IN RE PIERSON, 95-BG-1029

Citation690 A.2d 941
Decision Date28 February 1997
Docket NumberNo. 95-BG-1029,95-BG-1029
PartiesIn re Kathryn A. PIERSON, Respondent. A Member of the Bar of the District of Columbia Court of Appeals.
CourtCourt of Appeals of Columbia District

Abraham C. Blitzer, Washington, DC, for respondent.

Leonard H. Becker, Bar Counsel, for petitioner, Office of Bar Counsel.

Before TERRY, SCHWELB, and RUIZ, Associate Judges.

TERRY, Associate Judge:

The Board on Professional Responsibility ("the Board") has recommended that respondent be disbarred. Respondent contends that the record supports at most a finding of misappropriation resulting from simple negligence, and that, under all the circumstances, a lesser sanction should be imposed. We find her arguments without merit and accordingly adopt the recommendation of the Board.

I. THE FACTS

The misconduct charges against respondent Pierson, a member of our bar, were based on her mishandling of funds entrusted to her by a client and on her repeated invasion of her client escrow account to pay general business expenses. After an evidentiary hearing, a hearing committee found1 that Ms. Pierson had violated Rules 4.1(a),2 8.4(b),3 and 8.4(c)4 of the Rules of Professional Conduct, but that her actions did not constitute misappropriation or commingling in violation of Rule 1.15(a), under which she had also been charged.5 The committee therefore recommended that Ms. Pierson be suspended from the practice of law for three years and that she prove her fitness to practice law before being reinstated. After Bar Counsel noted an exception to the hearing committee's report, the Board issued its own report, finding inter alia that Ms. Pierson's misconduct amounted to misappropriation and commingling, which warranted disbarment. The matter comes before us on the Board's recommendation and Ms. Pierson's exceptions.

The pertinent facts are undisputed. In December 1991 Ms. Pierson and her law partner opened an escrow account at Adams National Bank for the placement of client funds ("the escrow account"). Their law firm already had a pre-existing office operating account at the same bank. In January 1992 Ms. Pierson reclassified the escrow account to allow interest accrued on it to be handled through the IOLTA program.6

Some time later, Ms. Pierson appeared in the Superior Court on behalf of the defendant-tenant in Elenar Associates Limited Partnership v. Urban Shelters & Health Care Systems, Inc. This was a rent collection case brought by Elenar, the plaintiff-landlord. The parties reached a settlement in November 1992 under which Urban Shelters, Ms. Pierson's client, was to pay Elenar $13,500 in two equal installments of $6,750. The first payment was due on December 21, 1992, forty-five days after the signing of the agreement, and the second was due forty-five days thereafter.

On December 21 Urban Shelters drew a check in the amount of $6,750, payable to Ms. Pierson's firm, and delivered it to Ms. Pierson so that she could make the first payment on the settlement. She deposited the check in her firm's escrow account. That account, however, was also being used by Ms. Pierson for general business purposes because the bank had recently closed the firm's operating account as a result of repeated overdrafts. At the time she deposited Urban Shelters' check, the escrow account was also overdrawn.

Instead of paying Elenar with the funds provided by her client, Ms. Pierson wrote several checks on the escrow account to pay some of the operating expenses of her law firm. Ms. Pierson testified before the hearing committee that she unsuccessfully tried to reach Roy Littlejohn, the principal of Urban Shelters, to seek permission to use the funds as a loan for her firm's business expenses instead of paying Elenar as the settlement agreement required. Although she failed to reach Mr. Littlejohn, Ms. Pierson elected nevertheless to use the money as a loan, intending to obtain her client's ratification later. This decision was based on Ms. Pierson's long-standing business and personal relationship with Mr. Littlejohn, and on the fact that he had lent her money on prior occasions.

Ms. Pierson finally got in touch with Mr. Littlejohn in early January 1993. Although concerned about the potential harm to Urban Shelters, he approved the diversion retroactively and treated Ms. Pierson's use of the funds as a loan. Ms. Pierson attempted to alleviate Littlejohn's concerns by explaining that she would bear any excess costs resulting from the default in the settlement. However, she did not advise him to obtain separate counsel before approving the diversion of the funds as a loan to her, nor did she say anything to Mr. Littlejohn about the ethical implications of her conduct.

