Filed October 27, 2008
In re Bernard James Conway
Commission No. 06 CH 50
Synopsis of Hearing Board Report and Recommendation
NATURE OF THE CASE: 1) converting funds; 2) engaging in conduct involving dishonesty, fraud, deceit or misrepresentation; 3) engaging in conduct prejudicial to the administration of justice; and 4) engaging in conduct that tends to defeat the administration of justice or to bring the courts or the legal profession into disrepute.
RULES DISCUSSED: 8.4(a)(4), and 8.4(a)(5) of the Illinois Rules of Professional Conduct and Supreme Court Rule 770.
RECOMMENDATION: Charges Dismissed.
DATE OF OPINION: October 27, 2008.
HEARING PANEL: John M. Steed III, Chair, Devlin J. Schoop, and Katheryn H. Ward.
RESPONDENT'S COUNSEL: Samuel J. Manella.
ADMINISTRATOR'S COUNSEL: James A. Doppke.
BEFORE THE HEARING BOARD
ILLINOIS ATTORNEY REGISTRATION
|In the Matter of:
BERNARD JAMES CONWAY,
Commission No. 06 CH 50
REPORT AND RECOMMENDATION OF THE HEARING BOARD
The hearing in this matter was held on July 10, and 11, 2008, at the Chicago offices of the Attorney Registration and Disciplinary Commission ("ARDC") before a Hearing Board Panel consisting of John M. Steed III, Chair, Devlin J. Schoop, and Katheryn H. Ward. James A. Doppke appeared on behalf of the Administrator of the ARDC. Respondent appeared and was represented by Samuel J. Manella.
PLEADINGS AND PRE-HEARING PROCEEDINGS
On August 16, 2006, the Administrator filed a one-count Complaint pursuant to Supreme Court Rule 753(b). The Administrator alleged that Respondent converted funds and acted dishonestly in the course of representing an investment firm. Respondent filed an Answer to the Complaint. On May 5, 2008, the Administrator filed a one-count first amended Complaint. Respondent filed an Answer to the first amended Complaint admitting some of the factual allegations, denying some of the factual allegations, and denying all allegations of misconduct.
The Administrator presented the testimony of six witnesses, including Respondent and an evidence deposition, and offered exhibits 1-55 which were admitted into evidence. Respondent
testified on his own behalf, presented the testimony of four witnesses, and offered exhibits 1-8 which were admitted into evidence.
Prior to 2001, Respondent was a social friend of Robert J. Lunn, a financial advisor who operated several business entities, including Lunn Partners. Between 2001 and 2003, Lunn and his business entities began to experience financial losses. In 2004, Respondent agreed to represent Lunn Partners, and Lunn, on behalf of Lunn Partners, agreed to pay Respondent $15,000 per month. Also in 2004, several of Lunn's creditors obtained civil judgments against Lunn and his various business entities. Respondent and Lunn agreed that in order to assist Lunn in the continued operation of Lunn Partners, Lunn would provide Respondent with funds, and Respondent would deposit those funds into the D.C. Services bank account. Respondent and Lunn also agreed that Respondent would use those funds to pay various expenses related to the continued operation of Lunn Partners.
Between December 1, 2004, and January 24, 2005, Respondent deposited funds into the D.C. Services account, and used those funds to pay various expenses relating to the continued operation of Lunn Partners. Between January 31, 2005, and October 18, 2005, Respondent drew numerous checks, made numerous debit card purchases, and otherwise caused funds to be withdrawn from that account for his own business and personal purposes.
Between 1994 and 2005, Robert Lunn owned several business entities, and between 2003 and 2005 Lunn retained Respondent as his in-house counsel. (Tr. 137-40). On June 1, 2004, Lunn, on behalf of Lunn Partners entered into a letter of engagement with Respondent in which he agreed to pay Respondent $15,000 per month. Lunn never terminated or modified that letter.
(Tr. 141-42, 184; Adm. Ex. 1; Resp. Ex. 1). In the fall of 2004, Lunn Partners began experiencing financial difficulties after several judgments were entered against it and various bank accounts were frozen. Lunn Partners was not operating and Lunn was not going into the offices. (Tr. 143, 152). In December 2004, Lunn and Respondent discussed ways for Lunn Partners to continue doing business. (Tr. 144).
At that time, Lunn was focusing on selling the real estate located on 119th Street and 26th Street, and anticipated that it would be sold by December 15, 2004. Lunn believed that when that property was sold he could solve most of his financial problems. However, one of Lunn's creditors, Scottie Pippen, threatened to sue Lunn, and the closing was delayed until January 2005. (Tr. 148-50, 177). After the sale, Pippen's attorney's filed a lawsuit, and forced Lunn into an involuntary bankruptcy in February 2005. (Tr. 151). Lunn hired DLA Piper to represent him in the bankruptcy. (T. 156). During the bankruptcy proceedings, Respondent was doing whatever he could to help Lunn. (Tr. 157-58). Lunn Partners closed its offices in January 2005. (Tr. 158).
