Suspended Lawyers Forfeit Fees: Colorado PDJ Reaffirms Automatic Disbarment for Knowing Conversion and Clarifies Restitution to Third-Party Payors in People v. Vahsholtz

Introduction

This commentary analyzes the July 11, 2025 opinion of the Office of the Presiding Disciplinary Judge (PDJ) of the Colorado Supreme Court in People v. Vahsholtz, No. 24PDJ090. Presiding Disciplinary Judge Bryon M. Large disbarred attorney George Robert Vahsholtz and ordered restitution, applying the American Bar Association’s Standards for Imposing Lawyer Sanctions (ABA Standards) and Colorado Rules of Professional Conduct (Colo. RPC).

The case presents a clear reaffirmation of Colorado’s “virtually automatic” disbarment rule for knowing conversion of client funds. It also clarifies two practical questions that recur in disciplinary cases: (1) fee entitlement when a lawyer is suspended at the time fees are taken, and (2) how restitution is calculated when a third-party payor funds a joint engagement and some work is performed by co-counsel who later elects to proceed pro bono. The PDJ holds that a suspended lawyer is not entitled to keep any portion of fees for legal services and that restitution to the third-party payor equals the retainer minus only those amounts properly paid to authorized counsel, even if some services were later performed without charge.

The parties were the People of the State of Colorado, represented by the Office of Attorney Regulation Counsel (OARC), and respondent-attorney George Robert Vahsholtz. The misconduct centers on accepting a $20,000 advanced fee retainer while suspended, depositing it into a business account rather than a trust account, failing to refund unearned funds, and knowingly converting client property.

Summary of the Opinion

After respondent failed to answer the complaint, the PDJ entered default under C.R.C.P. 242.27(a), deeming all allegations admitted, and conducted a sanctions hearing under C.R.C.P. 242.27 and 242.30. The Court found that, while suspended, Mr. Vahsholtz:

Entered a joint fee agreement to represent a criminal defendant, with $10,000 designated for trial-level work and $10,000 for an appeal;
Deposited the $20,000 advanced fee into a business account (not a trust account), despite knowing the funds were unearned;
Paid co-counsel $6,700 for initial services but failed to refund the unearned balance, even after the representation terminated and after requests for return of funds; and
Continued to exercise dominion over the funds without authorization, amounting to knowing conversion.

The PDJ concluded that respondent violated:

Colo. RPC 1.15A(a) (failure to hold client/third-party property separate from the lawyer’s property in a trust account),
Colo. RPC 1.16(d) (failure to protect client interests upon termination, including refunding unearned fees), and
Colo. RPC 8.4(c) (conduct involving dishonesty; knowing conversion).

Applying ABA Standards 4.11 and 8.1(b), the Court imposed disbarment and ordered $13,300 in restitution to the third-party payor (the client’s father), representing the retainer less only the $6,700 paid to authorized co-counsel. The PDJ emphasized five aggravators and found no mitigation. Disbarment will take effect upon issuance of an Order and Notice of Disbarment; restitution is due by August 15, 2025.

Analysis

Precedents Cited and Their Influence

People v. Varallo, 913 P.2d 1 (Colo. 1996): The Court relied on Varallo’s bedrock principle: knowing misappropriation of client funds almost always results in disbarment absent “extraordinary mitigation.” The PDJ found no mitigating factors, aligning this case with Varallo’s disbarment presumption.
People v. Kearns, 843 P.2d 1 (Colo. 1992): Kearns characterizes disbarment for knowing conversion as “virtually automatic.” The PDJ invoked this framing to stress the inevitability of disbarment on the facts admitted by default.
People v. Lavenhar, 934 P.2d 1355 (Colo. 1997): Lavenhar demonstrates that multiple aggravators can tip the scale decisively toward disbarment. The PDJ analogized to Lavenhar in noting five aggravators and the absence of mitigation here.
People v. Love, 775 P.2d 26 (Colo. 1989): Love supports ordering restitution when a person engages in the unauthorized practice of law (UPL). The PDJ used Love’s logic to conclude a suspended lawyer is not entitled to any fees for legal services and must restore those fees.
In re Roose, 69 P.3d 43 (Colo. 2003): Roose underscores that both ABA Standards and Colorado case law guide sanctioning. The PDJ explicitly anchored its analysis in the ABA Standards and the state’s disbarment jurisprudence.
In re Attorney F., 2012 CO 57, and In re Rosen, 198 P.3d 116 (Colo. 2008): These cases caution that sanctioning is case-specific, not purely analogical. They endorse flexibility within the ABA Standards, which the PDJ invoked while still treating disbarment as the presumptive sanction.

