Opinion ID: 1176246
Heading Depth: 1
Heading Rank: 1

Heading: the bennatt sale

Text: Mr. and Mrs. William Bennatt sold their store in Antelope to the Rajneesh Investment Corporation (RIC). The Bar's complaint alleged that the accused represented the RIC in this transaction. The accused denied this, and the Bar admits that the allegation misidentified his client; but although the complaint was not further amended, the accused makes nothing of this. The parties and the Trial Panel proceeded on the premise that the accused represented the Bennatts. He also acted as the escrow agent in the transaction, but because the Bar did not charge him with a conflict of interest, [1] we shall not pursue that question. The crux of the complaint is that the parties agreed to prorate unpaid property taxes, the Bennatts to pay the taxes accrued prior to March 3, 1982. The accused asserted on the closing statement that the taxes had been paid, and he withheld from the funds he disbursed to the Bennatts a sum sufficient to pay them, but he did not in fact transmit the sum due the tax collector. RIC brought this to his attention by a letter of October 22, 1983, including copies of the closing statement showing that money had been reserved to pay the taxes. The accused responded that he had made a mistake and would immediately take steps to pay the taxes and accrued interest, but the taxes remained unpaid. The accused finally paid them by two checks on April 4 and 29, 1985, the month after the RIC wrote a letter of complaint to the Bar. The Bar charged, and the Trial Panel found, that the accused engaged in conduct involving dishonesty, fraud, deceit or misrepresentation, DR 1-102(A)(3), former DR 1-102(A)(4); [2] that he neglected a legal matter entrusted to him, DR 6-101(B); [3] that he failed to comply with the obligation to keep client funds in a trust account, DR 9-101(A); [4] and that he failed to maintain complete records of a client's funds and account to the client for them, DR 9-101(B)(3). [5] Aside from the first charge, the evidence leaves no doubt of these violations. [6] Only the charge of dishonest conduct requires extended discussion. The initial portion of this discussion is general and relates to the charges of dishonest conduct arising in both the first and second causes of complaint. At the outset, it is important to distinguish between a charge of dishonesty by misappropriation [7] under DR 1-102(A)(3) and a charge of failing to maintain funds in a trust account under DR 9-101(A). Though conduct leading to the latter charge often precedes conduct leading to the former charge, the two are not the same. A lawyer may remove money from a trust account (a violation of DR 9-101(A)) before intentionally appropriating that money for the lawyer's own purposes (a violation of DR 1-102(A)(3)), but removal of money from a trust account does not necessarily constitute an intentional misappropriation. The difference between the two is reflected in the sanctions. If the Bar can prove a lawyer guilty of dishonesty by intentionally appropriating clients' funds to the lawyer's own use, the sanction is disbarment. See, e.g., In re Laury, 300 Or. 65, 76, 706 P.2d 935 (1985). Failing to maintain funds in a trust account does not require intent, and it carries a much lesser sanction. See, e.g., In re Mannis, 295 Or. 594, 597, 668 P.2d 1224 (1983) (failing properly to deposit or maintain funds in a trust fund is a strict liability offense, lawyer reprimanded). In re Holman, 297 Or. 36, 682 P.2d 243 (1984), analyzed a charge of dishonesty under DR 1-102(A)(3) ( former DR 1-102(A)(4)). After stating that intentional appropriation of client funds to a lawyer's own use if established    is sufficient to result in disbarment, id. at 56, 682 P.2d 243, the court noted that the violation has three elements: (1) A lawyer (2) engaging in conduct (3) involving dishonesty. Id. at 57, 682 P.2d 243. As to the first element, it is not necessary that the lawyer be acting in his capacity as a lawyer rather than, for instance, as a trustee, in some other fiduciary capacity, or as an escrow agent. The second element required little discussion in that case. On the third element, the court wrote: The remaining question is whether that conduct `involved dishonesty.' The grouping of the noun `dishonesty' with the other three nouns, `fraud, deceit or misrepresentation,' might suggest that in order for conduct to involve dishonesty it must partake of some kind of deception in the sense of misleading the victim of the conduct. We do not so conclude. Embezzlement is dishonesty. We hold that a lawyer who holds money in trust for another and converts that money to his own use has engaged in conduct `involving dishonesty' within the meaning of DR 1-102(A)(4).  