Title: Matter of Bailey
Citation: N/A
Docket Number: 334, 2002
State: Delaware
Issuer: Delaware Supreme Court
Date: May 2, 2003

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
IN THE MATTER OF A MEMBER 
OF THE BAR OF THE SUPREME 
COURT OF DELAWARE: 
 
JAMES F. BAILEY, JR., 
 
Respondent.  
§ 
§  No. 334, 2002 
§ 
§  Board Case No. 50, 2000 
§ 
§ 
§ 
 
 
 
 
 
Submitted: January 22, 2003 
 
 
 
 
  Decided: May 2, 2003 
 
Before VEASEY, Chief Justice, HOLLAND, BERGER, and STEELE, 
Justices, and WALSH, Justice (Retired),1 constituting the Court en Banc. 
 
 
Upon Review of the Report of the Board on Professional 
Responsibility.  Six Months and One Day Suspension. 
 
 
Charles J. Slanina, Esquire, Tybout Redfearn & Pell, Wilmington, 
Delaware, for Respondent. 
 
Mary Susan Much, Esquire, Wilmington, Delaware, for Office of 
Disciplinary Counsel. 
 
 
Edward M. McNally, Esquire (argued), Morris, James, Hitchens & 
Williams LLP, Wilmington, Delaware, and Joseph A. Rosenthal, Esquire, 
Rosenthal, Monhait, Gross & Goddess, P.A., Wilmington, Delaware, for the 
amicus curiae Lawyers’ Fund for Client Protection. 
 
 
 
 
 
Per Curiam: 
                                                 
1 Sitting by designation pursuant to Art. IV, §§ 12 and 38 of the Delaware Constitution and 
Supreme Court Rules 2 and 4.      
 
This is a lawyer disciplinary proceeding.  The primary issue in this 
case is whether there is clear and convincing evidence to support the factual 
findings of the Board on Professional Responsibility that James Bailey, as 
the managing partner of his law firm, had engaged in “intentional and 
knowing, or at least reckless” misconduct with respect to the mishandling of 
his law firm’s books and records.  Based on its factual findings, the Board 
rejected the parties’ stipulation and joint recommendation that Bailey be 
given a public reprimand for his misconduct and placed on probation for 
three years.  Instead, the Board recommended, among other things, that 
Bailey be suspended for a period of six months and one day. 
 
As a question of first impression in Delaware, we explicitly hold that 
the managing partner of a law firm has enhanced duties, vis-à-vis other 
lawyers and employees of the firm, to ensure the law firm’s compliance with 
its recordkeeping and tax obligations under the Delaware Lawyers’ Rules of 
Professional Conduct.  A managing partner must discharge those 
responsibilities faithfully and with the utmost diligence.  We conclude that 
there is clear and convincing evidence to support the Board’s factual finding 
in this case that Bailey knowingly failed to discharge his responsibilities as 
managing partner; therefore, we approve the Board’s recommended 
sanction. 
 
 
2
Facts 
 
Bailey was admitted to the Delaware Bar in 1975.  He is, and was at 
all relevant times, the managing partner of the law firm Bailey & Wetzel 
(“the Firm”).  As managing partner, Bailey is responsible for maintenance of 
the Firm’s books and records and is responsible for the filing and payment of 
all employee payroll taxes and corporate taxes associated with the operation 
of the Firm.  He also is responsible for supervising any employee to whom 
any of his duties as managing partner might be delegated. 
 
Martin Zukoff, CPA, an auditor for the Lawyers’ Fund for Client 
Protection, conducted three investigatory and compliance audits of the 
Firm’s financial books and records and provided the Office of Disciplinary 
Counsel (“ODC”) with three audit reports dated, respectively, November 29, 
2000, January 22, 2001, and May 3, 2001.  The investigative audits were 
directed specifically at the Firm’s books and records and tax filing and 
payment obligations.  The compliance audits were to determine whether the 
Firm was in compliance with Rule 1.15 of the Delaware Lawyers’ Rules of 
Professional Conduct (“DLRPC”) and whether Bailey’s Certificates of 
Compliance, filed as part of this Court’s annual lawyer registration process, 
were complete and accurate.  Another auditor, Joseph McCullough, 
conducted an extensive review and follow-up investigation of the Firm’s 
 
 
3
bookkeeping and tax filing and payment obligations and submitted a fourth 
audit report to the ODC dated October 29, 2001. 
 
The audits revealed numerous deficiencies in the Firm’s bookkeeping 
obligations.  The most significant deficiencies, which Bailey conceded, 
included the following: 
• The Firm had not performed escrow account reconciliations or 
reconciliations of cash balances to total client funds held for the one-
year period from December 1999 through November 2000. 
 
• The Firm had discrepancies in its escrow account reconciliations for 
the period January 1999 through June 1999.  Specifically, six checks, 
totaling $27,800, had been written from the Firm’s escrow account 
and deposited into the Firm’s operating account to cover shortages or 
anticipated shortages in the operating account.  No specific client 
escrow funds were charged with these withdrawals.  To reconcile the 
account balances, non-existent “deposits in transit,” totaling $27,800, 
were reflected in the escrow account ledgers. 
 
• An inactive escrow account had overdraft balances from January 2000 
through October 2000. 
 
• An escrow account contained Firm funds in excess of the allowable 
$500. 
 
• The Firm had not performed operating account reconciliations from 
December 1999 through March 2000 when the Firm’s bank closed the 
operating account due to excessive overdraft charges. 
 
• The Firm’s operating account had overdraft balances every month 
from September 1998 through March 2000, with the highest negative 
balance reflected as $12,104 in July 1999. 
 
 
 
4
• The Firm had not performed reconciliations on its new operating 
account from February 2000, when it was opened, through September 
2000. 
 
• The Firm’s new operating account had overdraft balances from 
September 2000 through January 2001. 
 
With respect to the Firm’s tax reporting and payment obligations, the 
audit reports revealed the following: 
• The Firm did not timely file and pay federal employment payroll 
taxes2 for the first and second quarters of 2000.  These obligations 
were untimely paid on November 2, 2000.  No money had been 
deposited into a Tax Deposit Account in anticipation of the payment 
of these taxes. 
 
