Lexplug logoLexplug

In re Warhaftig

The Supreme Court of New Jersey
524 A.2d 398, 106 N.J. 529 (1987)
ELI5:

Rule of Law:

An attorney's unauthorized withdrawal of unearned, anticipated fees from a client trust account constitutes knowing misappropriation that warrants disbarment, regardless of the attorney's subjective intent to 'borrow' or repay, the absence of client harm, or the presence of mitigating personal circumstances.


Facts:

  • In the early 1980s, attorney Arnold M. Warhaftig experienced significant financial pressure due to a decline in his real-estate practice and costly medical treatments for his wife and son.
  • To address a 'gigantic cash flow burden,' Warhaftig began a practice of withdrawing his anticipated legal fees from his client trust account before the corresponding real estate closings occurred.
  • Warhaftig maintained his own lists to track these advance withdrawals, which occurred in numerous instances, sometimes up to 120 days before a closing.
  • If an anticipated real estate closing fell through, Warhaftig would replace the fee he had advanced to himself.
  • During this period, he was taking money deposited by one set of clients to pay himself fees he expected to earn from future matters involving other clients.
  • Upon receiving notice of a random compliance audit from the Office of Attorney Ethics, Warhaftig borrowed $11,125 from his sons' bank accounts and deposited it into his trust account to cover the shortfall.
  • At a subsequent ethics hearing, Warhaftig admitted he knew his conduct was 'wrong' and a 'violation of the rules,' but stated he did not feel he was 'stealing' because he was certain no one would be hurt.

Procedural Posture:

  • The Office of Attorney Ethics conducted a random compliance audit of respondent Arnold M. Warhaftig's trust account for the two-year period ending October 31, 1983.
  • The District XII Ethics Committee filed a presentment with the Disciplinary Review Board (DRB), concluding that Warhaftig had misappropriated client funds and recommending public discipline.
  • The DRB concluded that Warhaftig had engaged in unethical conduct but that knowing misappropriation had not been established by clear and convincing evidence.
  • The DRB, noting several mitigating factors, recommended that Warhaftig receive a public reprimand.
  • A single member of the DRB dissented, arguing the conduct constituted knowing misappropriation under In re Wilson and warranted disbarment.
  • The matter then came before the Supreme Court of New Jersey for a final determination on the DRB's recommendation.

Locked

Premium Content

Subscribe to Lexplug to view the complete brief

You're viewing a preview with Rule of Law, Facts, and Procedural Posture

Issue:

Does an attorney's practice of withdrawing anticipated legal fees from a client trust account before the fees are earned constitute knowing misappropriation requiring disbarment, even if the attorney intended to replace the funds and no client was ultimately harmed?


Opinions:

Majority - Per Curiam

Yes. An attorney's withdrawal of anticipated fees from a client trust account before they are earned is knowing misappropriation requiring disbarment. The court held that knowing misappropriation 'consists simply of a lawyer taking a client’s money entrusted to him, knowing that it is the client’s money and knowing that the client has not authorized the taking,' as established in In re Wilson. The attorney's subjective intent, whether to 'borrow' or to steal, is irrelevant. Warhaftig took funds from his trust account before he had any legal right to them, effectively borrowing from one group of clients to pay himself for work for other clients. This conduct falls squarely within the Wilson rule. The court explicitly rejected mitigating factors such as personal hardship, lack of client injury, cooperation with the investigation, or a prior unblemished record, stating that the primary duty is to protect public confidence in the integrity of the legal profession, which requires the strictest discipline in misappropriation cases.



Analysis:

This case serves as a stark reaffirmation of the strict, bright-line rule established in In re Wilson regarding the misappropriation of client funds in New Jersey. The court's decision eliminates any ambiguity, making it clear that taking unearned fees from a trust account is not a lesser offense but is a disbarrable act of knowing misappropriation. By explicitly rejecting all mitigating factors, including extreme personal hardship, the ruling solidifies the principle that the sanctity of client funds is absolute. This precedent reinforces for the legal profession that an attorney's subjective intent is irrelevant and that the primary goal of the disciplinary system in such cases is not to punish the attorney, but to preserve public confidence in the bar.

🤖 Gunnerbot:
Query In re Warhaftig (1987) directly. You can ask questions about any aspect of the case. If it's in the case, Gunnerbot will know.
Locked
Subscribe to Lexplug to chat with the Gunnerbot about this case.

Unlock the full brief for In re Warhaftig