Filed January 3, 2014
In re Nicole Heather Rodriguez
Commission No. 2012PR00169
Synopsis of Hearing Board Report and Recommendation
The Administrator filed a two-count Complaint against Respondent, charging her with misconduct related to her handling of funds she received in connection with real estate transactions in which Respondent represented one of the parties. Respondent denied misconduct.
After the hearing, the Supreme Court issued In re Karavidas, 2013 IL 115767. Based on Karavidas, the Hearing Board granted the Administrator's motion to dismiss certain charges, including conversion and breach of fiduciary duty.
As to the remaining charges, the Hearing Board found Respondent failed to hold property of others separate from her own, because she deposited the funds at issue in her business account rather than her client trust account. Respondent was also charged with engaging in dishonest conduct based on the manner in which she disbursed funds she was to hold in escrow. The funds were part of the proceeds of the sale of real estate. Title to the real estate had been obtained by fraud. Respondent learned of the fraud after the transaction was completed. Based on the fraud, Respondent believed one party to the escrow agreement had no legitimate right to the escrow funds. Respondent testified she believed, in disbursing the funds, she was acting with authority from the other party to the escrow. That individual did not testify. The Hearing Board found Respondent credible. The Hearing Board concluded the Administrator did not prove, by the requisite clear and convincing evidence, Respondent engaged in dishonest conduct.
The Hearing Board concluded Respondent's misconduct was not the result of any improper intent or dishonest motive, but resulted from inexperience and the very unusual circumstances of the escrow. The Hearing Board recommended Respondent be censured.
BEFORE THE HEARING BOARD
ILLINOIS ATTORNEY REGISTRATION
In the Matter of:
NICOLE HEATHER RODRIGUEZ,
Commission No. 2012PR00169
REPORT AND RECOMMENDATION OF THE HEARING BOARD
The hearing in this matter was held on June 19, 2013, at the Chicago offices of the Attorney Registration and Disciplinary Commission (ARDC), before a Panel of the Hearing Board consisting of Champ W. Davis, Jr., Chair, Brett T. Williamson and Albert C. Baldermann. Melissa Smart and Peter Apostol appeared on behalf of the Administrator. Respondent was present at the hearing and was represented by Stephanie Stewart-Page.
The Administrator filed a two-count Complaint against Respondent on December 20, 2012, which was served on Respondent through her counsel on January 4, 2013. Count I involved Respondent's handling of funds she received in relation to a real estate closing. Count II involved deposits made into Respondent's business account rather than a client trust account.
Respondent filed an Answer on January 25, 2013. Respondent admitted some of the factual allegations of the Complaint, denied other factual allegations and denied misconduct.
The Administrator alleged Respondent committed the following misconduct: conversion (Count I); breach of fiduciary duty (Count I); failure to hold property of clients or third persons in her possession in connection with a representation separate from her own property (Counts I and II); conduct involving dishonesty, fraud, deceit or misrepresentation (Count I); and conduct which tends to defeat the administration of justice or bring the courts or legal profession into disrepute (Counts I and II) in violation of Rules 1.15(a) and 8.4(a)(4) of the Illinois Rules of Professional Conduct of 1990.
After the hearing in this case, the Illinois Supreme Court issued its decision in In re Karavidas, 2013 IL 115767. Based on Karavidas, the Administrator moved to strike the charges that Respondent engaged in conversion (Count I), breach of fiduciary duty (Count I) and conduct which tends to defeat the administration of justice or bring the courts or legal profession into disrepute (Counts I and II). We granted that motion, and this report addresses the remaining charges.
The Administrator presented testimony from Respondent, Phillip Radmer, Geralyn Radmer and Craig Conquist. Administrator's Exhibits 1 through 20, 23, 24, 29 through 39, 41 and 42 were admitted into evidence. (Tr. 12, 46, 65-66, 72, 78, 89, 97, 147, 242). Respondent testified on her own behalf and presented testimony from April Simmons, Tamara Walker and Stephen LeFleur. Respondent's Exhibits 1 through 6 were admitted into evidence. (Tr. 12, 250-53). In addition, the parties filed a Joint Stipulation as to Witness Testimony in Count II of the Administrator's Complaint (Stipulation).
FINDINGS OF FACT AND CONCLUSIONS OF LAW
In an attorney disciplinary proceeding, the Administrator must prove the misconduct charged by clear and convincing evidence. In re Winthrop, 219 Ill. 2d 526, 542, 848 N.E.2d 961 (2006). It is our responsibility to determine whether the Administrator has met that burden, resolve conflicting testimony and make other fact-finding judgments. Winthrop, 219 Ill. 2d at 542-43.
I. Respondent is charged with failing to hold property of clients or third persons, which was in her possession in connection with a representation, separate from her own property, in violation of Rule 1.15(a).
A. Evidence Considered
In July 2007, Robert Duffing purchased La Terra Real Estate Company from Phillip Radmer. Radmer represented to Duffing that La Terra owned a vacant lot at 3502 West Monroe in Chicago. The agreement contemplated Duffing would sell the lot and use part of the proceeds to pay Radmer for La Terra. (Tr. 34-36, 50, 95-98, 199; Adm. Ex. 1).
La Terra sold the lot to K & K Development I, Inc. Respondent represented La Terra in that transaction, which closed on September 10, 2007. (Tr. 36-37, 200; Adm. Exs. 2, 5). Radmer's wife, Geralyn Radmer (Geralyn), attended the closing on behalf of Radmer, to pick up a check. (Tr. 120).
