On an order to show cause why respondent should not be disbarred or otherwise disciplined.
For suspension -- Chief Justice Wilentz and Justices Handler, O'Hern, Garibaldi and Stein. For disbarment -- Justices Clifford and Pollock. Clifford, Justice, dissenting. Pollock, J., joins in this opinion.
[104 NJ Page 317] This disciplinary proceeding results from a random compliance audit of the trust funds of respondent, John Perez, by the Division of Ethics and Professional Services (Division) pursuant to Rule 1:21-6(c). At the time of the audit, respondent was a sole practitioner. Upon receipt of the auditor's report, the Division filed a Notice of Motion with the Disciplinary Review Board (DRB), that respondent be temporarily suspended from the practice of law on the grounds of his continuing and significant invasion and misuse of client trust funds, use of trust accounts for personal purposes, and failure to maintain records required by Rule 1:21-6, all in violation of DR 9-102(A),
(B) and (C).*fn1 The DRB denied the Division's motion on the condition that respondent cease practice as a sole practitioner, enter into the employ of a law firm, and have no involvement in or responsibility for the financial aspects of the practice. Respondent continued in the employ of the law firm until September 1985 when he ceased practicing law and went into business. Based on the findings resulting from the compliance audit of respondent's trust account, the District V-A Ethics Committee (DEC) filed a complaint. After a hearing, it concluded that respondent had violated DR 9-102(A), 9-102(B)(3), 9-102(B)(4), and 9-102(C), and recommended a public reprimand.
The DRB conducted a hearing. It then issued its Decision and Recommendation, which summarized the charges and relevant evidence in pertinent part as follows:
In April 1981 Joseph Bucca, a close friend, asked Respondent to lend him $3,500, the amount he needed to meet the $30,000 sale price for real estate and a liquor license. Respondent who had anticipated borrowing $20,000 received only 12,000. In the interim, he had promised to lend money to Mr. Bucca.
To keep his commitment to Mr. Bucca, Respondent withdrew funds from a trust account in the name of 814 Parker Street, Inc., owned by a close friend, William Whiteman. On April 8, 1981, Respondent had deposited in this account $3,500 as part of the proceeds of a real estate transaction. Before he mailed the closing documents and his trust check to Mr. Whiteman, Respondent explained in a telephone conversation what he had done. Respondent maintained that Mr. Whiteman understood and had no problem with the way he handled the transaction. The check dated May 13, 1981, was deposited by Whiteman on June 29, 1981, at which time it cleared. In his unpaginated affidavit of April 18, 1983, to the Disciplinary Review Board, Respondent said:
I know that I should not have taken the funds from the trust account but Mr. Bucca was desperate and I had left him with no alternatives at that moment
because he had expected the money from me [Respondent's affidavit, page 7, paragraph 1].
Respondent represented Mr. Gomes and Mr. Martin in a real estate closing on March 15, 1982. Respondent never deposited the cash paid to him for fees and disbursements. In closing out the file, Respondent disbursed a total of $403 from the trust account on May 14, 1982. Several months later when he was reconciling his trust accounts, he noticed that he had not deposited funds to cover the disbursements. On August 10, 1982, Respondent deposited $403 to balance out the account.
On April 15, 1982, Respondent received $4,000 in cash from Anthony V. Cuozzo to be used for the purchase of property. Since the banks were closed, he took the money home and secreted it. While attending funeral services for his father-in-law, he learned his home had been burglarized. At that time, he had forgotten about the money and did not report it as stolen. When he began reconstructing his accounts, he realized that he had not deposited the $4,000. He also realized there had not been funds in the account to cover the check for $2,093 that was issued to Exxon on April 21, 1982.
4. AFONZO AND MERCHANT/CLOVER MATTER
On May 5, 1982, Respondent deposited $4,000 into his trust account to the credit of the Merchant/Clover transaction. Disbursements totalling $3,141.30 were made on June 9, 1982. Respondent's trust account, however, had a negative balance of $77.71 as of June 7, 1982. On June 9, 1982, Respondent deposited $8,467.66 into his trust account on behalf of the Afonzo real estate closing, the same date as the Merchant/Clover disbursements. The Afonzo trust funds were therefore invaded.
In addition to the above matters, the auditors concluded that:
Respondent had used a $4,000 deposit he received May 5, 1982, for other clients, and in another case, that he invaded the trust funds of a client in the amount of $4,129.81. The auditors further found interest charges for a $9,500 loan by Respondent were automatically charged by the bank against Respondent's trust account.
Respondent admitted that he withdrew funds from his trust account, denied any intentional misappropriation, and stated that he was unable to keep his books or administer his office as he should have over the period in question because of the death of his father-in-law and the serious illness of his wife and son. He also noted that none of his clients had suffered any loss by reason of his infractions.
