Filed September 1, 2009
In re Alfred S. Vano,
Commission No. 04 CH 142
Synopsis of Review Board Report and Recommendation
Vano was charged in an eleven-count complaint with conversion, breach of fiduciary duty, conduct involving fraud, dishonesty, deceit, or misrepresentation, and conduct that tends to defeat the administration of justice or bring the courts or legal profession into disrepute. One count, Count XI, alleged that Vano, while employed by a law firm, handled certain cases in a manner contrary to firm policy and used firm funds to pay costs on those cases. The other counts involved Vano's conduct while employed at a different firm. Two of those counts, Counts I and V, alleged that Vano diverted law firm funds to a lawyer outside the firm. The remaining counts alleged that Vano improperly received referral fees belonging to the firm. Vano denied misconduct and some of the facts alleged in the complaint.
After a hearing, the Hearing Board majority found that the Administrator failed to prove misconduct as to Counts V or XI. As to the remaining counts, the Hearing Board majority found that the Administrator did not prove conversion or a violation of Supreme Court Rule 770, but did prove that Vano breached his fiduciary duty to his firm and engaged in dishonest conduct. The Hearing Board majority recommended that Vano be suspended for one year, with the last six months stayed by probation. The dissenting member of the hearing panel concluded that the Administrator had not proven any of the misconduct charged and viewed the case as a purely private fee dispute and not a proper subject of disciplinary proceedings.
The case was before the Review Board on the Administrator's exceptions, challenging the Hearing Board's failure to find all of the misconduct charged and the majority's discipline recommendation. Vano argued that no discipline was warranted and that the Hearing Board majority correctly declined to find conversion and a violation of Rule 770.
The Review Board majority upheld the Hearing Board's findings as to Counts I, V, and XI as not against the manifest weight of the evidence and not based on legal error. The majority also upheld the Hearing Board's findings that, as to the remaining counts, Vano's conduct constituted a breach of fiduciary duty and conduct involving dishonesty. However, the majority concluded that, given its other findings, the Hearing Board erred in finding that Vano's conduct did not constitute conversion or violate Rule 770. The Review Board majority recommended that Vano be suspended for one year and until he completed the ethics course of the Illinois Professional Responsibility Institute, with no period of probation.
The dissenting member of the Review Board considered Vano's conduct subject to discipline, but concluded that the specific charges of misconduct were improper, as overly vague and as lacking in legal basis, particularly as this case did not involve an attorney-client relationship. The dissent also disagreed with the Hearing and Review Board majorities' disregard of the findings in the civil lawsuit between Vano and the firm.
BEFORE THE REVIEW BOARD
ILLINOIS ATTORNEY REGISTRATION
|In the Matter of:
ALFRED S. VANO,
Commission No. 04 CH 142
REPORT AND RECOMMENDATION OF THE REVIEW BOARD
This case was heard on the Administrator-Appellant's eleven-count amended complaint against Respondent-Appellee, Alfred S. Vano. Each count alleged that Vano converted law firm funds, breached his fiduciary duty to his law firm, and engaged in conduct involving dishonesty, fraud, deceit, or misrepresentation in violation of Rule 8.4(a)(4) of the Illinois Rules of Professional Conduct (210 Ill. 2d R. 8.4(a)(4)), and conduct that tends to defeat the administration of justice or to bring the courts or legal profession into disrepute in violation of Supreme Court Rule 770 (210 Ill. 2d R. 770). Counts I through X concerned Vano's conduct while employed as a shareholder in the law firm of Leahy, Eisenberg & Fraenkel, Ltd. (LEF). Count XI involved Vano's handling of certain cases, while Vano was a non-equity partner at the law firm of Chilton, Yambert, Porter, & Young, LLP (CYP&Y).
HEARING BOARD RECOMMENDATION
The Hearing Board majority found that the Administrator failed to prove the charges of misconduct alleged in Counts V and XI. As to Counts I through IV and VI through X, the Hearing Board found that Vano breached his fiduciary duty to LEF and violated Rule
8.4(a)(4), but that the Administrator had not proven that Vano engaged in conversion or that he violated Supreme Court Rule 770. The Hearing Board majority recommended that Vano be suspended for one year, with the last six months stayed by probation, on conditions. The dissenting Hearing Board member concluded that the Administrator had not proven the misconduct charged.
The Administrator filed exceptions, challenging the Hearing Board's failure to find all the misconduct charged and its sanction recommendation. The Administrator seeks disbarment. Vano does not challenge the Hearing Board majority's findings of misconduct, and seeks to have the Review Board uphold the Hearing Board majority's other findings as to the misconduct charged. Vano argues that, given the nature of the conduct at issue, no discipline is warranted.
Vano was licensed to practice law in 1977. He has no prior discipline. From 1977-89, Vano worked for a number of firms, primarily doing casualty defense work. He had also done some plaintiff's personal injury cases. At the time of the hearing, Vano had formed a firm with a partner and concentrated in plaintiff's personal injury cases.
Two judges and a family friend provided favorable character testimony.
VANO JOINS LEF
LEF was a firm that focused its practice on insurance defense work. On October 23, 1989, Vano joined LEF as a minority shareholder.1 When he joined LEF, Vano brought 36 cases into the firm in which he was representing the plaintiff in claims for personal injury or
property damage. Vano and LEF reached an agreement, which was unique to Vano, concerning those cases. LEF partner Charles Fraenkel memorialized the agreement in a letter dated November 14, 1989. A list itemizing the cases that Vano was bringing into the firm accompanied the letter.
According to the agreement, all of these cases were to be opened and integrated into LEF. Vano was required to account to the firm for all fees generated on these cases.
The agreement generally required that statements concerning fee disbursements were to be signed by Vano and another representative of LEF and fees shared equally between Vano and LEF. The agreement also had a special arrangement for 19 of the 36 cases, which involved referrals to other attorneys. As long as Vano's involvement was "de minimis," Vano would receive 100% of the fees on these 19 cases.
