Filed March 12, 2010
BEFORE THE HEARING BOARD
ILLINOIS ATTORNEY REGISTRATION
|In the Matter of:
HARRY B. MADSEN,
Supreme Court No. M.R. 22475
Commission No. 08 RT 3002
REPORT AND RECOMMENDATION OF THE HEARING BOARD
The hearing on the Petition for Reinstatement of Harry B. Madsen was held on June 16, 2009, at the Chicago, Illinois offices of the Attorney Registration and Disciplinary Commission ("ARDC" or "Commission") before a Hearing Board Panel of Keith E. Roberts, Jr., Chair, Tiffany M. Ferguson, and Cheryl M. Kneubuehl. Petitioner appeared pro se. The Administrator was represented by Robert J. Verrando.
On June 30, 1987, the Supreme Court entered an order allowing the Petitioner's motion to strike his name from the roll of attorneys licensed to practice law in Illinois pursuant to Supreme Court Rule 762 effective June 30, 1987.
On June 12, 2008, Petitioner filed a Petition for Reinstatement ("Petition") pursuant to Supreme Court Rule 767 setting forth the information required by Commission Rule 402 and seeking to be reinstated to the practice of law.
On May 22, 2009, the Administrator filed objections to the Petition which assert that the Petitioner cannot meet his burden of establishing by clear and convincing evidence that he has
been rehabilitated, is of current good character, and is fit to be reinstated. The Administrator notes the seriousness of the underlying misconduct, the maturity of the Petitioner at the time of the misconduct, and Petitioner's failure to make restitution. The Administrator further contends that the Petitioner fails to recognize the nature and seriousness of his prior misconduct, lacks the candor and forthrightness necessary to be readmitted to practice, and has engaged in conduct since his disbarment that does not support reinstatement.
Petitioner testified on his own behalf and offered 2 documentary exhibits which were admitted into evidence.1 The Administrator called Petitioner as an adverse witness, introduced the testimony of one additional witness, and offered Exhibits 1-29 which were admitted into evidence. The Panel also took judicial notice of Administrator's Exhibit 30.
Prior Disciplinary Proceedings
On April 14, 1987, Petitioner filed a Motion to Strike his name from the Roll of Attorneys admitted to practice in the State of Illinois pursuant to Illinois Supreme Court Rule 762 ("Motion to Strike"). On April 24, 1987, in response to that motion, the Administrator filed a Statement of Charges that set forth the following list of charges that were then under investigation:
An investigation relating to a charge brought by Betty A. Guy alleging that Petitioner in his representation of the estate of Charles Flaska had neglected that matter and failed to provide an accounting of estate funds in his possession or control;
An investigation relating to a charge brought by Patricia Fitzimons alleging that Petitioner in his representation of matters related to the Estate of Virginia Temple, had failed to provide requested information pertaining to that representation and mishandled estate funds in his possession and/or control;
An investigation relating to a charge brought by Jack Termaat alleging that Petitioner, in his representation of matters related to the Estate of Lorraine
Anderson, had mishandled estate property and funds in his possession and/or control;
An investigation relating to a charge brought by Walter C. Kalbhen alleging Petitioner had failed to provide documents in his possession which were the property of Kalbehn;
An investigation relating to a charge brought by Florence Samulian alleging that Petitioner had commingled client funds, had failed to pay her funds to which she was entitled, and had engaged in billing practices which did not reflect the actual services provided;
An investigation relating to a charge brought by Dolores Filip alleging that Petitioner had misappropriated funds and property of Tryve A. Hansen, deceased, to which Filip was entitled; and
An investigation relating to a charge brought by Nancy Lussow alleging that Petitioner, as Lussow's attorney, had received funds from Lussow for purposes of investment and had failed to provide requested information pertaining to the status of the investment.
(Adm. Ex. 1).
On May 12, 1987, Petitioner filed the affidavit required by Rule 762 acknowledging receipt of the Statement of Charges and confirming that his motion to strike his name was freely and voluntarily made and that he understood the nature and consequences of that motion. (Adm. Ex. 1). The Supreme Court allowed the Petitioner's motion and his name was stricken from the roll of attorneys effective June 30, 1987. Petitioner was represented by counsel during these proceedings. (Adm. Ex. 1).
Petitioner was also the subject of a prior disciplinary matter that was resolved in 1977. In re Madsen, 68 Ill. 2d 472, 370 N.E.2d 199 (1977). That proceeding, which also named several of Petitioner's former associates, was based on allegations of improper solicitation stemming from the mailing of a "tip sheet" and pamphlet to past and present clients. It was later amended to include a charge against Petitioner based on statements he made during the course of the disciplinary proceeding threatening to prove that his former associates committed criminal and
ethical violations if they testified against him. Although the Court found that the mass mailing did not constitute improper solicitation or warrant sanctions, it concluded that Petitioner's conduct towards the associates was clearly improper and suspended him for 30 days.
Petitioner initially testified that it was his position that he was not disbarred in 1987 as a result of the prior proceeding. Petitioner based this contention on the language in Rule 762 which is entitled "Disbarment and Other Discipline on Consent." Petitioner noted that this rule is bifurcated into two parts, one which applies to "Disbarment" and the other which applies to "Other Discipline on Consent." Although he acknowledged that his 1987 Motion to Strike does not specify either subsection, he maintained that it is clear that the action that took place with respect to him was under Rule 762(b), which does not constitute disbarment. Petitioner noted that neither the word "disbarment" nor any variant of that term is used anywhere in his 1987 Motion to Strike. (Tr. 14-18; Pet. Exs. 101, 102).
Petitioner testified that counsel for the Administrator has made constant false references in these proceedings to his alleged disbarment and that this has also occurred when people have checked with the ARDC regarding his status. He said that the Administrator and its counsel should "cease from this false reference which has been made for almost a quarter of a century." (Tr. 18-19).
Although he maintained that he had not been disbarred, Petitioner acknowledged that he had been disciplined in the prior proceeding. (Tr. 20). He testified that to the extent that there was a trial, conviction, and recommended discipline, this all took place in his own conscience and not before the ARDC. He said that he determined that he had engaged in misconduct and that the appropriate sanction was to have his name removed from the master roll of attorneys licensed to practice in Illinois. He then searched the rules for an appropriate vehicle in order to
impose that sanction and the result was his April 14, 1987 motion which was compiled from bits of Rule 762(b). He testified that while that procedure was unconventional, it was endorsed by the Administrator and confirmed by the Court. (Tr. 22-23).
Petitioner identified a copy of Illinois Supreme Court Rule 762 as it existed prior to its amendment in 1989 and at the time Petitioner was disciplined. That version of the rule provides as follows:
Rule 762. Disbarment on Consent
If, while any charge of misconduct is under investigation or pending against him before the Inquiry, Hearing or Review Board, an attorney files with the Court a motion to strike his name from the Roll of Attorneys admitted to practice law in this State, the Clerk of the Court shall immediately file with the Administrator a copy of the motion. Within 21 days thereafter the Administrator shall file with the Court and serve upon the attorney respondent a statement of charges which shall be sufficiently clear and specific reasonably to inform the attorney of the acts of misconduct he is claimed to have committed. Within 14 days after the statement of charges is filed with the Court, the attorney shall file with the Court his affidavit stating:
He has received a copy of the statement of charges;
his motion is freely and voluntarily made;
he understands the nature and consequences of his motion.
If the attorney fails to file the required affidavit within the 14-day period provided above, or in the event the affidavit does not contain the statements required by subparagraphs (1), (2) and (3) above, the Court may deny the attorney's motion to strike his name from the Roll of Attorneys admitted to practice law in this State.
(Tr. 127-28; Adm. Ex. 30). Petitioner stated that the earliest version he had of the rule was from 1989. (Tr. 128).
Petitioner testified that because all of the charges against him were still under investigation and the matter had not yet even proceeded to the Inquiry Board phase when his name was stricken, his prior misconduct is not set forth in the Statement of Charges or anywhere else. (Tr. 20-22). Petitioner maintained that since the trial, conviction, and conduct were "private" to him, there is no way of knowing the nature of his misconduct unless you go to him. (Tr. 23).
Petitioner asserted that, with one exception, he was making a "general denial" of all of the charges contained in the Statement of Charges from the prior proceeding. The single exception to that denial related to the charge that he frequently failed to fully and adequately communicate with his commercial clients. (Tr. 22, 25). He acknowledged that, if the matter had gone to trial, "half the charges on that point might have prevailed." He said that he followed the policy of pro bono Christian work to an "absolute fault" and devoted time that was needed for his commercial clients and activities to those matters. (Tr. 25-27).
Petitioner described the nature of his prior misconduct as involving "overreaching" on his part. He attributed his actions to the difficult economic environment during the 1980's and the fact that he took on too many responsibilities. He noted that his range of responsibilities at the time included family, neighbors, community, church, law practice, and real estate activity. He admitted that he "overreached" by saying yes to additional responsibilities when he had not fully met all of his existing obligations. (Tr. 24). Petitioner testified that this was particularly true with respect to the extensive work that he did for churches, ministries, pastors, and Christian organizations. He said that he had "files by the hundreds" of this nature due to the fact that he did not charge anything for this work. (Tr. 24-25).
