(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
Argued February 14, 1996 -- Decided April 19, 1996
PER CURIAM
[Note: The Supreme Court disposition in this matter was by way of an Order of the Court. Justice
O'Hern has filed a separate dissenting opinion. The following statement of the case is drawn from the
Decision of the Disciplinary Review Board, which is also attached.]
John L. Downer, Jr., was admitted to the Bar of New Jersey in 1985. He maintained an office in
Summit. A formal ethics complaint was filed against Downer, charging him with misappropriation. The
complaint had four counts. It was heard by a Special Ethics Master, who concluded that Downer's actions
required the imposition of public discipline. The first two counts were the most critical to the resolution of
the matter.
1. Count One. Downer became an insurance title agent for Chicago Title Insurance Company in
July 1987. Between November 1987 and March 28, 1988, Downer collected title insurance premiums in
twenty real estate transactions. In none of the matters did Downer forward Chicago Title its portion of the
premiums (slightly over $4,000). Downer also failed to issue the corresponding title insurance policies.
When Chicago Title learned of Downer's actions, his agency contract was terminated.
Downer admitted that he had failed to forward the premiums to Chicago Title. He also admitted
that he used Chicago Title's money for purposes other than those for which they were intended. He denied
knowingly misappropriating the funds.
2. Count Two. On March 28, 1988, Downer represented Barbra Kohl, the grievant, in the purchase
of a house from G. Hewitt Meade. Downer got into the case just before the real estate closing took place.
Downer deposited the $220,162.50 from the sale into his agency escrow account. Between March 28 and
June 17, 1988, Downer wrote a series of personal checks against the monies deposited.
Downer alleged that the misappropriation of the real estate funds was the result of his careless
recordkeeping and was not a "knowing" misappropriation. Evidence before the Special Ethics Master
established that Downer knew the balance in his escrow account.
The Special Ethics Master and a seven-member majority of the Disciplinary Review Board (DRB)
concluded that Downer should be disbarred for the knowing misappropriation of escrow and trust account
funds. Two members of the DRB voted for a two-year suspension on the basis of medical evidence that
suggested Downer was mentally impaired at the time of the events in question.
HELD: The report of the Disciplinary Review Board is adopted and John L. Downer, Jr., is disbarred for
the knowing misappropriation of escrow and trust account funds entrusted to him.
O'HERN, J., dissenting, is of the view that disbarment is not called for in this matter. The record reflects a
lack of venality on the part of Downer and his inexperience at the time of his misconduct. In addition,
Downer urged that the Court take into consideration the adverse effects of his long-term substance abuse
problem. Justice O'Hern believes that with proper guidance and support, respondent could serve the public
as a member of the bar. He would suspend Downer indefinitely with leave to apply for reinstatement at
such time as Downer would be able to demonstrate his fitness to resume the practice of law.
CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, GARIBALDI, STEIN, and
COLEMAN join in the Order of the Court. JUSTICE O'HERN has filed a separate dissenting opinion.
SUPREME COURT OF NEW JERSEY
D-
72 September Term 1995
IN THE MATTER OF :
JOHN L. DOWNER, JR., : O R D E R
AN ATTORNEY AT LAW :
The Disciplinary Review Board having filed a report with the
Court on October 25, 1995, recommending that JOHN L. DOWNER, JR.,
of SUMMIT, who was admitted to the bar of this State in 1985, and
who was thereafter temporarily suspended from the practice of law
by Order of this Court dated September 7, 1994, and who remains
suspended at this time, be disbarred for his knowing
misappropriation of escrow funds;
And respondent having been ordered to show cause why he
should not be disbarred or otherwise disciplined;
And good cause appearing;
It is ORDERED that the findings of the Disciplinary Review
Board are hereby adopted and respondent is disbarred, effective
immediately, and that his name be stricken from the roll of
attorneys of this State; and it is further
ORDERED that the Decision and Recommendation of the
Disciplinary Review Board, together with this Order and the full
record of the matter, be added as a permanent part of the file of
said JOHN L. DOWNER, JR., as an attorney at law of the State of
New Jersey; and it is further
ORDERED that all funds, if any, currently existing in any
New Jersey financial institution maintained by JOHN L. DOWNER,
JR., pursuant to Rule 1:21-6 be restrained from disbursement
except on application to this Court, for good cause shown, and
shall be transferred by the financial institution to the Clerk of
the Superior Court, who is directed to deposit the funds in the
Superior Court Trust Fund, pending further Order of this Court;
and it is further
ORDERED that JOHN L. DOWNER, JR., comply with Rule 1:20-20
dealing with disbarred attorneys; and it is further
ORDERED that JOHN L. DOWNER, JR., reimburse the Disciplinary
Oversight Committee for appropriate administrative costs.