Respondent testified, at the closing, Duffing thought he would have to pay tax on the sale of the property, for which he did not want to be solely responsible. Respondent testified Geralyn agreed funds could be held in escrow and Duffing told her the amount, which was based on a percentage of the sale. (Tr. 245). Respondent prepared an agreement related to the escrow and told Geralyn she would hold the money to pay taxes. Geralyn testified Respondent did not specify the type of tax, only that it was connected with the property. Duffing and Geralyn signed
a handwritten document, labeled "Capital Gain Escrow." The document stated $23,402.43 was to be held in escrow by Respondent for payment of tax anticipated to be due, with the balance to be split equally between Geralyn and Duffing after taxes were paid. (Tr. 122-23; Adm. Ex. 10).
At the closing, Respondent received a check for $23,402.43, pursuant to the escrow agreement. Respondent had a client trust account. However rather than depositing the escrow funds into her trust account, Respondent deposited the check into her business account, on September 10, 2007. (Tr. 44-46, 217; Adm. Exs. 6, 11, 14 at 1). Respondent used her business account for her own purposes. (Answer at par. 1). After the $23,402.43 was deposited, Respondent made various withdrawals from the account, as described below. (Tr. 62-69).
B. Analysis and Conclusions
A lawyer who, in connection with a representation, has possession of property belonging to a client or third person must hold that property separate from the lawyer's own property. Ill. Rs. Prof'l Conduct R. 1.15(a). Rule 1.15(a) specifically requires that funds be kept in a separate account.
Respondent received the $23,402.43 at the closing, in connection with her representation of La Terra. This was not Respondent's money, but was to be kept in escrow, to pay potential tax liability of her client, La Terra.
It is absolutely impermissible for an attorney to commingle money the attorney holds as a fiduciary or on behalf of a client with the attorney's own funds. In re Clayter, 78 Ill. 2d 276, 278-79, 399 N.E.2d 1318 (1980). Rather, the attorney must keep such funds separate from his or her own and hold the money in such a manner that it is clear the attorney does not own the money but is instead holding it solely for another person. Clayter, 78 Ill. 2d at 281. This principle applies to escrow funds. In re Kramer, 92 Ill. 2d 305, 309-10, 442 N.E.2d 171 (1982).
Respondent did not deposit the $23,402.43 in a separate account or keep it separate from her own money. Instead, Respondent deposited the funds in her business account. By doing so, Respondent violated Rule 1.15(a). In re Aronovitz, 2011PR00004, M.R. 26217 (Sept. 25, 2013) (Hearing Bd. at 23).
II. Respondent is charged with engaging in conduct involving dishonesty, fraud, deceit or misrepresentation in violation of Rule 8.4(a)(4).
Count I charged Respondent engaged in conduct involving fraud, dishonesty, deceit or misrepresentation in violation of Rule 8.4(a)(4). Count I alleged this misconduct based on Respondent's use of the funds she received to hold in escrow.
A. Evidence Considered
In addition to the evidence in Section IA, we consider the following evidence.
Respondent met Duffing in 2005. She began representing Duffing later that year. Respondent also became friends with Duffing and his family. (Tr. 190-91, 193-94).
In March 2007, Respondent began a solo practice. Respondent did not have any other attorneys working with her. She testified no one had shown her procedures for running a law office. Respondent, who was licensed to practice law in 2003, previously worked for a mortgage company. (Tr. 187-88).
Respondent did various types of work for Duffing, including real estate matters, tax sales and building court cases. Duffing was one of her primary clients. Respondent testified she handled more than fifty matters for Duffing, in addition to matters for his family. (Tr. 191-92). The real estate market was very active in 2007. Duffing, a real estate developer, did many transactions and typically sold property very quickly after purchasing it. (Tr. 192-93). Respondent testified none of the matters in which they were involved together entailed any problems or gave Respondent any reason to suspect Duffing. (Tr. 248-49).
Respondent understood Duffing had purchased a corporation, La Terra, from Radmer and the transaction included a lot La Terra owned. Respondent was not involved in the sale of La Terra to Duffing. Respondent understood the agreement between Duffing and Radmer contemplated that Duffing would sell the lot and pay Radmer part of the proceeds, as part of the purchase price for La Terra. Respondent understood Duffing had paid some money down to purchase La Terra. (Tr. 35-36, 198-99). Radmer testified this was not accurate and the purchase price for La Terra was half the net proceeds from the sale of the lot. (Tr. 97-98).
Respondent testified, in August 2007, Duffing asked her to represent him in the sale of the lot. (Tr. 198). Respondent was a title agent for Lawyers Title Insurance Co. and brought the transaction to Lawyers Title. Respondent did not prepare the title commitment. (Tr. 43-44). In connection with the La Terra to K & K closing, Respondent received attorney fees, payment for re-incorporating La Terra and title agent fees. She also received the $23,402.43 she was to hold in escrow. (Tr. 201-202; Adm. Ex. 6).
Respondent deposited the $23,402.43 into her business account on September 10, 2007. (Tr. 45; Adm. Ex. 14 at 1). In September 2007, Respondent's business account had an opening balance of $7,313.74 and a closing balance of $9,951.70. Two additional deposits were made into the account that month, $10,000 on September 4, 2007 and $9,670.91 on September 20, 2007. (Tr. 59-60; Adm. Ex. 14 at 1). Those deposits are at issue in Count II.
Respondent was the only person who signed checks on her business account. (Tr. 50). Respondent's bank records show various withdrawals after the $23,402.43 was deposited. Those withdrawals included fund transfers to Respondent's personal checking account. One such transfer, for $4,000, was made on September 11, 2007. (Tr. 60-61; Adm. Ex. 14 at 2).
While she testified these transfers could have been for earned fees, Respondent testified she did not remember the purpose of these or other transfers out of her business account. Respondent testified she did not have records of these transactions. (Tr. 60-63).
