Opinion
DRB 22-040
09-13-2022
In the Matter of David M. Schlachter An Attorney at Law
Timothy M. Ellis Acting Chief Counsel Darrell M. Felsenstein appeared on behalf of the Office of Attorney Ethics. Joseph M. Tomaino, counsel for respondent, waived oral argument.
Argued: May 12, 2022
District Docket Nos. XIV-2019-0121E and XI-2021-0900E
Timothy M. Ellis Acting Chief Counsel
Darrell M. Felsenstein appeared on behalf of the Office of Attorney Ethics.
Joseph M. Tomaino, counsel for respondent, waived oral argument.
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 disciplinary stipulation between the Office of Attorney Ethics (the OAE) and respondent. Respondent stipulated to having violated RPC 1.15(d) (failure to comply with the recordkeeping requirements of R. 1:21-(6)) and RPC 8.1(b) (failure to cooperate with disciplinary authorities). For the reasons set forth below, we determine to impose a reprimand, with conditions.
Respondent was admitted to the New Jersey bar in 2006 and to the New York bar in 2007. He has no prior discipline in New Jersey. At the relevant times, he maintained a practice of law in Passaic, New Jersey.
The disciplinary stipulation, dated March 28, 2022, sets forth the following facts in support of respondent's admitted ethics violations.
On February 5, 2019, respondent sent the OAE's Fee Arbitration Unit a fifty-dollar check for a filing fee, drawn on his attorney trust account (ATA), in connection with a fee arbitration matter. On February 26, 2019, the Fee Arbitration Unit sent respondent a letter, declining to negotiate his ATA check and explaining that it was inappropriate for him to use ATA funds for such a purpose. Thereafter, the OAE commenced a disciplinary investigation for respondent's "apparent violation[s]" of RPC 1.15(a) (commingling funds), RPC 1.15(d), and R. 1:21-6.
On March 15, 2019, the OAE sent respondent a letter, requesting that he provide, by March 29, 2019, a written reply to the grievance and his (1) three-way monthly ATA reconciliation records; (2) ATA and attorney business account (ABA) receipts and disbursements journals; and (3) client ledger cards, all spanning from March 1, 2018 through March 15, 2019. On April 1, 2019, respondent called the OAE and left a voicemail message, requesting an extension until April 5, 2019 to provide the requested financial records. The OAE granted respondent's extension request and required him to produce the documents by April 5, 2019.
On April 5, 2019, respondent sent the OAE a two-page facsimile, the first page of which indicated that he had "enclosed" the OAE's requested documents, and the second page of which indicated that "attachments [were] omitted (sent by regular mail)." Respondent's facsimile submission failed to include any of the requested documents.
Between April 12 and May 3, 2019, the OAE left respondent three voicemail messages inquiring about the status of the outstanding documents. Although respondent assured the OAE, during an April 18, 2019 telephone conversation, that he would provide the documents, he failed to do so. Consequently, on May 13, 2019, the OAE sent respondent another letter, directing him to produce the documents at a May 29 demand audit at the OAE.
On May 15, 2019, the OAE received an April 5, 2019 letter from respondent, which listed his ABA receipts and disbursements from March 1, 2018 through February 28, 2019, with a brief description of each transaction. However, respondent's letter failed to include his written reply to the grievance; his ATA receipts and disbursements journals; his client ledger cards; and his three-way monthly ATA reconciliation records, as the OAE had requested in its March 15, 2019 letter.
Although respondent's letter also included a one-page document purporting to represent his monthly three-way ATA reconciliation records from March 1, 2018 through March 31, 2019, the one-page document failed to demonstrate that respondent had performed the required three-way monthly ATA reconciliations, as R. 1:21-6(c)(H) requires.
On May 23, 2019, respondent called the OAE to request an adjournment of the May 29, 2019 demand audit. On May 28, 2019, the OAE sent respondent a letter, granting his adjournment request and re-scheduling the demand audit for June 17, 2019. However, on June 4, 2019, the OAE informed respondent, by letter, that it "need[ed] to re[-]schedule [the] demand audit to June 24, 2019." On June 21, 2019, three days before the scheduled demand audit, respondent sent the OAE another letter, requesting another adjournment because he was scheduled to appear in bankruptcy court "almost all day" on June 24, 2019.
