Opinion
DRB 21-071
09-23-2021
In the Matter of Gerard A. Del Tufo An Attorney at Law
HoeChin Kim appeared on behalf of the Office of Attorney Ethics. John McGill, III, attorney for respondent, waived oral argument. Johanna Barba Jones Chief Counsel
Argued: July 15, 2021
District Docket No. XIV-2017-0281E
HoeChin Kim appeared on behalf of the Office of Attorney Ethics.
John McGill, III, attorney for respondent, waived oral argument.
Johanna Barba Jones Chief Counsel
DECISION
HON. MAURICE J. GALLIPOLI, A.J.S.C. (RET.), CHAIR
To the Honorable Chief Justice and Associate Justices of the Supreme Court of New Jersey.
This matter was before us on a recommendation for censure filed by the District IX Ethics Committee (the DEC). The formal ethics complaint charged respondent with having violated RPC 1.15(a) (negligent misappropriation of client funds); RPC 1.15(b) (failure to promptly deliver to the client funds that the client is entitled to receive); RPC 1.15(d) (failure to comply with the recordkeeping provisions of R. 1:21-6); RPC 5.4(a) (improper fee sharing with a nonlawyer); and RPC 8.4(c) (conduct involving dishonesty, fraud, deceit, or misrepresentation).
For the reasons set forth below, we determine to impose a censure, with a condition.
Respondent earned admission to the New Jersey bar in 1969 and has no disciplinary history. During the relevant timeframe, he maintained a practice of law in Matawan, New Jersey.
The parties entered into a stipulation of facts which was admitted at the one-day ethics hearing. Respondent testified on his own behalf and the Assistant Chief of Investigations for the Office of Attorney Ethics also testified.
Respondent and his son, Gerard L. Del Tufo, Esq., operated a law practice that handled real estate transactions, wills and estates, and litigation. The firm maintained, at Bank of America (BoA), (1) an attorney trust account (ATA) with distinct sub-accounts for each client, and (2) an attorney business account (ABA). During a December 17, 2017 interview with the OAE, respondent stated that both he and his son were authorized signatories on the accounts.
Negligent misappropriation and recordkeeping violations
On May 1, 2017, a $3,000 check was posted for payment to ATA sub-account "SUB539," which was designated for respondent's client, Paula Holt. On May 1, 2017, the balance in SUB539 was only $2,230. Thus, the negotiation of the $3,000 check resulted in a balance of ($770) in Holt's sub-account, SUB539.
Holt's ATA sub-account overdraft was caused by a typographical error on a check issued by respondent's paralegal, Irene Andujar. That $770 check erroneously contained a note indicating "SUB539," which resulted in the check being paid from Holt's sub-account, rather than the intended and correct sub-account, "SUB530." On May 3, 2017, respondent transferred $770 from SUB530 to SUB539.
On May 8, 2017, the OAE received a corresponding overdraft notice from BoA. The May 2017 bank statement for the ATA indicated no overdraft in the master account.
The OAE's investigation into respondent's financial records revealed the following recordkeeping deficiencies, in violation of R. 1:21-6: failure to maintain ATA receipts journal; ATA disbursements journal not fully descriptive; client ledger cards not fully descriptive; no ledger card identifying attorney funds for bank charges; no monthly three-way ATA reconciliations; failure to maintain records and client files for seven years; improper ATA electronic transfers and wires; improper designation on ABA checks; no ABA receipts and disbursements journals; and non-attorney authorized to sign ATA checks. Specifically, the signature card for the ATA indicated that Andujar was an authorized signatory on the account.
By letter to the OAE dated June 12, 2019, respondent provided proof that Andujar had been removed as a signatory from his ATA account.
On April 13, 2018, respondent sent the OAE a letter addressing the recordkeeping violations and providing evidence of the corrective action he had taken. The OAE stipulated that, as of the ethics hearing, all the recordkeeping violations had been corrected, except for the failure to maintain records and client files for seven years. Regarding that charge, although he maintained records from 2013 to the date of the stipulation, respondent admitted that his files for 2010 through 2012 had been lost when his office was moved to a different location.
Based on the above, the OAE charged respondent with having violated RPC 1.15(a) by negligently misappropriating client funds, and RPC 1.15(d) by failing to comply with the recordkeeping provisions of R. 1:21-6.
