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In re Discipline of Steffensen

Supreme Court of Utah

September 24, 2018

In the Matter of the Discipline of Brian W. Steffensen
v.
Office of Professional Conduct, Appellee. Brian W. Steffensen, Appellant,

         On Direct Appeal

          Third District, Salt Lake The Honorable Todd M. Shaughnessy No. 110917794

          Billy L. Walker, Barbara Townsend, Adam C. Bevis, Salt Lake City, for appellee

          Brian W. Steffensen, Salt Lake City, for appellant

          Justice Himonas authored the opinion of the Court, in which Chief Justice Durrant, Associate Chief Justice Lee, Justice Pearce, and Justice Petersen joined.

          OPINION

          Himonas, Justice

         INTRODUCTION

         ¶1 Brian Steffensen appeals the judgment of the district court disbarring him from practicing law for violations of the Utah Rules of Professional Conduct involving, inter alia, failure to file taxes. Mr. Steffensen asks this court to reverse the district court's findings of misconduct, direct that the case against him be dismissed, and vacate the sanction of disbarment. We affirm the district court's findings of misconduct, reverse the district court's imposition of sanctions, and remand to the district court for a new sanctions determination.

         BACKGROUND

         ¶2 After graduating from Stanford Law School in 1980, Mr. Steffensen became a member of the bar and began working as a lawyer in a large firm.[1] He primarily represented a major bank focused on transactional work and real estate development. He left the firm approximately seven years later, continuing to work as a lawyer in a sole proprietorship. Then, in 1995, Mr. Steffensen incorporated the first of his many professional law firms.

         ¶3 Mr. Steffensen repeatedly failed to maintain accounting practices that would keep his law firms viable. Mr. Steffensen acknowledges his "gross[] negligen[ce]" in "failing to file . . . employee withholding tax returns." Additionally, Mr. Steffensen opened a new law firm each time the previous one financially floundered. To date, Mr. Steffensen has incorporated five firms subsequent to his sole proprietorship. Financial trouble led to the demise of at least three previous firms, [2] with taxes left unpaid. The law firm currently in operation is AAA Law, PC.

         ¶4 Mr. Steffensen's first incorporated law firm-Brian W. Steffensen, a Professional Law Corporation (Firm #1)-operated from 1995 to 2001 and closed, resulting in an Internal Revenue Service (IRS) seizure of all assets "because of his failure to pay withholding taxes." Mr. Steffensen also had problems with the Utah State Tax Commission with Firm #1. Mr. Steffensen admits having someone apply for a withholding account number for Firm #1 in 1995. So he has known since at least 1995 that he had a responsibility to withhold money from the employees' paychecks and pay that money to the Tax Commission. He also admits to knowing that filing a return was required even if no taxes were due and claims that he filed all returns for Firm #1. And, although he filed returns, he never remitted the taxes.

         ¶5 Upon the heels of the IRS seizure, Mr. Steffensen established Steffensen Law, PC (Firm #2), which operated from 2002 to 2003. Operations under this firm ended due to "the exact same problems with payroll and the Tax Commission" as the first. In the same year, 2003, Mr. Steffensen started his third law firm, S Law, P.C. (Firm #3), which ceased operation in 2007 "because the financial and tax irregularities continued to exist." When Firm #3 closed, Mr. Steffensen established his next firm, SB Law, PC (Firm #4), which remained in operation until 2013. When that firm was in financial jeopardy, he established AAA Law, PC (Firm #5), Mr. Steffensen's currently operating law firm.

         ¶6 The Tax Commission began to scrutinize Mr. Steffensen's employee tax withholding practices in 2006 when the filing process of one of his employees was suspended and came under review by the Tax Commission because her W2 from Firm #3 did not have a state withholding tax number. The Tax Commission investigated both Mr. Steffensen's business and personal taxes. While the Tax Commission started with investigating only Mr. Steffensen's law firm listed on the questionable W2, it soon discovered several withholding accounts for other businesses and began investigating those as well.

