In the Matter of John H. Perrone

Special Hearing Officer’s Memorandum of Decision and Recommended Disposition¹

 

The Bar Counsel filed a petition for discipline against the Respondent, John H. Perrone, on March 31, 2005. On June 20, 2005, Perrone filed an answer denying that he had violated any of the Disciplinary Rules. The matter came on for hearing before me sitting as a Special Hearing Officer. The parties submitted a Stipulation of Facts and an evidentiary hearing was convened on the following dates: May 8, 9, 15, 30 and 31, and June 7 and 22, 2006. Thirteen witnesses testified and 210 exhibits were admitted in evidence. The parties thereafter submitted post-hearing memoranda. Perrone also filed a motion to dismiss, which I have denied for reasons set forth below.

This petition raises a novel issue of professional ethics for which no existing precedent precisely fits. Most of the central facts are not in dispute; indeed, they were the subject of the parties’ stipulation. Vicki Damphousse was, for more than twenty years, the office manager of Perrone’s law practice. But more than that, she and her late husband, Harvey Damphousse, were Perrone’s and his wife Lucie’s closest friends. They were godparents to one another’s children, and their families celebrated all holidays and mourned all losses together. Nonetheless, between July 1991 and April 19, 1997, Vicki Damphousse embezzled approximately $1.9 million from Perrone’s client accounts. Perrone was entirely unaware of the Damphousse Ponzi scheme until its existence was first shockingly revealed to him on the latter date. The scheme was, however, enabled by the fact that over the years Perrone had entrusted Damphousse with the management and oversight of all the financial affairs of his law practice, including the business, trust and IOLTA bank accounts. While Bar Counsel charges a number of specific violations of the Canons, in summary, this petition turns on the question whether, under these circumstances, such entrustment will give rise to a violation of the Disciplinary Rules when embezzlement occurs, and, if so, what disciplinary sanction is warranted.

Findings of Fact

1. Background Facts

 

1. Perrone was born and raised in Haverhill, Massachusetts. He was admitted to the Bar of the Supreme Judicial Court of the Commonwealth of Massachusetts on April 1, 1970. Initially, in addition to the private practice of law, Perrone also served as an Assistant District Attorney for Essex County from 1972 to 1974 and as a City Solicitor for the City of Haverhill from 1974 to 1976. Beginning in approximately 1978, Perrone was the sole principal in a general practice law firm located in Haverhill.
2. In 1973, Perrone hired Vicki Damphousse as a part-time secretary. She later became Perrone’s first full-time employee. Damphousse was the wife of Perrone’s best friend since high school, Harvey Damphousse. Perrone was a member of the Damphousse wedding party, and both Vicki and Harvey participated in the wedding of John and Lucie Perrone. Vicki Damphousse was godmother to the Perrones’ daughter, and Harvey was godfather to their son. Perrone, in turn, was godfather to the Damphousse’s son, Mark. Mark Damphousse described Perrone as his surrogate father. Vicki was named the guardian of the Perrone children and the alternate executrix under the Perrone wills.
3. Prior to her employment with Perrone, Vicki Damphousse had no experience as a legal secretary or bookkeeper. She trained on the job. Over the years, Perrone’s law practice flourished and expanded. He handled a substantial number of conveyancing cases, both for institutional lenders and real estate purchasers. His practice also included estate administration; civil litigation, in particular personal injury matters; a limited amount of criminal work; and divorce cases. At times his office included two associate attorneys, as well as a receptionist, additional paralegals and support personnel.
4. As Perrone’s practice expanded, so did Damphousse’s role. She progressed from secretary to paralegal to office manager. By the early 1980’s, Perrone had entrusted Damphousse with most of the administrative matters in the office. She hired new employees, assigned work to employees, and supervised their performance.
5. Perrone also entrusted Damphousse with essentially all of the financial matters in the office. Perrone maintained a business account, an IOLTA account, at various times additional escrow accounts required by certain lenders for real estate closings, and trust accounts. Damphousse was authorized to draw and sign checks drawn on all of these accounts. Damphousse had her own office and kept the checkbooks and statements for the various bank accounts in her desk. At least in the first instance, it was Damphousse’s responsibility to reconcile the various bank accounts and ensure that they were used for their intended purposes.
6. Perrone seldom reviewed the bank statements himself and generally inquired of Damphousse only when he wished to know if a particular check had been received or required other specific financial information.
7. Damphousse’s responsibilities included opening the mail delivered to the Perrone office and distributing it to the appropriate persons. She was also responsible for preparing and sending bills for legal services to Perrone’s clients, and for collecting and depositing the fees into the business account. On the personal injury matters, Damphousse was responsible for depositing settlement checks in the IOLTA account and then transferring Perrone’s fee to his business account.
8. Beginning in the 1980’s, a substantial part of Perrone’s practice involved real estate conveyancing. He represented both lenders and purchasers, and frequently acted as settlement agent for these conveyancing transactions. Initially Perrone handled the real estate closings himself, but as his practice expanded he hired additional personnel. Donald Jennings is an attorney who worked for Perrone from 1986 to 1995 (and continued to do work on a contract basis in 1996). Phil Parry, another conveyancing attorney, was employed from 1995 to 1997. These attorneys were not authorized either to sign checks or deposit or disburse funds. A real estate paralegal in Perrone’s office, Denise Parry, prepared schedules, checks and invoices for these closings during much of this time. Damphousse and another employee, Andrea DiGuilio, had signature authority for the checks.
9. In the mid-1980’s, Perrone hired an accountant, Raymond Pappalardo, to prepare his income tax returns. The services that Pappalardo provided to Perrone and his law practice expanded over time. Pappalardo reconciled Perrone’s business accounts on a monthly basis. He regularly reviewed these accounts in order to calculate Perrone’s income, checking to ensure that all deposits into the business account constituted revenue and disbursements were business expenses. Pappalardo had at least one in-depth meeting a year with Perrone, around tax time, to review the business accounts. Perrone and Pappalardo became friendly. They frequently had breakfast or went fishing together and discussed business affairs on these occasions as well. Pappalardo’s role continued to expand, and by the late 1980’s he was preparing payroll checks, issuing checks for office expenses, preparing payroll tax returns and assisting the law practice with its computer systems.
10. Perrone was audited by the Internal Revenue Service on two occasions: once in the 1980’s and again in 1995 with respect to tax years 1992, 1993 and 1994. Pappalardo represented Perrone in connection with this latter audit. The audit was successfully completed; only non-material amendments were required to the returns for the subject years.
11. While there were occasions on which checks drawn on Perrone’s business account, including payroll checks, were returned for insufficient funds, Pappalardo did not bring these deficiencies to Perrone’s attention and Perrone was not aware of them.
12. A material disputed question of fact arose concerning Pappalardo’s testimony. Perrone testified that at some point he asked Pappalardo to examine and reconcile his IOLTA and trust accounts. Pappalardo denied that Perrone ever made such a request. I find that Perrone did, in fact, ask Pappalardo to reconcile his trust and IOLTA accounts in addition to his business account. On cross-examination, Pappalardo admitted that at some point Damphousse told him that Perrone had decided that Pappalardo should not reconcile trust accounts, as money was received and disbursed in short order in these accounts and it was a waste of resources to reconcile them. In fact, the parties stipulated to the substance of that testimony. This would have been an odd declaration for Damphousse to have made, unless someone had previously addressed the subject of having Pappalardo review the trust accounts. Damphousse certainly would not have been the first person to suggest the possibility that Pappalardo might reconcile the trust accounts. Further, upon first learning of Damphousse’s scheme, Perrone asked attorney Carmen Durso to assist in investigating and unraveling his office’s financial affairs. (This is discussed further below.) Durso testified that soon after he was called by Perrone, he interviewed Pappalardo. During this interview, Pappalardo told Durso that Perrone had asked him to review the practice’s trust accounts in addition to the business accounts, but he never did so because Damphousse told him that it was unnecessary. At some point not long after this conversation, Durso advised Pappalardo that he might want to alert his own malpractice carrier to the facts and circumstances attendant to Damphousse’s embezzlement, because there was potential for a claim to be asserted against him. It appears that, after Durso offered this advice, Pappalardo became self-protective in his dealings with Perrone. I find Durso’s testimony to be fully credible.
13. Perrone, however, apparently never bothered to ask Pappalardo about his review of the trust accounts, never saw a reconciliation of them, or followed up in any way with Pappalardo with respect to his request. While Perrone may have believed that if Pappalardo identified a problem, it would be brought to Perrone’s attention, some written or at least oral acknowledgement that the accounts had been reviewed was minimally warranted.
14. Beginning at some time in the 1980’s, Perrone was appointed an agent for Lawyers Title Insurance Co. (“Lawyers Title”). Lawyers Title issued title insurance policies insuring title on the real estate transactions that Perrone closed. As a Lawyers Title agent, Perrone’s office was subject to quality control reviews by Lawyers Title representatives. According to Lawyers Title internal policy, these reviews were to include an audit of an agent’s trust accounts used for transactions involving its policies, procedures for ensuring that mortgage discharges were obtained and filed with the Registry, and a general review of randomly selected real estate files. One such review occurred on March 23, 1993, and another on March 14, 1996. Based on the 1996 review, a Lawyers Title auditor reported that Perrone’s office properly monitored mortgage discharges, balanced the escrow accounts on a monthly basis, and that its files were generally well kept. Lawyers Title sent a letter to Perrone following this review that advised that his office followed good closing practices and controls, and maintained well-documented files. In fact, the review was poorly performed by the Lawyers Title representative. Damphousse managed the review process. She declined to allow this representative to review bank statements and selected the conveyancing files for examination, rather than permitting the representative randomly to select the files. A properly conducted review would have likely identified red flags, suggesting that insufficient controls existed within the office. Perrone’s view of his conveyancing practice procedures, however, could fairly have been influenced by the Lawyers Title letter.
15. On July 30, 1996, Perrone received a letter from the Office of Bar Counsel notifying him that a check drawn on an IOLTA account had failed to clear. Apparently, the check had been returned for insufficient funds because a lending institution had delayed in wiring refinancing funds in a real estate transaction, and a mortgage discharge check was improperly delivered before the institutional funds had been deposited. Perrone, with the assistance of Damphousse, prepared a response to Bar Counsel explaining why this problem had occurred. Bar Counsel was provided with copies of the last six months bank statements for the account in question. Perrone was thereafter informed that the matter had been closed by the Office of Bar Counsel without disciplinary action. Bar Counsel’s letter reminded Perrone to be sure that good funds had been received prior to issuing a disbursement check, but as this was an isolated instance, no further action would be taken. While the incident should have been unsettling to Perrone, its resolution by the Office of Bar Counsel would also have been reassuring because it suggested that his conveyancing account was found to be generally in order and properly maintained by Damphousse. Indeed, as will be discussed below, Damphousse’s scheme involved the interception of properly issued mortgage discharge checks.

