Supreme Court Orders Public Reprimand of Lawyer Whose Wife Stole $2M From Firm Account

The Supreme Court of Georgia issued the following disciplinary decision on December 15:

In the Supreme Court of Georgia
Decided: December 15, 2016
S16Y0825. IN THE MATTER OF MICHAEL ANTHONY EDDINGS.
PER CURIAM.

This disciplinary matter is before the Court on the Report and Recommendation of the Review Panel recommending that Michael Anthony Eddings ("Eddings") (State Bar No. 238751) be disbarred for several violations of the Rules of Professional Conduct arising out of the theft of $2.3 million from his law firm's trust account by his wife (now ex wife), Sonya Eddings ("Sonya"), while she was the law firm's financial manager. Eddings, in response, contends that a public reprimand or suspension is more appropriate under the circumstances, as Eddings did not participate in the theft and was unaware of Sonya's wrongful actions. After a review of the extensive record and detailed fact finding provided by the special master, Katherine L. McArthur, we reject the Review Panel's recommendation that Eddings be disbarred, and we agree with Eddings that a public reprimand is the more appropriate level of discipline to impose in this case.

The special master and Review Panel contend that Eddings violated Rules

1.15 (I) (c) and 1.15 (II) (b) and Rule 5.3 (a) and (b) of the Georgia Rules of Professional Conduct found in Bar Rule 4 102 (d), based on the following facts: Eddings, who was admitted to the Georgia Bar in 2002 and initially worked for a plaintiffs' personal injury firm, opened his own practice in 2003, the Law Office of Michael Eddings, PC ("the Firm"), concentrating in real estate law. Sonya served as the Firm's financial manager. Sonya had a bachelor's degree in accounting, a master's degree in business administration, and substantial work experience in banking, including seven years with Columbus Bank & Trust/Synovus ("CB&T"), which was also the Firm's financial institution.

In 2006, Eddings and Sonya established Eddings Holdings for the purchasing and holding of a franchise of The Coffee Beanery with two stores. Sonya handled all of the operations related to the franchise, and told Eddings, falsely, that the franchise was breaking even. However, in March 2007, without telling Eddings, Sonya began diverting money from the Firm's IOLTA account to cover losses from the franchise. Between 2007 and October 2011, she stole over $2.3 million.

The record shows that Sonya used her inside knowledge of CB&T's technology and technological vulnerabilities to accomplish the theft. Because she had been a top professional at CB&T, the bank did not question her as closely as others might have been questioned when questions arose about the Firm's accounts. For example, just before Sonya's scheme came to light, she admitted to a CB&T employee that she had created a fake wire confirmation to present to a client, but claimed she did so because she had not sent the wire transfer when she should have. The CB&T employee accepted this explanation and did not inform Eddings.

Although Eddings and Sonya had monthly financial meetings to review the Firm's account reconciliations, Sonya presented bank statements that she had altered to remove any negative balance information. Additionally, over the course of Sonya's criminal activities, CB&T, without notice to Eddings, ceased providing notifications of overdrafts and placed the Firm's IOLTA account on automatic overdraft protection. As a result, CB&T provided notice to the State Bar on only a few of the multiple times the IOLTA account was overdrawn . On four occasions, Sonya also intercepted letters from the Bar's Trust Account Overdraft Notification Coordinator regarding checks presented against insufficient funds in the Firm's IOLTA account, and responded, to the Bar's satisfaction, without Eddings' knowledge or consent. When Eddings did receive information about minor irregularities during this time, Sonya was able to resolve or explain the issues to his satisfaction. And, when Eddings subsequently instituted new firm policies to address the issues, Sonya simply increased her level of deception to get around the new policies.

Finally, in October 2011, after a late payoff, the Firm's title insurance company conducted an audit which showed that between October 2007 and October 2011, the Firm's IOLTA account had a negative balance 50 times. Sonya then admitted her wrongdoing, and CB&T seized the Firm's funds and closed the Firm's accounts. The Firm's insurance company provided coverage for most of the losses; however, the parties agree that $65,618.22 in losses to clients and mortgage holders remains uncompensated.