WITNESS, the Honorable Robert N. Wilentz, Chief Justice, at
Trenton, this 19th day of April, 1996.
/s/ Stephen W. Townsend
CLERK OF THE SUPREME COURT
SUPREME COURT OF NEW JERSEY
Disciplinary Review Board
Docket No. 95-111
______________________________
:
IN THE MATTER OF :
:
JOHN L. DOWNER :
:
AN ATTORNEY AT LAW :
_____________________________ :
Decision of the
Disciplinary Review Board
Argued: May 17, 1995
Decided: October 2, 1995
John McGill, III, appeared on behalf of the Office of Attorney
Ethics.
Respondent appeared pro se.
To the Honorable Chief Justice and Associate Justices of the
Supreme Court of New Jersey.
This matter was before the Board based on a recommendation for
discipline filed by Special Master Lewis B. Cohn on behalf of the
District VC Ethics Committee.
Respondent was admitted to the New Jersey bar in 1985. On
March 17, 1992, he received a public reprimand for (1) issuing bad
checks to a vendor of a typewriter and theft by deception;
(2) exhibiting a pattern of neglect; (3) displaying gross
negligence in two matters; (4) improperly withdrawing from
representation in one matter; (5) misrepresenting to a court clerk
his reasons for not appearing in court; (6) failing to cooperate
with the ethics authorities; (7) failing to maintain a bona fide
office; (8) failing to promptly deliver property to a third party;
and (9) failing to comply with the recordkeeping rules. In re
Downer,
127 N.J. 168 (1992). In imposing only a public reprimand,
the Board and the Court considered, in mitigation, respondent's
mild memory-deficiency problems .. possibly due to head injuries ..
which problems were exacerbated by respondent's longterm drug and
alcohol abuse.
On September 15, 1994, respondent was temporarily suspended
from the practice of law for failure to pay the administrative
costs and sanctions incurred in connection with the prosecution of
the above matter. He remains suspended to date.
The facts are as follows:
A. Count One - The Chicago Title Insurance Company Matter
This matter arose from a formal ethics complaint charging
respondent with two counts of knowing misappropriation and one
count of gross neglect and lack of diligence.
At the relevant times, respondent maintained an office for the
practice of law and a title agency business in East Orange, Essex
County, New Jersey, operating under the name of Contemporary Title
Agency.
On July 31, 1987, respondent signed an agency contract with
Chicago Title Insurance Company ("Chicago Title"). Pursuant to the
contract, Chicago Title appointed respondent as an agent for the
promotion and transaction of a title insurance business in Essex
County. As agent, respondent had the following obligations, among
others: to solicit business for Chicago Title; to conduct the
necessary searches before closings of title; to issue title
insurance commitments; to issue title insurance policies; to
collect premiums according to a schedule of rates and remittances
set forth on a rider to the contract; and to remit to Chicago Title
forty percent of the premiums collected, as its compensation.
Paragraph 3 of the contract provided as follows:
DUTIES OF AGENT. Agent shall:
* * *
F. Keep safely in accounts separate from Agent's
personal or operating accounts all funds received
by Agent from any source in connection with
transactions in which Principal's title insurance
is involved and to disburse said funds only for the
purposes of which they were entrusted * * * *
[Exhibit P1-1]
Paragraph 7 of the Schedule of Rates and Remittances stated the
following:
7. Agent agrees that remittances will be paid at
the time of reporting policies issued to the
Principal. The payment of remittances, and
the simultaneous reporting of policy copies
issued during the preceding month, shall be
mailed to the Principal's Headquarter Office
within 15 days of the issuance of the policy,
by the 15th day of each month * * * *
(Original emphasis).
