Matter of Cavalier: Second Department Clarifies That Chronic Escrow Misuse and Commingling—Even Without Client Loss—Warrants a Two‑Year Suspension

Introduction

In Matter of Cavalier (2025 NY Slip Op 06058), the Appellate Division, Second Department, issued a per curiam opinion imposing a two-year suspension on attorney Matthew John Cavalier for long-running violations of Rule 1.15 of the Rules of Professional Conduct governing escrow accounts, as well as Rule 8.4(h) concerning conduct adversely reflecting on fitness to practice. The disciplinary proceeding was instituted by the Grievance Committee for the Tenth Judicial District and proceeded before a Special Referee, who sustained all ten charges. The respondent represented himself pro se.

The case centers on chronic misuse of an attorney trust account (IOLA), commingling, improper deposits of fiduciary funds into an operating account, paying personal expenses from escrow, failure to keep the mandated books and records, and failure to reconcile over a multi-year period. Although the respondent asserted there was no intent to defraud and that all clients were ultimately made whole, the court emphasized that negligent or “inadvertent” invasions of client funds constitute misappropriation and that a high-volume practice or staff error does not excuse core fiduciary breaches. Relying on its prior sanctioning framework, including Matter of Farkas, 133 AD3d 81, the court suspended Cavalier for two years.

Summary of the Opinion

The Second Department confirmed the Special Referee’s report sustaining all ten charges of professional misconduct. The undisputed proof showed:

Recurrent shortfalls in the escrow balance relative to amounts required to be maintained for identifiable clients and transactions (Ferrara and a Hillside Avenue real estate matter).
Use of the escrow account for personal and business expenses and deposits of personal funds (including proceeds from the sale of the respondent’s real property), resulting in commingling over years.
Deposits of fiduciary funds into the firm’s operating account rather than the required special account.
Failure to maintain required books and records, including client-specific ledgers, and failure to reconcile the trust account from at least 2016 through 2019.
Two dishonored checks on matters for Organization Resources Group (ORG), one attributable to misapplied funds and another to a deficit caused by paying personal expenses from escrow.

Weighing mitigation (candor, charitable work, and positive character evidence) against significant aggravation (multi-year pattern, knowing use of escrow for personal expenses, prior admonition and caution letters concerning escrow, delays in responding to investigations, and lack of direct remorse), the court concluded that a two-year suspension was warranted “under the totality of the circumstances,” expressly citing Matter of Farkas to anchor the sanction.

The order suspends Cavalier for two years commencing December 5, 2025, and provides that he may not apply for reinstatement before June 5, 2027, subject to the usual showings under 22 NYCRR 1240.16. He must comply with 22 NYCRR 1240.15 (rules for suspended attorneys), satisfy the Second Department’s CLE requirements (22 NYCRR 691.11[a]), and return any secure pass issued by the Office of Court Administration.

Detailed Analysis

Factual Pattern and Misconduct

The record, largely established by documentary evidence and the respondent’s own admissions, revealed a persistent pattern of escrow mismanagement:

Escrow deficiencies for client Ferrara: After receiving $110,000 in fiduciary funds in mid-2017 and making disbursements, the respondent was obligated to maintain more than $34,000 in the escrow account. The balance dipped approximately $6,400–$6,650 below what was required on multiple dates in August 2017.
Escrow deficiencies for the Hillside Avenue real estate transaction: A $180,000 down payment was deposited on September 11, 2017, yet during January 2018 the account fell short of the required amount on at least three dates (deficits ranging from about $152 to $792). Combined with Ferrara funds, the escrow was short by approximately $22,000–$24,500 over several dates in late October and early November 2017.
ORG collections matters: In September 2018, at least $2,998.74 should have been maintained, yet the balance was only $962, producing a deficit of $2,036.74 and leading to a dishonored check. The respondent attributed one NSF episode to prior misapplication of payments and another to his own use of escrow for personal expenses, characterizing it as an “inadvertent invasion of client funds.”
Wrong-account deposits: On two ORG matters, a total of $7,420.98 in fiduciary funds were deposited into the firm’s operating account, not into a special account as required. Those funds were later disbursed out of escrow, but not corrected by a contemporaneous transfer from operating to escrow.
Escrow as a personal account: Beginning in 2016, the respondent deposited personal funds—including approximately $308,927.24 from the sale of his own real property—into the trust account. He used the escrow to pay credit cards, insurance, utilities, phone bills, and federal taxes via electronic withdrawals, and he admitted commingling “for at least” two years, at times to keep money “hidden from loved ones” and because it was “just easier.”
Recordkeeping and reconciliation failures: For roughly two and a half years (2016–2019), the respondent kept no client ledgers and failed to reconcile the escrow account, maintaining only bank statements. He acknowledged learning of certain problems only because the Grievance Committee investigated.

