Monday, June 8, 2015
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Panel Allows Marijuana Clinic to Pursue Ex-Lawyer in Bankruptcy
By KENNETH OFGANG, Staff Writer
The doctrine of unclean hands does not preclude a medical marijuana dispensary from seeking to collect on a judgment it obtained against its former lawyer for money he stole from it, the Ninth U.S. Circuit Court of Appeals ruled Friday.
Overruling a bankruptcy judge, the panel said Northbay Wellness Group was entitled to a nondischargeability adjudication against Michael Beyries.
The dispensary operator sued Beyries, a Santa Rosa sole practitioner, in 2008, saying he had resigned two years earlier as the group’s attorney and as a member of its board, and absconded with $25,000 which the dispensary had entrusted to him as a legal defense trust fund.
After Northbay secured a six-figure jury verdict, plus punitive damages, against Beyries, the attorney filed for bankruptcy and listed Northbay as a creditor in the amount of $349,430.96 debt.
Northbay then moved to have the bankruptcy court declare the debt nondischargeable. Following trial, the judge agreed that Beyries engaged in “fraud or defalcation while acting in a fiduciary capacity,” but ruled the doctrine of unclean hands barred a nondischargeability determination because at least some of the stolen money came from illegal marijuana sales.
Balance of Equities
U.S. District Judge Jeffrey White of the Northern District of California affirmed, but Judge Michelle Friedland, writing for the Ninth Circuit, said the balance of equities lies with the plaintiff.
“Because Beyries’s wrongdoing outweighs Northbay’s, and because application of the unclean hands doctrine to absolve an attorney of responsibility for stealing from his client would be contrary to the public interest, we reverse,” the judge said.
The U.S. Supreme Court has held that the doctrine of unclean hands “does not mean that courts must always permit a defendant wrongdoer to retain the profits of his wrongdoing merely because the plaintiff himself is possibly guilty of transgressing the law,” Friedland wrote.
“The bankruptcy court failed to conduct the required balancing, instead concluding solely from the fact that Northbay had engaged in wrongful activity that the doctrine of unclean hands applied,” she added.
“Had the bankruptcy court weighed the parties’ respective wrongdoing, it necessarily would have concluded that Beyries’s wrongdoing outweighed Northbay’s, both as to harm caused to each other and as to harm caused to the public.”
Since Beyries was on Northbay’s board of directors and partnered in its business, he was just as responsible for the dispensary’s illegal sales, the court found.
“Allowing Beyries to avoid through bankruptcy his responsibility for misappropriating his client’s money would undermine the public interest in holding attorneys to high ethical standards,” Friedland wrote.
‘Unclean Hands’
Recognizing the “critical importance of enforcing lawyers’ obligations to their clients,” Friedland said that “the doctrine of unclean hands cannot prevent recovery of funds stolen from a client by his or her lawyer.”
The opinion was joined by Judges Jacqueline Nguyen and Milan Smith Jr.
The case is Northbay Wellness Group, Inc. v. Beyries, 13-17381.
State Bar records show that Beyries was disbarred earlier this year after he failed to appear for a State Bar Court trial that had previously been continued four times at his request, then failed to move for the setting aside of his default within the time allowed.
The charges on which he was set to be tried were:
•Stealing Northbay’s $25,000;
•Incompetently representing Northbay in connection with a lease for its premises, the incorporation of the group, and advice regarding tax-exempt status;
•Failing to return more than $13,000 in legal fees he obtained from the group and did not earn;
•Misrepresenting the status of the lease;
•Falsely telling the group that he had obtained a determination of its non-profit and tax-exempt status; and
•Fairepresenting the status of the lease;
•Falsely telling the group that he had obtained a determination of its non-profit and tax-exempt status; and
•Failing to account to the client for legal fees he received.
Copyright 2015, Metropolitan News Company