Office of Lawyer Regulation v. Scholz (In re Scholz)

• Decision Date: 10 November 2020
• Docket Number: No. 2017AP2530-D,2017AP2530-D
• Parties: In the MATTER OF DISCIPLINARY PROCEEDINGS AGAINST Carl Robert SCHOLZ, Attorney at Law: Office of Lawyer Regulation, Complainant-Respondent, v. Carl Robert Scholz, Respondent-Appellant.
• Court: Wisconsin Supreme Court

394 Wis.2d 216

950 N.W.2d 793

2020 WI 84

In the MATTER OF DISCIPLINARY PROCEEDINGS AGAINST Carl Robert SCHOLZ, Attorney at Law:

Office of Lawyer Regulation, Complainant-Respondent,

v.Carl Robert Scholz, Respondent-Appellant.

No. 2017AP2530-D

Supreme Court of Wisconsin.

Opinion Filed: November 10, 2020

For the respondent-appellant, there was a brief filed by Carl R. Scholz, Mequon.

For the complainant-respondent, there was a brief filed by John T. Payette and Office of Lawyer Regulation.

ATTORNEY disciplinary proceeding. Attorney's license suspended.

PER CURIAM.

¶1 This disciplinary matter comes to the court on Attorney Scholz's appeal of a report and recommendation filed by Referee Kim M. Peterson. The referee concluded that Attorney Scholz committed ten counts of professional misconduct in connection with his representation of A.B., and recommended a one-year suspension of Attorney Scholz's law license. Attorney Scholz challenges the recommended suspension; he argues that it is excessive in light of the totality of the facts and circumstances surrounding his representation of A.B. and he seeks a more lenient sanction.

¶2 When we review a referee's report and recommendation in an attorney disciplinary case we affirm the referee's findings of fact unless they are found to be clearly erroneous, and we review the referee's conclusions of law on a de novo basis. In re Disciplinary Proceedings Against Inglimo, 2007 WI 126, ¶5, 305 Wis. 2d 71, 740 N.W.2d 125. We determine the appropriate level of discipline given the particular facts of each case, independent of the referee's recommendation, but benefiting from it. In re Disciplinary Proceedings Against Widule, 2003 WI 34, ¶44, 261 Wis. 2d 45, 660 N.W.2d 686.

¶3 After reviewing this matter and considering Attorney Scholz's appeal, we accept the referee's factual findings and legal conclusions. However, we have determined that a two-year suspension, as originally sought by the Office of Lawyer Regulation (OLR), is appropriate. We reserve the question of restitution, pending receipt of supplemental briefing requested by separate order of this court, and we impose the costs of this proceeding on Attorney Scholz.

¶4 Attorney Scholz was admitted to practice law in Wisconsin in 1994. He practices in Mequon. In 2011, he was privately reprimanded for failing to hold client funds in trust when he deposited a client's advance fee payment directly into his business account without giving the requisite alternative fee notices and then he used the funds to pay a personal tax obligation, and for transferring client funds from his trust account to his business account without giving notice to the client at the time of the transfer that the funds represented a fee payment. Private Reprimand, No. 2011-21.¹

¶5 On December 27, 2017, the OLR filed a ten-count disciplinary complaint relating to his representation of A.B. in a foreclosure/partition action between A.B. and her former daughter-in-law, K.D. The complaint alleged that Attorney Scholz converted funds that were to be held in trust, then engaged in various misrepresentations to hide his misconduct. The complaint sought a two-year license suspension and restitution of $60,975.94 paid either to the Ozaukee County Circuit Court or to opposing counsel's trust account, pending resolution of the foreclosure/partition action between Attorney Scholz's client, A.B., and K.D.

¶6 The referee conducted a two-day hearing in January 2019 and concluded that the OLR had proved, by clear and convincing evidence, all ten counts of misconduct. The referee recommended we impose a one-year suspension and costs, but did not address restitution. Attorney Scholz appeals.

¶7 This matter has a long history that will be greatly abridged for purposes of this opinion. In 1985, A.B., her husband, and their son, D.B., purchased a partially constructed home on almost 80 acres of land in Ozaukee County. Several years later, D.B. married K.D. The two couples co-owned the property until K.D. filed for divorce from D.B. in 2008. D.B. had been in prison since 1994. Attorney Scholz represented D.B. in the divorce.

¶8 The primary issue in the divorce was the division of the jointly owned residence and surrounding real estate. A.B. hired Attorney Donald Fraker, who filed a separate lawsuit to assert her interests in the shared property. Months of collateral litigation ensued. During this time, A.B.'s husband passed away. The court ruled that D.B. and K.D. (whose divorce was still pending) jointly owned a one-half interest in the property and A.B. owned the other one-half interest. Eventually, in the divorce action, K.D. was awarded the one-half interest in the property and was assigned responsibility for the outstanding mortgage.

