions for the Hanson Group or its agents. In September 2018, Kleyman's Wells Fargo trust account became over-drawn and the bank reported the overdraft to the Director. The Director then requested an explanation for the overdraft from Kleyman and asked to see records for the account from July to September 2018.

Kleyman responded in October 2018 that the overdraft was the result of an unexpected wire transfer fee from a transaction made on behalf of an alleged client;⁴ the same alleged client, he claimed, who owned all of the funds within the account for that period and for whom Kleyman performed all transactions. He provided an unsigned letter—purportedly from this client—to support this statement. Kleyman also provided the check registers, which the Director believes were created in response to her request, rather than maintained contemporaneously. He did not provide any of the requested client subsidiary ledgers, trial balance reports, or reconciliation reports. Further, many of the payments from and deposits into the trust account involved the Aspen Financial Group, an entity in which Kleyman appeared to have an interest, and a variety of other persons⁵ with no discernible connection to any client. None of these transfers involved the representation of a client, in violation of Rule 1.15(a).⁶

Through her investigation, the Director learned that Aspen had a bank account that Kleyman used as his law firm operating account (operating account). The Director also learned that Kleyman maintained other trust accounts, for which he also failed to maintain the required records, such as check registers, client subsidiary ledgers, trial balance reports, and reconciliation reports, for any of his trust accounts, in violation of Rules 1.15(c)(3),⁷ and 1.15(h),⁸ and Appendix 1 of the Rules.

During a meeting with the Director in October 2018, Kleyman assured the Director that he would not engage in further transactions with the Hanson Group or Boigues because of their involvement in the fraudulent transaction with GCM. Kleyman presented the Director with the December 2017 e-mail from the Hanson Group and a 30-page document that he claimed was the only document that he had received regarding the transaction between the Hanson Group and GCM. The document, however, did not include any mention of Kleyman's involvement in the transaction, even though Kleyman had previously admitted to serving as an escrow agent. The Director told Kleyman explicitly that use of his trust accounts was to be limited to the representation of clients in a legal matter, but he continued to use these accounts when acting as an escrow agent, in violation of Rule 1.15(a).

Despite Kleyman's assurances to the Director, and his evident knowledge of the fraud perpetrated by the Hanson Group, he continued to engage in transactions with the Hanson Group and Boigues over a period of 3 years. In July of 2019, Kleyman again transferred funds to Boigues and his wife in three separate transactions, two of which involved illegitimate financial institutions. In one of these transactions, Kleyman accepted a $75,000 loan application fee into his trust account from R.P., who expected that Kleyman would disburse the funds to a bank to facilitate R.P.’s application for a $5,000,000 loan. The financial institution was fraudulent, however, and Kleyman never refunded R.P.’s application fee. Kleyman's continued pattern of using his trust accounts to participate in transactions with the Hanson Group and those connected to the Hanson Group, after he knew the Hanson Group and its actors engaged in fraud, violated Rule 8.4(c).⁹

The second category of misconduct involves Kleyman's intentional misappropriation of client funds. Over the course of 4 years, Kleyman engaged in a pattern of depositing advance filing fees that he received from clients into his operating account. Kleyman used these advance filing fees to cover his own personal and business expenses, resulting in repeated periods when his operating account lacked sufficient funds to cover undisbursed advance filing fees. These shortages ranged from nominal amounts to over $200,000. On one occasion, Kleyman deposited settlement funds he received on behalf of a client into his operating account, in violation of Rule 1.15(b).

Kleyman also misappropriated funds when he received a $335 advance filing fee from M.V. for a bankruptcy petition. After depositing these funds into his operating account, Kleyman never filed a bankruptcy petition on behalf of M.V. He converted the advance filing fee, without M.V.’s knowledge or consent, and disbursed those funds to himself and his paralegal. This intentional misappropriation of client funds violated Rules 1.15(a) and 8.4(c).

Finally, Kleyman repeatedly failed to cooperate with the Director during the course of the investigation and provided the Director with knowingly false, incomplete, contradictory, and misleading information. Several times the Director requested copies of subsidiary ledgers and other records for his trust accounts or operating account, as well as explanations for discrepancies in the ledgers. Kleyman did not provide a complete or accurate accounting of...