 

2. Facts Relating to Count I

 

16. In August 1996, Perrone’s office was engaged in connection with the refinancing of a mortgage on the home of Susan Benson. Sometime after the refinancing, Benson was contacted by the bank that held the mortgage that was to have been discharged and informed that the mortgage was still in force. She called Perrone’s office and spoke to Damphousse. Damphousse immediately caused this mortgage to be discharged. Benson, nonetheless, sent Perrone a letter asking for an explanation as to why the mortgage had not been discharged in a timely matter. Damphousse intercepted the letter, which was never delivered to Perrone. Benson subsequently filed a grievance with the Office of Bar Counsel.
17. In April 1997, Damphousse received a letter from the Office of Bar Counsel written in response to the Benson complaint. She arranged for a meeting with Susan Benson and her attorney at the Perrone office on April 19, 1997. On that day, she confessed her misconduct to Perrone. Perrone promptly discharged her. He immediately called attorney Carmen Durso, a longtime friend and experienced trial lawyer, and his accountant Raymond Pappalardo, and asked them to come to his office. They arrived later that day. Perrone asked Durso and Pappalardo to interview Damphousse because he was too distraught to do so himself.
18. Durso and Pappalardo eventually learned of the scope of Damphousse’s defalcation and the manner by which she had embezzled funds from mortgage refinancing transactions. From a period beginning in 1991 (presumably after the death of her husband, Harvey) to April 1997, Damphousse had embezzled approximately $1.9 million from twenty real estate closings conducted by Perrone or his associates on behalf of a number of different mortgage lenders. Damphousse intercepted checks intended to pay off the pre-existing mortgages from the office Fed-Ex box. She deposited them into an account maintained by the Perrone office that Perrone believed had been closed some time before. She then notified the bank whose loan was to have been discharged that she represented the mortgagor and that the bank should forward all subsequent notices and mortgage statements to her. Thereafter, Damphousse made the monthly payments due on the pre-existing mortgage that had not been discharged. Periodically, if this un-discharged mortgage had to be paid off because of a subsequent refinancing, she would repeat the scheme using funds from another closing to discharge the mortgage still outstanding in consequence of her prior embezzlement. It was a classic Ponzi scheme. And, as with all Ponzi schemes, it was eventually spiraling out of control. By the time of her confession, Damphousse had embezzled the proceeds from some twenty refinancings and had as many as eight or nine “undischarged” mortgages outstanding on which she was currently making the monthly payments.
19. A substantial amount of the funds that she embezzled were used to pay personal debts, while other funds were used to maintain the Ponzi scheme. It is possible that some funds may have been used to support the Perrone practice, but that is not established by the record. The record does not reflect the percentage of funds that went to Damphousse directly. Durso and Pappalardo recovered a “black bag” in which Damphousse maintained her records regarding the embezzled funds and the continuing obligations to make payment on outstanding mortgages that should have previously been discharged.
20. After interviewing Damphousse and discussing the results of that interview with Perrone, Durso notified Perrone’s malpractice carrier, Zurich Insurance (“Zurich”), Lawyers Title, and the Board of Bar Overseers of these circumstances.
21. Thereafter, auditors retained by Zurich, Lawyers Title, and Perrone, at various times, each undertook an examination of the practice’s books, records, files and bank statements to learn the extent of Damphousse’s misappropriations. These financial records were also later reviewed by Albert Nolan, an investigator for the Office of Bar Counsel. These examinations, while undertaken for different purposes, all disclosed the general nature of the wrongdoing and, importantly, that a review of Perrone’s IOLTA and trust accounts by someone other than Damphousse during the period in which the scheme was operative would have identified, at the very least, red flags suggesting that further inquiry was necessary, if not the nature of the scheme itself. For example, Damphousse made regular monthly payments out of the office’s IOLTA account to cover the payments due on the undischarged mortgages. The IOLTA bank account statements reflected these suspicious monthly payments.
22. On June 23, 2000, Damphousse pled guilty to a criminal information filed in the United States District Court in New Hampshire charging her with mail fraud in connection with twenty separate refinancing loans, which resulted in losses to the title insurance company of approximately $1.9 million. Damphousse was sentenced to eighteen months in prison, three years of supervised release, and ordered to make more than $1.9 million of restitution payments.

