THE STATE OF NEW HAMPSHIRE SUPREME COURT 2012 TERM APPEAL OF DAVID STACY DOCKET NO.:

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1 THE STATE OF NEW HAMPSHIRE SUPREME COURT 2012 TERM APPEAL OF DAVID STACY DOCKET NO.: APPEAL FROM NEW HAMPSHIRE BAR ASSOCIATION PUBLIC PROTECTION FUND COMMITTEE BRIEF OF APPELLEE NEW HAMPSHIRE BAR ASSOCIATION PUBLIC PROTECTION FUND COMMITTEE Thomas Quarles, Jr., Esq. (Bar No. 2077) Anna B. Peterson, Esq. (Bar No ) DEVINE, MILLIMET & BRANCH, PROFESSIONAL ASSOCIATION 111 Amherst Street Manchester, NH (603) Oral Argument by: Thomas Quarles, Jr., Esq.

2 TABLE OF CONTENTS TABLE OF AUTHORITIES... ii TEXT OF RELEVANT AUTHORITIES...iv STATEMENT OF THE FACTS AND CASE... 1 SUMMARYOF THE ARGUMENT...9 STANDARDOF REVIEW...9 ARGUMENT I. THE FUND EXERCISED ITS DISCRETION IN THIS MATTER IN A MANNER CONSISTENT WITH THE PURPOSE OF THE FUND...10 II. MR. STACY FAILED TO PROVE THAT ATTORNEY WYATT STOLE MR. STACY S FUNDS...14 III. MR. STACY FAILED TO PROVE THAT ATTORNEY WYATT CONVERTED MR. STACY S FUNDS...17 IV. THE FUND PROPERLY FOUND THAT MR. STACY S BOND SETTLEMENT PARTIALLY REIMBURSED HIM FOR HIS CLAIMED LOSSES CAUSED BY ATTORNEYWYATT...21 V. THE FUND PROPERLY FOUND THAT MR. STACY HAD PROVEN ONLY $173, IN ATTORNEYS FEES AND COSTS PAID TO ATTORNEY WYATT...23 CONCLUSION...24 REQUESTFOR ORAL ARGUMENT

3 Cases TABLE OF AUTHORITIES Appeal of Portsmouth Trust Co., 120 N.H. 753 (1980)...10 Appeal of University System of New Hampshire, 131 N.H. 368 (1988)...10 Ginn v. State, 26 So.3d 706 (Fla. 2010)...14, 15 In re Donald Wyatt, 368 B.R. 99 (Bankr. D.N.H. 2007)...3 In re Douglas Case, 156 N.H. 613 (2007)...18 In re Jean-Guy s Used Cars & Parts, Inc., 159 N.H. 38 (2009)...9, 10 Inre McCool, 131 N.H. 340 (1988)...13 In re Proposed Public Protection Fund Rule, 142 N.H. 588 (1998)...10 In re StonyjIeld Farm, Inc., 159 N.H. 227 (2009)...9, 10 In re Wyatt s Case, 159 N.H. 285 (2009).... passim Mannonev. Whaland, 118 N.H. 86 (1978)...10 Morissette v. United States, 342 U.S. 246 (1952)...14 O Meyer v. Idaho State Bar, 138 Idaho 603 (2003)...12, 21 Pacific & Atlantic Shippers, Inc. v. Schier, 109 N.H. 551 (1969)...17 Ridge v. State, 137 N.E. 758 (Ind. 1923)...14, 15 Rinden v. Hicks, 119 N.H. 811(1979)...17, 19 State v. Sampson, 120 N.H. 251 (1980)...14 State v. Sylvia, 136 N.H. 428 (1992)...14, 15 Tabakv. Lawyers Fund for Client Protection, 166 Misc. 2d 502 (N.Y. S. 1995)...12 Thompson v. Forest, 136 N.H. 215 (1992)...18, 19 United States v. Donato-Morales, 382 F.3d 42 (1st Cir. 2004)

4 Statutes RSA637 et seq...14 Rules Sup. Ct. R. 16(3)(f)...10 Rule55...passim Regulations Public Protection Fund Reg Other Authorities ABA Model Rules for Lawyers Funds for Client Protection (2006)...11, 12, 21 ABA Standards for Imposing Lawyer Sanctions (1992)...15 BLACK S LAW DICTIONARY (9th ed. 2009)...12 National Client Protection Organization, Standards for Evaluating Lawyers Funds for Client Protection (June 2, 2006)

5 TEXT OF RELEVANT AUTHORITIES N.H. RSA 637 et seq 637:1 Consolidation. - Conduct denominated theft in this chapter constitutes a single offense embracing the separate offenses such as those heretofore known as larceny, larceny by trick, larceny by bailees, embezzlement, false pretense, extortion, blackmail, receiving stolen property. An accusation of theft may be supported by evidence that it was committed in any manner that would be theft under this chapter, notwithstanding the specification of a different manner in the indictment or information. New Hampshire Supreme Court Rule 55 (1) Purpose. The purposes of the Public Protection Fund are to provide a public service and to promote public confidence in the administration of justice and the integrity of the legal profession by providing some measure of reimbursement to victims who have lost money or property caused by the defalcation of lawyers admitted to practice law in this jurisdiction occurring in New Hampshire and in the course of the client-lawyer or fiduciary relationship between the lawyer and the claimant. For the purposes of this rule, the term "lawyer" shall include foreign legal consultants licensed pursuant to Rule 42D. (2) Establishment of the Fund. The New Hampshire Bar Association shall provide a Public Protection Fund establishing a reimbursement mechanism for proven losses resulting from embezzlement, conversion, or theft of client funds by lawyers, and for this purpose, the court shall annually assess a sum to be paid by all dues-paying members of the New Hampshire Bar Association, except those members exempted by order of the court. The Public Protection Fund shall be administered by the New Hampshire Bar Association. Subject to the review and approval of the court, the committee established pursuant to paragraph (5) shall determine the terms, conditions, claims procedures, scope of coverage, cost, and funding mechanisms for such Public Protection Fund, consistent with this rule. The Public Protection Fund is provided as a public service to persons utilizing legal services; the establishment, administration and operation of the Public Protection Fund shall not impose or create any obligation on, expectation of recovery from, or liability of the New Hampshire Bar Association, its officers, governors, members, staff, or members of the Public Protection Fund committee. No claimant shall have a legal interest in the fund nor have a right to receive any portion except as awarded pursuant to this rule. (3) Claims Against the Fund. Claims for payment from the fund shall be submitted in writing, under oath, and shall explain specifically the defalcations which led to the losses in question. Such claims must be submitted within three years of the time when the victim discovered or first reasonably should have discovered the defalcations and the resulting losses, but in no event later than one year after the lawyer in question has been suspended or disbarred from practice, or has died or been judged mentally incompetent before the suspension or disbarment proceedings have been commenced or concluded.

