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In re Kelly

June 16, 2000

IN THE MATTER OF
ROBERT V. KELLY,
AN ATTORNEY AT LAW.



The opinion of the court was delivered by: Per Curiam

Argued May 1, 2000

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

On February 11, 1998, District XIV Ethics Committee filed a complaint against respondent Robert V. Kelly, a Belmar attorney admitted in 1970, claiming that he used his status as an attorney to solicit clients for his wholly-owned business that located lost funds; used his law license to obtain funds on behalf of those clients from the United States Bankruptcy Court; and, instead of promptly delivering the funds to clients or holding them in trust, used certain of those funds for personal expenses. The complaint alleged violations of RPC 1.15(a) (safeguarding property); RPC 1.15(b) (failure to promptly notify a client or third person of the receipt of property in which the client or third person has an interest and failure to promptly turn over the property); RPC 8.4(c) (conduct involving dishonesty, fraud, deceit or misrepresentation and "knowing misappropriation of escrow funds"); and RPC 1.15(d) and R. 1:21-6 (record-keeping violations).

A Special Master conducted disciplinary hearings and recommended disbarrment. In turn, the Disciplinary Review Board (DRB) unanimously accepted that recommendation, finding that "the evidence clearly and convincingly established that respondent knowingly misappropriated trust funds." Respondent contests those conclusions.

We have conducted an independent review of the record, R. 1:20- 16(c), and have determined that the ethical violations found by the DRB are supported by clear and convincing evidence. In re Pena, 162 N.J. 15, 17 (1999) (citing In re DiMartini, 158 N.J. 439, 441 (1999)).

I.

The facts established by the record are as follows. In 1993, respondent incorporated National Recovery Services, Inc. ("NRS"); he was the sole shareholder, officer, director and employee. NRS was a business that located people who were owed funds from bankruptcy proceedings and then solicited their authority to recover those funds for a fee. In soliciting business, respondent used a letterhead that identified him as "Robert V. Kelly, Attorney At Law." He also signed the letter "Robert V. Kelly, Esq." The letter promised claimants that respondent's "client" NRS had found money due them and respondent and NRS were "willing to arrange recovery of these funds on a contingency fee basis." Included with the letter were a "Funds Recovery Contract," that stated that claimant agreed to compensate "Robert V. Kelly of National Recovery Services, Inc.," and a "Limited Power of Attorney" that appointed "Robert V. Kelly of National Recovery Services, Inc." as the claimant's "attorney" solely for the recovery of unclaimed funds.

After successfully soliciting a claimant, respondent moved before the Bankruptcy Court for the payment of the unclaimed funds. In the motion papers, respondent identified the applicant as "Robert V. Kelly, Attorney At Law, of National Recovery Services, Inc." He signed the motion as the attorney representing NRS, and stated that "the applicant" had been "retained" by the claimant. Likewise, in the "Affidavit of Document Authenticity" and in the proposed order directing payment (submitted with the motion), respondent identified himself as the "authorized applicant" for the funds.

In May 1996, Theresa Cavanaugh, an assistant clerk with the United States Bankruptcy Court for the Eastern District of New York, advised the Office of Attorney Ethics (OAE) about a complaint she received from Robert Cehauskas in which he claimed that in October 1995 respondent had obtained the funds due to Cehauskas, but had not remitted them. Respondent denied any claim of wrongdoing and advised the OAE that he had not disbursed the funds because of a "bookkeeping error." In response to the OAE's planned audit of respondent's attorney records, he refused to produce NRS's records claiming (among other things) that NRS was not engaged in the practice of law. Respondent moved to quash the OAE's subpoena duces tecum, claiming that he had "not engaged in the practice of law in New Jersey during 1995, 1996 and the first calendar quarter of 1997." Respondent's motion to quash was denied.

The audit established that between February 1995 and June 1996, respondent deposited funds due to eight separate claimants into an NRS checking account instead of immediately remitting those funds. Payments were not made to the claimants for periods ranging from eighteen to 471 days. During that time of delay, respondent used the funds to pay for business and personal expenses, as well as to pay other claimants. The auditor found that during the time the claimants' funds were ostensibly being held in escrow, the NRS account balance frequently fell below the amounts belonging to the claimants. Further, he found that funds belonging to two claimants were deposited into respondent's attorney trust account and, instead of being disbursed in a timely manner, were also used for respondent's personal and business expenses and to pay other claimants whose funds had been deposited into the NRS account.

The auditor concluded that respondent was engaged in "lapping," a practice in which funds due a claimant are dissipated and then funds from another claimant are used to pay the first claimant. Although the auditor was unable to trace the source of funds ultimately paid to three of the ten claimants because respondent's books had been neglected, he was able to conclude with certainty that respondent had misappropriated funds.

II.

Respondent proceeded pro se at the DRB hearing. *fn1 He made a short statement, but primarily relied on his answers to the complaint.

Respondent did not dispute that he told claimants and the Bankruptcy Court that he was an attorney. However, respondent insisted that he acted as NRS's attorney only, not as attorney for the claimants. Respondent said that he used his attorney letterhead in an attempt to "allay any suspicions that [NRS] may be a scam operation" because at first, when he ...


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