Fiduciary Not Friend

The New York Appellate Division for the Second Judicial Department found violations of the rules prohibiting commingling and misappropriation notwithstanding the referee’s contrary conclusions.

Setting

In or about March 2008, the respondent provided legal assistance to Theresa A. Schneider in connection with her negotiation of a lease with Coruscant LLC for office space for a start-up school. In or about the end of March 2008, the respondent assisted Schneider with the actual execution of the lease, which took place in the respondent’s office in Hampton Bays.

Thereafter, Schneider requested the respondent’s assistance in obtaining a loan from Schneider’s father, John Gannon, to help finance the start-up school. By letter dated May 22, 2008, from the respondent to Gannon, the respondent, on behalf of Schneider, requested a loan of $40,000 from Gannon for the business venture. In the letter the respondent assured Gannon that the respondent would “use my attorney escrow account for the purpose of distributing and monitoring this money. I am the only person with access to this account, and I will have full control over the funds.” The letter provided Gannon with the name of the bank where the respondent’s escrow account was located, Capital One Bank, with the account number ending in 0965, and the routing number ending in 912.

He received $25,000

The respondent’s principal defense to the charges rested on the contention that he bore no fiduciary obligation to Schneider because the assistance he provided her was as a friend, not as her attorney. He argued that, as a consequence, he was not subject to the rules prohibiting commingling and misappropriation because he did not come into possession of Schneider’s funds “incident to the practice of law.” While the evidence showed that the respondent’s prime motive in assisting Schneider was as a friend, the evidence also showed that the respondent negotiated a lease on Schneider’s behalf, identified her as a “client” on a statement of charges, and used letterhead identifying himself as “Kevin J. Gilvary, Esq.” when he wrote to Gannon asking for a loan on Schneider’s behalf. We find that the evidence was sufficient to establish that Schneider was a client, albeit not the typical paying client. In any event, at the hearing, the respondent admitted that, in retrospect, he was a fiduciary with respect to Schneider’s funds, although he did not think so at the time. He admitted that if he could do it over he would deposit the funds into a separate account. He admitted that the funds belonged to Schneider and that he did not have permission to use them at the time, yet he did use them.

On the plus side

In mitigation, the respondent asks the Court to consider the following circumstances: the events complained of occurred a decade ago; the invasions all took place during a single month; the respondent believed that money from other sources would soon be deposited into his account, and were deposited; the respondent’s wife had suffered two serious accidents leaving her with significant physical injuries that resulted in the respondent shouldering many if not most of the childcare and household responsibilities, including caring for his wife; the misconduct occurred during a period of financial stress due to the respondent’s wife’s injuries which caused her to stop working as a lawyer, and the wife’s failing business venture; the respondent has an excellent reputation as a hardworking and competent attorney; the respondent was involved in various pro bono and volunteer activities; the respondent is remorseful; the events are not likely to be repeated because “if faced with a similar situation now, [he] would undoubtedly recognize both his fiduciary duties and the need to deposit the funds of another into an escrow account”; and, lastly, Schneider suffered no harm as her expenses were timely paid for by the respondent.

Thus

In view of the substantial mitigating factors in this case, we conclude that a suspension from the practice of law for a period of six months is warranted.

(Mike Frisch)