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In re Member of the Bar of the Supreme Court of State

Supreme Court of Delaware

June 5, 2018

In the Matter of a Member of the Bar of the Supreme Court of the State of Delaware ANDRE M. BEAUREGARD, Respondent.

         Upon Review of the Report of the Board on Professional Responsibility. RECOMMENDATION ACCEPTED IN PART. SIX MONTH SUSPENSION IMPOSED WITH CONDITIONS.

          Submitted: April 11, 2018

          Jennifer-Kate Aaronson, Esquire, Chief Disciplinary Counsel, Office of Disciplinary Counsel, Wilmington, Delaware.

          Myron T. Steele, Esquire, and Ryan C. Cicoski, Esquire (argued), Potter Anderson & Corroon LLP, Wilmington, Delaware, for Respondent.

          Before STRINE, Chief Justice; VALIHURA, and SEITZ, Justices.

          PER CURIAM:

         The Office of Disciplinary Counsel ("ODC") filed a petition for discipline against Andre Beauregard, Esquire, the managing partner of his law firm, Brown, Shiels & Beauregard, LLC, for failing to maintain the books and records of his law firm as required by the Delaware Lawyers' Rules of Professional Conduct. The ODC also charged Mr. Beauregard with filing an inaccurate 2015 Certificate of Compliance. After a hearing, a panel of the Board submitted a Report and Recommendation finding that Mr. Beauregard violated Delaware Lawyers' Rules of Professional Conduct 1.15(a), 1.15(d), 5.3(c), 8.4(c), and 8.4(d). The Panel recommended a public reprimand and a two-year probation with conditions.

         Mr. Beauregard did not file objections to the Report and Recommendation. The ODC filed objections, claiming the Board erred by considering Mr. Beauregard's mental state for what the ODC argues are strict liability offenses, and misinterpreted Rules 1.15(a) and 8.4(c) leading to erroneous conclusions for several of the alleged books and records violations. The ODC also objected to the Board's recommended sanction. According to the ODC, after considering Mr. Beauregard's earlier public reprimand for similar violations and his knowledge of the current violations, suspension for not less than one year, instead of a public reprimand, is the proper sanction.

         With the exceptions explained later, we accept the Board's findings regarding violations of Rules 1.15(a), 1.15(d), 5.3(c), 8.4(c), and 8.4(d). The record supports the Board's conclusion that Mr. Beauregard, as the managing partner of his law firm: (a) did not exercise reasonable supervision over non-lawyer employees charged with keeping the law firm's books and records; (b) knew of books and records violations and did not take reasonable action to correct them; and (c) incorrectly certified in 2015 his law firm's compliance with the rules.

         As for the ODC's objections, first, we agree with the ODC that Rule 1.15, does not contain a state of mind requirement. But, we agree with the Board that, in Mr. Beauregard's case, he supervised non-lawyers managing the law firm's accounting functions. Under Rule 5.3, he is responsible for Rule 1.15 recordkeeping violations when, as the supervising lawyer, he fails to make reasonable efforts to ensure that the non-lawyers performing accounting functions comply with the rules. Further, as a supervising lawyer who knows of books and records rule violations and fails to take reasonable remedial action to correct errors, he violates Rule 5.3 and is responsible for the law firm's Rule 1.15 violations. Mr. Beauregard failed on both fronts.

         We also agree with the ODC that, under Rule 1.15(a), Mr. Beauregard failed to safeguard client property as provided by the Rule. Although the Board's interpretation of the rule-that "other property" does not include client funds-is not unreasonable, we believe that the Rule, when read as a whole, includes as violations a lawyer's or law firm's failure to account for all client funds.

         As for Rule 8.4(c)-engaging in conduct involving dishonesty, fraud, deceit, or misrepresentation-and 8.4(d)-conduct prejudicial to the administration of justice-we agree with the ODC that the Rule's focus is on conduct. But, under Rule 8.4(c) the conduct involves dishonesty, fraud, deceit or misrepresentation, all words that imply a state of mind requirement. Rule 8.4(d), however, does not require any specific underlying conduct or imply a state of mind. Thus, we agree with the Board's findings that Mr. Beauregard knew when he signed and submitted a Certificate of Compliance containing inaccuracies, he violated Rule 8.4(c). Mr. Beauregard also violated Rule 8.4(d) when he filed the inaccurate Certificate of Compliance with the Court, regardless of his state of mind.

         And finally, following our independent review, we agree with the ODC that suspension is the presumptive sanction and should be imposed instead of a public reprimand. We impose a six-month suspension with conditions.

         I.

         The Court accepts the facts as found by the Board, most of which were undisputed. Admitted to the Delaware Bar in 1986, Mr. Beauregard practices primarily as a criminal defense attorney in Kent and Sussex Counties. He represents private clients and those assigned to him by the Office of Defense Services when conflicts arise.

