In the Matter of Zak

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SJC-12073

IN THE MATTER OF DAVID ZAK.

April 10, 2017.

Attorney at Law, Disciplinary proceeding, Commingling of funds,

Fee-sharing agreement, Advertising, Disbarment.

The respondent attorney, David Zak, appeals from a judgment

of a single justice of this court disbarring him from the

practice of law.1 We affirm.

Background. Bar counsel filed a seven-count petition for

discipline with the Board of Bar Overseers (board) against the

respondent arising out of the respondent's solicitation and

handling of a substantial number of mortgage loan modification

cases over more than a four-year period. See note 10, infra.

Count one alleged that the respondent made payments to others to

recommend his services and to solicit professional employment

for the respondent from prospective clients;2 shared fees with

nonlawyers;3 failed to instruct and supervise his employees and

1

This bar discipline appeal is subject to S.J.C. Rule 2:23

(c), 471 Mass. 1303 (2015). Pursuant to the rule, we dispense

with oral argument, and decide the case on the basis of the

materials filed by the respondent.

2

These acts were alleged to be in violations of Mass. R.

Prof. C. 7.2 (c), as appearing in 430 Mass. 1306 (1999); Mass.

R. Prof. C. 7.3 (d) & (f), as amended, 431 Mass. 1302 (2000);

and Mass. R. Prof. C. 8.4 (a), 426 Mass. 1429 (1998).

3

This act was alleged to be in violation of Mass. R. Prof.

C. 5.4 (a), as appearing in 430 Mass. 1303 (1999).

2

agents adequately;4 and engaged in the practice of law with a

person who was not a lawyer.5 Count two charged that the

respondent made false and misleading advertisements about

himself, his law firm, and his loan modification services, in

Massachusetts and other jurisdictions.6 Count three alleged that

the respondent charged and collected advance fees for loan

modification services, in violation of Federal and State

statutes and regulations, and that the fees he charged were

either excessive or illegal, or both.7 Count four alleged that

the respondent provided or caused to be provided to clients

false, deceptive or misleading information about his loan

modification services.8 Counts five, six, and seven alleged

misconduct during the respondent's handling of three specific

loan modification matters, and in connection with bar counsel's

investigation of complaints filed by those clients.

The petition was referred to a special hearing officer.

After a hearing, at which the respondent was represented by

counsel, the hearing officer made detailed findings of fact and

conclusions of law against the respondent on all counts, and

recommended that the respondent be disbarred. The hearing

officer also recommended that the respondent be required to make

restitution. The respondent appealed to the board, focusing

4

This failure was alleged to be in violation of Mass. R.

Prof. C. 5.3 (a), (b) & (c), 426 Mass. 1408 (1998).

5

This act was alleged to be in violation of Mass. R. Prof.

C. 5.4 (b), as appearing in 430 Mass. 1303 (1999).

6

Count two alleged violations of Mass. R. Prof. C. 7.1, as

appearing in 430 Mass. 1305 (1999); Mass. R. Prof. C. 7.2 (a),

as appearing in 430 Mass. 1306 (1999); and Mass. R. Prof. C. 8.4

(c), 426 Mass. 1429 (1998). The petition for discipline also

charged violation of the rules of professional conduct in

Virginia, New York, Pennsylvania, and Rhode Island.

7

Count three alleged violations of Mass. R. Prof. C. 1.5

(a), as appearing in 459 Mass. 1301 (2011). The petition for

discipline also charged violation of rules of professional

conduct of Rhode Island.

8

Count four alleged violation of Mass. R. Prof. C. 1.1, 426

Mass. 1308 (1998); Mass. R. Prof. C. 1.2 (c), 426 Mass. 1310

(1998); Mass. R. Prof. C. 1.4 (b), 426 Mass. 1314 (1998); Mass.

R. Prof. C. 5.3 (a) & (b), 426 Mass. 1408 (1998); and Mass. R.

Prof. C. 8.4 (a) & (c).

3

primarily on the disciplinary recommendation. The board adopted

the hearing officer's findings of fact and conclusions of law,

and voted to recommend that the respondent be disbarred.

Although it declined to recommend that restitution be ordered,

the board observed that failure to make restitution reflects

poorly on an attorney's moral fitness to practice law. The

board thereafter filed an information in the county court,

pursuant to S.J.C. 4:01, § 8 (6), as appearing in 453 Mass. 1310

(2009). After a hearing, the single justice concluded that the

special hearing officer's findings were supported by substantial

evidence, see S.J.C. Rule 4:01, § 8 (5) (a) and (6), and that

those findings supported the board's conclusions regarding

violations of the disciplinary rules. She accepted the

recommendation of the board as to sanction, and ordered that the

respondent be disbarred.

