ALBANY – All but one of 10 disciplinary charges against Long Island attorney Peter Galasso for his failure to detect his brother’s multi-million dollar looting of the Galasso firm’s escrow account have been affirmed by the Court of Appeals.

In other rulings yesterday, the court determined that exotic dancing is not a form of “dramatic or musical arts performance” that qualifies venues for a state sales and use tax exemption. And the judges declined, without explanation, to hear an appeal of a decision upholding the validity of the 2011 statute legalizing same-sex marriage.

Matter of Galasso, 170, had been closely watched by the legal profession because of its potential influence on disciplinary actions against attorneys for wrongdoing by employees of their firms.

After dismissing a charge against Galasso that he failed to comply in a timely fashion with requests for information from the Grievance Committee for the Ninth Judicial District, the unanimous court sent the case back to the Appellate Division, Second Department, for further consideration.

Otherwise, the court said that the Second Department properly sustained the other allegations against Galasso for failing to prevent the financial malfeasance of his brother, Anthony Galasso, who was the bookkeeper at the firm then known as Galasso & Langione in Garden City.

The charges against Peter Galasso, which resulted in a recommended two-year suspension, included breaching his fiduciary duty as an attorney to pay or deliver escrow funds, his failure to supervise a non-lawyer employee, that he was unjustly enriched by the use of clients’ funds for his personal benefit and that he failed to provide appropriate accounting to clients.

“Although respondent himself did not steal the money and his conduct was not venal, his acts in setting in place the firm’s procedures, as well as his ensuing omissions, permitted his employee to do so,” the court said.

The judges conceded that Anthony devised a “relatively sophisticated system” to conceal his thefts between 2004 and 2007. But they faulted Peter for not putting into place basic financial controls that the court said would have revealed Anthony’s illegalities sooner.

“Respondent ceded an unacceptable level of control over the firm accounts to his brother, thereby creating the opportunity for the misuse of client funds,” the panel said in its unsigned opinion.

Peter is not being held responsible for Anthony’s criminal behavior, the court insisted, “Rather, it is his own breach of his fiduciary duty and failure to properly supervise his employee, resulting in the loss of client funds entrusted to him, that warrant this disciplinary action.”

The most serious accusations against Anthony concerned the handling of a $4.5 million escrow account held on behalf of Steven and Wendy Baron.

Authorities said $4.3 million has not been accounted for and they accused Anthony of pocketing the funds through withdrawals he was not authorized to make. Anthony used the money for trips, hotels, meals and tickets to entertainment and sporting events, according to authorities.

The court also noted that $360,000 was transferred from the Baron fund to finance the purchase of an office condominium for the Galasso firm.

Anthony, who pleaded guilty to grand larceny and other charges, was sentenced to 2½ to 7½ years in prison.

Peter’s attorney, Jeffrey Catterson, argued before the court last month that his client was unaware of his brother’s criminal activities.

Holding Peter to an unreasonably high standard of fiduciary duty over client’s funds would discourage other lawyers from taking on the responsibility of holding funds in escrow for their clients, Catterson contended (NYLJ, Sept. 12).

Several bar groups, including the New York State Trial Lawyers Association, the Nassau County Bar Association and the Bronx Bar Association, criticized Galasso’s suspension as too harsh.

As to the charge that Peter did not respond to requests for information from the grievance committee fast enough, the Court of Appeals said that allegation is “unsupported by the record.”

“It is difficult to characterize respondent’s overall participation in the disciplinary process as anything other than active,” the court wrote. “Both respondent and his counsel were in regular correspondence with the Grievance Committee and provided copious documentation in response to their requests.”

The Court of Appeals instructed the Appellate Division that as it considers the case against Galasso minus the one charge, it “should reconsider whether the suspension previously imposed remains an appropriate sanction.”

Chief Judge Jonathan Lippman (See Profile) and Judges Carmen Beauchamp Ciparick (See Profile), Victoria Graffeo (See Profile), Susan Phillips Read (See Profile), Robert Smith (See Profile), Theodore Jones Jr. (See Profile) and Eugene Pigott Jr. (See Profile) joined in the ruling.