 

3. Facts Relating to Count II

 

23. Perrone represented Kathleen McCarron in connection with a claim that McCarron made on behalf of her daughter Jessica to recover the proceeds of a life insurance policy insuring Jessica’s father issued by Massachusetts Indemnity and Life Insurance Company (“MILICO”). Jessica’s father had died in an automobile accident. The policy provided $100,000 in death benefits and named Jessica as the beneficiary. Perrone’s representation of McCarron began in November 1990. His fee arrangement with McCarron was simply that Perrone would determine a reasonable fee at the conclusion of the matter.
24. Perrone sent a number of letters to MILICO on behalf of McCarron requesting payment of the policy proceeds. On March 4, 1991, he also filed a petition in the Essex County Probate Court on behalf of McCarron to have her appointed the guardian of Jessica so that she could receive the insurance proceeds on Jessica’s behalf. In November 1991, payment still having been withheld, Perrone sent MILICO a Chapter 93A demand letter. In January 1992, MILICO sent Perrone a check as counsel for McCarron in the amount of $107,545.21, representing payment in full of the policy proceeds, plus accrued interest. McCarron endorsed the check and gave it to Damphousse, who deposited it in Perrone’s IOLTA account.
25. In March and again in April 1992, Perrone arranged for McCarron to meet with investment advisors at his office. Each made proposals to McCarron to invest the money for Jessica’s benefit. Following the second of these meetings, Perrone recommended one of these advisors to McCarron, but she responded that she was going to continue to think about how she would manage Jessica’s funds.
26. Some time thereafter, Damphousse told Perrone that McCarron had come to the office and asked for the funds and Damphousse had disbursed them to her. Damphousse went on to say that McCarron told her that she believed that she had made a good decision on how to handle the funds and wanted to thank Perrone for his efforts. Perrone directed Damphousse to prepare a bill to send to McCarron and an inventory to be filed in the Probate Court.
27. In fact, McCarron had not asked for her daughter’s funds and between January and March 1992, Damphousse withdrew most of the funds from the IOLTA account and converted to them to her own use. As a result, by March 3, 1992, only $24,084.92 of Jessica’s funds remained in the IOLTA account. Perrone never spoke to McCarron again after the second investment advisor meeting. McCarron did call Perrone’s office from time to time, but she always spoke to Damphousse, apparently never insisting on speaking to Perrone.
28. In August 1993, McCarron contacted Damphousse and asked to see a copy of the bank statement for the money which she thought was still deposited with Perrone’s office. Damphousse sent McCarron a forged statement of account on BayBank stationery. Damphousse also sent an original inventory for McCarron’s signature, presumably to be filed with the Probate Court. McCarron signed the inventory and returned it, but Damphousse never filed it with the Essex County Probate Court. Damphousse removed McCarron’s file from the active files area of the office and placed it in the basement where closed files were stored.
29. In 1997, McCarron read in a local newspaper that Damphousse had embezzled mortgage pay-off funds. She became concerned about Jessica’s funds and called Perrone’s office to arrange a meeting. Lucie Perrone located McCarron’s file in the basement storage area. McCarron met with Perrone and Durso. Durso explained to McCarron that the funds were gone, but they would attempt to recover her money for her. Durso recommended that she consult with an attorney.

 

4. Facts Relating to Count III

 