Petitioner testified that he realizes that his actions were not commendable, but foolish. (Tr. 27). He said that while he still continues to do Christian work without seeking remuneration, he has learned to say no when needed. (Tr. 25-26). Although he still reaches out and helps, he said that he has a sound basis for doing so and considers himself "cured." (Tr. 27).
Petitioner testified that his denial of the Administrator's charges raises the question of why he took the "professionally catastrophic" step of striking his own name from the roll of attorneys. Petitioner explained that he did this because he was "out of gas." (Tr. 38). He testified that in a three-year span beginning in 1987 he suffered a variety of losses including the
loss of his home, his marriage, his relationship with his children, his clothing, and his office building and other property. He also lost his law and real estate licenses, was asked to resign from various directorships, and for years he camped in the back of vacant stores while former friends and other support groups looked the other way. (Tr. 38-39).
Petitioner acknowledged that when he filed his motion to strike his name from the roll of attorneys in 1987 he was being investigated by the ARDC in connection with various matters that are set forth in the Statement of Charges. (Tr. 46-47; Adm. Ex. 1). Part of what was being investigated at the time was his handling of money that clients had invested with him in a real estate trust program he had set up. Petitioner received money from clients, promised to pay them back with interest, and gave them installment notes. Petitioner was investing that money in real estate and promised specific rates of return on those investments. (Tr. 47). Petitioner admitted that in addition to the individuals listed in the Statement of Charges, there were also many more people who had invested with him and believed that the total number of investors was 37. (Tr. 48).
Petitioner acknowledged that he gave investors an instrument that was labeled a "Trust Certificate" in connection with these investments. These Trust Certificates refer to Trust No. 9051M ("9051M Trust"), which was a common trust into which properties were transferred. (Tr. 48-49). Petitioner confirmed that the corpus of the 9051M Trust was real estate and that he acted as the Trustee. (Tr. 49-50). He acknowledged that most of the investors in the 9051M Trust were individuals who had been his clients. He also admitted that to the extent that there was any income from the 9051M Trust beyond what he agreed to pay back to the investors, he kept that surplus for himself. (Tr. 50).
One such instrument, signed by Petitioner and dated July 28, 1986, was issued to Dorian G. Betts. (Tr. 48; Adm. Ex. 2). In accordance with the terms of that Trust Certificate, Petitioner
agreed to pay Ms. Betts an annual rate of return of 8% on her $33,000 investment. (Tr. 48-49, 53; Adm. Ex. 2). Petitioner acknowledged that the Betts Trust Certificate was similar to Trust Certificates that he prepared for other people who had invested in the 9051M Trust. (Tr. 49). The Trust Certificate contains language certifying that there is equity in the trust sufficient "to secure the funds advanced under this and other Trust Certificates equal to a value of at least 125% of the funds so advanced." (Adm. Ex. 2). It further states that the trustee will continually review the market value of the assets involved and "accepts the responsibility to notify the [investor] at any time when the equity securing this Certificate, in the opinion of the Trustee, falls below 125% of the amount of this Certificate." (Adm. Ex. 2; Tr. 69-70).
Petitioner testified that he did not recall having any discussions in which he advised investors in the 9051M Trust that they had the right to seek independent legal advice before they agreed to entrust their money to him. (Tr. 50-51). He also said that he "certainly didn't do anything to prohibit it." In a sworn statement Petitioner gave in 1987, he stated that he did not make a point of advising investors that they had the right to seek independent legal counsel when he negotiated the investments. (Tr. 51). Petitioner further testified that he did not recall advising investors that there might be a conflict of interest with regard to his handling their funds in this manner. (Tr. 52).
Petitioner acknowledged that he put all of the funds that his clients invested with him into a common fund and that these funds were intermingled with his own money. He testified that he paid the investors the agreed returns to the extent that he was able to. He admitted that these payments came from the sales of properties and from the money he received from new investors. (Tr. 71).
Petitioner acknowledged that prior to January of 1987 he had been watching the investments in the 9051M Trust closely and was aware that the values were declining. He said
that he was "optimistic" at this time about what the real estate values would be and "relied on that." (Tr. 70). Petitioner admitted that part of the reason that he had his name stricken from the roll of attorneys in 1987 was that the income from the trust was insufficient to repay the investments that he had promised. (Tr. 70-71). Petitioner also admitted that apart from filing his bankruptcy petition in 1989, he never provided any notice to any of the investors regarding the decline in the value of the real estate in the 9051M Trust. (Tr. 71).
With respect to a transaction involving a former client named Nancy Lussow, Petitioner recalled that it involved an office building in Glenview that he was trying to liquidate, but could not remember the particulars of the transaction or whether he was trying to sell that building to another client. (Tr. 52). In a sworn statement he gave in 1987, Petitioner stated that he advised Ms. Lussow in October of 1985 that there was a buyer interested in purchasing her interest in the property. He also admitted in that statement that the buyer was another one of his clients. Petitioner agreed that an argument could be made that it would give rise to a conflict of interest for him to sell one client's interest in a building to another client. (Tr. 53).
On January 18, 1989, Petitioner filed a voluntary petition for bankruptcy. (Adm. Exs. 3, 4). Petitioner acknowledged that most of the creditors listed in his bankruptcy petition were also clients who had invested in his 9051M Trust. (Tr. 55). He also acknowledged that he listed all of these investors as "unsecured creditors" in that petition. (Tr. 59; Adm. Ex. 3). Petitioner testified that he believed that it was error to list these creditors as unsecured because there was clearly property in the 9051M Trust but the market value was just not sufficient to cover all of the costs. He admitted that he never filed an amended bankruptcy petition or anything else to indicate that these creditors had secured claims. He testified that he believed the bankruptcy trustee was aware of this. (Tr. 59-61).
When Petitioner filed for bankruptcy, he owed Ms. Betts around $161,000. (Tr. 54-55; Adm. Ex. 3 at 4). The claims master list from his bankruptcy proceeding reflects that Ms. Betts was only allowed $144,755 of her $161,111 claim from the bankruptcy estate. As a result, she lost $16,755. (Tr. 56; Adm. Ex. 4 at 123). Petitioner admitted that he has never repaid Ms. Betts this amount. (Tr. 56-57).
Petitioner acknowledged that he issued a trust certificate dated October 18, 1982 as trustee of 9051M Trust to Thelma Gray which reflects an investment of $50,000 and promises an annual rate of return of 12%. (Tr. 62-63; Adm. Ex. 7). Ms. Gray is another creditor identified in the bankruptcy petition. She did not get $5,500 of her investment back from the bankruptcy estate. (Tr. 63; Adm. Ex. 4 at 123). Petitioner acknowledged that he never paid Ms. Gray back that $5,500, although he said that he has tried to make that possible. (Tr. 63-64).
Petitioner issued a Trust Certificate in 1983 to Lorraine D. Sheehan from the 9051M Trust and received $50,000 from Ms. Sheehan in connection with that transaction. (Tr. 68; Adm. Ex. 9). Ms. Sheehan was also listed as an unsecured creditor in Petitioner's bankruptcy proceeding and she received only $18,000 of her $30,000 claim. (Tr. 68; Adm. Ex. 4 at 125). Petitioner confirmed that he never paid Ms. Sheehan the remaining $12,000. (Tr. 68).
Herbert Payer was another investor in the 9051M Trust. He was issued a Trust Certificate by Petitioner in 1983. (Tr. 64-65; Adm. Ex. 8 at 1). He was also listed as an unsecured creditor in the bankruptcy proceeding with a claim in the amount of $53,803.55. (Adm. Ex. 3 at 6). According to the claims master list, Mr. Payer's claim was disallowed in its entirety and he received nothing from the bankruptcy estate. (Adm. Ex. 4 at 123).
Petitioner acknowledged that he was sued in 1988 by Anna Marie Costa and Theodore Costa who had invested $60,000 in his program. (Tr. 75-76; Adm. Ex. 11). The Costas were also claimants in Petitioner's bankruptcy matter. They had a punitive damage claim and sought
one million dollars from the bankruptcy estate, but received nothing. (Tr. 76; Adm. Ex. 4 at 123). Petitioner acknowledged that he never paid them back the $60,000, although he said that he had recently sent them a letter. (Tr. 76).
Petitioner acknowledged that both Mr. Payer and Ms. Sheehan each later received $10,000 from the ARDC Client Protection Program. He also admitted that he was notified at the time that they were receiving these funds, but did not pay anything back to the disciplinary fund until 2008. In response to a question regarding whether he had ever paid Ms. Sheehan the additional $2,000, Petitioner stated, "I've paid no client anything." (Tr. 69).
Petitioner denied owing restitution to any of the individuals listed in the Statement of Charges. He noted that none of these names appeared among the creditors listed in his 1989 bankruptcy petition and said that if he had any ongoing obligations to these individuals in 1989, he would have listed them. (Tr. 28-29). He also said that since none of them took any further action against him, their claims must have either been satisfied or without merit. (Tr. 29).
With respect to his outstanding obligations to those individuals listed in his bankruptcy petition, Petitioner testified that he has "learned not to make commitments" and is not making one now. He suggested that he has a "minimum ambition" to be given voluntarily as a gift to his former creditors regarding the $500,000 gap between the $2.5 million assets on his Chapter 11 schedule and the $3 million in obligations. (Tr. 26). He testified that although he was totally discharged in bankruptcy, he subsequently reaffirmed these obligations by having the discharge order vacated. (Tr. 30). He also said that he has opened a file for each of these individuals and has made various attempts over the years to contact all 37 of them, including communications in 1989, 1999, and 2009. He indicated that he does not regard these efforts as an obligation, because the statute of limitations has "interceded twice." (Tr. 29-30).