Fee Sharing and Violations of In re Fortunato, 225 N.J. 3 (2016)
During the initial review of respondent's financial records relating to the overdraft, the OAE discovered several payments made directly from the ATA to Andujar. Additionally, a review of real estate matters and payments to respondent demonstrated instances in which respondent was paid fees exceeding the amounts reflected on the corresponding HUD-1 settlement statements.
Upon further review, the OAE discovered that respondent had systematically engaged in the collection of excess recording fees; title fees; wire fees; overnight fees; and other costs that he had not actually incurred. Instead of refunding the excess fees to the appropriate client or party, respondent routinely disbursed the excess funds to himself or to Andujar. Specifically, between November 13, 2013 through July 14, 2017, respondent overcharged clients and third parties $22,148 in connection with seventy-seven closings. Of that amount, $10,971 consisted of excess recording fees and $11,177 consisted of other extra funds collected.
Respondent collected the excess funds and misrepresented payments on the HUD-1 in various ways, including: collecting excess fees from buyers to record deeds and mortgages and failing to return the extra funds; collecting a release recording fee from buyers and/or sellers when other entities, such as lending institutions, had prepared and recorded the release without any assistance from respondent, or had included a recording or filing fee for the release in the payoff amount quoted; and by collecting recording fees payable to the county clerk in excess of the actual amounts paid to the county clerk.
For example, on one client's HUD-1, more than $400 in recording fees were collected from the buyer, and $75 was collected from the seller for the release of a mortgage. An ATA check was issued to the county clerk for $186, with a memo indicating "recording." Because respondent collected $400 from the buyer, and paid only $186 to the clerk, an excess of $214 remained, which was paid to Andujar. As to the $75 collected from the seller, the payoff statement from the bank indicated a $20 recording/release fee included in the payoff figure, to be discharged "directly to the registry for recording." Respondent disbursed that extra $75 to himself, via an ATA check which included his $950 legal fee plus the excess $75 release fee, for a total amount of $1,025.
As to title fees, in the Attieh from Sirva Relocation Properties matter, the HUD-1 set forth charges for the title agency totaling $2,535. However, the invoice from the title agency shows a charge in the amount of $1,835, and respondent's ATA records show a corresponding payment of $1,835. The extra $700 collected from the buyer was included as a portion of a $930 ATA check issued to Andujar.
Other overcharges included wire fees, overnight mail fees, and other miscellaneous costs charged to the buyer or seller. The HUD-1s misrepresented the recipient of the funds collected in some instances. For example, in the Rutigliano from Sargent matter, the HUD-1 showed a $30 charge to seller for "wire fee proceeds." The HUD-1 entry for the wire fee was silent as to whether the fee was being charged by the bank, and who was receiving the collected funds. In that case, the wire occurred on January 4, 2016, and the bank did not charge a wire fee. The $30 wire fee ultimately was paid to respondent.
Respondent also collected overnight mail fees that were not incurred, with the funds disbursed to Andujar or himself. For instance, the HUD-1 in the Paolantonio from Adase matter contained a $60 charge to seller reading "overnight payoff and proceed fee." However, the client ledger indicated that the proceeds of the sale were not sent via overnight mail, but rather, via wire from the ATA, with no fee for the transaction. Although the mortgage payoff check was sent to the bank via overnight mail, the Federal Express shipping label demonstrated that the cost for the mail was billed to the sender, Andujar, at "Swain & Weistreich." The $60 in overnight fees collected from the seller were paid to Andujar. In yet another example, the Pelligra from Negreann matter, the excess funds collected from a client totaled $1,305, $455 of which should have been refunded to the buyer, and $850 of which should have been refunded to the seller.
On December 13, 2017, at the demand interview with the OAE, respondent stated that Andujar gathered all information and documents for each closing, prepared HUD-1s and ATA checks for his signature, and prepared client ledgers. Respondent noted that he allowed Andujar to keep "extra" funds for the time and effort she spent on a file, especially if she did extra work or "picked up the slack" in the matter. He also stated that he relied on Andujar for the HUD-1 figures. Respondent admitted that, although he reviewed the HUD-1s with his clients, and explained the recording fees, his clients may not have been aware that he was collecting more money than needed.
