This is a case where the respondent attorney withdrew funds from an escrow account he set up for a client. The withdrawals were in excess of the amounts of his invoices.
“The Administrator charged Respondent in a two-count complaint with dishonestly misappropriating and failing to return over $294,000 in client or third-party funds, in violation of Rules 1.15(a), 1.15(d), and 8.4(c); and, in an unrelated matter, using means that have no substantial purpose other than to embarrass, delay, or burden a third person in connection with Respondent’s interactions with his opposing counsel, in violation of Rule 4.4. The Hearing Board found that the Administrator proved that Respondent engaged in the charged misconduct and recommended that Respondent be disbarred…
Rule 1.15(a)
A lawyer shall hold property of clients or third persons that is in a lawyer’s possession in connection with a representation separate from the lawyer’s own property. Ill. R. Prof’l Cond. 1.15(a). Rule 1.15(a) obligates attorneys holding client or third-party funds to safeguard those funds. In re Woods, 2014PR00181, M.R. 28568 (Mar. 20, 2017) (Hearing Bd. at 19). An attorney violates Rule 1.15(a) where the attorney uses client or third-party funds without authority, thereby causing the balance in the account into which those funds were deposited to fall below the amount the attorney should be holding. Id. We find that the Administrator proved that Respondent used, without authority, at least $294,550.87 that he was supposed to be holding for Plain Bay Sales, and therefore that he violated Rule 1.15(a).
It is apparent from the foregoing discussion of the evidence that Respondent and Katie Prudent presented directly conflicting testimony regarding whether or not Respondent was authorized to withdraw funds from the FBO for his own benefit. Consequently, our finding of misconduct rests primarily on our credibility determinations. In short, we must decide if we believe Respondent or Ms. Prudent.
We did not find Respondent’s testimony to be credible for a myriad of reasons. We found him to be evasive during portions of his testimony, particularly during the Administrator’s cross-examination of him, where he seemed to be striving to avoid answering the Administrator’s relatively straightforward questions. (See, e.g., Tr. 396-99.)
We also found numerous flaws and inconsistencies in his testimony. For example, in his May 24, 2021 response letter to the ARDC, he described the events that led to his purported conversation with Ms. Prudent where she supposedly authorized him to pay himself fees from the FBO account. In that letter, Respondent stating that Ms. Prudent only sent a partial payment for the bill dated July 3, 2019 and never paid the bill dated February 4, 2020, and he then he contacted her and complained about not getting paid promptly, after which they entered into the oral agreement allowing him to pay his fees from the FBO account. (Adm. Ex. 1 at 1.) But at his hearing, he called his letter inaccurate and claimed that the oral agreement occurred in August 2018. It seems obvious to us that Respondent revised the purported oral-agreement date because his withdrawals from the FBO account actually began in January 2019, more than a year before the oral-agreement date he provided in the May 24, 2021 letter.
On that point, we note that the reason Respondent provided in his letter to the ARDC as well as in his hearing testimony for wanting to withdraw funds from the FBO account was that he was not getting paid promptly. However, his office manager’s affidavit and his own testimony established that he was paid promptly through Invoice 7, dated June 10, 2019. It was not until Invoice 8 and Invoice 9, dated July 3, 2019 and October 2, 2019, respectively – more than six months after Respondent began withdrawing funds from the FBO account – that Plain Bay Sales made partial payments and took several months to pay the bills in full.
Furthermore, it defies common sense that Respondent would continue to send invoices and receive payment on those invoices while, at the same time, he was also taking money out of the FBO account purportedly in payment of additional legal work that was not included on the invoices. Yet, he did that for more than a year.
In addition, all but two of Respondent’s withdrawals from the FBO account were round numbers (e.g., $5,000, $7,500, $12,000, $25,000, etc.), as contrasted with the amounts charged on the invoices (e.g., $14,920, $17,280, $27,120, etc.), which adds to our skepticism that the withdrawals were for legal fees. Moreover, the only withdrawal amounts that were not round numbers were ostensibly payments for Invoice 8 and Invoice 10. As for Invoice 8, not only did that transfer occur a mere 13 days after Respondent issued it, but it is clear from the documentary evidence that Plain Bay Sales paid off that invoice over four payments, one of which Respondent received the day before he made his withdrawal. We also note that the double payment for Invoice 8 is clearly noted on the FBO account log attached to Holmes’ affidavit; yet, Respondent never attempted to refund any portion of the double payment to Plain Bay Sales. And as for Invoice 10, we find it wholly implausible that Respondent would withdraw purported fees of $33,890 on February 3, 2020 but then also send an invoice for an additional $27,520 a day later on February 4, 2020.
Respondent’s explanation for withdrawing funds from the FBO account at the same time that he was sending invoices and receiving payments for those invoices is equally implausible. He suggested that he used two different billing methods – one that involved sending the invoices and one that involved keeping track of his additional legal work and corresponding fees on a notepad and then occasionally crediting bills that were paid by subtracting them from the notepad-recorded fees. Further adding to our skepticism about Respondent’s explanation, Respondent testified that his handwritten time and billing notes that corresponded to his FBO account withdrawals were the only documents he destroyed following his termination from the case.
We further note that, based upon Respondent’s withdrawals from the FBO account and assuming he was still billing $400 per hour for his work, he would have worked over 700 hours and earned over $294,000 in fees, in addition to the 424 hours worked and $169,620 in fees he invoiced for (including Invoice 10). Considering all of the evidence regarding the work Respondent actually performed, the invoices he sent and received payment for, and the amounts he withdrew from the FBO, the math simply does not add up, literally and figuratively.
Finally, Respondent did not invoice for work after February 4, 2020. He also made no withdrawals from the FBO account after June 4, 2020, at which point the balance in the account was $936.49. Yet, he claims to have continued working on the matter without charging any fees until he was terminated on January 11, 2021. Given Respondent’s self-professed concern that he was not being paid timely and sufficiently for the work he was doing on the matter, it defies logic that he would continue working on the matter for free for six months. The more likely scenario is that his withdrawals had already depleted the FBO account by June 2020 and there was not much more he could take.
For these reasons, we find Respondent’s testimony about his withdrawals from the FBO account to be entirely not credible. We do not believe his claim that he withdrew money from the FBO account to pay his legal fees that he legitimately earned, nor that Ms. Prudent authorized him to do so.
Based primarily upon our credibility determinations, as well as the voluminous documentary evidence, we find that Ms. Prudent did not authorize Respondent to withdraw funds from the FBO account to pay his legal fees or for any other purpose. We therefore find that the Administrator proved by clear and convincing evidence that Respondent used, without authority, $294,550.87 that he was supposed to be holding for Plain Bay Sales, and therefore that he violated Rule 1.15(a).
Comment: In re John Joseph Pappas, 2022 PR 00080.