¶9 In May 2012, a foreclosure action was filed against the property. A.B. and K.D. litigated who was responsible for the unpaid mortgage. Then, the Department of Natural Resources (DNR) purchased most of the jointly owned acreage. After the mortgagee was paid along with some other expenses, there remained approximately $180,000, plus the house and a five-acre lot. A.B. and K.D. proceeded to litigate their respective rights to this property.

¶10 In February 2013 A.B. and K.D. reached a stipulation providing that their lawyers would each hold half the disputed funds in their respective trust accounts pending the outcome of the lawsuit to partition the property. The stipulation stated, "Such funds shall continue to be held in such trust accounts, to be disbursed as later may be agreed upon in writing by the parties or ordered by the Court." The stipulation was approved by court order issued on February 22, 2013.

¶11 This brings us to Attorney Scholz's involvement in the matters giving rise to this disciplinary proceeding. In June 2013, Attorney Scholz assumed representation of A.B. from Attorney Fraker. At the time, Attorney Fraker held in trust $91,545.64 in disputed funds, pursuant to the terms of the stipulation. Attorney Fraker had "earmarked" approximately $30,000 of these funds for his own attorney fees but offered to disburse the remaining two-thirds to Attorney Scholz as part of the substitution of attorneys. When this occurred, in Attorney Scholz's own words, "[A.B.] and [Attorney Scholz] struck a deal that would enable her to continue the fight [against K.D.]."

¶12 At the ensuing disciplinary hearing Attorney Scholz revealed that he and A.B. had agreed that she would "loan" Attorney Scholz the balance of the disputed funds. In exchange, Attorney Scholz promised to represent A.B. for the duration of her case against K.D. for a $5,000 fee payable at some future date plus 10 percent of any recovery obtained for her. This "deal" was memorialized in a pair of written agreements.

¶13 On July 8, 2013, Attorney Fraker disbursed $60,975.94 of the disputed funds to Attorney Scholz. Attorney Scholz deposited the disputed funds into his business account – not a trust account. Attorney Scholz then began spending the money, mostly for his own benefit, and by mid-August, it was gone. We will not recount all the transactions. Summarized, the OLR alleged that Attorney Scholz disbursed at least $60,343.40 of the $60,975.94 for his own purposes, or for the benefit of other clients or third parties, thereby converting at least $60,343.40 as of August 12, 2013.

¶14 Meanwhile, A.B. and K.D. were still litigating ownership of these funds. Commencing in August 2013, their lawyers participated in a mediation and reached a written one-page "Interim Agreement" whereby K.D.'s lawyer could "release funds in her trust account to her client [K.D.]." There was no written agreement that A.B.'s lawyers could disburse any of the disputed funds. During this mediation Attorney Scholz did not disclose that he had already disbursed nearly all of the disputed funds he was supposed to be holding in trust.

¶15 In December 2013, following another mediation session, Attorney Scholz told Attorney Fraker that he could disburse to himself the $29,069.73 he had earmarked for attorney fees, and Attorney Fraker did so.

¶16 In February 2014, Attorney Scholz filed an amended cross-claim in the civil property/partition dispute on behalf of A.B. The pleading states that $183,091.29 of disputed funds had not been divided and remained to be partitioned. Attorney Scholz did not advise the court that these funds were no longer in trust.

¶17 On January 29, 2015, mediation having failed, the court appointed a Special Master to decide A.B.'s and K.D.'s rights and interests in the disputed funds and property. In June 2015, the Special Master advised the attorneys that he was awaiting more information from K.D.'s attorney and that he had received "no information or accounting" from Attorney Scholz. The Special Master informed both attorneys that he expected that "full accountings with supporting documents would be in [his] office no later than July 1, 2015." Attorney Scholz did not provide the accounting. On July 1, 2015, the Special Master wrote to the attorneys, stating, as relevant here: "As to Mr. Scholz I have heard nothing further regarding documentation." Attorney Scholz asked for more time to respond but then failed to do so.

¶18 On July 15, 2015, the Special Master issued a report determining that K.D. was entitled to 97 percent of the proceeds of any sale of the home and property. K.D.'s lawyer then asked the Special Master to explicitly resolve the allocation of the disputed funds. The Special Master forwarded this email to Attorney Scholz and requested a response by July 30, 2015. Attorney Scholz did not respond. On August 4, 2015, the Special Master sent a follow-up letter asking if Attorney Scholz had any response or disagreement. Again, Attorney Scholz did not respond.

¶19 On August 6, 2015, the Special Master filed an amended report with the court, which allocated 97 percent of the disputed funds to K.D. The Special Master added that when the acreage had been sold, certain expenses had been...