[Exhibit P1-1]
According to Joseph Santosuosso, Chicago Title's then manager for the North Jersey area, in practice, the reporting to Chicago Title of the number of policies issued by an agent would be
accomplished by forwarding to Chicago Title a voucher attached to
the top of the title policy form. After the agent would issue the
title insurance policy, the agent would fill out the voucher and
forward it to Chicago Title's office. Chicago Title would then
bill the agent for its portion of the premiums collected. That was
the sole mechanism for notifying Chicago Title of insurance
policies issued. Copies of the vouchers were not sent to Chicago
Title's area managers.
As noted earlier, respondent became an insurance title agent
for Chicago Title on July 31, 1987. As was customary, Chicago
Title gave respondent $5,000 or $6,000 in "seed" money to start the
agency business. For reasons unexplained by the record, respondent
did not immediately establish bank accounts to operate his title
agency business. Six months later, on January 8, 1988, respondent
opened two accounts at Midlantic National Bank, in Newark: account
#58440264 ("escrow account") and account #58440256 ("agency
account"). According to the agency contract, all premiums were to
be deposited in the escrow account.
Between November 1987 and March 28, 1988, respondent collected
title insurance premiums in twenty real estate transactions. In
none of these transactions did respondent remit to Chicago Title
its portion of the premiums, or $4,017.79. Exhibit P1-2A. Neither
did respondent issue the corresponding title insurance policies.
Chicago Title discovered respondent's wrongdoing only after it
began receiving complaints from the banks involved, demanding the
title insurance policies.
In June 1988, respondent's agency contract with Chicago Title
was terminated as a result of his failure to fulfill his
obligations.
Respondent admitted that he collected the premiums in the
twenty real estate transactions at stake and that he did not send
forty percent of the premiums to Chicago Title. Respondent also
admitted that he had used Chicago Title's portion of the premiums
for purposes other than those for which they were intended.
Respondent denied, however, that he had knowingly misappropriated
the funds.
Respondent asserted various defenses against the charges of
knowing misappropriation. First, respondent claimed that he was
never properly trained by Chicago Title on how to issue title
insurance policies and that, even after several sessions of
instructions by Chicago Title employees on the subject, he never
felt "comfortable" in issuing title insurance policies.
As noted by the Special Master, however, respondent's defense
is, "at the outset, ingenuous." It is undeniable that Chicago
Title gave respondent assistance in learning operating procedures
and in issuing policies. On at least two occasions, Carolyn
Leakes, a production supervisor and title officer for Chicago
Title, visited respondent's agency to explain operating procedures.
Although Leakes acknowledged that she did not instruct respondent
how to issue title policies, she showed him how to issue title
binders before the closing of title stage and had numerous
subsequent phone conversations with respondent about underwriting
issues. Similarly, Roxanne Logan, a Chicago Title employee whose
job was to issue title policies, visited respondent's office once
or twice. On those occasions, Ms. Logan explained to respondent
how to issue policies and suggested that, if he had any questions,
he should contact her. Ms. Logan acknowledged that she had several
subsequent phone conversations with respondent, but could not
recall whether they related to the issuance of policies.
Larry Green, too, at the time an Assistant Vice-President and
branch manager for Chicago Title, recalled having five to seven
telephone conversations with respondent about how to issue policies
and about other operational procedures. Mr. Green testified that
respondent called him only once after Roxanne Logan visited
respondent's office. At that time, he offered respondent his
assistance, if ever needed. Mr. Green testified that respondent
did not call him after that occasion.
More importantly, as pointed out by the Special Master, the
issuance of title insurance policies was at the heart of the reason
why Chicago Title had engaged respondent as an agent. Accordingly,
if respondent felt incapable or "uncomfortable" in issuing title
insurance policies, he should have sought further assistance in
training from Chicago Title or discontinued the operation of a
business in which he could not perform adequately. Respondent did
neither.
