Filed December 24, 2008
In re Arnold H. Landis
Commission No. 05 CH 69
Synopsis of Review Board Report and Recommendation
The Administrator charged Respondent-Appellee, Arnold H. Landis, with failing to disclose a material fact to a third person when disclosure was necessary to avoid assisting a fraudulent act by a client and engaging in conduct involving fraud, dishonesty, deceit, or misrepresentation, conduct that was prejudicial to the administration of justice and conduct that tended to bring the courts or legal profession into disrepute. Landis denied misconduct and some of the facts alleged in the complaint.
The Hearing Board found that the Administrator did not prove any of the misconduct charged in the complaint and recommended that the complaint be dismissed.
The case was before the Review Board on the Administrator's exceptions. The Administrator sought to have the Review Board overturn the Hearing Board's findings that the Administrator did not prove that Landis engaged in conduct involving dishonesty, conduct prejudicial to the administration of justice, or conduct that tended to bring the courts or legal profession into disrepute. The Administrator sought to have the Review Board recommend a ninety-day suspension. Landis sought to have the Review Board uphold the Hearing Board's findings and recommendation.
Based on the standard of review, the Review Board affirmed the Hearing Board's factual findings and conclusions that the Administrator did not prove misconduct. The Review Board recommended that the complaint be dismissed and that Landis be discharged.
BEFORE THE REVIEW BOARD
ILLINOIS ATTORNEY REGISTRATION
|In the Matter of:
ARNOLD H. LANDIS,
Commission No. 05 CH 69
REPORT AND RECOMMENDATION OF THE REVIEW BOARD
The Administrator charged Arnold H. Landis with misconduct arising out of a change Landis made to a draft promissory note in connection with a real estate transaction. The one-count complaint alleged that Landis failed to disclose a material fact to a third person when disclosure was necessary to avoid assisting a fraudulent act by a client in violation of Rule 4.1(b) of the Illinois Rules of Professional Conduct (134 Ill. 2d R. 4.1(b)) and engaged in conduct involving fraud, dishonesty, deceit, or misrepresentation in violation of Rule 8.4(a)(4) (210 Ill. 2d R. 8.4(a)(4)), conduct that was prejudicial to the administration of justice in violation of Rule 8.4(a)(5) (210 Ill. 2d R. 8.4(a)(5)), and conduct that tended to defeat the administration of justice or bring the courts or legal profession into disrepute in violation of Supreme Court Rule 770 (210 Ill. 2d R. 770). Landis admitted some of the facts alleged in the complaint, denied other factual allegations, and denied misconduct. The Hearing Board found that the Administrator did not prove the misconduct charged and recommended that the complaint be dismissed.
The case is before the Review Board on the Administrator's exceptions, challenging the Hearing Board's finding that he did not prove violations of Rules 8.4(a)(4), 8.4(a)(5) and Supreme Court Rule 770. The Administrator does not challenge the Hearing Board's finding that he did not prove that Landis violated Rule 4.1(b). The Administrator seeks
to have the Review Board recommend a suspension of ninety (90) days. Landis seeks to have the Review Board uphold the Hearing Board's findings and recommendation.
The Hearing Board report contains a thorough discussion of the facts. The facts are summarized here only insofar as is needed for an understanding of this report.
Brothers Eric, Allen, and Michael Wright owned a house located at 4924 South Woodlawn Avenue, Chicago. They listed the house for sale with a real estate agent and retained Landis to represent them in connection with its sale.
On October 5, 2002, Branson and Michelle Edwards made an offer to purchase the house for $1,625,000. The first offer was rejected, and negotiations ensued. Some of the negotiations concerned the sellers financing a portion of the purchase price.
Branson Edwards ("Branson") and Eric Wright ("Eric") were both experienced in real estate transactions. Branson drafted a rider to the proposed real estate contract that addressed seller financing ("Rider #2"). Rider #2 provided that the interest rate on the promissory note for the sellers would be equal to the interest rate on the first mortgage the buyers obtained.
Eric sent Landis the contract and riders on October 8, 2002. In an accompanying cover letter, Eric stated that the Wrights would be holding a personal note of $125,000 and that he understood that the interest on the note was to be 6% per month.
