Thou Shalt Not Steal

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August 1, 2015 · Posted in Commentary 

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By Les T. Zador, Atty. at Law

 

In the past, I have written about protecting yourself, i.e. getting your ducks in a row, if you’re involved in a car accident. I told you about how best to guard yourself against insurance companies which make it a practice to take advantage of the unwary and use, for example, poorly written emergency hospital records to undermine an accident victim’s case. This month I want to tell you about my case against a major bank. Banks, just like insurance companies, also tend to overreach, depending, of course on the bank. Small banks, i.e. community banks, generally care about their customers and make a real effort not to give them grief; but when you’re talking about a large bank worth many billions, the customer is far too often just another number.

The facts: This is an ongoing case, and so I’m not going to identify the bank, any more than would care to identify my client. But the facts in this case are so compelling and the behavior of the bank so bizarre and worth knowing about. In a nutshell, what happened was this: back in 2012, the bank’s fraud alert department called my client, who is an attorney, and told him that somebody was trying to cash a check for $40,000 drawn against my client’s personal business account, and the transaction looked suspicious to the bank. My client thanked the bank for having alerted him and told the fraud investigator that the $40,000 transaction was, indeed, bogus, and not to honor the check that had been presented by a former dishonest employee, who had obviously pilfered the check from my client’s checkbook. The bank agreed as instructed and then recommended to my client that he close his two accounts with the bank–the aforementioned personal business account and an attorney-client trust account–and open new personal business and attorney-client trust accounts with the bank to short circuit the possibility of any future pilfered checks being cashed. As per the bank’s suggestion, my client closed his two old accounts and opened a new personal business account and a new attorney-client trust account. During the following month, however, the bank cashed the $40,000 check drawn on my client’s old personal business account by paying it to the dishonest employee out of my client’s new attorney-client trust account. The bank did not let my client know it was doing this, and he found out about it for the first time when checks he had written against the new attorney-client trust account started bouncing. The bank also notified the California Bar Association that checks written against the new attorney-client trust account were being returned for insufficient funds, prompting considerable heat to be directed against my client by the Bar.

The two accounts: A personal business account and an attorney-client trust account are as different as Mercury is from Neptune. The old personal business account was the one out of which my client conducted his business, i.e. his law practice. He paid his rent and expenses of running his office out of the old personal business account and also saw to it that whatever fees he had earned would also be taken out of his old attorney-client trust account and then deposited into the old personal business account. An attorney-client trust account is the account into which money coming into the law office that belongs in whole or in part to others is deposited. In the case of the attorney whom I am representing, “others” included mostly his personal injury clients together with their medical providers, who were owed money to be paid from case settlement proceeds. The way an attorney-client trust account typically works is as follows: the insurance company will send a settlement check, and that check is deposited into the attorney-client trust account. Once the check clears, the attorney will then make distributions of the check proceeds as per his agreement with his or her client. That agreement invariably provides that any doctors holding liens will be paid first. A doctor holding a lien is one who has agreed to postpone receipt of payment of his medical fees until such time as the case shall have settled. Then the attorney is reimbursed for any and all costs that he might have advanced–such as court filing fees, service of legal process, deposition costs and fees, expert witness fees, etc. Then the attorney takes his fee, which is usually a third to forty percent of the settlement amount, though that percentage is always negotiable. What’s left over is paid to the client.

No commingling: Note that the money does not really belong to the attorney, meaning that he has no right to spend his fee, as long as the money remains in the attorney-client trust account. The attorney may not pay his or her personal or business expenses out of money being held for him in his or her attorney-client trust account. The only right the attorney has is to WITHDRAW the money to which he is entitled and then deposit it into one or more of his personal accounts. Then and only then can he use the money to pay the expenses of running an office, his or her household expenses, or any personal expenses. If the attorney should, for example, pay the rent for his or her office out of his attorney-client trust account instead of out of his or her personal business account, then the attorney would be committing a serious infraction for which the California Bar Association would have every right to discipline that attorney. The Bar is specific about commingling, which is one of the biggest NO-NOs an attorney can commit, subjecting him or her to sanctions, including possible disbarment. All funds received or held for the benefit of clients by a member ofr the State Bar or by the firm of which the attorney is a member shall be deposited into an attorney-client trust account; and no funds belonging to the member of the State Bar or firm of which he or she is a member shall be commingled therewith. Further, a member of the Bar must in all cases promptly pay or deliver to the client as requested by the client the funds to which the client is entitled. (Dudigjian v. State Bar of California (Holliday) (1991) 52 Cal.3d 1092, 1096.) The misappropriation by the attorney of client trust funds unquestionably constitutes serious misconduct that could warrant disbarment in the absence of extenuating circumstances. Even if the misappropriation is unintentional, it will be regarded as serious misconduct. The mere fact that the BALANCE in an attorney’s trust account has fallen below the amount due his or her client will support a finding of WILLFUL misappropriation. (Murray v. the State Bar of California (1985) 40 Cal.3d 575, 584.) In other words, as soon as the checks that my client, an attorney, had drawn on his new attorney-client trust account started bouncing (through no fault of his own), he was strictly liable.

Putting aside for the moment the issue of the bank’s having no right to cash the check against ANY account of my client when the bank had been specifically told not to cash the check and had agreed not to cash a check that it knew to have been bogus, i.e. not legitimate because it was unauthorized, the bank had absolutely NO RIGHT to cash a personal business check against moneys being held in a trust account. Even supposing that the bank had the right to the money–which it did not–“[t]he bank’s right of offset . . . exists only if the depositor is indebted to the bank in the same capacity as he holds the account. Thus, a bank may not ‘apply the trust funds to a personal indebtedness . . . .” Allegations in a lawsuit that a bank caused disbursements to be made from trust accounts for the purpose of satisfying personal obligations states a claim for conversion against the bank based on charges against trust accounts for obligations that the depositor owes personally. Conversion takes place when one converts personal property belonging to another to oneself without the owner’s permission. “The rule is that when the funds are trust funds and the bank knows or has knowledge of facts sufficient to put it on inquiry that the funds are held by the depositor in trust, the bank may not, as against the holder of the account, apply those funds to the depositor’s individual indebtedness to the bank. ‘The principle is by no means new or novel, having been promulgated with the Ten Commandments when it was said, “Thou shalt not steal.”‘” (Chang v. Redding Bank of Commerce (1994) 29 Cal.App.4th 673, 682.)

The bank we are suing did act properly when it directed my client to close his old accounts, wisely when it suggested that he open new accounts, but notoriously in raiding his new attorney-client trust account to foolishly pay someone the bank suspected of and had been told had dishonest intentions. Conversion is the civil law version of what is described in the criminal law as theft. Conversion is an intentional wrong that is completed when the wrongdoer intentionally and substantially interferes with the owner’s property by taking possession of that property and preventing the owner from having access to same. This is what the bank did. The case goes to trial next year.

Les T. Zador, Atty. at Law
15760 Ventura Blvd., #700
Encino, CA 91436
Tel.: 818-995-9448
Fax: 818-995-9449

 

 

 

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