Attorney Craig R. Benson of Indiana represented two Debtors in a judgment enforcement action brought by a Creditor.
The Debtors wanted to sell some of their assets to a third-party Buyer, with the Buyer paying $75,000. The Creditor found out about the sale, and obtained an Attachment Order from the Court that basically required the Debtors to keep the $75,000 intact, and not distribute it to anyone.
On February 11, 2010, the sale was consummated, and Attorney Benson received the $75,000 into his attorney trust account. Almost immediately, on February 17, Attorney Benson violated the Attachment Order and distributed out some of the moneys. His excuse was that his clients the Debtors instructed him to make the disbursements, and he was required to do so, and that it was simply a decision that the Debtors had made to violate the Court's Attachment Order.
On February 22, the Court ordered the Debtors to pay the sale proceeds to the Clerk of the Court, who was to hold it until the litigation was completed. Of course, Attorney Benson could not comply with the February 22 Order because he had already disbursed some of the moneys. So, without telling the court about the February 17 disbursements, Attorney Benson applied to the Court on February 26 for permission to pay $16,000 of the moneys to other creditors of the Debtor, and $24,000 to himself for attorney's fees. The Court gave Attorney Benson the thumb's down to these disbursements on March 4.
Noting that Attorney Benson had not paid the $75,000 to the Clerk as has been ordered, the Creditor then moved for an accounting of the moneys held in Attorney Benson's trust account on March 22, and Court granted the Motion. Thus, on April 7, Attorney Benson filed an accounting with the Court that showed that the $75,000 was still intact in full in his trust account, and he made no mention of the February 17 distributions.
On June 18, the Court again ordered that the $75,000 be paid to the Clerk. Attorney Benson again refused, and instead in the next several days paid out the balance of the funds to other creditors of the Debtors, and to himself for attorney's fees (which eventually totalled $38,000 of the $75,000).
Then, Attorney Benson advised his clients the Debtors to file for bankruptcy so that they wouldn't have to comply with the Court's Order, and they did so on June 27.
On August 12, the Creditor filed a motion to hold Attorney Benson in contempt. The Court ordered a hearing, at which the Attorney Benson admitted to distributing the $75,000 in violation of the Attachment Order and two Orders to pay the $75,000 to the Clerk.
Apparently sick of his machinations, the Court dropped the full weight of its judicial powers on Benson, fining him $75,000 for contempt and ordering him to jail until he paid the fine -- which occurred after only two days.
Attorney Benson appealed the contempt finding, the fine and the incarceration, claiming that the Debtors' bankruptcy filing divested the Court of all jurisdiction, including to take action against him personally.
He lost. The automatic stay of the bankruptcy filing stopped the Creditor's actions against the Debtors, of course, but it did not stay anything the Creditor might do against Attorney Benson, personally -- this is well-established law. Moreover, the $75,000 fine was ordered to be paid by Benson, personally, and not from the assets of the Debtor's bankruptcy estate.
But of course the biggest flaw in Attorney Benson's thinking was that he had violated the Court's Order and mislead the Court about the $75,000 being fully intact well before the Debtors filed for bankruptcy. Attorney Benson's blatant contempt was simply a bell that could not later be somehow un-rung by the later automatic bankruptcy stay.
Thus endeth the Court case as it relates to the Debtors and Attorney Benson -- and thus begins the case of the Indiana Supreme Court Disciplinary Commission case against Attorney Benson for his ethical violations.
The Commission brought two counts against Attorney Benson: (1) Knowingly disobeying a court order; and (2) Engaging in conduct prejudicial to the administration of justice.
After reviewing the evidence, the Commission found that Attorney Benson been dishonest when he failed to tell the Court that he had already disbursed some of $75,000 from his account. Further, Attorney Benson had committed the misconduct for his personal gain, which was to collect his attorney's fees. Finally, Attorney Benson refused to acknowledge that he had done anything wrong, and showed no remorse.
But in mitigation, the Commission noted that Attorney Benson had never been professionally disciplined before this incident, and he had already been fined $75,000 and spent two days in the slammer.
For his part, Attorney Benson stated that he was convinced that the original Attachment Order was invalid, since typically debtors can choose between which of their creditors to pay, and that he could ignore what he in good faith believed to be an invalid order. The problem is that argument has rarely, if ever, worked, since the remedy for an erroneous order is to appeal it, not to just disregard it. Even if the Attachment Order had been obviously flawed (and there was no evidence in the record), to violate that Order was to act in contempt of the Court.
This argument was also blown sky-high by the fact that Attorney Benson advised the Debtors to file for bankruptcy, which of course meant that all the payments that had been made to these other creditors immediately came back within the Debtors' bankruptcy estate as preferential transfers.
Finally, Attorney Benson argued that he was merely following his clients the Debtors' instructions in distributing the money, which of course rings of the old "I was just following the orders of my superiors" excuse, and which here worked about as well, which is to say that it didn't work at all. The simple reason is that the ethical rules prohibit an attorney from knowingly disobeying a Court Order, even where the clients demand it.
All of which brings us now to the punishment meted out by the Indiana Supreme Court, which is that Attorney Benson was suspended from the practice of law for at least 180 days, after which he could petition that Court for reinstatement.
Notably, one Justice dissented from Attorney Benson's punishment, that Justice "believing that more severe discipline is warranted."
ANALYSIS
It is a basic strategy of creditors to tie up a debtor's assets, and thus prevent them from either carrying on this business or paying other creditors first. This can cause serious financial pain to a debtor, which is the creditor's quite proper and lawful objective.
To get out of this pain, debtors will sometimes just ignore court orders, under the rationale that the Court ultimately can't get them to pay more than they have anyway, and so there will be no real punishment except the outside risk of incarceration.
Whether or not a debtor can get away with this in a given case, the one thing that is certain is that an attorney cannot assist the debtor in that conduct. Pretty much anytime an attorney receives any sizeable money into their trust account with the idea that it will never arrive at Creditor Central, you can get ready to read about it in the Disciplinary Actions section of the monthly Bar Journal.
Here, Attorney Benson did exactly that -- let his trust account be used as a sidetrack to avoid creditors, and then himself was talked into violating a clear Court Order -- and then twice lying to the Court about the true status of the funds -- to assist his clients in paying their other creditors. Of course, that the clients were probably telling Attorney Benson that he could take his attorney's fees out of the moneys was a substantial inducement, since Attorney Benson was simply another creditor and himself behind the Attachment Order in priority.
It is cases like these that make debtor's counsel want either the bulk of their fees up-front and in cash, or else be assured of some method of payment, so that the attorney doesn't also fall behind the liens of other creditors. Among litigators the saying goes, with a reference to the craps table, "You don't represent defendants on the come," which is to say that having an unpaid bill from somebody in financial distress is usually a bad business decision.
Here, Attorney Benson found himself in this situation, since the Attachment Order placed the Creditor that he was fighting ahead of himself in line for the $75,000. The only way that Attorney Benson could himself get at those moneys to satisfy his fees was to rationalize, quite wrongly, that the Attachment Order was facially invalid and could be safely ignore.
Possibly while sitting around the house watching Springer and Oprah for the next 180 days, it may finally come to Attorney Benson that he was just dead wrong, but I guess we'll find out when he applies for reinstatement.
CITE AS:
In re Benson, 2014 WL 2558400 (Ind., June 2, 2014). Full opinion at http://goo.gl/P2ENZK
This article at http://onforb.es/1ra8TDk and http://goo.gl/ZpoNTU
