Opinion ID: 2399021
Heading Depth: 1
Heading Rank: 3

Heading: the bailey decision

Text: In re Bailey involved significant deficiencies in the both the financial record keeping at Bailey's law firm (where he was the managing partner) and the firm's tax reporting and payment obligations. Bailey was delinquent in his personal income tax payments over a period of several years. Additionally, Bailey failed to supervise his firm's non-lawyer assistants and falsely certified four years of annual registration statements to this Court. In In re Bailey, we focused on the following facts: (i) the firm's bookkeeper testified that Bailey instructed him on at least one occasion to transfer escrow funds to the firm's operating account; (ii) the firm's operating account was repeatedly in an overdraft condition over an extended period of time; (iii) Bailey knowingly directed $26,500.00 in personal expenses to be satisfied by charges against the firm's operating account; (iv) the firm's escrow account was the only viable source to cover these shortfalls; and (v) client trust funds were knowingly invaded by Bailey to satisfy a personal debt. [10] We concluded that Bailey acted knowingly. [11] Furthermore, this Court held that as a managing partner, Bailey had enhanced duties, vis-a-vis other lawyers and employees of the firm, to ensure compliance with record keeping and tax obligations. [12] Although a managing partner cannot ensure complete integrity of the firm's books and records, he has a responsibility to implement reasonable safe-guards to ensure that the firm is meeting its obligations with respect to its books and records. [13] We agree with both Froelich and the ODC that this case is distinguishable from In re Bailey because Froelich acted neither intentionally nor knowingly. The question of intentional or knowing misconduct is a factual issue. Knowing misconduct under the DLRPC requires clear and convincing proof of actual knowledge of the fact in question. [14] In the present case, one cannot conclude from the record that Froelich acted intentionally or knowingly. First, no funds from Froehlich's escrow account were deposited into his operating account to cover shortages or anticipated shortages. Second, Froehlich made no extraordinary expenditures for personal reasons from his firm's escrow account. Third, Froehlich did not fail to file and pay federal and state withholding taxes. Fourth, Froehlich did not invade client trust funds. Fifth, Froehlich was successful in recovering funds from a misdirected wire transfer in February 2002. Sixth, the general practice in Froehlich's office was to verify receipt of all wire transfers and failure to do so was a mere oversight. Finally, the forensic investigative audit did not reveal any other facts that suggest intentional, knowing or reckless conduct by Froehlich. We conclude that Froelich acted negligently with regard to his books and records.