The second defense asserted by respondent is that Chicago
Title was "a necessary component" of every closing. Respondent
claimed that Chicago Title had notice of the business generated by
the agency because Chicago Title had to provide updated information
on the various closings. This defense, too, must be rejected.
Chicago Title could not have been aware that respondent had issued
title insurance commitments and accepted premiums because
respondent did not send the corresponding vouchers to Chicago
Title. In addition, as Larry Green testified, Chicago Title did
not provide agents with updated information on the closings.
Furthermore, respondent admitted to G. Nicholas Hall, an
investigative auditor with the OAE, that Chicago Title was unaware
that he was not issuing title policies. T4/20/1994 187,
Exhibit P1-4. Lastly, even if Chicago Title were aware of
respondent's activities, there is no explanation or excuse for
respondent's failure to remit the forty percent portion of the
premiums collected.
Respondent's third defense is that he had a verbal agreement
with Joseph Santosuosso to delay the remittance of Chicago Title's
share of the premiums because he was starting up the agency
business and needed the cash at the time. Santosuosso, however,
testified that he had no recollection of such agreement and that he
never gave respondent permission to use the premiums for his own
purposes.
To date, respondent has not made restitution to Chicago Title.
Respondent alluded to "an agreement in place" to that end.
B. Count Two - The Kohl Closing
On March 28, 1988, respondent represented Barbra Kohl, the
grievant in this matter, in the purchase of a house from G. Hewitt
Meade. Respondent became involved in this transaction on the eve
of the closing of title. Until that time, the parties had been
jointly represented by Robert Pickett, Esq. It was Mr. Pickett's
belief that Ms. Kohl and Mr. Meade were married. When he found out
near the closing of title that they were not, he declined to
represent both parties and asked respondent to represent Ms. Kohl.
Respondent agreed. Mr. Pickett had been dealing with respondent's
agency in procuring title insurance for the property.
This was respondent's first real estate closing. The day
after the settlement, March 29, 1988, respondent deposited its
proceeds of $220,162.50 in the agency's escrow account. Prior to
this deposit, the balance in the account was $3.96. Respondent
made no other deposits into the account before the Kohl funds were
disbursed. Out of closing proceeds, respondent was entitled to a
payment of $1,802.00: $350 for his legal fee, $150 for delivery
charges, $200 for "fax" charges, and $1,102 for the title insurance
premium as agent for Chicago Title. Nevertheless, between
March 28, 1988 and June 17, 1988, respondent wrote a series of
checks against the Kohl funds for purposes unrelated to the
closing. Among the checks drawn during this time period were the
following:
CHECK NO. PAYEE AMOUNT
1029 Diana Lopez $250
1031 Eugene Victor $100
1023 Ben Henderson $300
1026 Ben Henderson $300
1032 Ben Henderson $300
1025 Carmen Del Valle $200
1028 Carmen Del Valle $600
TOTAL $2,050
Eugene Victor and Diana Lopez were respondent's former
clients; Carmen Del Valle was his secretary and Ben Henderson was
the landlord of his office building. OAE Investigator Hall
testified that respondent had admitted to him that he had issued
those checks to his landlord because he had been locked out of his
office for non-payment of rent in April 1988.
Respondent did not deny issuing those checks for personal
purposes. He claimed, however, that, because of his deficient
bookkeeping practices, he was unaware of the balance in the escrow
account. The following exchange took place at the DEC hearing
between the presenter and respondent:
Q. * * * now my question to you is on what basis
could you have maintained an honest belief
that you had any of your monies in that
account after depositing the Kohl/Meade funds
and prior to June 30, 1988?
A. More times than not I would write a check
without checking the balance or without being
aware of what was in the account, which is
primarily the reason why so many checks
bounced. I did not write checks with regard
to an amount and being aware of a particular
amount there was in the account.
On any of the accounts there are checks that
bounced on all of these accounts there were
checks that were paid on all of these accounts
and there wasn't any conscious decision, well,
I've got money in this account or I know I
have X amount of dollars in this account. I
will write the check on this account.
