Opinion
Docket No. DRB 13-177 District Docket No. XIV-2010-0029E
01-30-2014
IN THE MATTER OF MICHAEL A. LUCIANO AN ATTORNEY AT LAW
Melissa A. Czartoryski appeared on behalf of the Office of Attorney Ethics. Andrew C. Sayles appeared on behalf of respondent.
Disciplinary Review Board
Decision
Melissa A. Czartoryski appeared on behalf of the Office of Attorney Ethics. Andrew C. Sayles appeared on behalf of respondent.
To the Honorable Chief Justice and Associate Justices of the Supreme Court of New Jersey.
This matter was before us on a recommendation for disbarment filed by Special Master Charles F. Kenny, Esq., based on his finding that respondent knowingly misappropriated $100,000 in client funds, a violation of RPC 1.15(a), RPC 8.4(c), and the principle set forth in In re Wilson, 81 N.J. 451 (1979). The special master also found that respondent engaged in fee overreaching (RPC 1.5(a)) and a conflict of interest (RPC 1.8(c)) for soliciting a "substantial gift" from a client to whom he was not related.
We agree with the special master that respondent knowingly misappropriated $100,000 in client funds and, thus, recommend his disbarment. However, we find that respondent did not engage in a conflict of interest and that fee overreaching was not established by clear and convincing evidence.
Respondent was admitted to the New Jersey bar in 1984. He has no disciplinary history. At the relevant times, he was a partner with the Livingston law firm of Glazer & Luciano.
The facts that gave rise to this disciplinary matter are as follows:
Doris Cox, respondent's client, died on January 11, 2008, at the age of ninety-one, in a nursing home where she had been confined, following one of several hospitalizations in 2007. Cox had no family. The value of her gross estate was s $843,733.
In May 2007, Cox broke one of her hips, which required surgical repair. In June 2007, she had a Peg tube inserted into her stomach because an injury to her esophagus prevented her from eating normally. At another point, Cox broke her other hip, which also required surgical repair.
Cox, a retired elementary school teacher, held a doctorate degree in education. After her retirement, she worked as a veterinary technician for more than twenty years. Despite a number of hospitalizations in the year preceding her death, Cox lived independently. Indeed, respondent testified that Cox's primary estate planning goal was to remain in her home.
Barbara Vaon Rhein testified that she was a close, longtime friend of Cox and a client of respondent, who had represented her in the sale of a number of houses and had prepared her will. Vaon Rhein, who trusted respondent because she "never had a problem" with him, referred Cox to him for the purpose of having her will re-drawn. Although respondent confirmed that Cox had first consulted with him for that purpose, the evidence demonstrates that, initially, he prepared other documents for her and did not prepare her will until nearly a year later.
On December 19, 2005, respondent and Cox entered into an "agreement to provide services as attorney-in-fact pursuant to powers of attorney." Cox was eighty-nine years old at the time. The agreement provided:
1. You have requested that [respondent] act as your attorney-in-fact (sometimes also known as power of attorney) for purposes of all financial matters as well as health care decisions to be made on your behalf in the event that you should become disabled or otherwise unable to make such decisions on your own behalf.
2. You have designated [respondent] as your attorney-in-fact by way of execution of written Powers of Attorney. In addition, you have previously executed a Living Will setting forth your desires in the event that you should be diagnosed with a terminal incurable illness and suffer the loss of sapient and rational thought. In acting on your behalf pursuant to these Powers of Attorney, [respondent] may be, and is likely to be, required to render services on your behalf that are not necessarily in the nature of legal services, but more in the nature of social services or the services that would be provided by a close family member assisting with your care. You understand that [respondent] will charge you for these services based upon the hourly fee set forth herein, and you have nonetheless requested these services be provided by [respondent].
3. [Respondent] has agreed to protect your legal rights and do all necessary legal work to properly represent your interests and to perform services as requested by you from time-to-time and in the discharge of these duties.
4. [Respondent] will keep time records of all services rendered on your behalf pursuant hereto and shall bill for services at the hourly rate of $300.00. In addition to legal fees you must also pay any out-of-pocket costs and expenses incurred by [respondent] in representing your interests.
[Ex.OAE3.]
Also on December 19, 2005, Cox executed a general power of attorney and a "power of attorney for decisions regarding health care," each in favor of respondent. Both powers of attorney provided that they would not terminate upon Cox's disability.
Prior to December 2005, Vaon Rhein had served as Cox's power of attorney, in general, and with respect to her health care and financial matters. According to respondent, Cox switched the power of attorney to him because, she told him, she did not believe that Vaon Rhein "was completely capable of handling everything for her."