The agreement also provided that any new legal business of any kind, including plaintiff's personal injury matters, would be integrated into the firm and belong exclusively to LEF. Fraenkel testified that he and Vano specifically discussed new cases brought in after Vano joined LEF. Fraenkel testified that any such cases would belong to the firm and that any fees generated on those cases, even referral cases involving limited work by Vano, would be the firm's property. This understanding according to Frankel was consistent with the treatment of other LEF shareholders.
LEF shareholders were paid a base salary, plus a portion of the firm's profits. The portion varied, depending on a shareholder's percentage of ownership and the firm's revenues. Vano's annual base salary at LEF ranged from $100,000 to $150,000. His annual share of distributed profits typically resulted in an additional $10,000 to $50,000 of income. Like other LEF shareholders, Vano signed an agreement concerning the compensation of LEF
shareholders and the transfers of their stock. The agreement provided for repurchase of the shareholder's stock in the event of his or her departure from the firm.
The 36 cases that Vano brought into LEF are not at issue. All of the files in those cases, including the special 19, were integrated into the LEF system and contained a closing statement advising LEF where the fees went. The charges in Counts I through X concern new cases that came to Vano after he joined LEF.
COUNT I (THE LIBOY CASE)
Norell Liboy was injured in a motor vehicle accident. A secretary at LEF referred Liboy to Vano. Vano testified that he thought that there had been an initial contact with another law firm. Vano's friend, Russell Jersey, was a partner in that firm. Vano testified that he spoke with Jersey and Jersey's partner and agreed that Vano would handle the case and split the fee with them.
Vano entered into a fee agreement with Liboy, which provided for a one-third contingent fee to LEF. The contract provided that no promises had been made to pay any part of the fee to any other person.
Vano filed a lawsuit for Liboy. Vano and LEF were designated as attorneys for the plaintiff. The case settled, for $20,000. Vano initially received a check from the insurer payable to Liboy and to Vano, as his attorney.
According to LEF procedures, such a check should have been deposited in a firm account and LEF's office manager, Carol Thomas, would then prepare checks for distribution. Instead, on a Sunday, Vano took the check to Vano's own bank and obtained 17 cashier's checks for the distributions from the settlement. Vano testified that he did this to expedite the distribution of funds and to avoid hassles with Thomas.
One of the checks was to LEF. This check was for $3,319.70, ostensibly for fees and expenses. Under its contract with Liboy, LEF's fee should have been $6,666.67, one-third of $20,000.
Another check from the settlement proceeds was payable to Jersey, for $3,000. A memo on this check described the payment as medical services/attorney lien. Before the settlement was finalized, Vano had obtained a court order adjudicating the amounts due to the lien holders. Vano's petition for adjudication of the liens did not disclose Jersey as a lien holder.
An investigator sought payment for an unpaid bill on the case. As a result, LEF partner Fraenkel learned of the payment to Jersey. When questioned, Vano told Fraenkel that he paid Jersey because Jersey had to pay a "chaser" in connection with the case. After the case was referred to the ARDC, Jersey repaid LEF $3,000, of which $500 was sent to Liboy.2
Vano testified that he did not receive any funds out of the Liboy case. The Hearing Board found that there was no clear evidence to the contrary.
COUNT V (THE KUEKER CASES)
The Liboy situation prompted further investigation by Fraenkel. Although Vano denied having made any other payments to Jersey, LEF found one other payment to Jersey, in connection with a case involving Terry Kueker. Vano represented Kueker in two lawsuits. Both were handled as cases of LEF.
Vano filed a lawsuit for Kueker for injuries Kueker sustained in a motor vehicle accident. That case settled for $15,000. Consistent with Vano's instructions, the settlement proceeds were deposited in LEF's account. Thomas distributed the settlement proceeds based a settlement statement that Vano gave her. The distribution included a payment to Jersey for $869.70. There was no invoice from Jersey and no record of his time. No payment to Jersey
was described in the order adjudicating liens or the motion Vano had filed seeking an adjudication of liens. LEF received fees of $1,500, plus expense reimbursement of $965.45 according to the Kueker settlement.
Kueker was also a defendant in another suit, for unpaid rent. That lawsuit, which was filed in the Municipal Department of the Circuit Court of Cook County, was settled. Under the settlement, Kueker was required to pay the plaintiff, Brookdale Square, $8,500. The evidence showed that the funds used to pay Brookdale Square came from the settlement in the motor vehicle case. Absent those proceeds, Kueker would not have had the money to pay Brookdale Square.
Vano testified that Jersey was familiar with practice in the Municipal Department, while Vano himself was not. Vano testified that Jersey advised him how to delay entry of judgment and collection in the unpaid rent case until he obtained the proceeds of the personal injury settlement. The personal injury case settled several months after the settlement with Brookdale Square. Vano testified that the amount paid to Jersey was determined based on what was left over after the other payments had been made. Vano testified that he did not personally receive any money from the Kueker case.
COUNTS II - IV, VI - X (THE COONEY AND CONWAY REFERRALS)
These counts involve cases that Vano referred to the law firm of Cooney and Conway while Vano was employed by LEF. Cooney and Conway concentrates its practice in plaintiff's personal injury cases. Each count concerns a separate case for personal injuries, property damage, and/or worker's compensation.
Vano referred these eight cases to Cooney and Conway. In each, Cooney and Conway represented the client and Vano had no involvement except the referral. In each case,
there was a contingent fee agreement between the client and Cooney and Conway. Some, but not all, of the contingent fee agreements indicated that a referral fee would be paid to Vano. On each case, Vano received a referral fee from Cooney and Conway. In each case Vano kept the fee in full and did not disclose it to LEF. Each fee was sent to Vano at his home address.
Count II involved Maxine Palcis. Palcis contacted Vano, who told her that LEF could not handle her case. Vano referred Palcis to Cooney and Conway, which filed suit on her behalf. The case was settled for $1,500,000. On or about March 6, 1998, Vano received a referral fee of $250,000 in connection with the Palcis case.
