trust account

I’ve often said that title insurance underwriting is an art and not a science. A lawyer facing a title defect issue might obtain different opinions from different title companies and even from different lawyers employed by a single title company.

During my 28-year career as a lawyer for a title company, I have often joked that I try very hard to agree with myself!

If a lawyer calls to describe a title defect and says, “Claire, this is bad, isn’t it?”, it’s easy for me to agree. The closing attorney is, after all, often the best judge of marketable title in the community. But what if a different lawyer calls weeks later with basically the same facts, and explains why the defect is technically a problem but won’t cause a claim from a practical standpoint? That lawyer may be more familiar with the opposing parties or the history of the property. The underwriting answer may be different. Or what if the second lawyer says, “this is my best client” and asks for a one-time favor? You see where I’m going here. Answers may vary on the same facts, and an underwriting attorney can easily get into trouble with her agents!

But I thought attorney discipline issues in South Carolina might be addressed with more consistency. If you have that opinion, please check out this October 7 opinion from our Supreme Court*.

I don’t know this lawyer, but he apparently had a successful litigation practice across many decades. In 2013, he was placed on interim suspension when a former associate filed a complaint alleging operational and case management issues, including concerns relating to the mismanagement of his trust account. The lawyer filed a petition for reconsideration, and the suspension was lifted with conditions. Notably the lawyer was prohibited from accessing or controlling the law firm’s trust and operating accounts. An associate was made responsible. (Huh? A senior partner who manages an associate couldn’t touch the trust account, but the associate could?)

Six years later, in 2019, formal charges were filed by the Office of Disciplinary Counsel. There was much discussion in the case about the ODC’s delay and whether that delay was a mitigating factor.

The underlying facts indicate that prior to 2012, the lawyer allowed his staff to routinely disburse funds from the trust account for operating expenses. Disbursements were made before deposits, funds were comingled, and funds were missing. A law firm formed by former associates demanded trust account funds for a particular client, and the funds were not available until this lawyer infused personal funds into the account

There was never a client complaint and, apparently, no client actually lost funds.

But the differing opinions about the appropriate sanction makes this case remarkable. The panel of the Commission on Lawyer Misconduct recommended a suspension of six weeks. In a dissent, Justice Hearn said she would impose a one-year suspension in light of the lawyer’s lengthy, unblemished disciplinary history and the prejudice sustained by the delay of the ODC.

In an opinion authored by Chief Justice Beatty, the majority disbarred the lawyer and chastised the ODC for its delay. The majority said that the delay was not prejudicial because the lawyer was allowed to practice law in the interim. An interesting added fact is that $21.5 million passed through the trust account since 2013.

In a concurring opinion, Justice Few said the case had nothing to do with Rule 417, the financial recordkeeping rule. Rather, he stated this lawyer stole client money from his trust account. Justice Few also said the delay of the ODC was the failure of the Court to supervise the professionals the Court employs.

So try to wrap your legal, logical brains around this. The panel recommended a six-week suspension and Justice Hearn recommended a one-year suspension on facts where Justice Few said the lawyer stole money from clients.

Apparently attorney discipline, like title insurance underwriting, is an art and not a science!

* In the Matter of Wern, South Carolina Supreme Court Opinion 27998 (October 7, 2020)

Fraudulent oil rig sale triggers nine month suspension

The South Carolina Supreme Court handed down two Christmas season lawyer disciplinary cases involving trust accounting failures on December 20*. In a twist on the now common tale of fraudulent real estate transaction targets, one of the cases involved a fraudulent oil rig sale.

oil rig

Attorney Bell was hired to negotiate the purchase of an oil rig in Oklahoma by NTB Management and Control, LTD (NTB), an Israeli company. Although NTB is a legitimate company, the purchase of the oil rig was a fraudulent transaction.

The fee agreement provided for a retainer of $21,000 plus hourly fees, but Bell never received the retainer. Instead, NTB advised him that insurance proceeds due NTB would be wired to his account for expenses related to the purchase of the oil rig. A wire of $48,600 from Liberty Company Insurance Brokers (Liberty) soon arrived in Bell’s trust account at Wells Fargo. This wire was initiated by an email scam perpetrated on NTB. NTB’s USA director, Roland Nelson, asked Bell to give him cash from these funds to pay NTB’s third-party vendors.

Pursuant to Nelson’s instructions, Bell paid two of NTB’s third-party vendors. On the same day, Bell withdrew $8,000 in cash from his Wells Fargo trust account. Bell gave Nelson $500 of this amount for his hotel bill, and deposited the remaining $7,500 into his trust account at Bank of America. He then transferred funds to the second vendor’s account and paid himself $8,500 in fees by two online transfers from his Wells Fargo trust account, one to his operating account and another to his personal checking account.

During an angry telephone call, Nelson claimed the vendors had not been paid and threatened to cut Bell’s throat. Bell decided to terminate the relationship and to withdraw the balance from his Wells Fargo trust account. He forgot to account for the transfers he made for his fees, so he believed the balance of the account was higher than it actually was. He signed a cash withdrawal slip for $33,987.43 to purchase a cashier’s check made payable to his firm and deposited the check into his Bank of America trust account. Once these transactions were processed, Bell’s Wells Fargo trust account was overdrawn by $8,485.

When Wells Fargo contacted Bell about the overdraft and the fraudulent wire, Bell agreed to return the $33,987.43 to his Wells Fargo account and authorized the return of the account balance equal to $25,467.43 to Liberty. He elected to retain the $8,500 in fees he paid to himself, claiming he failed to understand from his conversation with Wells Fargo that the funds belonged to Liberty. He later admitted he failed to ask questions.

In addition to the issues of cash withdrawals from trust accounts and insufficient financial recordkeeping, Bell also failed to respond fully to the Office of Disciplinary Counsel’s (ODC’s) demands for information. He was suspended for nine months and required to complete ethics and law office management courses.

In the other December 20 disciplinary case, The Supreme Court disbarred an attorney for failing to maintain adequate financial records, for making cash withdrawals from his trust account, for converting trust account funds to personal use and for providing false information to the ODC.

South Carolina lawyers should absolutely understand by now that the Supreme Court and the ODC are extremely serious about trust accounting rules.

*In re Bell, South Carolina Supreme Court Opinion No. 27755, and In re Johnson, South Carolina Supreme Court Opinion No. 27756, both dated December 20, 2017.

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SC lawyer disbarred despite vastly divergent views on sanction

It’s a matter of trust: Two South Carolina lawyers disciplined for trust account problems