Opinion ID: 1671344
Heading Depth: 1
Heading Rank: 2

Heading: Social Security Check-Cashing

Text: Our first question is whether it was clearly erroneous for the referee to conclude that Varriano's negotiation and disbursement of a social security check with a forged endorsement did not violate Minn. R. Prof. Conduct 1.15(a) and 8.4(c). The Director alleged that Varriano's conduct in using his trust account to process a forged social security check violated Rule 1.15(a), which provided: All funds of clients or third persons held by a lawyer or law firm in connection with a representation shall be deposited in one or more identifiable interest bearing trust accounts as set forth in paragraphs (d) through (g). No funds belonging to the lawyer or law firm shall be deposited therein except as follows: (1) funds of the lawyer or law firm reasonably sufficient to pay service charges may be deposited therein. (2) funds belonging in part to a client or third person and in part presently or potentially to the lawyer or law firm must be deposited therein. Minn. R. Prof. Conduct 1.15(a) (2005). The referee concluded that Varriano's use of his trust account in the forged check incident did not constitute dishonesty by [Varriano] in violation of Rule[] 1.15(a). The Director argues that the referee erred in finding no violation of the rule, because the funds were not deposited in connection with a representation, as required by the rule. He further argues that the referee erred in requiring a finding of dishonesty to establish a violation of Rule 1.15(a), and asserts that the improper use of the trust account as a check-cashing service violated Rule 1.15(a) whether or not the use involved dishonesty. The Director does not challenge the referee's findings of fact concerning the social security check, but asks this court to draw a different conclusion of law. We review de novo the interpretation of the Minnesota Rules of Professional Conduct. In re Q.F.C., 728 N.W.2d 72, 79 (Minn.2007). The language of Rule 1.15(a) does not require that the attorney act dishonestly in order to violate the rule; misuse of the account, whether negligent or intentional, violates the rule. Attorneys licensed in Minnesota are charged with the knowledge that they must maintain trust accounts for client funds. In re Copeland, 505 N.W.2d 606, 608 (Minn.1993). An attorney's responsibility to maintain his or her trust account properly goes beyond a requirement to refrain from intentional wrongdoing. In re Porter, 449 N.W.2d 713, 718 (Minn.1990). Here, the funds at issue did not belong to a client but to a third party unknown to Varriano. K.H. told Varriano to keep $2,566 from the check as repayment of a loan. The funds were not being held in connection with a representation, but as a service to K.H., who needed to have the check cashed, and as a means for Varriano to be reimbursed for a loan. Rule 1.15(a) explicitly requires that funds held in connection with a representation be deposited into a trust account. Implicitly these are the only types of funds that belong in a trust account. Lawyers' personal funds or fees to which they are entitled must not remain in the trust account. If Varriano was entitled to the funds as reimbursement for a loan, they should not have been left in his trust account. Use of trust accounts as check-cashing services thwarts the important purpose of safeguarding client and third-party funds. By cashing a check for K.H., Varriano put other clients' funds at risk of being used to cover the eventual overdraft when the money was reclaimed by the Treasury Department. Such use of Varriano's client trust account is not permitted by the rules. We conclude that Varriano violated Rule 1.15(a) by using his trust account to negotiate an unknown third party's social security check. The Director's petition for discipline further alleged that Varriano violated Rule 8.4(c) by misusing his trust account to process a forged social security check. The rule provides: It is professional misconduct for a lawyer to ... (c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation. Minn. R. Prof. Conduct 8.4(c). The referee made the following findings: [Varriano's] role in the [H.S. social security check] transaction, as an experienced attorney versed in criminal law is troubling. Although H.S. was the payee on the check and had ostensibly endorsed it, [Varriano] kept some of the funds to repay K.H.'s debt to himself and paid the balance to K.H. At a minimum, his actions equaled negligence, or possibly even gross negligence. However, the identity of the forger has not been established. Indeed, the fact of forgery was never conclusively established in an adversarial proceeding. The charge against [Varriano's] trust account was initiated when H.S. signed a Treasury Department form alleging forgery. Thus, the circumstances of the forgery, if it occurred, the knowledge of K.H., and the extent of his relationship with H.S. were not in evidence. [Varriano] earned a college undergraduate degree in accounting. He had considerable experience with accounting procedures with the banking system. Most significantly, when all portions of the transaction were completed, [Varriano] owed his bank the entire amount of the check, and has thus lost the $3,600.00 he paid K.H. This was the foreseeable outcome of negotiating a check if it was forged, as a person with [Varriano's] education and experience would have likely known at the time. After weighing all factors, the Referee does not conclude that [Varriano] acted in an intentionally dishonest manner in the transaction by negotiating a check known or suspected by him to be forged. There is no separate credibility determination; the referee precedes his findings of fact with the statement that they are based on the evidence received including credibility determinations where appropriate. The referee made the following conclusion of law: [u]sing his trust account in the H.S./K.H. forged check incident did not constitute dishonesty by Respondent in violation of [Rule 8.4(c)]. The Director disagrees with the referee's characterization of Varriano's actions as negligent, argues that Varriano suspended common sense and ordinary judgment in order to recover from K.H. a portion of the funds he had loaned to K.H., and contends that the retention of part of the proceeds of the check was not simply negligent, but dishonest. We have said that a lawyer violates Rule 8.4(c) by making false representations with an intent to deceive. Westby, 639 N.W.2d at 370. A violation of 8.4(c) thus implies an intentional act by the attorney. Although the referee described Varriano's conduct as troubling in light of his education and experience, the referee determined that the facts in evidence did not lead to the conclusion that Varriano acted in an intentionally dishonest manner. The referee thus appears to have made a credibility determination that, despite what he should have known or suspected, Varriano did not in fact know or suspect the endorsement on the check was forged. We conclude that the referee's finding that Varriano did not act dishonestly, and his conclusion that Varriano's action in cashing the check did not violate Rule 8.4(c), are not clearly erroneous. We therefore adopt the referee's findings of fact and conclusions of law, with the exception of the conclusion that the social security check incident was not a violation of Rule 1.15.