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In re Schlissel

Supreme Court of New Jersey

January 15, 2019

In The Matter Of Aileen Merrill Schlissel An Attorney At Law

          Argued: October 18, 2018

         District Docket No. XIV-2017-026IE

          Johanna Barba Jones appeared on behalf of the Office of Attorney Ethics.

          Ellen A. Brodsky Chief Counsel



         Respondent waived appearance for oral argument.[1]

         To the Honorable Chief Justice and Associate Justices of the Supreme Court of New Jersey.

         This matter was before us on a motion for reciprocal discipline filed by the Office of Attorney Ethics (OAE), pursuant to R. 1:20-14(a), based on respondent's four-year suspension in Nevada, for violations of Nevada's RPC 1.3 (diligence), RPC 1.4 (communication), RPC 1.5 (fees), RPC 1.15(a) (safekeeping property), RPC 5.3 (responsibilities regarding nonlawyer assistants), RPC 5.4 (professional independence of a lawyer), RPC 5.5 (unauthorized practice of law), RPC 7.1 (communications concerning a lawyer's services), RPC 7.2 (advertising), and RPC 7.2A (advertising filing requirements), [2] and RPC 7.3 (communications with prospective clients). In exchange for respondent's entering a guilty plea and consenting to discipline, the Nevada Bar dismissed the charged violations of RPC 8.4(c) (misconduct). It is not clear whether the Supreme Court of Nevada found this violation, because its decision states that respondent admitted violating the rule, notwithstanding the Bar's dismissal of the charge.

         The OAE urges us to recommend respondent's disbarment or, in the alternative, to impose a two- to three-year suspension. We determine to impose a six-month suspension to run consecutively to a three-month suspension that the Court imposed on respondent just a few days ago in a prior matter.

         Respondent was admitted to the New Jersey and New York bars in 1997, and the Nevada bar in 2008.

         Respondent was temporarily suspended, effective March 7, 2017, for failure to cooperate with an OAE investigation. In re Schlissel, 228 N.J. 161 (2017). She remains suspended to date.

         On January 10, 2019, respondent received a three-month suspension for her violations of RPC 1.15(d) (recordkeeping), RPC 5.5(a) (unauthorized practice of law, based on her failure to maintain professional liability insurance for her professional corporations), RPC 8.1(b) (pervasive failure to cooperate with the OAE's investigation, which prevented the OAE from determining whether overdrafts in her trust account impacted client funds and whether she negligently or knowingly misappropriated client funds), and RPC 8.4(d) (conduct prejudicial to the administration of justice, based on her failure to file an affidavit of compliance pursuant to R. 1:20-20).

         More specifically, after causing two overdrafts in her trust account, respondent failed to produce records she was required to maintain under FL 1:21-6, despite the OAE's numerous requests, the granting of extensions, and the scheduling of audits. Her failure to cooperate eventually led to her temporary suspension, mentioned above. Ultimately, respondent admitted, in a stipulation, that she had engaged in several recordkeeping violations, including "recklessly" failing to comply with the requirements of R. 1:20-6, by delegating the safeguarding of trust account records and client files to a third-party company, without ensuring that she would have access to the records at all times. In re Schlissel, ___ N.J.___(2019).

         The State Bar of Nevada, Southern Nevada Disciplinary Board (NDB) filed two complaints against respondent, on June 8, 2016 (five counts) and on September 20, 2016 (two counts), respectively, charging her with multiple violations of the above RPCs. On October 12, 2016, a formal hearing panel chair granted the NDB's motion to consolidate the complaints.

         Thereafter, respondent and the NDB entered into a Conditional Guilty Plea in Exchange for a Stated Form of Discipline (guilty plea). A hearing on the guilty plea occurred on November 9, 2016. On that same day, the NDB issued its findings, conclusions, and recommendation, urging a suspension and restitution. On September 11, 2017, the Supreme Court of Nevada issued an order approving the conditional guilty plea agreement; suspending respondent for four years, effective immediately; and ordering her to pay $34, 233.25 in restitution, to deposit an additional $20, 000 in trust in the event additional victims surfaced with valid claims for restitution, and to pay costs and fees.

         The order summarized respondent's conduct as follows.

         Respondent opened and operated two separate "national law firms" to help clients with loan modifications.[3] She maintained a Nevada trust account and a virtual office in Nevada. Her physical office was located in California. Respondent mailed advertisements about her law firm nationwide, but failed to file the advertisements with the Nevada State Bar.

