July 2005
Featured Disciplinary Case

Topic
An attorney may not turn over control of his firm and attorney trust accounts to a third-party non-attorney.

Summary

In the Matter of David B. Duboff, 2005 N.Y. App. Div. LEXIS 7544 (2d Dept. July 5, 2005). In 1996, Duboff incorporated the law firm of David Duboff, P.C. (DDPC) to serve as the closing agent for his employer, Island Mortgage Network (IMN), a licensed residential mortgage lender. IMN agreed to pay him $120,000 per year for his services. At or about the same time, Duboff, who actually practiced in White Plains, opened an account at the First National Bank of Long Island entitled "David Duboff, P.C., Attorney Trust Account." When he opened the escrow account, he permitted the use of a facsimile stamp, in lieu of his signature, to write checks. He then entrusted that stamp to IMN’s comptroller who was neither an attorney nor an employee of DDPC. The comptroller, who maintained exclusive use and control of the signature stamp, thereafter used it to issue all checks drawn on the Long Island bank account, all with little or no supervision by Duboff. Duboff thereafter wholly entrusted the operation DDPC to IMN’s non-lawyer employees. He was never involved in the hiring and firing of DDPC’s employees, did not know the number of its employees, and was not privy to DDPC's corporate books. Similarly, he delegated the responsibility to review the monthly statements from the Long Island account to individuals with whom he worked but failed to instruct them to advise him in the event that there were any bounced checks, stop payment orders, or negative balances. To protect against his own liability for negligence or wrongful acts by IMN employees, and to guard against any possible dishonored checks written against his trust account, Duboff obtained an indemnification agreement from IMN in late 1996. His failure to supervise DDPC had serious ramifications. Between 1997 and 2000, during the period when the comptroller was operating the Long Island account, there was a negative balance on eight different occasions, hitting a low of -$793,408.32 at one point. Later, a second escrow account, also entitled "David Duboff, P.C., Attorney Trust Account," was opened, this time without Duboff’s knowledge, via the use of the signature stamp he had previously provided. Once again, his signature stamp was used to issue checks and to stop payments on that account, and the balance was a negative number on one or more dates during calendar year 2000. All of the foregoing escrow account activities took place without respondent’s knowledge or supervision during this several year period until in or about June of 2000, when state and federal banking regulators raided IMN’s offices and shut down its operations. New York’s Appellate Division, Second Department ultimately concluded that Duboff had failed to supervise DDPC, its employees, files, accounts, or activities as IMN's closing agent in any meaningful way. In determining an appropriate measure of discipline to impose, Duboff asked the court to consider that, although federal authorities prosecuted and civilly charged various individuals involved in the underlying enterprise, he himself was not so charged. He further submitted that he had acted in good faith because of advice he had sought from outside ethics counsel and cited character evidence in the record that he submitted demonstrated his reputation for honesty, trustworthiness, and integrity. Finally, he noted that, in his 25 years of practice, this was the first and only time he had been formally charged and that he previously been the subject of only one Letter of Caution, issued in 1993, on the basis of his having deposited client funds together with personal funds in an operating account, and represented conflicting parties (a real estate client and the title company), in a single transaction in 1990. The Appellate Division, Second Department concluded that under the totality of circumstances, Duboff should be suspended for a period of five (5) years, effective July 18, 2005.