Increasingly, the estate planning lawyer is asked to structure a client’s assets in a way that protects those assets from the future creditors of the client. Such planning is a natural part of estate planning. For the practitioner, however, asset protection planning and implementation raises ethical issues irrevocably tied to the substantive law. A creditor seeking to set aside a transaction that otherwise might place assets beyond the creditor’s reach uses the fraudulent conveyance or fraudulent transfer act applicable to the debtor. The ABA model rules governing a lawyer’s conduct and the Maryland Rules of Professional Conduct (“MRPC”) 1.2(d) state: “A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.” (Emphasis added.) ABA model rule and MRPC 4.4(a) state: “In representing a client, a lawyer shall not use means that have no substantive purpose other than to embarrass, delay, or burden a third person…” Also MRPC 8.4(c) provides that a lawyer shall not “engage in conduct involving dishonesty, fraud, deceit or misrepresentation.” These rules reflect directly the language used under the Uniform Fraudulent Conveyance and Transfer Acts.
In Attorney Grievance Comm’n v. Pak, 400 Md. 567, 929 A.2d 546 (2007), cert. denied 128 S. Ct. 905 (2008), a Maryland lawyer was disbarred for executing a series of actions designed to prevent a judgment from attaching to property of her client (who were her parents): “Using her knowledge of the law, respondent aided and advised her parents in creating shell corporations to transfer title in order to avoid a judgment lien.” The Court upheld the circuit court finding that the creation of “shell” business entities and other actions violated the Fraudulent Conveyance Act and therefore violated MRPC 8.4(c):
“Judge Martin (the trial judge) concluded that respondent undertook fraudulent actions in order to protect her parents and their assets and thus violated MRPC 8.4(c). He found that her actions to create shell business entities (H&K, L.L.C. and CACHA, L.L.P.) had no legitimate business purposes and were used to transfer title to the Pak’s properties, without consideration. The evidence before the hearing court was sufficient for Judge Martin’s conclusions. The hearing court also noted that respondent advised her parents when to send the funds to Korea and orchestrated the purchase of the Autumn Frost property in her husband’s name only. Lastly, the hearing court found that the Respondent’s actions were within the definition of fraud, as outlined in Maryland Code (1975, 2005 Repl. Vol.), § 15-207 of the Commercial Law Article.”
The Court of Appeals agreed: “We accept Judge Martin’s findings and conclusions on the issue and hold that the respondent did violate MRPC 8.4(c), because there is clear and convincing evidence that her actions were an effort to delay, hinder, or defraud her parents’ creditors.”
In Pak, there was ample evidence that the attorney instituted the series of questionable transactions for the specific purpose of frustrating the creditor’s collection of a judgment. Indeed, part of the transaction involved a transfer to the lawyer’s husband. Additionally, the attorney became a defendant in the collection suit and as a party (as well as in her representative capacity) she made misleading statements in depositions, in pleadings and in open court. The Pak case involved unique facts arising, no doubt, from her love of her parents and her desire to protect them. The case, however, demonstrates the willingness of the Court to wed the language of the Rules of Professional Conduct with that of the Fraudulent Conveyance Act.