Petitioner testified that he has been engaged in efforts constantly over the last 20 years to rehabilitate himself. (Tr. 33). The first step he took was to file the Chapter 11 proceeding in order to "stop the economic bleeding" and to salvage as much as possible for the creditors. (Tr. 33). Next, he moved to have the automatic discharge vacated. (Tr. 33-34). During the 1990's, he adopted a work schedule where he worked as a night auditor at a hotel from midnight until 8:00 a.m. so that he would be free to sell real estate during the day. He did this in order to implement a trust he established for his creditors which was to be funded with the benefits of that real estate work. Petitioner testified that he was later deprived of his real estate license. (Tr. 34).
Petitioner testified that over the years he has done a significant amount of work with various churches in the area, including attending over 100 churches to teach, counsel and otherwise participate. He has a particular concern for the inner city churches in the Chicago area and has worked with them whenever he has had the opportunity. (Tr. 35-36). Petitioner and his wife have also been involved in teaching English as a Second Language and have taught hundreds of immigrants from 24 countries all over the world. (Tr. 36). He wrote his own material for these classes and also supplied students with tapes and CD's so that they could study at home. He testified that part of his motivation for doing this work was his own background as an immigrant. (Tr. 36-37).
Petitioner testified that he also is the president of Lutheran Public Radio, which now has broadcasts all over the world. It is on the air five days a week and has a large international audience that reaches many countries and denominations. (Tr. 37-38).
In 1987 Petitioner filed an Affidavit and a Notice of Withdrawal as Counsel with the Supreme Court pursuant to the requirements of Supreme Court Rule 764. (Tr. 78-79; Adm. Ex. 13). In the affidavit, Petitioner stated that he had fully complied with the provisions of Rule 764 by sending notice by certified mail to all clients with whom he had pending matters. (Tr. 78;
Adm. Ex. 13). Petitioner did not indicate anywhere in the notice that he was disciplined, but only stated that he "must withdraw as counsel" and that the client should seek another attorney. (Tr. 79; Adm. Ex. 13).
At the time of his prior discipline, Petitioner was working at the "Law Center of Park Ridge Building." He also owned this building and wanted to continue to work there after he was disciplined. There were also other attorneys who worked in this building. (Tr. 83). On April 27, 1987, Petitioner prepared and sent a letter to James Stuber, an attorney who was previously Petitioner's associate. He also sent similar letters to other associates who worked in his building. (Tr. 83-84). Petitioner stated that as of May 1, 1987, he intended to "throttle down the practice of law while yet maintaining administrative activity at The Law Center of Park Ridge." He proposed an arrangement whereby he would continue to refer files to Mr. Stuber and provide support services related to those matters in exchange for certain payments or fees. The Petitioner asked that Mr. Stuber sign and return a Services Agreement and offered him the option of also entering into a Collateral Agreement, both of which were enclosed. (Tr. 84; Adm. Ex. 14 at 1-2).
The Services Agreement provides various terms and conditions regarding the use of office space at the Law Center of Park Ridge and the provision of law office "support services" by Petitioner. Petitioner confirmed that he was the "Administrator" referred to in this agreement. (Tr. 86). Included in the monthly charges are "[f]ile charges at $25.00 per file for files established and referred by the Administrator." (Adm. Ex. 14 at 4). The agreement also provides that "[t]he Administrator shall provide the Attorney monthly with a statement detailing services rendered for the Attorney's clients in such form that the Attorney may readily transcribe such data in his own statement direct to the client." (Tr. 86; Adm. Ex. 14 at 6). This language had been crossed out on Mr. Stuber's copy, although Petitioner did not recall the circumstances
surrounding this. (Tr. 87). Petitioner testified that the services referred to were for photocopies and things of this nature and not legal services. (Tr. 86).
In a memo to Mr. Stuber dated May 29, 1987, Petitioner stated: "Please let me know if you will be executing the Service Agreement because, if not, I will have to refer new files to others." (Tr. 88; Adm. Ex. 14 at 10). Petitioner agreed that he meant that if Mr. Stuber did not agree to his terms, he was going to refer clients to others. He characterized this as similar to a bank trustee referring matters to one attorney or another. (Tr. 88).
The Collateral Agreement begins with a series of recitals including one stating that "there is no way of accurately predicting the amount of law business that the Administrator will refer to the Attorney." It also states that while neither it nor the Services Agreement "is intended as a contract for the referral of law business . . . such referrals are reasonably anticipated." It contains terms that allow the attorney the option of tendering "an accounting of his law business records" for any preceding year which will then be used to determine an expense ratio to be applied to "gross fees related to business referred by the Administrator to the Attorney." It also sets forth a formula for determining credits to be given the attorney related to expenses of the business referred by the Administrator. (Adm. Ex. 14 at 8). On the signature line for the attorney, the notation "refused" appears. Petitioner testified that he assumes this was written by Mr. Stuber since this was his instrument. (Tr. 85).
Petitioner denied that he was seeking in the Collateral Agreement to have the attorneys report their income to him so that they could pay him referral fees for his business. He also denied that the agreement required them to account to him for their law business so that he could collect a fee based on their income. Petitioner testified that this was a formula for a limitation on their expenses and not a formula for sharing fees. (Tr. 84-85).
Petitioner admitted that around this time he also prepared and distributed a document entitled "Central Services" in which he described various services he planned to provide, including management, corporate, real estate and law firm support. (Tr. 88-90; Adm Ex. 14 at 23). Petitioner said that the items included in this circular reflected office service work that he hoped to provide for four associates who had been working for him, such as keeping files. (Tr. 90-91). Petitioner acknowledged that although he sent these materials out about two weeks after he filed his motion to strike his name, he did not mention anywhere in them that he was going to be disciplined. (Tr. 92). Petitioner testified that these attorneys already knew that he was going to have his name stricken. (Tr. 92-93).
In a cover letter accompanying the circular and announcing the business, Petitioner included the following statement: "A quarter of a century in the practice of law has focused my attention on the critical need for such support services and as of July 1, 1987, I propose to devote 100% of my workday to this new enterprise and retire from the practice of law." (Tr. 91; Adm. Ex. 14 at 22). Petitioner admitted that he did not mention anywhere in that memo that he had been disciplined. He testified that he did not think that it was "beneficial at the time" to reveal that he had been disciplined and did not believe that he was under an obligation to advertise that to the public. (Tr. 91).
Pearl Beluzzi and Anna Thunboe were Petitioner's former clients who had invested funds they had received from legal matters handled by him in his 9051M Trust. In a letter he wrote to their attorney in September of 1987, Petitioner acknowledged that he had not sent either of these women notices pursuant to Supreme Court Rule 764 regarding his discipline. He also stated that although immediate liquidation of what they were due from their investment was not possible, all funds were "well secured." Petitioner testified that he made this statement at the time because
there was considerable property in the trust and he anticipated that the market would be rising. (Tr. 57-59; Adm. Ex. 5).
In November of 1987, Petitioner sent a letter to Ms. Beluzzi reassuring her that he was working to refund her investment. (Tr. 61-62; Adm. Ex. 6). The letter was written on stationary which included the "The Law Center of Park Ridge Building" address. (Tr. 62; Adm. Ex. 6). Petitioner had no evidence that he ever informed Ms. Beluzzi that he was no longer authorized to practice law in 1987. (Tr. 62).
Petitioner admitted that at the time he filed the bankruptcy petition, he was still holding approximately $69,000 for Ms. Beluzzi. She later became a creditor in his bankruptcy proceeding and her claim was paid in full. (Tr. 61; Adm. Ex. 4 at 123).
On April 16, 1993, the bankruptcy trustee in Petitioner's case filed a motion for authority to abandon or destroy certain books and records of the estate. (Tr. 79; Adm. Ex. 4 at 73). Although Petitioner is listed on the service list, he testified that he never received this and has no recollection of being notified of the availability of his records. He recalled attempting to get records on one occasion and being told that they were unavailable. On April 16, 1993, an order was entered in the bankruptcy proceeding authorizing the trustee to abandon or destroy accounts receivable, books, and records. (Tr. 80-81; Adm. Ex. 4 at 68). Petitioner does not recall receiving that order. Nor does he recall receiving anything else from the trustee notifying him that his records were available or that the trustee intended to seek leave of court to dispose of them. (Tr. 67, 81). Petitioner admitted that he has almost no records related to his former law practice. (Tr. 81).
After his name was stricken, Petitioner worked for an attorney named Michael Schiessle for about ten years from 1989 until 1998. (Tr. 82, 93; Petition at 3). Petitioner was living at the time in the back of a store that was located in a strip mall where Mr. Schiessle also had an office.
Petitioner's principle activity was to supervise the recreational businesses that Mr. Schiessle owned. (Tr. 82). He admitted that his work also included court filings, paralegal work, and drafting pleadings and other documents that were used in court. (Tr. 93-94). On January 20, 1992, Petitioner gave his deposition in the case entitled Village of Mundelein v. Successor in Trust CO Eleanor Schiessle, Deceased, 91 CH 310, and invoked his Fifth Amendment privilege against self-incrimination when asked if he knew Mr. Schiessle or ever worked for him. (Tr. 94-95; Adm. Ex. 15).
