Slush Fund

The Wisconsin Supreme Court has revoked an attorney's license

The Office of Lawyer Regulation (OLR) filed a 48-count, 113 page complaint against Attorney Carl Robert Scholz, alleging various counts of misconduct involving 19 different client matters. In short, Attorney Scholz maintained multiple bank accounts and routinely used his business accounts as a “slush fund” into which he deposited and then converted significant client funds. The allegations in the complaint include multiple counts of client trust fund conversion, trust account violations, failure to communicate, failure to provide information to clients, failure to provide a final accounting to clients, failure to return unearned fees, making material misrepresentations to legal tribunals, failure to cooperate with the OLR’s investigation, making material misrepresentations to the OLR, failure to comply with court orders, failure to act with reasonable diligence and promptness, failure to provide notice of license suspension, and practicing law while his license was suspended. The OLR initially alleged that Attorney Scholz owed over $83,000.00 in restitution to former clients and other individuals.

We conclude that Attorney Scholz committed all instances of misconduct alleged in the complaint. We agree that Attorney Scholz’s misconduct warrants revocation of his license to practice law in Wisconsin and that the revocation should not be made retroactive to a prior disciplinary suspension. We further agree that Attorney Scholz should pay the full costs of this proceeding, which total $10,905.68 as of May 30, 2024. As to restitution, while the court has concerns that OLR’s decision to waive restitution as to several client matters does not comport with this court’s recent jurisprudence concerning how restitution matters should be handled in instances where the amount of restitution is not reasonably ascertainable due to conduct of an attorney, we nonetheless adopt the parties’ stipulation and order Attorney Scholz to pay $4,000 in restitution to S.L.C. However, we caution the OLR that in the future, any decision to waive claims of restitution must comport with the policy contained in the January 16, 2020 report issued by the OLR’s Board of Administrative Oversight and reflected in cases such as In re Disciplinary Proceedings Against Ruppelt, 2017 WI 80, 377 Wis. 2d 441, 898 N.W.2d 473, and In re Medical Incapacity Proceedings Against Muwonge, 2017 WI 12, 373 Wis. 2d 173, 890 N.W.2d 575. That is, where the OLR determines that the amount of restitution is not reasonably ascertainable due to the conduct of an attorney, the burden shifts to the attorney to demonstrate what offset is appropriate in determining the amount of restitution. Moreover, we caution the OLR that in cases where a third party who is owed restitution intends to waive restitution, the OLR must provide a detailed explanation of the circumstances surrounding the waiver and why the OLR decided to accept it.

Sanction

Here, we have already discussed the serious nature of Attorney Scholz’s misconduct and the presence of several aggravating factors and no significant mitigating factors. We agree with the referee that the record does not provide any basis for leniency in this case. Additionally, we note that while the underlying counts of misconduct relating to trust fund violations and conversion of client trust funds may overlap with the single count of misconduct in Scholz I, the severity and extent of the misconduct in Scholz I pales in comparison to the multiple counts at issue here. Additionally, the allegations relating to failure to cooperate with the OLR and the multiple misrepresentations made by Attorney Scholz to the OLR during its investigation post-date the conduct at issue in Scholz I. And this case also involves Attorney Scholz practicing law while his license was suspended and failing to advise courts of his suspension—conduct that also postdated the conduct at issue in Scholz I. Therefore, we agree with the referee’s recommendation to deny Attorney Scholz’s request for retroactive revocation, as the balance of aggravating and mitigating factors do not provide any justification for leniency in this case.

Concerns concerning restitution

there is a more fundamental problem with the way the OLR handled the restitution claims in this case. The OLR seemed to believe that because Attorney Scholz did not keep accurate and up-to-date financial records of the funds at issue, it was appropriate for the OLR to abandon restitution claims that it believed were not “reasonably ascertainable.” This “throw up your hands” policy is how the OLR generally handled restitution claims prior to 2019. However, on October 10, 2019, then-Chief Justice Patience Roggensack sent a letter to the OLR’s Board of Administrative Oversight (BAO), asking it to evaluate whether the OLR should continue its policy of declining to seek restitution when the record does not demonstrate a reasonably ascertainable amount. She asked: “Is this appropriate when the respondent attorney’s conduct may be the reason an amount cannot be ascertained . . . . Who should carry the burden to show a ‘reasonably ascertainable’ amount when the amount of restitution is in dispute?” The BAO issued a response report on January 16, 2020. It concluded that in such circumstances, the burden should be squarely on the attorney who engaged in the misconduct and that “that OLR’s restitution policy should reflect the approach employed in the 2017 Muwonge and Ruppeldt cases, wherein the Court . . . shifted the burden unto the attorney in establishing what offset, if any, is appropriate in determining the amount of damages the grievant or OLR has claimed is at issue.

Caution to OLR

We again remind the OLR that when, due to poor recordkeeping or other conduct by an attorney, the OLR is unable to discern a reasonably ascertainable amount of restitution owed, the burden shifts to the attorney to establish what offset, if any, is appropriate in determining the amount of restitution owed to a particular individual. This policy change should be reflected not only in the OLR’s restitution statements to this court, but also in the OLR’s decision making when entering into stipulations for a lesser amount of restitution than OLR originally alleged was owed by an attorney.

With that said, this court reluctantly agrees to accept the parties’ stipulation and the referee’s recommendation that Attorney Scholz be ordered to pay $4,000 in restitution to S.L.C. The record before the court simply does not support ordering any additional amount of restitution to any other individual.

(Mike Frisch)