6 (4) Payments from the Fund. Payments from the fund will be made only after the lawyer in question has been suspended or disbarred from practice; or if the lawyer has died or been judged mentally incompetent before the suspension or disbarment proceedings have been commenced or concluded. As a condition of payment from the fund, the claimant shall execute a subrogation agreement in favor of the fund against the offending lawyer and the offending lawyer s law firm and against third parties to the extent of the amount recovered by claimant from the fund. Payments from the fund shall be made only after exhaustion of all available assets, insurance, and sureties of the offending lawyer and the offending lawyer s law firm. Payments from the fund shall be made only to victims who have lost money or property as the result of the defalcation of the lawyer, and no payments shall be made to any assignee, subrogee, or successor of such victim. The heirs or legatees of deceased victims may be eligible for payment from the fund. Except with respect to claims where the amount determined by the committee to be due the claimant is less than $2,500, payments from the fund shall be made only at the end of each fund year. Except with respect to claims where the amount determined by the committee to be due the claimant is less than $2,500, payments from the fund with respect to an individual lawyer shall not be made until all claims have been finalized with respect to that lawyer. The maximum amount of reimbursement to all claimants against the fund in respect to all conduct of any one lawyer shall be $250,000 in the aggregate. In determining whether the maximum reimbursement described in the immediately preceding sentence (but not the sentence immediately following this sentence) has been reached, claims where the amount determined by the committee to be due the claimant is less than $2,500 shall be excluded from the calculation. The maximum amount of reimbursement to any one claimant, or all claimants, against the fund in any fund year as defined in paragraph (6) shall be $250,000 and $1,000,000, respectively, in the aggregate. The maximum amount which may be paid on a claim shall be the dollar value of the money or property lost by lawyer defalcation and shall not include interest on the amount lost or money spent attempting to collect the loss. If payable claims against a lawyer exceed $250,000, then all payable claims against that lawyer, except claims where the amount determined by the committee to be due the claimant is less than $2,500, shall be reduced in proportion to their relative value in order to reduce total payments as a result of that lawyer s conduct to $250,000. If payable claims in a single fund year exceed $1,000,000, then all payable claims for that fund year shall be reduced in proportion to their relative value in order to reduce total payments for that year to $1,000,000. That portion of payable claims excluded from payment by reason of the dollar limitations described in this section shall not be paid in any subsequent fund year. (5) Administration of the Fund. The Public Protection Fund shall be administered by a nine member committee, appointed by the President of the New Hampshire Bar Association with the approval of the association s Board of Governors, which committee shall include at least two public members. Five members shall constitute a quorum. All decisions of the committee shall be made by a majority of the members present and voting. The committee shall have the power to propose regulations to clarify the intent of this rule, which regulations shall become effective after review and approval by the court. Decisions of the committee as to whether or not to pay claims and the amount of payments shall be within the committee s discretion, subject to the annual limits stated above, and will be reviewable only for unsustainable exercise of discretion. The committee shall give the offending lawyer notice of the claim and an opportunity to be heard regarding the claim, and the findings of fact and rulings of law made by the committee on the claim shall be binding upon the offending lawyer in all subsequent proceedings to which the MA

7 Public Protection Fund is a party, including, but not limited to, proceedings against the offending lawyer to recover monies paid by the fund to the claimant. Review of a decision of the committee shall be filed with the New Hampshire Supreme Court within thirty days of the date of the committee s decision, by filing a written appeal in accordance with Rule 10, unless otherwise ordered by the court. The appeal shall not be a mandatory appeal. In the event that review of a decision of the committee is sought, a copy of the appeal shall be mailed or handdelivered to the New Hampshire Bar Association at the same time as the appeal is filed with the supreme court. If the New Hampshire Bar Association wishes to participate in the review of the decision, it shall file an appearance in the matter within thirty (30) days of receipt of the appeal. Decisions of the New Hampshire Supreme Court shall be final. Within 120 days after the end of each fund year, the New Hampshire Bar Association shall report to the court about the claims made, approved and paid, assessments received, income earned, and expenses incurred in the preceding fund year. Reasonable expenses incurred by the New Hampshire Bar Association in administering the fund, including overhead, staff time, and professional fees, shall be reimbursed by the fund as a cost of operation, subject to the review and approval of the court. (6) Effective Date. This rule shall take effect on June 1, 1998, and payments from the fund shall be made only for defalcations occurring on or after that date. Fund years shall run from June 1 to May 31. Provided, however, that the provisions increasing the maximum amount to $250,000 and the provisions regarding claims of less than $2,500 shall apply only for defalcations occurring on or after January 1, Public Protection Fund Reg Standard and Burden of Proof. The claimant shall bear the burden of proving each element of the claim, including the amount of the claimant s loss, by a preponderance of the evidence. ABA Model Rules for Lawyers Funds for Client Protection (2006) RULE 1- PURPOSE AND SCOPE A. The purpose of the Lawyers Fund for Client Protection is to promote public confidence in the administration of justice and the integrity of the legal profession by reimbursing losses caused by the dishonest conduct of lawyers licensed or otherwise authorized to practice law in the courts of this jurisdiction occurring in the course of the client-lawyer or other fiduciary relationship between the lawyer and the claimant. B. For purposes of these Rules, "lawyer" shall include a person: (1) licensed to practice law in this jurisdiction, regardless of where the lawyer s conduct occurs; (2) admitted as in-house counsel; (3) admitted pro hac vice; (4) admitted as a foreign legal consultant; (5) admitted only in a non-united States jurisdiction but who is authorized to practice law in this jurisdiction; or (6) recently suspended or disbarred whom clients reasonably believed to be licensed to practice law when the dishonest conduct occurred. vi