Discussion. The respondent does not dispute that he

engaged in the conduct described in the hearing officer's

findings, which were adopted by the board. We have thoroughly

reviewed the record, and agree with the single justice that

these findings were supported by substantial evidence. There is

no need to repeat the single justice's detailed discussion here.

Quoting the board, the single justice observed that the

respondent:

"systematically extracted illegal and excessive fees from

numerous vulnerable and desperate clients with deceptive

advertisements, misleading contractual arrangements, and

deceptive and useless services such as the 'lender benefit

analysis' and the 'forensic loan audit.' In addition, he

engaged in unlawful fee-splitting to provide his partner

and his employees with the financial incentive to use the

machinations to enhance his personal financial interest at

the expense of his clients."

We focus instead on the respondent's claim that this misconduct

warrants a public reprimand rather than disbarment. For the

reasons that follow, we reject that claim and conclude that

disbarment is appropriate.

a. Specific challenges regarding disciplinary rule

violations. For the most part, the respondent does not dispute

the board's determination that his actions violated numerous

rules of professional conduct over a period of years. See notes

2-8, supra. He does not, for example, dispute that he paid

nonlawyers to recommend his services; charged and collected

excessive fees; failed to return unearned portions of fees; made

4

or caused to be made intentionally misleading statements to

vulnerable clients about the services he could or would provide;

and with respect to one matter, charged and collected advance

fees without depositing them in a client trust account and

commingled personal and client funds. Instead, he focuses his

appeal on three aspects of the misconduct determinations. We

conclude that the single justice neither erred nor abused her

discretion in rejecting his claims.

1. Advance fees. Both State and Federal law prohibits a

lawyer from charging advance fees for mortgage assistance relief

services unless the fees are deposited into a client trust

account. See 940 Code Mass. Regs. § 25.02 (2) (2007); 12 C.F.R.

§§ 1015.5 and 1015.7 (2017). The respondent does not dispute

either that he charged advance fees or that the advance fees

were not deposited into a client trust account. He argues

instead that his conduct did not violate Mass. R. Prof. C. 1.5,

as appearing in 459 Mass. 1301 (2011), which he says creates an

independent right to collect advance fees for legal services.

The single justice correctly rejected that claim. Although the

rule does not categorically proscribe collection of advance

fees, it expressly prohibits lawyers from "collect[ing] an

illegal or clearly excessive fee." Fees charged or collected in

violation of Federal or State statutes or regulations are

prohibited under rule 1.5 (a). See, e.g., Matter of Dialessi-

Lafley, 26 Mass. Att'y Discipline Rep. 133 (2010) (fee illegal

where it violated Federal statute prohibiting collection of fees

for acting as representative payee). There was no error in the

single justice's determination that the respondent violated rule

1.5 (a).

2. Compensation. The respondent does not dispute that, by

paying nonlawyers (Elizabeth Reed and others) between $1,000 and

$1,500 for referring clients to him, and encouraging them to

solicit clients for a fee, he violated Mass. R. Prof. C. 5.4, as

appearing in 430 Mass. 1303 (1999), multiple times. He argues

only that the particular profit-sharing agreement he had with

Reed -- under which he expressly agreed to share with her the

fees earned by a business entity and his law firm on loan

modification cases -- did not violate the rule. See Mass. R.

Prof. C. 5.4 (a) (3).

The limitations on fee sharing contained in rule 5.4 are

intended to protect a lawyer's professional independence of

judgment. See Mass. R. Prof. C. 5.4, comment 1. See also

Restatement (Third) of the Law Governing Lawyers § 10 comment b

(2000) (person entitled to portion of fee may attempt to

5

influence lawyer's services to maximize fees). The rule also

recognizes, however, that lawyers may compensate nonlawyer

employees though a profit-sharing arrangement. See Mass. R.

Prof. C. 5.4 (a) (3). We recognize that there is some support

in other jurisdictions for the board's determination that, read

in context, rule 5.4 (a) (3) permits a lawyer to share aggregate

profits from legal fees with nonlawyer employees, but not

profits that are tied to specific clients or cases. See, e.g.,

American Bar Association Standing Comm. on Ethics and Prof.

