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In re Sanclemente

Supreme Court of Delaware

February 14, 2014

In the Matter of a Member of the Bar of the Supreme Court of the State of Delaware: R. KEITH SANCLEMENTE, Petitioner

Submitted February 4, 2014.

Case Closed March 5, 2014.

Editorial Note:

This decision has been designated as "Table of Decisions Without Published Opinions." in the Atlantic Reporter.

Board Case No. 2011-0234-B.

OPINION

Henry duPont Ridgely, Justice.

ORDER

This 14th day of February, 2014, it appears to the Court that the Board on Professional Responsibility has filed a Report on this matter pursuant to Rule 9(d) of the Delaware Lawyers' Rules of Disciplinary Procedure. Neither the Office of Disciplinary Counsel (" ODC" ) nor the Respondent have filed objections to the Board's Report. The Court has reviewed the matter pursuant to the Delaware Lawyers' Rules of Disciplinary Procedure and approves the Board's Report.

NOW, THEREFORE, IT IS ORDERED that the Report filed by the Board on Professional Responsibility on January 15, 2014 (copy attached) is hereby APPROVED and ADOPTED. The Respondent is hereby disbarred effective immediately.

BOARD ON PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF THE STATE OF DELAWARE

CONFIDENTIAL

BOARD REPORT AND RECOMMENDATION

This is the report of the Board on Professional Responsibility of the Supreme Court of the State of Delaware (the " Board" ) setting forth its findings and recommendations in the above captioned matter.

The members of panel of the Board (the " Panel" ) are Wayne J. Carey, Esquire, Yvonne Anders Gordon, Ed.D. and Lisa A. Schmidt, Esquire (the " Chairperson" ). The Office of Disciplinary Counsel (the " ODC" ) was represented by Patricia Bartley Schwartz, Esquire. The Respondent R. Keith Sanclemente (the " Respondent" ) was represented by Charles Slanina, Esquire.

I. PROCEDURAL BACKGROUND.

The ODC filed an Amended Petition for Discipline on March 7, 2013 (the " Petition" ). Respondent answered the Amended Petition on March 11, 2013 (the " Answer" ).

A telephonic pre-hearing conference was held on March 7, 2013. The Panel conducted a hearing on liability on March 14, 2013 (the " March 14 Hearing).[1] The parties provided the Panel with a Stipulation of Admitted Facts (" Admitted Facts" ). At the March 14 Hearing, the Panel heard testimony from 6 witnesses: Ed Tarlov, Sheila Pacheco, Jamaar Manlove, Roseanne Goldberg,[2] Respondent and John Sullivan. In addition, Joint Exhibits 1 through 27 (" Exhibits" ) were admitted into evidence. (Tr. 3) At the conclusion of the March 14 Hearing, the parties submitted written post-hearing closing arguments.

On August 7, 2013 the Panel notified counsel that it planned to recommend to the Delaware Supreme Court that the Respondent violated Delaware Rules of Professional Conduct 4.1(a), 4.1(b), 5.1(c), 5.3, 8.4(b), 8.4(c), 8.4(d) and 1.15(a), as alleged in the Petition. On September 19, 2013 the Board reconvened to hear testimony and argument relating to sanctions (the " September 19 Hearing" ). At the September 19 Hearing, the Panel heard testimony from: Nancy Carden, Kenya Smith, Gloria Henry, Montgomery Boyer, William Cheesman, Christopher McBride, John Spall, Vincent Turner, Larry Knopf and Respondent, followed by closing arguments. ODC Exhibit 28 was admitted into evidence. (S. Tr. 194).[3]

II. ALLEGATIONS IN THE PETITION FOR DISCIPLINE.

The Petition alleges that Respondent violated Delaware Lawyers' Rules of Professional Conduct (" Rules" ) 4.1(a), 4.1(b), 5.1(c), 5.3, 8.4(b), 8.4(c), 8.4(d) and 1.15(a) in connection with residential real estate closings Respondent and his employee conducted between 2006 and 2008. Respondent is alleged to have certified that the representations contained in Department of Housing and Urban Development Settlement Statements (" HUD-1 Statement" ) were a true and accurate account of the transaction when in fact they were not. Specifically, the Petition charges that either the buyers did not bring to the closings the financial contributions set forth on the HUD-1 Statements and/or the proceeds from the transactions were disbursed in amounts that differed from those set forth on the HUD-1 Statements. The Petition alleges that the false certifications constitute violations of Rules 4.1(a), 4.1(b), 8.4(b), 8.4(c) and 8.4(d). The Petition further alleges that Respondent failed to supervise the conduct of another attorney and paralegals employed by Respondent who also participated in real estate transactions where HUD-1 Statements were falsely certified, in violation of Rules 5.1(c) and 5.3. Finally, the Petition charges Respondent with violating Rule 1.15(a) for using his firm's client trust account to fund all or part of the buyer's contribution reflected on certain HUD-1 Statements.

