IN THE SUPREME COURT OF FLORIDA THE FLORIDA BAR Complainant, CASE NO. SC11-1186 TFB File No. 2010-00,427(8B) v. WILLIAM BEDFORD WATSON, III, Respondent, / REPORT OF REFEREE I. SUMMARY OF PROCEEDINGS The undersigned was appointed as referee in this matter. The Florida Bar ( The Bar ) filed a Complaint against the Respondent, William Bedford Watson, III ( Watson ) on June 16, 2011. The Complaint asserts that Watson violated Rules 4-8.4(c) and 5-1.1(b), of the Rules Regulating the Florida Bar ( Rules ). A final hearing was held on December 2, 2011. After that, the Bar filed a Motion to Supplement the Record with the written decision of the Florida Supreme Court in Case No. SC 09-2022. Watson filed an Objection to that. The Motion is hereby granted, and the record supplemented accordingly. The pleadings, transcripts, exhibits received in evidence, and this Report constitute the record in this case and will be forwarded to the Florida Supreme Court. II. FINDINGS OF FACT
A. Jurisdictional Statement. Watson is, and at all times material to this action was, a member of the Florida Bar, subject to the jurisdiction and disciplinary rules of the Supreme Court of Florida. B. Narrative Summary of Case. In June, 2009, Joel Kennedy ( Kennedy ) and Jerry Stephens ( Stephens ) sought to obtain funds for a condominium project they were developing through their entity, WCDM Development ( WCDM ). The condominium project, known as Rosewood at Providence, LLC ( Rosewood ) is in Charlotte, N.C. The existing loan payable to Regions Bank was in default, and WCDM needed $31,000,000.00 to pay it and complete the project. In an effort to assist, a friend, David Justice ( Justice ) arranged a conference call between Kennedy, Stephens and Phil Walton ( Walton ), a broker in Florida. Walton helps companies obtain financing. He suggested how the transaction could be designed, with Watson acting as the administrator. On June 12, 2009, Walton sent a letter to Stephens with an offer to obtain the financing. It stated that Watson, as the administrator, would be protecting the interests of the lender and the borrower. On June 16, 2009, Kennedy sent a letter accepting the offer. On July 1, 2009, Justice, Kennedy, Stephens, and their attorney, Duncan Walker ( Walker ), met with Watson at his office to discuss the transaction.
Kennedy and Stephens left feeling assured that their money would be held safely in Watson s trust account. On July 7, 2009, Clarendon Development Holdings, Inc. ( Clarendon ), through Walton, and Rosewood, through Stephens, executed a Funding Agreement ( Agreement ). Watson is named as the administrator in the Agreement. Pursuant to the Agreement, WCDM wired $1,650,000.00 into Watson s trust account on the same date. At the time the funds were delivered, Kennedy and Stephens believed they would remain in Watson s trust account until a letter of credit was obtained. When WCDM did not receive the Letter of Credit within five days as required in the Agreement, Kennedy began contacting Watson to inquire as to the status of the document. He continued to contact Watson about the matter almost daily. In early August, 2009, WCDM did get a copy of a Letter of Credit, and was told that the loan would fund within a few days. Stephens and Kennedy contiuned to receive assurances that the loan would be funded soon for several weeks thereafter. After repeated unsuccessful attempts to contact Walton and Watson, Kennedy and Justice went to Watson s office unannounced on August 20, 2009. Watson assured them that everything was fine, and that there were just a few issues to resolve before the loan was funded. Kennedy sent a copy of the Letter of Credit to BB&T Bank. He was informed that the Letter of Credit was not legitimate. Both Watson and Hiram Falcon, a
representative from BB&T, testified that the Letter of Credit, which was issued by Credit Dnepr in the Ukraine, was worthless. Kennedy questioned Watson about the Letter of Credit. Watson then explained that the initial $1,650,000.00 was to purchase a bank guarantee from Credit Dnepr. The bank guarantee was to be given to Himlar Huy ( Huy ), who owns HRH Invest ( HRH ), who would use the funds for ninty days to trade commodities. A part of the loan would be funded initially, with subsequent portions being funded over the next few months. This was the first time Kennedy heard this explanation of the transaction. Kennedy then contacted HRH, and ultimately spoke with Huy, who acknowledged knowing Watson and Walton, but denied knowing anything about Rosewood, WCDM, or the loan transaction. Walton informed Kennedy that he breached the agreement by contacting the lending source, but later said that the transaction would proceed if WCDM refrained from contacting HRH. Watson continued to assure Stephens and Kennedy that the loan transaction would be funded shortly. However, on October 2, 2009, WCDM s attorney sent a letter to Watson and Walton, demanding return of the $1,650,000.00. There was no response. WCDM s attorney wrote two more letters, but the funds were never returned.
