H. Owen Maddux v. Board of Professional Responsibility of the Supreme Court of Tennessee

IN THE SUPREME COURT OF TENNESSEE

AT KNOXVILLE

May 1, 2013 Session

H. OWEN MADDUX v. BOARD OF PROFESSIONAL RESPONSIBILITY

OF THE SUPREME COURT OF TENNESSEE

Direct Appeal from the Chancery Court for Hamilton County

No. 11-0206 Donald P. Harris, Special Judge

No. E2012-01809-SC-R3-BP - Filed August 9, 2013

This direct appeal involves a disciplinary proceeding against a Chattanooga lawyer arising

out of his representation of two clients. With one member dissenting, a hearing panel of the

Board of Professional Responsibility determined that the lawyer should be suspended from

the practice of law for nine months. The lawyer appealed to the Chancery Court for

Hamilton County, and the trial court upheld the nine-month suspension, concluding that the

evidence supported the finding of the hearing panel’s majority that the lawyer’s misconduct

caused potential injury to one of his clients. In this appeal, the lawyer argues that (1) the

hearing panel erred by refusing to set aside the default judgment entered against him based

on his failure to respond to the petition for discipline; (2) the record contains no evidence of

potential injury resulting from his misconduct; and (3) the hearing panel ascribed too much

weight to his prior history of discipline when considering aggravating and mitigating

circumstances. Based on our review of the record, we, like the trial court, affirm the hearing

panel’s decision to suspend the lawyer’s license to practice law for nine months.

Tenn. Sup. Ct. R. 9, § 1.3; Judgment of the Chancery Court Affirmed

_______________

C ORNELIA A. C LARK, J., delivered the opinion of the Court, in which G ARY R. W ADE, C.J.,

AND J ANICE M. H OLDER, W ILLIAM C. K OCH, J R., AND S HARON G. L EE, JJ., joined.

W. Gerald Tidwell, Jr., Chattanooga, Tennessee, for the appellant, H. Owen Maddux.

Krisann Hodges and Kevin D. Balkwill, Brentwood, Tennessee, for the appellee, Board of

Professional Responsibility of the Supreme Court of Tennessee.

OPINION

Factual Background

In 1974, the appellant, H. Owen Maddux, obtained his license to practice law in

Tennessee. This is the third time since his licensure that the Board of Professional

Responsibility (“Board”) has instituted disciplinary proceedings against Mr. Maddux. On

each occasion the proceeding has culminated in an appeal to this Court.

At the conclusion of the first appeal in November 2004, this Court suspended Mr.

Maddux from the practice of law for thirty days and placed him on probation for one year

upon finding evidence in the record that he had converted more than $92,500 in law

partnership funds over a three-year period without the knowledge or consent of his partners.

Bd. of Prof’l Responsibility v. Maddux, 148 S.W.3d 37, 38 (Tenn. 2004).

At the conclusion of the second appeal in July 2009, this Court suspended Mr.

Maddux for five months for several ethical violations, including mishandling and neglect of

a Florida personal injury lawsuit, allowing the statute of limitations to expire on the personal

injury claim, failing to communicate adequately with his clients, and commingling personal

funds in his trust account. Maddux v. Bd. of Prof’l Responsibility, 288 S.W.3d 340, 347-49

(Tenn. 2009).

The present appeal involves Mr. Maddux’s conduct while representing Theodore

(“Ted”) W. Hayes and his mother, Nancy Hayes, from October 2008 to March 2009. Ted

Hayes and Mr. G. Scott Bean had jointly owned and operated TCE Landscaping, a business

which performed landscaping, steel erection, drywall, and other similar types of work.1 Ms.

Hayes was not an owner of the business, but she leased to the business the property that

served as the business office, loaned money to the business, guaranteed credit cards for the

business, allowed the business to use her personal credit cards to purchase needed supplies,

and signed promissory notes for loans to the business and vehicles the business purchased.

The Hayeses sought Mr. Maddux’s legal advice in October 2008 because, according to them,

Mr. Bean had removed all funds from business accounts and had taken all business records,

equipment, and property. Mr. Bean also was advising customers that TCE Landscaping was

operating under a new name, Bean Enterprises, and that Mr. Bean and Mr. Hayes were no

longer associated.

1

Mr. Hayes and Mr. Bean used various names to refer to their joint business ventures, including The

Cutting Edge, Performance Steel, and Precision Framing and Drywall. For purposes of this appeal we shall

refer to these business ventures collectively as TCE Landscaping.

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After his initial meeting with the Hayeses, Mr. Maddux sent fifteen or more letters,

dated October 31, 2008, to customers of TCE Landscaping, advising as follows:

This letter is a demand that if you owe money to any of the

above named entities that you should pay that money to TCE

Landscaping, LLC, and mail it to me where it will be deposited

in the Chancery Court of Hamilton County, Tennessee, pending

a ruling by the Court as to the dissolution of the LLC and the

ultimate payment of creditors of the LLC.

This letter is to also serve you with notice that if you fail

to pay TCE Landscaping, LLC, but pay Bean Enterprise[s], then

my client, as an officer and manager of TCE Landscaping, LLC,

will be forced to file a lien against your project for nonpayment.

I hope that will not be necessary.

On November 13, 2008, Mr. Maddux filed a complaint on behalf of the Hayeses

against Mr. Bean and TCE Landscaping in the Chancery Court for Hamilton County. On

November 26, 2008, attorney Barry L. Abbott entered a notice of appearance as counsel for

Mr. Bean in the lawsuit. Subsequently, Mr. Maddux and Mr. Abbott exchanged documents

related to the lawsuit and discussed settlement. During this time, Mr. Abbott became aware

of the October 31, 2008 letters Mr. Maddux had sent to customers of TCE Landscaping.

