Thursday, July 16, 2020

Not Willful Blindness

The New Jersey Supreme Court has reprimanded an attorney for trust account issues.

The Disciplinary Review Board describes a single matter in a real estate closing that was uncovered by a random audit and concludes that there was not disbarable misappropriation

In a real estate transaction fraught with problems before, during, and for many years after, respondent asserts that, when he took the $6,047.60, he believed that the monies must have belonged to him because, essentially, no one, especially the seller, walks away from a real estate transaction without every penny due. Further, although respondent had received a fee from the buyers in the transaction, he recalled having provided services to them in respect of other matters and, he testified, under such circumstances, he does not always open a new file. Thus, he assumed that the funds represented fees that the buyers owed for other work that he had undertaken in their behalf, after the closing.

The OAE’s knowing misappropriation claim rests on the willful blindness theory.

The respondent's trust records were in disarray

Although abominable recordkeeping practices may remove a case from the realm of knowing misappropriation, the Court has rejected the notion that an attorney "who just walks away from his fiduciary obligation as safekeeper of client funds can expect.., an indulgent view of any misappropriation."

...This case is distinguishable from the willful blindness precedent. Respondent did not design a recordkeeping system that would insulate him from knowing what was going on with his trust account. He did not intentionally and purposely avoid knowing what was going on in his trust account. He did not engage in horrendous recordkeeping practices. Rather, respondent botched a real estate closing, which, unbeknownst to him, left $6,000 on the ledger and in his attorney trust account. Thus, respondent’s primary act of misconduct was failing to fulfill his duties as an escrow and settlement agent, which included preparing an accurate HUD-1 and disbursing the proper funds to the proper parties.


In this case, discipline greater than an admonition is warranted for respondent’s recordkeeping violations. First, he was cited for recordkeeping deficiencies in 1995 and, thus, should have been mindful of his obligation to keep the firm’s attorney books and records in order. Second, in 2012, he received a reprimand for his failure to abide by the terms of a property settlement agreement in his role as the escrow agent in a client’s real estate transaction. In light of respondent’s wholly avoidable inaccuracies on the HUD-1 and his assumption about his entitlement to the $6,047.60, we determine to impose a reprimand for his violation of RPC 1.15(d).

(Mike Frisch)

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