Neal v. Hollingsworth, 98-1456

• Decision Date: 24 June 1999
• Docket Number: No. 98-1456,98-1456
• Citation: 338 Ark. 251,992 S.W.2d 771
• Parties: James NEAL, Director, Committee on Professional Conduct, Appellant, v. Perlesta Arthur HOLLINGSWORTH, Appellee.
• Court: Arkansas Supreme Court

Page 771

992 S.W.2d 771

James NEAL, Director, Committee on Professional Conduct, Appellant, v. Perlesta Arthur HOLLINGSWORTH, Appellee.

No. 98-1456.

Supreme Court of Arkansas.

June 24, 1999.

Everett & Mars, by: David D. Stills and John C. Everett, Fayetteville, for appellant.

Darrell F. Brown & Associates, by: Darrell F. Brown, Little Rock, for appellee.

PER CURIAM.

The appellant, James A. Neal, in his capacity as Executive Director of the Committee on Professional Conduct, filed a complaint for disbarment against the appellee, Perlesta A. Hollingsworth, alleging numerous violations of the Model Rules of Professional Conduct. The trial court dismissed certain allegations contained in Paragraph 10(b) of the complaint due to lack of notice and then proceeded to conduct a bifurcated hearing on the remaining allegations in Mr. Neal's complaint. The first phase of the hearing pertained to the issue of whether Mr. Hollingsworth had violated any of the Model Rules and the second phase pertained to the issue of sanctions. Based upon the evidence presented during the hearing, the trial court found that Mr. Hollingsworth violated the Model Rules of Professional Conduct and ordered that Mr. Hollingsworth be suspended from the practice of law for a period of six months. Mr. Neal now appeals the trial court's decision, asserting that disbarment was the appropriate sanction and that the trial court erred in dismissing certain allegations in the complaint. We reverse and remand.

In January, 1987, Mr. Hollingsworth commenced the representation of the Estate of Samuel S. Sparks, deceased, in a probate proceeding in Woodruff County, Arkansas. On June 1, 1987, Mr. Hollingsworth sent a letter to Mrs. Joyce Sparks, Mr. Sparks's widow and the executrix of his estate, that confirmed the fee arrangement for representing the estate. Specifically, Mr. Hollingsworth's law firm would charge for services to the estate in accordance with the schedule set forth in the Arkansas Probate Code "unless special or unusual services to the estate are required" and would bill the estate periodically for costs and out-of-pocket expenses. In connection with probating the Sparks estate, Mr. Hollingsworth undertook to "prepare and present to the probate court all necessary notices, petitions, orders, appraisals, bills of sale, deeds, leases, contracts, agreements, inventories, financial accounts, reports, and all other proper and necessary legal instruments during the entire six (6) months, or longer when necessary, while said estate is required by law to remain open." The letter also referenced the collection of certain notes receivables due to the estate as involving "special or unusual services anticipated in connection with administering the estate" and established a special contingency-fee arrangement, which was twenty-five percent of any funds collected on the notes. No other special matters or fees were noted, and there was no reference to hourly billing for any matters.

At the time Mr. Hollingsworth negotiated the fee arrangement for representing the estate, he was aware that other matters existed in connection with his representation of the estate. These included a determination-of-heirship claim and claims by creditors on two promissory notes that were endorsed or guaranteed by Samuel Sparks. Mr. Hollingsworth also instituted a wrongful death action against Dave's House of Guns in 1988. No fee arrangements were reduced to writing for any of these matters.

After commencing representation of the Sparks estate, Mr. Hollingsworth successfully defended the determination-of-heirship claim by Ms. Shirley Hodges and represented the estate in two lawsuits filed in federal district court by the Small Business Administration and Planters Bank and Trust Company to recover $144,809.38 and $119,498.16, respectively, on the promissory notes guaranteed by Mr. Sparks. Mr. Hollingsworth also filed several lawsuits on behalf of the estate. He obtained a judgment against Mr. Warren Barge for $10,000.00 and represented the estate in an unsuccessful claim against Mr. Bobby Smith. The estate's wrongful death action against Dave's House of Guns went to trial but ultimately culminated in a directed verdict in favor of the defendant. Finally, with regard to the notes receivables that were the subject of the special fee arrangement, Mr. Hollingsworth filed two separate lawsuits in federal district court in 1997. In the first lawsuit, the Sparks estate sued Mr. James M. Griffin to collect $100,000.00 that Mr. Griffin owed Mr. Sparks on a promissory note. In the second lawsuit, the estate sued Mr. Griffin and the United National Bank of Washington, D.C., to secure the release of a $100,000.00 certificate of deposit that Mr. Sparks had given as collateral on a loan to Mr. Griffin by United National Bank.