30. Henry A. Scott died on October 22, 1992, leaving a will naming Perrone and Richard T. Burton as co-executors of his estate. At the time of his death, Scott had a number of disparate assets. He owned real estate in Haverhill and Pittsburgh, New Hampshire. These properties were held in the names of both Scott and Scott’s late wife, Dorothea. The administration of the Scott Estate was complicated by the fact that Dorothea’s will had never been presented for probate. Additionally, Scott had cash in various bank accounts, certain life insurance policies, stocks and bonds worth approximately $425,000, and other personal property. The beneficiary of Scott’s will was a trust that named Burton and Scott’s five siblings or their issue as beneficiaries. Henry and Dorothea Scott had no children.
31. Administration of the estate was initially further complicated by the fact that, at the time of Henry’s death, Burton was in the Navy and stationed in Italy. Shortly after the funeral, Perrone and Burton met to discuss their responsibilities as co-executors of the estate. It was agreed that Perrone would serve as counsel to the estate, as well as co-executor, but that Perrone would receive only one-half of a co-executor’s fee because he would also be acting as counsel, and charging the estate for those services. On October 28, 1992, Perrone filed Scott’s will, a petition for probate of the will, and a motion for appointment of Burton and himself as temporary executors of the Scott Estate in the Essex Probate and Family Court. Certain of the heirs later filed an objection to the will. With Perrone’s assistance this objection was ultimately resolved and the objections withdrawn. Thereafter, Perrone and Burton were appointed as the permanent co-executors of the estate.
32. Following his appointment as temporary executor of the Scott Estate, Perrone made use of an existing interest bearing account standing in the name of Henry A. Scott at the Bank of Boston (the “Scott Account”) as a repository for Scott Estate assets that began to be marshalled. Perrone and Burton were the only two authorized signatories on the account. Damphousse kept the Scott Account checkbook and bank statements in her office and under her control. On November 4, 1993, after Burton returned from Italy, he and Perrone opened a new interest bearing account at BankBoston for the funds of the Scott Estate. This account was referred to as the Scott Estate Account. Again, Burton and Perrone were the only authorized signatories on this account, while Damphousse held the statements.
33. Perrone’s associate, David Jennings, performed substantial legal services in connection with the estate. Jennings was competent to serve as counsel to the Estate. He investigated the various intangible assets held by Scott and valued them. He also supervised Damphousse, who was collecting various assets. He prepared federal and Massachusetts estate tax returns for Henry’s estate and the Massachusetts estate tax return for Dorothea’s estate. He assisted in preparation of the petition to obtain the appointment of the voluntary co-executors of Dorothea’s estate.
34. The Complaint does not allege that either Perrone, Jennings, or for that matter Damphousse, were negligent in the work undertaken to collect the Scott assets. As with the mortgage discharges and the McCarron matter, however, Damphousse also embezzled funds from the Scott Estate. In December 1992, Damphousse withdrew assets from the Scott Account and converted them to her own use. She also deposited significant assets that had been marshaled on behalf of the Scott Estate into Perrone’s IOLTA account, rather than the Scott or Scott Estate Accounts. She then withdrew them for her own use.
35. In particular, Perrone’s office assisted in the sale of Scott’s Haverhill real estate. The net proceeds of that sale were $96,351.01. Damphousse caused this sum to be deposited into the Perrone IOLTA account rather than into the Scott Estate Account on January 24, 1995. She then withdrew these funds from the IOLTA account and once again converted them to her own use. Damphousse also caused three checks totaling $30,300 to be drawn on the Scott Estate Account and deposited in the Perrone IOLTA account without Perrone’s knowledge. Some of Damphousse’s thefts were facilitated by Perrone’s failure to object to Damphousse asking Burton to sign blank checks on the Scott Estate Account and by Perrone’s signing them himself on occasion.
36. Perrone caused distributions of in excess of $400,000 to be made to the beneficiaries of the Trust (itself the beneficiary of the Estate) between March 14, 1994, and July 18, 1996. Each distribution was preceded by Damphousse’s engaging in a flurry of transfers from various accounts into the Estate Account to fund the distributions. In particular, in May, June and July 1995, Damphousse transferred nearly $150,000 from the Perrone IOLTA account into the Scott Estate Account to help fund approximately $270,000 of distributions to Trust beneficiaries; that being the sum that Perrone and Jennings believed should then have been available for distribution based on a schedule of assets marshalled. Obviously, a review of the Scott Estate Account bank statements during this period would have suggested that something was amiss. While the evidence presented tracing the flow of funds through these accounts was unclear, I do not understand Perrone to argue that an impartial review of the Scott Estate Account bank statements against the schedules showing the estate assets marshaled would not have alerted the reviewer to potential problems with the account.
37. The inventory filed by the Perrone office with the probate court in February 1995 likely understated the amount of assets marshaled because some of the Scott Estate assets that Damphousse collected were deposited into the IOLTA account without having been scheduled. That inventory was prepared by Jennings.
38. In January 1995, a bill for legal services rendered to the estate for the period October 1992 through January 1995 was prepared. It reflected services performed and out-of-pocket expenses incurred with an aggregate value of $28,515.17 (138.4 hours of work and $358.17 of expenses). Some time later a bill was prepared for work done on the Dorothea Scott Estate of $2,250. A Perrone affidavit prepared in connection with a federal estate tax return for the Scott Estate attested to his receipt of $7,044.35, as the co-executor’s fee. In sum, Perrone’s bills for services and his executor’s fees total $37,804.52. The evidentiary record reflects payments to Perrone of $15,000 on April 13, 1994 by check drawn on the Scott Estate Account payable to Perrone and signed by Perrone, and $21,328.50 in January 1995 by check payable to Perrone and signed by Burton. In consequence, the evidence presented shows that Perrone received a total of $36,828.50 for his services as co-executor of, and counsel to, the Estate. Bar Counsel offered no evidence that this sum was excessive, and it was somewhat less than the sum of bills for legal services and executor’s fees offered in evidence. Further, as will be discussed below, attorneys James DeGiacomo and Judith Wyman, both experienced probate attorneys, succeeded Perrone as counsel to the Scott Estate. They were provided with a detailed accounting of the Scott Estate. There is no evidence that they ever questioned the amount of Perrone’s fee, although they were well aware of Damphousse’s defalcation. I find that the legal services and co executors’ fees charged by Perrone were not excessive.
39. Bar Counsel raised issues regarding the propriety of Perrone’s receipt of the $15,000 payment in April 1994. That payment was not made in a manner consistent with Perrone’s stated procedure of not signing estate checks payable to him, but rather having Burton execute those checks, while Perrone signed checks payable to Burton. Nonetheless, I do not find, based on the evidence presented, that Burton was unaware that the $15,000 had been paid to Perrone, or that the amount of legal work performed on the two Scott Estates, as well as the co-executor’s fee, did not warrant a partial payment of $15,000 by April 1994. By that date, the Perrone office had provided services to the Scott Estate for a year and a half without any compensation.
40. In April 1995, Robert Wilson, the accountant who had prepared Henry Scott’s personal tax returns, prepared the 1992, 1993 and 1994 state and federal fiduciary tax returns for the Scott Estate. They reflected $24,679 of income tax due, exclusive of any penalties and interest. Burton signed the returns, but Perrone did not. There is no evidence that Perrone was ever shown the returns. (He testified that his name was forged to two of the returns by Damphousse.) At some point, Damphousse prepared checks to pay the returns; it is unclear whether she or Perrone signed them, but it is undisputed that neither the returns nor checks were timely mailed, as some time after April 19, 1997, Mark Damphousse found them in the basement of his mother’s house. Thereafter, Lucie Perrone lent the Scott Estate $27,653 to pay its taxes.
41. Although a first and final account and second and final account for the Scott Estate were prepared and executed by both Perrone and Burton, neither was filed in the Probate Court. Perrone also never sought to have an estate account allowed. He testified that he assumed that Damphousse and his associates had taken care of that.
42. At some time in 1997, Burton received notice from the Internal Revenue Service (IRS) concerning unpaid estate income taxes. He brought the notice to Damphousse, who said that she would take care of it, but did not do so. A month later, Burton received a second notice, which he delivered to Perrone directly. In May 1997, Burton went to Perrone’s office where he met with Perrone and Durso. By that time, Damphousse had confessed and been discharged. They advised him that they believed there were likely problems with the Scott Estate. They did not know the extent of the problems, but promised that they would be addressed. Burton then retained Attorneys DeGiacomo and Wyman to represent him as co-executor of the Scott Estate.
43. By the time that Burton brought the second IRS notice to Perrone’s attention, Perrone was aware of Damphousse’s mortgage discharge embezzlement scheme, but unaware that Damphousse had mishandled the Scott Estate. Upon learning of the IRS notice, he requested that Pappalardo review the Scott Estate file, but Pappalardo declined. Perrone then brought the file to the attention of Vincent Simarrella. Simarrella was an employee of the firm Carrigan & Associates (“Carrigan”), a consulting firm retained by Zurich. Carrigan then had staff at Perrone’s office investigating Damphousse’s embezzlement as agent for Zurich. While Perrone believed that Carrigan was attempting to determine the extent of the Damphousse defalcation, it appears that Carrigan was actually more focused on uncovering evidence to support a denial of coverage by Zurich. After Zurich issued that denial, Carrigan’s firm left the Perrone office. Although Simarrella began a review of the Scott Estate file, he did not complete it. Perrone thereafter hired a certified public accountant, Michael Taicher, to conduct a thorough analysis of the file.
44. Taicher completed the accounting, which was delivered to Attorneys DeGiacomo and Wyman. The accounting was acceptable to them, and they prepared and filed accounts with the Essex Probate Court and completed probate of the estate based upon them. The accounting also was the basis for recovery of $123,625.09 by the Scott Estate from Zurich, as discussed below.

