On an Order to Show Cause why respondents should not be disbarred or otherwise disciplined.
For disbarment -- Chief Justice Wilentz, and Justices Clifford, Handler, Pollock, Garibaldi and Stein. Opposed -- Justice O'Hern. Chief Justice Wilentz and Justices Clifford, Handler, Pollock, Garibaldi and Stein join in this opinion. Justice O'Hern has filed separate dissenting opinion. O'Hern, Justice, dissenting.
[102 NJ Page 441] These disciplinary proceedings involve three respondents, who constitute all the members of their former law firm. They are charged with various ethical infractions, most notably the misappropriation of clients' funds. Although one member of the firm, respondent Fleischer, was primarily responsible for
the firm's disbursements, all three respondents knew of and participated in the misappropriation.
After a hearing, the District IX Ethics Committee (Ethics Committee) returned a presentment, finding, among other things, that respondents had knowingly used clients' funds for their own benefit. Thereafter the Disciplinary Review Board (DRB) found overwhelming evidence that respondents had intentionally misappropriated clients' funds. Relying on In re Wilson, 81 N.J. 451 (1979), the DRB recommended disbarment of all three respondents. Our independent review of the record leads us to the same conclusion.
As found by the DRB, the facts are:
When Respondents' law firm failed to pay an outstanding bill to an office supplier, the supplier filed a district court complaint on September 28, 1982 against the firm. The firm paid this bill by a trust account check for $503.24 dated December 21, 1982. The check was rejected because of insufficient funds. Respondent Fleischer told the attorney representing the creditor that his firm was having some problems with this bank account and promised that money had been set aside specifically for this bill. Respondent Fleischer requested the attorney to redeposit the check, which he did. This check, too, was returned for insufficient funds. Respondent Fleischer promised the bill would be paid immediately. However, the law firm took no action in making good on this check. The creditor's attorney on February 2, 1983 contacted the then Division of Ethics and Professional Services (DEPS). Respondents later paid this obligation through their personal funds.
DEPS filed a notice of motion on March 25, 1983 with this Board for Respondents' temporary suspension based on its auditor's report that the law firm was using its trust account to pay both trust and operating expense obligations. Moreover, the auditor found that the trust account had 24 instances of overdrafts between December 7, 1982 and January 31, 1983. This Board carried the matter so Respondents could have their trust account reconstructed by their own accountant. After reviewing additional accounting reports, this Board on June 15, 1983 denied the temporary suspension motion based on Respondents' representation that their accountant would continue to review their financial records.
On April 25, 1984, a five-count complaint was filed against Respondents by the Office of Attorney Ethics. The three respondents were charged with misuse of trust funds, commingling funds, and gross negligence (Count One); failure to properly account for clients' funds (Count Two), misappropriation of clients' funds, and failure to promptly remit clients' funds (Count Three);
being overdrawn on their trust account on numerous occasions (Count Four); and violation of their fiduciary and professional obligations, which placed their clients' funds in serious jeopardy, and gross negligence in handling clients' funds (Count Five). These acts of misconduct were alleged to have occurred between 1981 and 1983. Respondents filed an answer admitting they failed to keep the required books and records and commingling funds, but denied any misappropriation, claiming their conduct was inadvertent and unintentional. They further denied that they were grossly negligent, contending they had acted in good faith at all times. The matter was heard by the Ethics Committee on October 29, 1984. While finding that Respondents were candid and contrite, the Ethics Committee rejected their contention they did not know they utilized clients' funds for their own benefit.
Based on these findings, the DRB concluded:
Upon a review of the full record, the Board is satisfied the conclusions of the District IX Ethics Committee in finding Respondents guilty of unethical conduct are fully supported by clear and convincing evidence.
The facts in this case are clear. As a result of a cash flow problem, Respondents commingled funds from their operating account into their clients' trust account. From this one account, they paid all obligations, office and client. Although each knew this practice was improper, they continued it.
These cases are clearly governed by In re Wilson, 81 N.J. 451 (1979), which 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. [ Id. at 455, n. 1].
It is palpably evident Respondents created a revolving trust account by commingling all money received into one account so they would have sufficient funds to meet both their client and personal obligations. Respondents claimed they did not realize, at the time, their firm was using funds belonging to clients to operate the law firm. Poor accounting procedures, however, are no excuse for ignoring the obvious; clients' funds were being used. At the Committee hearing, Respondents acknowledged they had, in fact, used funds belonging to their clients because a number of the firm's checks had been returned for insufficient funds. These Respondents had under Wilson, supra, misappropriated clients' funds.
