Opinion ID: 1484115
Heading Depth: 2
Heading Rank: 1

Heading: Count I Charges: Respondent's Representation of Mr. Green

Text: These charges allege that Respondent: (1) Misappropriated a portion of the $2,000 that Mr. Green gave Respondent in violation of Rule 1.15(a); (2) Failed to deliver the rest of those funds to him and render a full accounting upon his request in violation of Rule 1.15(b); (3) Failed to take timely steps to surrender the remainder of those funds to him after her representation of him ended in violation of Rule 1.16(d); (4) Failed to maintain and preserve for five years complete financial records demonstrating how she handled Mr. Green's funds in violation of Rule 1.15(a) and D.C. Bar R. XI, § 19(f); and (5) Failed to keep Mr. Green reasonably informed about the status of his bankruptcy matter in violation of Rule 1.4(a). The first three charges relate to Respondent's alleged mismanagement of her client's funds. Before examining those charges, the Committee first addressed a threshold question: whether the $2,000 Mr. Green gave Respondent belonged to him or to Respondent. We do the same and conclude, as did the Committee, that the $2,000 (and then the remaining $1,000) were client fundsto be held in escrow for his purposes. At the hearing, Respondent testified that Mr. Green brought the $2,000 check to her on May 17, 1995, at least in part to cover past and future attorney's fees. Tr. at 140-42. There is substantial record evidence, however, that Respondent believed the entire $2,000 was Mr. Green's funds, to be held on his behalf as part of negotiations with his creditors. In Respondent's 1997 letter to Bar Counsel, which represented the first substantive response to Mr. Green's allegations in this matter and Respondent's best recollection of her representation of him at the time, she wrote: Mr. Green brought funds into the office in May 1995 to attempt to settle or secure a forbearance for the arrears on his mortgage.... In July 1995, Mr. Green requested and received back $1,000 of the money. After considering the amounts owed for services and review of his case, Mr. Green is entitled to a refund. BX 9 at 31-32. During her testimony (nine years later), Respondent claimed that her memory was hazy when writing the earlier response and that, having recently managed to speak with Mr. Johnson about Mr. Green's representation, she was reminded that Mr. Green had urgently requested that she continue representing him and that he paid attorney's fees in May 1995. Tr. at 168-71. She also was reminded that Mr. Green would usually indicate the specific purpose for which he intended his money to be used, and, because Mr. Green's $2,000 cashier's check did not reflect any such purpose, she concluded (eleven years after the event) that the money was meant to cover attorney's fees. Tr. at 172-73. The Committee did not find Respondent's 2006 testimony on this threshold issue to be credible. Having reviewed the evidentiary record, the Board is in agreement. As stated by the Committee, even if it were inclined to give more weight to Respondent's 2006 memory versus her 1997 written response, there is additional independent evidence that Respondent viewed the $2,000 as Mr. Green's money. First, Respondent deposited Mr. Green's check into her escrow account, not her operating account. BX 14 at 57-59. [5] Respondent did not provide Mr. Green any type of receipt crediting him for paying attorney's fees and her May 7, 1997 statement summarizing the services she provided Mr. Green did not indicate any payment of attorney's fees beyond the initial $1,160. Tr. at 156-58; BX 9 at 33-34. Moreover, prior to his delivering the money, Respondent had not sent Mr. Green any invoices requesting payment for services beyond the one in 1994 requiring payment of the remainder of his initial $1,000 retainer fee. [6] Tr. at 96-99. Just two months after Mr. Green delivered the money, Respondent promptly returned $1,000 to Mr. Green at his request, writing a check drawn on her escrow account and marking the check as Return of funds from escrow. BX 16 at 125. If Respondent believed she was lending him her own money, she could have simply given him cash or a personal check. Tr. at 155-56. That Respondent also deposited $1,000 of personal funds into her escrow account that day to cover the $1,000 check from her escrow account was also telling to the Committee and the Board. BX 16 at 109, 113. The Committee concluded from this evidence that Respondent knew that these funds (the entire $2,000) were Mr. Green's property and not payment of attorney's fees. Hearing Committee Report (HC Rpt.) at 18. Finally, Respondent's