Today’s post involves the concept of “reciprocal discipline” as analyzed through the lens of a recent decision by a New York court to impose a one-year suspension on a lawyer who misappropriated client funds. I hope to remind Vermont lawyers – including those admitted in New York – that similar conduct here has previously resulted in disbarment.
First, what is “reciprocal discipline?”
Vermont’s disciplinary system is set out in Supreme Court Administrative Order 9. Rule 20 of A.O. 9 deals with “reciprocal discipline.” I won’t get into the details. In sum, when a lawyer who is admitted in Vermont is disciplined in another jurisdiction, the rule states that the Vermont Supreme Court “shall impose identical discipline . . . unless it clearly appears, or disciplinary counsel or the lawyer demonstrates, that” one of four exceptions is present. The fourth exception applies when “the misconduct warrants substantially different discipline in this state.”
Today, Bloomberg Law reported that the Appellate Division of the Second Department of the New York Supreme Court suspended a lawyer from the practice of law for one year because of the lawyer’s misappropriation of client funds. The report is here (subscription required). The opinion is freely available here.
According to the opinion, the lawyer represented the seller in a real estate transaction. In May 2015, the buyer provided a down payment of $28,000. The lawyer was to hold the funds in his “escrow account” until the closing took place in March 2016.
In July 2015, the lawyer transferred $22,000 to a personal checking account he held with his wife. In November 2015, the lawyer withdrew another $5,500 from escrow. In March 2016, the lawyer made a series of deposits and withdrawals that, on the morning of the closing, left the balance at $5,700, well short of the initial down payment. That day, the lawyer withdrew $28,000 from a personal savings account and deposited it into the escrow. The transaction closed as scheduled.
After various disbursements associated with the closing, $6,310 of the original down payment remained in escrow. The lawyer was required to keep $4,095 in escrow to pay taxes connected to the transaction. In July 2016, four months after the closing, the lawyer withdrew $5500 from escrow. Finally, in March 2017, the lawyer paid the $4,095 in taxes by a check drawn on his operating account.
A grievance committee approved a stipulated agreement and, per New York’s procedural rules, recommened that the Appellate Division suspend the lawyer for one-year. Accepting the recommendation, the Court noted:
- “In mitigation, the respondent asserts, inter alia, that this Court should consider his inexperience with escrow accounts and the subject transaction was his first and only real estate transaction; lack of client harm; that during the relevant period he experienced personal and professional stresses; his volunteer activities which include, among other things, pro bono legal assistance; his sincere remorse; the remedial measures implemented; his cooperation with the Grievance Committee’s investigation; and his unblemished disciplinary record.”
Returning to “reciprocal discipline,” if a lawyer admitted in Vermont was disciplined in another jurisdiction for the exact conduct involved in the New York opinion, I’d argue that reciprocal discipline is NOT appropriate here. Rather, I’d argue that Rule 22(D)(4) applies and that “the misconduct established warrants substantially different discipline in this state.” Specifically, disbarment.
In June 2019, I posted Trust Account Tuesday: Misappropriation. In it, I reminded Vermont lawyers that, when it comes to client funds held in trust, there’s another word for “borrowing.” That word is “misappropriation.”
Maybe I’m missing something about the New York opinion. However, to make today’s point, I’ll simply re-post what I did then. Essentially, it’d be my argument in the reciprocal discipline case.
My sense is that lawyers think of “misappropriation” as “theft” or “embezzlement.”
Yes, stealing, theft, and embezzlement are bad. Very bad. But misappropriation includes more.
You know what’s as bad?
Funds held in trust are not there for the lawyer’s personal use. Whatever the reason – payroll, rent, the student loan payment you covered just this one time with client funds that you 100% will replenish once you take your fee from the case you settled yesterday – when it comes to client funds in trust, there’s no such thing as “borrowing.”
In my view, when a lawyer uses client funds for the lawyer’s own purposes without the client’s permission, the lawyer should be disbarred. Even if the lawyer replaces the funds before anyone realized they had been removed. Even if the lawyer never intended to permanently deprive a client of money.
Long ago, the New Jersey Supreme Court defined “misappropriation” as:
- “any unauthorized use by the lawyer of clients’ funds entrusted to him, including not only stealing, but also unauthorized temporary use for the lawyer’s own purpose, whether or not he derives any personal gain or benefit therefrom.”
The opinion is here.
In 2005, I prosecuted a case that involved a lawyer’s unauthorized temporary use of client funds for the lawyer’s own purposes. For years, the lawyer used trust funds to pay personal expenses, reimbursing the trust account when the lawyer could. Indeed, while the investigation was still in its earliest stages, and long-before disciplinary charges were filed, the lawyer replenished the trust account in full. Not a single client lost even a penny.
Nevertheless, I argued for disbarment. A hearing panel of the Professional Responsibility Board agreed. The Vermont Supreme Court adopted the panel’s decision as its own and disbarred the lawyer.
In its decision, the hearing panel cited a line of cases that stretch back to the New Jersey opinion I mentioned above. The panel concluded that the unauthorized use of client funds for the lawyer’s own purposes is so serious that, absent “compelling mitigating circumstances,” disbarment will result.
To the panel, “compelling” meant something. The panel specifically noted numerous factors that, in nearly any other disciplinary case, would have mitigated in favor of a lesser sanction. Still, the panel ordered disbarment. That’s how serious the Court and hearing panels take even the temporary unauthorized use of client funds.
A law license is not license to use other people’s money as your own. Not even a nickel. Not even if you put the nickel back tomorrow. This is how I remind you.
It’s not your money. Don’t treat it like it is.
Then, referring to the mitigating factors, I’d add that one need not be experienced to understand that client funds aren’t for our personal use. And, unblemished record or not, there’s no excuse for treating client funds as our own.
In closing, I caution Vermont lawyers against thinking that, absent compelling mitigating factors, the intentional misappropriation of client funds will result in anything other than disbarment.