Respondent testified that, although the fee agreement was signed on December 19, 2005, he did not render any services under the agreement until November 6, 2006. Up until Cox's January 2008 death, respondent was handling all her financial affairs.
Respondent described his relationship with Cox as "very close," which he claimed was "a natural consequence, really, of working with her on a daily basis." Despite this close relationship, Cox never met respondent's wife and never went to his house. Cox met two of his children, when they accompanied him on a visit to her, at the nursing home.
According to Vaon Rhein, Cox trusted respondent "completely and she really liked him." Vaon Rhein did not know, however, whether Cox and respondent maintained a social relationship, although Cox's neighbors told her that he did visit Cox.
On November 13, 2006, Cox executed a last will and testament, prepared by respondent. The will named respondent executor of her estate and made a number of specific bequests, including fifteen percent of her residuary estate to Vaon Rhein. Respondent was not a beneficiary under Cox's will. As stated previously, Cox died on January 11, 2008, a little more than two years after she met respondent.
Respondent testified that Cox's mental capacity was "perfectly fine," when she signed the fee agreement and powers of attorney, and that it remained "perfectly fine up until the end of her life." Although respondent conceded that Cox had been "a little incoherent" during the illness that led to her death, he asserted that she remained "certainly in charge of her life."
Vaon Rhein testified that she visited Cox every other day, during the last six months of her life, and that her state of mind was "fine," until "the last month or so." According to Vaon Rhein, at that time, Cox was "just not coherent," particularly "just before she died." For example, she did not understand what day or time it was.
OAE Senior Random Auditor Mimi Lakind testified that, on August 25, 2009, she conducted a random audit of Glazer & Luciano's attorney records. Respondent met with her, on behalf of the firm.
During the audit, Lakind reviewed the trust account ledger card for "DORIS COX ESTATE/GIFTS," which reflected two initial deposits, totaling $100,000. Specifically, on January 3, 2008, eight days before Cox died, respondent issued a $25,000 check payable to himself, drawn against Cox's personal bank account with Bank of America. A note on the memo line of the check read "ATTORNEY FEES — ON A/C." Respondent signed the check, on behalf of Cox, using his power of attorney. The check was deposited into the Glazer & Luciano attorney trust account on January 7, 2008, four days prior to Cox's death.
On January 9, 2008, two days before Cox's death, Llewellyn-Edison Savings Bank issued a $75,000 check, payable to Doris Cox. The check contained the notation "PAR W/D" (presumably, "partial withdrawal"). Respondent endorsed the check, which was deposited into his firm's trust account on that same date.
Lakind testified that, at the audit, respondent claimed that the $100,000 was a gift to him from Cox. Lakind informed respondent that the deposit of a personal gift into an attorney trust account constitutes improper commingling of personal and trust funds and that a decedent's money belongs in the estate account, whereas attorney fees belong in the attorney's business account. Lakind requested a written explanation from respondent, which he provided, in a letter dated October 12, 2009. The letter stated, in pertinent part:
I acted as the attorney for Doris Cox and as her attorney-in-fact under a general Power of Attorney, as well as her health care proxy. Upon her demise, I was appointed Executor of Ms. Cox's Estate.
The amount of time that I spent devoted to assisting Ms. Cox and the types of services increased dramatically during the last couple of years, and in expressing her appreciation and affection she told me that she wanted to
make a gift to me of $100,000.00. She conditioned the gift on the circumstance that she would no longer need the funds for her own continuing care and living expenses, and instructed me to take the funds at the appropriate time.
These funds were deposited into our Trust Account when Ms. Cox was hospitalized and the doctors were not encouraging about her ability to rebound. I remained hopeful that she would rally, and I had made arrangements for her to return home where she had a full-time caregiver residing with her, as well as with the added assistance of Hospice. The funds were deposited to our firm's trust account as a precaution to observe the client's instructions and concern that the funds be available for her care and expenses if needed. When Ms. Cox passed, I determined to leave the funds in the trust account because I felt it more appropriate and more in keeping with her intent that the gift funds be distributed when her Estate was distributed. Ms. Cox had expressed to me that I should use some of the funds to purchase savings bonds for my three children for their future education. Once the Estate had been substantially completed, I distributed the gift funds partially for the purchase of the bonds as she had suggested, with the remainder to myself. The saving [sic] bond purchase was later rejected as the amount exceeded the annual purchase limit, and these funds were then re-issued to purchase the bonds in successive calendar years. There
was certainly no mal-intent in placing or keeping these funds in the Trust Account.
