Title: Matter of O'Brien

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE

IN THE MATTER OF A MEMBER §
OF THE BAR OF THE SUPREME —§ No. 530, 2005

COURT OF THE STATE OF §
DELAWARE: § Board Case No. 54, 2004

§

JOHN E. O'BRIEN §

‘Submitted: November 4, 2005
Decided: November 22, 2005

Before STEELE, Chief Justice, HOLLAND, and BERGER, Justices.

ORDER

This 42" day of November 2005, it appears to the Court that the Board on

Professional Responsibility has filed its Report and Supplemental Report in this

matter pursuant to Rule 9(4) of the Delaware Lawyers’ Rules of Disciplinary

Procedure. Neither the Respondent nor the Office of Disciplinary Counsel have

filed objections to the Board's Reports. The Court has reviewed the matter

pursuant to Rule 9(e) and concludes that the Board’s Reports and recommendation

of a public reprimand should be approved.

NOW, THEREFORE, IT IS ORDERED that the Report and Supplemental

Report of the Board on Professional Responsibility filed on October 26, 2005

(copies attached) are hereby APPROVED. The matter is hereby CLOSED.

BY THE COURT:
BOARD ON PROFESSIONAL RESPONSIBILITY

  
  

(OF THE SUPREME COURT OF THE STATE OF DELAWARE ,.

 

INTHE MATTER OF A MEMBER OF CONFIDENTIAL
‘THE BAR OF THE STATE OF
DELAWARE, ‘Board Case No, $4, 2004
JOHN E, O'BRIEN,
Respondent.

 

 

Pending before a Panel of the Board on Professional Responsibility Gout Ps a
Fetkion or isin fedon ne, 2005 in Case No 54,200 Peon) involving Gn ES
O'Brien Esquire Respodenr), a member of he Bar of the Supreme Cou af be Ste of
Detar. Respondent led an answer the Petton on ne 2, 2008.

[A Panel ofthe Board convened on July 13, 205. At he hearing, the Office of
Disciplinary Counsel (“ODC") and the Respondent presented @ Prehearing Stipulation
(CStipulation” or “Stip”) (1) contsining admined and disputed fects, and (2) admitted and
disputed violations of the Delaware Lawyers Rules of Professional Conduct (“Rules” (or
“DRPC")! Specifically, Respondest admits the allegations in Counts One and Three of the

Petition. Stip. at H18-21. Respondent also admits a portion ofthe allegations in Count Two in

 

‘that he admits that monthly reconciliations of his real estate escrow account were not performed
for several months in 2001 and that his 2002 Cerificate of Compliance inaccurately represented

‘that they were. Stip. at 16; Tr. 6.9? Respondent denies al rezaining allegations.

 

| The Stiplation is atached ws Eat A.
 Reterences oT." we tthe tnsrp of the Jy 13, 2005 aring
‘At the July 13 bearing, the Board heard testimony from the Respondent whose testimony
the Bosrd found to be generally credible. Pursuant to the Board's request, the parties made
‘written submissions on August 11, 2005.

Facts:
‘The Respondent was admited to the Bar in 1979. AC all imes relevant to the Petition,

Respondent was engaged in the private practice of law as a solo practitioner with an office in
Dover, Delaware, Stip. tl.

[In April 2001, Respondents resl estate paralegal, who reconciled the realestate escrow
account advised Respondent that there was an approximate $4,000 overage in that account. The
paralegal believed the overage resulted ffom an error in the firm's computer software package.
Sip. $4. Respondent retained a CPA, Scot Slacum, to investigate the overage and to perform

 

monthly re 8 ofthe real estate account. Slacu's request, Respondent forwarded
all monthly bank statements to Slacum for reconeilation, In November 2001, Respondent
Teared that Slacum had not performed the moothly reconciliations. Stip. at $5, Between May
and November 2001, Respondents forner part-time rea esate paralegal, Michelle Mumford,
embezzled approximately $94,000 fiom the firm's tel estate account by stealing and forging
Respondent's signature on the firm's escrow checks. Sip. at 6"

‘After learning ofthe theR, Respondent retained another public accountng fm, Lu &
Associates, to determine the extent ofthe thf and to complete the ral estate esrow sxcount
‘econcilitions which Slacum had fled to perform. Luff recommended thatthe firm switch to 8
Ailferet software program. Luff then reconciled the real esate escrow account a @ methly
‘bass fortwo years. Afer completing the econilition, Luff advised Respondent tat thee was
7 Teta rn Hoe Spon ad we ted, Repent etinany.

