Silverman, Matter of

• Decision Date: 28 October 1988
• Citation: 113 N.J. 193,549 A.2d 1225
• Parties: In the Matter of Melvin SILVERMAN, An Attorney at Law.
• Court: New Jersey Supreme Court

Page 193

113 N.J. 193

549 A.2d 1225

In the Matter of Melvin SILVERMAN, An Attorney at Law.

Supreme Court of New Jersey.

Argued March 1, 1988.

Decided Oct. 28, 1988.

William R. Wood, Deputy Ethics Counsel, Trenton, on behalf of Office of Attorney Ethics.

Roger A. Lowenstein, Hoboken, for respondent (Dickson, Creighton & Lowenstein, attorneys).

PER CURIAM.

The unethical conduct at issue in this disciplinary proceeding arises out of respondent's participation in a business venture with a former client and his testimony in the civil proceedings that resulted from it. The record before the Disciplinary Review Board (Board) consisted of a Presentment filed by the District IIB Ethics Committee (Committee), a detailed stipulation of facts entered into by respondent and the Office of Attorney Ethics (OAE), the proceedings and decision of the Client's Security Fund, and the record of the aforementioned civil trial. The Board concluded respondent had entered into an employment relationship with a client in violation of DR 5-101(A), conducted a business transaction with a client in violation of DR 5-104(A), committed numerous misrepresentations in the course of that transaction in violation of DR 1-102(A)(4), and had made several false statements under oath. Despite respondent's otherwise unblemished record both prior to and since the relevant events in this case, the Board recommended disbarment.

Our careful and independent review of the record leads us to accept in part and reject in part the Board's findings and recommendation. The Board's findings regarding respondent's misrepresentations and participation in a business transaction with a client are amply supported by the record, and indeed by multiple concessions found in the stipulation and respondent's brief. Further, we are in partial agreement with the Board's conclusions concerning the accuracy of respondent's sworn testimony. We cannot agree, however, that clear and convincing evidence establishes an attorney-client relationship concerning the relevant transaction, nor can we conclude that disbarment is warranted. Due to several mitigating factors, our judgment is that respondent's six-year suspension constitutes a discipline sufficient to protect the public.

I

Respondent was admitted to the bar of this State in 1970, and to the bar of the United States Patent and Trademark Office two years later. His practice has consisted almost exclusively of matters in the patent field and has provided him with a modest income. Events relevant to this case began in late 1978 and were detailed by the Board as follows:

"On November 15, 1978, respondent entered into an agreement to purchase a large, prestigious patent agency known as Haseltine, Lake and Waters (HLW) from Eric Waters (Waters) for $750,000. Pursuant to the terms of the agreement, respondent was to pay Waters the sum of $350,000 at closing set for January 12, 1979; $130,000 on January 12, 1980; and additional, unspecified amounts over a number of years pursuant to a formula based upon past and future earnings of HLW.

"Respondent, a patent attorney with offices in Clifton, did not have the personal funds or assets necessary to obtain sufficient credit for the purchase of HLW. Consequently, it was respondent's intention to use HLW's accounts receivable and good will as collateral. However, attempts to borrow funds from commercial lenders proved unsuccessful.

"In January 1979 respondent had occasion to meet with Fred Ferber (Ferber), a client for whom respondent's law firm had performed patent work from 1973 through 1977. Although Ferber initiated the meeting to discuss a possible new patent, respondent soon told him about difficulties he was encountering in obtaining financing for the acquisition of HLW. At the time of this discussion Ferber, a famous inventor recognized as the father of the modern ball point pen, owned a substantial amount of real estate in New Jersey but was virtually cash poor and under tremendous financial pressure. He was 75 years old, his wife was seriously ill with cancer and he was in default on numerous debts including mortgages, real estate taxes and unpaid legal fees due and owing to respondent's law firm. Seeing the HLW transaction as an opportunity for him to alleviate his financial problems, Ferber agreed to allow respondent to use a 212 acre tract of his property as collateral for a $400,000 loan in exchange for money with which to pay his debts and meet living expenses.