Count III involved Richard Greene. Greene contacted Vano, who told him that LEF could not handle his case. Vano referred Greene to Cooney and Conway, which filed suit on behalf of Greene. The case was settled. On or about January 27, 1999, Vano received a referral fee of $3,500.
Count IV concerned Jill Means. Means contacted Vano, who told her that LEF could not handle her case. Vano referred Means to Cooney and Conway, which filed suit for Means. On or about January 29, 1998, after the Means case settled, Vano received a referral fee of $831.76.
Count VI involved John Motkowicz. Motkowicz became ill as a result of his exposure to asbestos in the course of his employment. Over time, Motkowicz had worked for various employers. Motkowicz consulted LEF shareholder Ronald Straum, who discussed the matter with Vano. Vano referred Motkowicz to Cooney and Conway. Cooney and Conway filed suit for Motkowicz against multiple defendants. The retainer agreement between Motkowicz and Cooney and Conway provided that LEF and Vano would share in the Cooney and Conway fee. LEF would receive 25% of it and Vano 10%. LEF was aware of the 25%
referral fee that it was to receive, but not of the 10% referral fee that Vano was to receive. During 2000-03, given the multiple defendants, Vano received a series of referral fee payments from Cooney and Conway in connection the Motkowicz case. These referral fees totaled nearly $13,000.
Count VII concerned Patricia Sherry. Sherry contacted Vano, who told Sherry that LEF could not handle her case. Vano referred Sherry to Cooney and Conway. Sherry's contingent fee agreement with Cooney and Conway disclosed the fact that Vano would receive a referral fee. Although Vano denied doing so, Sherry testified that Vano told her that the referral fee arrangement had to remain a matter between them. Vano received a referral fee of $15,555.56 on or about July 19, 2001, after Sherry's case settled.
Count VIII related to Stephen Einersen. Einersen contacted Vano, who told him that LEF could not handle his case and referred him to Cooney and Conway. Cooney and Conway handled the personal injury portion of Einersen's claim, and referred the worker's compensation portion to another firm, Lannon, Lannon, and Barr. In late 2002, the Lannon firm paid referral fees totaling approximately $9,250 to Vano following the settlement of Einersen's worker's compensation claims. In April 2003, Cooney and Conway paid Vano a referral fee of $1,476.04 following the settlement of Einersen's personal injury case.
Count IX concerned Marie Zellow. Zellow contacted Vano, who advised her that LEF could not handle her case. Vano referred Zellow to Cooney and Conway. Zellow retained Cooney and Conway, who filed suit for Zellow. Zellow's lawsuit settled. On or about February 6, 2002, Cooney and Conway sent Vano a check for a referral fee of $40,000.3
Count X involved Donald Wallace. Wallace contacted Vano about a personal injury and dram shop claim. Vano informed Wallace that LEF would not handle the case, but
referred Wallace to Cooney and Conway. After settlement of the claims arising out of Wallace's injuries, Cooney and Conway paid referral fees to Vano of $5,000 on or about November 19, 1998 and $833.34 on or about June 12, 2003.
ADDITIONAL FACTS COMMON TO COUNTS RELATING TO
VANO'S CONDUCT AS TO LEF
The parties stipulated that, if called to testify, Russell Jersey would assert his Fifth Amendment rights. Vano testified that he did not know why Jersey had asserted his Fifth Amendment rights.
When the circumstances of these referral fees first surfaced,
LEF allowed Vano to remain on as an employee
but his status as a shareholder was terminated. Subsequently, in March 2003
Vano's employment was terminated. Vano testified that LEF refused to re-purchase
his shares of stock.
LEF reported Vano's conduct to the ARDC. LEF also sued Vano. The civil litigation ultimately settled, after it became apparent that Vano did not have the financial resources to pay the amount LEF had originally demanded. The settlement provided that Vano would pay LEF $40,000, LEF would receive the full amount of additional referral fees due on three cases, and each party would release claims against the other. LEF ultimately received approximately $140,000 as a result of the settlement.
The settlement also contemplated that the court would enter summary judgment in favor of Vano, without LEF's attorney making any objections. Vano had filed a motion for summary judgment. The order granting summary judgment was entered on the same day as Fraenkel was giving an evidence deposition in the ARDC proceedings. Vano brought the order to the deposition immediately after it was entered.
The order for summary judgment included the following findings:
"…that a contract existed between the parties dated November 14, 1989 which was authored by the plaintiff and which can be interpreted as permitting defendant to retain any and all fees generated on all personal injury cases referred to other attorneys so long as any hours spent by defendant working on those files would be de minimis.
(b) The hours spent by Defendant working on the files at issue herein were de minimis."
Vano relied on this order in this disciplinary case. He testified that he relied on his interpretation of the terms of the 1989 letter from Fraenkel in keeping the Cooney and Conway referral fees at issue. He testified that he did not think that he had an obligation to report these cases or fees to LEF. He believed that they were like the 19 cases in which he was originally allowed to keep the full referral fees, provided his work on them was de minimis.
LEF shareholder Fraenkel testified that LEF never agreed that the 1989 letter could reasonably be interpreted as the order stated, but agreed to the language in the agreement to facilitate a settlement. Fraenkel testified that, except for the 19 cases specified in the 1989 agreement, Vano did not have authority from the firm to keep referral fees for himself.
COUNT XI (THE CYP&Y FIRM)
In Count XI Vano was charged with engaging in misconduct while employed at Chilton, Yambert, Porter & Young, LLP ("CYP&Y"). The Hearing Board found no misconduct as charged and the Administrator appeals this finding.
In April 2003, Vano joined the firm of CYP&Y. It was seeking to expand its business. CYP&Y managing partner, Larry Chilton, hired Vano believing that Vano would bring significant business to the firm. No one at CYP&Y knew of Vano's problems at LEF.
