Report from the November 21, 2008, meeting
by Robert D. Welden
The Lawyers’ Fund for Client Protection Committee meets quarterly to review applications for gifts from the Fund. The Committee is authorized to make gifts less than $25,000 to eligible applicants. On applications for $25,000 or more, the Committee makes recommendations to the Board of Governors who are the Fund Trustees. At their meeting on November 21, 2008, the Committee conducted the following business.
Dennis F. Olsen — WSBA No. 22519 (Everett); Interim suspension 11/10/05; disbarred 9/19/06 (suspended by the Board of Immigration Appeals 2/21/06)
The applicant, a Canadian citizen who was purchasing a business in Washington, initially paid Olsen $1,000 to cancel an E-2 visa that another lawyer had obtained for her, which she says was in error. Olsen told her that he had cancelled the visa and recommended that she apply for an L-1 visa, described as follows:
L-1 Visa Eligibility Requirements: The main requirement is that the applicant must be employed outside the United States and is being transferred to the United States branch, subsidiary, affiliate, or joint venture partner of the non-U.S. company.
The applicant paid Olsen an additional $2,500 to apply for the L-1 visa. She said that after she did not hear for Olsen for several weeks, she researched the requirements for an L-1 visa and discovered that she did not qualify, as her U.S. business was not a subsidiary of a Canadian business. She phoned Olsen and told him this, and she says he responded, “What do you know, you’re not a lawyer.” She says after that he refused to speak with her. She eventually contacted the Canadian consulate and learned that her E-2 visa had not been cancelled, contrary to Olsen’s representations. The applicant wrote to Olsen requesting a refund of the fees she paid for which no service had been performed, which he denied. The Committee approved payment to the applicant of $3,500.
Roger D. Ost Jr. — WSBA No. 22141 (Seattle); interim suspension 11/29/07; disbarred 12/7/07
The applicant paid Ost $500 on 10/3/07 to pay a fine regarding a bench warrant issued for his arrest in Salt Lake City. Ost never paid the fine. Ost was suspended on 11/29/07 and disbarred on 12/7/07.
The receipt signed by Ost reads: “Received from [the applicant] in trust to retain Utah attorney [A].” Attorney A advised the WSBA that he recalls speaking with someone about this. He wrote:
Upon receipt of your letter of October 12, 2008 I again reviewed my financial records and can find no entry related to an amount received from Roger Ost Jr. on behalf of [the applicant]. At some point in the past it seems that I did receive a call from an attorney in Washington inquiring about a retainer on a Utah traffic matter but nothing ever came of it. . . . My best recollection is that if it was Mr. Ost that called me from Washington he never followed up with the retainer.”
The Committee approved payment of $500 to the applicant.
Theresa M. Sowinski —WSBA No. 32549 (Edmonds); suspended pending discipline 11/29/06; disbarred by stipulation 9/10/08
Sowinski pleaded guilty to two counts of first-degree theft of client funds. One count relates to theft of funds from the applicant. She was sentenced to one year in jail with credit for time served, and she was ordered to pay $258,000 in restitution to the applicant.
The applicant hired Sowinski to represent her in the sale of her home and an adjacent lot. Sowinski asked her to authorize the closing agent to wire the sale proceeds to Sowinski’s trust account. She told the applicant that the funds should be deposited into her trust account so that she could assist the applicant in settling her debts, including $21,000 owed to various credit-card companies. She advised the applicant that if the funds were deposited to the applicant’s account, she risked having creditors attach her account. The applicant agreed to have the funds deposited into trust. The sale proceeds totaling $357,101.12 were wire transferred to Sowinski’s trust account. Sowinski disbursed $10,000 to herself for legal fees, without notice to the applicant. Sowinski stipulated that when she paid herself this fee, she knew that she had not earned that full amount. Subsequently, Sowinski disbursed an additional $5,916.50 to herself, without notice to the applicant, knowing that she had not earned that fee.
The applicant received notice from a collection agency regarding money owed to Sears, which she forwarded to Sowinski. She received a second notice a few months later, offering to settle the debt of $8,866.94 for $3,990.12 if the applicant paid within 10 days. The applicant forwarded that notice to Sowinski. Sowinski falsely told the applicant that she paid the Sears debt. A few months later, the applicant ordered her credit report and learned that the Sears debt remained unpaid.