On December 13, 2017, Andujar appeared for an interview with the OAE. She stated that she was usually paid between $200 and $400 for each closing, and that respondent told her it was "okay" for her to take extra funds. Andujar informed the OAE that the $75 release fee routinely charged to sellers was not necessarily a recording fee, and that the sellers were charged the fee even if the mortgage company completed the release. She explained that the $75 fee was for her time to "chase down" documents. Andujar further explained that, on some closings, she was paid her flat fee through extra title fees shown on the HUD-1. She was never told that it was improper for her to keep extra money collected.
The OAE required respondent to conduct a complete review of his closings for the prior seven years. As noted above, respondent had client files dating back only to 2013, but in two letters dated March 6 and April 13, 2018, respondent asserted that he owed a total of $6,430 in reimbursements. However, respondent's initial calculation considered only excess recording fees, and not the other fees and overcharges routinely applied in his practice; moreover, his list of closings was not all-inclusive.
Therefore, on April 4, 2019, the OAE sent respondent a series of questions regarding specific closings and directed respondent to submit written answers in lieu of appearing for an in-person interview. On May 8, 2019, respondent submitted a letter reply, admitting that he had authorized the overcharges on the HUD-1s, as well as the excess payments to himself and Andujar.
Considering the above, the OAE charged respondent with having violated RPC 1.15(b) by failing to promptly deliver funds to clients by systematically charging and collecting excess fees and other costs that he did not actually incur, that were paid, instead, to himself and Andujar.
In addition to the above stipulated charges, the formal ethics complaint charged respondent, in count two, with having violated RPC 5.4(a) by sharing legal fees with a nonlawyer, and having violated RPC 8.4(c) by charging and collecting excess fees not actually incurred and disbursing them to himself and Andujar. Respondent denied both charges in his July 23, 2019 verified answer. On September 29, 2020, the DEC conducted a disciplinary hearing, in which respondent was represented by counsel. Respondent testified that he was eighty-two years old and had not realized, prior to the OAE's investigation, that it was unethical to retain excess fees. Respondent further claimed that he had held a good faith belief that his conduct was proper, but that he now understood that he had been mistaken in that belief. The following exchange occurred on direct examination:
Counsel: At the time you began your real estate practice, did your practice of collecting excess fees and real estate closing costs represent the rule among closing attorneys or the exception?
Respondent: I would say to the best of my recollection it was the rule. And it was - it was like a standard between the attorneys and you would collect this amount and you were charged [sic] the other party that amount regular and probably still doing it today. I mean, and you didn't know what the final costs comes in, we never billed it if it came in more for whatever reason, we never billed it.
Counsel: Did you believe in good faith that your conduct was proper at the time?
Respondent: Yes.
[T48.]
"T" refers to the September 29, 2020 hearing transcript.
Respondent testified that he gave portions of the excess fees to Andujar because she performed his post-closing work and advanced her own money and accounts for overnight fees and other expenses. Respondent did not consider the excess fees and costs that he and Andujar retained to be legal fees. Respondent admitted that Andujar's routine overcharging in connection with real estate transactions was done with his authority and knowledge. Finally, respondent noted that he is now aware of the disciplinary precedent regarding the ethical implications of collecting excess recording fees, such as In re Fortunato, 225 N.J. 3 (2016).
Respondent testified that mitigating factors included his unblemished disciplinary history and his public service as both a municipal court prosecutor and a municipal court judge.
Respondent's counsel argued that respondent should not be found to have violated RPC 5.4(a) because none of the funds alleged as excess fees constituted "legal fees," under the Rule. Further, he argued that the complaint failed to put respondent on notice that the RPC 8.4(c) charge was based on his execution of false HUD-1 settlement statements, in violation of the due process clause. Respondent argued that he should be subject to no more than a reprimand.