8 C. Every lawyer has an obligation to the public to participate in the collective effort of the bar to reimburse persons who have lost money or property as a result of the dishonest conduct of another lawyer. Contribution to the Lawyers Fund for Client Protection is an acceptable method of meeting this obligation. Comment [1] Paragraph A expresses the general purpose of a Lawyers Fund for Client Protection: promoting public confidence in the administration of justice and the integrity of the legal profession. The term "dishonest conduct" is defined in Rule 10. [2] The definition of lawyer, found in Paragraph B, includes not only persons licensed or otherwise authorized to practice law in the jurisdiction, but also lawyers practicing law in the jurisdiction by virtue of in-house counsel admission, pro hac vice admission, foreign legal consultant admission, authorization for temporary practice of law by a foreign lawyer and by former or suspended lawyers reasonably believed by clients to have been authorized to practice law. Lawyers admitted as in-house counsel, pro hac vice, or as foreign legal consultants should both pay into the Fund as provided under Rule 3 and have their conduct covered by the Fund. [3] The Fund is part of this jurisdiction s system of lawyer regulation. The Fund therefore has jurisdiction to recognize claims filed against lawyers licensed to practice law in this jurisdiction regardless of where the lawyer s conduct occurs. This is consistent with the jurisdictional authority set forth in Rule 8.5 (a) of the ABA Model Rules of Professional Conduct: "A lawyer admitted in this jurisdiction is subject to the disciplinary authority of this jurisdiction, regardless of where the lawyer s conduct occurs." Pursuant to Paragraph B, if necessary, this Fund is authorized to "follow" the lawyer and compensate eligible claimants who have suffered losses as a result of the lawyer s dishonest conduct. [4] It is particularly equitable to require that this Fund, into which lawyers have paid annual assessments, have the primary responsibility to compensate clients who have suffered losses. Such lawyers would include those admitted as in-house counsel, by pro hac vice admission and foreign legal consultants. Lawyers admitted only in a non-united States jurisdiction may have their conduct covered by the Fund because the highest court in this jurisdiction has authorized them to provide legal services on a temporary basis in this jurisdiction. [5] Rule 10(E) provides for an equitable balancing test to determine whether the Fund, another jurisdiction s Fund, or both Funds should pay claims filed against lawyers not admitted or authorized to practice law exclusively in this jurisdiction. [6] Paragraph C, drawn from the Comment to Rule 1.15 of the ABA Model Rules of Professional Conduct, recognizes that lawyers individually and the bar collectively, have the obligation to participate in a Lawyers Fund for Client Protection. vii

9 RULE 10 ELIGIBLE CLAIMS A. The loss must be caused by the dishonest conduct of the lawyer and shall have arisen out of and by reason of a client-lawyer relationship or a fiduciary relationship between the lawyer and the claimant. B. The claim shall have been filed no later than five years after the claimant knew or should have known of the dishonest conduct of the lawyer. C. As used in these Rules, "dishonest conduct" means wrongful acts committed by a lawyer in the nature of theft or embezzlement of money or the wrongful taking or conversion of money, property or other things of value, including but not limited to: (1) Failure to refund unearned fees received in advance as required by [Rule 1.16 of the ABA Model Rules for Professional Conduct]; and (2) The borrowing of money from a client without intention to repay it, or with disregard of the lawyer s inability or reasonably anticipated inability to repay it. D. Except as provided by Paragraph E of this Rule, the following losses shall not be reimbursable: (1) Losses incurred by spouses, children, parents, grandparents, siblings, partners, associates and employees of lawyer(s) causing the losses; (2) Losses covered by a bond, surety agreement, or insurance contract to the extent covered thereby, including any loss to which any bonding agent, surety or insurer is subrogated, to the extent of that subrogated interest; (3) Losses incurred by any financial institution that are recoverable under a "banker s blanket bond" or similar commonly available insurance or surety contract; (4) Losses incurred by any business entity controlled by the lawyer(s), any person or entity described in Subparagraph D (1), (2) or (3) of this Rule; (5) Losses incurred by any governmental entity or agency; (6) Losses arising from business or personal investments not arising in the course of the clientlawyer relationship; and (7) Consequential or incidental damages, such as lost interest, or lawyer s fees or other costs incurred in seeking recovery of a loss. E. In determining whether it would be more appropriate for this Fund or another Fund to pay a claim, the Board should consider the following factors: (1) the Fund(s) into which the lawyer is required to pay an annual assessment or into which an appropriation is made on behalf of the lawyer by the bar association; (2) the domicile of the lawyer; (3) the domicile of the client; (4) the residence(s) of the lawyer; (5) the number of years the lawyer has been licensed in each jurisdiction; (6) the location of the lawyer s principal office and other offices; (7) the location where the attorney-client relationship arose; (8) the primary location where the legal services were rendered; viii