CYP&Y does primarily insurance defense litigation. Because CYP&Y has many large insurance companies as its clients, CYP&Y handles plaintiff's work very rarely, in order to avoid conflicts and poor client relations.
Chilton assumed that any business Vano would bring in would be compatible with CYP&Y's practice. Without significant further inquiry, Chilton decided to hire Vano as a non-equity partner at CYP&Y. Vano's salary was $125,000, which was high for CYP&Y. There was no formal agreement signed. CYP&Y paid for Vano's insurance, paid his support staff, and did not charge him rent for his office.
Vano did not bring in any significant business. Consequently, Vano was assigned to assist another CYP&Y partner, Jon Yambert, with his work. Yambert testified that Vano did not do the work assigned to him, was frequently not in the office, and did not meet his billable hours quota. Chilton and Yambert both testified that he told Vano that CYP&Y did not handle plaintiff cases and he did not know that Vano had cases in which he was representing the plaintiff.
Some time after Vano joined CYP&Y, Yambert found documents relating to cases where there was no file open at CYP&Y. Yambert directed Vano to open files on those cases. Yambert was concerned about the firm's responsibility, the lack of a written fee agreement in some cases, and documents that listed Vano, but not the firm, as attorney. Yambert's investigation ultimately disclosed various irregularities, including correspondence from Vano that was not on CYP&Y letterhead, correspondence from Vano showing the initials "kd" as the secretary although no one with those initials was then employed at CYP&Y, and documents that bore the name of Laura DeAndrea-Iverson, as if she were affiliated with CYP&Y. Neither Chilton nor Yambert knew DeAndrea-Iverson nor authorized her to file any
pleadings on behalf of CYP&Y. Yambert also learned that Vano appeared to be handling some cases where the defendants were insured by CYP&Y clients. Some of the case files did not contain completed contracts with the clients. Neither time nor expenses were billed to the files, as CYP&Y would normally do. Vano was terminated from CYP&Y shortly after these discoveries.
At the time, CYP&Y did not have a policy on what to do if the firm had advanced expenses on a file and an attorney left the firm and took the file. Apparently, CYP&Y paid filing fees on some, but not all, of these plaintiff cases undertaken by Vano. On one case, after leaving CYP&Y, Vano tendered reimbursement of the filing fee from the client to CYP&Y. The client's check was returned to Vano, as CYP&Y had no record of having paid a filing fee on that case.
Ultimately, in all the cases in which Vano represented the plaintiffs while employed at CYP&Y, any appearance by CYP&Y was withdrawn. In each case, the client consented to Vano as counsel. Vano testified that he offered to repay CYP&Y any expenses it had paid on these cases, but the firm refused to accept repayment. Vano testified that CYP&Y entered into an agreement that they would not get any fees or any costs back.
DeAndrea-Iverson was an attorney and a friend of Vano's. She filed some cases for Vano while Vano was at CYP&Y, because Vano was not supposed to sue defendants insured by companies that were CYP&Y clients. Although DeAndrea-Iverson's name appears on pleadings in some of Vano's cases, Vano testified that it was he who acted as the attorney.
Vano explained that the initials "kd" were those of DeAndrea-Iverson's secretary and that letters showing those as the secretary's initials were prepared at CYP&Y using a disc of form documents from DeAndrea-Iverson's office. Vano stated that, while other changes were
made on the form letters, he believed that his CYP&Y secretary neglected to change the secretary's initials on the letters.
The Hearing Board found that Vano breached his fiduciary duty to LEF and engaged in conduct involving dishonesty as charged in Counts I through IV and VI through X. The Administrator contends that the Hearing Board erred in failing to also find that on these counts Vano's conduct also constitutes conversion and a violation of Supreme Court Rule 770.
Conversion occurs when a person entitled to property is wrongfully deprived of its possession, permanently or for an indefinite period of time. In re Rosin, 156 Ill. 2d 202, 206, 620 N.E.2d 368, 189 Ill. Dec. 400 (1993). The agreement Vano entered into with LEF when he began working there provided that fees earned by Vano during his employment with LEF belonged exclusively to LEF. Under this provision, the referral fees at issue in Counts II through IV and VI through X should have been paid to LEF, not Vano. He wrongfully deprived LEF of these fees.
The Hearing Board recognized that the plain language of the agreement between Vano and LEF provided that fees on any legal business Vano generated while employed by the firm belonged to the firm. The Hearing Board rejected Vano's arguments that the agreement permitted Vano to keep fees on cases that he referred to another attorney where, as here, the cases came to Vano while he was employed at LEF. We agree that the evidence supports these conclusions.
These findings by the Hearing Board demonstrate that the Administrator did prove that Vano engaged in conversion in relation to Counts II through IV and VI through X.
We are not second guessing the findings by the Hearing Board. We are simply stating that as a matter of law those findings compel the conclusion that Vano's conduct also constituted conversion. Under the unambiguous agreement, these referral fees belonged to LEF. By taking these funds, particularly under the circumstances present here, Vano engaged in conversion. The fees involved were very substantial, totaling over $339,000. The deceptive manner in which he arranged for the fees to be paid to him demonstrates that the LEF firm was wrongfully deprived. Unlike the 19 cases specified in the letter given him when he joined LEF, Vano had these referral fees sent to his home, thereby concealing the fees and his receipt of them from his partners.
Given these facts, Vano's conduct constituted conversion. See In re Michod, No. 97 CH 99 (Review Board Nov. 29, 2000), approved and confirmed, No. M.R. 17317 (Mar. 22, 2001); see also In re Johnson, No. 01 SH 106 (Hearing Board Oct. 9, 2002), approved and confirmed, No. M.R. 18480 (Jan. 23, 2003). Michod, without disclosure to his partners, "took a payment for a substantial legal fee, deposited that payment into an account, which he alone controlled and of which his partners were unaware," and unilaterally determined how to allocate that fee between himself and his law firm. Michod, No. 97 CH 99, opinion p. 12. The Review Board noted that, even if Michod had a right to part of the fees at issue, he could not legitimately take, in full, funds in which another person, i.e., his law firm, also had an interest. Thus, Michod's conduct constituted conversion. Similarly, Johnson instructed clients to prepare checks for fees payable to her, rather than to the firm, and deposited the checks in her own personal account. She likewise took fees paid in cash and used them for her own purposes, rather than depositing them in the firm's account. This conduct constituted conversion.