On July 12, 2019, the OAE sent respondent a letter, noting that the records contained in his April 5, 2019 letter fell "far short" of the OAE's request. Consequently, the OAE reiterated that respondent provide, by July 29, 2019, not only a written reply to the grievance, but also (1) proper three-way monthly ATA reconciliation records; (2) ATA and ABA receipts and disbursements journals; and (3) client ledger cards, each spanning from March 1, 2018 through July 12, 2019. However, rather than provide the OAE with the requested documents, on August 21, 2019, respondent sent the OAE a facsimile, requesting that the OAE advise him whether it "require[d] any more documentation."
On August 27, 2019, the OAE sent respondent another letter, repeating its request for his reply to the grievance and for his ATA and ABA records, scheduling a demand audit at the OAE on September 11, 2019, and warning respondent that his continued failure to cooperate could result in his temporary suspension. On September 9, 2019, two days before the scheduled demand audit, respondent called the OAE to request another adjournment, due to his scheduled appearance at an upcoming, two-day foreclosure trial, in New Jersey Superior Court, which was scheduled to commence on September 24, 2019.
On September 10, 2019, the OAE sent respondent a facsimile, which informed him of his obligation to appear for the September 11 demand audit and to produce the requested ATA and ABA records, given that the foreclosure trial was not scheduled to commence for another two weeks. Later, on September 10, 2019, the OAE spoke, via telephone, with respondent, who "insisted" that the OAE re-schedule the September 11 demand audit, not only because he was preparing for the September 24 foreclosure trial, but also because of "personal" and "medical" reasons. Based on its conversation with respondent, the OAE rescheduled the demand audit for September 18, 2019, and required respondent to submit to the OAE (1) a letter confirming his appearance at the September 18 demand interview; (2) a letter from his doctor regarding his September 11 medical appointment; (3) the required ATA and ABA records; and (4) his reply to the grievance. Thereafter, on September 10, 2019, respondent sent the OAE a letter, which referenced his upcoming September 11 medical appointment and "confirmed" his scheduled appearance at the September 18 demand audit. Respondent also assured the OAE that he would send the required documents, via facsimile and "trackable mail[,]" by September 11.
On September 11, 2019, the OAE sent respondent a letter, reminding him of the September 18 demand audit and of his obligation to submit the required documents. On September 13, 2019, the OAE received from respondent (1) a list of his ABA receipts and disbursements, spanning from March 1, 2018 through February 28, 2019; (2) a one-page summary of his "[t]rust [r]eceipts and disbursements[,]" spanning from March 1, 2018 through March 31, 2019; and (3) his purported three-way monthly ATA reconciliation records, spanning from March 1, 2018 through March 31, 2019.
Respondent's ABA receipts and disbursements list was an exact copy of the deficient list he previously had provided to the OAE in his April 5, 2019 correspondence.
Respondent, however, failed to provide the OAE with monthly ATA statements; separate, detailed ATA receipts and disbursements journals; and separate client ledger cards, as R. 1:21-6(c)(1)(A), (B) and (G) require. Moreover, respondent failed to provide his ABA receipts and disbursements in separate, detailed journals, as R. 1:21-6(c)(1)(A) requires. Finally, respondent failed to provide the required doctor's letter and his reply to the grievance.
Respondent's one-page summary of his "[t]rust [r]eceipts and disbursements" did not constitute separate, detailed receipts and disbursements journals, as R. 1:21-6(c)(1)(A) requires.
On September 16, 2019, the OAE sent respondent a letter, via facsimile, noting that his September 13 submissions to the OAE were incomplete and requesting that he provide, at the September 18 demand audit, his March 2018 through September 2019 ATA and ABA bank statements, receipts and disbursements journals, and individual client ledger cards. Additionally, the OAE reiterated its request for respondent's reply to the grievance and for a doctor's letter regarding his September 11 medical appointment.
