VIRGINIA:

BEFORE THE VIRGINIA STATE BAR DISCIPLINARY BOARD

IN THE MATTER OF

CHARLES EDWARD AYERS, JR.

VSB DOCKET NO. 94-032-0554

AGREED DISPOSITION

Pursuant to Virginia Supreme Court Rules of Court Part Six, Section IV, Paragraph 13(C)(6)(c) and Disciplinary Board Rule of Procedure IV(C), the Virginia State Bar, by Special Assistant Bar Counsel Lewis T. Booker and Deputy Bar Counsel Harry M. Hirsch, and the Respondent Charles Edward Ayers, Jr., by William D. Bayliss, his attorney, hereby enter into the following Agreed Disposition arising out of the above-referenced matter.

I.STIPULATIONS OF FACT

1. At all times relevant hereto the Respondent Charles Edward Ayers, Jr., Ayers, has been an attorney licensed to practice law in the Commonwealth of Virginia.

A.Marshall Street Associates, Limited Partnership

2. Marshall Street Associates, a Virginia general partnership (the General Partnership), was formed by Agreement dated November 24, 1980, between Charles E. Clough (Dr. Clough) and Investment Associates, a general partnership consisting of B. Roland Freasier, Jr. (Freasier) and Charles E. Ayers, Jr. (Ayers). A Certificate of Partnership of Marshall Street Associates was recorded January 5, 1981, in the Clerk's Office of the Circuit Court of the City of Richmond, Division 1, Partnership Book 30, page 867.

3. By deed dated November 26, 1980, recorded December 16, 1980, at Deed Book 776, page 612 in the Clerk's Office of the Circuit Court of the City of Richmond, MacTavish Associates, a Virginia general partnership, conveyed to the General Partnership real property and improvements at 1302 MacTavish Avenue in the City of Richmond (1302 McTavish). As of September 25, 2001, record title to that property still resides in the General Partnership.

4. Marshall Street Associates Limited Partnership (the Limited Partnership) is a Virginia limited partnership. Limited partnerships in Virginia are strictly a creation of statute. According to the statutorily required Certificate of Limited Partnership, the Limited Partnership was formed March 17, 1987, for a term to commence March 17, 1987, and continue through March 17, 2007. A Certificate of Agreement of Limited Partnership was filed with the State Corporation Commission on January 27, 1989, and with the Clerk's Office of the Circuit Court of the City of Richmond on February 14, 1989, in Limited Partnership Book 10, page 1973. Ayers and Freasier were the general partners of Marshall Street Associates, Limited Partnership. Dr. Clough and Ayers were limited partners. There were no other general or limited partners in the Limited Partnership.

5. Ayers and Freasier were business partners and for approximately two years in the 1980's were law partners in the firm of Harris, Tuck & Freasier. Freasier had established a profit-sharing plan for one of his clients, Blackstone Family Practice Center (Blackstone). From time to time Freasier recommended investments to Blackstone. In 1982 Blackstone made a loan to Ayers secured by a Deed of Trust on Ayers' residence in Richmond. The initial amount of the loan to Ayers was $75,000.00.

6. An original note was dated September 19, 1980. It was not paid, so the renewal note in the same amount was executed by Ayers on September 19, 1982.

7. The 1982 note was also not paid. With accrued interest and other charges the note aggregated $141,038.56 by 1988. On March 21, 1988, Ayers executed a new replacement note payable to Blackstone, this note in the amount of $141,038.56. By written instrument of that same date Freasier unconditionally guaranteed Ayers' payment of the note.

8. On March 21, 1988, Ayers, to collateralize his obligation under the new replacement note, and Freasier, to collateralize his obligation under his guaranty of that note, pledged their partnership interests in the Limited Partnership to Blackstone. Dr. Clough, the other partner in the Limited Partnership, did not pledge his interest to satisfy Ayers' obligation.

