IN THE SUPREME COURT OF FLORIDA (Before a Referee) THE FLORIDA BAR, Complainant, Case No. SC09-682 [TFB Case Nos. 2008-31,723(18C); v. 2009-30,444(18C); 2009-30,828(18C); TERRY M. FITZPATRICK WALCOTT, 2009-30,872(18C)] Respondent. / REPORT OF REFEREE I. Summary of Proceedings: Pursuant to the undersigned being duly appointed as referee to conduct disciplinary proceedings herein according to the Rules Regulating The Florida Bar, a hearing was held on July 8, 2009 and July 9, 2009. The pleadings, notices, motions, orders, transcripts and exhibits, all of which are forwarded to The Supreme Court of Florida with this report, constitute the record in this case. The following attorneys appeared as counsel for the parties: For The Florida Bar - Patricia Ann Toro Savitz For The Respondent - pro se II. Findings of Fact as to Each Item of Misconduct of Which the Respondent Is Charged: After considering all the pleadings and evidence, pertinent portions of which are commented on below, this referee finds, by clear and convincing evidence: In August 2005, respondent, a member of The Florida Bar in good standing, settled the personal injury/wrongful death liability case involving Cleopatra Edmonds, Brenda Morrison, Felicia Shephard, Jimmicia Smith, James Smith, and other family members in a global settlement of $1,900,000.00. On September 8, 2005, respondent prepared settlement statements for the clients. Respondent did not list all costs on the settlement statements. 1
On September 9, 2005, the court issued an order requiring respondent to hold 25% of the net settlement proceeds in his trust account pending the final determination of the outstanding charging lien. Respondent was, thus, to hold $239,553.38 in trust pursuant to the court s order. Respondent received $1,715,518.34 into his trust account, by wire transfer, on October 5, 2005, as the global settlement for his clients after $184,481.66 was used to purchase structured settlements. Prior to the wire transfer, respondent s trust account had a balance of $0.67. Immediately thereafter on October 7, 2005 respondent made a bank transfer of $760,000.00 to his operating account, for his 40% attorney s fee. Respondent advanced from trust funeral expenses on behalf of one of the plaintiffs, Sean McKinnon, which resulted, unbeknownst to respondent, in an ending balance of $224,431.00 as of October 31, 2005 in his trust account. The fact that respondent did not known how much was in his trust account is symptomatic of respondent s dealing with his trust account. In fact, the evidence reveals that some of his clients may have been overpaid, resulting, of course, in the underpayment of other clients. Respondent only made partial disbursements to the clients of their settlement funds. During December 2005, respondent subsequently withdrew all of the funds from his trust account by three separate withdrawals a $4,000.00 cash withdrawal and two transfers of $200,000.00 and $17,158.46 to his operating account. Respondent s trust account had a zero balance on December 31, 2005. Respondent admitted he withdrew the $200,000.00 from trust account to invest for a higher return. It was clearly improper for respondent to do so as it was not his money and he had no authorization to withdraw the funds. The funds were ultimately lost. The removal of the $17,000.00 from his trust account into his operating account was impermissible. Respondent failed to hold in trust the 25% of the net settlement proceeds as ordered by the court. Respondent certainly violated the court order by removing the $200,000.00 and $17,158.46. Respondent maintained a zero balance in his trust account until August 10, 2006, when he placed $240,000.00 into the account in order to disburse the funds pursuant to the court s order dated July 19, 2006. 2
From the $239,553.38 respondent was to hold in trust pursuant to the court s order, $75,648.32 in attorney fees was paid to former attorney, Uiterwyk. There is no evidence that attorney Uiterwyk perfected a charging lien. Therefore there apparently was no lien against the settlement proceeds. I find that respondent probably did a disservice to his clients by disbursing the funds to Uiterwyk, who had failed to perfect his lien. It seems an appeal of the order awarding the fees would have been successful. The Florida Bar s Chief Auditor concluded respondent should be holding $126,308.93 in trust for the individuals listed above. However, respondent s trust account balance was $6.37 as of December 31, 2006. The Florida Bar received sworn complaints dated April 14, 2008 and September 22, 2008 from Cleopatra Edmonds alleging that respondent received settlement funds on her behalf and failed to fully disburse the proceeds to her as well as failed to provide her with an accounting of the funds. Subsequently, The Florida Bar received sworn complaints dated September 17, 2008 and December 28, 2008, from Brenda Morrison, Felicia Shephard and Jimmicia Smith, respectively, with the same allegations regarding respondent s failure fully disburse settlement funds to them. Respondent clearly converted trust funds being held in his trust account belonging to his clients as the balance in his