Thus, when Mr. Maddux moved to withdraw from representing the Hayeses, on February 9,

2009, Mr. Abbott responded by moving the trial court to order Mr. Maddux to pay to the

Clerk and Master any funds received in response to the October 31, 2008 letters upon his

withdrawal.2

Following a March 2, 2009 hearing on both motions, the trial court granted Mr.

Maddux’s motion to withdraw. Although the trial court denied Mr. Abbott’s motion, the trial

court ordered Mr. Maddux to file an affidavit explaining the disposition of any monies he

received in response to the October 31, 2008 letters and to attach to the affidavit copies of

any checks he had received.

Mr. Maddux’s affidavit, submitted March 5, 2009, stated his belief that six checks

were received in response to the October 31, 2008 letters. However, Mr. Maddux explained

that he had located copies of only five checks and could not locate the sixth check or a copy

2

Mr. Maddux’s motion to withdraw alleged that Mr. Hayes had failed to return his telephone calls

or otherwise communicate with him.

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of it. The five checks, each of which was payable to a business entity, totaled over $35,000.3

Mr. Maddux stated that he gave these five checks to Mr. Hayes.

On March 30, 2009, Mr. Abbott filed a complaint with the Board based on Mr.

Maddux’s failure to pay the funds collected to the Clerk and Master as the October 31, 2008

letters represented and Mr. Maddux’s failure to notify either the trial court or opposing

counsel that he had received and given the funds to Mr. Hayes. By a letter dated April 2,

2009, Disciplinary Counsel for the Board sent Mr. Maddux a copy of the complaint, along

with notice that failure to respond timely would result in the filing of a notice of petition for

temporary suspension. Tenn. Sup. Ct. R. 9, § 4.3. When Mr. Maddux failed to respond,

Disciplinary Counsel notified him, by a letter dated April 17, 2009, that a petition for

temporary suspension would be filed should he fail to respond within ten days. Five days

later, Mr. Maddux filed a response.

The investigation proceeded, with Disciplinary Counsel requesting additional

information from Mr. Maddux and Mr. Abbott. On February 8, 2010, Disciplinary Counsel

filed a formal petition for discipline alleging that Mr. Maddux’s acts and omissions in

representing Ted and Nancy Hayes violated Tennessee Rules of Professional Conduct

(“RPC”) 1.15(b),4 4.1,5 and 8.4(a) and (c).6 Tenn. Sup. Ct. R. 8, RPC 1.15(b), 4.1,

3

Of the five checks Mr. Maddux received, two were payable to The Cutting Edge, while three were

payable to TCE Landscaping.

4

In 2008, the time of the events at issue in this appeal, RPC 1.15 (b) provided:

(b) Upon receiving funds or other property in which a client or third person

has an interest, a lawyer shall promptly notify the client or third person.

Except as stated in this Rule or otherwise permitted by law or by agreement

with the client, a lawyer shall promptly deliver to the client or third person

any funds or other property that the client or third person is entitled to

receive and, upon request by the client or third person, shall promptly

render a full accounting regarding such funds or other property. If a dispute

arises between the client and a third person with respect to their respective

interests in the funds or property held by the lawyer, the portion in dispute

shall be kept separate and safeguarded by the lawyer until the dispute is

resolved.

Tenn. Sup. Ct. R. 8, RPC 1.15(b) (2008). Amendments to RPC 1.15(b) since 2008 transferred the

first two sentences of the 2008 version of RPC 1.15(b) to RPC 1.15(d). See Tenn. Sup. Ct. R. 8, RPC 1.15(d)

(2012). Additionally, subsequent amendments deleted the third sentence of the 2008 version of RPC 1.15(b),

but substantially similar language now appears in RPC 1.15(e). Id. at RPC 1.15(e) (“When in the course of

representation a lawyer is in possession of property or funds in which two or more persons (one of whom

may be the lawyer) claim interests, the property shall be kept separate by the lawyer until the dispute is

(continued...)

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4

(...continued)

resolved. The lawyer shall promptly distribute all portions of the property or funds as to which the interests

are not in dispute.”).

5

RPC 4.1 has not been amended since 2008. The text of the rule then and now provides:

(a) In the course of representing a client, a lawyer shall not knowingly

make a false statement of material fact or law to a third person.

(b) If, in the course of representing a client in a nonadjudicative matter, a

lawyer knows that the client intends to perpetrate a crime or fraud, the

lawyer shall promptly advise the client to refrain from doing so and shall

discuss with the client the consequences of the client’s conduct. If after

such discussion, the lawyer knows that the client still intends to engage in

the wrongful conduct, the lawyer shall:

(1) withdraw from the representation of the client in the

matter; and

(2) give notice of the withdrawal to any person who the

lawyer knows is aware of the lawyer’s representation of

the client in the matter and whose financial or property

interests are likely to be injured by the client’s criminal or

fraudulent conduct. The lawyer shall also give notice to

any such person of the lawyer’s disaffirmance of any

written statements, opinions, or other material prepared by

the lawyer on behalf of the client and which the lawyer

reasonably believes may be used by the client in

furtherance of the crime or fraud.

(c) If a lawyer who is representing or has represented a client in a non-

adjudicative matter comes to know, prior to the conclusion of the matter,

that the client has, during the course of the lawyer’s representation of the

client, perpetrated a crime or fraud, the lawyer shall promptly advise the

client to rectify the crime or fraud and consult with the client about the

consequences of the client’s failure to do so. If the client refuses or is

unable to rectify the crime or fraud, the lawyer shall:

(1) if currently representing the client in the matter,

withdraw from the representation and give notice of the

withdrawal to any person whom the lawyer knows is

aware of the lawyer’s representation of the client in the

matter and whose financial or property interests are likely

to be injured by the client’s criminal or fraudulent

conduct; and

(2) give notice to any such person of the lawyer’s

disaffirmance of any written statements, opinions, or other

material prepared by the lawyer on behalf of the client and

(continued...)