         ¶7 In September 2008, the Tax Commission completed an investigation of Mr. Steffensen and recommended he be criminally charged with violating: (1) Utah Code section 76-8-1101(1)(c)(i), Failure to File; (2) Utah Code section 76-8-1101(1)(d)(i), Willful Evasion; and (3) Utah Code section 76-6-513(2), Unlawful Dealings of Property by a Fiduciary.[3]

         ¶8 The Tax Commission's investigation uncovered a number of potential violations of tax law on Mr. Steffensen's part. As of July 2008, Firm #1 had an unpaid outstanding withholding tax account balance of $44, 395.46. Mr. Steffensen broke seven payment arrangements regarding this balance. Regarding Firm #2, Mr. Steffensen perpetuated the same problems he had with the first firm. Additionally, Mr. Steffensen used invalid state withholding tax identification numbers, and the W2s he distributed to employees falsely declared that money had been withheld and remitted. And, as of September 2008, he still owed $48, 895.17 for withholding taxes, penalties, and interest for tax years 2002-2006. Moreover, in operating Firm #3, Mr. Steffensen failed to file withholding returns for 2003 through 2006. He failed to remit withholdings for this firm's entire existence.

         ¶9 In May 2009, Mr. Steffensen was charged with one count each of Failing to Render a Proper Tax Return (for tax years 2003- 2008), Intent to Evade (for tax years 2003-2008), and Unlawful Dealing of Property by a Fiduciary (for years 2003-2006). On March 1, 2010, Mr. Steffensen entered into a diversion agreement with the State in which he did not admit to guilt but did admit there was probable cause for the charges against him. In that agreement, the charges were amended to an "attempt to commit a crime," Utah Code § 76-4-101, [4] namely "knowingly and intentionally, and without a reasonable good faith basis, fail[ing] to make, render, sign or verify any return within the time required by law," id. § 76-8-1101(1)(c)(i). Mr. Steffensen in turn paid all taxes along with penalties.

         ¶10 After receiving notice of Mr. Steffensen's criminal charges in September 2009, the Office of Professional Conduct (OPC) alleged three violations in its case against Mr. Steffensen. The first claim under rule 8.4(b) of the Utah Rules of Professional Conduct is that Mr. Steffensen engaged in criminal conduct that reflects adversely on his fitness to practice law. The second claim under rule 8.4(c) is that he engaged in dishonest conduct. And the third claim under rule 8.4(a) is that he engaged in misconduct by violating or attempting to violate the Utah Rules of Professional Conduct.[5]

         ¶11 The district court concluded that Mr. Steffensen violated rule 8.4(b) and (c) of the Utah Rules of Professional Conduct. The court found professional misconduct under rule 8.4(b) for "committ[ing] the criminal act [under Utah Code section 76-8-1101(1)(c)(i)] of Failing to Render a Proper Tax Return [and] . . . committ[ing] the criminal act [under Utah Code section 76-4-101] of Attempted Failing to Render a Proper Tax Return." The district court concluded that these "committed criminal acts," established "[b]y a preponderance of the evidence," "reflect adversely on [Mr. Steffensen's] honesty, truthfulness or fitness as a lawyer [i]n other respects."

         ¶12 The district court concluded that Mr. Steffensen committed professional misconduct under rule 8.4(c) because he "engaged in conduct involving dishonesty, fraud, deceit, or misrepresentation."[6]In addition to the criminal acts under rule 8.4(b), the district court found (1) that Mr. Steffensen, "in the context of operating the law firm," failed "to remit to the Tax Commission the amounts that [his] employees were ultimately obligated to pay in their taxes," which was "dishonest;" (2) that he distributed "W2s to [his] employees stating that the tax monies had been withheld and remitted" when they had not, which constituted a misrepresentation; and (3) "that he presented [financial statements] to his bank in order to get a loan" that were in conflict with "forms he presented to the Tax Commission to obtain a financial hardship exemption" and therefore that "Mr. Steffensen's statements about his income and finances [that] he presented to the Tax Commission to receive a financial hardship exemption contained material misrepresentations."

         ¶13 The district court held a sanctions hearing and concluded that the violations of the Utah Rules of Professional Conduct justified the disbarment of Mr. Steffensen under Rule Governing the Utah State Bar 14-605(a)(1) and (a)(2). Mr. Steffensen appeals. We have jurisdiction pursuant to article VIII, section 4 of the Utah Constitution and Utah Code section 78A-3-102(3)(c).

         STANDARD OF REVIEW

         ¶14 The Utah Supreme Court has a constitutional mandate to "govern the practice of law, including . . . the conduct and discipline of persons admitted to practice law." Utah Const. art. VIII, § 4. Because of this mandate, professional discipline cases form a unique subset of the cases we hear and have a unique standard of review.

