Case Title: In re Harwood

Citation: 179 Vt. 618, 2006 VT 15, 895 A.2d 192

Docket Number: 2005-534

State: vermont

Court: Vermont Supreme Court

Date: 2006-02-03T00:00:00Z

Document:
In re Harwood (2005-534); 179 Vt. 618; 895 A.2d 192

2006 VT 15

[Filed 03-Feb-2006]

                                 ENTRY ORDER

                                 2006 VT 15

                      SUPREME COURT DOCKET NO. 2005-534
       
                             JANUARY TERM, 2006


  In re George Harwood, Esq.           }     Original Jurisdiction
                                       }
                                       }     
                                       }     
                                       }     Professional Responsibility Board
                                       }     
                                       }     PRB No. 2005.184


             In the above-entitled cause, the Clerk will enter:

       ¶  1.  On November 30, 2005, a hearing panel of the Professional
  Responsibility Board issued a decision ordering that respondent George
  Harwood, Esq., be disbarred from the office of attorney and counselor at
  law effective forty-five days from the date of the order.  Respondent has
  not appealed from that order, and this Court has declined review on its own
  motion.  Therefore, pursuant to Administrative Order  9, Rule 11.D(5)(c),
  the order of disbarment is final, and shall have the full force and effect
  as an order of this Court.



                                       FOR THE COURT:


                                       _______________________________________
                                       Paul L. Reiber, Chief Justice

                                       _______________________________________
                                       John A. Dooley, Associate Justice
     
                                       _______________________________________
                                       Denise R. Johnson, Associate Justice

                                       _______________________________________
                                       Marilyn S. Skoglund, Associate Justice

                                       _______________________________________
                                       Brian L. Burgess Associate Justice


-----------------------------------------------------------------------------
83 PRB

[Filed 06-Dec-2005]

      
                              STATE OF VERMONT
                      PROFESSIONAL RESPONSIBILITY BOARD


       In re:     George Harwood, Esq.               PRB File No 2005.184
                                                     Decision No. 83

       Respondent is charged with violation of Rules 1.15(a), 8.4(c), 8.4(d)
  of the Vermont Rules of Professional Conduct (FN1) for commingling and
  misappropriating client funds over a seven year period and for making false
  statements in his sworn response to Disciplinary Counsel's trust account
  management survey.  The parties filed a Stipulation of Facts and
  Recommended Conclusions of Law.  This matter was heard on September 14,
  2005, on the issue of sanctions.  Present for the hearing were the Hearing
  Panel, Lon T. McClintock, Esq., Kristina Pollard, Esq. and Donald Keelan,
  Disciplinary Counsel, Michael Kennedy, Esq., Respondent, George Harwood,
  Esq. and Respondent's counsel, Christopher Davis, Esq. 

       BASED upon the parties' Stipulation and the testimony and evidence
  presented at hearing, the Panel finds Respondent violated Rules 1.15(a),
  8.4(c), 8.4(d) of the Vermont Rules of Professional Conduct by commingling
  and misappropriating client funds and by making false statements in his
  sworn response to Disciplinary Counsel's trust account management survey. 
  After considering the Recommended Conclusions of Law, the parties'
  memoranda and oral arguments, and the aggravating and mitigating
  circumstances present in this case, the Panel orders that George Harwood be
  disbarred.

  I.  FINDINGS OF FACTS
   
       Respondent was first admitted to practice in 1985 in New Jersey and
  Pennsylvania. He moved to Vermont in 1989 and, following his 3-month
  clerkship, was admitted to the Vermont Bar.  Prior to attending law school
  Respondent served in the Peace Corps and worked in restaurant management.
  During the period relevant to this disciplinary matter, Respondent worked
  as a solo practitioner in St. Albans.  He shared office space and
  secretarial help with two other attorneys, but they had no common practice. 
  Respondent's law practice regularly involved real estate transactions,
  including §1031 tax free exchanges.  Respondent maintained a trust account
  (hereinafter "IOLTA account") at the Peoples Trust Company for the deposit
  of funds held in trust for clients and third parties.  This account was
  reconciled on a timely basis; Respondent used a computer program to track
  client funds held in the IOLTA account.  The computer program permitted
  Respondent to separately track and account for all client funds deposited
  into and later withdrawn from the IOLTA account.