Responsibility, Formal Op. 13-464 at 2 (2013) ("exception for

firm compensation and retirement plans depends on whether the

profits being shared are 'tied to particular clients or

particular matters'"), citing E.J. Bennett, E.J. Cohen & M.

Wittaker, Annotated Model Rules of Prof. C. 461 (7th ed. 2011).

Contrast In re Disciplinary Proceedings Against Weigel, 342

Wis. 2d 129, 149-150 (2012) (bonus structure based on net

profits of specific practice area rather than on net profits of

firm's entire practice permissible). We need not, however,

resolve the issue in this case. As the single justice observed:

"even if the exception applies to the profit sharing

agreement, the respondent's undisputed conduct in paying

Reed, and the agents, $1,000 to $1,500 for each client they

acquired, and for condoning and encouraging their

solicitation of potential clients for a fee, itself clearly

violates Mass. R. Prof. C. 5.4."

The single justice did not err in finding that the respondent

violated rule 5.4.

3. False advertising. The respondent did not challenge in

the county court the board's findings that he violated Mass. R.

Prof. C. 7.1, as appearing in 430 Mass. 1305 (1999) (prohibiting

false or misleading communications about lawyer or lawyer's

services). The single justice, however, considered the issue

and properly determined that the respondent violated the rule in

myriad ways. The advertisements were made in States where the

respondent neither was admitted to practice nor had business

relationships with lawyers who were licensed. Among other

things, the advertisements misrepresented that the respondent

was the only lawyer who knew how to obtain permanent loan

modifications and that he would obtain trial loan modifications

within thirty to sixty days, and they failed to acknowledge that

it is the lender that makes modification decisions. The

advertisements additionally misrepresented that the respondent

"sued the bank in every case," and that he would "pre-qualify"

clients for Federal mortgages at no cost, when the clients were

6

actually charged a substantial fee. The advertisements also

omitted other significant and relevant information. In

addition, the respondent's Web site misrepresented facts such as

the respondent's association with established, experienced

attorneys in other jurisdictions; misstated the jurisdictions in

which the his firm practiced; and misstated his prior

employment, experience, training, and his own firm's tenure.

The board determined, and the single justice agreed, that

the advertisements contained false, material, misrepresentations

of fact that violated rule 7.1 and Mass. R. Prof. C. 7.2 (a), as

appearing in 430 Mass. 1306 (1999) (communication of services),

and Mass. R. Prof. C. 8.4 (c), 426 Mass. 1429 (1998)

(prohibiting dishonesty, fraud, deceit and misrepresentation).

On the evidence before it, the board was warranted in rejecting

the respondent's claims -- which he presses on appeal -- that

the misrepresentations were "mere puffery," or inadvertent or

sloppy use of language. As the single justice's decision makes

plain, there was substantial evidence to support the board's

determination that the statements included deliberate falsehoods

concerning the respondent's firm, and the results that he would

be able to achieve. There need not be evidence that a client

was misled or deceived to establish a violation of the rules of

professional conduct. See Matter of Angwafo, 453 Mass. 28, 35

(2009) (reliance not required).9

b. Sanction. The rules of professional conduct, and the

disciplinary proceedings that accompany their violation, exist

to "protect the public and maintain its confidence in the

integrity of the bar and the fairness and impartiality of our

legal system." Matter of Curry, 450 Mass. 503, 520-521 (2008).

Accordingly, "[t]he appropriate level of discipline is that

which is necessary to deter other attorneys and to protect the

public." Id. at 530. While that determination ultimately is

for this court, we, like the single justice, give deference to

9

We decline to consider the respondent's claim that the

board erred in allowing bar counsel's prehearing motion to

establish, on the basis of issue preclusion, certain facts

concerning the respondent's association with Reed. See Loan

Modification Group, Inc. v. Reed, 694 F.3d 145, 147-148 (1st

Cir. 2012) (jury determined that Reed and respondent agreed to

enter into loan modification business together; and that

respondent formed Loan Modification Group, Inc., as entity that

would conduct "partnership business together with Reed"). The

respondent did not raise this claim before the single justice.

See Matter of Hoicka, 442 Mass. 1004, 1007 n.5 (2004).

7

"the board's recommendation, its experience, and its expertise

to try and dispose of disciplinary matters uniformly." Matter

of Eisenhauer, 426 Mass. 448, 455, cert. denied, 524 U.S. 919

(1998). See Matter of Foley, 439 Mass. 324, 333 (2003). We

agree with the single justice that the board's recommended

sanction of disbarment is appropriate in this case.

