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In re Dickens

Supreme Court of Kansas

February 22, 2019

In the Matter of Linda S. Dickens, Respondent.

          ORIGINAL PROCEEDING IN DISCIPLINE

          Kimberly Knoll, Deputy Disciplinary Administrator, argued the cause, and Stanton A. Hazlett, Disciplinary Administrator, was with her on the brief for the petitioner.

          Thomas A. Hamill, of Martin, Pringle, Oliver, Wallace & Bauer, L.L.P., of Overland Park, argued the cause and was on the briefs for the respondent, and Linda S. Dickens, respondent, argued the cause pro se.

          PER CURIAM

         This is an original proceeding in discipline filed by the office of the Disciplinary Administrator against the respondent, Linda S. Dickens, of Overland Park, an attorney admitted to the practice of law in Kansas in 2011.

         On February 13, 2017, the office of the Disciplinary Administrator filed a formal complaint against the respondent alleging violations of the Kansas Rules of Professional Conduct (KRPC). After two orders by the hearing panel granted her extensions to file an answer, the respondent timely filed an answer to the complaint on April 10, 2017, and an amended answer to the complaint on August 7, 2017. A hearing was held on the complaint before a panel of the Kansas Board for Discipline of Attorneys on September 19-20, 2018, where the respondent was personally present and was represented by counsel. The hearing panel determined the respondent violated KRPC 1.1 (2018 Kan. S.Ct. R. 289) (competence); 1.3 (2018 Kan. S.Ct. R. 292) (diligence); 1.4(a) (2018 Kan. S.Ct. R. 293) (communication); 1.5(d) (2018 Kan. S.Ct. R. 294) (fees); 1.8(e) (2018 Kan. S.Ct. R. 309) (providing financial assistance to client); 1.16 (2018 Kan. S.Ct. R. 333) (termination of representation); 3.2 (2018 Kan. S.Ct. R. 343) (expediting litigation); 5.1 (2018 Kan. S.Ct. R. 358) (responsibilities of partners, managers, and supervisory lawyers); 8.3(a) (2018 Kan. S.Ct. R. 380) (reporting professional misconduct); 8.4(a) (2018 Kan. S.Ct. R. 381) (misconduct); 8.4(c) (engaging in conduct involving dishonesty, fraud, deceit, or misrepresentation); 8.4(d) (engaging in conduct prejudicial to the administration of justice); and 8.4(g) (engaging in conduct adversely reflecting on lawyer's fitness to practice law).

         Upon conclusion of the hearing, the panel made the following findings of fact and conclusions of law, together with its recommendation to this court:

"Findings of Fact
"DA12309
"14. On October 14, 2015, the respondent entered into the Kansas attorney diversion program. In the diversion agreement, the respondent stipulated to the following:
'8. The Disciplinary Administrator and the Respondent stipulate to the following facts:
a. Respondent represented [G.C.] in an employment case.
b. During the case, [G.C.] was offered a settlement of approximately $40, 000.00.
c. [G.C.] rejected the offer.
d. Later, [G.C.] advised Respondent that he was running short of money because of medical and other expenses.
e. Respondent reviewed the Kansas Rules of Professional Conduct and decided that giving [G.C.] a loan would not violate the KRPC if the loan was an "arm's length" transaction. She did not read the Comments to KRPC 1.8.
f. Respondent loaned [G.C.] $20, 000.00 at 8.99% interest with payments of $900.00 due each month with the balance payable upon the settlement of the employment litigation or and [sic] of his pending worker's compensation claims.
g. Shortly after she provided the loan, Respondent was approached by a bank owner who indicated that the bank would like to support the litigation.
h. Respondent advised that [G.C.] could use a loan that he could use to pay off the loan she made to him, plus provide him other needed funds.
i. [G.C.] was given a loan. The loan principal was paid off, however there was interest that was owing and still accruing.
15. As part of the diversion agreement, the respondent agreed to complete a total of sixteen hours of continuing legal education, including a total of six j. Prior to the interview with Respondent, the Attorney Investigator suggested Respondent review both the Missouri and Kansas Rules of Professional Conduct.
k. After reviewing both, Respondent acknowledged her conduct violated the Rules in both states.
l. Respondent contended that the KRPC was not implicated because her actions were under her Missouri license.
m. Respondent acknowledges that KRPC 8.5 provides: "A lawyer admitted to practice in this jurisdiction is subject to the disciplinary authority of this jurisdiction although engaged in the practice of law elsewhere."
n. Respondent reported the misconduct to the
Missouri Office of Chief Disciplinary Counsel.
'9. The Disciplinary Administrator and the Respondent agree that the Respondent violated KRPC 1.8(e)[.]'

