In re Hessler

• Decision Date: 27 October 1988
• Docket Number: No. 87-1233.,87-1233.
• Parties: In re Stephen O. HESSLER, Respondent, A Member of the Bar of the District of Columbia Court of Appeals.
• Court: D.C. Court of Appeals

Page 700

549 A.2d 700

In re Stephen O. HESSLER, Respondent,

A Member of the Bar of the District of Columbia Court of Appeals.

No. 87-1233.

District of Columbia Court of Appeals.

Argued June 1, 1988.

Decided October 27, 1988.

Patricia Maher, with whom John M. Bray, Washington, D.C., was on the brief, for respondent Hessler.

Samuel McClendon, Asst. Bar Counsel, with whom Thomas E. Flynn, Bar Counsel, Washington, D.C., was on the brief, for Office of Bar Counsel.

Joan Goldfrank, Washington, D.C., for Bd. on Professional Responsibility.

Before NEWMAN, BELSON and STEADMAN, Associate Judges.

STEADMAN, Associate Judge:

One of the most basic rules of fiduciary conduct is that the fiduciary must not commingle his own property with that held by him belonging to another. In particular, fiduciary funds must be kept separate and deposited in a special account. This concept, as applied to lawyers, is embodied in our Disciplinary Rule 9-103(A), which states, in pertinent part, that "[a]ll funds of clients paid to a lawyer or law firm other than advances for costs and expenses, shall be deposited in one or more identifiable bank accounts . . . and no funds belonging to the lawyer or law firm shall be deposited therein. . . ."

All too often, we are presented with disciplinary violations of this seemingly simple and specific requirement.¹ Now before us is yet another such case. The attorney deposited his client's funds in his operating account; that is, the account in which he also deposited his own funds and wrote checks to pay his own bills.² Furthermore, the attorney misappropriated his client's funds by allowing the account balance on numerous occasions to fall below the amount of his client's funds in the account;³ i.e., $912. However, the majority of the Board on Professional Responsibility adopted the hearing committee's finding that this misappropriation was not intentional or purposeful, but rather was negligent and inadvertent. It further adopted the hearing committee's conclusion, based on the finding that respondent had good reasons for delaying payment when requested, that a violation had not been shown of the requirement of DR 9— 103(BX4) that a lawyer "promptly" deliver funds of a client upon request, an essentially fact-based determination.⁴

These findings are supported by substantial evidence of record and we accept them as our rules require. D.C.Bar R. XI § 7(3). The significant issue before us is the appropriate sanction to be imposed. The Board recommends a period of one year. While normally we accept the Board's recommended sanction, the situation before us is admittedly different inasmuch as this is the first case of its type since our decision in In re Hines, 482 A.2d 378 (D.C. 1984). In that case, we announced that from that moment on "in disciplinary cases invoving attorneys who misappropriate their clients' funds, disbarment will be the norm unless it appears that the misconduct resulted from nothing more than simple negligence." 482 A.2d at 386-87.

We basically are in agreement with the majority's thoughtful analysis of the field in its report to us, annexed to this opinion. In re Hines, supra, is plainly a more egregious case than the one before us. The summary of the case and the relevant headnote in the Atlantic reporter are misleading in suggesting that the case involved only negligent misappropriation. To the contrary, the Board found with respect to one of the charges that Hines' actions demonstrated a "`reckless disregard' " for the status of the accounts in which he deposited his clients' money, which in turn gave rise to "`an inference that there was an intent on respondent's part to deal with and use funds escrowed for clients as his own.'" On the basis of this inference, the Board concluded that Hines had misappropriated funds in violation of DR 1-102(A)(4), which we upheld on appeal. Hines, 482 A.2d at 380.⁵ The fact is that, especially after the Hines decision, an attorney who intentionally misappropriated funds would face the serious possibility of disbarment. Cf. In re Buckley, 535 A.2d 863 (D.C. 1987).⁶

In re Harrison, 461 A.2d 1034 (D.C. 1983) (year and a day suspension) resembles this case in that the attorney engaged in both commingling and inadvertent misappropriation. However, in Harrison, the attorney evaded the client's request for restitution for several weeks⁷ by refusing to take calls or respond to letters. Furthermore, when Harrison finally paid his client, the check was returned for insufficient funds. Finally, during the investigation of the incident, Harrison misleadingly implied to bar counsel that the payment had been delayed because of an unexpected writ of attachment.

