Saturday, February 15, 2020

Eye Off The Ball: Court Imposes Disbarment For Reckless Misappropriation

A division of the District of Columbia Court of Appeals strongly affirmed the proposition that reckless misappropriation requires disbarment absent extraordinary circumstances notwithstanding compelling mitigation

Respondent has been a member of the bar since 1978. Throughout his career he has been a sole practitioner, working from his home office, without benefit of a support staff. The vast majority of his clients have been low and moderate income tenants and small landlords, primarily in the Landlord and Tenant Branch of Superior Court. He typically charged below market fees, and he often let his clients pay in installments, or not pay at all, when they could not meet their obligations under their fee agreements. As a result, much of his work ended up being without compensation. Respondent deposited his retainer fees into his trust account because he understood they were the property of the client until earned. Because the fees were relatively small, they were usually earned before, or shortly after, he deposited them. Respondent’s practice, however, was to leave the earned fees in the trust account until he needed to withdraw money for personal or professional expenses. On occasion respondent also deposited what he called pure client funds into the trust account, such as proceeds from the sale of property or from settlements or judgments he obtained on behalf of his clients.

From the time he began his practice, respondent understood his obligation to maintain client funds in a trust account and to keep them separate from his operating account and his own money, and he understood the reasons behind the prohibition against commingling. From all that appears in the record, for many years respondent was able to account for his entrusted client funds, and he maintained a computerized record of his trust account for that purpose. He admits, however, that beginning in 2007 he stopped tracking client funds in his trust account and his “record-keeping became haphazard and incomplete.” He testified at the hearing that he allowed his accounting to lapse “because his practice became too busy and due to some health challenges.” Respondent believed he had a “reasonably accurate understanding” of the amount of money in the trust account that belonged to him. Unfortunately, as will be shown, objective facts tell a different story.

Reckless misappropriation

For all we know from this record, respondent’s accounting practices appear to have worked reasonably well for him and for his clients for many years. Starting in 2007, however, respondent’s ability to account for his clients’ entrusted funds—flawed from the beginning—became hazardous, and respondent consciously ignored the hazard at his peril. Knowing that the whole purpose of maintaining a trust account was to keep the clients’ money safe and secure, respondent essentially stopped monitoring in any meaningful way the status of his trust account. He continued to deposit earned and unearned fees into the account and to withdraw money from the account as needed, not differentiating between funds that belonged to him and those that belonged to his clients. If he kept records, he did not rely on them. He admitted that he rarely, if ever, looked at his monthly bank statements and made no attempt to reconcile his account balance with deposits he had made or checks he had written.

Is proven thusly

The Board rejected respondent’s argument based on his good faith belief that he had earned the fees he spent out of the trust account, finding that respondent’s asserted good faith belief was not objectively reasonable. Respondent accuses the Board of improperly importing into the standard for reckless misappropriation the element of objective reasonableness, which in his view belongs exclusively in the realm of negligence. We disagree.

...Here, what makes respondent’s belief objectively unreasonable is his knowledge of his duty to keep his clients’ funds separate from his own and his unacceptable disregard, from 2007 forward, for the safety and welfare of entrusted funds manifesting a conscious indifference to the consequences of his conduct for the security of those funds. See Anderson, 778 A.2d at 338–39. This is the very essence of reckless misappropriation, respondent’s good faith notwithstanding.

A sad duty on sanction

We appreciate that the sanction of disbarment may seem harsh as applied to sole practitioners like this respondent, who lack the resources to employ the kind of support staff more affluent lawyers rely on to steer them clear of bad accounting practices that can lead to unintentional misappropriation. This is particularly true where, as here, no one contends that respondent’s conduct was dishonest, or even that it was motivated by avarice or a desperate need for money he knew was not his to take. He simply took his eye off the ball, but he did so over many years, involving thousands of dollars of entrusted funds, knowing that he was ignoring his fiduciary duty to keep track of those funds and to keep them secure. He now finds himself facing disbarment at the twilight of a long career of providing much needed legal services to an underserved population of low and moderate income residents of our community.

Nonetheless, respondent’s clients had a right to expect from their lawyer the same degree of vigilance in protecting their entrusted funds that any client, rich or poor, would expect when they hand their money over to their lawyer for safekeeping. The rule of Addams—while inflexible and sometimes harsh—is designed to protect all clients, to enhance public trust and confidence in the integrity and trustworthiness of all lawyers, and to deter the kind of misconduct we see all too often in this case and others like it.

The division consisted of  FISHER and BECKWITH, Associate Judges, and WEISBERG, Senior Judge, Superior Court of the District of Columbia.

The opinion was per curiam. (Mike Frisch)

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