trust account on December 31, 2006 was only $6.37. As of the end of the audit period, July 31, 2008, respondent had a balance of only $25.00 in his trust account. Respondent does not have the funds available in his trust account to satisfy the documented claims as identified in respondent s records for the afore-referenced individuals. Respondent used trust funds for purposes other than for the intended clients. During the pending litigation, respondent received three payments from New Amsterdam Capital, hereinafter NAC, on November 17, 2004, January 27, 2005 and April 27, 2005, totaling $150,000.00 on behalf of his clients for either living or litigation expenses. The payments from NAC, in the amount of $50,000.00 each, were intended for the clients, and should have been deposited into respondent s trust account. There was no intent or even a pretense of putting the money in his trust account. It was wired 3
directly into his operating account. I cannot imagine that respondent did not know it was trust funds. The funds received by respondent from NAC were the clients money and thus should have gone into the trust account and been withdrawn, only for client purposes. Only a small portion of the funds were used as costs for the litigation and/or paid to clients. The NAC advances were intended for the clients but most of it was clearly used for respondent s own purposes. The stream of income intended for the plaintiff s families turned into a stream of income for respondent s family. Respondent made the assertion that the funds were repaid. The $368,000.00 paid to NAC was made from the clients settlement proceeds. Due to respondent s recordkeeping, it is unclear if the funds were repaid. It is clear, however, that the trust account recordkeeping procedures were not done. It is also clear that the NAC funds were intended for the plaintiffs but were mostly used for respondent s own purposes. The case was mediated in August 2005, the closing statements were done on September 8, 2005, and the disbursement into respondent s trust account occurred in October 2005. Two days prior to the disbursement, the NAC bill came in. There is no way that respondent did not know about that expense. I find it disingenuous for respondent to claim he had no way to know. The bill came in before the proceeds did. There must be prudence. You wait for the bill to come in. While that might be technical, the listing of all bills on a closing statement, the trust accounting rules are full of technicalities. They are there for a purpose it is not the attorney s money. Respondent did not maintain the minimum trust accounting records and operating records and did not perform the required minimum trust accounting procedures as set forth in Rules Regulating The Florida Bar regarding trust accounts. Respondent failed to produce many records, including trust journals, ledger cards, bank reconciliations or monthly comparisons. Respondent failed to maintain his trust account in substantial compliance as required by Rules Regulating The Florida Bar. Respondent is the product of two Ivy League Institutions and he handled sophisticated, complex litigation issues. Therefore, I find it difficult to believe that he did not know more regarding trust account. 4
III. Recommendations as to Whether the Respondent Should Be Found Guilty: As to the complaint, this referee makes the following recommendations as to guilt or innocence: I find respondent guilty of the allegations in the complaint. IV. Rule Violations Found: 4-1.5(f)(5) In the event there is a recovery, upon the conclusion of the representation, the lawyer shall prepare a closing statement reflecting an itemization of all costs and expenses, together with the amount of fee received by each participating lawyer or law firm. A copy of the closing statement shall be executed by all participating lawyers, as well as the client, and each shall receive a copy. Each participating lawyer shall retain a copy of the written fee contract and closing statement for 6 years after execution of the closing statement. Any contingent fee contract and closing statement shall be available for inspection at reasonable times by the client, by any other person upon judicial order, or by the appropriate disciplinary agency; 4-1.15 A lawyer shall comply with The Florida Bar Rules Regulating Trust Accounts; 4-8.4(c) A lawyer shall not engage in conduct involving dishonesty, fraud, deceit, or misrepresentation; 5-1.1(a)(1) A lawyer shall hold in trust, separate from the lawyer s own property, funds and property of clients or third persons that are in a lawyer s possession in connection with a representation; 5-1.1(b) Money or other property entrusted to an attorney for a specific purpose, including advances for fees, costs, and expenses, is held in trust and must be applied only to that purpose. Money and other property of clients coming into the hands of an attorney are not subject to counterclaim or setoff for attorney s fees, and a refusal to account for and deliver over such property upon demand shall be deemed a conversion; 5-1.1(e) A lawyer shall promptly deliver to a client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property; 