Case Title: Matter of Davis

Citation: 127 N.J. 118, 603 A.2d 12

Docket Number: 

State: new-jersey

Court: New Jersey Supreme Court

Date: 1992-03-13T00:00:00Z

Document:
127 N.J. 118 (1992) 603 A.2d 12 IN THE MATTER OF HILTON DAVIS, AN ATTORNEY AT LAW. The Supreme Court of New Jersey. Argued September 24, 1991. Decided March 13, 1992. *119 John J. Janasie, Deputy Ethics Counsel, argued the cause on behalf of Office of Attorney Ethics. Richard L. Bland, Jr., argued the cause for respondent. PER CURIAM. The Office of Attorney Ethics (OAE) filed a complaint against respondent, Hilton Davis, charging him with seven *120 counts of knowing misappropriation of client trust funds. After three days of hearings, the District Ethics Committee (DEC) found that respondent had misappropriated funds, had failed to safeguard client funds, and had commingled personal and client funds, contrary to Rules of Professional Conduct 1.15 and 8.4, DR 1-102, and DR 9-102.[1] On review, the Disciplinary Review Board (DRB) unanimously recommended that respondent be disbarred. We agree that the factual record presents clear and convincing evidence that respondent engaged in knowing misappropriation of client trust funds and that that conduct warrants disbarment under In re Wilson, 81 N.J. 451, 409 A.2d 1153 (1979). Respondent was admitted to the New Jersey bar in 1970 and began a solo practice in 1972. Prior to this complaint, respondent had received three private reprimands for unethical conduct. On January 3, 1989, this Court temporarily suspended him for misappropriation of funds. To date, six of respondent's former clients have presented claims to the Client Protection Fund (Fund), which paid out $19,900 on behalf of two clients. The DRB's Decision and Recommendation summarizes the charges against respondent and the relevant evidence: There are three distinct aspects to this count. First, respondent owes the Bauknight estate approximately $10,000 for monies received but never deposited to his trust account. On January 22, 1982, Paul Bauknight, the executor of Nora Bauknight's estate, closed her checking account and drafted a check for the $10,796.45 balance to respondent. There is no evidence that respondent ever deposited those funds in his trust account. In a letter to Paul Bauknight, dated September 12, 1986, respondent acknowledged that he owed approximately $8000 and indicated that he would pay $4000 in three months and the *125 balance three months later. At the committee hearing, respondent was questioned on why he had not returned these funds: Respondent claims that the $8,000 he admits owing is still intact, having been placed in a separate trust account, mislabelled the "Nesbitt" account. However, respondent failed to provide any evidence to the DRB that the funds in the Nesbitt account belong to the Bauknight estate. Moreover, respondent's claim that the Bauknight funds had always been kept in a separate account is contradicted by his own actions. Respondent made two payments to the New Jersey Inheritance Tax Bureau, and also paid his own fees, out of his regular trust account, thus creating a strong presumption that no separate Bauknight account ever existed. Asked to explain that at the DEC hearing, respondent testified that he had mistakenly disbursed the funds from his regular trust account. In the second instance, respondent made disbursements from his trust account on behalf of the Bauknight estate at times when no Bauknight funds had been deposited in his trust account. In March 1983, respondent issued two checks, the first for $3,255.66 and the second for $578.87, from his trust account to pay the New Jersey Inheritance Tax Bureau on behalf of the Bauknight estate. The first check was returned *126 for insufficient funds (the DRB assumed that that check was later resubmitted and cashed from Bauknight funds). On April 1, 1983, respondent wrote himself a check for $2500 for legal fees in the Bauknight matter. As no Bauknight funds were on deposit in respondent's trust account before April 6, 1983, those disbursements resulted in the invasion of other clients' funds. Third, the respondent's trust account is out of trust with respect to the Bauknight funds actually deposited therein. On April 6, 1983, respondent deposited $29,556.80 to his trust account on behalf of the Bauknight estate. Prior to that deposit, respondent had already disbursed a total of $6,334.53 to pay the inheritance tax and his own legal fees. During April 1983, respondent disbursed $17,014.46 of the Bauknight funds to pay the estate's bills. Thus, by the end of April 1983, respondent should have held $6,207.81 ($29,556.80 minus $6,334.53 minus $17,014.46) for the Bauknight estate in his trust account. However, the balance was reduced to ($106.81) by June 1983 without any further disbursement having been recorded. Therefore, we find that respondent misappropriated $6,207.81 in trust funds that should have been held for the estate since the end of April 1983 and that he also misappropriated the check for $10,796.45 received from Paul Bauknight in 1982. Respondent admits that he owes the Bauknight estate $8000 from