In 2004, Lunn owed approximately one million dollars to Leaders Bank. (Tr. 178). In November or December 2004, Lunn discussed with Steve Schuster or Pat Kelly the possibility of Leaders Bank lending additional money to pay some Lunn Partners' year-end business expenses. (Tr. 178-79, 181). However, he never followed up on those discussions and was not aware in December 2004 and January 2005, that Leaders Bank lent Lunn Partners $85,000. (Tr. 179-80). Lunn executed a power of attorney giving Respondent authority to handle funds from Leaders Bank because Lunn was focusing his attention on selling the real estate. (Tr. 182-82; Resp. Ex. 2). Lunn did not anticipate the power of attorney would give Respondent authority to receive
funds related to his businesses for the next eight to ten months, or to authorize Respondent to use funds for his personal expenses. (Tr. 204-208). Later in December 2004, Lunn sold the Peer Pedersen property and gave Respondent the $106,000 proceeds. Respondent told Lunn that he would go through his brother so they could use the money. (Tr. 144-46). Respondent did not mention a bank account he would use or anything about D.C. Services. (Tr. 145, 155). The Pedersen check was deposited into the D.C. Services account on December 10, 2004. Respondent gave Lunn some of the money, but did not provide Lunn with a statement accounting for how the money was spent. (Tr. 146-47). Lunn authorized Respondent to use the money and instructed Respondent to pay Lunn, pay himself, and pay other bills. (Tr. 147, 150).
Lunn knew that on December 8, 2004, Guardian Insurance was paid $6,665, for Lunn's medical insurance. (Tr. 185-85; Adm. Ex. 19). Lunn thought the Guardian check was paid from funds from the sale of the Pedersen property. Lunn gave Respondent the Pedersen check with the "understanding that he [Respondent] would be able to figure out some way to deposit the check with something his brother had. Some entity his brother had." (Tr. 186). Respondent deposited the check into the D.C. Services account, but Lunn did not know about that account at the time. (Tr. 186). Lunn knew it would have to be in an account without his name on it, and he did not particularly care what account Respondent used. (Tr. 186-87). Lunn never received any bank statements or accountings from Respondent regarding the Pedersen check, but Lunn never asked for any. (Tr. 187).
On January 26, 2005, two checks were deposited into the D.C. Services account, one from Leaders Bank in the amount of $20,000, and one from IBEAM Broadcasting in the amount of $105,000. Lunn was unaware that Respondent received either check and did not authorize
him to use those funds. (Tr. 163-64; Adm. Ex. 9). On March 5, 2005, a check from the City of Chicago made payable to Lunn 119th in the amount of $4,500 was deposited in the D.C. Services account. The check was for rent the City owed for storing salt on property owned by the Lunn 119th business entity. (Tr. 164-66; Adm. Ex. 11). Lunn did not know about the check, because the property had been sold, and he thought the new owner would get the money. Respondent did not tell him about the check or the deposit. (Tr. 166-67). On July 12, 2005, a check from the D.C. Services account was written to Lunn in the amount of $4,000. That check represented money paid to Lunn Partners from Northwestern Mutual. Lunn endorsed the check over to his wife, but did not notice the account from which it was written. (Tr. 162-63, 200-202; Adm. Ex. 15).
Lunn did not give Respondent authority to receive or use any funds other than the Pedersen funds, but Lunn knew Respondent was receiving the mail. (Tr. 154). Lunn had no knowledge of Respondent receiving any additional funds. (Tr. 154-55). Respondent did not know about the D.C. Services account, that deposits were made into that account, or that Respondent was using funds from that account for his personal expenses. (Tr. 167, 172). Lunn learned of the account when Neff showed him the bank documents. (Tr. 172). Unbeknownst to Lunn, checks from other Lunn business entities were deposited into the D.C. Services account, one in the amount of $1,479.29, and one in the amount of $3,697.98. (Tr. 172-75; Adm. Ex. 15).
In April 2005, another law firm was paid $25,000 for work performed for a Lunn entity from the D.C. Services account. (Tr. 197-99, 203-204; Adm. Ex. 19). Lunn knew that firm was paid, but he did not know it was from that account. (Tr. 198). Lunn knew there was some money available, and he "knew Bernie [Respondent] would figure out a way to get it back to some entity to be able to pay [the law firm]." (Tr. 199).
Lunn was aware that Respondent filed an attorney's lien and proof of claim with the bankruptcy court to collect attorney's fees. (Tr. 169; Resp. Ex. 19). Lunn believed that Lunn Partners owed Respondent money for fees. Lunn and Respondent discussed filing the attorney's lien in bankruptcy court as a way to get some money they could use for living expenses. (Tr. 170-71, 193-94, 205-206). Lunn paid DLA Piper between five and eight million dollars for representing him for 15 or 16 months in the bankruptcy proceedings. (Tr. 196-97).
