BD. OF PROF. ETHICS & CONDUCT v. Ruth

Citation656 N.W.2d 93
Decision Date18 December 2002
Docket NumberNo. 02-1209.,02-1209.
PartiesIOWA SUPREME COURT BOARD OF PROFESSIONAL ETHICS AND CONDUCT, Complainant, v. Stephen William RUTH, Respondent.
CourtUnited States State Supreme Court of Iowa

Norman G. Bastemeyer and Charles L. Harrington, Des Moines, for complainant.

J.E. Tobey III, Davenport, for respondent.

STREIT, Justice.

Stephen W. Ruth, an Iowa attorney, is charged with neglecting his client's legal matters, making a misrepresentation to the court and to his client, failing to provide an accounting of estate funds, and failing to distribute funds to beneficiaries. The Iowa Supreme Court Board of Professional Ethics and Conduct filed a complaint against Ruth with our Grievance Commission alleging he violated several ethical rules. The Commission recommended we suspend Ruth's license to practice law for four months. Our review is required by Iowa Court Rule 35.10 (2002). We concur with the Commission's findings but suspend Ruth's license for two years.

I. Background and Facts

Stephen W. Ruth has been a practicing attorney in Bettendorf, Iowa, since 1976. In 2001, we suspended Ruth's license to practice law for six months following his felony conviction of operating while intoxicated and domestic assault. Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Ruth, 636 N.W.2d 86 (Iowa 2001). Ruth's personal problems leading to the 2001 suspension stem from his alcoholism. Since the suspension, Ruth has been working at a supermarket in a supervisory position. Though his 2001 suspension term has passed, Ruth has not yet applied to have his law license reinstated. The ethical violations leading to the current disciplinary action occurred before the 2001 suspension but have only come to light after the suspension.

Ruth was the attorney and executor of the estate of Janice Kerofsky from the opening of the estate in 1994 until the closing in 1999. Ruth failed to close the estate according to the procedure articulated in Iowa Code section 644.473 (1999). In 1997, Ruth filed a final report with the court but did not close the estate until almost two years later.

In 1994, Ruth was authorized the statutory maximum fee for his services as attorney and executor. The maximum attorney fee that the court allowed was $7053. Ruth also received an executor's fee of the same amount. The court entered an initial order permitting Ruth to immediately pay himself three-quarters of his total fees. He took the authorized fees of $10,579 and disclosed them on the accounting report. Later in 1995, Ruth took two other unauthorized payments of $1763.25, each representing the remaining one-quarter of his legal and executor fees. Ruth admits taking unauthorized fee payments totaling over $3526. Ruth failed to disclose the unauthorized payments. He also misrepresented to the court the funds in the estate in accountings he filed in 1996, 1997, and 1999. Ruth did not take more from the estate than the court originally authorized.

However, there was a subsequent change to the amount of attorney fees Ruth could receive. In 1997, after extensive negotiations, Ruth and the beneficiaries agreed to waive what the beneficiaries thought remained of the one-quarter legal and executor fees. At the time Ruth and the beneficiaries agreed to the reduction, Ruth did not tell them that he had already taken the fees out of the estate. The court confirmed this agreement and reduced the authorized legal and executor fees. When the court entered this order, Ruth did not tell the court of the unauthorized payments. He submitted a supplemental accounting to the court in 1999 indicating the money—the remaining one-quarter of his legal fees—was still present in the estate's accounts.

In Ruth's 1997 final reports, he reported a balance of $4185 in the Kerofsky estate. This was a misrepresentation, as there was little more than $630 in the estate account at that time. The discrepancy is a direct result of the two unauthorized payments Ruth took in 1995 and had not disclosed to the court. In 1998 and before the closing, Ruth deposited $750 in the estate as a partial repayment for the unauthorized fee payments. Ruth did not inform the court he was making restitution to the estate. After the closing, Ruth deposited $730 into the estate for court costs. Although Ruth claims to have made numerous other repayments to the estate, he has neither documented nor accounted for these alleged additional repayments.

In 1999, a hearing on Ruth's supplemental final accounting came before the court. Ruth reported $1852 of funds were available for distribution to Kerofsky's beneficiaries. Again this figure was a misrepresentation because it reflected Ruth's calculation of what he would still owe the estate after paying the following amounts out of his own pocket: 1) $750 as a partial repayment of his unauthorized withdrawals; 2) $730 in court costs which Ruth had not yet deposited and would not deposit until two months after the closing; and 3) $220 in taxes owed by the estate. On the day of the hearing, Ruth gave a check in the amount of $1852 to J.E. Tobey III for distribution.

