Strict D.C. Misappropriation Rule In Serious Jeopardy

In In re Addams, a divided en banc District of Columbia Court of Appeals held that disbarment is the required sanction for intentional or reckless misappropriation absent extraordinary circumstances.

Other than for recovering addicts, the court had found an extraordinary circumstance in only one case.

Since the 1990 Addams decision, there has been a strong desire among elements of the Bar, bench and. most prominently, the Board on Professional Responsibility, to overturn it.

When I was an Assistant Bar Counsel, I was obligated to attend an annual dinner honoring the board and hearing committees. The subject matter of one dinner (there was always a presentation) was why Addams was so unfair to misappropriating lawyers. 

The vehicle for change may have arrived in a report just filed by the board in In re Bernard Gray, Sr. 

The board has proposed the disbarment of a veteran attorney who provides low to moderately-priced legal services to an underserved community

Respondent has been a sole practitioner in the District of Columbia for over 40 years. FF 2. His practice was mainly landlord-tenant matters, and his clients often were low or moderate income tenants or small landlords. FF 2; HC Rpt. 40. He used retainer agreements that required an initial payment ($100 to $1,500) but allowed his clients to pay in installments. FF 3. His hourly rate ranged from $75 to $125; but since 2007, he has not meaningfully tracked his hours or billed his clients. FF 3-4. He believes he has unpaid balances in at least half of his cases. FF 4.

The hearing committee found that the attorney was negligent, which normally would call for a six-month suspension. 

The board called it a “close call” but found he was reckless.

The distinction has a profound impact on the sanction

Whether Respondent’s misappropriation of client funds was negligent or reckless is a close call. Respondent undeniably was inattentive to his trust account for at least eight years; he commingled personal and client funds, failed to maintain records, and treated the account as a personal account. But the Committee found that his conduct was “simply negligent” because of the nature of his practice and because they found he acted in good faith—believing that the funds belonged to him. We disagree with the Committee and find that the misappropriation was reckless. See In re Micheel, 610 A.2d 231, 235 (D.C. 1992) (holding that the finding that the misappropriation was negligent or reckless is an “‘ultimate fact’—i.e., a conclusion of law” and the “Board owed no deference to the hearing committee’s conclusion that [respondent] was merely negligent”)…

The Board recognizes that its departure from the Committee’s conclusion on culpability has the effect of not fulfilling the Committee’s recommendation to allow Respondent to avoid disbarment. HC Rpt. 42 (“We also found compelling Respondent’s limited request to simply avoid disbarment at the end of his career in the law. We are unanimous in our hope that the Board will respect his wish.”). But, the Board is compelled to follow the rule in Addams when the facts show reckless misappropriation and do not show an extraordinary circumstance warranting departure. And we were mindful of the Court’s discussion in Pels, a case that involved a sympathetic respondent where the Board struggled with application of the Addams rule. We are in a similar position here:

[I]n Addams the court weighed the concern of seemingly unjust application of a categorical sanction to particular cases against “our concern . . . that there not be an erosion of public confidence in the integrity of the bar. Simply put, where client funds are involved, a more stringent rule is appropriate.”

Pels, 653 A.2d at 398 (alteration in original) (quoting Addams, 579 A.2d at 198). “‘The Board does not do the Court a service by trying to mitigate this result. . . . [Its] job is to follow the Court’s decisions.’” Id. (quoting Board Report at 3-4 (opinion by Mr. Fox)).

Four board members filed a Separate Statement that makes points that suggest either a second exceptional circumstance or a plea to overrule Addams

We join the well-reasoned Board report in finding that Respondent engaged in reckless misappropriation, but write separately on the issue of sanction to underscore a point about this case, and similar cases, under the Court of Appeals’ precedent in Addams.

The majority report is an accurate statement of the law. We agree that Respondent’s misappropriation was reckless. And, under Addams, we agree that the recklessness determination requires a sanction of disbarment, absent extraordinary mitigation of the kind found in In re Hewett, 11 A.3d 279 (D.C. 2011).

On this record, we stress the extraordinary circumstances that point to suspension rather than disbarment. Respondent is one of a number of lawyers we have seen who are in solo or small firm practice, engaged in otherwise laudable service to his clients, and yet would be disbarred under Addams. Although we agree that this is the result called for by Addams, we disagree that should be the outcome in this case.

