Risky Business

The Michigan Attorney Discipline Board affirmed a panel’s 60-day suspension of an attorney in a matter in which both sides sought review of the sanction.

The board discussed the substance of Rule 1.15

Nowhere in the text of MRPC 1.15 will one fmd the words “misappropriation” or “commingling,” but parties, hearing panels, this Board, and others have traditionally used the terms to describe conduct prohibited by MRPC 1.15( d). Many disciplinary bodies have used the word “misappropriation” as a synonym for theft, or, at times, for any unauthorized taking or use of the funds not belonging to a lawyer, whether accompanied by bad intent or no intent at all. In other words, we have said that misappropriation is a “per se offense,” meaning that “‘once the running balance of the [trust] account fell below the amount [required to be] held in trust for the client, misappropriation had occurred.'” Grievance Administrator v Deborah C. Lynch, 96-96-GA (ADB 1997) (discussing cases involving “inadvertent misuse” of client funds), pp 5-6.

Often, the modifier “intentional” or “knowing” is attached to the word “misappropriation” to signal the some of the most serious conduct prohibited by MRPC 1.15( d). With the increased use of the ABA Standards since the Court’s Lopatin decision adopting them in 2000, the word “conversion” has been used much more frequently to refer to knowing misuse of client funds.  A lawyer who knowingly takes money belonging to others has failed to keep it separate from his own in the most flagrant way. Thus, this kind of “[ m ]isappropriation of client funds … is an obvious violation of the rule.” The lawyer has failed to keep funds safe and separate from his own by appropriating them to his or her own use.

Here

We now turn, at last, to the provision of the rule found to have been violated in this case. The panel found that respondent deposited personal funds into the trust account in sums greater   “reasonably necessary to pay financial institution service charges or fees or to obtain a waiver of service charges or fees.” MRPC 1.15(f). Some view this type of rule as an “exception” to the anticommingling rule. While this may be seen as true in some circumstances, the respondent’s contentions in this case illustrate that it may not always be an accurate description. In other words, our rule’s prohibition does not depend upon whether or not client funds are actually in the trust account. Even if no client funds are in the account, MRPC 1.15(f) prohibits the deposit of lawyer funds in an amount beyond that “reasonably necessary” to payor avoid the charges or fees referenced in the rule.

Respondent argues that there was no commingling because there were no client funds in the account. After receiving evidence, including generalized testimony from respondent that he placed some unearned fees in the account, the panel concluded that the ”the proofs are not clear with respect to the actual mixing of client and attorney funds here.” In any event, the formal complaint did not allege a violation of MRPC 1.15( d), and the Administrator disavowed such a charge. Understandably, this informed much of respondent’s argument, as he sought to make it clear that client funds were not invaded and that the absence of a Rule 1.15( d) charge took commingling off the table. The panel agreed, and so do we.

On sanction

Respondent asserted that there was no risk to client funds, because there were no client funds in the account. However, this assertion is inconsistent with respondent’s own testimony at the September 11, 2013 hearing and two of the bank record exhibits offered by petitioner and admitted into evidence by the panel. The hearing panel’s report appropriately noted the potential for injury that respondent’s predicament with his creditors created. We agree with the panel’s observation that respondent’s misuse of his IOLTA account, and his predicament with his creditors, did put his clients’ funds at risk and therefore caused the potential for injury.

The board concluded that the sanction was within the range of discipline for the found misconduct. (Mike Frisch)