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In re Sullivan

Supreme Court of Delaware

March 7, 2014

In the Matter of a Member of the Bar of the Supreme Court of the State of Delaware: JOHN J. SULLIVAN, JR., Petitioner

Filed December 27, 2013.

Case Closed March 25, 2014.

Editorial Note:

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

Board Case No. 2011-0233-B.

Before HOLLAND, JACOBS and RIDGELY, Justices.

OPINION

Henry duPont Ridgely Justice.

ORDER

This 7th day of March, 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. The Office of Disciplinary Counsel filed no objections to the Board's Report. The Respondent did file objections to the Board's Report. The Court has reviewed the matter pursuant to Rule 9(e) of 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 December 27, 2013 (copy attached) is hereby APPROVED and ADOPTED. The Respondent is hereby disbarred effective immediately.

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 John J. Sullivan, Jr. (the " Respondent" ) appeared on his own behalf.

I. PROCEDURAL BACKGROUND.

On January 14, 2013 the ODC filed a Petition for Discipline. Respondent filed an answer on February 1, 2013. The ODC filed an Amended Petition on April 23, 2013 and a Second Amended Petition on May 9, 2013 (references to the " Petition" herein are to the Second Amended Petition). Respondent answered the Amended Petition on April 23, 2013 (references to the " Answer" will be to the Answer to the Amended Petition).[1]

A telephonic pre-hearing conference was held on May 3, 2013. The Panel conducted a hearing on liability on May 9, 2013 (the " May 9 Hearing).[2] The parties provided the Panel with a Stipulation of Admitted Facts (" Admitted Facts''). At the May 9 Hearing, the Panel heard testimony from 4 witnesses; Ed Tarlov, Roseanne Goldberg,[3] Respondent and Sheila Pacheco. In addition, ODC Exhibits 6 through 27 were admitted into evidence. (May 9 Tr. 4) At the conclusion of the May 9 Hearing, the ODC presented an oral closing argument. On June 20, 2013, the Respondent submitted a written closing argument. On July 11, 2013 the ODC submitted a response the Respondent's closing argument.

On August 7, 2013 the Panel notified the ODC and the Respondent 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), 5.3, 8.4(b), 8.4(c), 8.4(d) and 1.15(a), as alleged in the Petition. On September 11, 2013 the Board reconvened to hear testimony and argument relating to sanctions (the " September II Hearing" ). At the September 11 Hearing, the Panel heard testimony from: Kenya Smith, Gloria Henry, Montgomery Boyer, William Cheesman, Sherry Hoffman, John Williams, Christopher McBride, Stephen Dalecki, Mary Kathleen Glenn[4] and Respondent, followed by closing arguments. Exhibits 6-27(h) and (i), 29 and 30 were admitted into evidence.

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), 5.3, 8.4(b), 8.4(c) and 8.4(d) in connection with residential real estate closings Respondent 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 the financial contribution set forth on the HUD-1 Statement and/or the proceeds from the transaction were disbursed in amounts that differed from those set forth on the HUD-1 Statement. 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 ensure that the paralegals, who assisted him in connection with the closings, prepared checks for the disbursement of proceeds as set forth on the HUD-1 Statement in violation of Rule 5.3 relating to the supervision of non-lawyer staff. 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.

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 1984. At all times relevant to this matter, Respondent was engaged in the private practice of law with the firm Sanclemente & Associates, LLC (the " Sanclemente Firm" ). Respondent is still presently engaged in the private practice of Jaw in Delaware but not with the Sanclemente Firm. (Petition and Answer 1 and 2, Admitted Facts 1, May 9 Tr. 44-46). From 2006 through 2008, Respondent as the closing attorney for the following real estate closings, represented the borrower:

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 Coleman

15 Cherry Road Closing

Ex.8

8/20/08

15 Cherry Road

New Castle, DE

GloriaHemy

29 Dallas Road Closing

Ex.9

7/18/08

29 Dallas Road Closing

New Castle, DE

Evelyn Anderson Closing

123 Stroud Street

Ex.10

6/19/08

123 Stroud Street

Wilmington, DE

Charles & Jamie Holmes

411 Jefferson Street

Ex.11

4/28/08

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 Closing

Ex.13

3/12/08

1009 W. Seventh Street

Wilmington, DE

Dwayne & Sheree Manlove

104 Rita Road Closing

Ex.14

12/27/07

104 Rita Road

New Castle, DE

Anna Bennett

729 E. Tenth Street Closing

Ex.15

1/24/08

729 E. Tenth Street

Wilmington, DE

Dwayne & Sheree Manlove

230 Channing Drive Closing

Ex.16

12/10/07

230 Channing Drive

Bear, DE

Larry Manlove

54 University Avenue Closing

Ex.17

12/3/07

54 University Avenue

New Castle, DE

Gary and Lillian Wilson

314 W. 31" Street Closing

Ex.18

10/23/07

314 W. 31" 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

DerronBowe

214 East 35th Street Closing

Ex.22

6/22/07

214 East 35th Street

Wilmington, DE

DerronBowe

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 ' 2, Exs. 6-27, May 9, Tr. 49, 127) (Respondent confirmed at the May 9 Hearing that he conducted the 133 Sterling Avenue Closing), May 9, Tr. 151-154 ). Non-lawyer assistants would prepare the HUD-1 Statements and the checks for the Sullivan Closings. (Petition and Answer '7, Admitted Facts '3). The Sanclemente Firm's real estate escrow accounting records show that there were no deposits of funds from the buyers in eighteen of the Sullivan Closings and the buyers' costs were paid by others in nineteen of the twenty-one Sullivan Closings. (Admitted Facts ' 4, 5). In the Sullivan Closings, funds were not disbursed according to the HUD-1 Statement but were disbursed as reflected in the disbursement statement. (Admitted Facts ' 6, 7). As such, funds were disbursed to individuals not identified on the HUD-1 Statements. (Admitted Facts '8).

B. Factual Findings from May 9 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), 8.4(c) and 8.4(d) were violated. Specifically, Respondent has admitted that (1) he was the closing attorney in the 22 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 finds from the buyers in 18 of the transactions and the buyers' costs were paid by others in 19 of the transactions; and (3) finds were not disbursed according to the HUD-1 Statement. The Panel believes that the factual findings described herein confirm that conclusion, support a recommended finding that Respondent also violated Rules 5.3 and 1.15(a), and assist in determining the appropriate sanction.

1. The Manlove Transactions.

While employed by the Sanclemente Firm, Respondent conducted settlements that involved Mr. Jamaar Manlove, his relatives and associates. (May 9, Tr. 46-49). Respondent became acquainted with Jamaar Manlove when Manlove was a loan broker with Central Fidelity (May 9, Tr. 46). Jamaar Manlove had two organizations known as Master Builders for Christ (" MBFC" ) and Vision Builders Christian Center (" VBCC" ) (May 9, Tr. 46-47). Both organizations were used as fronts for an equity stripping scheme. Manlove, his relatives, friends, MBFC and VBCC received payments from the sale proceeds in many of the Sullivan Closings.[5]

Respondent explained that in the Sullivan Closings, the homeowners were in danger of losing their homes to foreclosure, and Jamaar Manlove would arrange for an investor to purchase the home to help them avoid foreclosure. The seller would remain in the home for a year and then repurchase the home from the buyer. (May 9, Tr. 62). Respondent never asked for any documentation of this purported agreement. (May 9, Tr. 76). Respondent testified that in order to compensate the buyer for the risk and to ensure that they had funds to make their mortgage payments, the seller would pay finds to the buyer at closing. (May 9, Tr. 62-63). Respondent also explained that funds were paid to MBFC and/or VBCC to be held for the one year period to enable the buyer to make their mortgage payments (May 9, Tr. 65). In short, the sellers were stripped of any equity they may have had in their homes in the guise of contributions to MBFC, and/or VBCC and/or some other entities.