• The Firm did not timely file and pay federal employment payroll taxes 
for the fourth quarter of 2000.  The total obligation was over $60,200.  
As of the time of the parties’ stipulation, the Firm still owed about 
$13,000. 
 
• The Firm did not timely file and pay federal employment payroll taxes 
for the first quarter of 2001.  At the time of the parties’ stipulation, the 
Firm still owed about $65,000.  No deposits had been made into a Tax 
Deposit Account for this quarter. 
 
• The Firm did timely file, but did not timely pay, its federal 
employment payroll taxes for the second quarter of 2001.  Although 
about $10,000 had been deposited into a Tax Deposit Account, the 
total obligation was in excess of $51,000.  As of the time of the 
parties’ stipulation, the Firm still owed over $41,000. 
 
                                                 
2 The parties’ stipulation reflected that the Firm’s federal employment payroll taxes are required to 
be filed and paid on a quarterly basis by the end of the month following the quarter in which they were 
withheld.  Funds for the payment of this obligation are to be deposited monthly into a Tax Deposit 
Account. 
 
 
5
• The Firm did not timely pay its quarterly federal unemployment taxes 
for 2000.  Taxes for all four quarters of 2000 were paid in February 
2001. 
 
• The Firm did not timely pay its monthly state employee withholding 
taxes for 1999.  The outstanding balance was untimely paid on 
January 16, 2001. 
 
• The Firm did not timely file and pay its state employee withholding 
taxes for 2000 or the first two quarters of 2001.  All taxes were 
untimely paid. 
 
• The Firm did not timely file and pay its state unemployment taxes for 
all quarters of 2000.  All state unemployment taxes were untimely 
paid on February 2, 2001. 
 
• The Firm did not timely file and pay its city employee withholding 
taxes for all quarters of 2000.  These taxes were untimely paid in 
2001. 
 
• The Firm’s corporate taxes for 1996, 1997, and 1998 were untimely 
filed and paid.  Corporate taxes for 2000 were timely filed but not 
timely paid. 
 
• The Firm did not timely file and pay its Delaware gross receipts taxes 
for the second and third quarters of 2000. 
 
In addition to the Firm’s tax delinquencies, Bailey personally was 
delinquent in paying some portion of his federal income taxes for 1998, 
1999 and 2000, although the tax returns were timely filed.  Moreover, Bailey 
falsely certified to this Court on his Annual Lawyer Registration Statements 
for 1998, 1999, 2000, and 2001 that he was in compliance with his tax 
and/or recordkeeping obligations.  
 
 
6
Board Proceedings 
By the time the ODC filed its petition for discipline in September 
2001, Bailey and the Firm had taken remedial measures to correct many of 
the deficiencies identified in the audit reports.3  Before the Board’s hearing, 
the ODC and Bailey entered into a prehearing stipulation, which contained 
Bailey’s admission to nine of the ten counts contained in the ODC’s petition 
for discipline.  The stipulation also included the parties’ joint 
recommendation of sanction of a public reprimand and a three-year period of 
probation with conditions. 
In the stipulation, Bailey admitted that his misconduct resulted in the 
following nine violations of the Delaware Lawyers’ Rules of Professional 
Conduct:  (i) one count of misconduct in violation of Rule 1.15(a) 
(commingling funds);4 (ii) one count of misconduct in violation of Rule 
                                                 
3  Specifically, Bailey had hired an outside accountant to perform a monthly review and oversight 
of the reconciliation of the Firm’s books by its in-house bookkeeper.  Bailey also had engaged the same 
accountant to prepare both the Firm’s corporate tax returns and Bailey’s personal tax returns.  Bailey also 
had applied for (and later obtained) a personal loan in excess of $100,000 in order to pay off the Firm’s 
outstanding federal payroll tax debt. 
4 DEL. LAWYERS’ R. PROF. CONDUCT Rule 1.15(a) provides, in part: “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 of the lawyer that are reasonably sufficient to pay bank charges may be 
deposited [in the escrow account]; however, such amount may not exceed $500 and must be separately 
stated and accounted for….”  Bailey admitted violating Rule 1.15(a) by keeping over $1700 of the Firm’s 
funds in the client escrow account for almost a year. 
 
 
7
1.15(b) (failing to promptly deliver property belonging to another);5 (iii) one 
count of misconduct in violation of Rule 1.15(d) (books and records 
violations);6 (iv) one count of misconduct in violation of Rule 5.3 (failing to 
supervise nonlawyer assistants);7 (v) two counts of misconduct in violation 
of Rule 8.4(c) (engaging in conduct involving dishonesty);8 and (vi) three 
counts of misconduct in violation of Rule 8.4(d) (engaging in conduct 
prejudicial to the administration of justice).9 
 
The Board held a hearing on December 18, 2001 at which the ODC 
and Bailey presented testimony in support of their stipulation and joint 
                                                 