We also find that the Hearing Board erred in concluding that Vano's misconduct did not constitute a violation of Supreme Court Rule 770. The Hearing Board regarded Vano's
conduct as involving a purely private matter. However, as is apparent from the evidence, Vano's conduct caused LEF to bring litigation that would otherwise have been unnecessary. That litigation was pending for over two years before a settlement was reached. The fact that a respondent's conduct causes a reasonably foreseeable adverse impact on the administration of justice indicates that Rule 770 has been violated. See In re Cwik, No. 89 CH 690 (Review Board March 9, 1993); compare In re Pilota, No. 02 CH 115 (Review Board Aug. 27, 2004), petition for leave to file exceptions denied, No. M.R. 19752 (Jan. 14, 2005). Further, a respondent's conversion of funds from his or her law firm, especially under dishonest circumstances such as those here does violate Rule 770. See e.g. Johnson, No. 01 SH 106.
On Count V, we find that the Hearing Board's decision is not against the manifest weight of the evidence. See In re Winthrop, 219 Ill. 2d 526, 542-43, 848 N.E.2d 961 302 Ill. Dec. 397 (2006). The Hearing Board accepted Vano's explanation that he needed to consult Jersey about the defense of Kueker's unpaid rent case. In addition, the Hearing Board noted that in contrast to his deceitful actions on other charges, Vano followed LEF practices for disbursement of the Kueker proceeds. We have no basis for reversing this evaluation of the evidence as it involves credibility choices.
The Administrator's argument rests in part on the fact that Jersey asserted his rights under the Fifth Amendment of the United States Constitution. The Administrator contends that the Hearing Board was compelled to draw an adverse inference in favor of the Administrator. We disagree that the law compels that adverse inference.
The Hearing Board's evidentiary rulings are reviewed for abuse of discretion. In re Joyce, 133 Ill. 16, 29, 549 N.E.2d 232, 139 Ill. Dec. 720 (1989). An abuse of discretion occurs where no reasonable person would agree with the position adopted by the Hearing Board.
In re Wilson, No. 98 CH 69 (March 23, 2001), approved and confirmed, No. M.R. 17518 (Sept. 20, 2001).
The Hearing Board recognized that it could draw an adverse inference against Vano based on Jersey's invocation of his Fifth Amendment rights. The Hearing Board declined to draw an adverse inference after considering the factors set out in LiButti v. United States, 107 F.3d 110 (2d Cir. 1997). Those factors include the nature of the relationship between the non-party witness and the party against whom the inference might be drawn, the degree of control the party has over the non-party witness, the compatibility of their interests in the outcome of the litigation, and the role of the non-party witness in the litigation. LiButti, 107 F.3d at 123.
As the Hearing Board noted, Jersey and Vano were merely social friends. While Jersey was involved in the incidents that led to the charges in Counts I and V, any assumptions concerning the other factors set out in LiButti, such as control by Vano over Jersey or convergence of interests, would be speculative. Given all the circumstances, the Hearing Board did not abuse its discretion in deciding not to draw an adverse inference against Vano from Jersey's invocation of the Fifth Amendment. See generally In re Milks, No. 99 CH 20 (Review Board July 2, 2003), petition for leave to file exceptions denied, No. M.R. 18895 (Nov. 14, 2003). Therefore, we affirm the Hearing Board's findings that, as to Count V, the Administrator did not prove the misconduct charged.
As to Count I, Vano paid part of the fee due on the Liboy case to Jersey. His handling of the Liboy settlement proceeds was clearly dishonest, as the Hearing Board found. Consequently, the Hearing Board found that Vano breached his fiduciary duty to LEF and engaged in conduct involving dishonesty. While the Hearing Board did not accept Vano's explanation that the payment to Jersey was a division of fees, in consideration of work Jersey's
firm had performed for Liboy, the Hearing Board declined to find that Vano's conduct constituted conversion. Given the deferential standard of review and the limited specific information presented by the Administrator about the payment to Jersey, we affirm this finding by the Hearing Board. While the facts could have permitted a finding of conversion, the evidence is not so clear as to warrant reversing the Hearing Board decision that the Administrator did not prove all of the misconduct charged in Count I by clear and convincing evidence.
Vano contends that the order entered in the Circuit Court of Cook County should bar a disciplinary case based on the LEF matters. However, the Administrator was not a party to the civil case. In addition, the summary judgment order did not arise in the ordinary course. By this we mean it was entered as part of a settlement agreement and not by the court after reviewing facts and law in a contested setting. This order is just one of the facts to be considered. See In re Owens, 125 Ill. 2d 390, 552 N.E.2d 248, 126 Ill. Dec. 563 (1988); cf. In re Walsh, No. 94 CH 653 (Review Board Feb. 2, 2000), petition for leave to file exceptions allowed, respondent disbarred, No. M.R. 16705 (June 30, 2000) (orders in other proceedings are not binding in disciplinary cases). As the Administrator notes in his reply brief, the Supreme Court retains the inherent power to discipline attorneys in Illinois and decisions by other courts do not control or bar that authority. In re Teitelbaum, 13 Ill. 2d 586, 150 N.E. 2d 873, 877 (1958).
Vano also contends that LEF's failure to answer requests to admit in the civil case are admissions by LEF binding on the Hearing Board. This failure is not binding. The Hearing Board properly considered the failure as a fact to be weighed in context like other facts. See
Cleary & Graham, Handbook of Illinois Evidence, sec.802.11 (8th ed. 2004) (admissions made in response to request to admit do not constitute an admission for other purposes and may not be used against the party in any other proceeding).