9. Meanwhile, on or about January 1, 1986 (15 months before the Limited Partnership came into legal existence), the Limited Partnership executed a Demand Promissory Note in the amount of $225,000.00 payable to Freasier, or order (the Demand Note). The Demand Note was executed on behalf of the Limited Partnership by Ayers as general partner.

10. On or about April 27, 1989, by Deed of Trust prepared and executed by Ayers, the general partner, the Limited Partnership purportedly conveyed to Ayers and Scott D. Stolte, trustees, a lien against 1302 McTavish to secure payment of the $225,000.00 promissory note payable to B. Roland Freasier. Stolte was a member of the law firm of Ayers & Ayers. The Deed of Trust states that 1302 McTavish was conveyed to the Limited Partnership by deed dated November 26, 1980. However, the deed referred to is the deed to the General Partnership. The Limited Partnership did not come into existence until well after 1980.

11. On November 4, 1991, Blackstone instituted suit against Ayers, Freasier, Dr. Clough and the Limited Partnership. The suit sought money judgments against Ayers and Freasier on the Ayers note and the Freasier guaranty, respectively. It sought specific performance of the pledge by Ayers and Freasier of their partnership interest in the limited partnership, dissolution of the limited partnership and sale of the limited partnership's assets. No money judgment was sought against the limited partnership, and no specific relief was sought against Dr. Clough. However, the suit did request, if needed to satisfy the note, that the property of the Limited Partnership be liquidated to satisfy the note.

12. In October, 1992, acting for himself and as counsel for the Limited Partnership, Ayers endorsed an order that entered a money judgment against himself and the Limited Partnership. The Judgment Order was entered, but not docketed, on November 12, 1992. The money judgment was for the amount alleged to be due and owing by Ayers on his note to Blackstone - $216,315.68.

13. On February 4, 1993, Ayers wrote Dr. Clough, telling him that Blackstone was threatening to foreclose on the loan that was Ayers' initial obligation. Without notice to Dr. Clough Ayers had endorsed the judgment against the Limited Partnership, including Dr. Clough's interest in the Limited Partnership, even though Dr. Clough had received no benefit from the original loan from Blackstone to Ayers. Ayers asked Dr. Clough for financial help to satisfy the judgment under threat that 1302 McTavish, the principal asset of the Limited Partnership, would be sold at foreclosure.

14. A Certificate of Judgment Satisfaction in favor of Ayers and the Limited Partnership was filed in the Circuit Court of the City of Richmond on February 12, 1993.

15. On or about February 19, 1993, at the request of John Woodfin, a long-time client of Ayers, Ayers formed MacTavish Investment Company, t/a McTavish Investment Company, a Virginia stock corporation (McTavish Investment). On March 5, 1993, McTavish Investment purchased the consent judgments Blackstone had obtained against Ayers, Freasier and the Limited Partnership and paid Blackstone $212,000.00. Blackstone in turn conveyed and assigned all its right, title and interest in the judgments (including the right to foreclose on 1302 McTavish) to McTavish Investments.

16. In July, 1993, McTavish Investment initiated foreclosure proceedings against the property purportedly owned by the Limited Partnership and subject to the judgment against Ayers and the Limited Partnership. In fact the record owner of the property was not the Limited Partnership. Rather the record owner was and is Marshall Street Associates, the general partnership created on November 24, 1980.

17. William S. Burton, as Vice President of McTavish Investment, sent a formal notice to Ayers, Freasier and Dr. Clough, as partners in the Limited Partnership, demanding payment of approximately $394,000.00 alleged to be due on the Demand Note, stating that a foreclosure sale of 1302 McTavish would be conducted on July 27, 1993, to satisfy the Demand Note. This notice, although on the stationery of McTavish Investment, was sent by telecopy from Ayers' office.

18. Burton, the Vice President of McTavish, was the substitute trustee under the Deed of Trust of April 27, 1989, by and between the Limited Partnership as grantor and Charles E. Ayers, Jr. and Scott D. Stolte as trustee, a Deed of Trust executed by Ayers for the Limited Partnership.

19. Neither McTavish Investment, Blackstone nor Ayers ever notified or advised Dr. Clough of the substitution of trustee.

