SC96767 The Florida Bar v F Lee Bailey

[00:00:03]Please rise.

[00:00:06]Hear ye. Hear ye. Hear ye. THE SUPREME COURT OF THE GREAT STATE OF FLORIDA IS NOW IN SESSION. ALL WHO HAVE caused to plea. Draw near. Give attention and you shall be heard. God save these United States, the great state of Florida, and this honorable court.

[00:00:41]Good morning, >> ladies and gentlemen, the Florida Supreme Court. Please be seated.

[00:00:59]The first case on the court's uh oral argument calendar for this Thursday is Florida Bar versus Bailey. Uh Mr. Ristoff.

[00:01:12]>> Morning, your >> honor.

[00:01:15]>> Mr. Rogo, I think you are going to proceed first.

[00:01:18]>> Yes, sir.

[00:01:18]>> Thank you. It's not listed that way on my sheet.

[00:01:23]Bruce Rogo, Don Beverly, and Beverly Pole for Flee Bailey. The critical question in this case is whether or not there is clear and convincing evidence that there was a trust when the United States conveyed >> Let me let me start off and what was the agreed upon fee in this for this representation? there was no agreed upon fee.

[00:01:54]>> So, the million dollars that's mentioned that was taken uh in the in this matter that was presented to Judge Paul. That that never was an agreed upon fee. That that is not the issue in this case and that was not the agreed upon fee. And at page 307 of the record, Mr. Miller explains what the arrangement was. The offer to Mr. Bailey was either take and I'm reading from page 307.

[00:02:25]There was a cash account that Mr. Bailey could have is either three.5 million or $6 million but an account that would be made available in lie of the stock which Mr. Bailey could use that account to go ahead and manage the properties and ultimately at the conclusion of the case judge Paul would decide on the fees. And so there was a choice here that the government created take 3.5 million or 6 million. What I'm trying to understand from this is the basis for a claim by uh your client that he had a fee interest in this stock because that stock was given to him and exhibit G of our brief is the transfer letter. That stock was given to him in fe simple at that point for two purposes. One purpose was to maintain the properties that Dubac had in France and to use that in any fashion that he saw fit in order to maintain.

[00:03:28]>> It was a gift.

[00:03:29]>> I wouldn't call I wouldn't call it a gift. Mr. Bailey has recognized and acknowledged that that the purpose of that was to maintain the properties and he was taking the risk as to whether or not there would be money left. He had a choice. He could have taken three half million or 6 million in cash or he could have taken that stock and the stock was given to him by the government and then he would maintain the properties in France and then at the end of that if there was money left he would report of course his expenditures and judge Paul would set the fees and there might not have been any fees because if the stock had decreased in value he he accepted the risk. Mr. Miller called it in his own word a gamble and he acknowledged that Mr. Bailey accepted the risk. If the value of the stock went down, Bailey took a line of credit which he personally guaranteed using the stock as collateral, but he was on the line for that money.

[00:04:23]>> Did he report this for income purposes?

[00:04:27]>> He he did amend his tax return uh later on when it was brought to his attention that that would be treated as a in the tax consequence form uh as income to him. He never >> How much later on? I you know I don't remember the exact date. It was probably in 1996 when the government uh began to claim something about this that this was not given to him that way. He brought he thought he had this property in order to use it for the benefit of of the maintain maintenance of the properties and then he would report back to judge Paul what those expenses were and Judge Paul would set a fee.

[00:05:04]>> That's but let's go back to where you and the government diverge. You agree that the $6 million in stock was given and there was at least two uses for that stock. One was to maintain the property and that's what the government says. The second is that a fee would be paid out of that that stock >> if there was anything left in terms of the value >> only upon judge Paul application to Judge Paul and his approval. Correct.

[00:05:30]>> Yes.

[00:05:31]>> Right. The the third part which is where we get into the question the sticky question here is that your position as I'm understanding it or judge or Mr. Bailey's is that he was still accountable for the original 6 million and he could have been required to pay some of it back. So, is there at least a concession that the first the $6 million in stock was if there was anything left of that $6 million that is after fees and after the maintenance of the property that that reverted back to the to the government >> and and Mr. Bailey said exactly that Justice Peri at least an agreement that the that it was not so to me I guess this is where I'm having a problem. How is that the same as saying it's given to me in fees simple and I could have done whatever I wanted with the stock after I maintain the property. In other words, isn't there an agreement in the nature of a trust which then puts into play because we're here on grievance proceedings many of the rules of the Florida Bar governing trust accounts and accounting for uh trust accounts.

