Reed, Matter of

• Decision Date: 04 May 1981
• Parties: In the Matter of Paul R. REED, a Member of the Bar of the State of Delaware.
• Court: United States State Supreme Court of Delaware

Page 987

429 A.2d 987

In the Matter of Paul R. REED, a Member of the Bar of the

State of Delaware.

Supreme Court of Delaware.

Submitted April 6, 1981.

Decided May 4, 1981.

Jackson R. Dunlap, Jr., Georgetown (argued), for Censor Committee.

Henry duPont Ridgely, Dover (argued) of Ridgely & Ridgely, P.A., Dover, for Paul R. Reed.

Before HERRMANN, C. J., DUFFY and QUILLEN, JJ.

PER CURIAM:

Several matters concerning Paul R. Reed, a member of the Bar of the State of Delaware, are before the Court for decision.

I

The Censor Committee, an agency of this Court created under Supreme Court Rule 62, has held hearings involving separate charges of professional misconduct against Reed and has filed two Final Reports stating findings of fact, conclusions of law and recommendations of discipline. The Reports are as follows:

As to Representation of Samuel D. Cohen (No. 259, 1978):

"Findings of Fact:

The following facts shall constitute this Committee's findings of facts herein:

1. The Respondent, PAUL R. REED, was retained as legal counsel for SAMUEL 2. A meeting was held at Respondent's office in February, 1975, with COHEN and two representatives of Western Auto. An arrangement was agreed upon whereby Western Auto would pay the sum of $12,500 needed (1) to satisfy COHEN's creditors, (2) to pay COHEN's income taxes and (3) to pay COHEN's accountants for the preparation of tax returns. It was estimated at that time that his Federal Income Tax obligation was $8,000 for the calendar year 1974. It was further agreed that COHEN would withdraw his Bankruptcy Petition. No formal written agreement was made to cover this arrangement. However, Respondent filed a petition to dismiss the bankruptcy petition in March 1975 summarizing the foregoing arrangement for payment of COHEN's creditors including the payment of COHEN's income taxes to the date of the filing of the petition.

D. COHEN (hereinafter called COHEN) in the early part of 1975 to represent him in filing a voluntary petition in bankruptcy to the United States District Court, District of Delaware. COHEN at the time was in the business of operating two Western Auto stores in Sussex County, Delaware. Respondent represented COHEN in preparing and filing a Petition for Bankruptcy in February of 1975.

3. The Respondent received TWELVE THOUSAND FIVE HUNDRED FIFTY DOLLARS ($12,550) from Western Auto on or about April 3, 1975. During the period between April and August of 1975, the Respondent made the following disbursements totaling THREE THOUSAND NINE HUNDRED EIGHTY-FIVE DOLLARS and SEVENTY-EIGHT CENTS ($3,985.78): American Finance Company, ONE THOUSAND THREE HUNDRED DOLLARS ($1,300); First National Bank, SEVEN HUNDRED TEN DOLLARS and EIGHT CENTS ($710.08); Farmers Bank of the State of Delaware, FIVE HUNDRED DOLLARS ($500); The Bank of Delaware, TWO HUNDRED FIFTY DOLLARS ($250); Division of Revenue, TWO HUNDRED TWENTY-FIVE DOLLARS and SEVENTY CENTS ($225.70); and Moffit, LoRicco & Ballard, Accountants, ONE THOUSAND DOLLARS ($1,000).

4. The Respondent made no disbursement to the Internal Revenue Service.

5. A 1974 income tax return prepared by his accountants was signed and filed by COHEN in early 1976. The return reflected a tax due of NINE THOUSAND TWENTY-TWO DOLLARS ($9,022).

6. The Respondent made a written inquiry to the Director of Internal Revenue, Wilmington, Delaware on April 7, 1975 concerning a federal tax lien recorded in the Offices of the Recorder of Deeds, Sussex County, in the amount of THREE THOUSAND FIVE HUNDRED NINETY-SEVEN DOLLARS and ONE CENT ($3,597.01). The Respondent testified that a letter was received by him from the Internal Revenue stating that there was no record of a tax liability on the part of COHEN. However, the Respondent took no action to cause the tax lien to be removed from the record.

7. On the evening of November 8, 1976, the Respondent made a telephone call to COHEN and advised COHEN that he had received a letter from the Internal Revenue Service; that all creditors had been paid, and that there was approximately $3,800.00 left over for COHEN. The Respondent asked COHEN to meet him 'during banking hours' the following day.

8. Pursuant to the foregoing telephone call, COHEN met the Respondent in the Respondent's office on November 9, 1976. At the time of the conference there was $8,564.22 remaining in the Respondent's escrow account out of the $12,500.00 previously received by him from Western Auto. The Respondent drew a check payable to the order of COHEN in the amount of $5,709.48, had COHEN endorse the check and return it to him, cashed the check, gave COHEN $3,806.32 in cash and retained the difference of $1,903.16. In addition, and without COHEN's knowledge or consent, the Respondent issued a check to himself for the balance in the account of $2,854.74 for which the ledger entry read: 'atty/1/3'.