On September 18, 2019, respondent appeared at the OAE demand audit. However, he failed to provide either his outstanding ATA and ABA records or his written reply to the grievance. When the OAE queried respondent regarding his failure to provide a written reply to the grievance, he falsely alleged that the OAE's March 15, 2019 letter never requested that he provide such a reply. In response, the OAE noted that, even if respondent had misinterpreted the OAE's March 15 letter, the OAE's subsequent correspondence clearly reiterated its request for his written reply to the grievance. Although respondent failed to reply to the grievance in writing, he told the OAE that he did not intend to pay the fifty-dollar fee arbitration filing fee from his ATA, as alleged in the grievance, but, rather, intended to pay the fee from his ABA. Respondent, thus, represented that he had issued the fifty-dollar ATA check by "mistake."
Additionally, although respondent claimed that he "kept up with his books and records monthly[,]" the OAE explained that, in order to complete its audit, respondent would have to provide the outstanding ATA and ABA records. Further, the OAE provided respondent with a recordkeeping requirement outline and samples of proper client ledger cards and ATA and ABA receipts and disbursements journals. Respondent provided the OAE with the required doctor's letter, which corroborated his September 11 medical appointment.
On September 18, 2019, following the demand audit, the OAE sent respondent another letter, requesting his ATA and ABA bank statements from March 2018 through September 2019. Additionally, the OAE requested that respondent complete an "Attorney Bank Account Disclosure Form[,]" which required that respondent disclose all bank accounts that he had maintained in connection with his practice of law.
On September 23, 2019, respondent provided the OAE with the same set of deficient ATA and ABA records included in his September 13, 2019 correspondence to the OAE. Additionally, although respondent provided four purported client ledger cards, the ledger cards failed to specify the source of the deposited funds, adequate descriptions of charges or withdrawals from the client accounts, and the names of all persons to whom such client funds were disbursed, as R. 1:21-6(c)(1)(B) requires.
On October 25, 2019, the OAE sent respondent another letter, which again requested that he provide his ATA and ABA bank statements from March 2018 through October 2019. Thereafter, on November 1, 2019, the OAE received from respondent a portion of the requested ATA and ABA bank statements, which spanned from April through August 2019.
On November 15, 2019, the OAE sent respondent a letter, identifying numerous recordkeeping deficiencies in his ATA and ABA, including the fact that his ATA and ABA statements failed to respectively designate the accounts as an "IOLTA Attorney Trust Account" and an "Attorney Business Account," as R. 1:21-6(a)(2) requires. Additionally, the OAE noted that respondent failed to (1) maintain fully descriptive ATA and ABA receipts and disbursements journals and client ledger cards, as R. 1:21-6(c)(1)(A) and (B) require; (2) maintain a ledger card identifying attorney funds for bank charges, as R. 1:21-6(c)(1)(d) requires; (3) retain ATA checks for seven years and maintain a running checkbook balance, as R. 1:21-6(c)(1) and (G) require; and (4) remove all earned legal fees to his ABA, as R. 1:21-6(a)(2) requires.
The OAE's letters of November 15 and 26, 2019 required respondent to confirm to the OAE, by December 30, 2019, the specific corrective actions that he had taken to resolve his recordkeeping deficiencies. The OAE also required respondent to (1) provide a written reply to the grievance; (2) complete a certification regarding his attorney accounts; (3) provide his most recent ATA statement; and (4) provide a separate "schedule" of open client balances, as reflected in the clients' ledger cards, to be "reconciled" against the ATA statement.
On November 21, 2019, respondent called the OAE to request an extension of the December 30, 2019 deadline to January 15, 2020. On November 22, 2019, the OAE denied respondent's extension request, and explained that, pursuant to R. 1:20-8(g), attorney disciplinary matters generally take precedence over administrative, civil, and criminal cases. Despite the OAE's denial, on November 25, 2019, respondent reiterated his extension request, not because of other pending client matters, but because of the upcoming winter holiday season. On November 26, 2019, the OAE again denied respondent's extension request, reiterated respondent's obligation to provide the required documents by December 30, 2019, and warned respondent that his failure to cooperate could result in his temporary suspension.
