(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 June 20, 1995 -- Decided October 6, 1995
PER CURIAM
Louis R. DiLieto was admitted to practice law in New Jersey in 1965. DiLieto's ethical infractions
first came to the attention of the Office of Attorney Ethics (OAE) following a random compliance audit. As
a result of the findings of that audit, a demand audit was conducted covering the period between April 1,
1987 and March 31, 1989. These audits disclosed, among other things, that for several years there had not
been a reconciliation of DiLieto's trust account bank statements, and that DiLieto had been out of trust
numerous times during 1987. Irregularities were also uncovered in real estate transactions involving
Elizabeth Herrera, Martin J. Walsh, Kenneth Lombardi, Timothy Cassidy and Edward Siwakowski.
The District XIV Ethics Committee (DEC) charged that DiLieto 1)borrowed his client's trust funds
without her knowledge and approval and without advising the client to seek independent counsel, 2)
knowingly misappropriated trust funds and failed to safeguard trust funds in which his clients and others may
have had an interest, and 3) made personal use of his client's trust funds without the client's knowledge or
approval and without advising the client to seek advice from independent counsel.
The Herrera matter involved a charge that DiLieto knowingly misappropriated a client's funds by
failing to disclose to the client that he, rather than a third party, was to be the borrower of the funds. In the
Siwakowski matter, DiLieto was charged with knowing misappropriation of Siwakowski funds by investing
those funds without disclosing to the client that he was the borrower. The Walsh and Lombardi matters
addressed whether DiLieto had been authorized by Walsh and Lombardi to withdraw funds deposited in his
trust account.
A Special master recommended public discipline for three knowing misappropriations of trust funds,
a conflict of interest, and numerous record-keeping violations, especially in respect of DiLieto's trust account.
A four member majority of the Disciplinary Review Board (DRB) held that DiLieto had not knowingly
misappropriated trust funds and recommended a six-month suspension for record-keeping violations. Three
members of the DRB found that DiLieto had knowingly misappropriated escrow funds and recommended
disbarment based on the Lombardi-Cassidy matter.
HELD: Louis R. DiLieto is disbarred from the practice of law for the knowing misappropriation of client
funds.
1. A knowing misappropriation of the Herrera funds has not been established by clear and convincing
evidence. (pp. 3-5)
2. Although the record does not clearly and convincingly establish a knowing misappropriation of the
Siwakowski funds, DiLieto's failure to tell Siwakowski for at least five months that he was the borrower
constitutes intentional deception and dishonesty in violation of the RPCs. DiLieto also failed to advise his
client to seek the advice of independent counsel in respect of this matter. (pp. 5-8)
3. The evidence does not clearly and convincingly establish a knowing misappropriation in the Walsh matter because the buyers involved in the real estate transaction agreed to release their deposit to Walsh, and Walsh
agreed that DiLieto could use the deposit to satisfy a debt Walsh owed to Di Lieto. However, DiLieto's
conduct constitutes intentional deception and dishonesty because he did not make full disclosure to the
buyers of those facts when he sought authorization for the release of the deposit monies. (pp. 8-13)
4. DiLieto did not demonstrate a basis for good faith reliance that he could use the deposit monies in the
Lombardi matter because of Lombardi's authorization to DiLieto to use that money to satisfy a debt owed.
DiLieto drafted the real estate contract and its addendum; he knew there was no contractual basis to claim a
forfeiture of the buyer, Cassidy's deposit if Cassidy failed to meet the contract contingencies. DiLieto had to
be aware that he needed authorization from the buyer, Cassidy, or his attorney to use the deposit money.
Furthermore, an attorney cannot satisfy his or her professional responsibility in respect of escrow funds by
relying on information from a client that is contrary to escrow documents prepared by that attorney. (pp. 13-21)
5. The record clearly and convincingly establishes that DiLieto knowingly misappropriated the Cassidy
deposit, thereby triggering the Wilson automatic disbarment rule. In addition, the totality of the evidence
against DiLieto reveals a pattern of intentional deception and dishonesty that clearly and convincingly
demonstrates that "his ethical deficiencies are intractable and irremediable." Disbarment is the only
appropriate sanction. (pp. 22-23)
CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, O'HERN, GARIBALDI,
STEIN and COLEMAN join in this PER CURIAM opinion.
