Utah State Bar v. Bates , 391 P.3d 1039 ( 2017 )

This opinion is subject to revision before final
publication in the Pacific Reporter
2017 UT 11
IN THE
SUPREME COURT OF THE STATE OF UTAH
IN THE MATTER OF THE DISCIPLINE OF
ABRAHAM BATES, #12440
UTAH STATE BAR,
OFFICE OF PROFESSIONAL CONDUCT,
Appellant,
v.
ABRAHAM BATES,
Appellee.
No. 20150483
Filed February 22, 2017
On Direct Appeal
Third District, Salt Lake Dep’t
The Honorable Todd M. Shaughnessy
No. 120905676
Attorneys:
Todd Wahlquist, Salt Lake City, for appellant
Michael F. Skolnick, Troy L. Booher, Erin B. Hull,
Beth E. Kennedy, Salt Lake City, for appellee
JUSTICE DURHAM authored the opinion of the Court in which
CHIEF JUSTICE DURRANT, ASSOCIATE CHIEF JUSTICE LEE,
JUSTICE HIMONAS, and JUSTICE PEARCE joined.
JUSTICE DURHAM, opinion of the Court:
INTRODUCTION
¶1 The Utah State Bar’s Office of Professional Conduct (OPC)
appeals from a final judgment of the Third District Court suspending
Abraham Bates from the practice of law for a period of five months
for violating rules 1.4(a), 1.15(a), and 1.15(d) of the Utah Rules of
Professional Conduct. The OPC asks this court to elevate Mr. Bates’
UTAH STATE BAR v. BATES
Opinion of the Court
sanction from suspension to disbarment, by inferring from the
district court’s factual findings that Mr. Bates acted both
“knowingly” and “with the intent to benefit” from his misconduct.
We affirm the district court’s sanction of suspension, albeit on
alternate grounds.
BACKGROUND
¶2 Just six months after beginning to practice law, Abraham
Bates started his own law firm, Wasatch Advocates. Mr. Bates solely
owned and operated Wasatch Advocates. Although the firm started
with only six employees, its clientele rapidly expanded, and, within
a single year, it employed thirty-seven people to meet the growing
workload. In order to deal with the increasing expenses, Mr. Bates
established lines of credit to maintain enough money in the firm’s
operating account. He regularly made draws against these lines of
credit.
¶3 Although he managed the operating and trust accounts on his
own with the assistance of his receptionist in the beginning, the
accounting became more complicated as the firm’s income and
expenses quickly grew. Mr. Bates retained a certified public
accountant to perform monthly reconciliations, auditing, and tax
work. Later, as the practice expanded, Mr. Bates hired an accounting
firm to do more frequent reconciliations and to train Mr. Bates and
his staff in accounting procedures. Despite this, he noticed that there
were still accounting issues, such as his receptionist mistakenly
depositing client money into the operating account and earned fees
into the trust account. At the accounting firm’s suggestion, a chief
operating officer was also hired to help with the firm’s accounting
practices. However, even after taking these corrective measures, the
operation of the firm’s accounts remained chaotic.
¶4 In January 2012, Wasatch Advocates imploded due to
changing economic circumstances and the abrupt departure of a
significant proportion of Mr. Bates’ staff. Around the time of the
firm’s dissolution, John Liti, a former client, filed a bar complaint
against Wasatch Advocates resulting in an OPC investigation.
During the investigation, the OPC focused heavily on Mr. Bates’
accounting practices and identified possible violations in other client
matters. The only matter at issue on this appeal is the F.A.
Apartments matter. The OPC alleges that Mr. Bates’ actions amount
to intentional misappropriation of F.A. Apartments’ funds and merit
disbarment in two different instances: his management of F.A.
Apartments’ funds held in the trust account and his management of
a retainer paid by F.A. Apartments that was held in the operating
account.
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I. TRUST ACCOUNT SHORTFALLS
¶5 F.A. Apartments hired Mr. Bates to defend it against a
foreclosure. In December 2010, F.A. Apartments gave Mr. Bates
$28,000 to be deposited in trust. The $28,000 consisted of rents
collected on the property that was the subject of the foreclosure
action. The money was to be held in trust during settlement
negotiations and was to be used only for property management and
other authorized expenses, not for Mr. Bates’ attorney fees. Wasatch
Advocates deposited the $28,000 into its trust account. Mr. Bates
made authorized expenditures out of the trust account and kept
detailed records about the remaining balance.
¶6 Despite these accounting efforts, the OPC’s investigation
revealed that the overall trust account balance dipped below the
amount Wasatch Advocates was holding for F.A. Apartments. On
three particular days in early 2011—January 3, March 17, and June
30—the balance of Mr. Bates’ trust account was less than the amount
he should have been holding for F.A. Apartments by $2,001.26,
$2,343.98, and $4,221.80 respectively. However, there was enough in
the operating account to cover these shortfalls, and his lines of credit
also had more than enough to cover these shortfalls.
