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Lawyer suspended over connection with loan-modification firm

A longtime Bethesda lawyer with an otherwise unblemished disciplinary record has been suspended indefinitely for misrepresenting to clients that he could help them avoid foreclosure, while he was actually delegating the bulk of the work to a loan-modification business with which he had a consulting agreement.

The Court of Appeals said Gerald Frederick Chapman can reapply for admission after 90 days.

The Attorney Grievance Commission filed a petition against Chapman in October 2011 after two customers complained.

According to Thursday’s opinion, Chapman was admitted to the bar in 1979 and worked in the banking industry for more than a decade. He then worked for a law firm for five years before starting his own practice in 1998. That firm, Chapman Law Group LLC, focused on commercial real estate transactions.

As his work started to slow along with the economy in 2007 and 2008, Chapman started picking up loan-modification work to supplement his business. The idea was to focus on helping clients struggling in the peak of the foreclosure crisis to renegotiate their mortgages.

In late 2008, he entered into a consultant agreement with James Weiskerger, who ran a loan-modification business called JW Capital LLC. Under the agreement, Chapman would offer loan-modification services and use Weiskerger’s firm as a consultant.

Chapman later explained that he did not consider loan-modification work to be legal work, and the primary motivation for the agreement was a change in law that banned non-lawyers like JW Capital from collecting fees up-front for such modifications.

Per their arrangement, the law firm charged clients $1,500, with Chapman taking $200 and Weiskerger receiving $1,300. The two handled about 200 clients and generated about $300,000 during the course of working together, according to the Court of Appeals’ opinion.

The first client to complain, Barbara Bogarosh, said she retained Chapman’s law firm to help with a delinquent home mortgage. Bogarosh said she only corresponded with Weiskerger or one of his employees and that JW Capital eventually stopped returning her calls and emails, which ultimately resulted in her house being foreclosed on.

Chapman told the court he was shocked by Bogarosh’s situation, but reiterated that for more than 95 percent of clients, transactions went smoothly. He also refunded Bogarosh her fee.

In the second case, a man who had defaulted on loans on four of seven properties he owned in Maryland retained Chapman. John Butler said he spoke with Chapman only once and worked mostly with Weiskerger.

While Butler claimed Weiskerger told him to stop making his payments, Chapman denied his firm ever advised clients not to pay their mortgages. He also returned part of Butler’s fee.

Glenn M. Grossman, bar counsel with the Attorney Grievance Commission, declined to comment on the case.

Calls to Chapman’s law firm in Bethesda were not returned.

The Court of Appeals assigned Baltimore County Circuit Judge Kathleen G. Cox to make findings and conclusions.

The Attorney Grievance Commission argued that Chapman had ignored his professional responsibility by giving the bulk of the home foreclosure rescue work to Weiskerger, a fact reflected in the uneven division of the loan-modification fees.

Chapman told Cox he believed Weiskerger and JW Capital were not doing legal work and he was simply paying them for consulting services for clients the two entities procured. He also argued that he monitored the work through weekly meetings and email.

“[T]he flaw in the arrangement is that virtually all core case responsibility was ceded to the consultant,” Cox wrote.

Both Chapman and bar counsel filed exceptions to parts of Cox’s findings and conclusions, and the matter went before the Court of Appeals last November.

The top court found Chapman violated Rule 1.5, which requires attorney’s fees to be reasonable, by receiving a fee without providing any legal services.

The court also found Chapman violated Rule 1.15, which requires all fees and expenses paid in advance be kept in a trust account and withdrawn as earned, by not explaining the risks of entering into the firm’s “earned upon receipt” fee arrangement. The Court of Appeals agreed.

The court decided to suspend Chapman based on precedent in previous cases in which similarly erring attorneys failed to monitor work performed for them.

“We have often stated that the purpose of sanctioning attorneys is, principally, to protect the public, not to punish the errant attorney,” the court wrote in its opinion.

WHAT THE COURT HELD

Case:

Attorney Grievance Comm. v. Gerald Frederick Chapman, No. 44, September Term 2011, Argued Nov. 1, 2012. Decided Jan. 31, 2013. Opinion by Battaglia, J.

Issue:

Should an attorney be sanctioned for entering into a consulting agreement with a loan-modification business and misrepresenting the relationship to clients?

Holding:

Yes, the attorney misrepresented his firm by having a loan-modification business do most of the work for his clients. The proper sanction is an indefinite suspension.

Counsel:

Assistant Bar Counsel Dolores O. Ridgell for the AGC; Gerald Frederick Chapman for himself.

RecordFax 13-0131-20 (44 pages).