Respondent and Disciplinary Counsel requested a hearing on merits on the question of whether Respondent violated Rules 1.15(a)(1) & (d). The parties ask the Hearing Panel to determine if Respondent violated Rules 1.15(a)(1) & (d) by Respondent failing to take timely payment of his fees and commissions from his IOLTA account, thereby allowing Respondents funds to accumulate and commingle with client funds in the IOLTA account.
Motion to Amend Charge
One matter must be addressed prior to turning to the merits of the case. During the hearing, Disciplinary Counsel moved to amend the disciplinary charges to include a charge of violating Rule 1.3, failure to exercise due diligence. Disciplinary Counsel argued that the Hearing Panel had the legal authority to permit amendment of the disciplinary charges during the course of a hearing when justice so requires. Respondent objected to amending the charge, arguing that amending the charge during the hearing was prejudicial and precluded Respondent from preparing and presenting a defense to the charge.
Disciplinary matters are governed by the Vermont Rules of Civil Procedure. A.O. 9, Rule 16(B). V.R.C.P. 15(a) provides: A party may amend the partys pleading ... by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires. In Bevins v. King , the Vermont Supreme Court outlined the standard to be applied when considering a motion to amend pleadings:
Both the Vermont rules of civil procedure and the common law tradition of this state encourage liberality in allowing amendments to pleadings where there is no prejudice to the other party. Tracy v. Vinton Motors, Inc. , 130 Vt. 512, 296 A.2d 269 (1972) ; V.R.C.P. 15. When permission of the court to amend a pleading is required, it shall be freely given when justice so requires. V.R.C.P. 15(a). Such a motion is addressed to the discretion of the trial court, and its action thereon is not reviewable, unless it appears that the court withheld or abused its discretion. When there is no prejudice to the objecting party, and when the proposed amendment is not obviously frivolous nor made as a dilatory maneuver in bad faith, it is an abuse of discretion to deny the motion....
The principal reasons underlying the liberal amendment policy are (1) to provide maximum opportunity for each claim to be decided on its merits rather than on a procedural technicality, (2) to give notice of the nature of the claim or defense, and (3) to enable a party to assert matters that were overlooked or unknown to him at an earlier stage in the proceedings. 6 C. Wright & A. Miller, Federal Practice & Procedure §§ 1471, 1473 (1971). The rules go so far as to permit amendments during trial and after judgment, provided the opposing party is unable to show prejudice. V.R.C.P. 15(b).
143 Vt. 252, 254-55, 465 A.2d 282, 283 (1983) (emphasis added) (some citations omitted). If an amendment is granted during trial, a party may be entitled to a continuance to have an opportunity to prepare a response to the amended pleading. See Shahi v. Madden , 2008 VT 25, ¶ 7, 183 Vt. 320, 949 A.2d 1022 (quoting Perkins v. Windsor Hosp. Corp. , 142 Vt. 305, 314, 455 A.2d 810, 816 (1982) ( Any surprise engendered by allowance of the proposed amendment could have been eliminated by requesting a continuance of the trial. )). In ruling on a motion to amend, the Hearing Panel must be mindful of the parties right [to] a just and expeditious disposition of [their] case. First National Bank v. Silberdick , 146 Vt. 209, 211-12, 499 A.2d 775, 776 (1985) (court properly denied motion to amend when the facts and theory underlying defendants estoppel defense, although undisclosed to plaintiff, were available to defendant for months before trial, and defendants motion amounted to an unjustifiable and deliberate delay) (citing 6 C. Wright & A. Miller, Federal Practice & Procedure § 1488, at 444 (1971) ); see also Stratton v. Steele , 144 Vt. 31, 36, 472 A.2d 1237, 1240 (1984) (there are limits to the liberal application of these rules; motions to amend may be denied if they have been unreasonably delayed, causing prejudice to the opposing party.).
