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In re Daugherty

March 28, 2008


Per curiam.


Indefinite suspension.

This is an original uncontested proceeding in discipline filed by the office of the Disciplinary Administrator alleging that the respondent, Troy L. Daugherty, violated the Kansas Rules of Professional Conduct. The hearing panel unanimously recommends that Daugherty be indefinitely suspended from the practice of law in the state of Kansas.

Troy L. Daugherty, an attorney admitted to the practice of law in Kansas in September 1990, is also admitted to the practice of law in the states of Illinois and Missouri. Respondent's last registration address with the Clerk of the Appellate Courts of Kansas is in Olathe, Kansas.

The complaint against respondent arises out of a final adjudication of a disciplinary action and sanctions in the state of Illinois, for which respondent received reciprocal attorney discipline and sanctions in the state of Missouri. The formal complaint here charged respondent with violating Kansas Rules of Professional Conduct (KRPC) 3.1 (2007 Kan. Ct. R. Annot. 500) (meritorious claims and contentions required), KRPC 3.3(a)(1) (2007 Kan. Ct. R. Annot. 508) (false statement of fact to a tribunal), KRPC 3.3(a)(4) (2006 Kan. Ct. R. Annot. 467) [now KRPC 3.3(a)(3) (2007 Kan. Ct. R. Annot. 508)] (offer evidence that the lawyer knows to be false), KRPC 3.4(b) (2007 Kan. Ct. R. Annot 514) (falsify evidence), KRPC 8.1(b) (2007 Kan. Ct. R. Annot. 553) (failing to respond to a demand for information from a disciplinary authority), and KRPC 8.4(b), (c), and (d) (2007 Kan. Ct. R. Annot. 559) (commit a criminal act; engage in dishonesty, fraud, deceit or misrepresentation; and engage in conduct prejudicial to the administration of justice). When respondent did not file an answer to the formal complaint within 20 days as required by Supreme Court Rule 211(b) (2007 Kan. Ct. R. Annot. 304), a supplement to the formal complaint charged respondent with violating KRPC 8.1(b). Respondent eventually filed an answer to the formal complaint wherein he denied violating the KRPC and denied the findings of fact made by the Illinois Disciplinary Hearing Panel.

The Kansas Board for Discipline of Attorneys held a hearing on October 4, 2007. Respondent appeared pro se. At the hearing, the Disciplinary Administrator's Exhibits 1 through 8 were admitted.


The hearing panel found the following facts by clear and convincing evidence:

"2. On July 26, 2005, the Illinois Attorney Registration and Disciplinary Commission filed a Complaint against the Respondent. Thereafter, on September 22, 2005, the Respondent filed an Answer to the Complaint.

"3. On September 2006, the Illinois Attorney Registration and Disciplinary Commission held a hearing before a Hearing Panel. Thereafter, on January 3, 2007, the Hearing Panel issued its Report and Recommendation. On March 19, 2007, the Supreme Court of Illinois approved and confirmed the Report and Recommendation of the Hearing Board. As a result, the Court suspended the Respondent's license to practice law in the State of Illinois for one year. Additionally, the Illinois Supreme Court ordered that the Respondent's license to practice law will not be reinstated until the Respondent satisfies his restitution obligation with the Morton Community Bank.

"4. The Report and Recommendation of the Hearing Panel, affirmed and confirmed by the Illinois Supreme Court, provides as follows:


'The hearing in this matter was held on September 18, 2006, at the Chicago, Illinois offices of the Attorney Registration and Disciplinary Commission (ARDC) before the Panel of James A. Shapiro, Chair, Roma J. Stewart, and David A. Winter. Robert J. Verrando represented the Administrator of the ARDC. Respondent appeared in person and proceeded pro se.


'On July 26, 2005, the Administrator filed a four-count Complaint against Respondent pursuant to Supreme Court Rule 753(b). The Complaint alleged that Respondent made misrepresentations in connection with a loan application, made false statements to a tribunal, committed perjury during a deposition, and failed to respond to the ARDC's requests for information.

'Respondent filed an Answer to the Complaint admitting some of the factual allegations, denying some of the factual allegations, and denying all allegations of misconduct.


'The Administrator presented the testimony of two witnesses, called Respondent as an adverse witness, and tendered exhibits 1-13, which were admitted. Respondent testified on his own behalf.