The respondent's misconduct involved repeated and multiple

ethical violations in connection with loan modification and

mortgage foreclosure cases over a number of years.10 We

acknowledge that a single violation of one of the disciplinary

rules at issue here might typically result in an admonition,

public reprimand, or, perhaps, a term suspension. But it is

well established that disciplinary violations are not viewed in

isolation. We consider instead the "cumulative effect of the

several violations committed by the respondent." Matter of

Palmer, 413 Mass. 33, 38 (1992). See Matter of Crossen, 450

Mass. 533, 574 (2008) ("[c]umulative and wide-ranging misconduct

may warrant the sanction of disbarment, even if the individual

instances of unethical conduct would not warrant so severe a

sanction"); Matter of Saab, 406 Mass. 315, 326-327 (1989). As

the board observed, "[e]ven minor violations, when aggregated,

can result in a substantial sanction exceeding what each alone

would receive."

The repeated nature of the respondent's misconduct, over a

period of years, involving hundreds of economically,

educationally, and linguistically disadvantaged clients in

10

At the hearing before the single justice, it was not

disputed that the respondent had more than 500 loan modification

clients; that between forty and sixty of them have filed claims

with the Attorney General; and that approximately twenty clients

filed complaints with the Massachusetts Commission Against

Discrimination. The respondent's counsel suggested that

restitution of the amounts at issue would be in the hundreds of

thousands of dollars.

Clients of the respondent who were harmed by his dishonest

conduct may be able to obtain reimbursement for their losses

from the Clients' Security Board, established pursuant to S.J.C.

Rule 4:04, § 1, as amended, 428 Mass. 1301 (1998). We

understand that, as a matter of course, the board and bar

counsel inform victimized clients of that possibility in

appropriate cases, and we ask that they ensure that the

appropriate victims in this case are so informed. We express no

view here as to whether any such claimants in this case ought to

be compensated by the Clients' Security Board.

8

strained financial circumstances, evidenced by threatened

foreclosure of their homes, warrants a substantial sanction.

See Matter of Lupo, 447 Mass. 345, 358 (2006) (pattern of self-

dealing and self-enrichment at expense of elderly,

unsophisticated and vulnerable warranted indefinite suspension).

See also Matter of Greene, 476 Mass. 1006, 1010-1011 (2016)

(accepting board's recommendation of indefinite suspension for

misconduct in connection with residential mortgage foreclosure

"rescue transactions"). In addition, the respondent has refused

to return unearned fees. See Matter of Sharif, 459 Mass. 558,

571 (2011) (three-year suspension for conduct including

intentional misuse of client fees, with aggravating and

mitigating factors). Through the date of the hearing before the

single justice, the respondent continued to practice law,

notwithstanding the recommendation of disbarment. Matter of

Cobb, 445 Mass. 452, 480 (2005). In at least two matters, the

respondent advised clients who were not facing foreclosure to

stop making mortgage payments (in one case, so the client could

pay the respondent), see Matter of Lupo, supra at 359, and they

were forced into foreclosure and lost their homes. See Matter

of Pike, 408 Mass. 740, 745 (1990).

Although there appears to be no Massachusetts case

involving precisely the same misconduct in connecting with loan

modification clients, the misconduct in Matter of Cammarano, 29

Mass. Att'y Discipline Rep. 82 (2013), is similar. In that

case, the attorney was indefinitely suspended for misconduct in

connection with five immigration matters. Id. at 85. In each

matter, the respondent agreed to file certain immigration

documents, set a flat fee for services, and demanded payment of

retainers and filing fees before beginning work. Id. at 88. In

each case, the immigration documents either were not filed or

were returned because the filing fee was incorrect. Id. In

each case, the board found that the respondent intentionally

misrepresented the status of the matter to the client. Id.

Eventually, successor counsel was able to obtain the desired

result in four of the cases; the fifth case was still pending at

the time of the hearing. Id. The respondent in that case

refused to refund any portion of the fees. Id. The single

justice concluded an indefinite suspension was warranted

because:

"the respondent neglected multiple client matters, over a

period of several years, and deliberately and knowingly

made misrepresentations to those clients concerning the

status of their cases. He drafted fee agreements which, by

stating that retainers were nonrefundable, on their faces

9

violated the rules of professional conduct, and was solely

responsible for enforcement of his firm's improper no-

refund policy; he has continued to refuse to refund any of

the fees, notwithstanding the involvement of bar

counsel. . . .