To rule on Disciplinary Counsels motion, the motion must be placed in context. Disciplinary Counsel was questioning Respondent regarding stipulated Exhibits B and C. Exhibit B is a thirteen page list of uncleared checks that were written on Respondents IOLTA account between May 2003 and January 2012. Exhibit C is a one page list of checks with the date each check was cashed. The checks listed in Exhibits B and C were payable to Respondents Firm and to others. During examination, Disciplinary Counsel was able to show that months and years passed between the time an IOLTA check was written and later cashed. Disciplinary Counsel asked Respondent to explain why Respondent held the IOLTA checks made payable to him so long, sometimes as long as 9 years. Respondent answered that he could not recall and would need to review the file to determine why he did not cash his IOLTA payment. Respondent responded that he would not cash or deposit the IOLTA checks payable to him until the fee or commission was actually earned. Respondent stated that if he did not cash an IOLTA check for his fee, then he must assume that he had not yet earned the fee. Disciplinary Counsel and Respondent did not have any of the files associated with the IOLTA checks present during the hearing. Accordingly, Disciplinary Counsel did not have any evidence to support the inference that Respondent failed to timely cash IOLTA checks payable to him, thereby permitting his funds to accumulate and commingle with client funds in the IOLTA account.
Not having the evidence necessary to prove commingling, Disciplinary Counsel asked to amend the charge to include violation of Rule 1.3, failure to exercise due diligence. Disciplinary Counsel argued that, taking Respondent at his word, Respondent took years, sometimes as many as 5 and 9 years, for Respondent to complete his post-closing duties. Disciplinary Counsel argued that Respondent was not diligent in completing his real estate duties.
Respondent argued that Respondent was completely unprepared to meet the new charge. As of the date of hearing, Respondent had not reviewed his real estate files and was unprepared to explain why, in any particular case, it took Respondent so long to complete his post-closing tasks so he could collect his fee and/or title insurance commission from the IOLTA account. Respondent argued that amending the charge without granting Respondent an opportunity to prepare and meet the charge was prejudicial.
Disciplinary Counsel responded that Respondent was aware that a charge of violating Rule 1.3 was a possibility. Disciplinary Counsel informed the Hearing Panel that the parties had discussed Rule 1.3 some time ago, and Disciplinary Counsel warned Respondent that a charge of violating Rule 1.3 was a possibility. For reasons not articulated at the hearing, Disciplinary Counsel chose not to issue a charge for violation of Rule 1.3.
The Hearing Panel denied Disciplinary Counsels motion to amend the charges. Amending the charges and going forward with the hearing was prejudicial to Respondent, as it would deny Respondent a fair hearing. From the PRB docket number, it appears that this case has been pending since 2013. Disciplinary Counsel began investigating this case in September 2012, and received its CPAs report in January 2013. Disciplinary Counsel has known and understood the facts of this case for months prior to the hearing. Disciplinary Counsel admits that she considered a charge of violation of Rule 1.3 some time ago, but elected not to bring the charge. This is not an instance of facts or legal issues that were overlooked or unknown to Disciplinary Counsel. Respondent is entitled to a just and expeditious disposition of his case. Accordingly, Disciplinary Counsels motion was denied.
Conclusions of Law
Applicable Legal Standards
In general, the [Rules of Professional Conduct] are intended to protect the public from persons unfit to serve as attorneys and to maintain public confidence in the bar. In re PRB Docket No. 2006 - 167, 2007 VT 50, ¶ 9, 181 Vt. 625, 925 A.2d 1026 (mem.) (quoting In re Berk , 157 Vt. 524, 532, 602 A.2d 946, 950 (1991) ). The Hearing Panels findings as to each element of a charge of professional misconduct must be supported by clear and convincing evidence. A.O. 9, Rule 16(C); In re McCarty , 2013 VT 47, ¶ 12, 194 Vt. 109, 75 A.3d 589 (All formal charges of misconduct shall be established by clear and convincing evidence. ). The burden of proof in proceedings seeking discipline or transfer to disability inactive status is on disciplinary counsel. A.O. 9, Rule 16(D).
If a violation of the Rules of Professional Conduct is proved by clear and convincing evidence, one or more sanctions may be imposed. A.O. 9, Rule 8. The purpose of sanctions is not to punish attorneys, but rather to protect the public from harm and to maintain confidence in our legal institutions by deterring future misconduct. In re Obregon , 2016 VT 32, ¶ 19, 201 Vt. 463, 145 A.3d 226 (quoting In re Hunter , 167 Vt. 219, 226, 704 A.2d 1154, 1158 (1997) ); see also In re Neisner , 2010 VT 102, ¶ 24, 189 Vt. 145, 16 A.3d 587.
