In re Barrett

852 N.E.2d 660, 447 Mass. 453, 2006 Mass. LEXIS 539
CourtMassachusetts Supreme Judicial Court
DecidedAugust 16, 2006
StatusPublished
Cited by16 cases

This text of 852 N.E.2d 660 (In re Barrett) is published on Counsel Stack Legal Research, covering Massachusetts Supreme Judicial Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Barrett, 852 N.E.2d 660, 447 Mass. 453, 2006 Mass. LEXIS 539 (Mass. 2006).

Opinion

Spina, J.

The respondent, Donal B. Barrett, appeals from a decision of a single justice on an information filed in the county court by the Board of Bar Overseers (board) accepting its recommendation that the respondent be suspended from the practice of law for two years. For the reasons that follow, we affirm.

1. Background. The following facts are drawn from the findings of a hearing committee that were adopted by an appeal panel of the board, and eventually by the full board.

In 1995, NetFax Incorporated (NetFax) was organized under the laws of Delaware to develop and commercially exploit new technologies for Internet facsimile transmissions. It was founded by, among others, the respondent, who has been a member of [454]*454the bar of the Commonwealth since June 20, 1973. As of August, 1996, the respondent was NetFax’s chief executive officer and its sole director, which imposed on him fiduciary obligations to the company. He also provided NetFax with some legal services, including those related to ensuring that the company complied with Federal and State securities laws. The respondent did not bill NetFax for his legal services, nor was he specifically compensated for those services.

In 1996, the respondent opened a checking account in the name of “NetFax Incorporated” at US Trust. He was the sole signatory on the account, which enabled him to pay NetFax’s expenses. Bank statements were sent to the respondent’s home, rather than to NetFax’s corporate offices. In March, 1996, Victor Lombardi invested $50,000 in NetFax. In return for receiving “Founders” shares of the company, Lombardi agreed to be responsible for raising equity capital for NetFax. Between 1996 and 1998, Lombardi invested an additional $4,500,000 in NetFax.

On April 9, 1996, the Maine Supreme Judicial Court entered a mandate affirming a lower court’s order foreclosing on an interest held by the respondent and his late wife in property located in Sorrento, Maine (Sorrento property). The respondent was given ninety days to redeem the property, which, he believed, could be done for $130,000. In early July, 1996, the respondent approached Lombardi about a possible loan in that amount, but then did not pursue the matter. Instead, the respondent decided to use funds from NetFax to redeem the Sorrento property from the mortgage company.

The respondent went to US Trust on July 24, 1996, and used $130,000 of NetFax’s funds to obtain a “counter check” made out to “US Trust.” He then used the counter check, rather than a preprinted NetFax check, to purchase a bank check in the amount of $130,000, made out to the mortgage company and its legal counsel. The respondent delivered the check to the mortgage company’s legal counsel in order to redeem the Sorrento property. The mortgage company accepted the $130,000, but deemed it insufficient to redeem the property and, therefore, refused to discharge the mortgage. The respondent did not obtain the consent of or otherwise inform the shareholders of NetFax, [455]*455or its principals, that he had used the company’s money to attempt to satisfy a personal obligation.

By December, 1996, the respondent had been unable to restore the $130,000 that he had taken from the NetFax account. He knew that in early to mid-1997, the company’s outside auditors would be reviewing NetFax’s accounts. The respondent transmitted a facsimile to Lombardi regarding the “ ‘$130,000 problem’ that was the subject of some discussion between [them].” The respondent falsely represented to Lombardi that the mortgage company would not agree to “any further extensions of the debt obligation beyond December 31 on any terms.” He asked Lombardi to lend him $130,000 as a “bridge first-mortgage loan” to be secured by a first mortgage on the Sorrento property and the right to convert the loan into shares of NetFax stock. The respondent falsely represented to Lombardi that the $130,000 loan would be used to pay off the mortgage on the Sorrento property. He did not tell Lombardi that he had used funds from NetFax in July, 1996, to pay this debt obligation, that he was involved in a dispute with the mortgage company over the redemption amount, or that he would use the loan from Lombardi to restore funds to NetFax before its financial records were audited. On December 27, 1996, Lombardi had $130,000 transferred to the respondent’s personal bank account. On December 31, 1996, the respondent used the loan from Lombardi to repay NetFax.

