(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 January 31, 1995 -- Decided June 9, 1995
PER CURIAM
Lee W. Shelly was admitted to the New Jersey Bar in 1973. The Office of Attorney Ethics (OAE)
filed a five-count complaint against Shelly, alleging ethical violations in relation to his representation of a
long-time client, Concetta Roden. In Counts I, II, and III of the complaint, Shelly is charged with knowing
misappropriation of client trust funds in respect of (1) $34,000 taken from the proceeds of a real-estate
closing, (2) a $6,000 deposit in the same real-estate matter, and (3) $1,250 of the closing proceeds that had
supposedly been held in escrow by Shelly. In Count IV, Shelly is charged with a conflict of interest for
failing to advise Ms. Roden to seek the advice of independent counsel in respect of a "loan transaction"
between Shelly and Ms. Roden. In Count V, Shelly is charged with certain recordkeeping violations.
Shelly began his representation of Ms. Roden in 1983. At that time, she was in serious financial
difficulty. She was almost penniless and the mortgage on her home was in default and on the verge of being
foreclosed. Shelly agreed to represent Ms. Roden and took a small retainer. Shelly told Ms. Roden that he
would charge her an hourly rate of $150 and that, due to her strained financial condition, he would secure
payment for his services from drawing his fees from any money he recovered for her. That agreement was
informal and was never reduced to writing. Ms. Roden accepted this arrangement.
In keeping with the extremely informal nature of his professional relationship with Ms. Roden,
Shelly did not maintain time records in respect of the work he performed on her behalf and did not send her
any bills or other documentation detailing the work performed. Shelly determined the amount owed from
each distribution generally based on the time he spent on the matter, taking into account her financial need
and ability to pay.
Over the course of the nine-year representation, Shelly obtained approximately $530,000 for Ms.
Roden. He also obtained a judgment in Ms. Roden's favor in the Franceze matter totalling approximately
$395,000 and successfully negotiated and handled the sale of Ms. Roden's house. Over those nine years,
Shelly collected approximately $100,000 in legal fees from Ms. Roden.
After the closing on her home, Shelly sent Ms. Roden a certified check against his trust account that
was $41,250 short. A letter informed her that he was borrowing $40,000 for two weeks at 12%. According
to Shelly, he and Ms. Roden had discussed the loan prior to the closing. Shelly claims he told her that,
because he agreed to handle the Franceze matter on a contingent basis, he would have to draw against the
closing proceeds to cover expenses. According to Shelly, Ms. Roden agreed. She later sent Shelly a letter
dated May 8, 1992, wherein she agreed to give him more time to repay the money he owed her. She did not
receive the money and eventually contacted John Wopat, III, Esq. to obtain the money for her. Wopat
notified the OAE of Shelly's ethical misconduct.
Following an evidentiary hearing, the Special Master found that Shelly had knowingly misappropriated the $6,000 deposit and $34,000 from the title-closing proceeds. Based on those findings, the Special Master recommended disbarment. The Special Master also found that Shelly's borrowing of his client's money without advising her to seek independent counsel constituted a conflict of interest in violation of the Rules of Professional Responsibility (RPC's). The Special Master found the evidence insufficient to
support a finding that Shelly knowingly misappropriated the $1,250 "escrow" funds from the title-closing
proceeds. Lastly, the Special Master found that although Shelly had violated certain recordkeeping
requirements, the proofs of a knowing misappropriation as a result thereof were less than clear and
convincing.
Following its review of the record, the Disciplinary Review Board (DRB) found that it could not
conclude by clear and convincing evidence that Shelly had knowingly misappropriated the $34,000 from
closing proceeds. The DRB reasoned that the setting aside of that money as a loan was consistent with the
practice Shelly had followed in the nine years he had represented Ms. Roden. A four-member majority of
the DRB did find that the record clearly and convincingly established that Shelly had knowingly
misappropriated the $6,000 deposit and, therefore, recommended disbarment. Three members of the DRB
believed that the evidence did not clearly and convincingly demonstrate Shelly's unauthorized use of either
the $34,000 or the $6,000 and, therefore, recommended a six-month suspension on infractions found in
Counts IV and V of the complaint.
HELD: The record does not clearly and convincingly demonstrate that Lee W. Shelly knowingly
misappropriated $40,000 from the closing proceeds of the sale of his client's home. However, Shelly
is suspended from the practice of law for six-months for recordkeeping violations and for the conflict
of interest in failing to advise his client to seek independent counsel prior to entering into a loan
transaction with Shelly.