         "15. As part of the diversion agreement, the respondent agreed to complete a total of sixteen hours of continuing legal education, including a total of six

         j. Prior to the interview with Respondent, the Attorney Investigator suggested Respondent review both the Missouri and Kansas Rules of Professional Conduct. hours of hours of ethics. The respondent agreed to complete the hours within one year. The respondent failed to complete the required continuing legal education hours.

         "16. The diversion agreement also contained the following provision:

'The Respondent shall not violate the terms of the diversion agreement or the provisions of the Kansas Rules of Professional Conduct or Kansas Supreme Court Rules. If a new complaint is received during the diversionary period, or if within 90 days after the expiration of the agreement a new complaint is received alleging violations of the KRPC during the diversionary period, these acts shall constitute grounds for a request to the Review Committee that the diversion be revoked. The Review Committee has the authority to order revocation of the diversion and order the matter be set for a public hearing, without any other proceedings. In the event that the Respondent violates any of the terms of diversion or any of the provisions of the Kansas Rules of Professional Conduct or Kansas Supreme Court Rules, including registration requirements, at any time during the diversionary period, the Respondent shall immediately report such violation to the Disciplinary Administrator. The Respondent shall cooperate with the Disciplinary Administrator in providing information regarding any investigations relating to her conduct, as required by Kansas Supreme Court Rule 207. Failure to do so, may constitute a violation of KRPC 8.4.'

         "17. While the respondent remained on diversion, two new complaints were docketed for investigation against the respondent, see DA12475 and DA12526 below. The Review Committee of the Kansas Board for Discipline of Attorneys found probable cause to believe that the respondent violated the Kansas Rules of Professional Conduct in DA12475 and DA12526.

         "18. The respondent was given an opportunity to present information to the Review Committee as to whether the diversion agreement in DA12309 should be revoked. The respondent declined to comment or otherwise provide information to the Review Committee. Thereafter, on January 6, 2017, the Review Committee revoked the respondent's diversion in DA12309.

         "19. According to Rule 203(d)(vii):

'Failure to Complete the Attorney Diversion Program. If the Respondent fails to complete the agreed tasks in a timely manner at any point in the diversion process, he or she may be terminated from the program. If such a termination occurs, traditional formal disciplinary procedures will resume. When the complaint is returned to the formal disciplinary process, the Respondent's termination from the Attorney Diversion Program may be cited as an additional aggravating factor in recommending discipline and as a violation of Supreme Court Rule 207 and KRPC 8.1.'

         "DA12475

         "20. In 2012, the respondent began representing G.N. and D.N. In order to understand the facts involved in the present disciplinary case, it is necessary to include extensive background facts.

         "21. During 1992 and 1993, G.N. and D.N. engaged Ken Liebelt, a licensed independent life insurance agent and licensed securities broker, as their investment adviser. Liebelt was trained to determine the client's insurance objectives, research the client's existing products, run an analysis of the proposed products, and compare the benefits of the existing products to any new products proposed.

         "22. At the time, G.N. and D.N. each had a term life insurance policy, however the policies had outlived their purpose of insuring against the untimely death of D.N., the primary breadwinner of the household. G.N. told Liebelt that she wanted to reduce the amount of tax that she and D.N. paid on investments, if possible, through changes in their financial portfolio. Accordingly, Liebelt's goal in 1993 was to see what tax-advantaged products were available in the marketplace to assist G.N. and D.N. in accomplishing this goal.