In June, 1997, the respondent prepared for NetFax’s auditors a “reconciliation report” showing withdrawals from the NetFax account at US Trust during 1996. He also prepared a separate “schedule of deposits” made to that account for the same time period. In the reconciliation report, the respondent falsely represented that the $130,000 he had withdrawn in July, 1996, to redeem the Sorrento property was a payment to Acorn Computers, Inc. (Acorn), a company with which NetFax was doing business. In the schedule of deposits, the respondent falsely identified the deposit of $130,000 made in December, 1996, as a “[r]etum of deposit” from Acorn. He knowingly made these false representations to cover up the fact that he had taken $130,000 from NetFax for his personal use.

In the late summer of 1998, a disagreement arose between [456]*456the respondent and Lombardi over a financing venture, and the respondent was voted out as chief executive officer and director of NetFax. Lombardi succeeded the respondent as sole director. On July 8, 1999, Lombardi filed a complaint against the respondent with the Office of Bar Counsel (bar counsel), alleging that the respondent had misappropriated funds from NetFax and had made false representations to Lombardi in December, 1996, regarding the purpose of the loan that the respondent had sought from him.

Bar counsel commenced formal proceedings against the respondent by filing a petition for discipline on September 11, 2002. In count one of the petition, bar counsel alleged that the respondent had improperly used client funds to pay a personal debt. In the alternative, if the funds taken by the respondent were to be considered a loan, then he had improperly entered into a business transaction with his client. In count two of the petition, bar counsel alleged that the respondent had made false representations in order to induce Lombardi to lend him money, and then the respondent repaid the loan with Lombardi’s own funds. Bar counsel further alleged that the respondent created false and misleading documents, filed a false amendment to his 1997 Federal tax return, and provided bar counsel with false documents. The respondent denied the substantive allegations of misconduct, and several hearings were held before a hearing committee of the board.

On July 14, 2004, the hearing committee issued its report. It found that the respondent had an attorney-client relationship with NetFax and that, as its chief executive officer and sole director, he also had a fiduciary obligation to the company, including a duty not to appropriate NetFax funds for his own personal benefit. The hearing committee rejected the respondent’s claim that the $130,000 was an “advance” permissible under Delaware law, where NetFax was incorporated. It found that the respondent’s conduct in concealing his use of NetFax funds for personal purposes belied his assertion that the use was proper and prevented ratification or nullification of the transaction by the shareholders.

The hearing committee concluded that the respondent’s use of NetFax’s funds for his personal benefit violated SJ.C.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

In the Matter of Strauss
94 N.E.3d 770 (Massachusetts Supreme Judicial Court, 2018)
In the Matter of Hass
75 N.E.3d 584 (Massachusetts Supreme Judicial Court, 2017)
In re Barrett
88 A.D.3d 177 (Appellate Division of the Supreme Court of New York, 2011)
In Re Weekes
990 A.2d 470 (District of Columbia Court of Appeals, 2010)
In re Murray
920 N.E.2d 862 (Massachusetts Supreme Judicial Court, 2010)
In re Finneran
919 N.E.2d 698 (Massachusetts Supreme Judicial Court, 2010)
In Re Barrett
966 A.2d 862 (District of Columbia Court of Appeals, 2009)
In re Balliro
899 N.E.2d 794 (Massachusetts Supreme Judicial Court, 2009)
In re Angwafo
899 N.E.2d 778 (Massachusetts Supreme Judicial Court, 2009)
In re Johnson
893 N.E.2d 783 (Massachusetts Supreme Judicial Court, 2008)
In re Brauer
890 N.E.2d 847 (Massachusetts Supreme Judicial Court, 2008)
In re Curry
880 N.E.2d 388 (Massachusetts Supreme Judicial Court, 2008)
In re McBride
865 N.E.2d 1110 (Massachusetts Supreme Judicial Court, 2007)
In re Hilson
863 N.E.2d 483 (Massachusetts Supreme Judicial Court, 2007)

Cite This Page — Counsel Stack

Bluebook (online)
852 N.E.2d 660, 447 Mass. 453, 2006 Mass. LEXIS 539, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-barrett-mass-2006.