Filed December 28, 2012
In re John P. Edmonds
Commission No. 2010PR00084
Synopsis of Review Board Report and Recommendation
This matter arises out of the Administrator's seven count complaint primarily alleging misconduct by Respondent with respect to his actions in handling a charitable trust intended to benefit St. Mark Catholic Church and grade school in Peoria, Illinois. Counts I through IV address Respondent's alleged breach of his fiduciary duties and various misrepresentations to others, including to the beneficiaries of the trust; Count V addresses Respondent's alleged neglect of the estate matter associated with the trust; Count VI addresses Respondent's alleged misrepresentations to another investor in an energy company that was the recipient of the charitable trust's funds; and Count VII addresses Respondent's mishandling of his client trust account. Respondent denied that he engaged in any misconduct.
Following a hearing, the Hearing Board issued a report concluding that Respondent had engaged in most of the misconduct alleged by the Administrator, with the exception of the allegations that Respondent engaged in a conflict of interest. Specifically, the Hearing Board concluded that the Respondent breached his fiduciary duty as a trustee to keep the beneficiary of the charitable trust reasonably informed as to the assets of the trust. Further, the Hearing Board concluded that Respondent breached his fiduciary duty as trustee by making misrepresentations to the beneficiary about the trust assets and neglected his handling of the estate matter related to the trust. Finally, the Hearing Board concluded that Respondent engaged in misconduct by failing to hold client or third party funds separate from the lawyer's own funds. The Hearing Board recommended that Respondent be suspended for a period of one year.
Respondent filed exceptions to the Hearing Board's Report and Recommendation. Respondent argued before the Review Board that he should not be sanctioned for his conduct as a trustee, that he has not violated any provisions of the Illinois Rules of Professional Conduct, and that the Administrator's Complaint should be dismissed. The Administrator asked the Review Board to affirm the Hearing Board's findings of fact and of misconduct and to recommend to the Court that Respondent be suspended for one year.
The Review Board unanimously reversed the findings of the Hearing Board as to Counts I, III, IV and VI. The Review Board concluded that the Administrator's charges that Respondent breached his fiduciary duties were improperly charged because the allegations did not arise out of the attorney-client relationship. A majority of the Board reversed the findings of the Hearing Board as to Count II of the Administrator's Complaint, concluding that the Administrator did not prove that Respondent acted with the intent to deceive the beneficiary of the trust. The Review Board upheld the Hearing Board's findings as to Counts V and VII that Respondent violated Rules 1.3 and 8.4(a)(5) with respect to his handling of the estate matter and violated Rule 1.15 by failing to segregate his client funds from his personal funds. A majority of the Review Board recommended that Respondent be suspended for a period of sixty days, with one member upholding the findings as to Count II of the Administrator's Complaint and recommending that a ninety day suspension be imposed.
BEFORE THE REVIEW BOARD
ILLINOIS ATTORNEY REGISTRATION
|In the Matter of:
JOHN P. EDMONDS,
Commission No. 2010PR00084
REPORT AND RECOMMENDATION OF THE REVIEW BOARD
This matter arises out of the Administrator's seven count complaint primarily alleging misconduct by Respondent with respect to his actions in handling a charitable trust intended to benefit St. Mark Catholic Church and grade school in Peoria, Illinois. Counts I through IV address Respondent's alleged breach of his fiduciary duties and various misrepresentations to the beneficiaries of the trust; Count V addresses Respondent's alleged neglect of the estate matter associated with the trust; Count VI addresses Respondent's alleged misrepresentations to another investor in an energy company that was the recipient of the charitable trust's funds; and Count VII addresses Respondent's mishandling of his client trust account. Following a hearing, the Hearing Board issued a report concluding that Respondent had engaged in most of the misconduct alleged by the Administrator, with the exception of the allegations that Respondent engaged in a conflict of interest. The Hearing Board recommended that Respondent be suspended for a period of one year.
Respondent filed exceptions to the Hearing Board's Report and Recommendation contending that he has not engaged in any misconduct; that he cannot be sanctioned for his conduct as a trustee; that he has not violated any provisions of the Illinois Rules of Professional
Conduct; and that the Administrator's Complaint should be dismissed. The Administrator asks this Board to affirm the Hearing Board's findings of fact and of misconduct, and asks this Board to recommend to the Court that Respondent be suspended for one year.
For the reasons noted below, this Board unanimously reverses the findings of the Hearing Board as to Counts I, III, IV and VI. A majority of the Board reverses the findings of the Hearing Board as to Count II of the Administrator's Complaint. The Board unanimously upholds the findings of Counts V and VII.
Respondent was licensed to practice law in 1975. He has been a sole practitioner since 1991. Prior to and during the events in question, Respondent was a member of the parish at St. Mark's Catholic Church in Peoria.
Representation of John Sloan and Creation of Trust
Sometime prior to June 11, 1998, Respondent agreed to prepare a will and create a charitable trust for John F. Sloan (hereinafter "Sloan"). Respondent had not previously represented Sloan. He was aware that Sloan was a lawyer in Peoria, but he had not previously met him. Respondent prepared a will for Sloan, executed on June 11, 1998. The will provided for small bequests to various individuals and bequeathed the remainder of Sloan's estate to the "John F. Sloan Perpetual Charitable Trust" (hereinafter "Sloan Trust"). Sloan intended for the trust to benefit St. Mark Catholic Church and the church's grade school (hereinafter "St. Mark's"), by providing compensation for teachers, equipment, books, scholarships and maintenance of school and church grounds. Sloan designated Respondent as executor of his will and successor trustee of the Sloan Trust. Sloan was the designated trustee until his death, at which time Respondent would assume the role of trustee. Under the terms of the Sloan trust agreement, drafted by Respondent, the trustee had broad discretion to sell trust property, to invest, and to compromise
claims. Under the terms of the trust agreement, St. Mark's was to receive annual distributions in an amount equaling five percent of the value of the trust.
Sometime after the execution of the will and trust agreement, Respondent introduced Sloan to Lance Hannah. Hannah was employed at that time by American Express Financial Advisors. Hannah had assisted Respondent in the past with financial advice and estate planning for some of Respondent's clients. According to Respondent, Hannah was an expert in estate planning and financial planning.
Hannah was licensed to practice law in 1982. Thereafter, like Respondent, he maintained a sole practice in Chillicothe. In 1992, Hannah was suspended for one year for neglecting client matters, engaging in dishonest conduct by lying to his clients about the status of their matters, and improperly commingling funds and failing to maintain a trust account. In March 1994, Hannah was suspended for eighteen months and until further order of Court for neglecting a client matter and engaging in the unauthorized practice of law by practicing law during his previous suspension. He has never sought reinstatement. Respondent was unaware that Hannah had been disciplined. He said he thought Hannah was a lawyer because Hannah continued to use the designation "J.D." after his name on his business card. Respondent's wife testified that Hannah's wife referred to her husband as an attorney.
Sometime prior to 1999, Hannah began to solicit investments on behalf of a company called Range Energy. Range Energy was based in Calgary, Canada and was interested in exploring for oil and natural gas. When Hannah found investors, he would give Respondent funds, which Respondent would deposit into his client trust account and would then wire the funds to Range Energy.
