Utah State Bar v. Bates (In re Bates)

Decision Date22 February 2017
Docket NumberNo. 20150483,20150483
Citation391 P.3d 1039
Parties In the MATTER OF the DISCIPLINE OF Abraham BATES, #12440 Utah State Bar, Office of Professional Conduct, Appellant, v. Abraham Bates, Appellee.
CourtUtah Supreme Court

Todd Wahlquist, Salt Lake City, for appellant.

Michael F. Skolnick, Troy L. Booher, Erin B. Hull, Beth E. Kennedy, Salt Lake City, for appellee.

Justice Durham authored the opinion of the Court in which Chief Justice Durrant, Associate Chief Justice Lee, Justice Himonas, and Justice Pearce joined.

On Direct Appeal

Justice Durham, opinion of the Court:


¶1 The Utah State Bar's Office of Professional Conduct (OPC) appeals from a final judgment of the Third District Court suspending Abraham Bates from the practice of law for a period of five months for violating rules 1.4(a), 1.15(a), and 1.15(d) of the Utah Rules of Professional Conduct. The OPC asks this court to elevate Mr. Bates' sanction from suspension to disbarment, by inferring from the district court's factual findings that Mr. Bates acted both "knowingly" and "with the intent to benefit" from his misconduct. We affirm the district court's sanction of suspension, albeit on alternate grounds.


¶2 Just six months after beginning to practice law, Abraham Bates started his own law firm, Wasatch Advocates. Mr. Bates solely owned and operated Wasatch Advocates. Although the firm started with only six employees, its clientele rapidly expanded, and, within a single year, it employed thirty-seven people to meet the growing workload. In order to deal with the increasing expenses, Mr. Bates established lines of credit to maintain enough money in the firm's operating account. He regularly made draws against these lines of credit.

¶3 Although he managed the operating and trust accounts on his own with the assistance of his receptionist in the beginning, the accounting became more complicated as the firm's income and expenses quickly grew. Mr. Bates retained a certified public accountant to perform monthly reconciliations, auditing, and tax work. Later, as the practice expanded, Mr. Bates hired an accounting firm to do more frequent reconciliations and to train Mr. Bates and his staff in accounting procedures. Despite this, he noticed that there were still accounting issues, such as his receptionist mistakenly depositing client money into the operating account and earned fees into the trust account. At the accounting firm's suggestion, a chief operating officer was also hired to help with the firm's accounting practices. However, even after taking these corrective measures, the operation of the firm's accounts remained chaotic.

¶4 In January 2012, Wasatch Advocates imploded due to changing economic circumstances and the abrupt departure of a significant proportion of Mr. Bates' staff. Around the time of the firm's dissolution, John Liti, a former client, filed a bar complaint against Wasatch Advocates resulting in an OPC investigation. During the investigation, the OPC focused heavily on Mr. Bates' accounting practices and identified possible violations in other client matters. The only matter at issue on this appeal is the F.A. Apartments matter. The OPC alleges that Mr. Bates' actions amount to intentional misappropriation of F.A. Apartments' funds and merit disbarment in two different instances: his management of F.A. Apartments' funds held in the trust account and his management of a retainer paid by F.A. Apartments that was held in the operating account.


¶5 F.A. Apartments hired Mr. Bates to defend it against a foreclosure. In December 2010, F.A. Apartments gave Mr. Bates $ 28,000 to be deposited in trust. The $ 28,000 consisted of rents collected on the property that was the subject of the foreclosure action. The money was to be held in trust during settlement negotiations and was to be used only for property management and other authorized expenses, not for Mr. Bates' attorney fees. Wasatch Advocates deposited the $ 28,000 into its trust account. Mr. Bates made authorized expenditures out of the trust account and kept detailed records about the remaining balance.

¶6 Despite these accounting efforts, the OPC's investigation revealed that the overall trust account balance dipped below the amount Wasatch Advocates was holding for F.A. Apartments. On three particular days in early 2011January 3, March 17, and June 30—the balance of Mr. Bates' trust account was less than the amount he should have been holding for F.A. Apartments by $ 2,001.26, $ 2,343.98, and $ 4,221.80 respectively. However, there was enough in the operating account to cover these shortfalls, and his lines of credit also had more than enough to cover these shortfalls.


