On an order to show cause why respondent should not be disbarred or otherwise disciplined.
Chief Justice Wilentz and Justices Clifford, Handler, Pollock, O'Hern, Garibaldi, and Stein join in this opinion.
Following an audit performed in the fall of 1986 by the Office of Attorney Ethics (OAE), the District VB Ethics Committee (DEC) on August 1, 1989, filed a complaint charging respondent, Hugo L. Moras, with record-keeping violations, commingling of personal and trust funds, and knowing misappropriation of client funds. Respondent, who has never had any other ethics complaints filed against him, does not dispute the charges of record-keeping violations or commingling. Furthermore, he has taken the necessary steps to prevent a recurrence of those charges. The critical charge is that of knowing misappropriation.
That charge arose from a transaction described as "the Hughes Matter." In that matter the DEC found that respondent was guilty of knowing misappropriation. The Disciplinary Review Board (DRB) disagreed, finding that the OAE had not proved by clear and convincing evidence that the misappropriation had been knowing.
As described by the DRB, the relevant facts in the Hughes matter are:
Isabel Hughes was respondent's friend of long-standing. Also, as an employee of her husband's real estate agency, she referred numerous clients to respondent. On November 20, 1985, Mrs. Hughes telephoned respondent to request that he issue to her order a check from his trust account in the amount of $17,900. The check was designed to set aside a judgment of foreclosure on real property in which Mrs. Hughes had an interest. According to Mrs. Hughes, the attorneys for the mortgagee insisted on receiving either a certified or a trust account check. Hence her request to respondent for a trust account check, which was to be covered by a corresponding check from her.
On the afternoon of November 20, 1985, Mrs. Hughes stopped by respondent's office to pick up the trust account check and deliver her check to him. She gave respondent two checks: one for $2,664 from a John J. Scura, payable to Isabel and Walter Hughes and endorsed over to respondent, and the other for $15,236, in the form of a personal check from Mrs. Hughes. Respondent, in turn, issued a trust account check No. 673 for $17,900, dated November 20, 1985, and payable to Isabel Hughes.
There is little agreement about what happened immediately after the exchange of the checks. According to the OAE auditor, respondent confessed to him that, before he issued the $17,900 trust account check, he telephoned Mrs. Hughes' bank to determine if there were sufficient funds in her account. The bank informed him that there were not. Still according to the auditor, despite this knowledge, respondent issued the trust account check to Mrs. Hughes. Respondent also admitted to the auditor that he had not immediately deposited the $15,000 Hughes check because of the lack of sufficient funds. In fact, respondent never deposited this check in his trust account.
Mrs. Hughes, in turn, testified that, at the time that she presented the checks to respondent, she believed that there were enough funds in her account to cover them because she had arranged for a friend to advance her equivalent funds. She admitted that she still had not deposited the friend's check in her account when she gave respondent the $15,000 check, but she knew that her friend had more than enough funds in her account to cover the loan. Much to her dismay, however, two or three days after respondent issued her the $17,900 check, she learned from him that her account did not contain $15,000, presumably because her friend's check was not negotiable. Mrs. Hughes denied any suggestions that she had disclosed to respondent that her own check was not good at the time that she presented it to him.
Respondent's testimony was at odds with the OAE auditor's. According to respondent, Mrs. Hughes had first told him that the checks that would be exchanged for his trust account check were from a bankruptcy trustee and from the Hughes agency. When he gave Mrs. Hughes the $17,900 check, he did not examine the two checks. The following day, he discovered that, contrary to his belief, the $15,000 check was not a company check, but, instead, Mrs. Hughes' personal check. He then telephoned the bank and found out that her account had insufficient funds to cover his trust account check. He quickly contacted Mrs. Hughes, who assured him that the funds would be in the account immediately. Notwithstanding this promise, Mrs. Hughes did not give the funds to respondent forthwith and, in fact, never repaid the $15,000 in full, as seen below.
Respondent admitted that he did not stop payment on the check, although he had the opportunity to do so. He candidly testified that
I felt that I would start a chain reaction down the line that would probably be catastrophic, and I mean call me naive or bad judgment, but she told me she would give me the money. This woman had never done anything to make me think she was dishonest because I had dealt with her. I had believed her. Looking back, in hindsight, it was probably the worst thing I have ever done in my career, but I trusted her. That's what it came down to here.
The $17,900 check cleared respondent's trust account on November 27, 1985, thereby invading client funds. At the DEC hearing, respondent conceded that the $17,900 withdrawal caused him to be out of trust, although no checks were ever returned for insufficient funds. Respondent also admitted that he did ...