Violation of Rules of Professional Conduct
Rules 1.15A, 1.15A(a) and 1.15A(a)(2)
The parties concur that Respondent violated Rules 1.15A, 1.15A(a) and 1.15A(a)(2) of the Vermont Rules of Professional Conduct. The facts establish by clear and convincing evidence that Respondent violated Rules 1.15A, 1.15A(a) and 1.15A(a)(2), as set forth below.
Rule 1.15A of the Rules of Professional Conduct provides, in relevant part, the following:
(a) Every lawyer or law firm holding funds of clients or third persons in connection with a representation ... shall hold such funds in one or more accounts in a financial institution. An account in which funds are held that are in the lawyers possession as a result of a representation in a lawyer-client relationship shall be clearly identified as a trust account. ... The lawyer shall take all steps necessary to inform the financial institution of the purpose and identity of all accounts maintained as required in this rule. The lawyer or law firm shall maintain an accounting system for all such accounts that shall include, at a minimum, the following features:
(1) a system showing all receipts and disbursements from the account or accounts with appropriate entries identifying the source of the receipts and the nature of the disbursements;
(2) a record for each client or person for whom property is held, which shall show all receipts and disbursements and carry a running account balance;
(3) records documenting timely notice to each client or person of all receipts and disbursements from the account or accounts; and
(4) single source for identification of all accounts maintained as required in this rule.
In this matter, Respondent violated Rules 1.15A and 1.15A(a) by failing to maintain proper records for his IOLTA account. Respondent failed to reconcile his trust account for nine months. Respondents Quicken software showed a recurring balance in the IOLTA account of approximately $32,000. Respondents accountant discovered that the balance was incorrect because errors were made entering transactions into the accounting program. Respondent also failed to categorize IOLTA transactions by client or matter, making it impossible for Respondent to account for a clients funds. For example, Respondent could not track or obtain a report showing all deposits, disbursements or running balances for a particular client. Finally, Respondent had approximately $75,000 in stale outstanding IOLTA checks by the beginning of 2012. Some of the checks were dating as far back as 2003. Once aware of these outstanding checks, and with the assistance of an accountant, Respondent was able to identify $74,714.00 in fees and/or commissions Respondent could collect from his IOLTA account.
All of these facts establish by clear and convincing evidence that Respondent failed to comply with the trust account rules provided in Rules 1.15A, 1.15A(a) and 1.15A(a)(2).
Rules 1.15(a)(1) & 1.15(d)
Rules 1.15(a)(1) & (d) of the Rules of Professional Conduct provide, in relevant part:
(a)(1) A lawyer shall hold property of clients or third persons that is in a lawyers possession in connection with a representation separate from the lawyers own property. Funds shall be kept in accordance with Rules 1.15A and B.... Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of six years after termination of the representation.
(d) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.
V.R.Pr.C. 1.15(a)(1) & (d).
Disciplinary Counsel argues that Respondent violated these rules by failing to cash $74,714.00 in IOLTA checks that were payable to Respondent, some of which were dated as far back as 2003. At best, Disciplinary Counsel has proved the date on which these IOLTA checks were written, and the dates on which Respondent cashed or deposited these IOLTA checks. Disciplinary Counsel has also established that there were long time intervals between the date these IOLTA checks were written and the date Respondent cashed or deposited these IOLTA checks. Disciplinary Counsel has also shown that Respondent cashed or deposited many of these IOLTA checks shortly before the compliance examination. Disciplinary Counsel has not presented any evidence showing when Respondent earned the fees or commissions associated with any of these stale, outstanding IOLTA checks. Disciplinary Counsel has not presented any evidence showing length of time that passed between the day Respondent earned his fees and the day Respondent cashed the IOLTA check paying those fees.
Respondent agrees that the rules require a lawyer to deposit legal fees and expenses paid in advance into the lawyers IOLTA account. Rule 1.15(c). Respondent correctly argues, however, that a lawyer may only withdraw funds from a clients IOLTA account when the lawyer has earned the fee or incurred the expense. Rule 1.15(c).
The parties agree that once a lawyer earns a fee, or incurs an expense, the lawyer must promptly pay the fee or expense from the clients IOLTA account. Rule 1.15(d). Failure to promptly pay fees or expenses from an IOLTA account may constitute a violation of Rule 1.15(d).