Paul Bauknight's check and that he knowingly failed to repay that money for more than five years despite a written promise to the contrary. The DRB agreed with the DEC's determination that seven counts of knowing misappropriation were clearly and convincingly proven. After conducting an independent review of the record, we are convinced that the DRB correctly found that respondent knowingly misappropriated client funds in all seven counts. This Court defines knowing misappropriation as "any unauthorized use by the lawyer of clients' funds entrusted to him, including not only stealing, but also unauthorized temporary use for the lawyer's own purpose, whether or not he derives any personal gain or benefit therefrom." In re Wilson, supra, 81 N.J. at 455 n. 1, 409 A.2d 1153. In Wilson, the Court announced that "disbarment is the only appropriate discipline" for knowing misappropriation of client funds and that its imposition would be "almost invariable." Id. at 453, 409 A.2d 1153. As the Court has since clarified, the attorney's state of mind or motives are largely irrelevant: "it is the mere act of taking your client's money knowing that you have no authority to do so that requires disbarment." In re Noonan, 102 N.J. 157, 160, 506 A.2d 722 (1986). Knowing misappropriation must be proven by clear and convincing evidence. In re Konopka, 126 N.J. 225, 228, 596 A.2d 733 (1991); In re Perez, 104 N.J. 316, 324, 517 A.2d 123 (1986). Our prior cases clearly establish that shoddy bookkeeping alone does not suffice for a finding of knowing misappropriation. See Konopka, supra, 126 N.J. at 228, 596 A.2d 733; In re Gallo, 117 N.J. 365, 372-73, 568 A.2d 522 (1989); In re Simeone, 108 N.J. 515, 521-22, 531 A.2d 729 (1987); In re Orlando, 104 N.J. 344, 350, 517 A.2d 139 (1986); In re Fleischer, 102 N.J. 440, 447, 508 A.2d 1115 (1986). Although an attorney's records may reveal repeated and frequent instances of being out of trust, that circumstance does not necessarily constitute knowing misappropriation. Konopka, supra, 126 N.J. at 228, 596 A.2d 733. Poor accounting procedures, however, "are no excuse for using client's funds. * * * It is no defense for lawyers to design an accounting system that prevents them from knowing whether they are using clients' trust funds. Lawyers have a duty to assure that their accounting practices are sufficient to prevent misappropriation of trust funds." Fleischer, supra, 102 N.J. at 447, 508 A.2d 1115. In *128 this case, the record provides clear and convincing evidence that respondent's recurrent out-of-trust situations were the product of knowing misappropriation. The Court has held that "circumstantial evidence can add up to the conclusion that a lawyer `knew' or `had to know' that clients' funds were being invaded." In re Johnson, 105 N.J. 249, 258, 520 A.2d 3 (1987). The circumstantial evidence in this case is overwhelming. The obvious absence of deposits in the trust account to cover the $500 disbursement in the H.J. matter and the $2500 payment of fees in the Starks matter meant that respondent "had to know that an unauthorized withdrawal from a commingled account was occurring." In re Skevin, 104 N.J. 476, 485, 517 A.2d 852 (1986). Moreover, respondent refinanced his home in 1983 in order to satisfy two separate IRS tax liens. All deposits and withdrawals relating to that refinancing were recorded in respondent's trust account. Although he received net proceeds from the refinancing in the amount of $43,470.44, he disbursed amounts from his trust account that exceeded those proceeds by $13,470.50. The conclusion is inescapable that he was using client trust funds for his own purposes, as he had none of his own funds to cover the excess. In addition, respondent's premature disbursement of funds to both clients and himself resulted in the deficit as of December 31, 1983. During that period, he often received trust account checks returned by the bank for "not sufficient funds," as well as overdraft notices. Some of the checks returned were made payable to respondent himself. These had to alert him to the fact that no funds existed in the trust account to cover the checks, and that he had invaded and was continuing to invade trust funds. We have found knowing misappropriation when an attorney took advance fees out of his clients' trust account before the corresponding deposits had been made to that account. In re Warhaftig, 106 N.J. 529, 533-36, 524 A.2d 398 (1987). Respondent denies any knowing misappropriation of clients' funds and proffers two main affirmative defenses and mitigating factors. First, respondent argues that any misappropriation was caused by his ignorance about bookkeeping and attorney's ethics. He states that he infrequently performed annual reconciliations of his bank statement and that he could not afford a bookkeeper. At the DRB hearing, respondent's attorney, Richard Bland, made the following arguments: We thus find unavailing the defense that respondent was ignorant of bookkeeping and the ethical duties imposed by RPC 1.15. After the OAE contacted respondent in 1985 about problems with his trust account, he hired a bookkeeper to