On January 26, 2000, Hannah suggested that the Sloan Trust invest in Range Energy. Hannah said he also had funds invested in Range Energy. Though he could not give
investment in Range Energy a "formal" recommendation because he was sure that Range Energy was "too small for our company to follow", he thought Range Energy was a good investment. He also stated that "since the [Sloan] Trust should eventually be approximately $5,000,000 or so, a million shares of this company would be approximately 10 percent of the trust" and the "remainder of the trust would likely be in mutual funds." He further said that he knew Sloan had "endorsed this".
Respondent testified he had believed that Sloan had endorsed the idea of investing in Range Energy, although he acknowledged that there was never a discussion about investing 100 percent of the Sloan Trust assets in Range. Respondent testified that stock in Range was probably not purchased prior to Sloan's death.
John Sloan died on February 5, 2000. On February 8, 2000, Respondent opened a probate case for Sloan's estate in Peoria County. At the time of Sloan's death, the Sloan Trust had approximately $3.8 million in assets held in various investment funds. In addition, at the time of his death, Sloan's personal assets totaled approximately $500,000. After Sloan's death, pursuant to the trust agreement, Respondent became the trustee of the Sloan Trust. Respondent testified he received fees for acting as attorney and executor for the Sloan estate and as trustee of the Sloan Trust, but he testified he did not know the approximate amount of the fees he received.
Respondent's Investment of Trust Funds in Range Energy
and Communications With St. Mark's in 2000
Respondent had no experience in investing in an oil and gas company. He had no experience as a trustee of a charitable trust. With respect to the investments in Range Energy, Respondent testified he relied primarily on the representations of Lance Hannah.
From 2000 through about 2005, upon Hannah's recommendations, Respondent invested virtually all of the assets of the Sloan Trust in Range Energy and oil and gas properties
associated with the company. Specifically, in February and March 2000, Respondent purchased stock in Range Energy on behalf of the Sloan Trust and the Sloan estate for $618,2000 and sent cash to Range Energy that was to be used for drilling expenses. In exchange for this investment, the Sloan Trust was to receive a 52 percent interest in a drilling partnership. In June 2000, the Sloan Trust and Range Energy entered into a "Memorandum of Understanding", which set forth the alleged percentages of interest that the Sloan Trust held in various drilling operations contemplated by Range Energy. Respondent never received on behalf of Sloan Trust any documentation of any legal interests in the various properties outlined in the document.
Sometime prior to April 2000, St. Mark's requested information from Respondent about the Sloan Trust, including a financial statement showing the trust assets. In response to the request, on April 11, 2000, Respondent prepared and sent a letter to Father Reese of St. Mark's advising Father Reese of what Respondent believed to be the current holdings of the Trust.
From February 2000 to February 2001, Respondent invested approximately $2.7 million of the Sloan Trust assets in Range Energy. He also invested all of Sloan's personal assets from Sloan's estate ($500,000) in Range Energy, but never closed the Sloan estate. In February 2001, Hannah left American Express Financial Advisors and became Chief Financial Officer of Range Energy. In March 2002, Hannah became President and Chief Executive Officer of Range Energy. Between March 2001 and February 2005, Respondent liquidated the remaining $470,000 in assets in the Sloan Trust, and sent all of the funds to Range Energy.
The 2000 Fund
In 2000, Respondent and Hannah created the 2000 Oil and Gas Fund (hereinafter "the 2000 Fund"). The purpose of the 2000 Fund was to obtain additional investors in Range Energy. Respondent was the attorney for the 2000 Fund. He accepted money from the investors and forwarded the funds to Range Energy. By the end of 2000, Respondent had accepted several
hundred thousand dollars from investors, which he forwarded to Range Energy. He also made the Sloan Trust a member of the 2000 Fund.
In December 2000, following Hannah's recommendation, Range entered into a Production Sharing Agreement (PSA) with the 2000 Fund. Pursuant to the agreement, the 2000 Fund was to advance Range four million Canadian dollars ($2.6 million U.S. dollars) for Range to acquire leases and develop drilling prospects. In exchange, Range Energy was to provide the 2000 Fund with the rights to certain natural gas reserves, which Range Energy claimed to have established. If Range Energy did not assign the reserves by December 1, 2002, the investors in the 2000 Fund would have the right to a full refund. In the interim, interest was to be paid to the investors. Pursuant to the PSA, Respondent transferred approximately $2,175,180 from the Sloan Trust to Range Energy.
Respondent did not disclose to St. Mark's that he was the attorney for the 2000 Fund, that he had invested approximately 60 percent of the assets of the Sloan Trust directly in the 2000 Fund, or that he had invested more than 88 percent of the assets in the Sloan Trust with Range Energy.
Range defaulted on the PSA almost immediately. Respondent testified at the hearing that he was never told what happened to the cash that had been invested in Range Energy. According to Linn Biggs, another investor in the 2000 Fund who testified at hearing by phone, the investment in Range Energy was ?high on the risk scale". While he described Range Energy as a fairly substantial company at the time the PSA was entered into, the company quickly headed into a downward spiral. According to Biggs, Range entered into the PSA in an effort to pay off old debt. Range had said it was debt-free, but it was not. According to Biggs, Range also "had an astonishingly poor drilling success rate."
Respondent testified he tried to rectify Range's default by sending a number of letters between November 2001 and February 2002 to the CEO of Range Energy. Hannah, CFO of Range Energy, testified he drafted the letters because he was more familiar with the terms of the agreement. The letters proposed purchasing assets of Range or restructuring the PSA. Respondent and Hannah also travelled to Calgary to meet with the CEO of Range Energy to try to resolve the matter.
Respondent's Communications With St. Mark's in 2001 and 2002
Throughout 2001, Respondent sent checks to St. Mark's pursuant to the trust agreement. From January through July 2001, Respondent sent monthly checks of $10,000 each to St. Marks stating, "Enclosed please find Mr. Sloan's trust check made payable to St. Mark's School in the amount of $10,000 for the month of [June]. If you have any questions please feel free to contact this office." In August 2001, Respondent sent a check to the school for $40,000, stating, "Based on a recent evaluation of the trust, we are now going to distribute $13,750.00 per month to the school until the end of the calendar year." Respondent then sent four additional checks in 2002 in the amount of $13,750.00 each. During 2002, Respondent sent eleven checks for $13,750.00 with the same accompanying letter as in 2001.
Respondent's Communications With Shirley Boers
on Behalf of J & L Enterprises and Range Energy
Respondent assisted Hannah in the solicitation of other investments to Range Energy. Respondent and Hannah intended to form a company called "J & L Enterprises." Respondent was attorney for J & L Enterprises. In early 2001, Shirley Boers agreed to invest $100,000 in the 2000 Fund. At Hannah's direction, Boers mailed a check dated February 27, 2001 to Respondent made payable to "John Edmonds Trust Acct". Respondent deposited the check into his client trust account and sent a letter to Boers acknowledging receipt of the check
"for investment in the production sharing agreement that the 2000 Oil and Gas Fund has with Range Petroleum Corporation.". On March 26, 2001, Respondent sent the funds to Peoria Bank and then executed a wire transfer of the funds to Range Energy. On April 18, 2001, at Hannah's direction and on behalf of Range Energy, Respondent wrote a letter to Boers advising her that monthly payments on her investments should be approximately $833.33 and telling her "we expect to make disbursements approximately the 10th day of each month hereafter."
