Ky. Bar Ass'n v. Deters

• Decision Date: 29 August 2013
• Docket Number: Nos. 2012–SC–000666–KB, 2012–SC–000667–KB.,s. 2012–SC–000666–KB, 2012–SC–000667–KB.
• Citation: 406 S.W.3d 812
• Parties: KENTUCKY BAR ASSOCIATION, Movant v. Eric C. DETERS, Respondent.
• Court: United States State Supreme Court — District of Kentucky

406 S.W.3d 812

KENTUCKY BAR ASSOCIATION, Movant

v.Eric C. DETERS, Respondent.

Nos. 2012–SC–000666–KB, 2012–SC–000667–KB.

Supreme Court of Kentucky.

May 23, 2013.

Reconsideration Denied Aug. 29, 2013.

OPINION AND ORDER

This Opinion and Order resolves two KBA disciplinary files, Nos. 16037 and 19366, against Eric C. Deters.

Eric Deters was admitted to the practice of law in Kentucky on October 10, 1986, and his bar roster address is 5247 Madison Pike, Independence, Kentucky 40151. His Kentucky Bar Association (KBA) Member Number is 81812.

In KBA File No. 16037, the Board of Governors of the Kentucky Bar Association has, under SCR 3.370(5), recommended to this Court that Deters be found guilty of three counts of professional misconduct and be suspended from the practice of law in this Commonwealth for 60 days.

In KBA File No. 19366, the Board has recommended that Deters be found guilty of one count of misconduct and be suspended from the practice of law for 30 days, with that time to be served concurrently with the suspension in KBA File No. 16037.

Deters has sought review of these recommendations under SCR 3.370(7) challenging the process before the Board and, alternatively, requesting that he be given credit for additional suspension time related to a previous disciplinary case. This Court agrees with the Board as to Deters's guilt and the recommended sanction in both cases. Additionally, Deters will not be given credit for the previous additional suspension time.

I. Background

A. The facts underlying KBA File 16037.

On February 9, 2003, Victoria and Jerry Huebener contracted with Concept Homes to build a house. At that time, Concept Homes was the assumed name of a sole proprietorship owned by Dennis Zahler. Dennis worked with his son, Scott Zahler. The contract included a binding arbitration clause requiring mediation and then arbitration before the American Arbitration Association.

On June 17, 2003, Dennis Zahler organized Concept Homes as a limited liability company, Concept Homes LLC, under KRS Chapter 275 by filing an articles of organization with the Secretary of State.

In December 2003, the Huebeners filed a demand for mediation under the agreement. Deters began representing the Zahlers and Concept Homes soon after.

In March 2004, Deters filed a pleading in the mediation-arbitration proceeding asserting that Concept Homes LLC was the responsible party because it had been formed on January 11, 2003, almost a month before the agreement with the Huebeners was signed. Attached to this document was a copy of an articles of organization for the LLC with the January 2003 date.

That same month, the Huebeners filed a response asserting that Concept Homes LLC had not been organized as an LLC until June 17, 2003, almost four months after the contract was signed. Included with their response were certified copies of documents from the Secretary of State, including the articles of organization of the LLC, showing the date of organization as June 17, 2003. Deters claimed that he never read this response or saw the articles of organization.

On April 29, 2004, Deters filed a verified complaint for declaratory judgment in Campbell Circuit Court seeking a declaration that Dennis and Scott Zahler were not individually liable under the contract with the Huebeners. The verified complaint included the following factual and legal claims:

5. Concept Homes, LLC was formed on January 11, 2003.

8. The Contract (Work Order) Exhibit A was entered into between Concept Homes, LLC and Defendants.

9. There is no personal liability on Dennis Zahler's and Scott Zahler's behalf.

11. Concept Homes has no money to arbitrate and Dennis Zahler and Scott Zahler have no personal liability.

The Huebeners filed an answer and counterclaim for declaratory judgment, again alleging that the LLC was not formed until June 17, 2003. Another copy of the certified documents from the Secretary of State were sent to Deters along with the answer and counterclaim.

On August 31, 2004, Deters filed an amended complaint adopting and incorporating all the claims from the original complaint. Deters later admitted that he learned the actual organization date of the LLC during discovery in the case and before he filed the amended complaint. He claimed, however, that he had been relying on the documents provided to him by his client that included an articles-of-organization form with the January 2003 date.

