BEFORE THE VIRGINIA STATE BAR DISCIPLINARY BOARD
IN THE MATTER OF
DAVID THOMAS DAULTON
VSB Docket No. 99-021-1487
FINAL ORDER OF REVOCATION
On September 27, 2002 this matter came on for hearing upon certification by the Second District Subcommittee, Section I, of the Virginia State Bar dated April 1, 2001. The hearing was held before a duly convened panel of the Virginia State Bar Disciplinary Board consisting of Richard J. Colten, Acting Chair, presiding, and Thaddeus T. Crump, Lay Member, Larry B. Kirksey, H. Taylor Williams, IV, and Roscoe B. Stephenson, III.
All notices required by law were sent by the Clerk of the Disciplinary System.
The Respondent, David Thomas Daulton ("Daulton") appeared in person and with his counsel, Robert B. Rigney, Esquire.
Richard E. Slaney, Esquire appeared as counsel for the Virginia State Bar ("VSB").
Tracy J. Stroh, Chandler & Halasz, P.O. Box 9349, Richmond, VA 23227, (804) 730-1222, having been duly sworn, reported the hearing.
The Chair opened the hearing by polling all members of the panel as to whether there existed any conflict or other reason why any member should not sit on the panel. Each, including the Chair, responded in the negative.
The seven exhibits listed by the VSB in its pre-hearing filing were received and accepted into the record without objection. The Respondent did not pre-file any exhibits. An additional exhibit was tendered by the VSB during the hearing and accepted into the record without objection. Daulton tendered two exhibits during the hearing, both of which were admitted into the record without objection.
Following a hearing on the evidence, the Board unanimously made the following findings as to each matter by clear and convincing evidence:
At all times relevant hereto Daulton was an attorney licensed to practice law in the Commonwealth of Virginia.
The Bar received information indicating Daulton, in 1997, may have misapplied funds in his trust account. The Bar opened a complaint file and sought a response from Daulton.
Daulton, in his January 25, 1999 response to the complaint, stated "First, there is no merit to any allegation that I used any moneys from the trust fund for personal or business use. *** Second, there is no merit to any allegation that there were shortages in my trust account as per specific monies for specific clients." Daulton made these statements knowing them to be false, with the intent to mislead the investigator and thwart the VSB investigation. He stated at the Board hearing that the letter was, "a knee-jerk reaction in hopes the whole thing would go away."
In an April 14, 1999 interview with Bar investigator Gene Reagan ("Reagan"), Daulton said none of the attorneys in his firm were paid out of the trust account. Daulton made this statement knowing it to be false, with the intent to mislead the investigator and thwart the VSB investigation. At that time, however, Daulton could not give a satisfactory explanation of apparent problems with the trust account and admitted that during the Spring of 1997 accurate records of activities in the trust account were not kept. During this interview, when reviewing with Reagan the funds on deposit in the trust account during the Spring of 1997, Daulton identified a March 19, 1997 deposit of $10,000 as funds belonging to a client, Nancy Chiera. Daulton indicated this deposit was not an advance payment for attorneys fees, but was instead to demonstrate in Nancy Chieras divorce that she had those funds available if necessary. These funds were of interest to the Bar as the balance in Daultons trust account had fallen to $5,887.09 as of April 10, 1997, and to $3,894.07 as of April 28, 1997.
In a subsequent interview with Reagan on September 8, 1999, Daulton again said his associates were not being paid out of the trust account, and that no funds in the trust account were used for his personal or business use. Daulton made this statement knowing it to be false, with the intent to mislead the investigator and thwart the VSB investigation. Again, Daulton could not give a reasonable explanation as to why there were apparent shortages in his trust account.
Subsequently, the Bar sent investigator Peter Kepler ("Kepler"), formerly an experienced IRS auditor, to review Daultons records and conduct a limited audit. After Kepler completed his audit, and in an August 31, 2001 interview with Kepler, Daulton admitted that in the late Spring of 1997 he began to use funds from the trust account in order to meet his payroll and office expenses. Daulton told Kepler all of the funds in the trust account in that time period were exclusively fees with nothing being held in trust for any other purpose, and he felt the fees were earned or about to be earned when he withdrew them from the trust account. Daulton made this statement knowing it to be false, with the intent to mislead the investigator and thwart the VSB investigation.
Keplers audit indicates that, during the month of January, 1997, Daulton was out of trust $8,217.62. In March of 1997 this figure increased to $11,567.62. In April of 1997, this figure increased to $16,250.31. In May of 1997, the out-of-trust figure increased to $17,645.96 when, in late May, Daulton borrowed funds from his family and made a deposit of $17,800 into the trust account.
Based upon the evidence presented, the Board unanimously finds by clear and convincing evidence that Daulton violated the following Disciplinary Rules of the Code of Professional Responsibility and the following Rule of Professional Conduct:
DR 1-102. Misconduct.