9. At the time Cohen was requested to and did endorse the foregoing check and 10. At the times the Respondent received and made disbursements from the $12,500.00 account, including the final disbursements to COHEN and himself, he was fully aware that he held those funds as a fiduciary.

receive a portion of the proceeds, he asked the Respondent the reason why the Respondent was retaining the $1,903.16, to which the Respondent replied, 'I am taking all the risks.' The Respondent testified that by this he meant that if no taxes were due, the money should have gone back to Western Auto. Apparently, the Respondent was unaware that COHEN had earlier that year filed a federal income tax return for the year 1974 showing a tax obligation of $9,022.00.

11. On or about November 14, 1977, COHEN received a notice of assessment from the Internal Revenue Service specifying that he was obligated to pay income taxes for the year 1974 in the principal amount of $9,022.00, in addition to which there were penalties and interest totaling $5,385.07, for a total of $14,407.07.

12. Upon receipt of the Internal Revenue Service notice, COHEN again contacted the Respondent to determine why the tax obligation had not been discharged. The Respondent then showed COHEN a disbursement sheet for his account which reflected no payment to the Internal Revenue Service and the final payment to the Respondent of $2,854.75. This was the first knowledge which COHEN had that the Respondent had charged him this sum and accordingly, requested his file. However, the Respondent advised COHEN that he could not locate the file.

13. The Respondent testified before the Committee at a hearing on May 24, 1978 that at the time of this meeting he did deliver the file to COHEN. COHEN testified to the contrary. The Committee finds COHEN's testimony in this respect to be correct.

Conclusions of Law:

14. The Respondent engaged in conduct involving fraud, deceit and misrepresentation contrary to DR 1-102(A)(4) of the Delaware Lawyer's Code of Professional Responsibility.

15. The Respondent neglected a legal matter entrusted to him contrary to DR 6-101(A)(2) of the Delaware Lawyer's Code of Professional Responsibility.

16. The Respondent intentionally failed to carry out his contract of employment with his client contrary to DR 7-101(A)(2) of the Delaware Lawyer's Code of Professional Responsibility. " ¹

As to Representation of William I. Handy, et al. (No. 3, 1980):

"Findings of Fact

1. The Respondent, Paul R. Reed, was retained in March 1978 to represent William I. Handy, Mary Handy, Irvin E. Handy and Sandra H. Handy (Handys), who were borrowing $343,570.00 from the Farmers Home Administration (FHA). The Respondent informed FHA by letter dated March 29, 1978 that he was representing the Handys in the loan closing. The Respondent was then instructed by FHA to give a Preliminary Title Opinion on the real estate that was to be mortgaged to secure the loan.

2. The Respondent issued a Preliminary Title Opinion to FHA May 10, 1978. The Title Opinion noted among other things, the existence of a mortgage of Kerr-McGee Chemical Corporation. On May 22, 1978 FHA gave Respondent loan closing instructions 3. During the interval of time between the date of settlement and December 13, 1978, Kerr-McGee Chemical Corporation and the Handys were apparently attempting to resolve a disagreement as to the amount due on the obligation secured by the Kerr-McGee mortgage. However, Glenn Hitchens, an attorney for Kerr-McGee wrote to the Respondent on December 13, 1978, confirming that the sum of $37,695.30 was a firm settlement figure on the mortgage of the Handys to Kerr-McGee.

and furnished him with the loan proceeds. Respondent was to hold the loan closing by June 1, 1978. One of the several loan closing conditions was that the amount of $37,129.00 was to be paid to Kerr-McGee Chemical Corporation on the mortgage of the Handys and that the mortgage be satisfied. The Respondent deposited the $343,570.00 in the Paul R. Reed Settlement Escrow Accounts, Account Number 80 100 086 at The Sussex Trust Company, Georgetown, Delaware. He held settlement May 26, 1978, but made no payment to Kerr-McGee Chemical Corporation at that time. Respondent thereafter filed a Final Title Opinion to FHA July 24, 1978. That opinion did not reflect the lien of the Kerr-McGee mortgage which remained unsatisfied. Respondent filed another Final Title Opinion November 29, 1978. That title opinion did not reflect the lien of the Kerr-McGee mortgage which remained unsatisfied.

4. Thereafter, the Respondent communicated with Mr. Hitchens at least once by telephone in December and also by letter on January 2, 1979 requesting a meeting to pay-off the Kerr-McGee mortgage. By agreement, Respondent met with Mr. Hitchens January 9, 1979 and Respondent gave him two checks payable to Hitchens for Kerr-McGee drawn on the Paul R. Reed Real Estate Settlement Escrow Account for $22,695.30 and $15,000.00 respectively. The check for $22,695.30 was returned for 'insufficient funds'. Respondent thereafter drew a check from the same...