The Aftermath of the Fraud

 

45. Perrone was devastated by the discovery of Damphousse’s dishonesty. He suffered both financially and physically, requiring medical treatment for the resulting emotional distress. The Damphousse fraud received substantial publicity in the local press. He and his wife incurred liabilities in excess of $550,000 in the course of his bankruptcy proceedings for legal, accounting and trustee fees. Although many of these fees were eventually recovered from Zurich, Lucie Perrone spent $200,000 from an IRA and she and Perrone were forced to sell their home. It was difficult for Perrone to maintain his practice.
46. With the assistance of Durso and other counsel retained to represent Perrone in the ensuing litigation and bankruptcy, Perrone undertook all steps available to him to ensure that no client suffered any loss as a result of Damphousse’s fraud. I find that throughout the aftermath of the discovery of the embezzlement, Perrone’s first resolve was that none of his clients suffer financial loss. For example, Lawyers Title was promptly notified and all banks and mortgage companies holding the mortgages that should have been discharged were contacted and asked to forebear taking any action against the mortgagors.
47. The resolution of Perrone’s clients’ claims was delayed by Zurich’s decision to deny coverage under the $2 million legal malpractice practice policy that it had issued to Perrone. Lawyers Title paid off the mortgages on the properties as to which it had insured title and the mortgages had not properly been discharged because of the embezzlement. However, after Zurich announced that it was denying coverage under its policy to Perrone, Lawyers Title filed suit against Perrone to recover its loss and obtained a prejudgment attachment of his assets.
48. Zurich also filed an action against Perrone seeking a declaration that it had properly declined coverage. There was concern that some of Perrone’s clients might also file suit. On advice of counsel, Perrone filed for personal bankruptcy in order to consolidate all claims in a single forum. In the bankruptcy proceeding, Perrone asserted counterclaims against Zurich for bad faith denial of coverage and against Lawyers Title for negligently auditing his conveyancing practice. Lawyers Title also filed its own direct claims against Zurich for bad faith failure to honor its obligations under the policy issued to Perrone.
49. The Bankruptcy Court bifurcated the coverage question from the bad faith claims. It tried the coverage dispute first and, on July 30, 1998, issued a judgment in favor of Perrone on the coverage issue. See American Guaranty and Liability Ins. Co. v. John H. Perrone & Associates, (U.S. Bkrptcy Ct., D. Mass.) Adversary Proceeding No. 97 4324. The Bankruptcy Court expressly found that Perrone had no knowledge of Damphousse’s embezzlement prior to April 19, 1997, and therefore that the policy remained in full force and effect providing coverage to him for claims asserted as a result of Damphousse’s acts.
50. After the Bankruptcy court issued its decision, Zurich agreed to make the proceeds of its policy available to settle the claims asserted against Perrone by Lawyers Title and his clients. Through counsel, Perrone made clear to Lawyers Title that Perrone’s clients had to be made whole and the balance of the proceeds of the policy would be available to Lawyers Title. Lawyers Title eventually agreed. As a result, payments were made to McCarron in the amount of $139,490.77, and to the Scott Estate in the amount of $123,625.09. These amounts were not determined through negotiation, but represented the total amount of loss incurred by reason of the Damphousse embezzlement, plus interest at a market rate. While the Scott Estate was represented by counsel, McCarron, who did not retain counsel nor file a formal claim, had her recovery calculated on the same basis. The balance of the Zurich policy (after payment of legal fees incurred by Perrone in connection with the Lawyers Title and client claims) was paid to Lawyers Title.
51. The arrangement under which the policy proceeds were distributed did not include releases of Zurich by Perrone or Lawyers Title, and their bad faith claims proceeded to trial in the Bankruptcy Court.
52. On February 26, 1999, the Bankruptcy Court issued a decision on the claims that Perrone and Lawyers Title had asserted against Zurich. The Court held that Zurich had violated Massachusetts General Law Chapter 93A by acting in bad faith in denying coverage. It found that Perrone had lost profits in the amount of $150,000 as a result of Zurich’s actions and awarded attorneys fees and costs and other expenses in the amount of $301,927. (The Court also found Zurich liable to Lawyers Title.) The Bankruptcy Court ordered damages to be trebled. The Bankruptcy’s Court’s decision was appealed to the United States District Court. On March 31, 2001, the District Court reversed the treble damages award and affirmed the balance of the decision; however, in response to Zurich’s motion for reconsideration, on March 29, 2002, the District Court remanded the matter to the Bankruptcy Court for further consideration of whether the amount of the damages awarded Perrone was the result of Zurich’s wrongful conduct. On October 18, 2002, the Bankruptcy Court affirmed its damages award. Zurich again appealed to the District Court. Thereafter, the parties settled. As a result of the settlement, Perrone did not recover all of the losses that he suffered as a consequence of the Damphousse embezzlement; however, no Perrone client suffered any loss.

