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In re Pels

January 30, 1995

IN RE: KENNETH A. PELS, RESPONDENT, A MEMBER OF THE BAR OF THE DISTRICT OF COLUMBIA COURT OF APPEALS


Before Farrell and King, Associate Judges, and Gallagher, Senior Judge.

The opinion of the court was delivered by: Farrell

On Report and Recommendation of the Board of Professional Responsibility.

FARRELL, Associate Judge: This disciplinary matter, as various members of the Board on Professional Responsibility recognized, tests the resolve of this court in enforcing the rule reaffirmed in In re Addams, 579 A.2d 190 (D.C. 1990) (en banc), "that in virtually all cases of misappropriation, disbarrment will be the only appropriate sanction unless it appears that the misconduct resulted from nothing more than simple negligence." Id. at 191. Majorities of the Hearing Committee (the Committee) and the Board on Professional Responsibility (the Board) concluded that respondent misappropriated client funds and did so recklessly, i.e., as a result of more than simple negligence. The Committee majority recommended disbarrment in light of Addams, as did two Board members. The other three Board majority members recommended that disbarrment be stayed as to all but a three-month period of suspension, to be followed by probation subject to practice and financial monitors. The four Dissenting Board members concluded that respondent's conduct involved no more than simple negligence, and recommended suspension for six months.

We agree with the majorities of the Committee and the Board that respondent misappropriated client funds, that his conduct in doing so was reckless, and that Addams requires his disbarment. We reject the recommendation of some Board members of a stay of disbarment, as we believe that would enervate, if not destroy, the deterrent force of the rule reaffirmed in Addams. And we decline to apply the mitigation rule of In re Kersey, 520 A.2d 321 (D.C. 1987), and succeeding cases, so far applicable only to attorney misconduct caused by substance abuse or mental illness, *fn1 to this case of reckless misappropriation caused by neither. The sanction we impose may seem harsh as applied to an attorney not claimed to have been dishonest and who undertook here "his first representation of a plaintiff in a contingent fee personal injury matter." *fn2 But in Addams we placed upon the attorney the burden of proving "extraordinary circumstances," 579 A.2d at 191, that justify departure from the presumptive rule of disbarrment for conduct such as respondent's that jeopardizes client funds held in trust and undermines public confidence in the bar. No such exceptional circumstances have been shown to us in this case.

I.

On February 27, 1992, Bar Counsel filed a petition for discipline alleging that respondent had (1) commingled personal funds with those of a client in a non-escrow bank account; (2) misappropriated client settlement funds he was obligated to retain for payment to the client's third-party medical care providers; (3) failed to maintain records and render accounts to the client; and (4) failed to deliver promptly client funds. *fn3 Respondent answered by admitting that "funds held on the complainant's behalf were commingled in a non-escrow account," but otherwise denied the allegations of misconduct.

A hearing committee conducted an evidentiary hearing and made detailed written findings of fact. Thereafter, the Board majority, while recognizing its obligation "to accept the hearing committee's factual findings if those findings are supported by substantial evidence in the record, viewed as a whole," In re Micheel, 610 A.2d 231, 234 (D.C. 1992), summarized the evidence independently with repeated citations to the record, and only then sustained "the factual findings of the Hearing Committee regarding respondent's misappropriation and recklessness supported by substantial evidence." We in turn set forth the facts as found by the Board (and the Committee) mindful of our obligation to accept "the findings of fact made by the Board unless they are unsupported by substantial evidence of the record. . . ." D.C. Bar R. XI, § 9 (g) (1994).

Elizabeth Langlois retained respondent in August 1986, while she was in the hospital recovering from injuries sustained in a motor vehicle accident. She signed a retainer agreement providing for respondent to represent her in a possible personal injury action arising from the accident. Respondent's fee was to be thirty-three percent of any amounts recovered. Ms. Langlois agreed "to pay, in addition to Attorney's fees, all reasonable and necessary costs as incurred in this matter"; respondent was to "pay all expenses and charges from monies received from any recovery or settlement."

In December 1988, respondent negotiated a settlement of the claim with the insurance carrier for the other driver, and on January 6, 1989, the insurance company sent him a check for $20,000, the proposed settlement amount, payable to Ms. Langlois and respondent as her attorney. Respondent wrote Ms. Langlois two letters dated January 9, 1989. One reviewed the reasons why he recommended accepting the $20,000 settlement offer. The other outlined the proposed distribution of the proceeds. It began by stating that "we *fn4 will waive the recoverable cost incurred in this litigation and I am waiving $300 of the fee and $500 of the Administrative Cost." It then represented that, in addition to the one-third amount ($6,666.66) respondent was entitled to receive under the retainer agreement, settlement funds would be withheld for distribution to four medical providers, including $1,772 to Dr. William Launder for examination and evaluation, $345 to Neurodiagnostic Center ("Neurology" in the letter), and $185 to Greater Laurel Beltsville Hospital. From the remaining amount an additional $500 would be deducted for "Approximate Administrative and Miscellaneous Expenses," and the waived $800 in partial fees and administrative costs would be restored to the amount, leaving a balance due Ms. Langlois of $11,206.34. Ms. Langlois accepted the settlement and agreed to the proposed distribution.

