In Re Wagner

|FOR THE RESPONDENT |FOR THE INDIANA SUPREME COURT |

| |DISCIPINARY COMMISSION |

| | |

|Jere L. Humphrey |Donald R. Lundberg, Executive |

|319 West Jefferson St. |Secretary |

|Plymouth, IN 46563 |David B. Hughes, Trial Counsel |

| |115 West Washington Street, Suite 1060|

| |Indianapolis, IN 46204 |

IN THE

SUPREME COURT OF INDIANA

IN THE MATTER OF )

) CASE NO. 50S00-9906-DI-362

MARK E. WAGNER )

DISCIPLINARY ACTION

March 19, 2001

Per Curiam

Attorney Mark E. Wagner charged a homeowner $1,000 to release his

client’s judgment lien (which had earlier been formally avoided in the

homeowner’s bankruptcy) on the homeowner’s residence. For that, along

with the respondent’s false statement to the homeowner’s new lender that

the judgment lien had “apparently” not been avoided in bankruptcy, we

conclude that the respondent engaged in professional misconduct.

This attorney disciplinary case is now before us for final

determination upon the hearing officer’s findings of fact and conclusions

of law. Therein, the hearing officer determined that the Commission failed

to demonstrate by the requisite standard of clear and convincing

evidence[1] that the respondent violated Ind.Professional Conduct Rule

4.1(a) and 4.4,[2] as charged by the Commission in its verified complaint

for disciplinary action. Pursuant to Ind.Admission and Discipline Rule

23(15), the Commission has petitioned this Court for review of the hearing

officer’s report, therein challenging the hearing officer’s findings with

respect to the Prof.Cond.R. 4.4 charge.

Our jurisdiction in this case derives from the respondent’s admission

to the bar of this state in 1975. We now find that the respondent

represented a bank in an action to collect a $9,328.19 judgment against a

couple. The bank’s judgment became a lien, junior to a first mortgage,

against the couple’s marital residence. Thereafter, the couple filed a

petition for Chapter 7 bankruptcy. The petition listed the bank as a

creditor for the judgment amount of $9,328.19. The couple later filed (and

served upon the respondent as counsel for the bank) a “Motion to Avoid

Judicial Lien,” seeking to avoid the lien. The respondent filed a formal

objection, therein asking for the opportunity to verify whether the

couple’s equity interest in the residence exceeded their allowable

statutory exemptions. He later formally withdrew the objection. The

bankruptcy court then issued notice, served upon the respondent, that the

bank’s judicial lien would be deemed avoided if no objection was filed

within ten days. Ultimately, the court issued an order avoiding the lien

and again served the respondent with a copy. That order provided, in

pertinent part:

1. That on or about August 21, 1992, the above-mentioned lienholder

did obtain a Judgment against the debtors . . .

2. Said judgment was in the amount of $9,328.19.

Wherefore, it is hereby ordered, adjudged and decreed that the

respondent’s judicial lien is voided pursuant to 11 U.S.C. Section

522(f) to the extent the lien impairs an exemption to which the debtor

is entitled to [sic].

The subsequent final discharge in bankruptcy had the effect of fully

discharging the couple’s personal liability to the bank.

Following their discharge in bankruptcy, the couple applied for a

home equity loan through a mortgage company. A title company retained to

perform a title search incident to the loan application noted in its report

that the bank’s judgment lien had not been formally released of record.

The title company advised the mortgage company that formal release of the

judgment lien was required before provision of title insurance for the

transaction. In response to the mortgage company’s insistence on the

release of the bank’s judgment lien prior to loan approval, the couple

provided the mortgage company with a copy of the bankruptcy court’s order

avoiding the bank’s lien. Meanwhile, the couple and an agent of the

mortgage company contacted the respondent to ask that the bank execute a

formal release of the judgment lien. By written response, the respondent

advised the mortgage company that, “[t]he lien of the [bank] was apparently

not avoided in [the couple’s] bankruptcy even though it might have been,”

and that, “[the bank] will release the judicial lien it now apparently

holds against the real estate . . . upon receipt of the sum of $1,000.00.”

At the time of that communication, the respondent’s file regarding the

lien was in storage and the respondent did not specifically recall the

circumstances of the case with regard to the lien avoidance. The couple

opted to pay the $1,000 to secure the formal release of the judgment. The

respondent retained for himself $333.33 of the payment as his contingent

fee.

The Commission charged the respondent with violating Ind.Professional

Conduct Rule 4.1(a) by knowingly making a false statement of material fact

to the couple and the mortgage company’s agent during the course of his

representation of the bank, to wit: that the bank’s judgment lien was

“apparently not avoided” in bankruptcy. The respondent was also charged

with violating Prof.Cond.R. 4.4, which provides (in relevant part) that a

lawyer while representing as client shall not use means that have no

substantial purpose other than to burden a third person, by charging the

couple $1,000 to formally release a judgment lien that had already been

avoided in bankruptcy.

