Gallo, Matter of
| Decision Date | 15 December 1989 |
| Citation | 568 A.2d 522,117 N.J. 365 |
| Parties | In the Matter of James J. GALLO, An Attorney at Law. |
| Court | New Jersey Supreme Court |
John J. Janasie, Deputy Ethics Counsel, Westfield, on behalf of the Office of Attorney Ethics.
Jan K. Seigel, Hawthorne, for respondent.
This disciplinary proceeding arose from a random compliance audit of respondent's trust account. As a result of the audit, the Office of Attorney Ethics (OAE) filed a complaint charging respondent with a number of ethical infractions. The charges included failure to maintain required records, payment of personal expenses from the attorney's trust account, depositing personal funds into the trust account to replace client funds improperly used to pay business expenses, depositing the trust funds of a client into respondent's business account, failure to safeguard client funds, misappropriation of client funds, and commingling personal funds with trust funds.
The District VI Ethics Committee (Ethics Committee or Committee) conducted a hearing on the allegations. The Committee found that respondent had violated DR 9-102(A), (B), and (C) 1 (among other things, requiring attorneys to maintain, identify and segregate client funds, and to comply with record-keeping requirements) and recommended public discipline. The Ethics Committee did not, however, find clear and convincing evidence of a violation of DR 1-102A(4) and (6) (proscribing attorney conduct that involves dishonesty, fraud, deceit, or misrepresentation, or that otherwise adversely reflects on a lawyer's fitness to practice law). It consequently dismissed those charges. In addition, the Ethics Committee concluded that respondent had not intentionally used clients' funds and that "respondent's conduct was the result of his inexperience, the bad example of his preceptor, and the enormous pressure of the practice to which he fell heir."
Reviewing the Ethics Committee's presentment, the Disciplinary Review Board (DRB) found respondent guilty of unethical conduct for his record-keeping derelictions, failure to safeguard and segregate client funds, and misappropriation of funds. The DRB held that respondent had not knowingly misappropriated trust-account funds. Although the DRB unanimously found that the ethical infractions warranted public discipline, it was divided on the appropriate punishment: the four-member majority concluded that a one-year suspension was proper, while the three-member dissent recommended a public reprimand. Our independent review of the record leads us to conclude that a three-month suspension is the appropriate discipline.
Respondent was graduated from the University of Temple Law School in 1977. Soon after being admitted to practice law in this state in December 1978, respondent formed a professional relationship with a Hudson County attorney. Characterizing his status as that of an independent contractor, respondent submitted weekly bills to the attorney for services rendered and received paychecks drawn on the attorney's trust account. That attorney apparently paid all of his operating expenses, including respondent's salary, from his trust account. Respondent testified that he had assumed his mentor's bookkeeping methodology was an appropriate way for an attorney to maintain records.
In 1980, respondent learned that another attorney in his building intended to retire. After brief discussions on a Friday afternoon, respondent agreed to take over the attorney's practice beginning the following Monday. The retiring attorney left the country abruptly.
According to respondent, the practice included over 200 files that were in a state of complete disarray. Respondent had to file numerous motions to reinstate complaints because his predecessor had failed to answer interrogatories. Respondent testified that there was no filing system, that mail had been left stacked in foot-high piles, and that there was no transition period between the retiring lawyer's departure and respondent's assumption of responsibility.
Respondent did not hire an accountant because of the limited cash flow his practice generated. Whatever record-keeping practices respondent used mirrored those of his prior employer. Consistent with his prior experience, respondent created two bank accounts: a trust account from which he paid all his business expenses, such as salaries, rent, and supplies, and a business account, from which he paid personal expenses, such as credit cards and student loans. Settlement checks were deposited in the trust account. After clients received payment, respondent left his fees in the trust account and used that account to pay various business expenses. Because he never kept a running balance of the trust account and never used client ledger cards, respondent never knew exactly how much money was in the account or precisely whose money it was. Respondent occasionally deposited his own funds into the trust account if he believed that its balance was too low to permit payment of operating expenses. Nonetheless, two checks drawn on the trust account were returned for insufficient funds when clients presented them for payment. In both cases however, the checks cleared when presented for payment a second time.