[Ex.OAEl.]
As seen below, Cox allegedly made the gift to respondent on July 30, 2007.
The circumstances surrounding respondent's taking of the funds did not satisfy the OAE that Cox had gifted the monies to him. Respondent did not provide the OAE with any documentation supporting his claim that Cox intended to make this gift to him. In addition, the placement of the monies in the trust account troubled the OAE. Lakind testified that, even if Cox had conditioned the gift on the fact that she would no longer need the funds for her own care, the funds still did not belong in the attorney trust account. She pointed out that the funds could have remained in Cox's personal bank account, where they would be available to respondent, as her attorney-in-fact. In this regard, it should be noted that the record contains copies of numerous checks drawn against Cox's various personal accounts and signed by respondent, on Cox's behalf, under the power of attorney. Those checks were not first deposited in respondent's trust account.
At the ethics hearing, Lakind testified that the firm's ledger card for the Cox estate was handwritten and difficult to read. Accordingly, she asked respondent to provide her with a "better copy." Instead, respondent gave Lakind a re-created typed ledger containing descriptions that varied from those on the handwritten one. For example, the January 7, 2008 transfer of $25,000 from Cox's checking account to respondent's trust account was described on the handwritten ledger as "payment fees on A/C," whereas the typed ledger simply described it as a "transfer of client funds." As indicated previously, the memo section of the check contained the notation "ATTORNEY FEES - ON A/C."
Lakind highlighted other examples of differences between the handwritten and typed ledgers. For example, in August 2008, respondent disbursed $33,000 for the purpose of purchasing savings bonds for his three children. The handwritten ledger merely recorded "B of A gift bonds purchase," whereas the typed ledger provided the following detailed description: "BANK OF AMERICA - PURCHASE OF GIFT BONDS - PARTIAL DISTRIBUTION OF $100,000 INTERVIVOS GIFT TO MICHAEL A. LUCIANO."
Respondent had disbursed $67,000 to himself on August 14, 2008.
The $33,000 entry was voided on October 17, 2008, however, because it exceeded the allowable amount of savings bonds that could be purchased in a year. On that date, respondent disbursed $12,750 of the $33,000. The handwritten ledger set forth three entries, at $3250 each, for respondent's three children, Jenna, Mary, and Michael. Each entry was described on the handwritten ledger as "B of A Gift bonds." The typed ledger contained the same dollar entries, but the names of the children were omitted and the description was more detailed. Each $3250 entry was described as "BANK OF AMERICA - PURCHASE OF GIFT BONDS - PARTIAL DIST OF $100,000 GIFT TO MICHAEL A. LUCIANO PART. REPLACEMENT VOIDED #10289.
Similar circumstances surrounded three entries of $1000 each, also on October 17, 2008. The three entries on the handwritten ledger described the disbursement as "Prudential Mutual Fund Gift" and, for each entry, set forth a child's name. However, the typed ledger omitted the children's names and described each entry as "PART. REPLACEMENT VOIDED #10289 PRUDENTIAL MUTUAL FUND - PARTIAL DIST OF $100,000 GIFT TO M.A. LUCIANO."
The remaining $20,250 was disbursed in 2009. On February 4, 2009, respondent issued a $4500 check to each of his three children, leaving a $6750 balance in the trust account. On that same date, respondent took that balance, describing it as gifted funds, which were identified as "Bank of America Bonds for Children in Future." The ledger balance was now zero.
Lakind performed her own analysis of the Cox trust account ledger. She testified that, in addition to the early January 2008 $100,000 deposit, $327,478.20 in proceeds from the sale of Cox's home was deposited in the trust account on July 30, 2008, thereby increasing the account balance to $427,478.20.
In addition to the $100,000 already identified as a "gift" to respondent, he took monies from the estate account for work in his capacity as executor and as attorney for the estate. On December 31, 2008, respondent removed $40,000 from the estate account for the payment of legal fees and commissions. On January 1, 2009, he paid $30,000 to his aunt, Anna Mykietyn, for "paralegal services" provided to the estate. On January 9, 2009, respondent paid $155,792.45 in inheritance taxes, leaving a balance of $20,250 on the ledger, which, as stated previously, was zeroed out the following month, when respondent disbursed those monies to his children.
Respondent testified that he paid Mykietyn $30,000 because that is what she charged him. He considered Mykietyn to be an independent contractor, although he did not issue a Form 1099 to her for the work she did on the Cox estate. Respondent did not have time records for Mykietyn, but believed that she "probably" kept them for the estate matter. He asserted that her assistance enabled him to complete the administration of the estate in a year.