Between January 2005 and January 2007, Lunn did not have much money. In August 2005, Lunn's wife made some payments to Respondent to help him make ends meet. (Tr. 158-61; Adm. Ex. 16). The amount paid Respondent was not based on $15,000 from the engagement letter, it was just the amount Lunn could afford to pay him. (Tr. 161).
David Neff is an attorney and, while working for the law firm of DLA Piper, represented Lunn in a bankruptcy matter. (Tr. 29-31). In February 2005, some of Lunn's creditors filed an involuntary bankruptcy against Lunn. In March 2005, Lunn added two other Lunn business entities to the bankruptcy proceedings. (Tr. 31). Neff understood that Respondent was in-house counsel for several of Lunn's business entities, and sought necessary information about Lunn's business affairs from him. Respondent initially cooperated with Neff's requests for information. (Tr. 32-34, 41). Lunn was concerned that Respondent receive compensation, so Neff filed a motion with the bankruptcy court to pay some of Lunn's expenses, including to pay Respondent for his services. The motion was denied by the court. (Tr. 34-38). Subsequently, it became difficult for Neff to obtain information from Respondent. (Tr. 38-39; Adm. Ex. 34). Respondent told Neff that he would not give him any more information until Lunn authorized him to do so.
(Tr. 72-73). Neff eventually received all of the documents, and the delay in obtaining them did not affect his representation of Lunn. (Tr. 42-43).
Neff received an e-mail from Steve Schuster, informing him that a Lunn business entity had funds in an account at Fifth Third Bank. (Tr. 43-46; Adm. Ex. 36). Neff subpoenaed the bank records and learned that the account was in the name of D.C. Services, and Respondent's signature was on the account. (Tr. 46-49; Adm. Exs. 6, 19).
Subsequently, in December 2005, Neff had lunch with Lunn and showed him the bank records. Neff stated that Lunn was "stunned" when he saw the records and "turned white." (Tr. 50). The records showed that some of the money in the account went to Lunn or was used for his benefit. Two deposits were checks written by Lunn's wife, Laura, to Respondent. (Tr. 51-52, 68-72; Adm. Ex. 19). If the deposited money was related to Lunn or his business entities, it should have to be included in the bankruptcy case, and the late disclosure of this information caused a problem with the bankruptcy case. (Tr. 52-55, 65-67). For example, checks from the City of Chicago for payment for the storage of salt on property owned by a Lunn business entity were deposited into the account and should have been part of the bankruptcy proceedings. Either Lunn or Respondent should have told Neff about these funds. (Tr. 76-77; Adm. Ex. 19). Upon further investigation, Neff also learned that D.C. Services did not have a valid federal tax number. (Tr. 55-56).
One of the checks deposited into the account from Peer Pedersen, was dated December 10, 2004, in the amount of $106,805.60 check. Lunn knew about this check, however, those funds were received before the bankruptcy proceedings. (Tr. 62-63, 65; Adm. Ex. 19). Lunn was aware of discussions with Leaders Bank for additional funding, but he was not aware that
Leaders Bank actually provided any funds. (Tr. 61-62). Neff believes Lunn is a bright man who understands business and financial transactions. (Tr. 74).
At one point, Respondent had filed a proof of claim with the bankruptcy court and a lis pendens for unpaid fees. (Tr. 57-58; Adm. Exs. 50, 51). Neff filed an adversary proceeding in the bankruptcy action against Respondent in connection with the D.C. Services account. As part of that proceeding, Neff objected to the proof of claim. A judgment was ultimately entered against Respondent. (Tr. 59-60; Adm. Ex. 53).
William Choslovsky is an attorney and, while working with Neff at DLA Piper, represented Lunn and four of Lunn's business entities in bankruptcy proceedings beginning in January or February 2005. (Tr. 91-92, 117, 124-25). He knew that Respondent was Lunn's in-house counsel, and requested information from him when it was needed for the bankruptcy matter. (Tr. 93-94). He understood that Respondent was still performing legal services for Lunn in 2005. (Tr. 112-13). Part of the bankruptcy involved selling property known as Lunn 119th and Lunn 26th. Those properties were sold in July 2005. (Tr. 94-95, 111-12).
Initially, Respondent cooperated with Choslovsky, but during a six to eight week period he was uncooperative. (Tr. 95-96, 102-107, 115-16, 127-28; Adm. Exs. 32, 33, 35, 37). For example, in August 2005, Choslovsky needed information to prepare objections to creditor claims. In response to a request for information, Respondent stated that he would not spend much time providing the information because he was not getting paid for his services. (Tr. 96-99). Choslovsky believed that Respondent had not been paid by Lunn in 2005. (Tr. 99-100). In May 2005, Lunn's attorneys had petitioned the bankruptcy court for Respondent's compensation, but the petition was denied. (Tr. 96-101). During this period of time, Respondent also expressed
concerns about a conflict of interest and waiver of privilege if he provided some of the requested information. (Tr. 114-15). In November 2005, Respondent filed an attorney's lien in the bankruptcy matter based on legal fees owed to him by Lunn. (Tr. 107-110; Adm. Ex. 37).