* sdamfrd was prosested snd convicted Tr. 26, She was ordcted to pay retttion but Respondent bas cly
received spproxinately $400 fom bre. 2627

 

recast 2
an overage of $9,297.88 in the escrow account and thatthe amount embezzled was $94,020.00.
Stip. at

Respondent next implemented another software programa upgrade as recommended by his
firm's ttle insurance company, Old Republic, He hired a consultant, Carolyn Pearcy, to oversee
the upgrade. Pearcy advised Respondent that she believed thatthe $9,297.88 overage was the
resuit of yet another software issue. Stip. at $8. Respondent subsequently hired a new public
accountant, Charles Seitz. To date, Seitz has not een able to identify the reason forthe overage
held pending escheat

 

‘or to whom it belongs. Tr. 32,59, The overage amount is curently
to the state,

Between November 2001 und May 2004, Respondent explored various ways to replace
the funds stolen by Mumford, Respondeot intially contacted the bank that had cashed the forged
checks and asked it to accept responsibility, Stip, at $9. After several months, the bank denied
Fe, 34-35, Respondent also
‘explored possible recoveries fiom his insurance coverage, including his liability and malpractice

responsibility because the theft had not been timely discovered. Id

  

carriers. Stip. at 10. Afler several months, the cariers denied eny coverage except for $2,000.
15 Te. 35,

‘In the Spring of 2003, Respondent began investigating his personal means to replace the
stolen money which eventually led to the refinance of his primary residence. Stip. at $11; Tr. 37.
Prior to December 2003, he submitted an application to refinance his home to « morgage

‘company, Southard Street Mortgage, which was offering an attractive interest rate, Stip. at 11;

 

‘Tr.ST. After a six to nine month period, the mortgage company denied the loan, A re

application was made and denied, In May 2004, Respondent spplied to his peronal bank. Tr.

 

* ikl, Lf enti an overage of pponitely $50.00. Lu. however, made several put eer aad the
overage was reduced 199929788, Te 3132.

vwraanaemt 3
‘38. In Fly 2004, the bank approved a mortgage which became the source of the funds wsed to

 

replace the stolen funds. Tr. 36!

In May 2004, Respondent was notified of an avdit by the Lawyers Fund for Client
Protect ("LFCP"). The audit was scheduled for June 17, 2004 but, at Respondent's request, it
‘was rescheduled for July 8, 2004. On July 6, 2004, Respondent, through his counsel, reported to
‘the ODC that a former parttime employee had embezzled approximately $94,000 from the real
‘estate account between May and November 2001. Stip. at 13. On July 7, 2004, Respondent
‘deposited $83,008.11 in personal funds into the realestate account completing the replacement
ofthe stolen funds. 1d, at 14.

(On July 8, 2004, Martin Zukoff, an auditor forthe LFCP conducted an audit and issued a
report dated July 15, 2004, The audit revealed that between May and November 2001, a former
purt-time employee had stolen approximately $94,000 from the real esate escrow account. The
audit also revealed that since September 2001, there had been unidentified funds of $9,297.88 in
the real estate account. Id. at 15.

ADMITTED VIOLATIONS OF THE DRPC
‘As set forth in the Stipulation, Respondent has admitted violations of Rule 1.15(a) (Count

(One ~ failure to identify and safeguard client funds) and Rule $.3 (Count Three ~ failure to
supervise non-lawyer assistants), Respondent also admits that he violated Rule 1.15(@) by
{ailing to have monthly reconciliations performed in 2001 (Tr. 6) and that he violated Rules
'8.4(¢) and (@) because his 2002 Certificate of Compliance was inaccurate with respect 10 his

representation that monthly reconciliations had beer performed in 2001, Stip. $16; Tr. 6-9.