Lakind also reviewed the canceled checks from the Cox estate bank account and found two additional disbursements to respondent, made after Cox's death. On January 20, 2009, he paid himself $43,325, representing commissions and attorney fees, and, on March 11, 2009, he paid himself another $4000, representing attorney fees on account.
Lakind pointed out that, on the New Jersey inheritance tax return, respondent listed $80,000 in attorney fees to his firm, plus a $33,325 executor commission to himself. Lakind noted, too, that the Inheritance Tax Bureau increased respondent's attorney fees for handling the estate to $88,425, but decreased the executor commission to $30,328.35.
Respondent testified about the circumstances surrounding Cox's $100,000 gift to him. According to respondent, on the evening of July 30, 2007, while Cox was recovering at Inglemoor Nursing and Rehabilitation Center, he joined her in the dining room to go over some paperwork, including his $25,000 bill for services rendered from November 6, 2006 to June 26, 2007. According to respondent, the bill, which was dated July 16, 2007, was the only bill that he had ever presented to Cox and included entries for legal and non-legal work. Respondent acknowledged that the July 2007 bill was not broken down into how much time he had spent on each service. He had no explanation for that omission, except to say that he did not break down his time for other hourly-billed clients either.
According to respondent, Cox insisted on paying him $30,000, rather than the billed amount, which he accepted. He testified that, in January 2008, when he paid himself the $25,000 for attorney fees "on account," the July 2007 bill had already been paid.
Respondent claimed that, during that July 30, 2007 meeting, Cox had gifted him $100,000. On direct examination, he explained what transpired:
A. She said Mike, I want to make a gift to you, and I said that's very nice, Miss Cox, but -- in fact, I think she even may have said the $100,000 in the first, the first time that she brought it up, and I said that's very nice, Miss Cox, but you may need this money to take care of you, and she -- actually, I said that's very kind, because she said back to me, no, you've been very kind.
Q. And your first response was that she would -- that she may need the money?
A. That's right.
Q. All right. And did she have any response to that?
A. Yes, she did.
Q. And what was that?
A. She said you'll know if I don't need it and that she wanted me to have that.
Q. All right. And other than that conversation that you had with her was it ever discussed at any other time, if you can recall?
A. The gift was not. The gift to me was not discussed at any other time.
[2T58-17 to 2T59-14.]
"2T" refers to the transcript of the ethics hearing of October 12, 2012.
At this point, however, respondent offered an additional explanation, which only first appeared in his answer to the formal ethics complaint, namely, that he had taken the unsolicited gift.in lieu of fees:
Q. Okay. Now, I want you to tell us what your thought process is at the time that you withdrew the money. There's no, there's no dispute that you withdrew the 75,000 or the 25; is that right?
A. No.
Q. And that you deposited it in your trust account?
A. Right.
Q. I want you to tell us the thought process behind that.
A. I mean, it was pretty straightforward. I mean, that was the $100,000 and, quite frankly, again, I mean, I had the agreement. At the time that she made the gift, I wasn't gonna' continue to charge her. I had been keeping some time records but I didn't continue to, and I kept a few time records after that because I don't know that I completely formulated that I was accepting the gift, but then I did stop keeping time records. What was —
Q. I'm sorry. I had asked you what your thought process was at the time that you, you know, you took out, you withdrew the 75 and the 25.
A. I mean, she was in the hospital and the doctors were saying that, you know, it
was time to sign up for Hospice and that sort of thing. The thought processes were that this was the gift she was giving me, and the reason that I put it in my trust account was so that the money would still be available if it was needed. There was some testimony previously in this hearing that there was plenty of other money that was available, but there wasn't plenty of other money that was available because all of the other money that Miss Cox had was in a stock account, which the stocks had taken a pretty good beaten [sic] at the time and the stockbroker that I was speaking with was saying that he would watch it carefully and it should stay there.
. . . .
Q. Is it fair to say that rather than depositing the monies in your personal account, which you could have done, you put it in the trust account because you weren't sure at that point as to whether or not it would still be needed?
A. That's right.
[2T60-15 to 2T63-8.]
Respondent asserted that it was not Cox's intention that the gift be in lieu of legal fees. Rather, that was the way he accepted it. "Quite frankly," he offered, "I think she would have been perfectly happy for me to continue to charge the fees and, and get the gift."