SUPREME COURT OF NEW JERSEY
D-
140 September Term 1994
IN THE MATTER OF
LOUIS R. DiLIETO,
An Attorney at Law.
Argued June 20, 1995 -- Decided October 6, 1995
On an Order to show cause why respondent
should not be disbarred or otherwise
disciplined.
John J. Janasie, First Assistant Ethics
Counsel, argued the cause on behalf of the
Office of Attorney Ethics.
William J. Gearty argued the cause for
respondent.
PER CURIAM
Respondent Louis R. DiLieto was admitted to practice law in
New Jersey in 1965. He maintained a law office in Asbury Park,
New Jersey, during the time relevant to these proceedings.
Respondent's problems first came to the attention of the
Office of Attorney Ethics (OAE) following a random compliance
audit conducted pursuant to Rule 1:21-6(c). As a result of the
findings of that audit, a demand audit was conducted thereafter.
The audits covered the period between April 1, 1987, and March
31, 1989. The audits disclosed, among other things, that for a
number of years there had been no reconciliation of respondent's
trust account bank statements with a schedule of client balances,
and that respondent had been out of trust numerous times during
1987. Irregularities were also uncovered in real estate
transactions involving Elizabeth Herrera, Martin J. Walsh,
Kenneth Lombardi, Timothy Cassidy and Edward Siwakowski.
The District XIV Ethics Committee (DEC) charged that
respondent 1) borrowed his client's trust funds without her
knowledge and approval and without advising the client to seek
independent counsel, 2) knowingly misappropriated trust funds
and failed to safeguard trust funds in which his clients and
others may have had an interest, and 3) made personal use of his
client's trust funds without the client's knowledge or approval
and without advising the client to seek advice from independent
counsel. The complaint alleged that respondent's misconduct
violated RPC 1.1, 1.8, 1.15, 8.4(c) and the principles announced
in In re Wilson,
81 N.J. 451 (1979) and In re Hollendonner,
102 N.J. 21 (1985).
A Special Master recommended public discipline for three
knowing misappropriations of trust funds, a conflict of interest,
and numerous record-keeping violations, especially with respect
to respondent's trust account. A four-member majority of the
Disciplinary Review Board (DRB) held that respondent had not
knowingly misappropriated trust funds and recommended a six-month
suspension for record-keeping violations. Three members of the
DRB found that respondent had knowingly misappropriated escrow
funds and recommended disbarment based on the Lombardi-Cassidy
matter.
The Herrera matter involved a charge that respondent
knowingly misappropriated a client's funds by failing to disclose
to the client that he, rather than a third party, was to be the
borrower of the funds.
We agree with and adopt the factual findings and conclusions
of the DRB in the Herrera matter:
Respondent had represented Helen
Frangione, Elizabeth Herrera's sister, for
many years. When she died, Mrs. Herrera, who
lived in Venezuela, became the sole
beneficiary of her estate. One asset of the
estate was Mrs. Frangione's house in Ocean
Grove, which was sold after her death. As a
result of respondent's representation of Mrs.
Herrera in the estate matter, he came into
possession of $55,000, the net proceeds from
the sale of the Ocean Grove house.
Respondent testified that Mrs. Herrera
did not want the funds sent to Venezuela
because of the unfavorable political climate
in that country. She wanted to keep the
monies in New Jersey. When respondent asked
her if she would like to lend them out, Mrs.
Herrera replied affirmatively. Respondent
then borrowed the $55,000 himself at a ten
percent interest rate.
According to the complaint, respondent
never disclosed to Mrs. Herrera that he was
the borrower, a contention respondent denies.
He testified that Mrs. Herrera was aware,
from the beginning, that the loan was for
himself. Respondent added that he had given
Mrs. Herrera the original of a mortgage note,
of which he did not keep a copy. At the DEC
hearing, however, respondent conceded that
the note was actually a promissory note, with
no mortgage or other security for the loan.
