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In re Mueller

Supreme Court of New Jersey

December 6, 2018

In The Matters of Gregory Karl Mueller and Vincent Chirico Attorneys At Law

          Argued: September 20, 2018

          District Docket Nos. XIV-2014-065 IE and XIV-2014-0653E

          Eugene A. Racz appeared on behalf of the Office of Attorney Ethics.

          Carl D. Poplar appeared on behalf of respondent Mueller. Joseph P. LaSala appeared on behalf of respondent Chirico.

          Ellen A. Brodsky, Chief Counsel

          DECISION

          BONNIE C. FROST, CHAIR

         To the Honorable Chief Justice and Associate Justices of the Supreme Court of New Jersey.

         These matters arise from the same set of facts and were consolidated for hearing before a District IIA Ethics Committee (DEC) hearing panel. The matters were referred to the Office of Attorney Ethics (OAE) by the Honorable Craig L. Wellerson, P.J.Cv., Ocean County, and stem from respondents' conduct in connection with the case In the Matter of Patriot Settlement Resources and Richard Heckel OCN-L-1925-14 (Patriot matter). The respondents' offices represented opposing parties in the matter.

         Respondent Mueller was charged with having violated RPC 1.7(a)(1) and (2) (concurrent conflict of interest) and RPC 5.1(a), (b), and (c) (failure to supervise another lawyer). Respondent Chirico was charged with having violated RPC 1.7(a)(2) (concurrent conflict of interest), RPC 1.15(d) (recordkeeping - failure to maintain New Jersey trust and business accounts), RPC 3.3(a)(1) and (5) (false statement of material fact or law to a tribunal and failure to disclose to the tribunal material facts, knowing the omission is reasonably certain to mislead the tribunal), RPC 8.4(c) (conduct involving dishonesty, fraud, deceit or misrepresentation), and RPC 8.4(d) (conduct prejudicial to the administration of justice).

         The hearing panel recommended a reprimand for respondent Mueller and a three-month suspension for respondent Chirico. For the reasons expressed below, we agree with the DEC's recommendations.

         Respondent Mueller was admitted to the New Jersey and New York bars in 1993. He maintains a law office in Tenafly, New Jersey. He has no history of discipline in New Jersey.

         Respondent Chirico was admitted to the New Jersey bar in 1993 and the New York bar in 1994. At the relevant time, he maintained law offices in Brooklyn, New York and Tenafly, New Jersey. He, too, has no history of discipline in New Jersey.

         Judge Wellerson, who presided over the Patriot matter, denied Patriot's application seeking approval of the sale and transfer of structured settlement proceeds under the Structured Settlement Protection Act, N.J.S.A. 2A: 16-63 to 69. This act was adopted to

protect recipients of long-term structured settlements from aggressive marketing by factoring companies seeking to persuade these people to cash out future payments at sharp discounts.
Structured settlements provide strong public policy benefits. They provide long-term financial protection for injury victims and their families. They provide against the loss or dissipation of lump sum recoveries. Factoring companies . . . using high-pressure sales to "buy" these settlements for a small lump-sum payment, undermine these benefits and may exploit an injured person at a time when they need cash.
[Sponsers' Statement to A-2146.]

         Judge Wellerson referred the matter to the OAE for investigation. The proposed sale to Patriot was for a lump sum payment of $300, 000 to Richard Heckel, despite calculations that the present day value, as of September 19, 2014, was $1, 744, 501.17.[1] According to the judge's letter, Heckel, the seller of the structured settlement payment rights, was a resident of Atlantic County, and had previously appeared in the Superior Court of New Jersey, Atlantic County, seeking similar relief. Heckel had been injured at birth due to medical malpractice and apparently suffered from cerebral palsy. He was awarded a settlement/annuity for his injuries and was seeking to sell a portion of it. Heckel had sold portions of the settlement prior to this attempted sale.

         According to Judge Wellerson, the Patriot application was filed as "a show-cause order," which is typical for such an application. Although the parties requested to have the application approved on the papers, the judge determined to hold a hearing because, he explained, it was his obligation to determine whether the seller of the annuity understood the transaction.