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8.4(a), (c). The petition was served upon Mr. Maddux by certified mail, and he received and

accepted service on February 16, 2010, as evidenced by his signature on a certified mail

receipt. However, he failed to answer the petition within twenty days of service. See Tenn.

Sup. Ct. R. 9, § 8.2.

On April 28, 2010, seventy-one days after the petition was served, Disciplinary

Counsel moved for default judgment based on Mr. Maddux’s failure to file an answer to the

petition. The motion was based on Tennessee Supreme Court Rule 9, section 8.2, which

provides that when a lawyer fails to answer a petition within twenty days of service, “the

charges shall be deemed admitted; provided, however, that a [lawyer] who fails to answer

within the time provided may obtain permission of the Chair to file an answer if such failure

to file an answer was attributable to mistake, inadvertence, surprise or excusable neglect.”

Tenn. Sup. Ct. R. 9, § 8.2. Disciplinary Counsel mailed the motion for default judgment to

the same address where Mr. Maddux had received and signed for the petition for discipline.

Mr. Maddux did not respond to the motion.

On June 2, 2010, the Chair of the Board appointed a hearing panel to adjudicate the

petition for discipline against Mr. Maddux. By order signed on June 9 and filed on June 10,

2010, the hearing panel granted the motion for default judgment and deemed the facts

contained in the petition admitted pursuant to Rule 9, section 8.2. The hearing panel pointed

out that Mr. Maddux had filed neither an answer, nor any other responsive pleading, to the

petition and had not sought or obtained permission from the Board Chair to file an answer

beyond the twenty days provided in Rule 9, section 8.2. The hearing panel explained that it

5

(...continued)

that the lawyer reasonably believes may be used by the

client in furtherance of the crime or fraud.

Tenn. Sup. Ct. R. 8, RPC 4.1 (2012).

6

RPC 8.4(a) and (c) also have not been amended since 2008 and provide:

It is professional misconduct for a lawyer to:

(a) violate or attempt to violate the Rules of Professional Conduct,

knowingly assist or induce another to do so, or do so through the acts of

another;

....

(c) engage in conduct involving dishonesty, fraud, deceit, or

misrepresentation.

Tenn. Sup. Ct. R. 8, RPC 8.4 (a), (c) (2012).

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lacked authority to permit the filing of an answer beyond the time provided in Rule 9, section

8.2, absent permission of the Board Chair.

Thereafter, Mr. Maddux filed, pro se, a motion seeking to set aside the default

judgment and to file an answer to the petition for discipline based on excusable neglect. Mr.

Maddux alleged that he had not received the motion for default judgment and had no

knowledge of the motion or the appointment of a hearing panel until June 6, 2010. Mr.

Maddux admitted that he had received the petition for discipline on February 16, 2010, but

neglected to answer it, explaining that he had just been sued for over $300,000, had financial

and marital problems as well as personal obligations, and his “mind was not where it should

have been.” Mr. Maddux’s motion was referred to the Board Chair, who denied it on July

15, 2010. On August 9, 2010, Mr. Maddux filed, through counsel, a motion to reconsider.

The Board Chair denied this motion on August 23, 2010.

When the hearing panel convened on January 14, 2011, Mr. Maddux stipulated that

he had mailed the October 31, 2008 letters, failed to deposit with the Clerk and Master the

more than $35,000 he received in response, given the checks payable to the business entities

to Ted Hayes, and failed to advise the trial court or opposing counsel of his intention to give

the checks to Ted Hayes rather than deposit them with the Clerk and Master. Mr. Maddux

further stipulated that the facts alleged in the petition were deemed admitted due to his failure

to answer the petition and that the stipulated acts and omissions constituted “ethical

misconduct” in violation of RPC 1.15(b), 4.1, and 8.4(a) and (c).

Testifying at the hearing, Mr. Maddux stated that, when he sent the letters on

October 31, 2008, he had originally intended to deposit any funds received with the Clerk

and Master. Mr. Maddux explained that he later decided to give the money to Mr. Hayes

because Mr. Hayes was financially “destitute” and needed money to support his wife and six

children. According to Mr. Maddux, Mr. Hayes essentially demanded the money, explaining

that Mr. Bean “was out collecting money too and had collected a bunch of money.” Mr.

Maddux stated that he did not believe turning over the money to Mr. Hayes would harm

anyone and emphasized that he told Mr. Hayes the trial court would require an accounting

of the funds before the conclusion of the lawsuit against Mr. Bean. Mr. Maddux confirmed

that the checks were released to Mr. Hayes alone, and none was given to Ms. Hayes. Mr.

Maddux emphasized that the checks were not released until Mr. Hayes executed

unconditional waivers of liens on behalf of the business entities and in favor of the paying

customers.

Mr. Maddux admitted that his actions were not consistent with the October 31, 2008

demand letters and acknowledged that he did not inform customers, opposing counsel, or the

trial court when he opted to give the checks to Mr. Hayes rather than deposit them with the

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Clerk and Master. Mr. Maddux testified that, when he decided to give the checks to Mr.

Hayes, he did not realize his conduct violated RPC 1.15(b) but now understands his conduct

violated this rule. Mr. Maddux testified that he received approximately $7,200 for the legal

services he provided the Hayeses, but his fee was not paid from monies received in response

to the October 31, 2008 letters.

In the remainder of his testimony, Mr. Maddux described his personal and

professional background. Mr. Maddux and his wife had been married forty years and had

four grown children. After Mr. Maddux served in the military and received an honorable

discharge, he worked for a year at the Y-12 facility in Oak Ridge, Tennessee, before

enrolling in and completing law school at the University of Tennessee. After law school, Mr.

