IN THE MATTER OF: David Nicholls Montague
VSB Docket No. 99-010-2127
ORDER OF SUSPENSION
THIS MATTER came on June 28, 2002, before a duly convened panel of the Virginia State Bar Disciplinary Board (the "Board"), comprised of John A. Dezio (the "Chair"), William C. Boyce, Jr., Richard J. Colten, Thaddeus T. Crump (Lay Member), and Peter A. Dingman, pursuant to a Subcommittee Determination and Certification from the Virginia State Bar First District Committee. David Nicholls Montague ("Respondent" or "Montague") appeared in person and was represented by counsel, Michael L. Rigsby. The Virginia State Bar (the "Bar") appeared by its counsel, Edward L. Davis. Proceedings in this matter were transcribed by Tracy J. Stroh, of Chandler & Halasz, Registered Professional Reports, P.O. Box 9349, Richmond, Virginia, 23227, telephone no. 804-730-1222.
After the Board disposed of an unrelated matter, this matter was called at 1:00 o(clock p.m. in the Tweed Courtroom of the United States Fourth Circuit Court of Appeals, Richmond, Virginia. The court reporter was sworn by the Chair, who then inquired of each member of the panel as to whether any member had any personal or financial interest which would interfere with or influence that member(s unbiased determination of this matter. Each member, including the Chair, answering in the negative, the matter proceeded. The Bar and Respondent, by counsel, stipulated that there was no dispute between the parties as to the facts set forth in the Certification. The Chair then recited in summary fashion the procedure to be followed in this hearing and the Rule on Witnesses was imposed.
The Certification charged that Respondent had violated the following Disciplinary Rules: DR1-102(A)(3) (prohibiting criminal acts or wrongful conduct which reflect adversely on a lawyer(s fitness to practice law); DR9-103(A)(1), (2), (3), (4); and DR9-104(B)(2), (3), (4), (5) and (6) (setting trust account requirements). The Certification also charged violations under the Rules of Professional Conduct relating to misconduct alleged to have occurred after January 1, 2000, as follows: Rule 8.4(b) (criminal or wrongful conduct); and Rule 1.15(e)(1), (f)(4), (5) and (6) (trust account requirements).
The Bar then presented its evidence. Kimberly Ashe, a paralegal who worked for Respondent during the year 1993 through 1996 and 1998 to January of 1999, testified that Montague employed a certified public accountant, Charles David Hersh, who prepared federal and state employer(s quarterly federal tax returns which were delivered to Respondent, but not filed by him. Ms. Ashe testified that, when she raised a question about this with Montague, he informed her that he was purposely not filing the required forms out of fear that filing would instigate an investigation of his failure to pay payroll taxes. Ms. Ashe also testified that she warned Respondent, based on courses she had taken, that his trust accounting procedures were inadequate as mandated by the then-applicable Code of Professional Responsibility. She stated that, during the term of her employment, she always ultimately received her paycheck, net of payroll withholding tax amounts, although her check was sometimes late.
The Bar also submitted an affidavit by Mr. Hersh affirming that he did prepare federal 941 tax forms (Employer(s Quarterly Federal Tax Reports) for the years 1997, 1998, 1999 and 2000. The affidavit affirmed that, for each year, state and federal income tax was withheld from employee paychecks and the employer(s portion of federal social security and Medicare taxes also accrued.
The Bar called Peter A. Kepler, a Bar staff investigator. Mr. Kepler reported that, in an interview with Montague, Respondent conceded that he did not maintain subsidiary ledgers as required by the applicable Rules of Professional Conduct and/or the Code of Professional Responsibility. Further, Respondent conceded that, while he paid Ms. Ashe on checks showing federal income tax and social security withholding, he did not actually withhold such money or pay it over to federal or state authorities. Rather, the withheld money was (absorbed" into the general cost of operating Respondent(s practice.
Tony Ledford, an official with the Commonwealth of Virginia Department of Taxation, testified that Respondent did not properly file employer(s tax returns and accumulated a debt for such taxes with the Commonwealth which was ultimately satisfied by the state withholding monies otherwise owed by the Commonwealth to Montague for his service in court appointed cases. Edwin R. Ward, Jr., an official of the Internal Revenue Service based in Richmond, Virginia, was called by the Bar and testified that Respondent still has not filed the 941 quarterly tax forms prepared by Mr. Hersh and that such failure to file and failure to payover taxes withheld caused damage to the United States Treasury in that the employee has credit in the social security system and for tax withholdings which are otherwise satisfied out of the general funds of the United States. The Bar introduced eight other exhibits (Mr. Hersh(s affidavit was admitted as Exhibit 9) which included trust account records maintained by Respondent and evidence of a judgment for unpaid taxes taken against him by the Internal Revenue Service.
