Friday, March 9, 2018

Trust Account, Tax Issues Lead To Suspension

The Hawai'i Supreme Court has ordered a one-year suspension of an attorney

In Case No. 14-001-9144, the record establishes that, from 2010 through September 30, 2013, Respondent Jo-Ann Adams failed to maintain a separate business account, in violation of Rule 1.15(a)(2) of the Hawai'i Rules of Professional Conduct (HRCP 1994) She used counter deposit slips to deposit funds into her client trust account and her business account, and used counter checks to disburse funds from her client trust account, constituting multiple violations of HRPC Rule 1.15(b). Respondent Adams commingled her own funds – including funds earned in her legal practice, earned for non-legal work, and obtained through an inherited interest in a judgment – with client funds from 2010 through September 30, 2013, in violation of HRPC Rule 1.15(c). By willfully and knowingly retaining her earnings in her client trust account, she placed the client funds in her account at substantial risk of injury

Respondent Adams paid personal and non-client business expenses from her client trust account, and withdrew funds from the account by means of checks made to “cash,” each instance of such conduct constituting a violation of HRPC Rule 1.15(e). She failed to label checks and to maintain contemporaneous financial records with the accuracy and consistency necessary to protect the integrity of her clients’ funds by responsibly overseeing the receipt, maintenance, and disbursement of those funds, as required by HRPC Rule 1.15(g)(2).

We further conclude that Respondent Adams failed to file her 2010, 2011, and 2012 federal and state tax returns until August 23, 2013, and her 2010 second semester and 2011 and 2012 general excise tax returns until June 20, 2014. We further conclude failing to file her returns by the appropriate deadlines injured the public and the legal profession.

However, we also conclude, following a thorough and complete de novo review of the record, that the Office of Disciplinary Counsel (ODC) did not succeed in carrying its burden
of establishing, by clear and convincing evidence, that Respondent Adams had the intent to conspire with her client in this case to sequester the client’s inherited funds in her client trust account in order to avoid the payment by her client of appropriate taxes on those funds...

In Case No. 14-067-9210, we conclude Respondent Adams misappropriated client funds, in violation of HRPC Rules 1.15(c) and 1.15(d), and injured that client when, on December 30, 2013, she disbursed monies from her client trust account using a counter check, overdrawing the account, at a time when she, by her own admission, held funds for a client in that account.

In Case No. 15-018-9237, the record establishes by clear and convincing evidence that, on May 17, 2015, Respondent Adams wrote a check to herself for $459.80 from her client trust account against insufficient funds and, in making the disbursement to herself, relied in part on $25.00 belonging to a client. Based upon the plain language of HRPC Rule 1.15(c) (2014), the withdrawal of the $25.00 of client money from her client trust account violated that Rule and injured the client in question.

Adams’s grossly negligent recordkeeping also establishes, by clear and convincing evidence, that her financial recordkeeping was so inadequate, the violation of her duties under HRPC Rule 1.15(g) so severe, that she placed the funds of her clients in substantial danger of serious injury. This conclusion, viewed together with our conclusions regarding her failure to file tax returns and her comingling of personal funds in her client trust account, provides clear grounds for a substantial period of suspension.

In mitigation the attorney

has a clean disciplinary record, has an excellent reputation in the community and has performed significant pro bono work, fully and freely cooperated with ODC in its investigation (including taking the initiative to report a subsequent overdraft of her account), and expressed sincere remorse for the mishandling of her financial affairs and client funds in particular.

(Mike Frisch)

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