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Office of Disciplinary Counsel v. Castroverde

Supreme Court of Hawaii

April 21, 2016

OFFICE OF DISCIPLINARY COUNSEL, Petitioner,
v.
LANCE CASTROVERDE, Respondent.

ORIGINAL PROCEEDING (ODC CASE NO. 14-003-9146)

Recktenwald, C.J., Nakayama, Pollack, and Wilson, JJ., and Intermediate Court of Appeals Associate Judge Ginoza, in place of McKenna, J., recused

ORDER OF DISBARMENT

Upon consideration of the January 21, 2016 report submitted to this court by the Disciplinary Board of the Supreme Court of the State of Hawai'i and the record, we find and conclude, by clear and convincing evidence, that the record supports the Board's Findings of Fact, with the exception that we find a portion of the Board's Finding of Fact No. 17 is clearly erroneous, insofar as a review of the record demonstrates Respondent Lance Castroverde included the notation "CFT Loan" on the relevant checks, not "ACFT Loan" as found by the Board. See Dockets 1:12, 3:298, 302, 306-07, 309, 311, 327, 329, 336-37, 343-44, 347, 368, 371.

We conclude by clear and convincing evidence that Respondent Castroverde violated the following provisions of the Hawai'i Rules of Professional Conduct (HRPC) (1994) through the following conduct:

Respondent Castroverde engaged in prohibited conflicts of interest with multiple clients, representing three separate violations of HRPC Rule 1.7(a), by representing both the sellers and the buyers of the home at 722 Lalani Circle, in Wailuku, Maui, including by drafting and overseeing the execution of the Agreement of Sale, where the interests of the parties were directly adverse to each other and it was not reasonable for Respondent Castroverde to believe the representation of each party would not adversely affect his relationship with the other party and where, even if such a belief were reasonable, he did not obtain the consent of the parties after consultation; again by engaging in the same conduct in drafting and executing the "Collection Agreement and Holding Agreement for Agreement of Sale" (hereinafter, the "Collection and Holding Agreement"); and again by overseeing the administration of the Collection and Holding agreement.

We conclude Respondent Castroverde violated HRPC Rule 1.7(b) by representing the sellers and the buyers as a result of an introduction by the Principal at TLI, a mortgage broker, when it was unreasonable to believe the representations would not be adversely affected by Respondent Castroverde's pre-existing relationship with, and responsibilities to, the Principal of TLI, who was Respondent Castroverde's client and with whom Respondent Castroverde was involved in the personal lending of funds, and where Respondent Castroverde did not obtain the consent of the sellers or the buyers after consultation, even if it had been reasonable to believe there would be no adverse effect.

We conclude Respondent Castroverde misappropriated client funds, in violation of HRPC Rule 1.15(c), by removing from his client trust account, between November 30, 2007 and December 18, 2007, at least $6, 258.91 of the buyers' funds to which he was not entitled, removing between December 18, 2007 and January 25, 2008 at least $12, 912.91 of the buyers' funds to which he was not entitled, removing from his client trust account, by a December 3, 2007 check, the "base collection fee portion of the Initial Reserve" (being account fees for 12 months, at $104.17 per month) and the "account costs portion of the Initial Reserve" (being account costs for 12 months, of $5.00 per month), in violation of the aforementioned Collection and Holding Agreement, which required those funds to be held in trust as a reserve.

We conclude Respondent Castroverde violated HRPC Rule 1.5(a) by charging an unreasonable fee as follows: Pursuant to HRS § 449-3 (1996), Respondent Castroverde, as an attorney, was exempt from the regulation of escrow deposits if he did not charge an escrow fee. However, we find Respondent Castroverde did charge an escrow fee, as the buyers paid Respondent Castroverde $10, 625.00 to arrange the transaction and escrow, and paid monthly charges of $104.17 and $5.00 to administer the escrow. By charging said fee, Respondent Castroverde was obligated to comply with the requirements of HRS Ch. 449 and, as he did not comply with those requirements and therefore could not justify the escrow fees he charged, those fees were unreasonable, in violation of HRPC Rule 1.5(a).

In the Collection and Holding Agreement, Respondent Castroverde agreed to provide both parties periodic reports when appropriate, including an annual report, but did not, and, therefore, did not timely render accounts to any of the parties concerning the funds held in trust, in escrow, in violation of HRPC Rule 1.15(f)(3).

Respondent Castroverde did not record the Agreement of Sale with the Bureau of Conveyances, which was necessary to protect the rights and interests of the buyers, conduct which we conclude rises to the level of incompetence, in violation of HRPC Rule 1.1.

In addition, we conclude Respondent Castroverde's failure to record the Agreement of Sale with the Bureau of Conveyances assisted his client in successfully obtaining, through the Principal at TLI, a mortgage on the property under false pretenses, in violation of HRPC Rules 1.2(d) and 8.4(c), and that Respondent Castroverde failed to otherwise disclose the Agreement of Sale to the new mortgagee, thereby violating HRPC Rule 4.1(b). We note Respondent Castroverde specifically referenced the potential for said mortgage in the Agreement of Sale which he drafted for the parties.

As required by the Collection and Holding Agreement, Respondent Castroverde provided the sellers with interest payments from funds paid by the buyers to Respondent Castroverde, but Respondent Castroverde's checks to the sellers characterized the funds as interest on a loan from a Castroverde Family Trust, a false notation requested by the sellers in order to meet income requirements to obtain a loan concerning other property in Wailuku. By placing the false notations on the checks provided by him to the sellers, Respondent Castroverde violated HRPC Rules 1.2(d) and 8.4(c).

With regard to a loan from the sellers to Respondent Castroverde of the $50, 000.00 down payment held in Respondent Castroverde's client trust account, Respondent Castroverde violated HRPC Rule 1.8(a) by engaging in a business transaction with the sellers where the transaction and terms on which Respondent Castroverde acquired an interest were not fair or reasonable to the sellers, where the loan was made without giving the sellers a reasonable opportunity to seek the advice of independent counsel regarding the transaction, and where Respondent Castroverde did not obtain from his clients, the sellers, written consent to the inherent conflicts.

By misappropriating all but, at most, $5.17 of the $50, 000.00 for his use and benefit, Castroverde ...


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