September 25, l990

John A. Tumolo, Esquire

Chairman, Disciplinary Board

432 Boulevard of the Allies

Pittsburgh, Pa. l52l9

Re: Escrow overdraft reporting proposal

Dear Mr. Tumolo:

I am writing to urge the Board to recommend that our Supreme Court adopt a rule whereby attorney escrow accounts may only be maintained in financial institutions that agree to report overdrafts on such accounts to the Disciplinary Board.

I have enclosed for your perusal a copy of New Jersey's latest annual report on its overdraft reporting program, a copy of Connecticut's rule and the Connecticut Bar Association report recommending the rule, and a copy of the model rule proposal and supporting report of the Standing Committee on Lawyers' Responsibility for Client Protection of the American Bar Association.

The merits of such a rule from a client protection standpoint are, I would hope, obvious. As the ABA committee put it:

Implementation of an overdraft notification program in the various jurisdictions promises to significantly reduce the level of attorney defalcations across the country. Such a program provides an invaluable "early warning" that an attorney is engaging in conduct likely to injure clients. The receipt of such information will permit appropriate disciplinary authorities to intervene before large losses occur and significant numbers of clients are harmed.

The counterarguments I have heard are that overdraft reporting requirements (l) unduly inconvenience the bar, (2) give the public the impression that lawyers can't handle their own finances, and (3) are unnecessary in that victimized clients can be counted on to make timely complaints. I'll take these one at a time.

While New Jersey's experience has been that the overwhelming majority of overdrafts turn out to have innocent explanations, the lawyer who handles his escrow account properly will be essentially unaffected by the rule; at most, he may occasionally have to write a letter explaining an overdraft resulting from a bookkeeping error or a delayed deposit -- hardly an onerous burden.

We would hardly be telling the public anything it does not already know by acknowledging that a few attorneys steal from their clients, and we would hardly be harming our image by demonstrating our willingness to endure occasional inconvenience in order that those few be caught. Moreover, underreporting by victimized clients is the most significant single reason an overdraft rule is necessary.

It is not a reflection on the bar per se that clients fail to report attorney thefts. It is an unfortunate fact of life that thefts that do not involve a physical taking or physical violence, whether or not they are committed by attorneys, frequently go unreported. Theft in the course of a fiduciary relationship has one thing in common with incest and spouse abuse: the victims do not always respond in the way that would seem logical to an outsider. Some of the reasons clients do not report are:

The client may be implicated in antecedent misconduct of the attorney (such as the padding of medical bills in connection with a personal injury claim).

The client may have other reason to believe that taking action against his attorney will result in exposure of misdeeds of his own (either because the accusation will open the door to explanations that may extend to client confidences or because the attorney will make retaliatory disclosures).

The client may have kept the existence of the funds a secret from someone else (an estranged spouse, the Department of Public Welfare) and may be afraid that taking action against the attorney will result in exposure.

The client may prefer to extract a sum from the attorney that includes an additional amount for his "trouble" rather than limit himself to what a tribunal or the Client Security Fund will give him for his loss.

The client may distrust disciplinary authorities and may consider reporting futile.

The client may regard the attorney as "family" and not want to hurt him.

The most common reason, however, is a simple one: no client wants to be the last Paul left hanging when the attorney runs out of Peters to rob. Few clients will complain if restitution is made; few will ask where the money to make restitution came from. This is true regardless of whether the client retains a new attorney. The "bargaining" approach whereby forbearance is traded for restitution is not something lawyers invented to protect each other. The retention of the new attorney is often simply a means of making this approach more efficient; the threat of exposure is made more credible and faster results may be obtained.

I will share a story here that, although it did not involve an overdraft, illustrates, I believe, the thinking of many victimized clients and the attorneys to whom they go following their victimization. Names and some details have been omitted to protect all of the guilty.

The complainant (according to testimony she gave several years later) entrusted money to her attorney and never saw it again. She told another attorney whom she knew socially about her difficulties in getting straight answers from the first attorney as to the whereabouts of her money. He later testified:

. . . I finally said, look, [complainant], why don't you threaten [him] with disciplinary board proceedings. You don't have to bring them, but threaten him with these proceedings. Because perhaps the sheer fear of something happening might prompt him to give her the money . . . I thought perhaps she could force him to come up with the cash, in the means that I suggested. [Emphasis added.]

The financial difficulties of the original attorney were public information by this time; where the second attorney thought he would "come up with the cash" from he did not say. The complainant rejected his advice, according to his testimony, because she did not want to hurt the original attorney and his family.