There were additional withdrawals from Respondent's business account in September 2007. (Adm. Ex. 14). Some were payments to Duffing. Respondent wrote Duffing a check for $625.97 on September 10, 2007 and used $8,945.91 to purchase a cashier's check for him on September 20, 2007. (Tr. 62, 220-21: Adm. Ex. 14 at 8, 21). Respondent testified other transactions could have been related to Duffing, such as a wire transfer of $3,000 on September 12, 2007. (Tr. 60-61; Adm. Ex. 14 at 2). Respondent testified she had access to Duffing's account and had wired money to Duffing in the past. (Tr. 61, 218). In addition to the cashier's check, the $10,370.91 withdrawn on September 20, 2007 included withdrawals for two money orders and $700 in cash. (Adm. Ex. 14 at 8). While she was not sure of the purpose of those items and did not have records explaining those withdrawals, Respondent testified she often gave Duffing cash and the money orders might have been for Duffing. (Tr. 62-63, 220-21).
For October 2007, the closing balance in Respondent's business account was $4.20. (Adm. Ex. 15 at 1). Withdrawals were made from the account that month for Respondent's purposes, such as overdraft charges and a $100 transfer to Respondent's personal account. Respondent also transferred funds from her personal account into her business account. (Adm. Ex. 15 at 1-2). Of the checks paid from Respondent's business account in October 2007, Respondent acknowledged three checks, totaling $1,977.28, were for her own purposes. (Tr. 243-44; Adm. Ex. 15 at 10, 11, 19). Respondent testified, while she was not certain, many of the other checks likely related to Duffing's purposes. For example, checks were written to Charles Harris and Terrence Brooks; both worked with or for Duffing. Respondent testified Duffing
often had her give third parties checks on his behalf. Checks were written to the Secretary of State. Respondent testified she often paid license fees for Duffing. Respondent testified she handled numerous court cases for Duffing. Checks were written to the Clerk of the Circuit Court for amounts Respondent testified could have been appearance or filing fees and to the Sheriff of Cook County, which Respondent testified were likely payments for service of process. Respondent testified Tri-Allied Investments, to which a check was written for $4,728.22, was a real estate development company with which Duffing partnered. (Tr. 222-28; Adm. Ex. 15 at 6-8, 12-13, 15-16, 18).
It appears Respondent was experiencing financial difficulties from late summer 2007 into early 2008. Overdraft fees were charged and checks were returned for insufficient funds in her business and personal accounts. (Tr. 58-59, 68-70; Adm. Ex. 13 at 1-2; Adm. Ex. 15 at 1-2; Adm. Ex. 23 at 4). As of January 31, 2008, Respondent's business account was overdrawn. (Tr. 51; Adm. Ex. 18 at 1). Respondent owned two real properties which were the subject of short sales and a third which went into foreclosure, although the circumstances of the foreclosure are not clear and apparently were related to the dissolution of Respondent's marriage. (Tr. 74-79).
Respondent testified her dealings with Duffing were very informal. They mainly communicated by telephone. Duffing would pay Respondent fees for work she did for him, but they did not use written retainer agreements or written invoices. (Tr. 194-95, 217). Respondent testified Duffing often reimbursed her later for payments she made at his request. Respondent also testified she would hold funds for Duffing and send money or issue checks at his direction. Respondent testified Duffing gambled often and she sometimes sent Duffing money or gave him cash for gambling. Respondent testified she had access to deposit slips for Duffing's bank account and could deposit money into his account when he wanted money. (Tr. 197-98, 216).
Duffing did not testify. At the time of the hearing, he was dead. (Tr. 192).
Respondent testified she did not know why Radmer did not attend the closing for the lot on Monroe, although it was not unusual for someone who could not attend a closing to send an agent. (Tr. 203, 206). Radmer was not the buyer or seller in this transaction. (Adm. Ex. 6).
In fact, Radmer was in jail. (Tr. 98). On November 20, 2007, Radmer was sentenced to a prison term for four counts of theft and two counts of forgery. (Tr. 94; Resp. Ex. 2). Respondent was unaware of this at the time of the closing. (Tr. 206). Prior to the disciplinary hearing, Respondent had never met Radmer. She had never spoken with him. Respondent testified she understood Radmer was an attorney, but she had not heard of him before Duffing agreed to purchase La Terra. (Tr. 199-200). Radmer had been disbarred in 2000 for misconduct which included conversion and neglect. (Tr. 93-94). In re Radmer, 99 CH 103, M.R. 16721 (May 17, 2000).
The crimes of which Radmer was convicted did not involve the lot on Monroe. (Tr. 112). At the hearing, Radmer denied he acquired that lot as part of a fraudulent scheme. (Tr. 106). However, in a statement to police on June 13, 2006, Radmer admitted he acquired numerous properties, including the lot at 3502 West Monroe, by means of a fraudulent scheme. (Resp. Ex. 1 at 5). According to Radmer's statement to police, Radmer would find vacant lots owned by churches, incorporate himself in the name of the church and prepare documents to make it appear the church had sold the property. The purported grantees were fictitious persons. Radmer would prepare additional documents, culminating in a deed from the fictitious person to a corporation Radmer owned, such as La Terra. The property was then sold to a third person. (Resp. Ex. 1).
After the La Terra to K & K closing, it was determined K & K did not have good title to the lot on Monroe. Lawyers Title paid a claim by K & K's mortgage lender. Attorney Craig
Conquist represented Lawyers Title in a lawsuit, filed in March 2009, against the persons involved in the transaction, including Respondent. (Tr. 135-36, 139; Adm. Ex. 29). The background Conquist's investigation disclosed mirrored the scheme Radmer described to police. Specifically, a deed issued in 1998 for the lot on Monroe named the grantee incorrectly, due to a scrivener's error. In 2005, Radmer formed a corporation under a name very similar to the name on the deed, i.e., Providence St. Mel Development Corp. In January 2006, that corporation purportedly conveyed title to the lot to Anthony Jurevicius, a fictitious person, who, on April 14, 2006, purportedly conveyed title to La Terra. (Tr. 111, 137-38; Resp. Exs. 5, 6).
