Filed May 5, 2017

In re Robert Michael Kowalski
Respondent-Appellee/Cross-Appellant

Commission No. 2015PR00032

Synopsis of Review Board Report and Recommendation
(May 2017)

The Administrator charged Respondent in a one-count complaint with dishonestly misappropriating escrow funds, in violation of Rules 1.15(a) and 8.4(c) of the 2010 Illinois Rules of Professional Conduct, based upon his conduct in accepting $2,500 in real estate tax escrow funds at a closing, depositing those funds into his personal checking account, and using those funds for his own purposes.

Following a hearing, the Hearing Board found that Respondent had committed the charged misconduct and recommended that he be suspended for five months and be required to attend the ARDC Professionalism seminar.

The Administrator appealed, challenging the Hearing Board's sanction recommendation and asking the Review Board to recommend a six-month suspension. Respondent cross-appealed, challenging the Hearing Board's findings of misconduct and arguing, in the alternative, that if he is disciplined, he should receive only a reprimand because his conduct was not dishonest and because the Hearing Board erred in finding and applying aggravating factors.

The Review Board found no error in the Hearing Board's findings of misconduct, or in its findings of fact regarding aggravation and mitigation, and therefore affirmed them. It agreed with the Administrator that a six-month suspension was warranted by Respondent's misconduct and the extensive aggravating factors. It also found that Respondent would benefit from a review of his professional responsibilities. Accordingly, it recommended that, for his misconduct, Respondent be suspended from the practice of law for six months and until he completes the ARDC Professionalism seminar.

BEFORE THE REVIEW BOARD
OF THE
ILLINOIS ATTORNEY REGISTRATION
AND
DISCIPLINARY COMMISSION

In the Matter of:

ROBERT MICHAEL KOWALSKI,

Respondent-Appellee/Cross-Appellant,

No. 6204878.

Commission No. 2015PR00032

REPORT AND RECOMMENDATION OF THE REVIEW BOARD

SUMMARY

The Administrator charged Respondent in a one-count complaint with dishonestly misappropriating escrow funds, in violation of Rules 1.15(a) and 8.4(c) of the 2010 Illinois Rules of Professional Conduct, based upon his conduct in accepting $2,500 in real estate tax escrow funds at a closing, depositing those funds into his personal checking account, and using those funds for his own purposes. Following a hearing, the Hearing Board found that Respondent had committed the charged misconduct and recommended that he be suspended for five months and be required to attend the ARDC Professionalism seminar.

The Administrator appealed, challenging only the Hearing Board's sanction recommendation, and requesting that this Board recommend that Respondent be suspended for six months. Respondent cross-appealed, challenging the Hearing Board's findings of misconduct and arguing, in the alternative, that if he is disciplined, he should receive only a reprimand because his conduct was not dishonest and because the Hearing Board erred in finding and applying aggravating factors.

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For the reasons set forth below, we affirm the Hearing Board's misconduct findings, and agree with the Administrator that a six-month suspension is warranted by Respondent's misconduct and the extensive aggravating factors present in this matter. We therefore recommend that, for his misconduct, Respondent be suspended from the practice of law for six months and until he completes the ARDC Professionalism seminar.

FACTS

Respondent

Respondent was admitted to practice in Illinois in 1990. He builds homes, develops real estate, and manages properties. He acts as a lawyer in handling real estate closings, construction disputes, and lease issues. He has owned property development companies with his brother, William Kowalski, including one called Piorun Properties, LLC ("Piorun"), which was involved in the real estate transaction from which this disciplinary matter arises. Respondent has not been previously disciplined.

Real Estate Transaction on Which Misconduct Charges are Based

In February 2012, Piorun entered into a contract to sell a new-construction home on North Bissell in Chicago. Respondent signed the contract on behalf of Piorun and also as attorney for the seller. The buyers retained attorney Warren Silver to represent them in the transaction. After some negotiation, Mr. Silver and Respondent agreed to modified contract terms, which were memorialized in a February 27, 2012 letter that Mr. Silver drafted and sent to Respondent.

One of these modifications provided that $2,500 would be held from the seller's proceeds and placed in Mr. Silver's IOLTA account, to provide funds in case there was a shortfall between the amount of the seller's taxes (which wouldn't be determined until the

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following year because property taxes are paid in arrears) and the proration given the buyers at closing.

Shortly before the closing on April 19, 2012, Respondent provided Chicago Title & Trust with a draft closing statement, which contained information to be used by the title company to prepare the closing documents. The closing statement instructs the title company where the money from the real estate transaction is supposed to go. Respondent's draft closing statement showed the $2,500 real estate tax escrow with the notation: "Real Estate Tax Escrow (Robert M. Kowalski)."

When the parties arrived at the closing, they received an initial draft of the HUD settlement statement, which the title company had prepared that morning based on the closing statement. Line 1305 of the settlement statement showed a $2,500 charge from the seller's funds with the same notation that was on Respondent's draft closing statement: "Real Estate Tax Escrow (Robert M. Kowalski)."

