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In re Kleinsmith

Supreme Court of Colorado, En Banc

October 30, 2017

In the Matter of Philip Kleinsmith

         Original Proceeding in Discipline

         Appeal from Office of the Presiding Disciplinary Judge 16PDJ031

          Attorneys for Complainant-Appellee: Office of the Attorney Regulation Counsel Alan C. Obye, Assistant Regulation Counsel Denver, Colorado.

          Attorneys for Respondent-Appellant: Philip M. Kleinsmith, Pro Se Colorado Springs, Colorado.

          OPINION

          GABRIEL JUSTICE.

          ¶1 In this attorney discipline proceeding, respondent Philip M. Kleinsmith appeals (1) an order of the Presiding Disciplinary Judge ("PDJ") finding that Kleinsmith violated Rule 1.15A and Rule 8.4(c) of the Colorado Rules of Professional Conduct, as well as former Rule 1.15(b) of these Rules, [1] by knowingly converting funds belonging to a third party; (2) an order of the Hearing Board that Kleinsmith should be disbarred for these violations; and (3) an order of the Hearing Board denying Kleinsmith's post-judgment motions. Kleinsmith principally argues that the PDJ erred in finding that he had knowingly converted funds that were intended for a third party. In his view, he could not have converted those funds because they were the property of his firm, not the property of the third party. Kleinsmith also argues that the PDJ's reading of the Colorado Rules of Professional Conduct violated his constitutional rights to due process and equal protection.

         ¶2 Because the PDJ and the Hearing Board properly determined that Kleinsmith engaged in knowing conversion and because we perceive no constitutional violations, we affirm the orders being appealed.

         I. Facts and Procedural History

         ¶3 The material facts in this case are undisputed. Kleinsmith was admitted to the Colorado bar in 1967, and at all times pertinent here, he was a solo practitioner with the law firm of Kleinsmith & Associates, PC ("K&A"). K&A represented U.S. Bank in seventy-four real estate foreclosure actions in Idaho and Montana between 2012 and 2014. In the course of this work, K&A retained First American Title Company, LLC and First American Title of Montana, Inc. (collectively, "First American") to provide title services for U.S. Bank in connection with the foreclosure cases.

         ¶4 As pertinent here, First American billed K&A $57, 338.00 for its title services. K&A, in turn, billed these costs through to U.S. Bank, although its invoices did not specifically reference First American but rather identified the cost of First American's services as "title commitment." U.S. Bank paid K&A the full amount for First American's title services, and Kleinsmith deposited the funds into K&A's operating account. Rather than paying First American the amounts due and received, however, Kleinsmith used the funds to pay operating expenses of his firm.

         ¶5 First American subsequently filed a lawsuit in Montana against K&A, but not Kleinsmith, for the unpaid invoices and obtained a judgment in the amount of $55, 782.00. Because this judgment was against K&A, and not Kleinsmith, the Montana court ruled that Kleinsmith was not personally liable for it. First American later domesticated the judgment in Colorado and attempted to collect on it. To date, First American has been able to collect only $1, 179.20 from K&A through bank garnishments.

         ¶6 After First American obtained the Montana judgment, one of its attorneys requested that Attorney Regulation Counsel investigate Kleinsmith's failure to pay to First American the amount he received from U.S. Bank for First American's services. Attorney Regulation Counsel then filed a Petition for Immediate Suspension, requesting that the PDJ issue an order to show cause why Kleinsmith should not be immediately suspended from the practice of law while disciplinary proceedings were commenced. Several months later, the PDJ issued a report finding reasonable cause to believe that Kleinsmith had caused immediate and substantial private harm by converting funds. The PDJ thus recommended that this court immediately suspend him from the practice of law. This court accepted that recommendation and suspended Kleinsmith, effective June 10, 2016.

         ¶7 Attorney Regulation Counsel then filed a disciplinary complaint, alleging that Kleinsmith had violated (1) Colo. RPC 1.15A(b) and former Colo. RPC 1.15(b) (providing that upon receiving funds of a client or third person, a lawyer shall promptly deliver to the client or third person any funds that the client or third person is entitled to receive); (2) Colo. RPC 8.4(c) (providing that it is professional misconduct for a lawyer to engage in conduct involving dishonesty, fraud, deceit, or misrepresentation); and (3) Colo. RPC 8.4(d) (providing that it is professional misconduct for a lawyer to engage in conduct that is prejudicial to the administration of justice). Kleinsmith responded, denying that he had violated any of the foregoing Rules.

         ¶8 Shortly thereafter, Kleinsmith filed a motion for summary judgment, seeking the dismissal of the complaint in its entirety, and Attorney Regulation Counsel filed a response and cross-motion for summary judgment. The PDJ ultimately denied Kleinsmith's motion but granted, in part, Attorney Regulation Counsel's cross-motion, finding as a matter of law that Kleinsmith had violated Colo. RPC 1.15A(b), former Colo. RPC 1.15(b), and Colo. RPC 8.4(c). Attorney Regulation Counsel then moved to dismiss the remaining charge of violating Colo. RPC 8.4(d), the PDJ granted that motion, and the matter proceeded to a sanctions hearing, where the Hearing Board ultimately disbarred Kleinsmith and ordered him to pay restitution to First American.

¶9 Kleinsmith subsequently filed post-judgment motions, which the Hearing Board denied, and he now petitions this court, pursuant to C.R.C.P. 251.27, to review the PDJ and Hearing Board's orders.

         II. Analysis

         ¶10 Kleinsmith contends that the PDJ erroneously concluded that he converted the funds from U.S. Bank because, under his reading of the Colorado Rules of Professional Conduct, the funds from U.S. Bank were the property of K&A, not First American. Kleinsmith further asserts that the PDJ's orders violated his constitutional rights to due process and equal protection. After setting forth the applicable standard of review, we address these issues in turn.

         A. Standard of Review

         ¶11 This court "has exclusive jurisdiction over attorneys and the authority to regulate, govern, and supervise the practice of law in Colorado to protect the public." Colo. Supreme Court Grievance Comm. v. Dist. Court, 850 P.2d 150, 152 (Colo. 1993); accord People v. Varallo, 913 P.2d 1, 3 (Colo. 1996) (per curiam). Pursuant to C.R.C.P. 251.27(b), we will affirm the Hearing Board's decision unless we determine, based on the record, that the Board's findings of fact are clearly erroneous or that the form of discipline imposed by the Board (1) bears no relation to the conduct, (2) is manifestly excessive or insufficient in relation to the needs of ...


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