Respondent testified, shortly after the La Terra to K & K closing, she saw a newspaper article which reported a person named Radmer was in custody as a result of a scheme to sell vacant lots he did not own. This caused Respondent to suspect fraud for the first time. Respondent did not remember exactly when she saw the article, but testified it was shortly enough after the closing that she thought the title company might be able to reverse the transaction. (Tr. 47, 203-204).
Respondent testified, upon reading the article, she immediately contacted Duffing. After asking his permission to do so, she contacted the buyer's attorney, the title company and the State's Attorney's office. (Tr. 47-48, 203-204).
While it is not clear exactly when those contacts were made, according to Respondent's testimony, they predated the ARDC's initial contact with her. (Tr. 208). The ARDC's inquiry letter is dated November 21, 2007. (Adm. Ex. 41). Subsequent correspondence from a title company representative reflects Respondent had alerted the title company to a problem with the transaction. (Adm. Ex. 36 at 2; Resp. Ex. 3). The State's Attorney's office did not bring criminal charges against Respondent or Duffing. (Tr. 207-208).
Respondent testified, after Radmer's fraud was discovered, she did not think she had to take direction from both Duffing and Radmer, but understood she could act based on Duffing's instructions. (Tr. 228-29). Respondent no longer thought of the funds as a tax escrow, but instead money that belonged to Duffing. (Tr. 246). Respondent testified she also understood, based on what Duffing told her, that Radmer had released any interest Radmer might have had in the escrow funds to Duffing and stated the money was Duffing's. (Tr. 228-29, 248). Respondent testified she did not use any portion of the escrow funds without authority from Duffing and Duffing never complained about her handling of those funds. Respondent also testified neither Radmer nor Geralyn ever asked her for a share of the escrow funds. (Tr. 230-31, 239).
Respondent testified she did not think Radmer had any right to the money because Radmer had done the deal fraudulently and falsely represented that La Terra owned the lot. Respondent considered Duffing a bona fide purchaser, who was unaware of the underlying fraud. Consequently, Respondent did not think Duffing's sale of the lot to the third party was fraudulent. (Tr. 49-50, 229). According to Respondent's testimony, Duffing saw himself as a bona fide purchaser. (Tr. 212). Radmer testified Duffing was not involved in the matters which led to his conviction. Radmer never told Duffing he acquired the lot on Monroe fraudulently. (Tr. 114-15).
Radmer denied authorizing release of any escrow funds or giving up his rights to any escrow funds. (Tr. 102). Radmer did not think he would have ever actually received any of the escrow funds. (Tr. 116-17).
Geralyn testified she had no involvement with La Terra or any of Radmer's real estate transactions. (Tr. 120). After the closing, Geralyn did not speak with Respondent or Duffing
about the money. She never authorized Respondent to use any portion of the money for her own purposes. (Tr. 124-25). Geralyn had never claimed any portion of the funds. (Tr. 126).
On August 4, 2010, at Respondent's request, Geralyn signed a release, which Respondent sent her. (Tr. 123-24). By then, Lawyers Title had sued Geralyn, and she did not care about the funds. (Tr. 129). The release appears to be a form document, in which Respondent and Geralyn release each other from claims, including those arising out of the escrow, and agree the money shall be disbursed to Lawyers Title. (Adm. Ex. 31).
Radmer considered an escrow for capital gains tax, as opposed to real estate taxes, very unusual. (Tr. 100-101). Conquist also considered the tax escrow unusual, especially given its large size. However, because he knew the underlying sale to La Terra was fraudulent, everything seemed suspect to Conquist. (Tr. 139-40).
Conquist testified, when they discussed a possible settlement, Respondent told him she had the money and was willing to pay it in full to the title company, but needed to wait for releases from the parties for whom she was holding the money. Conquist believed Respondent continued to hold the money and could not release it until she received releases from Duffing and Geralyn. (Tr. 151-54).
B. Analysis and Conclusions
Respondent received $23,402.43 out of the La Terra to K & K closing, which she was to hold in escrow, for the purpose of paying taxes. The escrow agreement provided any funds remaining after taxes were paid would be split between Geralyn and Duffing.
The evidence presented showed Respondent used those funds in a manner contrary to the escrow agreement, without consent from both parties. This is not proper conduct. Kramer, 92 Ill. 2d at 310. In disbursing escrow funds, an escrowee must act in accordance with the escrow agreement and cannot act contrary to the terms of the agreement, even if one of the parties
consents. In re Lofchie, 90 CH 370, M.R. 9563 (Jan. 25, 1994); In re Wyer, 93 CH 281, M.R. 9222 (Sept. 27, 1993).
Such conduct has been found to constitute conversion. Lofchie, 90 CH 370 (Review Bd. at 13). The fact that conversion has been stricken as a separate charge does not mean Respondent's conduct was proper; it was not. An attorney who holds funds in escrow cannot, unilaterally or with the consent of only one party, use those funds in a manner contrary to the escrow agreement. Kramer, 92 Ill. 2d at 310.
However, the charge we are considering is whether Respondent engaged in dishonest conduct. Dishonesty involves a broader determination than simply whether the attorney's conduct was proper and requires consideration of all the surrounding circumstances.See In re Thomas, 2012 IL 113035, pars. 89-90; In re Mulroe, 2011 IL 111378, pars. 22-23; In re Cutright, 233 Ill. 2d 474, 490, 910 N.E.2d 581 (2009). Each case is unique and must be decided based on the specific facts the case presents. Mulroe, 2011 IL 111378, pars. 22-23.