At hearing, the respondent elicited the testimony of two expert

witnesses, lawyers with substantial experience in bankruptcy and insolvency

law. In the opinion of those witnesses, a creditor who holds a judicial

lien has no affirmative obligation to release of record a lien even though

the debt has been discharged in bankruptcy and the lien avoided. They

testified that because the language of a bankruptcy court’s order avoiding

a lien typically states that a given lien is avoided to the extent that it

impairs the debtor’s exemptions, it is the custom of practicing bankruptcy

attorneys to require payment for releasing of record a lien where a title

insurance company requires such a release in order to compensate the

creditor for any remaining lien rights it might have through an incomplete

avoidance of the lien. The creditor’s interest in such a situation is a

function of the value of the property in question, less mortgages. In this

case, since there was nothing in the bankruptcy court’s order indicating a

finding by the court of the value of the couple’s residence or their equity

interest in it, the bank potentially had a surviving in rem interest in the

judgment. Further, the witnesses testified that creditors often charge to

release formally such liens of record because that action is one they have

no affirmative obligation to undertake.

The hearing officer found that the Commission failed to establish

misconduct as to either count. As for the Prof.Cond.R. 4.1(a) charge, the

hearing officer found that the respondent’s use of the word “apparently” in

his missive to the couple indicated something less than total certainty,

and, in any event, the statement was not “material” because the couple

would have had to obtain formal release of the judgment lien regardless of

the respondent’s statement. Recognizing the adversarial nature of debtor-

creditor relations generally and that creditors have no affirmative legal

duty to release judgments of record in bankruptcy situations, the hearing

officer found further that there was no violation of Prof.Cond.R. 4.4,

especially in light of the fact that creditors often demand consideration

for formal release of judgment liens.

The Commission petitioned this Court for review of the hearing

officer’s findings relative to the Prof.Cond.R. 4.4 violation. In support

of its argument that a Prof.Cond.R. 4.4 violation took place, the

Commission argues that in this case, the respondent and his client obtained

leave of the bankruptcy court to investigate the homeowner’s equity

interest in their residence. Following that investigation, the respondent

withdrew his objection to the bankruptcy court’s entry of a lien avoidance

order. Later, when the homeowners and their new lender contacted the

respondent for formal release of that lien, the respondent indicated that

he would charge a fee for that service, although he had no recollection of

the language of lien avoidance order or the value of the homeowner’s equity

interest. Despite his lack of recall, the respondent did not pull the

file from storage to investigate these matters before charging the

homeowners $1,000 formally to release the lien. Because his charging of

the $1,000 had no demonstrable relation to the value of the releasing the

lien (in the form of compensating the bank for any residual lien rights it

might have had, for example), the Commission contends the respondent’s

actions had no purpose other than to burden the homeowners.

Where a party to a disciplinary action challenges the hearing

officer’s findings and conclusions, this Court’s review of the matter is de

novo in nature and involves a review of all matters presented. Matter of

McCord, 722 N.E.2d 820 (Ind. 2000). We are not bound by the findings of

the hearing officer, although they are accorded deference due to the

hearing officer’s unique opportunity for direct observation of witnesses.

Matter of Goebel, 703 N.E.2d 1045 (Ind. 1998).

In this particular case, we accept the hearing officer’s findings, but

disagree with his legal conclusions and conclude that the respondent

violated both Prof.Cond.R. 4.1(a) and Prof.Cond.R. 4.4. With respect to

the Prof.Cond.R. 4.1(a) charge, the uncontroverted facts are that after

being asked by the couple’s new lender to execute a release of the judgment

lien, the respondent advised the couple and the new lender that the lien

was “apparently” not avoided in bankruptcy even though it might have been.

In fact, the lien had been avoided in bankruptcy after the respondent

himself filed in that case both a formal objection prior to the avoidance

(so that he could investigate the value of the couple’s equity interest in

the property) and, later, a formal motion to withdraw that objection. Had

the respondent bothered to review the closed case file in his possession,

those actions would have been apparent. Instead, the respondent told the

couple and the lender that the lien had “apparently” not been avoided, just

prior to informing them that formal release of the lien would requirement

payment of $1,000. Violation of Prof.Cond.R. 4.1(a) requires a lawyer’s

“knowing” false statement of material fact or law to a third person.

“Knowingly,” for purposes of the Rules of Professional Conduct, denotes

actual knowledge of the fact in question, but a person’s knowledge may be

inferred from circumstances. Preamble, Rules of Professional Conduct.

Misrepresentation can occur by failure to act. Comment to Prof.Cond.R.

4.1. Another jurisdiction, applying a provision analogous to Prof.Cond.R.

4.1(a), found that “knowingly” encompasses conduct that is careless and

recklessly negligent. State ex rel. Nebraska State Bar Association v.

Holscher, 230 N.E.2d 75 (Neb. 1975).