       Respondent also maintained a business account at the same bank.
  Respondent did not reconcile this account on a regular basis and often did
  not know the balance held in the account.  Respondent used his business
  account to pay his personal and family expenses.  The average balance in
  the account was often minimal and from time to time checks drawn on the
  business account were returned unpaid due to insufficient funds.  During
  the hearing Respondent was asked to explain why he was able to maintain an
  accurate and timely accounting of his IOLTA account, but not his business
  account.  Respondent's only explanation was that he was a poor business
  manager who did not have adequate financial controls for his practice.
   
       Beginning in 1997 Respondent began to commingle his funds with client
  funds in his IOLTA account.  Respondent used his IOLTA account to pay
  checks from the business account that had been returned due to insufficient
  funds.  Essentially, Respondent would learn that a check drawn on business
  account had been returned unpaid due to insufficient funds.  Respondent
  needed to replace the returned check with one Respondent was confident
  would not be returned for lack of funds on deposit with the bank. 
  Respondent regularly reconciled his IOLTA account and kept track of its
  balance, so Respondent knew a check drawn on his IOLTA account was not
  likely to be returned unpaid.  Consequently, Respondent would deposit his
  own funds, in an amount equal to that needed to cover the returned check,
  into his IOLTA account and, simultaneously, write a check on the IOLTA
  account payable to the payee holding the returned check.  By way of
  emphasis, Respondent only deposited as much money into the IOLTA as
  Respondent needed to write an IOLTA account check to pay the holder of the
  returned check.   By doing so, Respondent used his IOLTA account to hold
  his funds and pay his general expenses.

       In 1999 Respondent began advancing himself fees from client funds held
  in the IOLTA account. This conduct was not described in detail in the
  parties' Stipulation of Facts, but was explained by Respondent during his
  hearing testimony.  If Respondent needed cash and was confident that he was
  about to earn a fee from a client, he would withdraw an amount equal to the
  fee from the IOLTA account and deposit the money into his business account
  and pay his expenses.  Sometimes, Respondent used these client funds to pay
  personal expenses.  Respondent testified that he did not draw more from the
  IOLTA account than the amount of the fee he was confident he would earn and
  would be entitled to pay himself within the very near future.  For example,
  if a real estate matter was expected to close in a day or two, Respondent
  would pay himself his fee a few days prior to closing, deposit the money
  into his business account and then pay business and/or personal expenses. 
  Respondent did not consult with his client, or obtain his client's consent
  prior to advancing himself client money.   In essence, Respondent was
  borrowing money from his clients without notice to or consent from the
  clients.  There is no dispute that Respondent was eventually entitled to
  the fees wrongfully advanced from the IOLTA account.
   
       Beginning in 2002, and continuing through the beginning of October
  2004, Respondent withdrew money from the IOLTA account and deposited the
  money into his business account to pay business and personal expenses. 
  Unlike Respondent's prior practices, Respondent's withdrawals were not
  covered by a simultaneous deposit of Respondent's money, nor were the
  withdrawals made in anticipation of fees that were certain to be earned in
  the near future.  Respondent deposited the money he withdrew from IOLTA
  account into his business account and used the money to pay both business
  and personal expenses.  Each time Respondent withdrew client funds from the
  IOLTA account, Respondent intended to replenish them.  Periodically,
  Respondent would deposit his own money back into the IOLTA account;
  initially, Respondent replenished the account within a matter of days. 
  Respondent used his computer to track his IOLTA withdrawals, just as he
  tracked client funds.  Respondent set up two accounts in his computer
  program so that he could track his IOLTA account withdrawals and
  reimbursements.  Respondent tracked some of his withdrawals and
  reimbursements under the names "Harwood" and "Paquette."

       Between September 2002 and October 2004, there were at least
  twenty-eight occasions on which Respondent used client funds in the IOLTA
  account to fund his business account.  The total amount removed from the
  IOLTA account was $35,839.25.

       Respondent never asked his client's permission to use their money to
  pay his own expenses.  Respondent did not notify clients that their trust
  account monies would be used from time to time to pay business and personal
  expenses.

       Respondent knew the practices described above violated of the Vermont
  Rules of Professional Responsibility while he engaged in these practices. 
  Respondent knew that it was improper to: use the IOLTA account to pay
  business and personal expenses; withdraw client trust money to pay
  attorney's fees that had not yet been earned; and use client trust money to
  pay general business and/or personal expenses.
   