Sowinski disbursed a total of $80,000 to the applicant. The applicant asked Sowinski to transfer all remaining funds to the applicant’s personal account. Sowinski agreed to do so, but did not do it. As of March 2006, the balance in Sowinski’s trust account was $91.32. Between 6/1/05 and March 2006, Sowinski paid herself or her law firm $212,868 from her trust account. She also disbursed an additional $29,345 by counter withdrawal. Sowinski stipulated that she used the applicant’s funds for her personal benefit. The Committee recommended and the Trustees approved payment of $75,000.
Barry A. Hammer — WSBA No. 6444 (Everett); resigned in lieu of disbarment 6/30/05
Hammer advertised himself as a personal injury attorney as well as a tax and estate planner, and conducted a substantial tax-preparation business from his law office. On his letterhead, he said that he had a LL.M. in taxation. He was also a licensed CPA between September 8, 1972, and July 1, 1986, when he allowed his license to lapse.
In addition to his law practice, Hammer owned a corporation called Able Mortgage and Investment, Inc., which he ran out of his law office. Hammer would recommend clients and others to invest in Able. He gave the investors promissory notes and, in some instances, represented that they were secured by deeds of trust on real property. Promissory notes from Able Mortgage were all personally guaranteed by Hammer individually.
Hammer filed a Chapter 7 bankruptcy proceeding in September 2004, claiming $13.5 million in assets, of which $11.2 million was in the form of real estate owned by him or by Able Mortgage. He alleged over $13 million in debts, of which $9.5 million was owed to Able Mortgage “investors.” According to the bankruptcy trustee, Hammer’s valuation of what he listed as the most valuable real property, the Sultan Airport property, was drastically overinflated. Hammer listed the property as having a value of $6.5 million; however, the property was assessed at only $646,000, and ultimately sold for approximately $2 million. There is one remaining piece of real property, the Arlington Airport property, which may have a value between one and two million dollars. It has been on the market for some time.
More than 150 creditors filed claims. The Fund worked with the bankruptcy trustee to notify persons potentially eligible for recovery from the Fund about the Fund, and to protect the WSBA’s interest. In taking possession of Hammer’s estate, the trustee discovered that there was approximately $15,000 in Hammer’s IOLTA account for which no owner could be identified. With approval from the Board of Governors, the Fund successfully petitioned the Supreme Court for authority to transfer those funds to the Fund, which resulted in the Fund’s receiving $15,260.
The Fund received a total of 48 applications regarding Hammer. Two were approved and paid in 2006. Of the remaining 46, it became apparent to the Committee that there was a serious potential that approved applications might greatly exceed the funds available in the Fund. In September, the Committee made a preliminary report to the Board of Governors, who are the Fund’s Trustees, and sought their guidance. The Board voted to pay all non-Hammer applications to the full amount recommended by the Committee, and to prorate all approved Hammer applications against 75 percent of the Fund balance as of September 30, 2008 (the end of the WSBA fiscal year). Twenty-four of the remaining applications were approved. If paid in full, the total would have been $1,278,116.28. However, only $695,409.88 was available, pursuant to the formula approved by the Board.
Also, in considering the applications, the Committee determined that if the client received interest payments from Hammer (or, in more than one instance, insurance proceeds), those would be deducted from the principal amount paid to Hammer, as would any payments from the bankruptcy estate, which resulted in the denial of some applications where interest exceeded principal. (The approved payment amounts shown are as prorated.)
Application A. Hammer was the applicants’ lawyer for over 30 years. He encouraged them to invest with him. “We trusted him enough to proceed,” they said. In 1997, they loaned Hammer $30,000. They received yearly interest payments on that loan. In 2003, they loaned an additional $40,000 and received a promissory note for $70,078.09 (combining the 1997 and 2003 loans into one unsecured note). A second loan in 2003 was for $60,000. Interest payments were made until Hammer filed for bankruptcy. The applicants received $8,661.67 from the bankruptcy on in 2006, and their unaccounted-for principal appears to be $121,338.33 The Committee recommended and the Trustees approved payment of $40,806.73.
Application B. The applicant had been Hammer’s clients for tax and estate work for many years. Starting in 1990, she loaned a total of $40,826.05 to Able Mortgage (all accrued interest was rolled back into the loan). She received $5,998.65 from the bankruptcy estate. The Committee recommended and the Trustees approved payment of $18,949.73.
Application C. The applicants had been Hammer’s clients for tax and estate work for many years. In 1997 they loaned $36,000 to Hammer and received a personal promissory note. In 1999, the applicants paid an additional $8,500 to Able Mortgage. In 2002, they paid an additional amount which made the total principal amount loaned to Able $50,000. They received interest payments totaling $28,900, and were paid $3,231.50 from the bankruptcy estate. The Committee recommended and the Trustees approved payment of $7,551.86.
