Friday, May 2, 2008

Ethics Rules Apply

The New York Appellate Division for the Second Judicial Department rejected a request for dismissal of disciplinary charges and disbarred an attorney who had permitted a corporation to use his name and allowed non-attorneys access to the corporation's "settlement trust account." Although the attorney receive fees for real estate closings, he performed no legal services and did not supervise the activities of the corporation's employees. The court rejected the suggestion that the ethics rules governing trust accounts did not govern the charged misconduct:

"We reject the respondent's contention that the disciplinary rules with respect to attorney trust accounts do not apply to this situation, inasmuch as he had nothing to do with the Corporation in his capacity as an attorney, and that the Corporation was a "settlement company," as opposed to a law firm. 'A lawyer in possession of any funds or other property belonging to another person, where such possession is incident to his or her practice of law, is a fiduciary' (DR 9-102[a] [22 NYCRR 1200.46[a]]). By permitting the corporation's Trust Account to be established in his name, knowing that the Corporation was using that account to represent lending institutions at real estate closings, the respondent had possession of the funds incident to his practice of law within the meaning of DR 9-102(a) (22 NYCRR 1200.46[a]).

Just as an attorney cannot lend his or her name to an escrow account run by others, an attorney cannot avoid the disciplinary rules relating to trust accounts by allowing a business entity, with which he or she is affiliated to some degree, to hold the funds belonging to others in a non-escrow account."

As to sanction:

"By participating in a scheme to create an entity whose purpose was to represent out-of-state lending institutions at real estate closings in New York, for which a New York attorney was a necessary presence, and by failing to exercise any supervision over that entity or the funds entrusted to it, the respondent engaged in serious professional misconduct which made it possible for non-attorneys to commit massive fraud to the detriment of both lending institutions and purchasers. Such misconduct warrants the respondent's disbarment."

(Mike Frisch)

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