Don’t Mess with the Client’s Money

Judge David Langham

The Florida Bar News recently reported on the disbarment of an attorney in December 2018. This happens periodically, but this instance has some interesting elements that distinguish it. The Bar News article is interesting in that it does not mention the attorney by name, but does provide a case number, SC14-100. The case was instigated by a complaint filed almost five years ago on January 22, 2014. For almost five years, the system has been prosecuting an attorney and it ends in disbarment of Jeremy Alters, an almost 20 year member of The Florida Bar. And, it includes the attorney being ordered to pay $305,360.03 in costs for the prosecution.

There will be those who are surprised at that duration. However, the Bar News reports that “the attorney had been emergency suspended in December 2011” when the situation came to light, but was “reinstated” almost immediately. The Bar investigation ensued, and it “filed changes (sic) in 2014.” Thus, the overall investigative and prosecution history leading to the Florida Supreme Court decision totals somewhere close to seven years.

Following the Court’s 30 page November decision, Mr. Alters filed a December 5, 2018 Motion for Rehearing that was later denied. The motion asserted that the Court “overlooked or sidestepped several bedrock legal principles.” It explains that “the trial consisted of a month of testimony and mounds of exhibits.” And, it accuses the Florida Supreme Court “engaged in its own appellate fact finding (when credibility determinations were central to the pivotal issues).”

In such prosecutions, the Court appoints a “referee” (Florida Judge) to conduct proceedings, oversee discovery, make factual determinations, and ultimately render conclusions as to the law. referees also make recommendations as to the appropriate punishment for any violations. In this instance, the referee recommended that Mr. Alters “be found guilty of professional misconduct and not disciplined.”

The referee explained the recommendation against discipline:

“in light of the manner in which this case was prosecuted in the media even before the complaint was filed . . . ; the length of time it took to bring the complaint formally against [Alters] . . . ; the impact that this bar complaint has had on his legal standing and reputation; and the disproportionate treatment in the handling of the bar complaint against [Alters’ former managing partner] and [Alters].”

The Court agreed with the referee conclusion of guilt on some alleged violations, but disagreed with conclusions of not guilty on others and with the recommendation against discipline. And, the Court concluded that if “further proceedings” become “necessary in this case,” they will not be held before the referee who made these recommendations. The Court was critical of the referee’s report, particularly as regards findings of fact. Despite noting the referee summarized the testimony of the various witnesses, the Court concluded “the referee has drawn only the most basic conclusions from the summarized testimony.” That is a cautionary note to any judge called upon to render findings of fact and conclusions of law, as judges of compensation claims do daily.

The allegations center on “forty-nine” transfers of funds involving Mr. Alters’ law firm “from its trust account to its operating account.” The Bar alleged that those occurred “between September 2009 and December 2010,” totaling approximately $2,051,474.32.

The Court noted that “twenty-four witnesses (were) called (to testify) at the disciplinary hearings.” Only one “testified that Alters made, or ordered, the improper transfers.” This witness was the firm comptroller, who also “admitted to meticulously altering bank documents to obscure the improper transfers” and to “’pushing the button’ on each improper transfer that was made.” But, the comptroller essentially said he was just following orders when he did so. And, that raised an interesting evidentiary issue.

The comptroller preserved text messages he received “to prove that Alters directed him to make the improper transfers.” The referee concluded these “were unreliable as a result of the manner in which the comptroller saved them.” That is interesting because texts, email, and social media have become ubiquitous in our age, and the challenges of preserving, authenticating, and using information from them will continue to frustrate lawyers, and to challenge judges presented with resulting evidentiary objections.

The Court concluded that Mr. Alters “engaged in dishonest and deceitful conduct” “using one client’s funds to pay obligations owed to another.” Further that his actions violated rules regarding “Safekeeping Property” and “Trust Funds or Property.” The Court cited authority to remind that “’extraordinary sloppiness and negligence’ satisfy the intent element for finding a violation of rule 4-8.4(c),” and that “the determinative factor to prove a rule 4-8.4(c) violation was whether the attorney deliberately or knowingly engaged in the activity in question, rather than the motive behind the attorney’s action.” Recounting the referee conclusions, the Court concluded “Alters guilty of having violated Bar Rule 4-8.4(c).”

The Court noted that Mr. Alters later replenished the trust account funds with his own. Notably, an amendment to the Bar Rules was later approved, which encouraged attorneys to do so. But, the Court noted, the rule applicable to Mr. Alters’ case “is the rule in effect at the time of the alleged violations.” Thus, the later rule amendments were irrelevant, as were the efforts to repay those funds. Under the then-existing rules, the deposit of funds to cover the trust account shortage were inappropriate or at best ineffective as to defending the rule violation.

The Court rejected the referee recommendation that “no further sanctions are warranted.” It noted that this was contrary to “her findings, this Court’s case law, the Standards, or the Bar Rules.” The Court noted “inexplicably she fails to cite any authority supporting her recommendation.” It reiterated the violations and reminded that “the Court has long held that the misuse of client funds “is one of the most serious offenses a lawyer can commit.” It stated that “leniency is not warranted in a case involving an attorney’s systemic failure to protect property held in trust for his clients.”

Critical to the Court’s reasoning were its conclusions that (1) Alters discovered that client funds were misappropriated, (2) there were no safeguards implemented “to prevent further misappropriation,” and (3) “client funds continued to be misappropriated under Alters’ direction even after the former partner left the firm.”

The case is worthy of thought. It reminds of the obligations regarding trust accounts, the time that investigations and prosecutions can require, the applicability of rules, the challenges of preserving and presenting digital evidence, the obligations of the judge as a finder of fact and drafter of orders, and of the serious consequences The Supreme Court may impose despite a referee’s recommendation(s). Each is a reminder worthy of reflection.
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