10 (9) whether at the time the legal services were rendered, the lawyer was engaged in the unauthorized practice of law as defined by the jurisdiction in which the legal services were rendered; and (10) any other significant contacts. F. The Board may enter into an agreement with the Fund of another jurisdiction to reimburse a portion of the loss suffered by a claimant whose claim may be eligible for payment under both Funds. The Board may take into consideration the other Fund s rules on payment of claims for reimbursement prior to entering into such an agreement. G. In cases of extreme hardship or special and unusual circumstances, the Board may, in its discretion and consistent with the purpose of the Fund, recognize a claim that would otherwise be excluded under these Rules. H. In cases where it appears that there will be unjust enrichment, or the claimant unreasonably or knowingly contributed to the loss, the Board may, in its discretion, deny the claim. Comment [1] Set forth in Paragraph A is the basic criteria for compensability of losses. An eligible claim must include: (1) a demonstrable loss; (2) caused by the dishonest conduct of a lawyer; and (3) within or arising out of a client-lawyer or fiduciary relationship. [2] Fiduciary relationships are included because lawyers traditionally serve in that capacity as executors, conservators and guardians ad litem. Rejection of claims based upon technical distinctions between this sort of service and a client-lawyer relationship would not serve the purpose or mission of the Fund. [3] Paragraph C adds to the Rules a definition of "dishonest conduct." The basic concept is one of conversion or embezzlement. Subparagraphs (1) and (2) make clear that if the essential nature of the transaction was conversion, dishonest conduct will be found even where the lawyer took money in the guise of a fee, a loan or an investment. Indeed, employing such a ruse is part of the dishonesty. Subparagraph (1) sets forth a standard for the handling of difficult unearned fee claims in accordance with Rule 1.16 of the ABA Model Rules of Professional Conduct. It is not intended to encompass bona fide fee disputes. Where money received by a lawyer was clearly neither earned nor returned, however, the client feels violated, hardship can result, and the Board may find dishonest conduct. Subparagraph (2) anticipates overreaching by a lawyer, in the context of a loan to the lawyer by the client, to such an egregious extent as to be tantamount to theft. Similarly, use by the lawyer of a purported "investment" to induce a client to turn over money should not preclude a finding of dishonest conduct where the "investment" is worthless, non existent and so forth. [4] Paragraph C must be read in light of Paragraph A. In focusing on dishonest conduct, it must be kept in mind that such conduct must occur within or as a result of a client-lawyer or fiduciary relationship in order to be compensable. lx

11 [5] A five-year limitation on the filing of claims from the date the claimant knew or should have known of the dishonest conduct is contained in Paragraph B. Under Paragraph E, the Board should provide liberal leeway for extension, however, especially in light of the extent to which the Fund publicizes itself. It is not knowledge of the dishonest conduct but the lack of knowledge of the existence or purpose of the Fund that is the problem for many prospective claimants. [6] Paragraph D describes claims that are not reimbursable. Subparagraphs (1), (4), and (5) declare certain classes of potential claimants to be ineligible for policy reasons. Subparagraphs (2) and (3) imply that recourse should be sought from certain third parties such as title insurance companies and banks cashing checks over forged endorsements prior to seeking it from the Fund. Such third parties lack the client-lawyer relationship necessary to prosecute a claim in their own right. Should such third parties fail or refuse to pay, the Fund should promptly pay the claim, take an assignment from the claimant, and pursue the third parties in its own right. [7] Subparagraph D (6) addresses the most difficult of Fund claims. Claims in which lawyers steal from their clients in the guise of "investments" should be paid, but transactions having nothing to do with the lawyer s license to practice are not compensable. Claims with facts somewhere between the two extremes often arise, and the issue is whether there is "enough of" a client-lawyer relationship. Funds have found a "but for" test helpful: "But for the lawyer enjoying a client-lawyer relationship with the claimant, such loss could not have occurred." Factors considered in applying this test include (1) disparity in sophistication and bargaining power between lawyer and claimant; (2) extent to which client-lawyer relationship overcame the normal prudence of claimant; (3) extent to which lawyer became privy to claimant s financial information as claimant s lawyer; (4) whether the transaction originated with lawyer; (5) reputation of lawyer as to law practice or business involvements; (6) amount charged by lawyer for legal services as opposed to finder s fees; and (7) number, nature, and timing of prior transactions between claimant and lawyer. [8] Paragraph E sets forth factors to be considered by the Board when deciding whether this Fund, another jurisdiction s Fund, or both Funds should pay a claim where more than one Fund has jurisdiction over a lawyer. This situation might arise where a lawyer is licensed in two or more jurisdictions; a lawyer is licensed in only one jurisdiction and has engaged in the authorized multijurisdictional practice of law in another jurisdiction; or a lawyer is licensed in only one jurisdiction and has engaged in the unlicensed practice of law in another jurisdiction. [9] Paragraph F recognizes that there may be situations where it is appropriate for the Board to enter into an agreement with the Fund of another jurisdiction to reimburse a portion of the loss suffered by a claimant whose claim may be eligible for payment under both Funds. However, since Funds have different maximum dollar amounts of reimbursement for individual losses, the Fund with a higher maximum amount should not be required in every case to contribute more than the other Fund, or to contribute the maximum amount. Such a requirement could result in an undue burden on the Fund. The Board may take into consideration the other Fund s rules and its own rules on payment of claims for reimbursement, as well as the factors in Paragraph (E), prior to entering into such an agreement. x

12 [10] Paragraphs G and H reiterate the critical importance of vesting in the Board the discretion to do justice in each claim considered, without needlessly following technical rules. These paragraphs recognize that it is impossible to predict every factual circumstance that will be presented to the Board. National Client Protection Organization, Standards for Evaluating Lawyers Funds for Client Protection (June 2, 2006) 2.6 The Fund should take an assignment of each successful claimant s rights and, within sound business judgment, pursue those rights in vigorous attempts to replenish the Fund with subrogation receipts Commentary The Fund should take an assignment of claimants rights. Subrogation is a legal doctrine operating under common law. Inherent in the Fund having claimants rights is that claimants should not "double dip." The Fund as assignee and subrogee of its sucessful claimants is entitled to seek recovery for money paid on claims. Pursuit may be of both the wrongdoer and collateral sources of recovery. Funds have found it a sound business practice to pursue such rights with vigor. As to the potentially competing subrogation rights of Funds and their successful claimants, see Standard 4.3. Funds and their claimants should share information with prosecutors and discipline authorities, as permitted by law. xi