1. Based on the Court's independent review of he record, it cannot conclude by clear and convincing
evidence that Shelly's conduct in borrowing the $6,000 deposit and the $34,000 from the closing proceeds,
under the unique facts of this case, falls within the purview of "knowing misappropriation" under Wilson.
The record does not clearly and convincingly demonstrate that Shelly borrowed Ms. Roden's money while
knowing that he lacked her authorization to do so. Rather, based on the unique circumstances and
informality that characterized his nine years of financial dealings with Ms. Roden, Shelly was justified in
assuming he had Ms. Roden's consent to borrow from the closing proceeds. (pp. 14-17)
2. The borrowing of the $40,000 was consistent with Shelly's common practice of securing the fees owed him
out of accounts receivable he collected from Ms. Roden with her consent. Furthermore, the May 8, 1992
letter confirming the nature of the loan supports the conclusion that Shelly reasonably believed he had Ms.
Roden's implied consent to borrow from the closing proceeds. (pp. 17-18)
3. There is no basis for a distinction between the $6,000 deposit and the $34,000 closing proceeds. Shelly's
failure to obtain the consent of the buyer's attorney to use the deposit money for his own purposes is
irrelevant. The only relevant inquiry is whether Ms. Roden authorized Shelly's use of those funds. The
Court greatly disapproves of Shelly's informal and careless professional practices. (pp. 18-19)
4. There is clear and convincing evidence that Shelly violated certain recordkeeping rules. An attorney's
billing of a client without documentation of the time spent in representing the client and without a written
statement of the amount billed is unacceptable. In addition, there is clear and convincing evidence of a
conflict of interest in violation of the RPC's for Shelly's failure to advise Ms. Roden to seek the advice of
independent counsel before agreeing to the loan and for his failure to provide Ms. Roden with written terms
of the loan. For those violations, Shelly must be suspended from the practice of law for six months.
(pp. 19-22)
So ordered.
CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, GARIBALDI, STEIN and
COLEMAN join in this per curiam opinion. JUSTICE O'HERN did not participate.
SUPREME COURT OF NEW JERSEY
D-
68 September Term 1994
IN THE MATTER OF
LEE W. SHELLY,
An Attorney at Law.
Argued January 31, 1995 -- Decided June 9, 1995
On an Order to show cause why respondent
should not be disbarred or otherwise
disciplined.
Walton W. Kingsbery, III, Deputy Ethics
Counsel, argued the cause on behalf of Office
of Attorney Ethics.
John T. Mullaney, Jr., and Thomas Daniel
McCloskey argued the cause for respondent.
PER CURIAM
Respondent was admitted to practice law in the State of New
Jersey in 1973. He practiced as a solo practitioner in Monmouth
County. Respondent has not been the subject of any previous
disciplinary action.
This disciplinary proceeding arises out of a complaint filed
against respondent by the Office of Attorney Ethics (OAE)
alleging five counts of ethics violations relating to his
representation of Concetta "Babe" Roden.
Counts One, Two, and Three of the formal ethics complaint charged respondent with knowing misappropriation of client trust
funds with respect to (1) $40,000 taken from the proceeds of a
real-estate closing, (2) a $6,000 deposit in the same real-estate
matter, and (3) $1,250 of the closing proceeds that supposedly
had been held in escrow by respondent. Count Four charged a
conflict of interest in violation of RPC 1.8(a) for failing to
advise Ms. Roden to seek the advice of independent counsel
regarding a "loan transaction" between respondent and Ms. Roden.
Count Five charged respondent with recordkeeping violations
contrary to Rule 1:21-6(b), (c), (g), and (h), and RPC 1.15(d).
Following an evidentiary hearing, Special Master Frank J.
Dupignac, Jr. found that respondent knowingly had misappropriated
the $6,000 deposit, and that he knowingly had misappropriated
$34,000 from the title-closing proceeds. Based on those
findings, the Special Master recommended disbarment.
The Special Master further found that respondent's borrowing
of his client's money (the $6,000 deposit and the $34,000 from
the closing proceeds) without advising her to seek independent
legal counsel constituted a conflict of interest in violation of
RPC 1.8(a). However, he found that the evidence was
insufficient to support a finding that respondent knowingly had
misappropriated the $1,250 "escrow" from the title-closing
proceeds. Finally, the Special Master found that although
respondent had violated the recordkeeping requirements of Rule
1:21-6 and RPC 1.15(d), "the proofs of a knowing misappropriation
of funds as a result thereof are less than clear and convincing."