(A) A lawyer shall not:
(3) Commit a crime or other deliberately wrongful act that reflects adversely on the lawyers fitness to practice law.
(4) Engage in conduct involving dishonesty, fraud, deceit, or misrepresentation which reflects adversely on a lawyers fitness to practice law.
DR 9-102. Preserving Identity of Funds and Property of a Client.
(A) All funds received or held by a lawyer or law firm on behalf of a client, estate or a ward, residing in this State or from a transaction arising in this State, other than reimbursement of advances for costs and expenses, shall be deposited in one or more identifiable trust accounts and, as to client funds, maintained at a financial institution in a state in which the lawyer maintains a law office, and no funds belonging to the lawyer or law firm shall be deposited therein except as follows:
(1) Funds reasonably sufficient to pay service or other charges or fees imposed by the financial institution may be deposited therein.
(2) Funds belonging in part to a client and in part presently or potentially to the lawyer or law firm must be deposited therein, and the portion belonging to the lawyer or law firm must be withdrawn promptly after they are due unless the right of the lawyer or law firm to receive it is disputed by the client, in which event the disputed portion shall not be withdrawn until the dispute is finally resolved.
(B) A lawyer shall:
(1) Promptly notify a client of the receipt of his funds, securities, or other properties.
(3) Maintain complete records of all funds, securities, and other properties of a client coming into the possession of the lawyer and render appropriate accounts to his client regarding them.
(4) Promptly pay or deliver to the client or another as requested by such person the funds, securities, or other properties in the possession of the lawyer which such person is entitled to receive.
DR 9-103. Record Keeping Requirements.
(A) Required Books and Records: As a minimum requirement, every attorney engaged in the private practice of law in Virginia, hereinafter called "attorney," shall maintain or cause to be maintained, on a current basis, books and records which establish his compliance with Disciplinary Rule 9-102. These records including all the reconciliations and supporting records required under Section (B) hereof shall be preserved for at least five years following completion of the fiduciary obligation and accounting period. For this purpose, the following books and records, or their equivalent, are required.
(1) A cash receipts journal or journals listing all funds received, the sources of the receipts and the date of receipts. Checkbook entries of receipts and deposits, if adequately detailed and bound, may constitute a journal for this purpose. If separate cash receipts journals are not maintained for fiduciary and nonfiduciary funds, then the consolidated cash receipts journal shall contain separate columns for fiduciary and nonfiduciary receipts.
(2) A cash disbursements journal listing and identifying all disbursements from the fiduciary account. Checkbook entries of disbursements, if adequately detailed and bound, may constitute a journal for this purpose. If separate disbursements journals are not maintained for fiduciary and nonfiduciary disbursements then the consolidated disbursements journal shall contain separate columns for fiduciary and nonfiduciary disbursements.
(3) Subsidiary ledger: A subsidiary ledger containing a separate account for each client and for every other person or entity from whom money has been received in trust shall be maintained. The ledger account shall by separate columns or otherwise clearly identify fiduciary funds disbursed, and fiduciary funds balance on hand. The ledger account for a client or a separate subsidiary ledger account for a client shall clearly indicate all fees paid from trust accounts.
(4) Computerized and marketed manual accounting systems: Where an attorney or firm of attorneys maintains computerized records or a manual accounting system, such system must produce the records and information required by this rule.
RULE 8.4 Misconduct.
It is professional misconduct for a lawyer to:
(c) engage in professional conduct involving dishonesty, fraud, deceit or misrepresentation;
Thereupon the Board proceeded to consider evidence as to sanctions to be imposed for the foregoing ethical violations. The VSB made it known that the Respondent had a prior record of a dismissal with terms on April 26, 2001 resulting from the procurement of a false notarys certificate on a document. Daulton gave additional testimony as to sanctions. The Board then heard argument from both parties on the matter of sanctions, following which it retired to deliberate.
IN CONSIDERATION OF WHICH, having heard all the evidence and arguments of counsel, the Board finds that the appropriate disposition of this case is revocation of Daultons license to practice law. In making its disposition the Board is divided, with a majority of three subscribing to this disposition and a minority of two urging that the appropriate disposition would be a three year suspension. In light of this division there is reason to discuss the rationale of the majority in regard to the ordered disposition.
Daultons misconduct arose when he was faced with a shortage of cash flow in his law practice. To meet his payroll and office expenses he made the conscious decision to "borrow" from his trust account. This continued for at least five or six months from December, 1996 to May, 1997 when one of his associates informed him on the evening of May 15, 1997 in person and by letter that the defalcation would be reported to the VSB if not immediately rectified. On May 20, 1997 he borrowed $17,800 to reimburse the account. There is evidence that Daulton delayed refund of the $10,000 escrow deposit made by Nancy Chiera because of the misappropriation of her money. This misconduct is of the most serious nature. Daulton knowingly converted client funds and used them for his personal benefit. He thereby caused injury or potential injury to the clients whose funds were converted. Section 4.11 of the ABA Standards for Imposing Lawyer Sanctions provides that disbarment is generally the appropriate sanction for such behavior, absent aggravating or mitigating circumstances.