The following chart shows the extent of the equity that was taken from some of the sellers in the Sullivan Closings:

Seller

Exhibit No.

Amount of Equity Stripped

Norlyn Ritter

6

$34,710.00

Ferris Properties

7

$30,189.00

Mary Glenn

8

$51,430.00

Michael Fisher

11

$41,456.80

James Moss

13

$13,566.18

Donnell Fisher

16

$34,393.00

Stephen Dalecki

17

$24,906.36

Kenya Smith

18

$21,333.03

Adrienne Spencer

19

$66,727.34

Jamaar Manlove

20

$49,396.44

William Cheesman

21

$26,288.36

Jamaar Manlove

24

$23,073.56

Grace Cuff

25

$51,240.24

Gerald Hackett

27

$96,700.00

Respondent also testified that he initially believed people were contributing to Jamaar Manlove or his church to:

Thank him for saving their home, for -- to express commitment to his church and things like that, and that they were paying in order -- paying these funds to avoid losing their home at foreclosure.

(May 9, Tr. 74-75). Despite this belief, Respondent did not obtain any documentation indicating that the monies paid to MBFC and VBCC were gifts. (May 9, Tr. 75). Other than going over the entries on the HUD-1 Statement with the parties, Respondent did not question the monies going to the Manlove entities. (May 9, Tr. 81-82).

We find Respondent's position to be disingenuous at best. What was really happening was that the homeowners, who were at risk of losing their homes to a sheriff's sale because their current cash positions were insufficient to allow them to pay current obligations and to refinance their mortgages, were (without their knowledge) selling their homes and the equity that those homeowners had in their properties was diverted to MBFC and/or VBCC. The poor cash positions of the homeowners/sellers, along with the size of the purported donations to MBFC and VBCC should have alerted Respondent to the nefarious nature of the transactions from day one.

2. Buyers Did Not Make the Cash Contributions Reflected on the HUD-1 Statement.

The buyers in eighteen of the Sullivan Closings did not make any cash contribution (Admitted Facts 4) despite the fact that checks were received by the Sanclemente Firm from many of the buyers for their HUD-1 Statement contribution amount. ( See, e.g ., Exs. 11, 12, 14, 16, 22, 25, 27). Those checks were copied and placed in the file to have a record of the buyer contribution but were never deposited. (May 9, Tr. 98, 101) ( see, also, May 9 Tr. 113, 114, 124-25, 127, 132). Many of these personal checks were in excess of the $10,000 limit under Rule 1.15(k) and, despite a law firm policy that Respondent should not accept personal funds in excess of $2,000. (May 9, Tr. 113). Respondent admitted that in closings that did not involve Jamaar Manlove or related entities, he would not have accepted large personal checks. (May 9, Tr. 113).

Respondent claimed that he learned " probably sometime in 2007 that the borrowers' checks were no longer being deposited (May 9, Tr. 154), yet in the first of the closings at issue, in November of 2006 (Ex. 25) he collected a personal check from the borrower at closing for $15,000 in violation of Rule 1.15(k) and his firm's policy.[6] The acceptance of that check certainly suggests he knew it would never be deposited. Respondent never notified the lender that the buyers were not bringing their financial contribution as reported on the HUD-1 Statements and in some cases were receiving funds in the transaction because he knew that if the HUD-1 Statements were changed to reflect zero contribution from the borrower " it would have created red flags from the lender." (May 9, Tr. 99, 121).

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

Respondent admitted that in some instances funds due to the seller or a Manlove entity were disbursed instead to the Sanclemente Finn to meet the buyer's cash contribution. (May 9, Tr. 59-60). This was necessary because funds were being used from the Sanclemente Finn's escrow account to balance or zero out the transaction. The funds to reimburse the Sanclemente Finn's escrow account were taken from proceeds due to another party, either the seller or a Manlove entity. ( See Exs. 6, 8 and 27; May 9, Tr. 137-141; 193-196). Respondent viewed this as a " zero balance transaction" . He testified, " we took the money out of the escrow account and put it right back into the escrow account. (May 9, Tr. 194-195).