Respondent is 55 years old and has resided in Ireland since March 2007. (Tr. 297). He is divorced and has three children. (Tr. 297-98). After graduating college, Respondent earned an MBA from Loyola in 1982, and a law degree from John Marshall Law School in 1987. (Tr. 298). He has never worked for a law firm. Instead, he opened his own business consulting company. (Tr. 299, 353). He began working for Lunn in 2003. (Tr. 300-301). Lunn agreed to provide Respondent an office and pay him $15,000 per month. Respondent thought he would work for Lunn for three to six months, to help him with a real estate deal. (Tr. 302). He did little work on the real estate project because Lunn was being sued by several creditors and he became involved in those matters. (Tr. 302-302). In June 2004, Respondent's fee agreement was reduced to writing. (Tr. 217, 304-305; Adm. Ex. 1). Respondent spent a substantial amount of time learning about the real estate project and sorting out the creditors, claimants and investors so he could properly advise Lunn. (Tr. 305-308). In the fall of 2004, some of the creditors filed lawsuits against Lunn, and Respondent represented him in those cases. At one point in time, there were 24 lawsuits pending. (Tr. 308-309).
In October 2004, Scottie Pippen obtained a judgment against Lunn Partners. (Tr. 218). Lunn Partners had no money, and none of the staff was being paid. Lunn told the staff that they would be paid when the real estate was sold, and encouraged them to continue working. (Tr. 309-310). Brian Gannon, one of Lunn's employees, began negotiating with Leaders Bank to obtain a loan to keep Lunn Partners operating. A condition of obtaining the loan was that Lunn
execute a power of attorney, which he did. Respondent discussed the loan from Leaders Bank with Lunn when they discussed the power of attorney. (Tr. 316-18).
In November or December 2004, Respondent and Lunn discussed using an outside bank account to fund Lunn Partners operations. (Tr. 218-19). Respondent opened the D.C. Services account. (Tr. 219-20; Adm. Ex. 6). His signature is on the account document, but he did not complete any of the other information on that document, including the tax identification number. (Tr. 220; Adm. Ex. 6). D.C. Services had an operating agreement which was signed by Gannon and which named Gannon as the manager. (Tr. 221-23; Adm. Ex. 2). On December 8 or 9, 2004, Gannon resigned as manager of D. C. Services. (Tr. 223). In a different operating agreement and letter relating to D.C. Services, Steven Conway, Respondent's brother, was named as the manager. (Tr. 223-24; Adm. Exs. 4, 5).
Respondent did not incorporate D.C. Services with the Secretary of State and did not obtain an employer identification number because he did not draft the D.C. Services documents. (Tr. 226). However, he was the only signature on the D.C. Services bank account. (Tr. 226-27, 316-17). Respondent signed the documents opening the D.C. Services account, but did not prepare them. (Tr. 310-16). He deposited funds into that account and used those funds to pay expense of Lunn Partners, including paying himself. One of the deposits was a check from Peer Pedersen in the amount of $106,000. Lunn instructed Respondent to use those funds to pay the expenses of Lunn Partners. (Tr. 227-30).
Respondent admitted to depositing funds into and writing checks from the D.C. Services account, and did so with Lunn's approval. Respondent believed that the D.C. Services account was a legal way to use funds belonging to Lunn Partners. (Tr. 320-21). The money from Leaders Bank was used properly. The Pedersen check belonged to Lunn Partners, and
Respondent believed that the IBeam check also belonged to Lunn Partners. (Tr. 321-22). Respondent discussed the IBeam check with Lunn, and Lunn knew it was deposited into the D.C. Services account and used to pay expenses. (Tr. 322-24). Respondent discussed all the checks he received with Lunn, and Lunn knew about all of the checks, including the checks from the City of Chicago. (Tr. 325-27). Respondent used money from that account to pay his own expenses. He admitted that he should have taken the money in a more orderly manner so it reflected his compensation, but all of the money he used was owed to him as compensation for his services. In retrospect, Respondent should have written himself a check for his compensation, deposited into a separate account, and paid his expenses from that account. Lunn knew Respondent was using the money for his compensation because Respondent regularly discussed it with him. (Tr. 328-29, 346-47). Respondent did not provide Lunn with any invoices for his services or any statements or reconciliations for the D.C. Services account. Lunn never asked for any of these types of documentation, and never expressed any interest in seeing any of them. (Tr. 342-44).