April 1997 Response to Bar Counsel specifically defined these funds received from her client in May 1995 as non-fee escrow funds. BX 9 at 31-32. Mr. Green testified that he brought the money in to be held on his behalf and used as a part of negotiations with his creditors, and he said that Respondent and Mr. Johnson had discussed this plan and were in agreement on it. Tr. at 195, 274-76. Mr. Green, however, was not a credible witness before the Committee, and it based its findings and conclusions on the record of deposits and disbursements from Respondent's trust account and not on Mr. Green's testimony. HC Rpt. at 18-19. A substantial basis for the Committee's lack of faith in Mr. Green's testimony was that he could not keep his payment commitments under agreements negotiated by Respondent and, most importantly, overstated the funds that he had provided to Respondent in his Bar Counsel complaint. Therefore, all findings of the Committee that do not adopt Respondent's testimony were based only on Respondent's trust account records. Id. Having reviewed the record, the Board agrees with this assessment of the evidence. Having decided that the $2,000 belonged to Mr. Green, requiring it to be held in trust by Respondent, the Committee then analyzed each individual charge in this Count, finding that Bar Counsel proved by clear and convincing evidence that Respondent violated Rules 1.15(a), 1.15(b), 1.16(d), and D.C. Bar R. XI, § 19(f), but not that she violated Rule 1.4(a). The Board agrees with these conclusions, and with modification, adopts much of the Committee's well-reasoned legal analysis.
Rule 1.15(a) states, in relevant part, that a lawyer shall hold property of clients ... that is in the lawyer's possession in connection with a representation separate from the lawyer's own property and that such funds shall be kept in a separate account maintained in a financial institution. Our Court has repeatedly held that misappropriation includes any unauthorized use of a client's funds entrusted to his or her lawyer, including not only stealing but also unauthorized temporary use for the lawyer's own purpose, whether or not he or she derives any personal gain or benefit. See, e.g., In re Carlson, 802 A.2d 341, 347-48 (D.C.2002); In re Anderson, 778 A.2d 330, 335 (D.C. 2001) (citing In re Harrison, 461 A.2d 1034, 1036 (D.C.1983)); In re Berryman, 764 A.2d 760, 768 (D.C.2000); In re Travers, 764 A.2d 242, 249-50 (D.C.2000); In re Pels, 653 A.2d 388, 393-94 (D.C.1995). In addition, misappropriation occurs whenever the balance in the attorney's escrow account falls below the amount due to the client, regardless of whether the attorney acted with an improper intent. It is essentially a per se offense. See In re Smith, 817 A.2d 196, 202 (D.C.2003); Carlson, 802 A.2d at 348; Anderson, 778 A.2d at 335; Berryman, 764 A.2d at 768. The record of Respondent's escrow account balances during June and July 1995 indicates that she misappropriated Mr. Green's money. After depositing his $2,000 cashier's check into her attorney trust account on May 19, Respondent made a number of other deposits and simultaneous cash withdrawals that left her escrow account balance at $10,436.77 on May 24. BX 14 at 55. She then wrote a series of checks that left the account balance at $1,489.30 on June 7, at -$11.30 on June 19, at -$36.30 on June 20, at $13.70 on June 21, at $913.70 on June 26, and then never higher than $913.70 by the time Mr. Green arrived at Respondent's office to get $1,000 back on July 19. BX 14 at 55; BX 15 at 81; BX 16 at 109. Thus, from June 7 until July 19, Respondent's escrow account balance remained below the $2,000 Mr. Green had given her to hold in trust. Additionally, after Respondent returned $1,000 to Mr. Green, her escrow account initially remained below the remaining $1,000 of his money she was required to hold in trust, rose above $1,000 for three days in late July, and then dropped below $1,000 from July 27 until at least August 7 (the last balance date included in the record). BX 16 at 109. By allowing her escrow account balance to drop below the amounts she owed him, there is no question that Respondent misappropriated Mr. Green's money. As noted in the Committee's Report, the important question for sanctions is whether Respondent's misappropriation resulted from mere negligence on her part, or whether she acted intentionally or recklessly, for in virtually all cases of misappropriation, disbarment will be the only appropriate sanction unless it appears that the misconduct resulted from nothing more than simple negligence. See Anderson, 778 A.2d at 335 (quoting In re Addams, 579 