'Count I

'Admitted Facts

'In April 2001, Respondent agreed to purchase a 1997 Lincoln Town Car from Thomas Fincham. Also in April, Respondent represented to Morton Community Bank (Morton Bank) that he intended to purchase the car, and requested a loan for the purchase. On May 21, 2001, Respondent executed a document entitled "Consumer Note, Disclosure and Security Agreement" in favor of Morton Bank. On May 4, 2001, Morton Bank sent Respondent a check in the amount of $15,000 made payable to Respondent. At no time did Respondent purchase the car, give Morton Bank a security interest in any property in exchange for the loan, or repay the loan proceeds to Morton Bank.

'Thomas Fincham

'Thomas Fincham is an attorney licensed to practice law in Missouri. Fincham and Respondent worked at the same Missouri law firm for approximately two years. In early 2001, Fincham was attempting to sell a 1997 Lincoln Town Car, and Respondent expressed interest in purchasing it. He showed Respondent the car sometime between March and May 2001. The car was not damaged, and Respondent agreed to buy it for $15,000. On May 3, 2001, at Respondent's request, Fincham sent Gene Hart at Morton Bank, via facsimile, a copy of the car's title, and stated that Respondent was interested in purchasing the car.

'Respondent never purchased the car and told Fincham that he could not obtain financing. The car had never been in an accident, and Fincham never told Respondent that it had been in one. However, when Fincham purchased the car, it was not new, and the salesman told him there had been some quarter panel damage that had been repaired. Fincham informed Respondent about the quarter panel damage before Respondent agreed to purchase the car. After Respondent initially saw the car, someone threw a rock through the window on the driver's side. Fincham told Respondent about the incident during a telephone conversation, and had the window repaired. He did not recall Respondent coming to his office to discuss the window or to inspect the car.

'In February or March of 2002, Fincham received a telephone call from Hart asking him for the title to the car. He told Hart that he still owned the car, and had not sold it to Respondent. In February 2002, Fincham sold the car to someone else for $9,000. Fincham thought the price was low, but wanted to sell the car because he had purchased another one.

'Gene Hart

'In 2001, Gene Hart was the branch manager and loan officer at the Morton Bank. Respondent was a bank customer, and in early 2001 he told Hart he wanted to purchase a 1997 Lincoln Town Car, and requested a $15,000 auto loan. Hart called the seller of the car to get a copy of the title. Respondent did not complete a loan application because Respondent was an attorney, had several other loans with the bank, and had a good relationship with the bank. Respondent signed a "Consumer Note and Security Agreement" identifying the car, the amount of the loan, the payment schedule, and other terms of the loan. After receiving the signed note, the bank sent Respondent a check for $15,000. Hart made the check payable to Respondent, and relied on Respondent's integrity to send him the title.

'On February 8, 2002, Hart sent Respondent a letter explaining that Respondent had failed to make the last two payments on the loan. Hart also informed Respondent that he had contacted the seller of the car and learned that Respondent had not purchased it. Before sending the letter, Hart had attempted to discuss the late payments with Respondent by telephone but was unable to reach him, and Respondent failed to return Hart's voicemail messages. Before February 2002, Respondent had made three or four payments. After that time, Respondent made several additional payments. The balance of the loan is approximately $9,000. Eventually, Morton Bank sued Respondent and obtained a judgment against him. The bank spent approximately $18,000 in attorney's fees pursuing the matter.

'The consumer note would have given the bank a security interest in the Lincoln Town Car if the bank had received the title. The security interest would not have been transferable to another car without modifications to the loan. The bank made no modification to Respondent's loan. Because Respondent did not purchase the Lincoln Town Car, the loan was unsecured.


'Respondent signed the consumer note which accurately described Fincham's Lincoln Town Car. He also received and deposited the check for $15,000 from Morton Bank. He never told Hart that he failed to purchase the car.

'Respondent testified he intended to buy the car, but never agreed to buy it, and only told Fincham he was interested in buying it. However, Respondent admitted he told Fincham he would pay $15,000 for the car, and applied for and obtained a loan to purchase the car. Initially, Fincham told Respondent the quarter panel had been damaged prior to his ownership, and he would have the car checked and tell Respondent if there was any frame damage. Before Fincham had the frame checked, the car was vandalized when the window was broken. Respondent decided not to buy the car after he saw the broken window, and determined that it was not worth $15,000. He used $10,000 of the loan proceeds to buy a different car, a Cirrus, and spent the remaining $5,000 on living expenses. He did not intend to defraud the bank, and thought he would repay the loan. He is still willing to repay the loan, but Morton Bank is demanding repayment of the loan and $18,000 in attorney's fees. Respondent is unable to pay that much in a lump sum, but is willing to make payments.