[00:06:48]>> He had two duties. maintain the property, report the expenses, go back to Judge Paul for a fee. Other than that, that stock was transferred to him without any restrictions. He took all of the risk with regard to that stock. If it went down to nothing, there was no fee. He took a personal line of credit that he was liable for and he financed then the maintenance of the properties through that. He could do whatever he wanted with that stock because that was the nature of the transfer. So I mean necessarily would have to follow I mean it's it and correct me where my reasoning is wrong uh is that there are three ways that a lawyer can come into possession of someone else's property and that is it can either be earned as a fee or it can be a it could be a gift or it could be in trust. Now if fees are not earned then under our rules how how can it be uh his and fee simple uh it would either have to be a gift or in trust or is there some other form that a lawyer can come into possession of somebody else's property. Uh, Justice Wells, I think the question in this case is, is there clear and convincing evidence that Bailey knew that there was a trust agreement and that Bailey willfully violated the terms of that trust agreement? I mean, the the record is clear about what happened here that the only written evidence is the transfer without restriction of that money to Baileyy's account uh at Credit Swiss in Geneva. That's clear. That doesn't say anything at all about trust.

[00:08:34]And it's interesting, the government knew how to say trust because in the transcript at page 414, you will see that the government acknowledges that in other stock transfers from Hong Kong corporations, they put in Mr. Bailey as trustee. And what I'm coming to is in order to take the bar's position, the bar has to establish by clear and convincing evidence that a there was a trust of some sort and b that Bailey knew that there was a trust and clearly and convincingly established to this court that Bailey knowing that there was a trust violated the terms of that and on this record there is no clear and convincing evidence. In fact, what we're looking at really because they want to disbar F. Flee Bailey. What we're looking at is is what is the evidence that would justify this ultimate sanction and it all stems from the trust that that they have alleged occurred.

[00:09:28]But >> haven't you though in effect outlined what is de facto a trust in terms of the way that you have described the conditions placed on his receipt of these funds >> and he complied.

[00:09:42]>> Well well let's let's stop though for a minute. Right. You agree that those funds were not given to him as a fee. Is that correct?

[00:09:50]>> They were not. They were not given to him as a fee because he said Judge Paul would ultimately have to approve the fee.

[00:09:57]>> Well, regardless of of what he said, you agree that this records a conclusion that those funds were not given to him as a fee. Is that that's a concession, is it not?

[00:10:08]>> That it it was not a fee. So, he didn't receive a fee that he could then just freely use as his own in any, you know, willy-nilly in any way. Is that correct? No. You ag You agree with that?

[00:10:21]>> I I do not. I do not, Justice Answer. He he received 602,000 shares of Biochem Pharma stock to to use for the purpose of maintaining the property. And and >> that's that's why I say that aren't you describing a trust even even under your version of what this uh money was given to him uh there were conditions on it and one and and we start with the proposition that it was not his fee. Is that right?

[00:10:50]>> It it wasn't >> if it wasn't his fee. Okay. In terms of his interest in these funds, do you agree he had no interest in those funds then other than maintaining the properties even under your version of the fact?

[00:11:07]>> No, I do not agree that he had >> what what other uh in other words conditions or responsibilities did he have? It's not his money as a fee. You say it's not a gift made to him. Okay.

[00:11:20]It was given to him conditionally and that is that he could only use it for certain things. Repeat again your position or his position as to what the certain things were that he could do with the fund. And and this is what the clear and convincing evidence is that they gave him the 600,000 shares of the stock that his duty was to manage and maintain the properties to report the cost of doing that uh ultimately and if anything was left if anything was left from the value of the shares Judge Paul would arrive at the fees but there might have been nothing left. If there was nothing left then Bailey was out everything. So he had this money and he has said it. I mean his own language in the letters to Judge Paul make it clear that he recognized he had a reporting responsibility but he did not use that money. He took a personal line of credit. The stock was there. The stock was was secure in terms of the $5.8 million that he was going to be ultimately reporting back to Judge Paul about if indeed there was anything left.