On February 3, 2020, the OAE received from respondent a letter, dated December 30, 2019, in which he provided a reply to the grievance and claimed that he (1) had corrected his ATA and ABA account designations; (2) was "better preparing" his ATA and ABA receipts and disbursements journals and client ledger cards; (3) was now preparing a separate ledger card for attorney funds used to pay bank fees; (4) was now copying checks to be kept with the client files; and (5) had changed his practice to "immediately deposit earned legal fees in" his ABA. Additionally, although respondent executed the OAE's required certification indicating that "all client funds ha[d] been fully accounted for[,]" respondent failed to provide the required, current ATA statement and a schedule of open client balances to be "reconciled" against the ATA statement.
In his written reply to the grievance, respondent again claimed that he mistakenly had issued the fee arbitration filing fee check from his ATA, rather than from his ABA.
On February 5, 2020, the OAE sent respondent a letter, informing him of his failure to provide the required, current ATA statement and a schedule of open client balances. Consequently, the OAE requested that respondent provide, by February 12, 2020, the following December 2019 financial records: (1) proper three-way ATA reconciliations; (2) an ATA statement; (3) client ledger cards; and (4) ATA and ABA receipts and disbursements journals.
On February 21, 2020, nine days after the February 12 deadline, the OAE received from respondent a letter dated February 13, in which he claimed that he was "putting together" the OAE's requested documents. Respondent, however, failed to comply.
Based on the foregoing facts, respondent stipulated that he violated RPC 8.1(b) by repeatedly failing to comply with the OAE's numerous requests for his financial records and for his written reply to the grievance. Although respondent ultimately provided some of the requested financial records, he stipulated that he failed to provide his December 2019 (1) three-way ATA reconciliations; (2) ATA statement; (3) client ledger cards; and (4) ATA and ABA receipts and disbursements journals. Moreover, respondent stipulated that he failed to provide a schedule of open client balances to be reconciled against his most recent ATA statement, as the OAE requested in its November 15, 2019 letter.
Respondent further stipulated that he violated RPC 1.15(d) by failing to comply with the recordkeeping requirements of R. 1:21-6. Specifically, respondent failed to (1) maintain separate, detailed ATA and ABA receipts and disbursements journals; (2) maintain descriptive client ledger cards; (3) maintain a separate ATA ledger card identifying attorney funds for bank fees; (4) properly designate his ATA and ABA; (5) retain ATA checks for seven years and maintain a running checkbook balance; and (6) disburse earned legal fees to his ABA. Although respondent claimed to the OAE, in his December 30, 2019 correspondence, that he had corrected many of his recordkeeping deficiencies and was "better preparing" his ATA and ABA receipts and disbursements journals and client ledger cards, respondent stipulated that, as of March 2022, he "[was] still not in compliance with the recordkeeping [R]ules."
In aggravation, the parties stipulated that respondent failed to remediate his recordkeeping deficiencies, despite the OAE's "extensive efforts [. . .] to bring [r]espondent into compliance." Consequently, the parties stated that respondent's "continued failure to comply with the recordkeeping [R]ules raises the realistic possibility that a misappropriation may occur." In mitigation, however, the parties cited respondent's lack of prior discipline and the fact that no client suffered harm as a result of respondent's misconduct.
Based upon respondent's stipulated violations of RPC 1.15(d) and RPC 8.1(b), the OAE urged the imposition of a reprimand, with conditions that we require respondent to submit to the OAE (1) all the outstanding, requested documents, and (2) quarterly reports documenting his trust accounting. Additionally, the OAE urged us to require respondent to take a trust and business accounting class offered by the OAE.
In support of its recommendation for a reprimand, the OAE relied upon disciplinary precedent that provides for a reprimand, "[e]ven in the absence of a negligent misappropriation, [. . .] if the attorney has failed to correct recordkeeping deficiencies that had been brought to his or her attention previously." In the Matter of Laura M. Rys, DRB 19-299 (March 27, 2020) at 10. The OAE correctly noted that reprimands may result if an attorney fails to cooperate with an arm of the disciplinary system, such as the OAE, which uncovers recordkeeping improprieties in a trust account and requests additional documentation. See In the Matter of Irving Tobin, DRB 20-213 (April 28, 2021) at 18.
Here, the OAE argued that a reprimand is warranted for respondent's persistent failure to cooperate with the OAE's requests for his ATA and ABA records, which contained numerous recordkeeping improprieties that respondent, ultimately, failed to correct.
