In re PRB No. 2018-087
| Decision Date | 18 January 2019 |
| Docket Number | SUPREME COURT DOCKET NO. 18-390 |
| Citation | 206 A.3d 141 |
| Parties | IN RE PRB NO. 2018-087 |
| Court | Vermont Supreme Court |
ENTRY ORDER
¶ 1. Upon review of the hearing panel decision in this matter, the Court concludes as follows: The decision presents a well-reasoned discussion. Accordingly, the Court orders review of the decision on its own motion, adopts the hearing panel decision in its entirety as a final order of this Court, waives briefing and oral argument, and orders that the decision be published in the Vermont Reports.
STATE OF VERMONT PROFESSIONAL RESPONSIBILITY BOARD
Joseph F. Cook, Esq., Chair
Greg Worden, Public Member
Disciplinary Counsel and Respondent initiated these proceedings by filing a proposed stipulation of facts along with jointly proposed conclusions of law. See Administrative Order (A.O.) 9, Rule 11(D)(1)(a) (). Along with the proposed stipulation, the parties submitted a request for a hearing to present additional factual material to the Panel. On August 6, 2018, the Hearing Panel issued a decision in which it accepted paragraphs 1 through 28, 30 through 37, 40, 41, and 44 of the proposed stipulation. The Panel rejected the other statements in the proposed stipulation of facts on the grounds that they consisted of conclusions of law relating to the applicability of aggravating and mitigating factors for purposes of determining an appropriate sanction – not statements of fact. The Panel granted the parties' joint request for a supplemental hearing. The final merits hearing was held on October 23, 2018.1
With the factual record now complete, the above matter is ripe for a decision on the merits of the issues presented. Based on the stipulated facts that have been accepted by the Panel and the additional evidence in the record, the Panel issues the following findings of fact, conclusions of law and order:
FINDINGS OF FACT
1. Respondent was admitted to practice April 3, 1984 and has been actively
practicing in the same law firm his entire career.
2. In 1990, Respondent became the majority owner and managing partner of his firm, located in Bennington, Vermont.
3. As the managing partner, Respondent is responsible for all staffing needs of the firm.
4. The majority of Respondent's law practice involves real estate transactions.
5. Respondent maintains an IOLTA account through the Bank of Bennington.
6. He uses his account primarily for residential real estate closings.
7. Over the course of his 34 years of practice, Respondent has transitioned from manual trust account management to software-based trust account management systems.
8. In mid-2014, Respondent's law firm was using Quicken accounting software and was in the process of upgrading to QuickBooks accounting software.
9. On September 8, 2014, a staff member who was managing much of the day-to-day bookkeeping for 14 years, including the trust accounting reconciliation, left the firm unexpectedly.
10. Shortly after the staff member departed, Respondent reviewed all of the bookkeeping records and found the trust account reconciliations were current and accurate, and decided to hire an outside accountant to finish the transition from Quicken to QuickBooks and restructure the organizational system. The transition to QuickBooks was delayed for a protracted period of time. The cause of the delay was a failure on the part of Respondent to secure sufficient resources to advance and complete the transition task in a timely manner.
11. As a result of the incomplete transition from Quicken to QuickBooks and an inability to hire a suitable replacement for the departed staff member, Respondent's law firm operated, for a protracted period of time, with an inadequate system for managing his IOLTA account. Respondent eventually hired a capable person to assist him with bookkeeping functions, but she left the firm sometime in 2016.
12. During the transition from Quicken to QuickBooks, Respondent performed rudimentary manual accounting in each individual client file on a hand-written sheet tracking funds received and disbursed.
13. Respondent personally handled all fund deposits and disbursements during this period of time.
14. Respondent kept individual paper balance sheets in each client's file and monitored the IOLTA account online.
15. Each individual file contained a manual list of deposit monies in, and checks written out, with wire confirmations and check copies attached.
16. Respondent maintained manual bank account deposit books with a carbon copy of deposit slips and would attach the bank deposit receipt when he returned from the bank.