Mr. Silver testified that he first saw this provision at the closing, and that he and Respondent had not discussed Respondent receiving the real estate tax escrow instead of him. Mr. Silver testified that he disagreed with this provision, but that Respondent insisted that he be the one to receive the escrow. Mr. Silver testified that he reluctantly went along with the change and agreed to allow Respondent to hold the funds, reasoning that Respondent would be bound by the same ethical obligations as he would be if he were holding the funds, and that it was not worth holding up the transaction over this issue. Mr. Silver also testified that he did not think it necessary to reduce the change in terms to writing because he knew it would be memorialized in the settlement statement, which is the definitive document showing the disposition of the funds deposited into the closing escrow.

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Respondent, however, denied that he insisted that he be the one to hold the real estate tax escrow funds, or that he ever agreed to hold these escrow funds. He admitted he provided the draft closing statement to the title company, but testified that it was a mistake to include his name in the parenthetical next to the real estate tax escrow notation, and that he had used a template or form from a prior closing. He claimed that the draft closing statement was just a first draft to get the closing started and did not amend the parties' contract.

The closing lasted hours, and a number of changes were made to the initial draft of the settlement statement before it was finalized. But line 1305 remained unchanged and continued to show a $2,500 settlement charge paid from the seller's funds for "Real Estate Tax Escrow to Robert M. Kowalski."

Both the buyers and Respondent signed the final settlement statement and attested that they had carefully reviewed the document. Both the buyers and Respondent also signed an escrow receipt and disbursement authorization, which listed all checks disbursed by the title company at closing. This document showed that the only check issued to Respondent was the $2,500 check for "Real Estate Tax Escrow."

Respondent deposited the $2,500 check into his personal checking account on April 23, 2012, four days after the closing. Between May 2012 and June 2013, when the real estate tax reproration was determined, the balance of that account fell below $2,500 on multiple occasions, and, by June 21, 2013, was $0. During this time, Respondent used funds in that account for various personal expenses.

Respondent acknowledged receiving the $2,500 check at closing, depositing it into his personal checking account, and using the funds, but denied knowing the funds were set aside for the real estate tax escrow.

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2013 Reproration of the Taxes

In July 2013, the tax bills for the North Bissell property were issued. Mr. Silver instructed his paralegal, Stephanie Thomas, to calculate the amount due to the buyers and to follow up with Respondent. Ms. Thomas determined that the buyers were due $312.41 from the escrow, and drafted and sent a letter to Respondent, signed by Mr. Silver, asking Respondent to remit that amount. Thereafter, Ms. Thomas repeatedly tried to contact Respondent by email and phone. He did not respond to any of her emails. He answered her first follow-up phone call, on July 26, 2013, and told her he would send the payment after August 1. He did not do so. He answered her second phone call in November 2013 and told her that his email had been hacked, and gave her a different e-mail to use. She sent an e-mail to the new e-mail address, but he did not respond. She called Respondent a third time in April 2014; he answered and said he was in a basement and would call her back in a few minutes, but he never called back.

Mr. Silver testified that, at this point, he began to worry about the disposition of the funds and reported the matter to the ARDC. In February 2016, a few months before the hearing in this matter and two and a half years after the payment was due to the buyers, his office received the $312.41.

Aggravating and Mitigating Evidence

ARDC investigator Jack Kelly testified that he made 20 to 25 phone calls to Respondent, sent him additional e-mails and text messages, and made four different appointments with Respondent to pick up the complaint at the ARDC's offices. Respondent did not show up for any of the appointments. Eventually, Respondent was served by mail pursuant to Commission Rule 214(b), after Mr. Kelly was unable to serve Respondent personally.

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Respondent has maintained throughout his disciplinary proceeding that Mr. Silver was responsible for the real estate tax escrow, and has denied any responsibility for holding the funds.

Respondent was subject to several outstanding tax liens during the time of misconduct, and was involved in legal proceedings that led to several multi-million-dollar judgments against him during the same time period. He denied, however, that he was experiencing financial difficulties during the time he was holding the escrow funds, testifying that he had sufficient income to pay his bills and had never filed for bankruptcy. He testified that the tax liens had been resolved.

Respondent has never been disciplined, and volunteered his time and construction skills to help convert a Catholic church's rectory into a parish center.

Hearing Board's Findings and Sanction Recommendation

The Hearing Board found that Respondent committed serious misconduct by failing to safeguard the real estate tax escrow funds and dishonestly converting them to his own use. It also found significant aggravation, noting his "extreme" delay in paying restitution, his failure to accept responsibility or show remorse, his failure to fully cooperate in the proceedings, and his precarious financial situation. It found minimal mitigation.

In making its findings, the Hearing Board essentially rejected Respondent's version of events, finding him not credible in almost all of his testimony. In contrast, it found that Mr. Silver, Ms. Thomas, and Mr. Kelly testified credibly. It also found that documentary evidence supported the other witnesses' testimony and contradicted Respondent's testimony.

The Hearing Board recommended a five-month suspension. It also recommended that Respondent be required to complete the ARDC Professionalism seminar.