       Respondent's practice of using client funds to pay his expenses was
  the result of a combination of factors.  Respondent's practices coincided
  with his move to a new office with higher overhead expenses.  For example,
  he began sharing the expenses of an experienced secretary who worked for
  him and the lawyers with whom he shared space.  At about the same time,
  Respondent's wife lost her job and the health benefits provided by her
  employer.  Respondent used his business account to pay for health insurance
  coverage.

       Respondent considered altering his financial practices because the
  income from his law practice could not meet his business and personal
  expenses.  He was reluctant, however, to seek funds elsewhere as he was
  embarrassed by his inability to manage his financial affairs.  Respondent
  chose to use client funds in his IOLTA account to meet his cash needs
  rather than obtain a loan or line of credit from a conventional lender. 

       Respondent does not allege that his conduct was the result of a
  physical or mental condition requiring medical treatment.  Throughout the
  time that Respondent engaged in the practices described above, Respondent
  was in reasonably good health; Respondent's judgment was not affected by
  any medical or psychological illness or condition.

       In October 2004 Respondent made the decision to stop using client
  funds in the IOLTA account to meet his cash needs.  Respondent last
  withdrew client funds from the IOLTA account to pay his business expenses
  on October 6, 2004.  During the months of January and February 2005,
  Respondent cashed in an IRA and a life insurance policy, and took a loan
  from his mother to reimburse his IOLTA account.  By February 2005,
  Respondent had fully reimbursed his IOLTA account.
   
       In 2004 the Professional Responsibility Board [PRB] initiated a
  program to address the problems of attorney theft of client funds and
  mismanagement of trust accounts.  The PRB randomly selected one hundred
  attorneys to receive a survey concerning the attorneys' management of trust
  (IOLTA) accounts.  Responding to the survey was mandatory, not optional,
  and the attorneys were required to provide responses under oath. 
  Disciplinary Counsel reviewed the survey responses and, based upon those
  responses, selected ten attorneys for audit by a certified public
  accountant.  The purpose of the audit was to determine whether the selected
  attorney was managing his IOLTA account in accordance with the Vermont
  Rules of Professional Responsibility.

       Sometime during the month of October or November 2004,(FN2) Respondent
  received survey from the PRB or Disciplinary Counsel.(FN3)  Respondent
  completed the survey and certified, under oath, that his responses were
  true and accurate.  Based upon Respondent's survey responses, Disciplinary
  Counsel selected Respondent for audit.  In February 2005, the CPA retained
  by Disciplinary Counsel contacted Respondent and scheduled Respondent for
  an audit for March 11, 2005.  On or about March 4, 2005, Respondent, acting
  through counsel, contacted Disciplinary Counsel to report the misconduct
  described above.

       Respondent acknowledges that some of his responses to the PRB survey
  were inaccurate and misleading.  One question on the survey asked "have you
  deposited any non-client funds in any trust accounts?  If so, please
  explain."  Respondent answered that the only non-client funds he had
  deposited into his IOLTA account were minimal amounts intended to cover
  bank services and charges.  In fact, when Respondent answered this survey
  question, Respondent knew that from 1997 to 2002 Respondent had regularly
  deposited personal funds into his IOLTA account in advance of writing
  checks on that account to pay business expenses.  Respondent also knew that
  from 2002 to 2005 he had periodically deposited personal funds into the
  IOLTA account to replenish client funds he had previously removed from the
  account.

       During the hearing, Respondent was asked about survey question 20. 
  The question asked whether Respondent regularly reconciled his business
  account.  Respondent answered the question in the affirmative, indicating
  he regularly reconciled his business account.  At the time Respondent
  answered the question, Respondent knew he had not been regularly
  reconciling his business account.
   
       Another question on the survey asked if Respondent had ever borrowed
  money from clients.  Respondent answered in the negative.  At the time
  Respondent answered the survey question, Respondent knew he had, in effect,
  been borrowing money from clients for several years.  Respondent admitted
  that he intended to mislead Disciplinary Counsel when he answered this
  question.

       Respondent has no disciplinary record.  He cooperated fully with
  Disciplinary Counsel.  He has expressed remorse for his misconduct. 
  Respondent's guilt and shame has caused Respondent to suffer depression for
  which he is receiving medical treatment.

       Prior to this proceeding, he enjoyed a reputation of fine character in
  the legal community.  Respondent served the Vermont Bar and his community
  in a variety of positions of trust and responsibility.  These activities
  include serving as: a member of the Vermont Bar Foundation; President of
  the local United Way organization, and chairperson of the local planning
  commission. As a result of this misconduct, the Supreme Court imposed an
  interim suspension of Respondent's license to practice law on March 29,
  2005, which will remain in effect until the conclusion of this disciplinary
  action.

