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In re Petition for Disciplinary Action Against Klotz

Supreme Court of Minnesota

March 21, 2018

In re Petition for Disciplinary Action against Adam William Klotz

          Original Jurisdiction Office of Appellate Courts

          Susan M. Humiston, Director, Timothy Michael Burke, First Assistant Director, Office of Lawyers Professional Responsibility, Saint Paul, Minnesota, for petitioner.

          Eric Todd Cooperstein, Minneapolis, Minnesota, for respondent.

         SYLLABUS

         The appropriate discipline for an attorney who misappropriated client funds, commingled client and business funds, made false statements to the Director, failed to cooperate with the Director's investigation, created a false and misleading document, failed to maintain required trust account records, failed to safeguard and promptly refund an unearned retainer, made false statements to clients, neglected client matters, and failed to communicate with clients is, given the existence of substantial mitigating factors, an indefinite suspension with no right to petition for reinstatement for 18 months.

          OPINION

          PER CURIAM.

         The Director of the Office of Lawyers Professional Responsibility (Director) filed a petition for disciplinary action against respondent Adam William Klotz. The Director alleged that Klotz misappropriated client funds, commingled client and business funds, made false statements to the Director, failed to cooperate with the Director's investigation, failed to maintain trust account records, failed to diligently pursue client matters, failed to communicate with clients, made false statements to clients, and failed to safeguard and promptly refund an unearned retainer. We appointed a referee. After a hearing, the referee concluded that Klotz committed the alleged misconduct and recommended an indefinite suspension with no right to petition for reinstatement for 1 year. The Director asks us to disbar Klotz, while Klotz supports the referee's recommended discipline. We conclude that in light of substantial mitigating factors, the appropriate discipline for Klotz's misconduct is an indefinite suspension with no right to petition for reinstatement for 18 months.

         FACTS

         Respondent Klotz was first licensed to practice law in Minnesota in September 2010. During the time of his misconduct, he maintained a general civil practice, worked as a part-time public defender under a contract with Brown County, and handled child protection cases on a per-hour basis for the County. Klotz has no prior disciplinary history. The misconduct at issue here involves six clients, failure to cooperate with the Director, and trust account deficiencies.

         P.C. Matter and Failure to Cooperate

         Klotz represented P.C. in three separate collection actions a creditor brought against P.C. In 2013, Klotz negotiated a settlement agreement that resolved all three cases for a total payment of $11, 000, to be paid in monthly installments of $500. Klotz and P.C. agreed that P.C. would make electronic payments directly to Klotz each month and that Klotz would make a $500 payment from his trust account each month to the creditor. Because Klotz believed that he could not have funds electronically deposited into his trust account, he gave P.C. the information necessary to electronically deposit his monthly payments into Klotz's business account. Before each monthly payment was due to the creditor, Klotz was to transfer $500 from his business account to his trust account.

         On February 2, 2015, Klotz overdrew his trust account. His bank reported the overdraft to the Director, and the Director contacted Klotz, requesting trust account books and records related to the overdraft.

         After receiving the Director's overdraft notice, but before responding to the Director, Klotz reviewed his account statements. He determined that not only had P.C. been making consistent, timely payments, but that P.C. had actually paid Klotz $5, 600 more than he was obligated to pay to his creditor. [1] Klotz refunded $5, 600 to P.C. around March 5, 2015.

         In his response to the Director, Klotz produced the requested books and records and told the Director about the payment arrangement he had with P.C., including the deposits into his business account. Klotz claimed the overdraft occurred because P.C made erratic and undocumented deposits into Klotz's business account, making it difficult for him to make timely transfers to his trust account.

         On May 19, 2015, the Director notified Klotz that she was opening an investigation into his trust account practices and requested all business account records related to P.C.'s settlement. Klotz did not timely respond but instead requested and received several extensions. He finally produced some, but not all, of the requested documents at the end of June 2015. In his response, he also included a chart that purported to show that all payments he received from P.C. were timely deposited into his trust account. This chart was false and misleading because Klotz had not timely deposited P.C.'s funds into his trust account.

