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Matter of DiLieto

October 6, 1995

IN THE MATTER OF LOUIS R. DILIETO, AN ATTORNEY AT LAW.


On an Order to show cause why respondent should not be disbarred or otherwise disciplined.

Chief Justice Wilentz and Justices Handler, Pollock, O'hern, Garibaldi, Stein and Coleman join in this opinion.

(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 LOUIS DiLIETO, an Attorney at Law (D-140-94)

Argued June 20, 1995 - Decided October 6, 1995

PER CURIAM

Louis R. DiLieto was admitted to practice law in New Jersey in 1965. DiLieto's ethical infractions first came to the attention of the Office of Attorney Ethics (OAE) following a random compliance audit. As a result of the findings of that audit, a demand audit was conducted covering the period between April 1, 1987 and March 31, 1989. These audits disclosed, among other things, that for several years there had not been a reconciliation of DiLieto's trust account bank statements, and that DiLieto had been out of trust numerous times during 1987. Irregularities were also uncovered in real estate transactions involving Elizabeth Herrera, Martin J. Walsh, Kenneth Lombardi, Timothy Cassidy and Edward Siwakowski.

The District XIV Ethics Committee (DEC) charged that DiLieto 1)borrowed his client's trust funds without her knowledge and approval and without advising the client to seek independent counsel, 2) knowingly misappropriated trust funds and failed to safeguard trust funds in which his clients and others may have had an interest, and 3) made personal use of his client's trust funds without the client's knowledge or approval and without advising the client to seek advice from independent counsel.

The Herrera matter involved a charge that DiLieto knowingly misappropriated a client's funds by failing to disclose to the client that he, rather than a third party, was to be the borrower of the funds. In the Siwakowski matter, DiLieto was charged with knowing misappropriation of Siwakowski funds by investing those funds without disclosing to the client that he was the borrower. The Walsh and Lombardi matters addressed whether DiLieto had been authorized by Walsh and Lombardi to withdraw funds deposited in his trust account.

A Special master recommended public discipline for three knowing misappropriations of trust funds, a conflict of interest, and numerous record-keeping violations, especially in respect of DiLieto's trust account. A four member majority of the Disciplinary Review Board (DRB) held that DiLieto had not knowingly misappropriated trust funds and recommended a six-month suspension for record-keeping violations. Three members of the DRB found that DiLieto had knowingly misappropriated escrow funds and recommended disbarment based on the Lombardi-Cassidy matter.

HELD: Louis R. DiLieto is disbarred from the practice of law for the knowing misappropriation of client funds.

1. A knowing misappropriation of the Herrera funds has not been established by clear and convincing evidence. (pp. 3-5)

2. Although the record does not clearly and convincingly establish a knowing misappropriation of the Siwakowski funds, DiLieto's failure to tell Siwakowski for at least five months that he was the borrower constitutes intentional deception and dishonesty in violation of the RPCs. DiLieto also failed to advise his client to seek the advice of independent counsel in respect of this matter. (pp. 5-8)

3. The evidence does not clearly and convincingly establish a knowing misappropriation in the Walsh matter because the buyers involved in the real estate transaction agreed to release their deposit to Walsh, and Walsh agreed that DiLieto could use the deposit to satisfy a debt Walsh owed to Di Lieto. However, DiLieto's conduct constitutes intentional deception and dishonesty because he did not make full disclosure to the buyers of those facts when he sought authorization for the release of the deposit monies. (pp. 8-13)

4. DiLieto did not demonstrate a basis for good faith reliance that he could use the deposit monies in the Lombardi matter because of Lombardi's authorization to DiLieto to use that money to satisfy a debt owed. DiLieto drafted the real estate contract and its addendum; he knew there was no contractual basis to claim a forfeiture of the buyer, Cassidy's deposit if Cassidy failed to meet the contract contingencies. DiLieto had to be aware that he needed authorization from the buyer, Cassidy, or his attorney to use the deposit money. Furthermore, an attorney cannot satisfy his or her professional responsibility in respect of escrow funds by relying on information from a client that is contrary to escrow documents prepared by that attorney. (pp. 13-21)

5. The record clearly and convincingly establishes that DiLieto knowingly misappropriated the Cassidy deposit, thereby triggering the Wilson automatic disbarment rule. In addition, the totality of the evidence against DiLieto reveals a pattern of intentional deception and dishonesty that clearly and convincingly demonstrates that "his ethical deficiencies are intractable and irremediable." Disbarment is the only appropriate sanction. (pp. 22-23)

CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, O'HERN, GARIBALDI, STEIN and COLEMAN join in this PER CURIAM opinion.