Application D. Hammer probated the applicant’s father’s estate. Hammer encouraged her to invest some of the estate proceeds with him. She had four loans at the time of Hammer’s bankruptcy filing. They totaled $690,000, and she received interest totaling $239,749.69. She received $45,660.79 from the bankruptcy estate. The Committee recommended and the Trustees approved payment of $40,806.73.
Application E. The applicants were tax clients of Hammer since 1978. He recommended that they refinance their home in 2003 and invest $100,000 of the proceeds with Able Mortgage, which they did. They received interest payments of approximately $18,000. They also received a distribution of $7,100 from the bankruptcy. The Committee recommended and the Trustees approved payment of $40,806.73.
Application F. The applicants became estate-planning clients of Hammer in August 1991. While discussing their wills and estate-planning needs, they discussed investing. The applicants invested with Hammer several times over the years. They made three supposedly “secured” loans between 1991 and 1995 totaling $36,627.09, for which they received promissory notes which stated that they were secured by unidentified property. When the applicants sold their home in 2003, they invested $130,000 in the form of four unsecured promissory notes, making the total investment $166,677.09. In all, they received interest payments in the approximate amount of $56,500, and they received $12,276.17 from the bankruptcy estate. The Committee recommended and the Trustees approved payment of $40,806.73.
Application G. The applicants employed Hammer since 1987 for tax preparation and legal advice. On Hammer’s advice, they refinanced their home to use the equity as start-up capital; however, they decided not to open the business, and Hammer recommended that they invest with him instead. In 1993, they loaned Able Mortgage $10,000. In 2001, they added $1,500 into this investment account. In 2002, they refinanced their home again, and invested $20,000 of the proceeds with Able Mortgage. In September 2004, they asked Hammer to disburse $1,800 from the account; he asked them to wait a week, and subsequently filed bankruptcy. Over the years, they received principal payments of $8,806, and interest payments of $6,200. Most of the time, the interest was reinvested into their account. The Committee recommended and the Trustees approved payment of $7,218.36.
Application H. The applicants were clients of Hammer. He was recommended to them after the wife’s mother died. They requested advice on how to invest the inheritance. Hammer advised them to sell stock and annuities and not buy real estate (which they were looking to invest in), and encouraged them to invest with him. In 2002, they loaned $225,000, which was secured by personal promissory notes from Hammer. In 2004, they requested and received $10,000 back from their investment. The applicants hired an attorney to file a claim with the bankruptcy court. The proof of claim was not filed, and in January 2006 the applicants hired a second attorney who presented their claim to the malpractice carrier for the first attorney. They received $16,885.31 from that attorney’s insurance carrier, and have a commitment from the carrier that they will receive an amount equal to what they would have received from the bankruptcy final distribution had their claim been timely filed. The Committee recommended and the Trustees approved payment of $40,806.73.
Application I. The applicants became clients in 1985; they had “tax consultations” with Hammer once or twice a year for 20 years, through the spring of 2004. During their 1998 tax consultation, Hammer recommended they do a revocable living trust (which he then drafted). While going over their assets for purposes of drafting the trust, they told Hammer that the wife’s father had just inherited $200,000, that her parents wanted to preserve this money if possible, and that the money was then in a savings account. Hammer advised them that the state would require that the funds be used to pay for the parents’ care if they had to go into a nursing home or care facility, and that if they moved the money to conventional investments the state could track it and the money would still be lost. He advised the applicants that the funds should be put into promissory notes. He told them the notes would be unsecured “but fully backed with real estate holdings, and that, as a lawyer, he had liability protection in Washington state that exceeded a million dollars.” He also stated that the notes would be backed by his personal and business assets. He advised the clients that if the money was in the form of a promissory note not due for four years, the state could never go after the money because it wasn’t available, and that if her mother’s name wasn’t on the notes, the state couldn’t go after it for her mother’s care, either. In 1998, the wife’s father loaned $180,000 to Able Mortgage & Investments; the promissory note listed the wife and her brother as beneficiaries if the father died. He died later that year. $55,200 was withdrawn from this loan after the father died to cover the cost of the wife’s mother’s assisted-living care. The wife’s mother died in 2001, and the note was “split” between the wife and her brother; each received new promissory notes. Hammer urged them to reinvest the promissory note proceeds, instead of cashing it out, because they would have to “claim about $40,000 in accrued interest,” and that it would be better to wait until they retired and claim the interest when they were in a lower tax bracket. So they reinvested the proceeds. They reinvested the interest most of the time, but did receive $29,000 in principal on the first loan.