Maddux returned to the Chattanooga area, where he had grown up, and began practicing law

in 1974. Mr. Maddux explained that he had practiced law as a partner in various firms for

several years, but had eventually transitioned from a partnership practice to a space-sharing

arrangement only. Twenty-one months before the hearing, Mr. Maddux ended the space-

sharing arrangement and set up his office as a solo practitioner. Mr. Maddux, two months

shy of his sixty-sixth birthday at the time of the hearing, expressed his intention to continue

practicing law in Tennessee for “another four or five years.”

As for law-related organizations, Mr. Maddux explained that he had been a member

of the Trial Lawyers Association, as well as the Lookout Mountain, Chattanooga, and

Georgia Bar Associations. He also had served a two-year term as a director of the

Chattanooga Bar Association. As for civic activities, Mr. Maddux described the various

positions he had held in his church and the various youth sports teams he had coached when

his own children were young. He recounted, as well, his eleven-year tenure as a Scout

master, during which time he assisted his own three sons and more than fifteen other Scouts

attain the rank of Eagle Scout.

Nancy Hayes also testified before the hearing panel. She confirmed that her son and

Mr. Bean had been business partners for a couple of years. She described her own role as

that of “office manager, project manager,” explaining that she made the travel arrangements,

rented the equipment needed for projects, served as bookkeeper, until approximately six

weeks before Mr. Bean emptied the business accounts, and owned and leased to the business

the property in which the business office was located. Ms. Hayes also provided the business

financial assistance, consisting of loaning the business approximately $95,000 by taking out

a home equity loan on her home, signing a $50,000 promissory note, signing promissory

notes for three business vehicles, guaranteeing business credit cards, and allowing the

business to use her personal credit cards for business expenses. Ms. Hayes felt that, as

compared to her son and Mr. Bean, she had “contributed the greater part of the monies” to

keep the business afloat. Ms. Hayes estimated her own financial losses from the business as

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“conservatively, $275,000,” and she had received no money from Mr. Hayes, Mr. Bean, or

Mr. Maddux as repayment of her financial contributions. Ms. Hayes had been required to

file for Chapter 13 bankruptcy protection to save the home in which she lived, and

foreclosure proceedings were underway against the property she owned and had leased to the

business for use as an office.

Ms. Hayes testified that she paid Mr. Maddux’s fee, recalling that she signed a

promissory note initially because she needed time to raise the money. A couple of weeks

after their first meeting, she had raised enough money to pay the first of three installments.

Ms. Hayes confirmed that Mr. Maddux’s fee was not paid from the monies received in

response to the October 31, 2008 letters.

At the conclusion of the proof, the three-member hearing panel unanimously found,

“[b]y virtue of the default judgment, as well as [s]tipulation 26 7 agreed to by the parties,” that

Mr. Maddux violated RPC 1.15(b), 4.1, and 8.4(a) and (c) and that he was subject to

discipline for these violations. The hearing panel unanimously rejected Disciplinary

Counsel’s request for a suspension of one year or greater. However, after considering the

ABA Standards for Imposing Lawyer Sanctions,8 the hearing panel was not unanimous as

to the appropriate sanction. A majority of the hearing panel concluded that a nine-month

suspension was appropriate. Although finding no evidence to show that Mr. Maddux’s

conduct caused actual injury, the hearing panel majority found evidence to show that Mr.

Maddux’s conduct caused potential injury to debtors of the business. As for Ms. Hayes

specifically, the hearing panel majority found that she “lost an opportunity to recover at least

a portion of her capital investment” when Mr. Maddux gave the $35,000 to Mr. Hayes alone.

As for aggravating circumstances, the majority gave great weight to Mr. Maddux’s

disciplinary history, which they found involved similar types of misconduct and included two

prior suspensions of thirty days and five months, respectively. The hearing panel also

afforded significant weight to Mr. Maddux’s substantial experience in the practice of law and

gave some weight, albeit not substantial, to Mr. Maddux’s failure to respond timely to the

petition for discipline and requests for information in this matter and in his prior disciplinary

7

The text of stipulation 26 is as follows:

The acts and omissions by [Mr. Maddux] as set forth in [the] paragraphs

above related to the complaint filed by [Mr. Abbott] constitute ethical

misconduct in violation of the following Rules of Professional Conduct:

1.15(b), Safekeeping Property; 4.1, Truthfulness And Candor In Statements

To Others; and 8.4(a)(c), Misconduct.

8

American Bar Association, Standards for Imposing Lawyer Sanctions, (1982) (amended1992)

(hereinafter “ABA Standards”).

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proceedings. As for mitigating factors, the hearing panel gave some weight to Mr. Maddux’s

expressions of remorse, but noted that this fact did not weigh heavily in mitigation. The

hearing panel also gave some mitigating weight, but less than determinative, to the fact that

Mr. Maddux “did not act out of dishonest or selfish motives . . . [and] apparently acted to

help a client who he believed was in ‘desperate’ need.” The hearing panel pointed out,

however, that Mr. Maddux did nothing to confirm any facts related by Mr. Hayes before

turning “over some $35,000 in which others had interest.”

The dissenting hearing panel member would have imposed a less serious sanction

because he found no proof that Mr. Maddux’s conduct caused actual or potential injury and

characterized the proof of potential injury to Ms. Hayes as “too speculative.” The dissenting

hearing panel member otherwise agreed with the majority’s analysis of aggravating and

mitigating factors, but concluded that the appropriate sanction was a thirty-day suspension.

On March 21, 2011, Mr. Maddux filed a petition for writ of certiorari in the Chancery

Court for Hamilton County. By order entered July 24, 2012, the Chancery Court affirmed

the hearing panel majority’s judgment, finding substantial and material evidence to support

the hearing panel’s finding of potential injury to Ms. Hayes and determining that the nine-

month suspension was not arbitrary or capricious. Thereafter, Mr. Maddux appealed to this

Court. See Tenn. Sup. Ct. R. 9, §1.3.

