New Jersey Tough On Intentional Misappropriation

Disbarment is the appropriate sanction for misappropriation according to a decision today of the New Jersey Supreme Court. 

In this attorney disciplinary matter, the Court considers the appropriate level of discipline for respondent Frank J. Cozzarelli, who committed misconduct involving the misappropriation of client and escrow funds.

Since 1998, respondent had been intermittently under investigation by the United States Attorney’s Office for income tax evasion. In connection with his role as treasurer of a fraudulent investment fund, respondent was indicted on September 21, 2004, after which he suffered a breakdown. On September 26, he was voluntarily admitted to an inpatient psychiatric unit, from which he was discharged on October 4, the day of his arraignment. In January 2005, respondent pled guilty to income tax evasion and was sentenced to four months in jail, followed by four months of house arrest and a probationary term. He was incarcerated from June through October 2005.

The Bar sought an audit shortly before the indictment

 The demand audit ultimately resumed on December 18, 2008, at which time respondent presented [OAE auditor] Lakind with “new records” he had prepared on an Excel spreadsheet. According to Lakind, these materials were not reflective of the records of which she was aware in November 2004. Significantly, Lakind explained that, in addition to respondent’s recordkeeping issues, she had uncovered “a systematic and continuing invasion of client trust funds for respondent’s law office and personal expenditures.” Respondent was charged with several counts of knowing misappropriation for: (1) misappropriating $112,728.93 in client funds for personal purposes; (2) improperly transferring funds from one client’s trust account to the account of another unrelated client; and (3) repeated occurrences of borrowing against trust accounts for personal purposes and to replenish other accounts.

The court reaffirmed that permanent disbarment is the sanction for knowing misappropriation of entrusted funds

Here, the experts agreed that respondent did not have a mental illness that met any of the aforesaid three defenses that negate the mental state to act knowingly. While the Court agrees with respondent that the Jacob standard is not restricted to making a showing that is equivalent to the M’Naghten standard for legal insanity under criminal law, it rejects respondent’s contention that the DRB’s decision is undermined by its focus on the legal insanity standard. The DRB correctly concluded that the OAE has proven knowing misappropriation by clear and convincing evidence, and the Court concludes that respondent’s misdeeds were not aberrational. Respondent has not proven a causal connection between his mental illness and his acts of misappropriation, and the Court is not persuaded that he is entitled to mitigation of the normal penalty of disbarment due to his severe depression. On this record, as amplified by the supplemental decision of the DRB, respondent committed knowing misappropriation. Consequently, respondent is disbarred. (pp. 23-26)

 The quotes above come from the court’s case summary. (Mike Frisch)