Filed April 14, 2011
BEFORE THE HEARING BOARD
ILLINOIS ATTORNEY REGISTRATION
|In the Matter of:
OSCAR GALLO, JR.,
Commission No. 07 CH 110
REPORT AND RECOMMENDATION OF THE HEARING BOARD
The hearing in this matter was held on June 1 and 2, 2010, before a panel consisting of Kenn Brotman, Chair, Jose A. Lopez Jr. and David A. Datillo. Tracy L. Kepler appeared as Counsel for the Administrator. John L. Sullivan appeared as Counsel for Respondent. Respondent was also present.
On November 6, 2007, the Administrator filed a Complaint against Respondent pursuant to Supreme Court Rule 753(b). The Complaint alleged Respondent engaged in a conflict of interest by representing the buyer and sellers in a real estate transaction and failed to adequately represent the buyer in that transaction. Respondent filed an Answer to the Complaint on May 5, 2008, in which he denied most of the factual allegations and denied all the allegations of misconduct.
The Administrator presented the testimony of Omar Lopez, Laurence M. Cohen, Dennis R. Bordyn, Mohammed Moshin, Manisha Patel and Respondent and Exhibits 1-21. Respondent
presented his testimony and Exhibits 1-27. The admitted allegations of the Complaint, the Joint Stipulation, the testimony of the witnesses and the Exhibits established the following facts.
On September 1, 2006, the closing on a house located on South Nottingham Street in Chicago, Illinois ("Nottingham property") took place. Present at the closing were Respondent, Ryhs Pareja, Mohammed Moshin, Manisha Patel, Omar Lopez and a title agent for Commercial Land Title Insurance Company named Alexander Diaz.
In July 2006 Respondent was a customer at the auto parts store where Omar Lopez worked and he asked for Mr. Lopez's assistance. (Tr. 28-29). Mr. Lopez assisted Respondent and in return Respondent told Mr. Lopez he was an attorney and to let him know if Mr. Lopez needed anything. (Tr. 28-29). Mr. Lopez told Respondent he wanted to refinance his home on Lorel Avenue in Chicago, Illinois ("Lorel property") and Respondent provided Mr. Lopez with the name and phone number of Ryhs Pareja. (Tr. 29-30, 42). Mr. Lopez called Mr. Pareja and spoke to him about refinancing the Lorel property. (Tr. 30-31, 42).
After meeting with Mr. Pareja several times Mr. Lopez agreed to enter into an investment deal with Mr. Pareja instead of refinancing the Lorel property. (Tr. 31, 88, 93). Mr. Pareja told Mr. Lopez he could buy the Nottingham property at a reduced price and that Mr. Lopez could rent out three floors of the house to pay the mortgage on the property and still make a profit. (Tr. 32). Mr. Pareja also told Mr. Lopez he would receive $12,000 at the closing as a purchasing bonus and that Mr. Pareja would manage the property and receive part of the rent money Mr. Lopez collected as payment for his services. (Tr. 32-34). Mr. Lopez and Mr. Pareja discussed
the possibility of Mr. Lopez using the profits he received from this investment deal to invest in more properties with Mr. Pareja in the future. (Tr. 33).
The investment deal was attractive to Mr. Lopez because it put money in his pocket. (Tr. 95-96). Respondent was not present at any of the meetings Mr. Lopez had with Mr. Pareja. (Tr. 96). Mr. Lopez did not consult with Respondent during the time period he was meeting with Mr. Pareja to discuss the investment deal with Respondent. (Tr. 96-97). Mr. Pareja told Mr. Lopez that he had dealt with Respondent in the past, but he did not tell Mr. Lopez that he exclusively dealt with Respondent as his attorney. (Tr. 90).
Mr. Lopez agreed to buy the Nottingham property and a few weeks later he signed a real estate contract dated August 17, 2006, to purchase the property. (Tr. 38-39, 98-99; Adm. Ex. 3). Mr. Pareja suggested that they use Respondent as the attorney for the closing on the property and Mr. Lopez agreed. (Tr. 116). Mr. Lopez was listed as the buyer on the contract and Mohammed Moshin and Manisha Patel were listed as the sellers. (Tr. 39; Adm. Ex. 3). Respondent was listed as the buyer's attorney on the contract. (Tr. 39; Adm. Ex. 3). Mr. Lopez did not speak to Respondent, see the Nottingham property, or negotiate the terms of the contract prior to signing the contract. (Tr. 40).
Prior to the date the closing on the Nottingham property actually took place, Mr. Lopez and Respondent appeared for the closing, but it was canceled. (Tr. 43, 47). Mr. Lopez took that opportunity to talk to Respondent because he was uncertain about proceeding with the investment deal. (Tr. 43). Mr. Lopez told Respondent he did not understand exactly how he was able to buy the Nottingham property for much less than it was worth, what his role and Mr. Pareja's role was in the investment deal and whether Mr. Lopez would be liable if something went wrong. (Tr. 43). Respondent called Mr. Pareja in Mr. Lopez's presence and told Mr.
Pareja that they would need to talk and make sure "everything was settled." (Tr. 45-46). Respondent also told Mr. Lopez that he was his attorney, that Mr. Lopez's best interest was his responsibility and not to worry because Respondent knew Mr. Pareja. (Tr. 44-46).
At the closing on the Nottingham property Respondent told Mr. Lopez that he was going to represent Mr. Lopez and the sellers to expedite the closing, because the sellers did not have an attorney. (Tr. 50). Respondent never stated at the closing that he was representing Mr. Pareja. (Tr. 113). Respondent never discussed a conflict of interest with Mr. Lopez or whether Mr. Lopez should hire another attorney. (Tr. 50).