The husband retired in November 2003. When the applicants went to Hammer to discuss the tax ramifications of a house sale, Hammer convinced the husband to invest his cash retirement payout into a new promissory note. He loaned $70,000 to Able Mortgage & Investments. They withdrew $18,000 before bankruptcy, so total principal remaining owed is $52,000.
The applicants received a $9,586 distribution from the bankruptcy on 01/03/2006. The Committee recommended and the Trustees approved payment of $40,806.73.
Application J. The applicants became clients in 1976 when they needed help settling the estate of the wife’s parents. He also handled the sale of the parents’ home. Hammer did any legal work the clients required, as well as their taxes, from 1980 to September 2004.
When the husband retired in 1998, Hammer advised them to cash out their investments and invest in real estate. In 1999 they invested $110,000, secured by a deed of trust. In April 2000, Hammer sold the property which secured the $110,000 investment. When they were notified of the sale, and the sale closed, the applicants received, at their request, $10,000 and reinvested the remaining $100,000 with Hammer, at his suggestion. They received a new, unsecured promissory note. Later, they requested and received $3,000 of principal, which reduced their principal to $97,000. In 1999, they loaned an additional $55,000 and received an unsecured promissory note. They received interest totaling $30,318.75. Also in 1999, they loaned $15,000. They received interest totaling $8,268.75. The Committee recommended and the Trustees approved payment of $30,700.21.
Application K. The applicants became clients in 2001 for income taxes and for estate planning. He advised them not to pay off their mortgage so they would keep the tax deduction. In 2003, Hammer advised them to refinance their house for $150,000 and invest with him, which they did. They received approximately $14,000 in interest and received $9,662.50 from the bankruptcy. The Committee recommended and the Trustees approved payment of $40,806.73.
Application L. Hammer handled the probate of the applicant’s mother’s estate for her father. In 1996, Hammer convinced her father to lend him $120,000; he paid back $100,000 (without interest) but not the $20,000. The father left those funds invested with Hammer for the benefit of the applicant’s two children. In 1996, Hammer gave the applicant a promissory note from Able Mortgage & Investments for $20,000, payable to the applicant as trustee for benefit of her children. She wanted to cash it out in September 2001, and sent Hammer a letter requesting that the fund be liquidated; instead, Hammer sent her a replacement promissory note, also unsecured, for $31,313.62. The applicant received a $3,054.12 distribution from the bankruptcy. The Committee recommended and the Trustees approved payment of $9,220.08.
Application M. Hammer started preparing the applicant’s taxes in 1986. In 1995, she transferred then-ongoing auto accident litigation, which was being handled by another law firm, to Hammer’s then-partner at Hammer’s urging. The case settled, and the applicant received a $100,000 net insurance settlement; when she went to pick up the settlement check, Hammer urged her to invest with him. She invested $40,000 of her settlement with Hammer. The applicant withdrew $9,000 in principal in 2003, which brought her principal down to $31,000. She was paid $21,000 in interest and she received a distribution of $2,983.92 from the bankruptcy estate. The Committee recommended and the Trustees approved payment of $3,817.43.
Application N. Hammer was the applicants’ tax accountant and lawyer for 26 years. He represented them in two auto accident cases, prepared their wills/estate planning, and worked on probates of their parents’ estates. In 1996, they loaned $50,000, and received an unsecured promissory note from Able Mortgage & Investments. They received interest totaling $40,000.32. In 2003, they loaned an additional $44,164.67 to Able. They received interest of $3,974.88, and they received a distribution of $6,073.46 from the bankruptcy estate. The Committee recommended and the Trustees approved payment of $24,003.07.
Application O. The applicants became clients in 1973. In 1996, Hammer prepared their wills and, in 2003, he represented the wife in a disability case. In 1996, Hammer also handled the wife’s father’s estate and sold a home as part of that estate process; when the proceeds of sale came in, Hammer recommended they invest with Able Mortgage & Investments. They loaned Able $50,000. They allowed the accrued interest to roll over into the loan. They received a $7,211.81 distribution from the bankruptcy estate. The Committee recommended and the Trustees approved payment of $23,280.61.
Application P. The applicants were clients of Hammer’s since 1998. In 2001, they sold some property and invested the proceeds with Hammer. Hammer also prepared their wills and estate-planning documents. In 2001, they loaned Hammer $280,000 and received a personal promissory note from Hammer. Also in 2001, they loaned him $20,000 and received a second personal promissory note from Hammer. They made a third loan in 2001 of $100,000, secured by a personal promissory note from Hammer. The applicants received approximately $42,000 from the bankruptcy estate, and they received $20,000 principal from Hammer in 2003. The Committee recommended and the Trustees approved payment of $40,806.73.