13 STATEMENT OF THE FACTS AND CASE This appeal arises out of the New Hampshire Bar Association Public Protection Fund Committee s ("Fund") Final Order on Claim, dated April 4, 2012 ("Final Order"), denying the Claimant-Appellant, David Stacy s claim for reimbursement from the Fund after finding that he had failed to establish that the claimed attorneys fees and costs at issue were paid to the Accused, Attorney Donald Wyatt, as a result of the Accused s defalcation, embezzlement, conversion, or theft of client funds. Final Order at 25; CR The following facts are relevant to the issues raised on appeal and were found by the Fund based on the evidence submitted by the parties. Underlying Factual Circumstances In 1998, Mr. Stacy hired Attorney Wyatt as his personal counsel to advise him on his "relations with trustees of trusts previously established for his benefit," as well as other personal matters. In re Wyatt s Case, 159 N.H. 285, 289 (2009). In 2001, Mr. Stacy agreed to enter into a voluntary conservatorship. Id. at Michel Brault ("Mr. Brault") was nominated to act as Mr. Stacy s conservator. Id. at 290. In May 2001, Peerless Insurance Company issued a $400,000 corporate surety bond securing Mr. Brault in his capacity as conservator. CR Mr. Brault was a personal friend of Attorney Wyatt s, as well as the CEO of a former corporate client of Attorney Wyatt s law firm at the time, Wyatt & Theroux, PC. Wyatt s Case, 159 N.H. at 289. In June 2001, the Carroll County Probate Court granted Mr. Stacy s petition for conservatorship and appointed Mr. Brault as conservator. Id. at 290. After the conservatorship was established, Mr. Stacy desired Attorney Wyatt to continue to function as his personal attorney and also asked Mr. Brault to hire Attorney Wyatt as counsel for the conservatorship estate. Id. at 290. Separate fee agreements were entered into between

14 Attorney Wyatt s law firm and Mr. Stacy on the one hand, and between Attorney Wyatt s law firm and the conservator on the other hand. Final Order at 3; CR All of the agreements contained the following language: "In every case Wyatt & Theroux, PC will require the deposit of a retainer. This money is placed in an Attorney s Trust Account.... Client agrees that Wyatt & Theroux, PC may draw against these funds to pay any amount due and payable to Wyatt & Theroux, PC under any of the terms of this agreement. In addition, client agrees that Wyatt & Theroux, PC may pay costs directly out of this deposit, at his discretion. If Wyatt & Theroux, PC issues a bill or invoice for any charges under this agreement, and the amount of retainer on deposit is insufficient to cover the amount due, then Wyatt & Theroux, PC may apply the balance of the retainer deposit to the amount due and client agrees to pay the balance of the bill... Final Order at 3; CR 0368, During Attorney Wyatt s representation of Mr. Stacy and the conservatorship, Attorney Wyatt submitted invoices to Mr. Brault, as conservator, as well as directly to Mr. Stacy. Final Order at 3-4; CR , , Attorney Wyatt also paid himself for earned fees directly out of his New Hampshire Interest On Lawyers Trust Account ("NH IOLTA"). Final Order at 4; CR 0369, , , At no point did Mr. Stacy challenge the amount or reasonableness of the attorneys fees charged by Attorney Wyatt. Final Order at 13; CR Attorney Wyatt continued to function as Mr. Stacy s personal attorney until approximately April 2002, and, thereafter, continued to represent the conservatorship and Mr. Brault as conservator, until Mr. Brault resigned as conservator in March Wyatt s Case, 159 N.H. at 296, 305. After Mr. Brault s resignation, Mr. Stacy s sister, Deborah Stacy, was appointed to replace him as conservator. Id. at 296. During his tenure as Mr. Stacy s conservator, Mr. Brault filed the inventory for the conservatorship estate on Nov. 19, 2001, his first account on June 7, 2002, and his

15 second and final account on May 19, Carroll County Prob. Ct. Order on Objections to Inventory and Accounts (Patten, J.), at 5 (July 13, 2005) ("Probate Court Order"); CR After being appointed as her brother s conservator, Deborah Stacy, on her brother s behalf, filed an Objection to the first and second accounts that had been filed by Mr. Brault. See Probate Court Order at 1; CR The Stacy s objection to Mr. Brault s accounts was based on numerous alleged instances of misconduct by Mr. Brault in his administration of the conservatorship. See generally Probate Court Order; CR The Objection also raised the conflict of interest claim that ultimately led to Attorney Wyatt s suspension by this Court. See Probate Court Order at 8-9; CR The probate court held an evidentiary hearing on the Objection that extended over several days in January, February, July, and December of Id. at 1; CR In his order, issued on July 13, 2005, Judge Patten sustained all of the Stacys objections to Mr. Brault s accounts and found that Mr. Brault had engaged in misconduct. See Probate Court Order at 1; CR Attorney Wyatt was not a party to the probate court proceedings. See generally Probate Court Order; CR ; see also Wyatt, 368 B.R. at 105. Nevertheless, the probate court also disallowed all of the fees and costs paid to Attorney Wyatt, a total of $191,083.82, due to his "inherent conflict of interest" and existing New Hampshire case law, and ordered Attorney Wyatt to reimburse the conservatorship. Probate Court Order at 8-9; CR ; see In re Estate of McCool, 131 N.H. 340, 351 (1988) ("[W]e hold that an attorney who violates our rules of professional conduct by engaging in clear 1 Even if Attorney Wyatt had standing to defend his receipt of attorneys fees in the probate court proceeding, he had filed for bankruptcy in July See In re Donald Wyatt, 368 B.R. 99, 101 (Bankr. D.N.H. 2007); Final Order CR Although the Stacy s filed a Proof of Claim in that action, the Claim was ultimately dismissed by the bankruptcy court due to the Stacys failure to attend the noticed hearings and file timely documents. Wyatt, 368 B.R. at 105; CR