         ¶15 While we generally "presume that the [lower tribunal's] findings of fact are correct" unless clearly erroneous, in attorney discipline cases we "reserve the right to draw inferences from basic facts which may differ from the inferences drawn by the [lower tribunal]." In re Discipline of Babilis, 951 P.2d 207, 213 (Utah 1997) (alterations in original) (citations omitted). Additionally, although "we always give serious consideration to the findings and [rulings] of the [district court]," "we must treat the ultimate determination of discipline as our responsibility." Id. (alterations in original) (citations omitted). We therefore must "make an independent determination of the correctness of the discipline the district court imposed." In re Discipline of Lundgren, 2015 UT 58, ¶ 9, 355 P.3d 984 (citation omitted) (internal quotation marks omitted); see also In re Discipline of Crawley, 2007 UT 44, ¶ 17, 164 P.3d 1232.

         ANALYSIS

         ¶16 In our analysis, we first clarify the interpretation and application of rule 8.4(b) and (c) of the Utah Rules of Professional Conduct discussing violations of professional misconduct. And, finding that Mr. Steffensen did commit professional misconduct, we then turn to the imposition of sanctions for those violations to determine whether the court applied the proper standard in its sanctioning of him. On the record before us, we find that the district court erred in its imposition of sanctions for Mr. Steffensen's violations, but understandably so given the inconsistencies in the comment section of rule 8.4.[7]

         I. THE VIOLATIONS OF THE UTAH RULES OF PROFESSIONAL CONDUCT

         ¶17 This court regulates members of the bar both by constitutional mandate and inherent authority. Utah Const. art. VIII, § 4 ("The Supreme Court by rule shall govern the practice of law, including admission to practice law and the conduct and discipline of persons admitted to practice law."); Barnard v. Utah State Bar, 804 P.2d 526, 528 (Utah 1991) ("[T]he authority of this Court to regulate the admission and discipline of attorneys existed as an inherent power of the judiciary from the beginning." (citation omitted)). In order to maintain the integrity of the profession, we promulgate the Rules of Professional Practice to guide lawyers and judges in matters of discipline. In Utah,

[a] lawyer is a representative of clients, an officer of the legal system and a public citizen having special responsibility for the quality of justice. Every lawyer is responsible to observe the law and the Rules of Professional Conduct, shall take the Attorney's Oath upon admission to the practice of law, and shall be subject to the Rules of Lawyer Discipline and Disability.

Utah R. Prof'l Conduct pmbl. 1. Chapter 13 of the Supreme Court Rules of Professional Practice establishes the Utah Rules of Professional Conduct.

         ¶18 To assist with our regulatory responsibility, we have authorized and designated the Utah Bar Association (Bar) to administer the rules and regulations which govern the practice of law in Utah. R. Governing Utah State Bar 14-102. Responsibilities of the Bar include, but are not limited to, advancing "the administration of justice according to law;" "regulat[ing] and disciplin[ing] . . . persons practicing law;" "maintain[ing] integrity . . . and high standards of conduct among those practicing law;" and "promot[ing] professionalism, competence and excellence in those practicing law." Id. 14-202; see also id. 14-102. The OPC aids the Bar in performing the duties related to violations of the Utah Rules of Professional Conduct. Id. 14-504.

         ¶19 Under the Rules Governing the Utah State Bar, the OPC can bring a formal complaint charging an attorney with professional misconduct before the district court with the permission of a screening panel. Id. 14-511(a). When "[f]ormal disciplinary and disability proceedings" are convened, they "are civil in nature." Id. 14-501(c). This remains true even when, as here, questions of criminal conduct arise in finding a violation of the Utah Rules of Professional Conduct. Id.; see also In re Discipline of Steffensen, 2016 UT 18, ¶ 12, 373 P.3d 186. Such cases are also bifurcated, meaning that they are conducted in two phases: adjudication of the allegations of misconduct and, if necessary, a determination of the appropriate sanction. R. Governing Utah State Bar 14-511.

         ¶20 In these proceedings brought before the district court by the OPC, the court concluded Mr. Steffensen violated both rule 8.4(b) and (c). Mr. Steffensen challenges the admissibility of evidence that the court allowed in his adjudication hearing as well as the court's determination of his mental state. He argues that the evidence was irrelevant and prejudicial. We hold that the evidence was relevant and admissible. Mr. Steffensen also argues that the district court's determination that his actions were "knowing and intentional" was not supported by the evidence. We disagree and affirm the district court's findings of fact and conclusions of law at the adjudication hearing.

         A. Admission of Evidence and ...


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