Respondent explained the documents Mr. Lopez was signing at the closing to him very briefly and told Mr. Lopez where to sign the documents. (Tr. 48-49). Respondent did not review the terms of the loan applications, the notes, or the settlement statement that Mr. Lopez signed at the closing in sufficient detail for Mr. Lopez to determine whether they were accurate. (Tr. 51-57; Adm. Exs. 6, 7, 8, 9, 12). Mr. Lopez signed the closing documents without reading them because Respondent went through the documents very quickly. (Tr. 107-108). The information regarding Mr. Lopez's income on the loan applications was incorrect and although the loan applications indicate the Nottingham property was going to be Mr. Lopez's primary residence, Mr. Lopez never intended to and never did reside at the Nottingham property. (Tr. 57-58, 85; Adm. Exs. 6, 9).
Mr. Lopez received the $12,000 bonus for purchasing the Nottingham property after the closing. (Tr. 61). Mr. Pareja opened up an account at Harris Bank under Mr. Lopez's name and $12,000 was deposited in that account. (Tr. 61). Mr. Lopez withdrew $3,000 from the account on September 6, 2006, to pay the taxes and make repairs to the Lorel property and he withdrew the remaining $9,000 on September 25, 2006. (Tr. 73-74, 78, 95; Resp. Ex. 23).
Mr. Lopez called Respondent a couple weeks after the closing because he was unable to contact Mr. Pareja. (Tr. 58). Mr. Pareja was supposed to find a renter for the basement of the Nottingham property and the rent Mr. Lopez was receiving from the tenants on the first and second floor of the property was not sufficient to make the mortgage payments. (Tr. 58-59, 105). Respondent told Mr. Lopez he would contact Mr. Pareja and find out what was going on. (Tr. 59). Mr. Lopez tried calling Respondent a few times after that conversation, but was unable to contact him. (Tr. 60).
The Nottingham property was foreclosed on in April 2007. (Tr. 60). Mr. Lopez was only able to make four to six months worth of payments on the property. (Tr. 60). The majority of those payments were made using the $12,000 bonus Mr. Lopez received. (Tr. 62). The Lorel property was also foreclosed on and Mr. Lopez had to file for bankruptcy. (Tr. 62).
Mohammed Moshin is married to Manisha Patel. (Tr. 316). Mr. Moshin agreed to have Mr. Pareja help him sell the Nottingham property because Mr. Pareja did not ask for any money up front, which made Mr. Moshin feel comfortable with Mr. Pareja. (Tr. 320-22, 361). Mr. Moshin had attempted unsuccessfully to sell the property through two realtors and by himself through the Buy Owner website. (Tr. 318, 320-22; 356). Additionally, the person who introduced Mr. Moshin to Mr. Pareja took $6,000 from Mr. Moshin to sell the property and failed to do so. (Tr. 357-58).
Mr. Moshin signed a real estate contract agreeing to sell the Nottingham property to Mr. Lopez. (Tr. 320-22; Adm. Ex. 3). Mr. Moshin understood from Mr. Pareja that he would pay Mr. Lopez at the closing through a seller's credit for certain repairs that needed to be made to the property. (Tr. 386-88). Mr. Moshin also understood that Mr. Pareja would get paid at the
closing for setting up the transaction, but he was not aware that he was committing fraud by giving money to a broker or paying money back to the purchaser. (Tr. 368-69).
Prior to the closing on the Nottingham property Mr. Pareja instructed Mr. Moshin to give him a copy of a check payable to Mr. Lopez for $2,450 with the notation "rent deposit" on it for the transaction. (Tr. 351-55, 384; Resp. Ex. 11). After he gave Mr. Pareja a copy of the check Mr. Moshin deposited the check back into his bank account. (Tr. 355-56). Mr. Moshin was aware that the check was being used for show and not for substance. (Tr. 384).
The first day the closing on the Nottingham property was supposed to take place it did not go through because of a problem with the paperwork. (Tr. 324). Mr. Moshin, Mr. Pareja and Respondent were present on that day and made small talk for approximately one hour while they were waiting for the paperwork. (Tr. 325, 376-77). That was the first time Mr. Moshin spoke to Respondent. (Tr. 325).
Mr. Moshin believed Respondent was his attorney at the closing for the Nottingham property. (Tr. 326). Respondent did not specifically say to Mr. Moshin that he was his attorney. (Tr. 398). Respondent reviewed and instructed Mr. Moshin to sign the first and second HUD-1 statements, the warranty deed, the affidavit of title, the bill of sale and the letter of direction. (Tr. 333-37; Adm. Exs. 10, 11, 13, 14, 15, 18). The person who certified Mr. Moshin's signature on the warranty deed, the affidavit of title and the bill of sale did not instruct Mr. Moshin to sign those documents. (Tr. 393, 396-97).
Respondent explained to Mr. Moshin that the letter of direction dictated how the funds were going to be disbursed and how the checks would be issued. (Tr. 337-38). Mr. Pareja told Mr. Moshin at the closing that Mr. Pareja would receive $37,000 and Mr. Moshin would receive approximately $41,000 from the sale of the Nottingham property. (Tr. 400). Mr. Moshin
expected to receive more of the proceeds for himself, but at that point he had no choice but to accept Mr. Pareja's deal because he was having a hard time selling the property. (Tr. 400-01).
Mr. Pareja asked Mr. Moshin to sign the check for $37,000 at the closing and Mr. Moshin signed the check and gave it to Mr. Pareja. (Tr. 339-40, Adm. Ex. 19). Mr. Moshin was given the check for $41,545.20 at the closing and he deposited it into his bank account. (Tr. 340-41, Adm. Ex. 19). Mr. Moshin signed the check for $1,500 at the closing and was told by either Mr. Pareja or Respondent that he was signing the check to pay Respondent for his services. (Tr. 341-42).
