Kleindienst, Matter of
| Decision Date | 23 April 1982 |
| Docket Number | No. SB,No. 79-1S19,SB,79-1S19 |
| Parties | In the Matter of a Member of the State Bar of Arizona, Richard G. KLEINDIENST, Respondent. 60-2. State Bar |
| Court | Arizona Supreme Court |
Lesher, Kimble & Rucker by Robert O. Lesher, Tucson, Ryley, Carlock & Ralston by George Read Carlock, Phoenix, for respondent.
This disciplinary action is before us under Ariz.R.S.Ct. 37. The Disciplinary Board of the State Bar of Arizona, finding true four of the original nine charges of unethical conduct, recommended that Richard G. Kleindienst, respondent, be suspended from the practice of law for one year. Kleindienst timely filed an objection pursuant to Ariz.R.S.Ct. 36(d). We find two of the charges supported by clear and convincing evidence and therefore order that Kleindienst be suspended from the practice of law for one year.
Kleindienst's alleged misconduct involves a complicated set of circumstances. The relevant transactions revolve around Joseph Hauser and his associates (the Hauser group).
Hauser manipulated and looted legitimate and fraudulent insurance companies and freely assigned insurance contracts and funds from one company to another as fit his purposes. The Hauser group completely owned Family Provider Life Insurance Company, an Arizona corporation, and Great Pacific Corporation, Family Provider's parent. Hauser's group managed to obtain an agreement with Old Security Life Insurance Company whereby Old Security would "front" insurance for Family Provider In 1976, the International Brotherhood of Teamsters accepted bids for a group life insurance policy for its Central States, Southeast and Southwest Areas Health and Welfare Fund. The Hauser group discovered, through inside information gained from a member of the Teamsters' consulting company, how to acquire this substantial contract. Without Old Security's authorization, the Hauser group submitted a bid in Old Security's name and falsified a report on Old Security's assets to make the company appear more expansive than it really was.
and assign 80% of that insurance to Family Provid er. 1
The Hauser group obtained more inside information and found out that although Old Security had submitted the lowest bid, the Teamsters were leaning towards awarding the contract to Prudential Insurance Company. The group then contacted Thomas Webb, an acquaintance of both Teamster President Frank Fitzsimmons and Kleindienst. Webb knew that Kleindienst and Fitzsimmons were good friends. In fact, Kleindienst had done some legal work for the Teamsters' pension fund. Believing that Kleindienst would be the best person to influence Fitzsimmons, Webb telephoned Kleindienst and offered him half of the $250,000 fee Webb would receive if Old Security obtained the contract.
Kleindienst agreed to help Webb and Old Security. After calling Fitzsimmons several times and confirming that Old Security was the lowest qualified bidder, Kleindienst asked Fitzsimmons to do whatever was possible to assure Old Security would get the bid. The Teamsters did award the contract (which involved a $23 million premium) to Old Security in April, 1976.
Shortly after the contract was awarded, Hauser, accompanied by two members of the Hauser group named John Boden and Brian Kavanagh, went to Kleindienst's offices at his then law firm in Washington, D.C. There, Hauser had Boden give Kleindienst a check for $250,000 to split with Webb. At this time, it was revealed to Kleindienst that he had been working for Great Pacific rather than Old Security. After explaining Great Pacific's interest in Family Provider and Family Provider's reinsurance agreement with Old Security, Hauser asked Kleindienst to be general counsel for Great Pacific. Kleindienst accepted. 2
At about this time, the Hauser group, through Great Pacific, was negotiating with American Financial Corporation to buy American Financial's wholly owned subsidiary, Great American Life Insurance Company (GALICO). Because GALICO was a New Jersey insurance corporation, the New Jersey Department of Insurance had to approve the sale. The Hauser group concocted a scheme to bolster Great Pacific's balance sheet so that the New Jersey authorities would give their approval to the GALICO transaction. On May 1, 1976, Family Provider declared a.$1.8 million dividend in favor of Great Pacific, its parent. Family Provider normally had only minimal capitalization, and it paid the dividend mostly out of the initial premiums received on May 10 by Old Security from the Teamsters. Without Old Security's knowledge, Kavanagh had $1.5 million of the initial $1.7 million premium transferred to Family Provider's account.
