Attorney disbarred for using client’s home-sale for slush fund

Creedmoor Psychiatric Center in Queens, where Julio Ceasar Galarza’s client was hospitalized while he took advantage of her financially. Photo: Jim Henderson/Wikimedia Commons

LONG ISLAND — A Long Island attorney who turned a vulnerable client’s home-sale proceeds into his personal funding source has been disbarred by the Appellate Division, Second Department.

In an opinion issued Wednesday, the court removed Julio Ceasar Galarza from the bar after finding that his handling of a client amounted to a “course of self-dealing” and said that he “actively took financial advantage of a vulnerable individual.”

Galarza named himself heir to his client’s money, paid off his Lowe’s and Home Depot credit cards from her trust, and billed hundreds of dollars an hour to pick up her mail and supervise a move between storage units.

In early 2019, the client, who is identified in court documents as JH, came to Galarza for help defending a specific performance action over the sale of her house in East Meadow, which was condemned by the Town of Hempstead.

According to the record, she had been living out of her car in the driveway and had no money to retain counsel. Galarza agreed to represent her for a flat fee of $7,500.

He negotiated a new contract of sale, increasing the purchase price from $185,000 to $240,000, closing the deal in May 2019. After taxes, fees and other disbursements, about $194,000 in net proceeds went into the IOLA escrow account of another lawyer, Elliot Small, who acted as escrow agent.

From there, the relationship changed. Using a series of powers of attorney that named him as JH’s agent, Galarza expanded his role from litigation counsel to de facto manager of her affairs.

He began representing her in a traffic case, a Nassau County criminal matter, a Queens mental health court matter and a Court of Claims personal injury claim.

The court found that he did this without issuing any new written retainer agreements or engagement letters, even though his fees in each matter exceeded $3,000.

According to the opinion, he billed $300-$400 not just for court work but for “numerous nonlegal activities,” including supervising JH’s move from one storage unit to another, reviewing her mail and, at least 19 times, picking up her mail at the post office.

Bills went not to JH, but directly to Small, who paid Galarza from the sale proceeds held in escrow, based on the affirmations of legal services Galarza submitted. JH, the court explained, had no practical control over whether or when those payments were made.

In late 2019, JH was jailed and then transferred to Creedmoor Psychiatric Center.

While hospitalized there, she was assigned separate counsel from Mental Hygiene Legal Service. During this period, Galarza wrote to Adult Protective Services stating that developments had led him to question her ability to care for herself.

He continued to see her, accompany her to appointments and bill her estate, but there is no indication he consulted her mental health lawyer about the financial arrangements he was putting in place.

The centerpiece of the disciplinary case was a revocable living trust created while JH was at Creedmoor.

Acting under the power of attorney, Galarza executed a trust agreement naming himself trustee of the “[JH] Revocable Living Trust,” with JH as grantor. The trust document provided that if JH died without children, the remaining trust assets would go to Galarza. It also named his 23-year-old son, who had no prior relationship with JH, as successor trustee.

JH never saw the trust agreement, and there was no evidence that it had been read to her.

Within days of signing it, Galarza opened a trust account at JPMorgan Chase and directed Small to transfer the remaining sale proceeds, more than $110,000 initially and later another $17,000-plus, into that account.

Once the money was in the trust, the opinion recounts, Galarza began using it to pay himself directly.

On June 2, 2020, he wired $8,000 from the trust account to his personal Lowe’s credit card. Ten days later, he wired $1,500 to his personal Home Depot card. Between August and December 2020, he wrote three checks to himself from the trust account totaling more than $45,000, describing them as attorney’s fees.

At times, he admitted, he would “guesstimate hours, write a check, and then … do a bill a week later or a couple of days later.”

All of this occurred while JH was in a psychiatric facility or newly released. The court noted that from December 2019 through August 2020, “he was working pursuant to the power of attorney and was paying himself accordingly.”

By April 2021, the relationship had broken down. Galarza resigned as trustee and returned what was left in the account to JH, about $38,400, according to the opinion. He told the court he believed roughly $49,000 remained and claimed to have uncollected bills of more than $7,000.

The Grievance Committee for the Tenth Judicial District charged him with five counts of misconduct.

They included failing to communicate the scope and basis of his fees in writing, charging excessive and unreasonable fees, representing a client despite a serious personal financial conflict of interest, and engaging in conduct that adversely reflected on his fitness as a lawyer.

A special referee sustained all five charges after a multi-day hearing.

The Second Department granted the Grievance Committee’s motion to confirm that report and rejected Galarza’s request for leniency.

The court noted his arguments about health and personal stress but found that he did not “appreciate the severity of his misconduct.”

The opinion stressed that this was a sustained misuse of a client’s money.

The panel wrote that he “actively ignored his duties required by the Rules of Professional Conduct and his duty as a fiduciary to safeguard his client’s limited assets” and concluded that “the severest of sanctions” was necessary.