New York Court of Appeals: In the Matter of Galasso

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Respondent, Peter J. Galasso, was a partner at the law firm Galasso & Langione, LLP.  Anthony Galasso, the respondent’s brother, worked as the firm’s bookkeeper and office manager.  Over a period of three years, Anthony Galasso misappropriated funds from and between two different accounts—an escrow account with four million dollars and an Interest on Lawyer Account (IOLA)—after altering the account application to permit him to act as a signator.  The misappropriation was not detected for three years because of minimal oversight over Anthony Galasso’s activities and because of his practice of switching funds back-and-forth between the two accounts, while removing some for himself.  Anthony Galasso pled guilty to grand larceny, and the Nassau County District Attorney’s Office submitted its conclusions to the Grievance Committee that no one else had participated in or knew about the misappropriation.

Nevertheless, the Grievance Committee charged the respondent with ten charges of professional misconduct: four of the charges alleged breach of fiduciary duty to safeguard client funds, three of the charges alleged failure to supervise a nonlawyer employee resulting in misappropriation of client funds, one charge alleged unjust enrichment by use of funds for personal benefit, one charge alleged failure to provide appropriate accounts to clients with respect to escrow funds, and one charge alleged failure to timely comply with the lawful demands of the Committee.  The Special Referee sustained all ten charges, and the appellate division affirmed.  The respondent was suspended from practicing law for two years, resulting in this appeal.

The issue before the Court of Appeals was whether the respondent’s motion to dismiss the ten charges alleging misconduct should have been granted.  The Court held that nine of the ten charges should be affirmed, but modified as to the charge alleging a failure to timely comply with the Grievance Committee’s lawful demands for information.

In affirming the nine charges, the Court first stated that an attorney has a clear duty to safeguard client funds.  The Court stated that an attorney has a fiduciary relationship with the clients, which requires an attorney to act with a “high degree of vigilance” to ensure that the funds placed in escrow are returned to the clients.  Here, the respondent failed to establish adequate procedures to detect misappropriation by placing too much control over the accounts with a non-lawyer.

The Court also reasoned that there was, at one point, a $5,000 discrepancy in the escrow account.  Respondent allowed Anthony Galasso to resolve the issue.  The Court stated that this type of discrepancy should have been alarming to a reasonably prudent attorney.  Any delegation of authority should have been done with more oversight, but the respondent failed to properly supervise the employee.  Therefore, the disciplinary action was warranted and was sustained for the first nine counts.

Finally, in modifying the last charge of failure to comply, the Court found that there was no evidence to support the charge. When the respondent could not immediately meet the demands, he notified the Committee, explained his reasons why, and stated that he would comply at the earliest opportunity.  The Court found the respondent complied to the best of his ability and remitted the case to the appellate division for it to reconsider whether the suspension imposed was still appropriate.

19 N.Y.3d 688, 978 N.E.2d 1254, 954 N.Y.S.2d 784 (2012)

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