BEFORE THE VIRGINIA STATE BAR DISCIPLINARY BOARD
IN THE MATTER OF
CHARLES EVERETT MALONE
VSB DOCKET NO. 02-010-4055
ORDER OF SUSPENSION WITH TERMS
This matter came to be heard on November 13, 2003, upon an Agreed Disposition between the Virginia State Bar and the Respondent, Charles Everett Malone.
A duly convened panel of the Virginia State Bar Disciplinary Board consisting of Ann N. Kathan, Esquire, Peter A. Dingman, Esquire, James L. Banks, Jr., Esquire, Thaddeus T. Crump, Lay Member, and Roscoe B. Stephenson, III, Esquire, Chair, considered the matter by telephone conference. The Respondent, Charles Everett Malone, Esquire, appeared pro se. Edward L. Davis, Assistant Bar Counsel, appeared on behalf of the Virginia State Bar.
Upon due deliberation, it is the decision of the board to accept the Agreed Disposition, subject to some modifications to the terms. Both the Respondent and the bar expressed concurrence with the modifications. The Stipulations of Fact, Disciplinary Rule Violations, and Disposition agreed to by the Virginia State Bar and the Respondent, as modified, are incorporated herein as follows:
I. STIPULATIONS OF FACT
1. During all times relevant hereto, the Respondent, Charles Everett Malone (hereinafter
Respondent or Mr. Malone) was an attorney licensed to practice law in the Commonwealth of Virginia.
Complainant: VSB/Trust Account
2. During 2001-2002, Mr. Malone was in the private practice of law, and maintained his attorney trust account at the Bank of Hampton Roads, IOLTA Account Number 1007521.
3. On January 8, 2002, Mr. Malone=s bank advised the Virginia State Bar that the trust account had been in an unsatisfactory status for a month. The bank advised further that it had sent him several notices of the status, but that the account remained in a deficit. The record submitted by the bank showed a series of trust account overdrafts between December 19, 2001 and December 31, 2001.
4. By letter, dated January 17, 2002, the bar asked Mr. Malone to provide a written explanation of the status of his trust account. Mr. Malone did not respond. The bar wrote to Mr. Malone again on April 4, 2002, inviting Mr. Malone to respond and avoid an active investigation by the bar. Mr. Malone did not respond. Accordingly, the bar opened a formal complaint, and notified Mr. Malone. By letter, dated July 11, 2002, the bar asked Mr. Malone to respond to the complaint within 21 days, in accordance with standard procedures. Mr. Malone did not respond, and the bar referred the matter to the First District Committee for a more detailed investigation.
5. The bar=s investigation revealed that between December 1, 2001 and October 31, 2002, the bank applied a total of 36 insufficient fund fee charges against Mr. Malone=s trust account because of checks that he presented for payment against insufficient funds. For this reason, on December 20, 2002, the bank placed Mr. Malone=s trust account in a Aforced closed@ status.
6. The investigation also revealed that during the same time period, Mr. Malone drew checks against the trust account to pay utility bills, church offering, wedding expenses, a loan repayment and other personal expenses not related to client matters. Mr. Malone explained that this was because he did not have an operating account at the time, only a trust account. He explained that he made a deposit to the trust account from his investment account, and that he deposited part of a loan into the trust account.
7. The investigation also revealed that Mr. Malone failed to maintain individual client subsidiary ledgers, further resulting in his failure to conduct periodic trial balances. He also had no records of periodic reconciliations, and failed to keep copies of trust account deposit slips, or the equivalent. Additionally, his records did not identify the source of deposits to his trust account. Mr. Malone explained that he should have kept subsidiary ledgers, but that he did not have the administrative support to do so. He said he believed he knew what monies in his account covered the individual clients.
8. A comparison of Mr. Malone=s trust account bank statements against his client receipt book for the period December 1, 2001 to October 31, 2002 reveals a discrepancy of $68,141.40 between the two records. The bank statements reflect total deposits of only $28,189.50, while the client receipt book reflects that Mr. Malone received a total of $97,330.90 from clients. He explained that most of his cases were flat fee cases for which he received payment in advance. He explained that after his trust account was closed, however, that he collected fees only after the work was finished.
