Opinion
M.B.D. No. 02-10093.
November 1, 2005
MEMORANDUM AND ORDER
I. INTRODUCTION
On March 10, 2005, this three-judge panel held a hearing on its order to show cause why it should not impose reciprocal discipline pursuant to Local Rule 83.6(2) of the Local Rules for the United States District Court for the District of Massachusetts. Subsequent to the hearing, respondent F. Lee Bailey made a proffer in support of his request for an evidentiary hearing. After a review of the proffer, the Court orders respondent to be disbarred.
Judges Saris, O'Toole, and Lasker.
II. PROCEDURAL BACKGROUND
Respondent F. Lee Bailey was disbarred for a minimum period of five years by the Supreme Court of Florida on November 21, 2001 for committing "multiple counts of egregious misconduct, including offering false testimony, engaging in ex parte communications, violating a client's confidences, violating two federal court orders, and trust account violations, including commingling and misappropriation." The Florida Bar v. Bailey, 803 So.2d 683, 694, 695 n. 4, 26 Fl. L. Weekly S 787 (Fla. 2001),cert. denied, 535 U.S. 1056, 122 S.Ct. 1916 (May 13, 2002) (rejecting, however, the referee's recommendation of permanent disbarment). Among other things, the alleged misconduct involved shares of stock which belonged to Bailey's client, a drug trafficker. The Florida Supreme Court concluded that Bailey misappropriated the stock for his own use when it was supposed to be used by Bailey to maximize the value of the client's forfeitable property in France — and thereby minimize his client's potential sentence — and to compensate Bailey for whatever attorneys fees were permitted by the presiding trial judge. Id. at 694-95.
Based on the Florida decision, Massachusetts bar counsel petitioned for reciprocal discipline, and a single justice of the Supreme Judicial Court ("SJC") of Massachusetts ordered disbarment. Bailey appealed to the full SJC. Bailey urged the SJC to appoint a hearing committee to review a complete record of the proceeding before the Florida Bar and a then-pending proceeding in the Court of Federal Claims. In re Bailey, 439 Mass. 134, 135, 786 N.E.2d 337, 340 (Mass. 2003). He contended that the evidence in these two records was insufficient to prove he misappropriated the client's stock, the most serious of the findings of misconduct. Id. With respect to the remaining violations, he argued to the SJC that the violations did not warrant disbarment. Id.
Meanwhile, before the SJC issued its opinion, the Court of Federal Claims ruled against Bailey, holding that he had no implied contractual right to certain funds of his client that would otherwise have been forfeited as proceeds of drug trafficking. Bailey v. United States, 54 Fed. Cl. 459, 486-98 (2002) (holding that there was no meeting of the minds that any appreciation in value of the stock was to inure to plaintiff's benefit).
The SJC affirmed the single justice's judgment of disbarment, essentially for the reasons specified by the Supreme Court in Florida. In re Bailey, 439 Mass. at 152, 786 N.E.2d at 351. Rejecting his request for an evidentiary hearing, it noted that it need not deal with Bailey's argument that the more complete record developed at the trial of his contract claim would undermine reliance on the referee's findings. Id. at 148 n. 17, 786 N.E.2d at 348 n. 17.
Bailey vigorously contests that he held the stock in trust. After a thorough review of the record, the SJC concluded:
Indeed, despite his protest that no one used the term "trust" at the time these agreements were made, Bailey acknowledged in his January 21 letter to Judge Paul that the original value of the stock was held by him "in the nature of a trust." His theory that somehow that "trust" did not extend to the entire value of the asset transferred to him was not supported by any other witness, and was expressly disclaimed by Bailey's cocounsel and by the prosecutors. Duboc's written plea agreement (unambiguously committing Duboc to forfeit "all drug related assets" and stating that there were "no other agreements" between Duboc and the United States Attorney) is wholly inconsistent with any understanding that some forfeitable asset was being exempted from forfeiture and transferred to Bailey as Bailey's own. Judge Paul, to whom the arrangement was presented at the time of Duboc's plea, apparently understood that Bailey held the entirety of the assets in trust, as he used that precise term when he ultimately ordered Bailey to render an accounting.
At other times during the course of the representation, Bailey implicitly acknowledged that he had no right to the stock itself, only the right to seek recovery of fees from the stock if and when Judge Paul approved a motion for fees. In May, 1995, when some disagreement erupted between Bailey and cocounsel, he wrote, "I could have at this point rejected the silly conditions offered [by cocounsel], applied for a healthy fee to Chief Judge Paul, and turned the balance of the Biochem stock back to the Government." He also assured Duboc that he, Bailey, would "be paid with Chief Judge Paul's approval — only that amount which is commensurate with the result achieved in your case, and the amount of the work that went into it." There is no evidence that Bailey ever told Duboc that, in addition to those precisely calculated and judicially approved fees, he would also be paid whatever amount the market generated for the Biochem stock.
The referee concluded that Bailey contrived his theory about his entitlement to the appreciated value of the stock only when his client sought to change counsel and have the assets transferred to new counsel. Given that none of the other participants in and witnesses to the original agreement (the prosecuting attorneys, Duboc, two cocounsel, and Judge Paul) had any understanding that Bailey would be entitled to the appreciated value of the stock, the referee had an adequate basis for concluding that Bailey's theory was a concoction belatedly raised to retain possession of the stock proceeds and deflect the problems he knew he would have in accounting for his various uses of the stock proceeds. There was sufficient evidence to support the finding that Bailey had misappropriated client funds, commingled them with his own funds, and used them for his own purposes.Id. at 147-48, 786 N.E.2d at 348 (footnote omitted).