Following a de novo review on the record, the Disciplinary
Review Board (DRB) found that it could not conclude by clear-and
convincing evidence that respondent knowingly had misappropriated
the $34,000 from the closing proceeds. The DRB reasoned:
[R]espondent's action in setting aside for himself
$34,000 from the closing proceeds -- albeit this time
in the form of a loan -- was consistent with the
practice he had followed in the nine years of
representing Ms. Roden; with her prior consent, her
outstanding fees were paid out of monies respondent
successfully recovered in her behalf in each matter.
There is also respondent's close relationship with Ms.
Roden to be considered. Based on the parties' informal
and friendly relationship over the years, it is
plausible that Ms. Roden agreed to lend respondent some
monies, especially if the loan was to be for a short
term, as in this instance.
In light of the foregoing, the board cannot
conclude, to a clear and convincing standard, that
respondent kept the $34,000 without Ms. Roden's consent
or, otherwise stated, that he knowingly misappropriated
those funds for his own purposes.
In contrast, a four-member majority of the DRB found that
the record clearly and convincingly established that respondent
knowingly had misappropriated the $6,000 deposit. The majority
noted:
Even if it were true that respondent obtained the
buyers' attorney's and Ms. Roden's consent to the
release of the deposit escrowed in his trust account,
by respondent's own admission he did not have the
buyers' attorney's consent to use those monies for his
personal purposes.
Accordingly, the majority recommended that respondent be
disbarred pursuant to In re Hollendonner,
102 N.J. 21 (1985), and
In re Wilson,
81 N.J. 451 (1979).
Three members of the DRB who believed that the evidence did
not clearly and convincingly show that respondent's use of either
the $34,000 or the $6,000 was unauthorized voted to impose a six-month suspension for violations of RPC 1.8, Rule 1:21-6, and RPC
1.15(d).
Based on our independent review of the full record, we are
unable to conclude by clear-and-convincing evidence that
respondent knowingly misappropriated either the $6,000 deposit or
the $34,000 from the closing proceeds. Accordingly, we reject
the DRB majority's recommendation that respondent be disbarred
under the rule of Wilson, supra, 81 N.J. at 453. We instead
accept the recommendation of the minority of the DRB and order
respondent suspended from the practice of law for a period of six
months based on his violations of RPC 1.8, Rule 1:21-6, and RPC
1.15(d).
In 1983, respondent undertook to represent Ms. Roden in several legal matters, including a complex litigation entitled Roden v. Franceze ("the Franceze matter"). Most of those matters concerned the distribution of Ms. Roden's family fortune between Ms. Roden and various family members.
Before consulting respondent, Ms. Roden was represented by Richard McManus, Esq. (McManus). Ms. Roden owed McManus $9,890 for his services when she first met with respondent. She did not wish to pay McManus's bill because she was dissatisfied with his representation, and she told respondent that she wanted to file an ethics complaint against McManus. Respondent investigated the merits of her allegations, and when he was convinced they were
unfounded, he persuaded her not to file an ethics complaint,
insisting instead that Ms. Roden pay McManus's outstanding bill.
John W. Wopat, III, Esq. (Wopat) represented Ms. Roden
before McManus. He withdrew as her counsel in that matter
because of a conflict of interest. Wopat is the grievant in the
present matter.
Ms. Roden had serious financial problems when she first
sought respondent's assistance. She was basically penniless; the
mortgage on her house was in default and on the verge of being
foreclosed. Nonetheless, respondent agreed to represent her
after receiving a $1,500 retainer from her employer, a restaurant
owner whom respondent represented. Respondent informed Ms. Roden
that he would charge her an hourly rate of $150. He also told
her that due to her strained financial situation, he would secure
payment for his services by drawing his fees from any money he
recovered for her. Respondent never reduced that informal, oral
fee agreement to writing. Ms. Roden acknowledged that respondent
simply would tell her from time to time that he wanted to take
his fees from monies received on her behalf. That arrangement
was acceptable to her.