Standard of Review

As part of our inherent duty to regulate the practice of law in Tennessee, this Court

bears the ultimate responsibility for sanctioning attorneys who violate ethical rules. Bd. of

Prof’l Responsibility v. Cowan, 388 S.W.3d 264, 267 (Tenn. 2012). To fulfill this

responsibility, we have established a system where attorneys formally charged with

disciplinary violations have a right to an evidentiary hearing before a hearing panel, which

must determine the disciplinary penalty. Cowan, 388 S.W.3d at 267 (citing Tenn. Sup. Ct.

R. 9, § 8.2). A lawyer dissatisfied with a hearing panel’s decision may prosecute an appeal

to the circuit or chancery court and then directly to this Court, where our review is upon the

transcript of the record from the trial court, including the record of the evidence presented

to the hearing panel. Tenn. Sup. Ct. R. 9, § 1.3. We apply the same standard of review as

that applied by a trial court and will not disturb the hearing panel’s decision unless

the rights of the petitioner have been prejudiced because the

panel’s findings, inferences, conclusions or decisions are: (1) in

violation of constitutional or statutory provisions; (2) in excess

of the panel’s jurisdiction; (3) made upon unlawful procedure;

(4) arbitrary or capricious or characterized by abuse of

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discretion or clearly unwarranted exercise of discretion; or (5)

unsupported by evidence which is both substantial and material

in the light of the entire record.

Tenn. Sup. Ct. R. 9, § 1.3; see also Cowan, 388 S.W.3d at 267. We review questions of law

de novo but do not substitute our judgment for that of the hearing panel as to the weight of

the evidence on questions of fact. Cowan, 388 S.W.3d at 267. These principles guide our

review of the issues Mr. Maddux has raised in this appeal.

Analysis

Default Judgment

Tennessee Supreme Court Rule 9, section 8.2 delineates the procedures applicable in

formal disciplinary proceedings. First, Disciplinary Counsel must file with the Board and

serve upon the lawyer a formal petition for discipline which is “sufficiently clear and specific

to inform the [lawyer] of the alleged misconduct.” Tenn. Sup. Ct. R. 9, § 8.2. Within twenty

days after service, the lawyer must serve an answer on Disciplinary Counsel, unless the time

is extended by the Chair of the Board. Id. If a lawyer fails to answer a formal petition for

discipline, the charges “shall be deemed admitted.” Id. However, a lawyer who fails to

answer within the time provided “may obtain permission from the Board Chair to file an

answer if such failure to file an answer was attributable to mistake, inadvertence, surprise or

excusable neglect.” Id.

In this case, Mr. Maddux failed to file an answer within the time provided in Rule 9,

section 8.2 or request an extension of that time. When Disciplinary Counsel filed the motion

for default judgment seventy-one days after the petition was served, Mr. Maddux again failed

to respond to the motion. Although Mr. Maddux filed a motion to set aside the default

judgment and a motion to re-consider the denial of his motion to set aside, he never

submitted a proposed answer to the formal petition for discipline. Despite Mr. Maddux’s

assertion that he did not receive the motion for default judgment, he has consistently

acknowledged receiving the formal petition for discipline. As he did before the hearing

panel, Mr. Maddux maintains that he neglected to answer the petition because he had just

been sued for over $300,000, was experiencing financial and marital difficulties, was focused

on maintaining a close relationship with his four grown children, and was attending to the

obligations of his personal life, which “was not uneventful.” Mr. Maddux recognizes that

he should have promptly filed an answer but states that his “mind was not where it should

have been” because of the foregoing “distractions which are significant.” Mr. Maddux

contends that, had he received a copy of the motion for default judgment, he would have

promptly filed an answer to the petition.

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Before addressing the merits of his argument regarding the default judgment, it is

appropriate to point out that, prior to the hearing, Mr. Maddux stipulated to the truth of the

key facts alleged in the petition for discipline and also stipulated that his stipulated acts and

omissions constituted ethical misconduct in violation of RPC 1.15(b), 4.1, and 8.4(a) and (c).

During his testimony before the hearing panel, Mr. Maddux admitted that his handling of the

funds received in response to the October 31, 2008 letters violated Rule 1.15(b).

Furthermore, despite the default judgment and the stipulations, the hearing panel afforded

Mr. Maddux great leeway by allowing him to testify and to present any proof he wished

concerning his conduct. At the conclusion of the proof, Disciplinary Counsel stated, in

response to questioning from hearing panel members, that the default judgment established

only the truth of the facts alleged in the petition and did not remove from the hearing panel’s

purview the question of whether Mr. Maddux’s conduct violated ethical rules. Based on the

pre-hearing stipulations and the proof and testimony Mr. Maddux presented to the hearing

panel, a strong argument can be made that Mr. Maddux waived his right to challenge the

denial of his motion to set aside the default judgment. Nonetheless, we will address this

issue on the merits. See Tenn. R. App. P. 13(b).

In determining whether to set aside a default judgment based on excusable neglect,

a court must first determine “whether the conduct precipitating the default was willful. If the

court finds that the defaulting party has acted willfully, the judgment cannot be set aside on

‘excusable neglect’ grounds. . . .” Discover Bank v. Morgan, 363 S.W.3d 479, 494 (Tenn.

2012). This is true because willfulness and excusable neglect are inherently incompatible.

Id. at 493. Willful conduct includes deliberate choices, as well as flagrant and unexplained

violations of procedural rules. Id. at 493-95. If the court determines that the defaulting

party’s conduct was careless, inattentive, or negligent, but not willful, then the court must

next consider “whether the defaulting party has a meritorious defense and whether the

non-defaulting party would be prejudiced by the granting of relief.” Id. at 494. A court may

also consider any other factor deemed relevant. Id.