         "23. That same year, Dave Knudson, Liebelt's supervising general manager, called Liebelt and told him of a tax advantaged product that he might want to hear about for his clients. In March, 1993, both Liebelt and Knudson attended a conference for the purpose of learning about 'universal life insurance.' During this conference, they both learned the generalities of a strategy for borrowing out the cash values in a universal life policy, all for retirement portfolio enhancement. Although Liebelt did not learn the specifics of how to operate the borrowing strategy (balanced funding option), Liebelt believed Knudson was very knowledgeable about the strategy.

         "24. Liebelt and Knudson each believed that the life insurance policies would lower G.N. and D.N.'s taxes. As such, they agreed to work together to sell the life insurance policies to G.N. and D.N. Liebelt and Knudson were not partners and there was no written contract between them, rather, it was understood that they would each make a commission if the policies were sold.

         "25. G.N. and D.N. relied on the collective advice from Liebelt and Knudson by terminating their existing life insurance policies and applying for universal life insurance policies with Bankers United Life Assurance Company (hereinafter 'Bankers'). Knudson was the managing agent on the policy and Liebelt was the writing agent. Although an insurance professional should assess whether the administrative expenses of a proposed policy are excessively high, Liebelt did not attempt to assess G.N. and D.N.'s existing investments, made no comparison of whether the proposed policies had advantages over their existing policies, and did not research any other life insurance or investment products; he merely ascertained whether they had cash flow to pay the high life insurance premiums necessary for the Bankers' policies.

         "26. After determining how much G.N. and D.N. could pay in premiums, Liebelt told Knudson that they 'needed to run the proposal on Knudson's computer software program.' Liebelt did not have the software knowledge to run any proposals. He went to Knudson's downtown office for this purpose. The new policies were based on the maximum amount of premiums G.N. and D.N. could afford to pay. This raised D.N.'s coverage from $150, 000 to $442, 626 and G.N.'s coverage from $25, 000 to $271, 000. At the time G.N. and D.N. completed the insurance policy application, they were advised to seek the counsel of a tax professional regarding the potential tax issues of the policy. Later, in 1993, when the policies were issued, G.N. and D.N. were advised of the maximum interest that would be charged on any loans taken from the cash value in the policies.

         "27. From 1993 to 2000, G.N. and D.N. built the cash value in the life insurance policies by paying a total of $225, 000 in premiums on the two policies. In August, 2000, G.N. and D.N. received notice from Bankers that their insurance policies were the subject of a class action lawsuit involving allegations against the company regarding how the policies were sold and how they performed. Both G.N. and D.N. signed documents agreeing to a settlement with the company regarding those issues.

         "28. In 2001, Knudson called Liebelt and advised him that G.N. and D.N. could start using the balanced funding option. Liebelt agreed that G.N. and D.N. should move forward with this option. Prior to making arrangements for G.N. and D.N. to start borrowing against the policies, Liebelt failed to run any underlying calculations or make any analysis of whether the interest rate charged on the loans against the policies of 13.9% was reasonable under the market conditions existing at that time. Liebelt also failed to run any data to determine whether G.N. and D.N. were breaking even on the life insurance policy. Finally, Liebelt failed to check to see whether there had been any changes in tax laws that might have rendered the balanced funding option no longer appropriate or advantageous.

         "29. Knudson and Liebelt met with G.N. and D.N. to explain the details of the balanced funding option. Later, G.N. called Liebelt and advised him that they wanted to go forward with the balanced funding option.

         "30. Knudson and Liebelt met with G.N. and D.N. a second time. During this meeting, they instructed G.N. on the documentation she would need for tax purposes with the balanced funding option. Liebelt told G.N. that the balanced funding option would work for her if she followed the specific instructions of Knudson.