17. At some point in 2016, Respondent began to struggle with the volume of real estate transactions being handled by his firm. In December of 2016, Respondent's firm was handling several real estate closings every day. The required monthly reconciliation of Respondent's IOLTA account was not being performed at this time.
18. As of approximately December 2016, Respondent was six months behind in completing the requisite monthly reconciliations. Respondent was generally aware of his obligations under the Rules of Professional Conduct relative to managing client trust accounts (IOLTA), including the obligation to perform monthly reconciliation. He believed that he would catch up with the monthly reconciliations and otherwise come into compliance within a reasonable period of time and that, in the meantime, no client funds were in jeopardy.
19. During this period of time in 2016 and through the fall of 2017, there were numerous times when Respondent did not collect wire fees ranging from $10 to $20. When Respondent became aware of these omissions, he promptly covered them out of the firm's operating account.
20. The instances where Respondent failed to collect wire fees caused client accounts entered into QuickBooks by the firm's outside accountant to not reconcile with the client file hand-written sheet.
21. The memo line in checks that Respondent would write from the trust account also lacked clarity and uniformity, which caused confusion for the outside accountant and on occasion caused transactions to be posted to the wrong client and created the incorrect appearance of negative balances for some clients and positive balance for others.
22. In June 2017, after nearly a year of searching and a few short-term hires that did not work out, Respondent finally located and hired a suitable replacement staff member whom he currently employs to assist him with his trust accounting obligations.
23. In December 2017, as part of a routine compliance audit, JMM & Associates' CPA Randall Sargent reviewed with Respondent his trust account records for the period of October 1, 2016 to November 30, 2017.
24. Sargent generated a two-page report, dated December 7, 2017, in which he opined that Respondent had not complied with the requirements of V.R.Pr.C. 1.15 and 1.15A during the period of time in question. In his report, he found that: (1) on the list of individual client balances maintained by Respondent there were balances which were not identified to specific clients, caused by deficient record keeping; (2) there were several instances of negative balances on the Respondent's list of client balances due to inadequate recordkeeping, which raised questions as to whether Respondent might have been using one client’s funds in connection with a different client matter; (3) Respondent did not have in place a system to record all receipts and disbursements for certain interest-bearing individual client trust accounts, caused by Respondent's practice of informally monitoring the activity within the accounts; (4) there was a lack of documentation showing timely notice to clients of activity within individual interest-bearing client trust accounts, caused by Respondent's practice of informally discussing with clients the activity within the accounts; and (5) in several instances, Respondent failed to complete reconciliation of the trust accounts to the bank statements, the ledger balance, and the list of funds held for each client.
25. Respondent has agreed that the findings in the Sargent report are accurate.
26. On March 30, 2018, Disciplinary Counsel and Respondent met at his office and reviewed the accounts that were the subject of CPA Sargent's report.
27. Respondent's new staff member assigned to work on Respondent's trust accounts and Respondent's accountant were present at the meeting on March 30, 2018.
28. As a result of the meeting, Disciplinary Counsel determined that each item of noncompliance identified in the Sargent report had been remedied.
29. At the meeting, Respondent was able to demonstrate his trust accounting system using QuickBooks.
30. As of March 30, 2018, Respondent had completed the backlog of sorting through clients' accounts so that the funds in and out the accounts now do match the manual sheets and the bank statements.
31. Trust account checks are now being printed directly from QuickBooks, with more detailed and uniform memo lines. Wire transfer fees now come out of a separate account to avoid confusion and are accounted for.
32. At the meeting, Respondent was able to produce an up-to-date record showing receipts, disbursements, and a running balance by individual client; a record showing receipts, disbursements, and running balance for the entire trust account; and bank statements.
33. The accounting system now shows the information needed to provide timely notice to clients of all receipts and disbursements from the trust account going forward.
34. The accounting system now shows the tools required for a timely three-way reconciliation, to be performed at the end of each month.
35. There is no...
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