* inaddion, on December 23,2003, Respondent deposted $1,011.39 of sonal funds int he eal esate escrow
sccount to epic a portion ofthe sen fa Sp. a 12.

terrane 4
VIOLATIONS OF TH
Respondent disputes that the $9,297.88 overage in his realestate account violates Rule

1.15(4). He also denies that he made inaccurate representations wit respect to the overage and
the stolen funds in his 2002, 2003 and 2008 Certificates of Compliance in voltion of Rule
8.46) and Rule 8.44). Specifically, he denies that his answers to Rems 6(¢) and 6(e) on his
2002 Centificate of Compliance and his answers to Items 7(c) and 7(e) on his 2003 and 2004
Cerificwes of Compliance were inaccurate,

ANALYSIS OF DISPUTED VIOLATIONS
1, Did the Overage Constitute a Violation of Rule L1S%a)?

Count Two of the Petition alleges that Respondent violated Rule 1.15(4) by filing to
‘ita his books and records fom May 2001 through July 2004 which resulted in an overage
of $9,297.88. Rule 1.15(d) requires a lawyer engaged in the private practice of law to maintain
financial books and records 0

 

‘curent basis which conform to ten specific subparagraph set
forth in the Rule, With respect to fiduciary accounts, Rule 1.15(4(9XD) requires

‘The reconciled total cash balance must agree with the otal ofthe client or third

party balance listing. There shall be no unidentified client or third party funds,

‘The bank reconciliation for a fiduciary secount is not complete unless there is

‘agreement with the total of client or third party accounts.
‘The Board concludes that the overage in the real estate account violated Role 1.15(4\9)(D).
Respondent could not reconcile the cash balance in the account to agree with the total of client
‘and third party balance listing. Moreover, the overage constituted “unidentified clint ot third
party funds.” If, as Respondent testified, they canaot be traced to client, then they must be
‘hid party funds,

‘The Board's conclusion is supported by In Re Doughty, 832 A.24 724 (Del. 2003). In

‘Doughty, the atomey's account contained excess of “imprest” funds that did not belong to any

van anise 5
 

lie An wit revealed morshly variances which “appeared tobe grater than th oa bulnce
of client funds [dt 726, The Beard found tat Doughty violated Rule 1.150) an), While
the opinion doesnot expressly analyze wheter the “imprest fnds consivted unidentified
ary funds under Rule 1.15(@), iti reasonable to assume that they di because the opinion
imks clear tht they did not belong to any liens and Doughty denied that they were his.

2 Did Respondent Violate Reles 8. 4fc) and (\?
Counts Four ad Five of the Petition allege violations of Rules 8.46) and (4) with espect

to Respondent's 2002-2004 Certificates of Compliance. Rule 8.4(c) provides that it is
professional misconduct fora lawyer to “engage in conduct involving dishonest, fraud, deceit
‘or misrepresentation.” Rule 8.4(@) provides that it is professional misconduct for a lawyer to
“engage in conduct that is prejudicial to the administration of justice.” The issue before the
Board is whether Respondent's answers to Items 6(¢) and 6(e) on his 2002 Cerificate of
‘Compliance and Items 7(¢) and 7(¢) on his 2003 and 2004 Certificates of Compliance were
inaccurate,

‘Mer 6(¢) on the 2002 Certificate of Compliance (and its renumbered counterpart, Herm
(6) on the 2003 and 2004 Certificates of Compliance) states as follows:

1f, through error, any funds disbursed for client have been in excess of funds

received from that client, reslting in a negative client balance, a timely transfer

‘was made from the operating or business account to cover the excess

ishursement. NOTE: IF THERE WERE NO NEGATIVE BALANCES,
ANSWER “N/A”

 

[Respondent answered “N/A” to Items 6(c) and 70) on his 2002-2008 Cenificates of

‘Compliance.

  

Item 6(¢) om the 2002 Certifiate (and its renumbered counterpart, Item 7(e)) sate as
follows:

‘There are no unidentified client fands.

wr raenee 6

“
Respondent answered “yes" to Items 6(¢) and 7().