In March of 2008, Petitioner filed a lawsuit on behalf of his elderly neighbor Eleanor Sell. (Tr. 97; Adm. Ex. 17). Petitioner signed the complaint in that case as "Harry B. Madsen, attorney-in-fact for Eleanor J. Sell." (Tr. 97-98; Adm. Ex. 17 at 9). Ms. Sell had recently been in an automobile accident and Petitioner was suing her personal injury attorneys in an attempt to recover under a malpractice theory. (Tr. 98). With regard to whether he gave Ms. Sell legal advice, Petitioner stated that he gave her advice that was within the limited power of attorney that she signed. (Tr. 98). Petitioner drafted that power of attorney and it was notarized by a bank clerk at Ms. Sell's bank. (Tr. 99; Adm. Ex. 17 at 31-32). Petitioner admitted that he advised Ms. Sell about the limitations period for her accident claim and also advised her that the settlement her prior attorneys had proposed was not a good deal and that she should not accept it. (Tr. 99-100).
Petitioner acknowledged that when he drafted and filed the malpractice complaint in the Sell matter, he used legal knowledge based on his 30 years as an attorney in order to decide what to allege. (Tr. 100). Petitioner testified that Ms. Sell was indigent and had no other way to handle this, although he acknowledged that she could have tried to hire a licensed attorney on a contingent fee basis. (Tr. 100-101). One reason Petitioner used the designation "attorney-in-
fact" was because he was not licensed to practice law. He said that he found precedent in a case from 1928 where an attorney-in-fact had filed on behalf of a party and had prevailed. (Tr. 101).
Petitioner acknowledged that he and his wife had also advanced Ms. Sell money and had her over for meals. (Tr. 101-102). On Feburary 24, 2008, Petitioner wrote a letter to Ms. Sell's son, Frank Sell, stating that he would no longer be able to provide her with meals but would "continue to help with her legal claims." (Tr. 102-03; Adm. Ex. 18 at 9). When asked if he ever told Frank Sell that he was not authorized to practice law, Petitioner said that it "never came up in conversation." (Tr. 103).
In a letter Petitioner wrote to Ms. Sell dated February 28, 2008, he stated that one of the reasons he was applying for reinstatement was that his personal and business activities and his disbarment had been the subject of a considerable amount of gossip for 20 years and he was hoping to silence this. (Tr. 104; Adm. Ex. 18 at 5). He stated several times in that letter that he had "voluntarily resigned" his law license over twenty years ago. He also offered to continue to help Ms. Sell with her case if she hired another attorney and stated "I do not need a law license to act as a para legal (sic) helping a lawyer." (Adm. Ex. 18 at 1, 4, 7).
Petitioner testified that the court ultimately dismissed the lawsuit that he filed on behalf of Ms. Sell because it was filed by someone who was not authorized to practice law and he did not appeal this ruling. (Tr. 104-05). Petitioner acknowledged that it was possible that Ms. Sell could have recovered additional funds if she had been represented by a licensed attorney. (Tr. 129-30). Petitioner denied that he had harmed Ms. Sell by handling the matter. He said that she had no other options and the statute of limitations was about to expire. (Tr. 130)
Petitioner admitted that he opened a bank account at TCF Bank with Ms. Sell entitled "The Eleanor Sell Personal Expense Trust" and that he was listed as a signatory on the account as trustee. (Tr. 105; Ex. 20). He acknowledged that he had no trust with Ms. Sell and that she
did not authorize him to open this account. He testified that she was not required to authorize this and denied that he tried to get her to do so. (Tr. 105-06). Petitioner said that he and his wife had been taking care of Ms. Sell for some time and the purpose of the trust was to encourage her family to contribute funds that would be used for her care. (Tr. 106-07). When it came time to contact family members for contributions, Mrs. Sell would not allow it. (Tr. 107). He said that the trust was opened with $100 and the only charges against it were for checks. (Tr. 106-07; Adm. Ex. 20).
Petitioner acknowledged that he had a real estate broker's license at the time that he was disciplined and that that license was suspended in 1989 and in 1996. In 1989, it was suspended based on findings that Petitioner had commingled earnest money and had taken interest from the account, used misleading advertisements, and worked under a conflict of interest. Petitioner denied these charges. Petitioner filed a lawsuit against the Department of Professional Regulation in 1994 seeking administrative review of the decision to suspend his license which included criticism of their procedures. (Tr. 108-09; Adm. Ex. 21).
In 1996, the Office of Banks and Real Estate entered an order that "indefinitely suspended" Petitioner's real estate license. (Tr. 109; Adm. Ex. 22). That action was based on findings that Petitioner had failed to pay his individual income tax liability for the years 1987 and 1989 resulting in an amount due of about $11,000. It also included findings that he had failed to file his Illinois income tax returns for the years 1990, 1991, and 1992. (Tr. 110; Adm. Ex. 22 at 7-8). Petitioner denied that there was any basis for these charges and denied that he had any outstanding state income tax liability. (Tr. 111-12). Petitioner acknowledged that there was a period of years in the late 1980's during which he did not file his federal tax returns, but he could not remember the years. (Tr. 112-13).
Petitioner acknowledged that in the federal income tax returns he has filed in recent years he has claimed charitable contributions in the form of cash or checks in the following amounts: $7,583 for 2003; $12,037 for 2004; $14,937 for 2007; and $7,508 for 2008. (Tr. 113-118; Adm. Ex. 23 at 3, 10, 32, 40). These returns were filed jointly with his wife. (Adm. Ex. 23).
Petitioner acknowledged that in the 2008 return he filed for his DMX business services business he reported $9.00 in income and $21,739.00 in expenses. (Tr. 118-19; Adm. Ex. 23 at 41-42). He admitted that $20,000 of the claimed expenses were for the Client Protection Fund payment he made in connection with these reinstatement proceedings. (Tr. 118-19; Adm. Ex. 23 at 41-42). Petitioner acknowledged that he would not have paid the $20,000 if it were not necessary for reinstatement. He said that he did not have the money and had to borrow it from his wife. He does not have a loan agreement with her but he intends to pay it back when he gets his license back. (Tr. 119).
In 1997, Petitioner filed suit pro se in the U. S. District Court for the Northern District of Illinois on behalf of all persons stopped by police in a particular jurisdiction. (Tr. 119-20; Adm. Ex. 24). That complaint was later dismissed by the court for failure to state a constitutional claim. (Adm. Ex. 24 at 142). In 2000, Petitioner filed a cross complaint by interpleader pro se in litigation pending against his wife stemming from a car accident. (Tr. 120; Adm. Ex. 25). Petitioner testified that she was being sued for millions of dollars and he filed this on the unique theory that because they had some joint assets he had a right to get into the litigation through an interpleader. (Tr. 120). Petitioner used the designation "Attorney Pro Se" several times in that pleading. (Adm. Ex. 25 at 1, 11). That complaint was later dismissed. (Adm. Ex. 25 at 12).
In 2002, Petitioner filed a suit pro se in the Circuit Court of Cook County against certain members of the Lutheran Church in connection with a dispute regarding their actions related to his church. (Tr. 120-21; Adm. Ex. 26). Petitioner filed a motion to preserve evidence in that
case which alleged that the individual defendants had engaged in a pattern of alteration of documents. (Tr. 121; Adm. Ex. 26 at 30). That motion was never ruled upon because most of Petitioner's claims were dismissed and Petitioner lost a subsequent appeal from that dismissal. (Tr. 121-22; Adm. Ex. 26 at 31-42).
Petitioner also filed a lawsuit pro se in 2006 in the Circuit Court of Cook County stemming from a dispute with his church over attempts to expel him from membership. (Tr. 122-23; Adm. Ex. 27). In a letter dated January 8, 2006, the church raised various issues regarding Petitioner's conduct and stated that it was compelled to release him from his membership. (Adm. Ex. 27 at 41). Petitioner testified that although this letter was presented to him, it was not signed and he denied that he was ever actually expelled from the church. (Tr. 123). Petitioner acknowledged that this suit was also dismissed. (Tr. 123-24).
In 2001, Petitioner filed a pro se replevin action against Michael Schiessle and others seeking to recover various items of property. (Tr. 124; Adm. Ex. 28). Petitioner was never able to serve the complaint on the defendants and later dismissed the action. In the order that he drafted dismissing the case, he included the statement that the property had been stolen, even though the court made no findings in the case. (Tr. 124; Adm. Ex. 28 at 11).
In 1991, Petitioner was named as a defendant in a law suit filed in the Circuit Court of Lake County by an individual named Joe Barr alleging that Petitioner had entered his premises and took furniture, clothing and other items. (Tr. 125; Adm. Ex. 29). Petitioner acknowledged that he had done this at the request of Mr. Schiessle, who was the owner of the building. (Tr. 125). The court later entered a temporary restraining order and preliminary injunction against Petitioner precluding him from any further attempts to evict the plaintiff. (Adm. Ex. 29 at 19, 25). Petitioner acknowledged that in a notice of appeal and in a motion he filed in that case he identified himself as "Harry B. Madsen, Attorney pro se." (Tr. 125; Adm.Ex. 29 at 26, 53).
Petitioner denied that he was attempting to practice law, but said that he used the designation to indicate that he was appearing pro se. Although he does not generally do this, he does not think that it is improper. (Tr. 126-27). An order was later entered in the case that required Petitioner to return the plaintiff's possessions. (Tr. 127; Adm. Ex. 29 at 102).
