Several bar organizations are supporting the effort of a suspended Long Island attorney to challenge in the state’s highest court what he describes as the overly strict approach of the Appellate Division, Second Department, to enforcing disciplinary rules governing attorney escrow accounts.
A Second Department panel suspended Peter J. Galasso of Galasso, Langione, Catterson & LoFrumento in Garden City for what it called his failure to exercise “appropriate vigilance over his firm’s bank accounts” from which the firm’s bookkeeper—Mr. Galasso’s brother Anthony—embezzled $4 million in client funds (NYLJ, Feb. 27). Peter Galasso cooperated with the prosecution of his brother, who is now in prison.
Mr. Galasso’s suspension was to begin on March 21, but on March 19, Court of Appeals Judge Victoria A. Graffeo (See Profile) stayed the suspension pending determination of Mr. Galasso’s motion for leave to appeal. The Grievance Committee for the Ninth Judicial District is due to file a response by April 2.
Mr. Galasso argues in court papers that the Second Department wrongly used a strict liability standard that required attorneys “to be insurers of all escrow deposits” and “unfairly results in a lawyer’s law license being posted as additional collateral for his costly designation on an attorney escrow account.”
“[A]side from imposing an unattainable level of managerial and investigative skills upon lawyers, the Appellate Division has declared that attorneys in operating escrow accounts, beyond any financial exposure they may face, must now post their licenses as some sort of additional collateral to their exposure in damages,” Mr. Galasso argued. He later added, “With this holding, the prospects of finding attorneys willing to hold client escrow will be bleak. In the end, the public will suffer as well.”
The New York State Trial Lawyers Association, the Nassau County Bar Association, Matrimonial and Family Law Bar Association of Suffolk County and the Bronx County Bar Association all plan to file amicus briefs urging the Court of Appeals to grant Mr. Galasso’s motion for leave to appeal.
While it was “not common” for the Court of Appeals to agree to hear an appealed disciplinary ruling, it was “not unheard of” either, according to Court of Appeals spokesman Gary Spencer.
Grace Moran of Moran & Karamouzis in Rockville Centre, one of Mr. Galasso’s attorneys in the disciplinary matter, said in an e-mailed statement that as news of the suspension circulated, fellow attorneys reached out to her, Mr. Galasso and other members of his firm “to express their shock and dismay over the decision.”
“When members of the Bar asked what they could do to help, it was suggested they contact their Bar Associations to support Peter’s application for leave to appeal and to demonstrate the Bar as a whole is concerned with the precedent set by Matter of Galasso,” she said.
The Bronx County Bar and the Matrimonial and Family Law Bar of Suffolk County said they will press in their amicus briefs for leave to be granted in order to annul the suspension, arguing that a purported strict liability standard should not have been applied.
Bronx County Bar Association President Robert H. Wolff said in an interview it was “unfair to suspend somebody under these facts and circumstances…I think the court went far afield.”
Howard Leff, president of the Matrimonial and Family Law Bar Association of Suffolk County, said the Second Department’s ruling “creates such an unreasonable standard. It really makes it almost illogical for anyone to maintain an escrow account, let alone accept any money. It’s not only illogical, it makes it dangerous to accept money.”
Mr. Leff’s organization also held a recent event entitled “Your Escrow Account. Can what happened to Peter Galasso happen to you?”
“I think everybody had a real visceral reaction by what the appellate division has done by creating this standard,” he said.
Meanwhile, the Nassau County Bar Association’s brief does not take a position on the merits of the suspension according to Susan Katz Richman, president of the group. In an interview, Ms. Richman said the group’s brief will take up the “limited issue of whether or not an attorney should be held vicariously and in effect strictly liable for the illegal acts of a third party with respect to the attorney’s escrow account.”
Ms. Richman said the bar association’s board, in deciding to file an amicus, felt that “the notion that an attorney could be held responsible and lose their license, their privilege to practice law, due to the surreptitious criminal conduct of a third party, threatens the livelihood of all our members and their practice of law.”
A spokesman for the New York State Trial Lawyers Association said that the group planned to join one of the other briefs on the motion seeking leave. Ms. Moran said her client’s firm was “grateful that the Court of Appeals has stayed Peter’s suspension while it decides his application for leave to appeal. Equally encouraging has been the support of the Bar which determined that Matter of Galasso has consequences to the entire Bar,” she said.
Jeffrey Catterson of Galasso, Langione, Catterson & LoFrumento also represents Mr. Galasso. In court papers, Mr. Galasso argues that the liability standard for fiduciaries was “far more forgiving” than what the Second Department had applied in his case, with liability being limited to “instances of willful misconduct or gross negligence.”
He acknowledges that the Second Department was “troubled” by the “immense amount” of money stolen. But he says that did not justify the harsh penalty.
“Nowhere is it written or directed that an inescapable responsibility will be imposed upon an attorney if the escrowed amounts are so great that the attorney cannot make good on them out of his or her own pocket if they are stolen,” Mr. Galasso argues, contending that the “only articulated rules” on escrow accounts require the maintenance of certain records, no co-mingling of funds and no conversion of funds.
Aprilanne Agostino, clerk of the court for the Appellate Division, Second Department, noted in an interview that the disciplinary rules on escrow accounts that guide Second Department rulings were the same rules that applied for all of the Appellate Division departments. “With respect to the standards applied, our decisions speak for themselves,” she said.
A representative of the grievance committee for the Ninth Judicial District declined to comment. The committee has not responded to Mr. Galasso’s motion.
The case was transferred from the 10th Judicial District because one of the members of its grievance committee, Steven J. Eisman, had represented in a civil suit a former client of Mr. Galasso who lost more than $4 million through the embezzlement. Ironically, Mr. Eisman suggested that the Nassau bar support Mr. Galasso in seeking review of his suspension.
“Peter Galasso is a lawyer who I have a great deal of respect for as a colleague and as an adversary, and I felt it necessary to bring to the attention of the bar a request to file an amicus because I feel the Appellate Division was setting an unjust standard,” Mr. Eisman said in an interview.
Chris McDonough of McDonough and McDonough practices in professional ethics and at one time served as an assistant counsel to the Grievance Committee for the 10th Judicial District.
Mr. McDonough, who is not involved the Galasso case, viewed the two-year suspension as “too harsh.” Given the mitigating factors in this case such as Mr. Galasso’s “great” reputation and “unblemished history,” Mr. McDonough suggested a one-year suspension might have been more appropriate.
Mr. McDonough said in his 25 years of experience, when it comes to alleged mishandling of escrow accounts, the Second Department “[does] take it more seriously and seem to sanction more strongly,” than the other departments.