Truth Warrior Misappropriates Adult Entertainment Escrow Funds
An attorney’s misappropriation of $15,000 merits disbarment, according to a recent recommendation of the California State Bar Court Review Department
Vivid Entertainment New York, LLC (Vivid) is an adult entertainment company. In 2009, Vivid entered into a business deal with Kristin Davis. Vivid agreed to deposit $15,000 into an escrow account, to be paid to Davis when she completed the terms of the agreement. Luti did not form an attorney-client relationship with Vivid or Davis. Instead, Michael Weremblewski represented Vivid and Pamela Koslyn represented Davis.
Koslyn recommended that Luti serve as the escrow agent; he was her landlord and officemate, and they had worked together on a litigation case. Luti agreed. In August 2009, Luti entered into a three-page written “Escrow Agreement” to be escrow agent for the transaction. He would receive a $500 escrow fee from Vivid. Though Luti signed the Escrow Agreement, he testified he never read it.
The Escrow Agreement set forth the parties’ duties. Vivid was to give Luti $15,000 to deposit into his CTA. Luti was to deliver the escrow funds to Davis if she performed her obligations under the Escrow Agreement, or if Vivid directed him in writing to do so. Luti was to return the money to Vivid if notified in writing that Davis failed to fulfill her obligations. No deadline for Davis’s performance was specified. Luti could resign as escrow agent by giving Vivid and Davis five days’ notice and after he delivered the money as directed by them. Only Vivid and Davis together could terminate Luti’s escrow services, and all three (Vivid, Davis, and Luti) had to agree in writing to amend, modify, extend, supersede, or cancel the Escrow Agreement.
He used the funds for his own purposes
by March 20, 2010, the balance fell to $0.46.
Sometime in 2010, Koslyn asked Luti about the escrow money. He told her he used it to pay personal obligations. Believing he had taken the money wrongfully, Koslyn consulted an ethics attorney, who advised her to notify everyone involved.
But five years passed
On February 22, 2015, Luti sent a reply letter to Weremblewski. He asserted, among other things, that Koslyn had released him as escrow agent “as far back as October of 2010— almost 5 years ago,” and that she had authorized him to use the escrow funds for back rent for her office lease and for attorney fees she owed him in a litigation matter. When Luti did not disburse the funds to Vivid, Weremblewski filed a State Bar complaint.
Follow the money
While OCTC investigated Weremblewski’s complaint, it discovered that Luti had commingled funds in his CTA. Between April 1, 2009, and May 24, 2010, Luti issued eight checks totaling $4,848 from his CTA to pay for personal expenses, including housekeeping services, the Golden State Rottweiler Club, season tickets to the L.A. Clippers, and tuition for his daughter’s school. At trial, Luti admitted he paid these personal expenses from his CTA.
The law
We conclude that rule 5.21(C)(1) applies to fiduciary relationships just as it does to attorney-client relationships; thus, the five-year rule of limitations is tolled so long as the
fiduciary relationship lasts. Luti remained as the escrow agent until at least February 2015, when Weremblewski presented him with the Release of Escrow Funds Agreement. Count two was therefore timely filed in 2016, and Luti’s motion to dismiss it as time-barred is denied.
His lack of insight was an aggravating factor.
Mitigation
Seven witnesses who had long-term relationships with Luti testified to his good character. They included five attorneys, a former law enforcement officer, and a legal assistant. The witnesses described Luti as straightforward, upright, conscientious, honest, and diligent. One witness said Luti was a “truth warrior” while another stated he was “very good with the clients.” The witnesses had a basic understanding of the charges and their high opinion of Luti did not change despite them.
Sanction
Luti chose to use $15,000 of entrusted funds for personal obligations at the expense of his ethical, professional, and fiduciary duties to Vivid and Davis. We recommend that Luti be disbarred to protect the public, the courts, and the legal profession.