[00:12:25]Let me So your position is that this stock was so risky that really that the idea that it could go up to whatever it went up to in the 20 million$1 18 million was not contemplated by the parties at the time that it was transferred to him.

[00:12:41]>> The government in the part that I read from the transcript, the government said to Bailey, "Take the cash. You can have the cash." Bailey said, "I'll take the risk." I thought that both his client and he and his correspondence with Judge Paul suggested that the reason that the biochem stock was kept was because to sell this large amount at that time would devalue the the value of the stock and that it was to his client's interest to maintain this stock so that it would appreciate in value so that his client could obtain the benefit of an appreciated asset which was the whole idea of trying to give the government as much in the way of assets. What about all what about the client in all this?

[00:13:25]Isn't there at least a self-dealing conflict of interest that's created by this whole arrangement that there's no evidence that the client knew about?

[00:13:34]>> The the client did know about it. The client is the one that signed the letter that was prepared by the government and typed by the government to turn this stock over to Mr. Bailey's credit account without any reservation. The client obviously knew that this was going to be turned over. The government had a choice. The choice was give Bailey the cash or the choice was ultimately Bailey's. Give Bailey the cash or the stock. He took the risk with regard to the stock. His obligation was to report back to Judge Paul with regard to that.

[00:14:06]If he had sold the stock the next day, and he could have sold the stock the next day. There's no question that by virtue of that transfer, that stock could have been sold the next day. Mr. Rogo, you're into your rebuttal now. Mr. Ristoff.

[00:14:22]>> Yeah. Police of court. I'm David Ristoff here on behalf of the Florida Bar. Like to introduce my co-consel, Deborah Davis, assistant staff counsel for the Florida Bar and Terrence Smith, uh uh joint counsel and co-consel on the case.

[00:14:36]Uh your honors, in this case, the bar prosecuted six separate counts. Uh the the referee in a detailed 24page report of referee in great detail set forth that he was guilty of misappropriation, conflict of interest, uh misrepresentation to the court, misrepresentation to his client, conflict of interest, uh writing exparte letters, and co-mingling. Uh the referee simply did not believe Mr. Bailey's position. It's clearly set forth in a reporter referee. She's detailed it with uh references to the exhibits as well as the testimony in this case.

[00:15:14]>> Could you in terms of looking at the facts for us so that we don't get down to this being a swearing match between people where there's not anything in writing? Do you have can you give us the salient documentary facts that show that this even in Mr. if it's through Mr. Bailey's own words that there was in fact a uh a trust created with with the uh agreement with the government.

[00:15:40]>> I'll have to do that. Uh but it is critical in terms of the swearing contest if you will because the judge in that case the referee obviously has to determine the credibility of the parties. In this case there were five US attorneys who taken a position. Mr. Bailey's co-consul in the case Mr. Shohat and Mr. uh Bob Shapiro all took the position that there was in fact a trust and that's critical evidence in this case the testimony of the parties uh to the transaction because the transaction was an oral transaction. Uh also in this case it's significant that Mr. Debbach's client also thought there was a trust. Uh these transactions in these uh conversations emanated during a debriefing on April the 25th and 26th of 94. So these conversations and the testimony of the parties is extremely relevant to whether or not there's a trust and the terms of this trust. Uh very persuasively uh at a pre- plea on May the 17th of 94, the parties go in before Judge Paul and basically tell Judge Paul what the deal is going to be.

[00:16:43]Judge Paul is advised of the terms of this trust and ratifies the agreement.

[00:16:48]Uh so the the testimony of the the witnesses can't be discounted. It's extremely important. Uh there's a number of different things in terms of why Mr. Bailey's testimony is not believable.

[00:16:58]Again, coming from Mr. Baileyy's own own testimony.

[00:17:02]>> Well, you can see from our questions that we obviously have great concern that a lawyer would allow a transaction like this to go down without a more precise arrangement and that that obviously is one of the clouds over this case. Can you give us succinctly what the best explanation in the record is of why the federal government acting through a number of of lawyers here would allow a transaction to go down like this without more express agreements in writing or evidence of what the actual transaction was?