Mr. Moshin did not have any conversations with Respondent about conflict of interest issues or about Mr. Moshin seeking independent representation for the closing of the Nottingham property. (Tr. 342). Respondent also did not explain to Mr. Moshin the advantages and risks involved in representing all the parties to the transaction. (Tr. 342-43).
Manisha Patel is married to Mr. Moshin and testified that Mr. Pareja introduced Respondent to her and her husband as their attorney on the first day the closing on the Nottingham property was supposed to take place. (Tr. 414, 423). Respondent was present when Mr. Pareja introduced Respondent to Mr. Moshin and Ms. Patel in this manner. (Tr. 423-24). The following day at the actual closing for the Nottingham property Respondent explained the paperwork to Ms. Patel and told her to sign certain documents required for the closing to go through. (Tr. 414-16). Respondent did not specifically tell Ms. Patel that he was her attorney or that he was not her attorney. (Tr. 417, 423).
Ms. Patel believed Respondent was her attorney because he reviewed the paperwork with her as she would expect her attorney to do and she and her husband paid Respondent as their
attorney. (Tr. 417-18). Ms. Patel also believed Respondent was Mr. Lopez's attorney because he reviewed the paperwork with Mr. Lopez and told Mr. Lopez to sign certain documents similarly to how he reviewed the paperwork with Ms. Patel. (Tr. 427-28). Ms. Patel did not have a conversation with Respondent in which he explained the risks and benefits of representing all the parties to the transaction. (Tr. 417). Ms. Patel also did not have a conversation with Respondent in which he suggested that she should consider getting independent representation for the transaction. (Tr. 417-18).
The parties jointly stipulated that if called to testify as a witness, Ryhs Pareja, would assert his Fifth Amendment privilege.
Laurence M. Cohen
Laurence Cohen is an attorney in Illinois and practices in the area of residential and commercial real estate. (Tr. 119-20). Mr. Cohen represented the seller, Manisha Patel, in a potential contract to sell the Nottingham property to William Willis in the summer of 2006. (Tr. 121-22; Resp. Ex. 2). The contract was almost ready to close when Mr. Cohen was informed that the seller was pursuing a different buyer and Mr. Cohen was not asked to represent the seller in that transaction. (Tr. 123-24, 139-40). Mr. Cohen provided information from his file for the closing on the Nottingham property and was paid approximately $500 for that information. (Tr. 124-26, 146-47). Mr. Cohen never spoke to Respondent about the closing on the Nottingham property. (Tr. 126).
Dennis R. Bordyn
Dennis Bordyn has been licensed to practice law in Illinois since 1982. (Tr. 188). Real estate closings in Cook County and the surrounding counties comprise a major part of Mr.
Bordyn's solo private practice and Mr. Bordyn does a lot of speaking engagements regarding his experience with real estate practice. (Tr. 189-90). Mr. Bordyn is affiliated with several real estate associations, including his position as the director of the Illinois Real Estate Lawyers Association, and was involved in the development of forms currently used in real estate transactions in Illinois. (Tr. 191-95; Adm. Ex. 21). Mr. Bordyn is an authorized title agent with two title companies and has served as both the attorney and issuing title agent on a real estate transaction. (Tr. 196).
Mr. Bordyn testified that typically in a residential real estate sale the buyer's attorney reviews the contract the buyer enters into to determine whether the provisions are in his client's interest and to raise any suggested modifications. (Tr. 198-99). The buyer's attorney would then discuss with the buyer what their objectives are in buying the property and whether the buyer is comfortable with the condition of the property. (Tr. 199-200). The attorney then must make sure that the buyer obtains the financing they need for the property while the seller is preparing their documentation to close the transaction. (Tr. 200). The buyer's attorney also reviews the mortgage documentation with the buyer to make sure the buyer understands the terms of their commitment at the closing and the buyer's attorney also reviews the survey that the seller presents. (Tr. 201-2).
Mr. Bordyn further testified that typically the seller's attorney prepares and provides the warranty deed, the bill of sale and the affidavit of title. (Tr. 205-6, 275-76). In Mr. Bordyn's opinion either the seller or the seller's attorney has to prepare the deed because the preparation of the deed is the practice of law and therefore the attorney preparing the deed must represent the seller who is conveying the property. (Tr. 279-80). Mr. Bordyn testified that only under
extremely rare circumstances would an attorney be able to represent both the buyer and seller in the same real estate transaction. (Tr. 221).
Mr. Bordyn testified that the contract that was entered into by Mr. Lopez, Mr. Moshin and Ms. Patel for the sale of the Nottingham property deviated from the standard and customary practice in a residential real estate transaction because it only contained the first page of a four page form contract and did not include many standard provisions. (Tr. 222-23; Adm. Ex. 3). Mr. Bordyn testified that technically the contract was not valid because it did not include a date of acceptance which triggers the attorney modifications period. (Tr. 223-24).
Mr. Bordyn testified that in his opinion the letter of direction that was prepared by Respondent deviated from the standard and customary practice in a real estate transaction. (Tr. 228). The letter of direction addressed the disbursement of funds that were supposed to go to the sellers, but some of those funds went to parties other than the sellers. (Tr. 228-29). The disbursement of those funds to parties other than the sellers was not disclosed on the HUD-1 for the transaction and should have been disclosed on the HUD-1. (Tr. 228-29). The HUD-1 is a settlement statement generated for the real estate transaction which is prepared on a form dictated by the Federal Government and it is required to show the disbursement of all monies in the transaction. (Tr. 228).
In the past Mr. Bordyn has seen letters of direction used to avoid disclosing the disbursement of mortgage funds to the lender on the HUD-1. (Tr. 233). This results in the lender being unable to determine whether the disbursement of the mortgage funds for that purpose is proper. (Tr. 233). In a typical real estate transaction the lender will not disburse the mortgage funds until it reviews the HUD-1 and on occasion the lender will reject certain items on a HUD-1. (Tr. 234-35, 259).
