By Joseph Ax

NEW YORK, Dec 18 (Reuters) - Bronx Surrogate Lee Holzman should be censured but not removed from office for failing to fire a lawyer in his court who charged estates hundreds of thousands of dollars in legal fees before performing any work, the state Commission on Judicial Conduct ruled on Tuesday.

The commission filed charges against Holzman after Michael Lippman, the former counsel to the public administrator, was indicted in 2010 for stealing $300,000 in excess fees. Lippman has pleaded not guilty.

The public administrator handles estates for which there is no designated heir, and its counsel is subject to oversight by the surrogate.

The commission faulted Holzman for not firing Lippman upon learning that he violated court protocol and for failing to alert law enforcement and disciplinary authorities about his actions.

"Instead, respondent failed to report Mr. Lippman's misconduct and permitted him to remain in a position of public trust for three years under an ill-conceived plan to repay the unauthorized monies he had collected, thereby putting the estates under his care at further risk and conveying the appearance of favoritism," the commission wrote in its decision. "Respondent's abdication of his ethical responsibilities, which was influenced by his long and close professional relationship with Mr. Lippman, constitutes serious misconduct."

The commission, however, dismissed other charges of misconduct, including a claim that Holzman rubber-stamped Lippman's fee requests without proper documentation.

Holzman, who has served as surrogate judge in the Bronx since 1988, is already set to leave the bench at year's end after reaching the mandatory retirement age of 70.

Holzman's attorney, David Godosky, said Holzman had only done what he thought was best for the estates under his supervision.

"Once the surrogate was informed of any departure of protocol, not a penny of harm occurred to any estate of the public administrator's office," he said.

Holzman has 30 days to appeal the decision to the Court of Appeals. Godosky said a decision on whether to do so has not been made.

In two dissenting opinions, three of the commission's 11 members said they would have gone further and recommended that Holzman be removed for his actions.

In one dissent, Richard Emery faulted the majority for a punishment that "defies logic," given the findings.

"Removal is the only sanction which is commensurate with respondent's uncontroverted, sustained, self-aggrandizing misconduct," he wrote. "And that is because it is clear that respondent's three-year cover-up of the criminal acts of his appointee and long-time colleague was actually an attempt to protect himself from scandal and cover up his own misconduct."

The commission's counsel, Robert Tembeckjian, had pushed for Holzman's removal from the bench despite his retirement plans.

"I believed removal from office was the appropriate result based on the judge's egregious misconduct," he said in a statement following the ruling.

UNUSUAL PUBLIC HEARINGS

The case was notable not only because of Holzman's stature but because he chose to waive confidentiality, offering a rare glimpse inside what are normally closed-door proceedings. That included a trial last year before retired state Supreme Court Justice Felice Shea to determine whether the charges of misconduct should stand, as well as a hearing before the commission in September.

In both venues, Holzman offered testimony in his defense. Fewer than a dozen judges have agreed to waive confidentiality in more than 750 cases since 1978, according to the commission.

Holzman argued that he had taken concrete steps to make estates whole as soon as he learned of Lippman's transgressions.

Instead of firing Lippman, Holzman instituted a repayment structure in which Lippman would turn over any new fees he earned to repay the money he had improperly collected in prior cases. Holzman also argued that he had no way of knowing the extent of Lippman's offenses until years later, when Lippman was charged by the Bronx district attorney's office.

But the commission's counsel countered that Holzman's lax oversight permitted Lippman's malfeasance to occur and that his attempt to remedy the problem by allowing Lippman to continue to work, rather than simply firing him, was a failure of judicial responsibility.

'BIG BLANK CHECK'

In Tuesday's decision, the commission largely accepted Shea's findings that other charges of misconduct should be dismissed, including the claim that Holzman broke the law by routinely approving a 6 percent fee based on "boilerplate" documents with insufficient detail about the work Lippman was supposedly doing.

Shea noted that other surrogates often did the same thing and that Holzman should not be held responsible for following what had become standard procedure, even though it might technically violate state law.

The 6 percent fee is intended to be a maximum fee for public administrators under state guidelines but has become the default payment in almost all cases, Shea said.

In a dissenting opinion joined by Thomas Klonick, Nina Moore found that charge should have been sustained in order to establish that the 6 percent figure should not be abused.

Noting that the Bronx administrator's office handles tens of millions of dollars in estates at any given moment, the majority's ruling "gives a blank check to counsels to the Public Administrators," Moore wrote. "It is in all likelihood a big blank check."

A Bronx civil court judge, Nelida Malave-Gonzalez, won the election for Holzman's seat in November and will take office after his retirement.

The case is the Matter of the Honorable Lee Holzman.

For the commission: Mark Levine.

For Holzman: David Godosky of Godosky & Gentile.

(A prior version of this story incorrectly reported that Holzman will be censured. The commission held that Holzman should be censured.)

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