[00:17:37]>> I think >> what is the best explanation?

[00:17:39]>> I think the best explanation it was purposeful. I think all the parties did not want to have a paper trail. Uh Mr. Aches testimony was that when they were pairing these transfers, they were they were actually concerned that because there was codefendants still at large that these codefendants might learn of these transactions and that these transfers were being made and blow the whole deal. Uh they purposefully did. In fact, Mr. Bailey was proud of the fact that it wasn't commemorated in writing.

[00:18:08]So, I think it was a purposeful purposeful uh situation. Mr. Miller's testimony at the trial was he didn't even think to put it in writing for the sake of commemorating because he did not think in a million years Mr. Bailey would go into Judge Paul tell him that he was going to hold this property and trust turn around and put it in his own pocket. So it's a it's a question if it was purposeful and in great regard and great extent uh but in a certain extent they just didn't think Mr. Bailey would go in and tell Judge Paul that and then basically put in his pocket. So I think that's the best answer I can give you in reference to that.

[00:18:42]>> Well, in connection with that, would you also comment upon the bar's view with regard to the continuing litigation and the court of claims proceedings and what if any effect that has on what's going on here today and what may happen in the future?

[00:18:55]>> Uh justice, I I don't think that what goes on in the court of claims is is is controlling for this court. It there are similar facts obviously because of the transaction being similar. Uh the issues in that case are different. Mr. Bailey is arguing a breach of contract in that case. In fact, in the Court of Claims, there was a motion to dismiss. It's part of the record in this case, uh, in which the motion dismissed by the government was denied. Uh, the, uh, Court of Federal claims judge said that she wasn't going to determine questions of reasonableness of reasonleness of attorney's fees. It's simply on a breach of contract. Uh, and that's not the case here. We're not talking about a breach of contract. We're talking about a lawyer who has misappropriated monies and violated bar rules. So the bar rules are what are significant in this case.

[00:19:43]>> Has that has that court action concluded?

[00:19:45]>> There's been a trial, but it hasn't been concluded.

[00:19:47]>> I mean, has concluded the the judge has not issued an order yet, but it it has concluded in so far as the presentation of evidence and arguments.

[00:19:56]>> That's my understanding. First off, let me let me ask you what the bar's position is on uh let's treat a hypothetical.

[00:20:06]>> Somebody is either charged or knows they're to be charged with a crime, going to be charged with a crime. They go into a lawyer's office and say, "Here is a check for $100,000.

[00:20:20]Now, we don't know." and the lawyer says, "Well, I don't know exactly how much this fee is going to be." Uh, and it will it'll be determined later. Now, what's the bar's position on what the lawyers to do with $100,000?

[00:20:37]>> Justice Wells, you you succinctly said what the bar's position was when you were asking Mr. Rogo what you do with those funds. If a lawyer takes funds and it's a non-refundable fee or it's paid to him in cash, those monies belong to the lawyer. If a lawyer takes a ref a retainer to be drawn off that retainer, those monies are beheld in trust.

[00:20:57]>> Is there a rule that discusses that?

[00:21:00]>> Uh yes, sir. Uh 4-1.15 and 511.

[00:21:05]Money's entrusted to a lawyer for specific purpose. It'll be used for that purpose. Uh the opinions actually speak more in terms of what the courts asked.

[00:21:13]uh there's an ethics opinion that talks about refundable fees and non-refundable fees, but those would be the applicable bar rules in terms of trust funds.

[00:21:22]>> In terms of this other this other action that's going on, I guess the concern that uh we would have is that we understand that we don't reweigh the credibility of the witnesses, but we're here to decide a very serious matter.

[00:21:37]That is what the appropriate discipline is for a lawyer. And the bar is not only asking for disbarment but permanent disparment. So in deciding what the appropriate penalty is, that's why I was asking you to besides this being a swearing contest. If we just look and say this is what Mr. Bailey has conceded, that is that the first $6 million was given to him for a specific purpose and not all of it was for fees.

[00:22:03]Is the does the bar is it bar's position that that alone would be a very serious trust account violation to the if part of that money even if the rest of it may have been in some some way for some other reason that it was going to be a I guess a contingent fee or something for the appreciated value. Uh is that a violation? Are there other violations?