The OAE argued that an improper fee-sharing relationship existed between respondent and Andujar. The OAE further argued that the monies retained by respondent and used to pay Andujar did qualify as attorney fees. The OAE noted that Andujar did "the bulk . . . of the work" for respondent as an independent contractor. The OAE noted respondent's admissions that he routinely collected excess fees and closing costs, as well as his attempt to justify his misconduct as normal among real estate attorneys. The OAE acknowledged that, although its complaint did not expressly state the basis for the RPC 8.4(c) charge at the end of the document, respondent had been placed on notice by the text of the complaint as a whole and by the attachment of the HUD-1 as an exhibit. Finally, the OAE argued that it had proven by clear and convincing evidence that respondent systematically had misstated relevant amounts on HUD-1 settlement statements and in his real estate files. The OAE observed that, although a censure would be warranted under Fortunato, the DEC might consider mitigating factors that could reduce the discipline to a reprimand.
In its January 27, 2021 Hearing Panel Report, the DEC found by clear and convincing evidence that respondent had violated RPC 1.15(a), RPC 1.15(b), and RPC 1.15(d).
Regarding the RPC 5.4(a) and RPC 8.4(c) charges, the DEC noted two issues in dispute: (1) respondent's contention that he did not share fees with a nonlawyer in violation of RPC 5.4(a), because the excess fees were not "legal" fees when they were retained, and (2) respondent's argument that the practice of charging excess fees did not actually involve dishonesty, in violation of RPC 8.4(c), because it was the "cultural norm to charge extra fees during real estate closings." The DEC found by clear and convincing evidence that respondent was "of the belief that most real estate attorneys practicing in this area would collect and keep excess recording, title, and other fees from their clients" (emphasis in original).
As to the RPC 5.4(a) charge, the DEC found that excess legal expenses were collected, were not returned, and were often paid to Andujar, a nonlawyer, stating:
[t]he Hearing Panel concludes that, ordinarily, legal expenses are not "legal fees." The Hearing Panel, however, concludes that the Respondent's own conduct allowed excess expenses to be converted from "expense" to "fee." The excess money, whatever the name given, [was] used to pay for legal services provided. The testimony is clear that Ms. Andujar was provided these excess funds because she would "chase
down" documents and because she would "pick up the slack." The unrebutted facts show that the monies were paid to Ms. Andujar for her efforts. The testimony demonstrated that Ms. Andujar worked for Respondent assisting him with real estate closings. Whether her status was as "independent contractor" or employed paralegal is of no moment for this analysis. She was legal staff assisting with the closing work.
[HPR6.]
"HPR" refers to the January 27, 2021 Hearing Panel Report in this matter.
As a result, the DEC found by clear and convincing evidence that, "based on how the fees were charged and subsequently paid to Ms. Andujar," respondent violated RPC 5.4(a).
Regarding the charge that respondent violated RPC 8.4(c), the DEC found that respondent's argument that it was the norm for real estate attorneys to charge excess fees was unsupported hearsay with limited value. The DEC remarked that there had been "no support presented by Respondent that one is free to violate the RPCs because others are doing so." Additionally, the DEC cited Fortunato, discussed further below, and noted that the attorney in that matter also asserted that charging excess fees was the norm in the real estate legal community, yet we still found ethics violations, including RPC 8.4(c), and imposed a censure.
The DEC also considered respondent's due process argument and found that respondent had been given adequate notice by the "lengthy and detailed" complaint, and "should have been well aware that his conduct in preparing HUD-1s was at issue." Moreover, the DEC noted that respondent's preparation of false HUD-1s was not the basis of the charged violation of RPC 8.4(c); in the DEC's view, respondent's practice of overcharging his clients, failing to advise his clients of the overcharges, and retaining the excess fees was the basis of the violation, and the HUD-1 forms constituted the supporting proof.
Further, the DEC found unpersuasive respondent's argument that respondent believed, in good faith, that his conduct was acceptable. The DEC remarked that respondent's testimony demonstrated that he had knowledge of the overcharging, yet, he defended his conduct as justifiable. Respondent even conceded that "had he explained [the overcharging] to his clients, he would not get additional real estate closing work." The DEC found that respondent's testimony confirmed that his conduct involved dishonesty, fraud, deceit, or misrepresentation, in violation of RPC 8.4(c).
As for aggravating factors, the DEC found respondent engaged in a pattern of misconduct, and that respondent's poor recordkeeping practices limited the ability to investigate additional misconduct. The DEC commented that respondent was "defensive."
As to mitigating factors, the DEC remarked that, although it appreciated respondent's medical issues, those issues did not mitigate his pattern of misconduct. The DEC noted that the attorney in Fortunato was censured despite his medical issues.