Checks were written on accounts where there
was no money as well as accounts that were -
was written with money.
And with money that was not that they should
not have been written on [sic].
[T4/21/1994 53-54]
* * *
Q. And are you saying that you believe that you
had your -- some of your own funds -- isn't it
true that with regard to all three of your
Contemporary Title accounts too, at Midlantic
and the one at First Federal that from April
29th, until September 1988, you know, you held
no other monies in any account, except the
Kohl funds?
A. Mr. McGill, I can't answer you affirmatively
with that and in -- a -- in no account was a -- I aware [sic] of any type of regular basis
or any type of consistent basis what was in
one of the accounts and what was not in one of
the accounts * * * *
[T4/21/1994 76-78]
In essence, respondent alleged that the misappropriation of the funds was the result of his careless recordkeeping and inattention to the requirements for the maintenance of trust and escrow accounts. This argument, however, must fail. As early as September 1987, when respondent's attorney records were audited by an accountant retained by the OAE, respondent had been made aware of his recordkeeping obligations. Moreover, the evidence gives rise to an inference that respondent knew precisely how much he had
in his accounts, which showed very little activity. For instance,
respondent maintained a trust account with First Fidelity Bank. On
March 14, 1988, respondent withdrew the entire balance of the
account, $168.45, to the penny. Respondent admitted that, at the
time of the withdrawal, he knew the exact balance. Thereafter,
respondent issued a series of checks against his First Fidelity
account, which were drawn against insufficient funds.
Specifically, as early as two days after the withdrawal of the
entire balance of the account ($168.45), respondent issued a check
for $250.70. On April 26, 1988, however, he deposited $95 to the
account in order to bring the negative balance to a zero amount.
Throughout the next several months, respondent again maintained a
negative balance in the account. In August 1988, however, he
deposited $141.14, again, to restore the zero dollar balance in the
account. The logical conclusion is that respondent obviously knew
the exact balance in the account in order to make corresponding
deposits to bring the account to a zero balance.
Another example is what occurred with the agency escrow
account, which was opened in January 1988. As of February 18,
1988, the account balance was $13.98. On February 24, 1988,
respondent deposited $500 in the account, bringing the account
balance to $513.98. The source of the $500 deposit was the
withdrawal of equivalent funds from the other account maintained by
respondent in connection with the agency business, the agency
account. Exhibit P2-10. On March 16, 1988, however, respondent
withdrew the $500 from the escrow account and returned it to the
agency account, which until then had a negative balance of $1.72.
Exhibit P2-11.
The foregoing account transactions leave no doubt that,
contrary to respondent's assertions, he had a precise knowledge of
the balances of the two Midlantic accounts. Respondent might not
have reconciled the records in connection with his accounts, but
there can be no other conclusion than that he knew exactly what his
account balances were at various times.
C. Count Three - Gross Negligence and Lack of Diligence in the
Kohl Transaction
As a result of respondent's failure to make certain payments
following the Kohl closing, Chicago Title had to pay claims
totalling $3,773.12. Those were:
1. $1,360.98 to First Performance Mortgage Company, Kohl's
mortgagee, for interest, document preparation fee, mortgage
insurance and hazard insurance;
2. $1,328 for realty transfer tax and recording fees;
3. $1,084.14 to Trico Mortgage Company, because of
respondent's failure to timely pay off the existing mortgage on the
property.
In addition, respondent failed to record the mortgage and the
deed.
D. Failure to Cooperate with Disciplinary Authorities
At the pre-trial conference, respondent agreed to supply a
verified, more responsive answer to the complaint by no later than
August 20, 1993; to provide reciprocal discovery to the OAE; and to
submit a witness list by no later than September 10, 1993.
Respondent did none of the above. On October 4, 1993, the newly
appointed Special Master extended the deadlines. Again, respondent
submitted nothing. Accordingly, the OAE amended the complaint to
allege a violation of RPC 8.1(b) (failure to cooperate with ethics
authorities). On December 10, 1993, the Special Master wrote to
respondent requesting a verified answer, discovery and a list of
witnesses by January 10, 1994. The hearing had been scheduled for
January 19, 1994. Once again, respondent did nothing. On
January 17 and January 18, 1994, respondent contacted the Special
Master to request an adjournment of the hearing because of a
surgical procedure. The Special Master adjourned the hearing. New
hearing dates were scheduled for April 20 and April 21, 1994.