Respondent testified that he answered “N/A” to ems 6(c) and 7(c) because he did not
believe thatthe internal thet from the escrow ascount constituted an error” and that thee Were
no negative balances wit respect to any client as a result of erroneous overdrafts. Tr. 40-41. As
he futher explained, “I's just an overall the of monies thet were inthe account at that time, not
panicularly belonging to any client” Tr, 42, No client account showed a negative balance
‘because the “oat” from ongoing deposits into the real estate secount offset the $94,000 deficit.
‘Tr. $8, 64, Respondents accountant had, however, established a separate “Mumford” account
which noted 2 $94,000 negative balance. Tr. 44,

‘The parties have not provided the Board with any authority on whether Items 6) and
“le are intenéed to apply to stolen funds. Read Iteraly, the ite asks the attomey if trough
“eroe” funds were disbursed for a client in excess of funds received from tat client resulting in
«negative client balance and, if so, whether a timely transfer of funds was made to cover the
excess disbursement. In general, the word “eror” connotes a “mistake,” Guarino v, Celereeze,
1336 F.2d 336, 339 (3° Cir, 1964); see also Webster's Unabridged Dictionary (2° Ed.) at p. 621

(Cefining error in this context as meaning “something incorrectly done through ignorance or

 

carelessness, an Inaceuracy; an oversight; flsty.”) Given the language used in the Certificate,
the Board concludes that Respondent did not incomectly answer Hems 6(e) and 7(¢). There was
‘ot an erroneous or mistaken disbursement of client funds which is what the question asked.

While the bener practice would have been to disclose the negative balance resulting fom the

wex.ranaeet 7
theft of funds (and immediately replace such funds), under the circumstances, the ODC has not
proved the violations alleged.”

Likewise, Respondent's answers to Tems 6(e) and 7(e) were not inaccurate. The
‘evidence shows that in 2001-2004, Respondent had an overage in his real estate account.
Respondent was working to identify the source of the overage (which ultimately tured out 0 be
$9297.88), During this period, no clients made claims, There is no evidence that the
unidentified overage belonged to a client as opposed to a third party. Although Mi. Zukof?s
report Petition Ex. 1 at p. 2) states that there were “unidentified client funds from 2001”, the
‘report does not explain if the funds were client funds or third party funds. Absent evidence that
the funds belonged toa client, itis equally likely they belonged 10a third party. Items 6(¢) and
(however, only asked if there were “unidentified cient funds." It didnot ask if there were
“unidentified client or third party funds". Accordingly, the Board concludes that Respondent did

not inaccurately answer items 6(¢) and 7(e).

owe Axo< Ria fla Boa hase)

paw: BASS ASS

 

7 The Beard ascs ta 2005 Cerca of Compliance has been changed. The peninent question (m8) 0m

with reapect to she elias ledger of te atorney ruses acoust),
egrve bales: nt exist OR ifs pegtve balance did exit foray cet, then &
Sy ewe made ome epg Pn co ce epi

  
 

PNT UNE S
& ITS RH Car BS Woe DBO, OUDD
tl
BOARD ON PROFESSIONAL RESPONSIBILITY
OF THE SUPREME COURT OF THE STATE OF DELAWARE
INTHEMATTEROF AMEMBEROF ©: CONFIDENTIAL
‘THE BAR OF THE STATE OF
DELAWARE 1 Board Case No. $4, 2008
JOHNE, O'BRIEN,
Respondent

‘SUPPLEMENTAL REPORT ON SANCTIONS :

A. Introduction =
On September 14, 2005, a panel of the Board of Professional Responsibility (“Board™)
filed its report addressing various admitted and disputed violations of the Delaware Lawyer
Rules of Professional Conduct ("Rules"). On September 21, 2005, the Board heard additional
testimony fiom Respondent and oral argument on sanctions, Relying on In re Bailey, 821 A.24

NE azn

851 (Del. 2003), the Office of Disciplinary Counsel (“ODC") recommends that Respondent be
‘suspended for six months and one day. Respondent argues that a private admonition is
‘appropriate relying on several cases in which a private admonition and/or probation was imposed
for books and records violations and inaccurate Certificates of Compliance. Respondent also
relies on In re Benson, 774 A.2d 258 (Del 2001), which involved a public reprimand but argues
that mitigating factors exist to lessen the sanction imposed here from a public reprimand to a
private sdmonition. As explained below, the Board recommends that Respondent be publicly
reprimanded. The Board also addresses in this supplemental report a procedural issue
‘concerning ODC’s request to amend the Petition.