Upon its review of the record, the DRB found that the DEC's finding of unethical conduct on respondent's part was fully
supported by clear and convincing evidence. Specifically, the DRB found that:
Respondent misused $3,500 from the trust account of William Whiteman so he could honor his commitment of loaning that amount to another friend, Joseph Bucca. Although Respondent later obtained permission of the client to do this, this came after the fact. He acknowledged that he knew this was wrong, but claimed he did so because Mr. Bucca was desperate and relied upon his promise. The Board further finds Respondent in several situations utilized clients' funds for the benefit of other clients, also that he disbursed funds against trust accounts before he received any funds. The Board finds Respondent failed to: (1) preserve the identification of client's funds, DR 9-102(A); (2) maintain complete records of funds coming into his possession and render appropriate accounting to his clients, DR 9-102(B)(3); (3) promptly pay to clients funds in his possession, DR 9-102(B)(4); and (4) comply with the record keeping provisions of R. 1:21-6.
More significantly, the majority of the DRB found that:
Respondent did not knowingly misappropriate funds from his trust account. Since his recordkeeping was virtually nonexistent, the Board majority concludes that he acted recklessly or negligently. The situation here is unlike that of Wilson, supra,*fn2 where the money was used knowingly for the attorney's own benefit. Here, Respondent commingled the funds between his clients.
In determining the proper discipline for respondent, the DRB studied respondent's misconduct as well as his character and background. Specifically, the DRB considered the many hardships Perez and his family endured as he worked his way through college and law school, as a police officer; the numerous departmental commendations he received as a police officer, including the highest, the medal of honor; and the difficulties he faced as a new attorney because of the severe illnesses of his wife, son, and father-in-law. Additionally, the DRB reviewed his lack of a prior disciplinary record, his acceptance of full responsibility for his actions, and his cooperation fully with the ethics investigation.
The majority of the DRB recommended that respondent be suspended from the practice of law for two years. One member of the DRB recommended that respondent be disbarred. The Office of Attorney Ethics disagreed with the DRB's recommendation,
concluding that respondent's conduct constituted misappropriation, and hence, under In re Wilson, 81 N.J. 451 (1979), he should be disbarred.
We issued an Order to Show Cause why respondent should not be disbarred or otherwise disciplined. Although the respondent's attorney appeared at the DEC and DRB hearings neither respondent nor Mr. Whiteman testified before the DEC or DRB. Accordingly, the DEC and the DRB both decided the matter solely on Mr. Gerard's affidavit and supporting documents, respondent's affidavit, and briefs by respondent's attorney and the OAE. We determined this record to be incomplete and unclear and after the hearing on the Order to Show Cause, we temporarily remanded the matter to the District V-A Ethics Committee for a hearing to develop a full and complete record on whether there was a knowing misappropriation by respondent of the funds of William Whiteman or whether there was consensual use of such funds.
Pursuant to our order, the DEC conducted a hearing. It was at this hearing that respondent first testified in this matter. Likewise, Mr. Whiteman first testified at this hearing. He stated he is a police officer and had been a close friend of the respondent since they were partners on the police force. The testimony adduced at the hearing about the transaction was as follows:
In March 1981, 814 Parker Street, Inc. ("seller"), a New Jersey corporation represented by respondent, entered into a Contract of Sale for premises to the Dancsecs ("purchasers") who were independently represented. The Contract of Sale provided that upon its execution the purchasers would pay to the seller the sum of $3,500 to be held in escrow by respondent. On April 8, 1981, the sum of $3,500 was forwarded to respondent to be held in escrow "until settlement of title."
The respondent testified that he had previously promised to loan his friend Mr. Joseph Bucca approximately $3,500 to purchase a liquor store. About April 20, 1981, Bucca requested
and received from the respondent the sum of $3,500. The respondent testified that he paid to Bucca the monies forwarded to him by the attorney for the purchasers in the pending 814 Parker Street transaction. These monies were to be held in escrow by respondent until the closing scheduled for May 15, 1981. The closing took place on or about May 1, 1981.
The respondent testified that on or about April 20, 1981 (the date on which he needed the monies to pay to Bucca), he spoke to his client Mr. Whiteman, President of 814 Parker Street, Inc. The respondent stated that he requested a loan from Mr. Whiteman so that the respondent could loan money to Mr. Bucca. The respondent testified that Mr. Whiteman agreed to permit him to take the money out of the escrow funds that the respondent was holding on the Parker Street closing. Thus, the respondent testified, with Mr. Whiteman's consent, he forwarded the escrow monies to Mr. Bucca.
Mr. Whiteman testified on behalf of the respondent that, indeed, this conversation did take place approximately two weeks to one month before the Parker Street closing. Mr. Whiteman further testified that he had agreed to loan money to the respondent by permitting the respondent to use the escrow monies in the Parker Street transaction.
On or about May 5, 1981, the respondent forwarded a letter to Mr. Whiteman enclosing two checks: (a) a trust check from purchaser's counsel in the amount of $6,307.27; and (b) a check from the respondent made payable to 814 Parker Street Inc. dated May 13, 1981 in the amount of $3,180 ($3,500 less counsel fees and costs). Both respondent and Whiteman agreed that this $3,180 check would not be cashed at the time Whiteman received the check.
The DEC concluded from this evidence that the respondent used the funds being held by him in escrow to lend money to Mr. Bucca. The DEC also found that "there was consent on the part of ...