Although Urban Shelters defaulted on the initial payment of $6,750 because Ms. Pierson had used the settlement funds to pay her law firm's bills, counsel for Elenar dismissed the case on December 30, 1992, believing it was settled.7 When Elenar still did not receive payment in January 1993, counsel for Elenar filed a motion to reopen the case. After the case was reinstated and the deadline for pre-trial filings neared, the parties, through counsel, again reached a settlement. The second settlement called for a $14,000 payment from Urban Shelters to Elenar, $500 more than originally agreed upon.8 However, Ms. Pierson did not tell Mr. Littlejohn that the original settlement had fallen through, intending instead to pay the additional $500 herself.

On March 11, 1993, Ms. Pierson falsely told counsel for Elenar that she was in possession of the settlement money. In April 1993 she further misrepresented to Elenar's counsel that the funds were in her escrow account. During this same period, Urban Shelters unknowingly defaulted on the new settlement payment date, which was March 19, 1993.9

By letter dated April 9, 1993, Ms. Pierson tendered to counsel for Elenar two checks to complete the revised settlement at $14,000: a certified check for $6,750 from Urban Shelters, and a non-certified check for $7,250, signed by Ms. Pierson and drawn on the escrow account. Upon receipt of the checks, counsel for Elenar again dismissed the complaint. The check from Ms. Pierson's escrow account bounced, however, and was returned to her for insufficient funds. Ms. Pierson knew at the time she tendered the check that there was not enough money in the account to pay it. Counsel for Elenar then demanded immediate payment in a letter dated May 17, but by intentionally making herself unavailable, Ms. Pierson did not make good on the check until July 1.

II. PROCEEDINGS BEFORE THE HEARING COMMITTEE AND THE BOARD
A. Improper Business Transaction with Client

The hearing committee first found that the facts surrounding Ms. Pierson's actions did not establish a violation of Rule 1.8(a).10 According to the hearing committee, not every transaction with a client requires separate counsel or the client's written consent. Citing the long-standing business and personal relationship between Mr. Littlejohn and Ms. Pierson, the prior history of loans, the relatively small amount of money involved, and Mr. Littlejohn's business sophistication, the committee determined that "there was no real threat of, or resulting injury to, the client." The Board, on the other hand, did not reach the alleged violation of Rule 1.8(a) because it found that Ms. Pierson's use of Urban Shelters' funds was not a loan but a misappropriation.

B. Misappropriation and Commingling

The hearing committee ruled in favor of Ms. Pierson on the misappropriation and commingling charges under Rule 1.15(a). Applying agency law, the committee first explained that a principal may retroactively approve the acts of an agent ab initio. It then held that the diversion of Urban Shelters' funds to Ms. Pierson's own use, with subsequent ratification by Mr. Littlejohn, did not constitute misappropriation with respect to Urban Shelters, Ms. Pierson's actual client.11 The hearing committee also concluded that Bar Counsel had failed to establish by clear and convincing evidence that there was any misappropriation with respect to Elenar. Finally, the committee ruled that there was insufficient proof to support the charge of commingling because "Bar Counsel has not shown by clear and convincing evidence that any client had an interest in the escrow account during the period under review."

The Board rejected the hearing committee's legal conclusion that retroactive ratification could cure "what would otherwise be a clear misappropriation."12 It first observed that the hearing committee had misconstrued the law of agency. While the Board agreed that a principal can retroactively ratify and thereby authorize the acts of its agent, it ruled that, for such a ratification to be effective, the agent must have been acting onbehalf of the principal, and in this case Ms. Pierson was not. The Board explained:

Respondent's withdrawal of her client's settlement funds to pay her firm's operating expenses was clearly not on her client's behalf. Furthermore, when Mr. Littlejohn gave his consent for the diversion of funds, he did so on the condition that the transaction not disturb the settlement with Elenar. This condition was not met. The settlement was undone.

Second, the Board held that the common law of agency cannot prevail over the Rules of Professional Conduct. "The Rules impose many obligations on attorneys that are beyond the demands of the common law of agency." The Board then listed several reasons why "retroactive ratification by a client should not exonerate an attorney's misappropriation":

The disciplinary system should not place clients in a position to save their attorneys from sanctions by providing ex post facto approval, lest attorneys accused of violations place pressure on clients to ratify actions after the fact. This case demonstrates one of the problems with a rule that would permit such retroactive ratification: the...

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