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ATTORNEY disciplinary proceeding.
Attorney's license suspended.
1 PER CURIAM. We review, pursuant
to SCR 22.17(2), a report and recommendation
filed by referee Judith Sperling-Newton in
this disciplinary proceeding involving
Attorney Ralph A. Kalal ("Kalal"). Kalal
entered pleas of "no contest" to the charges
against him. The matter was submitted to
the referee, who issued a report
incorporating the stipulation and adopting
the recommended six-month suspension.
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2 The referee's findings of fact are
to be affirmed unless they are clearly
erroneous. In re Disciplinary Proceedings
Against Sosnay, 209 Wis. 2d 241, 243, 562
N.W.2d 137 (1997). We review the referee's
conclusions of law de novo. In re
Disciplinary Proceedings Against Carroll,
2001 WI 130, par. 29, 248 Wis. 2d 662, 636
N.W.2d 718. After our review of the record
in this matter, we conclude that the
referee's findings of fact are not clearly
erroneous; accordingly we affirm and adopt
them. We also agree with the referee's legal
conclusion that Kalal's conduct violated the
rules of professional conduct for lawyers,
as set forth herein. Therefore, we adopt
the referee's conclusions of law. We agree
that a six-month suspension of Kalal's
license to practice law is an appropriate
sanction for his misconduct, and we further
hold that Kalal should be required to pay
the costs of these disciplinary proceedings,
which totaled $10,884.10 as of April 19,
2005.
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3 Kalal was admitted to practice law
in Wisconsin in 1973. In 2002 he was
publicly reprimanded for making a
misrepresentation of fact in an oral
argument to the supreme court in violation
of SCR 20:3.3. In re Disciplinary
Proceedings Against Kalal, 2002 WI 45, 252
Wis. 2d 261, 643 N.W.2d 466.
4 Kalal is the owner of Kalal &
Associates, a sole proprietorship engaged in
the practice of law. This disciplinary
matter derives from a grievance filed by a
former associate in Kalal's law firm who
charged that Kalal had failed to properly
manage contributions to the firm's 401(k)
plan. As noted, Kalal eventually executed a
stipulation and no-contest plea to the
charges and, on March 29, 2005, the referee
filed a report and recommendation concluding
that Kalal had committed professional
misconduct in his handling of the employee
401(k) retirement plan and client trust
accounts.
5 The complaint filed by the Office of
Lawyer Regulation (OLR) alleged, and the
referee found, that from approximately
October 15, 1997 to August 15, 2001, Michele
Tjader was employed as an associate attorney
in Kalal's firm. From September 29, 1997 to
August 15, 2001, Sarah Schmeiser was
employed as a receptionist, and subsequently
as a paralegal, at the firm. Jackie
Bennett, Kalal's wife, worked as the firm's
office manager during the time of Tjader's
and Schmeiser's employment. Among other
tasks, Bennett did the firm's bookkeeping
work. Bennett is not a lawyer and was under
Kalal's direct supervisory authority.
6 In January 1998, the firm
implemented a 401(k) retirement plan, which
permitted employees to designate up to 10%
of their salary to be contributed to the
plan from pre-tax dollars. The plan
provided that the firm would match 50% of
the employees' contributions of up to 6% of
their earnings.
7 Employees were required to work for
the firm for one year before they became
eligible to participate in the 401(k) plan.
Tjader and Schmeiser became eligible to
participate in the retirement plan in
January 1999. Both completed an enrollment
form and provided it to Bennett, indicating
they wished to contribute 6% of their
earnings to the plan. The firm was
therefore obligated to make matching
contributions of 50% of each employee's
personal contributions.
8 Bennett never forwarded Tjader's or
Schmeiser's forms to the plan administrator,
Firstar Bank. Beginning in January 1999
however, 6% of Tjader's and Schmeiser's
earnings were withheld from each of their
paychecks. The firm kept the withheld
earnings and did not turn them over to
Firstar Bank. The firm also failed to pay
the employer's matching 50% contributions to
the plan.
9 Despite the fact that none of
Tjader's contributions had been paid into
the 401(k) plan for 1999, Tjader's 1999 W-2
tax form from the firm reported that $4225
of Tjader's wages had been paid into the
plan. Similarly, although none of
Schmeiser's contributions had been paid into
the 401(k) plan for 1999, Schmeiser's 1999 W-
2 tax form from the firm reported that $1765
had been paid into the plan.
10 Similarly, for the year 2000, none
of Tjader's or Schmeiser's withheld earnings
were paid into the plan, but Tjader's 2000 W-
2 tax form reflected a $4875 contribution
and Schmeiser's 2000 W-2 tax form reflected
a $2175 contribution.
11 Kalal was permitted to deduct, as a
business expense, salary amounts and
employee expenses actually paid on his 1999
and 2000 personal income tax returns. Kalal
deducted the full amount of the salaries
that were reported to the IRS on Tjader's
and Schmeiser's W-2 tax forms, although 6%
of those salaries had not been paid. Kalal
also deducted payments in purported employer
contributions to pension and profit-sharing
plans on his 1999 personal income tax
return, although no such contributions were
made in 1999.