5 DEL. LAWYERS’ R. PROF. CONDUCT Rule 1.15(b) provides, in part, that “a lawyer shall promptly 
deliver to the client or third person any funds or other property that the client or third person is entitled to 
receive and, upon request by the client or third person, shall promptly render a full accounting regarding 
such property.”  Bailey admitted violating Rule 1.15(b) by failing to promptly pay various federal, state, 
and city employee and employer payroll taxes from 1999 to June 2001. 
6 DEL. LAWYERS’ R. PROF. CONDUCT Rule 1.15(d) provides specific, detailed requirements for the 
maintenance of a lawyer’s books and records.  Bailey admitted violating Rule 1.15(d) by failing, for almost 
a year, to maintain the Firm’s books and records in compliance with the rule’s requirements. 
7 DEL. LAWYERS’ R. PROF. CONDUCT Rule 5.3(b) provides, in part, that a lawyer supervising a 
nonlawyer “shall make reasonable efforts to ensure that the [nonlawyer’s] conduct is compatible with the 
professional obligations of the lawyer.”  Moreover, Rule 5.3(c) provides in part that a lawyer shall be 
responsible for a nonlawyer’s misconduct if the lawyer “ratifies the conduct” or the lawyer “knows of the 
conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial 
action.”  Bailey admitted violating Rule 5.3 by failing to have reasonable safeguards in place to ensure an 
accurate accounting of his financial books and records in compliance with the Rules, by failing to supervise 
his employees’ conduct in reconciling his books and records and filing and paying payroll taxes, and by 
knowing that payroll, gross receipts, and corporate taxes were not being timely filed and paid. 
8 DEL. LAWYERS’ R. PROF. CONDUCT Rule 8.4(c) provides that it is professional misconduct for a 
lawyer to “engage in conduct involving dishonesty, fraud, deceit, or misrepresentation.”  Bailey admitted 
violating Rule 8.4(c) by filing a Certificate of Compliance with this Court for the year 2000, which falsely 
stated that Bailey’s law practice books and records were maintained in compliance with Rule 1.15 and by 
falsely stating on his Certificates of Compliance for 1998, 1999, and 2000 that he was meeting his tax filing 
and payment obligations. 
9 DEL. LAWYERS’ R. PROF. CONDUCT Rule 8.4(d) provides that it is professional misconduct for a 
lawyer to “engage in conduct that is prejudicial to the administration of justice.”  Bailey admitted violating 
Rule 8.4(d) by failing to file and pay various taxes and by filing false Certificates of Compliance for the 
years 1997, 1998, 1999, 2000, and 2001. 
 
 
8
recommendation of sanction.  The first witness to testify was Joseph 
McCullough, the ODC’s investigative auditor.  McCullough testified that the 
ODC requested him to investigate several particular transactions that had 
been uncovered during the course of Martin Zukoff’s compliance audits.  
The transactions in question involved six checks in varying amounts, 
totaling $27,800, which were written between January and June of 1999.  
The checks had been drawn on the Firm’s client escrow account but were 
not deducted from specific client balances.  The checks were deposited into 
the Firm’s operating account.  In order to make the escrow account balance, 
the bookkeeper had entered non-existent “deposits in transit.”  McCullough 
testified that the offsetting deposits into the escrow account for $27,800 
were never actually made until after Zukoff’s first audit in November 2000.  
McCullough testified that, during the course of his investigation, he 
spoke to Sam Cook, the Firm’s former bookkeeper who had written the 
checks.  He also interviewed the Firm’s current bookkeeper, Jan Moreland, 
and the Firm’s outside accountant, Charles Seitz, CPA.  McCullough 
testified that nothing in his investigation revealed any expenditures of an 
unusual nature during the relevant six-month time period that would have 
accounted for the need for the operating account to be supplemented by 
$27,800 in escrow funds.  McCullough concluded that the transfers had been 
 
 
9
made in order to pay current repetitive bills that had become due.  Both 
McCullough and Seitz testified that the Firm’s books and records presently 
are being maintained in compliance with Rule 1.15.  
Bailey also testified in support of the stipulation.  He stated he had 
been admitted to the Bar in 1975 and began his own law firm in 1983.  He 
brought Benjamin Wetzel into the Firm in 1990 as a partner.  Since that 
time, the Firm has had two partners, several associates, and about a dozen 
employees.  Bailey testified that he always has acted as the managing partner 
of the Firm, accepting supervisory responsibility, among other things, for the 
Firm’s recordkeeping and tax obligations. 
Bailey stated that, prior to Zukoff’s first audit, he had been unaware 
that the Firm’s books and records were not in compliance with Rule 1.15.  
Bailey specifically denied prior knowledge relating to the six checks, 
totaling $27,800, which had been written from the Firm’s escrow account 
and deposited into the Firm’s operating account during the period January 
through June 1999.  Bailey testified that the Firm’s bookkeeper at the time, 
Sam Cook, had made these transfers independently without Bailey’s consent 
 
 
10
or knowledge.10  Bailey expressed remorse for not fulfilling his 
responsibilities to supervise adequately the Firm’s bookkeeping functions. 
At the close of testimony, the Board concluded that it needed to hear 
Sam Cook’s testimony and review additional documentation before deciding 
whether 
to 
accept 
the 
parties’ 
stipulation 
and 
recommendation.  
Accordingly, the Board continued the hearing until January 2002 so that 
Cook’s testimony11 and the requested documentation, including complete 
copies of certain tax returns and Bailey’s Annual Registration Statements, 
could be secured.  
 
The second hearing was held on January 28, 2002.  Two witnesses 
appeared.  The first witness was Sam Cook.  Cook testified that he worked at 
the Firm as a bookkeeper from May 1994 to July 1999.  Cook was 
questioned about the six checks he wrote on the Firm’s escrow account, 
which were written on the following dates for the following amounts:  (i) 
January 6, 1999 for $5800; (ii) February 26, 1999 for $4000; (iii) May 6, 
1999 for $2000; (iv) May 21, 1999 for $4500; (v) June 3, 1999 for $6000; 
and (vi) June 16, 1999 for $5500.  Cook testified that, in January 1999, 
Bailey had asked him if the Firm had any money in the escrow account for 
                                                 
10 Bailey stated that he first became aware of the transfers following the first Lawyers’ Fund audit 
in November 2000.  In response, he immediately deposited $27,800.00 into the escrow account to cover the 
checks written in 1999. 
11 The ODC previously had declined to call Cook as a witness because he was not cooperative 
with the ODC’s investigation and had previously given inconsistent statements to the ODC’s investigator. 
 
 
11
fees.  Cook told him there was none.  Cook testified that he wrote a check 
for $5800 from the escrow account to the operating account in January 1999 
because Bailey instructed him to do so.  Cook further testified that Bailey 
instructed him, contemporaneous to the transfer from escrow, to disburse a 
check from the operating account in payment of a personal obligation owed 
by Bailey.  Although he could not recall the amount of the check or why it 
was written, Cook believed the check was made payable to an attorney on 
Market Street in Wilmington. 
 