On his own behalf, Respondent called Patrick Yockey, a CPA employed by Respondent to compute the tax liabilities Respondent owed as a result of his failure to withhold, report and payover taxes. Mr. Yockey was also employed by Respondent to attempt to negotiate a compromise settlement with the government. Mr. Yockey testified that Respondent(s business was not very profitable during the years 1997 through 2000. Mr. Yockey testified that a compromise has not yet been negotiated with the Internal Revenue Service.
Respondent testified in his own defense, saying that he may have kept additional trust account records, but could not find ledger cards for cases prior to 1998. He testified that the withholding obligation for taxes is essentially a "fiction" and that, in some case, it became necessary for him to prioritize obligations owed. Employee tax withholding amounts were not in a separate account and, where more pressing obligations, e.g. his home mortgage, business expenses and salaries, asserted themselves, money was applied to such obligations rather than to payment of taxes. On cross-examination, Respondent testified that he filed Employer Quarterly Tax Returns and state forms during the early 1990(s and only stopped in the late 1990(s because the gross receipts of his practice fell off.
After each side was afforded an opportunity to argue the inferences to be drawn from the foregoing evidence, the Board retired to consider is verdict. After deliberation, the Board determined that the Bar had, by clear and convincing evidence, proved violations of the following Disciplinary Rules: DR1-102(A)(3); and DR9-103(A)(1), (2), (3) and (4), (B)(2), (4), (5) and (6). The Board made the same finding as to a violation of Rule 8.4(B). The Board did not find that the Bar had sustained its burden as to a violation of DR9-103(B)(3) and the Bar withdrew the charge of a violation of Rule 1.15.
The Board reconvened and announced its findings as set forth above. The parties then introduced evidence relevant to the appropriate discipline to be imposed. The evidence produced showed that Respondent, a member of the Virginia State Bar for 41 years, with a distinguished record of community service, including service as the former Chair of the First District Committee of the Virginia State Bar, membership on the Client(s Security Commission of the Virginia State Bar, service as President of the Hampton Bar Association, election to the City Council and as Mayor of the City of Hampton and membership on the Board of Visitors of the University of Virginia, has a prior record of discipline showing three charges recently dismissed, with terms, by the First District Subcommittee. These cases were recently decided and Respondent has begun efforts to comply with the terms imposed. No evidence was introduced at any time during the hearing that any client of Montague had sustained any loss as a consequence of his actions and trust account deficiencies. Mr. Yockey also testified that Respondent had made a decision not to pursue a personal bankruptcy to avoid his debts and had made an affirmative decision to collect social security payments to obtain funds to meet his obligations, despite advice that an early election to receive such payments would compromise Montague's position in negotiations with the Internal Revenue Service (apparently by creating another source of income to be tapped for payment of his obligations).
The Board, having considered the foregoing, determined to impose the following discipline:
1. ORDERED that Respondent be, and he hereby is, suspended from the Bar of the Supreme Court of Virginia for a period of ninety (90) days commencing on June 28, 2002; and
2. ORDERED that, as directed in the Board's June 28, 2002, Summary Order in this matter, a copy of which was served on Respondent by certified mail, Respondent must comply with the requirements of Part 6, Section IV, Paragraph 13.K(1), of the Rules of the Supreme Court of Virginia. The time for compliance with said requirements runs from the June 28, 2002, effective date of the Summary Order. All issues concerning the adequacy of the notice and arrangements required by the Summary Order shall be determined by the Board; and
3. ORDERED that the Clerk of the Disciplinary System shall assess costs against Respondent pursuant to Paragraph 13K(10) of Part VI of the Rules of the Supreme Court of Virginia; and
4. ORDERED that a copy of this Order shall be mailed to Respondent by certified mail, return receipt requested, at his address of record with the Bar, First Floor, One East Queen(s Way, Hampton, Virginia, 23669-4001, to Respondent(s counsel, Michael L. Rigsby, Esquire, Midkif Muncie & Ross, P.C., 9030 Stoney Point Parkway, Suite 160, Richmond, Virginia, 23235, and to Edward L. Davis, Esquire, Assistant Bar Counsel, Virginia State Bar, Eighth and Main Building, 707 East Main Street, Suite 1500, Richmond, Virginia, 23219.
So ordered this ______ day of August, 2002.
VIRGINIA STATE BAR DISCIPLINARY BOARD
By: __________________________________________ _
John A. Dezio, Chair