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In re Herbstman

Decided: November 3, 1980.


On an Order to Show Cause why respondent should not be disbarred or otherwise disciplined.

For suspension -- Chief Justice Wilentz and Justices Sullivan, Pashman, Clifford, Schreiber, Handler and Pollock. Opposed -- None.

Per Curiam

We are satisfied, based on our own independent review of the record, that the factual findings and conclusions of the Disciplinary Review Board are correct and we adopt them. They read as follows:

Disciplinary proceedings commenced in this matter on April 4, 1978 upon the filing of an ethics complaint against respondent by the Safeco Insurance

Company of America. The complaint alleged that respondent had engaged in unethical and unprofessional conduct in his representation of the Ken Monk Construction Corporation (KMCC), Ken Monk individually and Safeco. Hearings were held before the District X Ethics Committee, which resulted in the Committee issuing a presentment finding that respondent had violated DR 1-102(A)(4), (5) and (6) and DR 5-105(B). Upon a review of the full record the Board concludes that the Committee's determination is supported by clear and convincing evidence.

The record discloses that commencing in 1972 and extending through 1977, Safeco acted as surety bonding company for KMCC, a construction company whose principal shareholder was Ken Monk, with respect to several construction contracts, including a project at the Saddle Brook Mall which was owned by ASC of Moorestown, Inc. During this period respondent served both as attorney for KMCC and Ken Monk individually. On at least one occasion he also represented Safeco.

In early 1976 ASC advised Safeco that certain items had not been completed on the Saddle Brook Mall project and that absent completion the balance owed by ASC would not be released. In order to attempt to resolve these difficulties several meetings were held in September 1976 involving representatives of ASC, Safeco and Ken Monk, culminating in a meeting at respondent's office on September 28, 1976, at which respondent, Ken Monk and three representatives of Safeco were present. As a result of this meeting an agreement was reached, confirmed by respondent's letter of September 29, 1976, whereby respondent consented to hold all monies received from ASC on the Saddle Brook project and from Emery Air Freight on another unrelated project and to disburse such funds in accordance with the following priorities; first on account of attorneys' fees "not to exceed $5,000 per recovery" and second "on claims of subcontractors and/or materialmen relative to each job". Respondent included in his confirming letter a final statement to the effect that he would not bear responsibility "for any supervening intervening legal process which impedes the

ability to disburse monies in accordance with the foregoing". Based on the fact that Safeco now felt assured that monies paid by ASC would be held by respondent and disbursed in accordance with their agreement and not used by KMCC to pay obligations arising from other projects, Safeco issued ASC a consent of surety to final payment.

Arbitration hearings were held commencing on September 29, 1976, as a result of which ASC paid balances in the amount of $49,065.18 to respondent in December 1976. Respondent deposited these monies in a special account designated "Clifford N. Herbstman, Trustee" in a savings and loan association.

Subsequent to the initial deposits, monies were disbursed from the account to pay respondent an agreed upon fee of $4,340 and to settle a claim arising out of the ASC project, both in compliance with the September 28, 1976 agreement.

In May 1977 respondent requested that Safeco agree to payment of additional fees to him out of the trustee account. He informed Safeco that KMCC and Ken Monk approved such payment. A representative of Safeco thereafter communicated with respondent by telephone on a number of occasions and indicated that such an arrangement would not be satisfactory.

A formal response to respondent's request was made by Safeco in a letter dated July 25, 1977, in which Safeco requested that respondent forward the balance in the trust account to it. On August 24, 1977, respondent wrote a letter to Safeco in which he criticized Safeco's handling of the matters, declined to forward the trust money on the ground that it belonged to KMCC and renewed his continuing request that his fees be paid out of these funds.

Safeco thereafter referred the matter to counsel, who responded by letter of September 2, 1977, setting out the legal basis for Safeco's claim to the trust money. Thereafter, in September 1977 correspondence was exchanged in which the parties reasserted their respective positions.

On October 11, 1977, Herbstman wrote to counsel for Safeco, forwarding copies of bills which he had submitted to KMCC, and ...

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