         Judge Wellerson, who presided over approximately fifty such hearings, remarked that, typically, the sellers are p_ro se. The judge added that case law requires the court, when conducting its analysis of the propriety of a sale, to ensure that the sellers of the payments fully understand the repercussions of their actions. He cited several cases setting forth the standard of review, including In re Transfer of Structured Settlement Rights by Joseph W. Spinelli, 353 N.J.Super. 459 (2002) and In re Keena, 442 N.J.Super. 393 (2015).

         Upon reviewing the parties' submissions, the judge was concerned by the size of the sale. After an initial hearing, he became concerned about the fact that Patriot's and Heckel's attorneys shared the same address.

         Chirico, Mueller's associate, and Heckel were present at the September 19, 2014 Patriot hearing. Judge Wellerson testified that, at the hearing before him, Heckel was in a wheelchair, and had difficulty speaking, enunciating his words, and raising his hand to be sworn in as a witness. The judge, thus, was concerned about Heckel's ability to "navigate this complex sale of life-contingent payments." At the time of the proposed sale, Heckel was receiving $1, 000 per month; was entitled to receive $3, 000 per month, as of the date of the DEC hearing; and, in the early 2020s, would be entitled to receive $10, 000 per month. Because of Heckel's difficulties, the judge wanted to ensure that he was capable of communicating with his attorneys, and that he have a frank and complete discussion about the impact that the sale would have on his life. The judge emphasized a court's responsibility to ensure that such a sale is in the payee's best interests, and that a discounted future payment would "augment the payee's life circumstances in a manner that waiting for the money could never do."

         Judge Wellerson was concerned about Heckel's ability to lead a more comfortable or better life than he would otherwise, once the money from the annuity was dissipated. Heckel's submission to the court included his attorney's certification, which indicated that Heckel would use the sale of the settlement funds to pay off an existing mortgage and, thus, stave off a foreclosure on the property; finance the down payment on a home in Florida; and use the balance for improvements to the home and to pay off credit card debts and loans. At the hearing, the judge did not know whether Heckel would have sufficient funds to accomplish his goals as set forth in his attorney's certification, and Heckel's attorney did not know the exact amount of the mortgage payoff. Although the application had been filed in Ocean County, Judge Wellerson learned that Heckel's house was located in Atlantic County. A certification in the parties' petition stated that Heckel lived at an address in Brick; however, that property was owned by someone other than Heckel. The judge noted that proceedings for the sale of settlements must be filed in the county where the seller resides.

         The judge inquired how Heckel came to be represented by the Mueller Law Group (MLG), which was located in Bergen County. Heckel replied, "through the phonebook." When the judge asked Chirico whether he had referred the matter to MLG, Chirico denied having done so, and at no time corrected his statement. The judge asked him, "[j]ust a coincidence that the two of you [Chirico and Mueller] have worked on all of these dealings together and Mr. Heckel calls Mr. Mueller and then somehow we get to you? That's just out of the blue?" Chirico replied, "[t]hat's my understanding, Your Honor." The judge had difficulty accepting the veracity of Chirico's denial, given that a certification in the matter averred that Heckel was living in Ocean County, but he purportedly used a Bergen County phonebook to find MLG's number.

         At the DEC hearing, "in hindsight," Chirico admitted that, his denial that he had referred the matter to MLG was not true.

         During an OAE interview, Chirico indicated that he had had an "off-the-record discussion" with the judge in which he corrected his statement about the referral to Mueller. He maintained that, at the time he conveyed that to the OAE, he believed it to be true. At the DEC hearing, when asked "as you sit here today, is . . . that [a] true and accurate statement?" Chirico replied, "As I sit here today I don't recall." During that OAE interview, Chirico stated that he was "taken aback" by Heckel's response about the phone book "and thought that there may have been some other means that he communicated that he found the Mueller Law Group."

