State Bar president to propose random audits for lawyers

NORFOLK

Responding to reports of a Virginia Beach lawyer who misused millions of dollars of clients' money, the president of the Virginia State Bar said he will propose initiating random audits of lawyer trust accounts.

Howard W. Martin Jr. said he will make the proposal to the bar's executive committee next month.

"I personally think it would be a good idea to do it," said Martin, a Norfolk lawyer. "The good effect of it would depend on how often and how many accounts are being audited."

Eleven states, including North Carolina, have such programs. The American Bar Association recommends that every state conduct random audits to protect the public.

"Robbing Peter to pay Paul is a common pattern of lawyer theft," the association reported in 1992. "The first trust money stolen is repaid by trust money subsequently received from other clients. As the pattern continues, the dollar amount stolen usually increases. The lawyer continues to steal, in addition to kiting the amounts previously stolen."

Lawyers use trust accounts to temporarily hold money - often real estate proceeds or retainers - until it is disbursed to a third party or the lawyer himself once he earns a fee. It is a severe breach of conduct for a lawyer to mingle trust account money with personal funds or operating money.

Martin's proposal plan is in response to a Feb. 3 story in The Virginian-Pilot about Troy A. Titus, a Virginia Beach attorney whose law license was revoked in 2005.

The state bar found Titus wrote 72 checks that he couldn't cover from 2002 to 2005. They totaled $3.3 million. At one point, Titus' real estate trust account was $2.5 million overdrawn.

In 2006 and 2007, a dozen clients and investors sued Titus, claiming he took between $2 million and $3 million from them.

Titus has lost some cases and others are pending. In one case, a judge awarded the plaintiff $600,000 and ruled Titus had committed fraud.

The FBI is investigating Titus.

So far, the Virginia State Bar has paid $56,495 to Titus' clients from the bar's Clients' Protection Fund. In one case, the bar found Titus had embezzled a client's money.

Two more claims from Titus clients, totaling $100,000, are pending. If they are paid, Titus' misconduct will have cost the bar $156,000. No other lawyer in the past three years has cost the fund more.

If random audits become a reality, it will only be after long study and much debate.

In all likelihood, the idea would be sent to a study committee, then to the bar's 11-member executive committee, then to the bar's 77-member governing council, and finally to the Virginia Supreme Court.

The bar rejected the idea 15 years ago after the biggest scandal in its history.

In 1992, Newport News lawyer David Murray stole $42 million - the worst lawyer theft ever in Virginia. He killed himself before he could be prosecuted.

In response, the State Bar proposed cracking down on lawyer trust accounts. That same year, the American Bar Association recommended random audits to keep lawyers honest.

The bar's executive committee endorsed the idea. So did the Virginia Trial Lawyers Association. Norfolk lawyer Jeffrey A. Breit, the association's vice president at the time, said, "This is our way of saying to the public, 'Look, we're open,' "

But later, in 1993, the bar's governing council rejected the plan. Some lawyers considered it insulting and intrusive.

"It sent a message to the public that perhaps we didn't generally think we could be trustworthy," Sharon A. Pandak, attorney for Prince William County, said at the time.

The idea didn't surface again, until now.

The North Carolina State Bar has been conducting random audits for 23 years.

The program began in 1985 "to reduce the incidence of misappropriation and mishandling of clients' funds," according to the bar's handbook on attorney trust accounts.

Kitty Hawk lawyer Steven D. Michael, past president of the North Carolina bar, said the program keeps lawyers on their toes.

"Sure, it's inconvenient," Michael said. "But it's a good thing. It's a good program. I can't imagine not having it."

Each quarter, the bar randomly picks two judicial districts, then randomly selects 60 lawyers within those districts to audit. The bar audits at least 240 lawyers a year. Each review takes about two to five hours and "is limited to procedural audits," according to the handbook.

"Although the program has, on occasion, uncovered gross improprieties," the handbook says, it is mainly successful in raising lawyers' understanding of trust account rules.

Michael has been audited twice. "It is a burden," he said, "but it's not terrible."

Connecticut created a random audit program last year in response to a crisis in its Client Security Fund. At one point in 2005, the fund had 276 law clients trying to claim reimbursements totaling $15.7 million - more than double the money available.

Things were so bad that the Connecticut Supreme Court told lawyers they would be automatically disbarred for stealing even $1 from a client. In January, the Connecticut Law Tribune editorialized: "Too many times in the past few years we picked up the Law Tribune on Monday mornings to read about another lawyer accused of stealing large sums of money from clients."

The newspaper said it's too soon to tell if the program is working.

In Virginia, there never has been a crisis like the one in Connecticut.

The Virginia Clients' Protection Fund has $3.4 million. No single lawyer can sink it. Each claim is limited to $50,000 and total payouts to clients of a single lawyer are limited to 10 percent of the fund.

Since September 2004, the fund has paid $618,000 to clients of 57 lawyers. About a third of that money was paid for embezzlements.

Even so, some bar leaders are not enthusiastic about starting random audits.

Among the skeptics is Virginia Beach lawyer Afshin Farashahi, vice chairman of the bar's Committee on Lawyer Discipline. "I'm not sure random audits would be effective," he said. "It's a lot of manpower to try to catch a Troy Titus."

Bar Counsel George W. Chabalewski, also is doubtful. "I haven't heard any feeling that that's necessary," he said.

Two non-lawyer members of the Committee on Lawyer Discipline are more receptive.

"I'm intrigued by the idea," said Forrest "Frosty" Landon of Roanoke, former director of the Virginia Coalition for Open Government. "I'm glad to hear Howard Martin is endorsing it, and it will be discussed by the bar's executive committee."

Robert W. Carter, a Virginia Beach commercial real estate broker who is also on the committee, said: "It's a good idea. It'll cost a little bit of money, but I can't think of anything more important."

Marc Davis, (757) 222-5131, marc.davis@pilotonline.com