II. OPERATING ACCOUNT SHORTFALL
¶7 During the first week of August 2011, F.A. Apartments paid
Wasatch Advocates a $16,500 retainer. Despite Mr. Bates’ direction
that these funds be deposited in the trust account, his staff
mistakenly deposited $16,000 of the $16,500 into the firm’s operating
account without Mr. Bates’ knowledge.1 The retainer was to be used
for Mr. Bates’ work in the foreclosure action. About three weeks after
the money was incorrectly deposited, Mr. Bates was nearing the
completion of settlement negotiations for the foreclosure case, with
an agreement to settle for $20,000.
¶8 At this point, while conducting a review of the trust account
to determine if there was enough of the $28,000 left to cover the
settlement, Mr. Bates discovered the $16,000 retainer had been
deposited in the operating account, contrary to his instructions. After
conducting his review, Mr. Bates knew that F.A. Apartments did not
1 Five members of F.A. Apartments made individual payments to
cover the retainer. For reasons unknown, four of those payments
totaling $16,000 were deposited into the operating account by
Mr. Bates’ assistant, despite his instructions to deposit them in the
trust account. A few days later, the fifth payment of $500 was
received and correctly deposited into the trust account.
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have the money to pay the settlement amount. Not wanting his client
to lose the favorable settlement, Mr. Bates agreed to defer billing for
his work on the matter and to use the retainer funds to pay the
settlement, even though he had already earned the bulk of the
$16,500 retainer. For reasons that do not appear on the record,
Mr. Bates failed to move the money into his trust account at that
time, even though he acknowledged that the $16,000 became client
funds after the agreement to use the retainer to settle the foreclosure
case.
¶9 Approximately four weeks after Mr. Bates learned that the
$16,000 had been incorrectly deposited, he made a $20,000
withdrawal from the operating account and transferred it to payroll,
leaving a negative balance in the operating account. All of F.A.
Apartments’ $16,000 was thus transferred to Mr. Bates’ payroll
account and apparently used for the firm’s payroll.
¶10 In the two weeks leading up to the payroll transfer,
Mr. Bates made two draws on his lines of credit, and maintained the
ability to draw money that “significantly exceeded the amount of the
[$20,000] transfer.” Three days after the payroll transfer, Mr. Bates
took a $5,000 draw on a line of credit and placed the money in his
operating account. Two days after that, he took another $7,000 draw.
Ten days after the payroll transfer, Mr. Bates wired $20,000
(including the $16,000 retainer) to settle the F.A. Apartments’
foreclosure case.
¶11 After the settlement payment, Mr. Bates’ representation of
F.A. Apartments concluded to the satisfaction of all parties. F.A.
Apartments never raised any concerns, even during the disciplinary
proceedings, with Mr. Bates’ representation or management of its
funds.
III. TRIAL
¶12 After its investigation, the OPC sought Mr. Bates’
disbarment, alleging seven violations of the Utah Rules of
Professional conduct in connection with five different client matters.
Over the course of the trial, the OPC withdrew two of its previous
allegations and ultimately asked the court to disbar Mr. Bates based
only on his conduct in the F.A. Apartments matter. The district court
held that Mr. Bates violated three rules during his representation of
F.A. Apartments and the other clients: 1.4(a) (communication),
1.15(a) (safekeeping property), and 1.15(d) (safekeeping property).
The court did not hold, however, that Mr. Bates intentionally
misappropriated F.A. Apartments’ funds.
¶13 Mr. Bates gave the following testimony during trial:
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Opinion of the Court
Q: . . . [F]rom December of 2010, the point in time after
FA [Apartments] provided the $28,000, up through the
end of September 2011 [when the foreclosure case
settled] did you ever intend to utilize FA Apartments’
funds for any purpose, other than FA Apartments-
related expenses?
....
A: No
Q: Thank you. You can explain.
A: I have no knowledge of any check or dollar of FA
Apartments’ funds from the original $28,000 or the
$16,500 being used for any other purpose than on
behalf of FA Apartments, and it was certainly not my
intent to do so.
Based on this testimony and the circumstantial evidence, the district
court held that “the OPC failed to meet[] its burden of showing that
Mr. Bates knowingly or intentionally caused the apparent shortfalls”
in the trust account, and, therefore, that Mr. Bates was negligent in
managing his trust account. The operating account shortfall was held
to be knowing but without “the specific intent to use F.A. funds to
benefit himself, another, or harm F.A. [Apartments].”
¶14 In the end, the court held that all of Mr. Bates’ violations,
except the shortfall in the operating account, were committed
negligently. Because it held that Mr. Bates knowingly caused the
shortfall in the operating account, but without the intent to benefit
himself, the court determined that the presumptive sanction was a
six-month suspension. 2 It then applied a balancing test of the
aggravating and mitigating factors, resulting in a slight reduction to
a five-month suspension.
