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In re PRB No. 2013-145

Supreme Court of Vermont

January 25, 2017

In re PRB No. 2013-145

         APPEALED FROM: Professional Responsibility Board DOCKET NO. 2013-145

          ENTRY ORDER

         In the above-entitled cause, the Clerk will enter:

         ¶ 1. Upon review of the hearing panel decision in this matter, the Court concludes as follows: The decision presents a well-reasoned discussion and resolution of a problem common in legal practice, particularly for small firms and solo practitioners. 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

         Decision No. 203

         This disciplinary matter came on for hearing on the merits on July 19, 2016, before Hearing Panel No. 9, Karl C. Anderson, Esq., Chair, Kate Thomas, Esq. and Mr. William N. Scranton. Present were Kimberly Rubin, Esq., Disciplinary Counsel, Respondent, and Edward Fitzpatrick, Esq., counsel for Respondent.[1]

         Based upon the parties' Stipulation of Facts, the testimony and evidence adduced at hearing, and the parties' respective memoranda of law, the Hearing Panel hereby admonishes Respondent for violations of Rules 1.15A, 1.15A(a) and 1.15A(a)(2) of the Vermont Rules of Professional Conduct, for failing to safeguard client funds held in trust. Specifically, Respondent did not perform timely reconciliations of his client trust account and failed to keep accurate records of client funds held in trust.

         The Issues Presented

         The parties stipulated that Respondent violated Rules 1.15A, 1.15A(a) and 1.15A(a)(2) of the Vermont Rules of Professional Conduct by failing to safeguard client funds. Respondent admits that he did not timely reconcile his IOLTA account and did not keep accurate records of the client funds he held in trust. Disciplinary Counsel also charged Respondent with violating Rules 1.15(a)(1) and 1.15(d) of the Rules of Professional Conduct, alleging Respondent commingled Respondent's funds with client funds in his client IOLTA account. Respondent denied the charge that he violated Rules 1.15(a)(1) and 1.15(d). The parties did not stipulate to the sanction to be imposed. Disciplinary Counsel asked the Hearing Panel to issue a public reprimand for all violations. Respondent argued that private admonition was the appropriate sanction in this case. The parties jointly requested a hearing on the merits of the contested charges and on the issue of sanctions.

         Findings of Fact

         The parties have stipulated to many of the relevant facts in this case. The Hearing Panel accepts the parties' stipulated facts and makes the following findings.

         Respondent is an attorney licensed to practice law in the State of Vermont. Respondent was admitted to the Vermont Bar in 1992. Respondent and his law partner maintain a private law practice in Vermont [hereinafter the Firm]. During his years of practice, Respondent regularly handled real estate transactions for buyers and sellers.

         In June 2012, Disciplinary Counsel selected Respondent's IOLTA account for a compliance examination by the Professional Responsibility's Program. Compliance examinations are part of the Program's trust account oversight program.

         Between 2003 and 2007, Respondent's Firm retained an independent contractor to serve as the Firm's bookkeeper. The bookkeeper was responsible for maintaining the Firm's IOLTA account as part of the bookkeeper's responsibilities. In 2007, Respondent's Firm assigned the bookkeeping duties to one of its employees, paying the employee a monthly stipend for the work. The employee was responsible for maintaining the Firm's IOLTA account, among other tasks.

         At all times relevant to this disciplinary matter, Respondent's Firm has used Quicken commercial bookkeeping software for financial record keeping. Respondent's Firm used Quicken to record its deposits into, and withdrawals from, the Firm's IOLTA account.

         Shortly after the Firm was notified that Disciplinary Counsel would be conducting a compliance examination of the Firm's trust accounts, the Firm's bookkeeper suddenly quit the Firm. Respondent reviewed the Firm's IOLTA account records and discovered the IOLTA account had not been reconciled for six months. The employee's sudden departure caused Respondent significant concern, so Respondent hired an accountant to audit the Firm's IOLTA account from 2007 to the present to determine if there were any improper transactions. Respondent's independent audit commenced approximately three months before Disciplinary Counsel performed her compliance exam on September 19, 2012. Respondent also retained legal counsel to assist Respondent with his investigation. Part of counsel's responsibilities included assisting Respondent with implementing accounting procedures that would bring, and keep, the Firm's accounting practices in compliance with the Rules of Professional Conduct.

         Disciplinary Counsel retained a Certified Public Accountant ("CPA") to perform the compliance examination. The CPA was tasked with determining if Respondent's IOLTA account was in compliance with Rules 1.15 through 1.15B of the Vermont Rules of Professional Conduct, for the period of October 1, 2009 through September 19, 2012. Upon completing the examination, the CPA provided a written report to Disciplinary Counsel on January 3, 2013. (The Auditor's report is dated September 19, 2012, the date of the audit, which is a common practice for auditors.)