         In July 2015, Klotz produced more of the documents the Director had requested, but he still failed to fully comply. In January 2016, Klotz finally produced most of the account records the Director requested, but he heavily redacted the records to conceal how much of P.C.'s money actually had been deposited in Klotz's business account. The Director continued to request the remaining records in unredacted form and ultimately acquired the records from Klotz's bank. Klotz eventually produced all requested records in unredacted form after he retained counsel.

         After reviewing Klotz's records, the Director determined that P.C. often deposited more than $500 into Klotz's business account in a given month. Because Klotz was not tracking how much money P.C. deposited into his business account, Klotz did not transfer all of P.C.'s funds into his trust account every month. As a result, Klotz's business account became a repository for P.C.'s funds, and the amount of P.C.'s funds in the account grew nearly every month.

         Klotz paid personal and business expenses out of his business account. At times, the balance of his business account was insufficient to account for all of P.C.'s funds that should have been in the account. The referee specifically found that Klotz used up to $5, 340.97 of P.C.'s funds to pay his personal and business expenses.

         The referee concluded that Klotz's conduct regarding P.C. violated Minn. R. Prof. Conduct. 1.15(a)[2], 8.1(a)[3] and (b)[4], 8.4(c)[5] and (d)[6], and Rule 25, Rules on Lawyers Professional Responsibility (RLPR).[7]

         Trust Account Deficiencies

         The referee found that, between May 2013 and March 2015, Klotz failed to maintain the required books and records for his trust account. During some of this time period, Klotz's trust account did not contain sufficient funds to cover aggregate client balances, and Klotz overdrew the account on three occasions.[8] Klotz caused these shortages and overdrafts by making a monthly payment to P.C.'s creditor before he had deposited sufficient funds into his trust account to cover the transfer.

         The referee found that Klotz's proffered justification for the overdraft-P.C.'s erratic deposits-was false. The referee found that "[a]t all times, . . . total funds transferred by P.C. . . . were sufficient to cover the $500 monthly settlement payments" to the creditor and that it was Klotz's misappropriation of P.C.'s funds that caused the overdraft." The referee concluded that Klotz's management of his trust account violated Minn. R. Prof. Conduct. 1.15(a) and (h), as interpreted by Appendix 1.[9]

         Loans to Clients

         Klotz negotiated settlements with creditors on behalf of two clients. In each case, Klotz issued a check drawn on his trust account and payable to his client's creditor. But when the checks were issued, Klotz's trust account contained funds for neither client. Instead, Klotz deposited his own funds into his trust account to cover the settlement amounts. The referee found that each of these transactions was a loan to a client and that these loans violated Minn. R. Prof. Conduct 1.8(e).[10]

         A.H. Matter

         In September 2013, A.H. retained Klotz to represent him in an employment matter and executed a flat-fee retainer agreement. In January 2014, A.H. paid the portion of the fee due and met with Klotz to discuss the case. They agreed that Klotz would draft and serve a complaint on A.H.'s behalf within about 3 weeks. For nearly 3 months after the planned date of service, A.H. made numerous attempts to contact Klotz but never heard from him.

         On March 12, 2014, Klotz sent A.H. an e-mail apologizing for the delay. Klotz said that he was still working on the complaint and would complete it as soon as he could. On April 1, 2014, A.H. again asked for an update. Klotz responded that he was still working on the complaint. For the next month, A.H. tried to contact Klotz four times. After A.H.'s fourth attempt, Klotz told A.H. that he was free to retain other counsel if he was dissatisfied. After this exchange, A.H. twice asked for an estimated time of completion. On May 13, 2014, Klotz told A.H. that the complaint would be served on May 19 and a copy would be mailed to him. On June 19, 2014, Klotz finally served a complaint in the A.H. matter.

         After serving the complaint, Klotz did not keep A.H. informed about the status of an answer in the case. In mid-August, A.H. asked Klotz about the status of the case, received no response, and filed an ethics complaint with the Director. It was only after receiving word of the complaint that Klotz gave A.H. a copy of the complaint and answer. Klotz also informed A.H. that a scheduling conference was set. Klotz did not timely ...


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