Opinion ID: 6317046
Heading Depth: 2
Heading Rank: 2

Heading: The Gur Matter

Text: The Board also rejected the assessment of the Hearing Committee that Mr. 6 Indeed, discipline in the form of public censure was imposed in Mance only because counsel had commingled funds and failed to return the flat fee after the representation had ended, not because counsel had failed to move this money to a trust account in conformance with the newly announced interpretation of Rule
16 Haar recklessly, if not intentionally, misappropriated Mr. Gur’s funds, instead concluding that Disciplinary Counsel had failed to prove that this misconduct was more than negligent. Again, we agree. The record evidence does not support reckless—much less intentional—misappropriation, but it does support a finding of negligent misappropriation. An attorney who misappropriates client funds may be deemed to have acted recklessly when they demonstrate a “conscious indifference to the consequences of [their] behavior for the security of the funds.” In re Anderson, 778 A.2d at 339. This conscious indifference is displayed by an attorney’s knowledge either of “the serious danger to others involved in [their banking practices]” or, more normatively, of “facts that would disclose this [serious] danger to any reasonable person.” Id. (emphasis added) (internal quotation marks omitted). By contrast, we have held that the “hallmarks [of negligence] 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.” In re Abbey, 169 A.3d 865, 872 (D.C. 2017), as amended (Oct. 19, 17 2017). 7 The burden is on Disciplinary Counsel to prove state of mind, In re Anderson, 778 A.2d at 339, and if it does not prove intentional or reckless misappropriation by clear and convincing evidence, it has “proved no more than simple negligence.” In re Ray, 675 A.2d 1381, 1388 (D.C. 1996); see also In re Gray, 224 A.3d at 1229 (“There must be something more before a misappropriation will cross the line between simple negligence and recklessness.”). Moreover, the burden of proof does not shift simply because an attorney attempts to give an explanation for his conduct. Although “the inadequacy (or non-existence) of [an] attorney’s explanation for the use of client funds . . . [is] circumstantial evidence” which the Board may consider in reviewing whether Bar Counsel has proven a more culpable state of mind, this explanation must be examined “along with all the other evidence.” In re Anderson, 778 A.2d at 337 (discussing dishonest misappropriation) (internal quotation marks omitted). 8 7 But see Haar II, 698 A.2d at 427 (Ruiz J., dissenting) (“Under traditional concepts of negligence, an honest but mistaken belief does not constitute negligence . . . without a further showing that it was unreasonable to hold that belief.”). See also In re Anderson, 778 A.2d at 337 (“The Addams sanction of near- 8 automatic disbarment for misappropriation resulting from more than negligence is a 18 With these principles in mind, we turn to the Hearing Committee’s assessment of Mr. Haar’s conduct in the Gur matter. The Committee “credit[ed] [Mr. Haar’s] testimony that [originally] he believed that client advances of fees became a lawyer’s property upon receipt, consistent with the understanding of many D.C. Bar members before Mance.” But the Committee found that Mr. Haar’s “understanding” of the proper way to treat flat fees changed after Mr. Miller informed him that the Moya fees needed to be refunded from trust. It concluded that Mr. Haar’s “transfer of Mr. Moya’s funds from his COA to his IOLTA demonstrates that [he] no longer maintained a good-faith but mistaken belief that a client’s advance of flat fees became his property upon receipt . . . .” (emphasis added). In other words, if Mr. Haar knew that Mr. Moya needed to be refunded from an IOLTA, he must have known flat fees needed to be deposited in trust upon receipt, and he therefore acted at least recklessly—and possibly intentionally—in not moving Mr. Gur’s fees into trust. This inference is inadequately supported. As the Board observed, “[t]here is strict one; it should not be triggered . . . solely by proof . . .—even by clear and convincing evidence—that the attorney let the funds in his operating account drop below the obligated level, leaving it to him to prove that he lacked the requisite intent or level of culpability.”). 19 simply no evidence that [the interactions between Mr. Haar and Mr. Miller] had anything to do with Mance or with the treatment of flat fees upon their receipt”; indeed, Mr. Miller (who had his own interest in the Gur matter, see supra Part I.C) was never called to testify. It is true that an attorney’s compliance with a rule can indicate an “awareness” of the rule. See In re Pleshaw, 2 A.3d 169, 173–74 (D.C. 2010) (the fact that attorney properly withdrew his initial fee as a conservator only after requesting and receiving court permission was evidence of his conscious indifference to the rules when he later paid himself commissions from estate funds without court permission). But there is no indication that Mr. Haar understood Mr. Miller’s advice about refunding fees to be grounded in a more general rule governing the treatment of flat fees upon receipt. And while the Committee noted that it did not “find [Mr. Haar’s] claim of good-faith mistake credible,” and that his testimony “describing the advice he received from [Mr.] Miller” was “guarded,” these findings do not lift the burden of proof from Disciplinary Counsel’s shoulders. Indeed, the Committee itself noted that despite Disciplinary Counsel’s argument, the content of the conversation with Mr. Miller “remained unclear.” See supra note 5. The Committee’s conclusion that Mr. Haar knew or had reason to know of the strictures of Rule 1.15(e) because of an opaque conversation with a non-testifying person cannot be sustained. 20 The Committee also concluded that Mr. Haar gained actual knowledge of Mance at his PMAS and CLE trainings. It is undisputed that Mr. Haar learned about Mance from PMAS. But “[t]here is no evidence . . . that the PMAS representative told [Mr. Haar to] . . . audit his pending files,” or that the question of how to bring existing cases into compliance was addressed in the CLE class. Indeed, none of Disciplinary Counsel’s exhibits mention, let alone answer, questions regarding Mance’s application to pending cases. The three Washington Lawyer articles discussing Mance focus entirely on how attorneys should handle fees upon receipt, as does Ethics Opinion 355 (providing guidance on Mance). Likewise, the submitted list of CLE classes discussing Mance or IOLTA accounts offers no indication that pending cases were covered in those sessions. 