20. Dr. Clough and Freasier learned for the first time during the week of June 28, 1993, that Burton had scheduled a foreclosure sale of 1302 McTavish for July 6, 1993. However, at the time noticed for the foreclosure sale Burton was unable to produce a validly executed or recordable substitution of trustee and continued the sale.

21. Meanwhile, Dr. Clough had obtained separate counsel who on behalf of both the General Partnership and the Limited Partnership brought a Petition for Temporary and Permanent Injunction to enjoin the foreclosure sale. The suit contended, among other things, that the Limited Partnership was not in existence when the note was executed and was never the owner of record of the property sought to be sold at foreclosure, precluded the foreclosure. The suit also alleged that Ayers had breached his fiduciary duty to the partners in the General Partnership and the Limited Partnership by placing himself in an irreconcilable position to discharge his duties. His actions included his endorsement of a judgment order against the Limited Partnership in an action to collect the Ayers note, his role in setting up and representing McTavish Investment for the purpose of acquiring the obligations associated with the Ayers note and his willingness to sacrifice his partnership interest of the Limited Partnership to satisfy the Ayers note.

22. As a result of that suit, the matter was settled. The judgment in the amount of $216,350.68 entered October 12, 1992, against the Limited Partnership was set aside and vacated by the Circuit Court of the City of Richmond on November 22, 1995.

B.A & H Development Company

23. On January 2, 1988, Ayers obtained judgment on behalf of Samuel P. and Irma B. Warren (the Warrens) against William Mulderig (Mulderig), a New York resident, and others, in the amount of $2,000,000.00 in Civil Action 87-390, Warren, et al. v. Mulderig, et al., United States District Court for the District of Columbia. The judgment was subsequently docketed in the United States District Court for the Southern District of New York on February 16, 1998, and in the Clerk's Office of Orange County, New York, on or about June 2, 1988.

24. On May 7, 1988, Mulderig executed an affidavit of Confessed Judgment in the matter of B. Roland Freasier, Jr., and Alvin Q. Jarrett v. William M. Mulderig, Docket No. 87-6327, in the United States District Court for the Southern District of New York in the amount of $4,000,000.00. Ayers had agreed to represent Dr. Jarrett in collecting the judgment Dr. Jarrett had against Mulderig.

25. On February 15, 1989, Mulderig executed an acknowledgment of that indebtedness to Ayers as trustee for Irma and Samuel Warren and Ayers & Ayers that he (Mulderig) was indebted to the Warrens in the sum of $2,234,836.92. Ayers proceeded to collect $290,000.00 from Mulderig for the benefit of the Warrens. He forwarded that amount to the Warrens without any deduction for attorneys' fees. The acknowledgment was secured by a mortgage on a certain tract of land known as Harness Estates located in the town of Goshen, Orange County, New York. The acknowledgment and mortgage were duly recorded in the Clerk's Office of Orange County, New York, on February 15, 1989.

26. On October 13, 1989, a settlement agreement between Mulderig, Jarrett and the Warrens and Charles E. Ayers, individually and as trustee, was executed. The agreement provided that Jarrett and the Warrens would execute and deliver satisfaction of judgments in proper form for filing in all jurisdictions except Westchester County, New York. In turn Mulderig would obtain the transfer, with insurable title, of that portion of Harness Estates in the name of his wife Joan Mulderig. The property was to be transferred to Ayers as trustee to satisfy the judgments of Jarrett and the Warrens. The agreement of October 13, 1989, was signed by Ayers as attorney for the Warrens and Dr. Jarrett and by Ayers individually and as trustee for the Warrens. On October 31, 1989, Dr. Jarrett sent a letter to whom it may concern that Ayers had no authority to agree to a satisfaction of judgment on his behalf.

27. Pursuant to the October 13, 1989, agreement, on February 6, 1990, Ayers, as counsel for the Warrens, released the judgment in the United States District Court for the Southern District of New York and subsequently filed a satisfaction of judgment in that court on December 7, 1990.