Cook initially testified that Bailey also directed the five later transfers 
from the escrow account to the operating account.  Cook testified that he 
believed the later escrow transfers were connected in some way to five other 
checks written on the operating account in payment of Bailey’s personal 
obligation.  At the hearing, Cook produced copies of six cancelled checks 
that had been drawn on the Firm’s operating account on the following dates 
and for the following amounts:  (i) February 19, 1999 for $5000; (ii) March 
10, 1999 for $5000; (iii) March 17, 1999 for $5000;12 (iv) March 22, 1999 
for $5000; (v) March 24, 1999 for $5000; and (vi) March 26, 1999 for 
                                                 
12 The March 17, 1999 check included a handwritten notation:  “Thank you so much for a 
company check since your personal check bounced.”  Cook testified that the notation was not his 
handwriting. 
 
 
12
$1500.  The checks were all made payable to Maryann McConnell.  Cook 
stated that he did not know who Maryann McConnell was.   
Cook later acknowledged that, despite his belief that the six 
questionable escrow transfers were related to the six payments to Maryann 
McConnell, no such relationship appeared to exist given the dates and 
amounts of each respective transaction.  Cook also later equivocated in his 
testimony concerning whether Bailey explicitly directed the five additional 
escrow transfers.  When asked why he had never mentioned the McConnell 
checks to the ODC prior to the hearing, Cook testified that he did not 
remember having copies of the McConnell checks until he discovered them 
in his attic the night before he was scheduled to testify.  In response to 
questions from the Board, Cook acknowledged that it was not his usual 
practice to retain copies of checks and that the McConnell checks were the 
only copies of checks he had taken with him when he retired.  He stated that 
he did so because he felt the checks might be “pertinent.”    
Cook also produced for the first time at the hearing a purported copy 
of a memorandum addressed to Cook from Ben Wetzel, Bailey’s law 
partner, dated April 5, 1999.  The memorandum asked Cook whether he had 
made any payments out of Firm funds to Maryann McConnell.  Cook stated 
that the memorandum, which appeared to have been drafted as an email, had 
 
 
13
been slipped under his office door.  Cook testified that he had provided a 
confidential response to the memorandum informing Wetzel of the amount 
of the checks issued to McConnell and informing him that Cook had 
designated the expenses as “legal/accounting” fees.  Cook testified that he 
had never directly spoken to Wetzel about the questions raised in the 
memorandum and that he had never informed the ODC’s investigator about 
the memorandum at the time of his interview.  Cook, in fact, admitted that 
he had lied to the ODC’s investigator when he told the investigator that he 
did not remember the escrow transfers and contemporaneous “deposits in 
transit.”  Cook stated that he lied about the transfers because he felt a sense 
of loyalty to Bailey. 
 
The only other witness to testify at the second hearing was Lynn Atz, 
CPA.  Atz testified that her company, Atz & Associates, had been retained 
by the Firm to provide accounting services on a contract basis from 
September 1999 to November 2000 after the Firm’s in-house bookkeeper 
had retired.  She stated that when her employees first went into the Firm, the 
office was in a “bit of disarray.”  She stated that the former bookkeeper’s 
office was “very disorganized” and that there was “many years worth of 
stuff….all over the place.”  Atz testified that one of her employees was 
placed within the Firm in order to reconcile the Firm’s books and records.  
 
 
14
Atz stated that, although she believed her employee was performing the 
reconciliations, in fact the Firm’s accounts were not reconciled from 
December 1999 to November 2000.  Her employee later admitted lying to 
Atz about doing the reconciliations.  Atz testified that, when Bailey found 
out, he was surprised and very upset.  Atz stated that Bailey had never asked 
her to make any questionable transfers from the escrow account to the 
operating account to meet expenses. 
 
Following the second day of testimony, the Board scheduled a third 
hearing at the parties’ request to allow them to expand the record and present 
rebuttal testimony as desired.  Before the third day of testimony, the parties 
submitted another stipulation of facts regarding Cook’s statements to the 
ODC and McCullough.  The stipulation outlined the ODC’s inability to 
contact Cook and reflected Cook’s reluctance to speak with the ODC.  The 
stipulation also reflected Cook’s initial failure to recall any information 
regarding the $27,800 in transfers from the escrow account to the operating 
account when McCullough first questioned him, as well as Cook’s later 
statements to ODC that he had remembered some things regarding the 
transactions in question but that he intended to surprise Bailey and the ODC 
with his testimony at the Board hearing. 
 
 
15
 
The Board held a third day of testimony on February 22, 2002.  The 
first witness to testify was Ben Wetzel, who was called by Bailey but 
appeared in person at the Board’s direction.13  Wetzel’s testimony 
significantly contradicted Cook’s earlier testimony.  Wetzel denied drafting 
the April 1999 memorandum that Cook had produced.  Wetzel stated that he 
had known since about March 1, 1999, that Bailey owed a personal debt to 
Maryann McConnell and that Bailey had made payments on the debt from 
the Firm’s operating account.  Wetzel testified that he became aware of the 
McConnell debt after he picked up a letter in the Firm’s fax machine 
regarding the matter.  He gave the fax to Bailey and discussed the issue with 
him.  Thus, Wetzel testified, he would have had no reason to request 
information from Cook about payments to McConnell in April 1999.   
Wetzel stated that he was not concerned about the payment of funds 
from the Firm’s operating account towards Bailey’s personal debt to 
McConnell.  Nor did he concern himself with how the funds were expensed 
from the operating account.  He testified that he and Bailey had an informal 
method of distributing profits, and Wetzel just assumed that he and Bailey 
would work out the McConnell payments at some point in the future when 
                                                 