Applying these principles, we conclude that Mr. Maddux’s deliberate choice not to

answer the petition constituted a flagrant violation of Rule 9, section 8.2 and amounted to

willful conduct. We do not minimize the legal, financial, and marital difficulties or the

family and personal obligations which may have been facing Mr. Maddux at the time he

received the petition. Nonetheless, when faced with such difficulties and obligations,

attorneys may not simply choose to ignore procedural requirements and later seek relief from

the inevitable consequences of their deliberate choices based on excusable neglect. Mr.

Maddux, who had already been disciplined—in part for failing to respond timely to a petition

for discipline—certainly was not ignorant of the detrimental consequences that can result

from choosing not to respond. See Maddux, 288 S.W.3d at 347, 349. Such willful conduct

is incompatible with the concept of excusable neglect. Discover Bank, 363 S.W.3d at 493.

-12-

Thus, we need not address whether Mr. Maddux had a meritorious defense or whether

the Board would have been prejudiced had Mr. Maddux’s motion been granted. The

willfulness of Mr. Maddux’s conduct is alone a sufficient basis for our decision affirming

the denial of his motion to set aside the default judgment.9

Appropriate Sanction

Mr. Maddux next argues that his nine-month suspension is excessive because there

is no evidence to support the hearing panel’s finding, affirmed by the trial court, that his

conduct caused potential injury to Ms. Hayes. The Board responds that substantial and

material evidence supports the hearing panel’s finding of potential injury to Ms. Hayes.

We begin our analysis with the ABA Standards, which are the guideposts hearing

panels and courts in Tennessee use when determining appropriate, consistent sanctions for

attorney misconduct. Tenn. Sup. Ct. R. 9, § 8.4; Cowan, 388 S.W.3d at 268; Lockett v. Bd.

of Prof’l Responsibility, 380 S.W.3d 19, 26 (Tenn. 2012). The ABA Standards provide a

framework designed to give “courts the flexibility to select the appropriate sanction in each

particular case of lawyer misconduct.” ABA Standards, Theoretical Framework. The ABA

Standards “are not designed to propose a specific sanction for each of the myriad of fact

patterns in cases of lawyer misconduct,” and they are “not analogous to criminal determinate

sentences.” Id.

When using the ABA Standards to determine an appropriate sanction for lawyer

misconduct, courts must consider four factors: (1) the duty violated; (2) the lawyer’s mental

state; (3) the potential or actual injury caused by the lawyer’s misconduct; and (4) the

existence of aggravating or mitigating factors. ABA Standard 3.0; Cowan, 388 S.W.3d at

268. Consideration of these factors may be accomplished by answering the following four

questions:

(1) What ethical duty did the lawyer violate? (A duty to a client,

the public, the legal system, or the profession?);

(2) What was the lawyer’s mental state? (Did the lawyer act

intentionally, knowingly, or negligently?);

9

In affirming the hearing panel and trial court decisions, we do not retreat from the general rule that

default judgments run counter to the judicial system’s preferred objective of disposing of cases on the merits.

Discover Bank, 363 S.W.3d at 490 n.20; Henry v. Goins, 104 S.W.3d 475, 481 (Tenn. 2003). We simply

hold that Mr. Maddux failed to establish grounds for setting aside the default judgment.

-13-

(3) What was the extent of the actual or potential injury caused

by the lawyer’s misconduct? (Was there a serious or potentially

serious injury?); and

(4) Are there any aggravating or mitigating circumstances?

ABA Standards, Theoretical Framework. The first question is critical because the

presumptive sanctions set out in the ABA Standards are organized by the type of duty the

lawyer has violated. ABA Standards 4, 5, and 6 delineate the presumptive sanctions for a

lawyer’s violation of a duty owed to a client, the public, or the legal system, respectively,

while ABA Standard 7 describes the presumptive sanctions for a lawyer’s violation of a duty

owed to the legal profession. See ABA Standards 4-7; see also Cowan, 388 S.W.3d at 268

(discussing the organization of the ABA Standards). ABA Standard 8 describes the

presumptive sanctions for lawyers who have been previously disciplined. ABA Standard 8.

After identifying the duty or duties violated and, in turn, the relevant ABA

Standard(s), the disciplinary authority must next determine which presumptive sanction, from

among the range provided in each ABA Standard, applies in the particular case before it.

This determination requires a careful consideration of the facts because the severity of the

presumptive sanction varies depending upon the lawyer’s mental state—whether the lawyer

acted intentionally, knowingly, or negligently—and the seriousness of the actual or potential

injury caused by the lawyer’s misconduct. ABA Standards, Theoretical Framework (“To

assign a sanction, however, it is necessary to go further, and to examine each lawyer’s mental

state and the extent of the injuries caused by the lawyer’s actions.”). To aid in this

determination, the ABA Standards define “intent,” “knowledge,” “negligence,” “injury,” and

“potential injury.” 10

10

The ABA Standards defines these terms as follows:

“Injury” is harm to a client, the public, the legal system, or the profession

which results from a lawyer’s misconduct. The level of injury can range

from “serious” injury to “little or no” injury; a reference to “injury” alone

indicates any level of injury greater than “little or no” injury.

“Intent” is the conscious objective or purpose to accomplish a particular

result.

“Knowledge” is the conscious awareness of the nature or attendant

circumstances of the conduct but without the conscious objective or

purpose to accomplish a particular result.

(continued...)

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After identifying the presumptive sanction applicable in a particular case, the

disciplinary authority must next, and finally, determine whether any aggravating or mitigating

circumstances warrant increasing or decreasing the presumptive sanction. ABA Standard

9.1; Cowan, 388 S.W.3d at 268. To aid in this determination, the ABA Standards include

a non-exhaustive listing of circumstances that may be considered in aggravation and

mitigation, as well as a listing of circumstances that should not be considered as either

aggravating or mitigating. See ABA Standards 9.21, 9.22, 9.32, 9.34; Lockett, 380 S.W.3d

at 28 (describing the aggravating circumstances in the ABA Standards as “illustrative rather

than exclusive”).