The case before us involves commingling and misappropriation through simple negligence, but no more. By using the phrase "no more," we do not mean to underplay the seriousness of the conduct here. It falls within the particularly sensitive field of proper activity by a lawyer in relation to his client's finances. The problem arises in the first instance because of the totally improper action of placing a client's funds in the attorney's own account. That action alone puts the client's funds at risk,⁸ regardless of the adequacy of the balance. As the Supreme Court of California has explained:

The rule against commingling was adopted to provide against the probability in some cases, the possibility in many cases, and the danger in all cases that such commingling will result in the loss of the clients' money. Moral turpitude is not necessarily involved in the commingling of a client's money with an attorney's own money if the client's money is not endangered by such procedure and is always available to him. However, inherently there is danger in such practice for frequently unforeseen circumstances arise jeopardizing the safety of the client's funds, and as far as the client is concerned the result is the same whether his money is deliberately misappropriated by an attorney or is unintentionally lost by circumstances beyond the control of the attorney.

Clark v. State Bar, 39 Cal.2d 161, 168, 246 P.2d 1, 5 (1952) (quoting Peck v. State Bar, 217 Cal. 47, 51, 17 P.2d 112, 114 (1932)). By mingling client funds with the attorney's own, the client's funds become more difficult to trace and are subject to the risk that they may be taken by creditors of the attorney. The bank's right of setoff, for example, is by the weight of authority held to apply to such commingled funds where the bank has no notice of the fiduciary character of the funds. 4 SCOTT ON TRUSTS §§ 305.3, 324.4 (3d ed. 1967); Annotation, Bank's Right to Apply Third Person's Funds, Deposited in Debtor's Name, On Debtor's Obligation, 8 A.L.R.3d 235 (1966). A garnishment of the account could lead to prolonged delay in the client's receiving the funds, if indeed he could assert a priority right to them at all. See D.C.Code § 16-514 (1981).⁹

Moreover, even if traceable, it has been held that the true owner is entitled to no more than the lowest balance that existed during the time his funds were commingled in the fiduciary's personal account, 5 Scow ON TRUSTS, supra, at § 521, a fact that demonstrates the seriousness of even unintentional misappropriation and a risk that exists (for example, if deposited checks are not honored) even with careful management of an account.¹⁰

So serious has been the prohibition against commingling that it has been held that a fiduciary who does so becomes an absolute guarantor of the funds on deposit, so that if, for example, the bank fails, the fiduciary is liable. This sanction, plainly a penalty to prevent commingling,¹¹ moreover has survived the relaxation of the old "earmarking" rule which imposed a similar penalty if a fiduciary failed to label trust assets as such. 2A SCOTT ON TRUSTS § 180.2 (4th ed. 1987); Annotation, Liability of Attorney for Loss of Client's Money or Personal Property in His Possession or Entrusted to Him, 26 A.L.R.2D 1340 (1952). We emphasize the ban against commingling to alert the bar that in future cases of even "simple commingling," a sanction greater than public censure may well be imposed.

The case before us, of course, involves unintentional misappropriation as well, the seriousness of which we stressed in Harrison. In the abstract, such an action might well warrant a one-year suspension. Here, however, as the annexed Board report points out at pages 39-40, aggravating features are absent and no less than six undisputed mitigating factors must be taken into account."¹²

The Board report suggests that absent the signal that it interpreted Hines to send, a six-month suspension would have been felt appropriate. We did not mean in Hines to establish a flat rule for unintentional misappropriations in which mitigating factors would play no significant part. We conclude that under all the circumstances of this case and in particular the numerous mitigating factors, the purposes of bar disciplinary determinations will be sufficiently served by a suspension of six months.

So ordered.

APPENDIX

DISTRICT OF COLUMBIA COURT OF APPEALS BOARD ON PROFESSIONAL RESPONSIBILITY

Bar Docket No. 45-85

IN THE MATTER OF: STEPHEN O. HESSLER, RESPONDENT.

REPORT AND RECOMMENDATION OF THE BOARD ON PROFESSIONAL RESPONSIBILITY

In this case, Bar Counsel filed a Petition charging Respondent with four violations of the Disciplinary Rules:

—"Disciplinary Rule 9-103(A) because . . . Respondent commingled client funds with his own" [commingling];

—"Disciplinary Rule 9-103(A) because Respondent failed to maintain the [client's] . . . funds . . . on deposit" [unintentional misappropriation];

—"Disciplinary Rule 1-102(A)(4) because the unauthorized use of his client's funds . . . constituted dishonesty" [honesty or intentional misappropriation]; and

—"Disciplinary Rule 9-103(B) because Respondent failed to promptly pay . . . funds to . . . the client" [failure promptly to pay].

After evidentiary...