The respondent offered explanations—high case volume, staff mistakes, an incorrect recalculation by a title closer that led to a one-time $30,000 over-disbursement later returned by sellers, and a lack of intent to defraud. But he also admitted that he was “bad at math and lazy,” that he knew using escrow for personal transactions was forbidden, and that he had continued to do so even after being warned by the Grievance Committee in prior matters.

Precedents Cited and Their Influence

The opinion expressly cites Matter of Farkas, 133 AD3d 81, as support for the sanction imposed. Farkas functions in Second Department disciplinary jurisprudence as a touchstone for calibrating penalties in cases of prolonged escrow-account violations, commingling, inadequate recordkeeping, and failure to reconcile. In Farkas, as here, a pattern of trust-account misuse and bookkeeping failures, coupled with aggravating circumstances, resulted in a substantial suspension.

By invoking Farkas in the concluding sanction paragraph, the court situates Cavalier within the same remedial range, signaling that:

Multiple and sustained breaches of Rule 1.15—especially misuse of escrow for personal expenses and systemic recordkeeping failures—justify a multi-year suspension.
Mitigation such as candor and charitable work has limited weight when core fiduciary duties are repeatedly violated and prior discipline has already put the attorney on notice.

The citation reinforces a consistent, predictable baseline in the Second Department: prolonged negligent misappropriation and commingling will draw a serious sanction even absent client loss or intent to steal.

Legal Reasoning

The court’s reasoning rests on strict enforcement of fiduciary duties under Rule 1.15 of the Rules of Professional Conduct (22 NYCRR 1200.0) and the broader fitness mandate of Rule 8.4(h):

Rule 1.15(a): Prohibits misappropriation and commingling. Paying personal bills from a trust account and maintaining personal funds in escrow alongside client funds violate this bright-line rule. The court repeatedly treats “inadvertent” or negligent invasions of client funds as misappropriation; intent to steal is not required.
Rule 1.15(b) and (b)(1): Require use of a special account for client and third-party funds; depositing fiduciary funds into an operating account contravenes these provisions, even if funds are ultimately disbursed correctly. The rule focuses on proper segregation at the moment of deposit.
Rule 1.15(d)(2): Mandates detailed books and records—client-specific ledgers showing the source, purpose, and running balance for each beneficiary; and records for every deposit and disbursement. The respondent’s failure to keep ledgers and to reconcile the account for more than two years was an independent violation compounding the risk of misappropriation.
Rule 8.4(h): Conduct adversely reflecting on fitness encompasses chronic escrow misuse and failure to reconcile, which undermine the integrity essential to the attorney-client trust relationship and to the profession’s custodial role over client funds.

The court also weighs mitigation and aggravation in the traditional manner. Mitigating factors included candor, charitable activity, and positive character references. Aggravation was substantial: a multi-year pattern of misuse and commingling; prior discipline (an admonition in 2016 and caution letters in 2010 and 2013, all concerning escrow); continued rule violations despite prior warnings; delays in responding to four separate dishonored-check inquiries; and the absence of direct remorse focused on fiduciary breaches (as opposed to regret about personal financial consequences).

Against this backdrop, the court concluded that the respondent “knowingly failed to honor his obligations as a fiduciary and repeatedly misused his escrow account,” finding a two-year suspension warranted under the totality of circumstances, consistent with the sanctioning approach articulated in Farkas.

Impact and Prospective Significance

The opinion fortifies several practical and doctrinal points in New York attorney-discipline law:

Sanction baseline: Where an attorney engages in prolonged commingling, uses escrow to pay personal expenses, fails to maintain ledgers, and does not reconcile—especially after prior escrow-related discipline—a multi-year suspension is the expected sanction, even if no client ultimately loses money.
No “volume” defense: High-volume practices and staff mistakes will not mitigate the nondelegable duty to safeguard client funds and to maintain proper records.
Intent is not dispositive: The absence of intent to defraud does not shield an attorney from serious discipline for negligent misappropriation and commingling. “Inadvertent invasion of client funds” still equals misappropriation.
Wrong-account deposits matter: Even temporary or mistaken deposits of fiduciary funds into an operating account violate Rule 1.15(b)(1), regardless of subsequent correct disbursement.
Escrow is not a personal bank: Using an IOLA account to “hide” personal funds or for convenience is per se misuse and is aggravating.
Progressive discipline: Prior admonitions and caution letters on escrow issues substantially aggravate and escalate sanctions for later violations.
Compliance roadmap: The order reiterates reinstatement prerequisites under 22 NYCRR 1240.16 and compliance duties during suspension under 22 NYCRR 1240.15, along with the Second Department’s CLE requirement at 22 NYCRR 691.11(a). The early-application date (six months before the end of the suspension) reflects the procedural timeline permitted by the court’s rules.

For practitioners, Cavalier is a cautionary signal that “no harm, no foul” is not a viable stance in escrow matters. The case will likely be cited by grievance counsel and referees as authority that extended, negligent escrow misuse and recordkeeping failures, even without theft, warrant a suspension of meaningful length.

Practical Guidance for Attorneys

Maintain strict segregation: Deposit all client and third-party funds into a designated IOLA or other special account. Never place fiduciary funds into an operating account. Do not keep personal money in the trust account beyond the minimal amount needed to cover bank charges (and then only if permitted by rule).
Eliminate personal transactions from escrow: Do not use the trust account to pay credit cards, utilities, taxes, or any personal/business expenses. Disable any ACH auto-payments from escrow.
Keep contemporaneous ledgers: For each client/matter, maintain a running ledger showing every deposit, disbursement, purpose, and balance. Preserve deposit slips, check copies, and wire confirmations with identifying detail.
Reconcile monthly: Reconcile the bank statement to the checkbook and to the sum of all client ledgers every month. Document and promptly resolve any discrepancies.
Train and supervise staff: While staff can assist, responsibility is nondelegable. Implement written protocols for deposits, disbursements, and ledger entries, and audit adherence regularly.
Respond promptly to inquiries: Timely, complete responses to dishonored-check notices and grievance inquiries are essential and may mitigate in otherwise difficult cases.

Complex Concepts Simplified

Escrow/Trust Account: A special bank account where lawyers hold client and third-party funds. It is not the lawyer’s money. Strict rules govern deposits, disbursements, and recordkeeping.
IOLA Account: “Interest on Lawyer Account.” Interest generated is remitted to a public fund; the lawyer must never use the account for personal purposes.
Fiduciary Funds: Money held for clients or others (e.g., down payments, settlements, liens). These funds must be safeguarded and kept separate from the lawyer’s own funds.
Commingling: Mixing client funds with the lawyer’s personal or firm funds. This is categorically prohibited.
Misappropriation: Any unauthorized use of client funds, including negligent or “inadvertent” invasion—intent to steal is not required to violate the rule.
Reconciliation: The monthly process of matching the bank statement, check register, and client ledgers to ensure accuracy and detect problems.
Special Referee: A judge or lawyer designated to conduct hearings in disciplinary matters, make findings, and report to the Appellate Division.
Admonition/Letter of Caution: Non-public forms of discipline or guidance indicating prior issues; they aggravate sanctions for repeat misconduct.
Rule 8.4(h): Prohibits conduct that adversely reflects on a lawyer’s fitness to practice, a broad standard encompassing chronic fiduciary failings.
22 NYCRR 1240.15 and 1240.16: Rules governing the conduct of suspended attorneys and the procedures/requirements for reinstatement applications.
22 NYCRR 691.11(a): The Second Department’s continuing legal education requirement applicable, among other times, upon reinstatement.
OCA Secure Pass: Court-issued identification enabling attorney access to courthouses; suspended attorneys must return it and certify compliance.

Conclusion

Matter of Cavalier underscores the Second Department’s firm stance on escrow integrity: sustained mismanagement, commingling, and recordkeeping failures—regardless of intent or eventual restitution—manifestly undermine fitness to practice and warrant significant suspension. By invoking Matter of Farkas, the court situates Cavalier within a stable sanctioning framework that prioritizes the protection of client funds and the integrity of the bar over claims of convenience, staff error, or practice volume. The decision provides clear, practical guidance for attorneys and reaffirms that prior warnings elevate the consequences of noncompliance. In New York, the fiduciary duties embedded in Rule 1.15 are nonnegotiable; the cost of treating an escrow account like a personal checking account is a loss of the privilege to practice law.