         In 2005, Mr. Beauregard, as the managing partner of his prior law firm, admitted violating Rules 1.15(a), 1.15(b), 1.15(c), 5.3, and 8.4(c).[1] Like here, Mr. Beauregard failed to maintain real estate account records, failed to supervise non-lawyer employees, and filed inaccurate certificates of compliance with the Court. The Court reprimanded Mr. Beauregard publicly and imposed a three-year probation period with conditions. In 2008, Mr. Beauregard completed his probationary period successfully, and the ODC closed the 2005 disciplinary complaint.

         Mr. Beauregard formed a new law firm in 2012, Brown, Shiels & Beauregard, LLC, and served as its managing partner. Having been through the earlier disciplinary proceedings, Mr. Beauregard knew that he was required to keep the law firm's records in compliance with Rule 1.15, and that he was responsible to report compliance with Rule 1.15 accurately on the law firm's annual Certificate of Compliance.[2] In addition, having been sanctioned previously for errors by non- lawyer employees responsible for keeping the firm's financial records, he understood his supervisory responsibility to ensure these employees complied with Rule 1.15.[3]

         At his new firm, Mr. Beauregard employed Joseph O'Donnell, who had a Ph.D. in business administration and previously worked at other law firms. Mr. O'Donnell was responsible for the firm's accounting records, except for the real estate accounts. Even though Mr. Beauregard knew the importance of Rule 1.15 recordkeeping requirements and the need to supervise non-lawyer employees performing accounting functions, he only generally reviewed Rule 1.15 with Mr. O'Donnell.[4] Mr. Beauregard did review on a monthly basis the client subsidiary records for the firm's trust accounts, which listed the funds allocated to over sixty clients. That review could not have been done with any precision, however, because each month from November 2014 to April 2015, these records showed negative balances for four to five clients.[5] Mr. Beauregard discussed these negative client balances with Mr. O'Donnell, who stated that they were a "glitch in the program, " but that they "had nothing to do with money being missing."[6] Mr. Beauregard did, however, identify them as "red flags"[7] but did not investigate them further. Mr. O'Donnell later testified that he investigated the negative balances and found "they were actually overpayments made, and we had money that had to be taken back from the client."[8]

         Mr. Beauregard hired Luke O'Brien to manage the law firm's books and records for the firm's real estate account, [9] and retained Thomas Sombar, CPA, to handle the firm's tax filings. Mr. Beauregard asked Mr. Sombar to perform a precertification audit for the 2015 Certificate of Compliance, but Mr. Sombar declined, explaining he had not taken a necessary course.[10] Mr. Beauregard did not seek a precertification audit from anyone else. On February 25, 2015, he filed a 2015 Certificate of Compliance with this Court, certifying that his law firm's books and records complied with Rule 1.15.

         In March 2015, a client filed a complaint with the ODC because she received two $1, 000 checks from Mr. Beauregard's firm attempting to refund a $1, 000 balance remaining on a retainer. Upon receiving the complaint, Mr. Beauregard suspended Mr. O'Donnell and hired two new bookkeepers to audit the books. They found that no money was missing and that there were sufficient other funds in the account to cover the negative balances.

         In September 2015, the Lawyers' Fund conducted a Rule 1.15 compliance audit of the law firm's books and records. The report from the Fund's accountant found thirteen instances of noncompliance:[11]

(1) Multiple client balances included earned fees and expense reimbursements the firm should have removed, and two accounts were incorrectly identified as Interest on Lawyer Trust Accounts ("IOLTA");
(2) The firm failed to list a non-fiduciary account that had closed;
(3) The firm did not maintain all books and records necessary for a non-fiduciary and a real estate account;
(4) The general ledger balance for a non-fiduciary account did not match the monthly adjusted bank balance;[12]
(5) A closed non-fiduciary account was incorrectly titled;
(6) The firm did not prepare monthly bank reconciliations for a closed non-fiduciary account;
(7) A fiduciary account was not an IOLTA account;
(8) A check drawn from a fiduciary account was outstanding for over two years;
(9) A fiduciary account's end-of-month cash balance did not match the total client funds held;[13]
(10) A fiduciary account had negative client balances each month;[14]
(11) A fiduciary account had multiple old balances, some of which were earned fees and expense reimbursements the firm should have removed;
(12) The real estate account did not have monthly bank reconciliations; and
(13) The real estate account did not have monthly client listings.

         After the audit, Mr. Beauregard addressed the deficiencies, hired an in-house and an outside bookkeeper, upgraded the firm's accounting software, increased the time spent supervising the non-lawyer employees, and hired an accounting firm to complete Rule 1.15 compliance audits quarterly.

         II.

