As reported by the ABA Journal, the New Jersey Supreme Court recently ordered a one-year suspension for a lawyer who charged “inflated and fake” fees. The Court’s order followed a decision from a divided New Jersey Disciplinary Review Board in which four members favored disbarment and four favored a two-year suspension.
While I am surprised that the lawyer wasn’t disbarred,[1] that’s not why I post today. Nor is this post meant to remind you to avoid the misconduct that resulted in the suspension. I don’t think many of you need a lesson in “don’t charge fake fees” or “don’t steal from your clients.”
Rather, I post to share two takeaways:
- Think before you speak.
- Know your audience.
Here’s an outline of what happened.
According to the Board’s decision, the New Jersey Office of Attorney Ethics (OAE) opened an investigation into the lawyer’s “recordkeeping and real estate closing practices.” The investigation, which included an audit of the lawyer’s trust account records, revealed that the lawyer intentionally inflated fees for services related to real estate closings.
A specific example: the lawyer charged a client $695 for a survey that only cost $525. She pocketed the difference. The lawyer regularly did the same with recording fees, title fees, title insurance fees, and bank fees. As a result, the Board concluded the lawyer “engaged in a carefully constructed scheme to bleed clients of funds to which she was not entitled.”[2]
Wild!
Here’s where it gets even nuttier.
Guess what prompted the investigation?
Did you guess this?
- During a closing, the lawyer mused aloud about how she could make tens of thousands by charging inflated and excess fees in real estate transactions.
If not, you guessed wrong. From the Board’s decision:
- “On September 4, 2018, Caroline Record, Esq., sent a letter to the Office of Attorney Ethics (the OAE) documenting a conversation she had with respondent during a real estate closing. In her letter, Record stated that, in the presence of both her client and the listing realtor, respondent ‘spontaneously started discussing that she had come up with a way to take money from clients that she was surprised no one had thought of before.’ Specifically, Record recalled that respondent had stated that, based off of the number of real estate closings in which she represented sellers, ‘if she permitted [the] seller to be assessed a realty transfer fee without disclosing that the seller was a senior citizen and entitled to a reduced fee, she could then keep the difference when the correct fee was paid to the county,’ which respondent estimated would allow her to keep approximately $50,000 to $100,000 per year. Record stated that, after she told respondent that a random audit would uncover such fee abnormalities, respondent replied that, if she maintained an undisclosed or unreported account, the random audit would not uncover the practice.”
The best part?
The lawyer who sent the letter to OAE is the Secretary for New Jersey’s District XA Ethics Committee!
You can’t make this stuff up.
Anyhow, the story made me realize that I’ve never blogged about Vermont’s trust account audit program. If you didn’t know, we have one. Here’s how it works.
V.R.Pr.C. 1.15A establishes two types of audits.
The first is described in Rule 1.15A(c) and is called a “compliance review.” A compliance review focuses on whether the lawyer or law firm has the required accounting system in place. A lawyer can be chosen for a “compliance review” in response to an overdraft notice, as part of the investigation of a complaint, or at random.
The second appears in Rule 1.15A(d). By rule:
- “The Supreme Court may at any time order an audit of financial records, including pooled interesting-bearing trust accounts, trust accounts, and fiduciary accounts, of a lawyer or law firm and take such other action as it deems necessary to protect the public.”
Audits conducted pursuant to paragraph (d) are somewhat more in-depth than compliance reviews and track trust account transactions penny for penny.
Compliance reviews and financial audits are performed by Certified Public Accounting firms that have contracted with the Professional Responsibility Program.
So, that’s today’s story. A bizarre disciplinary case from New Jersey affords me an opportunity to introduce trust account audits to this blog.
As always, let’s be careful out there. And kind to ourselves and others.
Peace.
[1] We came oh so close to anew Was That Wrong?
[2] Over a period of 7 years, the lawyer used 138 real estate closing to keep $66,938.45 in false, inflated fees. The disciplinary matter also revealed that the lawyer engaged in conduct involving a serious crime. Specifically, the evidence established a scheme to fraudulently obtain federal assistance intended for victims of Superstorm Sandy. However, today’s post focuses on the scheme to inflate fees.