16 conflicts of interest, of whose existence he either knew or should have known, may receive neither executor s nor legal fees for services he renders an estate."). Judge Patten did not examine whether Attorney Wyatt s fees were unreasonable. See generally Probate Court Order; CR Nor did Judge Patten do his own calculation to see if Mr. Stacy s total of claimed attorneys fees and costs were accurate. Probate Court Order at 9; CR Additionally, the probate court surcharged all of Attorney Wyatt s fees and costs to Mr. Brault, to the extent not reimbursed by Attorney Wyatt "in a reasonable time and manner." Probate Court Order at 9; CR The probate court justified the surcharge of Attorney Wyatt s fees and costs against Mr. Brault on the basis that payment of Attorney Wyatt s fees and costs constituted a waste of conservatorship assets, and thus a breach of Mr. Brault s fiduciary duty as conservator. Probate Court Order at 8-9; CR Mr. Stacy asserted in his Statement of Claim to the Fund that the probate court surcharged Mr. Brault, as conservator, a total of $999,099.00, which includes the $191, assessed against Attorney Wyatt. 2 Final Order at 6; CR 0032, In May 2003, Deborah Stacy, as Mr. Stacy s conservator, also filed a complaint against Attorney Wyatt with the Professional Conduct Committee of the New Hampshire Supreme Court ("PCC") alleging that Attorney Wyatt had committed professional negligence in his dealings with Mr. Stacy. Wyatt s Case, 159 N.H. at 296. The PCC recommended that Attorney Wyatt be disbarred after finding that he had a conflict of interest based on his simultaneous representation of Mr. Stacy, the conservator, and the conservatorship. Id. 2 Mr. Stacy received none of the assessed amount from Mr. Brault. CR Stacy brought suit against Mr. Brault s bonding company. Id. In May 2006, Mr. Stacy settled with the bond company and collected $275,000 of the $400, bond issued to secure Mr. Brault as conservator. CR, , 0372.

17 On review, this Court suspended Attorney Wyatt in September 2009 from the practice of law in New Hampshire for a period of two years on the basis that he had violated Conduct Rules 1.7(a), 1.7(b), 1.9(a), and 8.4(a) during his representation of Mr. Stacy. See generally id. This Court found that Attorney Wyatt had operated under a conflict of interest since the inception of the conservatorship. Id. at 307. The Court further found that Attorney Wyatt s mental state relative to the conflict of interest was "knowing," as opposed to intentional or negligent, according to the ABA Standards for Imposing Lawyer Sanctions (1992). Id. However, due to mitigating circumstances, including Attorney Wyatt s apparent good faith motives despite his conflict of interest position, the Court determined that a two-year suspension would be a more appropriate sanction than disbarment. Id. at 309. The Court chose not to rule on the issue of whether Attorney Wyatt s billing for services rendered and payment of legal fees out of the conservatorship funds constituted illegal fees, stating that the issue had been insufficiently briefed by the PCC. 3 Id. at Proceedings before the Fund In November 2005, Mr. Stacy filed a Statement of Claim with the Fund seeking reimbursement of legal fees and costs improperly paid to Attorney Wyatt as found in the Probate Court Order. CR 0003, The Statement of Claim sought $191,083.82, the same amount awarded by Judge Patten in the Probate Court Order. Id. Mr. Stacy s claim alleged that Attorney Wyatt was in a conflict of interest position when Attorney Wyatt undertook the dual representation of Mr. Stacy and his conservatorship. CR On the basis of that conflict of Specifically, this Court stated: "The PCC alleges the respondent violated Conduct Rule 1.5(a), by charging illegal fees because his fees were generated during the period of time when [he] was acting in violation of Rules 1.7 and 1.9. The PCC briefly mentioned this violation at oral argument, citing In re Estate of McCool, 131 N.H. 340, 553 A.2d 761 (1988). However, in its brief the PCC makes only passing reference to the alleged violation of Conduct Rule 1.5 without any analysis or argument. We therefore consider it waived. See In re Estate of Leonard, 128 N.H. 407, 409, 514 A.2d 822 (1986)." Wyatt s Case, 159 N.H. at

18 interest, Mr. Stacy asserted that Attorney Wyatt had improperly paid himself $191, in attorneys fees and costs. Id. Therefore, Mr. Stacy sought reimbursement from the Fund solely for those improperly paid attorneys fees and costs, in the amount found in the Probate Court Order. CR 0003, Pursuant to Rule 55, the Fund can only consider claims against attorneys who have been suspended or disbarred. Sup. Ct. R. 55(4) (hereinafter "Rule 55"). Therefore the Fund took no immediate action on Mr. Stacy s claim. Final Order 1-2; CR After Attorney Wyatt s suspension in September 2009 by this Court, the Fund brought Mr. Stacy s claim forward and scheduled a hearing on the merits for August Final Order at 1-2, 8; CR 0129, , In July 2010, the Fund requested more information from all parties, including a specific request whether Mr. Stacy had collected any of the $999, surcharged against Mr. Brault in the Probate Court Order. Final Order at 8; CR , Mr. Stacy responded that he had received $275,000 from the surety bond that secured Mr. Brault as conservator through a settlement with the bonding company. Final Order at 8; CR , He also provided the Fund with the Release associated with the settlement, which states, "this release includes all claims for attorneys fees or other legal expense or cost... and all claims described in the order of the Carroll County Probate Court (Patten, J.) of July 13, 2005." Final Order at 7; CR 0153, Therefore, the Fund cancelled the August 2010 hearing and "ordered [Mr. Stacy] to show cause why his claim should not be dismissed on the grounds that he has made a full recovery of his claimed [$191, in] damages from a third party." Final Order at 8; CR , Mr. Stacy s prior counsel filed a response, dated Sept. 7, 2010, to the Fund s order to show cause, arguing that Mr. Stacy had not released his claims against Attorney Wyatt by settling the bond claim. Final Order at 9; CR , Mr. Stacy also however raised new rel