B. Request to Amend Petition

At the end of the July 13, 2005 hearing to address the Rules’ violations and at the
‘September 21, 2005 hearing on sanctions, an issue arose as to whether the Respondent's delay in

 
replacing the stolen funds during te period fiom November 2001 to July 2004 constituted an
ditional violation of Rule 1.15(0) July 13, 2005 Ty. at 85-88 and 103; Sept. 21,2008 Tr t
62.63. After the September 21, 2005 bearing, the panos made several writen submissions,
which ae atached hereto as Exhibits A through D. Respondent argued that Couat One ofthe
Peston did nt specifically allege « Rule 115( violation with respect wo Respondents alleged
failure to safeguard client funds during the period fom November 2001 until July 2004. ODC
argued in response that the Petition could be amended to conform to the evidence (Exit A
tert). Afer Respondent objected on the grounds hat ODC never formally moved to amend
‘the Petition and that an amendment after the hearing would prejudice Respondeat (Exhibit B
hereto), ODC fled a writen request pursuant to Rule 1500) of the Delaware Lawyers Rules of
Disciplinary Procedure (‘DLRDP") seeking o add a new Count Six to the Petition (Exhibit C
hereto), Respondent objects to the request on procedural and substantive grounds (Exhibit D
hereto). Among cer things, Respondeat claims Gat be willbe prejudiced bythe amendment
because e entered ito the Prehearing Stipulation and proceeded tothe July 13,2005 hearing on
‘the basis ofthe allegations inthe Petition. Respondent also claims prejudice because he released
4 witness at the July 13, 2005 hearing who would have testified to Respondeat’s efforts post
theft to protect his clients, ODC responds by saying thatthe release of a witness who would
have testified to post theft remedial efforts cannot be prejudicial because such testimony is
lnrelevant to proposed Count Six, ODC doesnot adress Respondents othe lam of prejudice

‘The Board agrees thatthe amendment to include Couat Six should not be permite.
Respondeat entered into the Prebearng Stipulation and proceeded to the July 13, 2005 bearing
‘on the basis ofthe allegations in the Petition, Under DLRDP 941), the petition was supposed

wpe ronsree 2
to inform the Respondent clearly and specifically of his alleged misconduct. While the inclusion
of proposed Count Six inthe Petition may not have altered Respondents defense, the Board has
no way of determining that with any degree of certainty. Accordingly, in the exercise of ts
discretion, the Board denies ODC's request to amend the Petition

©. The Board's Recommendation of a Public Reprimand

In reaching ts recommendation of a public reprimand, the Board considered the ABA.
‘Standards for Imposing Lawyer Sanctions (“ABA Standards”) and the factors considered under
the Standards. Specifically, the Board reviewed the ethical duties violated (duty to client, the
‘blic, legal system or the profession), the Respondent's mental state (Intentional, knowing or
‘negligent, and the extent of actual or potential injury caused by the misconduct

‘The Board concludes thatthe ethical duties violated included duties to clients and the
legal system. The Board also conchudes that Respondent's mental state was vegligeat at times
nd knowing at times, Respondent was negligent in hs supervision of the employee who stole
funds from his cliet escrow sccount. Respondent was also negligent during the period from
‘May 2001 to November 2001 when be did not realize that the accountant to whom the bank
‘count statements were being sent, Scott Slacum, CPA, was not performing monthly
‘reconciliations of Respondent's escrow account, By the time he file his 2002-2004 Certificates
‘of Compliance, however, Respondent was aware that monthly reconciliations had not been
‘performed in 2001 and his representation othe contrary was knowing.

In terms of injury, the Board concludes that there was no actual injury to any client.
Respondent's conduct, however, certainly crested the potential for eleat injury.