Here, Disciplinary Counsel bears the burden of proving, by clear and convincing evidence, that Respondent earned his fees but neglected to promptly collect those fees by cashing the IOLTA checks written to pay those fees. A.O. 9, Rule 16(D). The long time intervals between Respondent writing an IOLTA check and Respondent cashing the check creates an inference that Respondent neglected the duty of prompt payment, Rule 1.15(d), and allowed his funds to accumulate and commingle with client funds in the IOLTA account. The fact that Respondent cashed many of these stale outstanding IOLTA checks shortly before the compliance examination also supports an inference that Respondent rushed to get his accounts in order prior to the IOLTA account audit. These inferences, however, do not meet the clear and convincing evidence standard. A.O. 9, Rule 16(C). Disciplinary Counsel failed to prove Respondent earned the fees payable from his IOLTA account and then neglected to collect those fees from the IOLTA account promptly.
C. Applicability of the ABA Standards for Imposing Lawyer Sanctions
The Vermont Supreme Court has ruled:
When sanctioning attorney misconduct, we have adopted the ABA Standards for Imposing Lawyer Discipline which requires us to weigh the duty violated, the attorneys mental state, the actual or potential injury caused by the misconduct, and the existence of aggravating or mitigating factors.
In re Andres , 2004 VT 71, ¶ 14, 177 Vt. 511, 857 A.2d 803 (mem.); accord In re Blais , 174 Vt. 628, 817 A.2d 1266 (2002) (mem.). Accordingly, the Hearing Panel employed the ABA Standards as a tool to determine the appropriate sanction to impose in Respondents case.
1. The Duty Violated
A lawyer owes clients the duty of preserving the clients property. ABA Standards § 4.1. As described above, Respondent violated § 4.1 when Respondent failed to comply with Rules 1.15A, 1.15A(a) and 1.15A(a)(2) of the Vermont Rules of Professional Conduct.
Mental State
The second factor to be considered under the ABA Standards is the lawyers mental state. ABA Standards § 3.0. The ABA Standards explain the relevant mental states as follows:
The most culpable mental state is that of intent, when the lawyer acts with the conscious objective or purpose to accomplish a particular result. The next most culpable mental state is that of knowledge, when the lawyer acts with conscious awareness of the nature or attendant circumstances of his or her conduct both without the conscious objective or purpose to accomplish a particular result. The least culpable mental state is negligence....
ABA Standards, Theoretical Framework § II, at 6. The ABA Standards define the term negligence as the failure of a lawyer to heed a substantial risk that circumstances exist or that a result will follow, which failure is a deviation from the standard of care that a reasonable lawyer would exercise in the situation. ABA Standards IV, Definitions.
Respondents mental state was one of negligence. Respondent acted negligently when he failed to set up his Quicken accounting system in accordance with the Rules of Professional Conduct. For example, Respondent did not use Quicken to track IOLTA transactions by client or matter. Respondent was negligent when he failed to perform timely reconciliations of the IOLTA account. Respondent was also negligent when he failed to correct entry errors that led to an incorrect running balance of approximately $32,000. The Firm assigned the task of performing the bookkeeping tasks to an independent contractor, and then an employee. Respondent, however, was responsible for ensuring the trust account was administered according to the Rules of Professional Responsibility, and he failed to do so.
Injury & Potential Injury
The ABA Standards next require review of the injury and potential injury that may have resulted from the attorneys professional misconduct. In Respondents case there was no actual injury to any client. Respondents clients IOLTA funds were never improperly used or in jeopardy. Moreover, there is no evidence that any client or third party was injured as a result of the Respondents violations of the rules. When a lawyers IOLTA account is not in compliance with the rules, properly maintained, and regularly reconciled there is the potential for injury.
4. Presumptive Sanction under the ABA Standards
Section 4.1 of the ABA Standards describes the sanctions that apply when a lawyer fails to preserve client property. When the lawyers mental state is one of negligence, the ABA Standards indicate the presumptive sanctions are reprimand or admonition. The ABA Standards provide:
§ 4.13 Reprimand is generally appropriate when a lawyer is negligent in dealing with client property and causes injury or potential injury to a client.
§ 4.14 Admonition is generally appropriate when a lawyer is negligent in dealing with client property and causes little or no actual or potential injury to a client.