Legal Reasoning and Path to Decision

The PDJ’s analysis proceeds in three steps: default and fact-finding; rule violations and mental state; sanction selection under the ABA Standards with aggravators/mitigation.

1) Default and Fact-Finding under C.R.C.P. 242.27

After multiple notices and orders to answer, respondent failed to respond. Under C.R.C.P. 242.27(a), a default was entered, which deemed the complaint’s factual allegations admitted. Importantly, even after default, the PDJ held a sanctions hearing as required by C.R.C.P. 242.27(b), at which the People presented testimony and exhibits. This procedure ensured due process on sanction even though liability issues were fixed by default.

2) Rule Violations and Mental State

Colo. RPC 1.15A(a): By depositing an advanced fee retainer into a business account and commingling client funds with personal funds (including later by mixing the remainder with $50,000 of his own in a non-trust account), respondent violated the trust-account segregation requirement. The PDJ emphasized that the duty to safeguard attaches at receipt of unearned funds.
Colo. RPC 1.16(d): The representation “terminated” at the latest when respondent told the client in June 2023 that co-counsel was no longer involved and another lawyer was handling the appeal. Respondent then had a present duty to refund any unearned money; he did not.
Colo. RPC 8.4(c): The Court found knowing conversion. Respondent knew the funds were unearned, knew he lacked authorization from the client or the payor to treat the money as his, and continued to exert dominion over the funds without right. The finding of a knowing state of mind also attached to the 1.15A(a) and 1.16(d) violations.

3) Sanction under the ABA Standards

The PDJ applied ABA Standard 3.0 to weigh duty, mental state, and injury:

Duty: Safeguarding client/third-party property; protecting client interests upon termination.
Mental state: Knowing conversion and knowing failure to safeguard/refund.
Injury: Concrete financial harm to the client and his father, including disruption of retirement finances; reputational harm to the profession.

On presumptive sanction, ABA Standard 4.11 (knowing conversion causing injury) and ABA Standard 8.1(b) (repeat misconduct following prior suspension) both point to disbarment.

Aggravation substantially reinforced the presumptive sanction (ABA Standard 9.22): (a) three prior disciplinary offenses since 2019 (including practicing while suspended and mishandling client funds); (b) dishonest/selfish motive; (c) pattern of misconduct; (h) vulnerability of the victim (fixed retirement income); and (i) substantial experience in the practice of law (admitted in 1976). No mitigating factors were shown.

Against this backdrop, and consonant with Varallo and Kearns, the PDJ held that disbarment is the only appropriate sanction. The Court ordered additional relief including restitution, costs, and compliance with post-sanction obligations under C.R.C.P. 242.32.

Restitution: Key Clarifications on Fee Forfeiture and Third-Party Payors

The People sought $10,000 in restitution (the amount earmarked for the appeal). The PDJ ordered $13,300. The calculation is straightforward and instructive:

Retainer received from third-party payor (client’s father): $20,000;
Properly accounted-for disbursement to authorized co-counsel: $6,700;
Restitution owed: $20,000 − $6,700 = $13,300.

Two principles drove this outcome:

Fee forfeiture when suspended: Because respondent was suspended, he “is not entitled to any of the retainer.” This echoes the unauthorized practice-of-law restitution principle recognized in People v. Love. The PDJ refused to credit respondent with any “earned” portion because he was categorically unauthorized to perform legal services.
Pro bono services by co-counsel do not reduce restitution: Although up to $915 of work may have been performed on the appeal, co-counsel elected not to bill for that work. Because the client owed nothing for those tasks, there is nothing to offset. The only permissible reduction from restitution is the $6,700 actually and properly paid to authorized counsel for billed work.

The PDJ also directed that restitution be paid to the third-party payor (the father), acknowledging that restitution under C.R.C.P. 241 encompasses return of “fees, money, or other things of value that were paid or entrusted to a lawyer.” The order further provides for reimbursement to the Attorneys’ Fund for Client Protection if it pays any claim arising from this matter.