For the first three years after becoming Ms. Roden's
attorney, respondent performed legal services for her without
receiving any compensation other than the initial $1,500
retainer. In April 1986 respondent received his first fee in the
amount of $20,000. He secured that fee as a result of having
obtained a partial distribution of $120,000 in a partition action
with respect to a certain property owned by a partnership
consisting of Ms. Roden and two of her siblings. Of that
$120,000 distribution, respondent disbursed $20,000 to himself in
payment of his legal fees after consulting with Ms. Roden and
obtaining her consent to do so. Respondent then, at Ms. Roden's
instruction, disbursed most of the remaining $100,000 to various
banks to which Ms. Roden owed money, including the bank that held
the foreclosed mortgage on Ms. Roden's residence. After making
those substantial payments, respondent remitted the balance of
$1,482.88 to Ms. Roden.
Subsequent to that initial $120,000 distribution, respondent
secured many more cash disbursements on Ms. Roden's behalf. In
each instance in which respondent secured his fees out of monies
he obtained on Ms. Roden's behalf, he first consulted with her
and obtained her consent prior to deducting his fee from the
distribution.
Several examples are instructive. In October 1986
respondent settled for $10,000 a lawsuit that he had instituted
on Ms. Roden's behalf. After learning that Ms. Roden needed at
least $8,000 out of those settlement proceeds, respondent
retained $2,750 for himself and disbursed to Ms. Roden $8,115.76.
(That sum consisted of the remainder of the settlement proceeds
plus interest that had accrued on the money held in respondent's
trust account for Ms. Roden.) In January 1987 respondent secured
a second distribution from the partition action in the amount of
$70,000. From that distribution, respondent paid McManus's
outstanding bill of $10,000, disbursed $15,000 to himself, and
remitted the remainder to Ms. Roden.
In January 1989 respondent secured a distribution in the
amount of $50,000 from a trust of which Ms. Roden was a
beneficiary. That distribution was sent directly to Ms. Roden
who removed $10,000 and sent the remaining $40,000 to respondent.
At Ms. Roden's instruction, respondent used that $40,000 to pay
$30,000 to a mortgage company to reduce a second mortgage that
Ms. Roden had executed a year earlier. He also retained $10,000
for his legal fees. In April 1989 respondent obtained for Ms.
Roden a partial distribution of $108,000 from a trust of which
Ms. Roden was a beneficiary. He retained $15,000 for his legal
fees and disbursed the remaining $93,000 to Ms. Roden. In
November 1989 respondent secured another trust distribution in
the amount of $41,000, retaining $10,000 in legal fees and
disbursing the remaining $31,000 to Ms. Roden.
On several occasions, respondent forwarded the entire amount
of a distribution to Ms. Roden without a fee deduction. On a few
occasions, respondent requested fees directly from Ms. Roden, and
she forwarded those fees to him.
In keeping with the extremely informal nature of his
professional relationship with Ms. Roden, respondent did not
maintain time records with respect to the work he had performed
for her. Nor did he send Ms. Roden bills or any documents
detailing the type or amount of work he had performed for her.
Respondent testified that he had determined the amount, if any,
to be deducted for his fees from each distribution based
generally on the amount of time spent on each matter; however, he
also had considered Ms. Roden's financial needs and ability to
pay.
The record reveals that over the course of his nine-year
representation of Ms. Roden, respondent secured approximately
$530,000 for her. In addition, as will be detailed below,
respondent obtained a judgment in her favor in the Franceze
matter totaling approximately $395,000. He also successfully
negotiated and handled the sale of her house. For the work that
he performed during the nine years of representing Ms. Roden,
respondent received payment for his services in the total amount
of approximately $100,000.
Notwithstanding respondent's success in obtaining
substantial monetary recoveries for Ms. Roden, she was unable to
establish any financial stability during the period that
respondent represented her. For example, just one month after
respondent had sent her the $93,000 check in April 1989, Ms.
Roden called respondent to say she needed money. Respondent
recalled that Ms. Roden had told him that she needed the cash
either because her electricity was about to be shut off or
because she was going to be evicted from an apartment in Florida
where she was living at the time. In response to Ms. Roden's
request, respondent sent her $500 out of his business account.