In Respondents case, the evidence establishes there was no actual injury, but there was the potential for injury. Here the presumptive sanction is reprimand due to the potential for injury.
Aggravating & Mitigating Factors
Having established the presumptive sanction of reprimand, the Hearing Panel must consider both aggravating and mitigating circumstances, as each may warrant a sanction greater or lesser than the presumptive sanction.
Aggravating Factors
Section 9.22 of the ABA Standards sets forth a list of aggravating factors that the Hearing Panel should consider. The parties have stipulated that there is one aggravating factor present in this case. Respondent has substantial experience in the practice of law, having practiced law in Vermont for more than 23 years.
Mitigating Factors
Section 9.32 of the ABA Standards sets forth a list of mitigating factors, with four being present in Respondents case. Respondent has no record of prior discipline. ABA Standards § 9.32(a). Respondent did not act from a dishonest or selfish motive. ABA Standards § 9.32(b). Respondent made a timely effort to rectify his trust account violations and bring it into compliance with the rules. Respondent retained an accountant and attorney, at his own expense, to address the accounting issues. ABA Standards § 9.32(d). Respondent has been cooperative throughout the disciplinary proceedings. ABA Standards § 9.32(e).
Mitigating Factors Outweigh Aggravating Factors
The presumptive sanction in this matter is a public reprimand. There are, however, substantial mitigating factors that outweigh the one aggravating factor present in this case.
There was no actual injury to any client in this case, nor has Disciplinary Counsel proved that Respondents negligence resulted in commingling of Respondents funds with client funds. Respondents accounting practices were sloppy, both in the way Respondent set up his Quicken accounting system, and in the way Respondent supervised the account. To his credit, Respondent promptly retained an accountant and an attorney to assist Respondent in bringing his accounts into full compliance with the rules. The Hearing Panel gives significant weight to the lack of actual harm and Respondents concerted effort to bring his IOLTA account into compliance. See In re PRB Docket No. 2012.155 , 2015 VT 37, 199 Vt. 143, 121 A.3d 675 (attorneys extensive efforts to address accounting errors given significant weight by Court when determining the appropriate sanction).
Disciplinary Counsel acknowledges that Respondent has brought his trust accounts and accounting procedures into compliance with the Rules of Professional Conduct. Disciplinary Counsel argues that a public reprimand is appropriate in this case. Disciplinary Counsel, however, does not request a period of probation. It would appear that Disciplinary Counsel is satisfied with the corrections Respondent has made to his accounting system and practices.
Respondent argues that private admonition is the appropriate sanction. The Hearing Panel finds the mitigating factors and precedent support Respondents argument.
In one case, a lawyer kept over $124,000 of title insurance commissions owed her in a trust account for more than seven months. In re PRB Docket No. 2013.160 , 2015 VT 54, 199 Vt. 637, 118 A.3d 523 (mem.). The lawyer was using her trust account like a savings account, as she planned to use the commissions to pay her malpractice insurance premium. Id. The Vermont Supreme Court concluded a private admonition was the appropriate sanction. Unlike Respondents case, In re PRB No. 2013.160 involved a clear case of commingling.
In In re PRB Docket No. 2014.141, Decision # 175 , the lawyer admitted having a number of trust account checks, dating back several years, that were not cashed. Id. The Board noted the Respondents failure was due to negligence, not to any intentional violation of the Rules. She believed that her accounting system was adequate, when in fact it was not. Id. The Board imposed a private admonition, stating: Admonition is consistent with both the ABA Standards and Vermont case law. Id. ; see also In re PRB Docket No. 2013.153, 2014 VT 35, 196 Vt. 633, 96 A.3d 468 (mem.); In re: Decision # 120, PRB File No. 2008.104 ; In re: Decision # 115, PRB File No. 2007.244 ; In re: Decision # 163, PRB File No. 2013.049 .
Based upon the substantial mitigating factors present in Respondents case, the Hearing Panel concludes that the appropriate sanction in Respondents case is a private admonition.
ORDER
BASED UPON the foregoing findings of fact and conclusions of law, Respondent is admonished for violating the Vermont Rules of Professional Conduct for failing to establish, maintain and manage his IOLTA
account as required by Rules 1.15A, 1.15A(a) and 1.15A(a)(2).