19 claims for losses he attributed to Attorney Wyatt, which, he argued, should also be reimbursed by the Fund, including Attorney Wyatt s alleged improper handling of proceeds received from the foreclosure of Mr. Stacy s home and loans that Attorney Wyatt and Mr. Brault had negotiated during the conservatorship. Final Order at 9; CR , The Fund thereafter scheduled a hearing in February to address: (1) why Mr. Stacy settled his bond claim for less than the full $400, amount of the bond; (2) if the Fund concludes that the bond settlement does not bar Mr. Stacy s claim, why it should not be reduced proportionately by his settlement for less than the full amount of the bond; and, (3) how the attorney s fees and expenses that are the subject of the claim, were paid to Attorney Wyatt as a result of his defalcation, embezzlement, conversion, or theft of client funds. Final Order at 9; CR , The Fund also held that the new claims raised in Mr. Stacy s September 2010 response were barred by the Fund s three year statute of limitation because they had not been raised "within three years of the time when the victim discovered or first reasonably should have discovered the defalcations and the resulting losses" as required by Rule 55(3). Final Order at 9; CR 0282, 0374; see Rule 55 (3). After May 2011 hearing, the Fund "found and ruled that Mr. Stacy s claim against Attorney Wyatt was part of Mr. Stacy s bond claim" and that it would reduce Mr. Stacy s claim against the Fund by the portion of the bond recovery that was attributable to Attorney Wyatt s liability, as found in the Probate Court Order. Final Order at 8-9; CR , 0373, The Fund calculated this reduction at $36, Final Order at 8-9; CR , 0373, The Fund furthermore rejected Mr. Stacy s argument that the Probate Court Order satisfied his burden of showing, by a preponderance of the evidence, that Attorney Wyatt had committed The February 2011 hearing was later rescheduled for May 2011 due to a snowstorm. Final Order at 9; CR ,

20 defalcation that is reimbursable by the Fund. Final Order at 11; CR , The Fund s rejection of this argument was based on the fact that Attorney Wyatt was not a party to the probate court proceedings, and thus no binding effect could be given to the probate court s finding of liability against him without raising serious due process concerns. CR The Fund thereafter scheduled a final hearing for January 2012 to address whether Attorney Wyatt s conduct constituted defalcation, embezzlement, conversion, or theft of client funds, as required for reimbursement by the Fund, without reliance on the findings of the probate court. Final Order at 11; CR 0322, Based on the testimony and evidence presented at the final hearing, the Fund issued its Final Order, which is currently on appeal before the Court. Final Order at 1-25; CR The Fund found, after performing its own calculation based on the evidence presented, that Mr. Stacy had proven that he, or Mr. Brault as conservator, had paid Attorney Wyatt the amount of $173, in attorneys fees and costs during the period at issue. Final Order at 15; CR After applying the reduction of $36,481.00, for the amount of Mr. Stacy s bond recovery attributable to Attorney Wyatt s misconduct, the Fund found that Mr. Stacy s new claim amount totaled $137, Final Order at 15; CR However, the Fund, further found that Mr. Stacy had failed to carry his burden that Attorney Wyatt had acted with the requisite intent to commit either theft or conversion when he received the attorneys fees and costs at issue. Final Order at 16-24; CR Therefore, the Fund denied Mr. Stacy s claim on the basis that "Mr. Stacy[] failed to establish by a preponderance of the evidence that the attorneys fees and expenses at issue... were paid to the Accused... as a result of the Accused s defalcation, embezzlement, conversion, or theft of client funds." Final Order at 25; CR This appeal followed.

21 SUMMARY OF THE ARGUMENT The Fund s finding that Mr. Stacy failed to present sufficient evidence to establish that his claimed losses resulted from the defalcation of Attorney Wyatt is consistent with the plain language of the Fund s authorizing rules and regulations and in accord with its overarching purpose to reimburse clients who are harmed by the dishonest conduct of New Hampshire attorneys. Mr. Stacy failed to show that Attorney Wyatt converted client funds when Attorney Wyatt withdrew earned fees from Attorney Wyatt s trust account as compensation for work actually performed, in accordance with the duly-authorized fee agreements. Mr. Stacy furthermore failed to support his argument that Attorney Wyatt committed conversion by "retaining" these fees. Additionally, Mr. Stacy failed to show that these circumstances establish that Attorney Wyatt acted with the intent to steal client funds. Therefore, the Fund properly exercised its discretion in finding that Mr. Stacy had failed to establish that Attorney Wyatt s conduct constituted conversion or theft of client funds. For these reasons, as more fully outlined below, the Fund respectfully requests that this Court uphold its findings in this matter. STANDARD OF REVIEW Pursuant to Supreme Court Rule 55, which regulates the Fund, "[d]ecisions of the committee as to whether or not to pay claims and the amount of payments shall be within the committee s discretion... and will be reviewable only for unsustainable exercise of discretion." Rule 55(5). Under this standard, and applying the law applicable to administrative decisions by analogy, all findings of fact by the Fund are deemed prima facie lawful and reasonable. See In re Stonyfleld Farm, Inc., 159 N.H. 227, 230 (2009); In re Jean-Guy s Used Cars & Parts, Inc., 159 N.H. 38, 39 (2009). The appellant has the burden to show, through specific citation to prevailing authorities and the evidence on the record, "that the order is unjust or unreasonable."