A.2d 190, 191 (D.C.1990) (en banc)); see also Pels, 653 A.2d at 396; In re Micheel, 610 A.2d 231, 233 (D.C.1992); In re Midlen, 885 A.2d 1280, 1288 (D.C. 2005) (noting that disbarment is almost invariably required if the attorney acts intentionally or recklessly in misappropriating client funds). In determining whether a misappropriation involves more than just negligence, the central issue ... is how the attorney handles entrusted funds, whether in a way that suggests the unauthorized use was inadvertent or the result of simple negligence, or in a way that reveals either an intent to treat the funds as the attorney's own or a conscious indifference to the consequences of his [or her] behavior for the security of the funds. Carlson, 802 A.2d at 348 (quoting Anderson, 778 A.2d at 339); see also Midlen, 885 A.2d at 1288. Here, Respondent's bank records reveal not only that she allowed her escrow account balance to drop below what she owed Mr. Green, but also that she used his money for her own purposes. When she deposited his $2,000 and two checks totaling $4,400 from Capitol Bus on May 19, 1995, she withdrew $1,400 in cash without noting on the deposit slip which client's $1,400 was withdrawn or why. BX 14 at 57. At the hearing, she claimed the $1,400 represented attorney's fees Mr. Green owed her; however, as discussed supra, that testimony is refuted by the record of her treatment of the $2,000 as Mr. Green's property. Tr. at 125. The next day, Respondent wrote a $5,016.77 check to the IRS on behalf of Capitol Bus, even though she had received only $4,400 from that client the day before. BX 14 at 69. Respondent claims that Capitol Bus provided her with additional money, but her bank records show no other deposits on behalf of that client around that time. Tr. at 128-38. Just before Respondent deposited the Capitol Bus checks, her escrow account balance stood at $336.77. BX 14 at 55. Thus, at least $280 of Mr. Green's money went toward covering the difference between what she received from Capitol Bus and what she paid out to the IRS on its behalf. Finally, when Mr. Green asked for $1,000 back, she was forced to deposit $1,000 of the money she had kept for her own purposes into her account before she could write him a check from her escrow account for that amount. BX 16 at 113, 125; Tr. at 150-51. If Respondent believed that the $2,000 were, in fact, her funds, she would have drafted a $1,000 check from her personal or operating fund account. The Board also finds it telling, as did the Committee, that Respondent's check returning $1,000 to her client carried the notation Return of funds from escrow. BX 16 at 125. Based on this evidence, the Committee concluded that Respondent intentionally misappropriated Mr. Green's funds. [7] She not only diverted his money to cover a shortfall involving another client but also used almost three-fourths of it in cash before unexpectedly being asked for half of it back two months later. The Board concurs in this conclusion. This case is not about sloppy billing for far less than the value of Respondent's legal services rendered her client, as posited in Respondent's brief. R Brief at 1, 12. Even if she had billed Mr. Green for additional work which she had not, she had absolutely no right to take money held for Mr. Green (his money) and convert it to payment of fees without his permission. Tr. at 96-100. It also is understandable that Addams wanted to be paid for his work and reimbursed for his expenses. He was entitled to this and he had the right to look to Ms. Jackson [his client] and to insist on prompt payment. He also had the right to pursue legal remedies against her, such as filing a lien. But he did not have, and he knew he did not have, the right to take money from the escrow account without her permission. Addams, 579 A.2d at 199. Addams also involved the retention of an attorney (the respondent) to hold funds of his client in order to stave off foreclosure on her home. Even though the respondent in Addams made good on the bounced check caused by his withdrawal of escrow funds for personal reasons, and successfully protected his client in the loss of her house, where client funds are involved, a more stringent rule is appropriate. Id. at 198. Whatever the need may be for the lawyer's handling of clients' money, the client permits it because he trusts the lawyer. Id. (quoting In the Matter of Wendell R. Wilson, 81 N.J. 451, 453-55, 409 A.2d 1153, 1154 (N.J.1979)). The breach of that trust is so reprehensible, striking at the core of the attorney-client relationship, that the respondent must carry a very heavy burden in rebuttal. Id. at 198-99.