In respondent's April 26, 2022 letter to us, he urged the imposition of an admonition, arguing that he had "resolved the issue" regarding his fee arbitration filing fee check and reiterating that he had issued that check from his ATA by mistake. Respondent also emphasized his lack of prior discipline; his commitment to faithfully serving his clients; the fact that he stipulated to his misconduct; and his willingness, going forward, to cooperate with the OAE and to correct his recordkeeping violations.
Following a review of the record, we are satisfied that the facts contained in the stipulation clearly and convincingly support the finding that respondent committed all the charged unethical conduct.
R. 1:20-3(g)(3) requires a lawyer to cooperate in a disciplinary investigation and to reply, in writing, within ten days of receipt of a request for information. RPC 8.1(b), in turn, prohibits a lawyer from knowingly failing to reply to a lawful demand for information from a disciplinary authority.
Respondent violated RPC 8.1(b) by failing to cooperate with the OAE's repeated efforts, which spanned almost one year, to investigate his financial records. During that timeframe, the OAE granted respondent's numerous, last-minute requests to adjourn scheduled demand audits or to extend deadlines to provide the requested financial records. Despite the OAE's good faith efforts to accommodate respondent, he failed to provide the OAE with complete financial records, waited almost ten months to submit the required written reply to the grievance, and, on at least two occasions, sent the OAE letters which not only contained only some of the OAE's requested documents, but were also dated several weeks before the OAE had, in fact, received them.
By February 2020, following respondent's grossly insufficient attempts to partially cooperate, and almost one year after the OAE's investigation had commenced, respondent ceased cooperating altogether. Consequently, the OAE was unable to complete its investigation of respondent's recordkeeping practices.
Additionally, respondent violated RPC 1.15(d) by failing to comply with the recordkeeping requirements of R. 1:21-6. Specifically, respondent failed to maintain (1) separate, adequately descriptive ATA and ABA receipts and disbursements journals, in violation of R. 1:21-6(c)(1)(A); (2) adequately descriptive client ledger cards, in violation of R. 1:21-6(c)(1)(B); (3) a separate ATA ledger card identifying attorney funds for bank fees, in violation of R. 1:21-6(c)(1)(d); and (4) checkbooks with running balances, in violation of R. 1:21-6 (c)(1)(G). Moreover, respondent failed to properly designate his ATA as an "IOLTA Attorney Trust Account" or his ABA as an "Attorney Business Account," an "Attorney Professional Account," or an "Attorney Office Account," in violation of R. 1:21-6(a)(2). Finally, respondent failed to retain ATA checks for seven years, in violation of R. 1:21-6(c)(1), and failed to disburse earned legal fees from his ATA, in violation of R. 1:21-6(a)(2).
Although the OAE identified these deficiencies for respondent and, on multiple occasions, attempted to help him take corrective action, respondent's failure to comply with the recordkeeping Rules has persisted.
In sum, we find that respondent violated RPC 1.15(d) and RPC 8.1(b). The sole issue left for determination is the appropriate quantum of discipline for respondent's misconduct.
Recordkeeping irregularities ordinarily are met with an admonition where, as here, they have not caused a negligent misappropriation of clients' funds. See In the Matter of Grant J. Robinson, DRB 21-059 and DRB 21-063 (July 16, 2021) (following a demand audit, the OAE uncovered multiple recordkeeping deficiencies, including that the attorney (1) did not properly designate the trust account, (2) did not maintain trust account ledger cards for bank charges, (3) allowed an inactive balance to remain in the trust account, and (4) did not maintain business receipts or disbursements journals; the attorney's recordkeeping deficiencies resulted in more than twenty checks, issued to the Superior Court, being rejected for insufficient funds; we found that the attorney's recordkeeping failures were neglectful, but not purposeful; in imposing an admonition, we weighed the fact that the attorney corrected his recordkeeping errors and took remedial measures to decrease the likelihood of a future recordkeeping violation).
Even in the absence of a negligent misappropriation, however, a reprimand may be imposed if the attorney has failed to correct recordkeeping deficiencies that had been brought to his or her attention previously. See In re Abdellah, 241 N.J. 98 (2020) (reprimand for attorney who should have been mindful of his recordkeeping obligations based on a "prior interaction" with the OAE in connection with his recordkeeping practices that had not led to an allegation of unethical conduct) and In re Conroy, 185 N.J. 277 (2005) (reprimand for attorney who had been the subject of a prior random audit during which recordkeeping deficiencies had been revealed; we determined that the attorney should have been more mindful of his recordkeeping obligations).