There are substantial aggravating circumstances. Daultons misconduct was a deliberate pattern that continued over a lengthy period of time. It ended only under threat of a complaint to the VSB made by his associate. Absent that threat it would have continued; for how long, nobody knows. The amount he was out of trust, $17,800, is a substantial amount. He converted the funds for a dishonest and selfish motive to cover the current expenses of his law practice and to avoid borrowing the money through proper channels.
Daulton seriously compounded his trust account violations by attempting to conceal them, by making false statements in denial of them, and by making deceptive and false statements concerning the nature of the misconduct, up to and including his testimony before the Board. Daultons initial response to the bar complaint alleging trust account violations, by letter dated January 25, 1999 contained little but blatant falsehood.
He made flat misrepresentations to the investigators of the VSB, telling them that none of the money was used for office expenses or payroll. In paragraphs 4 and 5 of his answer to the certification he claims he has no specific recollection of these statements to the VSB investigators. But when asked at the Board hearing about his statements to investigator Reagan he denied saying the money was used for office expenses and payroll saying, "What I stated to Mr. Reagan was that we were in a state of flux and I could not produce a current escrow balance." We note that such a statement would have been untrue at the time it was made in April, 1999, almost 2 years after Daulton had brought the trust account back into balance on less than 5 days notice. When asked at the hearing about how he kept a record of the amounts he "borrowed" from escrow he flatly denied keeping such records, yet he clearly knew the amount necessary to bring the account into balance. He could not explain how he arrived at that figure, and his testimony is contradicted by what he told Investigator Kepler.
It took eight requests and about one year for the VSB investigator to obtain Daultons basic trust account records. Although he ultimately complied, there is no excuse for this delay. Daulton, himself, characterized his conduct during the investigation as "stonewalling."
In mitigation there is the fact that all the money was eventually repaid without loss to the clients and that Daulton has kept his trust account in order since he got it back on track in 1997. We also have evidence of good character as shown by his willingness to do pro bono work, his service on the boards of several charitable organizations, and his work with Downs Syndrome support groups.
But taken as a whole, we feel that the aggravating circumstances far outweigh the mitigation. His false statements were themselves the basis for some of our findings of misconduct. They did not occur in the remote past. In fact, we believe his testimony before the Board lacked candor. Keeping the trust account correctly in the intervening time is simply his compliance with an affirmative legal duty. We see this as a positive indication, but it is nothing more than what is expected of every lawyer and what is done by the overwhelming majority of lawyers day after day. Had he not done this his failure would have been serious aggravation of the misconduct.
Aside from aggravation and mitigation we do not believe Daulton fully appreciates the seriousness of his misconduct. He makes no apology for his misrepresentations and stonewalling during the investigation. He urged incomprehensible rationalizations to the Board for the falsehoods in his January 25, 1999 letter. In characterizing the trust account violations he told the Board, "I am not proud of what I did. I felt that at the time I had no choice." He went on to say, "I never thought of this as embezzlement before that term was used in the hearing today."
In summary, taking the evidence as a whole, we of the majority believe that the ABA standard previously cited should apply in this case. We have a high duty to protect the public from lawyer dishonesty and to deter other lawyers from engaging in like misconduct.
ACCORDINGLY IT IS ORDERED that the license of David Thomas Daulton be, and the same is hereby REVOKED effective September 27, 2002.
It is further ORDERED that, as directed in the Boards September 27, 2002 Summary Order in this matter, Respondent must comply with the requirements of Part Six, Section IV, Paragraph 13.M, of the Rules of the Supreme Court of Virginia. The time for compliance with said requirements runs from the effective date of the Summary Order. All issues concerning the adequacy of the notice and arrangements required by the Summary Order shall be determined by the Board.
It is further ORDERED that the Respondent shall furnish true copies of all of the notice letters to persons notified of the revocation, with the original return receipts for said notice letters to the Clerk of the Disciplinary System on or before November 26, 2002.
It is further ORDERED that costs shall be assessed against the Respondent in accordance with the Rules of the Supreme Court of Virginia, Part Six, Section IV, Paragraph 13.B.8.c, and the Respondent shall comply therewith.
It is FINALLY ORDERED that the Clerk of the Disciplinary System forward a copy of this order to the Respondent, by certified mail, at his address of record with the Virginia State Bar, 125 St. Pauls Boulevard, Suite 302, Norfolk, VA 23510, and to Richard E. Slaney, Assistant Bar Counsel, 702 E. Main Street, Richmond, VA 23219.
ENTERED this ____ day of ____________________ , 2002.
VIRGINIA STATE BAR DISCIPLINARY BOARD
RICHARD J. COLTEN, Acting Chair