At this point, we find it appropriate to review how respondent's law firm maintained its bank accounts. The firm maintained one trust account and three business accounts. One business account was dedicated to the firm. Fees earned by respondent and his partner in matters that they handled jointly were deposited into that account. Respondent controlled the second business account and his partner controlled the third business account. They each transferred the fees earned from their individual matters into their individual business accounts. The Cox matter was handled exclusively by respondent. Therefore he was entitled to one hundred percent of the fees.
Respondent testified that it did not occur to him to have Cox memorialize the gift in writing, because "I don't know that I knew I was accepting the gift, quite frankly, when I was in the Inglemoor with her, so no, it didn't." Respondent did not advise Cox to change her will to reflect the gift. He repeated that the $100,000 had been deposited into the attorney trust account so that "it wouldn't be my money yet, really, but it would be available if she continued to live and needed the money, which she would have needed the money if she continued to live, no question." When confronted with the fact that the funds were already available to her, respondent replied, "Yes, but if she died it wouldn't have been. It would have been a part of the estate. If she died it would not have been a gift."
Nevertheless, respondent stated that, even during the probate of the will, he still would have followed Cox's instructions and treated the funds as a gift to him, made prior to death. When asked how he would have "shown that that was a gift made . . . before death," respondent answered, "I think I would have just said it was a gift made to me before death."
Respondent testified that Cox was supposed to be discharged to her home on the day she died. When asked what caused him to move the money into his trust account eight days earlier, respondent replied that he knew that she was "in and out of coherency" and that she might die.
The OAE offered the testimony of CPA Donald Worster, who prepared estate and income tax returns for respondent's clients, including the Cox estate. Worster prepared that return with information given to him by respondent's office.
Worster testified that he dealt exclusively with respondent about the Cox estate, by telephone and fax, and that he submitted a draft return for respondent's review, prior to the completion of the final product. Worster explained that Schedule C to the New Jersey inheritance tax return requires the disclosure of the transfer of any property, valued at $500 or more, within three years of death and without receipt of full financial consideration. Thus, any gift valued at more than $500 would have to be listed on Schedule C. Worster stated that the transfer of $100,000 to respondent would have been a gift for the purpose of Schedule C, if it had been made prior to Cox's death.
Worster testified that, when he faxed the draft return to respondent, he asked respondent to "check questions Schedule C." Respondent replied by stating only that questions six and seven should be answered affirmatively. Those questions addressed contracts, plans, or life insurance policies that provided for the payment of an annuity or lump sum, upon the decedent's death.
Respondent never indicated to Worster, either orally or in writing, that he had received a gift from Cox. He never told Worster that he had performed legal services for Cox without billing her, in consideration for a gift. Worster testified that, if respondent had told him about the $100,000, it would have been listed on either Schedule C (if it were a gift made prior to death) or Schedule D (if it represented payment for legal services). Moreover, Worster stated, if it were a gift, he would have advised respondent to file a federal gift tax return.
Schedule D permits deductions for an estate's expenses and debts. Worster testified, however, that, if fees were due and paid prior to death, they would not be listed on Schedule D.
For his part, respondent testified that, when he received the draft inheritance tax return to review, he did not include the $100,000 as a gift because the form requires disclosure of transfers made without consideration. He added that the $100,000 was a transfer made with consideration, that is, work that he would be performing on Cox's behalf.
Respondent did not list the gift as income on either his personal or business tax returns. He acknowledged that he "probably should have filed a gift tax return," but told the special master that it was probable that no tax would have been due.
Respondent testified that, after he was served with the formal ethics complaint, he reconstructed his time for the personal services that he had performed for Cox from May 16, 2007 to January 11, 2008, plus a number of "undated" activities, by reviewing the documents contained in the "[t]hree or four boxes that [he had] left of her file." This represented work that he had done on Cox's behalf, after the payment of the July 2007 bill and up through the date of her death, but for which, he contended, she had not been billed. The unbilled work represented 279.36 hours of time, for a total of $83,808. Although the time reconstruction included an entry for July 30, 2007, the date of the gift, there was no mention of the gift among the items listed.
EX.OAE13 shows that the July 2007 bill included entries through June 26, 2007.
Respondent also reconstructed his services for work that he had performed as the attorney for and executor of the estate, which was not reflected on the billing approved by the Division of Taxation. The additional attorney time totaled $22,701.