         Following the Rule 1.15 compliance audit, the ODC filed a petition for discipline on September 7, 2016, alleging that Mr. Beauregard violated Rules 1.15(a), 1.15(d), 5.3, 8.4(c), and 8.4(d). Mr. Beauregard admitted to violating Rule 1.15 as to certain inaccuracies revealed in the 2015 Audit, but denied the remaining charges.

         The Board held a combined liability and sanction hearing on March 23, 2017. After finding that the parties appeared to agree that none of the rules Mr. Beauregard allegedly violated provide for strict liability, but instead require a state of mind of negligence or worse, [15] the Board made the following findings:

         Rule 1.15(a)

. Mr. Beauregard did not violate Rule 1.15(a) as to the negative account balances, because client funds do not fall within the definition of "other property" that must be safeguarded under Rule 1.15(a).[16] In addition, the Board found that "[a] negative client balance ledger . . . does not mean that the funds of the particular client with the negative balance have not been safeguarded." [17] Rather, because Mr. Beauregard did not misuse the funds, he did not violate Rule 1.15(a) due to the negative balances.
. Mr. Beauregard violated Rule 1.15(a) by failing to prepare monthly client listings and reconciliations, the absence of which he would have discovered through the exercise of reasonable care.[18]

         Rule 1.15(d)

. Mr. Beauregard did not violate Rule 1.15(d)(12)(E) as to a check that was outstanding for two years, because the ODC did not present clear and convincing evidence about "what [the firm's] response was" after discovering it[19]
. Mr. Beauregard violated Rule 1.15(d)(12)(D) because the end-of-month cash balance did not agree with the total client funds held in the time period reviewed, of which he would have been aware through reasonable diligence.[20]
. Mr. Beauregard violated Rule 1.15(d)(12)(C) because he did not address the negative balances in client accounts over a six-month period.[21]
. Mr. Beauregard violated Rule 1.15(d)(12)(G) because he was aware of multiple accounts containing earned fees and expense reimbursements the firm failed to transfer from the account.[22]
. Mr. Beauregard violated Rule 1.15(d)(12)(H) because the firm did not prepare monthly bank reconciliations or monthly client listings for the real estate account.[23]
. Mr. Beauregard did not violate 1.15(d) by failing to preserve the books and records account for five years, because the contention was that he failed to create one in the first place.[24]
. Mr. Beauregard violated Rule 1.15(d)(3) by incorrectly titling a bank account, and reasonable diligence would have identified the error.[25]
. Mr. Beauregard violated Rule 1.15(d)(8) by failing to prepare monthly bank reconciliations for the law firm's operating account, which reasonable diligence would have detected.[26]
Mr. Beauregard violated Rule 1.15(d)(8) because the general ledger balance for an operating account did not agree with the adjusted bank balance.[27]

         Rule 5.3(c)

. Mr. Beauregard violated Rule 5.3(c) by failing to take reasonable remedial action to prevent Mr. O'Donnell from permitting deficiencies to exist in the books and records.[28]

         Rule 8.4(c)

. Mr. Beauregard violated Rule 8.4(c) for misrepresentations in the 2015 Certification of Compliance regarding the earned fees and expenses that should have been removed from the trust accounts.[29]
. Mr. Beauregard violated Rule 8.4(c) for misrepresentations in the 2015 Certification of Compliance regarding the failure to maintain books and records for the real estate account; and regarding the general ledger balance that did not agree to the adjusted bank balance.[30]
. Mr. Beauregard did not violate Rule 84(c) regarding the outstanding check or the omission of a non-fiduciary operating account-because there was no evidence he was aware of them or that reasonable care would have revealed them;[31] nor the two accounts not labeled as IOLTA accounts-because the bank statements did not show that any interest was deposited into them.[32]

         Rule 8.4(d)

. Mr. Beauregard violated Rule 8.4(d) by filing a Certificate of Compliance containing misrepresentations, which is "prejudicial to the administration of justice."[33]

         The Board next addressed sanctions using the framework from the American Bar Association's Standards for Imposing Lawyer Sanctions.[34] The Board found Mr. Beauregard violated Rules 1.15(a), 1.15(d), 5.3(c), 8.4(c), and 8.4(d), acting knowingly by failing to remove the earned fees and expense reimbursements from the fiduciary account, and negligently in all other respects. As to injury, the Board found the inaccurate Certificate of Compliance caused actual injury to the legal system, but found the Rule 1.15 violations did not cause actual or potential injury because the law firm had sufficient funds to cover the negative balances. In considering aggravating factors, the Board found that Mr. Beauregard's prior discipline and substantial experience counted against him; however, the Board found the prior discipline was dissimilar and remote in time from the current conduct. The Board also considered the mitigating factors of Mr. Beauregard's lack of a dishonest ...


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