It is undisputed that respondent fully repaid the loan on April 30, 1987. In addition, Exhibit P-1 shows that respondent paid $16,000 in interest on the loan. At the DEC hearing, Paula Granuzzo, Esq., a former deputy ethics counsel with the OAE, and
Kenneth Tulloch, an investigative auditor
with that office, testified that, during one
of their several visits to respondent's
office, respondent admitted that he had
borrowed the monies from Mrs. Herrera without
revealing to her that he was the borrower.
Respondent denies having made such
statements, although he conceded that he had
not advised Mrs. Herrera to seek the advice
of independent counsel at the time of the
loan.
Mrs. Herrera did not testify.
The Special Master concluded that,
without Mrs. Herrera's testimony, there was
no clear and convincing evidence that
respondent had not disclosed to her that the
loan was for himself. The Special Master
remarked that "[t]he evidence of
misappropriation is very strong and, if the
standard of proof was a preponderance of the
evidence, this burden would be met in this
Hearing Officer's determination. However,
the evidence falls just short of being clear
and convincing on this issue." The Special
Master found, however, that respondent
violated RPC 1.8(a), when he failed to advise
Mrs. Herrera to seek independent legal
counsel.
We also find that a knowing misappropriation of the Herrera
funds has not been established by clear and convincing evidence.
Although we harbor serious reservations respecting respondent's
credibility, the failure of Ms. Herrera to testify convinces us
that the high standard of proof has not been met.
Respondent was also charged with knowing misappropriation of Siwakowski funds by investing client funds without disclosing to the client that respondent was the borrower.
We agree with and adopt the factual findings made by the
Special Master that were adopted essentially by the DRB:
During his practice of law, Mr. DiLieto
represented Edward Siwakowski in the sale of
property to Sherry Sciarappa on or about
August 7, 1986, wherein Mr. Siwakowski took
back a Mortgage from Ms. Sciarappa, and the
subsequent pay-off by Ms. Sciarappa of said
Mortgage. Ms. Sciarappa paid off the
Mortgage with Attorney Trust Account check
#2749 of Resnikoff & Resnikoff, dated
November 20, 1987, payable to Edward and
Margaret Siwakowski for $38,921.68. This
pay-off check was deposited in Mr. DiLieto's
Trust Account on November 30, 1987. At some
point, either shortly before or after the
Mortgage was paid off, Mr. DiLieto and his
client, Mr. Siwakowski, discussed investing
Mr. Siwakowski's money. Mr. DiLieto told Mr.
Siwakowski that he had a borrower who would
pay 12 percent interest, an that he, Mr.
DiLieto, would personally "guarantee" the
loan. Mr. DiLieto further acknowledged that
he did not initially inform Mr. Siwakowski
that he, Mr. DiLieto, was the borrower. Mr.
DiLieto, at some point, in response to Mr.
Siwakowski's questions, told him that he, Mr.
DiLieto, was the borrower. Mr. DiLieto has
acknowledged that he never advised Mr.
Siwakowski that he could seek legal advice
from another attorney about making the loan
to Mr. DiLieto.
At the hearing, Mr. DiLieto testified that there was a distant family relationship between him and Mr. Siwakowski and that he had known Mr. and Mrs. Siwakowski since approximately 1959. He advised Mr. Siwakowski on or about September 1987 that Ms. Sciarappa was selling the property and the Mortgage would, therefore, be paid and satisfied in full at that time. He indicates that he discussed with Mr. Siwakowski what to do with the money. Mr. Siwakowski did not want to invest the money in a Certificate of Deposit as this would "tie up the money." He requested that Mr. DiLieto lend out the money after Mr. DiLieto told him that he could get a 12 percent interest return on principal "and I will guarantee the Note." Mr. DiLieto
further stated that originally he was going
to lend the money to a client but that this
"didn't pan out." According to Mr. DiLieto's
Trust Account ledger card, the Sciarappa
money was deposited in his Trust Account on
November 28, 1987 and on the same date the
card shows that he drew a check to himself in
sum of $30,500.00. Mr. DiLieto also
testified that Mr. Siwakowski wanted
$2,500.00 immediately from the Mortgage
proceeds and that, accordingly, Mr. DiLieto
drew a check to Mr. Siwakowski on said date.
However, Mr. Siwakowski never came into the
office to pick up the check and, therefore,
Mr. DiLieto signed Mr. Siwakowski's name on
the back of the check and cashed same.