'Also in 2001, Respondent was going through a divorce and representing a client in a wrongful death action, both of which were consuming a large amount of his time. In the wrongful death action, Respondent believed he would obtain a large settlement, and spent his own money on expert opinions and other costs of the litigation. He later learned that his client lacked standing, and was unable to pursue the case. Between his divorce and the wrongful death case, Respondent was having financial difficulties, and he defaulted on the Morton Bank loan.

'Counts II and III

'Admitted Facts

'On April 25, 2002, Morton Bank filed a lawsuit against Respondent to recover the loan proceeds. On December 13, 2002, the circuit court entered a default judgment against Respondent. On October 9, 2003, Respondent filed a petition under chapter 7 of the Bankruptcy Code. On January 3, 2003, Morton Bank filed an adversary complaint with the bankruptcy court objecting to the dischargeability of his debt to the bank. Respondent filed an answer to the adversary complaint, admitting that the purpose of Morton Bank's loan was to finance the purchase of a car, but stating Fincham had "wrecked" the car before Respondent could purchase it, the value of the car was "substantially diminished," and repair of the car was uncertain due to "insurance entanglements." On December 17, 2004, Respondent gave sworn testimony at a deposition in connection with the adversary complaint.


'After Respondent defaulted on the loan, Morton Bank filed a lawsuit against Respondent. Respondent filed an answer to the complaint. On December 3, 2002, a judgment in the amount of $15,251.60 was entered against Respondent.

'On October 9, 2003, Respondent filed a bankruptcy petition, in which he listed the loan from Morton Bank. In the petition, Respondent also listed several credit card debts, $79,000 owed to the Internal Revenue Service for employee withholding taxes, and $31,000 owed to his ex-wife as part of the divorce settlement. In January 2004, Morton Bank filed an adversary complaint against Respondent in the bankruptcy proceedings claiming that the debt to the bank was not dischargeable because Respondent had obtained the loan by deceit.

'In February 2004, Respondent filed an answer to the adversary complaint. Respondent admitted that the purpose of the loan was to purchase the Lincoln Town Car, and stated that he did not purchase the car because it was "wrecked by the then owner, its value substantially diminished, and the prospects of the repair of the vehicle in question due to insurance entanglements." Respondent explained that the words "then owner" refer to the person who owned the car before Fincham, and that the value was substantially diminished because Fincham sold the car for $9,000 instead of $15,000. In paragraph 11 of the answer, Respondent stated he did not own the car, and that Morton Bank knew he did not own it. He also stated he "utilized the funds to purchase an alternative vehicle in its stead." In paragraph 13, Respondent said he "never owned the collateral because of its wrecked condition."

'During his deposition in the adversary proceeding, Respondent was asked about the damage to the car, and he responded "somebody had T-boned the--this vehicle, the Lincoln Town Car." He also stated "the whole side of the vehicle was substantially damaged." Respondent acknowledged that he was wrong when he made these statements.

'During the deposition Respondent further explained, "the damage looked very substantial. It was hard for me to envision the vehicle looking and being in the same condition as it was when I was first going to buy it and then looking at it in the condition it was in." Respondent gave other incorrect answers at the deposition which he admitted were wrong and attributed to his lack of preparation for that testimony. For example, he repeatedly stated that Fincham was unsure if his or the other driver's insurance would pay for the damage to the car. Respondent was referring to the body damage that occurred before Fincham owned the car and not the broken window.

'When Respondent filed an answer to the adversary complaint and gave a deposition in the bankruptcy matter, he was confused about the condition of the car and believed his statements were accurate. He now acknowledges he was wrong when he said the car had been wrecked, but denies engaging in a four-year pattern of deceit.

'Count IV

'Admitted Facts

'On January 5, 2005, counsel for the Administrator sent Respondent a letter requesting that he provide information relating to the Morton Bank loan. As of February 1, 2005, Respondent had not responded to the letter, and on that date, counsel for the Administrator sent a second letter requesting the same information. On April 5, 2005, Respondent had not responded to either letter, and counsel for the Administrator sent Respondent a subpoena duces tecum requiring his appearance and the production of documents at the Administrator's office on May 3, 2005. Respondent failed to appear on that date. As of July 19, 2005, the date of the Inquiry Panel meeting, Respondent had failed to provide the Administrator with the requested information.


'Respondent testified that he cooperated with the Administrator. He failed to respond to the subpoena because he did not have any of the documents requested by the Administrator. He sent the Administrator one letter ...

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