In re Merdes
| Docket Number | Supreme Court No. S-18006 |
| Decision Date | 14 October 2022 |
| Parties | In the DISCIPLINARY MATTER INVOLVING Ward M. MERDES, Attorney. |
| Court | Alaska Supreme Court |
Mark Choate, Choate Law Firm LLC, Juneau, for Ward Merdes.
Louise R. Driscoll, Assistant Bar Counsel, Anchorage, for Alaska Bar Association.
Before: Winfree, Chief Justice, Maassen, Carney, Borghesan, and Henderson, Justices.
The same day an attorney's long-existing law firm was ordered to return over $643,000 to a former client, the attorney closed that firm and began transferring its assets to a recently formed law firm and to himself. The attorney then told the former client that the old law firm did not have sufficient assets to return the funds. In subsequent civil litigation between the attorney and the former client, the superior court found the attorney and both law firms liable under a consumer protection statute for nearly $2 million in damages.
The Alaska Bar Association initiated disciplinary proceedings against the attorney. After a four-day hearing, an area hearing committee found that the attorney had intended to defraud his former client by transferring the old firm's assets to the new firm and to himself and had misrepresented his old firm's ability to pay in violation of professional conduct rules. The Bar Association's Disciplinary Board adopted the hearing committee's findings and conclusions and recommended that we suspend the attorney from the practice of law for one year and order him to pay $3,000 in fees and costs. The attorney appeals, arguing that there is insufficient evidence to support the area hearing committee's (and therefore the Board's) finding, by clear and convincing evidence, that he intended to defraud the former client.
We agree that the attorney's conduct violated professional conduct rules, but we conclude that the Board's recommended sanction is too lenient. We therefore suspend the attorney from the practice of law for four years and order him to pay $3,000 in fees and costs to the Bar.
The events leading up to this disciplinary action against Ward Merdes took place over the course of more than three decades. We have considered the underlying facts in two previous cases: Leisnoi, Inc. v. Merdes & Merdes, P.C. (Leisnoi I )1 and Merdes & Merdes, P.C. v. Leisnoi, Inc. ( Leisnoi II ).2 Because disciplinary matters are "fact-specific" we state the facts of this matter "in detail."3
In 1988 attorney Ed Merdes began representing Leisnoi, Inc., an Alaska Native corporation, in a dispute with Omar Stratman over title to lands on Kodiak Island.4 Leisnoi and Ed Merdes entered into a contingency fee agreement that entitled Ed Merdes to an undivided 30% interest in the disputed lands or any settlement that Leisnoi obtained or retained as a result of the litigation.5
Ed Merdes and his son Ward Merdes formed the law firm Merdes & Merdes, P.C. in 1990. Ed Merdes died in 1991.6 Merdes & Merdes continued to represent Leisnoi in the title dispute against Stratman.7 The litigation resolved in Leisnoi's favor in 1992, although appeals continued until 2008.8
Following the favorable judgment, Leisnoi challenged the validity of its contingency fee agreement.9 The dispute was resolved by arbitration through the Alaska Bar Association in 1994.10 The arbitration panel awarded Merdes & Merdes a $721,000 contingent fee based on 30% of Leisnoi's land value, plus interest, and $55,000 in court-awarded prevailing party attorney's fees.11 In 1995 the superior court affirmed the arbitration award and entered a judgment in favor of Merdes & Merdes.12 However, during the fee dispute and ensuing litigation, the relationship between Merdes & Merdes and Leisnoi soured; Leisnoi's vice president alleged that Ed Merdes had lied and cheated Leisnoi, and stated that "th[e] whole [arbitration] process smack[ed] of racism."
Leisnoi made annual payments, totaling $800,000,13 to Merdes & Merdes until 2002.14 In 2009 Merdes & Merdes sought a writ of execution for the remainder of the arbitration award — $643,760 — which the superior court granted in 2010.15 Leisnoi paid the $643,760 to Merdes & Merdes, but immediately appealed the superior court's ruling.16 While the appeal was pending, Ward Merdes incorporated a new law firm, Merdes Law Office, P.C. on January 17, 2013.