         "31. After the second meeting, Liebelt advised G.N. that he would open a tax-efficient fund in order to maximize G.N. and D.N.'s tax benefits from the balanced funding option. He opened a separate investment account that would be used strictly to house the interest and deposits for the balanced funding option. Liebelt instructed G.N. to refrain from using the account for any other purpose.

         "32. In 2001 and 2002, G.N. took out loans from the cash value in their Bankers' policies, as directed by Knudson. G.N. gave half the loan proceeds to Liebelt to invest in the account he opened for use in conjunction with the balanced funding option. Liebelt invested in mutual funds. G.N. gave Knudson and the other half of the loan proceeds, $73, 500, to invest. Knudson put them into LLCs which he had formed. Knudson did not tell G.N. that the LLCs were companies he owned nor did he tell her that the LLCs were illegal, unregistered companies. He simply told G.N. that her money was going into offshore currency exchanges, the silver market, and real estate investments in Las Vegas.

         "33. As part of the balanced funding option in the life insurance policy which was designed for tax advantages, G.N. and D.N. were to make annual interest payments on the policy loans which could, in turn, offset capital gains tax according to the balanced funding option plan. G.N. and D.N. had been advised when the loans were taken of the details of operating the balanced funding option, their responsibilities under the plan, and the importance of making the annual loan interest payments, including the maximum interest that would accumulate on the borrowed principal under each policy. G.N. and D.N. paid the interest payments due annually on the loans in 2000 and 2001.

         "34. In 2003, G.N. contacted Knudson and suggested she did not have enough capital gains to offset and thus had no reason to pay the interest due on the policy loans. Knudson agreed she could postpone the interest payment at that time. Liebelt provided no advice or information on this issue. G.N. and D.N. never again paid the annual interest charges on the policy loans.

         "35. By the end of October, 2003, G.N. knew that the money invested with Knudson was completely lost.

         "36. In 2005, Liebelt called G.N. to find out why they were not paying the interest due on the loans. When G.N. responded that they were following the advice of Knudson, Liebelt did not instruct her to start paying interest due and did not run any calculations. Relying on Knudson, Liebelt never learned what G.N. and D.N. were required to do to utilize the benefits of the fixed rate loan policy provision.

         "37. Knudson was forced out of the securities business in the mid-2000's.

         "38. G.N. met with a new investment adviser, David Cox, with the intention of moving their investments from Liebelt. G.N. informed Cox that she held a Bankers' policy and was satisfied with it. She also advised Cox she was uncomfortable with the level of risk and dissatisfied with the performance of funds placed for investment with Liebelt. On June 10, 2010, G.N. hired Cox to manage their investments. Liebelt remained as G.N. and D.N.'s insurance agent.

         "39. In 2012, G.N. and D.N. received notices from Transamerica, the successor in interest to Bankers, advising them that they needed to terminate their policies because the compounding interest and escalating loan balances consumed the cash values of both policies. G.N. and D.N. had been informed of the compounding interest and escalating loan balances on an annual basis from 2003 to 2012 by virtue of the annual statements. G.N. and D.N. ultimately surrendered the policies in 2012.

         "40. After G.N. and D.N. surrendered the policies, Transamerica conveyed approximately $29, 000 as the cash surrender value for G.N. and D.N.'s insurance policies. Transamerica informed them that it would report to the IRS that the policy surrenders had generated $551, 000 of taxable income for G.N. and D.N. According to the respondent, G.N. and D.N.'s tax liability would have been $198, 000 on the $551, 000 of taxable income declared by Transamerica.

         "41. Each year beginning in 1993, Liebelt had received a copy of the annual statement of values on G.N. and D.N.'s policies. Liebelt did not look at the statements closely. Had he done so, he would have seen that the policies would eventually have a negative value.

         "42. Cox referred G.N. and D.N. to the respondent for assistance with the tax issues. At the time G.N. and D.N. retained the respondent, they were approximately 77 and 80 years old, respectively.

         "43. G.N. and D.N. met with the respondent, provided her with documentation, and discussed the details of the life insurance policies. The respondent met with G.N. on many occasions. During those meetings, G.N. told the respondent that she learned that the investments they made with Knudson were a total loss between 2006 and 2009.