The litigation continued in Campbell Circuit Court. Eventually, the Huebeners filed a motion for partial summary judgment. In his response, filed in January 2005, Deters stated: “After discovery to date, Plaintiffs accept the fact that Dennis Zahler, individually, d/b/a Concept Homes is an appropriate party.... In addition, Defendants filed a Third Party Complaint naming Concept Homes, LLC as a party.... Concept Homes, LLC was formed in the middle of the project so they must be a party.... So, Defendants and Plaintiffs are now in agreement, Concept Homes, LLC is a necessary party.” The third-party complaint, however, named only “Concept Homes.”

On February 10, 2005, the Campbell Circuit Court found that Dennis Zahler was personally liable under the contract and ordered him to proceed with mediation and arbitration.¹

Shortly after, the Huebeners filed a motion for sanctions under Civil Rule 11² based on Deters's misrepresentations about the date of the organization of Concept Homes LLC and the personal liability of Dennis Zahler under the construction contract. The court held a hearing on the motion and in January 2006 held that Deters had violated Civil Rule 11. Specifically, the court order included the following conclusions:

• “As acknowledged by Mr. Deters, all of the statements in the pleadings in this actions, [sic] and signed by him, referenced in paragraph 6,[ ³] above, as they relate to Plaintiff Dennis Zahler are untrue and were untrue at the time they were made.”

• “Deters knew that Concept Homes, LLC had been formed ... on June 17, 2003, before he filed the Complaint, in which he nonetheless alleged that ‘Concept Homes was formed on January 11,2003.”

• “Deters knew or should have known through reasonable inquiry at the time the complaint was filed that Dennis Zahler was a sole proprietor doing business as ‘Concept Homes,’ yet he alleged to the contrary in the Complaint and in the Request for Admissions.”

• “Contrary to his assertion in reply to Defendant's [sic] motion for partial summary judgment, Defendant's [sic] never accepted no [sic] agreed that Concept Homes, LLC, was a necessary party.”

• “Deters had actual notice that the key allegations he made were false.”

• “[T]he pleadings were interposed only for the purpose of harassing the Defendants and to cause unnecessary delay.”

As a result, the court later imposed sanctions of $21,876.14 in costs and attorneys fees on Deters.

Deters appealed this decision to the Court of Appeals, which affirmed and stated:

We agree with the trial court that Deters' conduct was clearly unreasonable and more than a mere oversight. By his own admission, Deters would have known the LLC status of the company simply by reading the information provided by his clients. His failure to do so conveniently resulted in a benefit to his client. An attorney cannot avoid the duty of veracity by failing to read readily available documents.

In 2010, this Court denied discretionary review, and the decision is now final.

In January 2008, upon learning of the Rule 11 sanction imposed by the Campbell Circuit Court, the Inquiry Commission began a disciplinary investigation. In February 2008, Charlotte Huebener filed a bar complaint. The matter was placed in abeyance under SCR 3.180(2) while Deters pursued his appeal of the Rule 11 decision.

After the denial of discretionary review in the Rule 11 proceeding, the Inquiry Commission issued a three-count charge against Deters. The counts alleged the following violations:

• SCR 3.130–3.1 ⁴ for knowingly filing the complaint in the circuit court action alleging that his client had no personal liability because he had formed his LLC before entering the contract, despite having actual knowledge that this claim was false;

• SCR 3.130–3.3(a) ⁵ for making false statements in the verified complaint, amended complaint, and the reply to the defendants' motion for summary judgment; and

• SCR 3.130–3.4(c) ⁶ for violating Civil Rule 11, as found by the circuit court and affirmed on appeal.

The matter was assigned to a trial commissioner. The KBA moved to collaterally estop Deters from re-litigating the findings of the Campbell Circuit Court and the Court of Appeals. This motion was granted, though the commissioner allowed Deters to present evidence in mitigation and to contend that the facts found by those courts did not constitute an ethics violation.

After a hearing on the case in December 2011, the commissioner found Deters guilty of all three counts and recommended a 60–day suspension from the practice of law. Deters appealed the matter to the Board of Governors, which is discussed below.

B. The facts underlying KBA File No. 19366.

This charge arose from Deters's filing a lawsuit, pro se, against Rob Sanders in Kenton Circuit Court alleging libel and false light. In a pleading in that case, titled Response to Defendant's Memorandum in Support of Motion to Dismiss, or in the Alternative Motion for Summary Judgment, Deters stated: “Further, Eric Deters has not been the subject of any disciplinary action or sanctioned in the past by any of the bars to which he is admitted.” In a later filing, Deters stated: “Fact—I have had only two private reprimands by the KBA.” In the same filing, he claimed that his previous statement, that he had not been subject to any disciplinary action nor sanctioned in the past, was not false.

Contrary to these claims, Deters had received a private admonition from the Inquiry Commission in 2002 and a private reprimand from this Court in 2003. Additionally, at...