The three checks issued to Mr. Moshin and Ms. Patel for $37,000, $41,545 and $1,500 represented the sellers' net funds from the closing and belonged to the sellers at the time the checks were issued. (Tr. 261). The endorsement "Pay to the Order of Oscar Gallo" on the back of the $1,500 check issued to Mr. Moshin and Ms. Patel indicates Respondent's legal fee was paid outside the closing. (Tr. 262-63; Adm. Ex. 19 at 3). On the first HUD-1 from the transaction the parties disclosed Respondent's legal fee and attempted pay it through the closing, but on the second HUD-1 Respondent's legal fee was not disclosed. (Tr. 265; Adm. Exs. 10, 11). Mr. Bordyn had no basis to form an opinion as to why the first HUD-1 was rejected. (Tr. 265). Both a buyer and a seller are permitted to pay their attorney's fees outside of a closing. (Tr. 260).
Respondent met Mr. Pareja through an attorney who worked out of the same office as Respondent. (Tr. 155-56). Respondent testified that he did not know Mr. Pareja was a mortgage broker when he met him, but acknowledged that he testified at his deposition in August 2007 that Mr. Pareja was a mortgage broker when he met him. (Tr. 157). Respondent was successfully impeached on direct examination by Counsel for the Administrator when he testified that he did not refer people to Mr. Pareja and admitted that prior to 2007 Respondent would refer people to Mr. Pareja who were interested in refinancing or looking for a good mortgage. (Tr. 157-59). Subsequently, Respondent testified on direct examination by Counsel for Respondent that prior to the closing on the Nottingham property he had never referred anyone to Mr. Pareja as a mortgage broker. (Tr. 445). Respondent handled real estate closings for individuals who were referred to him by Mr. Pareja. (Tr. 159, 161-62, 447). Respondent also represented Mr. Pareja's
wife in an immigration matter and Mr. Pareja's brother in a real estate closing. (Tr. 159, 443-45).
Respondent testified on direct examination that he met Mr. Lopez at an auto parts store in late May or early June 2006, but acknowledged on cross examination that he admitted in his Answer that he met Mr. Lopez in July 2006. (Tr. 162-63, 445, 539). Mr. Lopez told Respondent he was trying to refinance his home and Respondent gave Mr. Lopez Mr. Pareja's name and phone number. (Tr. 164, 446).
Respondent testified that "several months later" Respondent received a call from Mr. Pareja who told Respondent that Mr. Lopez needed an attorney to represent him at a real estate closing in seven to ten days. (Tr. 165, 449, 451). Respondent contacted the title company and mortgage company to set up the closing. (Tr. 450-52). Respondent prepared a settlement statement for the sale of the Nottingham property at the request of the title company. (Tr. 471, 542-45; Adm. Ex. 16). Respondent testified on direct examination that the title company could not calculate the taxes and the fees for the settlement statement, but on cross-examination Respondent acknowledged that he did not know whether the title company could do that or not. (Tr. 471, 542-45). The settlement statement only contained the seller's figures and did not contain any figures related to the buyer. (Tr. 542-45; Adm. Ex. 16).
Respondent did not review the appraisal or any of the terms of the contract for the sale of the Nottingham property with Mr. Lopez. (Tr. 166-67, 534, 541; Adm. Exs. 2, 3). Respondent received the contract from Mr. Pareja less than a week before the closing and saw that it had been negotiated and signed. (Tr. 453). Respondent asked the title company and the mortgage company if there were any other parts to the contract and he was informed that there were not. (Tr. 453, 540). Respondent never contacted Mr. Lopez or the sellers to determine whether there
were any other parts to the contract. (Tr. 540). Respondent also never talked to Mr. Lopez about a survey for the property or an inspection of the property. (Tr. 542).
Respondent spoke to Mr. Lopez on August 29, 2006, and informed him of the time and location of the closing. (Tr. 458). Respondent was unaware of the investment deal Mr. Lopez had entered into with Mr. Pareja or any of its terms. (Tr. 478-79, 524-526). Mr. Lopez never discussed the investment deal or any of his concerns about the deal with Respondent. (Tr. 478-79).
The closing on the Nottingham property was scheduled to take place on August 30, 2006, but was rescheduled for the following day because there were problems with the mortgage documents. (Tr. 458-60). Neither Mr. Moshin, Ms. Patel nor Mr. Pareja was present at the title company while Respondent was there on August 30, 2006. (Tr. 460, 463). On August 31, 2006, Respondent, Mr. Lopez, Mr. Moshin and Ms. Patel were all present in the lobby of the title company while they waited to determine whether the closing was going to take place that day, but Mr. Pareja was not present. (Tr. 461-63). After waiting for an hour they were told there would be no closing on August 31, 2006. (Tr. 465). Respondent did not tell either Mr. Moshin or Ms. Patel that he was their attorney and was not aware of any conversation during which anyone introduced Respondent to them as their attorney. (Tr. 465, 483).
Respondent assumed Mr. Pareja was present at the closing on September 1, 2006, to represent the mortgage company, but he did not ask Mr. Pareja why he was there. (Tr. 481, 547). Mr. Pareja did not introduce Respondent to anyone as their attorney at the closing. (Tr. 483). Respondent did not know Mr. Pareja was getting any money from the sale of the Nottingham property. (Tr. 485).