CYP&Y COUNT XI
The Hearing Board's findings as to Count XI are similarly based on its assessment of the evidence presented and its resolution of conflicts in that evidence. While there was evidence presented that might have led to a different result, there is no basis for reversing the Hearing Board. Winthrop, 219 Ill. 2d at 542-43, 848 N.E.2d 961, 302 Ill. Dec. 397. Instead, we must consider whether the Hearing Board's findings are against the manifest weight of the evidence. Winthrop, 219 Ill. 2d at 542, 848 N.E.2d 961 302 Ill. Dec. 397. A factual finding is against the manifest weight of the evidence only if the opposite conclusion is clearly evident. Winthrop, 219 Ill. 2d at 542, 848 N.E.2d 961, 302 Ill. Dec. 397. That is not the case in connection with Count XI.
The purpose of a disciplinary proceeding is to protect the public from unqualified or unethical practitioners. In re Ettinger, 128 Ill. 2d 351, 365, 538 N.E.2d 1152, 131 Ill. Dec. 596 (1989). In rendering this recommendation, we are mindful that the disciplinary system is not a forum for litigating private disputes, particularly those involving lawyers who are naturally capable of protecting their own interest.
The facts of this case, however, justify a rare exception to this well-settled principle. This case involved serious misconduct involving substantial sums of money. If a licensed attorney practicing at one firm as a partner believes he can conduct other law business
outside of that firm and in breach of his fiduciary duty, he is an unethical practitioner from whom the public should be protected.
The Hearing Board majority recommended that Vano be suspended for one year with probation and conditions. The Administrator argues for disbarment. We recommend that Vano be suspended for one year and until he completes the course in legal ethics and professional responsibility offered by the Illinois Professional Responsibility Institute. We will briefly explain our recommendation and respond to the Administrator's argument.
First, we believe that probation is inappropriate. It would serve no purpose. The conduct for which Vano is being disciplined does not involve poor office management practices or other conduct which could be remedied through monitoring or mentoring. Rather, Vano's misconduct involves a serious misunderstanding of his responsibilities toward his firm and his partners. Thus, a suspension with a requirement that he complete a course in professional responsibility is what we recommend.
Second, the cases cited by the Administrator in his argument for disbarment involved more egregious conduct. In re Cresto, No. 02 CH 75, M.R. 20219 (June 13, 2005) and In re Donaho, 03 SH 31 (Hearing Board Feb. 4, 2002), approved and confirmed, No. M.R. 19356 (May 17, 2004), involved forged documents and a type of fraudulent misconduct not present in this case. Donaho for example stole less from his firm, but he also stole from his client by forging the client's signature. Similarly, In re Fairchild, No. 94 CH 607, M.R. 10515 (Nov. 30, 1994), involved fraudulent conduct of a type not present in this case. Fairchild cheated his firm by paying inflated and fraudulent legal bills submitted by his wife, fraudulently causing his firm to pay personal expenses of $500,000 and doing other things significantly more deceptive and brazen than what Vano did in this case.
In recommending a one year suspension, the Hearing Board relied on cases in which the respondents were suspended for a shorter period, i.e. for five months for diversion of smaller sums. These cases also involve mitigating evidence not present here. E.g. In re Michod, No. 97 CH 99 (Review Board Nov. 29, 2000), approved and confirmed, No. M.R. 17317 (Mar. 22, 2001); In re Hilliard, No. 04 CH 58, M.R. 19967 (March 18, 2005); In re Morse, No. 99 CH 82, M.R. 17319 (March 22, 2001). The Hearing Board took these factors into consideration in recommending a longer suspension for Vano. Given the amount of money involved and the lack of the type of mitigating factors present in cases such as Michod, Hilliard, and Morse, a one year suspension is warranted.
For the foregoing reasons, we recommend that Respondent-Appellee, Alfred S. Vano, be suspended for one year and until he completes the course in legal ethics and professional responsibility offered by the Illinois Professional Responsibility Institute.
Date Entered: 01 September 2009
Gordon B. Nash, Jr.
1 At that time, the firm was known as Leahy & Eisenberg. The initials LEF are used for simplicity.
2 The record does not indicate how the amount due to Liboy was determined.3 While Vano testified that he received a referral fee on Zellow, the record suggests that he may not have negotiated this check.
In re Vano, No. 04 CH 142
I dissent from the majority opinion. I take issue with the manner in which the case has proceeded from the Complaint through and including the majority opinion here.
The Administrator charged each of the eleven counts against Respondent identically. After laying out the varying facts, the charges then recited:
By reason of the conduct outlined above, Respondent has engaged in the following misconduct:
conversion of law firm funds;
breach of fiduciary duties to the law firm;
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 bring the
courts or the legal profession into disrepute in violation of Supreme Court Rule 770.
I specifically take issue with the first two charges in each of the eleven counts: those for "conversion" and "breach of fiduciary duty" as I believe those charges implicate Constitutional concerns grounded in fair notice. See e.g. United States v. Cardiff, 344 U.S. 174, 176, 73 S.Ct. 189, 97 L.Ed. 200 (1952). ("The vice of vagueness in criminal statutes is the treachery they conceal either in determining what persons are included or what acts are prohibited. Words which are vague and fluid, may be as much of a trap for the innocent as the ancient laws of Caligula.") I also take issue with the manner in which the Hearing Board treated civil proceedings related to the case, and the majority's tacit approval of that treatment.
The phrase "breach of fiduciary duty" does not appear in the Rules of Professional Conduct -- and the charge is largely unknown in a disciplinary context outside of this state. Nonetheless, the Illinois Supreme Court has both expressly and implicitly approved of the use of such a charge in cases involving the attorney-client relation. See e.g. In re Ingersoll, 186 Ill. 2d 163, 710 N.E.2d 390, 237 Ill. Dec. 760 (1999); In re Cutrone, 112 Ill. 2d 261, 492 N.E.2d 1297, 97 Ill. Dec. 424 (1986). The Administrator has taken that approval as license to charge "breach of fiduciary duty" with substantial frequency - including it in over 25% of the disciplinary complaints filed in 2008.
