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The Florida Supreme Court March 28 chose disbarment rather than suspension for two lawyers who fell short of ethics standards both before and after their bookkeeper allegedly embezzled more than $4 million from the firm's client trust account (Florida Bar v. Rousso, Fla., No. SC11-15, 3/28/13).
In a per curiam opinion, the court faulted the lawyers in the first place for abdicating all money-watching responsibility to the bookkeeper and ignoring their own professional obligation to safeguard client funds. Their hands-off approach enabled the thefts to continue undetected rather than being discovered after the first month, it found.
The court also blamed the lawyers for acting unethically and even dishonestly after discovering the problem. They compounded their initial misconduct, it found, by putting personal funds into the trust account to cover the shortages, borrowing funds from a client to shore up the account, preferentially disbursing money from the underfunded trust account to some clients and themselves, and continuing to represent clients--and place clients' money into the unstable trust account--without informing them of the firm's financial problems.
In 2008 Mark E. Rousso and Leonardo A. Roth discovered that millions of dollars were missing from their firm's trust account.
The disciplinary referee found no convincing evidence that the lawyers took the money or benefited from its disappearance. They attributed the loss to the firm's nonlawyer bookkeeper, who fled with his family to Argentina and could not be located.
After discovering the theft, Rousso and Roth eventually hired outside counsel and an outside accountant and conducted an informal audit. They also contacted police and cooperated with the investigation, and explained the situation to the Florida Bar by calling the ethics hotline.
To remedy deficits in the trust account as they emerged, the lawyers put money into the account from various sources, but they could not cover all the losses, which totalled $4.38 million. The firm disbanded, and the lawyers testified at the disciplinary hearing that they are insolvent.
The court agreed with the referee that Rousso and Roth violated Rule 5-1.2(b) and (c) of the Rules Regulating the Florida Bar, which set minimum standards for maintaining client trust accounts. The lawyers violated these provisions, the court found, by failing to:
• examine endorsed checks to guard against possible forgery;
• prepare and maintain memorandums to support the disbursement of trust funds to the lawyers' interests or business concerns;
• prepare and maintain a separate file or ledger for each client or matter; and
• reconcile the trust account every month.
Adherence to these standards would have exposed a pattern of theft before the loss extended to $4.38 million, according to the referee.
The court emphasized that lawyers have the ultimate responsibility for trust account monies. Here, the lawyers “abandoned their professional duty to safeguard their clients' funds,” it declared.
The court also found that “the actions that Respondents took to manage the drastic shortages in the trust account included additional acts of misconduct.”
Rousso and Roth acted improperly, the court found, when they tried to replace the missing funds by depositing their own money, funds they borrowed, and insurance proceeds into the trust account.
These deposits, it held, constituted commingling in violation of Rule 5-1.1(a), which requires client funds to be held separate from a lawyer's own property and permits a lawyer's own funds to be maintained in a trust account only as needed to pay bank charges.
The referee had found that the lawyers' decision to fund the trust account with their own money did not offend the basic principles underlying the commingling proscription because they were acting from a “sense of personal honor” in trying to remedy the theft.
The court flatly disagreed, pointing out that other Florida lawyers have been disciplined for depositing personal funds into their client trust account.
The court approved the referee's findings that Rousso and Roth violated Rule 1.7 (conflicts of interest, current clients) by giving preference to some clients--and sometimes to themselves--in disbursing money from the trust accounts.
The lawyers decided to cover the losses quietly without advising most of their clients about the firm's financial problems and without obtaining their informed consent to continued representation, it explained.
The court also agreed with the referee that the lawyers violated Rule 1.8(a) on business transactions with clients by getting one of their clients to trade a portion of his trust account credit for a $231,000 promissory note. The lawyers ultimately defaulted on the debt, it noted.
The lawyers failed to advise that client in writing, the court said, that (1) outside sources were needed to cover embezzlement from the trust account; (2) the scope of the loss was still unknown; (3) the firm might not survive the calamity and the lawyers might not be able to repay the loan; (4) the client should hire an independent lawyer for legal advice about the transaction, and (5) the loan could not go through without his informed consent.
In addition, the court endorsed the referee's conclusion that Rousso and Roth acted dishonestly in violation of Rule 8.4(c) by leaving clients under the false impression that financial matters were stable, continuing to deposit clients' money into the trust account when they knew it was seriously underfunded, taking new money into the account to pay older client liabilities, and getting a loan from a client even though it would be difficult or impossible to repay the debt.
The court rejected the referee's recommended sanctions--a 12-month suspension for Rousso and a 15-month suspension for Roth--as contrary to two earlier disciplinary cases in which lawyers received a three-year suspension for mismanaging a client trust account.
On the other hand, the court did not agree with the bar's argument that the lawyers should be permanently disbarred. Under the unique facts here, disbarments--but not permanent disbarments--are the appropriate sanction, it concluded.
In settling on this sanction, the court emphasized that the lawyers failed to manage the trust account properly in the first place, took too long to deal seriously with the problem after discovering it, commingled funds and violated conflicts rules in trying to cover the shortages, and acted dishonestly along the way.
The court agreed with the referee that if the lawyers seek readmission to practice, they must first fulfill their settlement agreement with the client from whom they borrowed money.
However, the court rejected the referee's decision to make an “equitable adjustment” in the amount of costs awarded to the bar. The lawyers must pay the full costs of the staff auditor who worked on their cases even though he is a salaried employee and they are arguably unable to pay, the court ruled.
The Florida Bar was represented by Executive Director John F. Harkness Jr. and Staff Counsel Kenneth L. Marvin, Tallahassee, Fla., along with Bar Counsel Daniela Rosette, Miami.
Rousso and Roth were represented by Andrew S. Berman of Young, Berman, Karpf & Gonzalez, Miami, and Brian Lee Tannebaum of Tannebaum Weiss, Miami.
Copyright 2013, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
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