The Old Man and Rule 8.4(c): A Proposal for the Adoption of Maryland's Misappropriation Rule in Iowa

The Old Man and Rule 8.4(c): A Proposal for the Adoption of Maryland’s Misappropriation Rule in Iowa Allison A. Schmidt ABSTRACT: Iowa’s current approach to attorney misappropriation is inadequate. While the Iowa Supreme Court has identified attorney misappropriation of client funds as a grave violation of the Iowa Rules of Professional Conduct, it has a history of failing to define the precise metes and bounds of the violation’s definition, the extent of its possible defenses, and what the complaint charging misappropriation must allege. This ambiguity undermines the court’s self-proclaimed strict approach to misappropriation leaving the issue unsettled and raising due process concerns. Attorneys subject to discipline for safekeeping violations, i.e. rules governing attorney preservation of client funds and property, lack adequate notice of both (1) the charges against them—whether the safekeeping charge is a trust-account violation or the more serious charge of misappropriation—and (2) the ultimate sanction they may face, ranging from reprimand to license revocation. This Note proposes that the Iowa Supreme Court simplify its distinction between misappropriation and lesser safekeeping violations to put attorneys on better notice of the charges against them and to best comply with the interests identified by the American Bar Association. It compares Iowa’s approach to misappropriation with the approaches of two other jurisdictions that have adopted judge-made rules related to misappropriation: New Jersey and Maryland. New Jersey and Maryland provide paradigmatic examples of how states are adding clarity to the scope of misappropriation, New Jersey by adopting a clear, bright-line rule imposing automatic revocation on attorneys who misappropriate and Maryland by clarifying the elements of misappropriation while still treating misappropriation as a serious rule violation deserving of revocation. This Note compares the three approaches and proposes the adoption of the Maryland rule as a way for the court to  J.D. Candidate, The University of Iowa College of Law, 2016; M.M., Cleveland Institute of Music, 2010; B.M., The University of Iowa, 2008. Thank you to the staff of Volumes 100 and 101 of the Iowa Law Review as well as Student Legal Services, particularly Dan Anderson and Amanda Elkins. Their guidance and support were instrumental in the development this Note. 465 466 IOWA LAW REVIEW [Vol. 101:465 seriously address the problem of misappropriation while providing clearer guidance to the legal profession. I. INTRODUCTION ............................................................................. 467 II. THE DEVELOPMENT OF ATTORNEY DISCIPLINARY STANDARDS IN THE UNITED STATES ............................................................................. 470 A. JUDICIAL STANDARDS FOR DISCIPLINARY PROCEEDINGS: INCONSISTENT STANDARDS FOR PROFESSIONAL REGULATION ACROSS THE COUNTRY LEAD STATES TO ADOPT THE MODEL RULES OF PROFESSIONAL CONDUCT .................................................... 470 B. CONSTITUTIONAL STANDARDS FOR DISCIPLINARY PROCEEDINGS: IN RE RUFFALO AND DUE PROCESS REQUIREMENTS IN ATTORNEY DISCIPLINARY PROCEEDINGS .................................................... 474 C. A STUDY IN ONE STATE’S PROCEDURAL STANDARDS: THE ATTORNEY DISCIPLINARY PROCESS IN IOWA .............................. 477 III. CLIENT-SAFEKEEPING RULES ......................................................... 478 A. CLIENT SAFEKEEPING UNDER THE ABA’S MODEL RULES ........... 478 1. Model Rule 1.15: Safekeeping Property ...................... 478 2. Interests Underlying the Rules ..................................... 480 B. CLIENT-SAFEKEEPING RULES IN THE STATES: IOWA, NEW JERSEY, AND MARYLAND ...................................................................... 482 C. DISTINGUISHING THE STATES FROM THE ABA .......................... 483 1. Iowa ................................................................................ 483 2. New Jersey ...................................................................... 485 3. Maryland ........................................................................ 488 IV. THE SHORTCOMINGS OF IOWA’S APPROACH TO MISAPPROPRIATION....................................................................... 491 A. IOWA’S AMBIGUOUS STANDARDS AND PARTICULARIZED APPROACH UNDERMINE THE PURPOSES OF ATTORNEY DISCIPLINARY RULES ACCORDING TO THE ABA ........................................................ 491 B. IOWA’S AMBIGUITY MAY DEPRIVE ATTORNEY–DEFENDANTS OF SUFFICIENT NOTICE ................................................................. 493 V. A PROPOSAL FOR THE ADOPTION OF MARYLAND’S APPROACH ..... 494 A. ABA INTERESTS IN MARYLAND AND NEW JERSEY....................... 494 B. NOTICE IN MARYLAND AND NEW JERSEY ................................... 496 VI. CONCLUSION ................................................................................ 