III. FACTUAL FINDINGS.

A. Admitted Facts.

Respondent is a member of the Bar of the Supreme Court of Delaware. He was admitted to the Bar in 1996. At all times relevant to this matter, Respondent was the sole owner and managing partner of Sanclemente & Associates, LLC (the " Sanclemente Firm" ). Respondent is presently engaged in the private practice of law in Delaware. (Petition and Answer ¶ ¶ 1 and 2, Admitted Facts ¶ 1). From 2006 through 2008, Respondent, as the closing attorney for the following real estate closings, represented the borrower and acted as agent for the lender:

Virginia & Joseph Reed

(" Reed Closing" )

Ex. 1

10/19/07

13 Hickman Road

Claymont, Delaware

Tony Coleman

(" Coleman Closing" )

Ex. 2

6/25/08

210 E. 14th Street

Wilmington, Delaware

Theodore Jones

(" Jones Closing" )

Ex. 3

3/21/08

215 Keiser Place

New Castle, Delaware

Rhonda P. Johnson

(" Johnson Closing" )

Ex. 4

1/16/07

417 Baldwin Drive

Smyrna, Delaware

Robert S. & Robin M.

(" Baldwin Closing" )

Ex. 5

9/19/07

Baldwin

403 Bethune Drive

Wilmington, Delaware

Collectively these real estate closings are referred to as the " Sanclemente Closings." (Admitted Facts ¶ 2, Exs. 1-5).

Non-lawyer assistants would prepare the HUD-1 Statements and the checks for the Sanclemente Closings. Respondent was the ultimate supervising attorney for the non-lawyer assistants. (Admitted Facts ¶ 3). The Sanclemente Firm's real estate escrow account bank records show that there were no deposits of funds from the buyers in the Coleman, Jones and Johnson closings and the buyers' costs were paid by others. (Admitted Facts ¶ 4, 5). In the Baldwin Closing, the buyers paid $2,500 towards their financial contribution of $9,774.61 as reflected on the HUD-1 Statement. The Sanclemente Firm real estate escrow account bank records show that $780.90 of Firm escrow account funds were used on behalf of the Baldwin's and the balance of their financial contribution was paid by others. (Admitted Facts ¶ 6).

From 2006 through 2008, John J. Sullivan, Esquire (" Sullivan" ) was a lawyer employed by the Sanclemente Firm. Respondent also had supervisory authority over the conduct of Sullivan. (Admitted Facts ¶ 10). While employed by the Sanclemente Firm, Sullivan, as closing attorney for the following real estate closings, represented the borrower and acted as agent for the lender:

