BURLINGTON — Former Rutland lawyer John Canney III, who was disbarred and jailed in 2017 for failing to pay taxes, is facing new legal problems.
Scot and Elizabeth Hall, of Bennington, filed a legal malpractice lawsuit in U.S. District Court in Burlington this week against Canney on grounds he mishandled financial proceedings that cost the family more than $100,474, court records show.
Canney, who had homes in Vermont and New York, did not respond to a phone message left with a woman at his residence in Ballston Spa, New York.
The Halls met with Canney and retained him in October 2015 to handle a bankruptcy and potential foreclosure by the Bank of Bennington on their home, court records show.
The Halls paid Canney $1,800 to represent them, according to Rutland lawyer Thomas Bixby, who filed the lawsuit.
Canney was first confronted by federal prosecutors in his tax fraud case in February 2015, records in his criminal case show.
After numerous calls to his Rutland office, the Halls said Canney never filed the Chapter 7 Bankruptcy petition until April 2016, records show. They also note Canney failed to file a notice of appearance on their behalf.
The Bank of Bennington on April 4, 2017, issued a notice of sale for the property on May 15, 2017, but the Halls were unaware until a local newspaper printed a public notice, court records show.
The Halls finally connected with Canney, who advised they needed to file a Chapter 13 petition not Chapter 7 and he did not handle that kind of case, the lawsuit said.
The Halls retained Rutland lawyer Rebecca A. Rice to file the Chapter 13 petition and block the sale of their home.
The family had to pay $12,614 in foreclosure fees, $40,839 in increased loan payments and $1,021 in additional interest, the lawsuit said. It said the amount owed to the Bank of Bennington increased from $180,000 to $226,000.
The Halls also face ongoing lawyer’s fees “to rectify the negligence of Canney,” the lawsuit noted.
The Halls maintain Canney owed a professional standard of care to the plaintiffs. They claim they put their full faith in Canney in the belief he would resolve the foreclosure.
Instead, Canney failed to file the proper papers, failed to communicate with the Halls and breached the fiduciary duties owed to the Halls, the lawsuit said.
The two-count lawsuit also claims Canney violated the Vermont Consumer Fraud Act and that the Halls are classified as “consumers under the act.”
The Halls are seeking triple damages as allowed under the Consumer Fraud Act.
Canney became a lawyer in 1979 and served as a trustee in the U.S. Bankruptcy Court until August 2016 when he was forced to resign. His law firm soon dissolved.
Canney’s federal criminal case began to wrap up in September 2017 when he was sentenced to seven months in prison for failing to pay up to $182,000 in individual and corporate taxes in 2011.
Then-Chief Federal Judge Christina Reiss also fined him $15,000 and assessed Canney $200 in court costs.
Reiss told Canney, then age 63, he would be on supervised release for one year after his discharge from prison.
Canney pleaded guilty in June 2017 to two felony charges: knowingly filing both fraudulent individual and corporate tax returns for 2011 to avoid paying what was actually owed to the federal government.
At the time, Canney had a net worth of $2.7 million, according to court records, as well as $1.1 million in retirement accounts, two homes (one in Clarendon and one near the Saratoga, New York, racetrack), five vehicles and two commercial properties.
The prosecution in that case said Canney intentionally failed to transfer money — about $400,000 — from the trust account he used at his law firm into the office’s operating account when appropriate. Instead, Canney shifted the money from the trust account into his own personal bank account. This created inaccurate numbers that Canney provided to his tax accountant.
Canney was active in the Rutland area community. He was on the board and an officer for a local ski club, and president of the Pico Ski Foundation. He also volunteered as an auctioneer for an annual fundraiser for the Rutland Area Visiting Nurses and Hospice Association. He also spent a decade serving on the board of the Killington Mountain School.