Legal And Illegal Stealing In Iowa

In a case that may signal a future “sea change” in sanctioning conversion, the Iowa Supreme Court has rejected a proposed reprimand in favor of a short suspension

This attorney disciplinary case arises from a lawyer’s missteps that resulted in the dismissal of an appeal. His clients disputed the amounts their business owed to the plaintiffs in a mechanic’s lien action and went to trial against his advice. The clients were disappointed in the trial outcome and chose to appeal but fell behind in paying his legal fees. The court reporter insisted on an advance payment of $1400 to prepare the trial transcript required for the appeal, and the clients tendered that amount to the lawyer. The lawyer failed to pay the court reporter. Seven weeks later, our court granted the appellees’ motion to dismiss the appeal after extended deadlines to file the transcript were missed. The lawyer applied the $1400 against the fees his clients owed him, prompting the ethics complaint prosecuted by the Iowa Supreme Court Attorney Disciplinary Board. The Grievance Commission of the Supreme Court of Iowa found the attorney violated several disciplinary rules and recommended a public reprimand. On our de novo review, we conclude the attorney violated several rules and suspend his license to practice law for thirty days.

The attorney was admitted in 1989 and practices commercial law. He had assumed the representation when another attorney unexpectedly died. 

He admitted most of the facts and the court found

…Morse and his clients understood the $1400 check he received January 4, 2013, was to pay for the trial transcript. Morse never forwarded that payment to Hayes, despite receiving the $1400 check seven weeks before we dismissed the appeal for failure to file the transcript. He had ample time to verify the $1400 check had cleared. We conclude Morse violated all four disciplinary rules. Lawyers are not required to advance costs and may withdraw from a case on grounds of nonpayment subject to the provisions of rule 32:1.16. See Iowa R. Prof’l Conduct 32:1.16(b)(5), (c), (d). But Morse crossed the ethical line by pocketing his clients’ $1400 payment intended for the court reporter—resulting in dismissal of the appeal his clients had chosen to file.

The court rejected a claim of entitlement based on the general lien provisions of the retainer agreement

The Stephensons sent Morse the $1400 payment for a special purpose—to pay for the trial transcript needed for their appeal. Morse failed to forward the money to the court reporter for seven weeks before the case was dismissed. This violated the Stephensons’ reasonable expectations that their $1400 payment would go to the court reporter. We agree with the commission and Board that Morse violated rule 32:1.15(d) by failing to promptly forward the funds to Hayes. Morse’s inaction resulted in dismissal of the appeal and thereby thwarted the special purpose for which the funds were tendered. We decline to reward his misconduct by allowing him to assert his lien against funds tendered for a special purpose he thwarted.

On sanction

Morse, denying any ethical violation, seeks dismissal of the charges against him. The Board did not recommend a specific sanction in its appellate brief but asked us to consider the harm to Morse’s client, his failure to admit the wrongfulness of his conduct, his prior disciplinary record, his experience, and the multiple rule violations as aggravating factors. At oral argument, the Board urged that a suspension would be an appropriate sanction…

Morse has received three private reprimands during his twenty-six years of practicing law. He was privately admonished in 1999 for overcharging a client for a transcript. In 2006, he was privately admonished for failing to file a lawsuit within the statute of limitations after the client reneged on payment obligations. In 2002, Morse received a private admonition based on his failure to comply with appellate deadlines that resulted in dismissal of an appeal for want of prosecution. That admonition is an aggravating factor here because it reminded Morse that failing to follow court deadlines to prosecute a client’s appeal violates our disciplinary rules. Although “ ‘[p]rivate reprimands are not discipline,’ they provide notice of deficiencies in regards to particular ethical requirements by attorneys.”

Mitigation

Morse grades bar exams every year, and he takes bankruptcy cases from the Volunteer Lawyers Project annually. He regularly volunteers at a booth that gives free legal advice for Alcoholics Anonymous and Narcotics Anonymous participants on debtor/creditor or landlord/tenant issues. Morse is also the president of the Family Promise of Greater Des Moines homeless shelter.

Justice Zager concurred and notes that the attorney was not charged with conversion

I write separately to express my general agreement that it may be time to reevaluate our approach to cases involving misappropriation and conversion of funds as advocated by Justice Wiggins in his dissent. However, this can only be done when there is a properly charged and litigated case of alleged lawyer misappropriation or conversion of client or third-party funds. The dichotomy of legal versus illegal stealing has long troubled some members of the court and the bar. But this is not the case where such a sea change in our disciplinary analysis should occur. As with any dramatic change, we prefer to take a thoughtful and incremental approach after a full development of the facts, arguments, and law are completed. See, e.g., Miranda v. Said, 836 N.W.2d 8, 17–22 (Iowa 2013) (discussing the gradual-change approach to developing contract and tort law). Another approach that could be considered is rulemaking where all interested parties may give input into what standards and analysis of discipline for lawyers should apply. These approaches provide fairness and justice to the Board and the lawyers in this state. I think it is time to begin this discussion.

Justice Wiggins concurred and dissented

In the past, our court has determined a sanction when an attorney has misappropriated client’s funds by distinguishing between what I label “legal stealing” and “illegal stealing.” “Legal stealing” allows an attorney to receive a lesser sanction when the attorney misappropriates a client’s funds so long as the attorney has a colorable future claim to the funds misappropriated. See, e.g., Iowa Supreme Ct. Att’y Disciplinary Bd. v. Lubinus, 869 N.W.2d 546, 552 (Iowa 2015). However, if an attorney commits “illegal stealing” and misappropriates funds without a colorable future claim to the funds, we revoke that attorney’s license. Id.

…the distinction between legal and illegal stealing is absurd. A person who knowingly converts the property of another does not have the character traits we want in a lawyer serving our citizens. Furthermore, the criminal law of this state does not make such a distinction for that very reason.

Justice Wiggins favors implementation of the ABA Standards for imposing discipline in such cases

The majority says there was harm to the client, but it is minimal and for this reason, Morse should only get a light suspension. I disagree. Losing the right to appeal is great harm. The right to appeal is fundamental to due process of law. The majority also concedes the district court made a math error of $1708 and acknowledges that amount would be recoverable on an appeal, but then offsets that amount against the cost of the transcript. What the majority does not realize is that if the Stephensons were successful on appeal, we would assess the costs of the appeal, including the cost of the transcript, against the other side. Additionally, $1708 may not mean much to the majority, but to persons in the Stephensons’ financial situation it is a great sum of money.

If the majority would use the objective factors of the ABA’s Standards for Imposing Lawyer Sanctions, the sanction against Morse would surely be more than a thirty-day suspension. The court should stop using the legal and illegal stealing dichotomy when sanctioning a lawyer for conversion. For these reasons, I dissent as to the sanction.

Note the dissent’s shout-out to an Iowa Law Review 2015 article authored by Allison Schmidt, a recent Iowa College of Law graduate. (Mike Frisch)