On an order to show cause why respondent should not be disbarred or otherwise disciplined.
For disbarment -- Chief Justice Wilentz, and Justices Clifford, Handler and Pollock. Concurring in part, dissenting in part -- Justices O'Hern, Garibaldi and Stein. Stein, J., concurring in part and dissenting in part.
This matter stems from three complaints filed against respondent following an audit of his books and records. The District VI Ethics Committee (Ethics Committee) found that respondent had engaged in conduct involving dishonesty and misrepresentation, in violation of DR 1-102(A)(4); had overreached clients in charging excessive fees, in violation of DR 2-106(D); had violated record keeping regulations, R. 1:21-6 and DR 9-102(B)(3) and (C); had failed to preserve the identity of client funds, in violation of DR 1-102(A); and had engaged in other
activities adversely reflecting on his fitness to practice law, in violation of DR 1-102(A)(6). Although it found that respondent had misused trust funds, the Ethics Committee did not determine whether the misuse was knowing.
The Disciplinary Review Board (DRB) agreed substantially with the Ethics Committee's findings. In addition, the DRB found that respondent knowingly misappropriated client funds in three separate matters. Accordingly, the DRB recommended that respondent be disbarred. Three dissenting members of the DRB found respondent's misuse of client funds to be negligent and recommended a three-year suspension.
Our independent review of the record leads us to conclude that respondent knowingly misappropriated client funds and that he must be disbarred. Because of that conclusion, this opinion is concerned, to the exclusion of other allegations of attorney misconduct, solely with the issue of knowing misappropriation. Within that context, we further limit the opinion to the acts of misappropriation that occurred after the publication of In re Wilson, 81 N.J. 451, 409 A.2d 1153 (1979).
The record clearly and convincingly establishes that respondent knowingly misappropriated trust funds in two post- Wilson matters. In the first, his clients were James and Maryann Maguire, and in the second, his client was his cousin, Maurice Spagnoletti.
The DRB summarized the facts in these two matters:
In the Maguire matter, for instance, respondent deposited two checks in his trust account, one for $9,300 and the other for $1,000, representing the deposit tendered by the purchasers of the Maguires' property. Those deposits were made on December 1, 1979, and January 9, 1980, respectively. Notwithstanding the fact that no disbursements were made on the Maguires' behalf until March 31, 1980, the trust account balance was only $1,697.12 on December 31, 1979, $968.98 on January 7, 1980, $1,053.07 on January 31, 1980, and $12.98 on February 29, 1980. However, respondent should have held $10,300 in trust for the Maguires until March 31, 1980. Thus, the trust account shortage in Maguire ranged from more than $8,000 to more than $10,000. $8,000 of that
shortage resulted from two payments to respondent in December: one check for $3,000 which cleared on December 12, 1979, and a second check for $5,000 payable to respondent, which cleared on December 17, 1979.
At the ethics hearing of January 14, 1987, respondent conceded that there was a trust account shortage in connection with the Maguire transaction. He testified that he was unable to explain the reason for the shortage as a result of the destruction of all his records by a fire in his office in late 1979. He recalled, however, that "there were monies that were supposed to come from (client) Malfettone which did not come which caused a shortage. And I believe the same day, I made a loan . . . which satisfied the overdraft." Indeed, the record shows -- and respondent so admitted -- that in April 1980 he obtained a $35,000 loan which he deposited in his trust account to cover a shortage in connection with "one of the two real estate transactions."*fn1
Similarly, in the Spagnoletti matter, on June 18, 1980, respondent's trust liability to his client consisted of $20,074.64. On that date, however, the trust account balance was only $18,137.68. From June 23 through July 7, 1980, respondent's trust liability to Spagnoletti amounted to $15,051.44. On June 23, however, the trust account balance was only $12,022.04 and, by July 7, 1980, it had declined to $1,903.60. The three largest decreases in the trust account balance were the result of three checks of $3,000 each made payable to respondent. Those checks were dated July 1, July 2, and July 5, 1980. (Exhibit P-9 attached to the complaint). The July 1 and July 2 checks were cashed on those same days; the July 5 check was cashed on July 7, 1980 (Exhibit P-8 attached to the complaint).
[Footnote and transcript references omitted.]
From these facts, the DRB concluded:
It matters not that respondent might not have utilized those funds for his own gain, as he contends. In re Wilson, supra, 81 N.J. at 455 n. 1 [409 A.2d 1153]; In re Noonan, [102 N.J. 157, 160, 506 A.2d 722 (1986).]
The record is replete with clear instances of knowing misappropriation of trust funds. In the absence of an outright admission, circumstantial evidence can lead to the conclusion that a lawyer knew or had to know clients' funds were being invaded. Matter of Johnson, 105 N.J. 249, 258 [520 A.2d 3] (1987).
By respondent's own admission, beginning in December, when he had a coronary bypass operation, and during the relevant times mentioned in the complaint, 1978 through 1980, "I really didn't feel I was practicing law." I had no "outside office. I was using my home. I wasn't listed. I (did not) believe I had an office phone. I didn't have a secretary . . . . I had no sign; and I didn't
solicit any business. The only work I was doing was for people I had a personal relationship with." Accordingly, respondent cannot argue that the volume of his practice, combined with the fact that he was a sole practitioner, precluded him from closely examining his trust account records and that, consequently, any misuse of client funds was negligent, not intentional. As the Court stated in Matter of Johnson, supra, 105 N.J. at 260 [520 A.2d 3] (1987):
[W]e do not intend to suggest that henceforth a respondent who just walks away from his fiduciary obligation as safekeeper of client funds can expect this Court to take an indulgent view of any misappropriation. We will view "defensive ignorance" with a jaundiced eye. The intentional and purposeful avoidance of knowing what is going on in one's trust account will not be deemed a shield against proof of what would otherwise be a "knowing misappropriation." There may be semantical inconsistencies, but we are ...