First, though we disagree with Respondent that notice of a problem with his trust accounting is necessary to make a finding of recklessness, we do think that the absence of notice is significant. We think the majority report is right that the misappropriation was reckless, and – like the majority – we think that this is a close case. The line between what constitutes reckless misappropriation and negligent misappropriation is not always finely drawn. Yet the difference in sanction is so dramatic, and the consequences of the slight difference between recklessness and negligence in some cases is so slight, that this application of Addams appears, to us, at times, unjust.

Second, we are troubled by much of what is laudable about Respondent, and how little that matters in determining his sanction. The Hearing Committee discussion is persuasive. HC Rpt. at 40-41. Respondent has worked for little money serving a population that desperately needs his help. In a city where some lawyers routinely charge well over $1,000 per hour, during this period, Respondent’s hourly rate generally ranged from $75 to $125. And, in some cases, he did not attempt to collect all that he was owed. In light of the well-documented and often-discussed gap in legal services for those of limited means, Respondent was willing to forgo greater financial means to serve those who otherwise may be unable to afford counsel. While perhaps not “extraordinary” in the way the term is used in Addams, we find this extraordinary in a different sense.

Third, and finally, we note that we have seen a number of cases where an otherwise deserving solo or small firm lawyer has been disbarred because of Addams. Lawyers in larger firms serving clients with greater and easier access to legal counsel simply do not face these problems. It is lawyers who represent individuals – often of limited means – who have much greater difficulty setting up accounting and control practices that larger and more sophisticated firms easily can. Hiring a person who can handle trust accounting may, for someone like Respondent, be a significant cost. The rigid application of Addams in this context is not good. On balance, disbarment would be detrimental to the public, even when the risk created by Respondent’s trust accounting practices is considered. As the Court of Appeals noted in Hewett, quoting the Board report in that case, ‘“[i]n all events, it must be clear that giving effect to mitigating circumstances is consistent with protection of the public and preservation of public confidence in the legal profession.”’ 11 A.3d at 290 (alteration in original) (quoting Addams, 579 A.2d at 195). Here, protection of the public and preservation of the public’s confidence would, in our opinion, not be served by disbarring Respondent.

This is not to say that people of limited means are owed fewer duties to have their funds protected. Every client should have confidence that his or her funds are safe when in an attorney’s IOLTA account. We are emphatically not advocating that these attorneys receive no sanction. We merely believe that an inflexible rule that requires a sanction of disbarment in every instance of reckless misappropriation, without any room for mitigation, is excessive. And we further note that the respondent in Hewett, who acted in a misguided way to help his client, engaged in intentional misappropriation and yet managed to avoid disbarment.

If the application of Addams allowed greater consideration of mitigation in cases of reckless misappropriation – perhaps calibrated to the degree of recklessness to avoid particularly unsavory results in very close cases where a number of Anderson factors were not present – we believe that would result in more proportionate outcomes. An expansion of circumstances that could be considered in mitigation would better address situations like the instant case, in which disbarment may hurt the public more than protect it.

The statement would impose a three-year suspension with a year of probation after reinstatement.

I see a real possibility that this case and/or In re Harris Lindsey will be the end of Addams. 

Other than a 2016 informal admonition, the attorney has no prior discipline.

Addams has its genesis in a 1984 panel decision (Judges Newman. Nebeker and Terry) in In re Hines.

[T]he District of Columbia Court of Appeals has not yet ruled that misappropriation of the sort engaged in in this case will ordinarily result in disbarment. We think that such conduct should result in disbarment, but only after the bar has been put on notice by the District of Columbia Court of Appeals that misappropriation of client funds in cases involving more than simple negligence will ordinarily result in disbarment even though the proof does not rise to the level of willful corruption.

We agree with the BPR that “misappropriation of client funds in cases involving more than simple negligence [should] ordinarily result in disbarment,” and we take this occasion to notify the bar that in future misappropriation cases disbarment will ordinarily be the sanction imposed by this court. We stress the word “ordinarily,” for every case must turn on its own particular facts. There may be instances of misappropriation which, for any number of reasons, may call for a lesser sanction. Nevertheless, the bar should take notice that from this moment on, in disciplinary cases involving attorneys who misappropriate their clients’ funds, disbarment will be the norm unless it appears that the misconduct resulted from nothing more than simple negligence.

The District of Columbia is one of the very few places that takes such a harsh approach to a lawyer’s use of entrusted funds.

That undeniable fact either is a source of pride or consternation, depending on one’s point of view.  ( Mike Frisch)