12 In 2000, Schmeiser worked part-time
for another law firm and contributed to that
firm's 401(k) plan. She contacted Bennett
requesting information needed to complete a
transfer form, but received no response.
The transfer was never completed and
Schmeiser was required to take a cash
distribution on which she was taxed.
13 After receiving that cash
distribution in the summer of 2001,
Schmeiser and Tjader realized that neither
of them had received a report for the
previous year regarding their retirement
accounts. They contacted Firstar Bank and
were informed that the bank had no
retirement accounts for them.
14 Tjader and Schmeiser met with Kalal,
who acknowledged that the firm had been
unable to make employer contributions for
some time due to financial concerns.
15 The referee found that Firstar Bank
made numerous telephone calls to Kalal at
both his office and at his home for a period
of approximately two weeks in an effort to
discuss the discrepancy with him. Kalal did
not return these telephone calls until he
was advised that the matter was being
referred to Firstar Bank's legal department
and to appropriate federal authorities.
16 On or about August 9, 2001, Kalal
sent various required documents and funds
totaling $26,448.75 to Firstar Bank.
17 During the OLR's investigation of
this matter it was also determined, and the
referee subsequently found, that during late
1998 and 1999, the firm failed to timely
file several employment tax returns which
require employers to report and pay the
taxes they withhold from employees'
paychecks, as well as the employer's share
of social security and Medicare taxes.
18 Kalal acknowledged that these
returns were not filed for the quarterly tax
periods ending September 30, 1998, March 31,
1999, June 30, 1999, and September 30, 1999,
although tax payments were withheld from the
employees' paychecks for those periods.
Kalal explained that the tax returns were
not filed because funds were not available
to pay the taxes due.
19 In addition, the referee determined
that Kalal had continued to hold money in
his client trust account for certain clients
where the legal representation had
concluded. Kalal acknowledged that, upon
reviewing his trust account records, he had
identified approximately 75 clients whose
files were closed but who still had funds on
deposit in his trust account. In addition,
the firm's client trust account contained
some $3425.57 more than the sum of the
individual client ledgers; ownership of
these funds could not be immediately
identified.
20 Kalal then began submitting to the
OLR monthly lists of clients who had funds
on deposit in his trust account, beginning
in January 2001. Of the 148 clients shown
on the January 2001 list, 97 were clients
whose files had been closed and who were
owed refunds. Of those 97 clients, 74 were
clients for whom the office had active
client ledgers and 23 were clients for whom
the office had no ledgers. The 23 clients
without ledgers had files that dated back to
1997 or earlier. The amounts owing to these
individual clients ranged from less than $1
to amounts in excess of $500. The referee
found that 31 clients were owed funds in
excess of $100. Because the firm did not
prepare a monthly schedule of subsidiary
client ledgers, it was not possible to
reconcile the bank statement balance with
the total funds that should have been
available for clients.
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21 As noted, Kalal executed a
stipulation and a no-contest plea in
response to the OLR's charges regarding
these matters. The matter was submitted to
the referee, who found that the OLR had met
its burden of proof to establish Kalal's
violation of the supreme court rules by
clear, satisfactory and convincing
evidence.
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22 Supreme Court Rule 20:8.4(c)
provides that it is professional misconduct
for a lawyer to "engage in conduct involving
dishonesty, fraud, deceit or
misrepresentation." The referee concluded
that:
By failing to deposit funds that had been
deducted from employees' paychecks as
contributions for a 401(k) plan into the
plan and instead putting the withheld funds
to personal use, by failing to pay matching
employer contributions to the 401(k) plan as
required under the plan, by falsely
reporting on employees' W-2 tax forms that
contributions had been paid in to the 401(k)
plan when they had not, and by claiming
deductions on his personal income tax
returns for payments that were not made,
Respondent engaged in conduct involving
dishonesty, fraud, deceit, and
misrepresentation, contrary to SCR 20:8.4
(c).
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23 Supreme Court Rule 20:5.3(b)
provides that with respect to a nonlawyer
employed or retained by or associated with a
lawyer, "[a] lawyer having direct
supervisory authority over the nonlawyer
shall make reasonable efforts to ensure that
the person's conduct is compatible with the
professional obligations of the lawyer."
The referee found that by failing to
implement measures designed to monitor
bookkeeping and related work performed by
Bennett, a nonlawyer, Kalal violated SCR
20:5.3(b).
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24 The referee also concluded that by
failing to file timely employer tax returns
for the quarterly tax periods ending
September 30, 1998, March 31, 1999, June 30,
1999, and September 30, 1999, Kalal violated
a standard of conduct for attorneys as set
forth in State v. Roggensack, 19 Wis. 2d
38, 199 N.W.2d 412 (1963), in which this
court deemed professional misconduct
the "intentional violation of tax laws, even
though without intent to defraud the
government," in violation of SCR 20:8.4(f).
Id. at 46.