Between May 9, 2001 and August 11, 2003, Respondent sent 21 checks to Boers drawn on his client trust account, each for $833.33. After August 11, 2003, Boers did not receive any further checks. In each of Respondent's letters to Boers, on his law office stationery, he stated that the enclosed check represented "the interest payment" on her investment in the 2000 Fund. Respondent said he used the language Hannah told him to use. Hannah testified that by "interest payment" he meant payments for her "interest" in Range Energy, not payments of interest earned on her investment. In his last letter to Boers, Respondent stated that he and Hannah "were setting up a Corporation" and that once that was done "payments should be smother and easier each month."
Respondent's Communications With St. Mark's in 2003
In January 2003, the Sloan Trust had insufficient liquid assets to allow Respondent to make the $13,750 monthly payment to St. Mark's. Respondent had a business line of credit through an account at Wells Fargo. On January 3, 2003, Respondent borrowed $13,750.00 from the Wells Fargo account and deposited the funds into his client trust account. He then drew a check on his client trust account, made payable to the Sloan Trust in the amount of $13,750 and deposited the funds into the Sloan Trust account. On January 14, 2003, he sent a check for $13,750 drawn on the Sloan Trust account to St. Mark's as the January payment. He
enclosed the same accompanying letter with the check as he had in the past. He did not inform anyone at St. Mark's that he borrowed the funds in order to make the January payment.
The Sloan Trust did not have available funds to make the February 2003 payment to St. Mark's. On January 22, 2003, Respondent deposited a check for $30,000 drawn on Hannah's personal account into his client trust account. He then drew a check for $13,750 made payable to the Sloan Trust. He deposited the check into the Sloan Trust account. On February 11, 2003, Respondent sent a check drawn on the Sloan Trust Account in the amount of $8,567.50 to St. Mark's but he did not disclose to St. Mark's that the source of the funds was Hannah.
On May 21, 2003, two St. Mark's Parish Trustees sent a letter to Respondent requesting a projection of the Sloan Trust income for 2004 so they could complete the budget for 2004. On May 27, 2003, Respondent sent a letter in response summarizing the payments for 2003 to date and stating that the trust would be evaluated in early 2004 for the calendar year 2004.
In August 2003, the Sloan Trust again had insufficient liquid assets to make a monthly payment to St. Mark's. On August 8, 2003, Respondent deposited a check for $10,000 drawn on Hannah's personal account and deposited the funds into Respondent's client trust account. On August 11, 2003, Respondent drew a check on his client fund account for $9,066.67 and deposited the check into the Sloan Trust account. On August 12, 2003, Respondent sent a check drawn on the Sloan Trust account to St. Mark's in the amount of $8,567.50. Respondent again sent the same accompanying letter and did not tell anyone at St. Mark's that he had used Hannah's money to make the August payment.
2003 Lawsuit Filed by the 2000 Fund Against Range Energy
On March 7, 2003, the British Columbia Securities Commission suspended trading of Range Energy stock and issued a cease-trading order to Range Energy for its failure to file various required documents, including financial statements and quarterly reports.
In May 2003, Linn Biggs hired a Canadian law firm, Field, LLP, to file suit against Range Energy for the breach of the Production Sharing Agreement. The firm filed the lawsuit on May 21, 2003 on behalf of the members of the 2000 Fund, including the Sloan Trust. Biggs testified he initiated the lawsuit on behalf of the members of the 2000 Fund. Respondent testified he was unaware of the lawsuit at the time it was filed. Hannah gave inconsistent testimony as to whether he discussed the lawsuit or the possibility of a lawsuit with Respondent. Biggs testified that Hannah had agreed not to defend the lawsuit. Biggs thought a large default judgment would discourage other creditors from suing Range Energy, thus hopefully protecting the company from other lawsuits and preserving any remaining assets for the members of the 2000 Fund.
On June 13, 2003, the court entered a default judgment in favor of the 2000 Fund and against Range Energy for $14,233,259.31 Canadian dollars. Biggs testified that at the time of the judgment, Range Energy was "essentially dissolved." The judgment was not secured by any assets or collateral. Range Energy has not paid any part of the judgment to the Sloan Trust or to the 2000 Fund.
Respondent testified he must have learned of the lawsuit by July 2004. He believed the judgment was a "good thing" because it elevated the Sloan Trust from the position of investor to that of a judgment creditor. He acknowledged that the judgment was not secured by collateral and that the judgment "could have been interpreted as a negative mark against Range."
Respondent's Communications With St. Mark's in 2004
Respondent's records reflect that in 2004, he sent monthly checks to St. Mark's. Three checks were for $8,567.50, one check was for $13,645.00 and eight checks were for $10,260.00.
On June 30, 1994, Respondent sent a letter to Hannah, written by Hannah, inquiring as to Range Energy's intentions to satisfy the company's obligations. The letter was written on Respondent's law office stationery and stated that Respondent represented approximately 80% of the PSA holders. In the letter, Respondent asked to be appointed to the Board or Directors or hold a shareholder's meeting in order to comply with Canadian law. Respondent testified that Hannah drafted the letter to put pressure on Biggs to resign from the Board. In January 2005, Bigg negotiated a buyout of his interests in Range Energy.
On April 18, 2005, Respondent entered into a forbearance agreement on behalf of Sloan Trust. The agreement provided that Sloan Trust would not take any action to execute on the $14 million Canadian judgment. The agreement also provided that new investors in Range "will be given priority over the [Canadian] judgment amount" and that Sloan Trust would take a subordinate position as debtor to any individuals who provided new capital to Range Energy. Respondent testified that the agreement did not compromise the interests of Sloan Trust. He said that Hannah "was looking for some additional cash with which to develop some [assets]" and the agreement was needed to generate more investments. The agreement further provided that Sloan Trust could execute on its right to the judgment at any time by accepting a cash payment of $1 million with another $1 million payment after a year. Hannah testified that Range Energy had no ability to pay the $2 million if Sloan Trust had exercised its rights under this provision.
Respondent's Communications with St. Mark's in 2005
Respondent continued to send checks from Sloan Trust to St. Mark's totaling approximately $10,000 each during the first part of 2005. Some time prior to August 2005, church officials became concerned with the lack of information they were receiving regarding the trust assets. On August 30, 2005, St. Mark's Parish Trustee William Gallivan, and Father Donald Henderson, Pastor at St. Mark's, met with Respondent to discuss the Sloan Trust. They asked Respondent where the funds were invested and he told them that the funds were invested in gas and oil properties in Canada and Michigan. Gallivan testified he was concerned that it was not a prudent investment to put all the funds into one type of investment. He expressed that they were disappointed in the operation of the Trust. Gallivan also testified he did not feel Respondent had been truthful with them. Respondent did not inform them that the income from the Trust was impaired in any way or that Range Energy had breached its agreement with the Trust. Respondent did not disclose to them the forbearance agreement he had entered into on behalf of the Trust.