13  Bailey initially had proffered Wetzel’s testimony via affidavit. 
 
 
16
they distributed profits.  He had not been aware that the payments had been 
expensed to legal and accounting fees of the Firm. 
The next witness was Pamela McCullum.  McCullum had worked as 
Bailey’s secretary for several years and also had worked as the Firm’s office 
manager.  She stated that she had trained Sam Cook after he was hired to do 
the bookkeeping.  She testified regarding a conversation she had with Cook 
“sometime before the beginning of 1999” regarding the transfer of escrow 
funds.  She stated that Bailey had walked in on their conversation, and Cook 
asked Bailey directly if he could transfer funds from the escrow account to 
the operating account in order to pay bills.  McCullum testified that Bailey 
told Cook specifically that he could not make such a transfer because it was 
illegal to do so.  She stated that, in the past when the Firm was short of funds 
in the operating account, the Firm’s practice was for Bailey to make a few 
calls to collect on debts owed to the Firm.  She did not recall telling Cook 
this information, however, during their conversation about escrow transfers.  
McCullum further testified that Bailey had never instructed her or anyone in 
her presence to make an improper transfer from the escrow account.   
The next witness to testify was Jan Moreland, the Firm’s present 
bookkeeper who replaced the first bookkeeper from Atz & Associates.  
Moreland testified that she initially came to the Firm in November 2000 as 
 
 
17
an employee of Atz & Associates to reconcile the Firm’s books and records 
in anticipation of the upcoming Lawyers’ Fund audit.  She testified that 
within a week of starting at the Firm, she discovered that the Firm’s books 
had not been reconciled since June of 1999.  She also discovered the non-
existent “deposits in transit” from early 1999.  She stated that when she 
shared this information with Bailey, he was very surprised and angry.  She 
testified that Bailey has never instructed her to make any improper transfers 
from the escrow account. 
Bailey was the last witness to testify.  He testified regarding his 
relationship to Maryann McConnell and his loan obligation to her.  He stated 
that McConnell was a friend and neighbor whom he had dated briefly.  She 
had made a personal loan to him of $30,000.  When their relationship ended, 
they had an agreement for Bailey to repay the loan very promptly in $5000 
weekly installments. 14  He testified regarding his conversation with Wetzel 
about repaying the McConnell debt from the Firm’s operating account.  His 
testimony agreed with Wetzel’s regarding the informality of their accounting 
to each other as partners.  Bailey specifically denied that he ever directed 
Cook to transfer money from the escrow account to the operating account to 
                                                 
14 Following the hearing, the ODC and Bailey filed a posthearing stipulation reflecting that 
Bailey’s first $5000 payment to Maryann McConnell came from Bailey’s personal account, which 
contradicted Cook’s testimony regarding the first payment being made directly to McConnell’s attorney 
from the Firm’s operating account. 
 
 
 
18
pay any expenses or to cover shortages in the operating account.  He 
testified that Cook had never informed him that the Firm was having 
difficulties meeting its financial obligations.  Nor did Cook tell him that 
there were insufficient funds in the operating account to cover the checks to 
McConnell.  Bailey again expressed remorse and accepted responsibility for 
the past delinquencies in the Firm’s bookkeeping functions and the Firm’s 
past tax delinquencies. 
The Board’s Decision 
 
After considering all of the evidence presented, the Board, in a 49-
page opinion, rejected the stipulation and recommended sanction of a public 
reprimand and probation.  The Board acknowledged that Cook’s “demeanor 
did not leave the Board with great confidence in his credibility to the extent 
that his testimony stood alone and was not corroborated directly or 
indirectly.”  Nonetheless, the Board found clear and convincing evidence 
that Bailey’s misconduct was intentional, knowing or at least reckless based 
on the following facts: 
 
(a) There were not funds in the trust account against which each 
of these trust checks could properly be drawn; 
 
 
(b) Cook “covered” each such check by a notation of a “deposit 
in transit;” 
 
 
 
19
 
(c) Cook was merely the firm’s bookkeeper and had no direct 
stake in the financial success of the firm, and thus no motive to act 
improperly on his own; 
 
 
(d) During the period January-July 1999, the Firm’s operating 
account was plagued with repeat overdraft balances; 
 
 
(e) The “deposit in transit” necessary to cover the $27,800 in 
improper withdrawals from the firm’s trust account was never made to 
the account until November 2000 at the time of the first audit; and  
 
 
(f) Bailey admitted that he had asked Cook to write the checks 
to McConnell for his personal debt but could not explain why he had 
not had the firm’s check made payable directly to him so that he could 
use a personal check to pay McConnell.  Although the checks were 
income to Bailey or at least a loan to Bailey from the corporation, 
Bailey could not explain why the checks were booked as 
“legal/accounting” expenses, and he could not explain how he 
intended to properly account for the checks to his partner. 
 
Specifically, the Board stated in its opinion: 
Even if we credit Bailey and discredit Cook in terms of their 
testimony regarding whether Bailey explicitly directed Cook to invade 
client trust funds, the fact remains that Bailey knowingly caused 
$26,500 in personal expenses to be satisfied by extraordinary charges 
against the Firm operating account over and above his normal draw.  
If the operating account were repeatedly in an overdraft condition 
anyway, Bailey had to know that a natural consequence of his acts 
was that money had to be moved from some account to cover these 
draws.  The only account of which we are aware that could have 
provided the money was the trust account.  As managing partner, 
Bailey had to know that there were insufficient firm funds in the trust 
account to cure any overdraft balances, otherwise, firm funds could 
simply have been moved to cover the overdraft balances in the 
operating account.  Hence, Bailey knew (at least insofar as one is 
presumed to intend the natural and probable consequences of his acts), 
that by the extraordinary expenditure of funds to satisfy the 
McConnell debt, client trust funds would have to be, and were, 
invaded. 
 
 
20
 
The Board concluded that “Cook would not have acted improperly 
without Bailey’s knowledge and direction, including his invasion of client 
trust funds.”  Based on its finding of knowing misconduct, the Board found 
Bailey’s case distinguishable from the disciplinary cases cited by the parties 
as precedent.  The Board found that the decisions in In re Benson15 and In re 
MacPherson-Johnson,16 both of which resulted in public reprimands to the 
respondents, did not involve misappropriation of client trust funds or 
reckless behavior and, thus, did not control the outcome of Bailey’s case.  
Instead, the Board concluded that Bailey’s case was more analogous 
to In re Figliola.17  Figliola had been found in violation of several 
disciplinary rules based upon his diversion of certain earned fees of his firm 
for his personal benefit and for improperly disbursing trust funds belonging 
to one client to satisfy a judgment for another client.  Despite substantial 
mitigating factors, including Figliola’s lack of a prior disciplinary record, his 
cooperation with the ODC, and his complete restitution of the funds in 
question, this Court ordered Figliola to be suspended for six months and a 
day.18   
                                                 
15 774 A.2d 258 (Del. 2001). 
16 2001 WL 760866 (Del. June 14, 2001). 
17 652 A.2d 1071 (Del. 1995). 
18 Id. at 1077. 
 
