N.J. High Court Weighs Disbarment for Partner Who Kept $50,000 Gift From Client

Michael Booth

New Jersey Law Journal

The New Jersey Supreme Court heard arguments Monday on whether renowned litigator David Gross should be disbarred for keeping a $50,000 bonus from a satisfied client, rather than turning it over to his firm.

The Disciplinary Review Board in January said he should be: that his failure to share the bounty with his firm, Budd Larner of Short Hills, N.J., was willful misappropriation, punishable in New Jersey by automatic, permanent disbarment, just like for stealing client funds.

"In this case, respondent had a fundamental obligation not to 'pick his partners' pockets,' " the 5-2 majority said.

But the two dissenters recommended a milder punishment -- censure or a one-year suspension -- finding Gross had a reasonable belief he was entitled to the money. They saw evidence the client intended the $50,000 to be a gift, since it was over and above the $5 million paid to the firm in fees.

Gross, as managing partner of Budd Larner from 1970 to 2002, was one of the state's leading product liability rainmakers, particularly in the field of asbestos litigation.

Keene Creditors Trust, formed to compensate asbestos disease claimants of the bankrupt Keene Corp., hired Gross to handle a fraudulent conveyance suit and an insurance dispute.

In 1998, after the case was over, Keene decided to give Gross $100,000 "over and above" the fees it had paid Budd Larner. Gross told the trustees to give half to his New York co-counsel, and he kept $50,000.

Janice Richter, counsel to the Office of Attorney Ethics, said that action breached Budd Larner's policy that all outside income, including teaching fees and honoraria, be turned over to the firm unless permission was given to keep the money.

Gross initially denied receiving the money, and later refused to turn it over as required, she said.

"Respondent's position is not reasonable, nor is it credible," said Richter.

Gross' problems arose when told his secretary, Claudette McCarthy, about the gift. She had worked for Gross for many years and he gave her glowing evaluations, the DRB said.

McCarthy testified that she typed an invoice setting up the Keene payment and a letter advised Keene to send the check to Gross in an envelope marked "personal and confidential." Letters not marked that way would be opened in the mailroom and the check would have automatically been set aside for deposit in the firm account, according to testimony.

Gross instructed McCarthy to remove the letter from her computer and told her not to tell anyone in the firm about it. She kept quiet about it until 2002, when she decided to get even because Gross had begun treating her badly, she testified. The mean treatment began in 1999 after she refused to take time from a busy schedule to do some work for Gross' wife, Heidi Gross, a lawyer in the firm. There were other incidents, one of which ended with Gross calling McCarthy a "fucking idiot," she told the Daily Business Review.

In 2002, not long after Gross wrote "no" across her vacation request and threw it into a wastebasket, McCarthy told members of the firm about the 1998 check.

"The secrecy that Respondent [used] to cover his conduct shows he did know there was a policy," Richter told the court in In the Matter of David Gross, D-61-09.

Justice Virginia Long asked whether the firm's policy required disclosure or to not keep the money.

All gains, Richter said, were assets of the firm.

The issue for the DRB in deciding whether it was a permissible gift or a misappropriation was whether Budd Larner had a policy requiring attorneys to tell the partnership about such payments and receive approval before keeping them. The firm said its 1980 partnership agreement required Gross to give the $50,000 to the firm.

Gross argued that it was his understanding there was no such policy and that at a time when he was head of the firm he so advised another lawyer who had been offered a $65,000 Mercedes-Benz from a client.

Long noted that the firm in the past had allowed its attorneys to keep other gifts, such as jewelry and four trips to Hawaii.

Richter described those gifts as "de minimis."

"Four trips to Hawaii are not de minimis," said Justice Robert Rivera-Soto.

Richter held firm. "Respondent broke his agreement with the firm," she said.

Gross' attorney, Justin Walder, said his client broke no rule.

Was the money the property of the firm? Was there any intent to steal? he asked. "The answer to both is no.

"The firm had no right" to the money, said Walder, of Roseland, N.J.'s Walder Hayden & Brogan. "This was a payment over and above legal fees. It was intended for David Gross, not the firm."

Rivera-Soto said that "at the very least" Gross should have told his partners about the gift and that the fact that he cloaked the gift in so much secrecy "strikes me as a little odd."

"Mr. Gross made a mistake and should have told his partners," Walder conceded. "But he had a good faith belief that there was no policy" requiring him to do so.

Had Gross told his partners, Walder said when questioned again about the secrecy, "he could have avoided all the angst."

Walder asked the Court not to disbar Gross, saying that penalty is used to shield the public from a dangerous lawyer.

"The public does not need to be protected from David Gross," he said.

In finding that Gross had violated firm policy, the DRB said: "We find the evidence clearly and convincingly supports a finding that Budd Larner had a policy, albeit unwritten, requiring attorneys to disclose to the firm that their receipt of gifts or other items of value from clients," the majority said.

The dissenters' view was in line with the OAE's evaluation. In 2005, the OAE and the defense signed a stipulation of discipline by consent that said Gross was guilty of failing to safeguard funds. The agreed-upon punishment was a censure or less because the office found that Gross had an unblemished record, there was no written gift policy and no client lost money.

But the DRB majorty rejected the deal and a special master called in to investigate, retired Judge David Cramp, recommended disbarment for willful misappropriation.

The majority agreed with Cramp on the misappropriation and also on the disposition of another charge. Gross was accused of cashing a $2,437 check reimbursing the firm for overpayment of expenses to a litigation support vendor in a 2002 case. The board found there was credible evidence that he acted inadvertently and found him guilty of failing to safeguard funds and recommended an admonition, the lowest form of punishment.

Gross, 74, now is with Saiber in Florham Park, N.J. In 2002, he and Budd Larner separated, and the terms were not made public.