[00:22:27]the ex party letter. Are those serious enough to warrant uh the punishment that the uh that that the bar seeks uh if another factf finder for example is to find that that appreciation was Mr. Bailey's?

[00:22:43]>> Justice Pery, I think that any one of those violations would warrant disparment. In fact, separate apart from the misappropriation, I would submit to you that the conflict of interest was equally as egregious as the misappropriation. What Mr. Bailey did when he put that money in his pocket, he deprived Mr. Debbach of what they had set forth in that trust agreement to do.

[00:23:03]>> Mr. Ristoff, if you're going to divide your time, I think you better be mindful of it.

[00:23:08]>> If I could just continue on that and then I'll sit down. Um, what Mr. Debbach understood and the government understood was that any appreciation in that stock would enerure to Mr. Debbach's benefit at the time of sentencing. If he could come to the court and show complete and total cooperation, that would be to his benefit at the time of the sentencing.

[00:23:28]And when Mr. Bailey decided to put that money in his own pocket, he was in absolute conflict with his client.

[00:23:33]That's clearly as bad as the misappropriation. Thank you for your time, >> Mr. Schmidt.

[00:23:44]May it please the court.

[00:23:46]What would have happened if on January 1, 1996, the biochem pharma stock had gone to zero as Mr. Bailey posits in his brief.

[00:23:58]He would have been beereft of fees as he says, but he would have also already taken $3.5 million out of that stock fund. There would have been no money left. The French properties would still have to be maintained and liquidated.

[00:24:16]And Mr. Bailey would have been broke because that's where he was in January 1996 when he was ordered to return the stock.

[00:24:27]It doesn't matter to me whether the court accepts his version or the bars.

[00:24:34]He had a duty to segregate and protect $5.9 million in what he calls value, which he admits was entrusted to him.

[00:24:47]He admits he had it in the nature of a trust and he admits he had a duty to account for it.

[00:24:55]Now, in terms of what the contemporaneous evidence is, Mr. Ristoff has told you it was in fact in the test the testimony in the record is that it was Mr. Baileyy's uh uh persuasion about the Canadian authorities's ability to get into uh uh criminal records that led the parties not to document this transaction. But there's one document that's very important that I think I in my view count one is a very important count in this case. It involves the Japanese stock. And if the court will look at exhibits eight and page five of exhibit nine, you will see that Mr. Debbach, who is the one who prepared these stock transfer documents, used substantively identical language to transfer the Japanese stock to Mr. Baileyy's non-rust account in Switzerland and to transfer the Biochem Pharma stock to Mr. Bailey's non-rust stock, non-rust account in Switzerland.

[00:25:52]Mr. Bailey admits that the Japanese stock was transferred to him for one purpose and one purpose only to liquidate it, hold it in trust for the government and send the proceeds to the government.

[00:26:05]So the idea that the biochem pharma stock doesn't refer to Mr. Bailey as a trustee or doesn't say he's holding it in trust uh is totally and that's proof that it was not to be held in trust is totally inconsistent with the way uh Mr. Debbach, Mr. Bailey and the government handled the Japanese stock which Mr. Bailey admits he held in trust.

[00:26:26]>> When was Judge Paul first made aware of this of these arrangements? So what was his knowledge of these arrangements?

[00:26:34]>> I I believe the date I'm terrible on dates, your honor, but I believe the date was May 17th, 1994.

[00:26:40]And I don't believe that there is a judge or lawyer in this courtroom that would believe that Mr. Bailey could have gone to Judge Paul on that date and explained this concept by which he was to receive 5.9 million of stock in fe simple but subject to an entrustment as to the value of that stock with a duty to account for it but a right to appreciation that he could take anywhere along the way even though any fees he took would be subject to court approval.