 
21
In Bailey’s case, the Board found the precedent in In re Figliola 
didactic.  Based upon its finding of clear and convincing evidence that 
Bailey’s misconduct was “intentional or, at least, reckless,” the Board 
concluded that Bailey should be suspended for a period of six months and a 
day followed by a three-year period of probation.19   
Parties’ Contentions on Appeal 
Both Bailey and the ODC have filed objections to the Board’s Report 
and Recommendation.  Bailey raises three arguments in support of his 
objections:  (i) the Board proceedings violated his right to due process; (ii) 
the Board’s finding of intentional or knowing misconduct is not supported 
by substantial evidence; and (iii) even if this Court sustains the Board’s 
factual findings, the recommended sanction of suspension is not consistent 
with the ABA Standards or Delaware precedent.  The ODC agrees with 
Bailey’s latter two contentions but disputes the former.  
After considering the parties’ respective positions, the Court requested 
the Lawyers’ Fund for Client Protection (the Lawyers’ Fund) to file an 
amicus brief addressing two questions:  (1)  What is the responsibility of the 
managing partner of a law firm to know the status of that firm’s books and 
                                                 
19 The Board’s opinion reflects that the Board, in fact, had considered recommending a lengthier 
suspension. 
 
 
22
records, particularly under Rule 1.15 of the DLRPC? and (2) Is the sanction 
recommended by the Board appropriate?   
The Lawyers’ Fund, without addressing the propriety of the Board’s 
specific findings in Bailey’s case, contends in its briefing that: (i) the 
managing partner of a law firm is responsible for the integrity of the firm’s 
books and records, including compliance with Rule 1.15; and (ii) if Bailey 
intentionally or knowingly failed to fulfill his responsibilities as managing 
partner, then the Board’s recommended sanction is appropriate, absent 
mitigating circumstances. 
Supreme Court Review 
 
This Court has an obligation to review the record independently and 
determine whether there is substantial evidence to support the Board’s 
factual findings.20  The Board’s conclusions of law are subject to de novo 
review.  We address Bailey’s claims seriatim. 
 
A. 
Due Process 
 
With respect to his due process claim, Bailey asserts that the Board’s 
extensive examination of witnesses exceeded the proper scope of permissive 
questioning by the Board and deprived Bailey of his right to a full 
adversarial hearing.  As a result, Bailey contends, the Board’s findings and 
                                                 
20 In re Reardon, 759 A.2d 568, 575 (Del. 2000). 
 
 
23
recommendation were an abuse of the Board’s discretion and should be 
disregarded by the Court.   
In the first instance, we note that Bailey did not raise these objections 
to the Board’s proceedings below.21  Moreover, there is simply no legal 
support for Bailey’s position.  Disciplinary proceedings are sui generis 22 
and are only governed by the Superior Court Rules of Civil Procedure to the 
extent practicable.23  Accordingly, we find Bailey’s citation to case law 
involving civil and criminal jury trials to be unpersuasive. 
In this case, Bailey and the ODC presented a stipulated set of facts.  It 
was the Board’s responsibility to test the stipulation and satisfy itself that the 
record, in fact, supported the stipulation.  To the extent the Board had 
questions about the stipulated facts, it was the Board’s obligation to resolve 
those questions of fact by requesting any additional information it deemed 
appropriate to make a well-reasoned adjudication.  Bailey was given every 
opportunity to present evidence in support of the stipulation.  The Board 
raised its concerns to the parties and requested additional information.  The 
additional information was presented, and the parties were given the 
opportunity to respond and to present rebuttal testimony and argument in 
                                                 
21 DEL. SUPR. CT. R. 8. 
22 DEL. LAWYERS’ R. DISCIPLINARY PROC. 15(a). 
23  Id. Rule 15(b). 
 
 
24
support of the stipulation.  Under these circumstances, there is no merit to 
Bailey’s contention that the Board proceedings denied him due process.24 
 
B. 
Knowing Misconduct 
 
Bailey next contends, and the ODC agrees, that the record does not 
support the Board’s finding of knowing misconduct.  The crux of the parties’ 
argument is that the only evidence to support a finding of knowing 
misconduct was Cook’s testimony, which was not credible.  Both parties 
assert that Cook’s knowing invasion of client trust funds cannot, under the 
circumstances presented, be attributed to Bailey.  At most, the parties argue, 
Bailey was negligent in failing to heed the risks that Cook might knowingly 
invade client trust funds. 
 
We must independently review the record to determine if there is clear 
and convincing evidence to support a finding of knowing misconduct.25  
Clear and convincing evidence is evidence that produces an abiding 
conviction that the truth of the contentions is “highly probable.”  Under the 
DLRPC, “knowing” misconduct denotes “actual knowledge of the fact in 
                                                 
24 Cf. In re Kennedy, 472 A.2d 1317, 1328 (Del. 1984) (finding no due process violations in 
lawyer disciplinary proceeding when Board members charged with investigating a lawyer’s misconduct 
were later involved in adjudicating different allegations of misconduct), cert. denied, 467 U.S. 1205 (1984). 
 
