Should lawyers who steal from client trust accounts be barred from practicing for life, or is a second chance sometimes in order? The right approach depends on the details, according to some lawyers who handle attorney ethics cases.

The Supreme Court said on June 7 in Matter of Wade that it will form a committee to study whether disbarment should continue to be permanent in all cases under In re Wilson, the 1979 Supreme Court case mandating that lawyers lose their licenses for knowing misappropriation of client funds. Among other things, the court committee will consider what factors and standard of proof should apply to the decision to readmit an attorney who misappropriates client funds.

According to some lawyers who handle disciplinary cases, when a lawyer is facing disbarment for taking client funds, the Supreme Court should offer a path to reinstatement in some cases, depending on the circumstances and motivation behind each misappropriation.

It seems practitioners want the court to give a second chance to those dipping into client funds to care for a sick relative, but not someone taking the money to buy a new car.

"I can see making exceptions in some cases where it's clear the person wasn't motivated by venality and what they took was relatively minor and they had pressing family or personal circumstances that they were dealing with," said Alan Zegas, a Millburn attorney who represents other attorneys in disciplinary cases.

"I can think of a lot of cases where you understand why the person did what they did, even though it may not be the right thing [to do]. I think that kind of case is clearer than where some lawyer wants to build a house or he takes the trust money to use for gambling," Zegas said.

While noting that he does not want to "diminish the seriousness of an attorney using clients' funds for his own," Zegas said a misappropriation "could be through an act of carelessness. Other times it could be attributable to an attorney having a greater problem, such as gambling, drinking or some habituative behavior."

Zegas predicts the court will set a standard that makes readmission after a disbarment for misappropriation dependent on the facts of the case.

"If the amount at issue is relatively minor, I can see readmitting the person to practice, subject to supervision and careful monitoring. The person is not getting off scot-free. If you want the attorney to pay restitution, give them the means for providing that by allowing the attorney to work so he or she is earning money," Zegas said.

The key interests at the heart of In re Wilson are how to best protect the public and maintain confidence in the legal profession. All 50 states and the District of Columbia provide for disbarment of attorneys who commit serious ethical violations. But in 41 states, and the District of Columbia, disbarment is not permanent, and lawyers can be reinstated after they are disbarred, the court said. Of those states, 31 allow attorneys to apply for readmission five years after disbarment, the court said. Many states consider factors such as compliance with all prior disciplinary orders; rehabilitative treatment for physical or mental infirmity, including alcohol or drug abuse; recognition of the wrongfulness and seriousness of the prior misconduct; proof of the requisite honesty and integrity to practice law; and competency to practice, the court said.

The Wade case concerned an attorney who took $12,000 in client funds from her trust account, considering it a "line of credit," but later repaid that amount. The New Jersey State Bar Association joined the case as amicus curiae, arguing that proof of intent to steal or defraud should be required to establish that an attorney knowingly misappropriated client or escrow funds. The justices upheld the attorney's permanent disbarment but said she could apply for reinstatement if the rule for such cases is changed.

'Time-Honored Concepts'

A perception that permanent disbarment is contrary to the values of redemption, rehabilitation and fairness likely drove the Supreme Court to consider creating an opportunity for reinstatement, said Robert Hille, an attorney at Greenbaum Rowe Smith & Davis who was president of the New Jersey State Bar Association in 2017 and 2018. He represented the State Bar in the Wade case.

"I think the Court recognized in Wade that the time had come for a willingness to consider creating an opportunity for reinstatement and a balanced process to achieve that where justified under the circumstances," Hille said in an email.

"I see Wade as the court applying the time-honored concepts of fairness, rehabilitation and redemption to lawyers consistent with public policy for everyone else. It is recognizing that where there is justification for readmission at some point in time, that a 'no exceptions' approach is an anathema to those concepts," Hille wrote.

"Implementing those concepts I see as promoting confidence in the judiciary and profession and not undermining them. I think the public will recognize that as well. In that regard, I note that one of the things the court took notice of in Wade was where [respondent Dionne Larrel Wade's] clients who were the subject of Wade's misappropriation spoke in her defense against disbarment. That evidence as members of the public, their confidence in the judiciary and profession was not shaken even at that early stage," Hille wrote.

'Doesn't Allow for Any Nuance'

The knowing and intentional invasion of trust funds for a "bad motive" should be punished strictly, but the per se rule of Wilson "doesn't allow for any nuance" based on the parties' motivations, said Frederic Shenkman, an attorney at Cooper Levenson who represents attorneys in ethics cases.

"I think there are certain egregious situations where In re Wilson is probably too harsh. Maybe I'm a bleeding heart," Shenkman said.

In certain misappropriation cases, such as when the money is promptly repaid, it's still a knowing invasion, but the penalty should be tempered in the interest of justice, Shenkman said. "They're probably few and far between, because most of these invasion cases are to pay for gambling debts or drugs or high lifestyles or whatever. In those cases, I agree with In re Wilson. However, I can articulate some where maybe there is some room for nuance," he said.

Such a modification of the rule on misappropriation of client funds would require the Supreme Court to delve into an attorney's reasons for taking the money, and make an individualized call, Shenkman said. "Taking it for buying a new car doesn't pass the smell test. Taking it because your wife is desperately ill and you repaid the money immediately—that's wrong, but I'm not sure that's the same level of culpability as 'I took it to pay for drugs,'" Shenkman said.

"You'd never be able to articulate a hard-and-fast standard. That's the advantage of In re Wilson—it's a hard-and-fast standard. What I'm suggesting is maybe justice requires a little bit of ability to temper that result," Shenkman said.

"New Jersey, generally, in my opinion, is very strict in terms of disciplinary proceedings, much stricter than other states I deal with—Nevada, Pennsylvania. We take a real hard line, and I have no problem with the hard line. But a hard line has to be tempered sometimes under extenuating circumstances," he said.