Finally, the DEC commented on the testimony regarding restitution, stating:
the panel has heard evidence in the form of testimony that an offer was made by Respondent to the OAE to the extent that Respondent would pay "what he could" in restitution to those aggrieved former clients. The panel did not hear testimony as to whether that offer was accepted. The panel has not heard what steps at restitution Respondent is taking independently taking [sic] now, without some compromise being reached with the OAE. In essence, the panel is not persuaded that Respondent is really appreciating the seriousness of the alleged violations of the RPCs.
[HPR10.]
The DEC described respondent's systematic practice of taking money away from his clients as the "classic breach of one's fiduciary duty by way of placing the lawyer and his staff above the interest of the client." Based on the foregoing, the DEC recommended the imposition of a censure for respondent's misconduct.
At oral argument, and in response to our questions, the OAE observed that it would be reasonable to infer from respondent's testimony regarding the normalcy of his Fortunato violations that his RPC 1.15(a) misconduct extended further into the past. Respondent's counsel waived oral argument, expressed by letter his disagreement with the findings below, and requested imposition of a reprimand.
Following a de novo review of the record, we are satisfied that the DEC's finding that respondent's conduct was unethical is fully supported by clear and convincing evidence.
Specifically, respondent negligently misappropriated funds when the check for $770 was posted to the wrong client sub-account because of Adjujar's typographical error, resulting in the invasion of Holt's funds. Although the overdraft was remedied, respondent's obligation to safeguard his clients' funds was non-delegable, and he failed to have proper processes in place to avoid such mistakes. See In re Fleischer, 102 N.J. 440, 447 (1986) ("Lawyers have a duty to assure that their accounting practices are sufficient to prevent misappropriation of trust funds.")). Respondent, thus, negligently misappropriated his client's funds, in violation of RPC 1.15(a).
Moreover, respondent's systematic practice of overcharging fees and retaining the excess funds in real estate matters violated RPC 1.15(b), because respondent failed to promptly refund to clients and third parties the funds to which they were owed and entitled.
The OAE's investigation into respondent's bank accounts revealed numerous recordkeeping deficiencies regarding his ATA and ABA. By violating the recordkeeping requirements of R. 1:21-6, respondent also violated RPC 1.15(d).
We likewise conclude that respondent improperly shared legal fees with Andujar, his paralegal, by retaining excessive fees collected from clients and converting them to compensate Andujar for her work on his files. By so doing, respondent violated RPC 5.4(a), which forbids an attorney from sharing a fee with a nonlawyer. We reject the argument that respondent's payments to Andujar were from "costs" incurred in the normal course of business, instead of from legal fees. As respondent clearly stipulated, there was no legitimate "cost" incurred which might have supported respondent's absorption of the inflated recording fees; title fees; wire fees; overnight fees; and other line items on the seventy-seven settlement statements.
Rather, in our view, by retaining the excess funds from the clients, and using them to compensate Andujar for her work, respondent created an improper fee sharing system with Andujar. Rather than simply compensating her for her work in the normal course of business, respondent compensated Andujar by paying her with the inflated sums that he unethically retained. He, thus, violated RPC 5.4(a).
As detailed above, during the disciplinary hearing, respondent argued that his due process rights were violated. Specifically, he contended that the complaint did not put him on notice that the charged RPC 8.4(c) violation alleged that he had executed false HUD-1 statements. We reject respondent's invitation to find fault with the complaint in this matter for multiple reasons.
We recognize that it is the sole province of the Court to decide constitutional questions in disciplinary matters and comment here only to share our views with the Court for its consideration. R. 1:20-4(e)(5) ("[a]ll constitutional questions shall be held for consideration by the Supreme Court as part of its review of any final decision of the Board"); R. 1:20-16(f)(2) ("In any case in which a constitutional challenge to the proceedings has been properly raised below and preserved pending review of the merits of the disciplinary matter by the Supreme Court, the aggrieved party may seek the review of the Court by proceeding in accordance with the applicable provisions of paragraph (b) of this rule"). See also R. 1:20-16(b) ("In all matters other than those in which disbarment has been recommended, the Board's decision shall become final on the entry of an appropriate Order by the Clerk of the Supreme Court").