4. Funds were Disbursed to Persons or Entities not Listed on the HUD-1 Statement

Respondent claimed he was unaware of how the proceeds from the sales were being disbursed because the checks were prepared by a paralegal and given to him in sealed envelopes to disburse. (May 9, Tr. 163). Ms. Pacheco, the former paralegal at the Sanclemente Firm who prepared the documents for closings and " cut the checks for closings" (May 9, Tr. 198) indicated that Jamaar Manlove would contact Ms. Pacheco directly and have her break down the checks in different ways. (May 9, Tr. 201-202). She indicated there would be no reason for her to tell Respondent about these changes post-closing. (May 9, Tr. 206). Ms. Pacheco testified, however, that when checks were distributed at the closing, the checks would not be placed in envelopes to be handed out by Respondent. (May 9, Tr. 207). Thus, Respondent could see the amounts being disbursed were inconsistent with the HUD-1 Statement.

5. Respondent Becomes Concerned.

Respondent testified that sometime during the period covered by the Sullivan Closings, he became concerned with the transactions involving Mr. Manlove:

Over time, it became clear that there were substantial amounts of money that were being received by Mr. Manlove, by MBFC, by VBCC, by his relatives, his friends, whomever, and that money that was supposed to be going to the seller wasn't going to the seller, but the seller's funds were being used to meet the buyer's obligation or they were being paid to Mr. Manlove or to his associates.

(May 9, Tr. 166). Respondent indicated that he discussed the issue with Mr. Sanclemente and it was decided that they would no longer do transactions for Mr. Manlove. (May 9, Tr. 167). Yet, Respondent admittedly continued for some period of time to conduct Manlove closings. (May 9, Tr. 167). He Claimed to be relying on Mr. Sanclemente's representations that they had no obligation to the seller. (May 9, Tr. 167).

As long as the seller was an adult and we were going over the settlement statements, that they were voluntarily signing them, and that they knew that they weren't getting the funds, or they were getting zero funds, and they were signing voluntarily, weren't questioning it, that satisfied our obligation.

(May 9, Tr. 167).

While Respondent claims it became clear " over time" that large sums were going to Manlove entities, each of the Sullivan Closings followed a similar pattern throughout the two-year period. By way of example in the first closing at issue in November 2006, (Ex. 25) the HUD-1 Statement indicates that Reginald Johnson purchased a property from Grace Cuff for a contract price of $88,000.00. (Ex. 25A). According to the HUD-1 Statement, the buyer was to make a cash contribution of $15,200.71. (Ex. 25A). The seller was to receive cash at closing in the amount of $19,700.00. (Ex. 25A). The seller's proceeds were reduced by settlement charges that included a payment of $66,440.95 to MBFC. (Ex. 25A). According to the HUD-1 Statement, there was no mortgage lien on the property and the remaining settlement charges to the buyer were less than $2,000.00. (Ex. 25A). The buyer wrote a personal check for $15,200.71 (Ex. 25C) which was never deposited. (May 9, Tr. 127). Respondent certified the HUD-1 Statement.

The last closing at issue was conducted by Respondent on October 30, 2008. (Ex. 6). The HUD-1 Statement for this closing reflects a $6,900.50 buyer contribution. (Ex. 6A). The buyer wrote a personal check in that amount which was never deposited. (Ex. 6C). Instead, funds due to another party were disbursed to the Sanclemente Firm to meet the buyer's contribution and cover the shortfall in the escrow account. (May 9, Tr. 58-61). The HUD-1 Statement reflects payments to VBCC[7] of $60,500.00 and MBFC of $43,610.68. (Ex. 6A). MBFC received $34,710.00 in part to cover the buyer's contribution. (Ex. 6B, D).

6. Respondent Contacts the Department of Justice.

The pattern was consistent throughout the period yet it took more than 2 years before Respondent took any steps to remedy the ...


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