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Disbarment for spending $317,000 of client’s money

A Southern California lawyer accused by the State Bar of spending more than $317,000 of client money on travel, clothing and beauty treatments has lost her license. MELODYE SUE HANNES [#192977], 44, of Studio City was disbarred Nov. 12, 2006, and was ordered to comply with rule 955.

The State Bar Court found that Hannes committed seven acts of misconduct in a divorce case, including misappropriating $317,584.41 from her client, who had received a settlement in a personal injury case that was litigated while the divorce was ongoing.

Hannes deposited a check for $310,766.29 into her client trust account where it was to be held until further order of the court or agreement of the parties. The money included an undetermined sum to which the ex-wife was entitled. The client also gave Hannes $15,000 that he owed his ex-wife, and she deposited that money in her client trust account as well.

After the court ordered that the money be held in trust, Hannes spent more than $317,000 over a six-month period on cross-country and overseas vacations, clothing, hobbies, dining out, dietary supplements, tanning and beauty salons and other personal expenses, according to bar court Judge Richard Honn, who provided a precise breakdown of Hannes’ expenditures:

  • She made 30 wire or telephonic transfers totaling more than $45,000 and approximately 47 cash withdrawals totaling more than $125,000 from her client trust account for her personal benefit.
  • She wrote checks against the account totaling more than $25,000 for personal use, including more than $17,000 for travel and $6,500 paid to her law office.
  • During a six-month period, Hannes made more than 140 point-of-sale or check card purchases from the account totaling more than $40,000 on expenses that included tanning and beauty salons, a weight-loss clinic, travel, dining out, clothing, markets and other stores, utilities and other miscellaneous items.

Hannes made only three disbursements, totaling $8,100, from the account that were related to the divorce: each was a check for $2,700 for the client’s ex-wife. Ultimately, the balance in the trust account fell to $81.88.

Unaware that Hannes was spending his money, her client later gave her another $9,000 in attorney fees.

While the divorce case was pending, the mortgage on the client’s community property residence went into default. The court ordered Hannes to cure the default by using funds she was supposed to be holding in trust, but she did not do so and a foreclosure sale was scheduled.

The court ordered Hannes to transfer almost $60,000 to the ex-wife’s lawyer within 24 hours so she could cure the default; Hannes did not comply.

At an order to show cause hearing, Hannes told the court she had faxed a copy of her most recent trust account statement that showed sufficient funds were being held. In fact, she had altered a statement with the intent to deceive the other lawyer, Honn found. At the time, her trust account actually was overdrawn, with a negative balance of $9.87.

The court ordered Hannes to provide an accounting of the community funds held in her trust account, including copies of monthly statements, checks and withdrawal documents. She also was ordered to transfer to the ex-wife’s lawyer all funds held in trust for the couple.

Hannes did not transfer any funds.

The ex-wife was forced to file bankruptcy in order to forestall the foreclosure sale of the residence.

When a State Bar investigator attempted to contact Hannes, the letters were returned because she abandoned her office.

Honn found that Hannes failed to maintain client funds in trust, violated two court orders, failed to keep her address current with the State Bar and committed three acts of moral turpitude by misappropriating client funds, charging her client additional legal fees when she knew she had misappropriated his money, and altering a bank statement to create the impression that her trust account held more money than it did.

Noting that her misconduct started just six years after she was admitted to practice and continued over three years, Honn said she had “frittered . . . away” her client’s money “living the high life” and showed no concern for her client. “She engaged in a course of serious dishonest conduct over three years,” Honn wrote. “Her wrongdoing started not too long after she started practicing law. She offered no mitigating circumstances because she did not participate in these proceedings.”

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