In May 1991, when the Franceze matter was about to be tried,
Ms. Roden expressed concern to respondent over how she was going
to pay his fees for the litigation. Indeed, respondent had not
received any fees for that matter since April 1990, and he was
absorbing all of the trial-preparation expenses. In response to
Ms. Roden's concerns in May 1991, respondent agreed to change his
fee arrangement in the Franceze litigation to make it contingent
on recovery. The contingent fee was based on an hourly rate of
$150. Respondent informed Ms. Roden that the total fee for the
Franceze matter from May 1991 through the end of the trial could
easily reach $50,000.
The Franceze matter went to trial in September 1991. At the
conclusion of the trial, the court reserved decision. In January
1992, the court awarded a $95,000 judgment in favor of Ms. Roden,
and a $900,000 judgment in favor of a family trust, of which Ms.
Roden was one of three beneficiaries. Because those judgments
were not satisfied immediately, respondent did not collect his
contingent fee before his involvement in the real-estate
transaction that is the source of the present disciplinary
proceedings. We now turn to the facts surrounding that
transaction.
On February 3, 1992, Ms. Roden signed a contract for the sale of her house in Little Silver while being represented by respondent. The contract provided for a total purchase price of $192,000 and a deposit of $6,000 to be held in escrow "until closing of title." Although the contract provided that the deposit was to be held by the realtor, the deposit was in fact
turned over to respondent. On February 5, 1992, respondent
deposited that $6,000 check into his trust account.
On February 6, 7, and 13, 1992, respondent disbursed to
himself the sums of $1,000, $3,000, and $2,000 from the $6,000
deposit. Respondent used that $6,000 for his own purposes.
Respondent testified that on February 6, 1992, he had
learned that a termite inspection of Ms. Roden's house had
revealed termite damage, and that the estimated amount of the
repairs was $600. Respondent further testified that the required
repairs had placed the sale of the house in jeopardy because
neither Ms. Roden nor the buyers had had the money necessary to
make those repairs. The contract limited Ms. Roden's obligation
to $100 for repairs.
In an effort to salvage the transaction, respondent spoke
with the attorney for the buyers on February 6, 1992. Respondent
testified that during that conversation he and the buyers'
attorney had come to an agreement that would "hold the contract
together." Specifically, according to respondent, he and the
buyers' attorney had agreed that the buyers would release the
$6,000 deposit to Ms. Roden in exchange for Ms. Roden's agreeing
to perform the necessary repair work on the house.
Respondent further testified that Ms. Roden had consented to
his release of the $6,000 to his personal account to spend for
his own purposes. Respondent stated that Ms. Roden had agreed
they would treat the $6,000 as a loan.
On March 27, 1992, respondent handled the closing on Ms. Roden's house. Ms. Roden was not present. On March 31, 1992, respondent sent Ms. Roden a certified check written against his trust account in the amount of $124,671.57. That check was for $41,250 less than the amount to which Ms. Roden was entitled. In a handwritten note sent with the check, respondent explained the majority of the shortfall:
Babe,
I had the check certified so you won't have to wait for
it to clear.
I have to borrow 40,000 for two weeks at 12%. I'll
call you tomorrow.
Lee
The $40,000 loan noted by respondent consisted of the $6,000
deposit he had disbursed to himself in February 1992, and $34,000
he disbursed to himself out of the closing proceeds by two
separate checks written from his trust account on March 31, 1992.
The remaining $1,250 represents the alleged escrow account.
Respondent testified that he and Ms. Roden had discussed his
borrowing from the closing proceeds prior to the closing. He
stated:
I told her since I had agreed to make my fee [on the
Franceze matter] contingent I needed to draw against
funds, I needed to draw against the closing proceeds.
And I said, however, since I had made my fee contingent
I'll treat it as a loan. She asked how much I needed,
I said it wouldn't be any more than what I have for the
legal fees or what's approximately due me as the legal
fees. We discussed what the number was, I said around
fifty thousand dollars. I told her I'd pay her
interest on the loan until we did collect. She was in
effect delighted by that idea, she was finally going to
be earning money on her money, in effect reducing my
legal fees.
Prior to the closing I told her I was going to
borrow forty thousand dollars against the closing
proceeds. She said, fine.
In a telephone conversation on April 6, 1992, Ms. Roden and
respondent discussed the repayment of the $40,000. Respondent
told Ms. Roden that he was "working on" repaying the money, and
Ms. Roden responded, "[F]ine." However, as of May 8, 1992, Ms.
Roden still had not received the $40,000 and had not heard from
respondent regarding the repayment. Thus, on May 8, 1992, she
sent respondent the following handwritten note:
Dear Lee,
Having been in similar positions myself at times, I
anticipate you have not yet procured a loan.
