By Lazar Emanuel [Originally published in NYPRR April 2001]
Several recent Disciplinary Proceedings before the Appellate Division, Second Department provide valuable lessons into the snares and pitfalls confronting every lawyer. It’s instructive to examine the conduct of the respondent lawyers in these proceedings and to understand how that conduct violated one or several of the Disciplinary Rules.
Disciplinary Proceeding #1
Conduct: Respondent Lawyer drafted a trust instrument for Client A and became trustee of the trust, with sole discretion and authority to invest the trust corpus. Lawyer also represented Client B, executor of a decedent’s estate. Lawyer was asked by E and F to arrange a loan to enable E and F to renovate real property. After conferring with Client A and Client B, Lawyer made a loan to E and F. The loan totaled $130,000: $100,000 from funds of the estate, $25,000 from Client A’s trust and $5,000 from Lawyer personally.
Charge: Respondent engaged in an impermissible conflict of interest and/or engaged in conduct adversely reflecting on his fitness to practice law. … “Respondent knew or should have known that he could not represent all of the interests of the lending parties to the loan transaction simultaneously.”
DR 1-102(A). A lawyer or law firm shall not: (7) Engage in any conduct that adversely reflects on the lawyer’s fitness as a lawyer.
A. A lawyer shall decline proffered employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve the lawyer in representing differing interests, except to the extent permitted under DR 5-105(C).
B. A lawyer shall not continue multiple employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the lawyer ‘s representation of another client, or if it would be likely to involve the lawyer in representing differing interests, except to the extent permitted under DR 5-105(C).
C. In the situations covered by DR 5-105(A) and (B), a lawyer may represent multiple clients if a disinterested lawyer would believe that the lawyer can competently represent the interest of each and if each consents to the representation after full disclosure of the implications of the simultaneous representation and the advantages and risks involved.
Disciplinary Proceeding #2
Conduct: Following the conduct described above, Respondent Lawyer was asked by Client B, executor of the estate, to find a buyer for his interest in the loan to E and F. Lawyer asked C, another client of Lawyer, if he was interested in buying the estate’s interest. Client C agreed and Lawyer prepared the necessary documents. The estate’s interest was transferred to Client C for $75,000.
Charge: Respondent engaged in an impermissible conflict of interest and/or engaged in conduct adversely reflecting on his fitness to practice law.
Applicable DRs: DR 1-102(A)(7) and DR 5-105(A), (B) & (C). [See text of rules above.]
Disciplinary Proceeding #3
Conduct: Respondent Lawyer above received $9,000 in cash from one of the two borrowers in part payment of the outstanding loan. Lawyer failed and neglected to deposit the money into a bank account.
Charge: Respondent failed to preserve the identity of funds belonging to a client and engaged in conduct adversely reflecting on his fitness to practice law by failing to deposit a cash payment that he received as a fiduciary into an identifiable bank account maintained in this State.
Applicable DRs: DR 1-102(A)(7). [See text of rule above.]
DR 9-102(A) Prohibition Against Commingling and Misappropriation of Client Funds or Property. A lawyer in possession of any funds or other property belonging to another person, where such possession is incident to his or her practice of law, is a fiduciary, and must not misappropriate such funds or property or commingle such funds or property with his or her own.
Disciplinary Proceeding #4
Conduct: The Respondent Lawyer above maintained a trust account as Attorney for designated interests. Over a period of three years, Lawyer failed to remove earned fees from the trust account in a timely manner.
Charge: The respondent commingled funds by failing to remove earned fees from his attorney escrow account.
Applicable DR: DR 9-102(A). [See text of rule above.].
Disciplinary Proceeding #5
Conduct: Respondent Lawyer above maintained a client escrow account as attorney for designated interests. Over a period of five weeks, Lawyer made deposits into and disbursements from the account in connection with a client matter. The amount of money disbursed exceeded the amount of money deposited by Lawyer for that client.
Charge: Respondent engaged in conduct adversely reflecting on his fitness to practice law by disbursing funds on behalf of a client in excess of the amount on deposit for that client in his attorney trust account.
