People v. Keeffe, 50 N.Y.2d 149 (1980)

An attorney who withdraws funds from a client trust account, reducing the balance below the amount owed to a prior attorney as a share of legal fees, is not guilty of larceny unless the prior attorney had a vested property interest in the funds exceeding a mere contractual right.

Summary

Keeffe, a successor attorney, was convicted of grand larceny for failing to pay D’Isernia, the prior attorney, his share of settlement proceeds from a wrongful death action. The court order specified D’Isernia was entitled to $2,500, to be charged against Keeffe’s firm’s fees. Keeffe deposited the $120,000 settlement into his firm’s attorney’s account but depleted it without paying D’Isernia promptly. The New York Court of Appeals reversed the conviction, holding that D’Isernia only possessed a contractual right to the fee, not a property interest, and that the funds in the attorney’s account were not trust funds for D’Isernia’s benefit. Therefore, Keeffe’s actions did not constitute larceny from D’Isernia.

Facts

Frieda Gracie died in 1966, leading her husband, Thomas Gracie, to retain attorney Alfred D’Isernia for a malpractice suit. Unsatisfied, Gracie hired Keefe in 1973, with a court order deferring the issue of D’Isernia’s fees and liens to the trial judge. The malpractice case was settled for $120,000 in 1974, with D’Isernia claiming a lien for his fee. An April 7, 1975 order stipulated D’Isernia was due $2,500, charged against Keeffe’s fees, and allowed partial distributions. Keeffe deposited the settlement into his firm’s account. By the time a final decree was entered in 1978, the account was depleted, and D’Isernia hadn’t been paid, although he was eventually paid after Keeffe’s indictment. Keeffe claimed authorization from Gracie to invest Gracie’s share in debentures.

Procedural History

Keeffe was indicted on three counts of grand larceny for stealing from the estate, Thomas Gracie, and Alfred D’Isernia. The jury convicted Keeffe of stealing $2,500 from D’Isernia but acquitted him on the other counts. The Appellate Division affirmed the conviction. The New York Court of Appeals granted leave to appeal.

Issue(s)

Whether an attorney who holds settlement proceeds in a special account is guilty of larceny when withdrawals reduce the balance below the amount owed to a predecessor attorney, based on a court order fixing the predecessor’s fee.

Holding

No, because the prior attorney did not possess a ‘property’ interest in the funds held by the successor attorney. The April 7, 1975 order, while determining D’Isernia was entitled to a fee, merely created a contractual right to recover a fee, not a property right superior to that of Keeffe.

Court’s Reasoning

The Court reasoned that larceny requires wrongfully taking or withholding “property from an owner thereof.” Here, D’Isernia only had a contractual right to a fee, not a property interest. The order of April 7, 1975, determined D’Isernia was entitled to $2,500 but didn’t grant him a lien or direct enforcement of his right to the money. The court distinguished between a retaining lien (possession of client property, not applicable here) and a charging lien (lien on the cause of action, which was never adjudicated in D’Isernia’s favor). Absent an express assignment in the retainer agreement, D’Isernia had no ownership or immediate right to possession. The Court noted that while attorney disciplinary rules require special accounts for client funds, these rules don’t create a trust interest in favor of third parties to whom the client is obligated. Quoting Matter of Kelly, 23 NY2d 368, 382, the Court emphasized that the failure to pay money to a third person to whom the client is obligated does not violate these rules. The Court declined to escalate a mere contractual obligation into a criminal offense, stating, “If acts of that type are to constitute criminal offenses, it should be through adoption by the Legislature of a specific statute.”