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Jan.09, 2010

A Savannah, Ga., lawyer's guilty plea to a federal obstruction of justice charge may bring an end to his long-controversial practice, which he promoted with advertisements featuring former television actor Robert Vaughn urging potential clients, "Tell them you mean business."

Benjamin S. "Benny" Eichholz last month bargained down a 77-count indictment that accused him of embezzlement, money laundering, mail fraud and lying about the management of his employees' pension plan to a single count of obstructing justice.

In 2006, judges from the U.S. District Court for the Southern District of Georgia banned Eichholz from their courtrooms for two years. Federal appeals judges affirmed the ban, saying he had been "derelict in his duties" to clients.

Under State Bar of Georgia rules, the felony conviction will require Eichholz to surrender his State Bar license. He avoided that fate last year when the Supreme Court of Georgia held that his loss of privileges to practice in the Southern District did not require a reciprocal ban for the entire state.

In 2006, Eichholz, against whom the State Bar of Georgia has five disciplinary actions pending, settled a class action brought by former clients for $1.5 million.

Eichholz entered his plea in U.S. District Court in Savannah on Dec. 29, acknowledging that he obstructed a U.S. Department of Labor investigation into his use of nearly $1 million held in his law firm's retirement plans. The labor department investigation was conducted to determine whether Eichholz was illegally using for his own benefit funds from retirement plans that he administered for an estimated 19 employees of his law firm and himself. According to the indictment, Eichholz was the sole trustee and administrator of the plans.

Eichholz's plea likely has limited the federal prison sentence he faces to a maximum of five years. If found guilty of all counts, he could have faced as much as 50 years in prison and $1.5 million in fines. A sentencing date has not been set.

The obstruction charge, as outlined in the federal indictment, was broad, including allegations that Eichholz made multiple false and misleading statements to the labor department investigator about his firm's retirement plan assets, investments and liabilities. The indictment accused Eichholz of doing so "in an effort to cover up his own embezzlement, theft and unlawful and willful conversion" for his own use of about $950,000 in plan funds, including the purchase of $56,100 in fine china.

This week, Eichholz's Savannah attorney, Charles J. Bowen Jr., told the Fulton County Daily Report that Eichholz's obstruction plea before Chief Judge William T. Moore Jr. of Georgia's Southern District in Savannah was far narrower than the charge as described in the indictment.

Citing the Southern District's local rules, Bowen limited his comments to those he had made during Eichholz's plea hearing. "We were very careful in negotiating the plea," he said, "so that it limited the scope of the obstruction charge to a single encounter with a DOL investigator." During that conversation, Eichholz claimed he did not have an ownership interest in Delta Building Systems -- a company that, according to the indictment, received "substantial loans" from the retirement plans.

"The plea agreement is very clear. It entailed the one misleading statement regarding Delta Building Systems. Nothing else," Bowen said. "That's what he pled to. All the embezzlement, money laundering, mail fraud and false statement charges were all dismissed."

The indictment alleges, and Bowen and his client acknowledged at the plea hearing, that federal prosecutors had documents, including tax records, showing that Eichholz owned 100 percent of Delta Building Systems' stock.

Assistant U.S. Attorney James D. Durham in the U.S. Attorney's Office in the Southern District said that local federal rules bar him from commenting on Eichholz's plea. But he said that the plea agreement presented during Eichholz's plea hearing included a provision that Eichholz would pay restitution to plan beneficiaries, excluding himself and his mother, who was also employed at the firm.

The federal indictment states that Eichholz and his mother together could have claimed 80 percent of the retirement benefits generated by the plans.

Eichholz did not respond to a request for comment made via a secretary at his firm.

Eichholz' federal plea capped a two-year investigation by the Labor Department's Employee Benefits Security Administration. Eichholz, as the sole plan administrator, had a fiduciary duty to hold the retirement funds -- which were derived from employer contributions -- in trust and use them solely to provide benefits to the plan participants, the indictment stated.

Instead, according to the indictment, Eichholz made contributions to the plan, claimed personal tax deductions for those contributions, then siphoned $950,000 from the plans for his personal use. The indictment said Eichholz used money he withdrew from the plan to buy a $56,100 set of Flora Danica fine china that he displayed at his home. The indictment also said Eichholz used the money to make payments to himself; his law firm; The Sheftall Co., a sole proprietorship he operated that distributed and sold beauty products; and Delta Business Systems, a construction company he owned.

SUIT BY EX-CLIENTS

Federal prosecutors notified the court that if Eichholz went to trial they intended to introduce evidence from a 2006 class action against Eichholz and his firm. The suit claimed that he had stolen money from his clients by inflating his legal costs and disbursements, misrepresenting the amount of money he had paid to medical providers and Medicare in settling personal injury claims and donating unclaimed settlement funds to a local soccer team "to hide his unlawful theft of money from his law firm clients."

Federal prosecutors also stated that they intended to offer evidence that, after being served with the class action claims, Eichholz "transferred assets to evade potential creditors in the class actions" and "directed the destruction of approximately 83 boxes of documents in an effort to destroy evidence."

