EVERETT – Former Everett lawyer Barry Hammer has been on a long losing streak, and it appears as if he soon will face another setback in federal bankruptcy court.
Hammer, 60, quietly surrendered his lawyer’s license last summer. While not admitting wrongdoing, the attorney acknowledged that he took the step to avoid being disbarred after a Washington State Bar Association investigation found evidence sufficient to show that he had taken financial advantage of his clients, documents show.
The state Department of Financial Institutions in July informed Hammer that it intends to fine him $100,000 for what it contends were violations of state investment rules. Hammer has requested a hearing.
Meanwhile, in U.S. Bankruptcy Court in Seattle, a federal judge has rejected Hammer’s claim that a former law partner, Ben Wells of Arlington, should be blamed for Hammer’s reversals of fortune.
Judge Samuel Steiner is scheduled March 31 to sign an order that takes a significant step in disentangling Wells from Hammer’s $13 million bankruptcy. The action also will dismiss a $1 million lawsuit that Hammer brought against Wells in Snohomish County Superior Court.
Wells, who was the first to report Hammer’s alleged misconduct to the bar association, hopes he can put the case behind him. Seattle attorney Roy Umlauf said of Wells: “My client wants to move on and work with his new clients. He’s a lawyer.”
Hammer declined to comment for this story. He referred questions to his Seattle attorney, Marc Stern, who said he was disappointed that the bankruptcy court was poised to approve a settlement with Wells.
“I don’t second-guess judges,” Stern said. “If it were me, I wouldn’t have approved it.”
Hammer’s law firm was a fixture in downtown Everett for a long time, with a large sign and offices on Pacific Avenue across from the County Courthouse.
The building has since been sold as part of the bankruptcy proceedings. Hammer sought court protection after he was unable to make payments to dozens of people who had loaned him money or invested in one of his businesses, Able Mortgage and Investments Inc.
Many of the investors were people who had hired Hammer for advice on legal and tax matters. Some are owed a few thousand dollars, but more than 30 creditors are owed between $100,000 and $690,000 each.
Hammer’s lawsuit, with its $1 million claim for damages against Wells, became tied to the bankruptcy because it could have brought in money to help Hammer pay off his debts.
Peter Arkison, the trustee appointed by the federal court to be a neutral, objective party in Hammer’s bankruptcy, told the court in February that he was convinced Hammer’s claims against Wells were groundless. The best course, he said, would be to dismiss the lawsuit and settle any claims against Wells for $15,000.
In the Snohomish County lawsuit, Hammer blamed Wells for bringing down their law firm by suddenly taking client files and leaving one weekend in August 2004. Hammer also contended that Wells knew more about land deals and investments than he now admits.
In a report to the court, Arkison told the judge “there is no evidence to support the assertion that Mr. Wells knew of, ratified and facilitated Mr. Hammer’s conduct.”
A close look at the law firm’s books and other records shows there was just $859 in the bank account when Wells broke with Hammer, Arkison said in court papers. The firm’s problems were created by Hammer’s use of the business “as his own ‘piggy bank’ ” to cover debts owed to an increasingly large group of investors, the trustee told the judge.
In recent weeks, Wells has come under intense fire from lawyers representing some of the people who are owed money by Hammer. One of Wells’ biggest detractors has been Hammer’s brother, Kearney Hammer, a Stanwood lawyer.
In court papers, Kearney Hammer accused Wells of creating his brother’s financial distress, in part by orchestrating negative media attention.
Others, including lawyers representing the bankruptcy trustee, raised questions about Kearney Hammer’s involvement in the case, arguing that he was too closely aligned with his brother to represent people owed money in the bankruptcy.
Arkison, the bankruptcy trustee, told the court that he was convinced Wells had no choice but to leave the law firm and take his clients’ files once he became aware of his partner’s alleged misconduct.
“It is my position that Mr. Wells took the ultimate step in protecting the Hammer &Wells clients when he reported (Barry Hammer’s) unethical behavior to the Washington State Bar Association,” Arkison wrote.
Stern, Barry Hammer’s lawyer, said his client didn’t use good business sense and failed to realize his precarious financial situation until after Wells had left.
“I think Barry was overextended. I don’t think he knew he was overextended,” Stern said. “He was in a state of denial.”
Department of Financial Institutions regulators continue to investigate what they describe in documents as apparent “dishonest and fraudulent conduct” involving Hammer’s role in $8.5 million in real estate investment deals.
The state has ordered Hammer to stop selling securities and other investments.
No date has been set for the hearing on his proposed $100,000 fine, said Martha Dickens, public information officer for the Department of Financial Institutions.
Reporter Scott North: 425-339-3431 or north@heraldnet.com.
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