Rule 1.15(b) requires a lawyer, after receiving funds or property in which a client... has an interest, to promptly deliver to the client ... any funds or other property that the client ... is entitled to receive and, upon request by the client ... promptly render a full accounting regarding such property. See Pels, 653 A.2d at 396 (finding a Rule 1.15(b) violation when an attorney kept $432 due a client out of his belief that the retainer agreement, providing that the client would pay administrative costs, entitled him to keep the money). Mr. Green's June 17, 1996 letter to Respondent does not specifically request an accounting of the money he left for her in trust; therefore, Respondent did not violate this rule by failing to provide one. See BX 2 at 3. She did violate the rule, however, by not returning the remaining $1,000. Mr. Green gave her his money; thus, by definition, he had an interest in it and was entitled to its return under Rule 1.15(b). Respondent herself advised in 1997 (as opposed to today) that Mr. Green was entitled to a refund. BX 9 at 31-32. By June 1996, the purpose for holding the fundsto be used as part of negotiations to convince G.E. Capital not to foreclose on Mr. Green's condominiumhad been rendered moot. The condominium had gone into foreclosure earlier that year. It should have been clear to Respondent that she needed to return the remaining $1,000 to Mr. Green when she learned that the condominium had gone into foreclosure  and certainly by the time Mr. Green filed his complaint. Whatever justification Respondent may have had for not initially responding to Mr. Green's letter ( see discussion infra Rule 1.4(a)), there is no excuse for not returning his money immediately. It is true that Respondent was entitled to be paid for her services. Respondent had devoted substantial time to Mr. Green's interest beyond the initial bankruptcy filing, creditor's meeting, and confirmation. BX 2 at 5. However, Respondent did not have the right to take money from the escrow account without her client's permission. Addams, 579 A.2d at 199. The Board agrees with the Committee on Respondent's violation of Rule 1.15(b).
Rule 1.16(d) requires a lawyer, in connection with the termination of a representation, to take timely steps to the extent reasonably practicable to protect a client's interests, such as ... surrendering papers and property to which the client is entitled, and refunding any advance payment of fee that has not been earned. In re Hallmark, 831 A.2d 366, 372 (D.C.2003) (finding Rule 1.16(d) violation where attorney did not refund $1,000 that client paid her as a flat fee to file a motion to dismiss that the attorney never filed, even though she may have performed services in excess of $1,000 on an hourly basis). The question under Rule 1.16(d) is when Respondent's representation of Mr. Green ended. Mr. Green testified that he thought the attorney-client relationship ended when his condominium went into foreclosure in early 1996. Tr. at 216. Respondent testified that she believed their relationship ended when his bankruptcy case was closed in late 1996. Tr. at 163. Bar Counsel agrees with Respondent. See Tr. at 177. Bar Counsel points out that Respondent did not attempt, after Mr. Green's case closed in December 1996, to calculate what funds she was holding on Mr. Green's behalf or what he owed her for her work. BC Brief at 26; Tr. at 164. Nor did she send Mr. Green an invoice at that time. Tr. at 7-12. Respondent failed to refund any of the remaining $1,000 of Mr. Green's money after his case closed. Although Respondent believes her representation ended when Mr. Green's case closed, she also testified that she believed she should not contact Mr. Green after Bar Counsel launched its investigation in October 1996. See Tr. at 91, 177. For Rule 1.16(d) purposes, Respondent's representation of Mr. Green terminated in October 1996 and she should have taken steps to return his $1,000 at that point. If she believed she could not contact Mr. Green directly at that time, she could have made arrangements with Bar Counsel to refund the money. To conclude otherwise would mean that whenever Bar Counsel informs an attorney that he or she is subject to a current client's complaint, that client's property would be frozen while Bar Counsel investigates the complaint. [8] We agree that Respondent violated Rule 1.16(d).