In attorney disciplinary cases, it is the Administrator who bears the burden of proof.Winthrop, 219 Ill. 2d at 542. The standard of proof to which the Administrator is held is clear and convincing evidence. Id. Clear and convincing evidence is a degree of proof which, considering all the evidence, produces a firm and abiding belief it is highly probable the proposition at issue is true. In re Derico, 09 CH 42 (Hearing Bd. Feb. 22, 2011) (complaint dismissed). While not as stringent as the criminal standard of proof beyond a reasonable doubt, clear and convincing evidence requires more than just a preponderance of the evidence. Bazydlo v. Volant, 164 Ill. 2d 207, 213, 647 N.E.2d 273 (1995); People v. Williams, 143 Ill. 2d 477, 484, 577 N.E.2d 762 (1990). This standard does not allocate the risk of error equally between the parties, but requires a greater level of proof, qualitatively and quantitatively, from the
Administrator. In re Landis, 05 CH 69, M.R. 22970 (Mar. 16, 2009). Suspicious circumstances do not suffice to meet the Administrator's burden of proof. In re Mitgang, 385 Ill. 311, 324, 52 N.E.2d 807 (1944).The Administrator did not meet his burden of proving Respondent engaged in dishonest conduct in violation of Rule 8.4(a)(4).
Respondent impressed us as a credible witness, and we believed her testimony. In particular, we credited Respondent's testimony as to her state of mind and her dealings with Duffing. Respondent described a very informal method of dealing with Duffing, who was not only a client but also a friend. The fact a client is also a friend clearly does not permit an attorney to disregard ethical requirements. In re Timpone, 208 Ill. 2d 371, 386, 804 N.E.2d 560 (2004). However, Respondent's unrebutted description of her informal relationship with Duffing lent credence to her stated belief that Duffing had authorized the use of the funds, even though his permission was not well documented.
There was no evidence Duffing ever complained about Respondent's handling of the escrow funds. As a result of Duffing's death, there was no testimony to directly contradict Respondent's description of their communications or their dealings with each other. Combined with the credence we gave Respondent's testimony, this further supports our conclusion the Administrator did not prove Respondent engaged in dishonest conduct. In re Abrams, 04 CH 132, M.R. 20676 (Mar. 20, 2006).
Respondent thought she had Duffing's permission to disburse the funds as she did. Many of the disbursals were made to Duffing. Based on Respondent's testimony, it appears many of the other disbursals were made for Duffing's purposes. While an escrowee may not use escrow funds based on direction from only one party to the escrow, we consider Respondent's belief that she was using the funds in a manner Duffing authorized highly relevant to our inquiry under
Rule 8.4(a)(4) in this case. This is particularly true given the unusual circumstances of the transaction in which the escrow funds were received.
Respondent went to the closing assuming La Terra had good title. Respondent had numerous past dealings with Duffing, none of which had ever given her any reason to suspect a problem. The sale from La Terra to K & K closed, without any apparent problem. According to Respondent's testimony, very shortly after the closing, she learned of Radmer's criminal activity, which caused Respondent to suspect whether Radmer's interest in the lot on Monroe was legitimate.
Those circumstances would have reasonably created a very serious doubt whether Radmer, or his agent Geralyn, had any legitimate right to the funds. Respondent considered Duffing a bona fide purchaser of La Terra and the lot. In other words, Respondent believed Duffing had some rights in the La Terra to K & K sale. A bona fide purchaser takes title free of any interests of third persons of which he or she does not have notice. Daniels v. Anderson, 162 Ill. 2d 47, 57, 642 N.E.2d 128 (1994).
The combination of these factors would have taken this situation outside of a normal escrow, at least as it would have appeared to Respondent. One of the parties to the escrow did not have a legitimate right to the money.Given the circumstances, it is understandable Respondent would have believed, albeit incorrectly, she could take direction from Duffing alone as to how the money would be disbursed. This belief would have been bolstered when Duffing told Respondent he spoke with Radmer and Radmer said the escrow money was Duffing's.
The issue presented to us is not whether Respondent's conclusions were correct or whether she acted in accordance with best practices. An escrow agent faced with conflicting claims should seek a judicial resolution. See Clayter, 78 Ill. 2d at 283. However, the issue we
must determine is whether the Administrator proved, by the requisite clear and convincing evidence, Respondent engaged in dishonest conduct in her use of these escrow funds. Mistakes, even mistakes which warrant a finding of professional misconduct, do not necessarily constitute dishonest conduct in violation of Rule 8.4(a)(4). In re Spak, 188 Ill. 2d 53, 66-67, 719 N.E.2d 747 (1999).
Based on our observations of Respondent, we do not believe she had a dishonest purpose in depositing the escrow funds into her business account rather than her client trust account. Rather, we believe Respondent deposited the funds into the wrong account based on her inexperience in operating a law office and in proper handling of funds belonging to clients or third parties.
Respondent's business account had money in it before the escrow funds were deposited. Therefore, the fact that she withdrew funds from the account does not persuade us she was acting dishonestly, given all the evidence.
The Administrator did not allege, and the evidence did not suggest, Respondent knew, at the time of closing, of the underlying fraud by Radmer. The evidence, including the short period between the closing, Radmer's sentencing and the ARDC's initial inquiry letter, caused us to believe Respondent's testimony that she acted promptly after the closing to alert the title company and the buyer's attorney of a possible problem with the transaction and to contact the State's Attorney's office. From our perspective, under the circumstances of this case, Respondent's conduct in notifying the buyer's attorney, the title company and the State's Attorney's office is inconsistent with the theory she had engaged in dishonest conduct.
We considered the evidence which might support a contrary finding, such as Respondent's financial problems and Conquist's description of their settlement discussions.
That evidence did not overcome our conclusion, based on the evidence as a whole, that the Administrator did not prove Respondent violated Rule 8.4(a)(4) as charged in the Complaint.
The fact that an attorney mishandles money is not to be condoned, but it is not necessarily dishonest. Mulroe, 2011 IL 111378, pars. 20, 23. Respondent did not act properly in the manner in which she dealt with the escrow funds here. However, given the circumstances of this case, the Administrator did not prove her conduct was dishonest, so as to violate Rule 8.4(a)(4).