22 See Stonyfield, 159N.H. at23;jean-guy s, 159N.H. at39;appeal of Portsmouth Trust Co., 120 N.H. 753, 759 (1980) ("It is not this court s function to comb lengthy and detailed administrative records in search of evidence which would support [or undermine] an administrative finding."); Sup. Ct. R. 16(3)(f). To satisfy his burden, the appellant must show that "no evidence was presented in the record to sustain the order." See Mannone v. Whaland, 118 N.H. 86, 88 (1978). Pursuant to the provisions of Rule 55, unless the appellant can show through specific references to the record and governing law that the Fund s ruling in this matter constitutes a clear unsustainable exercise of discretion, this Court may not to substitute its judgment for that of the Fund and the final decision of the Fund should be affirmed. See Appeal of University System of New Hampshire, 131 N.H. 368, 375 (1988). ARGUMENT I. THE FUND EXERCISED ITS DISCRETION IN THIS MATTER IN A MANNER CONSISTENT WITH THE PURPOSE OF THE FUND "The purposes of the Public Protection Fund are to provide apublic service and to promote public confidence in the administration ofjustice and the integrity of the legal profession by providing some measure of reimbursement to victims who have lost money or property caused by the defalcation of lawyers admitted to practice law in this jurisdiction occurring in New Hampshire and in the course of the client-lawyer or fiduciary relationship between the lawyer and the claimant." - New Hampshire Supreme Court Rule 55(1). The manifest purpose of the Fund is to reimburse clients who have been injured by their lawyer s dishonest conduct. Rule 55(1); see In re Proposed Public Protection Fund Rule, 142 N.H. 588, 590 (1998) (finding that the New Hampshire Bar Association s client indemnity fund was the foundation for the creation of the Fund). This purpose is consistent with the ABA Model Rules for Lawyers Funds for Client Protection ("Model Rules") and their commentary. Model IC

23 Rules 1(a) (2006) ("The purpose of the Lawyers Fund for Client Protection is to promote public confidence in the administration of justice and the integrity of the legal profession by reimbursing losses caused by the dishonest conduct of lawyers...."). Using its purpose as a frame of reference, the Fund is authorized to exercise its discretion to reimburse clients who have "proven losses resulting from embezzlement, conversion, or theft of client funds by [New Hampshire] lawyers." Rule 55(1), (2), (5). In the current matter, the Fund reviewed the evidence presented by Mr. Stacy and properly exercised its discretion in finding that he had not shown that Attorney Wyatt had engaged in the type of dishonest conduct which qualifies a client for reimbursement by the Fund. See Final Order at 25; CR This finding is consistent with the Model Rules and the findings of client protection funds in other states. A review of the Model Rules shows that the evidence presented in this matter failed to establish that Attorney Wyatt engaged in "dishonest conduct" as defined by Model Rule 10. The Model Rules define "dishonest conduct" as: "wrongful acts committed by a lawyer in the nature of theft or embezzlement of money or the wrongful taking or conversion of money, property, or other things of value, including but not limited to: (1) Failure to refund unearned fees received in advance as required by [Rule 1.16 of the ABA Model Rules for Professional Conduct]; and (2) The borrowing of money from a client without intention to repay it, or with disregard for the lawyer s inability or reasonably anticipated inability to repay it." Model Rules at Rule 10(C). The comments further elucidate the type of conduct that is reimbursable by the Fund stating that "[t]he basic concept is one of conversion or embezzlement," and that if a claim is premised on conversion, then reimbursement should be provided "where the lawyer took money in the guise ofa fee, a loan or an investment." Id. at Rule 10, cmt. 3 (emphasis added). Rule 10 and its comments establish that client protection funds, such as the Fund, were created to protect clients from attorneys who act with the intent or purpose of defrauding their clients. See id. In fact, the inherent nature of "dishonesty" 11

24 presupposes some underlying bad faith action. See BLACK S LAW DICTIONARY at 539, 733 (9th ed. 2009) (defining "dishonest act" by referencing "fraudulent act," which is defined as "[c]onduct involving bad faith, dishonesty, a lack of integrity, or moral turpitude"). Furthermore, client protection funds established in other states have interpreted the purposes of their funds consistently with the Model Rules, and these interpretations have been upheld by courts in those states. See, e.g., Tabak v. Lawyers Fund for Client Protection, 166 Misc. 2d 502, 507 (N.Y. S. 1995) (upholding decision of New York client protection fund based on determination that "the purpose of the Lawyers Fund for Client Protection is to reimburse for lawyer theft, not make good on bad debts"); 0 Meyer v. Idaho State Bar, 138 Idaho 603, 605 (2003) ("[R]ecovery from the fund was not intended to be a substitute for a malpractice action[, but instead is] limited to loss caused by a lawyer s dishonest conduct" (internal quotation marks omitted)). The evidence presented in this matter does not establish that Attorney Wyatt, in paying his attorneys fees out of conservatorship assets, pursuant to his duly-authorized written fee agreements, took any action in bad faith or with dishonest motives. It is undisputed that Attorney Wyatt was found to have operated under a conflict of interest during his dual representation of Mr. Stacy and his conservator and that Attorney Wyatt received fees and costs from Mr. Stacy and the conservator associated with work that he actually performed during that representation. See Wyatt s Case, 159 N.H. at Furthermore, it is undisputed that Mr. Stacy has never challenged the reasonableness of these attorneys fees. Final Order at 13; CR Therefore, this is not the type of case discussed in the Model Rules, where a dishonest attorney schemes to dupe his or her clients into paying amounts which are taken under the "guise of fees." See Model Rules at 10, cmt. 3. In the present case, there has never been a question that 12