¶15 On appeal, the OPC argues that the district court erred in
holding that the trust account shortages were negligent, with a
presumptive sanction of reprimand, and that the payroll transfer
was knowing but without an intent to benefit himself, with a
presumptive sanction of suspension. The OPC argues that Mr. Bates
2It held that the presumptive sanction in three of the matters was
a private admonition and that in one of the matters, a public
reprimand was the presumptive sanction. The F.A. Apartments
matter was the only matter in which the court held that suspension
was the presumptive sanction.
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intentionally misappropriated those funds, and the presumptive
sanction should therefore be disbarment.
¶16 Jurisdiction is proper in this matter pursuant to Utah Code
section 78A-3-102(3)(c).
STANDARD OF REVIEW
¶17 This court has the constitutional authority to “govern the
practice of law, including . . . the conduct and discipline of persons
admitted to practice law.” UTAH CONST. art. VIII, § 4. Given our
“constitutional mandate[,] ‘the unique nature of disciplinary actions
and our knowledge of the nature of the practice of law,’” we apply a
somewhat modified standard of review. In re Discipline of Babilis, 951
P.2d 207, 213 (Utah 1997) (citation omitted). “While we will
‘ordinarily presume findings of fact to be correct and will not
overturn them unless they are arbitrary, capricious, or plainly in
error,’ we accord them less deference in matters of attorney
discipline.” In re Discipline of Corey, 2012 UT 21, ¶ 23 n.13, 274 P.3d
972 (citation omitted). We maintain the discretion to draw different
inferences from the facts than those made by the district court. In re
Discipline of Grimes, 2012 UT 87, ¶ 12, 297 P.3d 564, as amended (Mar.
21, 2013). Additionally, given our unique position regarding attorney
discipline, we “make an independent determination as to” the
correctness of the level of discipline actually imposed, id. (citation
omitted), “although we always give serious consideration to the
findings and [rulings] of the [district court],” Babilis, 951 P.2d at 213
(alterations in original) (citation omitted).
ANALYSIS
¶18 We first address and clarify the standard for a presumption
of disbarment in cases of misappropriation of client funds. We then
apply that standard to determine whether disbarment is the
presumptive sanction for Mr. Bates’ operating account shortage and
then his trust account shortages.
I. DISBARMENT IN CASES OF MISAPPROPRIATION
OF CLIENT FUNDS
¶19 Attorneys occupy a position of trust because their clients
rely on their honesty, skill, and good judgment. When an attorney
intentionally misappropriates a client’s funds, it undermines the
public’s trust in the entire legal profession and discredits the legal
system in general. In re Discipline of Babilis, 951 P.2d 207, 217 (Utah
1997) (“[T]he corrosive effect of such acts tends to undermine the
foundations of the profession and the public confidence that is
essential to the functioning of our legal system.”).
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¶20 In order to protect the “foundation[s] of . . . trust and
honesty that are indispensable to the functioning of the attorney-
client relationship,” disbarment is usually appropriate in cases of
intentional misappropriation of client funds. Id. Disbarment is the
harshest sanction available for attorney misconduct. In re Discipline of
Lundgren, 2015 UT 58, ¶ 11, 355 P.3d 984. It is “the proverbial
professional death-sentence,” In re Discipline of Corey, 2012 UT 21,
¶ 40, 274 P.3d 972, resulting in “the complete loss of [the attorney’s]
career and reputation,” In re Discipline of Johnson, 2001 UT 110, ¶ 24,
48 P.3d 881 (Durham, J., concurring and dissenting). Despite the
severe consequences, “intentional misappropriation of client funds
will result in disbarment unless the lawyer can demonstrate truly
compelling mitigating circumstances.” Corey, 2012 UT 21, ¶ 22
(citation omitted).
¶21 However, not all misappropriation cases are intentional. To
receive a presumption of disbarment, an attorney must “knowingly”
misappropriate a client’s funds “with the intent to benefit the lawyer
or another or to deceive the court.” UTAH SUP. CT. R. PROF’L PRACTICE
14-605(a)(1). On the other hand, if an attorney negligently
misappropriates a client’s funds, the presumptive sanction is a
public reprimand. Id. 14-605(c).
¶22 “Knowledge” is defined as “the conscious awareness of the
nature or attendant circumstances of the conduct but without the
conscious objective or purpose to accomplish a particular result.” Id.
14-601(f). Thus, to prove the element of knowledge in rule 14-
605(a)(1), the OPC must establish that the attorney was consciously
aware of a fact that makes the attorney’s conduct a violation of “Rule
8.4(a), (d), (e), or (f) of the Rules of Professional Conduct,” even
though the attorney may not have intended to violate any of those
rules or to harm that attorney’s client. See id. 14-605(a)(1).