First, the OAE satisfied its pleading requirements under the disciplinary rules. Rule 1:20-4(b) is entitled "Contents of Complaint" and provides:
Every complaint shall be in writing, designated as such in the caption, and brought against the respondent in the name of either the District Ethics Committee or the Office of Attorney Ethics. The complaint shall be signed by the chair, secretary or any Ethics Committee member, the Director, or the Director's designee. The complaint shall state the name of the grievant, if any, and the name, year of admission, law office or other address, and county of practice of the respondent, and shall set forth sufficient facts to constitute fair notice of the nature of the alleged unethical conduct, specifying the ethical rules alleged to have been violated. It shall also state above the caption the name, address and phone number of the presenter assigned to handle the matter.The June 27, 2019 complaint in this matter both technically and substantively satisfied that standard.
Particularly, paragraph 89 alleged:
By reason of the foregoing, Respondent violated the following Rules of Professional Conduct:
* * *
c. RPC 8.4(c) - in that Respondent engaged in conduct involving dishonesty, fraud, deceit or misrepresentation by charging and collecting excess recording fees, title fees, wire fees, overnight fees, and other costs that were not actually incurred by him, to be paid to Respondent and/or Andujar.
Earlier, the complaint alleges that respondent "collected excess funds and misrepresented payments on the HUD-1 settlement forms in several ways." Paragraphs 27 through 70 detail with specificity the ways in which those misrepresentations unfolded in respondent's real estate practice, which were later summarized in paragraph 89(c), above.
Therefore, reading the complaint as a whole, we find that RPC 8.4(c) was pled sufficiently to inform respondent of that allegation against him. We simply do not agree with respondent's counsel's argument that some greater level of detail was required, nor that the complaint was legally deficient.
Second, our conclusion in this respect is informed by our awareness that New Jersey is a "notice pleading" state. See generally R. 4:5-7 ("[e]ach allegation of a pleading shall be simple, concise, and direct, and no technical forms of pleading are required. All pleadings shall be liberally construed in the interest of justice"). In the civil context, "a plaintiff must plead the facts and give some detail of the cause of action." Printing Mart-Morristown v. Sharp Electronics Corp., 116 N.J. 739, 768 (1989). Although disciplinary actions are neither civil nor criminal (R. 1:20-7(a)), the same notice pleading principles inform our conclusion that the RPC 8.4(c) pleading here was satisfactory.
Third, we distinguish this case from In re Roberson, 210 N.J. 220 (2012), in which a disciplinary complaint charged an attorney with having violated RPC 1.15(a) (knowing misappropriation of client and escrow funds) and the principles of In re Wilson, 81 N.J. 451 (1979), but did not charge violations of the principles of In re Hollendonner, 102 N.J. 21 (1985). We found that dismissal was required because a defense to a Wilson charge could vary greatly from a defense to a Hollendonner charge. In the Matter of James O. Roberson, Jr., DRB 11-262 (December 20, 2011) (slip op. at 17-18). The Court agreed and dismissed the charges against the attorney.
Here, we perceive no "alternative defense" which respondent could have mounted here if he had had an even more robust understanding of the OAE's trial strategy for proving the RPC 8.4(c) charge than was already afforded by the complaint. Roberson is therefore distinguishable.
The OAE pled and then proved an RPC 8.4(c) violation, using, in part, the HUD-1 settlement statements attached as exhibits to the complaint to support its theory of the case. The operative issue was whether respondent acted dishonestly in charging parties to real estate transactions excessive fees. Respondent's approach was to admit all the facts, including the inaccuracy of the settlement statements and the improper retention of fees, but to argue that it was normal for real estate practitioners to do so. Respondent's counsel does not clearly explain what alternative approach he might have taken to show that his client "routinely inflated recording charges and knowingly executed inaccurate HUD-1 statements, misrepresenting the accounting and disbursements for the transactions" precisely as did the respondent in Fortunato. In the Matter of Fortunato, DRB 15-199 slip op. at 17 (February 2, 2016). After our de novo review of the record, including respondent's admissions, we conclude that none exists.
In sum, we find that respondent violated RPC 1.15(a), RPC 1.15(b); RPC 1.15(d); RPC 5.4(a); and RPC 8.4(c). The sole issue remaining for our determination is the appropriate quantum of discipline for respondent's misconduct.