5-1.1(f) When in the course of representation a lawyer is in possession of property in which 2 or more persons (1 of whom may be the lawyer) claim interests, the property shall be treated by the lawyer as trust property, but the portion belonging to the lawyer or law firm shall be withdrawn within a reasonable time after it becomes due unless the right of the lawyer or law firm to receive it is disputed, in which event the portion in dispute shall be kept separate by the lawyer until the dispute is resolved. The lawyer shall promptly distribute all portions of the property as to which the interests are not in dispute; 5-1.2(b) Minimum trust accounting records that shall be maintained include: (1) A separate bank or savings and loan association account or accounts in the name of the lawyer or law firm and clearly labeled and designated as a trust account. (2) Original or duplicate deposit slips and, in the case of currency or coin, an additional cash receipts book, clearly identifying: (A) the date and source of all trust funds received; and (B) the client or matter for which the funds were 5
received. (3) Original canceled checks, all of which must be numbered consecutively, or, if the financial institution wherein the trust account is maintained does not return the original checks, copies that include all endorsements, as provided by the financial institution. (4) Other documentary support for all disbursements and transfers from the trust account. (5) A separate cash receipts and disbursements journal, including columns for receipts, disbursements, transfers, and the account balance, and containing at least: (A) the identification of the client or matter for which the funds were received, disbursed, or transferred; (B) the date on which all trust funds were received, disbursed, or transferred; (C) the check number for all disbursements; and (D) the reason for which all trust funds were received, disbursed, or transferred. (6) A separate file or ledger with an individual card or page for each client or matter, showing all individual receipts, disbursements, or transfers and any unexpended balance, and containing: (A) the identification of the client or matter for which trust funds were received, disbursed, or transferred; (B) the date on which all trust funds were received, disbursed, or transferred; (C) the check number for all disbursements; and (D) the reason for which all trust funds were received, disbursed, or transferred. (7) All bank or savings and loan association statements for all trust accounts; and 5-1.2(c) Minimum trust accounting procedures that shall be followed by all members of The Florida Bar who receive or disburse trust money or property are as follows: (1) The lawyer shall cause to be made monthly: (A) reconciliations of all trust bank or savings and loan association accounts, disclosing the balance per bank, deposits in transit, outstanding checks identified by date and check number, and any other items necessary to reconcile the balance per bank with the balance per the checkbook and the cash receipts and disbursements journal; and (B) a comparison between the total of the reconciled balances of all trust accounts and the total of the trust ledger cards or pages, together with specific descriptions of any differences between the 2 totals and reasons therefore. (2) At least annually, the lawyer shall prepare a detailed listing identifying the balance of the unexpended trust money held for each client or matter. (3) The above reconciliations, comparisons, and listing shall be retained for at least 6 years. V. Recommendation as to Disciplinary Measures to Be Applied: This referee has considered all the pleadings and evidence. This was a very sad and difficult decision. It is obvious that people think very highly of respondent, people who know how to measure other people. Most attorneys when they have financial difficulties get a line of credit and live off that. They do not live off of the funding stream intended for their clients. While I find respondent had no intent to steal the money, I also find it is similar to a bank employee who embezzles and then repays it. Thus, I must recommend: 6
A. Immediate disbarment; B. Payment of the bar s costs in these proceedings currently totaling 32,473.75; C. Restitution to his former clients as follows: 1. $53,240.55 to Felicia Shepard 2. $44,298.57 to Cleopatra Edmonds 3. $26,433.56 to James Smith, Sr. 4. $1,983.84 to Jimmicia Smith 5. $352.42 to Brenda Morrison D. Respondent shall reimburse the Client s Security Fund of The Florida Bar for any and all payments imposed as a result of his defalcations, if any, and will cooperate with the investigation of claims filed with the Client s Security Fund. The following Florida Standards for Imposing Lawyer Sanctions and case law support the recommended discipline: 4.1 FAILURE TO PRESERVE THE CLIENT'S PROPERTY 4.11 Disbarment is appropriate when a lawyer intentionally or knowingly converts client property regardless of injury or potential injury. 5.1 FAILURE TO MAINTAIN PERSONAL INTEGRITY 5.11(b) Disbarment is appropriate when a lawyer engages in serious criminal conduct, a necessary element of which includes intentional interference with the administration of justice, false swearing, misrepresentation, fraud, extortion, misappropriation, or theft. 7.0 VIOLATIONS OF OTHER DUTIES OWED AS A PROFESSIONAL 7.1 Disbarment is appropriate when a lawyer intentionally engages in conduct that is a violation of a duty owed as a professional with the intent to obtain a benefit for the lawyer or another, and causes serious or potentially serious injury to a client, the public, or the legal system. 9.0 AGGRAVATION AND MITIGATION 9.22 Aggravating factors include: (b) dishonest or selfish motive; (c) a pattern of misconduct; (d) multiple offenses; (h) vulnerability of victim; and (i) substantial experience in the practice of law. 7