         "44. The respondent researched the tax issue for G.N. and D.N. In August, 2012, the respondent was able to resolve the tax issue by contact with the IRS criminal division. The respondent also told G.N. and D.N. that she believed they had a viable cause of action against Knudson and Liebelt. D.N. asked respondent what he owed her for the assistance with the tax issue. The respondent told G.N. and D.N. that rather than pay her hourly for her work, she would agree to be compensated through a contingent fee lawsuit against Knudson and Liebelt.

         "45. On approximately August 8, 2012, G.N. and D.N. entered into a contingent fee agreement with the respondent. While the respondent contends that the contingent fee agreement was reduced to writing and that she and G.N. signed it, she was unable to produce a copy of the agreement. D.N. testified that he did not sign a written contingency fee agreement, the terms of the fee agreement were discussed by the respondent and D.N. many times during the representation, and D.N. asked the respondent for a fee agreement on a number of occasions. The respondent never provided D.N. with a written fee agreement.

         "46. On February 11, 2013, the respondent filed suit against Liebelt and Knudson on behalf of G.N. and D.N. The respondent aggressively pursued G.N. and D.N.'s case. According to the respondent, she spent hundreds of hours working on the case and incurred over $19, 000 in expenses on the case. The respondent learned that Knudson was judgment-proof.

         "47. During discovery, G.N.'s deposition was taken. During her deposition, conducted on January 20, 2014, G.N. testified that she learned from Knudson that he lost all of the funds he invested on behalf of G.N. and D.N. in 2003. This was different than what she told the respondent in preparation for filing the case. Following G.N.'s deposition, the respondent did not ask G.N. about the discrepancy between what G.N. told her in their meetings and what G.N. testified to in her deposition. Additionally, the respondent did not explain to G.N. and D.N. that G.N.'s deposition testimony was problematic.

         "48. On July 1, 2014, Liebelt filed a motion for summary judgment. In his motion, Liebelt argued that the allegations of negligence were time barred because the time for those claims began running a variety of years for different claims, from 1993 through 2010. Liebelt argued that he could not be held liable for the loss of the $73, 500 provided to Knudson because G.N. was aware of the loss by 2003. Finally, Liebelt argued that he and Knudson did not enter a joint venture so Liebelt could not be held liable for Knudson's wrongdoing.

         "49. Regarding the claims of negligence, the respondent argued in her response that G.N. and D.N. did not know they had suffered material losses from the loans until 2012 when the policies were forfeited, the cash values were lost, and the tax liability of $551, 000 was declared by Transamerica. The respondent argued that G.N. and D.N. did not know they had been defrauded of the $73, 500 until the respondent discovered the fraud in 2012.

         "50. On October 1, 2014, in a one-page journal entry of judgment, the court granted the motion for summary judgment based on the statute of limitations:

'Defendant Kenneth Liebelt's Motion for Summary Judgment came on for hearing on October 1, 2014. Based on the briefs submitted and oral arguments of counsel, the Court GRANTED Defendant Liebelt's Motion for Summary Judgment.
'Thus, Defendant Liebelt's Motion for Summary Judgment is granted as to Counts I, II, and V, as Plaintiff's action is untimely based on the statute of limitations. The Court further finds that Plaintiff cannot establish a joint venture as a matter of law, and grants summary judgment in favor of Defendant Liebelt based on Plaintiffs' joint venture claim.
'Further, the Court finds that in this case involving multiple defendants, there is no just reason for delay in entering this Summary Judgment on behalf of Defendant Kenneth Liebelt only, in accordance with K.S.A. 60-254(b).
'WHEREFORE, the Court finds that Summary Judgment is GRANTED in favor of Defendant Kenneth Liebelt on all causes of action against him by Plaintiff herein.'