¶23 For a presumption of disbarment, the OPC must establish
that the attorney knowingly engaged in misconduct at the time the
misconduct occurred. Rule 14-605(a)(1) requires that the attorney
“knowingly engages in professional misconduct.” Id. 14-605(a)(1).
This rule uses the present tense. This means that the attorney’s
knowledge of a fact that makes his action professional misconduct
must exist at the time of the professional misconduct. See Corey, 2012
UT 21, ¶ 25 (distinguishing between attorneys who know at the time
of misconduct that they are using client funds and those who
“unwittingly” use those funds, even though they may have known
at some point that the operating account held client money). Thus,
for his behavior to be knowing, an attorney must be consciously
aware that he is using client funds without authorization when he
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makes the withdrawal or transfer. The policy behind the
presumption of disbarment in cases of intentional misappropriation
of client funds further supports this interpretation.
¶24 First, the presumption of disbarment serves to punish
culpable attorneys for their wrongful conduct and to rehabilitate
them when possible. In re Discipline of Grimes, 2012 UT 87, ¶ 18, 297
P.3d 564, as amended (Mar. 21, 2013) (Courts must weigh “the
protection of the public and effective administration of justice with,
when appropriate, the opportunity for attorney rehabilitation.”). The
rule’s requirement that knowledge be contemporaneous with
misconduct serves the purpose of delineating between the more
culpable conduct of an attorney’s dishonest act of knowingly taking
his client’s money, and the less culpable conduct of an attorney who
negligently fails to realize that he is dipping into client funds. While
the negligent use of client money is reprehensible, and certainly
warrants sanctions, it does not typically qualify for the proverbial
professional death sentence of disbarment.
¶25 Second, the presumption of disbarment protects the client
and, in so doing, also protects public confidence in the legal system.
See Babilis, 951 P.2d at 217. While the negligent use of client funds for
an unauthorized purpose goes to the issue of competence, it does not
give the general impression to the public that the legal profession is
dishonest, greedy, and corrupt. Thus, the interest in protecting the
public’s confidence in the legal profession is not as strong in cases
where an attorney negligently mistakes how much money an
account is supposed to hold for each client and then uses some of a
client’s funds.
¶26 For these reasons, we hold that the OPC must establish
knowledge at the time of the misappropriation. We recognize that
direct evidence of knowledge at the time of misappropriation may
not always be obtainable. However, an attorney’s knowledge at the
time of misappropriation may be inferred from the attorney’s
conduct and the surrounding circumstances. See Corey, 2012 UT 21,
¶¶ 25–26; Gilbert v. Utah State Bar, 2016 UT 32, ¶ 44, 379 P.3d 1247
(“[A] court is entitled to make findings based on circumstantial
evidence.”).
¶27 After establishing knowledge at the time of
misappropriation, the OPC must prove intent where it seeks a
presumptive sanction of disbarment under rule 14-605(a)(1).
“Intent” is “the conscious objective or purpose to accomplish a
particular result.” UTAH SUP. CT. R. PROF’L PRACTICE 14-601(e). While
an attorney need not have the conscious objective of
misappropriating his client’s funds, the OPC must establish that the
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attorney had the conscious objective of benefiting himself, “or
another or to deceive the court.” Id. 14-605(a)(1). In proving intent,
the OPC need only prove that the attorney used the money in some
manner not authorized by the client. It does not need to prove
precisely how that money was spent. Corey, 2012 UT 21, ¶ 23 (“[T]he
precise fate of the funds (beyond the fact that they were not given to
the client) [is not] material to the intent inquiry.”). When a client’s
money is knowingly used by an attorney in a manner that was not
authorized by the client, it can typically be inferred that it was used
with the intent to benefit the attorney or another. Id. ¶¶ 26–27
(inferring that attorney intended to benefit himself or another when
he “spen[t] that money in a manner chosen by him and not the
client”).
¶28 Thus, disbarment is the presumptive sanction when the
attorney knows, at the time of misappropriation, that he is using
client funds in a manner not authorized by the client. Using this
standard, we first discuss whether disbarment is the presumptive
sanction in this case for Mr. Bates’ operating account shortage, and
then for his trust account shortages.
II. THE OPERATING ACCOUNT SHORTFALL WAS NEGLIGENT,
BUT THE COMMINGLING OF FUNDS WAS KNOWING
¶29 The district court found that Mr. Bates, while initially
ignorant that the $16,000 was incorrectly deposited, later discovered
the $16,000 was in his operating account. Four weeks after the
discovery, Mr. Bates transferred all of the $16,000 to Wasatch
Advocates’ payroll. Based on this, the district court inferred that
Mr. Bates knowingly used client funds for his firm’s payroll, but
that, based on his trial testimony, he did not intend to benefit himself
or another when he made the transfer. We disagree with the first
part of the district court’s inference. The OPC failed to prove that
Mr. Bates knowingly used those funds to cover Wasatch Advocates’
payroll. Mr. Bates did, however, knowingly commingle client funds.
