Opinion ID: 1379287
Heading Depth: 2
Heading Rank: 2

Heading: the messenger matter

Text: David and Joy Messenger's home was foreclosed upon in early 1981. Charles Powell, a foreclosure consultant, referred them to petitioner. We note that Powell did not testify at the disciplinary hearing, but that David, Joy, and petitioner did. It is undisputed that in June 1981, petitioner agreed to represent the Messengers. He quoted fees for various services, e.g., $300 to determine whether the foreclosure sale was defective, a $2,500 retainer to challenge the sale in court, and $285 to file a bankruptcy petition. The Messengers gave petitioner a $300 check. For reasons not pertinent here, they believed that Powell could be entrusted with money and instructions intended for petitioner. Over the next month and a half, confusion evidently arose over the amount of fees owed. The Messengers testified that they stopped payment on the $300 check, and gave Powell a total of $785 in cash as payment for petitioner's fees. Petitioner testified that he never received the money but performed certain services, i.e., he reviewed the records of the foreclosure sale, determined that it was lawful and that the Messengers were owed a refund, and prepared a refund claim. In early August 1981, Powell told the Messengers that the house had been lost and that they should buy it back from the new owner, Mendoza. Joy testified that on August 13, she met with Powell and prepared a real estate purchase contract and deposit receipt (deposit receipt). A copy of the deposit receipt, signed by both David and Joy, is included in our record. It says, among other things, that David Brockway is authorized to negotiate the purchase of the house from Mendoza. It also says that the Messengers issued a personal check payable to David Brockway, Escrow Trust Acct. to be held uncashed until acceptance of this offer, as deposit on account of [ the ] purchase price. (Italics added.) Joy testified that she gave Powell a $500 check made payable to David Brockway Escrow which petitioner was authorized to give to Mendoza along with the deposit receipt. (Italics added.) Joy testified that she did not recall having any conversations with petitioner after the deposit receipt was prepared. In contrast, petitioner testified that he found the $500 David Brockway Escrow check in his office, along with a note asking him to negotiate with Mendoza for the Messengers. According to petitioner, no deposit receipt was attached. He immediately phoned Joy and asked her what was going on. She asked him to negotiate a purchase price with Mendoza. Petitioner figured the $500 check was payment for fees, i.e., to make up for the $300 [check upon which the Messengers had stopped payment], plus [payment for unspecified] telephone calls. Petitioner then wrote on the face of the escrow check, Fees for House re Mendoza, and deposited it in his own personal account. [3] Petitioner explained that he then phoned and met with Mendoza once, and prepared a purchase contract that Mendoza never signed. Petitioner soon learned that the Messengers had hired another attorney, Lee, to handle the case. Petitioner sent Lee the Messengers' file. Lee testified that between September and November 1981, he twice told petitioner over the phone that his retention of the $500 was in dispute, and that he ought to return the money to the Messengers. Because petitioner seemed evasive, Lee sent him a letter, dated November 18, 1981, saying the Messengers had intended petitioner to use the $500 check as earnest money for Mendoza. Petitioner testified that, while he did not recall the content of his conversations with Lee, it seems likely Lee demanded return of the $500. Petitioner denied receiving Lee's letter, and said that the copy introduced at the hearing had been sent to the wrong address. To date, petitioner has retained the disputed $500.
The State Bar Court found that all witnesses in the Messenger matter were credible, and that there had been a genuine misunderstanding over the $500 check; the Messengers viewed it as earnest money for Mendoza, while petitioner erroneously believed it was payment for past due fees. The State Bar Court concluded that petitioner inadvertently  not wilfully  misappropriated the money under rule 8-101(A). [4] It further determined that the misunderstanding had been rectified by Attorney Lee's demand for the money, and that petitioner wilfully failed to comply in violation of rule 8-101(B)(4). [5] The State Bar Court recommended that petitioner be ordered to pay restitution to the Messengers in the amount of $500, plus interest at the legal rate from August 13, 1981.
(1) Petitioner does not vigorously dispute that he violated rule 8-101(B)(4) by failing to return the Messengers' money on demand. He argues, however, that the State Bar Court erred in finding him culpable of misappropriation under rule 8-101(A), because he actually and reasonably believed the money belonged to him. We agree the findings are ambiguous insofar as they cite petitioner for inadvertent misappropriation. However, we independently find clear and convincing evidence that petitioner wilfully misappropriated the $500 check. (See Maltaman v. State Bar (1987) 43 Cal.3d 924, 932 [239 Cal. Rptr. 687, 741 P.2d 185].) First, the record indicates that petitioner actually knew the $500 check was to be used solely as a deposit on the house. The check was made payable to an escrow account  a significant term of art implying that the money was not intended for petitioner's personal use. Petitioner's testimony that he never received the deposit receipt  the one document which unambiguously stated what the check was for  is inherently implausible. To credit petitioner's account, we would have to believe that: (1) Joy was lying or mistaken when she testified that the check and deposit receipt were simultaneously given to Powell for use by petitioner in negotiations with Mendoza, or (2) Powell, a professional consultant in such matters, delivered the check and a note authorizing such negotiations, but failed to deliver the deposit receipt. Both scenarios are improbable. Moreover, a reasonable attorney operating under a good faith but mistaken belief that the money belonged to him would not have ignored the client's demand for its return. Second, any belief that the check was payment for legal services was highly unreasonable. For this additional reason, petitioner's misappropriation must be deemed wilful. (Cf. Coppock v. State Bar (1988) 44 Cal.3d 665, 681 [244 Cal. Rptr. 462, 749 P.2d 1317]; Palomo v. State Bar (1984) 36 Cal.3d 785, 795-796 [205 Cal. Rptr. 834, 685 P.2d 1185].) As noted, the check was made payable to an escrow account, not simply to petitioner or his law firm. There was no evidence that petitioner believed the Messengers knew how much was owed in past fees or how much he intended to charge for negotiations with Mendoza. More importantly, petitioner implicitly conceded that he never asked the Messengers what they wanted him to do with the check; his phone inquiry to Joy only concerned the services she wanted him to perform. Petitioner knew he was expected to negotiate a purchase of the house, and it is customary for prospective purchasers of real estate to include an earnest-money deposit with their offer. At the very least, petitioner was grossly negligent in failing to ascertain whether the check was to be used in the negotiations. For the foregoing reasons, we hold that petitioner wilfully violated rule 8-101(A) and 8-101(B)(4) in the Messenger matter.