On an order to show cause why respondent should not be disbarred or otherwise disciplined.
For suspension -- Chief Justice Wilentz and Justices Clifford, Handler, Pollock, O'Hern, Garibaldi, and Stein. Opposed -- none.
The District IX Ethics Committee (DEC) filed a presentment against respondent, Lee Jasper Rogers, following an audit and investigation that began after respondent's bank notified the Office of Attorney Ethics (OAE) of an overdraft on respondent's trust account. The DEC found that respondent had knowingly misappropriated funds in two separate real estate matters, one involving the purchase of property by the Hulls, respondent's clients, from the Homers (count one), and the second involving the collection of rent for respondent's client Walter Perry (count two). The DEC also determined that respondent had failed to inform the Hulls of the difficulties he had encountered with their purchase of separate property from the Stockhamers and that he had also neglected to disclose that
the mortgage on their property had not been satisfied (count three). In count five the DEC found that respondent had created a conflict of interest with Perry by entering into a business transaction with him without full disclosure of the relevant facts. The DEC concluded that respondent had violated the trust-account requirements embodied in RPC 1.15(a) and (d). The DEC later withdrew the misappropriation claim in count three arising out of the Hulls' purchase of the Stockhamer property, and recommended dismissal of count four, which alleged that respondent had tampered with a witness, Perry. The Disciplinary Review Board (DRB) unanimously concurred with the DEC's recommendation that count four be dismissed. The DRB likewise recommended dismissal of counts two and five concerning Perry because they had not been proven by clear and convincing evidence. However, the DRB unanimously agreed that respondent had violated RPC 1.4(a) and (b) in failing to keep the Hulls informed (count three). A six-member majority of the DRB held that respondent had knowingly misappropriated the escrow funds in connection with the Hull-Homer real estate transaction and recommended disbarment. Three members of the DRB found that respondent had believed he had a good faith loan with the mortgagee, Bernard Yagoda, and therefore had not knowingly misappropriated the escrow funds. Those three members recommended that respondent be suspended from the practice of law for two years.
Our independent review of the record leads us to conclude that a two-year suspension is the appropriate discipline.
Respondent, a member of the bar since 1981, was a sole practitioner in Red Bank during the years at issue. Since January 26, 1991, respondent has been employed by the Ocean County Public Defender's Office as a staff trial attorney.
The most serious count against respondent arises from his representation of the Hulls in their purchase of property from
the Homers. The closing occurred on March 10, 1987. As settlement agent, respondent deposited $69,195.26 in his trust account, all of which was properly distributed except for the funds held to pay off the Yagoda mortgage. Respondent was required to discharge the first mortgage of $29,289.31 that Yagoda held on the property. Respondent issued an attorney trust account check in that amount to Yagoda. The check was returned for insufficient funds as the result of a $3,453.87 levy that American Express had placed on respondent's trust account to satisfy his personal obligations to that company. Respondent did not learn of the levy until the bank returned the dishonored check. But for that levy respondent would not have been out of trust.
Respondent immediately telephoned Yagoda and told him of his problems with American Express. Yagoda agreed to accept an initial payment of $25,789.31 and to receive the balance of $3,500.00 as soon as respondent's financial difficulties had been resolved.
On March 24, 1987, respondent mailed a certified check to Yagoda in the amount of $25,789.31 and a letter that stated "the balance of the monies in the amount of $3,500.00 will be paid to you in approximately one (1) weeks [sic] time." Respondent also returned the mortgage that Yagoda had previously sent him for cancellation. Respondent sent a copy of the letter to the Hulls, but did not inform them that, contrary to their settlement arrangements, Yagoda still retained a mortgage on the property.
Respondent notified the collection agent for American Express that the funds levied did not belong to him, that they were "for disbursement with regard to a real estate closing which was recently held in my office." Respondent requested immediate return of the funds. American Express promised to return them but did not do so for approximately two months. Finally, on May 21, 1987, respondent received a check from
American Express for $3,245.54 (the amount of the levy less unspecified costs totalling approximately $200).
Respondent's ethical troubles began at that point. Rather than depositing the check in his trust account, which had a balance of $11.27, and paying Yagoda, he deposited it in his own overdrawn business account. From that fund, respondent paid Yagoda $1,000, paid Jersey Central Power and Light $1,000, and applied the remaining amount to other pressing business and personal debts.
In July and August of 1987, three additional payments totalling $1,500 left a balance of $1,000 still due and owing to Yagoda. Finally, Yagoda obtained a default judgment against respondent on May 26, 1989, for $1,349.86, representing the debt plus costs. Yagoda also instituted suit against the Homers, the former owners of the property.