The random audit of respondent's books and records disclosed the following deficiencies, which are set forth in the DRB's Decision and Recommendation:
Failure to Maintain Required Records
Respondent failed to maintain receipts and disbursement journals for his trust account, failed to maintain a separate trust ledger for each client, and failed to reflect all transactions on client ledger sheets. In addition, almost every check written by respondent to pay his business expenses had been drawn on trust account funds. Respondent was unable to identify numerous deposit tickets for funds deposited into his trust account and unable to produce trust account records or case files prior to January 1, 1984. Respondent attributed his misuse of trust funds to a lack of "finances to pay a bookkeeper or accountant" and in part to "laziness," because it was simpler to pay all checks from the trust account.
In February 1984, respondent deposited $5,500 into his trust account in behalf of a personal injury client, Arlindo Vittarino. Subsequently, a $4,500 trust account check payable to Mr. Vittarino was returned for insufficient funds. Although the check was honored after a second presentment to the bank in March 1984, it caused respondent's trust account to be overdrawn by $18.74.
Respondent invaded Mr. Vittarino's funds when he issued two trust account checks to his brother-in-law in an unrelated legal matter.
On July 18, 1984, respondent deposited $9,000 in his trust account in behalf of a client, the Estate of Jean Burke. The Burke funds were used to cover a $3,418.96 shortage in another matter. Bank statements from September 4 through December 13, 1984, revealed that the Burke funds were invaded on eleven different occasions.
Moreover, in order to disburse the $9,000 due to the estate on February 8, 1985, respondent left in his trust account legal fees earned from three matters settled in January 1985. This commingling of legal fees with client funds continued even after the auditor notified him, on January 11, 1985, of a violation of RPC 1.15.
On the same day the Burke funds were deposited, July 18, 1984, respondent deposited $3,500 in behalf of another client, Michael Iu. From July 18, 1984 until the Iu funds were disbursed on October 5, 1984, the trust account balances for the Burke and Iu funds should have totalled $12,500. The balances of respondent's trust account from August 24 through October 4, 1984, however, showed that both the Burke and Iu funds were invaded on an almost daily basis.
On September 14, 1984, respondent deposited $4,000 into his trust account in behalf of a client in a personal injury matter, Louis Wolton. On the same day, respondent issued a trust check payable to Mr. Wolton in the amount of $2,000, which check was paid by the bank. The cashing of the check on the same day that the settlement draft was deposited resulted in the invasion of other clients' funds.
On October 26, 1984, respondent deposited $65,385 into his trust account in behalf of a buyer of real estate, Mr. Paolino. The mortgage payoff funds for Mr. Paolino amounted to $30,507.17. Between October 26 and December 3, 1984, trust account balances for the Paolino and Burke matters should have been $39,507.17. A review of trust account balances pertaining to those two matters, however, disclosed that between November 20 and November 30, 1984, their funds were invaded. On November 30, 1984, respondent's trust account showed a $2,595.23 shortage in connection with the Paolino and Burke matters.
On December 7, 1982, respondent deposited client settlement funds of $20,000 into his "business" or personal account. These funds represented a personal injury recovery in behalf of the client, Timothy Warren, but were subject to an $8,000 lien for welfare payments. Mr. Warren's share of the recovery was approximately $6,500. Respondent was fearful that Mr. Warren would waste the award, as he had on one prior occasion. Respondent discussed the situation with both Mr. Warren and his grandmother. They all agreed that respondent should invest $3,000 on Mr. Warren's behalf and pay him interest at the rate of 10% a month. Respondent subsequently commingled $8,000 of Mr. Warren's award with his personal funds contained in an investment account with Prudential Bache. The proofs are unclear why $8,000.00 was deposited and not the agreed sum of $3,000.00. The record before the Board does not support any notion that respondent deposited the increased amount to camouflage a shortfall or other problems with his investment account.
In any event, the...
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