Finally, in mid December 1987, Mr. Siwakowski
came into the office and Mr. DiLieto drew
check #6097 payable to Mr. Siwakowski in the
sum of $3,000.00. Mr. DiLieto admitted that
he did not advise Mr. Siwakowski that he, Mr.
DiLieto, was the actual borrower of the
funds, until April of 1988. He states that
he gave Mr. Siwakowski a Note, "a guarantee",
which Mr. Siwakowski folded and put in his
wallet. He further acknowledges that he
provided no security for the loan and did not
advise Mr. Siwakowski to consult with
independent counsel.
Curiously, Mr. [Kenneth] Tulloch
[Investigative Auditor for OAE] testified
that upon reviewing Mr. DiLieto's Siwakowski
file, he found the original Promissory Note.
He further testified that Mr. DiLieto advised
him on February 8, 1990, that he, Mr.
DiLieto, issued the Promissory Note "when Mr.
Siwakowski began asking questions as to who
the money was loaned to." Mr. Tulloch
further testified that at another visit to
Mr. DiLieto's office on June 9, 1992, Mr.
DiLieto advised him that the Promissory Note
was given to Mr. Siwakowski in the spring of
1988 and that he had not told Mr. Siwakowski
earlier that, he, Mr. DiLieto was the actual
borrower because he was too embarrassed to
admit this to him in November of 1987.
Mr. Siwakowski testified at the hearing; however, his testimony was fraught with confusion and memory lapses. He did state, quite emphatically, that he never received a
Promissory Note from Mr. DiLieto. It is
noted that Mr. Siwakowski advised Mr. Tulloch
in July of 1992 that he had requested for two
years from November or December of 1987 to
have Mr. DiLieto provide some documentation
evidencing the loan; however, he was unable
to obtain said documentation until the OAE
began its audit of Mr. DiLieto's records. It
does appear that the "loan" was repaid in
full [with interest] -- although not within
the time frame originally established by Mr.
DiLieto.
The Special Master and the DRB reached different conclusions
respecting whether the evidence clearly and convincingly
established a knowing misappropriation of trust funds. Both
agreed, however, that respondent borrowed the money from
Siwakowski without first disclosing that he was the borrower and
without advising Siwakowski to consult with independent counsel
with regard to the matter. Respondent concedes that he did not
inform Siwakowski that he was the borrower until five months
after he had borrowed the $30,500.
Although we find that the record does not clearly and
convincingly establish a knowing misappropriation of the
Siwakowski funds, respondent's failure to tell Siwakowski for at
least five months that he was the borrower constitutes
intentional deception and dishonesty in violation of RPC 8.4(c).
He also failed to advise his client to seek the advice of
independent counsel respecting the matter, constituting a
violation of RPC 1.7(b)(2), RPC 1.8(a) and RPC 1.15(a) and (d).
The real estate transactions involving Walsh, Lombardi and Cassidy are more complicated. By way of background, the OAE's
formal complaint against respondent had alleged that respondent
withdrew from his attorney trust account the sum of $26,150
between April 30, 1987, and September 30, 1987, during which
period respondent had no fees on deposit in his attorney trust
account to cover those withdrawals. The challenged withdrawals
are the following:
Check # Date Amount
5823 5/01/87 $ 2,500
5848 5/13/87 2,500
5876 6/16/87 2,500
5894 6/26/87 2,000
5903 7/07/87 2,500
5910 7/13/87 2,000
5913 7/17/87 2,000
5935 7/31/87 2,000
5950 8/07/87 2,000
5952 8/11/87 1,200
5959 8/21/87 1,750
5969 8/28/87 2,000
5985 9/18/87 1,200
Total $26,150
In respondent's answer to the OAE's complaint, he asserted that a
portion of the money withdrawn from his trust account during the
period referred to in the OAE's complaint consisted of deposits
in real estate transactions with respect to which respondent's
clients had authorized the withdrawals. The clients were Martin
J. Walsh and Kenneth Lombardi. Accordingly, the testimony at the
hearing before the Special Master focused on whether respondent
had been authorized by Walsh and Lombardi to withdraw funds
deposited in respondent's trust account because such
authorizations might have afforded respondent a defense to the
OAE's charge of knowing misappropriation of client trust funds.