Application Q. Hammer was the attorney for the applicant in the applicant’s capacity as personal representative of his late father’s estate. The estate was administratively closed by the court clerk for want of prosecution in November 2005. Hammer failed to account for estate funds. The Committee recommended and the Trustees approved payment of $8,204.74.
Application R. In the summer of 1994, the applicant’s father died. He had invested a significant amount of his retirement with Hammer. The applicant was to receive half of the estate assets. Hammer handled the probate. When the applicant and her brother sold the last remaining estate asset in 2004, at Hammer’s urging she decided to invest proceeds with Hammer. She gave Hammer $25,000 and received an unsecured promissory note which called for interest-only payments. The applicant received $1,656.41 from the bankruptcy estate. The Committee recommended and the Trustees approved payment of $13,182.78.
Application S. The applicant is the brother of the applicant in Application R. When he received his share of the estate, he also decided at Hammer’s urging to invest proceeds with Hammer. He gave Hammer $37,000 and received an unsecured promissory note which called for interest-only payments. He received $2,457.76 from the bankruptcy estate. The Committee recommended and the Trustees approved payment of $18,794.08.
Application T. Hammer prepared the applicants’ business and personal taxes. Hammer encouraged them to invest in his business, and urged them to sell some real property and invest with him. They listed the property with a Realtor and, after the listing expired, a private party made an offer. Hammer said he would prepare the sale papers for free if they invested at least $100,000 with him. They gave Hammer $100,000 and received a promissory note calling for interest-only payments. The applicants received $6,671.17 from the bankruptcy estate. The Committee recommended and the Trustees approved payment of $40,806.73.
Application U. The applicant is the court-appointed personal representative and filed the claim in that capacity. Hammer represented the deceased during his life, and he was also handling the probate. The deceased had sold some real property and invested $240,000 in Able Mortgage & Investments. The estate received $16,264 from the bankruptcy estate. The Committee recommended and the Trustees approved payment of $40,806.73.
Application V. Hammer was the attorney for the applicant’s mother. He drafted her revocable living trust and the applicant submitted his application in his capacity as successor trustee of the trust and/or as the sole beneficiary of her estate. The mother loaned Hammer $325,000, and assigned the loan to the revocable living trust. She subsequently made a second loan to Hammer of $139,091.73. A distribution of $36,789.59 was made from the bankruptcy estate. The Committee recommended and the Trustees approved payment of $40,806.73.
Application W. The applicants had a long-time attorney-client relationship with Hammer. He prepared their tax returns and handled a number of different legal matters for them. The applicants made two loans to Hammer at his request. The first was for $110,000, and they received an unsecured promissory note which called for interest-only payments. The second was for $100,000. The applicants received $23,719.78 from the bankruptcy estate. The Committee recommended and the Trustees approved payment of $40,806.73.
Application X. The applicants were tax clients and Hammer also did general legal work for them, including a real estate sale. They invested $53,823.33 and received an unsecured note from Able Mortgage & Investments which called for interest-only payments. Subsequently, they invested $155,000 and received an unsecured note from Able Mortgage & Investments which called for monthly payments of $1,000. The funds for this loan came from the proceeds of sale of their home. The applicants received $14,503.33 from the bankruptcy estate. The Committee recommended and the Trustees approved payment of $40,806.73.
Other business: The Committee reviewed 27 additional applications that were denied for lack of evidence of dishonest conduct, as fee disputes or claims for malpractice, because restitution was made, for unjust enrichment, or were deferred for further investigation.
Restitution: Before payment is made, the applicant must sign a subrogation agreement with the Fund, and the Fund seeks restitution from the lawyers. Because in most cases those lawyers have no assets, the chief avenue of restitution is through court-ordered restitution in criminal cases. Prosecuting attorneys cooperate with the fund in getting the Fund listed in restitution orders. Between October 1, 2007, and September 30, 2008, seven lawyers were making regular restitution payments to the Fund which total $26,840.13. This includes $15,260 deposited into the Fund pursuant to Supreme Court order from abandoned and unidentifiable funds in the trust account of former attorney Barry A. Hammer.
The committee chair for 2007–2008 was Kennewick attorney Christopher J. Mertens. The chair for 2008–2009 is Seattle attorney Sims Weymuller. WSBA General Counsel Robert D. Welden is staff liaison to the committee.