Galasso said in a statement yesterday that he was “relieved and heartened” that the Court of Appeals found his actions were not venal and that it asked the Second Department specifically to consider whether the two-year suspension was still an appropriate penalty.

“Based upon the Court’s decision, the heightened vigilance expected of the bar includes what we have now implemented at our firm, namely each partner’s personal review and reconciliation of attorney escrow account statements,” Galasso said. “The inevitable question becomes whether maintaining an escrow account is worth the peril an oversight issue may present.”

The Galasso firm is now called Galasso, Langione, Catterson & LoFrumento.

Matthew Lee-Renert argued for the grievance committee, which said it could not comment.

Exotic Dancing Tax Case

The court split 4-3 in the exotic dancing case, Matter of 677 New Loudon v. New York State Tax Appeals Tribunal, 157, with the majority voting to uphold an assessment of nearly $125,000 against Nite Moves, a suburban Albany strip club, for sales and use tax for the period from December 2002 through August 2005.

The majority said that if ice dancing performances “with intricately choreographed dance moves precisely arranged to musical compositions, were not viewed by the Legislature as ‘dance’ entitled a tax exemption, surely it was not irrational for the Tax Tribunal to conclude that a club presenting performances by women gyrating on a pole to music, however artistic or athletic their practiced moves are, was also not a qualifying performance entitled to exempt status.”

The majority memorandum was joined by Ciparick, Graffeo, Pigott and Jones.

In dissent, Smith said the majority “makes a distinction between highbrow dance and lowbrow dance that is not to be found in the governing statute (Tax Law §1105[f][1]) and raises significant constitutional problems… The people who paid these admission charges paid to see women dancing. It does not matter if the dance was artistic or crude, boring or erotic. Under New York’s Tax Law, a dance is a dance.”

Smith said he would rather read The New Yorker than Hustler, but insisted he would be “appalled” if the state tried to exact a tax from Hustler that the New Yorker did not have to pay because Hustler is insufficiently “cultural and artistic” for the state’s tastes.

“That sort of discrimination on the basis of content would surely be unconstitutional,” Smith wrote.

Lippman and Read joined the dissent.

The case was argued by Assistant Solicitor General Robert Goldfarb and W. Andrew McCullough of Midvale, Utah.

McCullough said his client, Nite Moves, may consider filing a petition for a writ of certiorari with the U.S. Supreme Court.

At the least, McCullough said he would like to argue for a second time before the state Division of Tax Appeals that the carefully choreographed routines performed by exotic dangers are dramatic or artistic in nature.

He said he may use an appeal of the state’s assessment against Nite Moves for sales and use taxes for the years 2006 through 2008 to renew his arguments. That tax case has been on hold pending the court’s ruling on the 2002-2005 assessment, McCullough said.

“My client does not wish to quit and I really don’t wish to quit,” McCullough said yesterday. “They have left me…with an opening and I am fairly confident my client is going to say, ‘Take the opening and run with it.’”

A spokesman for the Department of Taxation and Finance, Cary Ziter, said the agency was pleased with the ruling because it provides proprietors of exotic dance venues “clear guidance” on their liability for the sales tax.

Gay Marriage Challenge

Also yesterday, the court denied a motion to hear an appeal of a ruling by the Fourth Department in New Yorkers for Constitutional Freedoms v. New York State Senate, 2012 NY Slip Op 05455 (2012), over the legality of the state’s same-sex marriage law.

The challenge was brought by New Yorkers for Constitutional Freedoms, a conservative Christian group based near Rochester, which maintained that deliberations over the same-sex marriage legislation took place improperly in 2011 during closed-door meetings attended by state senators and Governor Andrew Cuomo or New York City Mayor Michael Bloomberg.

Both the governor and mayor were staunch supporters of the gay marriage bill.

Cuomo said in a statement yesterday that with the Court of Appeals’ refusal to hear an appeal of the Fourth Department ruling, “same-sex couples no longer have to worry that their right to marry could be legally challenged in this state.”

“The freedom to marry in this state is secure for generations to come,” Cuomo said.