Supervisory Partner of Law Firm Disciplined for Failure to Oversee Trust Account

In the Matter of an Anonymous Member of the Bar of South Carolina, No. 27973 (South Carolina May 27, 2020) imposes a non public admonishment on the supervisory partner of a law firm office who failed to oversee the firm’s trust account. The event that triggered the discipline was a series of thefts by an employee of the firm. The employee wrongfully stole funds from the operating and trust accounts. The firm’s insurer reimbursed the firm for the losses and no clients suffered any economic losses. The member of the South Carolina bar failed to supervise the trust account.

The facts:

Morris Hardwick Schneider (MHS) was a multi-jurisdictional real estate closing and default services law firm based in Atlanta, Georgia. In 2014, Nathan Hardwick was MHS’s CEO and held a majority interest in the firm. Hardwick oversaw corporate accounting for MHS and financial and accounting matters for the closing side of the practice from his office in Atlanta. MHS had two other equity partners, Mark Wittstadt and Gerard Wittstadt, who were based in Maryland and headed the firm’s default services practice. None of MHS’s equity partners were licensed to practice law in South Carolina.

In 2014, Respondent served as the managing attorney for MHS’s Dunwoody, Georgia office but was also a non-equity partner in the firm and held the title of President of South Carolina Operations. In that role, Respondent provided oversight and assistance with business development, marketing, communications, hiring, and training in the South Carolina offices located in Columbia and Greenville. However, Respondent was not involved with or responsible for the day-to-day operations of either South Carolina office….

A partner in a law firm is required to make reasonable efforts to ensure the law “firm has in effect measures giving reasonable assurances that all lawyers in the firm conform to the Rules of Professional Conduct.” Rule 5.1(a), RPC, Rule 407, SCACR. Additionally, law firm partners are required to “make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance” that the conduct of non-attorney assistants is compatible with the attorneys’ own professional obligations. Rule 5.3(a), RPC, Rule 407, SCACR.

Rule 417, SCACR, restricts access to South Carolina trust accounts in order to protect the funds contained in those accounts and those to whom the funds belong. Rule 2, Rule 417, SCACR. Only an attorney admitted to practice in South Carolina and individuals directly supervised by an attorney so admitted may have authority to sign checks or transfer funds from a client trust account. Id. Rule 417 also requires monthly reconciliation of all South Carolina trust accounts. Rule 1, Rule 417, SCACR.

In the instant matter, Respondent admits she failed to uphold her responsibilities as a partner in MHS. She failed to make reasonable efforts to ensure the firm’s attorneys and non-attorney staff complied with Rule 417, SCACR, with regard to South Carolina trust accounts. Numerous people who had access to the South Carolina trust accounts were neither licensed to practice law in South Carolina nor directly supervised by an attorney who was, including several attorneys licensed in other jurisdictions and non-attorney staff who worked in the firm’s accounting department in Atlanta. Respondent’s misconduct enabled those with impermissible and unfettered access to misappropriate almost $30 million. Further, the misappropriations were allowed to continue undetected because MHS’s non-attorney accounting staff were in charge of receiving the trust account bank statements and reconciling the accounts. Neither Respondent nor any other South Carolina licensed attorney reviewed the reports or supervised the reconciliation process as required by Rule 417, SCACR.

Accordingly, Respondent admits her conduct in this matter violated Rules 5.1(a) and 5.3(a), RPC, Rule 407, SCACR, and Rule 417, SCACR. Respondent also admits the allegations contained in the Agreement constitute grounds for discipline pursuant to Rule 7(a)(1), RLDE, Rule 413, SCACR (violating or attempting to violate the Rules of Professional Conduct).

Comment: the thefts from the trust account were substantial, $648,937.40. The lawyer is very fortunate that she received a nonpublic reprimand.

Should you have a legal ethics question or concern, do not hesitate to contact us. We can often provide solutions and resources to ethics issues.

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