On an Order to show cause why respondent should not be disbarred or otherwise disciplined.
Chief Justice Wilentz and Justices Handler, Pollock, Garibaldi, Stein, and Coleman join in this opinion. Justice O'Hern did not participate.
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
IN THE MATTER OF LEE W. SHELLY, AN ATTORNEY AT LAW (D-68-94)
Argued January 31, 1995 -- Decided June 9, 1995
Lee W. Shelly was admitted to the New Jersey Bar in 1973. The Office of Attorney Ethics (OAE) filed a five-count complaint against Shelly, alleging ethical violations in relation to his representation of a long-time client, Concetta Roden. In Counts I, II, and III of the complaint, Shelly is charged with knowing misappropriation of client trust funds in respect of (1) $34,000 taken from the proceeds of a real-estate closing, (2) a $6,000 deposit in the same real-estate matter, and (3) $1,250 of the closing proceeds that had supposedly been held in escrow by Shelly. In Count IV, Shelly is charged with a conflict of interest for failing to advise Ms. Roden to seek the advice of independent counsel in respect of a "loan transaction" between Shelly and Ms. Roden. In Count V, Shelly is charged with certain recordkeeping violations.
Shelly began his representation of Ms. Roden in 1983. At that time, she was in serious financial difficulty. She was almost penniless and the mortgage on her home was in default and on the verge of being foreclosed. Shelly agreed to represent Ms. Roden and took a small retainer. Shelly told Ms. Roden that he would charge her an hourly rate of $150 and that, due to her strained financial condition, he would secure payment for his services from drawing his fees from any money he recovered for her. That agreement was informal and was never reduced to writing. Ms. Roden accepted this arrangement.
In keeping with the extremely informal nature of his professional relationship with Ms. Roden, Shelly did not maintain time records in respect of the work he performed on her behalf and did not send her any bills or other documentation detailing the work performed. Shelly determined the amount owed from each distribution generally based on the time he spent on the matter, taking into account her financial need and ability to pay.
Over the course of the nine-year representation, Shelly obtained approximately $530,000 for Ms. Roden. He also obtained a judgment in Ms. Roden's favor in the Franceze matter totalling approximately $395,000 and successfully negotiated and handled the sale of Ms. Roden's house. Over those nine years, Shelly collected approximately $100,000 in legal fees from Ms. Roden.
After the closing on her home, Shelly sent Ms. Roden a certified check against his trust account that was $41,250 short. A letter informed her that he was borrowing $40,000 for two weeks at 12%. According to Shelly, he and Ms. Roden had discussed the loan prior to the closing. Shelly claims he told her that, because he agreed to handle the Franceze matter on a contingent basis, he would have to draw against the closing proceeds to cover expenses. According to Shelly, Ms. Roden agreed. She later sent Shelly a letter dated May 8, 1992, wherein she agreed to give him more time to repay the money he owed her. She did not receive the money and eventually contacted John Wopat, III, Esq. to obtain the money for her. Wopat notified the OAE of Shelly's ethical misconduct.
Following an evidentiary hearing, the Special Master found that Shelly had knowingly misappropriated the $6,000 deposit and $34,000 from the title-closing proceeds. Based on those findings, the Special Master recommended disbarment. The Special Master also found that Shelly's borrowing of his client's money without advising her to seek independent counsel constituted a conflict of interest in violation of the Rules of Professional Responsibility (RPC's). The Special Master found the evidence insufficient to support a finding that Shelly knowingly misappropriated the $1,250 "escrow" funds from the title-closing proceeds. Lastly, the Special Master found that although Shelly had violated certain recordkeeping requirements, the proofs of a knowing misappropriation as a result thereof were less than clear and convincing.
Following its review of the record, the Disciplinary Review Board (DRB) found that it could not conclude by clear and convincing evidence that Shelly had knowingly misappropriated the $34,000 from closing proceeds. The DRB reasoned that the setting aside of that money as a loan was consistent with the practice Shelly had followed in the nine years he had represented Ms. Roden. A four-member majority of the DRB did find that the record clearly and convincingly established that Shelly had knowingly misappropriated the $6,000 deposit and, therefore, recommended disbarment. Three members of the DRB believed that the evidence did not clearly and convincingly demonstrate Shelly's unauthorized use of either the $34,000 or the $6,000 and, therefore, recommended a six-month suspension on infractions found in Counts IV and V of the complaint.
HELD: The record does not clearly and convincingly demonstrate that Lee W. Shelly knowingly misappropriated $40,000 from the closing proceeds of the sale of his client's home. However, Shelly is suspended from the practice of law for six-months for recordkeeping violations and for the conflict of interest in failing to advise his client to seek independent counsel prior to entering into a loan transaction with Shelly.