A. The OPC Failed to Prove That Mr. Bates Knowingly
Used His Client’s Funds
¶30 In order to establish that Mr. Bates knowingly used client
funds, the OPC carries the burden of proving that he knew he was
using client funds at the time he made the transfer to payroll. While
the OPC established that Mr. Bates knew that F.A. Apartments’
funds were being held in the operating account four weeks prior to
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the transfer, it failed to establish that he knew, at the time of the
misappropriation, that those funds were being used for payroll.3
¶31 While an attorney’s knowledge may be inferred from the
surrounding circumstances, such an inference is not appropriate in
this case. In Corey, the attorney made multiple withdrawals from his
operating account, using over $50,000 of his client’s funds for firm
expenses over a period of four months. In re Discipline of Corey, 2012
UT 21, ¶ 4, 274 P.3d 972. He then “rac[ed] to cover his tracks” by
suggesting that his client deposit the funds in a special needs trust,
and, when that failed, encouraged his client to sign a promissory
note turning the funds into a loan to the firm. Id. ¶¶ 5–6, 38. The
attorney did all of this without disclosing that he had already spent
the funds. Id. ¶ 38. Ten years after the fact, after repeated demands
from the client, the attorney had still not repaid the funds. Id. ¶ 40.
While the facts in Corey, even without direct evidence, created a
strong inference that the attorney knowingly used his client’s funds,
such an inference is not supported by the facts of the present case.
¶32 On or about August 23, 2011, Mr. Bates learned that $16,000
belonging to F.A. Apartments had been mistakenly deposited into
his operating account rather than the trust account. For unknown
reasons, he did not, at that time or any time thereafter, transfer this
money into his trust account. Four weeks after learning that the
money was in his operating account, Mr. Bates transferred $20,000
from his operating account to his payroll account, leaving the
account with a negative balance and using all of F.A. Apartments’
$16,000 in the process.
¶33 However, Mr. Bates testified that he had no knowledge that
the $16,000 was used for any other purpose than on behalf of F.A.
Apartments, which the district court apparently accepted as true.4
We note that an attorney’s testimony will not always be sufficient to
3 The OPC argues that when Mr. Bates knowingly transferred the
money and used that money in a manner not authorized by his
client, the intent to benefit himself or another must be inferred,
making disbarment the presumptive sanction. We agree that, had the
OPC proved knowledge, intent would typically be inferred in this
type of situation. Mr. Bates clearly intended to use the money to
benefit his employees and himself by paying their wages. However,
the OPC failed to prove that Mr. Bates knowingly used his client’s
funds, mooting the OPC’s argument about intent.
4 This was the only direct evidence of Mr. Bates’ mental state at
the time of the transfer.
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overcome an inference that the attorney acted knowingly. To hold
otherwise would allow an attorney’s dishonest conduct to go
unsanctioned because of potentially untruthful testimony. While an
attorney’s testimony will not always negate an inference that the
attorney acted knowingly, there is sufficient circumstantial evidence
here to support the inference that Mr. Bates unwittingly used his
client’s money at the time of the transfer.
¶34 Mr. Bates’ behavior before and after the payroll transfer
support the inference that he did not know he was using client funds
at the time of the transfer. The $16,000 was originally intended as a
retainer for Mr. Bates’ services. However, after he had already
earned the bulk of that retainer, he agreed to use it to cover the
deficiency in the $20,000 amount that F.A. Apartments needed to
settle the foreclosure case. In the weeks before the transfer to payroll,
Mr. Bates took two draws on his lines of credit, and he continued to
have amounts from these sources that were more than sufficient to
cover the payroll transfer. If he had remembered that F.A.
Apartments’ money was in his operating account, he could have
used the available lines of credit instead of his operating account to
finance the payroll. The ability and frequent use of his lines of credit
for payroll support the inference that he unwittingly used his client’s
money.
¶35 Three days after the transfer, Mr. Bates took a $5,000 draw
on his lines of credit, partially replenishing his operating account.
Two days after that, he took a $7,000 draw. Within nine days, the
account had a balance of over $76,000. Additionally, despite
transferring the $16,000 to payroll, Mr. Bates made the $20,000
settlement payment in full, including the $16,000 that had been
misappropriated, ten days after the payroll transfer. If he knew he
was using his client’s money when he made the payroll transfer, and
he intended to keep it for himself or another, it is not likely he would
have replenished the funds so quickly with borrowed money or
made the settlement payment just ten days later. See Corey, 2012 UT
21, ¶ 40 (misappropriated funds still hadn’t been repaid to client
over a decade after they were misappropriated); In re Discipline of
Babilis, 951 P.2d 207, 209–10 (Utah 1997) (attorney only repaid funds
after the client had found out he had taken them); In re Discipline of
Grimes, 2012 UT 87, ¶ 28, 297 P.3d 564, as amended (Mar. 21, 2013)
(attorney didn’t admit he needed to repay funds “until his sanction
hearing, after the district court had already found that he had
violated the Rules”); In re Discipline of Johnson, 2001 UT 110, ¶ 2, 48
P.3d 881 (after receiving two demand letters, attorney still hadn’t
returned money as of the time the Bar filed a complaint).