The special master also found that there was no evidence that the money that was diverted went anywhere except the account of Eddings Holdings to run or cover losses for the coffee shops, finding that there was no evidence that the diverted funds went to pay personal bills or expenses for Eddings or Sonya, that there was no evidence presented that Eddings' lifestyle was one that could not have been maintained based on his own income, and that there was no evidence that Eddings was aware of the transfers from the Firm's account to the Eddings Holdings account. The special master found by clear and convincing evidence that Eddings did not know of the diversion of funds from the trust account by Sonya between 2007 and 2011, and therefore, that he had not knowingly violated the Rules. Nevertheless, the special master concluded that Eddings' failure to supervise Sonya and his failure to maintain his trust account constituted violations of Rules 1.15 (I) (c) and 1.15 (II) (b) and Rule 5.3 (a) and (b). For the reasons that follow, while we agree that Eddings violated Rules 1.15 (I) (c) and 1.15 (II) (b), we do not agree with the special master's conclusion that Eddings violated Rule 5.3 (a) and (b).

In this regard, the facts here point to the conclusion that Eddings was the victim of an elaborate con perpetrated by his wife, Sonya–a con that even bank officials unwittingly helped Sonya commit and in one case even helped her cover up–and not the conclusion that it was unreasonable for Eddings not to have done anything more to have prevented Sonya from misappropriating the funds that she stole. Eddings reviewed bank statements from CB&T, but had no reason to believe that Sonya had altered them; received information from an audit in February 2010 that did not find any suspected embezzlement activity; was unaware of correspondence that Sonya had deliberately intercepted to ensure that her deceit would not be discovered; and, even when Eddings implemented new office procedures in November 2010 in an effort to prevent future account irregularities and make sure that all wire transfers would be made properly, Sonya was able to use her banking skills and relationships to circumvent these policies (and even convince bank officials to hide from Eddings the fact that she had created a fake wire transfer in connection with one of the law firm's real estate closings). Sonya was so convincing in her con that no one from CB&T believed that any deceit was occurring, let alone to the tune of $2.3 million, and Eddings was given no information upon which to base a reasonable belief that any deceit was occurring. Indeed, no one discovered Sonya's deception until October 27, 2011, when Sonya herself confessed in writing during the audit by First American Title Insurance Company that she had been misappropriating funds from the law firm's trust account since 2007. In short, none of the activity here shows the type of misconduct on the attorney's part that this Court would generally look for to justify a suspension from the practice of law. See, e.g., In the Matter of Jones, 280 Ga. 302 (627 SE2d 24) (2006).

Additionally, as the special master noted, this is not a case where Eddings should have noticed a change in his lifestyle or that of his wife. To the contrary, Sonya diverted money from the IOLTA account to cover losses from the two coffee shops that she operated independently from Eddings and that she was eventually forced to close. Eddings had no knowledge that the coffee shops were failing.

Based on the above, the special master has not provided any solid reasoning to support the conclusion that Eddings violated Rule 5.3 (a) and (b) relating to his duty to make reasonable efforts to supervise Sonya under the facts of this case. Eddings therefore cannot be disciplined for any alleged violation of this Rule. Specifically, Rule 5.3 (a) and (b) provides that:

With respect to a nonlawyer employed or retained by or associated with a lawyer . . . a lawyer who ... possesses managerial authority in a law firm[] shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the person's conduct is compatible with the professional obligations of the lawyer; [and] a lawyer having direct supervisory authority over the nonlawyer shall make reasonable efforts to ensure that the person's conduct is compatible with the professional obligations of the lawyer.  (Click to Continue)

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Supreme Court Orders Public Reprimand of Lawyer Whose Wife Stole $2M From Firm Account