 

5 The Bourg notes that even if it i allow the arendnent snd even if di find an addon Rae 1.15)
olan, rch vation would not changed recommenced tnton. The Boar also ots ta thas kes i
sccout Respondents diy in replacing the soln funds sad Condes tbe an grvinig faa

 

ws20 28 3
 

‘The Board hs considered aggravating and mitigating circumstances. ‘The Board finds

the following aggravating factors:

s

Respondent has engaged in a patem of misconduct involving violations of
several Rules including fulure to safeguard client property, failure to supervise
‘on-lawyer assistant, and fling inaccurate Certificates of Compliance with the
‘Supreme Court (ABA Standard §9.22(¢);

Respondent's misconduct consists of multiple offenses (ABA Standard §9.22(0)}
Respondent has substantial experience in the practice of law, having been
‘sditted tothe Delaware Ba in 1979 (ABA Standard §9.22(0);,
‘Respondeat ha a prior dssplinary record (ABA Standard §9.32(a). The Board,
however, gives this factor very litle weight. The prior disciplinary matter was a
public reprimand in 1989 for a tax withholding issue involving Respondent's
previous law firm. Sept 21, 2005 Tr. 11-12. This public reprimand is emote
time-wise and involves conduct different ffom the conduet at issue in this
Proceeding,

Respondent didnot promptly replace the solen funds after discovering the the.

‘The Board finds the following mitigating factors exit:

1

vere

Respondent has exhibited remorse and has recognized the wrongfulness of his
conduct, as evidenced by his admissions to several of the allegations in the
Petition, his testimony and his willingness wo pay the costs of this proceeding and
the LFCP audits of his firm (ABA Standard §9.320));

Respondent has cooperated withthe ODC (ABA Standard §9.32(€)};
 

3. Respondent has engaged in substantial remedial efforts to correct his misconduct
including retaining outside accountants and obtaining additional computer
software, and incurred approximately $42,000 in accounting fees (ABA Standard
§9,32(d)); see also Bailey, 821 A.2d at 866.

‘The ODC recommends a sanction of a six month and one day suspension relying on
Bailey, Bailey involved rule violations and conduct not present here. Bailey was the managing
partner of a firm which, among other things, failed timely to file and pay various federal and
state taxes. 821 A.2d at 854-55. Bailey himself was personally delinquent in paying his federal
‘income taxes. [dat 855. His firm's operating account was ina repeated overdraft situation for
an extended period of time. |d. at 864. Moreover, Bailey knowingly invaded his firm's client
escrow funds to pay a personal debt. Jd. at 861-64. The Bailey court relied on In re Figliols, 652
‘A.24 1071 (Del. 1995), where the atiomey had knowingly misappropriated firm and client funds.
Id. 1077. While suspension is appropriate in cases of knowing misappropriation of client
ands (id), here no such misappropriation exists.

The Board has also considered ABA Standard 4.12, cited in Bailey, which provides
“suspension is generally appropriate when a lawyer knows or should know that be is dealing
improperly with client property and causes injury or potential injury to a client” Even if
‘suspension would otherwise be appropriate under that Standard, the Board believes that the
‘mitigating factors discussed above and the ack of actual client injury warrant a lesser sanction of
« public reprimand.

‘The Board rejects Respondent's request for imposition of a private reprimand. Such a
‘sanction is not consistent with prior precedent. In Benson, the Court imposed a public reprimand
for an attomey who failed to maintain her law practice books and records in accordance with

rrie 5
Rule 1.15, fied to tnely Sle and pay various federal and sate ates and filed iaccurte
CCenificates of Compliance, Respondent argues thatthe Supreme Cour and the Board have been
willing lesen he pul reprimand sanction in cases which donot involve tax sues ot where
the atorey isnot del responsible for mintenance ofthe fim's books and records. Here,
Respondent was dvecly responsible for his firm's books and records. While no xis are
present his ese does involve an adtonal itor not present ia he pi
which Respondent les. Respondeat di not promply replace te funds at were stolen fom
his cient escrow account even though it sppears thst he bad the ability wo do so by, fr example,

 

\dmonition eases on

seeking to refinance his home at an cavier point in time or using other property he owned as
collier! for «Joan.

In addition, the Board believes that a public reprimand, and not a private admonition, will
‘more appropriately further the objectives ofthe disciplinary system by protecting the public and
the administration of justice, preserving configence in the legal profession and deterring other
‘attomeys ftom similar misconduct,

pate DAMS
ow Lofts ee a

 

verze 6