Rule 1.15(a) requires lawyers to keep complete records of ... account funds and other property and preserve them for a period of five years after termination of the representation. D.C. Bar R. XI, § 19(f) also requires attorneys to maintain complete records of the handling, maintenance, and disposition of all funds ... from the time of receipt to the time of final distribution and preserve such records for a period of five years after final distribution of such funds. Financial records are complete only when an attorney's documents are sufficient to demonstrate [the attorney's] compliance with his ethical duties. In re Clower, 831 A.2d 1030, 1034 (D.C.2003) (finding Rule 1.15(a) and § 19(f) violations). The purpose of the rule requiring complete records is so that the documentary record itself tells the full story of how the attorney handled client or third-party funds and whether, for example, the attorney misappropriated or commingled a client's funds. Id.; see also Pels, 653 A.2d at 396 (finding Rule 1.15(a) violation when attorney showed a pervasive failure to maintain contemporaneous records accounting for the flow of client funds within various bank accounts). Our Court has instructed that a lawyer needs a system which permits him to treat funds held in trust, especially when handling funds of multiple clients, as here. Anderson, 778 A.2d at 338-40. The records themselves should allow for a complete audit even if the attorney or client is not available. Here, the record demonstrates that Respondent failed to comply with Rule 1.15(a) and D.C. Bar R. XI, § 19(f) recordkeeping requirements. For example, Respondent deposited a $4,000 check drawn on her operating account into her escrow account and labeled the check as attorney's fees  but failed to indicate which client's fees that money represented and why she was putting attorney's fees into her escrow account in the first place. BX 14 at 61; Tr. at 148. Also, as discussed, Respondent failed to indicate on a deposit slip whose money she was taking and why when she withdrew $1,400 from the gross deposit of $6,400 on May 19, 1995. BX 14 at 57. She claims that Capitol Bus gave her enough money to cover a $5,016.77 check she made out to the IRS on its behalf, but she was not able to provide any documents indicating that she received any more than $4,400 total from the company during that time period. In September 1997, a year after she had moved offices and a little more than two years after receiving the $2,000 from Mr. Green, Respondent replied to a Bar Counsel request for records shedding more light on the financial transactions in Mr. Green's case by stating that she cannot locate the requested materials or any other relevant materials. BX 10 at 35. Respondent had no records to trace the whereabouts of the $2,000 she had received in trust from Mr. Green. Id. As stated in the Committee Report, this is a textbook case of failing to maintain complete records and is a clear violation of Rule 1.15(a).
Rule 1.4(a) requires a lawyer to keep a client reasonably informed about the status of a matter and promptly comply with reasonable requests for information. A client is entitled to whatever information the client wishes about all aspects of the subject matter of the representation. Rule 1.4(a) cmt. 2. Although Respondent's communications with Mr. Green during her representation of him may not have been perfect, the Committee concluded that Bar Counsel has not proved by clear and convincing evidence that they were unreasonable under the circumstances. Bar Counsel has not chosen to appeal this proposed finding and conclusion. Even if Respondent never discussed the foreclosure during any telephone conversations with Mr. Green around that time, the Committee does not think her actions were unreasonable, given the nature of this case and Mr. Green's behavior throughout the representation. Mr. Green's case was a simple bankruptcy matter, and beyond filing his case in the Bankruptcy Court, meeting with creditors, and getting a plan approved, there was not much further assistance or advice Respondent could provide. All that needed to happen was for Mr. Green to make his payments. Mr. Green acknowledged this during his testimony. Tr. at 258-59. He repeatedly failed to live up to his end of the bargain. Given his own repeated failures to make various payments, the Committee found it non-credible that Mr. Green was unaware that his condominium would have gone into foreclosure and that it in fact did go into foreclosure. It would also be unreasonable to expect Respondent to remain in constant contact with Mr. Green to push him to meet his payment obligations. Beyond the failures to make payments, Mr. Green displayed an overall level of irresponsibility with respect to his case and his property that further makes Respondent's level of communication with him reasonable under the circumstances. As found by the Committee, he seemed to expect Respondent to work a miracle with that $2,000 (and then, a few weeks later, only $1,000)  she was supposed to secure a forbearance agreement with that amount as leverage against the tens of thousands of dollars the condominium was worth. Although living in New York City, he gave Respondent his parents' New Jersey address and phone number to use. Respondent did attempt to reach Mr. Green at two different locations (his residence and his parents' home) in the New York/New Jersey area. Tr. at 264. Mr. Green also expected Respondent to negotiate a reduction in his bankruptcy payments to $100 a month. RX D; Tr. at 242-43. Working with a difficult client who did not appear to take his obligations seriously, it is understandable that Respondent would not have been able to sort through his case and provide a complete response when he asked about his foreclosure and the status of his case in June 1996.