         When the presenter asked Judge Wellerson whether Chirico had ever corrected the record about not referring the matter to MLG, the judge replied:

my response now, as it was at the time, was had that disclosure been made, I would not have gone to the internet to learn more about this address location and the relationship between the attorneys. And I recall being shocked when I saw that he was listed "of counsel." And then I understand that it was brought out that when you look at Mr. Chirico's letterhead, it does have Mr. Mueller as one of the attorneys underneath. But in all candor in reviewing the file on the sale of the structured settlement, I didn't review it to that extent. And the attorney who appeared before me had a different last name and I didn't put those pieces together.
[2T66-18 to 67-6.][2]

         Judge Wellerson called the parties into chambers to give them an opportunity to withdraw the application, asking whether the agreement was in Heckel's best interests. The attorneys, nevertheless, wanted to proceed. The judge's reasons for denying the application were (1) Heckel was to receive $300, 000, while the mortgage payoff amount at the time of the hearing was $205, 000; (2) Heckel intended to finance the down payment for a house in Florida costing between $200, 000 and $250, 000; (3) improvements to a new house would cost between $65, 000 and $70, 000; and (4) Heckel would be left with $20, 000 to $30, 000 to pay off a credit card debt. The judge concluded that Heckel would be left penniless.

         In Judge Wellerson's view, Heckel's attorney had not discussed with Heckel the problems with the sale - that "[t]he numbers didn't work." At the time of the Patriot hearing, the judge was "satisfied . . . that there was no credible information to make a decision on something so monumentally important to this man to just leave it to happenstance." The judge's obligation was to consider the risk to Heckel, not to Patriot. He was well-satisfied that the agreement was not in Heckel's best interests.

         After the hearing, the judge researched the law firms representing the parties and discovered that Chirico was listed as of counsel to Mueller's law firm. Through a website advertisement, the judge found that the law firm representing Patriot was the same firm representing Heckel. Judge Wellerson then issued an order to show cause for the attorneys to appear to explain their circumstances. The attorneys each appeared with separate counsel, who questioned Judge Wellerson's jurisdiction to proceed with the show-cause hearing. The judge had hoped that there was some explanation, such as there was a mistake. However, the attorneys had no explanation for what occurred. The judge then referred the matter to the OAE.

         The respondents' relationships to each other are somewhat confusing. According to Mueller, he has known Chirico since the mid-2000s, when Mueller was of counsel to the firm Silverman, Sclar, Shin and Byrne (Silverman Sclar) and Chirico became a partner at that firm several years later. In 2012, Chirico left the firm to start his own solo practice, Chirico Law PLLC, in Brooklyn.

         When the Silverman Sclar firm dissolved, Silverman and Sclar each started their own firms. Mueller became of counsel to both firms. Chirico was also of counsel to the Sclar firm. Mueller, too, was of counsel to Chirico's firm prior to the transaction at issue.

         Mueller is the sole shareholder of MLG in Tenafly, New Jersey, which at the time of the DEC hearing had seven employees, two of whom were full-time associates. In 2012 or 2013, Mueller and Chirico became of counsel to each other's firms, and Mueller was listed on Chirico's letterhead as such. According to Mueller, he had forgotten that his name was on Chirico's letterhead. He maintained that their "of counsel" relationship was never formalized. Mueller permitted Chirico to use his law firm's office address in Tenafly, but did not recall when he had done so. Chirico's picture and biography appeared on the MLG website as of counsel to the firm. Mueller maintained that Chirico's name was not added to the website until after the papers had been filed in the Patriot matter. He admitted that permitting Chirico to use his office address implied a relationship between them. Mueller claimed that Chirico's name was removed from the website following the OAE's interview in this matter.

         Chirico asserted that he and Mueller have an "affiliation" to date. Chirico used Mueller's Tenafly, New Jersey address and had added Mueller and Mueller's law partner to his errors and omissions insurance policy, as of counsel, in September 2012. Mueller, too, added Chirico to his malpractice insurance, as "of counsel," after he accepted Heckel as a client.

         Chirico represented Patriot in the transaction. At the hearing before us, Chirico's counsel noted that Chirico was Patriot's "long-time representative" and had represented Patriot in approximately twenty such cases. According to Chirico, Patriot insisted that Heckel have representation in the application to the court, as Patriot was concerned that, because of Heckel's disability, "it would provide for bad optics in ... a courtroom and, therefore, it would be best to have someone there independently to - - indicate that there was some support for his position." Chirico's counsel maintained that Chirico recommended MLG to Patriot. In turn, Patriot recommended MLG to Heckel. Chirico asserted that MLG was more than qualified to handle the representation, despite the attorneys' association.

