Thursday, July 7, 2011

"[T]he Money Is There" But The Attorney Is Suspended

The New York Appellate Division for the First Judicial Department has imposed an interim suspension in a matter in which the attorney was obligated to hold funds escrowed for a real estate transaction:

In January 2010, the [Departmental Disciplinary] Committee opened an investigation into respondent's professional conduct after receiving a complaint from another attorney regarding a real estate deal between that attorney's present client, Herrato Real Estate LLC, and respondent's client, North Village Center, Inc. The parties entered into a contract of sale for the purchase of certain premises located in Rockville Centre, New York. Herrato, as purchaser, wrote a check for the contract downpayment in the amount of $156,000 dated January 18, 2008, which respondent deposited into his escrow account. When the premises was not delivered on time, nor construction completed, litigation ensued. Herrato retained present counsel who complained to the Committee that respondent, among other things, failed to operate in good faith when he demanded prompt payment of Herrato's downpayment and return of the escrowed funds. Respondent has neither returned the money, nor paid the money into court. In fact, respondent has not raised an objection concerning the return of the downpayment.

On July 9, 2010, respondent appeared before the Committee for a deposition wherein he addressed the fact that he had not maintained the $156,000 downpayment in his escrow account intact. During that deposition, respondent stated "I have the money. Not all of it is in my escrow account, but I have the money." When counsel for the Committee asked why the full amount was not in his escrow account, respondent stated: "Well, I move some things back and forth in covering some things, but the money is there. I will have it . . . when they tell me the thing's been resolved and who I have to pay."

Thereafter, the Committee served a subpoena on Citibank requesting copies of respondent's escrow account records...

The Committee tried to reconstruct the account with the records provided by the bank. Then:

On January 14, 2011, respondent appeared for a second deposition. At that time, he admitted, under oath, that he wrote checks to himself when he knew that the balance in his escrow account was below the amount required to be held on behalf of Herrato. He further admitted that at the time, he knew he was using funds belonging to Herrato and that he did not have permission from Herrato to make those withdrawals. Since some of these withdrawals were made years earlier, respondent stated he could not remember what the money was used for, although he presumed his withdrawals were used for personal or business expenses.

During this second deposition, the Committee questioned respondent about his system for maintaining his escrow account records, particularly since he was unable to identify the purpose of checks he had written to himself. Although respondent testified that he did retain bank statements and some deposit slips, he conceded that sometime after May 2008 he stopped keeping a ledger, as required under DR 9-102(D)/RPC 1.15(d). Finally, when asked what was going through his mind when the balance in his escrow account kept decreasing, respondent testified: "I think it was a spiral I couldn't get control over. In light of the fact that I had the expectation of this money, other money arriving imminently as the cavalry over the hills to save the day, and when it didn't come in, I was still faced with this dilemma."

The court found sufficient evidence of misconduct to warrant suspension pending resolution of the disciplinary charges. (Mike Frisch)

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