II. NATURE OF MISCONDUCT (02-010-4055)
The parties agree that the foregoing facts give rise to violations of the following Rules of
RULE 1.15 Safekeeping Property
(a) All funds received or held by a lawyer or law firm on behalf of a client, other than reimbursement of advances for costs and expenses, shall be deposited in one or more identifiable escrow accounts maintained at a financial institution in the state in which the law office is situated 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; or
(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 it is 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.
RULE 1.15 Safekeeping Property
(c) A lawyer shall:
(2) identify and label securities and properties of a client promptly upon receipt and place them in a safe deposit box or other place of safekeeping as soon as practicable;
(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 the client regarding them; and
RULE 1.15 Safekeeping Property
(e) Record-Keeping Requirements, Required Books and Records. As a minimum requirement every lawyer engaged in the private practice of law in Virginia, hereinafter called Alawyer,@ shall maintain or cause to be maintained, on a current basis, books and records which establish compliance with Rule 1.15(a) and (c). Whether a lawyer or law firm maintains computerized records or a manual accounting system, such system must produce the records and information required by this Rule.
(1) In the case of funds held in an escrow account subject to this Rule, the required books and records include:
(i) 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 escrow and non-escrow funds, then the consolidated cash receipts journal shall contain separate columns for escrow and non-escrow receipts;
(ii) a cash disbursements journal listing and identifying all disbursements from the escrow 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 escrow and non-escrow disbursements then the consolidated disbursements journal shall contain separate columns for escrow and non-escrow disbursements;
(iii) 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 escrow shall be maintained. The ledger account shall by separate columns or otherwise clearly identify escrow funds disbursed, and escrow 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;
(iv) reconciliations and supporting records required under this Rule;
(v) the records required under this paragraph shall be preserved for at least five full calendar years following the termination of the fiduciary relationship.
RULE 1.15 Safekeeping Property
(f) Required Escrow Accounting Procedures. The following minimum escrow accounting procedures are applicable to all escrow accounts subject to Rule 1.15(a) and (c) by lawyers practicing in Virginia.
(2) Deposits. All receipts of escrow money shall be deposited intact and a retained duplicate deposit slip or other such record shall be sufficiently detailed to show the identity of each item;
(4) Periodic trial balance. A regular periodic trial balance of the subsidiary ledger shall be made at least quarter annually, within 30 days after the close of the period and shall show the escrow account balance of the client or other person at the end of each period.
(i) The total of the trial balance must agree with the control figure computed by taking the beginning balance, adding the total of monies received in escrow for the period and deducting the total of escrow monies disbursed for the period; and
(ii) The trial balance shall identify the preparer and be approved by the lawyer or one of the lawyers in the law firm.
(i) A monthly reconciliation shall be made at month end of the cash balance derived from the cash receipts journal and cash disbursements journal total, the escrow account checkbook balance, and the escrow account bank statement balance;
(ii) A periodic reconciliation shall be made at least quarter annually, within 30 days after the close of the period, reconciling cash balances to the subsidiary ledger trial balance;
(iii) Reconciliations shall identify the preparer and be approved by the lawyer or one of the lawyers in the law firm.
(6) Receipts and disbursements explained. The purpose of all receipts and disbursements of escrow funds reported in the escrow journals and subsidiary ledgers shall be fully explained and supported by adequate records.
I. STIPULATIONS OF FACT (Continued)
Complainant: Ms. Toni B. Jones
9. On October 6, 2001, the Circuit Court for the City of Norfolk entered a final decree of divorce between Toni B. Jones and her husband, Gary Jones. The decree incorporated a stipulation agreement between husband and wife, dated June 17, 2000. The agreement provided, among other things, that they would sell the marital home. On August 4, 2000, they executed an amendment to the agreement providing for the husband to relinquish his rights in the marital home to the wife. The husband, however, disappeared without signing a quitclaim deed. Mrs. Jones= counsel throughout the matter was one of Mr. Malone=s former law partners. Mr. Malone=s former partner then left the law firm for a position in the state government.
10. On November 1, 2001, Ms. Jones hired Mr. Malone to complete the process of transferring her former husband=s interest in the marital home to her. To this end, on January 8, 2002, Ms. Jones met with Mr. Malone, who had her sign a ADecree Quieting Title.@ Mr. Malone then filed the decree with the Circuit Court for the City of Suffolk, the situs of the marital home.
