A lawyer who shielded a client’s assets from the other spouse in a divorce proceeding and then used them himself should be suspended for three years but not disbarred, the Disciplinary Review Board recommended on Oct. 25.

The 5-3 majority of the divided board saw Neil Malvone’s relationship with the client as an illegitimate enterprise, not a lawyer-client bond, and as such “the lawyer would be guilty of theft from the true owner, but not of knowing misappropriation.”

“The difference between knowing misappropriation and theft is critical because not every theft committed by attorneys results in disbarment,” it added.

The three dissenting board members voted for disbarment.

According to the majority opinion, Malvone, while with Lombardi & Lombardi in Edison, represented Michael King, his longtime friend, in a divorce case. The two discussed concealing money from King’s wife, expecting her to seek equitable distribution of assets, and ultimately decided to transfer money to Malvone.

Beginning in November 2007, King wrote three checks, payable to cash and totaling $11,000. Twice, King noted the purpose of the check as “legal fees,” and once as “fantasy football” — because they were partners in a fantasy football league that Malvone ran from his office.

Malvone deposited the checks into his personal savings account. He and King later disputed whether the money was to be placed into the firm’s trust account.

King’s divorce was finalized in September 2008 in a property settlement agreement prepared by Malvone.

King was required to pay his wife $5,000, which he repeatedly asked Malvone to do from the money King had provided. Malvone put it off and eventually was unreachable.

After King ended up using retirement funds when ordered by the court to pay the $5,000, King went to the firm and talked to partner Michael Lombardi, who told King Malvone had been terminated.

Lombardi had acquired Malvone’s savings account statement through litigation against him and showed King that the checks were deposited there and not in the firm’s trust account.

Malvone had been put on a leave of absence in February 2009 and eventually terminated after he admitted a series of mistakes and dishonest conduct. In one matter, Malvone fabricated a $27,000 settlement, according to Lombardi’s later testimony.

After the visit, King filed an ethics grievance, in August 2009.

Malvone’s bank statements showed he had withdrawn large sums from the account after depositing King’s checks, an investigator from the Office of Attorney Ethics discovered.

King contended that he didn’t authorize Malvone to use the $11,000, but did not admit to the investigator that he was attempting to hide the money.

Malvone told the investigator that he originally intended to return the money in a lump sum, but forgot he was holding it and used it to pay bills and for other purposes.

But during the ensuing ethics hearing before special master Bernard Shihar, Malvone said that although King didn’t expressly authorize use of the funds, it was permissible in order to “continue the plausibility of the fraud” and “make the deception more easily hidden.”

Malvone testified that, after he left the firm, he enrolled in the Lawyers Assistance Program, saw therapists and learned he was suffering from depression. Malvone had taken on too much work, stopped sleeping, gained weight, went twice to the hospital with chest pains and was going through a divorce, he said.

He later opened a solo practice, working only part time and under a proctor’s supervision.

In February 2010, Malvone sent King an $11,000 check.

Shihar found the expenditure unauthorized but stopped short of calling it knowing misappropriation, finding no clear and convincing evidence that the money transfer fell under an attorney-client relationship.

Shihar concluded that Malvone violated Rule of Professional Conduct 8.4(c) (failure to safeguard client funds) and recommended a one-year suspension.

Before the DRB, the OAE pushed for disbarment, contending that Malvone’s conduct amounted to knowing misappropriation under RPC 1.15(a).

On Oct. 25, the DRB recommended a suspension of three years.

Members Bonnie Frost, Edna Baugh, Maurice Gallipoli, Morris Yamner and Robert Zmirich found a conspiracy to hide the money, but no knowing misappropriation by Malvone.

There was no clear evidence that they agreed the money would be placed in the firm’s trust account or that the funds were to remain untouched, they said.

In addition, the transfer doesn’t amount to entrustment of funds, the majority said. “This cannot be called a situation in which the client charged the lawyer with the safekeeping of property in the lawyer’s capacity as a fiduciary.”

“Unquestionably, however, respondent masterminded and participated in an outrageous plan to defraud King’s wife and the court,” the majority said.

It called the conduct “simply deplorable and deserving of severe discipline,” “methodical and calculated” and carried out “with nary a twinge of conscience.”

The majority did not hold Malvone’s depression as a mitigating factor.

Three members — Chairman Louis Pashman, Jeanne Doremus and Spencer Wissinger III — voted for disbarment.

Deputy Ethics Counsel Melissa Czartoryski says that as of Thursday, neither side had petitioned the Supreme Court for review, but the OAE is considering it.

“We always consider it in cases where we were seeking someone’s disbarment,” she says.

The court can review the case on its own volition but had not issued an order to show cause as of Thursday, she adds.

Malvone did not return a call. Neither did his lawyer, Milltown solo James Curran. •

David Gialanella is a reporter for the New Jersey Law Journal, a Legal affiliate.