II. Scope of Review

We review attorney disciplinary proceedings de novo. Iowa Supreme Court Bd. of Prof'l Ethics & Conduct v. Rauch, 650 N.W.2d 574, 576 (Iowa 2002); Iowa Ct. R. 35.10. We give respectful consideration to the Grievance Commission's findings and recommendations, but are not bound by them. Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Grotewold, 642 N.W.2d 288, 293 (Iowa 2002). The Board has the burden to prove misconduct by a convincing preponderance of the evidence. Id. "On review we may adopt, increase, or reduce the sanction recommended by the commission." Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Eich, 652 N.W.2d 216, 217 (Iowa 2002).

III. Violations

Based upon Ruth's misconduct, the Commission found he violated several rules of professional responsibility. First, the Commission concluded Ruth violated DR 6-101(A)(3) prohibiting a lawyer from neglecting a client's legal matter. Because Ruth took money for his fees before it was authorized by the court, the Commission found Ruth violated DR 2-106(A) prohibiting a lawyer from collecting an illegal or clearly excessive fee. Ruth's conduct also violated DR 9-102(B)(3) and (4). These rules provide a lawyer shall "maintain complete records of all funds, securities, and other properties of a client coming into the possession of the lawyer and render appropriate accounts to the client regarding them." DR 9-102(B)(3). Additionally, a lawyer shall "[p]romptly pay or deliver to the client as requested by a client the funds, securities, or other properties in the possession of the lawyer which the client is entitled to receive." DR 9-102(B)(4). Finally, because Ruth lied to the court about the status of the estate, the Commission found he violated DR 1-102(A)(4) prohibiting a lawyer from engaging in conduct involving dishonesty, fraud, deceit, or misrepresentation. The Commission recommended we suspend Ruth's license to practice law for four months.

A. Neglect of Client's Legal Matters

Ruth's conduct in failing to close the Kerofsky estate as required by the Iowa Code violates DR 6-101(A)(3): A lawyer shall not neglect a client's legal matter. Iowa Code section 633.473 provides, "[f]inal settlement shall be made within three years ... unless otherwise ordered by the court after notice to all interested parties." Ruth submitted his final report to the court in 1997. It was not until almost two years later that he closed the estate. In 1997, after making his final report to the court, the court ordered Ruth to distribute the remaining funds to the beneficiaries. Ruth failed to comply with this order and failed to comply with section 633.473. For over three years, Ruth neglected to distribute the money to the beneficiaries. Ruth's failure to distribute the bequests in a timely manner resulted in Ruth's confession of judgment in favor of one of the beneficiaries.

B. Unauthorized Fee and Failure to Account and Disburse Funds

Ruth failed to provide an accounting or explanation for why he had not distributed the money to the beneficiaries. Later, the reason for delay in the distribution became apparent. Ruth took unauthorized fee payments in 1995 totaling $3526.50. He did not obtain court approval to withdraw these funds from the estate. This conduct violated DR 2-106(A): "A lawyer shall not ... collect an illegal or clearly excessive fee." See, e.g., Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. D'Angelo, 619 N.W.2d 333, 337 (Iowa 2000)

; Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Jay, 606 N.W.2d 1, 4 (Iowa 2000).

Initially when Ruth paid himself the remaining one-quarter of his legal and executor fees absent court approval, it appeared he would eventually be entitled to those funds when he closed the estate. Because Ruth paid himself before earning the fees he is guilty of misappropriating his client's funds. See Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Sullins, 648 N.W.2d 127, 134 (Iowa 2002)

; Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Apland, 577 N.W.2d 50, 56 (Iowa 1998) (intentional taking of entrusted client funds as fees before earning them is misappropriation). Later, the situation changed because Ruth did not remain entitled to the initial amount of court-ordered legal and executor fees. At the time the court confirmed the agreement to reduce Ruth's fees, Ruth did not tell the court he had already taken the remaining one-quarter legal fees without approval. He did not tell the court he was trying to pay the unauthorized fees back into the estate. This does not change the nature of Ruth's violation. We still have before us a case of misappropriation.

Ruth was unable to provide an accounting of estate funds because, at the time of the closing, the estate did not have the money needed to complete distribution. Ruth took the money from the...

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