Extending the length of time to what ever is
comfortable with you is no problem.
Please give me a call so we may discuss this.
Babe
In late May or early June 1992, not having received a
satisfactory response to her note, Ms. Roden contacted Wopat, her
former attorney. Ms. Roden retained Wopat in her efforts to
secure the return of her $40,000 from respondent. In a letter to
respondent dated June 5, 1992, Wopat demanded that respondent
make "prompt restitution" of the $40,000 taken out of Ms. Roden's
closing proceeds. Wopat also warned respondent that he was not
"under any circumstances" to attempt to contact Ms. Roden
directly.
On June 12, 1992, Wopat and respondent had a telephone
conversation wherein respondent agreed to repay the $40,000 by
June 15, 1992. Wopat confirmed that agreement in a letter sent
to respondent by facsimile that same day. On June 15, 1992, at
4:00 p.m., when Wopat had received neither the $40,000 nor any
communication from respondent, he called the district ethics
committee to report respondent's conduct.
Wopat also filed a civil suit against respondent in June
1992, seeking repayment of the $40,000, punitive damages, counsel
fees, and costs. Respondent counterclaimed against Ms. Roden for
payment of his outstanding fees, including the outstanding fees
from the Franceze matter.
Ms. Roden turned over to Wopat the entire Franceze matter in
which respondent's fee had not been paid because the substantial
judgment had not been satisfied. Ms. Roden agreed to pay Wopat
at a rate of $150 per hour, and Wopat agreed that Ms. Roden would
not have to pay his fees until she had money "accessible" to her.
In August 1993, Wopat settled the Franceze judgment for the
approximate sum of $132,000. From that recovery, Ms. Roden paid
Wopat approximately $14,000 in fees. Apparently, respondent
received no portion of his fee from that settlement.
As of the date of the hearing before the district ethics
committee, respondent had not repaid Ms. Roden the $40,000 taken
out of the closing proceeds.
The $1,250 represents the remaining sum missing from Ms.
Roden's check for the closing proceeds. Respondent testified
that he and the buyers' attorney had agreed at the closing to
hold that sum in escrow until respondent could secure a warrant
to satisfy judgment with respect to what had appeared in the
title binder to be an outstanding judgment in the amount of
$1,125 against Ms. Roden. Respondent further testified that
although he had been certain by the time of closing that he had
satisfied the judgment, he had not been able to secure proof that
he had done so. Respondent noted that he and the buyers'
attorney "didn't bother" to document the $1,250 escrow on the
closing statement.
Respondent testified that he had discovered after the
closing that he had in fact satisfied the judgment reflected in
the title binder with a $1,125 check written on his business
account. He also learned that he had written another $1,000
check out of his attorney trust account to satisfy sanctions
imposed against Ms. Roden in the Franceze matter. He therefore
kept the $1,250 escrow for himself as reimbursement.
Notwithstanding his claim that he was entitled to the $1,250, on
November 19, 1992, respondent forwarded to Wopat the sum of
$1,250 by a check drawn on his business account with a
transmittal letter that designated the check as "the closing
proceeds discrepancy."
Wilson, supra, defines misappropriation as "any unauthorized
use by the lawyer of clients' funds entrusted to him, including
not only stealing, but also unauthorized temporary use for the
lawyer's own purpose, whether or not he derives any personal gain
or benefit therefrom." 81 N.J. at 455 n.1. Since Wilson, the
Court has made it clear that a necessary element of "knowing
misappropriation" is that the attorney knew as of the time that
he or she took the client's money that the attorney lacked the
client's authorization to do so. A knowing misappropriation
"consists simply of a lawyer taking a client's money entrusted to
him, knowing that it is the client's money and knowing that the
client has not authorized the taking." In re Noonan,
102 N.J. 157, 160 (1986). To find knowing misappropriation, the Court
must be able to conclude by clear-and-convincing evidence that
the client did not consent to the attorney's use of the funds.
In re Perez,
104 N.J. 316, 324 (1986).
We recognize that the inflexible, unremitting nature of the
Wilson rule can be harsh in its application. In re Lennan,
102 N.J. 518, 523 (1986). We are thus ever mindful of our duty to
ensure that the Wilson rule of disbarment is not invoked absent
absolute satisfaction of the Court that the evidence demonstrates
clearly and convincingly that the attorney did in fact engage in
knowing misappropriation. See Perez, supra, 104 N.J. at 324-5.