Respondent prepared a warranty deed, an affidavit of title and a bill of sale for the closing of the Nottingham property using preprinted forms on his computer. (Tr. 176-78, 477, 479-80, Adm. Exs. 13, 14, 15). Respondent testified that usually a warranty deed, an affidavit of title and a bill of sale are prepared by the seller's attorney, the seller, or the title company in a real estate transaction. (Tr. 177, 477). Respondent prepared those documents because he was concerned that Mr. Moshin and Ms. Patel would not provide them at the closing since it was unclear whether they were represented by counsel. (Tr. 477-80, 509). Mr. Moshin and Ms. Patel were required to tender those documents at the time of closing, but the contract did not specify who was to prepare those documents. (Tr. 185-86, 546, 566-67; Adm. Ex. 3).
At the closing on September 1, 2006, Respondent learned that Mr. Moshin and Ms. Patel did not bring any documents with them and Respondent tendered the documents he had prepared to the title officer. (Tr. 509). Respondent testified that he did not instruct Mr. Moshin and Ms. Patel to sign the warranty deed and that the title officer instructed them to sign it at the closing. (Tr. 178-79). The title officer also instructed Mr. Moshin and Ms. Patel to sign the affidavit of title and the bill of sale. (Tr. 179). Respondent testified that the title officer usually assists a buyer or a seller through a real estate transaction if one of the parties is not represented by counsel. (Tr. 179). Respondent did not ask Mr. Moshin and Ms. Patel where their attorney was and he did not tell them that he was not their attorney. (Tr. 550).
Respondent reviewed the mortgage documents with Mr. Lopez, explained each document to him and instructed him to let Respondent know if any of the information contained in those documents was incorrect. (Tr. 180, 489-92, 547-48). Mr. Lopez did not inform Respondent that there were any inaccuracies in those documents, including the two loan applications Mr. Lopez initialed and signed after reviewing them. (Tr. 490-93; Adm. Exs. 6, 9). Respondent testified
that he explained the occupancy agreement to Mr. Lopez and that the agreement meant Mr. Lopez was acquiring the Nottingham property as his primary residence because that was the type of loan he was receiving. (Tr. 548-49; Adm. Ex. 17). When asked on cross-examination if Mr. Lopez told Respondent that the Nottingham property was going to be his primary residence, Respondent testified that Mr. Lopez "didn't tell me otherwise." (Tr. 549).
Respondent requested that the first HUD-1 include an entry for buyer's attorney fee to Oscar Gallo for $1,500. (Tr. 496; Adm. Ex. 10). The title officer either faxed or emailed the first HUD-1 to the mortgage company after Mr. Lopez, Mr. Moshin and Ms. Patel signed it. (Tr. 498-500). Approximately 30 minutes later the title officer informed Respondent that the first HUD-1 was rejected by the mortgage company because it did not want the buyer's attorney fees on the document. (Tr. 500).
Respondent explained the problem to Mr. Lopez, Mr. Moshin and Ms. Patel and suggested that if they took the $1,500 for buyer's attorney fees off the HUD-1, that Mr. Moshin and Ms. Patel would then receive $1,500 more in proceeds from the transaction and that the $1,500 could then be paid to Respondent outside of the closing from the sellers' proceeds. (Tr. 502-04). Respondent explained that as a result Mr. Moshin and Ms. Patel would not receive any less profit from the sale and Mr. Lopez would not have to pay Respondent's fee. (Tr. 502-04). Mr. Lopez, Mr. Moshin and Ms. Patel all agreed with Respondent's suggestion. (Tr. 503).
Respondent then spoke to the title officer and a second HUD-1 was prepared. (Tr. 504). The second HUD-1 is generally the same as the first HUD-1 except Respondent's attorney's fees do not appear on the second HUD-1 and the second HUD-1 reflects that the sellers receive an additional $1,500 in proceeds. (Tr. 504; Adm. Exs. 10, 11). Respondent reviewed the second HUD-1 with Mr. Lopez and had him sign it and then the title officer presented the second HUD-
1 to the sellers for their signatures. (Tr. 505-06; Adm. Ex. 11). The mortgage company approved the second HUD-1. (Tr. 506).
Respondent overheard a conversation between Mr. Moshin and Mr. Pareja during the closing about how to divide the proceeds from the transaction. (Tr. 485, 513). Mr. Pareja asked the title officer if the proceeds check could be split and the title officer said it could as long as all the checks were made out to the sellers and there was a letter of direction from the sellers. (Tr. 513-14). The title officer asked Respondent to draft a letter of direction instructing the title company how to divide the proceeds from the sale due to the sellers, Mr. Moshin and Ms. Patel. (Tr. 168-70, 515).
Respondent testified that he drafted the letter of direction at the very end of the closing based on the figures provided to him by Mr. Moshin and that he did not look at either HUD-1 when he drafted the letter of direction. (Tr. 168, 515-16, 553-57; Adm. Ex. 18). Respondent stated that he phrased the initial paragraph of the letter of direction incorrectly because it stated that the sellers wanted the title company to issue two checks from the total proceeds of $78,545.20, which was the amount of the seller's proceeds reflected on the first HUD-1. (Tr. 554-56, 563-64; Adm. Ex. 18). Respondent testified that the letter should have stated that the sellers wanted the title company to issue three checks from the total proceeds of $80,042.20, which represented the seller's proceeds reflected on the second HUD-1 statement. (Tr. 563-64).
Below the initial paragraph with the inaccuracies, the letter of direction instructed the title company to issue three checks made payable to Mr. Moshin and Ms. Patel for the following amounts: $37,000, $41,545.20 and $1,500. (Tr. 169, 516; Adm. Ex. 18). Respondent did not have any conversations with anyone about the purpose of the checks for $37,000 and $41,545.20.
(Tr. 516-17). Respondent knew the check for $1,500 was going to be given to Mr. Lopez to pay for Respondent's attorney's fees. (Tr. 517, 519-21).
