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.
Every two years, all lawyers registered to practice in New York state
file with the Office of Court Administration. From each registration
fee, $30 are annually directed to the Lawyers’ Fund for Client
Protection (the Fund), which in turn has generated the astronomical sum
of $226,000,000 in payouts to law clients who were victimized by a small
fraction of thieving attorneys. The Fund, which was a creation of the
State Legislature in 1981, and overseen by the seven judges of New
York’s Court of Appeals, uses not one dollar of taxpayer money, nor are
we affiliated in any way with more widely known IOLA program.
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
