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NY lawyer whose brother misappropriated trust funds is suspended for two years but NY Appeals Court stays suspension pending his appeal

Hello welcome to this JACPA Ethics Alert blog which will discuss a recent disciplinary opinion wherein a New York lawyer was suspended for 2 years after his firm employee (and brother) allegedly misappropriated over $4 million of client trust funds as well as the subsequent Order to Show Cause issued by an appellate judge staying on March 19, 2012 staying the suspension pending the responses to an Order to Show Cause.  The initial opinion is In Matter of Peter J. Galasso, 2010-01047 (February 21, 2012).

In the initial opinion imposing the 2 year suspension, the New York Supreme Court’s Appellate Division, Second Department found that the lawyer violated Bar rules related to breach of fiduciary duty, unjust enrichment, failure to supervise a non-lawyer employee, failure to safeguard the funds of a client, and failure to timely comply with grievance committee information demands.  According to the opinion, the lawyer failed to show “appropriate vigilance over his firm’s bank account”.

The lawyer’s brother pled guilty to two counts of grand larceny and 20 other criminal charges in 2008.  The criminal charges centered on trust funds related to three separate clients, including more than $4.8 million from an escrow account for a client who was being represented by the lawyer in a divorce.  According to the opinion, the brother concealed his theft by using forged signatures and diverted bank statements.

The disciplinary opinion stated: “(t)o date, the respondent has failed to deliver or pay more than $4.3 million of the Baron funds to the respective parties to whom such funds are due and owing.”  The opinion noted that the lawyer had cooperated with the criminal prosecution of his brother and that the lawyer had sued the two banks that handled the accounts in question.  The opinion also acknowledged that the lawyer had made changes in his business practices and that the panel had considered 37 letters vouching for the lawyer’s good character, ”(h)owever, we find that the respondent failed to maintain appropriate vigilance over his firm’s bank accounts, resulting in actual and substantial harm to clients.”

The lawyer’s suspension was scheduled to begin on March 21, 2012; however, he filed an appeal with the New York Court of Appeals.  On March 19, 2102, a New York Court of Appeals Judge issued an Order to Show Cause which stayed the suspension until the lawyer’s appeal is considered.  According to media reports, the Grievance Committee for the (NY) Ninth Judicial District was scheduled to file its response by April 2, 2012.

Also according to the media reports, the lawyer argued in his appeal that the opinion wrongly used a strict liability standard in analyzing the trust account issues which would require all lawyers “to be insurers of all escrow deposits” and “unfairly results in a lawyer’s law license being posted as additional collateral for his costly designation on an attorney escrow account.”

The appeal also stated that “(a)side from imposing an unattainable level of managerial and investigative skills upon lawyers, the Appellate Division has declared that attorneys in operating escrow accounts, beyond any financial exposure they may face, must now post their licenses as some sort of additional collateral to their exposure in damages…(w)ith this holding, the prospects of finding attorneys willing to hold client escrow will be bleak. In the end, the public will suffer as well.”

Bottom line:  This is an interesting case which illustrates how lawyers may be at risk of discipline for trust account rule violations, including misappropriation, even when the lawyer is unaware of the rule violations and misappropriation of funds.  The Florida Bar and other states (including New York apparently) have taken the position that lawyers will be held strictly liable for misappropriation and other trust account rule violations.  It will be interesting to see how this appeal plays out in New York.  I’ll keep you posted…

As always, if you have any questions about this Ethics Alert or need assistance, analysis, and guidance regarding these or any other ethics, risk management, or other issues, please do not hesitate to contact me.

THE LAW OFFICE OF JOSEPH A. CORSMEIER, P.A.

PROVIDES ETHICS ADVICE AND EXPERT OPINIONS TO LAWYERS AND LAW FIRMS

DEFENDS LAWYERS IN BAR MISSION AND DISCIPLINE CASES

(AND MUCH MORE!)

My law firm focuses on review, analysis, and interpretation of the Rules Regulating The Florida Bar, advice and representation of lawyers in Bar disciplinary matters, defense of applicants for admission to The Florida Bar before the Board of Bar Examiners, defense of all Florida licensed professionals in discipline and admission matters before all state agencies and boards, expert ethics opinions, and practice management for lawyers and law firms.  If there is a lawyer or other Florida professional license involved, I can defend the complaint or help you get your license.

If you have any questions or comments, please call me at (727) 799-1688 or e-mail me at [email protected].  You can find my law firm on the web at www.jac-law.com. In addition to handling individual cases, matters, problems and issues for my clients, I also am on retainer to provide ethics advice to numerous lawyers and law firms throughout the state of Florida.  I also provide legal assistance and advice to numerous individuals and non-legal entities to help insure compliance with the law and rules related to UPL and other issues.

Disclaimer:  this e-mail does not contain any legal advice and the comments herein should not be relied upon by anyone who reads it.

Joseph A. Corsmeier, Esquire

Law Office of Joseph A. Corsmeier, P.A.

2454 McMullen Booth Road, Suite 431

Clearwater, Florida 33759

Office (727) 799-1688

Fax     (727) 799-1670

[email protected]

www.jac-law.com

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