"Considered with the other conduct found by the board,

see Matter of Palmer, 413 Mass. [at 38] (we consider 'the

cumulative effect of the several violations committed by

the respondent'), including the respondent's refusal to

acknowledge any wrongdoing, his attempts to blame employees

for his actions, his statements that are inconsistent with

the record and that the hearing officer found blatantly

noncredible, and his treatment of particularly vulnerable

clients, I have little doubt that indefinite suspension is

the appropriate sanction in this case, in order to preserve

trust and confidence in the legal profession."

Id. at 105-106. We agree that the respondent's misconduct in

this case is comparable to, but more egregious than, the

attorney's misconduct in Cammarano. We therefore accept the

board's recommendation that disbarment is appropriate.11

As the hearing officer, the board, and the single justice

all properly recognized, there were no factors that could be

weighed in mitigation of the respondent's misconduct. Factors

that we have considered as not rising to the level of "special

11

The single justice additionally found that, with respect

to one client, the respondent charged a "retainer" rather than a

"flat fee," and failed to deposit it into his client trust

account. He also failed to provide the notices, bills, and

accountings before withdrawing funds, as required by the rules

of professional conduct, commingled client funds with his own,

and converted the funds to his own use. Although the respondent

continues to press his claim that the payment was a "flat fee"

that properly could be deposited into an operating account, the

hearing officer, the board, and the single justice concluded

that, based on the language of the fee agreement, the payment

was a retainer. On that basis, the single justice reasoned that

the respondent's deliberate use of those unearned client funds,

with deprivation resulting and without restitution to the

client, merits a presumptive sanction of disbarment by itself.

See, e.g., Matter of Sharif, 459 Mass. 558, 565 (2011). The

respondent's unadorned statement in his memorandum that a "flat

fee" was involved does not rise to the level of appellate

argument.

10

mitigating factors" include a "long and distinguished career of

public service and . . . many pro bono services," Matter of

Finneran, 455 Mass. 722, 735 (2010); the absence of "evil motive

or racial animus," id. at 736; a good reputation in the

community, Matter of Moore, 442 Mass. 285, 294 (2004); and

services to an underserved population, id. Although the

respondent claims that he helped "hundreds" of clients avoid

foreclosure, the record does not establish how many or to what

extent those clients many have been aided, whether they were

charged excessive fees for services that had little or no value

to them, or whether the services could have been obtained for

less or no cost. In any event, we do not weigh as a factor in

mitigation that an attorney properly performed legal services

for some clients. As the single justice observed, that "is

simply the type of conduct expected of an ordinary reasonable

attorney." See Matter of Dawkins, 412 Mass. 90, 96 (1992),

S.C., 432 Mass. 1009 (2000) ("we are not so pessimistic about

the ethics of lawyers as to conclude that a lawyer who conforms

to the expected standard of conduct in some respects thereby has

established mitigating circumstances"). Although the respondent

may have served some clients in accordance with his professional

obligations, "that fact alone does not overcome the harm he

visited upon . . . the particular client[s] involved in this

case." Id. at 97.

Although we see no factors to be weighed in mitigation,

there are multiple factors that the board properly weighed in

aggravation. As the board found, the respondent took advantage

of economically vulnerable clients; acted for selfish and

pecuniary reasons; and failed to acknowledge the wrongfulness of

his conduct. He has refused to return unearned fees and has

refused to acknowledge that his actions caused clients harm,

including the loss of homes through foreclosure. He also failed

to comply with discovery orders, both in the disciplinary

proceeding and in other proceedings. He has not made

restitution. Matter of McCarthy, 23 Mass. Att'y Discipline Rep.

469, 470 (2007).

Conclusion. The primary factor in bar discipline cases is

"the effect upon, and perception of, the public and the bar"

(citation omitted). Matter of Finnerty, 418 Mass. 821, 829

(2008). Considering the extent of the misconduct, weighing the

presence of the factors in aggravation and the absence of

factors in mitigation, and giving due deference to the board's

recommendation, we conclude there was no error in the single

justice's judgment that disbarment is warranted.

11

Judgment of disbarment

affirmed.

The case was submitted on the papers filed, accompanied by

a memorandum of law.

Gregory M. Sullivan for the respondent.