Opinion ID: 4547195
Heading Depth: 3
Heading Rank: 1

Heading: 15(a), (c), and (d)

Text: By allowing the balance in his trust account to fall below the $554 that Mr. Mack owed to Kaiser and by waiting over eleven months to pay the $554 lien, respondent misappropriated funds in violation of Rules 1.15(a), failed to separate disputed funds in violation of Rule 1.15(d), and failed to promptly deliver owed funds in violation of Rule 1.15(c). We conclude that respondent’s system of 11 maintaining his trust account was inadequate, rather than nonexistent, and find it telling that Disciplinary Counsel’s investigation of his account only identified one instance of misappropriation. Thus, while we agree with the Board’s conclusions that respondent violated Rules 1.5(a), (c), and (d), for the reasons explained below, we conclude that his misappropriation was negligent, rather than reckless. i. Rules 1.15(a) and (d) - Negligent Misappropriation Rule 1.15(a) requires that a lawyer hold the property and funds of clients or third parties “separate from the lawyer’s own property,” and Rule 1.15(d) requires a lawyer to separate property in which multiple parties, to whom the lawyer has an obligation, claim an interest. Misappropriation is “any unauthorized use of client’s funds entrusted to a lawyer, including not only stealing but also unauthorized temporary use for the lawyer’s own purpose, whether or not she derives any personal gain or benefit therefrom.” In re Edwards, 808 A.2d at 482 (cleaned up). When a client’s funds are deposited into an attorney’s account, misappropriation occurs “when the balance in that account falls below the amount due to the client”; proof of improper intent is not required. Id. (cleaned up). The Board concluded, and we agree, that respondent misappropriated funds in the Mack matter. For two months after respondent received permission to repay 12 Kaiser the lien of $554, the balance in respondent’s trust account fell below that amount; only after respondent transferred $500 in personal funds did his trust account have a sufficient balance. Respondent concedes that he misappropriated his client funds and, rather than contest that finding, argues that his conduct amounted to negligence, rather than recklessness. We agree with respondent that his conduct amounts only to negligence, rather than recklessness as the Board urges us to conclude. “Negligent misappropriation is an attorney’s non-intentional, non-deliberate, non-reckless misuse of entrusted funds or an attorney’s non-intentional, non-deliberate, non-reckless failure to retain the proper balance of entrusted funds.” In re Abbey, 169 A.3d at 872. The “hallmarks” of negligent misappropriation include “a good-faith, genuine, or sincere but erroneous belief that entrusted funds have properly been paid; and an honest or inadvertent but mistaken belief that entrusted funds have been properly safeguarded.” Id. On the other hand, the “hallmarks” of reckless misappropriation include “indiscriminate commingling”; “a complete failure to track settlement proceeds”; “total disregard” of the trust account “resulting in a repeated overdraft condition”; “indiscriminate movement of monies between accounts”; and disregarding “inquiries concerning the status of funds.” Id. (quoting In re Ahaghotu, 75 A.3d 251, 256 (D.C. 2013)). 13 We find the respondent’s conduct here to be similar to the conduct of the respondent involved in In re Anderson, 778 A.2d 330 (D.C. 2001), one of our seminal decisions on negligent misappropriation. In Anderson, after settling a client’s personal injury claim, the attorney disbursed settlement funds to his client, but withheld a portion to repay the client’s outstanding medical bills. Id. at 333. Subsequently, the funds in the attorney’s account fell below the owed amount until, over a year later, the attorney paid the outstanding fee. Id. The attorney “kept no separate trust or escrow account nor ledgers or books reflecting receipts and disbursements,” but rather “prepared settlement sheets listing required distributions for each case that resulted in a settlement, and made corresponding notations on the case file.” Id. While we noted that the attorney’s “system of documenting client transactions essentially consisted of making notations on case files, preparing a settlement sheet for receipts and disbursements after a settlement, and attempting to make all necessary distributions promptly while keeping record of them ‘in [his] head,’” we “rejected the proposition that recklessness can be shown by inadequate record-keeping alone combined with commingling and misappropriation.” Id. at 339-40. Rather, we concluded that the attorney’s conduct amounted only to negligence: The aggravating factors beyond poor record-keeping which the court has found indicative of recklessness are not present in this case: the proof that [the attorney] failed 14 to pay a single client obligation is not evidence that he flagrantly disregarded the integrity of third-party funds; he did not indiscriminately write checks on the operating account; and he did not write checks that were dishonored or that caused the account to be in overdraft. Id. at 340. In determining that respondent’s conduct here amounted to merely negligent misappropriation, we reaffirm that Rule 1.15, to support a finding of recklessness, requires more than poor, careless, or non-existent record-keeping in addition to the use of client funds and commingling. See, e.g., In re Robinson, 74 A.3d at 695-96 (finding attorney’s failure to investigate following overdraft of trust account, leading to second overdraft, amounted to negligent misappropriation); In re Reed, 679 A.2d 506, 509 (D.C. 1996) (finding that, despite “practically non-existent and careless” accounting practices – where attorney “did not keep a running balance, her check ledger had no memos, and she did not keep track of the funds” – attorney’s withdrawal from escrow account for personal use only amounted to negligent misappropriation); In re Choroszej, 624 A.2d 434, 437 (D.C. 1992) (“In Respondent’s case, he too was insensitive to his fiduciary responsibilities. He was entrusted with his client's money to pay the client’s doctor’s bill. Through sloppy bookkeeping, respondent was not alerted to the fact that he never paid this obligation. 