That 2006 class action, filed in Chatham County State Court in Savannah, was initiated by a former client unhappy with the way Eichholz had handled his medical malpractice suit. A pleading filed by the class plaintiffs in the case estimated that the number of former clients who were similarly defrauded of funds by Eichholz or his law firm exceeded 200 and "at a maximum could be literally thousands of ex-clients."

Eichholz paid $1.5 million to settle the litigation in 2006, according to the Chatham County State Court docket.

Savannah attorney R. Bartley "Bart" Turner, one of several attorneys who represented former Eichholz clients in the case, said the settlement agreement limits what he may say about the case but that during the course of the litigation, attorneys learned that "there were a large number of his [Eichholz's] past clients" who had been overcharged for legal expenses.

In one of several federal suits filed against Eichholz by former clients that echo allegations in the class action, a client who hired Eichholz to sue Suzuki Motor after she was injured in an accident claimed that he had promised her a $105,000 settlement that would garner her $50,000 to $60,000 after his legal fees were paid plus pay off more than $400,000 in medical bills she had incurred. Instead, according to the complaint, Eichholz eventually presented her with a settlement check for $1,257.41, leaving her medical bills unpaid. Eichholz settled that case for an undisclosed amount in 2006, according to federal court records.

Savannah attorney Richard H. Middleton Jr. -- a member of the American Board of Professional Liability Attorneys, which certifies attorneys in medical and legal malpractice -- said he has sued Eichholz numerous times on behalf of the lawyer's former clients or customers who took out loans that Eichholz offered through his law firm. "It's never surprising when someone comes to see me," he said. "Mr. Eichholz has always stretched the boundaries as to how you're supposed to practice law."

DISPLEASURE OF THE BENCH

In 2006, the U.S. District Court for the Southern District found that Eichholz had violated multiple State Bar rules governing professional conduct, and the federal judges barred him from appearing in the Southern District's district, bankruptcy and magistrate courts for two years.

Eichholz appealed, but a panel of the 11th U.S. Circuit Court of Appeals affirmed Eichholz's suspension in 2007, finding that he was "repeatedly derelict in his duties to his clients and to the court," and that the infractions "were aggravated by his pattern of misconduct, substantial experience practicing law, lack of acceptance of responsibility, and the vulnerability of his clients."

The 11th Circuit opinion said that, "Eichholz's former employee testified that she heard from upset clients who did not know that their case was settled or had issues with their settlement. Evidence supports a finding that Eichholz settled cases without settlement authority. In addition, Eichholz repeatedly failed to appear before the bankruptcy court on motion hearings or to ensure the presence of adequate substitute counsel. Furthermore, his former employees testified that non-lawyer employees routinely signed Eichholz's name to documents filed in the bankruptcy court, and that he did not prepare or review these documents before they were filed. Additional evidence showed that Eichholz failed to supervise his employees, allowing these non-lawyer employees to engage in activities that required legal knowledge such as explaining legal documents to clients."

The appellate panel also said that although Eichholz had not been formally disciplined by the Southern District, "His prior misconduct was noted in previous written opinions, and his current practice showed a repeat pattern of disregard for professional standards."

Jonathan W. Hewett, senior assistant general counsel at the State Bar of Georgia, said that the bar has five disciplinary actions pending against Eichholz. Two have been tried and are awaiting a decision by Daniel B. Snipes, a Statesboro, Ga., lawyer at Franklin Taulbee Rushing Snipes & Marsh who was appointed as a special master to hear the cases by the Supreme Court of Georgia. Three other cases are pending before Snipes on motions for summary judgment.

Hewett said that after the 11th Circuit ruling in 2007, the State Bar instituted an additional disciplinary action against Eichholz, based on the suspension of his privileges to practice in the Southern District's federal courts, anticipating that the Georgia Supreme Court would impose similar sanctions based on the federal bench's actions.

Instead, a divided Supreme Court -- with Justices P. Harris Hines and George H. Carley dissenting -- dismissed the disciplinary action last July, holding that the state's reciprocal discipline process does not apply to disciplinary actions taken by the federal courts.

Just a month earlier, the Georgia high court reversed an earlier precedent, finding in another lawyer discipline case from the Southern District that "while the federal district court had authority to discipline or suspend [an] attorney from the practice of law in its court for misconduct or violation of its local rules, the federal court had no authority to confer or revoke attorney's license to practice law."

Hines, Carley and Justice Carol W. Hunstein all dissented in that case, In re Stubbs, 285 Ga. 702. In Hines' dissent, which he referenced in Eichholz's case, he noted that, prior to the Georgia Supreme Court's decision, only one judge in the country, in Mississippi, "has opined that federal-to-state reciprocal discipline is not appropriate because a federal court is not 'another jurisdiction.'"

Georgia's high court, Hines suggested, "should continue to review cases involving federal-to-state reciprocal discipline on a case-by-case basis without applying the majority's blanket prohibition on such action."