         Chirico denied any involvement in negotiating the transaction, asserting that Patriot and Heckel had done so.[3] Chirico explained that life contingent purchases bear higher risks than non-life contingent purchases. In a "non-life-contingent" transaction, the payments under the annuity are guaranteed and are sold for a lump sum. Payments under a "life-contingent" deal are not guaranteed. There is an inherently higher risk in purchasing those payments, which may not be available after the transaction is finalized. The purchaser in a life-contingent transaction may bear an additional cost of purchasing life insurance to hedge the risk and guarantee future payments. The cost of life insurance can be "astronomical." Chirico reviewed and agreed with Patriot's expert's report, which concluded that the discounted rate to which Heckel agreed, 16.38%, was fair and reasonable.

         As to the court action, Chirico's name appeared on the complaint, listing MLG's address as his own. According to Mueller, he had not noticed that Chirico had used his address on the pleadings. Chirico claimed that he did not attempt to hide his affiliation with Mueller. At the time Chirico referred the matter to MLG, he did not realize that a conflict existed, but as of the date of the DEC hearing, recognized that there was "an appearance of a potential conflict."

         Contrary to Chirico's statement to Judge Wellerson, Mueller testified that it was Chirico who referred Heckel to MLG during the summer of 2014. MLG was retained to ensure that Heckel's sale to Patriot was handled correctly and lawfully, and that Heckel understood the terms of the transaction.

         Mueller likened the court proceeding to a "friendly hearing" wherein a judge ensures that the proposed structured settlement is fair and reasonable. Here, too, the deal that had been struck required court approval.

         The proposed September 11, 2014 fee agreement between Heckel and MLG was for a flat $750 fee and provided that MLG would protect Heckel's legal rights and "do all necessary legal work" to properly represent him. It added that Heckel was seeking to sell the "remaining portion" of his structured settlement to Patriot in exchange for a lump-sum payment of $300, 000. The agreement excluded representation on the defense of, or filing of an appeal, but included services for the firm's attempt to adjourn the foreclosure sale of Heckel's home. Mueller noted that Heckel did not pay MLG for any of the services it rendered.

         Mueller assigned the matter to XX, an associate, [4] whom he had known for years, as he had coached him in soccer during his youth and knew XX's father, who was also a lawyer. XX had roughly two years of legal experience at the time, but not in these types of cases. Mueller, therefore, claimed that XX worked under his supervision. Although Mueller, too, had never "directly put through" this type of settlement, he was aware of Chirico's experience in these transactions.[5]

         According to Mueller, he supervised XX by relaying the facts of the matter, the "procedural posture," and the client's expectations. He established XX's responsibilities in his day-to-day handling of the file and reviewed documents. Mueller understood that Heckel needed funds from the sale of the annuity to forestall a pending sheriffs sale of his property. Mueller reviewed XX's research, and testified that "it was a collaborative effort." XX conducted research on Westlaw and various internet sites to determine whether the "deal" was within industry standards and fair to Heckel, and then reported his findings to Mueller. Mueller did not, however, participate in telephone calls between XX and Heckel, request copies of e-mails or other correspondence, discuss obtaining a conflicts waiver with XX, or discuss with XX his own relationship with Chirico.

         Mueller maintained that he had forgotten that he was listed as "of counsel" on Chirico's letterhead, which Chirico used to file the documents in the Patriot matter, and that Chirico's stationery listed Mueller's address as one of Chirico's addresses. Mueller claimed that, initially, he did not realize that there was a conflict, that he needed to review the ethics Rules, or that a waiver was needed. He did not conduct a conflicts analysis until after the hearing before Judge Wellerson. He stated that, when he analyzed the situation,

[t]he conclusions that I came to was [sic] that there was an apparent conflict of interest which if I had known of at an earlier time, I would have carefully reviewed the ethics rules and either gotten a waiver from the client or withdrawn as counsel and had a new attorney substitute in.
[1T132-7to 132-12.][6]

         In preparation for the hearing before Judge Wellerson, Chirico sent draft copies of documents to MLG, including a certification for XX's signature. Mueller was not concerned about getting the documents from opposing counsel because the documents were not being "rubber stamped;" rather, they were reviewed, evaluated, and adjusted as necessary. He stated, "[t]here's not much sense in reinventing the wheel." Similarly, Mueller was not concerned about XX's communications with Chirico about the case, because XX "was working hard at this file. He was researching. He was coming in to talk to me about it frequently." XX was eager to do a good job. Because of Heckel's disabilities, XX "paid a little extra attention" to ensure that Heckel was "okay."