Respondent tendered the letter of direction to the title officer and the title officer directed Mr. Moshin and Ms. Patel to sign it. (Tr. 169, 517-18). The title officer took the letter of direction after it was signed and issued three checks to the sellers. (Tr. 518-19). After being asked several times by Counsel for the Administrator who instructed the sellers to sign the back of the $1,500 check, Respondent stated that he directed Mr. Moshin and Ms. Patel to endorse the $1,500 check. (Tr. 172-74; Adm. Ex. 19 at 3).
Respondent told Mr. Lopez that the $1,500 check could be made payable to him or to Respondent to pay Respondent's fees and Mr. Lopez did not have a preference as to how the check was endorsed. (Tr. 522-23). Respondent wrote "Pay to the Order of Oscar Gallo" on the $1,500 check and signed it. (Tr. 523; Adm. Ex. 19 at 3). Respondent deposited the $1,500 check into his business account. (Tr. 175, 531). Respondent did not try to hide the fact that he received $1,500 in fees for the closing. (Tr. 504, 524).
Respondent never represented both the buyer and seller in the sale of the Nottingham property. (Tr. 524-25). Respondent also never led both parties to believe he was representing them. (Tr. 525).
Mr. Lopez called Respondent several times approximately one week after the closing. (Tr. 528). When Respondent spoke to him a couple days later Mr. Lopez told Respondent he was looking for Mr. Pareja and wanted Respondent's assistance in locating him. (Tr. 528-29). Respondent told Mr. Lopez he would try to get in touch Mr. Pareja and have him contact Mr. Lopez. (Tr. 530). Respondent was able to contact Mr. Pareja and told him that Mr. Lopez was looking for him and that Mr. Pareja should meet with him as soon as possible. (Tr. 531).
FINDINGS OF FACT AND CONCLUSIONS OF LAW
In attorney disciplinary proceedings the Administrator has the burden of proving the charges of misconduct by clear and convincing evidence. In re Winthrop, 219 Ill. 2d 526, 542, 848 N.E.2d 961 (2006). Clear and convincing evidence constitutes a high level of certainty, which is greater than a preponderance of the evidence but less than proof beyond a reasonable doubt. Bazydlo v. Volant, 164 Ill. 2d 207, 213, 647 N.E.2d 273 (1995); People v. Williams, 143 Ill. 2d 477, 577 N.E.2d 762 (1991). This standard of proof is one in which the risk of error is not equally allocated; rather, it requires a high level of proof, both qualitatively and quantitatively, from the Administrator. Santosky v. Kramer, 455 U.S. 745, 764-66 (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 we conclude the Administrator proved by clear and convincing evidence that Respondent engaged in most of the misconduct alleged in the Complaint. Specifically, we conclude Respondent: 1) breached his fiduciary duty; 2) failed to consult with a client concerning the objectives of the representation and as to the means by which they were to be pursued; 3) failed to explain a matter to the extent reasonably necessary to permit the client to make informed decisions about the representation; 4) represented a client when the interests of that client were directly adverse to the interests of another client; 5) failed to withdraw when the lawyer knew or reasonably should have known that continued employment will result in a violation of the Rules; 6) represented a client when such representation may be materially limited by the lawyer's responsibilities to another client or third person or by the lawyer's own interests; 7) in representing multiple clients in a single matter, failed to explain the implications of the common representation and the advantages and risks involved; and 8) engaged in conduct which
tends to defeat the administration of justice, or to bring the courts or the legal profession into disrepute in violation of Rules 1.2(a), 1.4(b), 1.7(a), 1.7(b), and 1.7(c) of the Illinois Rules of Professional Conduct and Supreme Court Rule 770. We further find the Administrator did not prove by clear and convincing evidence that Respondent failed to keep a client reasonably informed about the status of a matter in violation of Rule 1.4(a) of the Illinois Rules of Professional Conduct.
Respondent engaged in a conflict of interest by representing both the buyer, Mr. Lopez, and the sellers, Mr. Moshin and Ms. Patel, in the sale of the Nottingham property. Respondent admitted that he represented Mr. Lopez in the sale of the Nottingham property but denied that he represented the sellers, Mr. Moshin and Ms. Patel.
We conclude the sellers were Respondent's clients because they reasonably believed Respondent was their attorney, Respondent performed functions supporting that belief and there was no evidence Respondent took any actions to disavow that he was the sellers' attorney. A client's reasonable belief that an attorney is acting on their behalf is a significant factor in determining whether an attorney-client relationship exists. See In re Imming, 131 Ill. 2d 239, 253-54, 545 N.E.2d 715 (1989); In re Demuth, 126 Ill. 2d 1, 9, 533 N.E.2d 867 (1988). "An attorney-client relationship need not be explicit or expressed and is not dependent on the amount of time the client spends with the attorney, the payment of fees or execution of a contract, the consent of the attorney, or the actual employment of the attorney. Rather, the relationship can come into being during the initial contact between the layperson and the professional and appears to hinge on the client's belief that he is consulting a lawyer in that capacity and his manifested intention to seek professional legal advice." Herbes v. Graham, 180 Ill. App. 3d 692, 536 N.E.2d 164 (1989).
Both sellers testified that they believed Respondent was their attorney and based on the evidence presented, we find their belief was reasonable. Respondent admitted that he prepared the closing documents, drafted the letter of direction instructing the title company how to distribute the sellers' proceeds and was paid out of the sellers' proceeds for his attorney's fees. Both Mr. Moshin and Ms. Patel testified that Respondent was introduced to them as their attorney and that Respondent explained the closing documents to them and told them where to sign the documents. Additionally, Mr. Lopez testified that Respondent told him he was going to act as the attorney for both Mr. Lopez and the sellers to expedite the closing because the sellers did not have an attorney.
