When an attorney dips into client funds held in a trust account—even temporarily, even with every intention of paying the money back—the legal and professional consequences can be severe. The 1991 North Carolina Court of Appeals decision in NC State Bar v. Mulligan, 101 N.C. App. 524 (1991), remains an instructive example of how seriously the State Bar treats trust account violations, and why attorneys facing disciplinary proceedings need experienced counsel by their side from the very beginning.
What Happened in Mulligan
J. Bruce Mulligan was a Winston-Salem attorney who transferred funds from his client trust account into his general office account and his personal savings account. He acknowledged the transfers. His defense rested largely on the fact that he had always intended to return the money—and in fact did return it. He also attempted to introduce a psychiatrist’s affidavit to provide context for his conduct, and he argued that the State Bar’s Hearing Committee should not have applied strict evidentiary rules during the disciplinary proceeding.
The Court of Appeals rejected all of these arguments. On the evidentiary question, the court noted that the North Carolina State Bar’s own rules require that hearings be governed by the same rules of evidence applicable in superior court. Because the psychiatrist, Dr. Selwyn Rose, was available to testify and had not been deposed, his affidavit was inadmissible hearsay. The fact that nine other character affidavits had been admitted without objection did not change that result—those affidavits addressed reputation and character, while Dr. Rose’s affidavit contained professional conclusions drawn from a one-sided examination. They were simply not “similar evidence of like import,” as required under North Carolina’s waiver doctrine.
The Embezzlement Question
The more significant holding in Mulligan concerns the relationship between trust account misappropriation and criminal embezzlement. The court found that Mulligan’s conduct violated Rules 1.2(B) and 1.2(C) of the Rules of Professional Conduct—rules prohibiting criminal acts reflecting adversely on a lawyer’s honesty, and conduct involving dishonesty, fraud, deceit, or misrepresentation.
Mulligan argued he had committed no criminal act. The court disagreed, citing State v. Melvin, 86 N.C. App. 291 (1987), which held that an attorney depositing client funds into a personal account rather than a trust account presents sufficient evidence to support an embezzlement charge. More importantly, the court applied the well-established rule that intending to return misappropriated property is not a defense to embezzlement. Citing State v. Agnew, 294 N.C. 382 (1978), the court confirmed that the willingness and ability to repay does not negate the offense. The taking itself—however temporary—constitutes the crime.
This principle has serious implications for any attorney who treats a client trust account as a short-term borrowing facility. Under North Carolina law, the moment funds belonging to a client are moved for the lawyer’s own benefit, the elements of embezzlement may already be satisfied. The disciplinary consequence flows directly from that criminal characterization, even without a criminal conviction.
Why Disciplinary Proceedings Demand Serious Legal Representation
One of the underappreciated lessons of Mulligan is procedural. The attorney’s effort to introduce the psychiatrist’s affidavit late in the proceedings—signed just the day before the hearing—was a strategic failure that compounded his situation. Had Dr. Rose been deposed properly and in advance, plaintiff’s counsel would have had an opportunity to cross-examine him, and the affidavit (or deposition testimony) might have been considered. The court noted this explicitly. Good preparation and proper procedure matter just as much in a State Bar hearing as they do in a courtroom.
At The Chetson Firm, we have written extensively about the stakes involved in defending attorneys in NC State Bar disciplinary proceedings. A finding of professional misconduct can result in suspension or disbarment—consequences that end a career. But disciplinary proceedings also carry collateral risks: the conduct at issue may simultaneously expose the attorney to criminal prosecution for embezzlement, theft, or fraud. Understanding both the professional and criminal dimensions of a trust account allegation is essential from day one.
We have also discussed how the Disciplinary Hearing Commission exercises significant discretion in these matters, and why procedural missteps—like those in Mulligan—can foreclose arguments that might otherwise have merit. Attorneys who find themselves under investigation should resist the temptation to handle the matter themselves or to minimize it as purely administrative. These proceedings are governed by evidentiary rules, legal standards, and appellate review. They deserve the same careful attention as any other serious legal matter.
Professional License Defense for Attorneys
Trust account violations are among the most commonly charged forms of attorney misconduct in North Carolina, and they are among the most difficult to defend once the underlying facts are established. The lesson of Mulligan is that even a good-faith intent to return funds does not insulate an attorney from discipline—or from criminal exposure. Early intervention by skilled defense counsel can make a meaningful difference, both in shaping the evidentiary record and in presenting mitigating circumstances effectively.
If you are an attorney under investigation by the North Carolina State Bar, or if you have received notice of a grievance or a hearing, do not wait. The decisions made in the early stages of a disciplinary proceeding—about what evidence to gather, which witnesses to prepare, how to characterize contested conduct—can define the outcome. Our professional license defense practice is designed specifically for licensed professionals facing these high-stakes proceedings. We understand the procedural landscape, the evidentiary rules, and the relationship between professional discipline and criminal law.
Contact The Chetson Firm at our Raleigh office, 19 W. Hargett St., Suite 400, to discuss your situation confidentially. The earlier we are involved, the more we can do to protect both your license and your liberty.