Procedural Nuances Worth Noting

Service defect cured and second default: The People initially served the complaint at the registered business address but not the correct registered work email. The PDJ withdrew the first default motion to permit proper service via the registered email and set a new deadline. Respondent still did not answer, leading to a second motion and entry of default.
Default vs. default judgment: The PDJ highlighted that, in discipline, an entry of default is not a final judgment on sanction; C.R.C.P. 242.27(b) requires a sanctions hearing even after default. This distinction protects the integrity of the sanctioning phase.
Post-sanction obligations: The order requires compliance with winding-up and notice duties (C.R.C.P. 242.32), filing of the compliance affidavit, payment of costs, and proof of restitution as a condition of any future readmission petition.

Impact and Implications

The opinion has several forward-looking effects in Colorado lawyer discipline:

Reaffirmed rule: Knowing conversion of client or third-party funds leads to disbarment absent extraordinary mitigation. The bar should regard this as a near-per se outcome, especially where prior discipline and other aggravators are present.
Fee entitlement for suspended lawyers: The PDJ makes explicit that a suspended lawyer cannot keep any portion of fees for legal services, even if work is claimed. This makes fee forfeiture categorical in suspension-based UPL scenarios.
Restitution to third-party payors: The case underscores that restitution can and should be ordered to the person who paid the funds, not just the client, when the third party is the source of the retainer.
Accounting in joint representations: Where an unauthorized lawyer has received an undifferentiated retainer and later disburses part to authorized co-counsel, restitution equals the retainer minus only properly documented, billed disbursements. Unbilled or pro bono work does not reduce restitution.
Trust account compliance: Lawyers must maintain trust accounts and deposit unearned fees into trust. Commingling, particularly by placing funds into a business account, will be treated as a serious violation even before overt dissipation occurs.
Procedural caution for respondents: Nonparticipation and default foreclose opportunities to present mitigation. In matters involving conversion, a failure to appear all but guarantees disbarment.

Complex Concepts Simplified

Advanced fee retainer: Money paid up front that belongs to the client (or third-party payor) until earned. It must be placed in a trust account, not a business account.
Trust account vs. business account: A trust (IOLTA) account holds client/third-party funds separate from the lawyer’s property. A business account holds the lawyer’s own funds. Mixing the two is “commingling” and violates Colo. RPC 1.15A(a).
Knowing conversion/misappropriation: Using, keeping, or exerting dominion over client/third-party funds, knowing they are not the lawyer’s to use. Intent to permanently deprive is not required; knowledge that the funds are not yours and using them suffices.
Termination of representation and refunds: When representation ends, Colo. RPC 1.16(d) requires prompt refund of unearned fees and steps to protect client interests.
ABA Standard 4.11: Disbarment is generally appropriate when a lawyer knowingly converts client property causing injury or potential injury.
ABA Standard 8.1(b): When a lawyer repeats similar misconduct after prior discipline (e.g., post-suspension), disbarment is generally appropriate. Note: This is an ABA Standard, not Colo. RPC 8.1.
Aggravating vs. mitigating factors: Circumstances that increase (aggravate) or decrease (mitigate) the sanction. Multiple aggravators with no mitigation almost always lead to the maximum sanction in conversion cases.
Third-party payor restitution: If someone other than the client paid the lawyer, restitution may be ordered to that payor because the funds remain their property until earned.
Attorneys’ Fund for Client Protection: A fund that can reimburse clients for losses caused by lawyer dishonesty; the disciplined lawyer must reimburse the Fund if it pays a claim.

Conclusion

People v. Vahsholtz is a decisive reaffirmation of Colorado’s disbarment norm for knowing conversion and a practical clarification of restitution principles. The PDJ held that a suspended lawyer cannot keep any portion of fees for legal services and that restitution to a third-party payor equals the retainer minus only sums properly disbursed to authorized counsel for billed work. The opinion also demonstrates the weight of aggravation—particularly prior discipline for similar conduct, selfish motive, pattern, victim vulnerability, and long experience—in cementing disbarment as the only appropriate sanction when no mitigation is presented.

For Colorado lawyers, the message is unambiguous: do not accept advanced fees while suspended; maintain a trust account and segregate all unearned client or third-party funds; and upon termination, promptly refund any unearned amounts. For clients and third-party payors, the opinion provides assurance that Colorado’s disciplinary system will restore improperly held funds and protect the integrity of the profession through robust sanctioning.