Disciplinary Action Against LaChapelle, In re, C0-91-1953

• Decision Date: 23 October 1992
• Docket Number: No. C0-91-1953,C0-91-1953
• Citation: 491 N.W.2d 17
• Parties: In re Petition for DISCIPLINARY ACTION AGAINST Arthur W. LaCHAPELLE, an Attorney at Law of the State of Minnesota.
• Court: Minnesota Supreme Court

Page 17

491 N.W.2d 17

In re Petition for DISCIPLINARY ACTION AGAINST Arthur W.

LaCHAPELLE, an Attorney at Law of the State of Minnesota.

No. C0-91-1953.

Supreme Court of Minnesota.

Oct. 23, 1992.

Marcia Johnson, Director of Office of Lawyers Professional Responsibility, Martin A. Cole, Sr. Asst. Director, St. Paul, for petitioner.

Michael J. Hoover, Minneapolis, for respondent.

Heard, considered and decided by the court en banc.

PER CURIAM.

The Director of the Office of Lawyers Professional Responsibility filed a petition for disciplinary action on September 30, 1991. Respondent is charged with:

Intentionally misappropriating client funds,

Making misrepresentations to the client about such funds,

Making misrepresentations to the District Ethics Committee investigator and the director's office to avoid detection of the misappropriation,

Failing to maintain proper client trust account records,

Failing to supervise the person in his office responsible for maintaining the client trust account records, and

Falsely certifying to the supreme court that such trust account books were, in fact, maintained properly. ¹

A hearing was held on January 2 and 3, 1992, before a court-appointed district court judge sitting as referee. On January 30, 1992, the referee issued his findings of fact, conclusions of law, and a recommendation for disbarment. Because the referee recommended disbarment, respondent was suspended from the practice of law pending completion of the disciplinary proceeding pursuant to Rule 16(e), Rules on Lawyers Professional Responsibility (RLPR).

On March 9, 1992, respondent filed a certificate as to transcript pursuant to Rule 14(e), RLPR. Respondent is thus legally entitled to and does contest several of the referee's factual findings and conclusions that the misappropriation and misrepresentations were intentional. Respondent asks that he not be disbarred, but, instead, be immediately reinstated to the practice of law. We affirm the referee's findings and recommendation for disbarment.

The underlying facts are as follows:

In the early 1980's, respondent hired his wife Mary to be his office manager. Her delegated duties included maintaining separate accounts for business expenses, personal costs, and client funds. The referee found that respondent failed to maintain proper client trust books since at least 1988 and failed to supervise Mary properly in her maintenance of these books in violation of Minn.R.Prof. Conduct 1.15(g), 5.3(b), and 8.4(c). Respondent does not dispute these findings.

Despite failing to maintain trust account books, respondent annually certified to the supreme court that he did, in fact, maintain proper trust account books. Respondent now admits that those certifications were false, but disputes that his false certification was intentional. Respondent argues that his certifications were based on information supplied to him by Mary, that he relied on Mary for this information, and that he did not check to see if the information was correct. The referee stated that it is immaterial whether the false certifications were intentional for respondent's actions to be a breach of professional responsibility.

The referee found that respondent misappropriated $16,177.66 from trust accounts of his clients, James and Ellen Auger, in violation of Minn.R.Prof. Conduct 1.4, 1.15(a), (b)(3), (e), 8.4(c). Respondent admits commingling the money with his personal funds, but denies that he intended to misappropriate the Auger funds. He argues instead that Mary transferred the funds without his knowledge. He also states that the Augers agreed to his use of the money as a retainer against attorney fees and that he repaid the Augers when he learned of the wrongful transfers. The referee rejected respondent's contentions that he did not have personal knowledge of the misappropriation and that the Augers consented to the transfers.

The referee also found that respondent made intentional misrepresentations to the Augers about his use of the funds and that respondent intentionally submitted false answers and documents to the District Ethics Committee and the director's office pursuant to their investigation of the Auger's complaint in violation of Minn.R.Prof. Conduct 8.1(a), 8.4(c), 8.4(d). The referee found that such actions amounted to an intentional cover-up of the misappropriation.