Respondent denied that he was introduced to Mr. Moshin and Ms. Patel as their attorney or that he explained the closing documents to Mr. Moshin and Ms. Patel and told them where to sign the documents. However, we find Mr. Lopez, Mr. Moshin and Ms. Patel, and not Respondent, credible. 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 a witness). The witnesses had no reason to lie and nothing to gain by testifying untruthfully. Some of Respondent's testimony concerning his relationship with Mr. Pareja was successfully impeached and his credibility was damaged by his testimony regarding the letter of direction he wrote. Respondent testified that he drafted the letter of direction at the very end of the closing, but Respondent obviously wrote part of the letter after the first HUD-1 was drafted, because it reflects the sellers' proceeds on the first HUD-1. Respondent also attempted to avoid answering some questions and held back information.
Additionally, the expert witness, Mr. Bordyn, testified that the attorney representing the seller in a real estate transaction is responsible for preparing certain documents for the closing
including the warranty deed, the bill of sale and the affidavit of title. Mr. Bordyn further testified that only the seller or the seller's attorney can prepare the warranty deed. It is undisputed Respondent prepared the warranty deed, the bill of sale and the affidavit of title.
Moreover, it is clear from the case law that preparing the seller's documents in a real estate transaction amounts to the practice of law. The Supreme Court has stated an attorney engages in the practice of law when he prepares or explains "legal instruments of all kinds," gives advice to others on a question of law, and takes action in matters connected with the law. In re Nash, 03 CH 128, M.R. 20418 (Nov. 22, 2005) (Hearing Bd. at 26-27) (citations omitted). The Court explained, "many aspects of law practice are conducted through the use of forms, and not all of the matters handled require extensive investigation of the law. But by his training the lawyer is equipped to recognize when this is and when it is not the case.... Mere simplicity cannot be the basis for drawing boundaries to the practice of a profession." Id., citing Chicago Bar Ass'n v. Quinlan & Tyson, Inc., 34 Ill. 2d 116, 122-23, 214 N.E.2d 771 (1966). In Quinlan & Tyson, Inc., the Court found that a person who prepares deeds and other legal documents normally executed after title has been examined engages in the practice of law.
Further, it is well-settled that an attorney engages in a conflict of interest when he represents both the buyer and seller in a real estate transaction. See In re Jeffers, 08 CH 103, M.R. 23537 (Jan. 21, 2010); In re Dixon, 07 CH 115, M.R. 22629 (Nov. 18, 2008). Accordingly, we conclude Respondent engaged in a conflict of interest by representing both parties in the sale of the Nottingham property in violation of Rules 1.7(a) and 1.7(b). We further find Respondent breached his fiduciary duties to Mr. Lopez, Mr. Moshin and Ms. Patel, because as their attorney Respondent owed them a fiduciary duty of loyalty, a duty of care and a duty to avoid conflicts of interest. See In re Vrdolyak, 137 Ill. 2d 407, 422, 560 N.E.2d 840 (1990).
Additionally, the testimony of all the witnesses established that Respondent never discussed the implications or the advantages and risks of Respondent's representation of all parties to the transaction with Mr. Lopez, Mr. Moshin or Ms. Patel. Respondent also did not discuss with any of the parties whether they should seek independent representation for the sale of the Nottingham property. Therefore, we conclude Respondent failed to make the requisite conflict disclosures that were required of him in violation of Rule 1.7(c) and failed to explain the conflict of interest issues to the extent reasonably necessary to permit Mr. Lopez, Mr. Moshin and Ms. Patel to make an informed decision about the representation in violation of Rule 1.4(b). We further find Respondent's conduct brought the legal profession into disrepute in violation of Illinois Supreme Court Rule 770.
We also find Respondent failed to adequately represent Mr. Lopez in the sale of the Nottingham property. The expert testimony of Mr. Bordyn established that the attorney for a buyer in a real estate transaction typically reviews the terms of the contract with the buyer, discusses with the buyer what their objectives are in buying the property, reviews the survey the seller presents and reviews the mortgage documentation with the buyer to make sure the buyer understands the terms of their commitment at the closing. Mr. Bordyn further testified that the contract that was entered into by Mr. Lopez, Mr. Moshin and Ms. Patel for the sale of the Nottingham property only contained the first page of a four page form contract and did not include many standard provisions.
Respondent admitted that he received the contract less than a week before the closing and did not review any of the terms of the contract with Mr. Lopez or ask Mr. Lopez if there were any more pages to the contract. Respondent also admitted that he never talked to Mr. Lopez about a survey for the property or an inspection of the property. Additionally, Respondent
clearly failed to sufficiently review the mortgage documents with Mr. Lopez. Mr. Lopez credibly testified that there were inaccuracies in the loan applications that he signed and that Respondent went through the documents quickly and did not review them in sufficient detail for Mr. Lopez to determine whether they were accurate. Smith, 168 Ill. 2d at 283.
Mr. Lopez further testified that he never intended to and never did make the Nottingham property his primary residence. However, the evidence established that Mr. Lopez signed documents during the closing stating that he intended to make the Nottingham property his primary residence. Respondent testified that he explained to Mr. Lopez that the type of loan he was receiving meant that he was going to make the Nottingham property his primary residence. However, when asked on cross-examination if Mr. Lopez told Respondent that the Nottingham property was going to be his primary residence, Respondent testified that Mr. Lopez "didn't tell me otherwise." Accordingly, we conclude Respondent failed to consult with Mr. Lopez regarding the objectives of his representation and as to the means by which they were to be pursued in violation of Rule 1.2(a).
We did not find clear and convincing evidence that Respondent failed to keep a client reasonably informed about the status of a matter in violation of Rule 1.4(a). The Administrator alleged that Respondent failed to consult with and keep his clients informed about the transaction because he had a duty to recognize that the transaction appeared fraudulent and warn his clients of this. We conclude that the parties to the deal were responsible for a certain amount of culpability for their own actions. The testimony of Mr. Lopez and Mr. Moshin revealed an awareness on their part that the deal was not entirely legitimate which did not diminish their eagerness to close the deal and receive their portion of the proceeds. Additionally, there was no
evidence Respondent had any role in arranging the deals Mr. Lopez and Mr. Moshin agreed to enter into with Mr. Pareja.