9 Moreover, we find it difficult to square the notion that Mr. Haar learned of his auditing duties under Mance with the undisputed fact that he made extensive efforts to ensure Mance compliance going forward. After arranging and participating in the PMAS training, “he hired knowledgeable counsel[,] . . . recrafted his written fee agreements and developed multilingual client-intake scripts that were Mance compliant”; he also registered for 9 Granted, once this court clarified the meaning of Rule 1.15(e) in Mance, attorneys should not have placed unearned flat fees (like the Gur fee) in a non-trust account. But given that the D.C. Bar continued to explain Mance in trainings and articles for at least seven years following its issuance, it is fair to assume that Mr. Haar was not the only attorney who failed to put unearned flat fees into trust in the years following Mance. 21 and took the aforementioned CLE class. For all these reasons, the record does not support a conclusion that he intentionally disobeyed the rule’s application to the Gur matter. Nor did the Committee provide adequate support for a determination by clear and convincing evidence that Mr. Haar was “conscious[ly] indifferen[t] to the consequences of his . . . behavior”; i.e. that he was aware of facts which should have put him on notice of a “serious danger to others.” In re Anderson, 778 A.2d at 339. The Committee blamed Mr. Haar’s inattention to legal education for his confusion about Mance’s application to the Gur matter. To be sure, Mr. Haar’s inattention to continuing legal education is lamentable. See In re Smith, 817 A.2d 196, 202 (D.C. 2003). By his own admission, Mr. Haar simply did not take active steps to stay updated on the field of legal ethics. However, we cannot say that this inattention automatically renders him “consciously indifferent” with respect to any violation of the Rules of Professional Conduct, regardless of context: indeed, in this case, we conclude that it did not. Mr. Haar’s clients typically did not pay large fees and had their matters resolved quickly, and thus his cases were not often pending for very long: the Gur matter was exceptional. Thus, even a more diligent Mr. Haar may have had little reason to consider Mance’s application to unearned flat fees. Or to 22 put it differently, “[t]he question” of how Mance applied to unearned fees “may have seemed beside the point to [Mr.] Haar, and thus he may not have mentally addressed” it. Haar II, 698 A.2d at 421. 10 Moreover, as discussed, the proper interpretation of Rule 1.15(e) has been the subject of substantial confusion, and the rule still has not been updated to reflect Mance, despite 1) this court’s conclusion that “[t]he rule’s application to flat fees is not clear on its face,” In re Mance, 980 A.2d at 1206, and 2) the fact that the rule now imposes essentially the opposite restriction to that which it required when Mr. Haar began his career. Thus we conclude that a practitioner who operated according to Mr. Haar’s typical fee arrangements could reasonably fail to perceive such a danger, especially if the trainings he attended never mentioned it. The lack of reckless misappropriation “hallmarks,” In re Anderson, 778 A.2d at 338, bolsters our conclusion that Disciplinary Counsel did not prove recklessness to a clear and convincing degree. We have held the hallmarks of reckless misappropriation to include: 10 Nor are we persuaded that Mr. Haar’s prior suspension put him on any special notice of serious danger such that it weighs in favor of a higher degree of culpability. His discipline occurred over a decade earlier, involved an entirely distinct aspect of Rule 1.15, and happened prior to the rule changes which caused so much confusion in the present case. See Haar I, 667 A.2d at 1351–53. 23 the indiscriminate commingling of entrusted and personal funds; a complete failure to track settlement proceeds; total disregard of the status of accounts into which entrusted funds were placed, resulting in a repeated overdraft condition; the indiscriminate movement of monies between accounts; and the disregard of inquiries concerning the status of funds. Id. Certainly, Mr. Haar commingled funds. But Disciplinary Counsel has never contended a “complete failure to track settlement proceeds” or a “repeated overdraft” on his sweep account. 11 Likewise, there is no contention that Mr. Haar indiscriminately moved money between accounts or ignored inquiries from clients about the status of funds. Of course, the Anderson hallmarks are just that: hallmarks, not an exhaustive set of criteria. See In re Gray, 224 A.3d at 1231. But their absence is a further indication that Mr. Haar lacked the requisite “conscious indifference” to 11 To the contrary, it seems the sweep account was designed to prevent any overdraft. According to SunTrust Bank’s own explanation: At the end of each business day, Business Sweep calculates the net available balance position in your commercial checking account and then compares the result to a predetermined target balance. Then, if your net cash position is greater than your target balance, Business Sweep automatically uses excess funds to pay down your line of credit, or transfers excess funds into an investment vehicle that you select. If your net cash position is less than your target balance, Business Sweep automatically transfers funds from your chosen investment vehicle to cover the shortage or borrows the necessary funds against your line of credit. 24 be adjudged reckless. Mr. Haar was, however, negligent. As a member of the Bar, Mr. Haar had a duty to keep himself reasonably informed of his obligations under the Rules of Professional Conduct from the text and commentary of the Rules and as interpreted by this court. We specifically reject any argument that he could be subject to sanction for violating Rule 1.15(e) only after he personally learned of Mance’s clarification of the rule. Mr. Haar—like all practitioners—was obligated to follow Rule 1.15(e) as interpreted by Mance upon our issuance of that decision. He should have understood when he received a flat fee from Mr. Gur in 2012—three years after Mance made clear that, per Rule 1.15(e), flat fees were advance fees—that he had to deposit that money in a trust account. And his failure to understand and conform with Rule 1.15(e) as interpreted by Mance three years after we issued that decision clearly amounts to negligent misconduct.