Facts Relating to Delay

 

53. Susan Benson filed the grievance with the Board of Bar Overseers that initiated these proceedings on March 12, 1997. Richard Burton’s grievance was dated July 7, 1997, and Kathleen McCarron’s, September 27, 1997. On May 24, 1997, Albert Nolan, an experienced investigator for the Office of Bar Counsel, was assigned to the Perrone matter. In the Fall of 1997, the Office of Bar Counsel issued its first subpoenas in connection with the investigation of these claims. Bar Counsel received copies of trial transcripts from the Perrone bankruptcy court litigation and witness statements taken by insurance investigators in 1997 and 1998. Damphousse entered a guilty plea in June 2000, so any impediments to the investigation arising as a result of concurrent criminal proceedings against Damphousse were eliminated by at least that date.
54. On October 19, 2001 and November 19, 2001, an assistant Bar Counsel took Perrone’s statement under oath. Although the written record of the second day of testimony indicates Bar Counsel’s intent to reconvene, no further statement were taken. The record does not reflect that Perrone was ever informed that the statement had been concluded. For his part, Perrone promptly notified the Board of Bar Overseers of the Damphousse embezzlement and fully cooperated with Bar Counsel’s investigation. There exists no apparent reason for Bar Counsel to have delayed in filing this petition for discipline until March 2005.

Conclusions of Law

 

5. The Motion to Dismiss

Approximately eight years elapsed between the filing of the McCarron grievance and this Petition of Discipline. There is nothing in the record that explains the reason for this seemingly inordinate delay. The Supreme Judicial Court has, however, clearly stated that: “[m]ere delay in the commencement of proceedings does not result in dismissal of the proceedings.” In the Matter of Gross, 435 Mass. 445 (2001). Further, in this case, Perrone’s defense of the disciplinary claims asserted against him was not prejudiced by the delay. Any material factual disputes, where the memory of witnesses might have been a factor, were resolved in Perrone’s favor based on the evidence that was presented at the hearing. The motion to dismiss is, therefore, denied.

Count I

Whether Damphousse’s embezzlement, coupled with Perrone’s delegation of responsibility for the maintenance of his operating, trust and IOLTA accounts to Damphousse without personal oversight or periodic review by him, constitutes a violation of the Canons of Professional Responsibility is the fundamental question presented by each of the three counts; although the circumstances surrounding the defalcation underlying each count is somewhat different.

I begin by noting the absence of proof of the type of related intentional or negligent conduct that appears in most, if not all, existing case law involving commingling of funds and thefts by a lawyer’s staff. This is not a case in which Bar Counsel has established that appropriate systems for depositing client funds into trust accounts and recording deposits and disbursements from them were not put in place by the respondent attorney. Indeed, the evidence suggests that appropriate systems existed, as the Perrone office conducted a practice with a substantial volume of real estate conveyancing transactions and personal injury matters for more than twenty years without incident, until Damphousse began to embezzle funds. Compare Matter of Newton, 12 Mass. Att’y Disc. R. 351, 356 (1996) (individual client accounts and ledgers not maintained).

This is also not a case in which client accounts were entrusted to an employee in whom the respondent attorney did not have good reason to rely. Certainly, Perrone was fully entitled to rely on Damphousse’s fealty to him and integrity, as well as her competence in all aspects of office management, including financial affairs. The facts supporting the reasonableness of Perrone’s reliance on Damphousse are well documented and need no further recitation. While Bar Counsel elicited testimony that Damphousse had no formal training as a paralegal before she began working for Perrone in 1973, there is no evidence that over the ensuing twenty-four years she did not become well versed in all aspects of managing a general practice law office, including the requirements for properly maintaining operating, trust and IOLTA accounts and keeping client funds segregated from operating funds. To the contrary, it was her understanding of these accounts that enabled her to manage her fraudulent scheme for several years without detection. Compare Matter of Lappin, 17 Mass. Att’y Disc. R. 353 (2001) (lawyer spent minimal time in office and secretary began stealing from client funds one month after being hired).

Nor did Perrone ignore or brush aside problems with his client funds or trust accounts when they were presented to him. Notwithstanding the number of real estate transactions that the Perrone office handled, as many as four or five in a day, the only instance of a problem with client funds with which Perrone was confronted was a single conveyancing transaction in which funds were mistakenly disbursed to discharge a mortgage before the refinancing funds were actually received. This transaction resulted in a notice being sent to the Office of Bar Counsel. After investigating, Bar Counsel admonished Perrone to take greater care to insure that loan proceeds were received before checks were issued, but concluded that this was an isolated instance and closed the matter. Compare Matter of Baron, 17 Mass. Att’y Disc. R 63 (2001) (failure to reconcile conveyancing accounts after prior notices of dishonored checks).

Further, Perrone was subject to two IRS audits, including an audit of tax years 1992-1994, and these audits concluded without the IRS requiring a material adjustment to any return. While it is true that such audits would be directed to operating not trust accounts, Perrone was nonetheless entitled to draw some comfort that his office finances were properly maintained and documented from the fact that all revenue and business expenses were apparently properly recorded to the satisfaction of the IRS. Perrone also received a favorable opinion from Lawyers Title after its agent audited conveyancing files and accounts. While the shortcomings in that audit became apparent after Damphousse’s scheme was revealed, Perrone would have had no reason to believe that the Lawyers Title auditor had not followed Lawyers Title’s prescribed field auditing practices and procedures.

Perrone asked his accountant Pappalardo to add reconciliation of trust accounts to his other duties, and Perrone was never told that these reconciliations had not been undertaken. There simply is no evidence that, prior to April 1997, Perrone had reason to believe that any client funds had not been properly safeguarded and disbursed. Compare Matter of Newton, 12 Mass. Att’y Disc. R. 248 (1996) (on request of son, lawyer deposited personal funds in client accounts without conducting investigation as to reasons for shortage).

Finally, with respect to Count I, the embezzlement of funds intended for mortgage discharge payments, a review of the conveyancing bank account statements would likely not have itself revealed the defalcation. The discharge checks were properly prepared, placed in Fed Ex envelopes, and then ultimately presented for payment; unfortunately by Damphousse, not the institution holding the mortgage. The funds were actually deposited in an account that Perrone believed had been closed. Unless Perrone personally checked to see that the mortgage discharge was received, he would be unaware of the fraud. There was no evidence presented describing the minimally acceptable conveyancing bank account system that should have been in place, and how it would have caught this embezzlement.