At St. Mark's request, following the meeting, Respondent sent Father Henderson a "Report on the Assets of John F. Sloan Perpetual Charitable Trust", stating that the assets of the trust were shifted from equity holdings in late 1999-2000 to hard assets, primarily petroleum and natural gas producing properties. The report further states, "Whether by good planning or by good fortune, the trust was able to avoid dramatic decline in value suffered by US equity markets due to first the ?dot-com' bubble, then the events of 9-11 and beyond. As a result, the health of the trust is good and the value of the trust has not significantly changed since those events, even while paying out 5 percent of the value of the Trust to St. Mark's Catholic Grade School on an annual basis." The document then lists a number of "Properties", including a 20 percent interest in Range Energy "and its significant land holdings." It also states that the trust holds "various
additional equity holdings" and that the "overall trust value" was "approximately $3,000,000." Respondent did not provide any further documentation of any of the alleged assets listed in the Report.
Respondent testified that Hannah prepared the document and that Respondent had no way of know the information contained in the report and did not know what the equity holdings were in 2005. However, he believed the value of the Trust was approximately $3 million. The tax returns for 2003 and 2004 filed for the Sloan Trust listed the fair market value of the assets of the Trust as $2,601,774 and $2,412,800, respectively. Respondent said these values were provided to Respondent by Hannah.
Respondent's Communications With St. Mark's in 2006, 2007, and 2008
In 2006, Respondent's records demonstrate he sent five checks for $10,000 each to St. Mark's. In June 2006, Father Charles Klamut became the pastor at St. Mark's. Father Klamut asked to meet with Respondent. Father Klamut testified that St. Mark's relied on the payments from the Trust to operate the school. Respondent suggested that Hannah also attend the meeting. Respondent gave Father Klamut a copy of the August 2005 Report. Father Klamut said the meeting lasted about 15-20 minutes, and following the meeting he believed that the health of the trust was good. Respondent told Father Klamut that Range Energy had bought out one of its shareholders which had created a temporary cash flow problem that would resolve itself and result in greater returns for Sloan Trust. Respondent did not tell Father Klamut that a judgment had been entered against Range Energy, that Respondent had entered into the forbearance agreement, or that the Securities and Exchange Commission in Canada had suspended trading in Range Energy stock.
In 2007, the checks from the Trust to St. Mark's became more sporadic. Following a payment of $10,000 in February, St. Mark's received a few more checks totaling
only $2,000 each. In April 2007, Charlie Roy, the principal of St. Mark's School and Carl Williams, a member of the Parish Council, asked to meet with Respondent to confirm what payments the school could expect to receive in the future and to find out whether the school could use some of the principal from the Trust for a proposed new building project at the school. Respondent asked Hannah to attend the meeting. At the meeting, Respondent explained that the funds were tied up in an investment with Range Energy and the funds were unavailable for the building campaign. Respondent and Hannah also told Roy and Williams that Range Energy had purchased some land in Michigan that they were hoping to sell and that there was a financial issue with Linn Biggs that would be resolved in the near future. Roy understood from the conversation that once the issue with Biggs was resolved funds would become available.
Some time prior to November 2006, Respondent learned that the Securities Department of the Illinois Secretary of State was investigating the activities of Range Energy and J & L Enterprises. Respondent communicated with the Secretary of State about the investigation in November 2006. On August 13, 2007, the Illinois Secretary of State entered a temporary order prohibiting any party affiliated with Range Energy, J & L Enterprises or the 2000 Fund from offering or selling securities in Illinois. Respondent testified he was unaware of the actions of the Secretary of State until September 2008.
In November 2007, Bret Taylor, a lawyer and parish trustee, sent a letter to Respondent to inquire about the health of the Sloan Trust and request an accounting. When St. Mark's did not receive a response from Respondent, Father Klamut made several phone calls to Respondent. Respondent told Father Klamut that a bought-out shareholder was causing problems, which caused the delay in St. Mark's receipt of funds.
In early 2008, Respondent told Father Klamut he was trying to obtain more information from Hannah about the Sloan Trust investments. He also said there was a prospect of
Range Energy entering into a sale of an underground storage facility that would put funds back into the Trust. In February 2008, Respondent wrote a letter to Father Klamut. Respondent summarized the payments made by the Trust during the first half of 2006, totaling $50,000; the payments for 2007, totaling $24,000; and a payment in 2008 for $2,000. He stated that Range had entered into a one-year listing agreement to list the underground storage facility for sale. Respondent said that this agreement was favorable and stated that "we will be able to turn our attention to the problem with the Texas and Canadian Investors who have a stranglehold on the cash flow".
Father Klamut testified that St. Mark's relied on the funds from the Sloan Trust for the school's operating budget. Without the trust funds, St. Mark's began to dip into its savings. The school eliminated its music program, its reading and math tutoring program and had to lay off several teacher aides to make up for the lost income from the Sloan Trust.
On March 11, St. Mark's trustee Bret Taylor called Respondent to follow up on the requests made in the November letter. Taylor suggested that Respondent respond to the November letter and provide the tax returns for the Sloan Trust as it was close to tax time. Respondent said he would not provide the returns as the returns "would raise more questions than answers." Respondent said he had already provided a breakdown of the assets, referring to the August 2005 report. Taylor said he did not consider the August 2005 report to be an accounting.
St. Mark's contacted Patricia Gibson, a lawyer and the Chancellor of the Diocese of Peoria. On June 4, 2008, Gibson sent a letter to Respondent requesting specific accounting information. On June 5, 2008, Respondent sent a response, enclosing the 2005 report but no specific accounting information. Respondent indicated "everything was proceeding smoothly" when "we began to experience a great amount of difficulty with another individual major
stockholder, located in Texas." Respondent also discussed the development of the underground storage facility, stating, "We are talking about a project of over $200,000,000.00 which, when completed, will produce a perpetual revenue stream."
Following receipt of Respondent's letter, St. Mark's decided to hire a lawyer to file a lawsuit against Respondent. St. Mark's filed a civil lawsuit against Respondent on September 24, 2008. The lawsuit sought an accounting, removal of Respondent as trustee of the Sloan trust and appointment of a successor trustee. Respondent resigned as trustee on October 21, 2008. On or about April 13, 2009, the South Side Bank of Peoria, the successor trustee, closed the Sloan Trust account. On that date, the balance in the account was $1,149.48. The civil lawsuit was settled; the terms of the settlement were admitted into evidence under seal.
Respondent's Handling of the Sloan Estate
At no time following the filing of Sloan's probate case and the admission of Sloan's will to probate did Respondent submit an accounting of his administration of the Sloan estate with the court.
On October 15, 2001, The Internal Revenue Service sent a Statement of Adjustment to Respondent as executor of the Sloan estate, informing Respondent that the Sloan estate owed federal estate taxes in the amount of $64,37.39. On November 28, 2001, Respondent sent a partial payment of $10,000 to the IRS, using funds from the Sloan Trust, as there were insufficient funds in the Sloan Estate to satisfy the IRS obligation. On May 7, 2002, Respondent sent an additional $1,000 payment to the IRS, again by making the payment with funds from the Sloan Trust. Respondent did not make any additional payments to the IRS on behalf of the estate. As of September 7, 2009, the federal tax liability, including accrued interest of about $35,000, was $100,765.75.