¶7 During the first week of August 2011, F.A. Apartments paid Wasatch Advocates a $ 16,500 retainer. Despite Mr. Bates' direction that these funds be deposited in the trust account, his staff mistakenly deposited $ 16,000 of the $ 16,500 into the firm's operating account without Mr. Bates' knowledge.1 The retainer was to be used for Mr. Bates' work in the foreclosure action. About three weeks after the money was incorrectly deposited, Mr. Bates was nearing the completion of settlement negotiations for the foreclosure case, with an agreement to settle for $ 20,000.

¶8 At this point, while conducting a review of the trust account to determine if there was enough of the $ 28,000 left to cover the settlement, Mr. Bates discovered the $ 16,000 retainer had been deposited in the operating account, contrary to his instructions. After conducting his review, Mr. Bates knew that F.A. Apartments did not have the money to pay the settlement amount. Not wanting his client to lose the favorable settlement, Mr. Bates agreed to defer billing for his work on the matter and to use the retainer funds to pay the settlement, even though he had already earned the bulk of the $ 16,500 retainer. For reasons that do not appear on the record, Mr. Bates failed to move the money into his trust account at that time, even though he acknowledged that the $ 16,000 became client funds after the agreement to use the retainer to settle the foreclosure case.

¶9 Approximately four weeks after Mr. Bates learned that the $ 16,000 had been incorrectly deposited, he made a $ 20,000 withdrawal from the operating account and transferred it to payroll, leaving a negative balance in the operating account. All of F.A. Apartments' $ 16,000 was thus transferred to Mr. Bates' payroll account and apparently used for the firm's payroll.

¶10 In the two weeks leading up to the payroll transfer, Mr. Bates made two draws on his lines of credit, and maintained the ability to draw money that "significantly exceeded the amount of the [$ 20,000] transfer." Three days after the payroll transfer, Mr. Bates took a $ 5,000 draw on a line of credit and placed the money in his operating account. Two days after that, he took another $ 7,000 draw. Ten days after the payroll transfer, Mr. Bates wired $ 20,000 (including the $ 16,000 retainer) to settle the F.A. Apartments' foreclosure case.

¶11 After the settlement payment, Mr. Bates' representation of F.A. Apartments concluded to the satisfaction of all parties. F.A. Apartments never raised any concerns, even during the disciplinary proceedings, with Mr. Bates' representation or management of its funds.


¶12 After its investigation, the OPC sought Mr. Bates' disbarment, alleging seven violations of the Utah Rules of Professional conduct in connection with five different client matters. Over the course of the trial, the OPC withdrew two of its previous allegations and ultimately asked the court to disbar Mr. Bates based only on his conduct in the F.A. Apartments matter. The district court held that Mr. Bates violated three rules during his representation of F.A. Apartments and the other clients: 1.4(a) (communication), 1.15(a) (safekeeping property), and 1.15(d) (safekeeping property). The court did not hold, however, that Mr. Bates intentionally misappropriated F.A. Apartments' funds.

¶13 Mr. Bates gave the following testimony during trial:

Q: ... [F]rom December of 2010, the point in time after FA [Apartments] provided the $ 28,000, up through the end of September 2011 [when the foreclosure case settled] did you ever intend to utilize FA Apartments' funds for any purpose, other than FA Apartments-related expenses?
A: No
Q: Thank you. You can explain.
A: I have no knowledge of any check or dollar of FA Apartments' funds from the original $ 28,000 or the $ 16,500 being used for any other purpose than on behalf of FA Apartments, and it was certainly not my intent to do so.

Based on this testimony and the circumstantial evidence, the district court held that "the OPC failed to meet[ ] its burden of showing that Mr. Bates knowingly or intentionally caused the apparent shortfalls" in the trust account, and, therefore, that Mr. Bates was negligent in managing his trust account. The operating account shortfall was held to be knowing but without "the specific intent to use F.A. funds to benefit himself, another, or harm F.A. [Apartments]."

¶14 In the end, the court held that all of Mr. Bates' violations, except the shortfall in the operating account, were committed negligently. Because it held that Mr. Bates knowingly caused the shortfall in the operating account, but without the intent to benefit himself, the court determined that the presumptive sanction was a six-month suspension.2 It then applied a balancing test of the aggravating and mitigating factors, resulting in a slight reduction to a five-month suspension.

¶15 On appeal, the OPC argues that the district court erred in holding that the trust account shortages were negligent, with a presumptive sanction of reprimand, and that the payroll transfer was knowing but without an intent to benefit himself, with a presumptive sanction of suspension. The OPC argues that Mr. Bates intentionally misappropriated those funds, and...

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