Escrow Accommodation Violates Ethics Rules

The New York Appellate Division for the First Judicial Department has ordered a two-year suspension for misconduct that involved an attorney’s failure to pay income taxes and improper notarization of legal documents after his notary license had expired.

The allegations included alleged misuse of his trust account

Charges three and four stem from conduct that occurred during a personal relationship respondent — a 65-year-old sole practitioner — had with a woman who filed the complaint that triggered the AGC’s investigation against him. Their personal relationship began in 2002. At the time, the woman, who became his girlfriend, was in the midst of an acrimonious divorce from her now former husband with whom she had six children. In 2004, facing eviction, his girlfriend and her children moved into respondent’s apartment.

Respondent became involved in representing his girlfriend in litigation related to her struggling clothing business and in her divorce case and related Family Court matters. In 2004, respondent represented his girlfriend in a child support and neglect proceeding. Because his continued representation posed a conflict as he was a potential witness, in 2005, respondent was disqualified from representing his girlfriend in the child support and neglect proceedings. As a [*2]result of these representations, in 2008 respondent was issued an Admonition (private discipline), based upon the violation of former DR 5-102(A) (prohibiting a lawyer from acting as an “advocate on issues of fact before any tribunal if the lawyer knows or it is obvious that the lawyer ought to be called as a witness on a significant issue on behalf of the client”).

In 2005, his girlfriend informed respondent that she was the beneficiary of a family trust through which she received a monthly distribution of $700. She asked respondent to deposit the monthly distribution into his IOLA account so that she could make direct payments of her household expenses. His girlfriend told him that she could not open her own checking account because she had previously filed for bankruptcy (and received a discharge) and she wanted her trust distributions segregated from respondent’s funds. As an accommodation to his girlfriend, respondent agreed to do so. From 2005 until in or about 2013, respondent deposited his girlfriend’s trust fund distributions into his IOLA account and disbursed them to pay her share of the household expenses. Ultimately, respondent’s relationship with his girlfriend soured.

The charge was contested

With regard to charge three, the only charge respondent disputes, we confirm the liability findings as firmly supported by the record. In fact, respondent does not challenge the factual predicate for charge three that respondent placed his then girlfriend’s monthly trust distributions into his escrow account and made disbursements therefrom to pay for her household expenses. As the Referee found, no evidence was submitted by respondent to suggest that the monthly trust distributions bore any relation to any matter on which respondent represented his girlfriend. Still, respondent argues that rule 1.15(b)(1) does not limit the use of an escrow account to the practice of law. However, this Court has consistently found that it is improper to use an escrow account as a personal account.

For reinstatement

Any application for reinstatement should include documentary proof that respondent is current in his tax filings and payment obligations, or has entered into payment agreements with tax authorities for any outstanding tax debt.

(Mike Frisch)