As of the time of the disciplinary hearing, Respondent remained executor and attorney of the estate and the probate case remained open. Respondent testified his accountant was negotiating with the IRS for a reduction of the taxes.
Respondent's Handling of His Client Trust Account
On February 13, 1998, Respondent opened a client trust account at South Side Bank in Peoria. He used this account for client and third-party funds, but he also admitted that he paid personal and business expenses from the account. In addition to the funds deposited into the account by Respondent to make the payments to St. Mark's, Respondent paid the following personal expenses from the account: $3,500 to Mt. Hawley Country Club on February 28, 2005; $15,000 to Wells Fargo on February 26, 2006; $1,098.52 to Neil Norton Cadillac on October 26, 2006; $2,500 to Bradley University on November 2, 2006; and $2,000 to Bradley University on October 31, 2007.
Count I - The Hearing Board Erred in Finding that Respondent
Breached His Fiduciary Duty and Violated Supreme Court Rule 770
Count I of the Administrator's Complaint alleged that Respondent breached his fiduciary duty as trustee for the Sloan Trust, engaged in a conflict of interest, and engaged in conduct ending to defeat the administration of justice or to bring the legal profession into disrepute in violation of Supreme Court Rule 770. The Hearing Board concluded that the Administrator failed to prove a conflict of interest but concluded that Respondent breached his fiduciary duty to the trust by failing, as trustee, to keep the trust beneficiaries reasonably informed of the assets of the trust estate. The Hearing Board also found that Respondent's actions with respect to Count I tended to defeat the administration of justice and bring the courts and legal profession into disrepute in violation of Supreme Court Rule 770.
First, we note that in January 2012, the Illinois Supreme Court in In re Thomas, 2012 IL 113035 (Jan. 20, 2012), concluded that an attorney who engages in misconduct does not "violate" Supreme Court Rule 770; instead, a lawyer becomes subject to discipline under the Rule upon proof of certain misconduct. Accordingly, we overturn the Hearing Board's findings in each count of the Administrator's Complaint that Respondent violated Supreme Court Rule 770.
Next, we find that the Hearing Board erred in concluding that Respondent engaged in a breach of a fiduciary duty. The Hearing Board found that Respondent violated his fiduciary duty, not by engaging in self-dealing as an attorney, but solely by a failure, as trustee, to keep the beneficiaries reasonably informed of the assets of the trust.
"Breach of fiduciary duty" is an amorphous and generalized tort concept, potentially encompassing a wide variety of behavior. See, In re Karavidas, 2009PR00136 (Hearing Bd., August 23, 2011)(citing Charles W. Wolfram, A Cautionary Tale: Fiduciary Breach as Legal Malpractice, 34 Hofstra L. Rev. 689 (Spring 2006); see also Meredith J. Duncan, Legal Malpractice by Any Other Name: Why a Breach of Fiduciary Duty Claim Does Not Smell as Sweet, 34 Wake Forest L. Rev. 1137 (1999); William A. Gregory, The Fiduciary Duty of Care: A Perversion of Words, 38 Akron L. Rev. 181 (2005)).1
The phrase "breach of fiduciary duty" does not appear in the Rules of Professional Conduct. The Illinois Supreme Court has, however both expressly and implicitly approved of the use of such a charge in cases involving the attorney-client relation. See e.g. In re Ingersoll, 186 Ill. 2d 163, 710 N.E.2d 390, 237 Ill. Dec. 760 (1999); In re Cutrone, 112 Ill. 2d 261, 492 N.E.2d 1297, 97 Ill. Dec. 424 (1986). But no Supreme Court decision has discussed such a charge outside the context of the attorney-client relationship.2
We hold that, as a matter of law, a necessary element of the charge of "breach of fiduciary duty" is the existence of an attorney-client relationship. Because Respondent's actions resulting in the findings of misconduct in Count I did not arise out of an attorney-client relationship, the charge was without basis in law.
We further hold that the charge of "breach of fiduciary duty" should be strongly disfavored in cases in which the underlying conduct can be otherwise charged under the Rules of Professional Conduct. See In re Cutright, 05 SH 106 (Review Bd., March 17, 2008) (Duffy, dissenting); In re Vano, 04 CH 142 (Review Bd., Sept. 1, 2009) (Duffy, dissenting), Respondent's petition for leave to file exceptions allowed, No. M.R. 23410 (Jan. 21, 2010). Where a charge of "breach of fiduciary duty" is included, as here, in combination with charges citing the Rules - for the same conduct - the proofs and analysis invariably veer towards the "breach of fiduciary duty" charge, instead of whatever the proper "companion" charge under the Rules was (or may have been). Such charges do nothing but serve to confuse the conduct of the hearings - and the record.
This case illustrates the point: the Administrator charged Respondent with engaging in a conflict of interest and breaching his fiduciary duty as trustee to a trust and tried the case before the Hearing Board in a manner almost indistinguishable from what would be expected in a trial involving civil liability for the breach of a duty imposed by tort law. The Hearing Board analyzed the case, as well, as if they were a trier of fact in a civil context, weighing whether the Respondent "breached" his duty.
A necessary element of the charge of "breach of fiduciary duty" is the existence of an attorney-client relationship. Because the Respondent's circumstances did not involve an attorney-client relationship in the first instance, the "breach of fiduciary duty" charge, here, was without basis in law and we reverse the findings of the Hearing Board as a matter of law.
Count II: The Hearing Board Erred in Finding That Respondent
Engaged in Misconduct in his Communications to St. Mark's
The Hearing Board found that Respondent breached his fiduciary duty and engaged in dishonesty, deceit, fraud or misrepresentation by failing to disclose to St. Mark's that the payments in January, February and August 2003 did not come from the Sloan Trust, but rather, came from funds provided by Lance Hannah or by Respondent and by making it appear that the Trust had sufficient liquid assets by drawing the checks on the Trust account when he knew that the source of the funds was not the trust and that the Trust did not have sufficient liquid assets to make the payment. As found by the Hearing Board, Respondent further made it appear to St. Mark's that the payments were payments from the assets of the Sloan Trust by enclosing the identical cover letter as he used in other months when sending checks to St. Mark's.
We again conclude that the allegations that Respondent breached his fiduciary duty were improperly charged because these allegations did not arise out of an attorney-client relationship. While lawyers have been found to have violated Rule 8.4(a)(4) for dishonest statements made outside of the representation of a client, we find, over the dissent of our fellow panel member, that the Hearing Board's conclusion that Respondent's conduct was in violation of Rule 8.4(a)(4) was against the manifest weight of the evidence.
Respondent admitted that the Sloan Trust had insufficient liquid assets to allow him to make the January 2003 $13,750 payment to St. Mark's. Respondent did not disclose the lack of liquid assets to St. Mark' but he was not required to make such a disclosure under the terms of the trust agreement. Instead, he borrowed the needed sum from Wells Fargo, deposited the funds into his client trust account and then drew a check on that account which he deposited into the Sloan Trust account. Similarly, Respondent knew that the Sloan Trust had insufficient
liquid assets to allow Respondent to make a February 2003 payment. Respondent deposited a check for $30,000 from Lance Hannah into his client fund account and deposited a portion of the proceeds of the check, $13,750, into the Sloan Trust account. He then paid St. Mark's $8,567.50 by way of a check drawn on the Sloan Trust account. Finally, in August 2003, he deposited a $10,000 check from Hannah into his client trust account, drew a check on his client fund account in the amount of $9,066.67, deposited the check into the Sloan Trust account and then paid St. Mark's $8567.50 by way of a check drawn on the Sloan Trust account.
