CARELESS LAWYER BOUNCES ESCROW CHECK; GETS 6 MONTH SUSPENSION

Case: In the Matter of Cory J. Covert (attorney discipline)

Court: Supreme Court, Appellate Division, Second Department, New York

Punishment: Six month suspension of law license

Date: May 31, 2011

From: New York attorney Gary E. Rosenberg (personal injury and accident attorney and lawyer; serving Brooklyn Queens Bronx; Brooklyn accident injury attorney)

The Grievance Committee charged this attorney with five counts of professional misconduct.

Charge one alleges that the attorney violated his fiduciary obligations by failing to preserve escrow funds entrusted to him

In March 2006, clients hired the attorney to represent them in a house purchase in Suffolk County, New York. To free up some money to buy the house, the clients refinanced the mortgage on their current residence. They applied to Chase Bank for a $310,000 mortgage loan and a $98,000 home equity loan.

The attorney represented them at their closing for the refinance in July, 2006. The attorney sent to the closing by Chase Bank gave the attorney a check for $187,863.90, payable to attorney's escrow bank account.

The clients let the attorney put the money into his escrow plus an additional $48,483 in cash and other checks, for the total of $236,346.90 to be used towards the buying the house they wanted.

In August 2006 the attorney handled the clients' house purchase. At the closing, he drew five checks against his escrow IOLA account, totaling $230,732.16, to disburse funds he was holding for the clients in order to close the deal. At the end of the closing, the attorney gave on eof the buyers a check for $99,656.66.

By disbursing funds totaling $330.388.82 against his escrow account when he was only holding $236,346.90 on account, the attorney overdisbursed the account by $94,041.92. All checks presented by the respondent in connection with the purchase transaction were honored when presented for payment between August 10 and August 14, 2006. The overdisbursement was paid against funds being held on behalf of at least two other clients' funds on deposit in the escrow bank account at the time. Accordingly, the attorney failed to preserve funds entrusted to him as a fiduciary.

Charge two alleges that the attorney engaged in conduct involving dishonesty, fraud, deceit, or misrepresentation by submitting a false statement to the Grievance Committee in its investigation.

On or about November 30, 2006, a check drawn by the attorney against his escrow bank account, which was unrelated to the three matters for which he held funds, was dishonored when presented for payment due to insufficient funds. Upon learning that the check was dishonored, the attorney discovered the mistake he had made months earlier at the purchase transaction.

On or about December 4 and December 5, 2006, the attorney deposited into the escrow bank account $50,000 and $25,000 in personal funds, respectively, to partially replenish the deficiency and prevent additional checks from being dishonored.

In a letter dated January 24, 2007, the Grievance Committee advised the attorney that he was the subject of a sua sponte complaint and investigation based upon notification from the Lawyers' Fund for Client Protection, dated December 29, 2006, of the dishonored check. The attorney was asked to explain.

The attorney submitted an answer in May 2007 but did not disclose the mistake he made in the clients' purchase transaction in August 2006. The attorney also did not disclose to the Grievance Committee that on or about December 4 and December 5, 2006, he had deposited $75,000 in personal funds to partially replenish the account or that as of the date of his answer, the IOLA account was still deficient by approximately $19,041.92, the difference between the $94,041.92 deficiency caused by his mistake and the $75,000 in personal funds he deposited.

In his answer, the attorney represented that the check was dishonored because in November 2006, in an unidentified transaction, he had issued a check without waiting a sufficient time for the corresponding deposit to clear and to become available for disbursement.

The explanation the attorney provided for the dishonored check was false and misleading in that he knew that the actual cause of the deficiency was the mistake he had made in the purchase transaction.

Charge three alleges that the attorney engaged in conduct prejudicial to the administration of justice by submitting a false statement to the Grievance Committee in its investigation

Charge four alleges that the attorney violated his fiduciary duty by failing to maintain required bank and bookkeeping records for the escrow bank account

Charge five alleges that the attorney engaged in conduct adversely reflecting on his fitness as a lawyer by engaging in any of the foregoing misconduct.

Based on the evidence adduced and the attorney's admissions, the Special Referee properly sustained all five charges. Accordingly, both the Grievance Committee's motion to confirm the Special Referee's report and the attorney's motion to confirm are granted.

In mitigation, the attorney offered his medical condition of Attention Deficit Disorder, which he shares with two of his children and which hampers his ability to focus on bookkeeping and financial details. A heart condition and recurrent atrial fibrillation preclude him from taking medication for that disorder. Upon becoming aware of the first error, the attorney hired a certified public accountant to conduct an audit of his accounts. The accountant set up a new accounting system which has been put in place.

The Grievance Committee notes that except for his initially misleading explanation for the dishonored check, the attorney has been cooperative and contrite. The Grievance Committee further notes that the attorney did not personally benefit from this matter and took prompt, albeit awkward, steps to rectify the mistake.

The attorney's disciplinary history consists of a Letter of Caution issued on February 24, 2006.

In view of the mitigating evidence advanced and the fact that the attorney was the sole person injured by his error, we find that the attorney's professional misconduct warrants a suspension from the practice of law for a period of six months.