The misappropriation of a law client’s money by an attorney in the practice of law, while an aberration, is properly a debt owed by the legal profession.
By Eric A. Seiff and Michael J. Knight Sr.
Columbia Law alumnus William R. Nojay, a single practitioner in Monroe County, had a career of accomplishments. A former appointee of Governor Pataki, a director of a not-for-profit foundation, and state assemblyman, he nonetheless found the time to steal over $1 million from a trusting client. The theft came from an escrow fund that Nojay established for his client during the course of an international dispute. Nojay returned $700,000, leaving his client with a $337,000 loss, which was refunded in full by the Fund.
While the Fund has a finite budget, it has over the years been able to raise its reimbursement ceiling from a low of $25,000 in the 1980s to its present maximum of $400,000 per victim. Thus, while Mr. Nojay’s octogenarian client was devastated by the lies and breach of trust he suffered, he had no direct loss of money. The Fund has been able to achieve this level of recompense through three principal sources. The most significant funding is, as noted at the outset, from the annual $30 fee provided by the 332,000 lawyers presently registered to practice law in New York state. A second resource has been occasional financial sanctions, judicially imposed on lawyers arising from an attorney engaging in frivolous motion practice or failing to make a court appearance, which over the years has totaled $3.7 million. From time to time, more often when attorneys retire or die, money held in escrow accounts cannot be distributed to the rightful owners, either because the clients can no longer be found or the contact information accompanying the escrow account is inadequate. As a result, that money is forwarded to the Fund for safekeeping, and our own follow-up efforts to identify the rightful owner. Since given this responsibility in 1994, the Fund has indemnified more than 664 escrowees, to whom their money was returned. After five years, if no further identification can be obtained, the Fund uses that money to assist in the reimbursement of law client victims. As a result, for the past 38 years, the Fund has reimbursed, in full, over 94% of law client victims.
Some years ago, over a period of months, the Fund received complaints from eight separate couples who, in their pursuit of formalizing infant adoptions, retained the services of sole practitioner Kevin Cohen of Nassau County. Pretending to have access to available babies, Cohen sought and obtained as his fee between $23,750 and $60,000 from each couple, providing his unknowing clients with forged medical reports, sonograms and photos of purported birth mothers. In subsequent explanation to his clients of his failure to complete the transaction, Cohen concluded his scheme with false explanations of medical issues suffered by fictional birth-mothers, or change of mind on the part of the imagined donors. In fact, none of the donors depicted in the forged documents had ever been contacted by Cohen, who was disbarred and sentenced to a term of 10 to 20 years in state prison. Each of the victims was financially compensated in full by the Fund.
When a 17 year old beneficiary inherited $69,159 from the insurance policy provided by his recently deceased mother, the lad’s uncle retained New York County single practitioner Campbell McClarence Holder to assist with a guardianship appointment and the release of the insurance money. When the appointment was completed and the insurance check mailed to Holder, he deposited the check in his IOLA account by forging the endorsement without notifying the uncle/guardian. He then pocketed the money for himself. The guardian’s subsequent demands to the bank on the forged check were ignored. After the Fund reimbursed the $69,159 to the youngster’s guardian, we successfully pursued recovery against the bank.
Some years after the Fund’s inception, it received assistance from the New York State Attorney General’s Office on an ad hoc basis. From time to time, the Fund pursued recompense from, for instance, banks that had improperly honored forged checks. Initially, the Fund paid a contingent fee to the Attorney General, but as the volume of litigation increased, in 1999, we received the assignment of a full-time Assistant Attorney General, with the Fund providing full reimbursement to the State for her and his services. This has been a spectacular benefit to the Fund. In addition to enforcing the Fund’s subrogation rights, the Attorney General’s office defends the Fund in judicial challenges to the Trustees’ determinations. Since 1982, with the assistance of the Department of Law, the Fund has successfully defended 27 of 28 judicial challenges. One remains pending. From 1999 through 2001, the Fund received expert representation from Assistant Attorney General Kathryn Blake. Since 2001, Assistant Attorney General Richard Rodgers has been assigned to the Fund. Both Ms. Blake and Mr. Rodgers have a perfect record in cases in which the Lawyers’ Fund has been sued. Assistant Attorney General Rodgers remains available on a full-time basis to both the staff and the Board of Trustees, doing what lawyers should do: helping us avoid problems.
And most creatively, with his wise counsel and litigation skills, we have pursued the assets of the culpable attorneys. Thus, with Kevin Cohen, the Fund recovered over $34,000 from a family trust in which Mr. Cohen had an interest. An additional $23,750 was forwarded by the Nassau County District Attorney’s office to add to the restitution kitty. Similarly, in the matter involving Campbell McClarence Holder, we recovered funds from the depositary bank based on our claim sounding in conversion on the forged endorsement. In the past 16 years, this coordination with the State Attorney General has obtained recoveries for the Lawyers’ Fund totaling more than $8 million.