The Hearing Board concluded that Respondent's omission of the source of the funds was deceitful. However, not all omissions of information amount to dishonest conduct in violation of Rule 8.4(a)(4). See, e.g., In re Cutright, 233 Ill.2d 474, 910 N.E.2d 581 (2009). Here, the only direct evidence of Respondent's intent was Respondent's own testimony. Respondent testified he did not intend to deceive St. Mark's but was only attempting to help the school by continuing to make payments to them. The Administrator offered no evidence to contradict Respondent's testimony.
In the absence of countervailing evidence, the Hearing Board was not entitled to simply disbelieve the only competent evidence adduced with regard to Respondent's intent. See Bazydlo v. Volant 164 Ill.2d 207, 215, 207 Ill.Dec. 311, 315, 647 N.E.2d 273, 277 (1995). Accordingly, we find that the Hearing Board's findings of misconduct as to Count II were against the manifest weight of the evidence.
Count III: The Hearing Board's Finding That Respondent Engaged
by Tendering the August 2005 Report to St. Mark's is Against the Manifest
Weight of the Evidence
The Hearing Board found that Respondent engaged in dishonest conduct with respect to the report Respondent tendered to St. Marks in August 2005, August 2006 and June 2008 and breached his fiduciary duty to St. Mark's by failing to provide an accounting after
admitted requests to do so. Again, the charge of breach of a fiduciary duty was improperly charged by the Administrator. Further, for the reasons set forth below, we find that the Hearing Board's finding that Respondent engaged in dishonest conduct was against the manifest weight of the evidence.
The report, written in 2005 and prepared by Lance Hannah, stated that the "health of the trust is good and the value of the trust has not significantly changed." The report contained information about alleged assets of the Trust. The Hearing Board concluded that Respondent engaged in dishonest conduct by failing to disclose to St. Mark's that he did not prepare the report, by failing to disclose that he did not know if any of the information contained in the report was accurate and by failing to disclose that he knew some of the information in the report was not accurate.
We recognize that upon review, the factual findings of the Hearing Board are entitled to deference, and they are not to be disturbed unless they are against the manifest weight of the evidence. In re Timpone, 157 Ill.2d 178, 196, 623 N.E.2d 300 (1993). However, Respondent testified at hearing that he did not know if the information contained in the report was accurate; he relied on Lance Hannah, a financial advisor. To suggest that a trustee of a trust cannot rely on information from a financial advisor in making statements to beneficiaries would create an unreasonable burden on trustees. Nor do we believe that Respondent's failure to disclose Lance Hannah as the source of the information contained in the letter was intended to deceive anyone.
The Hearing Board primarily took issue with the statements in the letter that the health of the trust was good and that the value of the trust had not changed since 2001 and the statement that the overall trust value was "approximately $3,000,000.00". In support of its findings that Respondent engaged in dishonest conduct when he gave the letter to St. Mark's
which contained those statements, the Board noted that in 2002, Respondent described Range Energy as being in a "precarious financial position" and as having "no cash." He knew that in 2003, Range had insufficient liquid assets to make the payments to St. Mark's. He was aware that in 2003, a judgment was entered against Range in the amount of $14,233,259.31 in Canadian dollars and that the judgment had not been paid. He knew the judgment was not secured by collateral. He also knew that he had filed tax returns for the Trust for the years 2003 and 2004 that listed the fair market value of the trust assets at $2,601,774.00 and $2,412,800.00, respectively.
However, there was no evidence presented at hearing that demonstrated what the value of the trust was in 2005, when the letter was drafted, or in 2006 and 2008 when Respondent again tendered the same letter to St. Mark's. Notably, the Administrator offered no testimony or other evidence to prove that the value of the Trust in 2005 was anything other than $3,000,000. In a disciplinary proceeding the Administrator bears the burden of proving the allegations of the Complaint by clear and convincing evidence. In re Timpone, 157 Ill.2d 178, 196, 623 N.E.2d 300 (1993). We find that the Administrator failed to meet his burden.
We do not mean to condone Respondent's actions by our findings. However, we are bound to limit our findings to those allegations charged in the Administrator's Complaint. While Respondent may have misled St. Mark's on other occasions, particularly with respect to statements he made to Father Klamut, we are bound to look to the Administrator's Complaint when determining the charges of misconduct. Respondent was not charged with making misleading statements to Father Klamut. Furthermore, while Respondent may have exercised extremely poor judgment in failing to be fully candid with St. Mark's about his investments in Range Energy, we cannot find that his 2005 letter contained false statements based on the evidence.
Count IV: The Hearing Board Erred in Finding that Respondent
His Fiduciary Duty by Entering Into the Forbearance Agreement
As alleged in Count IV of the Administrator's Complaint, The Hearing Board concluded that Respondent breached his fiduciary duty when he entered into the forbearance agreement, in which he agreed, as trustee, that the Trust would take a subordinate position to new creditors and agreed to compromise the judgment against Range for a payment of $2 million, without the knowledge or consent of St. Mark's, the beneficiary of the trust. The Board found that Respondent had a duty of undivided loyalty and fidelity to St. Mark's and he compromised the Trust in order to help Hannah who needed the forbearance agreement in order to try to get more investors in Range Energy. The Board also found that given the importance of the forbearance agreement and given the fact that school officials had repeatedly asked Respondent for information relating to the trust and for an accounting, Respondent's failure to disclose the agreement to St. Mark's was a breach of his fiduciary duty of loyalty.
Once again, we note that Respondent did not have an attorney client relationship with St. Mark's. Absent an attorney client relationship, Respondent should not have been charged with a breach of a fiduciary duty. Consequently, we find that the Hearing Board erred in finding Respondent engaged in the misconduct alleged in Count IV.
Count V: The Hearing Board did not Err in Finding that
in Misconduct with Respect to the Handling of Sloan's Estate
Unlike the preceding counts, Count V contains allegations that Respondent engaged in misconduct arising out of an attorney-client relationship. Respondent opened the Sloan estate, as attorney for the estate, in probate court in February 2000. At the time of hearing, more than eleven years later, the estate was still open. Respondent never filed an accounting with the probate court as required by statute, 755 ILCS 5/14-1, and the certified court file reveals that Respondent took no action in the court matter after February 2000.
The only evidence that Respondent took any action with respect to the estate was the evidence of his communications with the IRS in 2001 and 2002. Respondent claims in his brief that the closure of the estate was delayed because of a mistake by the IRS. At hearing the only testimony regarding this matter came from Respondent, who testified he filed for an extension of time and enclosed a check and then in 2001 he "got back a check from the IRS for 79 something." He also said he sent a check to the IRS for $25,000 in partial payment of the estate's tax liability, but he had no documentation of either of the payments. Respondent also conceded at hearing that he "couldn't pay the IRS back because he had disbursed all the money." It was not until 2011 that Respondent began negotiations with the IRS regarding a possible reduction of the tax lien against the estate.