Applying the foregoing framework, we affirm the trial court’s finding that Mr.

Maddux’s misconduct involved the violation of a duty owed to his clients, Mr. and Ms.

Hayes. See RPC 1.15(b). We also affirm the trial court’s and hearing panel’s finding that

Mr. Maddux’s misconduct involved the violation of duties owed to third persons and the

legal profession. See RPC 4.1, 8.4(a) and (c). As a result, we conclude, as did the hearing

panel and the trial court, that ABA Standards 4 and 7 describe the range of presumptive

sanctions applicable in this case.

Determining the specific presumptive sanction within the range provided in ABA

Standards 4 and 7 is the issue on which the hearing panel disagreed. The hearing panel

majority concluded, based on its assessment of the proof, that ABA Standards 4.12 and 7.2

supply the presumptive sanction—suspension—applicable to Mr. Maddux’s misconduct.

The dissenting hearing panel member assessed the proof differently, and as a result, viewed

ABA Standards 4.14 and 7.4 as describing the appropriate presumptive

sanction—admonition—for Mr. Maddux’s misconduct. The trial court agreed with the

hearing panel majority. The relevant ABA Standards state as follows:

10

(...continued)

“Negligence” is the failure of a lawyer to heed a substantial risk that

circumstances exist or that a result will follow, which failure is a deviation

from the standard of care that a reasonable lawyer would exercise in the

situation.

“Potential injury” is the harm to a client, the public, the legal system or the

profession that is reasonably foreseeable at the time of the lawyer’s

misconduct, and which, but for some intervening factor or event, would

probably have resulted from the lawyer’s misconduct.

ABA Standards, Definitions.

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4.1 Failure to Preserve the Client’s Property

Absent aggravating or mitigating circumstances, upon

application of the factors set out in 3.0, the following sanctions

are generally appropriate in cases involving the failure to

preserve client property:

....

4.12 Suspension is generally appropriate when a lawyer knows

or should know that he is dealing improperly with client

property and causes injury or potential injury to a client.

....

4.14 Admonition is generally appropriate when a lawyer is

negligent in dealing with client property and causes little or no

actual or potential injury to a client.

....

7.0 Violations of Other Duties Owed As A Profession

Absent aggravating or mitigating circumstances, upon

application of the factors set out in Standard 3.0, the following

sanctions are generally appropriate in cases involving false or

misleading communication about the lawyer or the lawyer’s

services, improper communication of fields of practice,

improper solicitation of professional employment from a

prospective client, unreasonable or improper fees, unauthorized

practice of law, improper withdrawal from representation, or

failure to report professional misconduct.

....

7.2 Suspension is generally appropriate when a lawyer

knowingly engages in conduct that is a violation of a duty owed

as a professional and causes injury or potential injury to a client,

the public, or the legal system.

-16-

....

7.4 Admonition is generally appropriate when a lawyer engages

in an isolated instance of negligence that is a violation of a duty

owed as a professional, and causes little or no actual or potential

injury to a client, the public, or the legal system.

ABA Standards 4.1, 4.12, 4.14, 7.0, 7.2, and 7.4.

The hearing panel unanimously found that Mr. Maddux acted knowingly, and Mr.

Maddux has not challenged this finding. The disagreement among the hearing panel

members as to the relevant ABA Standards turns on whether Mr. Maddux’s conduct caused

potential injury. The hearing panel majority concluded that Mr. Maddux’s conduct created

potential injury to Ms. Hayes, and the trial court affirmed this finding.11 The dissenting

hearing panel member concluded that Mr. Maddux’s conduct created little or no potential

injury to anyone. Adopting the decision of the dissenting hearing panel member, Mr.

Maddux asserts that the proof does not show potential injury to Ms. Hayes.

We disagree and conclude that substantial and material evidence supports the hearing

panel’s finding, affirmed by the trial court, that Mr. Maddux’s conduct, at the very least,

created potential injury to Ms. Hayes. As already noted, the ABA Standards define “potential

injury” as “the harm to a client, the public, the legal system or the profession that is

reasonably foreseeable at the time of the lawyer’s misconduct, and which, but for some

intervening factor or event, would probably have resulted from the lawyer’s misconduct.”

ABA Standards, Definitions. The proof in this record established that Ms. Hayes used a

home equity loan to lend the business approximately $95,000, guaranteed business credit

cards, allowed the business to use her personal credit cards to purchase needed materials,

signed notes for the business, and leased a house she owned to the business for use as an

office. Ms. Hayes testified that, as compared to Mr. Hayes and Mr. Bean, she “contributed

the greater part of the monies” necessary to keep the business afloat. Mr. Maddux was well

aware of Ms. Hayes’s financial contributions to the business. Indeed, he filed a complaint

on her behalf against Mr. Bean and TCE Landscaping, specifically itemizing the amounts

owed to Ms. Hayes and seeking an award of damages.12 The purpose of the October 31,

11

The trial court affirmed based solely on its finding that Mr. Maddux’s conduct caused potential

injury to Ms. Hayes as a client. The trial court found little or no potential injury to owners, debtors, and

creditors of the business.

12

Paragraphs nine and ten of the complaint Mr. Maddux filed on behalf of the Hayeses alleged that

Ms. Hayes had used her home equity line of credit to lend the business $94,973.09, that she had guaranteed

(continued...)