To prove another aspect of the OAE's case against respondent, "overreaching," the OAE did not present its own testimony on the billings, but, instead, argued that "even a cursory review" of certain entries demonstrated overreaching by clear and convincing evidence. The OAE questioned respondent about his reconstructed time records for the work that he had carried out as Cox's attorney-in-fact. Specifically, the OAE asked respondent about the twenty-minute entry on January 3, 2008, which read: "Check to MAL Esq for $25,000.00 memo attorney fees on a/c (note: accepted as part of $100,000 gift in lieu of atty. Fees." According to respondent, this entry represented the time spent issuing the check, entering the check into the ledger, and taking the check to the bank and depositing it.
Respondent also was asked about the fifteen-minute July 31, 2007 entry that read: "Issue check to MAL Esq. for legal services on account." Respondent replied that the entry referred to the $30,000 fee check, which, he believed, had been deposited in the firm's attorney business account.
The last item actually billed to Cox detailed some tasks performed on June 26, 2007. Respondent reiterated that all subsequent tasks were never billed to Cox. He testified that he had not billed Cox for the time spent talking to her at Inglemoor, when the $100,000 gift was discussed. He did not record it on a bill or on the reconstruction of his time.
Respondent was asked to describe a time entry of 9.5 hours on the date of Cox's death, January 11, 2008, which appeared on the bill for services rendered in the administration of Cox's estate. That entry read:
01/11/08 - Telephone call from SBMC, respond to Hospital, attendance to details of terminating Hospice, arrangements as to visitation by decedent's friends at Hospital, return to office, review of decedent's instructions regarding funeral arrangements, respond to Farmer Funeral Home, finalize cremation and burial arrangements, identification of decedent's remains, respond to decedent's home to secure, termination of contract for homecare aide, arrangements for the return of home medical equipment and proper disposal of medications - 9.5 hours
[EX.OAE14.]
When asked if these tasks could have been performed by a nonlawyer, respondent answered in the affirmative, though he qualified that by stating that he believed "it help[ed]" to be a lawyer. He also acknowledged that a nonlawyer could have performed the tasks identified on the time detail for January 14 to 17, 2008, which represented twenty-two hours of work for $6600. He disagreed that it would have been proper to pay attorney fees out of the executor's commission, even if the executor had delegated most of his or her duties to the attorney for the estate. He contended that the executor is still entitled to a commission.
The OAE reviewed a few more time entries with respondent, for the purpose of having him admit that the tasks identified did not require a lawyer or for focusing on the amount of time it took respondent to perform a task. The review included time charged for carrying out a bequest involving the transfer of Scottie dog memorabilia (two-and-a-half hours), attending the burial of Cox's ashes (five hours), and multiple-hour entries for reviewing Smith Barney statements, over the course of several months.
Respondent testified that he had not recorded his time contemporaneously with the performance of those duties and had prepared the statement of time only after the Inheritance Tax Bureau had asked him to substantiate the fee he had charged. To do so, he had reviewed notes that were in the file and the documents themselves. He claimed that some of the notes would have reflected the time he had spent on the particular task.
Respondent's final time entry was for twenty-four additional hours to complete the "wrap up" work, which, he claimed, was underestimated.
The special master found "no credible evidence which supports Respondent's contention of a gift" and "no credible evidence that Respondent was authorized to take the money." The special master determined that respondent knowingly misappropriated the $100,000, based on the following circumstantial evidence: (1) the absence of written evidence granting respondent permission to transfer the funds; (2) respondent's failure to identify the gift on documents that "could have referenced the . . . gift," such as the inheritance tax return, which expressly stated that no gifts were granted; respondent's own trust account ledger, which described the $25,000 deposited on January 7, 2008 as the payment of attorney fees on account; (3) the absence of any mention of the gift on the July 30, 2007 entry on respondent's reconstructed bill, the date that the gift allegedly had been made; and (4) the inconsistency between respondent's testimony that the services rendered to Cox, from July 1, 2007 to January 11, 2008, exceeded $100,000 and the reconstructed invoice for the period, which reflected a total charge of $83,808. The special master concluded:
It is inexplicable why an attorney in such a position [of trust] would transfer funds to himself even if the client had orally gifted
him $100,000.00 without any written documentation demonstrating authority or permission to do so. Without written authority and without evidence supporting the alleged gift, authority to transfer the funds has not been demonstrated.
[SMR2 2. ]
"SMR" refers to the special master's report, dated May 13, 2013.
The special master concluded that respondent knowingly misappropriated the $100,000, "based upon Respondent's admissions, all relevant, admissible testimony, and all documents admitted into evidence."