Admonitions typically are imposed for failure to cooperate with disciplinary authorities, if the attorney does not have an ethics history, if the attorney's ethics history is remote, or if compelling mitigation is present. The quantum of discipline is enhanced, however, if the failure to cooperate is with an arm of the disciplinary system, such as the OAE, which uncovers recordkeeping improprieties in a trust account and requests additional documentation. See, e.g., In re Leven, 245 N.J. 491 (2021) (reprimand for an attorney who, following two OAE random audits uncovering numerous recordkeeping deficiencies, including an unidentified client ledger card that held a negative $50,200.35 balance, repeatedly failed, for more than three months, to comply with the OAE's requests for his law firm's financial records, including trust account reconciliations, client ledger cards, disbursements journals, and two specific client files; thereafter, although the attorney, for more than eight months, repeatedly assured the OAE that he would provide the required records, he failed to do so, despite two Court Orders directing him to cooperate; the attorney, however, provided some of the required financial records; we found that a censure could have been appropriate for the attorney's persistent failure to address his recordkeeping deficiencies and his prolonged failure to cooperate with the OAE; however, we imposed a reprimand in light of the lack of injury to the clients and the attorney's remorse, contrition, and otherwise unblemished forty-seven-year career at the bar); In re Picker, 218 N.J. 388 (2014) (reprimand for an attorney who, following the OAE's discovery of a $240 overdraft in the attorney's trust account, failed to appear for a demand audit and failed to provide the OAE with documents requested in connection with the overdraft, in violation of RPC 8.1(b); the OAE's investigation revealed that the attorney used her trust account for the payment of personal expenses, in violation of RPC 1.15(a); the attorney asserted that health problems had prevented her from attending the audit and that she had not submitted the records to the OAE because they were in storage at the time; in imposing a reprimand, we found that, although the attorney had a prior three-month suspension and was temporarily suspended at the time of our decision, the conduct underlying her suspensions was unrelated to the conduct at hand); In re Tobin, 249 N.J. 96 (2021) (censure, in a default matter, for an attorney who, following an OAE random audit that uncovered several recordkeeping deficiencies, including more than $800,000 in negative client balances, failed to provide the documents requested in the OAE's seven letters and eight telephone calls, spanning more than one year; although we noted that a reprimand was appropriate for the attorney's recordkeeping violations and failure to cooperate, we imposed a censure in light of the attorney's prior reprimand for recordkeeping violations and the default status of the matter; in mitigation, however, the attorney had been practicing law for sixty-three years and suffered serious health problems prior to the continuation date of the random audit).
Here, like the reprimanded attorney in Leven, respondent repeatedly failed, for almost one year, to comply with the OAE's dogged efforts to obtain his financial records. Although the OAE granted respondent numerous extension requests, he merely provided a portion of the OAE's requested financial records, despite his repeated assurances to the OAE that he would fully comply. Compounding matters, unlike the admonished attorney in Robinson, who ultimately corrected his recordkeeping errors and took remedial measures to prevent future violations, respondent's non-compliance with the recordkeeping Rules has persisted. However, like the attorney in Leven, respondent has no prior discipline and his misconduct resulted in no harm to his clients.
Thus, balancing respondent's persistent failure to cooperate with the OAE or to remediate his recordkeeping errors against his otherwise unblemished sixteen-year career at the bar, we determine that a reprimand is the appropriate quantum of discipline to protect the public and to preserve confidence in the bar.
In addition, in light of respondent's demonstrated failure to comply with the recordkeeping Rules, we determine to require respondent to (1) within sixty days of the Court's Order in this matter, complete a recordkeeping course pre-approved by the OAE; (2) within thirty days of the Court's Order in this matter, submit to the OAE all the outstanding, previously requested financial records; and (3) provide to the OAE monthly reconciliations of his attorney accounts, on a quarterly basis, for a two-year period.
Chair Gallipoli voted for a censure, with the same conditions.
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.