         The CPA reviewed only one bank statement for Respondent's IOLTA account, being the statement covering the period of January 1, 2012 through January 31, 2012. The CPA found the following compliance issues:

1. Transactions entered in Quicken for the IOLTA account were not categorized by client or matter, making it impossible to sort and find transactions by client or to determine client balances. (A lawyer shall maintain an individual record for each client or person whose funds are held in a trust account, showing all receipts, disbursements and a running account balance by client, is required by V.R.P.C. Rule 1.15A(a)(2).)
2. The Quicken register showed a recurring balance of approximately $32, 000 in the IOLTA account, but it was impossible to ascertain if this figure represented the correct balance, or to whom the funds belonged. (A lawyer shall maintain an accounting system showing all receipts and the nature of disbursements, and a record of the same of each client. V.R.P.C. Rules 1.15A(a)(1) & (2).)
3. As of September 19, 2012, the most recent reconciliation of the IOLTA account, comparing the Quicken transaction entries and running balance against a bank statement, was January 31, 2012. (Regular reconciliation of the trust account balance is an integral component of a trust accounting system required by V.R.P.C. Rule 1.15A(a).)
4. The January 31, 2012 bank reconciliation identified approximately $75, 000 of stale, outstanding checks, dating back as far as 2003. Many of these checks were payable to the Firm. (Prompt delivery of trust funds, including remittances to the State Treasurer of "unclaimed property" is required by V.R.P.C. Rule 1.15(d); accumulation of a lawyer's own funds in a trust account is prohibited by V.R.P.C. Rule 1.15(b).)

         The CPA's report to Disciplinary Counsel concluded that the Firm was not in compliance with Rules 1.15 through 1.15B of the Vermont Rules of Professional Conduct for the period of October 1, 2009 through September 19, 2012.

         Based on the CPA's findings, Disciplinary Counsel opened her own investigation into Respondent's trust account practices. Following her investigation, Disciplinary Counsel concluded that Respondent's IOLTA account was not in compliance with the Rules of Professional Conduct in four specific ways:

1. Maintaining approximately $75, 000 of stale outstanding IOLTA checks, dating as far back as 2003, constituted violations of Rules 1.15(a)(1) and 1.15(d) of the Rules of Professional Conduct;
2. Having an IOLTA account running balance of approximately $32, 000 that could not be verified or accounted for constituted a violation of Rule 1.15A(a);
3. Failing to reconcile the trust account for nine months constituted a violation of Rule 1.15A(a); and
4. Failing to categorize trust account entries by client or matter constituted a violation of Rule 1.15A(a)(2).

         Once the CPA examination was complete, Respondent took the initiative to retain a CPA, at Respondent's sole expense, to assist Respondent in transforming his trust accounting practices so that Respondent was in compliance with the Rules of Professional Conduct. Respondent implemented his CPA's recommendations.

         Respondent acknowledged that his Firm did not reconcile its IOLTA account for approximately 9 months. Respondent admitted that, prior to the compliance examination, Respondent was not aware that the Rules of Professional Conduct required Respondent to maintain a record of each client's IOLTA funds, including all deposits, disbursements, and running balances. Respondent rectified the error, taking advantage of all of the functions his Quicken software provides. Respondent is now able to identify the source of all receipts and disbursements recorded in the Firm's IOLTA account, and has categorized all transactions by client.

         As to the approximately $75, 000 in stale outstanding checks, Respondent determined that these checks were related to real estate transactions Respondent handled. (During a real estate purchase, the buyer's lawyer issues IOLTA checks to pay closing costs, including an IOLTA check to a title insurance company to pay the title insurance premium and another IOLTA check payable to the lawyer for the lawyer's title insurance commission.) Respondent investigated these uncashed checks and determined that $74, 714.00 was payable to the Firm for title insurance commissions. These checks were deposited or cashed by Respondent's Firm between February 1, 2012 and September 19, 2012, the latter being the date of the compliance examination.

         With respect to running balance of approximately $32, 000.00, Respondent's was able to resolve the issue. Respondent's accountant found a few instances of transposed numbers and a double deposit entry that erroneously inflated the balance of Respondent's IOLTA account. After correcting the IOLTA account entries, the balance accurately represented client retainers held for the payment of attorney fees once those fees are earned.

         To bring the IOLTA account into compliance with the Rules, Respondent reissued checks and submitted the remaining funds, being $560.00, to the Voluntary Compliance Program, Unclaimed Property Division of the Office of State Treasurer. Respondent admitted he was unaware of the Rule ...


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