Walsh and respondent were college roommates and remained friends thereafter. Respondent represented Walsh in several real estate transactions between 1965 and 1987.
Respondent represented Walsh in April 1987 in connection with Walsh's sale of realty and the "Irish Cottage," a bar and restaurant, to Eugene Day, Henry Wright, Reginald Hyde and Richard Hyde for $600,000. The buyers made a $25,000 down payment that respondent deposited in his trust account on April 29, 1987. The deposit was to be held in escrow until closing.
Separate contracts for the sale of the realty and the business were interdependent and each contained some contingencies. The contingencies respecting the sale of the business were more onerous than those pertaining to the sale of the realty. If the contingencies were not satisfied, the contract could be canceled and all deposits returned.
While holding the $25,000 in his trust account, respondent approached Walsh and "indicated to him that the beginning of 1987 was sort of lean for me, and that I would like to have the use of those funds if I could get them released." Walsh owed respondent fees for other legal matters and he agreed the funds could be released provided that they would be available when needed to resolve a pending lawsuit filed by the Sands Hotel and Casino against Walsh for payment of a $24,000 gambling debt. Respondent assured Walsh the money would be available when the casino dispute was resolved.
After Walsh agreed to release the deposit, respondent
contacted John S. Power, Esq., the attorney for the buyers, to
ask for the release of the deposit. According to respondent, he
pointed out to Mr. Power that there were no unsatisfied
contingencies on the sale of the real estate and that the
contingencies on the sale of the business had been almost
resolved. He asked Mr. Power to obtain the buyers' authorization
to release the deposit for the use of Mr. Walsh. Respondent did
not disclose to Mr. Power, however, that the money was for
himself.
After consultation with Mr. Day, the buyers' representative,
Mr. Power informed respondent that the deposit could be released
to Walsh. Respondent alleges that the withdrawals from his trust
account that were made between May 10 and September 18, 1987,
included his loan of $25,000 from the deposit in the Walsh
transaction. We note that testimony was elicited at the hearing
before the Special Master that contradicts that assertion. For
example, a deputy ethics counsel testified to conversations with
respondent in which respondent acknowledged that the Walsh funds
had remained intact until after the closing of the Walsh matter
on October 23, 1987. In addition, respondent's ledger card for
the Walsh transaction reflects a disbursement from the deposit
funds of a $15,000 check on November 20, 1987, to pay off an
indebtedness owned by Walsh to the Sands Casino. The only
payment to respondent from the account reflected on his ledger
card is a $5,000 fee disbursed on November 20, 1987. Because of
the contradictory testimony, we are unable to conclude from the
record whether respondent in fact borrowed the $25,000 from the
Walsh deposit during the period May 10 to September 18, 1987, as
claimed. In any event, the closing eventually occurred and
neither Walsh nor the buyers sustained any damage by virtue of
respondent's nondisclosure to Mr. Power that the money allegedly
was to be advanced to respondent.
The Special Master found a knowing misappropriation of trust
funds based on In re Hollendonner, supra, because respondent
failed to disclose to Mr. Power that respondent, not Walsh, was
the borrower. Because the buyers agreed to release the deposit
to Walsh, and Walsh agreed that respondent could use the deposit
to satisfy a debt Walsh owed respondent, we find that the
evidence does not clearly and convincingly establish a knowing
misappropriation. Respondent's conduct, however, constitutes
intentional deception and dishonesty in violation of RPC 8.4(c).
Full disclosure to the buyers was essential to making an informed
decision whether to release the deposit prior to closing of
title. Respondent deprived them of that opportunity.
Respondent was a friend of Kenneth Lombardi for over forty years. Timothy Cassidy was the sole shareholder of M.C. Investors, Inc. (M.C. Investors), a real estate company. Lombardi owned a vacant lot in Asbury Park that he wanted to sell to M.C. Investors. Respondent represented Lombardi in the sale
of the lot. Neither M.C. Investors nor Cassidy however, was
represented by counsel during contract negotiations.