The funds were not returned because Watson disbursed them the day after he received them. According to Watson, Walton instructed him to disburse the funds. Acting upon those instructions, Watson sent $1,575,000.00 to Soliel Capitale Corporation ( Soliel ). He sent $44,000.00 to various third parties purportedly associated with Claredon ($10,500.00 to Kaysha, Inc.; $19,000.00 to Paulette Palmer, Walton s wife; $5,000.00 to Byron Wisdom; $3,000.00 to LaDonna Coward; $4,000.00 to Fred Anderson; and $2,500.00 to Jodi-Ann McLeish). Finally, Watson paid $31,000.00 to his law firm. The $44,000.00 paid to third parties associated with Claredon was not for purposes of the Rosewood loan, a bank guarantee, or a letter of credit. In addition, Watson told Stephens and Kennedy that he would pay attorney s fees and costs out of the $31,000,000.00 loan, not from their initial deposit. Kennedy said that he was unaware that any costs would be taken from the $1,650,000.00, because that money was solely for the purpose of acquiring a bank guarantee for the $31,000,000.00 loan. Watson explained that the $1,650,000.00 belonged to his client, Claredon, and that he followed his client s instructions in disbursing the funds from his trust account. He said that the payment of the $44,000.00 was for fees due to Claredon. When asked whether Kennedy and Stephens were aware of those fees, Watson said it was none of their business, because once the funds were deposited into his trust
account, they no longer belonged to WCDM, but belonged to his client, Claredon. Thus, Watson concludes that he used the funds for their intended purpose. Govind Srivastava ( Srivastava ) is the owner of Soleil. He said that he did receive the $1,575,000.00 from Watson, but it was not for a transaction involving WCDM or Rosewood, but was for fees he earned in unrelated loan transactions that Watson was involved in. WCDM never received a bank guarantee. The letter of credit that it did receive was worthless. Kennedy concedes that he knew that WCDM s funds were to be used for costs for a letter of credit. He asserts, however, that the $1,650,000.00 was to remain in Watson s trust account until a letter of credit was obtained. Clearly, had Watson obtained written authorization from WCDM before releasing its funds, there would have been no complaint against him. Watson asserts that this transaction is akin to his handling of a real estate transaction, and said that he has no liability to either party if the buyer later defaults on the mortgage. Watson s analogy misses the point; if he handled a real estate transaction that did not close, he certainly would not release the buyer s deposit from his trust account to the seller without authorization. Considering all of the circumstances, the testimony of the witnesses, particularly Kennedy and Stephens, and all of the documentary evidence, Watson s
testimony is not credible. If WCDM s funds were to be used to pay costs, why were they deposited into his trust account and not paid directly to Clarendon? Why didn t Watson secure written authorization from WCDM prior to disbursing the funds? III. ANALYSIS. The evidence to sustain a disciplinary decision against a respondent must be clear and convincing. It is something less than beyond a reasonable doubt, as required in criminal cases, and something more than a preponderance of the evidence, as required in civil cases. The Florida Bar v. McCain, 361 So.2d 700, 706 (Fla. 1978). Rule 4-8.4 (c) states that a lawyer shall not engage in conduct involving dishonesty, fraud, deceit or misrepresentation. Rule 5-1.1 (b) provides that money entrusted to an attorney for a specific purpose is held in trust and must be applied only to that purpose. The comment to Rule 5-1.1 states: A lawyer must hold property of others with the care required of a professional fiduciary. In The Florida Bar v. Ward, 599 So.2d 650 (Fla. 1992), the court addressed this responsibility: The basis for this distinction is the unique fiduciary duty which lawyers, individually and as a profession, owe to their clients... Never is an individual s trust in an attorney more evident, or more at risk, then when he places funds or property into the hands of his attorney. Id. at 651.
See, also, The Florida Bar v. Martinez-Genova, 959 So.2d 241 (Fla. 2007). As explained in The Florida Bar v. Joy, 679 So.2d 1165 (Fla. 1996), lawyers often hold funds in escrow where their client is one principal and some other non-client is another principal party. By undertaking to do so, the lawyer establishes a new legal relationship with the principal parties either by an expressed agreement or by an agreement implied in law. The relationship that is established is one of principal and agent, in which the lawyer is an agent of, and owes a fiduciary duty to, all of the principals. Absent a written agreement, the law implies that the attorney will know the conditions of the principals agreement and will exercise reasonable skill and ordinary diligence in the holding and delivering of the escrowed funds in accordance with that agreement. Id. at 1167. In order to satisfy the element of intent it must only be shown that the conduct was deliberate or knowing. Florida Bar v. Fredericks, 731 So.2d 1249 (Fla. 1999). The issue is whether the attorney deliberately or knowingly engaged in the activity, and the attorney s motive is not relevant. Florida Bar v. Riggs, 944 So.2d 167, 171 (Fla. 2006). The Bar has presented clear and convincing evidence that Watson engaged in conduct involving dishonesty, fraud, deceit or misrepresentation. Such conduct consisted of: (a) Watson s failure to explain the exact nature of the transaction until long after the funds were disbursed; (b) Watson telling Stephens and Kennedy that
the loan would fund, that everything was legitimate and that there were only a few issues to resolve; and (c) Watson s use of WCDM s funds for unintended purposes. Thus, Watson is guilty of violating Rule 4-8.4 (c). The Bar has presented clear and convincing evidence that Watson did not hold WCDM s funds in trust and use them only for the intended purposes. All of WCDM s funds were disbursed improperly. Further, the misuse of the trust funds was done deliberately and intentionally. Thus, Watson is guilty of violating Rule 5-1.1 (b). IV. RECOMMENDATIONS AS TO GUILT. I recommend that the Respondent be found guilty of violating Rules 4-8.4 (c) and 5-1.1(b), Rules Regulating the Florida Bar. V. STANDARDS FOR IMPOSING LAWYER SANCTIONS The Referee has considered the following Florida Standards for Imposing Lawyer Sanctions ( Standards ): Standard 3.0, setting forth the factors to be considered in imposing sanctions. Standard 4.11, stating that disbarment is a proper remedy when a lawyer knowingly or intentionally converts client property. Standard 5.11 f., stating that disbarment is appropriate when a lawyer engages in intentional conduct involving dishonesty, fraud, deceit, or misrepresentation.