On February 1, 2013 we reversed the superior court's writ of execution and held that "Leisnoi's contingency fee agreement with [Merdes & Merdes] violated [the Alaska Native Claims Settlement Act's] prohibition against contingency fee agreements, as did the Arbitration Panel's fee award, the superior court's 1995 entry of judgment, and the 2010 writ of execution."17 We held that Leisnoi was therefore entitled to recover the $643,760 plus interest paid as a result of the writ.18 But we also held that Leisnoi "could not recover the $800,000 it paid before 2010."19 And we observed that "[Merdes & Merdes] may seek to recover any fees it believes are owed under a theory of quantum meruit."20 On rehearing we "express[ed] no opinion whether [Merdes & Merdes] is entitled to the remedy of quantum meruit" or on the merits of Leisnoi's potential defenses because "[t]hese and related issues are matters for the superior court to address."21
Merdes Law Office began operating the same day our opinion was released. Merdes & Merdes's clients signed agreements transferring client representation to Merdes Law Office. The case and client transfer agreements stated that The agreements provided that any money to which Merdes & Merdes might be entitled or that was owed by the client would be paid to Merdes Law Office. Merdes & Merdes's remaining assets were transferred to Merdes Law Office and to Ward Merdes, except for approximately $80,000 which was deposited in the court registry, and the debt to Leisnoi remained on Merdes & Merdes's books. When Leisnoi's general counsel contacted Ward Merdes days later, Ward Merdes told him that Merdes & Merdes did not have the assets to repay Leisnoi.
In response to Leisnoi's demand for payment, Merdes & Merdes sought a stay of execution in March 2013 "until its ‘competing claim’ for quantum meruit could be resolved."22 Ward Merdes submitted an affidavit in which he attested "23 The superior court denied Merdes & Merdes's motion to stay. It noted the contention that Merdes & Merdes had an "unqualified quantum meruit claim" was an inaccurate characterization of our equivocal statements that Merdes & Merdes "may file an action" and "may seek to recover" under a theory of quantum meruit24 which did not indicate whether the claim had merit.
In May Leisnoi brought a separate action against Merdes & Merdes, Merdes Law Office, and Ward Merdes in which it alleged, among other things, violations of the Unfair Trade Practices Act (UTPA)25 and unjust enrichment.26 The defendants denied Leisnoi's allegations and Merdes & Merdes filed a counterclaim seeking "attorney's fees framed as a claim for quantum meruit."27 In November the superior court concluded that Merdes & Merdes's attempt to recover its fees in quantum meruit was barred by res judicata and the statute of limitations and granted Leisnoi's motion for summary judgment on the counterclaim.28 The court also granted summary judgment on Leisnoi's breach of contract claim and ordered Merdes & Merdes to repay Leisnoi $643,760 plus interest to comply with the mandate in our decision.29
The superior court held a bench trial on the remaining claims.30 The court found that the transfer of assets from Merdes & Merdes to Merdes Law Office and Ward Merdes was "simply not defensible" and was fraudulent.31 It highlighted that "[t]he quantum mer[ui]t claim, on February 1, 2013, had little or no value" and that Merdes had "produced no credible testimony that supported the notion that a willing buyer existed to prosecute the claim." The court concluded that "if Ward Merdes was truly moving his business and shutting down [Merdes & Merdes], [Merdes Law Office] should have purchased the quantum mer[ui]t claim and [Merdes & Merdes] could have remained sufficiently liquid to honor its debts."
The superior court also found that seven of eight badges of fraud32 were present which "weigh[ed] strongly in favor of finding that the capitalization of [Merdes Law Office] with the assets of [Merdes & Merdes] was done with the intent to defraud Leisnoi and prevent payment of the debt owed to Leisnoi."33 The court also found that all three defendants — Merdes & Merdes, Merdes Law Office, and Ward Merdes — violated the UTPA by participating in the fraudulent transfer of assets.34 The court therefore voided the transfers from Merdes & Merdes and found all three defendants jointly and severally liable for Leisnoi's compensatory damages. 35
The court trebled this amount to $1,931,280 based upon the UTPA.36
The defendants appealed, asking us to reverse "(1) [the] summary judgment against Merdes & Merdes on its quantum meruit claim; (2) the finding of liability and award of damages for fraudulent conveyance; (3) the award of damages for violation of the UTPA; and (4) the award of prejudgment interest."37 In 2017 we affirmed the superior court "except for the application of prejudgment interest to the various defendants."38
In January 2019 Bar Counsel petitioned for a formal disciplinary hearing against Ward Merdes (hereafter Merdes) before an area hearing committee.39 The petition alleged that Merdes had violated the Alaska Rules of Professional Conduct and it listed four counts of misconduct during the fee dispute between Merdes & Merdes and Leisnoi.
The...
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