Although respondent attended the hearings, he did not file a more
responsive answer, did not provide discovery to the OAE and did not
supply a list of witnesses.
Rejecting each of respondent's defenses as without substance,
the Special Master filed a thorough, well-crafted report finding
that respondent's alleged justifications for his actions were "at
best ingenuous; at worst, still violative of the Rules of
Professional Conduct and the New Jersey Rules of Court concerning
trust accounts; and, in any case, contradicted by the facts
presented at the hearings conducted in this matter." The Special
Master concluded that respondent's "explanation of the manner in
which he conducted [his financial] affairs is contradicted by the
financial paper trail which he left as he attempted to cope with
his financial affairs. In other words, this is not a situation of
absolute ignorance as claimed by Downer, but, rather, a case of
selective ignorance on his part." The Special Master went on to
say that "[m]ore than merely not knowing all that was occurring in
[his] accounts, Downer affirmatively disabled himself from
knowing."
The Special Master concluded that respondent knowingly
misappropriated both the Chicago Title and the Kohl funds and, in
addition, grossly neglected the Kohl transaction. The Special
Master dismissed the charge of failure to cooperate with the
disciplinary authorities, reasoning that, although respondent's
original answer might have been unartfully drafted, it nevertheless
provided sufficient notice to the OAE of the defenses and
substantive posture that respondent would adopt at the time of the
hearing. The Special Master found that the lack of specificity in
respondent's original answer in no way prejudiced the presentation
of the OAE's case.
The Special Master recommended the imposition of public
discipline.
Following a de novo review of the record, the Board is satisfied that the Special Master's conclusion that respondent's conduct was unethical is fully supported by clear and convincing evidence. For the reasons expressed above, the Board was persuaded that respondent knowingly misappropriated escrow funds by using for his personal purposes $4,017.79 in title insurance premiums collected in twenty real estate transactions and that he also knowingly misappropriated the Kohl funds. The Board rejected respondent's claims that his actions in the Chicago Title matter were the result of his poor training by Chicago Title and that his conduct in the Kohl matter was the product of grossly deficient recordkeeping. Those claims are clearly contradicted by the record. Chicago Title officials testified as to respondent's training and their offers of assistance, of which respondent did not avail himself. As to the Kohl matter, respondent had to know .. even if he did not maintain his attorney records .. that his account did not have sufficient funds to back up the $2,050 withdrawals; on several occasions, respondent deposited in his
account exact amounts needed to bring its negative balance to a
zero balance. At a minimum, as pointed out by the Special Master,
respondent exhibited a willful blindness toward his recordkeeping
obligations, sufficient to satisfy the requirement of knowledge.
In re Skevin,
104 N.J. 476 (1986).
The proofs also convinced the Board that respondent grossly
neglected the Kohl matter, thereby causing Chicago Title to incur
unnecessary expenses. Lastly, unlike the Special Master, the Board
found that respondent wilfully failed to cooperate with the
disciplinary system, in violation of RPC 8.1(b).
A seven-member majority of the Board recommends that
respondent be disbarred under In re Hollendonner,
102 N.J. 21
(1985) (Chicago Title matter) and In re Wilson,
81 N.J. 450 (1979)
(Kohl matter). Two members would have imposed a two-year
suspension on the basis that the medical evidence introduced in the
disciplinary matter that led to respondent's reprimand suggested
some degree of mental impairment on his part.
The Board further recommends that respondent reimburse the
Disciplinary Oversight Committee for administrative costs.
Dated:____________________________________________________
LEE M. HYMERLING, ESQ.
Chair
Disciplinary Review Board
NO. D-72 SEPTEMBER TERM 1995
Application for
Disposition Disbar
Decided April 19, 1996
Order returnable
Opinion by PER CURIAM