Eric testified that originally the Edwardses wanted the Wrights to finance $250,000 of the purchase price. The Wrights declined, as they did not want to "be a bank." Eric testified that, thereafter, the Edwardses proposed that the Wrights finance $125,000 at interest of 6% per month. The Wrights found this more attractive and agreed to those terms. Allen Wright
("Allen") and Eric both testified that this high interest rate was a critical factor in the Wrights' decisions concerning the transaction and their agreement to provide seller financing.
All negotiations were handled through the brokers. The buyers and sellers never communicated directly about the interest rate. Allen, however, discussed the interest rate with the Wrights' broker to be sure the Edwardses agreed to it. Eric inquired of Landis as to the legality of an interest rate of 6% per month, and Landis responded that it was legal.
After receiving the documents from Branson, the Edwardses' attorney, Catherine McGivney, spoke with Landis. Landis agreed to prepare a draft promissory note for the funds financed by the sellers.
At Landis's request, an associate prepared a draft promissory note. The draft note provided for interest of 6% per annum. Landis did not review the draft, which was sent to McGivney on October 22, 2002.
McGivney considered the draft promissory note substantially compliant with Rider #2. However, she requested some changes. In particular, McGivney asked that the 6% rate be deleted and the interest rate left blank, to be inserted at closing. Landis agreed to do so. McGivney requested this change so that the interest rate on the note would correspond with the interest rate on the primary mortgage the Edwardses ultimately obtained. McGivney expected that Landis would change the note to read "____ percent per annum." She never understood that interest would be calculated monthly.
On October 25, 2002, Landis sent Eric a copy of the draft promissory note that had been sent to McGivney. Eric promptly returned it to Landis with questions and corrections. Eric circled the per annum interest rate, as he thought the interest was to be per month. Eric told Landis that the parties had agreed on a per month rate.
In the meantime, various problems arose in relation to financing. The closing was continued three times.
On December 30, 2002, Landis sent McGivney a revised promissory note. At that time, the closing was scheduled for December 31, 2002. This was the first, and only, revised promissory note Landis sent McGivney.
This promissory note was accompanied by a fax cover sheet and draft mortgage documents. The note was the first page, after the cover sheet, of the 14-page transmission. The note referenced the mortgage rate, as "____ percent per month." The phrase "____ percent per month" appeared on a single line, specifically the last line of the first paragraph of the note.
After receiving the fax, McGivney checked the mortgage documents, to be sure that the changes she requested had been made. She glanced at the note and saw that the 6% had been replaced by a blank line. McGivney did not review the revised note with care. She did not notice that the interest rate had been changed from an annual to a monthly rate. This change was not highlighted in any way, and Landis had not brought the change to McGivney's attention.
The promissory note also contained other revisions that Landis and McGivney had not discussed. McGivney did not expect Landis to alert her to insignificant changes he was making in documents, but she testified typically all changes should be "black-lined." The change in the interest term was a significant change, which McGivney testified should have been brought to her attention in some way.
Landis had sent McGivney other documents in anticipation of the closing, and the parties communicated about specific revisions to those documents. Modifications were made to the documents. Not all of those revisions were memorialized in writing or specifically discussed
in advance. Most such changes were consistent with the attorneys' prior discussions. Some of the changes were minor; others were substantive.
Financing fell through on December 30, 2002. After further negotiations, the parties agreed to extend the closing to January 15, 2003.
The transaction closed on January 15, 2003. The closing took 1 ½ to 3 hours, partly due to the complexity of the financing arrangements. The Edwardses had multiple mortgages, and there were various cross-collateralization arrangements.
At the closing, McGivney sat between Branson and Michelle and presented them with documents, which they signed. Branson testified that he did not read any of the documents before signing them, even though he had some of the documents, including the note, prior to closing.
McGivney focused on the financing documents, some of which she had not seen before. Other than to confirm the numerical rate of 7%, there was no discussion about the interest on the promissory note.
The promissory note signed at closing was the same document Landis faxed to McGivney on December 30, 2002. The interest rate, 7%, was inserted in the blank space before "per month" at closing. The 7% rate corresponded to the rate on the primary mortgage, which was 7% per annum (not per month). McGivney or Branson inserted the 7% rate.
Branson testified that he did not intend that interest on the note would be 7% per month and would not have agreed to such a rate. He testified that no one told him that the rate had been changed from an annual to a monthly rate. Eric and Allen both understood that interest was to be calculated monthly and that the only issue was the numerical rate, which was to be determined at closing.