1. Based on the Court's independent review of he record, it cannot conclude by clear and convincing evidence that Shelly's conduct in borrowing the $6,000 deposit and the $34,000 from the closing proceeds, under the unique facts of this case, falls within the purview of "knowing misappropriation" under Wilson. The record does not clearly and convincingly demonstrate that Shelly borrowed Ms. Roden's money while knowing that he lacked her authorization to do so. Rather, based on the unique circumstances and informality that characterized his nine years of financial dealings with Ms. Roden, Shelly was justified in assuming he had Ms. Roden's consent to borrow from the closing proceeds. (pp. 14-17)
2. The borrowing of the $40,000 was consistent with Shelly's common practice of securing the fees owed him out of accounts receivable he collected from Ms. Roden with her consent. Furthermore, the May 8, 1992 letter confirming the nature of the loan supports the Conclusion that Shelly reasonably believed he had Ms. Roden's implied consent to borrow from the closing proceeds. (pp. 17-18)
3. There is no basis for a distinction between the $6,000 deposit and the $34,000 closing proceeds. Shelly's failure to obtain the consent of the buyer's attorney to use the deposit money for his own purposes is irrelevant. The only relevant inquiry is whether Ms. Roden authorized Shelly's use of those funds. The Court greatly disapproves of Shelly's informal and careless professional practices. (pp. 18-19)
4. There is clear and convincing evidence that Shelly violated certain recordkeeping rules. An attorney's billing of a client without documentation of the time spent in representing the client and without a written statement of the amount billed is unacceptable. In addition, there is clear and convincing evidence of a conflict of interest in violation of the RPC's for Shelly's failure to advise Ms. Roden to seek the advice of independent counsel before agreeing to the loan and for his failure to provide Ms. Roden with written terms of the loan. For those violations, Shelly must be suspended from the practice of law for six months. (pp. 19-22)
CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, GARIBALDI, STEIN and COLEMAN join in this per curiam opinion. JUSTICE O'HERN did not participate.
Respondent was admitted to practice law in the State of New Jersey in 1973. He practiced as a solo practitioner in Monmouth County. Respondent has not been the subject of any previous disciplinary action.
This disciplinary proceeding arises out of a complaint filed against respondent by the Office of Attorney Ethics (OAE) alleging five counts of ethics violations relating to his representation of Concetta "Babe" Roden.
Counts One, Two, and Three of the formal ethics complaint charged respondent with knowing misappropriation of client trust funds with respect to (1) $40,000 taken from the proceeds of a real-estate closing, (2) a $6,000 deposit in the same real-estate matter, and (3) $1,250 of the closing proceeds that supposedly had been held in escrow by respondent. Count Four charged a conflict of interest in violation of RPC 1.8(a) for failing to advise Ms. Roden to seek the advice of independent counsel regarding a "loan transaction" between respondent and Ms. Roden. Count Five charged respondent with recordkeeping violations contrary to Rule 1:21-6(b), (c), (g), and (h), and RPC 1.15(d).
Following an evidentiary hearing, Special Master Frank J. Dupignac, Jr. found that respondent knowingly had misappropriated the $6,000 deposit, and that he knowingly had misappropriated $34,000 from the title-closing proceeds. Based on those findings, the Special Master recommended disbarment.
The Special Master further found that respondent's borrowing of his client's money (the $6,000 deposit and the $34,000 from the closing proceeds) without advising her to seek independent legal counsel constituted a conflict of interest in violation of RPC 1.8(a). However, he found that the evidence was insufficient to support a finding that respondent knowingly had misappropriated the $1,250 "escrow" from the title-closing proceeds. Finally, the Special Master found that although respondent had violated the recordkeeping requirements of Rule 1:21-6 and RPC 1.15(d), "the proofs of a knowing misappropriation of funds as a result thereof are less than clear and convincing."
Following a de novo review on the record, the Disciplinary Review Board (DRB) found that it could not conclude by clear-and-convincing evidence that respondent knowingly had misappropriated the $34,000 from the closing proceeds. The DRB reasoned:
Respondent's action in setting aside for himself $34,000 from the closing proceeds -- albeit this time in the form of a loan -- was consistent with the practice he had followed in the nine years of representing Ms. Roden; with her prior consent, her outstanding fees were paid out of monies respondent successfully recovered in her behalf in each matter. There is also respondent's close relationship with Ms. Roden to be considered. Based on the parties' informal and friendly relationship over the years, it is plausible that Ms. Roden agreed to lend respondent some monies, especially if the loan was to be for a short term, as in this instance.
In light of the foregoing, the board cannot conclude, to a clear and convincing standard, that respondent kept the $34,000 without Ms. Roden's consent or, otherwise stated, that he knowingly misappropriated those funds for his own purposes.
In contrast, a four-member majority of the DRB found that the record clearly and convincingly established that respondent knowingly had misappropriated the $6,000 deposit. The majority noted:
Even if it were true that respondent obtained the buyers' attorney's and Ms. Roden's consent to the release of the deposit escrowed in his trust account, by respondent's own admission he did not have the buyers' ...