As we have recognized in the past,
"[t]his high standard [of proof] emphasizes the
reluctance which should characterize a decision to
impose a disciplinary sanction and the serious
consequences which attend such a decision. As a
practical matter, such a decision limits, if it does
not prelude, an attorney's opportunity to practice his
chosen profession. We should impose such a restriction
only after careful deliberation and only in
circumstances which clearly warrant it."
[Ibid. (quoting In re Sears,
71 N.J. 175, 197-98
(1976)).]
Based on our independent evaluation of the record, we are
unable to conclude by clear-and-convincing evidence that
respondent's conduct in borrowing the $6,000 deposit and the
$34,000 from the closing proceeds under the unique facts
recounted above falls within the purview of "knowing
misappropriation" as that concept is understood in Wilson, supra,
81 N.J. at 453, and its progeny. Specifically, we cannot
conclude that the record demonstrates clearly and convincingly
that respondent borrowed Ms. Roden's money while knowing that he
lacked her authorization to do so. Perez, supra, 104 N.J. at
324; Noonan, supra, 102 N.J. at 160. Rather, we believe that
based on the extraordinary and unique circumstances that
characterized his nine years of financial dealings with Ms.
Roden, respondent was justified in assuming that he had Ms.
Roden's consent to borrow from the closing proceeds.
In reaching this result, we are swayed by the long-standing
and exceedingly informal nature of respondent's professional
relationship with Ms. Roden, especially concerning the payment of
respondent's fees. We note that over the course of his nine-year
representation of Ms. Roden, respondent consistently received
payment for his services pursuant to the extraordinarily informal
and somewhat haphazard fee arrangement described above. That
arrangement, which not only met with Ms. Roden's full approval
but benefitted her as well, generated a pattern of practice
whereby respondent most often secured payment for legal fees owed
to him by Ms. Roden out of monetary distributions that he
achieved for her. Each and every time that respondent secured
his fees in this fashion, Ms. Roden gave her approval.
The borrowing of the $40,000, with only slight variation,
was consistent with respondent's common practice of securing the
fees owed to him out of accounts receivable he collected for Ms.
Roden. We note specifically that the borrowing of the $40,000
was directly connected to respondent's anticipated $50,000 fee
from the Franceze litigation, which he was on the verge of
recovering as of the time that he borrowed from the closing
proceeds. We find that in light of Ms. Roden's consistent
practice of permitting respondent to disburse sums of money to
himself out of monies to be turned over to her, respondent
reasonably could have assumed that he had Ms. Roden's
authorization to borrow the $40,000 against his anticipated fees
in the Franceze litigation. We are therefore unable to conclude
by clear-and-convincing evidence, with respect to either the
$34,000 from the closing proceeds or the $6,000 deposit, that
respondent knew he lacked Ms. Roden's consent to borrow the
money.
Indeed, Ms. Roden's May 8, 1992, letter extending the time
for respondent to repay the $40,000 supports the conclusion that
respondent reasonably believed, based on his long-standing
relationship with Ms. Roden, that he had her consent to take a
loan out of the closing proceeds. That letter demonstrates that
shortly after respondent had disbursed to himself the $34,000
from the closing proceeds, Ms. Roden had absolutely no objection
to treating that transaction, along with respondent's use of the
$6,000 deposit, as a loan. Thus, although a client's subsequent
ratification clearly cannot legitimize a prior knowing
misappropriation by the attorney, see Lennan, supra, 102 N.J. at
524, Ms. Roden's May 8th letter provides evidential support for
the conclusion that respondent reasonably could have believed
that he had his client's implied consent to draw from the closing
proceeds.
We find no basis for the distinction drawn by the DRB
between respondent's conduct with respect to the $34,000 from the
closing proceeds and his conduct with respect to the $6,000
deposit. Because the record supports the conclusion that the
unique circumstances surrounding respondent's relationship with
Ms. Roden render it plausible that Ms. Roden agreed to lend
respondent the $34,000 from the closing proceeds, the same
conclusion must be reached with respect to the $6,000 deposit.