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¶36 Another possible inference could be that Mr. Bates
knowingly used his client’s money to fund his payroll because he
could not get a draw on a line of credit in time to make the payroll
payment. However, if this were the case, it is unlikely he would have
refilled his operating account with multiple draws over a ten-day
period when he was able to replenish the entire amount almost
immediately with one larger draw. If he were trying to “cover his
tracks,” as the attorney did in Corey, he likely would have taken one
large draw to replenish the missing funds as soon as possible. This
supports the inference that he did not knowingly decide to use his
client’s money with the intent to pay it back as soon as possible, but
was instead caught unawares by the account deficiencies and moved
promptly to address them.
¶37 The evidence at trial demonstrated that, despite hiring
qualified accountants and a chief operating officer to help him,
Mr. Bates was grappling with significant organizational difficulties
associated with a quickly growing business and his own lack of
experience. In short, as the district court stated, “Bates was in way
over his head . . . on a scale which a more experienced lawyer would
have avoided.”
¶38 The evidence in this case corroborates Mr. Bates’ testimony
at trial, supporting the inference that he unwittingly used his client’s
funds for the firm’s payroll. Because he was not aware he was using
client funds when the transfer was made, his actions were not
knowing. Rather, they were negligent, with a presumptive sanction
of a public reprimand. See UTAH SUP. CT. R. PROF’L PRACTICE 14-
605(c) (public reprimand is “generally appropriate” when the
attorney “negligently engages in professional misconduct . . . and
causes injury to a party”). 5
5 There are three times that a presumption of disbarment is
appropriate under Utah Supreme Court Rule of Professional Practice
14-605(a). Our analysis here addresses only the first, under
subsection (a)(1). Because we hold that the transfer to payroll was
not a knowing use of client funds, the other two subsections are not
applicable. Rule 14-605(a)(2) requires a presumption of disbarment
when a lawyer “engages in serious criminal conduct” that includes
an element of “fraud, extortion, misappropriation, or theft.” The
OPC, while mentioning this rule, does not provide any analysis as to
why Mr. Bates’ actions constitute serious criminal conduct. In the
case of In re Discipline of Ince, we held that an attorney violated this
subsection by committing theft of his client’s funds. 957 P.2d 1233,
1237 (Utah 1998) (quoting UTAH CODE § 76-6-405 (“A person
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B. Mr. Bates Knowingly Commingled Client Funds
¶39 While Mr. Bates negligently transferred client funds to
payroll, he knowingly commingled those funds, creating the risk
that they would be used for the firm’s operating expenses. Mr. Bates
learned that client funds were in his operating account four weeks
prior to the payroll transfer, but failed to take any action to
safeguard that money. Utah Rule of Professional Conduct 1.15(a)
requires lawyers to “hold property of clients . . . separate from the
lawyer’s own property.” When the client’s property consists of
money that is deposited in some kind of account, the client’s
“[f]unds shall be kept in a separate account” from the attorney’s
funds. UTAH R. PROF’L CONDUCT 1.15(a). When an attorney
knowingly violates this rule, but without the intent to benefit himself
or another, and “causes injury or potential injury” to his client, the
presumptive sanction is suspension. See UTAH SUP. CT. R. PROF’L
PRACTICE 14-605(b); Utah State Bar v. Jardine, 2012 UT 67, ¶¶ 47–53,
83, 289 P.3d 516 (attorney suspended for knowingly commingling
funds, among other violations); In re Hughes Disciplinary Proceeding,
534 P.2d 892, 892 (Utah 1975) (attorney suspended when he
commingled his “clients’ funds with [his] personal funds,” and acted
with some level of culpability).
¶40 At oral argument before this court, Mr. Bates’ counsel
conceded that Mr. Bates knowingly left the $16,000 in the operating
account, which resulted in a commingling of funds and a serious
failure to safeguard those funds. Oral Argument at 31:29 – 32:44 (No.
20150483), https://www.utcourts.gov/opinions/streams/sup
(“[Mr. Bates] knowingly violated 1.15(a) . . . those funds were
commingled, he discovered, on August 23rd, and he didn’t do
anything about it that day. . . . That is a knowing violation of the
Rules of Professional Conduct.”). The failure to safeguard his client’s
funds caused potential injury to his client because there is a risk that
comingled funds will be used for firm operating expenses. While
commits theft if he obtains or exercises control over property of
another by deception and with a purpose to deprive him thereof.”)).
