Opinion ID: 1866152
Heading Depth: 1
Heading Rank: 1

Heading: First Count: [1] Peterson Estate Fund Violations

Text: On February 8, 1982, Gray & Lochow requested and received $75,000 from Peterson. Respondent deposited the $75,000 in the firm's trust account at Fargo National Bank, then returned $10,000 to Peterson to open an estate account. There is some dispute as to how the remaining $65,000 was to be used. Respondent claims that his understanding with Gray was that the $65,000 was to be used to pay expected attorney fees; however, respondent admits that he never discussed or confirmed this with Peterson. Nothing was memorialized in writing. Two other transactions occurred on February 8, 1982. Respondent transferred $7,500 from the trust account to the Gray & Lochow business account. This was done without Peterson's knowledge or consent. Also on this date, Gray withdrew $2,500 from the trust account for his own use and then transferred the remaining $55,000 to a Merrill Lynch cash management account (CMA), all without Peterson's knowledge or consent. These latter transactions by Gray were made also without respondent's consent; however, when he did learn of the transactions, he did not act to reverse them. The Merrill Lynch CMA was not a properly administered trust account. The referee found, however, that respondent believed that the CMA was a trust account at the time it was opened. The first monthly statement had a trust account designation on it although this was dropped after Merrill Lynch determined that it could not be used as a trust account. The CMA could be, and was, used to pay, among other things, credit card charges and checks issued by the account holders. From February 1982 through December 1983, respondent and Gray withdrew $25,700 on checks made out to Gray & Lochow from the CMA with respondent's knowledge and consent. During this time period, respondent individually withdrew $2,250 from the CMA. In addition to the $2,500 that Gray withdrew in February 1982, from March 1982 through June 1983, Gray individually withdrew a total of $13,000 from the CMA through credit card charges or cash withdrawals. According to the findings of the referee, respondent did not know of Gray's transfers and credit card charges until they appeared on the monthly statement for the CMA. He did nothing to report these withdrawals to Peterson. On April 28, 1982, respondent requested a $7,500 retainer from Peterson, which she sent and which respondent deposited in the Gray & Lochow trust account. On December 31, 1982, $21,250 was transferred from the CMA to the Gray & Lochow trust account. On November 1, 1983, respondent requested an additional $7,500 retainer from Peterson. This time, however, she did not send respondent the funds, but authorized him to withdraw the $7,500 from the trust account. From January 1, 1983, through December 1985, respondent periodically withdrew the remaining $21,250 from the trust account, including the interest earned. Except for the authorization from Peterson for $7,500 in November 1983, all transfers and withdrawals were made without Peterson's explicit knowledge or consent. The referee found that, based on respondent's understanding that the Peterson funds were to be used for payment of legal fees (an understanding which Gray communicated to respondent but which respondent did not confirm with Peterson), the periodic withdrawals were intended as payment for services which had been or would be rendered. Respondent admits that the procedures utilized in withdrawing funds were inappropriate because: (1) he did not send periodic billings to Peterson to account for the funds; (2) he did not advise her of withdrawals as they occurred; and (3) he failed to preserve appropriate records to substantiate the withdrawals, including a record of services performed, the time devoted thereto, and the reasonable value thereof. Accordingly, respondent admits that the withdrawals from the Peterson funds violated DR 9-102(A)(2), Minn.Code Prof.Resp. (1985) and Minn.R.Prof.Conduct 1.15(a)(2). He also admits that the CMA was not a properly administered trust fund and violated DR 9-103, Minn.Code of Prof. Resp. Furthermore, respondent's failure to provide periodic accounting to Peterson for claimed fees violated DR 9-102(B)(3), Minn.Code of Prof.Resp. and Minn.R.Prof. Conduct 1.15(b)(3). Finally, the withdrawals by means other than check from the CMA and trust account violated Lawyers Professional Board Opinion No. 11.