"Breach of fiduciary duty" is an amorphous and generalized tort concept, potentially encompassing a wide variety of behavior. See Charles W. Wolfram, A Cautionary Tale: Fiduciary Breach as Legal Malpractice, 34 Hofstra L. Rev. 689 (Spring 2006); see also Meredith J. Duncan, Legal Malpractice by Any Other Name: Why a Breach of Fiduciary Duty Claim Does Not Smell as Sweet, 34 Wake Forest L. Rev. 1137 (1999); William A. Gregory, The Fiduciary Duty of Care: A Perversion of Words, 38 Akron L. Rev. 181 (2005). The Supreme Court has not set out the requisite elements in the Rules of Professional Conduct, and the few decisions approving of the charge do not clearly define its scope. See e.g. In re Twohey, 191 Ill. 2d 75, 727 N.E.2d 1028, 245 Ill. Dec. 294 (2000). The Hearing Board has sustained such charges, too, in a non-attorney-client context (see e.g. In re Cresto, No. 02 CH 75, M.R. 20219 (June 13, 2005)), but authority for such an extension of the concept is wholly absent.
A charge of "breach of fiduciary duty" rarely (if ever) stands alone. Typically, the charge is used in tandem with additional charges that do include at least lip service to various Rules of Professional Conduct. I have dissented before on this issue, maintaining that the
charge of "breach of fiduciary duty" should be strongly disfavored in cases in which the underlying conduct can be otherwise charged under the Rules of Professional Conduct. See In re Cutright, No. 05 SH 106 (Review Board March 17, 2008) (Duffy, dissenting), motion to approve and confirm denied, In re Cutright, No. 107236 (slip op. June 4, 2009).
Where a charge of "breach of fiduciary duty" is included, as here, the analysis invariably veers towards that charge, instead of whatever the proper "companion" charge was (or may have been). Such was the case here at both the Hearing Board level - and in the majority opinion.
Because the Respondent's circumstances did not involve an attorney-client relation in the first instance, the "breach of fiduciary duty" charge was without basis in law. The inclusion of that charge in every count served only to confuse the analysis. It should properly have been dismissed by the Hearing Board in each of the eleven counts.
Like "breach of fiduciary duty," the word "conversion" appears nowhere in the Rules of Professional Conduct. In a disciplinary context, "conversion" is the short-hand term typically used to describe misconduct charged under Rule 1.15 (entitled "Safekeeping Property"). If an attorney's trust account has a negative balance -- despite the fact that client funds should still be present in the account -- it is said that the attorney has improperly "converted" the funds in the trust account. The Administrator and the Supreme Court have treated this type of "conversion" as one involving strict liability. See e.g. In re Ushijima, 119 Ill. 2d 51, 57, 518 N.E.2d 73, 115 Ill. Dec. 548 (1987); In re Young, 111 Ill. 2d 98, 103, 488 N.E.2d 1014, 94 Ill. Dec. 767 (1986).
The tort of "conversion" is a separate matter. The majority improperly conflates the two concepts - effectively importing the tort of conversion, wholesale, into the disciplinary system - and traveling well beyond the Supreme Court's approval of "looki[ng] to the tort for guidance." See In re Thebus, 108 Ill.2d 255, 259, 91 Ill. Dec. 623, 483 N.E.2d 1258 (1985) ("For purposes of attorney disciplinary proceedings, the term "conversion" may have a specialized meaning. However, the common law tort of conversion has had a long history of development, and we can look to the tort for guidance as to the essential elements and nature of conversion . . .")
Even if proof of the tort warranted discipline, the majority has mis-applied it under the law, grossly oversimplifying the tort as "the wrongful deprivation of another's property." Because, in view of the majority, "under the unambiguous agreement, referral fees belonged to [the firm]," the firm was "wrongfully deprived" of the fees. And, therefore Respondent "engaged in conversion."
The law governing the tort of conversion is not nearly as simple. There is no evidence in the record that the law firms involved in the case were payees on the checks for the referral fees at issue in the various charges that the majority now finds should have been sustained. The firm's arguable right to the various referral fees is, for that reason, an intangible -- but "Illinois follows the common law rule which did not recognize an action for conversion of intangible rights." In re Oxford Marketing, Ltd., 444 F.Supp. 399 (N.D. Ill., 1978) (citing Kerwin v. Balhatchett, 147 Ill.App. 561 (1909); Siegal v. Trav-Ler Karenola Radio & Television Corp., 333 Ill.App. 158, 76 N.E.2d 802 (1st Dist. 1948) (abstract opinion); Janes v. First Federal Savings & Loan Association, 11 Ill.App.3d 631, 297 N.E.2d 255, 260 (1st Dist. 1973)) (emphasis added).
The state of the law was summarized recently in National Acc. Ins. Underwriters v. Citibank, 533 F.Supp.2d 784 (N.D. Ill., 2007):
It is well established under Illinois common law that "[t]he subject of conversion must be an identifiable object of property." Cumis Ins. Soc., Inc. v. Peters, 983 F.Supp. 787, 793 (N.D.Ill.1997) (citing In re Thebus, 108 Ill.2d 255, 91 Ill.Dec. 623, 483 N.E.2d 1258, 1260 (1985)). Money may be the subject of conversion but only if the sum of money is capable of being described as a specific chattel. Sandy Creek Condo. Ass'n v. Stolt and Egner, Inc., 267 Ill.App.3d 291, 204 Ill.Dec. 709, 642 N.E.2d 171, 174 (1994) (citing In re Thebus, 91 Ill.Dec. 623, 483 N.E.2d at 1260). However, an action for conversion will not lie for money represented by a general debt or obligation. In re Thebus, 91 Ill.Dec. 623, 483 N.E.2d at 1261; Great Lakes Higher Educ. Corp. v. Austin Bank of Chicago, 837 F.Supp. 892, 897 (N.D.Ill.1993) ("Illinois courts do not recognize an action for conversion of intangible rights.").
