People v. Rader, 91SA391
| Decision Date | 13 January 1992 |
| Docket Number | No. 91SA391,91SA391 |
| Parties | The PEOPLE of the State of Colorado, Complainant, v. Joseph P. RADER, Attorney-Respondent. |
| Court | Colorado Supreme Court |
Linda Donnelly, Disciplinary Counsel, Jay P.K. Kenney, James C. Coyle, Asst. Disciplinary Counsel, Denver, for complainant.
Haddon, Morgan & Foreman, P.C., Bryan Morgan, Denver, for atty. respondent.
In this attorney discipline proceeding, a hearing panel of the Supreme Court Grievance Committee recommended that the respondent be suspended from the practice of law for three months for conduct involving dishonesty, fraud, deceit, or misrepresentation. Neither the assistant disciplinary counsel nor the respondent has excepted to this recommendation. We accept the recommendation, and order that the respondent be suspended for three months and be assessed the costs of the proceeding.
The respondent was admitted to the bar of this court on May 17, 1977, is registered as an attorney upon this court's official records, and is subject to the disciplinary jurisdiction of this court and its grievance committee. C.R.C.P. 241.1(b). A hearing board of the grievance committee heard testimony from witnesses presented by both sides, and the respondent himself testified. After considering the testimony and exhibits, which included partial stipulations of fact, the board determined that the following facts were established by clear and convincing evidence.
The respondent was hired in November 1986 by Robert Friend to represent Friend's sister in a "bad check" case. In December 1986, the respondent and Friend discussed opening a new telemarketing business. The business involved contacting credit card holders by telephone and, for a charge which was originally $37.50 but quickly increased to $137.50, informing the card holders of lending institutions that provided low credit card interest rates. Friend asked the respondent to prepare the legal documents to incorporate the new corporation, The Corum Group, which would provide the telemarketing services. The respondent and Friend agreed that the respondent would participate personally in the new business.
The respondent prepared the documents necessary to incorporate Corum. Friend was designated as Corum's president, the respondent was the vice-president and secretary, and the respondent's wife was chairman of the board of directors. The respondent loaned the corporation funds. His duties involved researching the current charge card credit rates throughout the country and monitoring credit industry periodicals. Friend actually ran the telemarketing activities, and Friend and the respondent agreed to split the net profits of the corporation equally.
The respondent has admitted that, from the outset, Corum "was little more than a shell and was effectively the alter ego of both Friend and himself." 1 No corporate formalities were observed and the only asset of the corporation was a bank account that the respondent opened on behalf of Corum at the United Bank of Boulder to receive the telephonic charges to be levied against the credit cards of Corum's customers. When the respondent applied to open the account in December 1986, he assured officials of the bank that Friend was a reputable business man. Although the bank expressed concern regarding the nature of the new business, the bank approved the application for the account based upon the respondent's status as a valued customer of the bank, and as a local attorney. The account was established on January 13, 1987.
Friend and the telemarketing office manager instructed the twenty or so telemarketers to obtain the credit card holders' credit card numbers at all costs. The telemarketers were not to disclose, or were to deceptively disclose, Corum's charges for its service to its customers. 2 The respondent testified that he was initially unaware of these deceptive practices and did not suspect that Corum's telemarketing practices were improper until March 1987. The hearing board found that the telemarketers had been instructed by Friend to remove all signs of complaints or questionable activity and to follow the original script for telephone solicitations to the letter when the respondent made one of his infrequent visits to Corum's offices.
In early February 1987, an official of the bank notified the respondent that she had received notice that some of the credit card charges were being disputed by holders of the cards and that she was concerned that the funds in the account were being withdrawn as quickly as they were deposited from the charge slips. Moreover, in late January 1987, the Boulder District Attorney's office, Consumer Affairs Division, began receiving consumer complaints involving Corum's business practices. In late February, the district attorney's consumer affairs division notified Corum of the complaints, and on March 3, 1987, the respondent advised the division that he was investigating the complaints and was trying to call back to confirm all sales.
In late February or early March 1987, Corum received three letters from the Iowa Attorney General's office enclosing consumer complaints which alleged that Corum was engaging in deceptive business practices. The respondent telephoned the Iowa Attorney General's office on March 3, 1987, and identified himself as the attorney for Corum. He was informed that the attorney general's office had been receiving four to six complaints daily about Corum since the end of January. The respondent objected to a refund of the charges because the customer had received a service.
In March 1987, United Bank informed the respondent that the Corum account would be closed. Friend established a new merchant account at a bank in Golden. Before the Boulder account was actually closed, and on a day when the respondent was out of town, Corum employees withdrew approximately $65,000 from the account at Friend's request. When the respondent returned the next day, and after receiving $19,000 from this "mass check cashing," he apologized to a United Bank official for the manner in which the funds had been withdrawn. He represented, however, that Friend had only been concerned that the bank would reassert a hold on the account because the bank feared that there would be insufficient funds in the account to cover future charge backs to the account.
In April 1987, the respondent received 210 pages of consumer complaints from the Boulder District Attorney's office and forty-seven written complaints from the Iowa Attorney General's office, all relating to Corum's business practices. The respondent was advised by the Secret Service on April 15, 1987, that it was investigating Corum. After meeting with the Secret Service, the respondent for the first time asked Friend to shut the business down. The respondent agreed to Friend's request that Friend be given until the end of April to close the business. Between April 23 and April 29, 1987, the respondent and his wife and Friend vacationed together in Hawaii.
When the respondent returned from Hawaii at the end of April, he found that additional charge backs had been received by United Bank, that the merchant account in Golden had been closed, and that there was a "shoe box" full of new sales slips from sales completed while Friend and he had been away. Friend told the respondent that a new bank account should be opened in order to process the new charges, and on May 6, 1987, the respondent flew to Delaware to open the new account. When he returned on May 8, the respondent discovered the doors to Corum's office were locked and the office had been cleaned out. Friend had disappeared with the remaining sales slips. At this point, the respondent contacted the district attorney in Boulder and offered to cooperate.
Of the $460,715 generated by the telemarketing business, charge backs totalling $335,826 were received and paid by the bank. Approximately $125,000 from Corum's receipts was paid directly to the respondent by virtue of the profit splitting agreement between the respondent and Friend. United Bank sued the respondent for the full amount of the bank's losses. Following a jury verdict against the respondent in the amount of $322,000, the respondent paid the bank $40,000 to settle the case.
The hearing board concluded that while it had not been established that the respondent "made any representation or material omission with knowledge of its falsity or with intent to deceive," it had been proven by clear and convincing evidence that the respondent "made representations by word or action with reckless ignorance of the truth or falsity of such representations." The representations that were made by the respondent with a reckless disregard for the true state of affairs included the following:
1. When he initially...
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