I do not find that existing case law establishes that a violation of the Disciplinary Rules occurs whenever a law office manager embezzles client funds. Surely, with proper procedures and policies in place a lawyer is entitled to rely upon subordinates properly to record and disburse client funds. While neither Bar Counsel nor respondent’s counsel offered testimony on the subject, it would be remarkable if the vast majority of attorneys working in firms of greater than a few lawyers do not rely on others to deposit, record and safeguard client funds. There certainly cannot be different standards for attorneys depending on the size of the firm in which they work.

Further, all of the disciplinary decisions cited by Bar Counsel include at least a mention of a negligent or knowing failure by the lawyer to respond to indicia that something was amiss with respect to his/her client accounts. For example, In Matter of Newton, 12 Mass. Att’y Disc. Rep. 348 (1996), the lawyer had retired from the full-time practice of law and turned control of his client accounts over to his son, but deposited funds into his client accounts at his son’s request without inquiring why there was a shortfall that had to be covered. Similarly, in Matter of Jerome, 9 Mass. Att’y Disc. R. 176 (1993), the lawyer had delegated all record keeping to his secretary and undertook no review of her work, even when three checks drawn on client accounts were returned for insufficient funds. In the present case, there was no evidence offered that Perrone had any reason to believe that client funds had not been appropriately recorded, safeguarded, and disbursed before April 1997.

On the other hand, there was testimony that funds flowing in and out of the IOLTA accounts, in particular the monthly payments necessary to cover the mortgages that remained undischarged as a result of fraud, would have raised red flags had someone other than Damphousse reviewed them.

On balance, I find neglect in Perrone’s never having asked Pappalardo about the results of his reconciliation of the client accounts. The evidence is unclear as to how many years passed from the time Perrone asked Pappalardo to review those accounts until April 1997, but clearly it was more than two. While Perrone had good reason for his confidence in Damphousse and Pappalardo, I find that complete abdication of all responsibility for client funds and appropriate record keeping without any review constitutes neglect and that neglect contributed to the failure to detect the Damphousse scheme. Such conduct constitutes a violation of Canon Six, DR 6-101, neglect of a legal matter entrusted to a lawyer; and Canon Nine, DR 9 102(B)(3), failure to maintain complete records of the handling, maintenance and disposition of client funds. I do not find that this conduct violated Canon Seven, which requires intentional behavior by an attorney, or Canon Nine, DR Rule 9-102(A).

Count II

Much of the same analysis that informs my decision on Count I applies to Count II. Perrone appears to have been diligent in pursuing the McCarron claim against MILICO and in recovering the proceeds of Jessica’s father’s life insurance policy, plus accrued interest. Perrone properly had Kathleen appointed legal guardian of Jessica so that she would be entitled to receive the policy proceeds on behalf of her daughter. The deposit of those funds into the IOLTA account was not inappropriate, as Perrone would have no reason to believe that he would be holding those funds for more than a brief period of time. Perrone clearly cannot be faulted for assisting McCarron in meeting with investment advisors or counseling her on how to deal with an asset that she held for the benefit of her daughter.

Perrone also would have no reason to doubt Damphousse’s representation that McCarron had taken her daughter’s funds. He certainly would have no reason to believe that McCarron would choose to leave the funds with the Perrone office where they could earn only money market interest rates, or that Damphousse would provide her with a forged bank statement. It would have been good practice for Perrone to write McCarron a letter advising her that he was no longer her lawyer and that she still had continuing obligations as a legal guardian, even though Perrone explained these obligations to her orally earlier. I am not convinced that failure to write this letter constitutes an ethical violation. However, it is even more apparent with respect to the McCarron matters than the mortgage fraud scheme that an independent review of the IOLTA account would have raised questions regarding whether the McCarron funds had been properly disbursed. Therefore, I find violations of Canon Six, DR 6-101(A)(7), and Canon Nine, DR 9-102(B)(2), for the same reasons expressed in consideration of Count I. I do not find violations of Canons One or Seven.

Count III

In Count III, as with the other Counts, the asserted violation of the Canons principally arises out of Damphousse’s embezzlement. As noted in my findings of fact, to the extent that the Bar Counsel bases this Count on Perrone’s having taken a fee to which he was not entitled, that claim has not been proven. Further, while the inventory filed by Perrone’s office with the Probate Court was likely inaccurate, that was a result of Damphousse’s unforeseeable criminal conduct. It was also prepared by Jennings. There was certainly nothing improper in Perrone assigning his associate Jennings to provide legal services to the Estate, as he was certainly competent to do so, and I do not understand Bar Counsel to contend that Jennings was not qualified to work on the matter or less than diligent in representing the Estate.

As with the McCarron matter, however, an independent comparison of the Scott Estate Account bank statements with the schedules of assets collected on its behalf would have revealed potential problems. Indeed, in the months preceding the largest distribution to the Estate’s ultimate beneficiaries, Damphousse transferred nearly $150,000 into the Scott Estate Account in order that there would be adequate funds in that account to support disbursements in the amount that Perrone and Jennings believed should be available for distribution.

Further, Damphousse’s scheme was enabled, in part, by Perrone’s signing blank checks on the Scott Estate Account and telling Burton that it was appropriate for him to do so as well, without receiving any explanation as to the expenses that the checks would be used to pay. While Perrone was undoubtedly willing to do this because of his complete faith in Damphousse’s competence and honesty, this conduct was not acceptable in light of Perrone’s responsibilities not only as counsel to the Scott Estate, but also as co-executor.

I, therefore, find that Perrone’s failure to review the Scott Estate accounts, or at least to inquire of Pappalardo as to whether his reconciliation of client accounts had been completed without incident, and his execution of blank checks drawn on that account violate DR 6-103(A) and DR 9-102(B)(2) and (3).

Recommended Discipline

Perrone’s violation of the Canons, as described above, flows entirely from his entrustment of the management of his firm to Damphousse. I have found no intentionally unethical conduct. I also do not find that Perrone “willfully blinded himself” to red flags, or even more modest indicia that his client accounts were in jeopardy, as Bar Counsel suggests. To the contrary, Perrone had extrinsic indications that the financial affairs of his office were in order. The only returned check of which he was aware in twenty-three years of practice involved a single mortgage discharge check mistakenly issued because a lending institution delayed in providing loan proceeds. Two IRS audits were completed without incident, and, after field audit, Lawyers Title complimented him on his conveyancing procedures.