Illinois common law recognizes negotiable instruments such as checks to be identifiable objects of property. See Great Lakes Higher Educ. Corp., 837 F.Supp. at 897 ("Illinois courts do recognize a cause of action for conversion of commercial paper, such as a check, on the theory that the intangible right is merged into the specific document,"); In re Oxford Marketing, Ltd., 444 F.Supp. 399, 404 (N.D.Ill.1978) (same).
However, only a person with rights to the negotiable instrument, i.e. the check, may bring a claim for conversion of it. See Great Lakes Higher Educ. Corp., 837 F.Supp. at 897 (The payee of a check is the only one with the requisite possessory interest in the check to bring a claim for its conversion.); P.M.F. Services, Inc. v. Grady, 681 F.Supp. 549, 558 (N.D.Ill.1988) (dismissing plaintiff P.M.F.'s claim for conversion of checks when P.M.F. failed to allege it was either the owner or payee of the checks or that P.M.F.'s endorsement was forged).
Importantly, a person with' rights to a negotiable instrument is distinct from a person who may have rights to the funds backed by the check. See Great Lakes Higher Educ. Corp., 837 F.Supp. at 897 (no action for the conversion of intangible rights such as money but only for the conversion of a specific check or draft); Newport Steel Corp. v. Thompson, 757 F.Supp. 1152, 1156 (D.Colo.1990) (no claim for conversion may lie for plaintiff who may have been owed the money that the check backed but who was not payee of the check); In re Oxford Marketing, Ltd, 444
F.Supp. at 404-05 (trustee who did not allege that he ever had title to or possession of a negotiable instrument may lack standing under UCC sec. 3-419 or under common law principles); see also Ohio Cas. Ins. Co. v. Bank One, No. 95 C 6613, WL 507292, at *11 (N.D.Ill., Sept. 5, 1996) (noting that under sec. 3-420 `of the revised UCC, a plaintiff must have title to or possession of the checks to bring an action for conversion of an instrument); Twellman v. Lindell Trust Co., 534 S.W.2d 83 (Mo.Ct.App.1976) (only the holder or payee of a negotiable instrument may properly sue for conversion under sec. 3-419).
National Acc. Ins. Underwriters v. Citibank 533 F.Supp.2d at 787-88.
If the Respondent took referral fees that properly belonged to his firm(s), or otherwise engaged in dishonesty, that misconduct would properly be charged, and tried, as "conduct involving dishonesty, fraud, deceit or misrepresentation" in violation of Rule 8.4(a)(4). Each of the various alternatives "dishonesty" "fraud" "deceit" and "misrepresentation" have mens rea requirements. See In re Wheaton, No. 02 CH 59 (Review Board Nov. 3, 2005) (Zimmerman, specially concurring), petition for leave to file exceptions denied, M.R. 20663 (March 20, 2006). Though the Administrator charged violations of the appropriate rule in each of the eleven counts, due to the fact that the Hearing Board was improperly led to analyze all of the misconduct under the rubric of "conversion" and "breach of fiduciary duty," the findings relative to the charges of dishonesty - and the requisite mens rea -- are entirely undeveloped and insufficient to sustain the Hearing Board's findings relative to those charges, in my opinion.
The evidence permitted to be offered by the Administrator on the relevant issues was flawed, as well, in my opinion.
The matters at issue in Counts II through IV and VI through X were the subject of a civil lawsuit between Respondent and his former firm. That suit resulted in an adjudication on the merits: summary judgment in favor of Respondent. The basis for the summary judgment
order included findings that Respondent's contract allowed him to keep any and all fees generated on personal injury cases referred to other attorneys, so long as the time he spent on the file was de minimis and that, on the files at issue, Respondent's time was, in fact, de minimis.
As the majority notes, the Administrator is not conclusively bound by determinations made in a civil proceeding. See In re Owens, 125 Ill. 2d 390, 400-01, 532 N.E.2d 248, 126 Ill. Dec. 563 (1988). But that does not mean that the Administrator can simply ignore the outcome of a civil suit that bears on a disciplinary proceeding and proceed to effectively re-litigate the underlying issues. In order to treat findings made in a civil proceeding as a nullity - as was done here by the Hearing Board -- it was minimally necessary that the Hearing Board set out some compelling reason to do so. See e.g. Thomas v. Sklodowski, 303 Ill. App. 3d 1028, 709 N.E.2d 656, 237 Ill. Dec. 401 (1st Dist. 1999) ("A proper collateral attack on a foreign judgment challenges the validity of the judgment on the basis that the rendering court did not have jurisdiction or the judgment was procured by fraud.") On the record presented, it was wholly inappropriate, in my view, for the Hearing Board to have (a) permitted witnesses to testify in a manner arguably inconsistent with stipulations presented to the Cook County Circuit Court; and (b) to credit that testimony - to the extent it was at variance with the stipulations -- in preference to Respondent's.
None of this is to say that Respondent's conduct is somehow beyond all possible bounds of the Rules of Professional Conduct. Although I share many of the sentiments expressed in Chairman Hooks's dissent to the Hearing Board's Report and Recommendation, the Rules do contemplate discipline for misconduct involving dishonesty, fraud, deceit or misrepresentation - whether it involves a client or an attorney's intra-firm dealings. I believe it
incumbent on both the Hearing Board and Review Board that we insist that the Administrator try misconduct of that nature within the confines of the existing (or amended) Rules - rather than on the broader, murkier bases available in tort.
For all of the reasons foregoing, I would dismiss the charges of "conversion" and "breach of fiduciary duty" in each of the eleven counts and remand the case to the Hearing Board for proceedings under the appropriate charges based in the Rules of Professional Conduct.
Date Entered: 01 September 2009
Daniel P. Duffy