BEFORE THE HEARING BOARD
ILLINOIS ATTORNEY REGISTRATION
In the Matter of:
Commission No. 07 SH 112
FILED - November 7, 2007
Jerome Larkin, Administrator of the Attorney Registration and Disciplinary Commission, by his attorney, Deborah Barnes, pursuant to Supreme Court Rule 753, complains of Respondent, George Richard Flynn, who was licensed to practice law in the State of Illinois on April 21, 1970, and alleges that Respondent has engaged in the following conduct which tends to defeat the administration of justice or bring the courts or the legal profession into disrepute:
Improper business transaction with client
1. In July 1989, Respondent represented Margaret Freehill ("Margaret"). During that month, he prepared her will.
2. The will, pursuant to Margaret's instructions, established a testamentary trust entitled the James Michael Freehill Trust (hereinafter, "the Freehill Trust") to benefit her son, James, who is developmentally disabled and unable to live without assistance.
3. The trust named Respondent and Margaret's son, David Freehill ("David"), James' brother, as co-trustees.
4. Margaret died on December 28, 1992. As of December 19, 1994, all distributions pursuant to the will had been made, and the remaining assets, totaling $121,825.89, were placed in the Freehill Trust in the form of a certificate of deposit.
5. Margaret's estate was closed on January 18, 1995.
6. Respondent acted as attorney for the Freehill Trust.
7. In January 1997, the Freehill Trust investment was valued at $130,925.50.
8. Respondent, as a co-trustee of the Freehill Trust, had a duty of loyalty and impartiality to the Trust beneficiaries, a duty to use reasonable care, prudence and skill in the management of Trust assets, a duty not to endanger the Trust property and a duty to pursue an investment strategy that considered both the reasonable production of income and the safety of capital.
9. On or about January 1997, Respondent asked David to permit the Freehill Trust to loan Respondent $80,000.00 of the Freehill Trust assets. He told David that he needed the funds for personal purposes, and for paying for his children's educations. The loan would be secured by a second mortgage on two apartment buildings that Respondent owned in Bloomington, Illinois. Respondent informed David that a first mortgage on both apartments was held by the Citizens Savings Bank.
10. At no time did Respondent advise David that Respondent's interests might conflict with the interests of the Freehill Trust, nor did he advise David to consult with independent counsel regarding the proposal to loan Respondent $80,000.00 from the Freehill Trust.
11. After asking David to approve the $80,000.00 loan, Respondent resigned as co-trustee of the Freehill Trust on January 28, 1997.
12. On January 31, 1997, David and Respondent executed two loan agreements under which Respondent borrowed a total of $80,000.00 from the trust at 9% interest for 15 years.
13. After Respondent resigned as co-trustee, Respondent continued to act as the attorney for the trust, in that Respondent handled the paperwork related to the loan transactions, kept that paperwork in his possession, and continued to prepare the Freehill Trust tax returns.
14. As the attorney for the Freehill Trust, Respondent had a fiduciary obligation to exercise at all times the highest degree of loyalty and good faith regarding his handling of trust funds.
15. Over the next eight years, during which time Respondent made monthly payments on the loans, the loans were refinanced four times:
a. On April 1, 1998, Respondent asked David to execute new notes borrowing an additional $12,000.00 from the Freehill Trust. The loan was refinanced at 6.5% for 15 years.
b. On February 1, 1999, Respondent asked David to execute new notes borrowing an additional $14,452 from the Freehill Trust. The loan was refinanced at 6.5% for 15 years.
c. On May 1, 2000, Respondent asked David to execute new notes borrowing an additional $21,230.00 from the Freehill Trust. The loan was refinanced at 6.5% for 15 years.
d. On May 1, 2005, Respondent accepted David's offer to reduce the annual interest rate on the loans from 6.5% to 5%, and the outstanding balance was refinanced for 10 years.
16. At no time before or after any of the refinancing transactions described in paragraph 15, above, did Respondent advise David that Respondent's interests might conflict with the interests of the Freehill Trust, nor did he advise David to consult with independent counsel.
17. At the time of the initial loan, and at the time of the second and third transactions refinancing the loan, Respondent told David he would take possession of the loan documents and record the mortgages. At no time before May 17, 2005, did Respondent record the mortgages to the Freehill Trust.
18. Between March 17, 1999 and January 29, 2003, Respondent refinanced the mortgages held by Citizens Savings Bank on the apartment buildings at least five times, obtaining additional funds each time he refinanced. The bank recorded those mortgages.
19. On October 12, 2005, Respondent filed a petition under Chapter 7 of the federal bankruptcy code for personal bankruptcy and listed the Freehill Trust as a creditor holding secured claims totaling $86,175.13.
20. On March 9, 2006, the United States Bankruptcy Court for the Central District of Illinois granted Respondent a discharge under the Bankruptcy Code. The loans from the Freehill Trust were included in the debts discharged in the bankruptcy.
21. On June 21, 2006, Citizens Savings Bank filed a foreclosure action in McLean County circuit court to foreclose on the first mortgages.
22. On September 15, 2006, the circuit court entered the judgment of foreclosure and order of possession in favor of Citizens Savings Bank. After this date, Respondent ceased making payments on the loans from the Freehill Trust. In September 2006, the principal amount owing on the loans was $79,597.20.
23. In December 2006, Citizens Savings Bank sold the apartment buildings which secured the loans from the Freehill Trust. The sale of the buildings resulted in insufficient funds to repay the Freehill Trust. As of the date this complaint was filed, Respondent has not repaid any portion of the $79,597.20 balance of the loan to the Freehill Trust.
24. By reason of the conduct described above, Respondent has engaged in the following misconduct:
breach of fiduciary duty;
representing a client where the representation of that client may be materially limited by the lawyer's own interests, in violation of Rule 1.7(b) of the Illinois Rules of Professional Conduct;
entering into a business transaction with a client where the lawyer and the client have or may have conflicting interests, in violation of Rule 1.8(a)(1) of the Illinois Rules of Professional Conduct;
entering into a business transaction with a client where the client expects the lawyer to exercise the lawyer's professional judgment therein for the protection of the client, in violation of Rule 1.8(a)(2) of the Illinois Rules of Professional Conduct;
engaging in conduct involving dishonesty, fraud, deceit or misrepresentation, in violation of Rule 8.4(a)(4) of the Illinois Rules of Professional Conduct; and
conduct which tends to defeat the administration of justice, or to bring the courts or the legal profession into disrepute, in violation of Supreme Court Rule 770.
WHEREFORE, the Administrator requests that this matter be assigned to a panel of the Hearing Board, that a hearing be held, and that the panel make findings of fact, conclusions of fact and law, and a recommendation for such discipline as is warranted.
Attorney Registration and
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Springfield, Illinois 62701
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