497 2015] THE OLD MAN AND RULE 8.4(C) I. 467 INTRODUCTION In February 2012, David Kelsen, a 75-year-old Iowa attorney, was in trouble both personally and financially.1 His wife was in poor health and had recently lost her job.2 His stepson had stolen money from him.3 He owed his landlord over $3000.4 And after his secretary left for a new job, he was unable to replace her due to his poor financial situation.5 At the same time, Kelsen began representing a client for a potential wrongful-discharge claim.6 Throughout the course of his representation, Kelsen accepted multiple retainer payments from the client, including one balloon payment of $7500, all before filing a lawsuit on the client’s behalf.7 With each of the payments, Kelsen violated a number of the Iowa Rules of Professional Conduct’s safekeeping and trust account rules.8 The Iowa Supreme Court Attorney Disciplinary Board (“Board”) filed a complaint alleging Kelsen violated the following rules: improperly routing advanced payments from the client, failing to notify the client when he made withdrawals, and ultimately, failing to return unearned payments after the client terminated his representation.9 Kelsen admitted all charges in the complaint.10 Sanctions for violating safekeeping and trust account rules vary in Iowa from public reprimand to revocation.11 Because of this variance, Kelsen might have been aware that he was facing revocation. However, several circumstances suggest that not only was Kelsen unaware of the severity of the potential sanction he was facing, but a more lenient sanction was appropriate in his situation. First, the Board’s approach indicated that it considered the offense to be a lesser safekeeping violation rather than misappropriation. In Iowa, while lawyers who misappropriate almost invariably face revocation, many other safekeeping violations typically result in lesser sanctions, such as a public 1. Iowa Supreme Court Attorney Disciplinary Bd. v. Kelsen, 855 N.W.2d 175, 177, 179 (Iowa 2014). 2. Id. at 179. 3. Id. 4. Id. at 178. 5. Id. at 179. 6. Id. at 177. 7. Id. at 177–78. 8. Id. at 178–79. 9. Id. at 179; see also IOWA CT. R. 45.2, 45.7(3)–(4); IOWA R. OF PROF’L CONDUCT r. 32:1.15, 32:1.16(d). 10. Kelsen, 855 N.W.2d at 179. 11. Compare id. at 186 (revoking an attorney’s license), with Iowa Supreme Court Attorney Disciplinary Bd. v. Piazza, 756 N.W.2d 690, 699–700 (Iowa 2008) (per curiam) (imposing a public reprimand and noting that “[i]n the past, the sanctions for similar violations have ranged from a public reprimand to suspension [and] revocation” (citations omitted)). 468 IOWA LAW REVIEW [Vol. 101:465 reprimand or suspension.12 The Board’s complaint did not mention misappropriation; further, the Board’s decision not to call any witnesses to prove its case signaled it was not pursuing the matter as a severe violation.13 Second, the Grievance Commission, the adjudicative body that hears attorney disciplinary matters in Iowa, did not seem to consider the matter to be misappropriation. Though the Grievance Commission found Kelsen had committed all of the alleged safekeeping and trust account violations, it recommended a sanction of only a public reprimand, a punishment inconsistent with a finding of misappropriation.14 Finally, though sanctions for safekeeping violations vary widely and disciplinary proceedings turn on the particular facts, there is prior case law supporting a lesser sanction in circumstances similar to Kelsen’s.15 Despite these circumstances, the Iowa Supreme Court revoked Kelsen’s license.16 While recognizing that “[t]here are different gradations of trust account violations,”17 the court reasoned that the facts laid out in the complaint—that Kelsen failed to deposit unearned funds in the client trust account and was unable to refund the money for several months after the client requested its return—adequately implied a charge of misappropriation.18 Because Kelsen did not come forward with a valid colorable-future-claim defense, the court concluded that the appropriate sanction was license revocation.19 The court’s approach to safekeeping violations is problematic in at least two ways. First, it is unclear what separates a lesser safekeeping violation, which 12. Iowa Supreme Court Attorney Disciplinary Bd. v. Carter, 847 N.W.2d 228, 234 (Iowa 2014) (“We revoke an attorney’s license to practice law for stealing client funds.”); Piazza, 756 N.W.2d at 699–700 (explaining that failure to deposit unearned fees into the client trust account or maintain adequate records may warrant only a public reprimand). 13. See Kelsen, 855 N.W.2d at 179, 183 n.3; see also Iowa Supreme Court Attorney Disciplinary Bd. v. Powell, 830 N.W.2d 355, 359 (Iowa 2013) (“The Board brought this case as a trust fund violation, primarily involving the taking of fees before they are earned. Normally, this conduct supports a suspension ranging from a few months to a year or beyond.”). 14. Kelsen, 855 N.W.2d at 180. In Iowa, a finding of misappropriation generally results in revocation. See...