Respondent admits to the referee's finding that he made false statements, but denies they were intentional and that he conducted an intentional cover-up. He states again that he was relying on information provided by his wife Mary and that he was not aware of the falsity of the information. Although the referee allowed that respondent may have lacked initial knowledge of the misappropriation, he rejected the respondent's complete denial of knowledge by finding that respondent must have gained knowledge of the misappropriation at least by the time he answered the director's investigation in November 1990.

The referee ruled that respondent's intentional misappropriation and subsequent misrepresentations should result in disbarment. In order to understand fully the underlying facts, we incorporate herein by reference and attach as Appendix A the referee's findings. The issues raised on appeal are:

Should the referee's findings that respondent's misappropriations and misrepresentations were intentional be overturned as being clearly erroneous?

What is the appropriate discipline for a lawyer found to have intentionally misappropriated client funds and subsequently made intentional misrepresentations about the misappropriation to his client, the director, and the supreme court?

Respondent admits that the Auger funds were misappropriated and that he subsequently made misrepresentations about the misappropriation. Respondent also admits that he failed to supervise his wife's maintenance of the client trust accounts and that the office failed to keep proper client trust accounts since at least 1988. Respondent challenges, however, the referee's findings that the misappropriation of and misrepresentations about the client funds were intentional and argues that the director failed to prove by clear and convincing evidence that the misappropriation and misrepresentations were intentional. Instead, respondent states that he was unaware that his wife Mary had transferred the funds into his business account and further states that he provided the false statements and documents because of information given to him by Mary.

Respondent is correct that the standard of proof for attorney discipline cases is "clear and convincing evidence," see In re Schmidt, 402 N.W.2d 544, 545 (Minn.1987), but the standard of review for attorney discipline cases is to uphold the referee's factual findings if they are not clearly erroneous, In re Pyles, 421 N.W.2d 321, 325 (Minn.1988), or if they are supported by the evidence. Schmidt, 402 N.W.2d at 545. In other words, this court is to uphold the referee's findings that respondent intentionally misappropriated the client funds and intentionally misrepresented the status of those funds unless the court finds that the referee's findings are unsupported by the evidence.

Respondent urges that this court adopt a narrow definition of misappropriation, i.e., that misappropriation occurs only when a lawyer consciously intends to remove trust funds and use them for a purpose other than specified by the client. Respondent's position is not the law in Minnesota. "Misappropriation occurs whenever funds belonging to a client are not kept in trust and are used for any purpose other than that specified by the client." In re Isaacs, 451 N.W.2d 209, 211 (Minn.1990). In Isaacs, the court acknowledged a lack of direct evidence that the attorney had intentionally misappropriated his client's funds, but still ordered disbarment because of repeated misappropriations. Id. In this case, respondent admits that client funds were removed from the trust account, so the referee was correct to find misappropriation unless such removal was specified by the Augers.

Respondent argues that his client did, in fact, consent to respondent's use of the funds in the trust account as the method for respondent to receive his fees. Respondent refers to a letter from his client asking "how much we have left with the money that you and the mortgage company are holding," suggesting that Mr. Auger gave at least general authorization for the withdrawal of fees from the trust account.

The referee rejected this inference and held that Mr. Auger did not authorize respondent's use of the funds. The referee stated that the fact that respondent told Mr. Auger that he would be charging no more than $2,198.27 without further authorization contradicts respondent's assertion that Mr. Auger gave authorization to make personal use of the entire trust account balance of $16,177.66. Further, Mr. Auger's October 1990 letter of complaint to the Lawyer's Professional Responsibility Board and his previous communications with respondent seeking to find out how much money is in the trust account seem to suggest that, even if at one time Mr. Auger did authorize respondent's use of the trust account funds, such authorization was no longer operative. If respondent was not authorized to use the funds in the trust account, then he has misappropriated the funds under Minnesota law.

The referee also found that respondent's misappropriation was knowing and intentional. The referee stated that respondent's contention that he did not acquire knowledge of the misappropriation by the time of the investigation is "simply not believable." The referee also found that respondent had engaged in a cover-up of the misappropriation. The referee rejected respondent's arguments that his wife misappropriated the money and then concocted the cover-up without his knowledge. On appeal, respondent argues that no direct evidence was produced to prove his knowledge of the...