In this case, Mr. Bates was not acting with the “purpose to deprive”
F.A. Apartments of their funds because he did not know he was
using client funds. Indeed, it is difficult to imagine negligent
misconduct ever rising to the level of serious criminal conduct. For
similar reasons, subsection (a)(3) does not apply. Subsection (a)(3)
requires a showing that Mr. Bates engaged in “intentional
misconduct.” Because he did not knowingly use his client’s funds, he
likewise did not intentionally misappropriate his client’s funds.
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Opinion of the Court
Mr. Bates knowingly violated rule 1.15(a), there is no evidence that
on August 23, 2011, when Mr. Bates left the funds in the operating
account, he intended to benefit himself or another.6
¶41 We hold that the OPC failed to meet its burden of proof that
Mr. Bates knowingly misappropriated his client’s funds. We do,
however, hold that he knowingly commingled client funds and that
he created the risk of injury to his client by later using F.A.
Apartments’ money. Suspension is the presumptive sanction for
Mr. Bates’ actions in commingling client funds without the intent to
benefit himself or another. See UTAH SUP. CT. R. PROF’L PRACTICE 14-
605(b). 7
III. THE TRUST ACCOUNT SHORTFALLS WERE NEGLIGENT
¶42 The OPC has also failed to meet its burden of proof that
Mr. Bates knowingly caused the shortfalls in F.A. Apartments’
money that should have been in the trust account on January 3,
March 17, and June 30, 2011. The OPC’s primary argument is based
on trial testimony that Mr. Bates “could” have reviewed Quick
Books and other accounting materials before making the transfers.
The OPC argues that because he “could” have reviewed these
records and seen how much of F.A. Apartments’ money was
supposed to be in the trust account before making the transfers, we
should hold that he knowingly transferred F.A. Apartments’ funds
with the intent to use them for an unauthorized purpose. We decline
to do so and affirm the district court’s holding that Mr. Bates was
negligent.
¶43 As stated above, the OPC must establish that Mr. Bates
knew the client’s funds were being used in a manner not authorized
by the client at the time of the transfer or withdrawal. Supra ¶ 26.
The OPC’s argument that we should infer that Mr. Bates knowingly
used F.A. Apartments’ funds simply because he “could” have
checked his accounting records does not undermine his testimony
6 Mr. Bates directed his receptionist to deposit the money into his
trust account, but the receptionist failed to follow his instructions.
Thus, Mr. Bates did not knowingly commingle funds when the
$16,000 was deposited into the operating account. However, when
he later learned that F.A. Apartments’ money was in the operating
account, Mr. Bates knowingly violated the rule by failing to timely
transfer it into his trust account.
7 The presumption of disbarment in Supreme Court Rules of
Professional Practice 14-605(a)(2) and (a)(3) do not apply to this
conduct for the same reasons noted supra paragraph 38, note 5.
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Opinion of the Court
and the large amount of evidence creating the inference that
Mr. Bates was negligent. There is no direct evidence that Mr. Bates
knew, at the time of the withdrawals, how much money belonging to
F.A. Apartments was supposed to be in the trust account. The only
direct evidence of Mr. Bates’ mental state at the time of the shortfalls
was his testimony that he did not know he was dipping into F.A.
Apartments’ funds. The district court apparently found this
testimony credible and we have no reason to alter that finding on
appeal.
¶44 The circumstantial evidence supports Mr. Bates’ testimony.
Mr. Bates regularly made authorized expenditures from F.A.
Apartments’ money in the trust account, and kept records of the
same. However, Mr. Bates would not have had the ability to say, on
any given day, how much money was being held in the firm’s trust
account for any particular client without considerable effort. At the
end of his representation of F.A. Apartments, he returned all the
money it was due. F.A. Apartments was completely satisfied with
Mr. Bates’ representation. When the shortfalls occurred, there were
sufficient funds in the operating account to cover those shortfalls.
His lines of credit were also more than sufficient to cover the three
shortfalls. In general, his accounting was unorganized, despite all of
his corrective efforts.
¶45 All of this evidence supports his testimony and implies that
he unwittingly transferred a portion of F.A. Apartments’ money into
his operating account. We affirm the district court regarding the
trust account shortfalls, and hold that Mr. Bates’ actions were
negligent with a presumptive sanction of a public reprimand. See
UTAH SUP. CT. R. PROF’L PRACTICE 14-605(c).