Respondent did not give special attention to the $3,697 check from Lunn MGF, and deposited it into the D.C. Services account. (Tr. 327, 347-48). The power of attorney signed by Lunn on November 30, 2004, gave Respondent authority over Lunn MGF, along with numerous other Lunn business entities. (Tr. 345; Resp. Ex. 2). Specifically, the power of attorney gave Respondent full authority to act on his behalf with respect to all real estate transactions, financial institution transactions, and business operations. It also gave Respondent authority to use any assets of 16 named Lunn business entities, including Lunn Partners and Lunn MGF. (Resp. Ex. 2).
Respondent believes that he was owed more money than he received for the work he performed, and Lunn also believed Respondent was owed more money. (Tr. 330-31, 335-37; Resp. Ex. 4). Respondent denied that Lunn's wife gave him any checks for his fees. Instead, Lunn gave him the checks. (Tr. 333). Lunn never revoked the engagement letter or the power of attorney. (Tr. 334). Lunn also knew that Respondent filed an attorney's lien with the bankruptcy court and Lunn told him that if received any money, he would ask Respondent for some of it. (Tr. 335). Respondent does not think he acted dishonestly and believes he provided more than adequate services to Lunn Partners for his compensation. (Tr. 340-41).
Respondent maintained that he was not paid by Lunn Partners, and in December 2005, filed a proof of claim and an attorney's lien in the bankruptcy proceedings. (Tr. 236; Adm. Ex. 50). In the proof of claim, Respondent alleged that he was owed $180,000, and in the lien he stated he was owed more than $150,000. (Tr. 235). The bankruptcy court denied Respondent's requests for payment. (Tr. 237; Adm. Ex. 54).
Respondent is currently on inactive status as an attorney and he does not intend to practice law. Nevertheless, he traveled from Ireland to Chicago to defend himself in this matter because he believes he has done nothing improper. (Tr. 340).
Steven Schuster is the general counsel for the Kelly family. The family invests in a number of private equity investments and owns a few small companies. (Tr. 239-40). The Kelly family also founded Leaders Bank in 2002. (Tr. 240). In 1995, the Kelly family invested one million dollars in Lunn Partners, and by 2005 had lent him three million dollars. (Tr. 241, 267). In May or June 2004, Lunn was experiencing financial difficulties after his partner in a real estate project went bankrupt. Lunn assumed ownership of the real estate, located at 119th and
26th Streets, and sought money from the Kelly family to reduce his debt. (Tr. 243-44). In the meantime, the bank holding the mortgage on the property began foreclosure proceedings, and Lunn was being sued by Scottie Pippen. Pippen claimed Lunn owed him between $15 and $22 million. The Kelly family decided not to invest in the project. (Tr. 244, 251). The real estate was worth approximately $75 million, and there were mortgages for approximately $42 million. (Tr. 249-51).
As Lunn's financial situation became more difficult, Leaders Bank agreed to lend up to $135,000 to Respondent and Gannon to pay some of Lunn Partners' bills, including paying Respondent and Gannon some compensation. (Tr. 253-54). Schuster thought that Leaders Bank could protect its investment better if the individuals working for Lunn Partners were paid and the company stayed together. (Tr. 254). Leaders Bank did not want to lend any additional money to Lunn because he already owed the bank three million dollars. (Tr. 255, 267). Schuster was in daily contact with Lunn, and Lunn knew that Leaders Bank was making a loan to Respondent and Gannon. (Tr. 254-58, 274). Lunn agreed to execute the power of attorney, and had no questions about the terms of that document. (Tr. 278-79). Schuster continued to work with Respondent until June 2005. (Tr. 280-83).
One of Lunn's business entities was Lunn MGF, which had a substantial equity interest in the Fox & Obel grocery store. In December 2004, Lunn resigned as the manager of Lunn MGF, and Donegal Inc. became the new manager. Schuster is the president of Donegal. At that time, Lunn MGF had an account at Bank of America containing $3,697.98, which should have been distributed to the owners of the company. The account was closed, and a check in that amount was mailed to Lunn Partners, and ultimately deposited in the D.C. Services account. (Tr. 261-63; Adm. Ex. 36). Schuster subsequently contacted Respondent, and Respondent admitted
that the check had been deposited into the D.C. Services account. (Tr. 263). Schuster never authorized Respondent to deposit the check or use the proceeds. The money belonged to the investors of Lunn MGF, and should have been distributed to them. (Tr. 264-66). Lunn MGF was one of the entities on the power of attorney. (Tr. 274-77; Resp. Ex. 2). Schuster never tried to recoup the $3,697.98 and none of the investors were given any portion of it. (Tr. 276-77).
Kathy Pyne worked as a secretary for Lunn Partners. (Tr. 290). She did not complete any documents relating to D.C. Services or open a bank account for that entity. (Tr. 291). Pyne recognizes the signatures of Respondent and Gannon on the D.C. Services bank account documents. (Tr. 292). She was under the impression that Gannon set up D.C. Services. (Tr. 294-95).
