The Disciplinary Review Board having filed a report with the Court, recommending that JOSEPH F. FLAYER of BUDD LAKE, who was admitted to the bar of this State in 1976, be publicly reprimanded for violating RPC 1.15(a), (b) and (c) by releasing escrowed funds without the consent of the seller in a personal real estate transaction, and RPC 8.1(b) by failing to cooperate fully with the ethics authorities, and good cause appearing;
It is ORDERED that the report and recommendation of the Disciplinary Review are adopted and JOSEPH F. FLAYER is hereby publicly reprimanded; and it is further
ORDERED that the entire record of this matter be made a permanent part of respondent's file as an attorney at law of this State; and it is further
Ordered that respondent shall reimburse the Ethics Financial Committee for appropriate administrative costs incurred in the prosecution of this matter.
Decision and Recommendation of the Disciplinary Review Board
To the Honorable Chief Justice and Associate Justices of the Supreme Court of New Jersey.
This matter is before the Board based upon a recommendation for public discipline filed by the District X Ethics Committee (DEC).
Joseph F. Flayer, the respondent herein, was admitted to the New Jersey bar in 1976. His office is located at 389 Route 46, Budd Lake, New Jersey. Respondent has no prior disciplinary history.
The charges against respondent stem from his conduct following a real estate closing in which he represented himself and his wife. As a result of the seller's failure to complete repairs on respondent's new home, as agreed, respondent used escrow funds to complete the repairs, without first obtaining specific authorization from the seller.
On April 22, 1987, Respondent and his wife entered into a contract for sale of real estate with Factory Built, Inc. Charles H. Schultz, the grievant herein, was one of the principals of the corporation. He was also the real estate broker involved with the sale of the property.
The closing of title for respondent's property, located in Long Valley, New Jersey, occurred on April 22, 1987. While respondent represented himself at the title closing, George Benson, Esq. was listed as the attorney for the mortgage closing, which
occurred several days thereafter. Benson, however, did not prepare any of the closing documents or participate in the closing. Howard Spear was the corporation's attorney at all times.
A settlement statement (Exhibit C-1) was executed at the April 22, 1987 closing. The statement showed, at line 507, that $500 was being escrowed for unfinished worklist items. Line 509 showed a $4000 escrow for franchise taxes that had been required by respondent's title insurance company. Respondent was to hold these escrow monies. While no escrow agreement was executed for the franchise taxes, the parties did sign a worklist and escrow agreement for unfinished work on the premises. Exhibit C-2. The escrow agreement provided that the items appearing therein
shall be finished by the seller within thirty (30) days. To secure performance thereof, the sum of $500.00 will be held in the trust account of Joseph F. Flayer, ESQ. [sic] and will be released to seller upon its substantial completion of these unfinished work items. [emphasis supplied].
Significantly, the $500 amount had originally been entered on the agreement as $2000. From the evidence adduced at the DEC hearing, it appears that respondent agreed to reduce the amount to $500, knowing that the $4000 sum escrowed for the franchise taxes could be used for the repairs as well, inasmuch as the taxes apparently amounted to only $40 or $50. T154-157.*fn1 Respondent cross-examined Schultz in an attempt to demonstrate that the tax escrow had been established for more than just a tax deficiency. He was, however, prevented from establishing that the escrowed amount had been significantly disproportionate to the actual taxes. Respondent tried to establish the relevance of this information, by stating:
What we have here is a suggestion here that the sole purpose of the $4,000 was to take care of the tax escrow when we have the testimony of Mr. Spear who says this thing couldn't possibly have been more than $40 or $50. You have the evidence before you that the initial punch list of April 22 or 24th of '87 had a $2,000 amount, which is negotiated back down to $500 and a total escrow of
$4,500. I'm trying to lay the groundwork for the proposition that everybody understood that the repairs in this matter were so far under that there could be no other purpose than to have that type of amount agreed to [sic] would be to cover the repairs.
Apparently, the DEC concluded that respondent had learned that the repairs would exceed the amount of the $500 escrow only after the escrow had already been established. T118. This interpretation, however, failed to take into consideration the statement of Allan Kesselhaut, an officer and shareholder of Factory Built, Inc., that the worklist repairs would exceed $500. Respondent had dealt primarily with Kesselhaut regarding repairs to be made on the property. In fact, Kesselhaut attended the April 1987 closing and his signature appeared on the worklist and escrow agreement. T84. Kesselhaut testified at the DEC hearing that the fifty-three items on the worklist would probably have cost more than the $500 sum escrowed for repairs. T90. He stated, however, that, despite the fact that his name appeared on the escrow agreement, he did not recall who had negotiated the escrow amount. T85. At the Board hearing, when respondent was questioned why he had agreed to reduce the amount of the worklist escrow, he gave no explanation other than he had trusted Allan Kesselhaut.
Because the financial transactions occurred subsequent to the title closing, the escrow accounts were not established on April 22, 1987, but, instead, remained in one of respondent's accounts until April 30, 1987. On that date, respondent withdrew $4500 from one account and deposited it into his interest-bearing trust account at Crestmont Federal Savings, Budd Lake, New Jersey.
As of June 4, 1987, more than thirty days after the closing, the seller had completed some, but not all of the items on the April 22, 1987 worklist. On June 4, 1987, respondent sent Kesselhaut a post-closing worklist showing items that had not yet been completed, together with new items that had arisen since the closing. Exhibit C-6. Respondent requested that the
seller notify him of his intentions regarding the outstanding items.
By letter dated July 10, 1987 to Kesselhaut, respondent again notified the seller that the items on the post-closing worklist still had not been remedied. Moreover, one of the company's carpenters had caused more damage to the property, which was of great inconvenience to respondent. Respondent's letter stated:
Because of these developments, I now require from you a time table as to when these items will be corrected. Additionally, I expect all of these items to be corrected before July 31, 1987. Unless you have some explanation as to why it cannot be done on a particular item, I think my request is more that reasonable considering the eleven weeks that have transpired without those major items being done. Should I not have your time table in my hands within the next seven (7) days, this is your further advice that I will arrange to have these items accomplished at your expense. While I do not care to put this into an adversarial relationship, your actions to date are giving me no choice. It is time for you to recognize that this work is going to be done for Joe, NOW! Otherwise, I think you will be surely displeased as to how ...