Warhaftig, Matter of
| Decision Date | 21 April 1987 |
| Citation | 106 N.J. 529,524 A.2d 398 |
| Parties | In the Matter of Arnold M. WARHAFTIG, An Attorney at Law. |
| Court | New Jersey Supreme Court |
Robyn M. Hill, Deputy Ethics Counsel, on behalf of Office of Attorney ethics.
Joseph A. Hayden, Jr., for respondent (Hayden and Perle, attorneys; Richard F.X. Regan, on the brief).
In this disciplinary proceeding, arising out of a presentment filed by the District XII Ethics Committee, respondent is charged with invading trust account funds by withdrawing anticipated legal fees in advance of real-estate closings. The Disciplinary Review Board (DRB or Board) concluded that respondent had engaged in unethical conduct, but that knowing misappropriation had not been established by clear and convincing evidence. The Board therefore recommended that respondent be publicly reprimanded. Because we conclude that respondent's conduct clearly constituted knowing misappropriation under In re Wilson, 81 N.J. 451, 409 A.2d 1153 (1979), we decline to adopt the DRB's recommendation, and instead order that respondent be disbarred.
The charges filed against respondent were the result of a random compliance audit conducted by the Office of Attorney Ethics pursuant to Rule 1:21-6(c). The audit took place in November and December, 1983, and covered the two-year period ending on October 31st of the same year. The audit findings were summarized in the Board's Decision and Recommendation:
The audit disclosed that respondent
continually issued checks to his own order for fees in pending real estate matters. He would replace the "advance" when the funds were received for the real estate closing [audit report at 3].
In one case, a real estate closing occurred on September 19, 1983. Funds totalling $70,722.33 were deposited into respondent's trust account on September 20, 1983. In another case, a real estate closing took place on October 28, 1983. The funds totalling $150,686.27 were deposited into his trust account on October 31, 1983. However, respondent had issued a check to his order for $910 on June 16, 1983 which represented his fee of $455 for each of these two closings. The audit report revealed other instances where respondent similarly took advance fees. A summary of these instances follows:
Fees Taken In Advance of Closings
---------------------------------------------
Days in
Advance 1-30 30-60 60-90 90-120 120
------ ----- ----- ------ ----
Number of
Instances 6 9 3 2 2
---------
Total
Withdrawn $2,600 3,935 1,110 910 910
---------
* * * * * *
Respondent maintained his own lists of fees taken in advance. This list contained the names of clients and the amounts he anticipated earning from these clients in pending real estate closings. As a closing occurred and the fee was earned, respondent would delete the client's name and fee. When an anticipated closing fell through, respondent would replace the fee he had earlier advanced to himself.
* * *
* * *
When respondent received notice of the audit, he contacted his accountant who advised him that if his trust account was short he should immediately replace the funds. Respondent borrowed $11,125 from accounts in the names of his two teenage sons and deposited the money into his trust account to cover the withdrawn fees. Respondent made this deposit about five days before the originally scheduled audit date of October 4, 1983.
The auditor was not able to determine which clients' monies respondent had taken because of the size of respondent's real estate practice. Money continually flowed in and out of the trust account. Respondent, at the ethics hearing, maintained that he never failed to make the proper disbursements at the closings and that no one ever lost money as a result of his practice. He discontinued this practice in September 1983 when he received notice of the audit.
At the Ethics Committee hearing, respondent explained that his withdrawal of advance fees from the trust account was necessitated by the "gigantic cash flow burden" he experienced beginning in the early 1980's. Such pressures were the result of a precipitous decline in his real-estate practice. At the same time, an additional strain on respondent's finances was created by his wife's having to undergo treatment for cancer, and by his son's need for extensive psychiatric counseling. According to respondent, only a small portion of these expenses was covered by insurance.
Respondent was also questioned at the hearing as to whether he knew, at the time the advance-fee scheme was implemented, that his conduct constituted an ethical violation. Respondent stated:
I was aware that what I was doing was wrong, and I was also aware that no one was being hurt by what I was doing. And what I was doing, especially by keeping lists like this, was making sure that nobody would get hurt by what I was doing.
* * *
* * *
My perspective on the taking of the money was it was wrong, it was a violation of the rules. But I was so certain that no one could possibly be hurt by it that I didn't feel that I was stealing, certainly not stealing.
