Konopka, Matter of

• Decision Date: 04 October 1991
• Citation: 126 N.J. 225,596 A.2d 733
• Parties: In the Matter of Michael A. KONOPKA, An Attorney at Law.
• Court: New Jersey Supreme Court

Page 225

126 N.J. 225

596 A.2d 733

In the Matter of Michael A. KONOPKA, An Attorney at Law.

Supreme Court of New Jersey.

Argued Oct. 24, 1989.

Decided Oct. 4, 1991.

Thomas J. McCormick, Deputy Ethics Counsel, on behalf of Office of Attorney Ethics.

Douglas H. Burg, for respondent (Frank A. Ferrante, attorney).

PER CURIAM.

This attorney-disciplinary proceeding arose from a random audit of the trust funds of respondent, Michael A. Konopka. As a result of the audit, the Office of Attorney Ethics (OAE) filed a complaint against respondent charging him with misappropriation of clients' funds, as well as failure to maintain required records and failure to safeguard clients' funds. More specifically, a formal six-count ethics complaint filed in January 1988 against respondent charged him with violations of the Rules of Professional Conduct, namely, the failure to maintain trust-account records, commingling personal and client funds, failure to safeguard client funds, and knowing misappropriation of client funds, contrary to Rules of Professional Conduct 1.15 and 8.4.

Respondent entered a complicated family arrangement whereby he agreed with his parents that he would keep current the payments on two mortgages that covered his parents' homestead and a two-family house that his soon-to-be-divorced sister owned with her husband. In brief, his parents did not want the family to lose the two-family income property. They mortgaged their own home for $30,000 and turned the funds over to respondent to clean up the arrearages on the first mortgage on the sister's home and other obligations and to buy out the sister's husband. In exchange for living in a unit of the two-family house, respondent was to collect rent from the other tenant and pay the mortgages and other bills related to the properties with those funds and his own funds.

Respondent maintained a ledger sheet entitled "Konopka, Paul and Eva, to Spencer Savings and Loan," which, according to the Disciplinary Review Board (DRB), documented a client trust fund that respondent had established for his parents. The audit of respondent's trust account, covering approximately a three-year period, revealed that respondent had made disbursements from the Konopka account for the Konopka properties in excess of the deposits in the account. Moreover, on many occasions, there were deficits in the accounts of respondent's other clients at the same time that his disbursements exceeded his deposits in the Konopka account. As found by the DRB,

from August 20, 1982 through September 16, 1985, respondent regularly made payments related to his parents' property that exceeded the amount on deposit [and on] at least 26 occasions during that three-year period, the Konopka account reflected a negative balance, in amounts ranging from $1,461.19 on August 20, 1982 to $6,374.37 on September 25, 1984. These negative balances resulted in the invasion of clients' funds in the Edone, Wiegand, Armagost, Koceski, and Arslan matters.

The key issue is whether the trust-fund shortage was the result of knowing misappropriation or the product of inadvertent error or gross neglect in respondent's handling of the funds in his accounts. The question is critical because a knowing misappropriation almost invariably calls for disbarment. In re Wilson, 81 N.J. 451, 409 A.2d 1153 (1979). Respondent denied any such knowledge.

Both the District Ethics Committee (DEC) and the DRB found that a knowing misappropriation of clients' funds had occurred. We disagree. Based on our independent review of the record we find that the evidence of respondent's conduct falls short of establishing clearly and convincingly the knowing misappropriation that the Wilson sanction seeks to deter.

I

The theory of the OAE's case was that the imbalance in respondent's accounts clearly established the Wilson violation. To summarize the disciplinary counsel's opening remarks before the DEC:

And the allegations are simply this: That Mr. Konopka, the respondent here, kept bad books.

But we allege that it doesn't just--it wasn't simply * * * that he failed to maintain his client ledger sheets properly and didn't have a running balance, but rather that his failure to maintain records impacted upon other clients' funds that were in his trust account.

* * * * * *

The bottom line though, was that when Mr. Prihoda [the OAE's auditor] looked over the attachments--the so-called Konopka ledger sheets, and made up a running balance, he found that the account was out of trust on many occasions in the four year period that he made his analysis.

* * * And logic would tell us that if that account was out of sync, if there were more money disbursed from that account than had actually been received in it, then it's likely that other client funds were used to make--you know for these excess disbursements. And that's, indeed, what the proofs will show * * *.