       Respondent has substantial experience in the practice law.  His use of
  his IOLTA account for business expenses is not an isolated instance, but
  involves a pattern of misconduct.  Respondent makes a point of the fact
  that he used his IOLTA account only for business expenses and not personal
  expenses.  Respondent's argument on this point is not entirely accurate. 
  First, Respondent testified that he regularly used his business account to
  pay his personal expenses.  By drawing money from the IOLTA account,
  Respondent was able to maintain a positive balance in his business account,
  leaving funds available to pay both business and personal expenses.  As a
  sole practitioner, drawing money from the IOLTA account for business
  expenses in fact left other funds in the business account available to meet
  his personal expenses.  Consequently, Respondent was using client funds for
  his personal benefit.
   
  II.     CONCLUSIONS OF LAW

  A.  Applicable Rules of Professional Conduct

       Rule 1.15(a) of the Vermont Rules of Professional Conduct requires
  lawyers to hold client funds separate from their own.  The Rule provides:

       A lawyer shall hold property of clients or third persons that
       is in a lawyer's possession in connection with a
       representation separate from the lawyer's own property. Funds
       shall be kept in accordance with Rules 1.15A, B and C. Other
       property shall be identified as such and appropriately
       safeguarded. Complete records of such account funds and other
       property shall be kept by the lawyer and shall be preserved
       for a period of six years after termination of the
       representation.

  An attorney may not commingle his funds with those of his client, nor may
  he use client funds for business expenses. Over a period of seven years
  Respondent commingled his funds with client funds.  Respondent periodically
  deposited his funds into the IOLTA account for the express purpose of
  paying Respondent's expenses - i.e., covering the checks returned due to
  insufficient funds.  In addition, Respondent used client funds held in
  trust to pay Respondent's expenses.  With respect to the requirements of
  Rule 1.15(a) there is no difference between Respondent's early practice of
  placing funds in his IOLTA account in advance of writing checks to third
  parties and his later systematic withdrawals made without anticipation of
  prompt reimbursement.  Both practices violate Rule 1.15(a).  

       Rule 8.4(c) of the Vermont Rules of Professional Conduct states that
  it is "professional misconduct for a lawyer to . . . engage in conduct
  involving dishonesty, fraud, deceit or misrepresentation."  Clients expect,
  and are entitled to expect, that their funds will be segregated from their
  attorney's own funds, that client funds will not be available to the
  attorney's creditors, and that the attorney will use the funds only as
  agreed or directed by the client.  Each use of client funds for business or
  personal expense without the client's knowledge or permission involves
  deceit, dishonesty, and fraud in violation of Rule 8.4(c).
   
       Respondent's untruthful response to questions on the PRB survey also
  violated Rule 8.4(c).  Respondent knew that his answers were not truthful
  when he completed the survey.  Respondent made these untruthful answers to
  mislead Disciplinary Counsel and conceal his unlawful conduct. 
  Respondent's misleading answers were provided for the express purpose of
  concealing seven years of improper use of his IOLTA account and client
  funds. 

       Rule 8.4(d) of the Vermont Rules of Professional Conduct provide that
  it is "professional misconduct for a lawyer to . . . engage in conduct that
  is prejudicial to the administration of justice." See also Vt. A.O. 9 Rule
  7(C) (2005) ("Failure to . . . respond to a request from disciplinary
  counsel . . . without reasonable grounds for refusing to do so" is grounds
  for attorney discipline.).  Rule 8.4(d) is typically applied to misconduct
  that interferes with a judicial proceeding or compromises the integrity of
  the legal profession.  The integrity of the legal system is founded on the
  premise that attorneys will be truthful and honest in their dealings with
  the courts, with clients, and with those whose job it is to ensure that
  appropriate standards of professional conduct are maintained.  The legal
  system and the profession also require attorneys to cooperate with the
  disciplinary system and provide information when requested. See Vt. A.O. 9
  Rule 7(C) (2005).  Failure to do so compromises the integrity of the
  profession and the operation of the legal system and violates Rule 8.4(d). 
  Respondent provided false and misleading responses to the PRB survey
  questions in an attempt to deflect Disciplinary Counsel's attention from
  Respondent and conceal his wrongful practices. See Vt. A.O. 9 Rule 7(C)
  (2005) (attorney may be disciplined for failing to provide requested
  information without good cause).  Although unsuccessful, Respondent
  attempted to impede Disciplinary Counsel's proper inquiry into Respondent's
  compliance with the Rules of Professional Responsibility regarding IOLTA
  accounts and client funds held in trust, thereby violating Rule 8.4(d).
   
