In re Petition for Disciplinary Action Against Severson

• Decision Date: 18 February 2015
• Docket Number: No. A13–1382.,A13–1382.
• Parties: In re Petition for DISCIPLINARY ACTION AGAINST Larry S. SEVERSON, a Minnesota Attorney, Registration No. 99363.
• Court: Minnesota Supreme Court

860 N.W.2d 658

In re Petition for DISCIPLINARY ACTION AGAINST Larry S. SEVERSON, a Minnesota Attorney, Registration No. 99363.

No. A13–1382.

Supreme Court of Minnesota.

Feb. 18, 2015.

Martin A. Cole, Director, Joshua H. Brand, Assistant Director, Office of Lawyers Professional Responsibility, Saint Paul, MN, for petitioner.

Eric T. Cooperstein, Law Office of Eric T. Cooperstein, PLLC, Minneapolis, MN, for respondent.

OPINION

PER CURIAM.

In July 2013 the Director of the Office of Lawyers Professional Responsibility filed a petition for disciplinary action alleging that respondent Larry S. Severson violated the rules of professional conduct by entering into an investment agreement with a client, D.S., and having D.S. sign an assignment and mortgage without disclosing his personal interest. The Director also alleged that Severson made several misrepresentations to D.S., to opposing counsel in connection with a civil lawsuit to be brought by D.S., and to the Director. Following a hearing, the referee made findings of fact and conclusions of law that Severson engaged in the majority of the misconduct alleged in the petition and that Severson's lack of remorse was not an aggravating factor. The referee recommended that Severson be suspended from the practice of law for 90 days. Because we conclude the referee clearly erred in finding that Severson's lack of remorse was not an aggravating factor, and that the referee's recommended discipline does not sufficiently account for the seriousness of Severson's misconduct, we indefinitely suspend Severson from the practice of law with no right to petition for reinstatement for 1 year.

Severson was admitted to practice law in Minnesota in 1975, and was a shareholder in the law firm of Severson, Sheldon, Dougherty and Molenda, P.A. (law firm) until 2012. Severson recently started a new law firm with two other attorneys. Severson was also engaged in extensive business dealings in car dealerships, banks, and commercial real estate redevelopment projects.

The misconduct in this case relates to D.S., who was a member of Severson's household. D.S.'s childhood history was tragic. When D.S. was 3 months old, her parents were killed in a car accident. D.S. was the sole beneficiary of various insurance proceeds that were placed in a conservatorship administered by her adoptive mother (mother). When D.S. was in high school, she experienced serious conflicts with her stepfather that they could not resolve. As a result, D.S. asked and Severson agreed that she would become a member of the Severson household. The Seversons thereafter treated D.S. like a daughter.

Investment Agreement

When D.S. turned 18 in April 1996, she was informed by her mother that the conservatorship should be closed, and the funds transferred to D.S. D.S. discussed the matter with Severson, and Severson told her that his law firm could assist her. D.S. also discussed with Severson how to invest the funds she would be receiving from the conservatorship. She told Severson she wanted to go to college and use the inheritance to pay for college. Severson offered to invest D.S.'s inheritance and pay her 9% interest annually to cover her living expenses and tuition.

Severson's law firm prepared the documents necessary to close the conservatorship. A paralegal and an associate at the firm performed most of this work, although Severson was listed as an attorney on court filings. The conservatorship was closed on May 31, 1996, and on June 5, 1996, $541,868 was deposited in the law firm's trust account for D.S.

Severson prepared an investment agreement that was signed by D.S. and Severson on June 4, 1996. The investment agreement provided that Severson would invest the principal of approximately $500,000¹ for 48 months “in mortgages, securities, and other interest generating investments,” pay D.S. a fixed return of 9% annually, and then return the principal to D.S. at the end of 48 months. Severson also prepared a power of attorney, which D.S. signed, appointing himself as the attorney in fact for D.S. with respect to funds held in several bank accounts.

D.S. initially attended college at Mount Holyoke College in Massachusetts, and then transferred to Saint Catherine University in Saint Paul to be closer to her ailing mother, who died in 2000. As a result of the transfer and the emotional toll of her mother's death, D.S. did not graduate from college in 2000. As contemplated by the agreement, D.S. and Severson orally agreed to extend the investment agreement, but at a reduced interest rate of 8%.

Severson testified that he did not recall where he invested D.S.'s money between 1996 and 2002. In 2002, Severson used all of D.S.'s money and $250,000 of his own funds to purchase 482 shares of a bank holding company, Financial Services of Saint Croix Falls, Inc. (FSSCF).