9.32 Mitigating factors include: (a) absence of prior disciplinary record; and (g) character or reputation. I have not considered his existing emergency suspension to be prior disciplinary history because these proceedings arose from that matter. In The Florida Bar v. Martinez-Genova, 959 So. 2d 241 (Fla. 2007), an attorney was disbarred for intentionally misappropriating third-party funds and for failing to maintain proper trust accounting procedures. The Court held that the presumption of disbarment as discipline for misuse of client funds is exceptionally weighty when the attorney's misuse is intentional rather than a result of neglect or inadvertence. In The Florida Bar v. Bloom, 972 So. 2d 172 (Fla. 2007), an attorney was disbarred for misappropriating funds totaling approximately $60,000.00 and for improperly borrowing funds from clients. In The Florida Bar v. Gross, 896 So. 2d 742 (Fla. 2005), the Supreme Court held that disbarment is the appropriate sanction for misuse of client funds because it is unquestionably one of the most serious offenses a lawyer can commit. In The Florida Bar v. Spear, 887 So. 2d 1242 (Fla. 2004), the Supreme Court held that disbarment is appropriate for conversion of trust funds, for failing to promptly notify a client of the receipt of trust funds, and for failing to keep certain minimum trust account records and to follow certain minimum trust account procedures. In The Florida Bar v. Travis, 765 So. 2d 689 (Fla. 2000), the Supreme Court held that misappropriating trust funds warranted disbarment even though the attorney had no prior disciplinary history, had performed good works for the community, and had cooperated with the bar. In aggravation, the attorney did not commence making restitution in a timely manner. See also The Florida Bar v. Porter, 684 So. 2d 810 (Fla. 1996) (attorney disbarred for misusing trust funds); The Florida Bar v. de la Puente, 658 So. 2d 65 (Fla. 1995), (multiple instances of misappropriation and other serious misconduct warranted disbarment for 10 years); and, The Florida Bar v. Della-Donna, 583 So. 2d 307 (Fla. 1989), (attorney disbarred for intentionally misusing funds from an estate). 8
VI. Personal History and Past Disciplinary Record: After the finding of guilt and prior to recommending discipline to be recommended pursuant to Rule 3-7.6(m)(1)(D), this referee considered the following personal history and prior disciplinary record of the respondent, to wit: Age: 44 Date admitted to bar: March 28, 2003 Prior disciplinary convictions and disciplinary measures imposed therein: The respondent was emergency suspended by order of the Supreme Court of Florida dated February 26, 2009 in Supreme Court Case No. SC09-293[TFB Case No. 2009-30,954(18C)(CES)]. Prior to this matter respondent had no disciplinary history. VII. Statement of Costs and Manner in Which Costs Should be Taxed: This referee finds the following costs were reasonably incurred by The Florida Bar. A. Grievance Committee Level Costs: 1. Court Reporter Costs $ N/A 2. Bar Counsel Travel Costs $ 82.04 B. Referee Level Costs: 1. Court Reporter Costs $ 309.40 2. Bar Counsel Travel Costs $1,215.55 C. Administrative Costs $1,250.00 D. Miscellaneous Costs: 1. Investigator Costs $ 3,939.52 2. Witness Fees $ N/A 3. Copy Costs $ 1,470.79 4. Audit Fees $23,677.85 TOTAL ITEMIZED COSTS: $31,945.15 9
It is apparent that other costs have or may be incurred. It is recommended that all such costs and expenses together with the foregoing itemized costs be charged to the respondent, and that interest at the statutory rate shall accrue and be payable beginning 30 days after the judgment in this case becomes final unless a waiver is granted by the Board of Governors of The Florida Bar. It is further recommended that respondent shall be deemed delinquent and ineligible to practice law pursuant to R. Regulating Fla. Bar 1-3.6 for failure to timely pay the costs assessed in this proceeding. Dated this day of, 2009. Original to Supreme Court with Referee's original file. Copies of this Report of Referee only to: GARY L. SWEET Referee Patricia Ann Toro Savitz, Bar Counsel, The Florida Bar, 1200 Edgewater Drive, Orlando, Florida 32804-6314; Terry M. Fitzpatrick Walcott, Respondent, 1841 Winding Ridge Circle, SE, Palm Bay, Florida 32909; Kenneth Lawrence Marvin, Staff Counsel, The Florida Bar, 651 East Jefferson Street, Tallahassee, Florida 32399-2300 this day of, 2009. Judicial Assistant/Deputy Clerk 10