"Armed with Ferber's pledge of collateral, in early February 1979 respondent prepared a prospectus to be used in support of his application for the $400,000 loan. This prospectus contained information concerning Ferber's and respondent's respective financial conditions. However, portions of the prospectus as well as the loan application contained information respondent knew to be false. Respondent admitted that '[t]he application contained exaggerations of Ferber's worth. Even though Ferber was dictating information, I realized there were exaggerations and there were * * * liabilities understated * * *.'

"Among the misrepresentations found in respondent's financial statement was an entry that his interest in the law firm of Silverman and Jackson was worth $165,000. However, the law firm had dissolved six months earlier in August 1978 and had no value. An additional entry placed a value of $20,500 on Technology Assistance Corporation, a company formed by respondent. However, the company had not been incorporated, owned no assets, had never conducted any business and had no monetary value. Values of other assets were similarly misrepresented.

"The Ferber financial statement contained more serious misrepresentations. One entry listed the value of Ferber's patent rights in a process known as 'Protosoil' as $200,000, a figure respondent knew to be speculative. An additional entry indicated that Ferber had $65,000 cash on hand when respondent knew Ferber was cash poor. The financial statement also indicated that Ferber owned an art collection worth $40,000 and miscellaneous securities worth $60,000 when respondent knew that these entries were improbable at best. Moreover, the financial statement failed to list all of Ferber's liabilities, including accrued interest, at true value.

"On March 26, 1979, after the prospectus and financial statements had been presented by an intermediary, respondent formally submitted the loan application to Liberty Federal Savings & Loan Association (Liberty). The application referred the bank to a report on Ferber's income prepared by Ira S. Herman, C.P.A. (Herman), respondent's first cousin. In this report Herman indicated that Ferber's income during the six year period from 1973 through and including 1978 was $413,477 per year. This figure was based upon Ferber's sale of certain real estate to the State of New Jersey in 1973 for $2,800,000. In reality, however, Ferber had no source of income during the years in question and his net profit on the sale of the property, after the satisfaction of mortgages and liens, was less than $150,000. Respondent was fully aware of this misrepresentation at the time the report was prepared and submitted.

"The loan application contained several other misrepresentations of which respondent was aware. In one section, the application indicated that Ferber was not then a party to a law suit and that no properties owned by him were the subjects of foreclosure actions. However, at the time the application was filed respondent, on behalf of Ferber, was attempting to negotiate the settlement of a foreclosure action that had been filed against Ferber. The application further indicated that Ferber held $260,000 in stocks and bonds and had a net worth of $1,944,000 when respondent knew that both figures were exaggerated and constituted material misrepresentations.

"At the time respondent submitted the loan application, the New Jersey Usury Law limited interest on personal loans to a rate of 9 1/2%. Since Liberty was issuing loans at a rate of 14%, respondent was advised that the loan could only be made to a corporation. Upon receiving this information, respondent conferred with Ferber and suggested that Ferber and his wife, Hedwig, convey title to the 212 acre tract into a corporate 'shell' known as Eastern Star Enterprises, Inc. (Eastern) which respondent had previously formed for other purposes.

"On or about April 10, 1979, respondent secured the Ferbers' consent to the proposed conveyance and prepared three corporate resolutions to facilitate the transaction. The first resolution named Fred, Hedwig and respondent as directors of Eastern. The second resolution appointed Fred as president, Hedwig as vice president and respondent as secretary. This resolution further provided for distribution of 500 shares each of authorized but unissued stock to Fred and Hedwig. The third resolution contained four provisions authorizing the board of directors to apply for a loan of between $400,000 to $435,000; the corporation to accept title to the 212 acre property from the Ferbers; respondent to execute any and all documents necessary to effectuate the loan; and respondent to execute a note of not more than $85,000 to Waters to be secured by a mortgage against the 212 acre parcel.

"The deed conveying the 212 acre property from the Ferbers to Eastern was prepared by respondent and acknowledged by him on April 11, 1979. The Ferbers' signatures were purportedly witnessed by respondent's law partner. However, during the course of a civil trial concerning respondent's acquisition of HLW, the partner testified that he had not witnessed the deed and that the signature thereon was not his.

"From the time of their initial meeting in January 1979 through the preparation of the three corporate resolutions and execution of the deed, the Ferbers were without benefit of independent counsel and respondent failed to advise them that it was in their best interests to...