28. The property received from Joan Mulderig was transferred to partnerships, LM Associates and JGM Associates. A&H was general partner of both partnerships. During August, 1989, both partnerships transferred their property to A&H Development Company. Ayers was the incorporator of A&H Development Company and was its president and a principal of A&H. In August, 1989, Ayers sought financing and ultimately obtained an advance of $115,000.00 on a loan in the aggregate amount of $650,000.00 from PSI Capital Corporation. From these monies Ayers received five checks from his escrow account to reimburse himself for fees and costs associated with the collection of the Warrens' claim against Mulderig.

29. On February 6, 1990, PSI Capital Corporation completed its loan to A&H Development Company to $650,000.00. The loan was secured by a deed of trust on the property. From the sums received, Ayers issued a check dated February 14, 1990, No. 16494, to Ayers & Ayers in the amount of $47,000.00 labeled as an advance toward attorneys' fees to Ayers & Ayers.

30. On February 12, 1990, Samuel Warren received a letter from the Clerk's Office of Orange County, New York, saying that the judgment had been released but that it needed to be released against all defendants. This was the first knowledge that Samuel Warren had that the judgment had been released. At some point in February, 1990, Ayers told Mrs. Warren that he had removed the judgment to a mortgage.

31. Ayers failed to see to the satisfaction of the indebtedness of A&H Development Company to PSI Capital Corporation. Accordingly, PSI Capital Corporation foreclosed upon the property. There was no surplus once the foreclosure was completed, and the Warrens received nothing from their judgment against Mulderig except $290,000.00 that Ayers had obtained when he was first retained by the Warrens.

II.DISCIPLINARY RULES

Special Assistant Bar Counsel Booker, Deputy Bar Counsel Hirsch, William D. Bayliss as Respondent=s Counsel and the Respondent agree that the above factual stipulations include conduct which constitutes violations of the following Disciplinary Rules of the Virginia Code of Professional Responsibility:

A.Marshall Street Associates, Limited Partnership

DR 5-101. Refusing Employment When the Interests of the Lawyer May Impair His Independent Professional Judgment.

(A) A lawyer shall not accept employment if the exercise of his professional judgment on behalf of his client may be affected by his own financial, business, property, or personal interests, except with the consent of his client after full and adequate disclosure under the circumstances.

DR 5-104. Limiting Business Relations with a Client.

(A) A lawyer shall not enter into a business transaction with a client if they have differing interests therein and if the client expects the lawyer to exercise his professional judgment therein for the protection of the client, unless the client has consented after full and adequate disclosure under the circumstances and provided that the transaction was not unconscionable, unfair or inequitable when made.

DR 5-105. Refusing to Accept or Continue Employment if the Interests of Another Client May Impair the Independent Professional Judgment of the Lawyer.

(A) A lawyer shall decline proffered employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, except to the extent permitted under DR 5-105(C).

B.A & H Development Company

DR 5-101. Refusing Employment When the Interests of the Lawyer May Impair His Independent Professional Judgment.

(A) A lawyer shall not accept employment if the exercise of his professional judgment on behalf of his client may be affected by his own financial, business, property, or personal interests, except with the consent of his client after full and adequate disclosure under the circumstances.

DR 5-104. Limiting Business Relations with a Client.

(A) A lawyer shall not enter into a business transaction with a client if they have differing interests therein and if the client expects the lawyer to exercise his professional judgment therein for the protection of the client, unless the client has consented after full and adequate disclosure under the circumstances and provided that the transaction was not unconscionable, unfair or inequitable when made.

DR 5-105. Refusing to Accept or Continue Employment if the Interests of Another Client May Impair the Independent Professional Judgment of the Lawyer.

(A) A lawyer shall decline proffered employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, except to the extent permitted under DR 5-105(C).

DR 9-102. Preserving Identity of Funds and Property of a Client.