We agree that an eleven year delay is unreasonable and unjustified. See, e.g., In re Smith, 168 Ill.2d 269, 284, 659 N.E. 2d 896 (1995)(long periods of inactivity from 8 to 14 months in divorce cases warranted suspension); In re Johnson, 93 Ill.2d 441, 444 N.E.2d 153 (1982)(failure to file final report or accounting in estate matter for five years warranted a sanction). As found by the Hearing Board, Respondent's failure to file an accounting and his failure to inform the court that he had disbursed the assets of the estate before the tax liability had been resolved was an "unreasonable and unjustified lack of diligence" in violation of Rule 1.3 of the Illinois Rules of Professional Conduct.
Respondent argues that he did not violate Rule 1.3 because he was acting as an executor, rather than as a lawyer, and he was not representing a client. However, Respondent filed the documents to open the estate as an attorney for the estate. He testified at hearing that he deposited the fees he charged to work on the estate matter into his law office account because he thought they were legal fees. While he may also have neglected the handling of the estate as an executor, the record indicates that he also acted as an attorney for the estate.
Because a judicial proceeding was involved, we affirm the Hearing Board's finding as to the violation of Rule 8.4(a)(5), as well. See In re Storment, 203 Ill. 2d 378, 399, 786 N.E. 963, 974 (2002) (Holding an attorney's misconduct is prejudicial to the administration of justice if it has an adverse impact on a judicial proceeding); See also In re Gerstein, 99 SH 1, M.R. 18377 (November 26, 2002) (Review Board Report at 4-5); In re Odom, 01 CH 69, M.R. 19772 (May 19, 2005) (Review Board Report at 9).
While we conclude that Respondent violated Rules 1.3 and 8.4(a)(5), we find that the allegation that Respondent breached his fiduciary duty is duplicative and unnecessary and we therefore reverse that finding.
Count VI: The Hearing Board's Finding that Respondent Violated
With Respect to his Representations to Shirley Boers Was Against the Manifest
Weight of the Evidence
The Hearing Board found that Respondent statements to Shirley Boers that the monthly checks enclosed in his letters represented her interest payment on her investment in the 2000 Fund were dishonest and were intended to deceive her. For the reasons stated below, we find that the Administrator failed to prove by clear and convincing evidence that Respondent's statements in his letters to Boers were false, and therefore, the Hearing Board's findings were against the manifest weight of the evidence.
Respondent knew that Boers was expecting monthly interest payments from the 2000 Fund. Respondent had advised her that while her monthly interest payments might vary slightly from month to month, they should be about $833.33 given the amount of her investment. Each letter Respondent sent to Boers indicated that the checks drawn on his client fund account were interest payments. When asked whether he knew the payments were not really interest payments, he replied, "I didn't know what they were. They were given to me, and Lance asked me to send them to her. That's what I did." The Hearing Board found that Respondent made no
effort to ascertain whether the payments to Boers were interest payments as he represented in his letters to her. The Hearing Board stated that therefore Respondent had no "good faith basis" for believing the monthly payments to Boers were payments of interest, citing In re Rolley, 121 Ill.2d 222, 529 N.E.2d 302 (1988), In re Yamaguchi, 118 Ill.2d 417, 515 N.E.2d 1235 (1987), and In re Montalvo, 98 SH 11 (Nov. 30, 1998), No. M.R. 16865 (Sept. 22, 2000).
It was the Administrator's burden, however, to prove by clear and convincing evidence that Respondent's statements in his letters were false. Based on our review of the record before us, we hold that the Administrator failed to prove that the payments to Boers were something other than interest on her investments. Accordingly, we find that the Administrator failed to prove misconduct as to Count VI.
Count VII: The Hearing Board's Finding that Respondent
Rule 1.15(a) Was Not Against the Manifest Weight of the Evidence
Respondent admitted in his Answer to the Administrator's Complaint that he paid personal and business expenses from his client trust account. The Hearing Board found that the evidence, including the checks drawn on his client trust account and made payable to his country club, Wells Fargo, a car dealer, and a university, along with the evidence of the three payments which were the subject of Count II, showed Respondent had his own funds in his client trust account. Accordingly, the Hearing Board found that the Administrator proved by clear and convincing evidence that Respondent violated Rule 1.15(a) by failing to hold client or third party funds separate from the lawyer's own property.
Respondent argues here, as he did below, that he did not deposit his own funds into his trust account and that the checks for personal expenses as set forth in the Administrator's Complaint were paid from fees to which he was entitled. Respondent's documents and ledgers
would seem to contradict his assertions. In any event the Hearing Board's findings to the contrary are certainly not against the manifest weight of the evidence.
The Court has long held that commingling of client funds "is not to be countenanced." In re Young, 111 Ill.2d 98, 103, 488 N.E.2d 014 (1986); In re Clayter, 78 Ill.2d 276, 278-79, 599 N.E.2d 1318 (1980). See, also, In re Mulroe, 2011 IL 11378. In mitigation, Respondent has attended the ARDC Professionalism Seminar and said he has changed his practices to conform to the rules.
We now turn to the issue of the appropriate sanction recommendation for Respondent's neglect of the Sloan estate and his failure to segregate his own funds from his client funds. We seek to recommend a sanction that is consistent with sanctions imposed in similar cases, In re Timpone, 157 Ill.2d 178, 197, 623 N.E.2d 300 (1993), while also considering the unique circumstances of each case, including the nature of the misconduct and any factors in aggravation and mitigation. In re Witt, 145 Ill.2d 380, 398, 583 N.E.2d 526 (1991).
Given that we have reversed the findings of the Hearing Board as to most of the charges against Respondent and given our limited findings of misconduct, we do not believe that the one year suspension recommended by the Hearing Board is warranted. Nor do we believe that a reprimand is appropriate as suggested by Respondent. Respondent's total lack of diligence in handling the Sloan estate resulted in the estate incurring interest liability on the overdue taxes owed. Respondent took no action to resolve the tax liability issues. He offered no justification or reasonable explanation for his neglect. His failure to ever file an accounting with the court exacerbated the problems St. Mark's incurred in attempting to determine the value of the trust.
The Supreme Court has stated that "neglect of a legal matter is in itself sufficient ground for suspension." In re Houdek, 113 Ill.2d 323, 327, 497 N.E.2d 1169 (1986). In In re
Johnson, 93 Ill.2d 441, 444 N.E.2d 153 (1982), the attorney neglected an estate matter for a number of years and a dissolution of marriage matter by not having the decree entered for approximately four years. While the Court noted in mitigation that the attorney had no corrupt motive, the Court suspended the attorney for one year. In In re Carlson, 93 CH 643 (Review Bd., Nov. 11, 1995), Respondent's petition for leave to file exceptions denied, No. M.R. 11984 (March 26, 1996), the Court suspended the attorney for sixty days for neglect of three personal injury and medical malpractice matters involving two clients. In In re Tabor, 01 CH 08 (Review Bd., June 25, 2002), approved and confirmed, No. M.R. 18318 (Nov. 26, 2002), the respondent failed to appear at a status hearing regarding a workers compensation claim and the matter was dismissed. The respondent then filed a motion to vacate the dismissal but never set the motion for hearing. Even though the respondent had no dishonest motive, he was suspended for sixty days.