Standard 7.1, stating that disbarment is appropriate when a lawyer engages in conduct that is a violation of a duty owed as a professional with the intent to obtain a benefit for himself or another, and causes serious injury to the public or the legal system. Standard 9.22, factors which may be considered in aggravation. Standard 9.32, factors which may be considered in mitigation. VI. CASE LAW The Referee has considered the following case law in determining appropriate recommended sanctions: A referee s recommended discipline will stand if it is authorized under the Florida Standards for Imposing Lawyer Sanctions, and has a reasonable basis in existing case law. The Florida Bar v. Barrett, 897 So.2d 1269, 1276 (Fla. 2005). There are three purposes of lawyer discipline: First, the judgment must be fair to society. Second, the judgment must be fair to the respondent. Third, the judgment must be severe enough to deter others. Id. at 1275 (Fla. 2005). The misuse of client s funds held in trust is one of the most serious offenses a lawyer can commit, and disbarment is presumed to be the appropriate remedy. The presumption of disbarment is particularly heavy when the attorney s misuse is intentional, rather than a result of negligence or inadvertence. The Florida Bar v. Travis, 765 So.2d 689 (Fla. 2000). Disbarment may be proper when a lawyer
misappropriates third party funds. The Florida Bar v. Martinez-Genova, 959 So.2d 241 (Fla. 2007). VII. AGGRAVATING AND MITIGATING FACTORS The Referee makes the following findings as to aggravating factors: (a) Watson has prior disciplinary offenses: (1) in Supreme Court Case No. SC09-1507, he was placed on emergency suspension; (2) in Supreme Court Case No. SC 11-103, he was placed on suspension indefinitely; and (3) in Supreme Court Case No. SC 09-2022, he was suspended for three years. (b) Watson has evidenced a pattern of misconduct. (c) Watson has refused to acknowledge the wrongful nature of his conduct. (d) Watson has substantial experience in the practice of law. The Referee makes the following findings as to mitigating factors: (a) Watson did not have a dishonest or selfish motive. (b)watson had a cooperative attitude toward these proceedings. VIII. PERSONAL HISTORY AND PAST DISCIPLINARY RECORD The Respondent is 69 years old. He was admitted to the Florida Bar on November 4, 1966. His prior disciplinary record is stated above. IX. RECOMMENDATIONS AS TO DISCIPLINARY MEASURES TO BE APPLIED
The Referee recommends that Watson be permanently disbarred from the practice of law. X. STATEMENT OF COSTS AND MANNER IN WHICH COSTS SHOULD BE TAXED The Referee reviewed the Florida Bar s Request for Payment of Disciplinary Costs. The Respondent did not file an Objection. The Referee finds that the following costs were reasonably incurred by the Florida Bar: Administrative Fee: $1,250.00 Court Reporter Fees: $2,745.21 Bar Counsel Costs: $1,134.76 Investigative Costs: $1,996.94 Witness Costs: $5,185.12 Referee Costs: $ 104.61 Total: $12,416.64 The Referee recommends that the costs be charged to the Respondent and that interest at the statutory rate shall accrue and be deemed delinquent 30 days after the judgment in this case becomes final, unless paid in full or otherwise deferred by the Board of Governors of the Florida Bar. Submitted this 19 day of January, 2012. S/ Lawrence J. Semento, Circuit Judge Referee
CERTIFICATE OF SERVICE I HEREBY CERTIFY that the original of the Report of Referee was forwarded by U.S. Mail to The Honorable Thomas D. Hall, Clerk, Supreme Court of Florida, 500 South Duval Street, Tallahassee, Florida 32399, that true and correct copies were forwarded by U.S. Mail to the following: James A.G. Davey, Jr., Bar Counsel, The Florida Bar, 651 East Jefferson Street, Tallahassee, Florida 32399-2300; Kenneth L. Marvin, Staff Counsel, The Florida Bar, 651 East Jefferson Street, Tallahassee, Florida 32399-2300; William Bedford Watson, III, P.O. Box 358686, Gainesville, FL. 32625, and 4131 NW 28 th Lane, Suite 2, Gainesville, FL. 32606-6665 on this 19 day of January, 2012. S/ Judicial Assistant