Phyllis Graham

405 Llangollen Blvd. Closing

Ex. 6

10/30/08

405 Llangollen Blvd.

New Castle, DE

Patricia Singleton

713 E. 7th Street Closing

Ex. 7

8/29/08

713 E. 7th Street

Wilmington, DE

Lee Price & Tony

15 Cherry Road Closing

Ex. 8

8/20/08

Coleman

15 Cherry Road

New Castle, DE

Gloria Henry

29 Dallas Road Closing

Ex. 9

7/18/08

29 Dallas Road

Closing

New Castle, DE

Evelyn Anderson

123 Stroud Street

Ex. 10

6/19/08

Closing

123 Stroud Street

Wilmington, DE

Charles & Jamie

411 Jefferson Street

Ex. 11

4/28/08

Holmes

411 Jefferson Street

Wilmington, DE

Evelyn Anderson

1122 Elm Street Closing

Ex. 12

4/1/08

1122 Elm Street

Wilmington, DE

Craig Williams

1009 W. Seventh Street

Ex. 13

3/12/08

1009 W. Seventh

Closing

Street

Wilmington, DE

Dwayne & Sheree

104 Rita Road Closing

Ex. 14

12/27/07

Manlove

104 Rita Road

New Castle, DE

Anna Bennett

729 E. Tenth Street

Ex. 15

1/24/08

729 E. Tenth Street

Closing

Wilmington, DE

Dwayne & Sheree

230 Charming Drive Closing

Ex. 16

12/10/07

Manlove

230 Chaining Drive

Bear, DE

Larry Manlove

54 University Avenue Closing

Ex. 17

12/3/07

54 University

Avenue

New Castle, DE

314 W. 31st Street Closing

Ex. 18

10/23/07

Gary and Lillian

Wilson

314 W. 31st Street

Wilmington, DE

Ramon Leak

2921 N. Broom Street Closing

Ex. 19

9/12/07

2921 N. Broom Street

Wilmington, DE

Clifton Coleman

2511 Heald Street Closing

Ex. 20

8/30/07

2511 Heald Street

Wilmington, DE

Clifton Coleman

2142 Culver Drive Closing

Ex. 21

8/15/07

2142 Culver Drive

Wilmington, DE

Derron Bowe

214 East 35th Street Closing

Ex. 22

6/22/07

214 East 35th Street

Wilmington, DE

Derron Bowe

107 West 30th Street Closing

Ex. 23

5/2/07

107 West 30th Street

Wilmington, DE

Kyle Steed

721 Wood Duck Court Closing

Ex. 24

1/4/07

721 Wood Duck Court

Middletown, DE

Reginald Johnson

417 E. 10th Street Closing

Ex. 25

11/20/06

417 E. 10th Street

Wilmington, DE

Kyle Steed

133 Sterling Avenue Closing

Ex. 26

2/27/07

133 Sterling Avenue

Claymont, DE

Theodore Jones

426 Eastlawn Avenue Closing

Ex. 27

2/4/08

426 Eastlawn Avenue

Wilmington, DE

Collectively these real estate closings are referred to as the (" Sullivan Closings" ). (Admitted Facts ¶ 11; Petition Ex. 2; Exs. 6-27).

The Sanclemente Firm real estate escrow account hank records show there were no deposits of funds from the buyers in the Sullivan Closings with the exception of the Williams, Singleton and Bowe (107 W. 30th Street) closings and the buyers' costs were paid by others. (Admitted Facts ¶ 12, 13). In both the Sanclemente and Sullivan Closings funds were not disbursed according to the HUD-1 Statements. (Admitted Facts ¶ 7, 14). In the Sanclemente and Sullivan Closings funds were disbursed as reflected in the disbursement statement, an internal firm document not shared with the lenders. (Admitted Facts ¶ 8, 15). In the Sanclemente and Sullivan Closings, funds were disbursed to individuals not identified in the HUD-1 Statements. (Admitted Facts ¶ 9,16).

B. Factual Findings from March 14 Hearing and Exhibits Admitted into Evidence.

Respondent has admitted facts sufficient to support a recommended finding that Rules 4.1(a), 4.1(b), 8.4(b), 5.1(c), 5.3, 8.4(c), 8.4(d) and 1.15(a) were violated. Specifically, Respondent lias admitted that (1) he was the closing attorney in 5 of the transactions that form the basis for the allegations in the Petition; (2) that the Sanclemente Firm real estate escrow account records reflect that there were no deposits of funds from the buyers in 3 of those transactions and the buyers' costs were paid by others in those transactions; and (3) funds were not disbursed according to the HUD-1 Statements. In addition, Respondent has admitted that at least with respect to the Baldwin Closing that firm escrow funds were used for a portion of the buyer's contribution. Finally, Respondent has admitted that he was the supervising attorney for non-lawyer assistants and had supervisory authority over Sullivan. The Panel believes that the factual findings described herein confirm those violations and assist in determining the appropriate sanction.

1. The Sanclemente Firm

Respondent opened the Sanclemente Firm in November of 2006 when his prior employer, Settlement Solutions, ceased doing business in Delaware. (Tr. 173). Respondent claimed he " had" to form the Sanclemente Firm so the employees that were with Settlement Solutions in Delaware could continue to have employment to conduct real estate settlements and meet the needs of their clients. (Tr. 170). Sullivan and Ms. Sheila Pacheco, a real estate paralegal, as well as other office staff joined Respondent at the Sanclemente Firm. (Tr. 80, 165). Respondent testified that he " had a working staff, people that were up on -- they knew their jobs. They had working relationships with all our referral sources. They were well liked. They always had favorable comments when we worked at Settlement Solutions, so I didn't see the need to reinvent the wheel." (Tr. 171).

It was clear though that Respondent was the sole owner of the Sanclemente Firm and had supervisory authority over all lawyer and non-lawyer staff. (Tr. 165, 237). Respondent had the power to set policies and hire and fire employees. (Tr. 176-177, 238). Respondent reminded his employees that he was in charge and that his name was on the door. (Tr. 81-83). While Respondent claimed to be absent from the office up to 5 days per week since he conducted mostly refinancing transactions at locations away from his office throughout Delaware (Tr. 214), Ms. Pacheco confirmed that he managed the office from the road, Ms. Pacheco testified that if there were questions or problems regarding any settlements she would direct those questions to Respondent. (Tr. 124)(" We would call him on his cell phone a hundred times" ).