       Rule 8.4(h) of the Vermont Rules of Professional Conduct provides that
  it is "professional misconduct for a lawyer to . . . engage in any other
  conduct which adversely reflects on the lawyer's fitness to practice law." 
  Respondent's conduct of commingling his funds with client funds, using
  client funds to pay Respondent's business and personal expenses, and
  answering the PRB survey falsely and deceptively, adversely reflects on
  Respondent's fitness to practice law.  Respondent testified that he knew
  his conduct constituted violations of the Rules of Professional
  Responsibility while he engaged in this conduct.  Significantly,
  Respondent's conduct was intentional, and not the result of inadvertence,
  mistake, or a health condition affecting Respondent's judgment.  Clear and
  convincing evidence demonstrates Respondent violated Rule 8.4(h). 


  B.     ABA Standards

       The parties agree that Respondent's conduct warrant the imposition of
  a substantial sanction.  Disciplinary Counsel argues that disbarment is the
  only appropriate sanction for Respondent's conduct.  Respondent argues that
  the ABA Standards for Imposing Lawyer Sanctions and Vermont case law
  support imposition of a suspension, and not disbarment.  After considering
  the parties' respective arguments, the ABA standards and Vermont precedent,
  the Panel concurs that this case warrants a substantial sanction.

       The Supreme Court has held that the ABA Standards may be considered
  when determining the appropriate sanction in a disciplinary matter.  In re
  Andres, Supreme Court Entry Order, July 6, 2004, citing In re Warren, 167
  Vt. 259, 261 (1997) see also In re Bucknam, 160 Vt. 355, 365 (Vt. 1993)
  ("While they are not controlling, the American Bar Association Standards
  For Imposing Lawyer Sanctions provide guidance for determining the
  appropriate sanction.").
   
       The first step in applying the ABA Standards is to consider the
  presumptive sanction by looking at the duty violated, the lawyer's mental
  state and the actual or potential injury caused by the misconduct.  Having
  thus reached a presumptive sanction, it may be modified by consideration of
  aggravating and mitigating circumstances. ABA Standards § 3.0. 

  1.  Duty Violated
  
       Respondent had a duty to preserve the integrity of his client's money
  by maintaining client funds in an IOLTA account dedicated solely to client
  funds.  Respondent breached this duty in two ways.  First, Respondent
  commingled his funds with client funds.  Second, Respondent treated client
  funds as his own, misappropriating client funds to pay business and
  personal expenses.  Respondent also had a duty to make truthful responses
  to inquiries from the disciplinary system. See Vt. A.O. 9 Rule 7(C) (2005). 
  Respondent breached his duty to the judicial system and attempted to cover
  up his violations of the disciplinary rules by providing untruthful and
  misleading answers to the PRB survey.

  2.  Mental State

       Respondent testified that he was in good health and of sound mind at
  all times prior to being notified by Disciplinary Counsel that Respondent's
  practice was selected for audit by a certified public accountant. 
  Throughout the 7-year period that Respondent was commingling his funds with
  and misappropriating client funds, Respondent knew that he was violating
  the Rules of Professional Responsibility.  There is no evidence that
  Respondent's mental state compromised his ability to understand and comply
  with the Rules of Professional Responsibility when he engaged in this
  wrongful conduct.

  3.  Injury
   
       The tragedy of many cases involving a lawyer's use of client funds for
  personal expenses is that very often there is no money left to make the
  clients whole, and they suffer substantial injury as a result.  The fact
  that Respondent was able to repay the money does not negate all injury. 
  There was the potential for injury. See In re Nawrath, 170 Vt. 577, 581-582
  (2000).  Respondent was fortunate that he was able to meet his client's
  demands for their funds, including tendering client funds at real estate
  closings.  Respondent may not have been able to meet these demands for
  funds given the significant amount of money he had withdrawn from the IOLTA
  account. See id.
        
       Respondent's conduct did harm the legal profession.  Misappropriation
  of client funds is a serious violation of the trust that must exist in the
  attorney-client relationship.  Such a violation erodes the public's
  confidence in the profession and undermines the integrity of the judicial
  system. See In re Friedman,