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25 The referee found that by failing to
timely pay refunds to some 97 clients who
still had funds on deposit in his trust
account at the conclusion of their
representation, Kalal failed to deliver
promptly to the client any trust account
funds or other property which the client is
entitled to receive, in violation of former
SCR 20:1.15(b).
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26 In addition, by failing to maintain
subsidiary ledgers for all clients for whom
funds were held in his firm's client trust
account, and by failing to prepare a monthly
schedule of the subsidiary ledgers which
could then be reconciled with the balances
actually on hand in the account, Kalal
failed to maintain all trust account records
required under former SCR 20:1.15(e), which
governs operational requirements for trust
funds.
27 After our review of the record in
this matter, we adopt the referee's findings
of fact and conclusions of law as stipulated
to by the parties.
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28 Turning to the question of the
appropriate discipline, the referee
considered several factors in assessing the
appropriate discipline for Kalal's
misconduct, including the seriousness of the
misconduct, the need to impress upon him the
seriousness of the misconduct, the need to
protect the public, the courts, and the
legal system from a repetition of the
misconduct, and the need to deter other
attorneys from similar misconduct. See,
e.g., In re Disciplinary Proceedings
Against Carroll, 2001 WI 130, par. 40, 248
Wis. 2d 662, 636 N.W.2d 718. The referee
specifically noted that she considered
Kalal's prior discipline as an aggravating
factor. She considered Kalal's commitment
to making restitution to be a mitigating
factor, and, indeed, the court has been
advised that full restitution to both
employees' 401(k) accounts has been made,
and that all clients that Kalal could
identify and locate have received complete
refunds. Based on our own review we agree
that a suspension of six months is
appropriate discipline for Kalal's
professional misconduct.
29 This brings us to a related question
on which Kalal has requested the court's
guidance. As noted, Kalal's trust account
contains funds belonging to clients that he
has been unable to identify. It is not
entirely clear from the record precisely how
much money remains at issue. Initially,
estimates indicated an amount of
approximately $3425.57.
30 On July 15, 2005, this court issued
an order to the parties regarding the
appropriate resolution of these unidentified
client funds. The OLR responded on July 20,
2005, as supplemented on August 5, 2005. We
agree with the OLR that pursuant to SCR
22.26, Kalal has a duty to timely disburse
all remaining funds from his trust account
and to close the same. Based on the OLR's
response, we direct Attorney Kalal to seek
direction from the OLR as to the appropriate
course of conduct for resolving the issue of
the unidentified client funds. Attorney
Kalal shall notify this court within 30 days
of the date of this decision as to how the
remaining unidentified funds will be
managed. The OLR shall timely advise this
court whether it considers the proposed
resolution satisfactory under the
circumstances of this matter.
31 Finally, we turn to Kalal's request
that this court postpone his suspension so
that it will commence on or after November
1, 2005. As his counsel has explained in a
letter to the court, filed May 3, 2005:
Understanding that he will lose his
license to practice for a period of time,
Mr. Kalal has ceased taking in new clients.
He does have seven criminal cases that will
get resolved during the course of the Summer
and into the early Fall. He believes that
the last will be resolved in October of this
year. Mr. Kalal has put substantial work
into these matters and would like to see
them through to completion, rather than
refer them to new counsel who will have to
start from scratch. We ask that any
suspension ordered by the Court not start
until November 1, 2005.
The OLR does not support the request.
32 Although such requests are not
generally favored, in recognition of Kalal's
efforts to make restitution to the injured
employees and clients in this matter, his
cooperation with the OLR in this proceeding,
and in reliance on the representation of his
counsel, Attorney Waring Fincke, that Kalal
has ceased taking new clients, we will delay
Kalal's suspension until November 1, 2005,
solely to permit him to complete the seven
client matters he specifically identified.
Representation of any other client or
undertaking representation of the remaining
clients on any new matter will be grounds
for additional discipline and may adversely
affect future reinstatement proceedings.
33 IT IS ORDERED that the license of
Attorney Ralph A. Kalal to practice law in
Wisconsin is suspended for a period of six
months, effective November 1, 2005, on the
terms set forth in this decision.
34 IT IS FURTHER ORDERED that within 30
days of the date of this order Attorney
Ralph A. Kalal shall seek direction from the
Office of Lawyer Regulation regarding the
appropriate course of conduct for resolving
the issue of unidentified client funds
remaining in his custody and control, and
shall submit a written statement to the
court explaining how the remaining
unidentified funds will be managed. Upon
receipt of this statement, the OLR shall
timely advise this court whether it
considers the resolution satisfactory under
the circumstances of this matter.
35 IT IS FURTHER ORDERED that within 60
days of the date of this order Attorney
Ralph A. Kalal shall pay to the Office of
Lawyer Regulation the costs of this
proceeding. If those costs are not paid
within the time specified and absent a
showing to this court of an inability to pay
those costs within that time, the license of
Attorney Ralph A. Kalal to practice law
shall remain suspended until further order
of the court.
36 IT IS FURTHER ORDERED that Attorney
Kalal comply with the provisions of SCR
22.26 concerning the duties of an attorney
whose license to practice law has been
suspended.
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