25 In re Rowe, 566 A.2d 1001, 1006 (Del. Jud. 1989). 
 
 
25
question.”26  Because a person is presumed to intend the natural 
consequences of his or her actions, we have held that “knowing” misconduct 
may be inferred from the circumstances.27  
 
We find substantial evidence in the record to support a finding of 
Bailey’s knowing misconduct for several reasons.  First, Cook testified 
unequivocally that Bailey instructed him on at least one occasion to transfer 
escrow funds to the operating account.  This unqualified, sworn statement, 
even in light of the other inconsistencies in Cook’s testimony and the 
contrary testimony of Bailey and others, serves as clear and convincing 
evidence to support the Board’s finding that Bailey engaged in knowing 
misconduct.  It was well within the purview of the Board to accept a portion 
of Cook’s testimony and to reject any inconsistent testimony.28   
Second, as the Board pointed out, Cook’s testimony was not the only 
evidence of Bailey’s knowing misconduct with respect to the invasion of 
client trust funds.  The stipulated facts reflected that the Firm’s operating 
account was repeatedly in an overdraft condition over an extended period of 
time.  Bailey, as the managing partner, knew or should have known of the 
Firm’s financial difficulties.  Notwithstanding the overdrafts plaguing the 
                                                 
26 DEL. LAWYERS’ R. PROF. CONDUCT Terminology. 
27 In re Lassen, 672 A.2d 988, 996 n.9 (Del. 1996). 
28 See Tyre v. State, 412 A.2d 326, 330 (Del. 1980). 
 
 
26
Firm’s operating account, Bailey knowingly directed $26,500 in personal 
expenses to be satisfied by charges against the Firm’s operating account.  
Bailey should have known that payment of these extraordinary expenditures 
for personal reasons would cause the Firm to fall even further behind in 
meeting its own financial obligations and would necessitate transferring 
funds into the operating account to cover Firm expenses.  The record reflects 
that the escrow account was the only viable source of funds to cover the 
operating account shortfalls.   
Consequently, we find substantial evidence to support the Board’s 
conclusion that, “Bailey knew (at least insofar as one is presumed to intend 
the natural and probable consequences of his acts), that by the extraordinary 
expenditure of funds to satisfy the McConnell debt, client trust funds would 
have to be, and were, invaded.” 
Finally, even if we concluded there was no evidence that Bailey 
explicitly or implicitly directed the invasion of client trust funds, we still 
find clear and convincing evidence on this record that Bailey engaged in 
knowing misconduct.  We agree with the Lawyers’ Fund’s assertion that the 
“sustained and systematic failure”29 of a managing partner to supervise a 
firm’s employees to ensure compliance with Rule 1.15 may not be 
                                                 
29 In re Caremark Int’l, Inc. Derivative Litig., 698 A.2d 959, 971 (Del. Ch. 1996). 
 
 
27
characterized as simple negligence.30  A lawyer who accepts responsibility 
for the administrative operations of a law firm stands in a position of trust 
vis-à-vis other lawyers and employees of the firm. The managing partner 
must d`ischarge those responsibilities faithfully and diligently.31 
                                                 
30 The ODC appears to agree with this assertion as a general proposition, although the ODC 
disputes that it applies in Bailey’s case.  For many years, every Delaware lawyer has been required to file a 
Certificate of Compliance as part of Annual Registration.  The current direction from the Supreme Court to 
each member of the Bar, which is representative of the form used in previous years states, in part: 
   The Certificate of Compliance is a component of the ... Annual Registration Statement.  
The purpose of the Certificate is to make lawyers more aware of record-keeping 
requirements and to increase compliance with Rule 1.15 of the Delaware Lawyers’ Rules 
of Professional Conduct.... 
   Lawyers should be aware that their Certificates of Compliance to the Delaware 
Supreme Court are personal statements from each Delaware lawyer....  [A]ll Delaware 
law firms are urged to implement, as well as formally document, the necessary internal 
procedures so that all lawyers at such firms can make the appropriate certifications.  For 
example, if the managing partner of a law firm personally certifies to all of its lawyers 
that the firm is in compliance, it would generally be reasonable for such lawyers to 
complete the Certificate in reliance upon the managing partner’s certification.... 
The Certificate of Compliance by the Managing Partner states: 
This Certificate of Compliance and the Banking and Recordkeeping section (page 5) 
are being completed in reliance upon the certification of the managing partner of my law 
firm that my firm is in compliance. 
Yes__________ No__________ Name of Managing Partner:_______________________ 
   The provisions listed above are not intended to be all-inclusive.  The Delaware 
Lawyers’ Rules of Professional Conduct should be reviewed in their entirety to make 
certain that you are in compliance with all of their provisions. 
 
31  The responsibilities placed on a managing partner under the Delaware Lawyers’ Rules of 
Professional Conduct currently in effect are consistent with the new Rules, including Rule 5.1 of the new 
Rules that will become effective July 1, 2003.  These new Rules were promulgated by this Court by Order 
dated April 29, 2003.  New Rule 5.1 refers to lawyers in a firm who have “managerial authority.”  
Comment [2] of new Rule 5.1 that will become effective on July 1, 2003, provides: 
Paragraph (a) requires lawyers with managerial authority within a firm to make 
reasonable efforts to establish internal policies and procedures designed to provide 
reasonable assurance that all lawyers in the firm will conform to the Rules of Professional 
Conduct.  Such policies and procedures include those designed to detect and resolve 
conflicts of interest, identify dates by which actions must be taken in pending matters, 
account for client funds and property and ensure that inexperienced lawyers are properly 
supervised. 
 
 
28
 
Although a managing partner cannot guarantee absolutely the integrity 
of the firm’s books and records, it is the managing partner’s responsibility to 
implement reasonable safeguards to ensure that the firm is meeting its 
obligations with respect to its books and records.32  As the Lawyers’ Fund 
points out, meeting these responsibilities need not pose an onerous burden 
for the managing partner.33  It is, however, a serious responsibility.  This 
Court has emphasized the importance of a lawyer’s obligation to maintain 
accurate books and records and the serious risks of harm to the lawyer’s 
clients that arise when a lawyer fails to act consistently with this obligation.  
The record reflects that Bailey knowingly failed to exercise even a modicum 
of diligence in supervising the maintenance of the Firm’s books and records 
and that his indifference and inattention endured without correction until the 
Lawyers’ Fund audit.  Had Bailey attempted to exercise any controls over 
the maintenance of the Firm’s books and records, the invasion of client trust 
funds could easily have been avoided or, at the very least, timely rectified. 
                                                 
32 See In re Irizarry, 661 A.2d 275, 277 (N.J. 1995) (“An attorney’s duty to preserve clients’ funds 
. . . is nondelegable.  Lawyers may not absolve themselves of the misappropriation of funds by delegating 
to employees the authority to complete signed checks and then failing to supervise those employees.”). 
33 In its brief, the Lawyers’ Fund points out several simple, common-sense tools that a managing 
partner may employ to fulfill his or her supervisory duties, such as periodic review of employee 
performance, employing outside auditors, implementing operational systems to ensure as far as practicable 
compliance with the Rules, and requiring co-signatures on any escrow check in order to control access to 
the account.  Prior to the Lawyers’ Fund audit, Bailey had no system for overseeing the Firm’s 
bookkeeping functions other than “eyeballing” records on an ad hoc basis.  For someone who professed no 
understanding of bookkeeping, it defies logic that Bailey relied only on his own “eyeball” checks to ensure 
compliance with his bookkeeping obligations. 
 