The law firm did other legal work for D.S. Severson arranged for another attorney at his firm to prepare estate planning documents for D.S., which were executed in 2000. Between 2004 and 2007, Severson represented D.S. in a dispute she had with a former landlord over a security deposit. In 2006, Severson drafted a contract for a business D.S. started and filed the necessary documents to form a limited liability corporation.

Severson's Financial Difficulties

In January 2007, D.S. requested that Severson return the $500,000 to her. Because Severson was unable to consummate a sale of the FSSCF stock, Severson was unable to return D.S.'s principal. By 2008, Severson was in serious financial trouble. Notably, Severson had acquired an equine center in 2007 and later sold the facility for $1.5 million on a contract for deed, but the purchasers defaulted on the contract. Thereafter, Severson assigned his seller's interest in the equine center to D.S. as security for her principal, and had D.S. sign a $250,000 mortgage regarding their interest in the equine center; but Severson did not explain to D.S. that he had her sign the documents because of his financial difficulties.

Additionally, Prosperan Bank, the mortgage holder on one of Severson's real estate projects, threatened to foreclose on the mortgage when Severson's partner in the project declared bankruptcy. To avoid foreclosure, Severson had D.S. assign her seller's interest in the equine center to Prosperan, telling her that it would help him repay her principal. The assignment represented, among other things, that D.S. was Severson's daughter and that she would benefit from the forbearance of the mortgage foreclosure. Subsequently, D.S. received a delinquent tax notice in 2009 on the equine center, and in 2010 the mortgage holder brought a foreclosure action naming D.S. as a co-defendant.²

Misrepresentations

D.S. hired an attorney who sent a demand letter in October 2009 to Severson seeking return of the $500,000 and an accounting. Severson responded that he owed D.S. about $410,000, subject to a final accounting. Severson's accountant determined the amount owing was $371,363 after subtracting four legal invoices purportedly from the law firm to D.S. for services rendered. The Director discovered, however, that the four legal invoices were not prepared by the law firm; instead the invoices were prepared by Severson for the final accounting. In July 2010, D.S. sued Severson seeking return of her principal. The case was settled in December 2010 for $435,000, from which $135,000 was paid by D.S. for attorney fees. Thus, D.S. recovered only $300,000 of the $500,000 she had originally given to Severson.

Severson's misconduct was reported to the Director. During the disciplinary investigation Severson stated, through counsel,³ in response to a question from the Director, that D.S.'s funds were, at all times, invested in FSSCF stock. The Director pressed Severson for documentary proof because Severson's statements were inconsistent with Severson's filings with the Secretary of State. Severson retracted his statement, and stated he did not know where D.S.'s funds were invested from 1996 until 2002. Severson forwarded the four legal invoices to the Director but failed to disclose that the invoices were prepared for the final accounting.

The Director filed a petition for disciplinary action alleging multiple acts of misconduct: (1) Severson entered into an investment agreement with D.S. in 1996, in violation of Minn. R. Prof. Conduct 1.7(b) (1996) and 1.8(a) (1996); (2) Severson misrepresented that checks issued from D.S.'s funds in 1996 were used for real estate purchases, in violation of Minn. R. Prof. Conduct 8.4(c) ;⁴ (3) Severson assigned his seller's interest in the equine center to D.S. and then had D.S. assign and mortgage her interest in the equine center to two of Severson's creditors, in violation of Minn. R. Prof. Conduct 1.7(a)(2), 1.7(b), and 1.8(a) ; (4) Severson acted dishonestly by having D.S. assign and mortgage her interest in the equine center to his creditors without disclosing that his financial insecurity necessitated the assignments, in violation of Minn. R. Prof. Conduct 8.4(c) ; (5) Severson misrepresented to Prosperan that Severson was his daughter, in violation of Minn. R. Prof. Conduct 8.4(c) ; (6) Severson made misrepresentations to opposing counsel and to the Director when he submitted misleading invoices ostensibly from his law firm to reduce the amount of money it appeared he owed D.S., in violation of Minn. R. Prof. Conduct 8.1(a) and (b), and Minn. R. Prof. Conduct 8.4(c) ; and (7) Severson made misrepresentations to the Director that at all times D.S.'s funds were invested in FSSCF stock, in violation of Minn. R. Prof. Conduct 8.1(a) and (b).

The referee concluded that Severson engaged in acts of misconduct (1), (3), (4), (5), (6), and (7) described above in violation of the applicable rules of professional conduct but found no violation with respect to act of misconduct (2). The referee also found that remorse was neither an aggravating nor a mitigating factor. Further, the referee found that Severson's...