Scott R. Clar
Scott R. Clar testified through an evidence deposition. Clar is an attorney who represented a business entity associated with Lunn Partners, named Multiple Opportunities Portfolio (MOPS), in a bankruptcy proceeding. (Ev. Dep. at 4-6, 34-35). MOPS was essentially a hedge fund, and invested in various businesses, including Rush Entertainment and LePassage. Because of this business relationship, MOPS received payments from those two businesses. (Id. at 8-10). In the course of that representation, Clar had some contact with Respondent. (Id. at 6-8). Between July 28, 2005, and January 4, 2006, Clar and Respondent exchanged e-mails in which Clar asked Respondent to give him financial and tax information about Rush Entertainment. (Id. at 13-16). Clar needed the information for the bankruptcy proceedings. Respondent failed to provide Clar with that information. (Id. at 13-33; Dep. Exs. 1-12). Many
of the e-mails were also sent to Lunn. Clar is not aware of the extent of Lunn's businesses or Respondent's involvement in those businesses. (Id. at 35-37).
Steven Conway is a CPA and Respondent's brother. Conway never worked for Lunn and has had no involvement in any entity Lunn owned or operated. (Tr. 23-24). He has also never had any ownership, employment or directorship interest in D.C. Services. (Tr. 24). Conway examined a copy of the operating agreement for D.C. Services and a letter of engagement with Lunn Partners, and determined that the signatures on those documents were not his signature. (Tr. 24-25; Adm. Exs. 4, 5). Conway does not know who signed those documents, and gave no one authority to sign his name. (Tr. 26-28).
Charles Wagner has known Respondent for 21 years on a professional and social basis. (Tr. 84-85). He concluded that Respondent has an outstanding reputation for truth and veracity. (Tr. 86-89).
Joseph Carr has known Respondent for more than 15 years, and they are social friends. (Tr. 213-15). Carr opined that Respondent has an excellent reputation for truth and veracity. (Tr. 215-16).
Respondent has not received a prior discipline.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
In attorney disciplinary proceedings, the Administrator must prove the alleged misconduct by clear and convincing evidence. Supreme Court Rule 753(c)(6); In re Ingersoll, 186 Ill. 2d 163, 168, 710 N.E.2d 390 (1999). "Clear and convincing evidence is a standard of
proof which, while less than the criminal standard of proof beyond a reasonable doubt, is greater than the civil standard of preponderance of the evidence." Cleary and Graham, Handbook of Illinois Evidence, § 301.6 (6th ed. 1994). This standard of proof is one in which the risk of error is not equally allocated; rather, this standard requires a high level of proof, both qualitatively and quantitatively, from the Administrator. Santosky v. Kramer, 455 U.S. 745, 764-66, 102 S. Ct. 1388 (1982); In re Tepper, 96 CH 543, M.R. 14596 (1998) (Review Bd. Dec. at 12). Suspicious circumstances are insufficient to warrant discipline. In re Lane, 127 Ill. 2d 90, 111, 535 N.E.2d 866 (1989).
In this case, based on the evidence and testimony presented at the hearing, we find that the Administrator failed to prove, by clear and convincing evidence, that Respondent engaged in any of the misconduct alleged in the Complaint. Specifically, we conclude the Administrator failed to prove that RESPONDENT: 1) converted funds; 2) engaged in conduct involving dishonesty, fraud, deceit, or misrepresentation; 3) engaged in conduct that is prejudicial to the administration of justice; and 4) engaged in conduct that tends to defeat the administration of justice or to bring the courts or the legal profession into disrepute in violation of Rules 8.4(a)(4) and 8.4(a)(5) of the Illinois Rules of Professional Conduct and Supreme Court Rule 770.
Specifically, we find that the Administrator failed to prove that Respondent converted funds. Conversion is defined as any unauthorized act that deprives someone of their property permanently or for an indefinite period of time. In re Rosin, 156 Ill. 2d 2020, 206, 620 N.E.2d 368 (1993). The Administrator alleged that between January 31, 2005 and October 5, 2005, Respondent converted more than $159,000 from the D.C. Services account, which contained funds belonging to Lunn or Lunn's business entities. Respondent admitted that he used that amount of money from the D.C. Services account, but stated that he was authorized by Lunn to
use the money. We find Respondent's testimony credible and, accordingly, find that the Administrator failed to prove conversion.
Respondent earned all of the money he used from the D.C. Services account. On June 1, 2004, Lunn signed an engagement letter agreeing to pay Respondent $15,000 per month for his services. That agreement was never modified or revoked. In the fall of 2004, Lunn and Lunn Partners were being pursued by several creditors and at least one multi-million dollar judgment was entered against them. By November 2004, the Lunn Partners employees, including Respondent, were not being paid. Respondent continued to work for Lunn until October 2005. Based on Respondent's engagement letter, between November 2004 and October 2005, Respondent should have been paid $180,000. According to Administrator's allegations, and the admitted facts, Respondent received $159,000 from the D.C. Services account. Therefore, Respondent earned all of the money he received and, in fact, was paid less than he was owed for the period of time in question.