[00:27:13]That is a preposterous proposition and no federal judge would accept it in a case like this and and Judge Paul did not accept it. Which is why when when we're talking about documentation of this agreement of this relatively undocumented agreement, I can tell you there's a letter in the in the uh record. And if I could find my note, I'd give you the date of it's it's in the first 100 pages. It's a reference to a letter from Ed Shohat to uh Tom Kerwin, the assistant US attorney, June 4th, I believe the date is 19 94 in which Mr. Show refers to the fact that Mr. uh he had they have to wait to get some money until Mr. Bailey completes the arrangements to borrow the money from the trust account in Switzerland in which the biochem pharma stock resides. What context was this brought to Judge Paul's attention? How how was it brought to his attention? In what context was >> the agreement itself, your honor?

[00:28:17]>> Uh my understanding is that that before Mr. U Dubach pled on May the 17th, they had a conference in chambers with Judge Paul attended by Mr. Bailey, uh Mr. Patterson, the US attorney, uh Mr. Kerwin, Mr. Miller, and others at which m Mr. show hat at which the parties Mr. Miller primarily explained to Judge Paul uh the nature of this fairly unusual arrangement.

[00:28:48]Um there is a disagreement or be uh that Ba Mr. Bailey tries to take advantage of I suppose about whether some people remember whether the word trust was used or not. I think that's immaterial.

[00:29:02]Um I settled a contingent fee case yesterday. The money's going to come in.

[00:29:07]It's going to go into my trust account.

[00:29:08]I'm not going to tell my client I'm a trustee. I will never probably use the word trust. It's plausible to me that the explanation was this money has been given to Mr. Bailey for this purpose.

[00:29:19]And this is what's going to uh happen.

[00:29:21]He's going to use it to maintain and liquidate the French properties. If there's this, pardon me, this stock, he will then if there's any left if there's any money left at the end that can be used for fees and the balance will return to the government. That's the nature of the agreement.

[00:29:36]>> Uh, Justice Shaw has one more question.

[00:29:38]>> Uh, did the judge express any any disapproval of the arrangement when it was first brought to his attention?

[00:29:45]>> When it was first brought to his attention in 1994, he did not. When it was brought to his attention or Mr. Ba Baileyy's version was brought to his attention in 1996, he held Mr. Bailey in contempt and incarcerated him.

[00:29:57]>> Thank you.

[00:29:58]>> Thank you, Mr. Schmidt.

[00:29:59]>> Thank you, Mr. Roto.

[00:30:03]I think from hearing this discussion what comes across quite clearly is that there is a great deal of confusion about exactly what the arrangement was and the question is can you disbar a person when you have that kind of confusion confusion caused by the government when the government authorizes transfer Mr. Ristoff has said quite clearly and talked continually about the trust. The me the referee's ruling is hinged upon her finding that there was a trust and there is not clear and convincing evidence of any sort that this was a trust. Was there confusion? Was there misunderstanding? Perhaps there was. Mr. Cerwin, who's been mentioned, who's now the US attorney here, his testimony was that he never heard the word trust mentioned. And that testimony came out in the court of claims deposition that is submitted to this court as part of a supplemental record.

[00:30:58]>> Mr. Rogo, are you suggesting that the absence of the mention of the word trust negates the possibility or the the the uh the ability to create a trust relationship? Is that that what you're suggesting?

[00:31:12]>> No, I'm not. I'm suggesting >> Well, then what is what is the what's the importance then of the absence of the use of the word of trust? If you desri describe all of the facts that describe a trust relationship, that's missing something. It it negates the kind of sanction that the bar is seeking because there's not clear and convincing evidence that Mr. Bailey knowingly abused a trust agreement that the government says or the bar says he had.

[00:31:36]It was not there. That's what this is about. There's no How about How about the situation that council just just mentioned that uh you settle a case, you never mention the word trust and you just go about using all the money for your for yourself. The word trust is never mentioned. Uh but the circumstances and facts create that. Is that would that be sufficient for the Florida Bar to take action against a lawyer using those uh and claiming that's fe simple? That would be Justice Lewis. But that's not this case. This case has these unique extraordinary facts of the government turning over 62,000 shares of stock without any reservation to Mr. Bailey with other arrangements and agreements of which the parties and this is not a credibility issue of which the parties have some disagreements about what the nature of the obligation was and so should one be disbarred for that.

[00:32:22]>> Your time is up. Thank you very much.

[00:32:25]Appreciate the council's assistance in this case.

[00:32:30]Next case on the court's oral argument calendar is Durbal versus State.