III. Dismissal of Count I is not warranted by the passage of time or the Administrator's initial closure of the investigation.
A. Evidence Considered
The ARDC first contacted Respondent about the La Terra to K & K transaction in November 2007. (Adm. Ex. 41). Respondent replied. (Adm. Ex. 42). Shortly thereafter, the ARDC closed its investigation. (Tr. 208-209).
Respondent testified the ARDC contacted her again in 2010, apparently after being informed of the civil lawsuit. Respondent testified this contact surprised her, as she thought the matter had been concluded. The second investigation led to these proceedings. (Tr. 209-10).
By 2010, Respondent was no longer in solo practice and had accepted a job at the Federal Reserve Bank. (Tr. 188). Respondent's testimony reflects some fading of her memory and a lack of records given the passage of time. (Tr. 61-63). Duffing died in 2012. (Tr. 192).
B. Analysis and Conclusions
Respondent argued the charges should be dismissed based on the delay in reopening the investigation, after it was closed without bringing charges. The decision to close the investigation did not, in and of itself, prevent the Administrator from later deciding to reopen. Thomas, 2012 IL 113035, pars. 108-109; Commission Rule 54.
Disciplinary charges are not subject to dismissal based merely on the passage of time. In re Teichner, 75 Ill. 2d 88, 95, 387 N.E.2d 265 (1979). Respondent's argument recognizes this principle, and the amount of time in this case is not unduly lengthy. Rather, to bar the proceedings, the delay must have demonstrably prejudiced the attorney's ability to present a substantial defense to the allegations. Teichner, 75 Ill. 2d at 95. That did not occur here.
While Duffing's death made him unavailable to testify as a witness for Respondent, he was equally unavailable to testify as a witness for the Administrator. The Administrator bears the burden of proof. Winthrop, 219 Ill. 2d at 542.
Respondent impressed us as a credible witness. We believed her testimony in relation to those matters about which Duffing, had he been alive, might have testified. In addition, the misconduct which we concluded the Administrator did prove was based on evidence, such as bank records, as to which the passage of time and Duffing's testimony, were immaterial. See In re Hoffman, 08 SH 65, M.R. 24030 (Sept. 22, 2010) (Review Bd. at 11) (passage of time not prejudicial where the charges were based on statements in a transcript of undisputed accuracy).1
For these reasons, we do not find grounds to dismiss the charges in Count I.
IV. Respondent is charged with failing to hold property of clients or third persons separate from her own property, in violation of Rule 1.15(a).
Count II charged Respondent with misconduct based on her deposit of other funds into her business account, rather than her client trust account.
A. Evidence Considered
On August 20, 2007, Respondent received a check for $10,000, which represented earnest money in the sale of the lot on Monroe. Respondent received those funds in her capacity as La Terra's attorney in that transaction. (Tr. 37, 41-42; Adm. Ex. 5; Adm. Ex. 34 at 4).
Respondent deposited this check into her business account on September 4, 2007. (Tr. 42, 57; Adm. Ex. 14 at 1, 4, 5; Adm. Ex. 34 at 4).
Respondent also represented Duffing in a sale of real estate to Daniel Tapia. Respondent received $9,670.91 from Tapia, which she deposited into her business account on September 20, 2007. (Tr. 58, 60; Adm. Ex. 14 at 1, 8, 9; Adm. Ex. 34 at 5). These funds represented the down payment for Tapia's purchase of the property, i.e., part of the purchase price, and the money belonged to Duffing, as the seller. (Tr. 232-33; Stipulation).
In three other instances, Respondent represented the seller in a real estate transaction, received checks as earnest money for the transaction and deposited those checks in her business account. (Tr. 57; Stipulation). Specifically, Respondent received a $2,000 check from Tonanzit Sanchez-Perez, which Respondent deposited on July 26, 2007. Respondent also received checks for $1,000 and $500 from April Hamlet, which Respondent deposited, respectively, on August 10 and 20, 2007. (Stipulation; Adm. Ex. 12 at 1, 21-22; Adm. Ex. 13 at 1, 16, 18, 21-22).
Respondent acknowledged it was incorrect for her to deposit funds she was holding as earnest money in her business account. Respondent acknowledged she should have deposited any money she received to hold on behalf of someone else in her trust account, not her business account. (Tr. 58, 233-34).
B. Analysis and Conclusions
Respondent received each of the checks at issue in connection with her representation of a client in a real estate transaction. In each instance, the funds were not Respondent's money, but rather were to be held in connection with the transaction. As Respondent has acknowledged, under these circumstances, it was inappropriate for Respondent to commingle those funds with her own. Clayter, 78 Ill. 2d at 278-79. Rather, Respondent was obliged to hold the money in such a manner that it was completely clear she was holding it solely on behalf of another person.
Aronovitz, 2011PR00004 (Hearing Bd. at 23). However, Respondent deposited each check in her business account, not a separate, client trust account. By this conduct, Respondent violated Rule 1.15(a). Id.
EVIDENCE IN MITIGATION AND AGGRAVATION
At the time of the hearing, Respondent was 34 years old. She grew up in Englewood and obtained scholarships to attend college and law school. (Tr. 183-84). At the time of the hearing, Respondent was pursuing a Master's Degree in financial services and banking. (Tr. 186). She is the single mother of a five-year old son. (Tr. 55-56).
Respondent was admitted to the Illinois bar in fall 2003. After her admission, Respondent worked for a private mortgage company as a compliance officer, underwriter and network system administrator. (Tr. 187). In March 2007, Respondent went into her own practice. Respondent testified no one had mentored her in setting up procedures for a solo office. Respondent worked out of her home, without other attorneys or support staff, from March 2007 until February 2008. The matters at issue in the Complaint arose during that time. (Tr. 187-88). During 2007, Respondent was also dealing with difficult personal circumstances, including the breakup of her marriage. (Tr. 231-32).
