ARDC Hearing Board Recommends 60-day suspension for conversion of client funds

Filed April 6:

A lawyer who handled real estate matters converted client funds. Because he apologized, cooperated with the ARDC and presented evidence of mitigation, he received a very short suspension for conversion.

The misconduct findings are explained here:

Respondent converted escrow funds when he transferred the majority of these funds from his client trust account to his operating account and then shortly thereafter used most of the funds for his own purposes and without authority. After considering his role in transferring and spending the funds, the timing of his conduct, and his short-term need for funds, the Hearing Panel concluded his conversion was knowing and dishonest.
B.    Respondent is charged with failing to hold property of a client or third person that is in the lawyer’s possession in connection with a representation separate from the lawyer’s own property in violation of Rule 1.15(a).
Rule 1.15(a) of the Rules of Professional Conduct requires an attorney who is entrusted with client and/or third person funds in connection with a representation to hold such funds separate from his or her own funds and in a client trust account. Ill. Rs. Prof’l Conduct R. 1.15(a) (2010). When an attorney has used client and/or third person funds for his own purposes without authority, his conduct has been found to constitute conversion in accordance with disciplinary precedent even if the rightful owner has not made a demand for the funds. In re Karavidas, 2013 IL 115767, par. 62. A finding of conversion, while alone insufficient to justify the imposition of professional discipline, can support a finding that the attorney violated Rule 1.15(a) by failing to appropriately safeguard client funds and therefore, discipline is warranted. Karavidas, 2013 IL 115767, pars. 78-79.
Here, it is undisputed that Respondent commingled escrow funds related to the Olthoff/Harvey matter with his funds. Specifically, the evidence shows that on June 6, 2014, Respondent deposited $7,000 in escrow funds related to the Olthoff/Harvey matter into his client trust account. As he acknowledges, he was then obligated to hold these funds in his trust account on behalf of the Olthoffs and Harveys and in accordance with the terms of the May 31, 2014 occupancy agreement. Instead, between June 11, 2012, and June 13, 2012, prior to disbursing any funds with respect to the Olthoff/Harvey matter, Respondent transferred $7,000 from his trust account into his operating account without authorization. This transfer left a balance of $233.52 in his client trust account, which was $6,766.48 less than the $7,000 he should have been holding in his trust account on behalf of the Olthoffs and Harveys.
Respondent also admits that shortly after the $7,000 was transferred into his operating account, he spent the majority of the funds for his own purposes. In fact on June 19, 2014, after both transfers were made into his operating account but before disbursement occurred to the Olthoffs and Harveys, the balance in Respondent’s operating account dropped to $64.59. Accordingly, based on the evidence presented and the admitted facts, we find Respondent’s conduct undoubtedly violated Rule 1.15(a) as he both commingled and converted client and third person funds.
C.    Respondent is charged with engaging in conduct involving dishonesty, fraud, deceit or misrepresentation in violation of Rule 8.4(c). 
The Administrator also alleges Respondent acted knowingly in converting the Olthoff/Harvey escrow funds and accordingly, violated Rule 8.4(c). Rule 8.4(c) prohibits an attorney from engaging in conduct involving dishonesty, fraud, deceit, or misrepresentation. Ill. R. Prof’l Conduct R. 8.4(c). The Illinois Supreme Court has recognized that while the uniqueness of each case makes it impossible to define every act or form of conduct that constitutes a violation of Rule 8.4(c), this rule is “broadly construed to include anything calculated to deceive, including . . . the suggestion of falsity.” Edmonds, 2014 IL 117696, pars. 53, 62.The Court, in making dishonesty findings, has recognized that “motive and intent are rarely proved by direct evidence, but rather must be inferred from conduct and the surrounding circumstances.” Id. at par. 54. Therefore, the Court has widely accepted the reliance on circumstantial evidence, where appropriate, in finding a violation of this Rule. See Id. at par. 55; In re Discipio, 163 Ill. 2d 515, 523-24, 645 N.E.2d 906 (1994); In re Krasner, 32 Ill. 2d 121, 127, 204 N.E.2d 10 (1965).
Here, the circumstantial evidence supports the conclusion that Respondent acted knowingly when using the funds in question. It is undisputed that Respondent personally transferred the funds from his trust account into his operating account, and at the time he made these transfers, he had access to both his trust account and operating account information. Taking this into consideration, we find the timing of these transfers highly concerning.
Respondent transferred almost all of the Olthoff/Harvey escrow funds into his operating account within one week of depositing the funds into his client trust account. He then spent the majority of these funds for his own purposes within a week. Moreover, on the days surrounding the transfers, his operating account had negative daily ending balances and insufficient funds to cover the expenses drawn on the account, which included his family health insurance premium and checks made payable to himself. Respondent’s need for these funds, even if only for the short-term, demonstrates a clear motive for the transfers.
We find implausible Respondent’s claim that at the time he made the transfers he was both unaware of the negative balance in his operating account and of the impending insurance premium deduction in large part due to poor bookkeeping practices. A simple review of his operating account information, which he had access to when he made the electronic transfers, would have shown the account’s repeated negative balances. With respect to the insurance premium, that same amount was deducted monthly both before and after June 2014. And, while he asserts that he thought the insurance premium amount had changed in June 2014, he offered insufficient evidence to corroborate his claimed belief. Moreover, he admittedly knew the funds transferred into his operating account were escrow funds and also that he had an ethical obligation to segregate escrow funds from his own. We find it unlikely that an attorney with this understanding would act so carelessly when handling escrow funds. So although we recognize Respondent was overwhelmed with his law practice in 2014, and as a result, might have had some deficiencies in his bookkeeping practices that year, we are unconvinced that his use of escrow funds was the result of these deficiencies. The more probable explanation, which the evidence supports, is that in June 2014 Respondent had a short-term financial need and he knowingly satisfied that need by using the funds in question.
Moreover, we find incredible Respondent’s assertion that he transferred the escrow funds into his operating account in mid-June because he had believed, based on a conversation with his client, that the Olthoffs would be moving out of the property before June 30, 2014, and that disbursement in the amounts of $1,500 to the Harveys and $5,500 to the Olthoffs would be necessary around that time. First, Respondent failed to offer any evidence to corroborate this belief. If a conversation to this extent had taken place, testimony from Respondent’s client regarding the conversation would have been of benefit. Also, the occupancy agreement does not contemplate the distribution of less than $2,500 to the Harveys and $5,500 to the Olthoffs if the Olthoffs moved out earlier than June 30, 2014. In addition, Respondent’s claim belief that disbursement might have been necessary in mid-June, fails to explain why he transferred the funds into his operating account when he could have just disbursed the escrow funds directly from his trust account and why he made two separate transfers of funds, two days apart, rather than transferring the funds on the same day in a single transaction. Respondent admittedly has no explanation for this conduct.
Respondent’s generally positive financial situation in 2014 and his ability to access additional funds if a need arose do not convince us that his conduct in using the escrow funds was unintentional. As discussed above, Respondent’s short-term need for funds in June 2014 was undeniable. Although he might have been able to legitimately gain access to funds some other way, including possibly borrowing money from family, the process for doing so would have been likely more complicated than a quick transfer of funds between accounts.
Based on the foregoing, we find the Administrator proved by clear and convincing that Respondent acted knowingly when he used the Olthoff/Harvey escrow funds, and as a result, violated Rule 8.4(c).
Comment: this is a case where the respondent acted appropriately in the discipline process. He admitted he was wrong, cooperated with the ARDC and took corrective measures. 

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