         "51. After the court entered summary judgment on behalf of Liebelt, on October 17, 2014, the respondent sent G.N. an email message. In that message, the respondent informed G.N. for the first time that G.N. created a statute of limitations problem by her deposition testimony. G.N. responded:

'This is the first time you have mentioned that there was a problem with my deposition so I am surprised to hear it now. I did the best I could to be honest and accurate. Memory constraints and a multitude of facts to recall have perhaps created these problems.'

         "52. On October 29, 2014, the respondent filed a motion for reconsideration. In her motion, the respondent argued that the negligence and fraud claims against Liebelt should be reinstated because 'there is a question of fact as to whether Liebelt breached duties to [G.N. and D.N.] by failing to warn them of impending disaster while he remained the Agent on their policies after February 11, 2011.' The parties argued the motion on December 12, 2014. The court took the matter under advisement.

         "53. On December 29, 2014, the respondent met with G.N. and D.N. Initially, the respondent was cordial. The respondent explained to G.N. and D.N. how she had lost a great deal of money representing them in their suit against Liebelt and Knudson. The respondent asked G.N. and D.N. if they could think of a way to make it right. When G.N. and D.N. did not volunteer to pay the respondent money, her approach changed. The respondent became aggressive and clearly stated that she would not suffer this financial loss. The respondent indicated that she would be seeking to recover fees from them because G.N. misrepresented a key fact.

         "54. On December 30, 2014, the respondent followed up their meeting with an email message. In the message, the respondent argued that she could sue G.N. and D.N. for negligent misrepresentation of a material fact, unjust enrichment, and fraudulent misrepresentation. In addition to threatening to sue G.N. and D.N., the respondent threatened to contact their accountant (who works for a financial firm owned by the respondent and the respondent's husband) and the IRS and retract the statements that the $551, 000 reported by Transamerica should be considered phantom income.

'I want you also to be aware of two more significant things: First, if you get audited, you will need me and my files to prove to the IRS that the income Transamerica declared to you was phantom, and caused by a Ponzi scheme. If I have to sue you, I won't be available for that effort until and unless I get paid for my work. And, because you haven't paid me, you don't own my files-I do.
'Second, given that [G.N.] misrepresented this material fact to me, it makes me nervous that perhaps I have rendered legal opinions on the Ponzi scheme based on other misrepresented facts by [G.N.]. I am concerned I may need to reexamine the opinions I furnished to your accountant regarding what I thought was a Ponzi scheme, and on which the accountant relied in completing the tax return that saved you from $198, 000 in taxes. I will have to withdraw all opinions that I no longer find substantiated, which will force the accountant to notify the IRS that the facts on which she relied in drafting your return no longer exists. I suspect this would trigger an audit.
'If you demonstrate that you are acting in good faith rather than squeezing enormous benefit out of me for nothing, I will feel that [G.N.] was acting in good faith when she told me her story, and I won't believe it necessary to reexamine my opinions.
'I conferred substantial efforts and benefit on you, relying on [G.N.]'s representation to me that she discovered the losses in 2006 to 2009. That she actually discovered them in 2003 gutted the lawsuit through which I was to be compensated for my work on your behalf. I will file suit against you both next week unless I am paid by Friday.
'I strongly recommend you write your check and deliver it tomorrow so you are in the best position to deduct the legal fees as expenses off of this year's income. I am not a tax attorney, but this will likely allow you to deduct the legal fees as "expenses to preserve in investment." If I am paid, I will do all in my power to assist you in getting that deduction.'

         "55. On December 31, 2014, D.N. responded to the respondent's email message from the day before. In the email message, D.N. stated that he believed the respondent was acting unethically by threatening to file a lawsuit and 'precipitating tax woes.' It is clear that following the December 29, 2014, meeting, the attorney-client relationship had been significantly damaged.

         "56. On January 2, 2015, because G.N. and D.N. were losing sleep over this matter, D.N. offered the respondent $40, 000 to settle the dispute. The respondent had previously agreed to settle the dispute for $80, 000.

         "57. On January 3, 2015, respondent sent G.N. and D.N. an email message and detailed her next steps if they were unable to settle ...


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