11. For the next four months, Ms. Jones tried to contact Mr. Malone, but was unsuccessful. Eventually, he informed her that the matter was scheduled to be heard on May 4, 2002. He also advised her that she did not need to appear. Not hearing from Mr. Malone after the purported hearing date, she contacted him. Mr. Malone told her that the court ordered the appointment of a guardian ad litem for her husband. According to Mr. Malone, this was accomplished.
12. Once again, Ms. Jones tried to reach Mr. Malone over a period of months, but to no avail. Eventually, he advised her that the matter would be heard by the court on October 25, 2002. When she arrived at court, however, Mr. Malone advised her that the court could not hear the matter because the judge that would hear the case was involved in a long trial that carried over.
13. Meanwhile, her former husband=s name remained on the deed to the home and, on October 1, 2002, the Division of Child Support Enforcement recorded a lien in the amount of $6,076.81 against the home. The lien was to secure the repayment of delinquent child support owed by Mr. Jones. Ms. Jones promptly informed Mr. Malone about the lien as soon as she learned about it. Mr. Malone promised to obtain a new hearing date, and informed Ms. Jones that the court would hear the matter on November 8, 2002. He told her that they did not need to appear in court, that the judge had read the order, and that he would sign it, removing her former husband=s name from the deed. He promised to contact her the afternoon of November 8 to confirm the court=s action. Not hearing from Mr. Malone on November 8, she tried for about two weeks to contact him. Upon contacting Mr. Malone, he advised her that the court would not consider the matter because the proper venue was in Norfolk, where her divorce was heard.
14. Approximately three weeks later, Mr. Malone advised Ms. Jones that her case had been filed in Norfolk and would be heard January 3, 2003. When she arrived at court, she did not find the case on any of the court=s dockets. Mr. Malone informed her that the judge hearing the case was in a long trial that carried over, and that no other judge would hear it, so he had to reschedule the matter.
15. Frustrated, Ms. Jones checked with the Norfolk Circuit Court Clerk=s office and determined that the only case on file there involving her was her prior divorce case. She also ascertained that no case involving her had been scheduled for January 3, 2003. She then went to the Circuit Court for the City of Suffolk and reviewed the file relating to her case. In her file, she found the Decree Quieting Title, and a note from the judge, dated May 13, 2002. The note indicated that the relief sought by Mr. Malone was not appropriate, and that the judge had left a message to this effect with Mr. Malone=s office. Ms. Jones was unable to reach Mr. Malone again. She hired a new attorney, and complained to the bar on January 28, 2003. Mr. Malone did not respond to the bar complaint, and the complaint was referred to the First District Committee for a more detailed investigation.
16. Mr. Malone explained to a Virginia State Bar investigator that he did not schedule the matter to be heard in the Norfolk Circuit Court on January 3, 2003, but that he sought to have the court work it into its schedule that day. Ms. Jones= new attorney continues to work with the Department of Social Services on the lien issue, which remains unresolved.
II. NATURE OF MISCONDUCT (03-010-2298)
The parties agree that the foregoing facts give rise to violations of the following Rules of
RULE 1.1 Competence
A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.
RULE 1.3 Diligence
(a) A lawyer shall act with reasonable diligence and promptness in representing a client.
(b) A lawyer shall not intentionally fail to carry out a contract of employment entered into with a client for professional services, but may withdraw as permitted under Rule 1.16.
RULE 1.4 Communication
(a) A lawyer shall keep a client reasonably informed about the status of a matter and promptly comply with reasonable requests for information.
(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.
(c) A lawyer shall inform the client of facts pertinent to the matter and of communications from another party that may significantly affect settlement or resolution of the matter.
RULE 8.4 Misconduct
It is professional misconduct for a lawyer to:
(c) engage in professional conduct involving dishonesty, fraud, deceit or misrepresentation;
The bar withdrew the charged violations of Rule 8.1(b) of the Rules of Professional Conduct in both cases.