Under a contract of sale dated September 25, 1987, Lombardi
agreed to sell the lot to M.C. Investors for the purpose of
constructing condominiums. The contract contained many
contingencies, including a provision affording the purchaser six
months to obtain all necessary approvals, permits, variances and
financing to construct forty-eight condominium units. The
contract required a $15,000 deposit, payable in three equal
installments. An addendum to the contract also provided that
Lombardi had the option to cancel or extend the contract if the
contingencies were not satisfied in six months. The contract was
silent respecting any forfeiture of deposit if Cassidy did not
comply with its terms.
Cassidy made three $5,000 deposits, the first on August 21,
1987. The second and third were made in October and December,
1987. Under the contract, respondent was to hold the deposit in
escrow "until closing of title and deed transfer." Cassidy
testified that he never authorized the release of any of the
deposit money.
Cassidy was unable to obtain construction financing to build
the condominiums within the six months contemplated under the
contract. Consequently, on March 11, 1988, he requested that
respondent return the deposit. Subsequent requests to return the
deposit were made on April 9, 1988, August 17, 1988, and April
26, 1989. Respondent never returned any portion of the $15,000
deposit.
Although the contract did not provide for forfeiture of any
of the deposit based on Cassidy's untimely performance, Lombardi
testified that when he learned that Cassidy was not proceeding
expeditiously to satisfy the contract contingencies, he told
Cassidy "you're going to forfeit your deposit." Cassidy,
however, did not respond to that assertion. Lombardi also
testified that at some unspecified time after the contract was
signed, he told Cassidy that he "was going to use [the deposit]"
and Cassidy "didn't say anything to me."
At about the same unspecified time, respondent told Lombardi
that "he was in need of money and [Lombardi] said, well you have
the deposit from Mr. Cassidy. [Lombardi] said take it from
there, because right now I can't afford to use any, you know,
advance you any money out of the business." Lombardi owed
respondent fees for services rendered in other matters. Lombardi
testified that he informed respondent about the assertions
Lombardi had made to Cassidy respecting the forfeiture and use of
the deposit.
Respondent testified that he had discussions with Lombardi
and that Lombardi authorized his use of the deposit. Respondent
admits that he did not have any discussions with Cassidy
respecting use of the deposit and that he did not have
authorization from Cassidy to use the deposit for his own
purposes.
The closing on the lot did not occur. Despite Cassidy's
demands for the return of his $15,000 deposit, respondent never
complied. Respondent used the deposit to reduce the $30,000 to
$40,000 indebtedness for legal fees owed him by Lombardi.
The DRB majority concluded that respondent obtained
authorization from Lombardi but not from Cassidy to use the
deposit. It further concluded:
Nevertheless, in light of Mr. Lombardi's
testimony that the deposit was nonrefundable
or that it had been forfeited because of the
buyer's default under the agreement, and that
Mr. Lombardi had communicated this fact to
respondent, then respondent's honest, but
mistaken, belief that the deposit could be
released to Mr. Lombardi (who, in return,
would allow respondent to use it by way of
outstanding legal fees) belies knowing
misappropriation. See In re Rogers,
126 N.J. 345 (1991) (attorney not disbarred after he
failed to pay a mortgage following a real
estate closing because of good faith belief
that the individual who held the mortgage had
authorized the use of the monies for the
attorney's own purposes as a short-term
loan).
As in Rogers, although respondent's
belief could have been incorrect, the Board
cannot conclude from this record that
respondent's misuse of the deposit was
"knowing." The Board also notes that, after
the transaction fell through, the buyer
elected not to file suit to recover the
deposit.
Our independent review of the record persuades us to reject
the DRB majority's conclusion that respondent had a good faith
belief that he could use the deposit because of Lombardi's
authorization.
The real estate contract and its addendum were drafted by
respondent. Thus, he knew there was no contractual basis to
claim a forfeiture. Although the contract form contains printed
language to provide for liquidated damages, the provision was not
completed. That indicates the parties did not contemplate a
forfeiture of the deposit. Indeed, the contract provided that
the deposits "paid on account of this contract . . . are made
liens thereon," but shall not continue as liens after default of
purchaser. There were no other contractual consequences for
default. Moreover, Lombardi did not testify that he and Cassidy
ever reached an oral agreement that the deposit was nonrefundable
or would be forfeited.