The complainant consulted yet another attorney, who prepared a judgment note that included the following clause:

Debtor hereby acknowledges and agrees that the above waivers are granted for and in consideration of holder forebearing to bring suit against debtor and for forebearing to take other disciplinary action against debtor.

The note was signed by the original attorney. It proved to be uncollectible and the claim was eventually paid by the Client Security Fund. The complainant's instigation, through a fourth attorney, of the proceedings that led to the acquisition of direct evidence (in the form of bank records) of the attorney's personal use of the funds was virtually simultaneous with the establishment of the Fund. The instigation of those proceedings followed the original transfer of funds by some three years, notwithstanding that the conduct and statements of the attorney following that transfer were such that any reasonable person would have inferred his personal use of the funds within two or three months of the entrustment.

Unfortunately, the reaction of many potential complainants to circumstantial evidence of misappropriation is one of refusal to believe the obvious, a refusal that in some cases is reminiscent of the old story about the husband who hired a detective to investigate his suspicions of adultery and who, upon learning that the detective's observations of wife and putative paramour stopped at the motel room door and that the act itself had not been witnessed, cried out in frustration, "Always that element of doubt!"

While clients who should be complaining are wrestling with their doubts, the attorneys are frantically searching for new tills to tap in order to make restitution. The search becomes more frantic when a second attorney who hates to "snitch" but wants the client made whole becomes involved. The unspoken message to the miscreant attorney is "Find another victim, or else." The unspoken message to the attorney who wants to stop stealing is "Don't you dare!" The cycle may continue for years. When the crash finally comes, the attorney's life is in a state of utter devastation. He owes astronomical sums to clients, to financial institutions, and to rescuing relatives. His family has gone through hell, with more to come now that he has been publicly disgraced and his earning capacity has been destroyed. His ability to appreciate the consequences of his actions has been radically impaired, having diminished a little each time he escaped those consequences by scraping up restitution. Lying has become second nature to him. The deterioration of his character may be irreversible.

I have seen the ravages from a vantage point that differs from that of the Board and the Court. I would like to get my disciplinary clients while their futures as human beings, if not as lawyers, are still salvageable. The ones who make it back are the ones who had the good fortune to run out of rescuers early. Indeed, a majority of those of my disciplinary clients whose troubles involved client funds strongly favor an overdraft reporting rule; I have had clients who would now give their right arms to have been caught the first time they used client funds. My experience with my disciplinary clients has been such that if a client were to come to me with a credible complaint of misappropriation by another attorney, my reaction would be to "run, do not walk" to the Board. To me, in light of what I know, it would be a simple matter of putting the colleague's life before his license.

Obviously, an overdraft rule will not detect every instance of defalcation. It will make defalcation more dangerous. It will convey a badly needed "zero tolerance" message. It will relieve one group of aggrieved clients and the attorneys they subsequently consult from the responsibility of trying to decide whether a defalcation should be reported.

There are two situations, additionally, where an overdraft will never come to the attention of disciplinary authorities in the absence of a reporting requirement: where the attorney himself is the payee on the check, and where the check bounces on the first presentation but is automatically resubmitted by the depositing bank and clears on the second presentation.

Some jurisdictions have adopted overdraft rules that provide for a short grace period; if the attorney covers the check within that period, the overdraft need not be reported. While this may benefit those attorneys who overdraw their accounts as a result of honest mistakes, it exacerbates the situation of the attorney whose overdraft was caused by his theft of client funds. He is told "Find another victim within ten days, or else." I've seen too many casualties of grace to favor grace periods.

In short, I believe that we need an overdraft rule not only for the sake of clients but for the sake of attorneys.

Yours truly,

Norma Chase

Enclosures: New Jersey annual report

Connecticut rule and Bar Association report

ABA model rule, commentary, and committee report

cc: Honorable Robert N. C. Nix, Jr.

Chief Justice, Supreme Court of Pennsylvania

Honorable John P. Flaherty

Liaison Justice, Disciplinary Board

Honorable Nicholas P. Papadakos

Liaison Justice, Client Security Fund

Walter Baczkowski, Esquire

Chairman, Client Security Fund Board

Deborah A. Cackowski, Esquire

Chief Disciplinary Counsel

Robert H. Davis, Jr., Esquire

Deputy Chief Disciplinary Counsel

Nan M. Cohen

Secretary, Disciplinary Board