In February 2008, Respondent began working for the Federal Reserve Bank in Chicago. She continued to work for the Federal Reserve at the time of the hearing. (Tr. 188).
While Respondent did some outside legal work, typically for family, friends or old clients, she no longer maintained a private practice. Respondent testified she was not holding funds for any client or third party. (Tr. 235, 246-47). On May 11, 2012, Respondent took a
webinar produced by the ARDC on proper trust account procedures. Respondent did this on her own initiative. (Tr. 234-35; Resp. Ex. 4).
Respondent acknowledged she acted incorrectly in depositing the escrow funds into her business account and recognized she should have deposited any money she was holding for a client or third party in a client trust account. (Tr. 217, 233-34). Respondent expressed regret for her mistakes in handling money and failing to properly segregate funds. (Tr. 238-39).
Respondent and Lawyers Title reached a settlement, after Respondent obtained authority from Duffing. Under the settlement Respondent was dismissed, in October 2010, from the lawsuit filed by Lawyers Title, in return for repayment of the $23,402.43. Duffing supplied the funds, which Respondent paid to Lawyers Title on September 20, 2010. (Tr. 51-54, 91-92; Adm. Exs. 30, 32). Respondent testified this occurred promptly after she received the money from Duffing. (Tr. 214-15; Adm. Ex. 19). In explaining why Lawyers Title was not paid sooner, Respondent testified initially Duffing considered himself a bona fide purchaser and wanted to defend against Lawyers Title's case. Duffing also wanted a release from Geralyn in case, after being released from prison, Radmer sought to recover the money from Duffing. (Tr. 212-13). Geralyn signed the escrow release on August 4, 2010. (Adm. Ex. 31). In addition, Respondent testified Duffing had used the money and Respondent needed to get it back from him so the full amount could be repaid. (Tr. 213).
No clients or third parties complained to the ARDC about any of the funds at issue in Count II. (Tr. 232). It appears the earnest money Respondent received for the La Terra to K & K closing was properly applied to that closing. (Adm. Ex. 5). The parties stipulated the money Sanchez-Perez gave Respondent as earnest money was returned to her. (Stipulation).
Respondent did volunteer work before and after becoming an attorney. (Tr. 185-86). Respondent testified her volunteer work occupied about 20 - 40 hours per year. (Tr. 237-38). Respondent's volunteer work included serving on the board of an organization which assisted troubled youth and representing a church in real estate transactions and building code issues. (Tr. 235-37).
Attorney April Roberson Simmons testified as a character witness for Respondent. Simmons, who has known Respondent since law school, is the felony supervisor for the Will County Public Defender. Simmons testified Respondent was honest and had a reputation for being honest and a person to whom others could look for advice. (Tr. 167-70).
Attorney Tamara Walker, who has known Respondent for about four years, testified Respondent's character was outstanding, particularly for honesty. Walker testified Respondent was known as a very good attorney with a good reputation. (Tr. 171-74).
Steven LeFleur, who is related to Respondent, also knew her through her volunteer work for New Direction. New Direction, which was no longer in operation, was a non-profit organization which served abused and neglected children. Respondent had served on New Direction's Board of Directors and Human Rights Committee. Respondent also provided pro bono services to a church with which LeFleur was affiliated. (Tr. 175-80). LeFleur described Respondent as honest and a person who wanted to do things correctly. (Tr. 180-81).
In aggravation, we consider the evidence, discussed above in Section II A, involving Respondent's financial problems and use of the funds at issue in Count I.
Respondent has no prior discipline.
In determining the discipline to recommend, we consider the proven misconduct, as well as any aggravating or mitigating factors. In re Gorecki, 208 Ill. 2d 350, 360-61, 802 N.E.2d 1194 (2003). While the system seeks some consistency in sanctions for similar misconduct, each case is unique and the sanction is based on the facts and circumstances of the individual case. In re Timpone, 157 Ill. 2d 178, 197, 623 N.E.2d 300 (1993).
Our recommendation as to discipline also considers the purposes of the disciplinary system. The purpose of attorney discipline is not punishment. Gorecki, 208 Ill. 2d at 360. Rather, attorney discipline is undertaken to protect the public, maintain the integrity of the profession and protect the administration of justice from reproach. Id.
The discipline imposed on attorneys who have commingled, or commingled and converted, funds varies widely. The discipline ranges from disbarment to censure, depending on the circumstances of the individual case. In re Grant, 89 Ill. 2d 247, 254, 433 N.E.2d 259 (1982).
The Administrator seeks a suspension for at least one year. In the cases on which the Administrator relies, the attorneys engaged in dishonest conduct. E.g. In re Robeznieks, 04 CH 55, M.R. 20353 (Sept. 27, 2005); In re Bridgeforth, 01 CH 78, M.R. 18598 (Mar. 19, 2003); In re Relphorde, 97 CH 67, M.R. 15164 (Sept. 28, 1998). In In re Cleveland, 85 Ill. 2d 520, 521-22, 426 N.E.2d 842 (1981), the attorney received funds to hold in escrow, but instead diverted those funds to his personal use, using the money to pay his taxes and other personal obligations and to speculate on the commodities exchange. Cleveland did not release the funds when the parties to the escrow agreement requested that he do so. Cleveland was suspended for one year. Grant engaged in a pattern of repeatedly commingling and converting client funds, such that he was not able to deliver funds rightfully due the clients, upon request. Grant, 89 Ill. 2d at 252. In In re
Uhler, 126 Ill. 2d 532, 540, 535 N.E.2d 825 (1989), the attorney knowingly and repeatedly used funds he knew he had no right to use and delayed repayment without any legitimate reason.
