A recent disciplinary proceeding initiated by the Grievance Committee for the Tenth Judicial District of New York offers a cautionary tale about attorneys who leave essential work to a non-attorney and fail to supervise the non-attorney’s work. In a case entitled Matter of Thomas F. Cusack III, an attorney and counselor-at-law, D35005 (N.Y App. Div. 2nd Dept. 2012) against attorney Thomas Cusack, the Committee brought a case against Cusack based upon his acts of professional misconduct. The Committee referred the matter to a special referee for a hearing and a report.
Cusack had been hired about twelve years ago as in-house counsle for a company owned by the Kontogiannis Family. For four years he worked as a salary employee for the Kontogiannis Family. He simultaneously represented private clients and practiced law which was unrelated to his employment by the Family. The Family and its individual members owned several parcels of real property. Cusack maintained an attorney escrow account. He utilized the escrow account to deposit and disburse funds in connection with real estate and mortgage loan transactions in which he represented lenders providing mortgage financing.
Members of the Kontogiannis Family owned and/or operated two mortgage companies which originated loans to borrowers. At some point, the Family or the mortgage companies appointed Cusack to act as their attorney at closings on mortgage loan transactions. In many of the transactions in which he represented the mortgage company at closings, the borrowers were members of the Family or individuals associated with the Family or companies associated with the Family. In some of these transactions, the sellers were also members of the Family or individuals affiliated with the Family or companies owned or controlled by the Family.
Cusack either knew or should have known that his clients, i.e. the mortgage companies, the borrowers and/or sellers/owners of the properties were all members of the Family or associated with the Family or companies owned by the Family. During the closings, members of the Family attended the closings on behalf of the borrowers and/or sellers of the properties without being represented by independent counsel. At some of the closings, a member of the Family, who was a non-attorney, even attended in place of Cusack and provided services that Cusack was required to perform as lender’s counsel.
As part of the closing process, Cusack’s escrow account received wire transfers of funds from the mortgage companies he represented and the proceeds were then disbursed to members of the Family or to companies owned or controlled by them.
At many of the closings, Cusack failed to carry out even the most fundamental obligations of an attorney representing mortgage companies. For example, he did not disburse the mortgage funds to satisfy existing mortgages or extinguish existing mortgages or liens on the subject properties. He also did not disburse funds payable to title companies or insurance companies in order to buy title insurance policies insuring the priority of his clients’ (i.e. the mortgage companies’) new mortgage liens. He also did not disburse funds to title companies or insurance companies or any other entities to pay for mortgage taxes or any other transfer taxes. He also did not disburse funds to ensure that new mortgages and/or deeds would be recorded in the County Clerk’s office of the county where the properties were located. Cusack’s failure to record the new mortgages caused a lack of a public record of his clients’ liens on the subject properties and/or the identities of the new owners. Because of this failure, the Family was able to re-mortgage the properties and borrow even more money against the properties from other, innocent lenders. They were also able to convey the properties to innocent buyers without them knowing of the mortgage companies’ loans. They were hence able to bundle the unrecorded notes and mortgages among other, legitimate notes and mortgages and sell these notes and mortgages as a package to investors on the secondary mortgage market. They were thus able to obtain additional funds secured by the subject properties without notifying investors that the liens evidenced by the mortgages were not recorded.
The charges against Cusack included his allowing non-lawyers to control or influence his conduct and the management and use of his escrow account for the non-lawyers’ purposes in violation of Code of Professional Responsibility DR 1-102 (a) (7). He was also charged with engaging in numerous instances of conflicts of interest by allowing people who employed or paid him to render legal services for another entity to control his professional judgment in violation of Code of Professional Responsibility DR 5-107 (b).
Another instance of Cusack’s misconduct involved his representing one of the mortgage companies at a closing on a mortgage loan to be made to someone related to the Family and also related to the president of the mortgage company Cusack represented in the transaction. A paralegal who was a relative of the purchaser handled the closing on behalf of the mortgage company. Cusack was not present at the closing until it was finished. The paralegal ended up drawing checks at the closing from Cusack’s escrow account which exceeded by approximately $100,000, the funds being escrowed that were relative to this closing. In short, the purchaser purchased the property without contributing his own funds to the transaction. Instead, he inappropriately used funds from the attorney escrow account that were not his to use.
After this closing, Cusack never independently confirmed that the total amount withdrawn from the escrow account equaled the amount deposited into the account by his client, the mortgage company. Furthermore, he allowed a paralegal to handle the closing without any supervision. Even after the closing he never reviewed the paralegal’s work in order to uncover what happened and to correct the overdraft.
The Committee also charged him with converting client funds that were entrusted to him as a fiduciary in violation of Code of Professional Responsibility DR 9-102 (a) and with converting client funds for a use other than for what it was intended in violation of Code of Professional Responsibility DR 1-102 (a) (7). He was further charged with relinquishing control over his escrow account to a non-attorney related to the borrower/buyer, who caused an overdraft in the account for the borrower’s/buyer’s benefit in violation of Code of Professional Responsibility DR 9-102 and DR 1-102 (a) (7). He was also charged with failing to supervise the work of a non-attorney, which caused a huge overdraft in his escrow account, as a result of his failure to oversee the non-attorney in violation of Code of Professional Responsibility DR 1-104 (c) and DR 1-102 (a) (7).
Another problem with Cusack’s representation, which the Committee reviewed, involved the payment of legal fees by the mortgage companies. Instead of Cusack receiving the bulk of the legal fees for the closings, the majority of the fees went to a non-attorney. In other words Cusack engaged in fee splitting with a non-attorney in violation of Code of Professional Responsibility DR 3-102 (a) and DR 1-102 (a) (7).
The Special Referee sustained all ten charges against Cusack and the Committee confirmed the Special Referee’s report.
The court first noted that Cusack did not act with fraudulent intent. He did not take another entity’s money, and he did not profit from the Family’s scheme. On the other hand he refused to accept responsibility for his failure to perform the requisite functions of a lender’s attorney which enabled this widespread criminal scheme to continue.
After weighing the facts of the case and all ameliorating facts, the court suspended Cusack from the practice of law for four years.