It was stipulated that respondent received a total deposit
of $15,000. The first of these payments was made on August 21,
1987, before the contract was signed, and the subsequent payments
on October 28, 1987, and December 21, 1987. These dates,
however, could not be verified by any record. Only the August 21
payment could be identified as being deposited into respondent's
attorney trust account on a specific date, namely August 21,
1987.
The auditors were unable to determine from the record when
respondent used the deposit for personal purposes. However, his
verified answer to the formal disciplinary complaint is
informative. There he states that when the initial $5,000
deposit was made on August 21, 1987,
Lombardi indicates to respondent that he could use the
deposit, because he had an agreement with the buyer,
that he could use the deposit for the property carrying
charges such as taxes, insurance and maintenance.
Lombardi authorized and approved of Respondent's using
the $5,000 on hand [in payment of attorney fees on
matters concluded], and that when the additional
$10,000 deposit was made by the buyer, Respondent could
apply the $10,000 to attorney fees.
Respondent also asserted in his answer that the buyer "did
not comply with the terms of the contract, and was declared in
breach of contract. The $15,000 deposit was forfeited to
Lombardi. Respondent applied the $15,000 against attorney fees
owed to him by Lombardi." Despite the foregoing, we do not know
precisely when respondent used the deposit for his personal
purposes.
In correspondence between respondent and Cassidy from
October 27, 1987, to May 1, 1989, respondent never mentioned the
alleged oral agreement that the deposit was not refundable or
that it could be forfeited if the contract contingencies were not
met. The first letter from respondent asserting a forfeiture
claim was dated May 5, 1989, approximately fourteen months after
the alleged default.
The DRB's reliance on In re Rogers,
126 N.J. 345 (1991) is
misplaced. Rogers represented the Hulls in a purchase of realty
from the Homers. The Homers had given a mortgage to Yagoda, and
Rogers escrowed $29,289.31 at the closing to pay off that
mortgage and discharge it from the record. The check issued to
pay off the mortgage was returned for insufficient funds because
American Express had made a levy against Rogers' trust account to
satisfy Rogers' personal obligation to that company. Rogers did
not learn of the levy until the check issued to pay off the
mortgage was dishonored. Rogers was out of trust solely because
of that levy.
When American Express was informed that the levy had been
made on the attorney's trust account, it returned all but $200 of
the money. Upon receipt of the American Express check, Rogers
deposited it into his overdrawn business account.
Rogers had substantial contact with Yagoda immediately after
the trust account check was dishonored. Rogers, supra, 126 N.J.
at 356. He informed Yagoda about what had happened and Yagoda
agreed to accept an initial payment of $25,789.31 and to receive
the remaining $3,500 as soon as Rogers' financial difficulties
had been resolved. Ibid. When Rogers received the check from
American Express, he sent Yagoda $1,000. Id. at 349. He later
sent Yagoda $1,500 in three installments.
When deciding whether Rogers had knowingly misappropriated
trust funds by not turning over the American Express check to
Yagoda or depositing it into his trust account, the Court found
that under the circumstances it was not unreasonable for Rogers
to believe that Yagoda had accepted Rogers' offer to be
personally responsible for repaying the mortgage. Id. at 356-57.
The Court found that Rogers' conduct "corroborated his asserted
belief that his promise to pay superseded his obligation to pay
the mortgage out of the escrow funds." Id. at 357. In addition,
Rogers also returned the mortgage that Yagoda had sent him for
cancellation and offered to sign a document, such as a note,
acknowledging his obligation to personally repay the mortgage.
Similarly, In re Chidiac,
120 N.J. 32 (1990), involved an
attorney disciplinary matter in which the attorney had a good
faith belief that he was not required to deposit into his
attorney trust account funds belonging to the owner of rental
housing because be believed he was acting as a property manager
and not as an attorney. Id. at 34. Even though an attorney may
act as a business person as well as perform the functions of an
attorney, he or she must act in the transaction in accordance
with high professional standards. In re Genser,
15 N.J. 600, 606
(1954). The Court found that substantial evidence existed to
support Chidiac's good faith belief that his use of a client's
funds was authorized by the client. Chidiac, supra, 120 N.J. at
33-38.