 
 
29
  
C. 
Appropriate Sanction 
 
Bailey’s final argument, which the ODC concedes, is that, even if this 
Court upholds the Board’s factual findings, the Board’s recommended 
sanction of suspension is not supported by either the ABA Standards for 
Imposing Lawyer Discipline (“ABA Standards”) or prior Delaware cases.  
As the parties point out, while the Board’s recommendation on the 
appropriate sanction is helpful to the Court, it is not binding.34  The Court 
has wide latitude in determining the form of discipline, and we will review 
the recommended sanction to ensure that it is appropriate, fair and consistent 
with our prior disciplinary decisions. 35 
The objectives of the lawyer disciplinary system are to protect the 
public, to protect the administration of justice, to preserve confidence in the 
legal profession, and to deter other lawyers from similar misconduct.36  To 
further these objectives and to promote consistency and predictability in the 
imposition of disciplinary sanctions, the Court looks to the ABA Standards 
for Imposing Lawyer Sanctions as a model for determining the appropriate 
discipline warranted under the circumstances of each case.37 The ABA 
framework consists of four key factors to be considered by the Court: (a) the 
                                                 
34 In re Mekler, 669 A.2d 655, 668 (Del. 1995). 
35 See In re Reardon, 759 A.2d 568, 580 (Del. 2000). 
36 In re Figliola, 652 A.2d 1071, 1076 (Del. 1995). 
37 In re Reardon, 759 A.2d at 575-76. 
 
 
30
ethical duty violated; (b) the lawyer=s mental state; (c) the extent of the 
actual or potential injury caused by the lawyer=s misconduct; and (d) 
aggravating and mitigating factors.38   
Bailey’s misconduct in this case violated his duties to his clients, to 
the lawyers and employees of the Firm, to the legal system, and to the 
profession.  His sustained and systematic failure to exercise even a modicum 
of diligence with respect his recordkeeping and tax obligations reflected a 
knowing disregard of his duties as managing partner and created the 
potential for serious injury.   
As an initial matter, therefore, we conclude that ABA Standard 4.12 
applies, in the absence of aggravating or mitigating circumstances.  ABA 
Standard 4.12 provides:  “Suspension is generally appropriate when a lawyer 
knows or should know that he is dealing improperly with client property and 
causes injury or potential injury to a client.”  Having concluded that 
suspension appears to be warranted, the Court now must consider any 
aggravating or mitigating factors that might compel us to impose a greater or 
lesser sanction.39   
                                                 
38In re Lassen, Del. Supr., 672 A.2d 988, 998 (1996). 
39 In re Reardon, 758 A.2d at 577-78. 
 
 
31
 
The parties stipulated that Bailey’s substantial experience in the 
practice of law and his pattern of misconduct were both aggravating factors 
in this case.  The stipulated mitigating factors were Bailey’s lack of a prior 
disciplinary record, his extensive remedial efforts, his cooperation with the 
disciplinary process, the imposition of other penalties (penalties and interests 
of taxing authority and substantial costs of remedial efforts), and his 
remorse. 
 
Although the stipulated mitigating factors are greater in number, we 
conclude they do not outweigh the aggravating factors in order to justify a 
lesser sanction than suspension.40  Bailey’s sustained and systematic 
disregard for his obligations was not, as the parties argue, mere negligence.  
His knowing misconduct created palpable risks of serious harm to his clients 
and to others in his Firm who relied upon him to discharge his 
responsibilities in a diligent manner.  We are unpersuaded that a lesser 
sanction than suspension is justified because serious harm did not actually 
result. 
 
Moreover, we find that the sanction of suspension is more consistent 
with our relevant prior precedent.  We agree with the Board’s conclusion 
that Bailey’s position as managing partner and his knowing misconduct, 
                                                 
40 See In re Howard, 765 A.2d 39, 44 (Del. 2000). 
 
 
32
which caused the invasion of client trust funds, distinguish this case from 
this Court’s prior decisions imposing public reprimands for bookkeeping and 
related rule violations.41  We with the Board that Bailey’s case is more 
analogous to the case of In re Figliola.42  Like Figliola, Bailey has no prior 
disciplinary record, has made full restitution, and has cooperated fully with 
the ODC.  Notwithstanding these substantial mitigating factors, however, we 
concluded that Figliola should be suspended for six months and one day 
given his “knowing and reckless misappropriation of Firm and client 
funds.”43  We find the same sanction appropriate here. 
Conclusion 
 
For the foregoing reasons, Bailey shall be suspended from the practice 
of law for a period of six months and one day beginning June 1, 2003.  
Bailey may seek reinstatement on or after December 1, 2003.  If Bailey 
seeks reinstatement, a panel of the Board should determine at that time 
whether further probation is appropriate and, if appropriate, whether 
conditions should attach.  Pursuant to Supreme Court Rule 18, the time 
within which a motion for reargument may be filed in this matter is 
shortened to seven days from the date of this Opinion. 
                                                 
41 See, e.g., In re Benson, 774 A.2d 258 (Del. 2001); In re MacPherson-Johnson, 2001 WL 
780866 (Del. June 14, 2001). 
42 652 A.2d 1971 (Del. 1995). 
43 Id. at 1077. 
 
 
33