We also find that Lunn authorized Respondent to use the money in the D.C. Services account. It is clear to us that Lunn knew about the account. In fact, Lunn agreed to open a separate bank account to fund the operations of Lunn Partners. It is undisputed that there was nothing illegal or improper about opening this account. In December 2004, Respondent opened the D.C. Services. Not only did Lunn know about the account, it is undisputed that he gave Respondent the Peer Pederson check in the amount of $106,000 to fund the account, and specifically told Respondent to pay certain expenses with that money, including Respondent's salary.
We further find that Lunn authorized Respondent to collect other funds belonging to Lunn Partners and to use that money to pay expenses, including Respondent's salary. For
example, in an effort to keep Lunn Partners operating, Leaders Bank agreed to lend it up to $135,000. Schuster testified that the Kelly family had invested one million dollars in Lunn Partners, and thought it could protect its investment if Lunn Partners continued to operate. The Kelly family was a part owner of Leaders Bank. The Bank did not want to lend the money to Lunn, so as a condition of the loan, Lunn executed a power of attorney, which gave Respondent broad powers over the business operations of Lunn Partners and 16 other Lunn business entities. On December 1, 2004, Respondent deposited a check in the amount of $45,000 from Leaders Bank into the D.C. Services account. In January 2005, two additional loan checks from Leaders Bank, totaling $40,000, were deposited into the D.C. Services account. Based on these facts, we find that Lunn knew about the loan and authorized Respondent to use those funds.
Additionally, Respondent testified that he discussed with Lunn all of the checks he received and deposited into the D.C. Services account, and how he used the money. Accordingly, Respondent was authorized to use the money and Lunn knew he was using it. We find Respondent's testimony credible, and because it is credible, we find the Administrator failed to prove that he engaged in conversion. In re Smith, 168 Ill. 2d 269, 283, 659 N.E.2d 896 (1995) (the Hearing Board is in the best position to determine the credibility of the witnesses).
In finding Respondent's testimony credible, we find Lunn's testimony, on almost every material fact, not credible. Lunn testified that he did not know about the D.C. Services account, but also stated that when he gave Respondent the $106,000 Pedersen check, Respondent told him he would go through his brother so they could use the money. In fact, Lunn testified that in December 2004, he gave Respondent the Pedersen check with the "understanding that he [Respondent] would be able to figure out some way to deposit the check with something his brother had. Some entity his brother had." Lunn also admitted he authorized Respondent to use
the money to pay Lunn, Respondent and other bills. Subsequently, Respondent wrote checks to pay some of Lunn's expenses and even gave Lunn checks written on the D.C. Services account. For example, in December 2004, Respondent wrote two checks to Guardian Insurance to pay Lunn's insurance premiums. Also in December 2004, Respondent wrote two checks to Lunn's wife, Laura, totaling $55,000. In April 2005, Lunn directed Respondent to pay another law firm's legal fees Lunn incurred in the amount of $25,000. On July 12, 2004, Respondent wrote a check to Lunn in the amount of $4,000. Lunn endorsed the check and gave it to Laura. Based on these facts, Lunn's testimony that he did not know about the account is unbelievable. Lunn might not have known every detail about the D.C. Services account, but he knew Respondent was using a different account, authorized him to do so, and benefited from it.
The Administrator makes much of the fact that when Neff told Lunn about the D.C. Services account, he was "stunned" and "turned white." We do not think this indicates that Lunn was surprised to learn about the account. Instead, we infer from these facts that Lunn was surprised that Neff had learned about the account. Lunn knew about it from the beginning, and did not tell Neff about it, and when confronted by Neff, Lunn's reaction was caused by being placed in the awkward position of having failed to fully disclose his financial situation to his bankruptcy attorney.
Lunn also denied knowing that Leaders Bank lent Lunn Partners $85,000 in December 2004 and January 2005. However, as a condition of the loan, Lunn executed a power of attorney authorizing Respondent to handle those funds. Lunn was a sophisticated businessman. We find it unbelievable that he would sign a power of attorney, especially one as broad as this one, without knowing what it was for and the implications of it. He had to know it was a condition of receiving the loan and had to know when the loan was made. Accordingly, we find that Lunn
knew about this loan, and authorized Respondent to use the money and find Lunn's testimony to the contrary not credible.
We also find that the power of attorney was not limited in any way, did not contain a term of duration, and was never revoked. Accordingly, it remained in effect for the period of time relevant to these proceedings. Under the terms of the November 30, 2004, power of attorney, Lunn gave Respondent full authority to act on his behalf with respect to all real estate transactions, financial institution transactions, and business operations. It also gave Respondent authority to use any assets of 16 Lunn business entities, including Lunn Partners.
