A “Crazy Mistake” Or A Broken System Of Regulation?

The pathetic state of lawyer regulation in New Jersey is on display in a reprimand for negligent misappropropriation just issued by the Disciplinary Review Board and accepted by the Supreme Court.

The disciplinary matter came to light during a random audit.

The attorney conceded that he was deficient in his recordkeeping and that he had commingled his trust and business accounts.

The attorney was charged with two counts of knowing misappropriation, for which the sanction is disbarment.

The special master found the violations; both findings were overturned by the DRB. 

The count that appears to clearly involve knowing misappropriation involved the handling of a $35,000 settlement check in a slip-and-fall case.

The attorney prepared the deposit ticket and deposited the funds in his business account. The account had a balance of slightly over $1,100.

He then used escrow funds (i.e. other people’s money) to pay the client her share. He  used the funds deposited in the business account to pay business and personal expenses. He wrote eighteen checks for such purposes and invaded entrusted funds to the tune of over $9,000.

A workers’ compensation lien owed to a state agency for over $11,000 went unpaid for a year and was satisfied by a loan from the attorney’s father.

The DRB described the special master’s findings

In the Howard matter (count one), the special master concluded that respondent’s deposit into the business account was “knowing and purposeful.” The special master noted that the deposit slip bore the business account number placed by respondent, after the account name, that respondent checked off boxes to both “business” and “checking,” and that he wrote “(bus)” on the deposit slip. The special master remarked that, without this deposit, the business account would have contained insufficient funds to cover the eighteen checks written by respondent between August 9 and 27, 2010.

In concluding that respondent knowingly misappropriated trust funds, the special master found, consistent with [chief auditor] Waldman’s testimony, that respondent paid Howard with trust account funds belonging to other clients. Compounding respondent learned that he was out of that offense, once trust, he took no immediate action, waiting until he received a notice of the OAE’s random audit, before borrowing funds from his father. Thereafter, he waited five months, before satisfying the workers’ compensation lien.

Notwithstanding these rather damning facts and the special master’s conclusion, the DRB finds a way to absolve this behavior

Respondent went on to say that, from roughly March 2011, when he discovered his “crazy mistake,” until late August 2011, he thought that he could replenish the account by using legal fees, as they came in. However, he said, the OAE’s audit notice had “forced his hand,” in late August 2011. He then immediately borrowed funds from his father and replaced the amount of the check issued to Howard ($11,494.80) in the trust account. Even with that loan, however, respondent failed to satisfy the workers’ compensation lien for another six months, accomplishing that task in late February 2012. He did not do so sooner, he claimed, because he did not have sufficient funds at the time.

This case presented us with a difficult scenario. On the one hand, respondent seemed forthright, but careless and forgetful. He claimed to have had little reason to use the settlement funds as he did. One may also wonder why, if respondent was so desperate for funds that he was willing to risk his law license, he would not have asked his father for a loan, much sooner than he did. Could it be because he was unaware of his mistake? It should be noted, too, that respondent presented character witnesses and has a stainless disciplinary record of thirty years.

On the other hand, respondent acted in a way that both Waldman and the special master found to be consistent with the actions of other attorneys who have knowingly misappropriated trust funds. In particular, respondent’s actions regarding the handwritten notations on the deposit slip present serious problems…

…the record does not identify the owner of the funds that were allegedly invaded or the extent of the invasion. It does not show how much respondent should have been holding in trust at the time, to whom those funds in the trust account belonged, how much remained after the alleged invasion, and the amount of the alleged invasion.

We, therefore, dismiss the charge that respondent knowingly misappropriated client funds, when he issued the check for Howard’s portion of the settlement proceeds. We also dismiss the charge  funds was intentional in nature. The record does not allow a finding, by clear and convincing evidence, that respondent’s use of the $11,000 lien was anything more than inadvertent, a “crazy mistake, as respondent put it.

Ah, yes. The old “why would he do it?” defense.

Possible answer: it was an easy solution to a financial problem that did not involve charity from his father.

If the record was not sufficient to get to the bottom of this then the public interest demands a remand for further findings. These facts do not lead to absolution.

No disciplinary regime that wishes to instruct its bar and assure the public about the sanctity of entrusted funds would tolerate this result or reprimand on these facts. (Mike Frisch)