Contrary to the reasoning of the DRB, respondent's failure to
obtain the consent of the buyers' attorney to use the deposit
money for his own purposes is irrelevant. Once it is accepted
that the buyers agreed to release the deposit to Ms. Roden, the
only relevant inquiry into the propriety of respondent's conduct
is whether Ms. Roden personally gave authorization to use the
deposit money for respondent's own purposes. Respondent was not
charged with violating an escrow agreement.
After carefully studying the record, mindful of our
obligation to make independent findings of fact, we cannot
conclude by clear-and-convincing evidence that respondent
borrowed either the $6,000 deposit or the $34,000 from the
closing proceeds while "knowing that [he] ha[d] no authority to
do so." Noonan, supra, 102 N.J. at 160. Accordingly, we find
that respondent's conduct does not qualify as "knowing
misappropriation" under Wilson, supra, 81 N.J. at 453. Thus
disbarment is not justifiable.
We emphasize that the decision announced today is predicated
solely on the unique factual circumstances surrounding this case.
The decision indicates only that based on the peculiar facts
before us, we are unable to conclude by the demanding standard of
clear-and-convincing evidence that respondent "knowingly"
misappropriated his client's funds.
Most important, we caution in the strongest terms possible
that other members of the Bar should not view this decision as
indicating approval of respondent's conduct. Indeed, we cannot
emphasize enough the severity with which we disapprove of
respondent's informal and careless professional practices. As
demonstrated by this case, such careless practices can only
result in a waning of attention to the dictates of the ethical
rules, and attorneys who engage in such practices run the
substantial risk of disciplinary sanctions.
Based on our independent review of the record, we are satisfied by clear-and-convincing evidence that respondent violated RPC 1.8, Rule 1:21-6, and RPC 1.15(d). We find that those violations warrant a six-month suspension of respondent's license to practice law in New Jersey.
Briefly, we must reiterate that we find intolerable the type of loose and informal billing practices such as those used by respondent during his representation of Ms. Roden. An attorney's billing of a client without documentation regarding the amount of time spent in representing that client is entirely unacceptable. See generally R. 1:21-6. Billing a client without providing the client with a written statement documenting the amount billed is equally unacceptable. R. 1:21-6(b)(5).
In addition, we note that respondent's violation of RPC 1.8 could not be more clear-cut. First, the plain language of that rule clearly requires an attorney who takes a loan from his or her client to advise that client of the desirability of seeking independent counsel prior to entering into the transaction. RPC 1.8(a)(2). Secondly, RPC 1.8(a)(1) requires the terms of any loan transaction between an attorney and his or her client to be set forth in a written document provided to the client. Although respondent's failure to abide by those rules was almost certainly a by-product of his informal and long-standing relationship with Ms. Roden, that relationship cannot in any way justify respondent's loose approach to his clear ethical obligations.
Indeed, this type of case -- where the client has complete faith
and trust in his or her attorney of many years -- demonstrates
the critical importance of the attorney's apprising the client of
the benefit of having a neutral attorney assess the fairness of
the proposed transaction.
Based on respondent's violations of RPC 1.8, Rule 1:21-6,
and RPC 1.15(d), we suspend respondent from the practice of law
in New Jersey for a period of six months.
Respondent shall reimburse the Disciplinary Oversight
Committee for appropriate administrative costs.
Chief Justice Wilentz and Justices Handler, Pollock,
Garibaldi, Stein, and Coleman join in this opinion. Justice
O'Hern did not participate.
SUPREME COURT OF NEW JERSEY
D-
68 September Term 1994
IN THE MATTER OF :
LEE W. SHELLY, : ORDER
AN ATTORNEY AT LAW :
It is ORDERED that LEE W. SHELLY of MANASQUAN, who was
admitted to the bar of this State in 1973, is hereby suspended
from the practice of law for a period of six months effective
July 1, 1995, and until the further Order of the Court; and it is
further
ORDERED that respondent be restrained and enjoined from
practicing law during the period of his suspension and that he
comply with Rule 1:20-20, which governs suspended attorneys; and
it is further
ORDERED that respondent reimburse the Disciplinary Oversight
Committee for appropriate administrative costs incurred in the
prosecution of this matter.
WITNESS, the Honorable Robert N. Wilentz, Chief Justice, at
Trenton, this 9th day of June, 1995.
/s/ Stephen W. Townsend
CLERK OF THE SUPREME COURT
NO. D-68 SEPTEMBER TERM 1994
Application for
Disposition Six-Month Suspension
Decided June 9, 1995 Order returnable Opinion by PER CURIAM