2. The Manlove Transactions.

Respondent became acquainted with Jamaar Manlove when Manlove was a loan broker with Central Fidelity. Central Fidelity used Settlement Solutions and continued doing business with Respondent when he opened the Sanclemente Firm. (Tr. 145). From 2006 through 2008, Respondent and Sullivan conducted more than 25 real estate closings where Jamaar Manlove, one of his business associates, relatives and/or entities received a significant portion of the proceeds of the sale of the property. (See Exs, 1-27). These entities include Jamaar Manlove, Rhonda Manlove, Master Builders for Christ (" MBFC" ), Vision Builders Christian Center (" VBCC" ), Mark Singleton, Kyle Steed, Dwayne Manlove, Larry Manlove, Sheree Manlove, Marshall Wiston, and Don Wilson, among others. (Tr. 137-43).

Manlove testified that MBFC was a real estate investment company that he owned and VBCC was a non-profit church he founded. (Tr. 138). He described Mark Singleton and Kyle Steed as investors that he did business with. Manlove claimed that if Steed or Singleton had someone that was interested in purchasing a real estate property for investment, Manlove would find a property and provide Steed or Singleton with a finder's fee for obtaining the investor. (Tr. 140-41). Marshall Wiston, a member of Manlove's church would knock on doors of people facing foreclosure and get them to contact Manlove's office. (Tr. 142). Manlove then got his uncles and others to invest in " promising" properties. (Tr. 143). The HUD-1 Statements reflect that in addition to the " finders' fees" paid to Steed, Singleton and Manlove, MBFC and VBCC received large amounts from the sales proceeds. Manlove did not explain why fees were paid to MBFC, but claimed the fees 'Varied." (Tr. 144). Manlove testified that when checks were disbursed to VBCC that was done out of MBFC's " fee" to cover the rent expenses for the church at that time. (Tr. 145). The exhibits demonstrate that the fees varied depending on the amount of equity the seller had in the home. In reality, Manlove and his associates were conducting an equity-stripping scheme preying on homeowners who were facing foreclosure and siphoning off the proceeds from the sales to themselves and their entities.

Respondent and Sullivan both testified regarding their understanding of the Manlove settlements. The Panel found the testimony to be less than forthcoming. Respondent claimed that he learned about Manlove's investment program from Sullivan after he came back to the office from a medical leave in April 2007. (Tr. 179).[4] This testimony was offered despite evidence that one of the Manlove closings that Respondent himself conducted occurred in January of 2007. (Tr. 180, Ex. 4). Sullivan, on the other hand, disclaimed knowledge of Manlove's investment program. (Tr. 262).

3. Buyers Did Not Make the Cash Contributions Reflected on the HUD-1 Statement and Monies were not Disbursed According to the HUD-1 Statement.

Respondent knew that the buyers in the Manlove settlements were not making the contributions listed on the HUD-1 Statements. Even for the closings he conducted, he did nothing to verify the buyers' contributions. (Tr. 205). Respondent testified that the buyers' contributions were paid out of the portion of the proceeds listed on the HUD-1 Statements for MBFC or VBCC which he understood were both churches. (Tr. 178-79).

My understanding the way Mr. Manlove approached these folks was they would find my clients or people that ultimately became my clients. And as an incentive to invest in the property, he provided all the closing costs. Or, the church made all of the -- in essence, covered the costs. So the money was provided on behalf of the borrower, but from the church. That's the way the program was explained to me.

(Tr. 207). Respondent claimed that the financial contributions provided by the church were not gifts or loans to the buyer. (Tr. 206). When asked what these contributions were, he testified " I don't know if I can say what it is. It's not a gift. It's not a loan. Or at least I have no knowledge that they were gifts or loans." (Tr. 207). He indicated that he " had no reason to ask" the buyers whether the funds being provided to them were loans or gifts at closing. (Tr. 196). Respondent thought the payments were closing " contributions" but claimed not to have access to any agreements that were made between the church and his clients the buyers. (Tr. 207-08).

Sullivan testified that in situations where the buyer did not bring a financial contribution, he did not know where the money was coming from. (Tr. 261).