15 From this inadvertent and negligent occurrence, a series of violations ensued.” (quoting Board’s report)). Respondent argues that his conduct was merely negligent, given that (1) Kaiser was paid and his client, Mr. Mack, was not harmed, (2) Disciplinary Counsel discovered only one “miscue” of $64, and (3) each payment from his trust account for non-client related expenses was from earned attorneys’ fees. On the other hand, Disciplinary Counsel argues that respondent’s conduct amounts to recklessness because he had “no system whatsoever” to keep track of client funds and disbursements, “extensively commingled personal funds with client funds for years,” had “no records for his trust account,” and “overdrew the trust account by paying his office rent from it.” Disciplinary Counsel contends that respondent should “get[] no credit for the fact that the Mack misappropriation was the only misappropriation of client or third-party funds that” was found. Rather, Disciplinary Counsel highlights that “the fact that Mr. Mack was not harmed was a matter of serendipity”; had Kaiser attempted to deposit respondent’s $554 check on May 11, it would have bounced, making Mr. Mack liable for the unpaid medical bill. We are not persuaded that respondent’s conduct meets the “hallmarks” of reckless misappropriation that we identified in Abbey, 169 A.3d at 872. Contrary to 16 Disciplinary Counsel’s argument, respondent did have a system to track client funds (tracking settlements in each client’s file, rather than through ledgers or accounting records of the trust account), one that mirrored the system described in Anderson that resulted in a finding of negligence. 778 A.2d at 333. As in that case, recklessness cannot be shown by “inadequate record-keeping alone combined with commingling and misappropriation.” Id. at 339-40. Despite an investigation of respondent’s trust account, Disciplinary Counsel was only able to identify one instance of misappropriation and one check that was dishonored. In fact, Disciplinary Counsel rests the entire case of misappropriation on evidence that the amount in respondent’s trust account fell below $554 during a single two-month period. The fact that respondent’s commingling and poor recordkeeping did not harm any client or third-party appears to be more than “serendipity,” as Disciplinary Counsel argues, but rather evidences a lack of additional violations or conduct amounting to recklessness. Additionally, Disciplinary Counsel does not present any evidence to contradict respondent’s assertion that paying his office rent from his trust account, and thus the resulting overdraft, was a mistake. We cannot say that respondent’s conduct evidences a flagrant disregard for third-party or client funds. While respondent did engage in extensive commingling and had a poor system of recordkeeping, that conduct, combined with one instance of misappropriation, is 17 insufficient to support a finding of recklessness. Therefore, we conclude that respondent’s conduct amounts to negligent misappropriation. Respondent also violated Rule 1.15(d), which imposes certain obligations on a lawyer with respect to funds in which multiple parties claim an interest, by failing to separate the $554 owed to Kaiser.7 As of June 8, 2010, respondent withheld $1,000 from Mr. Mack’s settlement to repay Kaiser and knew that Kaiser was entitled to $554 of those funds. Prior to Kaiser’s receipt of the money on May 23, 2011, the amount in his trust account fell below $554 – demonstrating respondent’s own interest in and use of some of that money for reasons other than repayment to Kaiser.8 Respondent’s failure to keep the $1,000, and specifically the $554, separate, despite his own interests and those of Mr. Mack and Kaiser, amounts to a violation of Rule 1.15(d). 9 7 Rule 1.15(d) requires, in relevant part, that property – “in which interests are claimed by a lawyer and another person, or two or more persons to each of whom the lawyer may have an obligation” – “shall be kept separate [in an account meeting the requirements of Rule 1.15(a) and (b)] by the lawyer until there is an accounting and severance of interests in the property.” 8 For example, on March 31, 2011, Respondent made a wire transfer of $3,500 from his trust account to Ms. Fitzgerald, the reason for which the record does not explain. 9 The Board bases its conclusion that respondent violated Rule 1.15(d) on respondent’s failure to promptly pay Kaiser (in fact, a violation of Rule 1.15(c)), 18 In sum, we conclude that respondent’s conduct with respect to respondent’s representation of Mr. Mack amounts to negligent misappropriation. We otherwise concur with the Board’s findings that respondent violated Rules 1.5(a) and (d). ii. Rule 1.15(c) - Failure to Make Prompt Payment By waiting eleven months to repay Kaiser, respondent violated Rule 1.15(c)’s requirement that he make prompt payment of owed funds. Rule 1.15(c) requires that an attorney, upon receipt of funds in which a third person has an interest, “shall promptly deliver to the . . . third person any funds that the . . . third person is entitled to receive.” There is no bright line rule for “prompt” payment, and the Rule’s requirement should be evaluated in light of acceptable mitigating circumstances. See In re Ross, 658 A.2d 209, 211 (D.C. 1995). Although respondent was aware that Kaiser had a lien for medical services for $554 and received Mr. Mack’s settlement check on June 8, 2010, he waited until May 6, 2011 – eleven months later – until he wrote a check to Kaiser for the owed amount. Respondent provided no explanation while the Hearing Committee appears to rest its Rule violation on respondent’s misappropriation. We note that while a charge my represent a compound violation, the Board should address each Rule violation independently, not only to ensure that its analysis is precise, but also to evaluate any potentially separate defense. See, e.g., In re Smith, 817 A.2d 196, 201 (D.C. 2003) (recognizing the importance of independently analyzing potential misappropriation and commingling because they are separate violations, even though “the charge presents a compound violation”). 19 or justification for the delay. We therefore conclude that this eleventh-month delay does not constitute prompt payment under the circumstances. Id. (finding elevenmonth delay with no excuse violated Rule 1.15(c)’s prompt payment requirement). B. Respondent’s Commingling of Client Funds and Failure to Keep Records Violated Rule 1.15(a) Beyond the Mack matter, respondent commingled client funds and failed to keep adequate records in violation of Rules 1.15(a). To safeguard clients’ funds, Rule 1.15(a) requires a lawyer to hold client funds in a separate trust account and to avoid commingling his clients’ funds with his own property. See In re