Further, Perrone had exceptionally good reason to place his trust Damphousse. His close personal relationship with her and her family is well established. She had been his professional colleague from the outset of his private law practice and undoubtedly was an important asset as the practice grew and thrived. Additionally, he asked his friend and accountant Pappalardo to reconcile his client accounts and was never told that such reconciliation had not been undertaken.

Nonetheless, a misappropriation of Perrone client funds occurred. While circumstances will undoubtedly exist in which a theft of client funds by an attorney’s employee may occur in the absence of any neglect on the part of the attorney to whom they were entrusted, I find that even where the attorney is fully entitled to place trust and confidence in his staff, as was certainly the case here, some effective procedure for a second review of client accounts must be put in place if the attorney does not do it himself. In consequence, I conclude that while retaining Pappalardo to reconcile the client accounts might be sufficient, asking Pappalardo to undertake that review and then never checking to ensure that the review was completed, while never receiving some confirmatory statement to that effect, is not. Consequently, a misappropriation of client funds, although not for Perrone’s benefit and not as a result of any intentional conduct, was enabled by Perrone’s neglect.

In Matter of Schoepfoer, 425 Mass. 183, 185, n.2 (1997), the Supreme Judicial Court suggested that when client funds and lawyers’ funds have been commingled, through carelessness, but in the absence of any “wrongful intent” the appropriate discipline is public reprimand. That policy appears consistent with the discipline ordered in Matter of Newton, supra, (commingling of funds and poor record keeping lead to deficiencies in client accounts, public reprimand ordered even though lawyer previously received private reprimand); Matter of Jerome (secretary embezzled $80,000 of funds over three years; lawyer had previously received private reprimand for failure to properly maintain a client fund account; public reprimand ordered); and Matter of Baron, 17 Mass. Att’y Disc. R. 62 (2001) (repeated failure to reconcile accounts in active real estate conveyancing practice notwithstanding notice of previously dishonored checks; public reprimand ordered).

Bar Counsel’s citation to disciplinary proceedings in which the respondent attorney intentionally engaged in wrongful conduct are inappropriate and should not inform the disciplinary outcome. Compare Matter of Gordon, 20 Mass. Att’y Disc. R. 166 (2004) (among other things, lawyer failed to take action to investigate and reconcile accounts after he learned of embezzlement, failed to determine how much clients were due, intentionally withheld information from client); Matter of Zelman, 10 Mass. Att’y Disc. R. 302 (1994) (lawyer knowingly commingled funds, negligently used them for other purposes, falsely advised client that funds had not yet been received); and Matter of Sawyer, 11 Mass. Att’y Disc. R. 245 (1995) (lawyer intentionally commingled estate funds, failed to make bequests, misrepresented his work to beneficiaries, misrepresented facts to Bar Counsel after complaint was filed and never properly accounted for funds placed in his trust).

Finally, no client was subject to foreclosure as a result of Damphousse’s theft of the mortgage discharge funds, and both the Scott Estate and McCarron recovered all sums due them, with interest. I do not believe, as Bar Counsel suggests, that the amount of the embezzlement should inform the severity of the sanction. Perrone enjoyed none of the benefit of the embezzled funds, and the extent of Damphousse’s greed should not be the measure of Perrone’s punishment. Indeed, he was the victim that suffered most at Damphousse’s hands.

In consequence, I recommend that the appropriate discipline is public reprimand. I do not recommend the imposition of any conditions to Perrone’s practice or monitoring of his trust accounts, as ten years have past since the discovery of the embezzlement and Perrone has practiced without incident.

Factors in Mitigation

While my recommended sanction of public reprimand does not depend on the existence of factors in mitigation, I note that some mitigating circumstances are present. Upon discovery of the theft, Perrone responded in all regards as a professional should. The evidence clearly demonstrates that Perrone’s first concern was that no client should suffer any loss. His position with Lawyers Title and Zurich was non-negotiable on this point. Lucie Perrone used the funds in her retirement account to pay the taxes due from the Scott Estate, and Perrone hired an accountant to review the Scott Estate matter, determine the amount that should have been available for distribution, and put its accounts in order. Perrone promptly notified all interested parties, including the BBO, when the defalcation was discovered and took steps to mitigate injury to his clients. He was frustrated in those efforts by Zurich’s bad faith decision to deny coverage on his malpractice policy, but he perservered in prosecuting claims against Zurich. He cooperated fully in Bar Counsel’s investigation.

Perrone also offers as evidence in mitigation the personal and professional losses that he suffered as a result of Damphousse’s theft, as well as its deleterious effect on his health. These injuries, while real and severe were, however, the natural consequence of Damphousse’s breach of trust and theft. I do not find precedent that injuries to a respondent of this nature constitute mitigating factors.

Finally, there is the question of the wholly unexplained delay of eight years from the filing of the first grievance against Perrone to the filing of this petition. The Supreme Judicial Court has recently reconfirmed that “absent proof of substantial prejudice to a respondent’s defense, delay in Bar Counsel’[s prosecution of a disciplinary matter does not constitute grounds for mitigating the presumptive sanction.” Matter of Grossman, SJC-09658 (January 2, 2007), Slip op. at 5. As noted above, Perrone was not prejudiced in the defense of the claim. On the other hand, the evidence presented shows that Perrone struggled to reestablish his practice in the wake of the Damphousse fraud. Certainly, the unresolved question of whether he would be subject to a petition for discipline and the possibility of license suspension has hung over his head since April 1997. Indeed, from November 2001 to the commencement of these proceedings, he apparently did not know if he would be required to provide a third day of testimony to Bar Counsel. I find that the delay in the resolution of these grievances adversely affected Perrone’s ability to recover professionally and physically from Damphousse’s betrayal.

In this case, unlike the respondent in Grossman, Perrone fully cooperated in Bar Counsel’s investigation and none of the delay can be attributed to his conduct. And unlike Matter of Gross, where respondent maintained that he was unaware that disciplinary proceedings were still contemplated, Perrone knew full well that Bar Counsel had not closed this matter. I believe that a question remains as to whether Matter of Grossman and Matter of Gross leave room for consideration of delay as a mitigating factor when (i) the ethical violation was the result of neglect, not intentional conduct, (ii) the respondent has fully cooperated in the investigation and restitution has been made to all injured parties, and (iii) the unexplained delay in prosecution has been found to have increased the hardships suffered by respondent in rehabilitating his practice and his health. I have not answered that question in recommending public reprimand as Perrone’s disciplinary sanction.