The Equivalent Of Escrow Funds

The New Jersey Supreme Court has disbarred an attorney for knowing misappropriation of funds that were subject to a court-ordered distribution.

The attorney was admitted in 1971 and had no prior discipline. The misconduct involved a real estate development project in which he had a personal financial stake.

Separate from his law practice, in 1991, respondent incorporated Castle Ridge Development Corporation (CRDC), a Delaware entity, and, in 2003, he registered it to do business in New Jersey. CRDC was wholly owned by respondent and his wife, Barbara Aaroe, until 1995, when they transferred their ownership interests to the new president and sole shareholder, Robert Godusch, respondent’s lifelong friend and frequent business partner. The transfer was not made for new consideration, but, rather, in return for prior investments Godusch had made in the corporation and other ventures, through a series of loans to respondent. Following the transfer of corporate ownership, through the date of the ethics hearing, respondent provided legal services to CRDC and, at times, also served as Acting Secretary to the corporation.

From the report and recommendation of the Disciplinary Review Board

Moreover, although respondent’s state of mind in respect of his knowing misappropriation of escrow funds is not relevant to whether he committed unethical conduct, the record is replete with proof that respondent acted dishonestly toward multiple third parties, as part of the execution of an opportunistic scheme resulting in his own pecuniary benefit. Specifically, instead of complying with his and his clients’ known joint and several debt to BPCC, owed under the Settlement, the note, the Mortgage, and New Jersey law, respondent disbursed the net Discafani sales proceeds to himself, for attorneys’ fees associated with the Project; to Godusch  to pay Caterpillar Financial in association with leased heavy equipment at the Project that was about to be repossessed; and to Washington Township for satisfaction of overdue property tax obligations owed on respondent’s primary residence, which was owned by his wife and was facing an imminent tax sale.

Respondent conceded that even the funds disbursed to Godusch benefited him, as they were used to settle a lawsuit, filed by Caterpillar Financial, to repossess the excavation equipment being used for the Project. Respondent had personally guaranteed the Caterpillar Financing, and was a party to that settlement, which allowed the Project to continue.

Accordingly, because respondent knowingly misappropriated funds that were the equivalent of escrow funds, disbarment is the only appropriate sanction, pursuant to the principles of Wilson and Hollendonner. Therefore, we need not address the appropriate quantum of discipline for the additional ethics violations we found, as detailed above.

This is an example of a violation of obligation to a third party rather than a client. (Mike Frisch)