The Arizona Department of Insurance received information about the Family Provider dividend paid to Great Pacific. Because Family Provider at the end of 1975 had only minimal capitalization and no record of ever writing any insurance business, the Arizona Department of Insurance's curiosity was aroused. The department investigated the declaration of the dividend. J. N. Trimble, Director of the department, met with Boden and his lawyers on May 18, 1976 and ordered the dividend money returned to Family Provider within 48 hours.
On May 19, a series of eventful meetings took place in Kleindienst's suite of offices in Washington, D.C. Present were Kleindienst, Hauser, Boden, Kavanagh, and Donald Klekamp and James Evans, attorneys for American Financial. The original purpose of the meetings was to work on the proposed GALICO sale. But Boden had just returned from Arizona with the order to return the dividend, so he, Hauser, Kavanagh, and Kleindienst also discussed how to comply with Director Trimble's order within the 48 hour time limit. Although Hauser initially was opposed to returning the money to Family Provider, the others convinced him to comply with the order.
American Financial was holding $1.1 million of the dividend as earnest money for part of the GALICO sale. The Hauser group prevailed upon Klekamp and Evans to assign that part of the sale to Family Provider and deposit the $1.1 million in an account in Family Provider's name in the Provident Bank of Cincinnati, Ohio, a subsidiary at the time of American Financial. The group also deposited $700,000 in a Family Provider account in the Diplomat Bank of Washington, D.C.
On May 20, 1976, Kleindienst sent a telegram to Trimble advising him of the return of the funds. Kleindienst also arranged for officers of each bank to send telegrams to Trimble advising that the funds were on deposit in Family Provider's name and were unencumbered. When the banks sent the telegrams, however, only the Diplomat Bank telegram affirmatively stated that the funds on deposit there were unencumbered; the Provident Bank telegram was silent on the matter of encumbrance. Trimble did not receive any of this information in writing until after the 48 hour deadline had passed, so he ordered a formal hearing on the matter.
The Arizona Department of Insurance hearing took place in Phoenix, Arizona on May 24, 1976. Boden testified at the hearing on behalf of Family Provider. Kleindienst attended as counsel for Great Pacific; Paul Madden of the Phoenix law firm of Lewis & Roca represented Family Provider. 3 Boden testified that the funds had been returned unencumbered and no new dividend would be declared without the department's approval. As a result of the hearing, no action was taken against Family Provider at that time.
Although Kleindienst contests the issue, the funds in the Provident Bank apparently were still encumbered by American Financial. Late in the day on May 19, Kavanagh signed two letters that a secretary in Kleindienst's firm had typed. American Financial had assigned part of the sale to Family Provider and had allowed the $1.1 million put up by Great Pacific to be deposited in Family Provider's name, but as the letters acknowledged, American Financial still had a right to those funds as a down payment for the pending sale.
Subsequently, the New Jersey authorities refused to approve the GALICO sale. When that sale fell through, Hauser set Kleindienst to work on finding another insurance company to buy, which he did eventually find. During the sale of that company, the proverbial roof finally fell in on Hauser's group. Members of Hauser's group and Kleindienst became the subject of a United States Senate investigation and were also named as defendants in a multitude of civil suits.
A person aware of Kleindienst's involvement in the investigation and the suits requested the State Bar of Arizona to look into Kleindienst's conduct. During the
bar's investigation, Kleindienst gave a deposition detailing his participation in the Hauser group scheme. The gist of Kleindienst's statement was that he, as well as many others, had been duped by Hauser's group and that he did not knowingly engage in any illegal or unethical conduct. The four charges presented to this Court by the State Bar allege that Kleindienst perjured himself in that and other depositions.
Counts II and VI allege that since the time it was incurred, Kleindienst either knew or had suspicions about the encumbrance retained by American Financial on the Family Provider funds in the Provident Bank. Count II additionally alleges that Kleindienst failed to correct Boden's testimony before Trimble on May 24, 1976 that the funds were unencumbered and lied about his knowledge or suspicions of an encumbrance when he was deposed by the State Bar on April 14, 1978. These charges are not supported by the evidence, so we must dismiss them.
This Court is the ultimate trier of law and fact in an attorney disciplinary proceeding. In re Moore, 110 Ariz. 312, 518 P.2d 562 (1974). Before an attorney may be disciplined, the evidence of that attorney's ethical misconduct must be clear and convincing. Id.
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