It is well-settled that the baseline discipline imposed for systematic charging and retention of excess recording fees is a censure. See, e.g., In re Masessa, 239 N.J. 85 (2019) (censure for attorney who engaged in a systematic practice of overcharging real estate clients for recording fees totaling $76,254 and then retained those excess funds when serving as settlement agent in the transactions; the attorney admitted signing hundreds of HUD-1 settlement statements that were inaccurate accounts of the disbursements for the transactions); In re Li, 239 N.J. 141 (2019) (censure for attorney who, over a seven-year period, systematically collected inflated, "flat" recording fees totaling $119,660, from 738 real estate clients; without the clients' consent, he retained the difference between the estimated and actual recording fees; the attorney was aware that the HUD-1 settlement statements prepared and executed by the settlement agents in those matters contained inaccurate accounts of the actual disbursements for recording fees; the attorney also charged improper fees described as "title binder review fees" of $100 and "legal documentation and notary fees" of $50, admitting that those costs were excessive and had been included in the flat legal fee he charged for the transactions; recordkeeping violations also found; the attorney was required to refund identified excess costs of $186,050 to the former clients); In re Fortunato, 225 N.J. 3 (2016) (censure for attorney who violated RPC 8.4(c) in four real estate matters by engaging in the systematic, unauthorized retention of excess recording fees totaling $1,608, couched as "services fees," in addition to his legal fee; the attorney also prepared and executed inaccurate HUD-1 settlement statements; in mitigation, the attorney asserted that "I have seen many other attorneys do this, and I believe it may be the rule among [transactional real estate] attorneys rather than the exception"); In re Weil, 214 N.J. 45 (2013) (censure imposed on attorney who admitted inflating the costs for title and survey charges and recording fees for mortgages, deeds, and cancellation of mortgages in 174 real estate matters and then placing those inflated figures in the HUD-1 statements relative to those transactions, in violation of RPC 8.4(c); more than $150,000 in inflated costs and fees were collected; the attorney was also guilty of commingling, in violation of RPC 1.15(a); in aggravation, the attorney had been the subject of a prior reprimand); and In re Gensib, 206 N.J. 140 (2011) (censure for attorney who failed to inform his clients that he was inflating the cost of their title insurance to cover possible later charges from the title insurance company, failed to convey his fee, in writing, to his clients, failed to safeguard client funds, and had a prior reprimand for improperly witnessing a document).
A review of respondent's real estate transactions, spanning from late 2013 through mid-2017, revealed seventy-seven matters involving improper charges for recording fees, totaling $22,148.
In Li and Masessa, both of which were decided by the Court on July 25, 2019, we concluded that, as a matter of stare decisis, a censure is the appropriate sanction for attorneys who improperly retain excess recording fees, in violation of RPC 1.15(b) and RPC 8.4(c). We asked the Court to consider harsher discipline for such conduct. The Court agreed, cautioning that, "in the future, attorneys who engage in the purposeful, systematic, and unauthorized charging and retention of excess recording fees, or the implementation of other deceptive, income-generating practices, may be subject to a higher level of discipline[.]" In re Li, 239 N.J. at 142. Fortunately for respondent, his misconduct predated the proscriptions of Li and Masessa.
Respondent's misconduct echoes the overcharging schemes confronted in the above cases. Therefore, pursuant to Li and Masessa, respondent's charging and retaining excessive fees, alone, warrants a censure. Respondent, however, committed additional misconduct, including negligent misappropriation, recordkeeping violations, and the improper sharing of legal fees with a nonlawyer.
Generally, a reprimand is imposed for recordkeeping deficiencies that result in the negligent misappropriation of client funds. See In re Mitnick, 231 N.J. 133 (2017) (as the result of poor recordkeeping practices, the attorney negligently misappropriated client funds held in his trust account; violations of RPC 1.15(a), and RPC 1.15(d); significant mitigation included the attorney's lack of prior discipline in a thirty-five-year legal career).
