Wednesday, February 3, 2010

Burden Of Proof When Entrusted Cash Is Missing

A bar discipline decision issued by the Massachusetts Supreme Judicial Court yesterday:

In this bar discipline case, the respondent received cash belonging to an elderly client but did not make a record of the total amount received and did not deposit the money in a client trust account. Instead, he placed the cash in a fireproof safe in his office. Thereafter, he spent a substantial part of the money for the client's benefit, and misplaced but later discovered some of the remaining money; no records account for another portion of the cash. For these events, the Board of Bar Overseers (board) has recommended a two-month suspension.

We must determine the appropriate burden of proof and the proper sanction to be imposed where an attorney has misplaced cash belonging to a client, without the intention of depriving the client of the funds, and where a portion of the cash has never been accounted for by the attorney. Bar counsel urges us to treat the case as one of intentional misuse; to place the burden on the attorney to establish that no misuse took place; and, failing a satisfactory explanation, to disbar the respondent or, alternatively, to suspend him from the practice of law for at least one year and one day. The respondent contends that, although he cannot account for a portion of the money he received, he did not misuse the cash; the burden of proof remains always with bar counsel; and, as the hearing committee recommended, he should be sanctioned by a public reprimand.

The burden to prove facts that establish an ethical violation and that provoke enforcement of the disciplinary rules is usually allocated to bar counsel. Here, bar counsel has proved that the respondent received cash that belonged to the client, did not deposit it in a client trust account, and cannot account for a portion of it. With these facts established, we state, for prospective application only, that, in such circumstances, a rebuttable presumption is created that the attorney misused client funds and that the client was deprived of the funds permanently. At this point in the analysis, consistent with burdens that apply to other fiduciary relationships, the burden of explaining what became of the funds shifts to the attorney. While we do not apply this change of approach to the present case, we determine separately that the board's recommendation of a suspension of two months is unreasonably lenient on the facts found, and we impose instead a suspension of six months.

The court's reasoning:

The question of the allocation of the burden of proof in a case of this nature (receipt of cash) is not a simple one. It is of course customary in our justice system that the party seeking relief is called on to prove the facts that entitle him or her to the relief. In the present case it is bar counsel who seeks the relief of a determination that the respondent has violated a disciplinary rule and an appropriate sanction therefor. Given the critical nature of an allegation that an attorney has mishandled client funds, one with serious, long-term effects on the standing of a member of a profession that emphasizes character and reputation, it must fall to bar counsel to prove the factual basis for the claim of unethical behavior.

This burden need not extend, however, beyond proof that funds have been received by the attorney and the attorney has neither deposited them in an appropriate bank account nor otherwise provided an adequate accounting regarding their disposition. The failure properly to record and deposit cash, a fungible and generally untraceable asset, and the failure to produce the cash or to make an adequate accounting of its use, is a serious offense that merits far greater sanctions than those that have been previously imposed for negligent accounting and misplaced funds....We conclude that far more serious sanctions are required both to deter attorneys from engaging in such conduct and to encourage public confidence in the legal profession...

Once a showing has been made by bar counsel that client cash has been received, has not been deposited in a bank account, and has not been accounted for, we have no difficulty in holding that it is the respondent attorney's burden to explain what happened to the money. In such circumstances, it is the attorney who will be in possession of, or otherwise have access to, the relevant information, including information that may exonerate him or her with respect to what otherwise appears to be a violation. It is thus not unfair to rely on a presumption, one that can be rebutted, that unaccounted-for cash received from or on behalf of a client is deemed to have been commingled in violation of Mass. R. Prof. C. 1.15 and that the client has been permanently deprived of the money. Our approach to the question does not differ from the allocation of responsibilities that attend other fiduciary relationships such as that of trustee and beneficiary. See Restatement (Second) of Trusts ยง 172 comment b (1959). See also Samia v. Central Oil Co., 339 Mass. 101, 126 (1959).

In adopting this approach, we do not mean to suggest that the distinction between an intent to deprive the client of funds and negligent handling of cash without such an intent has been eliminated. Bar counsel's argument that there is no distinction in the rules of professional conduct between misplacement of client funds, negligent misuse, or misuse with deprivation, "whether intentional or negligent," and that all are simply failures to comply with one or more provisions of Mass. R. Prof. C. 1.15, is unavailing. Although the language of the rule makes none of these distinctions, but merely requires that funds be deposited in a trust account, accounted for, and returned timely to the client on request, our case law has consistently maintained different sanctions for commingling alone, negligent misuse, intentional misuse, and intentional misuse with deprivation.

Nor do we seek to render insignificant the question whether a given client has actually been deprived of the funds by the actions of counsel. These continue to be relevant considerations, particularly with respect to the severity of the sanctions; but, once bar counsel has established the operative facts, hereafter it will be the burden of the attorney to demonstrate whether the funds are indeed missing, whether his actions were intentional or negligent, and whether there has been deprivation. Should an attorney fail to convince that funds are missing by virtue of negligence rather than purpose, deprivation will be presumed, and a sanction of disbarment or indefinite suspension will be imposed.

The rule we announce today, and its accompanying sanction, will apply only to cash, and is to be imposed for misconduct occurring after the date of the issuance of the rescript of this opinion. While we recognize that the new rule is harsher than previous treatment for similar behavior, and will also result in far greater sanction where cash is involved than in other violations of Mass. R. Civ. P. 1.15, we conclude that, by its very nature, cash must be treated differently than other client assets. Above all, we "must consider what measure of discipline is necessary to protect the public and deter other attorneys from the same behavior." (citations and footnotes omitted)

The case is Matter of Murray. (Mike Frisch)

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