         As to the proposed amount of the sale of the annuity, XX e-mailed Mueller, inquiring whether $300, 000 was standard, when his calculations showed a present value of $691, 761. Mueller replied "No. What does Vince say?" Mueller did not view the seeking of advice from Chirico, opposing counsel, as a problem, because he did not consider them as being in a "particularly adversarial position." Moreover, MLG would research the matter further. Mueller did not believe that it was within the scope of their representation to shop around for a better deal for Heckel, as Heckel had already done so and was in a better position than MLG to know what the market would bear. MLG was retained simply to determine whether the Patriot deal was fair and reasonable for Heckel, and to finalize the documents for submission to the court. Mueller admitted, however, that he never had any direct conversations with Heckel.

         Chirico did not find it "odd" that XX questioned him about the amounts listed in the certification. He did not characterize Patriot's and Heckel's positions as adversarial, but acknowledged that they had their "own interests which, in some ways, may have been adverse."

         Chirico acknowledged sending to XX both a draft certification[7] and a "cheat sheet" (questions to ask the client during the court proceeding). The cheat sheet was to help XX get a sense of the types of questions to ask, to address the court's concerns under the Structured Settlement Protection Act. Chirico admitted, however, that the forms he sent to XX already had incorporated information specific to Heckel. Mueller did not view this as a problem, as long as XX independently analyzed and evaluated the documents and determined that it was in Heckel's best interests.

         On the day of the hearing, a couple of "off-the-record" discussions took place, which apparently became heated. On the record, Judge Wellerson cautioned Heckel "to be careful in selling his money" and inquired whether he had a family member or anyone else to protect his interests. Heckel replied that he did not.

         The judge admitted that Heckel did not have an opportunity to testify about whether he had conducted his own independent research into the available rates. The judge did not find it germane because, even if he had obtained the best rate available, it was of little consequence if the transaction left him penniless - in a far worse position than prior to the sale. The judge opined that Heckel suffered a "horrible" injustice. It was "readily apparent to any right-thinking person that to deprive this man of his only source of income was just . . . inhumane." In the judge's view, the respondents' excuses for their actions were specious and only "inflamed the situation."[8]

         Judge Wellerson conceded a lack of meaningful exchange with Heckel, stating, "I can assure you that it was out of compassion that I did not exchange a long dialogue with Mr. Heckel. It was difficult for him to speak. It . . . was arduous for him to go through these steps."

         Although the judge did not reach the merits of the application, the basis for his referral to the OAE was Chirico's lack of candor and the relationship between counsel, not the merits of the sale. Chirico's counsel, nevertheless, tried to cloud the record with the issue of whether the judge had given ample opportunity to Chirico and XX to establish the merits of the transaction. As the DEC Chair pointed out, that issue was not "remotely relevant" to the ethics charges. He, thus, tried to limit the testimony to the ethics charges.

         The DEC Chair permitted Mueller's attorney to present testimony from respondents' expert, Andrew S. Hillman, an attorney and consultant to the financial services industry. Hillman testified about the methodology used to determine the present day amount "originators" like Patriot pay to sellers, based on a discounted rate of future annuity installments. According to Hillman, the court proceedings to approve such sales are not adversarial, they are collaborative - "a seller of payments and a buyer of payments enter into a business transaction;" the matter is submitted to the court by way of a petition, not a complaint; there is no discovery; and there are no adverse parties. He testified, "what it is is a court hearing; a judge hears the matter and after considering all of the circumstances, must find that it is in the best interests of the seller of the payments."

         Hillman denied that the buyers' and sellers' interests are adverse, asserting that, because they enter into a contract, there is a "meeting of the minds." He conceded, however, that Patriot entered into the transaction to make a profit, and that Patriot's interest in the transaction was to "get the most money from Mr. Heckel and pay off the least money to him." He added that Heckel also benefitted by bargaining for as much money as he could get from Patriot.

         In Hillman's opinion, after reading the transcript of the proceedings, the judge did little to determine whether the transaction would be in Heckel's best interests. Although Hillman did not know how much money Heckel would have had to live on after the sale, he maintained that Heckel was not selling all of the remaining payments under his annuity. Hillman conceded that the pleadings failed to show whether Heckel would have money left or the value of any remainder of the annuity, after the ...


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