Respondent obtained Ms. Langlois' endorsement on the $20,000 check and deposited it into an account at Citizens Bank of Maryland. This was not an escrow or client trust account, but rather a checking account (variously referred to in the proceedings as an operating or "flush" account) which respondent used to pay business and personal expenses. He maintained a second account in the same bank, which was a savings account in the names of himself and his wife that earned higher interest than the checking account but on which the depositor could not write checks. Respondent had relied on the advice of bank officials in maintaining this "two-tiered" or tandem account structure; he testified that his practice was to transfer funds from the latter account to the former as needed to cover obligations. He did not seek the advice of any attorneys in regard to escrow accounts, even though his firm had both an operating account and an escrow account.

On January 10, 1989, after depositing the settlement check, respondent issued a check drawn on the operating account to Ms. Langlois in the amount of $11,206.34. After this check was presented and honored, and before respondent began reimbursing the medical care providers, the balance in his operating account was $9,902.51, including $2,427 held in trust to pay Ms. Langlois' medical bills. Over the next several months, however, respondent wrote a large number of checks from the account for family and personal expenses as well as for business-related expenses. *fn5 The result was that, after respondent distributed two checks totaling $1,200 to Dr. Launder, his checking account balance fell below the amounts needed to pay the balance of outstanding claims of Dr. Launder, Neurodiagnostic Center, and the hospital. As the Committee found, "the account balance . . . fluctuated, so that on some days in February and March 1989, there were more funds in the Citizen/operating account than respondent was obligated by his own accounting to pay out to Ms. Langlois' medical providers[,] while on other days there were not sufficient funds to do so." By late March 1989 the checking account was overdrawn, at a time when respondent was still holding funds for payment to Ms. Langlois' medical care providers.

In April 1989, respondent opened another non-escrow checking account, this time at Riggs Bank with a deposit of $322. No evidence was elicited explaining whether this was a successor to the two Citizens Bank accounts or an additional account. In October 1989, respondent drew a check on this account for $345 payable to Neurodiagnostic Center. The check was presented twice, first in November and then in December 1989, and was dishonored both times because of insufficient funds. At the point in December 1989 when the balance in the Riggs account was in overdraft, respondent was still required to hold funds to pay Dr. Launder and the hospital. In January 1990, one year after settlement of Ms. Langlois' personal injury claim, respondent issued a new check to the Neurodiagnostic Center that was presented and honored.

In December 1990, respondent opened his first escrow account, this time at Damascus Community Bank. Meanwhile, Ms. Langlois had begun receiving bills from Dr. Launder claiming an outstanding balance due. In June 1991, after Bar Counsel notified him of the receipt of a disciplinary complaint from Ms. Langlois, respondent issued one additional check to Dr. Launder for $140. Respondent had now paid Dr. Launder by way of three checks totaling $1,340, after advising his client that he was holding back $1,772 in settlement funds to pay Dr. Launder's outstanding bill. Respondent testified that the $432 difference was attributable to an irregularity in Dr. Launder's charges which respondent's staff had discovered. According to Ms. Langlois, however, she never received the benefit of this saving, and respondent never asked permission to use this money for any purpose other than to pay the bills listed in the distribution letter. The Committee found that respondent retained $432 from the settlement funds which were never paid out or distributed. As to the $185 owed to Greater Beltsville Community Hospital, the Committee found that respondent had produced no records documenting this payment, but that "in the absence of any evidence [adduced by Bar Counsel] to the contrary," the hospital bill had been paid. *fn6

At various times between August 1986 and August 1989, respondent had advised Ms. Langlois concerning her medical discharge from the Navy, which resulted from injuries she sustained in the motor vehicle accident. When he asked her to sign a retainer for his services related to the Naval Board, however, she refused, stating that she had done most of the preparation herself. Respondent nonetheless testified that his unreimbursed expenses for these and yet other services on Ms. Langlois' behalf entitled him to the difference between the $1,772 held to pay Dr. Launder and the $1,340 paid. As the Committee found, however, respondent could produce neither a retainer agreement nor a "statement or invoice for these services[] or out-of-pocket disbursements incurred in connection therewith." The Board similarly found that respondent "produced no exhibits showing that the savings *fn7 had been properly accounted for and credited against any amounts that Ms. Langlois might owe him."

II.

On the basis of these facts, the Committee concluded that Bar Counsel had proved the charge of misappropriation by clear and convincing evidence:

[Respondent's] Riggs account -- set up after, and apparently replacing the two-tier structure [of linked checking and savings accounts at Citizens] -- was overdrawn before the medical bills were settled. At this point, a misappropriation occurred.

The Board saw the misappropriation as having begun earlier, concluding that

when Respondent deposited Ms. Langlois' insurance funds into his flush account, and then proceeded to write several checks for unrelated expenditures from this "flush" account, and the funds in the account fell below what ...


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