Smith, Matter of

• Decision Date: 13 June 1991
• Docket Number: Nos. 18S00-8802-DI-255,18S00-8808-DI-780,s. 18S00-8802-DI-255
• Parties: In the Matter of Merrill L. SMITH. In the Matter of Gregory B. SMITH.
• Court: Indiana Supreme Court

Page 1280

572 N.E.2d 1280

In the Matter of Merrill L. SMITH.

In the Matter of Gregory B. SMITH.

Nos. 18S00-8802-DI-255, 18S00-8808-DI-780.

Supreme Court of Indiana.

June 13, 1991.

Kevin P. McGoff, Indianapolis, for respondents.

Sheldon Breskow, Indiana Supreme Court Disciplinary Com'n, Indianapolis, for the Indiana Supreme Court Disciplinary Com'n.

PER CURIAM.

This case is before us on two verified complaints for disciplinary action which, upon the joint motion of all parties, were consolidated. Respondent Merrill Smith has been charged in two counts with violating Disciplinary Rule 5-101(A), 5-104, 1-102(A)(4) and (5), and 2-105(A) of the Code of Professional Responsibility for Attorneys at Law. Respondent Gregory Smith has been charged with violating DR 5-101(A) and 1-102(A)(4) of the Code. After a hearing, the Hon. John L. Kellam, who was appointed Hearing Officer in this case, has submitted his findings of fact and conclusions of law.

Both Respondents have petitioned for review challenging the findings and conclusions. The issues raised in the Respondents' petitions will be addressed within the review process applicable to disciplinary cases. Such process involves a de novo examination of not only of the Hearing Officer's report but also of the entire record tendered in the case. The Hearing Officer's findings receive emphasis due to the unique opportunity for direct observation of witnesses, but this Court reserves the right to make the ultimate determination. In re Kern (1990), Ind., 555 N.E.2d 479; In re Hampton (1989), Ind., 533 N.E.2d 122.

We find that in March of 1977 Merrill Smith prepared a will for Mary Maxon and a Power of Attorney in her friend, Fred Wilson. Mary Maxon was 82 years old at the time. She was a wealthy widow whose late husband had been a joint founder of Maxon Corporation. Mary Maxon had no children, brothers or sisters but had a nephew, Harry Maxon, who served in different capacities with the Maxon Corporation.

In December of 1978, Mary Maxon broke her shoulder and was hospitalized until February 27, 1979. On December 28, 1978, she executed an "Authorization" prepared by Merrill Smith giving authority to Merrill Smith to assist Fred Wilson in caring for her affairs.

After Mary Maxon's release from the hospital on February 27, 1979, she was placed in a nursing home. She did not want to stay there and continuously insisted on returning to her home. Merrill Smith made arrangements with Rose Daniels, a trained nurse who had cared for 25 to 30 individuals, to take Mrs. Maxon from the nursing home during the days and return her in the evenings.

In February of 1979, Merrill Smith and Fred Wilson opened Mary Maxon's bank safety deposit boxes to discover them stuffed with tax free negotiable municipal bonds and corporate stock certificates worth hundreds of thousands of dollars. These were organized and cataloged by Dixie Hayes, a secretary in Respondents' law firm. From time to time the Respondent invested the earnings in certificates of deposit and additional stock.

On December 10, 1979, Mary Maxon executed a power of attorney prepared by Merrill Smith appointing him as her additional attorney in fact. Although Fred Wilson executed the checks for Mary Maxon's care and expenses, the checkbook and records were maintained in Merrill Smith's office and the checks were prepared by Dixie Hayes. Fred Wilson died in December, 1980, and on February 6, 1981, Mary Maxon executed another power of attorney prepared by Merrill Smith which appointed Gregory Smith, Merrill's son and law partner, as second attorney in fact.

During this time Mary Maxon's nephew, Harry Maxon, who had no legal responsibility or standing in regard to her affairs, advised Merrill Smith that he, Harry Maxon, would assume the responsibility of looking after her affairs in the Maxon Corporation and would act as a sort of family adviser.

About May or June of 1980 Merrill Smith advised Fred Wilson that he needed to purchase equipment to better maintain Mary's records. The manual inventory of Mary's bonds consisted of two pages and that of the stocks of two pages. The Respondent was interested in purchasing a Lanier word processing unit for a total cost, including installation, of $16,790. He wrote Harry Maxon about the proposed purchase suggesting that Mary Maxon's funds be used for this purpose but that the law firm contract with her to pay back the expense by making interest free monthly payments of $100 per month.