Petitioner testified that he believes that he has presented ample evidence that he has been rehabilitated and has established a sound basis for his reinstatement. He recognizes and totally rejects accepting pro bono cases to the point where his responsibilities to commercial cases are compromised. (Tr. 42-43). He testified that he has several purposes for seeking reinstatement. The first is to put him in a position to earn money in order to repay those who lost funds. Although he believes that economic circumstances were the primary reason for the losses, he acknowledged personal responsibility because he signed the promissory notes and said that he feels a continuing need to respond to that. He also stated that he was seeking reinstatement because it is very inconvenient professionally to have "this come up." (Tr. 130-31).
Herbert Payer initially learned of Petitioner through various relatives and friends. (Tr. 133). Petitioner had done estate planning for Mr. Payer's mother, including wills and a trust. When his mother passed away in 1983, Mr. Payer inherited money from her and had discussions with Petitioner regarding what to do with that money. (Tr. 133-34). Petitioner suggested that Mr. Payer invest the funds in his program, which he said would pay interest on a quarterly basis and would also include some annual payments. (Tr. 134).
Mr. Payer was issued a Trust Certificate dated May 2, 1983, by Petitioner as Trustee of the 9051M Trust which reflected an investment of $12,500 at an interest rate of 10 ½ %. (Tr. 134; Adm. Ex. 8). Mr. Payer's understanding was that Petitioner was going to put this money
into a "trust-type fund" which was covered with income from real estate and other investments. (Tr. 135).
Mr. Payer received income from this program for a time, but became disappointed around the end of 1988 or early 1989 when he did not receive a check. He said that he called Petitioner and Petitioner informed him that he was having some problems and was hopeful that the checks would resume in the future. (Tr. 135-36). Mr. Payer had not yet heard that Petitioner was no longer authorized to practice law. He later found out about a bankruptcy hearing and then learned that Petitioner had been disbarred. (Tr. 136).
Mr. Payer testified that he attempted to recover his investment through the bankruptcy proceeding but was unsuccessful. (Tr. 136). After he got the notice of the bankruptcy, he hired a lawyer to represent him but the attorney failed to take the steps necessary to have him listed as one of the creditors. He attended some of the bankruptcy hearings, but was not listed as one of the approved creditors. (Tr. 137).
Mr. Payer believes that he entrusted a total of approximately $55,000 to Petitioner. Although he did not get any of this back through the bankruptcy, he later received $10,000 from the ARDC Client Protection Program. (Tr. 137). Petitioner has not given him any of the remaining $45,000 and he is still interested in receiving that money. This was his mother's inheritance to him and he planned to use part of it for his children. (Tr. 138). Mr. Payer acknowledged that Petitioner has shown some intent over the years to put himself in a position to be able to pay his creditors. (Tr. 138).
FINDINGS OF FACT AND CONCLUSIONS OF LAW
As in attorney disciplinary matters, the purpose of a reinstatement proceeding is to safeguard the public, maintain the integrity of the profession, and protect the administration of justice. In re Rothenberg, 108 Ill. 2d 313, 323, 484 N.E.2d 289, 293 (1985). There is no
presumption in favor of reinstatement and a petitioner must demonstrate by clear and convincing evidence that he should be reinstated. In re Richman, 191 Ill. 2d 238, 730 N.E.2d 45 (2000). 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. People v. Williams, 143 Ill. 2d 477, 484-85, 577 N.E.2d 762 (1991). The burden is not on the Administrator to demonstrate that the petitioner has not been rehabilitated or is not fit to practice law. In re Rothenberg, 108 Ill. 2d 313, 323, 484 N.E.2d 289, 293 (1985).
In determining whether reinstatement is appropriate, the focus is on the petitioner's rehabilitation, present good character, and current knowledge of the law, with rehabilitation being the most important consideration. Illinois Supreme Court Rule 767(f); In re Martinez-Fraticelli, 221 Ill. 2d 255, 850 N.E.2d 155 (2006). Rehabilitation has been described as a matter of the petitioner's return to a beneficial, constructive and trustworthy role. In re Wigoda, 77 Ill. 2d 154, 159, 395 N.E.2d 571, 574 (1979). Although the Court strives for consistency in these matters, it has also recognized that each petition is unique and requires an independent evaluation of its relevant circumstances. In re Parker, 149 Ill. 2d 222, 232-33, 595 N.E.2d 549, 554 (1992).
In assessing whether the petitioner has met the requirements for reinstatement, Illinois Supreme Court Rule 767(f) directs that we consider the following factors:
The nature of the misconduct for which the petitioner was disciplined;
The maturity and experience of the petitioner at the time discipline was imposed;
Whether the petitioner recognizes the nature and seriousness of the misconduct;
When applicable, whether petitioner has made restitution;
The petitioner's conduct since discipline was imposed; and
The petitioner's candor and forthrightness in presenting evidence in support of the petition.
The Rule also allows us to consider other factors that we deem appropriate.
Keeping in mind the foregoing factors and the principles articulated by the Court, we now examine the evidence presented in this matter to determine whether Petitioner has sufficiently established his rehabilitation, good character and current knowledge of the law to warrant reinstatement.
1. Nature of the Petitioner's Misconduct
The first factor we are required to examine is the nature and seriousness of Petitioner's misconduct. This is an important consideration that cannot be minimized by subsequent exemplary conduct. In re Alexander, 128 Ill. 2d 524, 534-35, 539 N.E.2d 1260, 1264 (1989); In re Berkeley, 96 Ill. 2d 404, 410, 451 N.E.2d 848 (1983). Moreover, the Court has indicated that there may be some misconduct that is so serious that it will forever bar reinstatement. Richman, 191 Ill. 2d 238.
We first briefly address an issue that has been raised by Petitioner throughout these proceedings concerning whether the prior disciplinary matter in 1987 resulted in his disbarment. Petitioner has suggested that he was not disbarred on consent in the prior proceeding pursuant to Rule 762, but was instead subjected to "other discipline on consent" pursuant to the provisions of subsection (b) of that Rule. As the Administrator demonstrated during the course of the hearing, however, in 1987 when Petitioner was disciplined Rule 762 only contained provisions that governed "Disbarment on Consent." Unlike the current rule, it was not divided into subsections and did not contain any of the language in current subsection (b) setting forth procedures for "Other Discipline on Consent." Thus, as even Petitioner himself finally conceded in his closing argument at the end of the hearing, he clearly was disbarred in 1987. Although his disbarment
was on consent and was therefore to some extent voluntary, this is nonetheless a severe sanction that is generally indicative of very serious misconduct.
With respect to the nature and seriousness of the misconduct that led to this action, we note that at the time Petitioner filed his motion to have his name stricken he was the subject of nine separate investigations involving nine different client matters. These pending investigations encompassed various forms of misconduct including neglect, failure to account for funds, failure to provide information and documents, mishandling of estate property and funds, commingling client funds, misappropriation of funds and property, failure to pay clients funds to which they were entitled, and improper billing practices. Since Petitioner was disbarred on consent while he was under investigation in connection with these matters, there was no hearing held in the case and there are no specific findings or conclusions regarding his misconduct.2 It is apparent even from the Statement of Charges, however, that the alleged misconduct involved some very serious charges, including charges related to the mishandling of client funds.
In addition to the Statement of Charges, the Administrator also presented substantial evidence in these reinstatement proceedings, most of which was undisputed by Petitioner, concerning his most serious misconduct which stemmed from his operation of the 9051M Trust real estate investment program. By Petitioner's own admission, his involvement in this scheme and his inability to keep up with payments to his investors was one of the primary reasons he agreed to have his name stricken from the roll of attorneys. The evidence presented at the hearing regarding this matter clearly established that Petitioner was disbarred as a result of extremely serious misconduct.
With regard to this evidence, we note initially that much of it involved clients and matters that were not specifically mentioned in the 1987 Statement of Charges. We nonetheless deem it appropriate to consider this evidence as relevant to establishing the totality of Petitioner's
misconduct for reinstatement purposes. Petitioner admitted in his testimony that there were many more individuals not listed in the Statement of Charges who had invested money in his trust program. Moreover, he did not object during the hearing to the introduction of any of the evidence regarding these additional matters by the Administrator. Furthermore, the Court has specifically found it appropriate in reinstatement proceedings to consider evidence of additional acts of misconduct in assessing the nature of the petitioner's wrongdoing and his overall character. See Richman, 191 Ill. 2d 238; In re Polito, 132 Ill. 2d 294, 547 N.E.2d 465 (1989); In re Juron, 01 RT 3002, M.R. 17655 (Mar. 19, 2003); In re Albin, 92 SH 227, M.R. 8354 (Sept. 23, 1994).
The evidence presented established that beginning at least as early as the early 1980's, Petitioner began operating a real estate investment program through a vehicle he called the 9051M Trust. Petitioner was the trustee of this so-called "trust" and most of his investors were clients or former clients who had recently received funds from estates, real estate sales, or other matters Petitioner had handled. Petitioner advised these clients and former clients to entrust their funds to him to be invested in his 9051M Trust and promised them specific rates of return on these investments. He also issued instruments labeled "Trust Certificates" which portrayed these investments as secured by real estate and other assets with a value well in excess of the face amount of the certificates. Petitioner admitted that that these so-called "Trust Certificates" were really nothing more than promissory notes.