Mr. Carey: Mr. Sullivan, let me stop you there for a second. Exhibit B shows total receipts of just under $130,000 all coming from a mortgage company.
The Witness: Yes.
Mr. Carey: The settlement sheet shows a line on line 301 the total amount due of $156,000 and change. When you only get $129,000 from the lender and there are no other source of funds, where does the other money come from?
The Witness: I don't know the answer to that, Sir.

(Tr. 261 and Ex. 10).

Not only did buyers in the Manlove closings fail to make the financial contributions listed on the HUD-1 Statements, but in many cases they received funds at closing not reflected as disbursements on the HUD-1 Statements. See Ex. 8 (buyer did not provide $44,731 contribution reflected on the HUD-1 Statement, but received $9,800 at closing); Ex. 14 (buyer did not provide $22,466 contribution reflected on the HUD-1 Statement, but received $10,000 at closing); Ex. 16 (buyer did not provide $24,783 reflected on the HUD-1 Statement, but received $14,200 at closing); Ex. 17 (buyer did not provide $25,906 reflected on the HUD-1 Statement, but received $9,625).

In addition to the lack of cash contribution by the buyers, monies were not disbursed according to the HUD-1 Statements. Ms. Pacheco testified that she would change checks at Jamaar Manlove's direction and with Respondent's knowledge. (Tr. 96, 146). Even though the checks were disbursed differently than reflected on the HUD-1 Statement, Ms, Pacheco would not contact the lender. (Tr. 97). In addition, the money that the borrower was to bring to the table would be taken out of funds listed for MBFC or VBCC or another entity. (Tr. 97). She confirmed that Respondent was aware of the practice of distributing proceeds to entities not listed on the HUD-1 Statement " because we would have asked [Respondent] in the first place if we were allowed to. It was annoying to have to do it." (Tr. 113). Ms, Pacheco indicated that the Manlove closings were not similar to other closings conducted by the Sanclemente Finn. (Tr. 121).

4. The Sanclemente Firm's Escrow Account Funds were Briefly Used to Cover the Buyer's Contribution.

Respondent testified that he was not aware that funds were taken from his firm's escrow account to cover the buyers' contributions. (Tr. 188). Respondent claimed this was done without his authority. (Tr. 205). He testified that no one brought it to his attention -- even in the closings he conducted. (Tr. 189). Respondent was similarly evasive when questioned about the large personal checks seemingly accepted from buyers (but never cashed) in connection with the Manlove closings. Sullivan accepted six personal checks over $10,000. (Exs. 11, 12, 14, 16, 25, 17).[5] Respondent confirmed that he was aware of the Supreme Court Rule requiring that amounts in excess of $10,000 had to be received in " good" funds. He claimed to be shocked that he accepted a $6,900 personal check for a closing because that was " way above my threshold" . (Tr. 215). He further indicated that his " comfort level" was $2,000-$3,000. (Tr. 216). When asked why he accepted a personal check for $7,500 in the Johnson closing he responded " I have no idea what medication I was taking that day. Because that's more than my pain threshold." (Tr. 216). When Respondent was asked what steps he took to insure that Mr. Sullivan was not violating Rule 1.15 he responded " trust" . (Tr. 217).

Sullivan was asked if Respondent put in place any type of safeguards or policies to insure that lawyers and non-lawyer staff conducted themselves consistent with their professional obligations. Mr. Sullivan responded that " a form was used or created to be executed by sellers who are making this kind of transaction that directed us to use part of their proceeds to pay what was due from the buyer." (Tr. 263). Sullivan indicated that to his knowledge the mortgage company was not advised of this practice. (Tr. 263-64). These forms were not offered as exhibits.

5. Respondent Becomes Concerned.

Respondent testified that there came a time when he instructed his staff to stop accepting closings for Mr. Manlove and his entities. (Tr. 209).

But when I saw a settlement statement conducted by John Sullivan in which the purchase price was $100,000 and the church was receiving a donation of $80,000 that just ....
You know Pm not going to say whether a person should or should not donate to a church. Sellers are free to do whatever they want with their money. But $80,000 seemed to be -- that shocked my conscience.

(Tr. 210, 226). Respondent testified that when he saw $80,000 going to Manlove's church that was " too much" for him. (Tr. 226). He testified that he was not alarmed though when he saw $40,000 of approximately $44,000 in proceeds going to the church (Ex. 2), or $37,000 of $40,000 in proceeds going to the church (Ex. 3), or $53,000 of $56,000 in proceeds going to the church. (Ex. 4)(Tr. 226-29). Respondent attempted to explain:

But Fm not going to pass -- until it got to $80,000 I wasn't going to pass judgment on whether somebody should or should not donate to the church. These people were going to lose ...

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