examine the account for the period from 1981 through 1984. The bookkeeper informed him that the account had been increasingly out of trust, with a shortage of approximately $30,000 occurring at the end of 1984. In addition, an OAE accountant began auditing respondent in May 1986. Yet, respondent continued to misappropriate client funds after he had been placed on notice about his egregious bookkeeping. Given that, we can only conclude that the misappropriation from Starks in *130 1988 and from the Bauknight estate were either knowing misappropriations or at the very least the product of "willful" ignorance. In Johnson, supra, 105 N.J. at 260, 520 A.2d 3, this Court stated its intent to "view `defensive ignorance' with a jaundiced eye. The intentional and purposeful avoidance of knowing what is going on in one's trust account will not be deemed a shield against proof of what would otherwise be a `knowing misappropriation.'" Respondent also raises the affirmative defense that he was suffering from alcoholism throughout the 1980s. At the DEC hearing, a neurologist, Dr. Alan Clark, testified that he first treated respondent for alcohol-related disorders in the spring of 1988. Respondent was hospitalized for detoxification in January 1989. That alcoholism apparently contributed to respondent's divorce and an estrangement from his grown children. Respondent failed to adduce any evidence of his alcoholism in the period between 1981 and 1984, during which time most of these misappropriations occurred. Moreover, Dr. Clark acknowledged that respondent's condition was typified by "periodic, specific areas of dysfunction that may occur for an hour to weeks, intermixed with time when the person is able to function." Despite his alcoholism, respondent remained capable of performing complex business transactions, as evidenced by the refinancing of his home and repayment of the IRS liens in 1983. In In re Hein, 104 N.J. 297, 516 A.2d 1105 (1986), we held that an attorney's alcoholism, although responsible for his misappropriation of client funds, did not justify a departure from Wilson's strict rule. Here, as in Hein, we find that the respondent has not proved that his alcoholism prevented him from forming the requisite intent for knowing misappropriation. See id. at 303, 516 A.2d 1105. We conclude that alcoholism did not prevent respondent from distinguishing between knowing and unknowing misappropriation. We also note that respondent continued to attend to the duties of his practice until his temporary suspension. Although respondent is now undergoing *131 successful rehabilitation, that fact does not constitute a sufficient mitigating factor to outweigh the presumptive disbarment required by Wilson. See In re Canfield, 104 N.J. 314, 516 A.2d 1114 (1986); In re Monaghan, 104 N.J. 312, 516 A.2d 1113 (1986); see also In re Steinhoff, 114 N.J. 268, 553 A.2d 1349 (1989) (drug dependency is not sufficient mitigating factor); In re Nitti, 110 N.J. 321, 541 A.2d 217 (1988) (compulsive gambling is not sufficient mitigating factor); In re Skevin, supra, 104 N.J. at 489, 517 A.2d 852 (family hardship is not sufficient mitigating factor). We find insufficient evidence in this record to demonstrate that respondent's alcoholism during the relevant period overwhelmed his mental and emotional capacities to so great an extent as to excuse his flagrant acts of misappropriation. The charges brought against respondent are substantiated by clear and convincing evidence. Because this case involves knowing misappropriation of clients' funds and there are no mitigating circumstances or affirmative defenses, we are bound by the Wilson rule to disbar respondent. Finally, this case evinces a pervasive pattern of knowing misappropriation over several years, thus reinforcing our sense that disbarment is the only appropriate discipline. See In re Katz, 90 N.J. 272, 284, 447 A.2d 916 (1982); In re Fusciello, 81 N.J. 307, 310, 406 A.2d 1316 (1979). We direct further that respondent reimburse the Ethics Financial Committee for appropriate administrative costs. It is ORDERED that HILTON DAVIS of NEWARK, who was admitted to the bar of this State in 1970, be disbarred and *132 that his name be stricken from the roll of attorneys of this State, effective immediately; and it is further ORDERED that HILTON DAVIS be and hereby is permanently restrained and enjoined from practicing law; and it is further ORDERED that HILTON DAVIS comply with Administrative Guideline No. 23 of the Office of Attorney Ethics dealing with disbarred attorneys; and it is further ORDERED that HILTON DAVIS reimburse the Ethics Financial Committee for appropriate administrative costs. For disbarment Chief Justice WILENTZ, and Justices CLIFFORD, HANDLER, POLLOCK, O'HERN, GARIBALDI and STEIN 7. Opposed None. [1] We refer to the Disciplinary Rules that governed the conduct of attorneys at the time of some of these occurrences. Effective September 10, 1984, the Rules of Professional Conduct of the American Bar Association, as modified by this Court, govern that conduct. Rule 1:15. Those Rules contain provisions equivalent to the Disciplinary Rules involved here.