The recent Court of Appeals decision upholding nine out of ten disciplinary charges against Long Island lawyer Peter Galasso, for failing to detect his brother’s multi-million dollar misappropriation of escrow funds (NYLJ, October 24), was a sobering reminder that out of all the ways an attorney can practice law correctly, even the slightest error in the escrow account can lead to disaster.
The Appellate Division’s initial determination was heralded by some as a harbinger of imposing additional, unwritten rules upon attorneys, requiring them, in essence, to see inside the minds of their employees; this, of course, could lead to dire consequences for practitioners whose acts, in unwittingly failing to properly supervise their employees, as the Court of Appeals put it, while “not venal,” would still result in tangible, financial harm to clients.
But the Court of Appeals was correct in concluding that the primary purpose of an attorney is a fiduciary. As an officer of the court, he or she is endowed with an even greater responsibility to safeguard their client’s funds than other non-fiduciaries. It is a duty that comes with the privilege of being admitted to the bar.
In upholding the vast majority of the disciplinary charges, the Court sent a message to lawyers of all ranks and caliber, along the same lines of a tenet journalists are quite familiar with: “If your own mother tells you she loves you, check your sources”. Even if your bookkeeper is your brother, check his work.
To be sure, failing to catch an unscrupulous employee is human; many attorneys can relate to delegating tasks to various persons whom they have hired just for that purpose and assuming they will be done correctly. The bookkeeper, or office manager of a small office is a person who probably knows more about the attorney’s personal history and information than any person would be reasonably comfortable with.
They schedule appointments, pay credit cards, pay vendors (and thus know exactly how much the attorney paid for that imported are Italian suit), and so on. To that end, a reliable, trustworthy employee is ideal, and when they perform correctly, become a second right hand to an attorney. When disgruntled or devious, by contrast, the only mechanism to prevent such graft, is the discerning, skeptical eye of an attorney, reviewing their work product.
For practitioners, the take-away message is simple: always have clients endorse, in writing, escrow disbursements, and keep a running ledger of escrow money, including date of deposit, purpose, and date of disbursement. Reconcile the ledger at set periods, and if you have a bookkeeper, audit their work at random intervals. If necessary, hire an outside accountant to come in and review the books. Time-consuming and costly, yes; the alternative, in a word, devastating.