A New York appellate court has overturned a finding that a personal injury lawyer had misappropriated client funds with dishonest or fraudulent intent, citing post-9/11 trauma the attorney blamed for his conduct.
The Appellate Division, 1st Department, sustained five charges against Frederick W. Salo over the Manhattan lawyer's misuse of his escrow account, and approved a one-year suspension.
But the unanimous panel in Matter of Salo, M5962, M 543, rejected a recommendation from the departmental disciplinary committee that Salo be disbarred or suspended for at least three years on the six pending charges against him. Salo argued for a public censure.
In reaching its decision, the panel dismissed a charge that Salo, 42, had engaged in dishonest or fraudulent conduct, instead crediting psychologists' opinions that the lawyer inadvertently tapped the funds as a result of post-traumatic stress disorder he suffered following the Sept. 11, 2001, terror attacks.
"Given the uncontroverted expert evidence, we find that it has not been proven by a preponderance of the evidence that [Salo] had the venal intent required for a finding that he willfully and knowingly converted third-party funds," the panel ruled.
A lawyer for Salo, Michael S. Ross, said, "We believe this is the first time ever that expert psychiatric reports from both the respondent attorney and the court supported the conclusion that the lawyer had diminished capacity."
Alan W. Friedberg, chief counsel for the Departmental Disciplinary Committee, declined to comment.
Mental health experts hired by both Salo and the committee agreed that he suffered from post-traumatic stress disorder and depression due to an abusive childhood and the events of 9/11. Both a referee and a hearing panel cited Salo's post-9/11 mental condition as mitigating factors.
According to the charges, Salo in December 2001 obtained a $198,000 settlement for a client, Jose Orellana, in a personal injury case. After Salo made payments to his client and himself out of the escrow account, $40,000 remained. That money was to remain in the account until a lien by Reliance Insurance Company on the settlement proceeds was resolved. The lien was not resolved until 2005, as Reliance went into receivership.
Meanwhile, from October 2002 to April 2005, Salo withdrew funds from the escrow account that caused the amount to fall below Reliance's lien, which was either $40,000 as Reliance originally claimed or $32,000, the amount its successor accepted in late April 2005. The account dropped below $32,000 in March 2003 and fell to a low of $102 in April 2005.
The day before Reliance's successor agreed to the $32,000, Salo deposited $32,100 in personal funds into the account. The transfer of those funds, as well as an earlier $32,000 deposit from his personal funds, resulted in a charge of commingling funds.
Salo was also charged for checks that were drawn on the account without any designation they were from a special bank account. And he faced a charge for paying a client settlement funds with a check from the escrow account made payable to "cash."
Salo admitted to the underlying factual allegations. He said the misuse in part stemmed from his practice of keeping a "cushion" of legal fees in his escrow account, which he stated he did not realize was improper until 2005. Consequently, Salo said he thought he was using his own money to pay expenses during the period in question.
But Salo took issue with the claim that he acted with fraudulent or dishonest intent. Instead, he blamed the lapses on post-traumatic stress disorder and depression resulting in part from 9/11.
Salo, a graduate of the University of Michigan who was admitted in 1994, maintained offices near the World Trade Center at 100 Church St. at the time of the terror attacks, according to the decision. Salo was not in the office at the time of the attacks, but had only limited access for many months after 9/11.
When he was given access during this period, police escorted him through 18 flights of stairs in the dark -- there was no power -- and he was given only a few minutes to collect what files had survived. His computer, which contained the electronic ledger for his escrow account, was destroyed.
In the months after, Salo developed an alcohol abuse problem, which lasted until he quit drinking in January 2003. In October 2002, he turned to a psychologist, Jill Levitt.
In an affidavit, Levitt said Salo experienced "extreme anxiety related to his work as a lawyer" and was "barely getting any work done" when he began treatment. She diagnosed him with post-traumatic stress disorder and depression based on 9/11 and his father's abuse. She also said it was "likely" his problems interfered with his ability to reconcile his attorney trust account.
The disciplinary committee's own expert, Amy S. Hoffman, independently concluded that Salo, at the time he misused the escrow account, "was in dire psychological condition" that Levitt described.
Nevertheless, the committee argued against mitigation. Despite his abusive upbringing, the committee argued Salo was academically and professionally successful before 9/11, and afterwards he continued to negotiate settlements for his clients.
The referee, Michael C. Marcus, found that Salo's post-traumatic stress disorder played a role in the misconduct, but he was still "aware on some cognitive level that he was using third party funds to pay for personal expenses." In particular, the referee noted that Salo admitted he had been commingling funds since opening the escrow account in 1998.
The Appellate Division panel upheld that Salo misappropriated the funds. But it said the issue of if it was done through dishonesty, fraud, deceit or misrepresentation "cannot be resolved so simply." The panel noted that both mental health experts agreed he had invaded the funds inadvertently and that his post-traumatic stress disorder had a role in that. It also said Salo had "no evident motive" to do so, since he had available personal funds, and no other instance of conversion had been alleged. Neither the client or lien holder was harmed, the court noted.
However, the panel noted that earlier cases had approved a suspension for a "substantial" period of time for even nonvenal appropriation of funds. Here, it found that a one-year suspension was the appropriate penalty "[u]nder the particular circumstances of this case."
The 1st Department panel included Justices Luis A. Gonzalez, Richard T. Andrias, David B. Saxe, David Friedman and James M. Catterson.
Salo's lawyer, Ross, said his client "is continuing to put his life together."