Branson testified that he first noticed that the note provided for a monthly interest rate in March 2003, when he sought to make a payment under the note. Branson testified that he assumed that the monthly rate was in error and prepared a check, based on an annual rate. Branson sent the check to Eric, with a cover letter referencing the monthly rate and his assumption that this was a mistake. The Wrights did not respond to the letter. They did not negotiate the check because it was inconsistent with their understanding of the agreement.
McGivney testified that she first realized that the note provided for a monthly interest rate on May 15, 2003. The sale of the Edwards family's former home ("Caton property") was scheduled to close the next day. The promissory note in favor of the Wrights was secured in part by a mortgage on the Caton property. At McGivney's request, Landis provided a payoff letter for the Caton closing. This payoff letter calculated interest based on a monthly rate. McGivney informed Landis that she believed that this was a mistake. However, the Wrights asserted that they were entitled to the monthly rate provided in the note.
Litigation ensued. The Caton closing occurred after the circuit court, on May 22, 2003, issued a preliminary injunction. The preliminary injunction directed the Wrights to release their mortgage on the Caton property. In return, the Edwardses paid the Wrights $128,068.16, representing the amount due on the note with interest calculated on an annual basis. The Edwardses also placed $38,061.12 in escrow, representing the additional amount due if interest were calculated on a monthly basis.
The Wrights unsuccessfully sought to appeal from the preliminary injunction. The lawsuit was ultimately decided in favor of the Edwardses. The circuit judge did not believe the parties had agreed on monthly interest and found that Landis had engaged in deliberate fraud.1
Landis testified before the Hearing Board that he understood from Eric that the parties had agreed on a monthly interest rate. Landis assumed that what Eric told him was true. While Landis knew that the real estate contract did not reflect a monthly rate, other terms on which the parties had agreed were also not reflected in the documents that Landis received from Eric. Landis created provisions to reflect the parties' agreement as he understood it.
Landis acknowledged that a monthly rate produced unusually high interest. He testified, however, that a high interest rate was used because the Wrights did not want to be lenders and to serve as an incentive for the Edwardses to pay off the note promptly.
Given his understanding as to the parties' agreement, Landis testified that he did not discuss the monthly rate with McGivney. Landis thought that McGivney had the same information that he did and, consequently, did not see any reason to discuss the monthly interest with her.
Landis assumed that McGivney would read the closing documents. He denied any intent to defraud anyone. He also denied making any false statements.
Landis testified that he believed that the Edwardses had accepted the terms of the note, including the monthly interest rate provided in the note. He based this belief on the fact that the Edwardses had signed the note with their attorney next to them, after she had an opportunity to review the document. Landis advised the Wrights of their options in response to the lawsuit, based on his understanding that the parties had agreed that interest would be calculated monthly. Consequently, the Wrights decided to defend the lawsuit.
Landis graduated from law school in 1974. He has practiced in his own small firm for most of his career. Judge Lee Preston, attorney Fay Clayton, and Rabbi Samuel Fraint provided favorable character testimony for Landis.
The Administrator challenges the Hearing Board's finding that he did not prove, by clear and convincing evidence, that Landis engaged in conduct involving fraud, dishonesty, deceit, or misrepresentation in violation of Rule 8.4(a)(4), conduct that is prejudicial to the administration of justice in violation of Rule 8.4(a)(5), and conduct that tends to defeat the administration of justice or bring the courts or legal profession into disrepute in violation of Supreme Court Rule 770. We affirm.
In a disciplinary proceeding, the Administrator bears the burden of proving that the respondent engaged in the misconduct charged. In re Ingersoll, 186 Ill. 2d 163, 168, 710 N.E.2d 390, 237 Ill. Dec. 760 (1999). The Administrator is required to meet that burden by clear and convincing evidence. Ingersoll, 186 Ill. 2d at 168, 710 N.E.2d 390, 237 Ill. Dec. 760.
