In re Wagner

• Decision Date: 19 March 2001
• Docket Number: No. 50S00-9906-DI-362.,50S00-9906-DI-362.
• Citation: 744 N.E.2d 418
• Parties: In the Matter of Mark E. WAGNER.
• Court: Indiana Supreme Court

744 N.E.2d 418

In the Matter of Mark E. WAGNER.

No. 50S00-9906-DI-362.

Supreme Court of Indiana.

March 19, 2001.

Jere L. Humphrey, Plymouth, for the Respondent.

Donald R. Lundberg, Executive Secretary, David B. Hughes, Trial Counsel, Indianapolis, for the Indiana Supreme Court Discipinary Commission.

DISCIPLINARY ACTION

PER CURIAM.

Attorney Mark E. Wagner charged a homeowner $1,000 to release his client's judgment lien (which had earlier been formally avoided in the homeowner's bankruptcy) on the homeowner's residence. For that, along with the respondent's false statement to the homeowner's new lender that the judgment lien had "apparently" not been avoided in bankruptcy, we conclude that the respondent engaged in professional misconduct.

This attorney disciplinary case is now before us for final determination upon the hearing officer's findings of fact and conclusions of law. Therein, the hearing officer determined that the Commission failed to demonstrate by the requisite standard of clear and convincing evidence¹ that the respondent violated Ind.Professional Conduct Rule 4.1(a) and 4.4,² as charged by the Commission in its verified complaint for disciplinary action. Pursuant to Ind.Admission and Discipline Rule 23(15), the Commission has petitioned this Court for review of the hearing officer's report, therein challenging the hearing officer's findings with respect to the Prof.Cond.R. 4.4 charge.

Our jurisdiction in this case derives from the respondent's admission to the bar of this state in 1975. We now find that the respondent represented a bank in an action to collect a $9,328.19 judgment against a couple. The bank's judgment became a lien, junior to a first mortgage, against the couple's marital residence. Thereafter, the couple filed a petition for Chapter 7 bankruptcy. The petition listed the bank as a creditor for the judgment amount of $9,328.19. The couple later filed (and served upon the respondent as counsel for the bank) a "Motion to Avoid Judicial Lien," seeking to avoid the lien. The respondent filed a formal objection, therein asking for the opportunity to verify whether the couple's equity interest in the residence exceeded their allowable statutory exemptions. He later formally withdrew the objection. The bankruptcy court then issued notice, served upon the respondent, that the bank's judicial lien would be deemed avoided if no objection was filed within ten days. Ultimately, the court issued an order avoiding the lien and again served the respondent with a copy. That order provided, in pertinent part:

1. That on or about August 21, 1992, the above-mentioned lienholder did obtain a Judgment against the debtors. . .

2. Said judgment was in the amount of $9,328.19.

Wherefore, it is hereby ordered, adjudged and decreed that the respondent's judicial lien is voided pursuant to 11 U.S.C. Section 522(f) to the extent the lien impairs an exemption to which the debtor is entitled to [sic].

The subsequent final discharge in bankruptcy had the effect of fully discharging the couple's personal liability to the bank.

Following their discharge in bankruptcy, the couple applied for a home equity loan through a mortgage company. A title company retained to perform a title search incident to the loan application noted in its report that the bank's judgment lien had not been formally released of record. The title company advised the mortgage company that formal release of the judgment lien was required before provision of title insurance for the transaction. In response to the mortgage company's insistence on the release of the bank's judgment lien prior to loan approval, the couple provided the mortgage company with a copy of the bankruptcy court's order avoiding the bank's lien. Meanwhile, the couple and an agent of the mortgage company contacted the respondent to ask that the bank execute a formal release of the judgment lien. By written response, the respondent advised the mortgage company that, "[t]he lien of the [bank] was apparently not avoided in [the couple's] bankruptcy even though it might have been," and that, "[the bank] will release the judicial lien it now apparently holds against the real estate. . . upon receipt of the sum of $1,000.00." At the time of that communication, the respondent's file regarding the lien was in storage and the respondent did not specifically recall the circumstances of the case with regard to the lien avoidance. The couple opted to pay the $1,000 to secure the formal release of the judgment. The respondent retained for himself $333.33 of the payment as his contingent fee.

The Commission charged the respondent with violating Ind.Professional Conduct Rule 4.1(a) by knowingly making a false statement of material fact to the couple and the mortgage company's agent during the course of his representation of the bank, to wit: that the bank's judgment lien was "apparently not avoided" in bankruptcy. The respondent was also charged with violating Prof.Cond.R. 4.4, which provides (in relevant part) that a lawyer while representing as client shall not use means that have no substantial purpose other than to burden a third person, by charging the couple $1,000 to formally release a judgment lien that had already been avoided in bankruptcy.

At hearing, the respondent elicited the testimony of two expert witnesses, lawyers with substantial experience in bankruptcy and insolvency law. In the opinion of those witnesses, a creditor who holds a judicial lien has no affirmative obligation to release of record a lien even though the debt has been discharged in bankruptcy and the lien avoided. They testified that because the language of a bankruptcy court's order avoiding a lien typically states that a given lien is avoided to the extent that it impairs the debtor's exemptions, it is the custom of practicing bankruptcy attorneys to require payment for releasing of record a lien where a title insurance company requires such a release in order to compensate the creditor for any remaining lien rights it might have through an incomplete avoidance of the lien. The creditor's interest in such a situation is a function of the value of the property in question, less mortgages. In this case, since there was nothing in the bankruptcy court's order indicating a finding by the court of the value of the couple's residence or their equity interest in it, the bank potentially had a surviving in rem interest in the judgment. Further, the witnesses testified that creditors often charge to release formally such liens of record because that action is one they have no affirmative obligation to undertake.

The hearing officer found that the Commission failed to establish misconduct as to either count. As for the Prof.Cond.R. 4.1(a) charge, the hearing officer found that the respondent's use of the word "apparently" in his missive to the couple indicated something less than total certainty, and, in any event, the statement was not "material" because the couple would have had to obtain formal release of the judgment lien regardless of the respondent's statement. Recognizing the adversarial nature of debtor-creditor relations generally and that creditors have no affirmative legal duty to release judgments of record in bankruptcy situations, the hearing officer found further that there was no violation of Prof.Cond.R. 4.4, especially in light of the fact that creditors often demand consideration for formal release of judgment liens.

The Commission petitioned this Court for review of the hearing officer's findings relative to the Prof.Cond.R. 4.4 violation. In support of its argument that a Prof. Cond.R. 4.4 violation took place, the Commission argues that in this case, the respondent and his client obtained leave of the bankruptcy court to investigate the homeowner's equity interest in their residence. Following that investigation, the respondent withdrew his objection to the bankruptcy court's entry of a lien avoidance order. Later, when the homeowners and their new lender contacted the respondent for formal release of that lien, the respondent indicated that he would charge a fee for that service, although he had no recollection of the language of lien avoidance order or the value of the homeowner's equity interest. Despite his lack of recall, the respondent did not pull the file from storage to investigate these matters before charging the homeowners $1,000 formally to release the lien....