On September 3, 1988, unaware of respondent's troubles in the earlier transaction, the Hulls retained respondent to represent them in their purchase of property from the Stockhamers. Respondent never advised the Hulls that Yagoda had instituted a lawsuit against respondent and had been awarded a default judgment, and, most importantly, that respondent had failed to use the American Express funds to pay off the mortgage on their property. After encountering difficulties in connection with the Stockhamer closing, the Hulls fired respondent and hired a new attorney.
When the Hulls attempted to sell the property they had purchased from the Homers, their buyer discovered the Yagoda lien. The Hulls were forced to pay Yagoda the amount of the judgment, $1,349.86, in exchange for an assignment of the judgment. That transaction delayed the closing for five months while the Hulls attempted to acquire sufficient funds to satisfy the judgment. In July 1989, respondent signed a promissory note acknowledging a $2,003.00 debt to the Hulls and agreeing to reimburse them for the amount of the outstanding judgment and for an additional sum of $700 that the Hulls had
given respondent in connection with the Stockhamer transaction. As of March 1, 1991, the date of the DRB decision, respondent had paid only $400 of that total debt.
Respondent testified that he did not deposit the American Express check in his trust account because he was "in a big hole financially." His testimony is summarized in the Decision and Recommendation of the DRB:
Respondent testified that during this time he was in dire financial straits. In 1983, he had purchased a rooming house, a "dump," as he described it. Numerous and extensive repairs had to be made on the property, as required by the Department of Community Affairs. In 1985, respondent advanced $6,000 to a contractor who failed to perform the work. Although respondent obtained a judgment against the contractor, the latter was judgment-proof. In late 1986, the Department of Community Affairs filed suit against respondent for failure to make the required repairs. As a result, respondent was fined $11,000. After he exhausted his savings and borrowed monies from his mother, he was left with no funds. In addition, the mortgage payments on the property became delinquent when the rents received proved insufficient to cover the carrying expenses, including oil and electric bills. In October 1987, the mortgagee filed a foreclosure action.
Respondent was also beset with personal problems. He had received a letter from a matrimonial attorney, advising him that his wife had consulted with the attorney about starting divorce proceedings.
According to respondent, he owed $1,400 to the electric company. When he received the check from American Express,
Because Jersey Central Power and Light came by and shut my electricity off. That check was like Manna from heaven. I rationalized to myself. "Well, hey, even if I give it to [Yagoda] it's going to be short because I owe him $3,500." I said, "Well, I already promised to pay him. What I will do is I'll use this money towards my debts and then I will take care of the mortgage as soon as I can." I was arranging to refinance. I figured I would pay him off. I promised him he would get his money. I said, "Okay, I will pay him off when we refinance."
Respondent acknowledged that, in retrospect, he should have paid Yagoda with the American Express check. He added, however, that
I legitimately thought I had a right to use that money based on the promise that I had made to Mr. Yagoda, telling him that I would be responsible, I would make sure that he got his money. I felt I had a legitimate right to use it.
At the DEC hearing OAE Chief Auditor Gerald Smith testified that when he interviewed respondent on March 27, 1991,
respondent told him that when he received the American Express check, his utilities had been shut off due to non-payment of the bill. Smith also related that respondent told him that he had "panicked" and had used the returned funds to pay his business and personal expenses. Smith testified that respondent admitted that they were trust funds and that he said "I guess I dipped a little deeper than I should have." According to Smith, respondent was "tearful and expressed remorse" for his actions.
Respondent's defense, as expressed by his attorney, is that "in his mind [respondent] substituted in place of $3,400 that he was short that was Yagoda's, he substituted his promise to pay that back, his own personal moral promise to pay that back. That's why he felt comfortable [in issuing those funds to pay his bills]." When asked on cross-examination, however, respondent testified that he had had no special arrangement with Yagoda to pay the money back.
A. Special arrangement, no, I didn't say anything about that. I said he had made several phone calls to me inquiring about the status of the money and I just kept giving him assurances that he would be paid.
Yagoda, however, testified that he had only given respondent additional time to pay the balance of the mortgage but that he had not made a special arrangement or loan.
Q. Did you yourself personally make any special arrangements whereby Mr. Rogers could take his time in making payments of this loan?
A. Mr. Rogers and I discussed this over the phone. He asked for additional time. I gave him the time. Apparently he ran into more difficulty and he couldn't conform to the time frame that he volunteered and at the latter part the monies were not coming ...