A Manhattan lawyer has been suspended for two years for withdrawing from an escrow account money he said his deceased client pledged to him as payment for a decade of free legal work.
In issuing its sanction against Richard A. Zalk, the Appellate Division, 1st Department, determined that the lawyer was precluded from relying on his own testimony about the supposed fee agreement by the Dead Man's Statute, which bars an interested party from testifying about verbal promises made by a dead or incapacitated person. But the court did say his account, which it found credible, could be used to mitigate his penalty.
Zalk had been the lawyer for Arthur and Ruth Gellman since 1970. After Gellman died in 1990, Zalk continued to represent Gellman for another decade, mostly in connection with an apartment building the couple owned. He did not bill her for this work.
Gellman decided to sell the building in 1998, with Zalk handling the transaction. He arranged the property's sale for $2 million, $200,000 of which was paid into his escrow account as a down payment. After the 2000 closing, $172,151 remained in the account. Zalk claims Gellman told him to keep that money as payment for his years of legal work.
Gellman died in September 2000. A year later, her two daughters demanded the return of the escrow funds, of which Zalk had already withdrawn around $100,000. The daughters filed a complaint with the departmental disciplinary committee, which cited the Dead Man's Statute in rejecting Zalk's explanation that Gellman had promised him the money.
But the referee who heard the case felt that the Dead Man's Statute should not apply to a disciplinary proceeding. The referee found Zalk's account of the matter wholly credible, though he faulted the lawyer for not obtaining a writing from Gellman. He recommended only that Zalk be publicly censured.
In a 4-1 decision, the appellate panel ruled that the Dead Man's Statute did apply to a disciplinary proceeding, noting that the very language of the statute said it applied to "the hearing upon the merits of a special proceeding."
The majority of Justices David B. Saxe, Luis A. Gonzalez and James M. Catterson said the situation In the Matter of Zalk, M-6672, clearly fit the elements of the statute and thus prevented Zalk from arguing that Gellman made an oral pledge to him. The court said it was therefore compelled to find that Zalk improperly converted client escrow funds.
But the majority said it was permissible to consider Zalk's account in meting out punishment. Though conversion of client funds often results in disbarment, the court said his testimony demonstrated "the non-venality of his taking possession of the funds, with the belief -- honest, although mistaken -- that he was entitled to them."
The majority said a two-year suspension would be more appropriate.
But Justice John W. Sweeny dissented on the grounds that the Dead Man's Statute should apply in all phases of a disciplinary proceeding, including the determination of the sanction. The judge said a more severe punishment should have been imposed.
Such dissents are unusual in discipinary cases.
Zalk was represented by Hal Lieberman of Hinshaw & Culbertson.