III. DISCUSSION
Local Rule 83.6(2)(D) provides:
[T]his court shall impose the identical discipline unless the respondent-attorney demonstrates, or this court finds, that upon the face of the record upon which the discipline in another jurisdiction is predicated it clearly appears:
(i) that the procedure was so lacking in notice or opportunity to be heard as to constitute a deprivation of due process; or
(ii) that there was such an infirmity of proof establishing the misconduct as to give rise to the clear conviction that this court could not, consistent with its duty, accept as final the conclusion on that subject; or
(iii) that the imposition of the same discipline by this court would result in grave injustice; or
(iv) that the misconduct established is deemed by this court to warrant substantially different discipline. Where this court determines that any of said elements exist, it shall enter such other order as it deems appropriate.
This rule is similar to S.J.C. Rule 4:01 § 16(3) for determining whether to give effect to the disciplinary procedures of another jurisdiction.
Respondent requests an evidentiary hearing. Under the provisions of the rule, an evidentiary hearing would be extraordinary because the Court is instructed to impose reciprocal discipline unless "upon the face of the record upon which the discipline in another jurisdiction is predicated" it clearly appears that certain elements exist. See Local Rule 83.6(2)(D).
Bailey insists that he held the stock as income at the time of receipt in 1994, and that an evidentiary hearing would vindicate him. In his proffer, made at the Court's request, Bailey provided a rambling recitation of the chronology of events, pointing out evidence in the various court proceedings that the government attorney was inconsistent in his position as to the appropriate beneficiary of the trust, having alternatively testified that the beneficiary of the purported trust was the government, the client, or both. Bailey also emphasizes the thinness of the testimony regarding the mention of the word "trust" at the May 17, 1994 pre-plea conference with the presiding trial judge in Florida.
Bailey contends that the record contains insufficient evidence to support the establishment of a "trust." See Zuckerman v. Alter, 615 So.2d 661, 663 (Fla. 1993) ("Florida inter vivos trusts of personal property may be created by deed, may rest entirely on parol, or may be partially in writing and partially in parol, provided the words employed are sufficient to create a trust."). Even if the word "trust" was never used, nothing pointed out by counsel in the record "clearly" undermines the conclusion by the Florida Supreme Court, the Massachusetts Supreme Judicial Court, and the Federal Court of Claims that Bailey had no reasonable basis to believe that he could draw down the value of the shares to pay attorneys fees as the case went on without prior court approval, or to believe he had a right to the value of any stock appreciation. Indeed, Bailey has conceded all along that the trial judge would have "the final say on fees." 54 Fed. Cl. at 469. See also Proffer 7 (acknowledging Bailey's understanding that "fees will be finally approved by Judge Paul."). After a review of the portions of the record upon which the SJC decision was predicated, it does not "clearly appear" that, under the local rules, there is "an infirmity of proof" establishing the misconduct.
Bailey emphasizes that there is new evidence because the IRS on November 20, 2004 deemed the receipt of the stock "income" for tax purposes as of the day of its receipt on May 9, 1994. See Schlude v. Comm'r, 372 U.S. 132, 136 (1963) (holding that advance payments for dance studio lessons were properly included as gross income for the year in which such payments were made);Frierdich v. Comm'r, 57 TCM (CCH) 1132 (1989), aff'd, 925 F.2d 180 (1991) (holding attorney's receipt of $100,000 from a client was an advance payment for legal services, not a loan, and therefore taxable income). Apparently, the IRS has dubbed the receipt of money a "constructive trust." Therefore, according to Bailey, the federal government has taken the inconsistent position of seeking to tax him for income it formerly said he never owned.
This nomenclature of "constructive trust" does not assist Bailey. "Under Massachusetts law, a court will declare a party a constructive trustee of property for the benefit of another if he acquired the property through fraud, mistake, breach of duty, or in other circumstances indicating that he would be unjustly enriched." Fortin v. Roman Catholic Bishop of Worcester, 416 Mass. 781, 789, 625 N.E.2d 1352, 1358-59 (Mass. 1994). Under Florida law, a constructive trust is an "equitable remedy invoked to avoid an unjust enrichment." Bauman v. Rayburn, 878 So.2d 1273, 1274 n. 1, 24 Fl. L. Weekly D 1796 (Fla.Dist.Ct.App. 2004). See also Restatement of Restitution § 160 (1937) ("Where a person holding title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it, a constructive trust arises."). Whether or not the client's funds were determined to be income subject to a constructive trust for tax purposes is not dispositive, for neither the Supreme Judicial Court order nor the order of the Florida Supreme Court hinged on the creation of a formal trust. The bottom line is that there is sufficient evidence in the record that Bailey misappropriated the proceeds of shares of stock entrusted to him for the benefit of his client and/or the government.
Finally, neither the Florida Supreme Court nor the Massachusetts SJC relies exclusively on the misappropriation of client funds. In light of the cumulative effect of the violations, this Court is not persuaded that the imposition of the reciprocal discipline of disbarment constitutes a "grave injustice" as required by the local rules.
IV. ORDER
Respondent's motion for an evidentiary hearing is denied. Respondent is disbarred from practice at the bar of the United States District Court for the District of Massachusetts pursuant to Local Rule 83.6(2)(D).