The trend toward leniency in Second Department escrow fund misappropriation cases, which I identified in a previous column,1 continued in Matter of Francis.2 In the Francis case, the respondent Marc A. Francis admitted that he received $10,000 in a fiduciary capacity on behalf of a client, but then drew approximately 14 checks and made additional transfers against the funds, totaling $5493.72, to pay his own bills and expenses over a three-week period in February 2009. When he later sought to disburse the escrow funds, per his client’s directive, the escrow check was dishonored due to an insufficient balance. The respondent also admitted that he commingled personal or business monies with client funds in his escrow account and in other instances drew checks on his escrow account to pay his own bills and expenses.
Following an investigation, the Grievance Committee for the Tenth Judicial District chose only to charge Francis with violations of Rule of Professional Conduct 1.15(a) (formerly, Disciplinary Rule [DR] 9-102(A) of the Code of Professional Responsibility), the rule concerning proper separation of trust funds, but not Rule 8.4(c) (formerly, DR 1-102(A)(4)), the rule proscribing dishonest conduct normally alleged in a case of deliberate theft of client funds. Based on certain (standard) mitigating factors, the respondent was publicly censured.
Law Firm Discipline Rules
Matter of Cohen & Slamowitz3 is the first case in which the Second Department has utilized the “law firm” discipline rules, holding the law firm, as distinct from an individual lawyer, liable for professional misconduct, in addition to findings of misconduct attributable to a principal of the firm. The specific charges entailed a pattern or practice of conduct prejudicial to the administration of justice by seeking to collect debts without engaging in a reasonable and proper search to verify the identity and property of alleged debtors, and by failing to timely file and provide a client with a copy of a satisfaction of judgment. The court cited DR 1-102(A)(5) of the former Code of Professional Responsibility (now, Rule 8.4(d) of the New York Rules of Professional Conduct) which stated, in pertinent part:
(A) A lawyer or law firm shall not:
(5) Engage in conduct that is prejudicial to the administration of justice.
As to the principal’s conduct, the court held that he engaged in a pattern or practice of failing to exercise reasonable management or supervisory authority over the conduct of firm employees so as to avoid the aforesaid conduct prejudicial to the administration of justice, citing, inter alia, DR 1-104(d)(2) (now, Rule 5.3(b)(2)), which provided:
(D) A lawyer shall be responsible for a violation of the Disciplinary Rules by another lawyer or for conduct of a non-lawyer employed or retained by or associated with the lawyer that would be a violation of the Disciplinary Rules if engaged in by a lawyer if:
(2) The lawyer is a partner in the law firm in which the other lawyer practices or the non-lawyer is employed, or has supervisory authority over the other lawyer or non-lawyer, and knows of such conduct, or in the exercise of reasonable management or supervisory authority should have known of the conduct so that reasonable remedial action could be or could have been taken at a time when its consequences could be or could have been avoided or mitigated.
As a consequence of the above findings, the law firm and its principal were each publicly censured. To the writer’s knowledge, the Third and Fourth Departments have never sought to publicly discipline a law firm in the more than 18 years that law firm liability has been extant in New York.4
Finally, there is the unusual case of Matter of Lodes,5 another Second Department decision, this one involving extensive findings of misconduct involving public corruption. Carl F. Lodes allegedly participated in an illegal kickback scheme with former New York State Senator Vincent Leibell who, in 2010, was convicted of federal income tax evasion and subsequently disbarred. As explained in the decision, during the period 2001 to 2005, Lodes served as the part-time executive director and legal counsel for the Putnam County Foundation, which was formed at the impetus of Leibell and for which he garnered public funding, ostensibly for the purpose of developing senior housing in Putnam County.
At first, Lodes received no monetary compensation for his services. Instead, a barter arrangement was negotiated under which, in exchange for Lodes’ services (which apparently were minimal at best), the foundation allowed him to maintain his law offices within the foundation’s premises for little or no rent. Additionally, during 2004 and part of 2005, Lodes submitted invoices to, and received payments from, the foundation, for the legal services he purportedly rendered to it. Each time Lodes received such payments, Leibell demanded that Lodes take half of his post-tax earnings from the foundation and pay it to Leibell in the form of a cash payment. Lodes made multiple such cash payments to Leibell, as demanded.
The court found that Lodes violated numerous Disciplinary Rules, including: DR 1-102(A)(3) (now, Rule 8.4(b)), engaging in illegal conduct which adversely reflects upon the lawyer’s honesty, trustworthiness, or fitness as a lawyer; DR 1-102(A)(4) (now, Rule 8.4(c)), engaging in conduct involving dishonesty, fraud, deceit, or misrepresentation; and, DR 1-102(A)(7) (now, Rule 8.4(h)), engaging in conduct that adversely reflects upon the lawyer’s fitness as an attorney.
In addition to the foregoing clearly pertinent rules, the court also sustained several less common charges, namely, that Lodes: failed to comply with his obligation as an attorney to report his knowledge of Leibell’s misconduct, in violation of DR 1-103(a) (now, Rule 8.3(a)); engaged in impermissible fee-splitting with Leibell, in violation of DR 2-107(A) (now, Rule 1.5(a)); and finally, collected an illegal or excessive fee in connection with his alleged “compensation” (in reality, a barter arrangement for minimal or no services) from the foundation, in violation of DR 2-106(a) (now, Rule 1.5(a)).
Reprinted with permission from the February 4, 2015 edition of the New York Law Journal ©2015 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 – firstname.lastname@example.org or visit www.almreprints.com.
- Hal R. Lieberman, “Recent Developments in Disciplinary Case Law,” NYLJ, Nov. 10, 2014.
- 117 A.D.3d 212 (2d Dept. 2014).
- 116 A.D.3d 13 (2d Dept. 2014).
- In 1996, New York, by adding “or law firm” to the introductory phrase of DR 1-102, became the first jurisdiction in the United States-and still, with New Jersey, one of only two-that subjects law firms as entities to professional discipline.
- 118 A.D.3d 54 (2d Dept. 2014).