Before Terry, Farrell, and Washington, Associate Judges.
The opinion of the court was delivered by: Farrell, Associate Judge
On Report and Recommendation of the Board on Professional Responsibility
As of January 2000, Rule 1.15 (d) of the District of Columbia Rules of Professional Conduct provides that "[a]dvances of unearned fees and unincurred costs shall be treated as property of the client . . . until earned or incurred unless the client consents to a different arrangement." The present disciplinary matter, however, arose in the context of the predecessor Rule 1.15 (d), which specified that "[a]dvances of legal fees and costs become the property of the lawyer upon receipt." *fn1 Respondent (Arneja) received certain Personal Injury Protection (PIP) insurance payments while representing two clients and an estate in connection with a personal injury suit he was engaged to file. Although he used a portion of these receipts to pay personal expenses (leaving his trust account at various times below the amount of the received payments), the Board on Professional Responsibility rejected Bar Counsel's charge of misappropriation because it found that the clients had consented to Arneja's use of the PIP funds to pay expected litigation expenses, thereby making them his property under former Rule 1.15 (d). At the same time, the Board found that Arneja had violated Rule 1.15 (a) (commingling), Rule 1.15 (b) (failure to notify and promptly deliver funds to clients and/or third parties), Rule 1.16 (a) (failure to withdraw from representation after notification of discharge), Rules 1.8 (i) and 1.16 (d) (failure to surrender files on termination of representation), and Rule 8.4 (c) (conduct amounting to dishonesty, fraud, deceit, and/or misrepresentation). The Board recommends that Arneja be suspended from the practice of law for one year.
Bar Counsel contests the Board's failure to find misappropriation of client funds on two grounds. First, she argues that the PIP payments did not lose their character as client funds entrusted to Arneja merely because he was permitted to use them to pay litigation costs. Second, she contends the record shows at most that the clients consented to use of a portion, but not all, of the PIP funds for litigation expenses. Arneja, for his part, contends mainly that the record fails to establish either commingling or dishonesty - the latter based partly on his having filed the personal injury suit naming himself as the attorney of a client who had fired him. We accept the Board's findings and recommendation, and therefore order respondent's suspension for one year.
The Hearing Committee of the Board found that Arneja, a solo practitioner, agreed to represent Arcadio Gonzalez, the estate of Mr. Gonzalez's deceased wife (Ana Edith Rodriguez), and Reyna Castillo in connection with a claim for damages arising from a May 1993 automobile accident in which a tree fell on the car Mr. Gonzalez was driving, killing Ms. Rodriguez and injuring Mr. Gonzalez and Ms. Castillo. In February 1994 Arneja received a PIP insurance check for $2,500 payable to Mr. Gonzalez, and in March 1994 he received a second PIP check for $2,500 payable to Ms. Castillo. He endorsed both checks and deposited them in his trust account. Minus litigation expenses of $365 at the time, the monies received from the Gonzalez/Castillo clients totaled $4,635. Between February and July 1994 Arneja transferred funds from the trust account to his operating account (and vice-versa) to pay business and/or personal expenses, *fn2 with the result that in June and again in July the balance in the trust account had dipped well below the PIP payments received minus litigation expenses. The same thing occurred after November 1994 when Arneja received a PIP check from Mr. Gonzalez's insurer payable to the Rodriguez estate. Between November and late January 1995, he drew checks payable to "Arneja's Law Office" on the trust account and deposited them in the operating account, leaving a February 1995 balance in the trust account well below the combined PIP payments received less litigation expenses ($761.66 by then) and a $1,000 "loan" he had made to Mr. Gonzalez from the operating account.
The Hearing Committee further found that in April 1995 Mr. Gonzalez retained new counsel (Joseph Malouf) to represent him in his personal injury claim, and that around May 1, 1995, Arneja received a letter from Gonzalez terminating his representation and asking him to send the case file to successor counsel. Between May and December 1995 Malouf repeatedly asked Arneja to turn over the Gonzalez file, but Arneja refused to do so until his "investment of time and money" in the case could be discussed. In late December 1995 Arneja delivered some documents concerning his representation of Gonzalez to Malouf, but did not deliver any of the PIP funds held in trust for Gonzalez or the Rodriguez estate. In a June 1996 letter to Bar Counsel Arneja characterized his refusal to turn over the Gonzalez file as the exercise of his right to protect his "appreciable investment" in the case.