While representing the estate, Mr. Hollingsworth collected various funds belonging to the estate. When the $100,000.00 certificate of deposit was released by United National Bank in 1988, Mr. Hollingsworth deducted his twenty-five percent contingency-fee of $25,000.00 and gave the balance of $75,000.00 to Mrs. Sparks. All other estate funds collected by Mr. Hollingsworth were deposited into his firm's trust account. Those funds included $5000.00 for a retainer fee, $1,640.60 for expenses, $8,500.00 derived from the sale of a Lincoln automobile and $136,235.77 recovered over a two-year period (May 1987--May 1989) on the Griffin promissory note. Mr. Hollingsworth maintained that these monies were placed in his firm's trust account in order to facilitate the payment of litigation expenses incurred by the estate. Some of those expenses were in fact paid out of the firm's trust account. Although Mr. Hollingsworth suggested that Mrs. Sparks agreed to this arrangement, she testified otherwise. For several years, Mrs. Sparks thought that the estate's funds were being held in a separate estate account. Only after she began to make persistent inquiries about the estate's account did Mrs. Sparks learn from Mr. Hollingsworth that the estate's funds were being held in his firm's trust account.

Mrs. Sparks's inquiries about an accounting of the estate's funds began in 1992. On February 10, 1992, she wrote a letter to Mr. Hollingsworth requesting a statement of expenses incurred by the estate for the year 1991 and a statement of the money being held in the "Estate trust account." When no accounting was forthcoming after several months, Mrs. Sparks wrote another letter in November of 1992. In fact, the record reflects that Mrs. Sparks wrote almost twenty letters between 1992 and 1994 asking for an accounting. Mr. Hollingsworth never directly responded to her request for an accounting. Rather, his letters to Ms. Sparks during that time period were merely status reports on the litigation being pursued by the estate. Mrs. Sparks's letters also reflect that Mr. Hollingsworth made repeated excuses for failing to provide an account of the estate's funds. For instance, when Ms. Sparks visited his office in November 1992, he informed her that the estate files were not on his computer because the estate was opened before his office acquired computers. On another occasion in 1993, he told Mrs. Sparks that his former secretary destroyed part of the estate's files when she quit working for him. Mr. Hollingsworth also told Mrs. Sparks that the accounting was "in the mail."

Ms. Sparks continued to request, and then to demand, access to the records for the estate's trust account. Finally, in May, 1993, when Mrs. Sparks discovered that the estate funds were being held in the law firm's trust account and not in a separate account, she expressed concern "especially since you have admitted to me that you have not kept accurate records." Mrs. Sparks's letters also reflect that Mr. Hollingsworth never sent her an itemized fee statement and that he unilaterally and without notice charged her hourly rates. She repeatedly asked Mr. Hollingsworth for some indication of when the estate could be closed, noting in her letters that the estate had been open for over five years.

Mrs. Sparks never denied that Mr. Hollingsworth performed valuable services for the estate. Nor did she ever accuse him of stealing. However, the many letters she wrote to Mr. Hollingsworth vividly conveyed her building frustration with the manner in which he was handling the estate's affairs. On July 15, 1994, Ms. Sparks terminated Mr. Hollingsworth's services as the attorney for the estate. She further advised him that she had filed a formal complaint against him with the Supreme Court's Committee on Professional Conduct.

Even before his services were terminated in July 1994, Mr. Hollingsworth had been notified by letter dated March 7, 1994, that Mrs. Sparks had contacted the Committee's office. Mr. Hollingsworth filed a response in the form of an affidavit on May 19, 1994. The Committee then began to investigate Mr. Hollingsworth's representation of the Estate of Samuel Sparks. During the two-year investigation, Mr. Hollingsworth provided the Committee with canceled checks, deposit slips, correspondence, explanations of expenses, and a computer printout of bank statements on his firm's trust account, all in response to the Committee's requests for all documents and information pertaining to the Sparks estate.

The Committee's investigation revealed that Mr. Hollingsworth failed to keep accurate records on the estate's funds and expenditures. Specifically, the trust account checks that Mr. Hollingsworth produced to document estate expenses were made payable either to third parties or to the Hollingsworth law firm's operating account. Other than Mr. Hollingsworth's written explanations in a letter to the Committee, there was little, if any, documentary proof, such as invoices or receipts, that the canceled checks were for expenses attributable to the Sparks estate. Some checks, especially those made payable to a court...