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office of Lawyer Regulation v. Gatzke (In re Gatzke)

Supreme Court of Wisconsin

May 17, 2016

In the Matter of Disciplinary Proceedings Against James E. Gatzke, Attorney at Law: Office of Lawyer Regulation, Complainant-Respondent,
v.
James E. Gatzke, Respondent-Appellant

         Oral Argument February 4, 2016.

          Attorney's license suspended.

          For the respondent-appellant there were briefs filed by Terry E. Johnson and Peterson, Johnson & Murray, S.C., Milwaukee, and oral argument by Terry E. Johnson.

         For the Office of Lawyer Regulation, there were briefs filed by Paul W. Schwarzenbart. Oral argument by Paul W. Schwarzenbart.

         MICHAEL J. GABLEMAN, J. (concurring in part, dissenting in part). Justice REBECCA G. BRADLEY joins this concurrence/dissent.

          OPINION

         ATTORNEY disciplinary proceeding.

          PER CURIAM.

          [¶1] Attorney James E. Gatzke appeals a report filed by Referee Christine Harris Taylor, concluding that Attorney Gatzke committed 45 counts of professional misconduct and recommending that this court revoke his license to practice law in Wisconsin. The referee further recommended that Attorney Gatzke make restitution totaling $551,128.32, and that he be required to pay the full costs of this proceeding, which are $56,879.77, as of February 24, 2016. Attorney Gatzke asserts that many of the referee's findings of fact are clearly erroneous. He also argues that, even assuming that this court finds that he committed some or all of the counts of misconduct found by the referee, a license suspension of less than five months would be an appropriate level of discipline.

          [¶2] Upon careful review of this matter, we uphold all of the referee's findings of fact and conclusions of law and conclude that a three-year suspension of Attorney Gatzke's license to practice law is an appropriate sanction for his misconduct. We agree with the referee that Attorney Gatzke should be required to make restitution and that he be required to pay the full costs of this proceeding.

          [¶3] Attorney Gatzke was admitted to practice law in Wisconsin in 1994 and practices in New Berlin. For a time he served as the mayor of New Berlin. He has also been licensed as a real estate broker since 1981. He has no prior disciplinary history.

          [¶4] On August 22, 2013, the Office of Lawyer Regulation (OLR) filed a complaint against Attorney Gatzke. The referee was appointed on November 5, 2013. The OLR filed an amended complaint on March 11, 2014, and on May 19, 2014, it filed a second amended complaint.

          [¶5] The bulk of the allegations in the second amended complaint arise out of Attorney Gatzke's representation of P.S. P.S.'s husband, S.W., was an investment advisor who owned a number of businesses. In late 2004, S.W.'s business partner filed a lawsuit alleging that S.W. had stolen $3.5 million from him. In June 2005, with the litigation and criminal investigations pending, S.W. committed suicide.

          [¶6] P.S.'s niece, N.S., worked for Attorney Gatzke between 2003 and 2007. Soon after S.W.'s death, P.S. executed an agreement retaining Attorney Gatzke's law firm to represent her. P.S. executed a specific durable power of attorney (POA) naming Attorney Gatzke as her attorney in fact. In the course of representing P.S., Attorney Gatzke learned there were four life insurance policies issued by the Northwestern Mutual Life Insurance Company (NML) insuring S.W., with combined proceeds of $8.5 million, payable on his death.

          [¶7] In September 2005, following a partial settlement of the litigation involving S.W.'s business partner, NML wired $8,542,230.50 in life insurance proceeds and interest. Over $2.5 million was wired to P.S. via Attorney Gatzke's trust account. The remaining funds went to two of S.W.'s former business partners.

          [¶8] The OLR's second amended complaint alleged that Attorney Gatzke invested P.S.'s funds in businesses in which he was an investor, primarily real estate developments, without obtaining P.S.'s written consent to the investments after giving her a reasonable opportunity to seek the advice of independent counsel. The second amended complaint also alleged that Attorney Gatzke converted P.S.'s funds, and it alleged that Attorney Gatzke failed to provide P.S. with written accountings or invoices relating to legal work he performed for her.

          [¶9] In addition, the second amended complaint alleged that at the time of his death, S.W. had a $500,000 life insurance policy with the Jackson National Life Insurance Company (Jackson National). Between 2001 and 2004, the beneficiary of that policy changed from N.K., another business partner of S.W., to A.S., the minor daughter of S.W. and P.S. In December 2004, S.W. had requested Jackson National to change the beneficiary back to N.K., but Jackson National never processed the request because certain forms were not properly completed.

          [¶10] In July 2005, an attorney representing N.K. wrote to Jackson National claiming entitlement to the full amount of the policy proceeds. Attorney Gatzke wrote to N.K.'s attorney asserting that he represented both P.S. and A.S. The second amended complaint alleged that both P.S. and A.S. had an interest in the prospective settlement of the matter but that Attorney Gatzke did not discuss their individual and potentially differing interests in such a settlement with them, nor did he obtain P.S.'s and A.S.'s written consent to continue the representation following a consultation regarding the conflict.

          [¶11] In April 2006, Jackson National filed an action in Waukesha County circuit court seeking a court order as to payment of the $500,000. The litigation was resolved by a stipulation in April 2007. The stipulation, which was signed by Attorney Gatzke as attorney for P.S. and A.S., divided the proceeds between N.K., A.S., and P.S. Attorney Gatzke did not seek court approval for the settlement, despite the fact that A.S. was a minor. The Waukesha County clerk of courts disbursed a check in the amount of $325,446.25 to Attorney Gatzke's trust account. Attorney Gatzke issued a $50,000 trust account check payable to his firm for attorney's fees. The remaining funds were deposited to a preexisting brokerage account at Northwestern Mutual Investment Services entitled " Attorney James E. Gatzke, Conservator for P.S." The second amended complaint alleged that Attorney Gatzke did not provide either P.S. or A.S. with written notice of his receipt of the funds.

          [¶12] The second amended complaint also alleged that Attorney Gatzke engaged in multiple counts of professional misconduct with respect to his recordkeeping and handling of his trust account. The second amended complaint alleged that Attorney Gatzke failed to hold client funds in trust and converted those funds to his own purposes. The second amended complaint also alleged that Attorney Gatzke allowed his trust account to become overdrawn and as a result of those overdrafts, client funds were converted.

          [¶13] Specifically, the second amended complaint alleged that Attorney Gatzke violated the following supreme court rules:

          [¶14] Former SCR 20:1.7(b) (effective through July 1, 2007) (count twenty):

A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless: (1) the lawyer reasonably believes the representation will not be adversely affected; and (2) the client consents in writing after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.

          [¶15] Former SCR 20:1.8(a) (effective through July 1, 2007) (counts four, five, nine, fourteen and twenty-four):

A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless: (1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which can be reasonably understood by the client; (2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and (2) the client consents in writing thereto.

          [¶16] SCR 20:1.15(b)(3) (effective July 1, 2004) (counts thirty-one, thirty-five, and thirty-eight):

No funds belonging to the lawyer or law firm, except funds reasonably sufficient to pay monthly account service charges, may be deposited or retained in a trust account.

          [¶17] SCR 20:1.15(b)(4) (effective July 1, 2004) (count one):

Unearned fees and advanced payments of fees shall be held in trust until learned by the lawyer, and withdrawn pursuant to SCR 20:1.15(g). Funds advanced by a client or 3rd party for payment of costs shall ...

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