(A) All funds of clients paid a lawyer or law firm, other than advances for costs and expenses, shall be deposited in one or more identifiable bank accounts maintained in the state in which the law office is situated, and no funds belonging to the lawyer or law firm shall be deposited therein except as follows:

(1) Funds reasonably sufficient to pay bank charges may be deposited therein.

(2) Funds belonging in part to a client and in part presently or potentially to the lawyer or law firm must be deposited therein, and the portion belonging to the lawyer or law firm may be withdrawn when due unless the right of the lawyer or law firm to receive it is disputed by the client, in which event the disputed portion shall not be withdrawn until the dispute is finally resolved.

(B) A lawyer shall:

(1) Promptly notify a client of the receipt of his funds, securities, or other properties.

(2) Identify and label securities and properties of a client promptly upon receipt and place them in a safe deposit box or other place of safekeeping as soon as practicable.

(3) Maintain complete records of all funds, securities, and other properties of a client coming into the possession of the lawyer and render appropriate accounts to his client regarding them.

(4) Promptly pay or deliver to the client or another as requested by such person the funds, securities, or other properties in the possession of the lawyer which such person is entitled to receive.

III.PROPOSED DISPOSITION

Accordingly, Special Assistant Bar Counsel Booker, Deputy Bar Counsel Hirsch and the Respondent by his counsel, William D. Bayliss, tender to a panel of the Virginia State Bar Disciplinary Board for its approval the agreed disposition of a Public Reprimand with Terms as representing an appropriate sanction if this matter were to be heard through an evidentiary hearing by another panel of the Disciplinary Board. The terms with which the Respondent must comply are as follows:

1. R shall not participate in business transactions with clients directly or indirectly in any manner, with or without consent of the client.

2. Lawyers in R=s law firm shall not represent clients in business transactions in which R is a participant either directly or indirectly.

3. If R is currently involved in any way, directly or indirectly, in business transactions with his clients or the clients of other lawyers in his law firm, he shall take steps to immediately withdraw from the transactions or the representations.

4. Paragraphs 2 and 3 above shall not preclude members of Ayers' firm from handling real estate closings for entities in which Ayers has an interest so long as the fees for those transactions do not in any way inure to the benefit of Ayers individually or as a partner of the Ayers law firm.

5. It shall be the sole responsibility of R to insure that these terms are fulfilled. It shall be the sole responsibility of R to inform and keep informed the lawyers and staff in his law firm of the identity of his clients and the nature of his business dealings such that these terms are not breached.

6. If, at any time in the future, an attorney disciplinary authority or court determines that R participated in business transactions with clients, directly or indirectly in any manner, with or without consent, or that any lawyer in R=s law firm, at any time in the future, represented client(s) in business transactions in which R is or was a participant, directly or indirectly, a show cause proceeding before the Disciplinary Board shall be initiated by the bar.

7. The sole issue for determination in the show cause proceeding shall be whether or not these terms have been violated in any way. Upon a finding by the Disciplinary Board that the terms herein have been violated in any way, R agrees that his license to practice law in the Commonwealth of Virginia shall be revoked forthwith.

8. The Respondent and the bar agree that there is no termination date for these terms and that they constitute continuing terms during the remainder of the Respondent=s legal career.

The Respondent and the bar agree that upon the entry of the final order in this proceeding resulting from the approval of this agreed disposition, this case shall be closed and taken off the docket of the Disciplinary Board and shall not be reinstituted on the docket of the Disciplinary Board unless and until a show cause proceeding is initiated upon the alleged failure to fulfill the terms stated herein. Upon a determination that the terms herein have been breached in any way, the Respondent agrees that the Disciplinary Board shall impose a revocation of the Respondent=s license to practice law in the Commonwealth of Virginia.

The Respondent agrees that his prior record will be furnished to the panel of the Disciplinary Board considering this Agreed Disposition.

THE VIRGINIA STATE BAR







By

Lewis T. Booker

Special Assistant Bar Counsel







By

Harry M. Hirsch

Deputy Bar Counsel







By

William D. Bayliss

Respondent=s Counsel







By

Charles Edward Ayers, Jr.

Respondent