In a presentment filed on June 28, 1985, the Ethics Committee concluded that respondent had failed to comply with the record-keeping provisions of Rule 1:21-6; that several checks he had drawn on business accounts were dishonored for insufficient funds; that he had made false entries in his trust account records, contrary to DR 9-102; and that he had misappropriated clients' funds, also a violation of DR 9-102. Specifically, the presentment stated that "[r]espondent's conduct was clearly unethical in that he did deliberately and repeatedly take funds from his trust account equal to anticipated fees." The panel therefore recommended that respondent be publicly disciplined, but directed the attention of the DRB to several mitigating factors it found to be present in the case.
The DRB adopted these conclusions in its decision. Acknowledging that "[a] knowing act is required before any taking of funds warrants * * * disbarment[,]" the Board observed:
Respondent believed that the funds taken by him were fees that he would invariably receive from real estate transactions. The modest amounts taken were exactly those that he anticipated. Although his business account had frequent overdrafts, there is absolutely no indication in this record that respondent ever used trust funds to cover them.
* * *
* * *
Respondent while acknowledging that his premature withdrawal of fees was improper, did not perceive it as misappropriation of clients' funds. He advanced to himself only such monies to which he had a colorable interest.
The Board concluded that the record did not support a finding that knowing misappropriation had occurred in this case. The Board, in recommending a public reprimand, also noted the existence of several mitigating factors: respondent's discontinuance of the practice at issue; his cooperation with the Office of Attorney Ethics; the acknowledgment of his wrongdoing; and the fact that no clients were actually injured by respondent's conduct.
A single member of the Board dissented from its recommendation, noting that
[r]espondent withdrew funds from his trust account to pay himself for services rendered and to be rendered to a particular client without necessarily having funds belonging to that particular client in his trust account. In short, he was using funds belonging to client A to pay fees owed and to be owing by client B. Under In re Wilson, 81 N.J. 451 (1979), this "borrowing" of client funds constitutes a misappropriation and warrants disbarment.
In recommending public discipline, the DRB recognized that In re Wilson, supra, which requires the disbarment of an attorney who knowingly misappropriates his clients' funds, controls the outcome of this case. However, the Board emphasized a perceived distinction between respondent's conduct, which it characterized as the "premature withdrawal of * * * monies to which he had a colorable interest[,]" and the knowing misappropriation described in Wilson, supra. Apparently, the Board was persuaded by respondent's contention that while he was aware that he was violating a Disciplinary Rule, he "didn't feel that [he] was stealing * * *."
The distinction drawn by the DRB cannot be sustained under the Wilson rule. As we stated in In re Noonan, 102 N.J. 157, 160, 506 A.2d 722 (1986), knowing misappropriation under Wilson "consists simply of a lawyer taking a client's money entrusted to him, knowing that it is the client's money and knowing that the client has not authorized the taking." We have consistently maintained that a lawyer's subjective intent, whether it be to "borrow" or to steal, is irrelevant to the determination of the appropriate discipline in a misappropriation case. Ibid.; In re Lennan, 102 N.J. 518, 523, 509 A.2d 179 (1986); In re Wilson, supra, 81 N.J. at 455 n. 1, 409 A.2d 1153. In Wilson, supra, we articulated the reason for this strict approach:
Lawyers who "borrow" may, it is true, be less culpable than those who had no intent to repay, but the difference is negligible in this connection. Banks do not rehire tellers who "borrow" depositors' funds. Our professional standards, if anything, should be higher. Lawyers are more than fiduciaries: they are representatives of a profession and officers of this Court. [81 N.J. at 458, 409 A.2d 1153.]
It is clear that respondent's conduct constituted knowing...
To continue reading
Request your trial
-
Silverman, Matter of
...the fact that an attorney who misappropriated client funds merely intended to borrow rather than steal. See, e.g., In re Warhaftig, 106 N.J. 529, 533-34, 524 A.2d 398 (1987); In re Noonan, 102 N.J. 157, 159-160, 506 A.2d 722 As for preparation of the prospectus and financial statements, eve......
-
Greenberg, Matter of
...to the Wilson rule, even where the misappropriation was the product of severe personal and financial hardship,' In re Warhaftig, 106 N.J. 529, 535, 524 A.2d 398 (1987)." In re Roth, 140 N.J. 430, 444, 658 A.2d 1264 (1995). Although we have recognized that "[t]he Wilson rule is harsh," In re......
-
Konopka, Matter of
...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.2......
-
In re Wade
...Wilson rule, even where the misappropriation was the product of severe personal and financial hardship’ " (quoting In re Warhaftig, 106 N.J. 529, 535, 524 A.2d 398 (1987) )).C. Respondent advanced a number of the defenses discussed above, but none of them can overcome Wilson’s bright-line r......