The purpose of the disciplinary system is to protect the public, maintain the integrity of the legal system, and safeguard the administration of justice. In re Gorecki, 108 Ill. 2d 350, 802 N.E.2d 1154 (2003). See also, In re Howard, 188 Ill. 2d 423, 434, 721 N.E.2d 1126 (1999). The goal is not to punish the attorney, but to determine whether the attorney should be permitted to practice in the profession. In re Smith, 168 Ill. 2d. 269, 295, 659 N.E.2d 896 (1999). In determining the proper sanction, we consider the proven misconduct along with any aggravating and mitigating factors. In re Witt, 145 Ill. 2d 380, 398, 583 N.E.2d 526 (1991).
Respondent's misconduct is mitigated because he has no prior discipline and he did not receive a direct benefit, other than his fee, from his representation of both the buyer and sellers in the sale of the Nottingham property. There was no allegation that Respondent's fee was excessive or unreasonable for the work he completed. We do not find in aggravation that Respondent's actions caused harm to Mr. Lopez, because Mr. Lopez's failed dealings with Mr. Pareja and the subsequent foreclosures of his properties and his bankruptcy proceedings can not be attributed to Respondent's actions. Additionally, although the sale of the Nottingham property appeared to involve a fraudulent scheme, Respondent is not charged with participating in that scheme and we do not find in aggravation that Respondent engaged in any dishonest or fraudulent conduct. We further note that Mr. Pareja's use of the Fifth Amendment did not negatively affect Respondent's case or impugn Respondent.
Having considered the mitigating factors and lack of any aggravating factors we now must determine an appropriate sanction for Respondent's misconduct. The Administrator
recommends Respondent be suspended for no less than one year and cites In re Twohey, 191 Ill. 2d 75, 727 N.E.2d 1028 (2000) and In re Demuth, 126 Ill. 2d 1, 533 N.E.2d 867 (1988) in support of his recommendation. Respondent argues that a suspension is not warranted in this matter and did not cite to any cases.
We conclude Respondent's misconduct warrants a three month suspension. The cases the Administrator relies on in support of his recommendation of a suspension for at least one year involve more serious misconduct than this case.
In Twohey the attorney was suspended for six months for advising a client, Nancy Week, to loan money to another client, Fox River Materials, Inc. ("FRM"), on three occasions without disclosing the potential conflict of interest and without advising Ms. Week that FRM was financially unstable. Ms. Week loaned FRM a total of $40,000 which she lost when FRM went bankrupt. The Court found that the attorney's misconduct did not involve fraud or misrepresentation and that he did not personally benefit from his actions, but that his failure to recognize such a clear conflict of interest in representing both a lender and borrower reveals a lack of understanding of his ethical obligations as an attorney.
In Demuth, the attorney represented both the borrower and lender in a transaction involving a loan of $18,000 without advising either client of the conflict or that they had a right to retain independent counsel. The attorney also converted a portion of the borrower's money while holding it in his escrow account and told the lender he would perfect the lender's security interest, but failed to do so and the loan was never repaid to the lender. Additionally, the attorney borrowed $11,600 from the same client who was the lender in the $18,000 transaction without making the proper disclosures and defaulted on that loan causing the client to sue him to collect on the loan. Although the attorney ultimately made restitution to his client and was active
in his community the Court found that the attorney failed to fully understand his ethical obligations and he was suspended for one year for his misconduct.
Unlike the attorney in Twohey who engaged in a conflict of interest on three separate occasions with the same clients and the attorney in Demuth who engaged in a conflict of interest in two separate loan transactions, Respondent's misconduct involved an isolated incident in which he engaged in a conflict of interest by representing both the buyer and seller in a real estate transaction. Respondent also did not convert funds or directly cause harm to either of his clients through his actions. However, similarly to the attorneys in Twohey and Demuth, Respondent does not appear to fully appreciate his ethical obligations and therefore we conclude some period of suspension is appropriate in this case.
We find In re O'Donnell, 04 CH 115, M.R. 22181 (Mar. 17, 2008) instructive in determining that a three month suspension is warranted in this matter. The attorney in O'Donnell breached his fiduciary duty and engaged in a conflict of interest by representing both parties to a real estate transaction and failing to disclose his relationships to the parties. The attorney also altered a document without disclosing the alterations to the preparer. The Review Board stated that the attorney's misconduct "resulted from carelessness while attempting to deal with the urgencies of a situation for a client who contacted him at the last minute" and that his actions were not motivated by financial gain. (Review Bd. at 18). The attorney had significant mitigating factors including no prior discipline, several character witnesses, his acknowledgement of wrongdoing and remorse, pro bono work and community activities. He was suspended for 60 days.
Similarly to the attorney in O'Donnell, the Respondent acted carelessly in representing both the buyer and sellers in the sale of the Nottingham property. By doing so he breached his
fiduciary duties and engaged in a conflict of interest, but did not act fraudulently or in furtherance of his own financial gain. Respondent also engaged in additional misconduct when he failed to adequately represent the buyer, Mr. Lopez, and he did not have the significant mitigation presented in O'Donnell. Therefore, we conclude that a three month suspension is appropriate in this case.
Considering the relevant case law, the nature of the Respondent's misconduct, the evidence in mitigation and the evidence in aggravation, this Panel recommends Respondent be suspended from the practice of law for three months.
Date Entered: April 14, 2011
|Kenn Brotman, Chair, Jose A. Lopez, Jr. and David A. Datillo, Hearing Panel Members.|