On or about October 2, 1995, following his discharge by Gonzalez, Arneja filed a complaint in the United States District Court for the District of Columbia entitled Gonzalez, et al. v. United States Park Service, *fn3 naming himself as attorney for Mr. Gonzalez, the Rodriguez estate, and Ms. Castillo. Subsequently, in February 1996 Arneja gave Castillo a trust account check for $2,300 along with a letter, which she signed, confirming his authority to represent her. In a July 1996 letter Castillo discharged him as her lawyer and asked him to send her file to Malouf. In January 1997 Arneja tendered three checks payable to Malouf as successor counsel, each representing part of the PIP payments. In the meantime, contrary to Mr. Gonzalez's expectation that PIP money would be used to pay his medical bills, Arneja did not pay those bills, and Mr. Gonzalez's wages ended up being garnished by the Washington Hospital Center where he had received treatment.
The issue of most consequence dividing the parties is whether, as Bar Counsel contends, Arneja misappropriated client funds by using the PIP payments to pay personal (business or other) expenses, thus letting his trust account balance fall below the amounts entrusted to him on behalf of Gonzalez, Castillo, and the Rodriguez estate. The Hearing Committee concluded, and the Board agreed, that if the PIP payments were deemed to be client funds, Arneja's failure to keep records and repeated disregard of the trust account balance would constitute reckless misappropriation, see In re Anderson, 778 A.2d 330 (D.C. 2001), presumptively requiring disbarrment. See In re Addams, 579 A.2d 190 (D.C. 1990) (en banc). *fn4 The Hearing Committee and the Board concluded, however, that Bar Counsel had failed to prove by clear and convincing evidence that the PIP payments were client funds, given testimony by Arneja and other witnesses that the clients had consented to use of the PIP funds for litigation expenses, thus making them "property of the lawyer" under Rule 1.15 (d), as then formulated.
Bar Counsel initially contends that even if Gonzalez and Castillo gave Arneja permission to use the PIP funds to pay litigation costs, "the character of the PIP funds did not change - they remained client funds which [he] had authority to use only for litigation purposes," not personal expenses. We agree with the Board that this confuses the present rule with the former one. Although an attorney now is obligated under Rule 1.15 (d) to hold advances of unincurred costs and unearned fees in trust unless the client consents to a different arrangement, under former Rule 1.15 (d) he had no such obligation. The advances became his property which he was authorized to place in his operating account and treat as his own. See In re Mitchell, 727 A.2d 308, 311 n.2 (D.C. 1999) (advances of legal fees are properly deposited in operating account); In re Osborne, 713 A.2d 312 (D.C. 1998) (commingling found where attorney deposited advance fees and expenses in trust account); In re Powell, 646 A.2d 340, 344 & n.14 (D.C. 1994) (recognizing that under former disciplinary rule a charge of misappropriation could be avoided by showing that client funds had been "transmuted into advances for costs and expenses").
Admittedly, as the Board stated, it "appears anomalous that the character of [the PIP] funds should be converted from entrusted funds to attorney funds by the simple fact that [Arneja] was entitled to use the funds for litigation expenses." Indeed, as Bar Counsel points out, Arneja's actual belief at the time was that the funds were not his and that he held them in trust, mistakenly thinking he fulfilled that duty by keeping other funds - a certificate of deposit, see note 4, supra -in reserve in case they were needed to cover client obligations. But Rule 1.15 (d) as written at the time controls this issue. That it provided Arneja (and possibly other lawyers) "an unexpected technical defense," in the Board's words, may have something to do with why it was later changed, but the Board is correct in its conclusion that the consent Arneja had received to use the payments for litigation costs stripped them of their identity as client funds under the rule then prevailing. Stated differently, Arneja's trust obligation at the time regarding these funds was limited to making prompt repayment of unearned fees and unaccrued expenses if and when his services were terminated.
Bar Counsel, however, goes on to dispute the Hearing Committee's finding that consent had been given to use of all the PIP funds for litigation costs. She says no evidence was presented that Arneja received permission to spend the PIP payment to Ana Edith Rodriguez's estate for that purpose, whatever may be said of the payments to Gonzalez and Castillo. This argument implicates the deference that both the Board and this court are required to give to factual findings of the Hearing Committee, see D.C. Bar Rule XI, § 9 (g), especially those resting - as here - on credibility determinations. See In re Micheel, 610 A.2d 231, 234 (D.C. 1992). The Committee credited testimony by Arneja and other witnesses that at his initial meeting with Gonzalez and Castillo, both clients agreed to Arneja's use of the PIP payments to fund the expected litigation. All three insurance payments, for relatively modest amounts, were made pursuant to Gonzalez's automobile insurance policy, and nothing in the record suggests that he limited his consent to their use to funds payable to him directly and not to his deceased spouse. *fn5 Moreover, at the time the consent was given, Gonzalez was the most likely person to be designated his wife's personal ...