Petitioner acknowledged that he stood to personally benefit from this program because he kept any surplus income from the trust which exceeded what he had agreed to repay to investors. Despite his own personal involvement in this arrangement and his direct financial interest in these transactions, Petitioner did not advise investors that he had a conflict of interest in handling
their funds in this manner. Nor did he advise them to seek independent legal advice prior to entering into these transactions.
Although Petitioner maintained that he invested the money that he received in real estate, he also acknowledged that he put all of the funds he received into a common fund and that these funds were intermingled with his own money. He further admitted that he used the funds of new investors, as well as funds generated from the sales of property, to pay the returns that were promised to existing investors.
This investment scheme eventually collapsed when real estate values declined and Petitioner could no longer keep up with the interest payments promised to investors. Petitioner admitted that although he was aware of the declining value of the real estate that supposedly secured these notes at least as early as January of 1987, he never notified any of the investors of this as promised in the trust certificates. In addition, notwithstanding his representations in the certificates that the funds were fully secured, all of the 9051M Trust investors were listed as unsecured creditors in his subsequent bankruptcy proceeding.
Although he was disbarred in 1987 in the midst of the ARDC's investigation into this and other misconduct, Petitioner kept the program going for some time after this until he eventually sought bankruptcy protection in 1989. While many of his investors were able to recover some or all of their money through claims they filed in the bankruptcy matter, many of them did not recover what they were due. In his own testimony Petitioner acknowledged that there was a gap of about $500,000 between his assets and what he owed and that 37 investors did not get fully repaid. Although Petitioner repeatedly maintained that it was his intention and desire to try to repay these individuals, it was undisputed that they still remain unpaid some 22 years later.
Petitioner's activities as they relate to his operation of this trust investment program clearly involved a multitude of disciplinary violations and constituted very serious misconduct.
Petitioner undoubtedly breached his fiduciary duties and engaged conflicts of interest by entering into business transactions with his clients in which he had a personal interest and from which he also sought to benefit without disclosing these conflicts or advising his clients to seek independent legal advice. See In re Twohey, 191 Ill. 2d 75, 89, 727 N.E.2d 1028, 1036 (2000); In re Rosin, 118 Ill. 2d 365, 379-81, 515 N.E.2d 85, 92-93 (1987); In re Imming, 131 Ill. 2d 239, 545 N.E.2d 715 (1989). He also engaged in overreaching by taking advantage of the position of influence and trust he held in relationship to these clients who relied on his advice by convincing them to entrust their funds to him for investment in his real estate program. See e.g., In re Goldstein, 103 Ill. 2d 123, 468 N.E.2d 959 (1984); In re Lundblad, 02 CH 10, M.R. 18639 (Mar. 19, 2003). Furthermore, Petitioner admitted that he did not keep the funds invested by clients separate, but put them all together into a common fund and also commingled them with his own funds.
The evidence also established that this scheme involved various elements of misrepresentation, dishonesty, and deceit. As the Administrator noted, the so-called "Trust Certificates" were deceptive on their face because they suggested that these were secured investments with fixed rates of return when in reality they were just installment notes. In addition, although the certificates stated that the investments were secured by assets worth 125% of the principle amount and promised investors that they would be notified if the equity fell below this level, Petitioner admitted that he never provided any such notice when this occurred. Instead he continued to operate the investment program for several more years until it eventually collapsed and he filed for bankruptcy.
Petitioner also admitted that he used funds he obtained from new investors to make interest payments to existing investors. In this respect, the program exhibited one of the classic features of a Ponzi scheme. See, e.g., In re Hopkinson, 07 CH 132, M.R. 22445 (Sept. 16, 2008)
(disbarment on consent); In re Foos, 94 CH 521, M.R. 10390 (Sept. 23, 1994) (disbarment on consent). Moreover, notwithstanding the promises on the certificates that the investments were fully secured, when Petitioner filed for bankruptcy the 9051M Trust investors were categorized as unsecured creditors.
We note that although Petitioner admitted most of the facts and circumstances surrounding his operation of this investment program, he denied that his actions were dishonest and appeared to dispute that they were even improper or unethical. He did not, however, offer any evidence to support this position, to explain his actions, or to rebut the evidence offered by the Administrator in this regard. Therefore, we reject those claims.
Adding to the seriousness of this misconduct is that fact that it was not an isolated incident, but was part of a regular pattern or practice that was ongoing for a number of years and involved multiple victims. In addition, Petitioner's misconduct was aggravated by the significant harm it caused to many of his clients who lost substantial sums of money that they were never able to completely recover. The harsh impact such misconduct can have is illustrated by the testimony of Mr. Payer, who entrusted his entire inheritance from his mother to Petitioner and ended up losing almost all of it.
In addition to the misconduct surrounding the 9051M Trust, there was also evidence that Petitioner engaged in misconduct in connection with his handling of the Nancy Lussow matter. Ms. Lussow was one of the clients listed in the 1987 Statement of Charges. Although Petitioner had no current memory of this transaction, he previously testified that he had attempted to sell a building owned by her to another client that he also represented. Petitioner's representation of both parties in this transaction clearly involved an improper conflict of interest. See In re Twohey, 191 Ill. 2d 75, 89, 727 N.E.2d 1028, 1036 (2000); In re Demuth, 126 Ill. 2d 1, 9, 533 N.E.2d 867, 870 (1988).
We recognize that the Court has reinstated attorneys notwithstanding the fact that they have engaged in extremely serious misconduct. See e.g., Martinez-Fraticelli, 221 Ill. 2d 255; Parker, 149 Ill. 2d 222; In re Fleischman, 135 Ill. 2d 488, 533 N.E.2d 352 (1990). In such cases, however, the petitioner faces a heavy burden of showing that these past deficiencies have been overcome. See In re Rothenberg, 108 Ill. 2d 313, 326, 484 N.E.2d 289, 295 (1985). Although Petitioner's prior misconduct is not alone sufficient to preclude his reinstatement, based on its nature, extent, and overall seriousness, we conclude that he has a heavy burden here to establish his rehabilitation and current fitness to practice law.
2. Maturity and Experience of Petitioner at the Time Discipline was Imposed
Petitioner is currently in his early eighties. When discipline was imposed in the prior matter in 1987, he was approximately 59 years of age and had been licensed to practice law for about 27 years. He engaged in the conduct that led to his discipline over the course of a number of years leading up to his eventual disbarment on consent. Clearly, he was both a mature individual and an experienced professional throughout this time and should have understood and appreciated the impropriety of his actions. Although his maturity and experience does not alone necessarily preclude his reinstatement, it weighs heavily against it. See Richman, 191 Ill. 2d at 246 (misconduct particularly egregious in light of petitioner's lengthy experience as a lawyer).
3. Recognition of the Nature and Seriousness of Misconduct
We next consider whether Petitioner recognizes and appreciates the nature and seriousness of his misconduct. Expressions of remorse and acknowledgments of wrongdoing have been found to be indications that a petitioner recognizes misconduct. See Martinez-Fraticelli, 221 Ill. 2d at 276; Parker, 149 Ill. 2d at 235-36. Attempts to minimize, rationalize, or justify misconduct are signs that an attorney does not appreciate the seriousness of his behavior. See In re Livingston, 133 Ill. 2d 140, 143, 549 N.E.2d 342, 343 (1989); In re Gottlieb, 109 Ill. 2d
267, 270-71, 486 N.E.2d 921, 922-23 (1985). In this case, there are a number of factors that lead us to conclude that Petitioner neither recognizes nor appreciates the nature or the seriousness of the misconduct that led to his discipline.
One of the most obvious indications that Petitioner does not recognize the seriousness of his actions is his refusal to even acknowledge that he was disbarred. As already noted, throughout most of these reinstatement proceedings, Petitioner has been insistent that he was not disbarred and has attempted to recast the circumstances under which his name was stricken from the roll of attorneys as the result from some voluntary action on his part. In his petition for reinstatement, he repeatedly characterized his prior discipline as a "transfer to inactive status" by agreement with the Administrator, rather than disbarment on consent. He continued to maintain this position throughout the course of these proceedings and during most of the hearing and even attacked the ARDC and its counsel for falsely stating that he had been disbarred. It was not until near the end of the hearing, when confronted with the fact that language in Rule 762 upon which he based this argument was not in existence in 1987, that he finally acknowledged that he had in fact been disbarred. Petitioner's ongoing denial of the serious nature of the discipline that was imposed as well as his attempt to reinvent the circumstances surrounding the loss of his license are clear indications that he has not yet faced up to his prior actions or accepted responsibility for his wrongdoing.
Throughout his remaining testimony at the hearing Petitioner also repeatedly failed to demonstrate that he understood or appreciated the nature of his actions. Petitioner specifically denied that he had engaged in almost all of the misconduct that was under investigation when he agreed to his disbarment on consent. He suggested that he agreed to take the drastic step of having his name stricken not because he had engaged in any serious wrongdoing, but simply because he was "out of gas" at the time due to various personal matters. The only real
wrongdoing that he acknowledged was that he had "overreached" by taking on too much pro bono work on behalf of Christian organizations and may have neglected other clients as a result.