Although there is no question that the entrusted funds did not remain intact, there is a genuine question whether respondent knowingly misappropriated those funds.

In a long series of cases, we have emphasized the need for clear and convincing proof that a knowing misappropriation has occurred. In re Simeone, 108 N.J. 515, 521-22, 531 A.2d 729 (1987), summarizes the principles that we apply in determining whether the case is more than one of "shoddy bookkeeping" and instead rises to the level of one of knowing misappropriation. We noted there that in a case such as In re Orlando, 104 N.J. 344, 517 A.2d 139 (1986), repeated and frequent instances of being out of trust did not necessarily add up to a knowing misappropriation. Those principles have been applied uniformly. See In re Librizzi, 117 N.J. 481, 569 A.2d 257 (1990); In re Gallo, 117 N.J. 365, 568 A.2d 522 (1989); In re Johnson, 105 N.J. 249, 520 A.2d 3 (1987).

At the same time, we have not retreated one bit from the principle that knowing misappropriation, when shown by clear and convincing evidence, will warrant the Wilson sanction of disbarment. See In re Sommers, 114 N.J. 209, 553 A.2d 789 (1989); In re Warhaftig, 106 N.J. 529, 524 A.2d 398 (1987).

To compare this case to In re Skevin, 104 N.J. 476, 517 A.2d 852 (1986), cert. denied, 481 U.S. 1028, 107 S.Ct. 1954, 95 L.Ed.2d 526 (1987), in which an attorney who knew that he had not yet received personal-injury settlement checks nonetheless drew advance fees from his account, is inappropriate. In this case there is no clear and convincing evidence that respondent was systematically taking advance fees or borrowing from one client's fund to make up for a shortfall in another's.

Were there such proof, we agree that respondent's conduct would merit disbarment. The disciplinary panels, in reaching critical conclusions that respondent had knowingly misappropriated clients' funds, relied on two pieces of evidence. We find that that evidence falls short of the necessary clear and convincing proof. The DRB summarized the two bases as follows:

In the Konopka ledger, in respondent's own handwriting, the phrase "balance forward from page 22" appears, followed by the stated balance of $153.81. Two lines down, again in respondent's handwriting, two $500.00 disbursements are listed, one on May 24, 1982 and the other on June 1, 1982. No deposit was made to cover these excessive disbursements until August 2, 1982, sixty days later, when $385.00 was deposited. This deposit decreased the shortage to $461.19.

* * * * * *

In the Edone matter, respondent deposited $5,000.00 into his trust account on January 24, 1983. This $5,000.00 was subsequently paid over to Ms. Edone on February 15, 1983. However, as of February 13, 1983, the trust account reflected a balance of $3,867.39, creating a $1,132.61 shortage in the Edone funds. On the same day the $5,000.00 was disbursed to Mrs. Edone, respondent deposited $1,500.00 of his personal funds into the trust account, thus bringing the trust account total from $3,867.39 to $5,367.39, an amount sufficient to cover the disbursement.

We are unable to agree that those transactions establish clearly and convincingly the knowing misappropriation that is predicate to disbarment.

As noted, the DRB relied on what we believe are two telltale disbursements from the Konopka family account of $500 each in May and June 1982. The supposition is that because of the preexisting $153 "balance forward," respondent was plainly aware that that account had a deficit, but blindly invaded other clients' funds for the purposes of the Konopka family account. But the strongest criticism of respondent found in the report of Mr. Prihoda, the OAE's auditor, was that respondent had never reconciled his accounts. The auditor indicated: "One column [of the ledger sheets] accounted for receipts and the other column accounted for disbursements. There was no third column to show the current balance of the ledger accounts at any given time." The OAE did not prove exactly how or when Konopka made the notation of a running balance at the top of the ledger sheet. Mr. Prihoda did not testify in these proceedings. The OAE simply relied on the submission of the reports. When questioned on the knowledge implied by the recording of disbursements immediately following the inadequate balance, respondent replied, "The checks probably were written, and then I entered them in the book." There is simply no proof of when Konopka made the "balance forward" entry in relation to the issuance of the checks.

With respect to the asserted imbalance in the Edone matter, the fact that respondent made a deposit of $1500 when he made the disbursement to that client does not establish that he knowingly misappropriated clients' funds. In fact, we have criticized an attorney when he has not made up deficits in his account. See In re Brown, 102 N.J. 512, 509 A.2d 176 (1986) (respondent continually invaded trust funds of one client to pay another). In addition, we know from the record that after the OAE...