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

• Author: Allison Schmidt
• Position: J.D. Candidate, The University of Iowa College of Law, 2016
• Pages: 465-497

465

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.

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) 467

I. 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 omitt ed)).