The special master also found that respondent violated RPC 1.8(c) "by preparing an instrument giving himself a gift from a client as he is not related to Ms. Cox." The special master noted that (1) respondent had known Cox just over two years, at the time of her death, and just over one-and-a-half years, since the time of the alleged gift; (2) Cox had never met respondent's wife; and (3) Cox had never been to respondent's home.
We note that respondent never prepared any "instrument giving himself a gift."
Respondent drafted Cox's will prior to the alleged gift.
On the overreaching issue, the special master found that the services identified on the bill covering the period from November 6, 2006 through June 30, 2007 were performed pursuant to the fee agreement between respondent and Cox and that there was no evidence of duress or undue influence on the part of respondent or incompetence on Cox's part. The special master found no overreaching with respect to these charges.
The special master did find, however, that respondent overreached Cox's estate by taking a $33,000 executor's commission and an attorney fee of $88,000. The special master did not provide any details in support of this finding.
The special master recommended respondent's disbarment for the knowing misappropriation of the $100,000. He did not state which form of discipline he would consider appropriate for the conflict of interest and overreaching infractions.
Following a de novo review of the record, we are satisfied that the special master's finding that respondent's conduct was unethical is fully supported by clear and convincing evidence.
Because Cox is deceased and there are no writings documenting the alleged gift, this case proceeded on circumstantial evidence. The special master found that the circumstantial evidence clearly and convincingly established that respondent knowingly misappropriated $100,000 of Cox's funds. We agree. We note that, under R. 1:20-6(c)(2)(C), the burden of proof was on the OAE. However, under that same rule, the burden of going forward regarding defenses shifted to respondent. In our view, he failed to satisfy that burden.
"[C]ircumstantial evidence can add up to the conclusion that a lawyer 'knew' or 'had to know' that client funds were being invaded." In re Johnson, 105 N.J. 249, 258 (1987). Accord In re Cavuto, 160 N.J. 185, 196 (1999) (noting that the circumstantial evidence clearly and convincingly established that the attorney knew or had to know that he had repeatedly invaded client funds that were to be kept inviolate).
Even if one could arguably overlook respondent's failure to obtain a writing substantiating the gift, several other factors lead to the inevitable conclusion that Cox never gifted the $100,000 to him. First, respondent failed to report the $100,000 to the government, either as a gift or as income. He did not report the "gift" on the New Jersey inheritance tax return, even after Worster asked him to focus on Schedule C. When confronted with that fact, respondent claimed that it was not necessary for the funds to be listed on Schedule C, because they were legal fees. Yet, he never reported the fees as income. Indeed, he failed to report the $100,000 received from Cox to any government entity. He failed to account to anyone for these funds.
Due to the way that respondent and his partner handled legal fees, there seems to be no issue as to whether the monies were law firm funds.
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Second, there was no reason for respondent to have transferred the funds to the firm's attorney trust account. If, as he claimed, the funds were a gift, he could have deposited them to his personal account directly from Cox's account. On the other hand, if they were to remain intact for so long as Cox might need them, it was not necessary to transfer them to the attorney trust account because, as Lakind pointed out, respondent had access to and control over all of Cox's personal accounts and he had carried out transactions with those accounts under the power of attorney. Certainly, he could have continued with that course of conduct. In this regard, we note that, if the funds represented the payment of fees, they should have been deposited into the business account. R. 1:21-6(a)(2).
Third, the issue of whether the gift was taken in lieu of future fees, which respondent did not assert until he filed his answer in this matter, presents several problems. In short, the claim makes no sense. As of July 30, 2007, respondent had no idea how long Cox would live. Thus, he had no idea if she would have survived long enough for him to even bill $100,000 in fees. He also had no idea if she would have survived long enough for him to bill more than $100,000 in fees, thereby placing himself at risk of losing money. Finally, if as respondent claims, he took the monies in lieu of fees, then he kept more than he was entitled to receive, as his reconstructed time amounted to $88,000.
Given respondent's failure to maintain the funds in a manner that was consistent with his stories, the only possible explanation for his transfer of the funds to the trust account was so that they could be hidden from the government and Cox's beneficiaries. Indeed, respondent himself acknowledged that, if he had not removed the $100,000 from Cox's account, "it would have been part of the estate."
Further, as the special master correctly observed, it is inconceivable that an attorney in such a position of trust, like respondent, would not have memorialized a substantial gift of $100,000 to avoid any potential claims of impropriety. He also could have had another attorney redo Cox's will to add a $100,000 bequest to him. That he did neither adds strength to the conclusion that there was no gift and that he availed himself of the $100,000 left in Cox's account, which he knew she no longer needed. Who would question respondent's spending of any of the funds in Cox's account or, in fact, who would question how much there was in the account at any given time? The circumstantial evidence that respondent took the $100,000 for himself is simply monumental, and he has failed to persuade us — and the special master - otherwise.