The requirement that lawyers keep client funds separate from their own funds has repeatedly is hardly a novel requirement, and is one that this Respondent should have known and followed. Respondent's misconduct is mitigated by his changes in his practice but does not excuse his failure to abide by the clear language of Rule 1.15. See, e.g., In re Clayter, 78 Ill.2d 276, 599 N.E.2d 1318 (1980); In re Mulroe, 2011 IL 11378. Similar cases involving solely infractions of the rule regarding the segregation of client funds usually warrant a reprimand or censure of the attorney. See, e.g., In re Freel, 89 Ill. 2d 263, 433 N.E.2d 274 (1982).
Accordingly, while no two disciplinary cases are identical, after considering Respondent's misconduct and the mitigating evidence, we recommend that Respondent be suspended for a period of sixty days.
We reverse the Hearing Board's findings of misconduct with respect to Counts I, II, III, IV, and VI of the Administrator's Complaint. We uphold the Hearing Board's findings of misconduct as to Respondent's violation of Rule 1.3 in Count V and Respondent's violation of Rule 1.15 in Count VII. We recommend to the Court that Respondent, John P. Edmonds, be suspended from the practice of law for a period of sixty days.
Daniel P. Duffy
1 In re Karavidas was argued before the Review Board on May 11, 2012, and the opinion in that case is being issued simultaneously with the opinion in this case.
2 The Hearing Board has extended the concept without regard to the attorney-client relationship; (See e.g., In re Cresto, No. 02 CH 75, M.R. 20219 (June 13, 2005)), however, there exists no authority for such an extension.
Anna M. Loftus, Panel Member, concurring in part and dissenting in part:
I respectfully dissent from the majority's finding regarding Count II of the Administrator's Complaint. With respect to Count II, the Hearing Board concluded that Respondent engaged in dishonesty, deceit, fraud or misrepresentation by failing to disclose to St. Mark's that the payments in January, February and August 2003 did not come from the Sloan Trust, but rather, came from funds provided by Lance Hannah or by Respondent and by purposefully and deceptively making it appear that the Trust had sufficient liquid assets by drawing the checks on the Trust account when he knew that the source of the funds was not the Trust and that the Trust did not have sufficient liquid assets to make the payment. As these findings are not against the manifest weight of the evidence, I decline to overturn the Hearing Board's findings.
The findings of fact made by the Hearing Board, including the finding as to Respondent's intent under Rule 8.4(a)(4), are generally not to be disturbed unless they are against the manifest weight of the evidence. In re Cutright, 233 Ill. 2d 474, 488, 910 N.E. 2d 931 (2009). "A decision is against the manifest weight of the evidence only if the opposite conclusion is clearly evident." Id. This deferential standard of review recognizes that the Hearing Board is in a better position to observe the demeanor of witnesses, judge credibility, and resolve conflicting evidence. Id.
The majority bases its decision to overturn the Hearing Board's finding solely by accepting Respondent's statement that he did not intend to be dishonest to St. Mark's. However, the Hearing Board did not find Respondent's testimony to be credible. Simply because the Administrator did not offer any direct evidence, i.e., Respondent's admission that he intended to deceive St. Mark's, should not prevent the Hearing Board from concluding that Respondent's actions were purposefully deceitful. The Hearing Board was in the best position to judge
Respondent's credibility and this Board should not substitute its judgment for that of the Hearing Board.
The Supreme Court has repeatedly stated that motive and intent are rarely susceptible to direct proof and must generally be inferred from the attorney's conduct and the surrounding circumstances. See, In re Stern, 124 Ill.2d 310, 315, 529 N.E.2d 565 (1988). In assessing an attorney's conduct, this Board is not required to be naive, impractical, or blind to the intent apparent from the evidence. In re Krasner, 32 Ill.2d 121, 127, 204 N.E.2d 10 (1965). Here, the Hearing Board carefully considered all of the evidence in reaching the conclusion that Respondent purposefully and deliberately hid the true source of the three payments from St. Mark's. Respondent conceded he did not simply forward Hannah's payments to Respondent to St. Mark's, although he certainly could have done so. Nor did he forward the funds he borrowed from Wells Fargo directly to St. Mark's. Instead, he took deliberate steps to deposit the funds into his client fund account, transfer the funds from there to the Sloan Trust account, and then pay the funds to St. Mark's from the Trust's account. He did not disclose the true source of the funds to St. Mark's. As found by the Hearing Board, there was no reason for Respondent to take the actions he did unless he was attempting to conceal from St. Mark's the true source of the funds.
During the time period Respondent was engaging in this conduct, St. Mark's was requesting information from Respondent regarding the health of the trust assets. Respondent knew, indeed he admitted, that the trust had insufficient liquid assets to make the expected monthly payments to St. Mark's. By making it appear to St. Mark's that the Sloan Trust account was the source of the funds, Respondent avoided serious inquiry by St. Mark's into the health of the Trust. As noted by the Hearing Board, the Court has held that omissions calculated to deceive and the "suppression of the truth and the suggestion of what is false" constitute conduct
involving dishonesty, deceit, fraud or misrepresentation in violation of Rule 8.4(a)(4). See, e.g., In re Gerard, 132 Ill.2d 516, 528, 548 N.E.2d 1051 (1989).
Sadly, had Respondent truly intended to be forthright with St. Mark's, he could have simply disclosed to the church officials that the Trust did not have sufficient assets to make the monthly payments. Indeed, had he been forthright, St. Mark's would have had an opportunity to consider the consequences of Respondent's investment decisions in 2003, five years prior to their ultimate decision to seek to remove Respondent as trustee.
For the foregoing reasons, I decline to overturn the Hearing Board's finding that Respondent violated Rule 8.4(a)(4) with respect to Count II. I join in the majority's opinion for the remaining counts. Because I conclude that Respondent did engage in dishonesty, I believe a suspension of greater than sixty days is warranted. While each disciplinary case is unique, a suspension of greater than sixty days has often been imposed in cases where the attorney has engaged in neglect and in misrepresentations. See, e.g., In re Bernstein, 09 CH 18 (Review Bd., April 22, 2011), petition for leave to file exceptions denied, No. M.R. 24670 (Nov. 22, 2011) (ninety day suspension imposed for neglect of a divorce matter and misrepresentation of status to client); In re Bertuca, 98 CH 120 (Review Bd., Oct. 11, 2000), petition for leave to file exceptions denied, No. M.R. 17200 (Jan. 19, 2001) (ninety day suspension imposed for neglect of two client matters and misrepresentations to the clients). I would recommend that Respondent be suspended for a period of ninety days.
Anna M. Loftus
I, Kenneth G. Jablonski, Clerk of the Attorney Registration and Disciplinary Commission of the Supreme Court of Illinois and keeper of the records, hereby certifies that the foregoing is a true copy of the Report and Recommendation of the Review Board, approved by each Panel member, entered in the above entitled cause of record filed in my office on December 28, 2012.
Kenneth G. Jablonski, Clerk of the