Id. at 57-58, 682 P.2d 243 (emphasis added). The remaining inquiry in Holman therefore was whether the accused took and withheld the property with intent to appropriate that property to himself. Id. at 66, 682 P.2d 243. The burden of proving clearly and convincingly both that the accused took the property and that he had the requisite intent is on the Bar, and it does not shift to the accused. Id. at 67, 682 P.2d 243. However, the burden may be satisfied by drawing inferences from the evidence. Id. In Holman, the evidence consisted largely of check stubs showing that the accused had written checks to himself or to cash on his office client trust account and either deposited them in his general office account or cashed them outright. There was little if any evidence showing for what the money actually had been used. The court stated that this was sufficient evidence to permit an inference that the accused had the necessary intent to make him guilty. Id. at 67, 682 P.2d 243. The accused, however, brought forward evidence tending to show that at the time of the transfers, abuse of prescription drugs and alcohol had so impaired his mind that he had been unable to realize that what he was doing was improper. This evidence caused the court to doubt that the accused had the necessary intent to convert the funds to his own use. The court therefore found Holman not guilty of violating the dishonesty disciplinary rule. Holman shows that organic disability can negate the intent necessary for a violation of DR 1-102(A)(3). The present accused makes no such claim, but he denies that he had the requisite intent to appropriate the funds to himself. The accused does not dispute that he withdrew the funds, but he claims that he did not know that he was withdrawing funds to which he was not entitled because of his negligent record-keeping. He asserts that whenever he withdrew funds from the trust account, he believed that he was doing so properly, and denies that he intentionally appropriated the funds to himself. The question therefore is whether the Bar has produced clear and convincing evidence of an intentional misappropriation. The Trial Panel's opinion is ambivalent on this question. On the one hand, the panel concluded that the accused had violated DR 1-102(A)(3), which assumes that the panel found dishonest conduct. On the other hand, in discussing sanctions, the trial panel stated: There has not been established by clear and convincing evidence any dishonest or selfish motive in any of the charges before the panel. The Trial Panel quoted from Justice Lent's concurring opinion in In re Smith, 292 Or. 84, 102-03, 636 P.2d 923 (1981), passages referring to an innocent conversion that does not require disbarment, and it continued: This is not to suggest that the conversion of funds in this case can in any way be condoned because of the current lack of records which could be utilized to establish the transfer or absence of funds but only to say that in this record there is insufficient clear and convincing evidence to so find the conduct at the more reprehensible end of the conversion spectrum or one founded in evil intent. We disagree with the Trial Panel that the Bar's evidence in this case does not compel the inference that the accused had the necessary intent to appropriate the funds to himself. The Bar's evidence concerning the trust account is the monthly bank statement for the account, containing the usual record of check numbers and their amounts, deposits, and withdrawals other than checks. There is direct evidence showing that several checks that drained the trust account were made out to the accused by the accused with no record by him what he did with the funds. [8] There existed at one time three sources of this information: the accused's own account records (including ledger cards for individual files), the check stubs, and the microfiche copies of each check that banks make at the time the checks are cleared through the bank. The accused testified that his former girlfriend, Mary Ann Love, had destroyed or hidden his account records and cancelled checks. Mary Ann Love testified that she had neither destroyed nor hidden those records; the accused had taken all his belongings with him when he moved out of her house. The Trial Panel did not resolve the credibility of this conflicting testimony when it made its findings, but, irrespective of Love's testimony, we are convinced from examining the written record that the accused lied. In simple terms, we conclude that the accused took the money from the trust account for his own use. This conversion of funds was an act of dishonesty warranting disbarment. To round up the remaining evidence relating to the charges of dishonesty in this and the following cause of complaint, there is evidence that the accused was in severe financial straits during the period that the money was withdrawn. The accused admitted that he never balanced the trust account (defined by the questioner as sit[ting] down and work[ing] through the account to simply see where it was) during the period in question. The evidence that the accused made out the checks from his trust account to himself with no explanation allows an inference that the accused intended to appropriate the tax funds to his own use when he withdrew them from the trust account. We find clear and convincing evidence that the accused had the necessary intent. Therefore, we hold that the Bar has proven a violation of DR 1-102(A)(3) in connection with this matter.