Sharing fees with a nonlawyer has resulted in discipline ranging from an admonition to a term of suspension, depending on mitigating or aggravating factors present, such as the attorney's commission of other ethics violations or an ethics history. See, e.g., In the Matter of Paul R. Melletz, DRB 12-224 (November 16, 2012) (admonition for attorney who hired a paralegal for immigration matters as an independent contractor and, for a few years, evenly divided the flat fee charged to immigration clients); In re Fusco, 228 N.J. 159 (2017) (reprimand for attorney who shared his legal fee with a consultant, in addition to violations of RPC 1.1(a) (gross neglect), RPC 1.3 (lack of diligence), and RPC 1.4(b) (failure to keep client informed as to status of matter), and RPC 1.5(b) (failure to communicate in writing the basis or rate of the fee); attorney had significant mitigation); In re Burger, 201 N.J. 120 (2010) (reprimand for attorney who paid a paralegal employee fifty percent of the legal fees generated by immigration cases the paralegal had referred to the attorney; we determined that the employee's earnings, both from the fee shares and her weekly salary, were not excessive for the position of a paralegal/secretary); In re Agrapidis, 188 N.J. 248 (2006) (reprimand imposed where, over a four-year period, the attorney shared fees with nonlawyer employees on twelve occasions by paying them a percentage of legal fees received from clients whom the employees had referred; the attorney was not aware of the prohibition against fee-sharing and viewed the payments as "bonuses"); In re Gottesman, 126 N.J. 376 (1991) (attorney reprimanded for compensating his paralegal/investigator by paying him fifty percent of his legal fees; the attorney also assisted the employee in the unauthorized practice of law; although the attorney believed the fee share arrangement was permissible because his former firm had engaged in the same practice, the Court found that his ignorance of the disciplinary rules was not a defense to the ethics charges); In re Carracino, 156 N.J. 477 (1998) (six-month suspension for attorney who agreed to share fees with a nonlawyer, entered into a law partnership agreement with a nonlawyer, engaged in a conflict of interest, displayed gross neglect, failed to communicate with a client, engaged in conduct involving misrepresentation, and failed to cooperate with disciplinary authorities); and In re Rubin, 150 N.J. 207 (1997) (one-year suspension in a default matter where the attorney assisted a nonlawyer in the unauthorized practice of law, improperly divided fees with the nonlawyer, engaged in fee overreaching, violated the terms of an escrow agreement, and made misrepresentations to the client about a real estate transaction and about his fee).
Thus, pursuant to New Jersey disciplinary precedent, the totality of respondent's misconduct warrants at least a censure. To craft the appropriate discipline, however, we also consider aggravating and mitigating factors.
In aggravation, respondent's misconduct was for his own and Andujar's pecuniary benefit. Moreover, his misconduct clearly harmed clients and third parties, and the record reflects no effort by respondent, thus far, to refund the excess fees, as required by New Jersey precedent.
In mitigation, we accord some weight to respondent's lack of disciplinary history in over fifty years as a member of the bar, which we balance against what we perceive to be the OAE's appropriate inference that his Fortunato violations date back to the start of his real estate practice. We decline to give weight to respondent's medical issues, which, although serious, occurred in the late 1990's into the early 2000's, and which he has failed to connect to his charged misconduct, which occurred from 2013 through 2017.
On balance, in consideration of respondent's long-standing, unblemished legal career and as a matter of stare decisis, we impose a censure, with a warning to respondent that, should he resume his unethical practice in respect of real estate transactions, more severe discipline will follow.
Further, as a condition, respondent is ordered to pay restitution to his former clients and the third parties affected by his misconduct. Restitution to respondent's clients is required under Fortunato. See also In re Saluti, 207 N.J. 509, 515 (2011) (observing that charging an unreasonable fee in violation of RPC 1.5(a) was a failure in that respondent's professional obligations accompanying the privilege of practicing law). That restitution may be made via full payments to the affected parties or through a payment plan arranged with the OAE, with proof of payment of full restitution to be provided to the OAE within a timeframe to be determined by the OAE.
Chair Gallipoli and Member Menaker voted to impose a three-month suspension with the same condition. Vice-Chair Singer voted to impose a censure with the same condition, but would dismiss the RPC 5.4(a) charge, finding no improper fee sharing between respondent and Andujar.
We further determine to require respondent to reimburse the Disciplinary Oversight Committee for administrative costs and actual expenses incurred in the prosecution of this matter, as provided in R. 1:20-17.
Disciplinary Review Board