This standard of proof does not allocate the risk of error equally between the parties, but demands a greater level of proof, qualitatively and quantitatively, from the Administrator. See Santosky v. Kramer, 455 U.S. 745, 764-66, 102 S.Ct. 1388, 1400-01, 71 L.Ed. 2d 599 (1982). While less stringent than 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, 207 Ill. Dec. 311 (1995); People v. Williams, 143 Ill. 2d 477, 484, 577 N.E.2d 762, 160 Ill. Dec. 437 (1990). To satisfy the clear and convincing evidence standard, there must be a high level of certainty. In re Stephenson, 67 Ill. 2d 544, 556, 367 N.E.2d 1273, 10 Ill. Dec. 507 (1977). The record must be free from doubt, and the Administrator's burden is not met merely by proof of suspicious circumstances. In re Mitgang, 385 Ill. 311, 52 N.E. 2d 807, 813 (1944). Clear and convincing evidence means a degree of proof that, considering all the evidence, produces a firm and abiding belief that it is highly
probable that the proposition at issue is true. Cleary & Graham, Handbook of Illinois Evidence, sec.301.6 (8th ed. 2004).
As is apparent from its report and recommendation, the Hearing Board was mindful of the weighty burden of proof that the law places on the Administrator. The Hearing Board held the Administrator to his high burden of proof and found that he did not meet it. In making this determination, the Hearing Board relied on inferences that it drew from the evidence and on its assessment of the credibility of the witnesses. The Hearing Board's report and recommendation reflects a very thorough consideration of the evidence and weighing of the facts. Based on the evidence as a whole, the Hearing Board determined that the Administrator had not proven, by clear and convincing evidence, that Landis had the intent required to engage in the misconduct charged.
The Administrator disagrees with the manner in which the Hearing Board weighed the evidence and resolved the factual issues presented. However, the matters about which the Administrator disagrees with the Hearing Board are factual matters, within the province of the Hearing Board as trier of fact. See generally Ingersoll, 186 Ill. 2d 163, 710 N.E.2d 390, 237 Ill. Dec. 760.
The standard by which this Board reviews the Hearing Board's factual findings is a very deferential one. Factual findings of the Hearing Board are not reversed unless they are against the manifest weight of the evidence. In re Winthrop, 219 Ill. 2d 526, 542, 848 N.E.2d 961, 302 Ill. Dec. 397 (2006). This standard of review does not permit the Review Board to overturn factual findings of the Hearing Board merely because an opposite conclusion is reasonable. Winthrop, 219 Ill. 2d at 542-43, 848 N.E.2d 961, 302 Ill. Dec. 397. Rather, 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.
Thus, in seeking to have the Review Board overturn the Hearing Board's factual findings of no misconduct, the Administrator faces an extremely high two-pronged burden. First, the Administrator must convince the Review Board that, in its opinion, he proved the misconduct charged by clear and convincing evidence. Second, he must establish that, despite the Hearing Board's determination that such a burden was not met, the opposite conclusion is clearly evident.
This two-fold difficult burden should be contrasted to that of a respondent who challenges Hearing Board findings of misconduct. A respondent has no burden to prove anything, let alone by a clear and convincing standard. A respondent who challenges factual findings on review must establish only that the Hearing Board's factual findings are against the manifest weight of the evidence.
In this case, the Administrator's arguments at best demonstrate that certain circumstances raise suspicion. However, suspicious circumstances are not sufficient to meet the Administrator's burden of proof. Winthrop, 219 Ill. 2d at 550, 848 N.E.2d 961, 302 Ill. Dec. 397. That an opposite conclusion is possible, but not clearly evident, does not allow for a reversal of the Hearing Board's factual findings. Winthrop, 219 Ill. 2d at 542-43, 848 N.E.2d 961, 302 Ill. Dec. 397.
Based on the facts presented in this case, the Hearing Board found that the Administrator did not prove, by clear and convincing evidence, that Landis acted with an intent to deceive or that his conduct rose to the level of an ethical violation. That finding is not against the manifest weight of the evidence. As the Hearing Board noted, this decision should not be
taken as approval of a failure to highlight significant changes in documents sent to opposing counsel. However, as this case demonstrates, every failure of counsel to highlight significant document changes does not involve the violation of a rule of professional conduct.
Therefore, we affirm the findings and conclusions of the Hearing Board and recommend that the complaint be dismissed and Respondent-Appellee, Arnold H. Landis, discharged.
Date Entered: 24 December 2008
Stuart R. Lefstein
1The circuit court's decision is evidence that the Hearing Board could consider, but does not bind the Hearing Board in deciding the disciplinary charges. In re Owens, 125 Ill. 2d 390, 532 N.E.2d 248, 126 Ill. Dec. 563 (1988).