As already discussed, however, it is clear from the evidence presented at the hearing that the primary misconduct engaged in by Petitioner, which stemmed from his promotion of his 9051M Trust real estate investment scheme, involved far more than merely neglect or failure to communicate caused by overwork. Moreover, the overreaching he engaged in had nothing to do with him taking on too much pro bono work, but involved taking advantage of the position of trust he held in relationship to his clients by convincing them to invest in his real estate trust program. While Petitioner expressed regret that the real estate market had declined and his clients had lost money, he acknowledged no real wrongdoing in connection with the way he operated this scheme. Nor did he demonstrate any understanding or appreciation for the numerous ethical and other concerns arising from this arrangement.
We recognize that an attorney seeking reinstatement need not always concede guilt and that a genuine belief in one's innocence is not necessarily a bar to reinstatement. See In re Wigoda, 77 Ill. 2d 154, 161, 395 N.E.2d 571, 574 (1979). This is distinct, however, from a situation where a petitioner concedes that he engaged in the activities that led to his disbarment, but "appears not to recognize their seriousness and consequently shows no repentance." Gottlieb, 109 Ill. 2d at 272. In this case, Petitioner has essentially admitted most of the facts surrounding his operation of the 9051M Trust investment scheme, but seemingly fails to recognize the impropriety of his actions or their seriousness. This raises a significant concern regarding whether his reinstatement would serve the public interest, or simply place it at further risk that he would again engage in such behavior. See In re Howard, 05 RT 3006, M.R. 20173 (Sept. 18, 2007) (petitioner failed to demonstrate genuine understanding of what he did wrong and its seriousness).
As the Administrator noted, the fact that Petitioner continued to operate this program even after he was disbarred without informing his investors of this fact is a further indication of his lack of remorse. Moreover, despite the passage of more than 20 years, Petitioner still has not acknowledged the impropriety of his actions. Petitioner's apparent failure to comprehend the fundamental nature of his misconduct as well as his refusal to face up to his wrongdoing are powerful indications that he is not yet rehabilitated and ready to resume the practice of law.
4. Payment of Restitution
The payment of restitution is clearly an important factor in a reinstatement proceeding. Martinez-Fraticelli, 221 Ill. 2d 255. The Court has indicated that restitution should be a condition of reinstatement except in those rare instances where repayment to the victims is conclusively proven to be an impossibility. In re Schechet, 105 Ill. 2d 516, 475 N.E.2d 828 (1985).
In this case it is undisputed that Petitioner has not made restitution to the many former clients and others who suffered significant financial losses as a result of investing in Petitioner's trust program. Petitioner admitted that there were approximately 37 individuals who lost various amounts of money as a result of his actions. Although many of these individuals were able to recover part of their losses through the bankruptcy proceedings, many did not fully recover all that they were owed. By Petitioner's own acknowledgement, there was a $500,000 gap between the $2.5 million in assets reflected in his bankruptcy petition and the $3 million in claims. Petitioner admitted that he has not repaid any of this in the more than 20 years since his disbarment.
Although the precise amounts the investor losses were not fully established at the hearing, the evidence showed that significant outstanding amounts were owed to many different individuals. For example, Herbert Payer testified that the lost approximately $55,000 that he had
invested with Petitioner. Although he received $10,000 of this back through the ARDC's Client Protection Program, Petitioner has never given him any of the remaining $45,000. Ms. Betts lost $16,755 and Ms. Gray lost $5,500. Neither one of them was ever repaid. Ms. Sheehan lost $12,000. Although she later received $10,000 from the Client Protection Program, she never recovered the remaining amount. The Costas lost their entire $60,000 investment and were unable to recoup any of this in the bankruptcy proceedings.
We note that over the course of the hearing Petitioner repeatedly expressed regret over these losses and voiced his ongoing desire to try to repay these investors. He pointed out that he voluntarily had the order discharging these debts vacated during the bankruptcy proceeding and reaffirmed his obligations to these individuals. He also testified that he later set up a trust for their benefit which he planned to fund with income from his real estate activity. He further recounted various efforts over the past 22 years to contact his creditors regarding payment of restitution. While these actions might be commendable if Petitioner had followed through on his promises, by his own admission he never actually repaid any of these clients anything. We agree with the Administrator that if Petitioner was genuinely serious about making restitution he should have been able to make some payments to these investors over the course of these many years. Although his earnings may have been limited, the record reveals that he had some income throughout most of this time. (Adm. Ex. 23; Petition at 13-15). Based on all of the circumstances present, we do not believe that Petitioner's actions reflect a sincere effort on his part to make restitution. See Livingston, 133 Ill. 2d at 144; Schechet, 105 Ill. 2d at 522-24.
We also note that Petitioner recently made a $20,000 payment to the Client Protection Fund to reimburse it for payments it had made to several of his victims. As the Administrator pointed out, however, he made this payment only after learning that it was a prerequisite to pursuing this reinstatement petition. We find it significant that Petitioner took no such action ten
years ago when he received a request for payment from the ARDC after these Client Protection payments were originally disbursed. Given the lengthy delay that took place before Petitioner provided this reimbursement and the circumstances under which the payment was made, we do not believe that this fact provides any support for Petitioner's reinstatement. See, e.g., Richman, 191 Ill. 2d 238 (delay in making restitution until after initiation of reinstatement proceedings weighs against granting reinstatement).
As already noted, the Supreme Court has indicated that restitution is generally considered to be a condition of reinstatement. Here, Petitioner has not only failed to fulfill this requirement, he has not demonstrated in the more than 22 years since his disbarment that he has made a genuine effort to do so. This factor weighs heavily against reinstatement.
5. Conduct Since Discipline Was Imposed
We next examine Petitioner's conduct since discipline was imposed. In this regard, we are looking for evidence of his rehabilitation in the form of his return to a beneficial, constructive, and trustworthy role. See Wigoda, 77 Ill. 2d at 159.
Petitioner testified that he has been engaged in ongoing efforts over the last 20 years aimed at rehabilitating himself. He first cites the fact that he had the automatic discharge vacated in his bankruptcy proceeding and worked two jobs during the 1990's in order to try to earn funds to repay his creditors. As already noted, however, since Petitioner never followed through on his promises by actually making any payments to his clients, we find that these actions provide little evidence of rehabilitation.
Petitioner also cites various volunteer activities and charitable works that he has been engaged over the course of the last 22 years as evidence of his rehabilitation. According to his testimony, this has included teaching and other volunteer work at numerous churches as well as
involvement in a program that teaches English as a second language to immigrants. He also cites his ongoing role as president of Lutheran Public Radio.
In contrast to Petitioner's own testimony about these worthwhile activities, however, the evidence presented by the Administrator establishes that many other aspects of his behavior have been problematic. We note in particular the following conduct which suggests that he has not been rehabilitated to the extent necessary for reinstatement.
At about the same time that Petitioner agreed to surrender his law license due to the multiple disciplinary matters pending against him, Petitioner almost immediately embarked on efforts to enter into arrangements with various attorneys working in his building which sought to generate payments and other income tied to the referral of business and other services. Although Petitioner denied that he was seeking improper referral fees, the proposed agreements suggest otherwise. For example, the Services Agreement includes a provision that requires the attorneys to pay a monthly "$25 file charge" to the Petitioner for "files established and referred" by him. The Collateral Agreement provides for attorneys to account annually to Petitioner for the income and expenses of their law practices and contemplates payments or credits tied to the fees and expenses generated by business referred by Petitioner. Payment of referral fees and other fee-sharing arrangements with non-attorneys, including disbarred or suspended attorneys, has long been deemed improper by the Court. See In re Discipio, 163 Ill. 2d 515, 529, 645 N.E.2d 906, 913 (1994); In re Cetwinski, 143 Ill. 2d 396, 404, 574 N.E.2d 645, 649 (1991). Although these offers were apparently refused, Petitioner's proposal of these arrangements is nonetheless troubling.
The evidence also established that despite the disciplinary proceedings and the loss of his law license, Petitioner did not cease the investment scheme but continued to operate it for several more years until he ultimately resorted to bankruptcy. During this time, he was not forthcoming
with his investors about his disbarment. For example, Petitioner did not include the 9051M Trust investors among the clients that he notified pursuant to Supreme Court Rule 764. Nor did he otherwise notify them of his disbarment. Some of them, such as Mr. Payer, apparently did not learn that he had been disbarred until almost two years later when Petitioner filed for bankruptcy.
Nor did Petitioner keep his investors apprised of the status of their investments during this period of time as promised in the trust certificate. Petitioner admitted that although he was well aware of the declining value of the real estate market and of his inability to pay the promised investments as early as January of 1987, he never notified any of his investors of this fact. Moreover, he gave assurances to at least two of them in September of 1987 that their funds were "well secured" even though it is evident that this was not the case. Petitioner then proceeded to list them both, along with all the other 9051M Trust investors, as unsecured creditors on his bankruptcy petition. Although no longer an attorney at this time, Petitioner's continued involvement in this failed investment scheme and his lack of candor with his investors about his disbarment and the status of their investments is also disturbing.