We believe that Lunn expressly, and through the power of attorney, gave Respondent authority to deposit any money sent to Lunn Partners and to use that money to pay expenses, including Respondent's salary. We also believe that Lunn knew exactly what money was due to Lunn Partners. Lunn testified that he was unaware of some of the checks that came in, including the checks from IBeam, and the City of Chicago. Again, Lunn was not only a sophisticated businessman, but one that was personally involved in every aspect of his businesses. At the time these checks were received, Lunn was having extreme financial difficulties and was desperate for money. Based on these facts, and the fact that he was in constant communication with Respondent, we find his testimony not credible. We believe he knew every source of income he had and that he authorized Respondent to use any funds payable to any of the Lunn business entities.
Lunn also testified that Lunn Partners stopped doing business in January 2005, when it closed its office. The Administrator relies heavily on this statement to establish that Respondent was acting without authority and should not have been paid after that date. We reject this premise, and find Lunn's testimony not credible. Although it is undisputed that the Lunn
Partners offices closed in January 2005, there is little evidence that Lunn Partners ceased to exist. In fact, that entity was never dissolved and Lunn continued to operate under that name when selling the real estate at 119th and 26th Streets. Additionally, Leaders Bank made a loan to Respondent in December 2004 and sent some of the loan proceeds in January 2005 to keep Lunn Partners operating. Further, for months after January 20005, Lunn continued to rely on Respondent to do numerous tasks for Lunn Partners including having daily contact with Lunn to discuss developing issues, working with Lunn's bankruptcy attorneys, collecting Lunn Partners' mail, and keeping current on several other business issues. Therefore, we find that Lunn Partners continued to operate well past January 2005.
We further find that the Administrator failed to prove any other alleged misconduct. All of the other misconduct alleged by the Administrator flows from Respondent's handling of the funds in the D.C. Services account. Because we found that Respondent had Lunn's authority to use the funds in that account, we find that he did not act dishonesty or in violation of any other Rules. Further, there was insufficient evidence to prove that Respondent created D.C. Services. The only direct testimony relating to these facts is from Respondent. He denied creating D.C. Services, and testified that Brian Gannon signed the D.C. Services operating agreement and was named as the manager. Respondent admitted signing the bank account documents, but denied completing the remainder of those documents, including inserting an incorrect federal tax number. There is no other testimony regarding the operating agreement or the bank documents except Kathy Pyne's testimony that she though Gannon set up D.C. Services. We find Respondent's testimony on these points credible, and that the evidence tends to show that Gannon, not Respondent, created D.C. Services. The Administrator invites us to compare
Respondent's handwriting from other documents to conclude that he completed the bank documents. We are not handwriting experts, and decline this invitation.
A significant amount of misconduct alleged by the Administrator at the hearing was not contained in the disciplinary Complaint. In is well-settled that facts not alleged in the Complaint cannot be used as a basis for a finding of misconduct. In re Doyle, 144 Ill. 2d 451, 581 N.E.2d 669 (1991). Accordingly, we cannot find misconduct based on any facts that were brought out at the hearing, but not contained in the Complaint. The only facts alleged in the Complaint involve Respondent's conduct in creating the D.C. Services account and using the funds in that account. There are no allegations regarding Respondent's filings with the bankruptcy court, delay in supplying information to Lunn's bankruptcy attorneys, or any other conduct. Therefore, we need not make specific finding regarding these issues.
Respondent admitted that he should not have paid his personal expenses from the D.C. Services account. We agree with Respondent, and find that by using the D.C. Services account as he did, he commingled funds. However, as discussed above, because this conduct is not alleged in the complaint, we cannot find misconduct based on this admission.
The only money used by Respondent that did not belong to Lunn or Lunn Partners is the $3,697.98 check from the Lunn MGF account. Schuster testified that Lunn MGF had a substantial equity interest in the Fox & Obel grocery store. In December 2004, Donegal Inc. became the new manager of the store. Lunn MGF had a bank account with a balance of $3,697.98. That money should have been sent to Schuster and distributed to the owners of Lunn MGF. The account was closed, and a check for the balance in the account was sent to Lunn Partners. Respondent deposited the check into the D.C. Services account and used the money along with other money in that account. Respondent admitted depositing the money, but also
stated that Lunn MGF was an entity included in the power of attorney Lunn executed. Based on these facts, we find insufficient evidence to prove that Respondent mishandled this money. Although Schuster stated that the money should have been distributed to the owners of Lunn MGF, we do not know who those owners were or if they had any communication with Lunn about the money. We are not questioning the credibility of Schuster's testimony, we simply find it insufficient, by itself, to amount to clear and convincing evidence of conversion.
For the reasons stated, we recommend the charges against Respondent be dismissed.
Date Entered: October 27, 2008
|John M. Steed III, Chair, Devlin J. Schoop, and Katheryn H. Ward, Hearing Panel Members.|