Court Opinion

ID: 5178630
Source: CourtListenerOpinion
Date Created: 2022-01-06 01:29:39.29344+00
Date Added: 2024-06-11T08:26:29.510481
License: Public Domain

JUSTICE EID, dissenting. ¶40 Today the majority upholds the order of the Presiding Disciplinary Judge finding that respondent Kleinsmith knowingly converted funds belonging to a third party and therefore violated Rules 1.15A and 8.4(c) of the Colorado Rules of Professional Conduct. There is no question that Kleinsmith’s firm owed First American for the title services it performed. But the majority never truly grapples with the difficult issue presented in this case — namely, whether Kleinsmith’s failure to pay First American should be treated as failure to pay a debt, which plainly occurred here, or a knowing conversion meriting disbarment. For this reason, I respectfully dissent from its opinion. ¶41 The majority concludes that Kleins-mith’s conduct constituted knowing conversion because “[the bank] entrusted funds to Kleinsmith specifically to pay for the title services that were provided by First American for [the bank].” Maj. op. ¶ 15. Those funds were “for First American” and Kleins-mith was not authorized “to use the funds for his own purposes.” Id.'Ultimately, the majority reasons that Kleinsmith converted those funds because “[t]he funds belonged to First American, not to Kleinsmith[.]” Id. ¶42 The majority’s description of Kleins-mith’s conduct suggests the funds here were of a special character, or that there was a special relationship between the bank and First American, but that is simply not the case. The bank never “entrusted” funds specifically to Kleinsmith in the legal sense of the term. There was no trust or fiduciary relationship between the bank and First American. Indeed, there was no relationship at all between the two. Instead, Kleinsmith’s film hired First American to conduct title services, The firm billed the bank for “title commitment” services, but did not mention First American. Maj. op. ¶ 4. Thus, the bank could not have “entrusted funds” for First American, nor could there have been an en-trustment of “specific” funds, or “specific” direction to pay the funds to First American. Similarly, the funds did not “belong” to First American in any legal sense; instead, Kleins-mith’s firm owed a debt to First American, as the Montana judgment concluded. Id. at ¶ 5. ,¶43 The majority’s conclusion that Kleins-mith’s “conversion” of funds was “knowing” fares no better. As the majority recognizes, a “knowing” conversion requires the lawyer to know that the funds were someone else’s. Id. at ¶ 14 (citing People v. Varallo, 913 P.2d 1, 10-11 (Colo. 1996)). Kleinsmith had no intention to “misappropriate” or “convert” the fuñds because he believed that he was entitled to use the funds in question to cover operating expenses of the firm. Id. at ¶ 4. His intention was to prioritize the payment of his ailing firm’s expenses, not to defraud either the bank or First American. The cases relied upon by the majority are thus distinguishable, as they involve personal use of funds, multiple violations, or both. See, e.g., In re Bilderback, 971 P.2d 1061, 1063-64 (Colo. 1999) (finding that respondent committed multiple acts of misconduct, including “effectively abandoning]” his clients as well .as refusing to remit settlement funds in accordance with his client’s wishes); People v. Lavenhar, 934 P.2d 1366, 1358-69 (Colo. 1997) (finding that respondent committed multiple violations of the Rules of Professional Conduct, including “seriously neglecting] a number of client matters,” as well as converting a check he received by mistake and using those funds to purchase appliances); People v. Finesilver,. 826 P.2d 1266, 1266-67 (Colo. 1992) (finding that-respondent converted funds from “a number” of clients and paid himself sizable salaries from those converted funds). While Kleinsmith’s conduct should not be encouraged, it does not, in my view, merit disbarment, the “most sevei’e sanction which we have the authority to impose.” People v. Brown, 726 P.2d 638, 641 (Colo. 1986). ¶44 Presumably the majority attempts to give the funds and the relationship at issue here a special character because it hopes to separate out this case from one involving an ordinary debt. But because that attempt is unsuccessful, in my view, the majority gives virtually no guidance to practitioners regarding when they are potentially engaging in misconduct. Indeed, the opinion today simply creates a new category of funds that are “entrusted” to the attorney and that “belong” to .the service provider to whom the debt is owed, but have no special character under the law. Because today’s opinion muddies, rather than clarifies, the waters of how funds should be handled by practitioners, I respectfully dissent. I am authorized to state that JUSTICE COATS joins in this dissent.