IV. AGGRAVATING AND MITIGATING FACTORS
¶46 After determining the presumptive sanction as our starting
point, we must determine whether a more or less severe sanction is
warranted. In re Discipline of Grimes, 2012 UT 87, ¶ 18, 297 P.3d 564,
as amended (Mar. 21, 2013) (court must “craft[] appropriate,
individualized sanctions”). In determining the appropriate sanction,
“we look to ‘the duty violated, the lawyer’ s mental state, the
potential or actual injury caused, and the existence of aggravating or
mitigating circumstances.’” Id. ¶ 23 (citation omitted). “The
presumptive discipline may be increased from suspension . . . to
disbarment in the case of overwhelming aggravating factors, or
decreased from suspension to a reprimand in the case of unusual or
substantial mitigating factors.” In re Discipline of Babilis, 951 P.2d 207,
215 (Utah 1997); see also In re Discipline of Ince, 957 P.2d 1233, 1237–38
(Utah 1998) (“To justify a departure from the presumptive level of
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UTAH STATE BAR v. BATES
Opinion of the Court
discipline set forth in the Standards, the aggravating and mitigating
factors must be significant.”); In re Discipline of Crawley, 2007 UT 44,
¶ 20, 164 P.3d 1232 (After determining the presumptive sanction, the
court “then weighs the aggravating and mitigating circumstances . . .
and departs from the presumptive level of discipline if the
aggravating and mitigating factors are ‘significant.’” (citation
omitted)). While an increase or decrease in the type of sanction
requires unusual or substantial factors, district courts have broad
discretion to craft sanctions inside of the presumptive level of
sanction. Crawley, 2007 UT 44, ¶ 24 (upholding district court’s
exercise of “its discretion” in ordering probation inside of
presumptive level of suspension); Babilis, 951 P.2d at 213 (although
we “make an independent judgment regarding the appropriate level
of discipline,” we “always give serious consideration to the findings
and [rulings] of the [district court].” (alterations in original) (citation
omitted)). But see Grimes, 2012 UT 87, ¶¶ 19–21 (because of the
special implications of disbarment, there is no room within the
disbarment sanction to adjust the sanction absent “truly compelling
mitigating circumstances”).
¶47 We first note that the duty to protect client property is
significant. It is no accident that attorneys hold their client’s funds in
“trust” accounts. Clients trust their attorney to safeguard the
property they leave in their attorney’s possession. That being said,
Mr. Bates negligently used F.A. Apartments’ money, but quickly
returned it to the complete satisfaction of the client.
¶48 The district court found only one aggravating factor:
multiple offenses that constituted a pattern of misconduct. 8 The
district court held that there were seven mitigating factors:
1) absence of a prior disciplinary record, 2) absence of a dishonest or
selfish motive, 3) timely good faith effort to make restitution,9 4) full
8 The majority of these offenses have to do with Mr. Bates’
negligent operation of his operating and trust accounts.
9 The OPC argues this should not be a mitigating factor. In one of
the multiple matters (not at issue in this opinion) dealing with
Mr. Bates’ negligent management of the firm’s bank accounts,
Mr. Bates did not repay the amount to the client until the screening
panel hearing. Mr. Bates likely failed to pay because he did not
become aware that the firm was holding any of the client’s money
until he was served with the bar complaint. Another attorney in his
firm, who was handling the matter, quit the firm without telling him
about the funds. Once Mr. Bates learned the amount owed at the
hearing, he promptly paid. Additionally, the OPC does not allege
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Opinion of the Court
and free disclosure to the OPC, 5) inexperience in the practice of
law, 10 6) good character or reputation, and 7) remorse. We agree
with the district court’s findings on the aggravating and mitigating
factors in this case and we affirm its slight reduction to a five-month
suspension. 11
CONCLUSION
¶49 We hold that, for a presumption of disbarment, the OPC
must prove knowledge at the time of the transfer or withdrawal in
cases where an attorney’s bank account dips below the amount that
is supposed to be held for the attorney’s clients. Accordingly, we
hold that the OPC failed to meet its burden of proof regarding the
operating and trust account shortfalls. We also hold, however, that
Mr. Bates knowingly failed to safeguard client funds. Suspension is
the presumptive sanction, and we affirm the district court’s order for
a five-month suspension in light of the mitigating factors.
that he failed to make prompt repayment of all the other client funds
he negligently used.
10 The OPC argues this should not be a mitigating factor. In
Grimes we stated that “it does not take substantial experience in the
practice of law to know that misappropriation is improper,” because
“the prohibition on misappropriation of client funds is fundamental
to the practice of law.” 2012 UT 87, ¶ 26. This analysis does not apply
in this case, as Mr. Bates did not knowingly misappropriate his
client’s funds. Rather, his inexperience is directly related to his
negligent management of the firm’s operating and trust accounts.
11The district court’s judgment ordered Mr. Bates’ suspension to
begin on July 1, 2015, and to run for five months. Mr. Bates is not the
appellant in this case, nor does it appear that he filed a motion to
suspend judgment pending the outcome of this appeal. See UTAH R.
CIV. P. 62(d) (appellant “may obtain a stay” pending the outcome of
an appeal by paying a supersedeas bond). The parties did not brief
whether he has already fulfilled his five-month suspension. If
Mr. Bates has fulfilled the judgment for a five-month suspension, no
further sanction is necessary or appropriate.
17