In contrast, respondent did not demonstrate a basis for good
faith reliance on Lombardi's alleged statement that Cassidy had
agreed that the deposit was nonrefundable. Indeed, Cassidy
demanded that respondent return the deposit about two weeks
before the six-month contingency period expired, and he
repeatedly requested that respondent return the deposit during
1988 and 1989. Notwithstanding the fact that respondent had
drafted an escrow agreement as part of the contract of sale that
did not provide for a forfeiture of deposit or any liquidated
damages, respondent never contacted Cassidy before using the
$15,000 deposit held in escrow. Respondent had to be aware of
the necessity to obtain authorization from the buyer or his
attorney before using the deposit because he followed that
procedure in the Walsh matter only four months before receiving
the first deposit from Cassidy.
We have held that "willful blindness satisfies [the]
requirement of knowledge." In re Skevin,
104 N.J. 476, 486
(1986), cert. denied,
481 U.S. 1028,
107 S. Ct. 1954,
95 L. Ed.2d 526 (1987). "The intentional and purposeful avoidance of"
knowledge of what Cassidy would have said if asked whether
Lombardi could keep the deposit "will not be deemed a shield
against proof of what would otherwise be a 'knowing
misappropriation.'" In re Johnson,
105 N.J. 249, 260 (1987).
Under the circumstances of this case, no basis exists in the
record to support the good faith belief found by the DRB.
Furthermore, an attorney cannot satisfy his or her
professional responsibility with respect to escrow funds by
simply relying on information from a client that is contrary to
escrow documents prepared by that attorney. The absence of a
forfeiture provision in the contract coupled with Cassidy's
demands for return of the deposit placed respondent on notice
that the buyer had not forfeited the deposit. "It is not enough
simply to follow a client's instructions." In re Wallace,
104 N.J. 589, 593 (1986). When the circumstances dictate that other
reasonable inquiry be conducted, there can be no good faith
reliance on what the client says.
In re Wilson, supra, 81 N.J. at 453, requires disbarment
when the record clearly and convincingly demonstrates that a
lawyer has knowingly misappropriated a client's funds. In re
Noonan,
102 N.J. 157, 160-61 (1986). Knowing misappropriation
"consists simply of a lawyer taking a client's money entrusted to
him . . . knowing that the client has not authorized the taking."
Id. at 159. No distinction is to be made between a client's
trust funds and escrow funds belonging to nonclients. We
observed in In re Hollendonner, supra, 102 N.J. at 28 that
it is a matter of elementary law that when
two parties to a transaction select the
attorney of one of them to act as the
depository of funds relevant to that
transaction, the attorney receives the
deposit as the agent or trustee for both
parties. (citations omitted) The parallel
between escrow funds and client trust funds
is obvious.
We find that the record clearly and convincingly establishes
that respondent knowingly misappropriated the Cassidy deposits,
thereby triggering the Wilson automatic disbarment rule.
In addition, the totality of the evidence against respondent
reveals a pattern of intentional deception and dishonesty that
clearly and convincingly demonstrates that "his ethical
deficiencies are intractable and irremediable." In re Templeton,
99 N.J. 365, 376 (1985). His conduct has destroyed "totally any
vestige of confidence that [he] could ever again practice in
conformity with the standards of the profession." Ibid.
Disbarment is the only appropriate sanction.
We agree with the DRB that the two audits revealed numerous
record keeping deficiencies: Respondent retained earned fees in
his attorney trust account rather than transferring those fees to
his business account in violation of Rule 1:21-6(a)(2); he did
not prepare three-way reconciliations in violation of Rule 1:21-6(b)(8); no running balance was maintained in his attorney trust
account checkbook, and client ledger cards failed to reflect all
transactions in the account as well as the account balance
contrary to Rule 1:21-6(c).
We hereby order that respondent be disbarred. He shall
reimburse the Disciplinary Oversight Committee for appropriate
administrative costs, including the costs of transcripts.
CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, O'HERN, GARIBALDI, STEIN and COLEMAN join in this opinion.
NO. D-140 SEPTEMBER TERM 1994
Application for
Disposition Disbar
Decided October 6, 1995
Order returnable
Opinion by PER CURIAM