         Respondent employed non-attorney "recruiters" who were compensated based on the number of individuals they engaged for loan modification services. Some of the recruiters advised clients to stop paying their mortgages and, instead, to use their mortgage payments to pay the firm's fees. The recruiters often made false promises about the length of the modification process and the amounts of the resulting monthly mortgage payments or the interest rates at the end of the process. Some recruiters contacted clients directly, before the clients reached out to either of respondent's law firms. Some clients were unable to speak to an attorney throughout the entire loan modification process, and communicated with only non-attorney staff members. Finally, although respondent had agreed to hold unearned client funds in trust, she used those funds to pay her overhead costs and payroll.

         In assessing the appropriate discipline to impose, the court weighed four factors: "the duty violated, the lawyer's mental state, the potential or actual injury caused by the lawyer's misconduct, and the existence of aggravating and mitigating factors."

         The court found that respondent violated duties owed to her clients (diligence, communication, fees, safekeeping property, and communications regarding the lawyer's services) and to the profession (responsibilities regarding nonlawyer assistants, professional independence of a lawyer, unauthorized practice of law, advertising, and advertising filing requirements).

         Respondent admitted that her misconduct was intentional. Her clients were harmed because they did not receive the modifications they were promised, they paid fees for services they did not receive, and they received legal advice from non-attorneys.

         The profession was harmed because respondent's "unapproved advertising, unauthorized practice of law, and failure to properly supervise nonlawyer assistants was detrimental to the integrity and standing of the bar."

         The court considered three aggravating circumstances: respondent's pattern of misconduct, multiple offenses, and the vulnerability of the victims; and three mitigating circumstances: the absence of an ethics history, her personal or emotional problems, and her cooperative attitude toward the proceedings.

         The court determined that the baseline sanction for respondent's misconduct, before considering aggravating and mitigating circumstances, was disbarment, because she admitted that her misconduct was intentional. However, in light of the mitigating circumstances, the court determined that the agreed upon four-year suspension, together with the payment of restitution, was sufficient to serve the purpose of attorney discipline - to protect the public, the courts, and the legal profession, not to punish the attorney. The court, therefore, approved the guilty plea.

         The guilty plea provides more specific details. Respondent established the law firms of Merrill & Associates (Merrill) and AMS Legal Group (AMS) to assist clients, in many states across the country, to obtain loan modifications. Respondent maintained a physical law office only in Irvine, California, even though her advertising and firm letterhead implied that Merrill maintained physical offices in many states. On October 8, 2013, respondent opened a Nevada interest on lawyer trust account (IOLTA account), with a California address. The account was converted to a California IOLTA account in December 2013.

         Merrill's staff instructed potential clients to mail retainers to the Irvine address, but to make checks payable to Schlissel & Associates PC Trustee Nevada IOLTA Accounts. AMS employees provided different instructions to that company's potential clients.

         According to respondent's verified answer to the Nevada complaint, clients were charged a flat fee and were permitted to pay in monthly installments. The firm, however, began working on the clients' files immediately. When work was completed, the firm notified the clients of the specific services performed and the specific fees taken from the retainer. The funds, having been earned, would then be transferred to the operating account. The firm maintained the records on a web-based system called "Leadtrac."[4]

         Between 2013 through 2015, respondent reported in her annual disclosures to the State Bar that she did not handle client or third-party funds in the State of Nevada and, therefore, was exempt from the provisions of SCR 78.5. This rule relates to a list of financial institutions approved to hold trust accounts, which are held in a fiduciary capacity in connection with a representation. The rule does not apply to IOLTA funds. IOLTA accounts are a separate class of trust accounts.

         Respondent's recruiters were not attorneys. Their responsibilities included actively soliciting potential clients and fielding calls received as a result of advertising flyers that had been sent around the country. The flyers were not a part of the record before us. According to the order approving conditional guilty plea, issued by the Supreme Court of Nevada, respondent failed to file the direct mail advertisements with the State Bar, as Nevada RPC 7.2A required.

         Some of respondent's recruiters routinely advised potential clients, who were concerned about providing advance funds for modification services, that their money would be deposited in a "neutral 'escrow'" account and that the firm could take the funds only when services were completed. Similarly, respondent's fee agreements, which were not included in the record before us, provided that client retainers would be held in trust until the funds were earned in phases after work was completed. Respondent, however, "did not comply with this protocol."

         The recruiters were compensated based on the number of clients they succeeded in obtaining and who paid for the loan modification services. To induce individuals to sign up for the firm's services, in order to boost the recruiters' earnings, some of the recruiters made false promises about the firm's ability to obtain "much lower monthly payments, lower interest rates, principal reductions and ...

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