Monday, April 6, 2009

Balancing Sanction Factors

In a case initiated by a trust account overdraft that was exacerbated by the lawyer's false claim that the problem stemmed from bank error, the New York Appellate Division for the Second Judicial Department imposed a one-year suspension. The bar investigation had led to an array of escrow account-related charges. The court concluded as to sanction:

In determining an appropriate measure of discipline to impose, the respondent presents himself as an inherently honest individual, devoted to his clients, in possession of a sense of fair dealing, and one who has never caused a client or third party to lose any money. He contends that this matter does not warrant a public sanction, and requests that the matter be referred back to the Grievance Committee for the imposition of an Admonition.

The Grievance Committee points out that the respondent received an Admonition in 1990 for arranging a loan between his mutual friends without procuring title insurance or recording the mortgage securing the loan. The respondent's commencement of a foreclosure action was rendered futile because he failed to have the mortgage recorded. He was admonished for failing to protect his client's interests and for creating an appearance of impropriety due to his relationship with the parties.

The Grievance Committee contends that the Special Referee improperly used mitigating factors as affirmative defenses, misinterpreted the meaning of "misappropriation" in the context of professional misconduct, and has otherwise crafted "a result-oriented decision based not on facts and admissions, but on a favorable outcome for respondent."

By way of mitigation, the respondent points out, through his character evidence, that he enjoys an enviable reputation among builders, banks, lenders, brokers, and attorneys. He is on the approved attorney list for more than 35 lending institutions throughout the United States.

The respondent submits that the mistaken deposits were caused by confusion without any intent to deprive. He maintains that he was scrupulous with his calculations and was completely faithful to the inviolability of escrow funds, aside from the mistaken deposits. During the course of his testimony, the respondent averred that he is meticulous in preparing his closing statements, which are prepared simultaneously with the closing itself. He contended that figures are double checked and each separate transaction is reconciled. The respondent maintains that all of his transactions closed without incident and there was never any dispute as to his calculations. According to the respondent, his continued representation of financial institutions is a testament to his integrity and scrupulousness. He deems it ironic that his difficulties with the Grievance Committee emanate from his desire to benefit others by opening an interest-bearing account which has since been abandoned.

Under the severe stress of this matter and without any knowledge of how the shortfall might have occurred, the respondent admittedly "communicated inaccurately" with the Grievance Committee. He quickly came to realize his error, corrected his inaccuracies, and was thereafter completely candid with the Grievance Committee.

The respondent has undertaken corrective measures to avoid a repetition of the underlying events. These include modernizing his bookkeeping system, utilizing QuickBooks software, and hiring a paralegal who is thoroughly familiar with the system. The respondent now continually reconciles his accounts and maintains a separate ledger for his IOLA accounts. He also employs an accountant who does a quarterly review.

The respondent testified that he has never failed to place client funds in an escrow account, has never issued a check from any escrow account against uncollected funds, has never retained interest in any escrow account for his personal use, and has never misappropriated or converted client funds for his own use. He terms this experience "a terrible wake up call."

Notwithstanding the substantial mitigating circumstances, the record contains clear admissions of professional misconduct. Moreover, prior to the entry into this case of Mr. Karp as the respondent's counsel, the respondent was less than forthright with the Grievance Committee. While the respondent attributes his behavior to panic and extreme stress, he nevertheless made clear misrepresentations to the Grievance Committee. Under the totality of circumstances, the respondent is suspended from the practice of law for a period of one year.

(Mike Frisch)

Bar Discipline & Process | Permalink

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