PER CURIAM

Respondent Louis R. DiLieto was admitted to practice law in New Jersey in 1965. He maintained a law office in Asbury Park, New Jersey, during the time relevant to these proceedings.

Respondent's problems first came to the attention of the Office of Attorney Ethics (OAE) following a random compliance audit conducted pursuant to Rule 1:21-6(c). As a result of the findings of that audit, a demand audit was conducted thereafter. The audits covered the period between April 1, 1987, and March 31, 1989. The audits disclosed, among other things, that for a number of years there had been no reconciliation of respondent's trust account bank statements with a schedule of client balances, and that respondent had been out of trust numerous times during 1987. Irregularities were also uncovered in real estate transactions involving Elizabeth Herrera, Martin J. Walsh, Kenneth Lombardi, Timothy Cassidy and Edward Siwakowski.

The District XIV Ethics Committee (DEC) charged that respondent 1) borrowed his client's trust funds without her knowledge and approval and without advising the client to seek independent counsel, 2) knowingly misappropriated trust funds and failed to safeguard trust funds in which his clients and others may have had an interest, and 3) made personal use of his client's trust funds without the client's knowledge or approval and without advising the client to seek advice from independent counsel. The complaint alleged that respondent's misconduct violated RPC 1.1, 1.8, 1.15, 8.4(c) and the principles announced in In re Wilson, 81 N.J. 451, 409 A.2d 1153 (1979) and In re Hollendonner, 102 N.J. 21, 504 A.2d 1174 (1985).

A Special Master recommended public discipline for three knowing misappropriations of trust funds, a conflict of interest, and numerous record-keeping violations, especially with respect to respondent's trust account. A four-member majority of the Disciplinary Review Board (DRB) held that respondent had not knowingly misappropriated trust funds and recommended a six-month suspension for record-keeping violations. Three members of the DRB found that respondent had knowingly misappropriated escrow funds and recommended disbarment based on the Lombardi-Cassidy matter.

I

The Herrera matter involved a charge that respondent knowingly misappropriated a client's funds by failing to disclose to the client that he, rather than a third party, was to be the borrower of the funds.

We agree with and adopt the factual findings and Conclusions of the DRB in the Herrera matter:

Respondent had represented Helen Frangione, Elizabeth Herrera's sister, for many years. When she died, Mrs. Herrera, who lived in Venezuela, became the sole beneficiary of her estate. One asset of the estate was Mrs. Frangione's house in Ocean Grove, which was sold after her death. As a result of respondent's representation of Mrs. Herrera in the estate matter, he came into possession of $55,000, the net proceeds from the sale of the Ocean Grove house.

Respondent testified that Mrs. Herrera did not want the funds sent to Venezuela because of the unfavorable political climate in that country. She wanted to keep the monies in New Jersey. When respondent asked her if she would like to lend them out, Mrs. Herrera replied affirmatively. Respondent then borrowed the $55,000 himself at a ten percent interest rate.

According to the complaint, respondent never disclosed to Mrs. Herrera that he was the borrower, a contention respondent denies. He testified that Mrs. Herrera was aware, from the beginning, that the loan was for himself. Respondent added that he had given Mrs. Herrera the original of a mortgage note, of which he did not keep a copy. At the DEC hearing, however, respondent conceded that the note was actually a promissory note, with no mortgage or other security for the loan.

It is undisputed that respondent fully repaid the loan on April 30, 1987. In addition, Exhibit P-1 shows that respondent paid $16,000 in interest on the loan. At the DEC hearing, Paula Granuzzo, Esq., a former deputy ethics counsel with the OAE, and Kenneth Tulloch, an investigative auditor with that office, testified that, during one of their several visits to respondent's office, respondent admitted that he had borrowed the monies from Mrs. Herrera without revealing to her that he was the borrower. Respondent denies having made such statements, although he conceded that he had not advised Mrs. Herrera to seek the advice of independent counsel at the time of the loan.

Mrs. Herrera did not testify.

The Special Master concluded that, without Mrs. Herrera's testimony, there was no clear and convincing evidence that respondent had not disclosed to her that the loan was for himself. The Special Master remarked that "the evidence of misappropriation is very strong and, if the standard of proof was a preponderance of the evidence, this burden would be met in this Hearing Officer's determination. However, the evidence falls just short of being clear and convincing on this issue."The Special Master found, however, that respondent violated RPC 1.8(a), when he failed to advise Mrs. Herrera to seek independent legal counsel.

We also find that a knowing misappropriation of the Herrera funds has not been established by clear and convincing evidence. Although we harbor serious reservations respecting respondent's credibility, the failure of Ms. Herrera to testify ...


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