Stanford v. Mississippi Bar: To sweep or not to sweep

Mr. Agent, with the approval of his underwriter, elected to use a sweep account for all of the real estate closing businesses’ escrow accounts. All of the available funds in each escrow account were “swept” from the accounts daily following the close of business and placed into an investment account. When a check payable on any individual account was presented for payment, funds sufficient to pay the check were “swept” back into the account without regard as to which loan closing company had deposited the funds.

After a dispute arose in a transaction, Mr. Agent attempted to interplead the escrowed funds, but the escrowed funds were not available to deposit with the Chancery Court. However, an employee failed to make a deposit of approximately $587,000.00, making the account deficient to cover the checks and wires from the closing. When checks and wires for the closing were presented for payment, the account had insufficient funds to pay the proceeds from the closing. As a result, the sweep account automatically used money from the other real estate closing businesses’ accounts to cover the error, again without regard as to which company had deposited the funds. This included the $100,000 held in escrow by for purchaser.

Upon learning of the problem, Mr. Agent closed the sweep account, but at that point, neither Mr. Agent nor anyone else was able to determine what portion of the remaining funds belonged to which real estate closing business or any party to any real estate transactions being conducted by those businesses. Eventually, $80,000 was found in another of Mr. Agent’s accounts, but the distribution of the full $100,000 has still not been accounted for to date. Ultimately, Mr. Agent was suspended for three years to be comprised of a six month suspension and two and a half years of probation effective as and from September 1, 2017, and had to pay costs and expenses incurred by the Bar, notify all clients with active matters, parties opposite, and courts and agencies with active cases of his of his suspension. The suspension prohibited Mr. Agent from the practice of law or holding himself out as a lawyer until he sought and was granted reinstatement from the Court. Mr. Agent agreed to the discipline imposed by the Complaint Tribunal of the Supreme Court of Mississippi.

To be reinstated, a petitioner must satisfy the following jurisdictional requirements:

(1) state the cause or causes for suspension or disbarment; (2) give the name and current address of all persons, parties, firms, or legal entities who suffered pecuniary loss due to the improper conduct; (3) make full amends and restitution, (4) show that he has the necessary moral character for the practice of law; and (5) demonstrate the requisite legal education to be reinstated to the privilege of practicing law. Though not a jurisdictional requirement, we consider the Bar’s position as to reinstatement as a factor in determining whether to grant the petition.

In re Benson, 890 So.2d at 890 (emphasis added).

After completing his suspension and probation, Mr. Agent filed a petition for reinstatement with the Mississippi Bar. However, the Bar denied his request. Mr. Agent was required to prove that he has made full amends and restitution to the parties who suffered pecuniary loss due to his misconduct. The Bar received a letter from Mr. Purchaser’s attorney stating that his client was not made completely whole in the settlement with Mr. Agent’s insurance carrier. Specifically, Mr. Purchaser was deprived of the use of $100,000.00 and ultimately received only $75,000.00 from Mr. Agent’s insurance carrier. The parties also executed a full release as part of the settlement… The letter [from Mr. Purchaser’s attorney] prompted a further investigation from the Office of General Counsel. Mr. Agent fully cooperated with the additional investigation and provided more information. Mr. Purchaser made a settlement offer of $75,000.00 to Mr. Agent’s insurance carrier, that the carrier accepted. Mr. Agent’s policy limits were more than sufficient to cover the full amount of loss. Mr. Purchaser entered into an agreement to accept $75,000.00 and executed the appropriate releases to fully and finally settle their claim.

The Court concluded that the execution of a release by the injured party did not release Mr. Agent from the “full restitution duty” imposed by the reinstatement process.

What are the takeaways from this case?

1. If you use “sweeps,” make sure you have appropriate safeguards in place to account for and track all client funds.
2. If the Court says you must make “full amends and restitution,” then they mean “full amends and restitution”. The execution of a release by the injured party does not release Mr. Agent from the full restitution duty imposed by the reinstatement process.

To learn more, read Stanford v. Mississippi Bar, 2019 WL 245271.