The sanction requested by the Administrator presupposed a finding of dishonest conduct. We have found the Administrator did not prove Respondent engaged in dishonest conduct. The distinction is crucial. A lack of dishonest intent warrants a significantly lesser sanction. Bridgeforth, 01 CH 78 (Hearing Bd. at 17-18).
Respondent seeks dismissal of the charges or censure. Contrary to any suggestion in Respondent's argument, the nature of Respondent's misconduct is not insignificant, so as to warrant no discipline at all. Commingling has been explicitly and unambiguously condemned, for decades. In re Young, 111 Ill. 2d 98, 103, 488 N.E.2d 1014 (1986). The security of the rightful owner's interest in the funds is endangered when an attorney deposits funds he or she holds for another person in an account in the name of the attorney alone. In re Clayter, 78 Ill. 2d 276, 281, 399 N.E.2d 1318 (1980). Commingling is often the first step to misappropriation of the funds by the attorney and can potentially lead to a taking of the funds, by operation of law, as if those funds belonged to the attorney. Clayter, 78 Ill. 2d at 281. Respondent's misconduct does warrant some measure of discipline.
The presence or absence of a dishonest motive is a significant factor in determining the nature and severity of the sanction. Clayter, 78 Ill. 2d at 283. Respondent relies on cases in which attorneys who have commingled and converted funds without a dishonest motive have been censured. Young, 111 Ill. 2d at 104-105; Clayter, 78 Ill. 2d at 283; In re Abrams, 04 CH 132, M.R. 20676 (Mar. 20, 2006); In re Lauer, 97 CH 41, M.R. 14147 (Nov. 25, 1997). We conclude censure is the proper quantum of discipline in this case.
Based on our assessment of the evidence and of Respondent, we do not believe Respondent's repeated acts of commingling resulted from any improper motive or dishonest intent, but rather from Respondent's failure to understand and recognize the duties required of her in holding client funds. Respondent clearly should have known what to do; Rule 1.15(a) is unambiguous. However, Respondent was practicing law on her own for the first time. Her prior employment would not have given her firsthand experience with the proper law firm procedures. This does not excuse her misconduct, but it provides a framework from which we assess this Respondent's repeated acts of commingling. Respondent has now learned how to properly handle funds belonging to others if she has occasion to hold such funds in the future. In her current employment, Respondent does not hold client funds.
As to Count I, Respondent was confronted with a very unusual set of circumstances. She had received funds to hold in escrow, for Geralyn and Duffing. However, very shortly after the closing in which Respondent received those funds, Respondent became aware of circumstances which reasonably suggested the transaction was affected by an underlying fraud. The perpetrator of that fraud, Radmer, was the same person from whom Geralyn derived her interest in the escrowed funds. As a result of this situation, and Duffing's representations to her, Respondent no longer thought of the funds as a tax escrow, as to which she would have to take direction from both parties, but rather money belonging to Duffing, which could be disbursed based on Duffing's instructions alone. This may not have been correct, but it is very significant to our decision as to the sanction to recommend. Respondent thought Duffing was a bona fide purchaser and, consequently, his interest in the escrow funds was legitimate. Respondent believed she had authority from Duffing to disburse the funds as she did. This is also important in our determination of the sanction.
We have considered the aggravating and mitigating factors. Respondent was having some financial problems. While those problems did not cause Respondent's misconduct, an attorney's financial problems are an aggravating factor, as they enhance the risk to the rightful owner of the funds. Uhler, 126 Ill. 2d at 540. A pattern of misconduct also constitutes an aggravating factor. In re Lewis, 138 Ill. 2d 310, 342, 562 N.E.2d 198 (1990). This case does not involve an isolated incident, but several instances in which Respondent deposited funds into her business account which should have gone into her client trust account. This does not preclude a censure. In re Mayster, 99 CH 59, M.R. 18008 (May 24, 2002).
Respondent presented favorable character testimony and has given of her time in pro bono legal work and volunteer service. These are mitigating factors. Clayter, 78 Ill. 2d at 283. The title company has recovered the escrow funds, which is also mitigating. In re Sherman, 60 Ill. 2d 590, 593, 328 N.E.2d 553 (1975). While there was some delay in repayment, we were not convinced all the delay was attributable to Respondent, as opposed to the litigation position taken by her client. Respondent has expressed remorse, which is also a mitigating factor. Young, 111 Ill. 2d at 105. She has taken steps, both in educating herself as to her responsibilities and changing the circumstances of her work, to make it very unlikely similar misconduct will occur in the future. See Young, 111 Ill. 2d at 105.
As a result of the Supreme Court decision in In re Karavidas, 2013 IL 115767, certain charges, including conversion and breach of fiduciary duty, were stricken. That did not affect our sanction recommendation, which is not based on the number of violations found. See In re Gerard, 132 Ill. 2d 507, 532, 548 N.E.2d 1051 (1989). The sanction we recommend in this case is based on our assessment of this Respondent's conduct, our findings as to her intent, the aggravating and mitigating circumstances and our assessment of Respondent's demeanor. Given
those factors, as discussed above, we recommend Respondent, Nicole Heather Rodriguez, be censured.
Champ W. Davis, Jr.
I, Kenneth G. Jablonski, Clerk of the Attorney Registration and Disciplinary Commission of the Supreme Court of Illinois and keeper of the records, hereby certifies that the foregoing is a true copy of the Report and Recommendation of the Hearing Board, approved by each Panel member, entered in the above entitled cause of record filed in my office onJanuary 3, 2014.
Kenneth G. Jablonski, Clerk of the
1In cross-examining Respondent concerning the 2007 investigation, the Administrator focused on the fact that her response did not specifically refer to the escrow funds. It was not clear if the Administrator intended to suggest concealment by Respondent or merely to support the decision to reopen the investigation based on the escrow funds. Either way, we did not read Respondent's letter to the Administrator as an attempt to conceal misconduct regarding the money.