Applicable DR: DR 1-102(A)(7). [See text of rule above.]
Disciplinary Proceeding #6
Conduct: Over a period of three years, Respondent Lawyer above disbursed earned fees from his attorney escrow account directly to creditors of his own or to creditors of his law firm, including the IRS.
Charge: Respondent engaged in conduct adversely reflecting on his fitness to practice law by disbursing earned fees from his trust account directly to third party creditors.
Applicable DR: DR 1-102(A) (7). [See text of rule above.]
Prior Conduct: Prior to the present proceedings, Respondent Lawyer had received a letter of caution for impermissibly communicating with a represented party.
DR 7-104(A). During the course of the representation of a client a lawyer shall not: (1) Communicate or cause another to communicate on the subject of the representation with a party the lawyer knows to be represented by a lawyer in that matter unless the lawyer has the prior consent of the lawyer representing such other party or is authorized by law to do so.
Disciplinary Proceeding #7
Conduct: Respondent Attorney acquired title to a home from Client A in 1988. Around the same period, Attorney represented Client B in a dispute that led to a recovery for Client B of $26,500. When Client B expressed an interest in buying a house, Attorney described his house to B and told her it was in foreclosure, but that she could stop the foreclosure and move into the house by paying him $20,000 and making monthly mortgage payments of $937 plus taxes and insurance. Attorney also told Client B that she could receive the deed and reduce the interest rate from 10-1/2 % to 8-1/2 % after six months of payments. Client B paid $20,000 to Attorney and in each of the next six months, also paid Attorney $937 plus costs for taxes and insurance. Attorney in turn deposited these sums into his own account and paid the proceeds over to mortgagee bank.
Six months later, Attorney executed a deed conveying title to Client B and filed the deed with the County Clerk. The deed recited that the conveyance was subject to a mortgage of $104,000. It made no mention of Client B’s payment of $20,000 and contained a clause holding Attorney harmless against any liability under the mortgage.
Client B contacted mortgagee bank and attempted to assume responsibility as mortgagor. For the first time, she learned that Attorney was the mortgagor and also learned that the mortgage was not assumable. The bank advised Client B to stop making mortgage payments and began a foreclosure proceeding that was completed in 1992. B was unsuccessful in her attempts to contact Attorney after her first conversations with mortgagee bank.
• Charge 1: Respondent Attorney entered into a business transaction with a client in which Attorney had a personal undisclosed interest and with respect to which client had a reasonable expectation that Attorney would exercise his professional judgment for her protection.
DR 5-104(A). A lawyer shall not enter into a business transaction with a client if they have differing interests therein and if the client expects the lawyer to exercise professional judgment therein for the protection of the client, unless:
1.The transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner that can be reasonably understood by the client;
2. The lawyer advises the client to seek the advice of independent counsel in the transaction; and
3. The client consents in writing, after full disclosure, to the terms of the transaction and to the lawyer’s inherent conflict of interest in the transaction.
• Charge 2: Attorney provided advice to client when the exercise of his professional judgment was affected by his own financial, business, property and personal interests, without disclosing these interests or obtaining client’s consent.
Applicable DR: DR 5-104(A). [See text of rule above.]
• Charge 3: Attorney misled and deceived client with respect to the true owner of the property, the assumability of the mortgage, the consequences of the hold harmless clause in the deed, and the legality of the transfer to her.
DR 1-102(A). A lawyer or law firm shall not: (4) Engage in conduct involving dishonesty, fraud, deceit, or misrepresentation.
• Charge 4: Attorney engaged in dishonest, misleading and deceitful conduct by cashing client’s mortgage payments and substituting his own checks to send to the mortgagee.
Applicable DR: DR 1-102(A)(4).[See text of rule above.]
• Charge 5: On the above facts, Attorney engaged in conduct that adversely reflects on his fitness to practice law.
Applicable DR: DR 1-102(A)(7). [See text of rule above.]
Lazar Emanuel is the Publisher of NYPRR.
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