Respondents claimed they did not intentionally misappropriate these funds. The evidence to the contrary is overwhelming. The Board, therefore, finds Respondents intentionally misappropriated funds, DR 9-102. That no client suffered a loss is irrelevant and fortuitous. In re Gavel, 22 N.J. 248, 265 (1956).
Wilson, supra, created a presumption of disbarment unless extraordinary mitigating factors are shown. Respondents were contrite, cooperated fully with the ethics proceedings and had their accounting records brought up to standard. No clients were injured by Respondents' misconduct and none complained. These may be considered mitigating factors in other types of
offenses, but Wilson, supra, and its progeny have rejected them in misappropriation cases. See Matter of Marks, 96 N.J. 30 (1984). Even if considered in mitigation, they are greatly outweighed by other aggravating factors. These Respondents are experienced members of the Bar. Respondent Schultz [ sic ] was admitted in New Jersey in 1966 and in New York in 1965, Respondent Fleischer, 1969 and 1960, and Respondent Schwimer, 1973 and 1959. Respondents' claim of naivete regarding the keeping of accounting records is disingenuous. They deliberately commingled these accounts so they could borrow clients' funds. This, too, was rejected by Wilson, supra, 81 N.J. at 458.
The Board finds that mitigating factors in this case do not override the mandate of Wilson, supra. Therefore, the Board recommends Respondents be disbarred.
Before us, respondents have pressed the argument that they did not intentionally misappropriate their clients' trust funds. Our examination of the record, however, leads to the inescapable conclusion that the argument must fail and that respondents' intentional misappropriation has been established by clear and convincing evidence.
Respondents formed their law firm in 1979 and struggled with a marginal law practice into the summer of 1981, when they terminated the employment of their bookkeeper. Left to their own devices, they ceased using their operating account, which was subject to a levy by a judgment creditor, and began to use their trust account as the sole firm bank account. The testimony of respondent Fleischer makes painfully clear that respondents knowingly commingled the operating and trust accounts to meet firm expenses, and on several occasions they wrote checks that were returned for insufficient funds. The following exchange between Mr. Deakin of the Ethics Committee, respondent Fleischer, and Mr. Walder, counsel for respondents, is illuminating:
Q. Well, isn't it true to the extent you were making disbursements out of the trust account that you were using clients' funds?
A I would have to concede that that's true and it may sound a little bit unusual and it's no excuse but we were so naive we didn't appreciate what we were doing.
Q. Well, Mr. Fleischer, it has been stipulated from time to time there were, in fact, shortages even in the trust account, that is correct, isn't it?
Q. So that it follows as night follows day that if the trust account were overdrawn from time to time which it was, that you were using clients' funds to pay your own expenses, there's no question about that, is there?
A That's true, but we were depositing everything and anything that came into the office into that account in order to try to make sure all our obligations were met.
MR. WALDER: In fairness I think your question is presuming the use of a trust account, funds meaning it was trust funds when it really is trust account funds, not necessarily trust funds because everything going into it was under the heading of trust account, that's where I think your question may be, you know, respectfully, wrong in terms of the facts of the case.
Q. At least to the extent there were bounced checks, on those occasions you obviously must have been aware that you did not have sufficient firm funds in the trust account, isn't that correct?
Q. No question about that, is there?
A. No, there's no question.
Q. That would answer Mr. Walder's observation. I assume that if a check bounced you certainly must have said to yourself or should have said to yourself we must not have enough of our own funds in this account because we're bouncing checks. Isn't that correct?
A Yes, that's a logical conclusion, that's correct.
Although respondents seek to justify their misappropriations on the grounds of naivete, respondent Fleischer's testimony in response to interrogation by Mr. Kenny of the Ethics Committee, as supplemented by testimony of respondent Shultz, shows unmistakable awareness that respondents knew they were doing something wrong.
Q. You knew you were all using clients' funds on occasions, did you not?
A We knew we were doing something we were not supposed to do and the problem was we kept depositing everything in that account, we weren't sure on each and every occasion whether they were invading funds or not. We knew we were not ...