Harry Maxon agreed with the proposal but suggested a payment of $135 per month. Fred Wilson ultimately signed the contract. The contract provided that Mary Maxon would purchase the Lanier unit for use by the Smith & Smith law firm in exchange for the firm's interest free payment of $135 per month until the cost had been repaid in full; any unpaid balance would become immediately due and payable at her death. Neither Fred Wilson nor Harry Maxon discussed the matter with Mrs. Maxon.

Merrill Smith testified that he and she alone discussed the contract but there is no written memorialization or other evidence to indicate that she was aware of the transaction, that she approved it, that she was advised of the inherent conflict or that she was advised to seek independent counsel.

The Hearing Officer found that at no time either before or after the purchase did anyone advise Mary Maxon of the expenditure of her funds, obtain her consent or explain to her the inherent conflict present in such a transaction.

On December 12, 1980, and again on December 31, 1981, Merrill Smith credited his law firm with three thousand dollars ($3,000) credit, six thousand dollars ($6,000) total, against the firm's obligation to Mrs. Maxon under the contract. He claims that Mrs. Maxon wanted these credits to be gifts to the law firm for extra nice behavior and instructed him to handle the gifts in that manner. He observed, however, that he did not tell her to seek independent counsel regarding the matter as she would not have followed that advice. Neither the credits nor any of the monthly payments were reflected in the respective statements of cash assets, income and expenditures. The credits were also omitted from form IH-6, prepared by Merrill Smith and filed on April 18, 1983, in the Estate of Mary Maxon.

On December 12, 1980, while Fred Wilson was in Merrill Smith's office, Dixie Hayes was given a check for $1,000 from Mary Maxon's funds signed by Wilson and was told that she was doing a good job.

The following year, on December 15, 1981, Merrill Smith gave Dixie Hayes another check for $3,000 from Mrs. Maxon's funds signed by him. He indicated that he had spoken with Harry Maxon who thought Dixie Hayes deserved it for handling Mary Maxon's affairs. At about the same time, Mary Maxon had come to the law office, accompanied by at least one nurse who brought in two packages of cookies. When Dixie Hayes thanked Mary Maxon for the cookies, Mary appeared to not know for what she was being thanked.

On August 12, 1982, Merrill Smith gave Dixie Hayes a third check from Mrs. Maxon's funds, signed by him, this time for $3,000. Eleven days later, on August 23, Mary Maxon died. Dixie Hayes never spoke to Mrs. Maxon about the checks.

In December of 1981, at Harry Maxon's suggestion, Merrill Smith made gifts from Mary Maxon's assets to trusts benefitting Harry Maxon's three children and seven grandchildren totaling $27,714.30 and a gift of 1,000 shares of Maxon Corporation stock valued at $27 per share to Maxon Founder's Fund, a Ball State Foundation.

Later in December of 1981, Harry Maxon wrote to Merrill Smith advising that, as Mary Maxon's next of kin, he was "quite certain that if she were mentally in position to do so, she would wholeheartedly agree that" the Respondent and his staff should receive Christmas bonuses of $10,000 to Merrill Smith, $5,000 to Gregory Smith and $3,000 to Dixie Hayes. The Respondent Merrill Smith did as suggested and issued checks for the suggested amounts from the assets of Mary Maxon to himself and his son.

The Respondent testified that Mary Maxon gave her complete consent in general principle, but had no knowledge nor gave her consent to the specific figures. The Hearing Officer found that at no time either before or after the transfers from Mary Maxon's funds to Merrill Smith, Gregory Smith or Dixie Hayes did Merrill Smith or anyone else explain to Mary Maxon the conflict of interest inherent in such gifts nor did anyone obtain her consent.

After making specific findings of fact the Hearing Officer concluded that Mary Maxon was not only unaware but was mentally incompetent at the time of the gifts and during the last year and a half of her life.

Mary Maxon died on August 23, 1982. An inventory of her assets at the time of her death reflected a total estate of $4,951,573.96.

The Respondents vigorously challenge the Hearing Officer's findings on the issue of Mary Maxon's lack of knowledge and consent contending that the only evidence introduced at trial on this issue is the testimony of Merrill Smith to the contrary.

The Respondents are charged under the provisions of the Code of Professional Responsibility which sets out the standards of ethics during the relevant period of time. Disciplinary Rule 5-101(A) provides:

Except with the consent of his client after full disclosure, a lawyer shall not accept employment if the exercise of his professional judgment on behalf of his client will be or reasonably may be affected by his own financial, business, property, or personal interests.

Disciplinary Rule 5-104(A) provides:

A lawyer shall not enter into a business transaction with a client if they have differing interests therein and if the client expects the lawyer to exercise his professional judgment therein for the protection of the client, unless the client has consented after full disclosure.

Consent after full disclosure necessitates the disclosure of the existence of a conflict,...