Despite the respondent’s use of the qualifier “apparently,” we find

that the facts clearly and convincingly demonstrate a violation. The

respondent himself prepared and filed the motion to withdraw his formal

objection to the bankruptcy court’s avoidance of the lien. The respondent

was served a copy of the court’s ultimate notice of avoidance. Those

documents were contained in the respondent’s own files, although the

respondent failed to review those files. Instead, right before demanding

$1,000 to release the lien, he stated that the lien was apparently not

avoided. We find that the circumstances establish the respondent’s

knowledge of his false statement, or at least knowledge that he did not

have any basis to represent that the lien was “apparently” still valid.

The respondent reminds us that the hearing officer found that the

respondent’s assertion that the lien had been avoided was not material

because the couple would have paid the $1,000 to have the record released

regardless of the respondent’s statement. The respondent points out the

couple’s lender/title company had in its file a copy of the bankruptcy

court’s avoidance order, further underscoring the purported immateriality

of the respondent’s statement.

We disagree. Generally speaking, a “material” representation may be

defined as one “relating to matter which is so substantial and important as

to influence the party to whom it is made.” Black’s Law Dictionary, p. 880

(5th Ed. 1979). The fact of the existence or nonexistence of the avoidance

of the lien directly influences the availability of a formal release.

There is no evidence indicating that the respondent knew the contents of

the lender’s/title company’s files. For all he knew, he was advising an

entity with no knowledge as to the lien’s history. The respondent’s

assertion that the lien had not been avoided would tend to support his

later charging a fee to release it.

Professional Conduct Rule 4.4 provides that, in representing a

client, a lawyer shall not use means that have no substantial purpose other

than to burden a third person. The Commission charged that the respondent

violated that rule by charging the couple $1,000 (and keeping 1/3 of that

as his fee) to release the judgment lien. There is no evidence that the

$1,000 fee bore any relation at all to any residual lien right the

respondent’s client may have had above the couple’s equity exemption, and,

in fact, the respondent’s earlier withdrawal of his objection in bankruptcy

court suggests that he concluded no such lien right existed. Further, the

respondent provided no evidence to support the contention that the act of

releasing the lien required $1,000 or even $333 worth of services. Viewed

in its totality, the sequence of events depicts a lawyer who realized that

a former bankruptcy debtor’s unfortunate predicament provided an

opportunity to extract a fee for a simple release of a lien that had

already been avoided in bankruptcy, without regard to the underlying merits

of the matter.

The respondent argues that he should not be punished just because the

couple chose to use an “overly fastidious” title company and lender who,

despite the avoidance of the lien in bankruptcy, required formal release of

record. That argument is without merit. The requirements of a particular

lender or title company do not change the fact that the respondent required

the couple to pay a wholly arbitrary fee to release a debt that had been

formally avoided. The respondent’s characterization of the incident is

that he “facilitated the [transaction] by contacting his principal to see

what they [sic] would be willing to take for the release . . . [h]e obeyed

the wishes of his client within the boundaries of the law.” But merely

because the law does not require a creditor formally to release a fully

satisfied or avoided lien does not permit a lawyer representing that

creditor to extract a fee where no fee is due.

By this opinion today, we do not hold that a legal fee can never be

collected for releasing a lien where that lien has been avoided in

bankruptcy. A legal fee may be appropriate, for example, where the

original creditor has some lien right above the allowed exemptions, where

the cost of procuring the release justifies the fee, or where some other

circumstance supports a fee.

Having found misconduct, we must now assess an appropriate discipline

for it. In making this assessment, we are struck by the hearing officer’s

evaluation of the respondent’s acts: “Simply stated, Respondent and his

client found themselves in an advantageous situation vs. the [couple] and

used that advantage for their financial betterment.” Conversely, we are

also cognizant of the hearing officer’s finding that creditors have no

affirmative legal duty to assist debtors by releasing judgments of record

in these situations, and that the practice of charging a fee to do so,

regardless of the underlying merits, is apparently a common one.

Balancing these two factors, we conclude that a public reprimand is

sufficient here to demonstrate to the respondent, the bar, and the public

that purely opportunistic acts such as those taken by the respondent will

not be tolerated.

Accordingly, the respondent, Mark E. Wagner, is hereby reprimanded

and admonished for his misconduct.

The Clerk of this Court is directed to provide notice of this order

in accordance with Admis.Disc.R. 23(3)(d) and to provide the clerk of the

United States Court of Appeals for the Seventh Circuit, the clerk of each

of the United States District Courts in this state, and the clerks of the

United States Bankruptcy Courts in this state with the last known address

of respondent as reflected in the records of the Clerk.

Costs of this proceeding are assessed against the respondent.

-----------------------

[1] Matter of Siegal, 708 N.E.2d 869 (Ind. 1999).

[2] Those provisions are as follow:

Rule 4.1. Truthfulness in Statements to Others

In the course of representing a client a lawyer shall not knowingly:

(a) make a false statement of material fact or law to a third person;

or

(b) fail to disclose that which is required by law to be revealed.

Rule 4.4. Respect for Rights of Third Persons

In representing a client, a lawyer shall not use means that have no

substantial purpose other than to embarrass, delay, or burden a third

person, or use methods of obtaining evidence that violate the legal rights

of such a person.