Other evidence also established that at the time of his disbarment and in the years since then, Petitioner has been less than forthcoming with various individuals about his disciplinary status and his status as an attorney. For example, in the materials he sent to the attorneys in his building shortly after he filed his motion to strike his name, he represented that he planned to "throttle down the practice of law." In the circular he sent out in 1987 advertising his new business he represented that he was "retiring from the practice of law" in order to devote his full attention to this venture. In correspondence he sent to a former client subsequent to his disbarment he used stationary that included "Law Center of Park Ridge Building" in the letterhead, but did not disclose anywhere in the letter that he was no longer authorized to practice law. In several pleadings he filed in the suit brought against him by Joe Barr, Petitioner use the
designation "Attorney, pro se" after his name. He also used similar language in a pleading he filed in 2000 when he tried to intervene in a personal injury suit that had been filed against his wife. More recently, in a letter he wrote to Ms. Sell's son, Petitioner assured him that he would continue to help Ms. Sell with her legal matters, but did not disclose the fact that he was a disbarred attorney. In a letter to Ms. Sell around this same time, he told her that he had "voluntarily resigned" his law license over 20 years ago.
Evidence was also presented which established that Petitioner was employed in a position for a lengthy period of time that was not only improper for a disbarred attorney, but also enabled him to engage in activities which constituted the unauthorized practice of law. Petitioner admitted that he spent about ten years after his disbarment doing work for attorney Michael Schiessle. Petitioner testified that this work included court filings, paralegal work, and drafting pleadings and other documents used in court. In his Petition he described his work as including "legal research on circuit and appellate cases" as well as "document drafting for many law suits." (Petition at 3, 13 n.1). He also stated that Mr. Schiessle gave him "the opportunity to engage in legal brief battles by proxy, doing his research and drafting his pleading documents as a para legal (sic)." (Petition at 21). He indicated that over this period of time he "got more exposure to that phase of the law practice than I ever had as head of my own firm with associates under me." (Petition at 21).
Petitioner's work on behalf of Mr. Schiessle was clearly improper in several respects. First, by his own admission, he was working in the capacity of paralegal or law clerk. In In re Kuta, 86 Ill. 2d 154, 427 N.E.2d 136 (1981), which was decided a number of years before Petitioner's disbarment, the Court made it clear that employment of this nature while disbarred is improper:
Without a doubt a disbarred or suspended attorney should not serve as a law clerk or a paralegal during his disbarment or suspension. The line of demarcation between the work that a paralegal or law clerk may do and those functions that can only be performed by an attorney is not always clear and distinct. The opportunity for a disbarred or suspended attorney who is serving as a paralegal or a law clerk to violate that line of demarcation is too great and too inviting.
Kuta, 86 Ill. 2d at 61-62. The Court later reaffirmed this principle in Discipio, 163 Ill. 2d at 525-26, where it disciplined an attorney for aiding a disbarred attorney in the unauthorized practice of law by permitting him to gather preliminary factual information from clients regarding their workers' compensation claims and obtain clients' signatures on pertinent legal documents.
In addition, although Petitioner denied that his activities for Mr. Schiessle involved the practice of law, it is evident that his work did cross over into this area. The Court has indicated that in determining whether an activity constitutes the practice of law, the focus is on whether the activity in question requires legal knowledge and skill in order to apply legal principles and precedent. Discipio, 163 Ill. 2d 515. Based on this standard, a broad range of activities have been deemed to involve the practice of law including preparing or explaining legal instruments, preparing pleadings and other papers incident to actions, giving advice on questions of law, and giving an opinion regarding the right to maintain an action. See In re Nash, 03 CH 128, M.R. 20418 (Nov. 22, 2005) (Hearing Bd. at 26). Petitioner's work on behalf of Mr. Scheissle, which by his own admission included preparation of pleadings and other court documents, conducting legal research, and preparing legal briefs, undoubtedly required the use of legal knowledge and skill to apply legal principles and precedent.
Petitioner's more recent activities on behalf of his elderly neighbor, Ms. Sell, were also clearly improper. It was established that he gave her legal advice regarding various matters, including her accident claim, the merits of a settlement, and the pursuit of a potential malpractice action against her former attorneys. He also prepared and had her execute a power of attorney,
prepared a complaint and filed suit on her behalf, and attempted to represent her in court in connection with this action. Activities such as these undoubtedly constitute the practice of law. Although Petitioner suggested that he undertook of these actions as Ms. Sell's "attorney-in-fact" pursuant to authority granted by her, we find no merit to this claim. Petitioner cited no authority to support this contention and the argument was obviously rejected by the court when it dismissed the action because it was filed by a non-attorney. While Petitioner maintained that he was trying to help Ms. Sell, his actions arguably ended up hurting her because they resulted in the dismissal of her claim.
During the period of time following his disbarment, Petitioner also had his real estate license suspended twice for improper activity, including improper handling of funds and failure to file or pay taxes. Although Petitioner disputed the validity of these findings, he presented no evidence to support this contention and the record establishes that both matters were adjudicated and decided adversely to him. Moreover, Petitioner admitted at the hearing that he did not file his federal tax returns for a period of years in the late 1980's.
Based on all of the evidence presented, we conclude that Petitioner's conduct since his disbarment weighs against his reinstatement. While Petitioner introduced some evidence of volunteer activity and other good works, many other aspects of his behavior over the last 20 years has been extremely problematic. On the whole, the record suggests that he has either been bending or breaking the rules since his disbarment. The Court has stressed that reinstatement requires proof of rehabilitation by clear and convincing evidence and Petitioner clearly has not met that burden here. See In re Anglin, 122 Ill. 2d 531, 539, 524 N.E.2d 550, 554 (1988).
6. Candor and Forthrightness in Presenting Petition
We also find that Petitioner has not been completely candid in presenting his Petition for reinstatement. As already discussed, Petitioner has been insistent throughout most of these
proceedings that he was not disbarred, but was instead disciplined on consent pursuant to Rule 762(b). He began his testimony in these proceedings with a detailed explanation regarding why his motion to strike his name did not lead to his disbarment and specifically claimed to have compiled his motion from parts of Rule 762(b). As the Administrator established, however, this was clearly a recent fabrication by Petitioner because subsection (b) of the Rule was not even in existence in 1987 when he filed his prior petition. Petitioner's apparent unwillingness to be honest and forthright about even the nature of the circumstances surrounding the loss of his law license reflects a serious lack of candor on his part. This also weighs against his reinstatement.
7. Other Considerations
As previously noted, in addition to establishing rehabilitation, a petitioner seeking reinstatement must also demonstrate present good character and current knowledge of the law. See Supreme Court Rule 767(f). In this case, we find that Petitioner has failed to establish either of these requirements by clear and convincing evidence.
With regard to character, Petitioner presented no testimony or other evidence apart from his own testimony to establish his current good character. He stated that he would not call any character witnesses, but would instead rely on the record and documentation to establish his character. As we have already discussed, however, although the record contains evidence of some good works, it also reveals a great deal of troubling behavior. Taking into account all of the evidence that was presented as well as the lack of any independent character evidence, we find that Petitioner has failed to establish by clear and convincing evidence the requisite good character necessary for reinstatement.
Given the very lengthy period that he has been away from practice, Petitioner's current knowledge of the law is also clearly a significant concern. In this regard, Petitioner did not offer any testimony or other evidence concerning the steps he has taken to remain knowledgeable in
the law during the last 22 years. Although he gave some testimony regarding the legal work he did for Mr. Schiessle, we obviously cannot consider these improper activities as evidence which supports this requirement. While the record also reveals that he initiated a significant amount of pro se litigation, we find that his involvement in these cases, all of which appear to have been dismissed, says little about his knowledge or overall legal abilities. Although he recited some additional activities in his Petition as reflective of his knowledge of the law, he did not offer any testimony or other evidence at the hearing in this regard. Moreover, we do not consider the activities listed, which included collecting copies of Illinois reporters and other law books, discussing the law at family gatherings with relatives who are attorneys, and attending several seminars in the 1990's, as adequate to establish the level of current legal knowledge required for reinstatement.
Petitioner engaged in very serious misconduct that was extensive and ongoing over the course of a number of years and resulted significant financial harm to numerous clients. He was mature and experienced at the time and there is no evidence of any mitigating factors. In these proceedings, he has failed to demonstrate that he recognizes, appreciates or even understands the nature of his prior misconduct and has not taken any real steps during the lengthy period since his disbarment to provide restitution to the many individuals who were harmed by his actions. Although he has been engaged in some charitable activity since his disbarment, his conduct overall has been far from exemplary and has included many troubling aspects. Moreover, he has not been completely candid during these proceedings regarding the nature of his prior discipline and has failed to sufficiently establish his present good character and current knowledge of the law.
As noted previously, it is the Petitioner's burden in these proceedings to demonstrate by clear and convincing evidence that he is entitled to be reinstated. Based upon our consideration of the evidence presented in this matter and the factors set forth in Supreme Court Rule 762, we find that Petitioner has fallen far short of meeting that burden.
Accordingly, we recommend that the Petition of Harry B. Madsen to be reinstated to the practice of law be denied.
Date Entered: March 12, 2010
|Keith E. Roberts, Jr., Chair, Tiffany M. Ferguson and Cheryl M. Kneubuehl, Hearing Panel members concurring|
1 Although Petitioner listed a number of additional items on the "Petitioner's Table of Exhibits" which was filed prior to the hearing and also submitted as part of a post-hearing filing, only two of those exhibits were actually offered and admitted into evidence at the hearing.
2 As already noted, in 1987 when these proceedings took place a prior version of Rule 762 was in place. This rule was substantially less detailed than the current Rule 762 and, unlike that rule, did not require the statement of charges to include specifics regarding the evidence that would be presented and the findings of misconduct that it would support.