“It was as though someone said, ‘I’m going to park my car in your garage for a while, and I will be back in a year to get it’ and I used the car. It is a simple little analogy.” So, explained former Nassau County practitioner William A. DiConza, in describing his theft of $165,150 from his long-time client. DiConza’s scam was to deplete, for his personal use, the $864,448 he held in escrow from the sale of her commercial property. When pressed for the money, DiConza made a partial payment while simultaneously soliciting a bogus $250,000 loan from the balance of the client’s proceeds he was supposedly holding in escrow. The promissory note he provided granted as security his “worldly holdings”. Over a period of five years, DiConza put off of his day of reckoning with numerous partial payments. When finally exposed, he still owed his elderly client $165,150, which the Fund promptly paid to her. He was suspended from the practice of law for three years, but not criminally prosecuted as the statute of limitations had run. He has not sought reinstatement.
While the real estate in this transaction was physically located beyond the Nassau County line, in Queens, for a period of years the thefts from escrow accounts created to facilitate real estate transactions on Long Island reached alarming numbers. From 1999 through 2004, 75% of all awards from the Fund reimbursing real property losses were from the Second Judicial Department—50% of these were concentrated in Nassau and Suffolk Counties, totaling $4 million. In 2004, the Trustees held a conference with representatives of the District Attorneys and Bar Associations of Nassau and Suffolk Counties to discuss and address lawyer thefts of real property escrows and down payments. Fortunately, for more than a decade, these specific thefts have diminished substantially, possibly because the limited number of thieving attorneys involved were identified and removed from practice. Since 1982, however, real estate escrow losses statewide are the largest single category of awards from the Fund in the amount of reimbursement provided. In 38 years, the Fund has reimbursed $84.5 million or 37.4% of all money paid out by the Fund.
A legal guardian sent in a claim on behalf of a 10-year-old, whose father had murdered her mother when the youngster was still an infant. John A. Gussow, a single practitioner and close family friend, was retained to help collect the proceeds from an insurance policy. Gussow forged the $69,153 insurance check drawn to the child’s guardian and falsely reported that there were “legal delays”. It was only after Gussow’s death that a search of his files disclosed his theft. The Fund repaid the infant’s loss.
Legal guardians sought recompense from the Fund after an attorney representing a six-year-old forged the endorsements on three insurance checks, totaling $32,000. In a bizarre twist, a couple of the secretaries employed by the attorney, James E. Adel, discovered the theft while going through his office papers subsequent to his death, and schemed to continue his practice. Along the way they made some partial payments before their own crimes were discovered. Because a court awarded lawyer Adel a $3,333 fee, the Fund’s award to the then 10-year-old victim was reduced by that amount.
As a result of thefts such as these, the Fund undertook a series of proactive steps leading to the institution of public access to the central registry of attorneys maintained by the Office of Court Administration; a statewide law office record keeping requirements for attorneys entrusted with client funds; a payee notification rule which requires simultaneous notice to a client when an insurance carrier makes payment of a personal injury settlement over $5,000 to the client’s attorney; automatic reports from banks when the checks drawn on lawyer trust and escrow accounts are dishonored; and the creation of a restitution obligation in attorney disciplinary proceedings, which includes a civil judgment for the client in cases of attorney theft.
Since 1982, the 8,965 awards approved by the Lawyers’ Fund redress thefts committed by 1,283 former attorneys—less than one-third of 1% of attorneys presently admitted to practice in New York state. Actually, given the tens of thousands of other attorneys who have been practicing during the Fund’s existence, but have retired or died, the percent involved in awards is a further fraction of the one-third of 1%.
The misappropriation of a law client’s money by an attorney in the practice of law, while an aberration, is properly a debt owed by the legal profession. Smith, Reginald Heber, The Client’s Security Fund, “A Debt of Honor Owed by the Profession”, 44 A.B.A.J. 125 (February 1958). As we celebrate the integrity of our profession on Law Day, we express our appreciation to the Court of Appeals for its unwavering support and celebrate New York’s legal profession for its financial and other support in creating the Lawyers’ Fund which continues to reimburse clients financially damaged from dishonest conduct in the practice of law, preserve the integrity of the bar, safeguard the good name of lawyers for their honesty in handling client money, and promote public confidence in the administration of justice.
Eric A. Seiff is a charter member of the Board of Trustees of the New York Lawyers’ Fund for Client Protection and its chairman. He is of counsel to the Manhattan law firm of Amini, LLC. Michael J. Knight Sr. is executive director and counsel for the New York Lawyers’ Fund for Client Protection.
Full Article & Source:
The New York Lawyers’ Fund: 38 Years of Client Protection
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