We are unable to agree, however, with the special master's finding that respondent violated RPC 1.8(c). That rule provides, in pertinent part:
A lawyer shall not solicit any substantial gift from a client . . . unless the lawyer . . . is related to the client. For purposes of this paragraph, related persons include a spouse, child, grandchild, parent, grandparent, or other relative or individual with whom the lawyer . . . maintains a close, familial relationship.
RPC 1.8(c) does not apply to the facts of this case, even if the $100,000 were proven to be a gift, because there is no clear and convincing evidence that respondent solicited that gift from Cox.
Similarly, contrary to the special master's determination, the evidence does not establish fee overreaching by clear and convincing evidence. In this regard, we observe that "[n]ot every instance of unreasonable fees rises to the level of overreaching." In the Matter of Anthony N. Verni, DRB 01-245 (January 30, 2002) (slip op. at 11). Here, the proofs fall short of the requisite clear and convincing standard that respondent's charges were so outrageous as to denote an intent to take advantage of Cox.
In analyzing this claim, we take note of what exactly the complaint charged. First, the complaint alleged that respondent violated RPC 1.5(a) by charging Cox for non-legal work. This claim falls. The December 2005 fee agreement provided for payment at $300 an hour for legal services and social services that respondent performed on Cox's behalf. There was no evidence of undue influence or duress with respect to the agreement, just as there was no evidence that $300 an hour was an unreasonable fee.
The OAE's emphasis on overreaching was that the legal fees charged to the estate were for work more properly carried out by the executor (who was also respondent) and, therefore, compensated by the general commission taken by the executor of an estate. In other words, by billing for these matters, respondent "double dipped." Here, too, the OAE's proofs were insufficient. In fact, the Inheritance Tax Bureau actually increased respondent's allowable attorney fees by more than $8000, while decreasing the executor commission by $3000. When we consider this hard evidence against the OAE's attempt at proving its case by respondent's own testimony, we conclude that the proofs do not clearly and convincingly support a finding of fee overreaching. Thus, we dismiss that charge.
To conclude, the evidence clearly and convincingly establishes only that respondent knowingly misappropriated $100,000 from Cox, which requires his disbarment. Wilson, supra, 81 N.J. at 455 n.1, 461. We so recommend to the Court.
Member Singer abstained. Member Doremus did not participate.
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
Bonnie C. Frost, Chair
By:__________
Isabel Frank
Acting Chief Counsel
SUPREME COURT OF NEW JERSEY
D-63 September Term 2013
073869
IN THE MATTER OF MICHAEL A. LUCIANO, AN ATTORNEY AT LAW (Attorney No. 000901984)
ORDER
The Disciplinary Review Board having filed with the Court it decision in DRB 13-177, recommending that MICHAEL A. LUCIANO of LIVINGSTON, who was admitted to the bar of this State in 1984, be disbarred for violating RPC 1.1(a)(knowing misappropriation of client funds), and the principles of In re Wilson, 81 N.J. 451 (1979);
And MICHAEL A. LUCIANO having been ordered to show cause why he should not be disbarred or otherwise disciplined, and good cause appearing;
It is ORDERED that MICHAEL A. LUCIANO be disbarred, effective immediately, and that his name be stricken from the roll of attorneys;
ORDERED that MICHAEL A. LUCIANO be and hereby is permanently restrained and enjoined from practicing law; and it is further
ORDERED that MICHAEL A. LUCIANO comply with Rule 1:20-20 dealing with disbarred attorneys; and it is further
ORDERED that all funds, if any, currently existing or hereinafter deposited in any New Jersey financial institution maintained by MICHAEL A. LUCIANO pursuant to Rule 1:21-6 be restrained from disbursement except on application to this Court, for good cause shown, and shall be transferred by the financial institution to the Clerk of the Superior Court, who is directed to deposit the funds in the Superior Court Trust Fund pending the further Order of this Court; and it is further
ORDERED that the entire record of this matter be made a permanent part of respondent's file as an attorney at law of this State; and it is further
ORDERED that respondent reimburse the Disciplinary Oversight Committee for appropriate administrative costs and actual expenses incurred in the prosecution of this matter, as provided in Rule 1:20-17.
WITNESS, the Honorable Stuart Rabner, Chief Justice, at Trenton, this 12th day of May, 2014.
CLERK OF THE SUPREME COURT