-17-

2008 letters, demanding payment from the customers of TCE Landscaping and representing

that payments would be deposited with the Clerk and Master pending a ruling in the lawsuit,

was to protect the separate interests of Mr. Hayes and Ms. Hayes. The record contains no

evidence that Ms. Hayes released her interest in the more than $35,000 Mr. Maddux received

and turned over to Mr. Hayes. Furthermore, no proof in the record suggests that Mr. Maddux

advised Ms. Hayes of his intent to give Mr. Hayes these monies, despite Mr. Maddux’s

obligation to represent the interests of both his clients. Rather, the record indicates that Ms.

Hayes was not present when Mr. Maddux turned over the checks to Mr. Hayes. Ms. Hayes’s

potential injury was reasonably foreseeable at the time Mr. Maddux gave to Mr. Hayes alone

checks payable to the business entities that were indebted to Ms. Hayes. The potential injury

to Ms. Hayes was neither speculative nor uncertain.

The lack of proof of an intervening factor or event which prevents actual injury from

occurring does not undermine or preclude a finding of potential injury. As already noted, the

ABA Standards are guidelines designed to provide courts flexibility to select appropriate

sanctions in each particular case. Ascribing a technical or rigid meaning to the term

“potential injury” would defeat this important purpose. Furthermore, rather than precluding

a finding of potential injury, we view the lack of proof of an intervening factor or event as

suggesting, at least in this case, that the potential injury likely evolved into actual injury. Ms.

Hayes testified that she lost “conservatively” $275,000 from her involvement with the

business, that she has never been repaid any of the monies the business owed her, that she

has been required to file for bankruptcy protection to retain her home, and that the property

she owned which housed the business office, is now in foreclosure. An argument can be

made that, by depriving Ms. Hayes of any portion of the $35,000, money she could have used

to reduce her indebtedness, Mr. Maddux’s misconduct caused her actual injury. Neither the

hearing panel nor the trial court found actual injury, and we need not do so to resolve this

appeal. Rather, we affirm based solely on our conclusion that substantial and material

evidence supports the finding of potential injury to Ms. Hayes.

12

(...continued)

an American Express Card for the business which had a balance in excess of $20,600, that she had

guaranteed a CitiBank Visa Card for the business, which had a balance in excess of $3,349.30, that she had

allowed the business to charge in excess of $9,900 worth of materials on her personal Sears credit card, and

that she had rented the business a property to use as its office and was owed $2,390 in rent for September,

October, and November 2008. Not before us in this appeal is the issue of whether Mr. Maddux’s joint

representation of Mr. Hayes and Ms. Hayes in the lawsuit against the business entities in which Mr. Hayes

allegedly owned an interest amounted to a conflict of interest, as defined in RPC 1.7(a), and prohibited the

joint representation, except as provided in RPC 1.7(b).

-18-

Given the material and substantial evidence establishing potential injury to Ms. Hayes,

Mr. Maddux’s client and a creditor of the business, we agree with the hearing panel majority

and the trial court that ABA Standards 4.12 and 7.2 apply in this case. Thus, the presumptive

sanction for Mr. Maddux’s misconduct was suspension.13 We turn next to consider whether

the nine-month suspension is excessive, as Mr. Maddux claims.

Aggravating and Mitigating Circumstances

In setting Mr. Maddux’s suspension at nine months, the hearing panel considered as

aggravating circumstances Mr. Maddux’s disciplinary history, his substantial experience in

the practice of law, and his failure to respond timely in this case and in his prior disciplinary

proceedings. Mr. Maddux does not take issue with the hearing panel’s consideration of these

aggravating circumstances and agrees that his disciplinary history is an aggravating factor.

Mr. Maddux argues, however, that the hearing panel afforded too much weight to his

disciplinary history, failed to judge this case on its own merits, and punished him for his prior

disciplinary actions. Mr. Maddux also asserts that a nine-month suspension of an attorney

his age is, as a practical matter, disbarment; thus, he urges us to reduce the suspension to

thirty days or a public censure.

The hearing panel carefully considered the applicable ABA Standards, reviewed the

record, analyzed the proof to determine which aggravating and mitigating circumstances

were established, and balanced the aggravating and mitigating circumstances. Although

Disciplinary Counsel advocated for a one-year suspension, the hearing panel, after

considering both the aggravating and mitigating circumstances, imposed the lesser nine-

month suspension. The hearing panel appropriately weighed Mr. Maddux’s disciplinary

history heavily in aggravation against him, as Mr. Maddux’s prior disciplinary proceedings

involved similar misconduct, specifically misconduct involving dishonesty, fraud, deceit, or

misrepresentation and mishandling of property in which others claimed an interest. Based

13

ABA Standard 8.2, describing presumptive sanctions for matters involving prior discipline, also

indicates suspension is an appropriate presumptive sanction in this matter. ABA Standard 8.2 (“Suspension

is generally appropriate when a lawyer has been reprimanded for the same or similar misconduct and engages

in further similar acts of misconduct that cause injury or potential injury to a client, the public, the legal

system, or the profession.”). On the other hand, ABA Standard 8.1(b) indicates disbarment could have been

viewed as the appropriate presumptive sanction for Mr. Maddux’s conduct. ABA Standard 8.1(b) (“Absent

aggravating or mitigating circumstances, . . . [d]isbarment is generally appropriate when a lawyer . . . has

been suspended for the same or similar misconduct, and intentionally or knowingly engages in further similar

acts of misconduct that cause injury or potential injury to a client, the public, the legal system, or the

profession.”).

-19-

on our review of the record, the hearing panel’s imposition of a nine-month suspension is not

arbitrary or capricious and is supported by substantial and material evidence.

Conclusion

We affirm the judgment of the trial court and the hearing panel suspending Mr.

Maddux from the practice of law for nine months. Costs of this appeal are taxed to H. Owen

Maddux, and his surety, for which execution, if necessary, may issue.

_________________________________

CORNELIA A. CLARK, JUSTICE

-20-