In the Matter of Lilly (Review Dept. 1992) 2 Cal. State Bar Ct. Rptr. 185
No. 86-O-13282 • Filed Aug. 21, 1992 (as modified Nov. 5, 1992)
Facts
David Greene Lilly was admitted in 1965 with no prior discipline. In early 1986, Lilly agreed to assist Michael Wagner and J. Lynn Thornburgh in forming “Rodeo Coach,” a venture to lease a Beverly Hills site for an exotic/classic car business. American Savings & Loan required a $27,000 deposit to secure exclusive lease negotiations.
On April 8, 1986, Lilly wrote American stating he was holding “$27,000 in my trust account on behalf of Rodeo,” though no such trust account held those funds at the time. A $27,000 check initially provided by Wagner bounced. Thornburgh then wired $27,000; Wagner handed Lilly a $20,000 cashier’s check and a separate $7,000 check (not deposited). Lilly deposited the $20,000 into his general business account (used for a publishing venture with Wagner) rather than a client trust account and never transmitted any portion to American.
Bank records showed the balance in Lilly’s business account fell to $5,694.02 by May 14, 1986 and to $137.64 by July 16, 1986, even as he maintained over $40,000 in a personal savings account at the same bank. Thornburgh demanded segregation of funds; Lilly later opened a new “trust” account on June 27, 1986 and placed $20,000 there—but sourced that deposit from the Estate of Hiatt, for which he served as executor, without prior court approval or the estate attorney’s consent. Rodeo never launched; Thornburgh discharged Lilly, retained counsel, settled with American, and ultimately recovered his money in early 1987.
The State Bar Court found Lilly commingled and misappropriated the funds and misrepresented to a third party (American) that he held the money in trust. Although Lilly argued he was not Thornburgh’s attorney and that Wagner consented to his handling, the record and his own pleadings showed he held himself out as counsel for both men and, regardless, owed fiduciary duties when holding funds for another.
Charges
- Former Rule 8-101(A) (now Rule 4-100(A)): failure to deposit and safeguard entrusted funds in a trust account (commingling).
- Bus. & Prof. Code §6106: moral turpitude/dishonesty—both by misappropriation and by false statement to a third party that funds were held in trust.
- Not proven: §6068, §6103, and former Rule 6-101(A)(2).
Defenses
- Claimed no attorney-client relationship with Thornburgh—rejected (credible testimony, Lilly’s own cross-complaint, and counsel’s concession).
- Claimed client consent to place funds outside a trust account—irrelevant; the rule admits no such exception.
Mitigation
- No prior discipline over ~21 years of practice.
Restitution received little weight: the $20,000 “trust” deposit came from probate funds taken without court approval and the client had to hire counsel and litigate.
Outcome
The hearing judge recommended disbarment. On review, the court affirmed culpability but, considering Lilly’s long discipline-free record and the relatively short duration and single-matter scope, recommended a five-year stayed suspension with five years’ probation and three years’ actual suspension and until proof of rehabilitation, fitness, and legal learning under Standard 1.4(c)(ii). Additional conditions included ethics exam/school, CPA-verified trust accounting, and a probation monitor.
Sanctions Summary
| Charges | Defenses | Mitigation | Aggravation | Outcome | Sanction |
|---|---|---|---|---|---|
| Commingling; Misappropriation; §6106 dishonesty | No A-C relationship; client consent to non-trust account (rejected) | 21 years with no prior discipline | Probate funds used for “restitution”; client needed counsel/litigation | Disbarment rejected; culpability affirmed | 3 years actual suspension + 5 years stayed & 5 years probation, and until rehabilitation showing (Std. 1.4(c)(ii)) |
Additional terms: ethics exam/school; CPA trust-account audits; probation monitor; reporting and compliance conditions.
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