In accordance with the Agreed Disposition, Charles Everett Maloneís license to practice law in the Commonwealth of Virginia is hereby Suspended for a period of thirty (30) days, effective November 21, 2003, subject to the following terms and conditions:
1. The Respondent, Charles Everett Malone, is hereby placed on probation for a period of one (1) year, said period to begin the date that his license to practice law is reinstated. Mr. Malone will engage in no professional misconduct as defined by the Virginia Rules of Professional Conduct during such one-year probationary period. Any final determination of misconduct determined by any District Committee of the Virginia State Bar, the Disciplinary Board, or a three-judge court to have occurred during such period will be deemed a violation of the terms and conditions of this Agreed Disposition and will result in the imposition of the alternate sanction, a one-year suspension of the Respondent=s license to practice law in the Commonwealth of Virginia. The alternate sanction will not be imposed while Mr. Malone is appealing any adverse decision which might result in a probation violation.
2. By December 31, 2003, the Respondent will view the Continuing Legal Education (CLE) Video Presentation entitled Lawyerís and Other Peopleís Money at this own expense and for no annual MCLE Credit. The Respondent will contact Virginia CLE at (800) 979-8253 or at www.vacle.org to arrange a viewing of the presentation. The Respondent shall also certify in writing to the Assistant Bar Counsel, by December 31, 2003, that he has read the book Lawyers and Other Peopleís Money.
3. The Respondent shall forthwith contact VSB Investigator Eugene L. Reagan at (757) 491-5167 and arrange a meeting between himself and Mr. Reagan at the Respondent=s office at the earliest opportunity to review the Respondent=s trust account records and verify whether he maintains the records and reconciliations required by Rule 1.15 of the Rules of Professional Conduct. The Respondent will arrange a follow-up meeting with Mr. Reagan to take place no later than March 1, 2004, and a final meeting to take place at the end of the probationary period, no later than December 20, 2004. Any finding during any of these meetings that the Respondent is not maintaining the required records and reconciliations, that he is overdrawing his attorney trust account, that he is failing to properly deposit client funds into the attorney trust account or that he is failing to appropriately account for client funds will be deemed a violation of these terms.
Failure to comply with any of the foregoing terms and conditions will result in the imposition of the alternate sanction, the Suspension of the Respondentís license to practice law in the Commonwealth of Virginia for a period of one (1) year.
The imposition of the alternate sanction will not require a hearing before the Three-Judge
Court or the Virginia State Bar Disciplinary Board on the underlying charges of misconduct stipulated to in this Agreed Disposition if the Virginia State Bar discovers that the Respondent has violated any of the foregoing terms and conditions. Instead, the Virginia State Bar shall issue and serve upon the Respondent a Notice of Hearing to Show Cause why the alternate sanction should not be imposed. The sole factual issue will be whether the Respondent has violated the terms of this Agreed Disposition without legal justification or excuse. The imposition of the alternate sanction shall be in addition to any other sanctions imposed for misconduct during the probationary period. All issues concerning the Respondent=s compliance with the terms of this Agreed Disposition shall be determined by the Virginia State Bar Disciplinary Board, unless the Respondent makes a timely request for hearing before a three-judge court.
Upon the suspension of his license, the Respondent must comply with the requirements of Part 6, Section IV, Paragraph 13.M of the Rules of the Supreme Court of Virginia and notify all appropriate persons about the suspension of his license if he is handling any client matters at the time. If the Respondent is not handling any client matters on the effective date of his license suspension, he shall submit an affidavit to that effect to the Clerk of the Disciplinary System at the Virginia State Bar. All issues concerning the adequacy of the notice and arrangements required by Paragraph 13.M shall be determined by the Virginia State Bar Disciplinary Board, unless the Respondent makes a timely request for hearing before a three-judge court.
The court reporter who transcribed these proceedings is Valarie L. Schmidt, RPR, of Chandler & Halasz, Registered Professional Reporters, Post Office Box 9349, Richmond, Virginia 23227. (804) 730-1222.
Pursuant to Part 6, Sec. IV, Para. 13.B.8(c) of the Rules, the Clerk of the Disciplinary System shall assess costs.
It is ORDERED that the Clerk of the Disciplinary shall mail an attested copy of this order to Charles Everett Malone at his address of record with the Virginia State Bar, being Suite 1218, 500 East Main Street, Norfolk, Virginia 23510, by certified mail, return receipt requested, and by regular mail to Edward L. Davis, Assistant Bar Counsel, Virginia State Bar, 707 East Main Street, Suite 1500, Eighth and Main Building, Richmond, Virginia 23219.
ENTERED THIS _________ DAY OF ___________, 2003
THE VIRGINIA STATE BAR DISCIPLINARY BOARD
Roscoe B. Stephenson, III