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ANALYSIS

On appeal, the Administrator argues that Respondent's conduct, particularly considering the aggravation, warrants a six-month suspension. On cross-appeal, Respondent argues that the Hearing Board's misconduct findings, and some of its findings regarding aggravation, are against the manifest weight of the evidence. In the alternative, he argues that, if he is found to have committed misconduct, he should receive a reprimand because he was not dishonest.

The Hearing Board's Findings of Misconduct and Findings Regarding Aggravating Factors are not Against the Manifest Weight of the Evidence

On review, the factual findings of the Hearing Board are entitled to deference, and 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). A factual finding is against the manifest weight of the evidence where the opposite conclusion is clearly evident or the finding appears unreasonable, arbitrary, or not based on the evidence. Leonardi v. Loyola University, 168 Ill. 2d 83, 106, 658 N.E.2d 450 (1995); Bazydlo v. Volant, 164 Ill. 2d 207, 215, 647 N.E.2d 273 (1995). That the opposite conclusion is reasonable is not sufficient. In re Winthrop, 219 Ill. 2d 526, 542, 848 N.E. 2d 961 (2006).

We also defer to the Hearing Board's findings on witnesses' credibility. See In re Woldman, 98 Ill. 2d 248, 254, 46 N.E.2d 35 (1983) (credibility of witnesses "is to be determined by those who hear and observe them"); Winthrop, 219 Ill. 2d at 542 (Hearing Board's findings regarding the credibility of witnesses are entitled to great deference because the Hearing Board "is in the best position to observe the witnesses, to assess their demeanor and credibility, to resolve conflicting testimony, and to render fact-finding judgments").

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Respondent argues that the Hearing Board's factual finding that he agreed to hold escrow funds was against the manifest weight of the evidence. He appears to base his argument on a theory that there was no executed escrow agreement because the escrow terms as reflected in the settlement statement (i.e., that Respondent would hold the escrow funds) conflicted with the contract terms (i.e., that Mr. Silver would hold the escrow funds), and therefore that the conditions of the escrow were never satisfied. He also continues to present his version of events, which the Hearing Board rejected when it found him not credible, as support for his argument that the Hearing Board's findings were in error.

Respondent's argument that he could not have agreed to hold the escrow funds because there was no executed escrow agreement has no merit. This is not a contract dispute; it is a disciplinary proceeding. We have held that the lack of a written executed escrow agreement does not relieve an attorney of his ethical obligations regarding escrow funds. In re Huebner, 2011PR00129 (Review Bd., Jan. 22, 2014), at 6-7, approved and confirmed, M.R. 26649 (May 16, 2014). See also In re Handler, 91 CH 629 (Review Bd., Dec. 8, 1993), at 3-4 (holding that absence of executed escrow agreement did not relieve attorney of ethical obligations as to escrow funds), petition for leave to file exceptions allowed and sanction increased, M.R. 9787 (Mar. 30, 1994).

The issues of import in this matter, which the Hearing Board appropriately addressed, were whether Respondent received $2,500 from the real estate transaction knowing that he was supposed to hold those funds in escrow, and whether he failed to do so by dishonestly taking and using the funds for his own purposes. The Hearing Board found that Respondent knowingly received escrow funds that he should have safeguarded, and that he dishonestly misappropriated them. These findings, in turn, were based largely on the Hearing

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Board's finding that Respondent's testimony was not credible and that other witnesses' testimony was credible.

Respondent has given us no reason to doubt the Hearing Board's credibility findings, to which we give great deference. He has provided no other basis to show that the Hearing Board's findings are unreasonable, arbitrary, or not based on the evidence, or that the opposite conclusion is clearly evident. Consequently, we find no error in the Hearing Board's findings of fact or of misconduct, which we affirm.

SANCTION RECOMMENDATION

The Hearing Board's sanction recommendation is advisory. In re Ingersoll, 186 Ill. 2d 163, 178, 710 N.E.2d 390 (1999). In making our own recommendation, we consider the nature of the misconduct charged and proved, and any aggravating and mitigating circumstances shown by the evidence, In re Gorecki, 208 Ill. 2d 350, 360-61, 802 N.E.2d 1194, 1200 (2003), while keeping in mind that the purpose of discipline is not to punish the attorney but rather to protect the public, maintain the integrity of the legal profession, and protect the administration of justice from reproach. In re Timpone, 157 Ill. 2d 178, 197, 623 N.E.2d 300 (1993). We seek to recommend a sanction that is consistent with sanctions imposed in similar cases, id., while also considering the unique circumstances of each case. In re Witt, 145 Ill. 2d 380, 398, 583 N.E.2d 526 (1991).

We agree with the Administrator that precedent supports a six-month suspension, based upon Respondent's misconduct, significant aggravation, and minimal mitigation. See, e.g., In re Henker, 08 CH 114, petition to impose discipline on consent allowed, M.R. 23193 (Sept. 22, 2009) (six-month suspension where attorney dishonestly misappropriated $4,700 in escrow funds, ignored her client's phone calls for two years, tendered an insufficient-funds check to her

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client, and did not return the funds for another five years; but where she also cooperated and expressed remorse); In re Defourneau, 08 CH 50, petition to impose discipline on consent allowed, M.R. 23031 (May 18, 2009) (six-month suspension where attorney dishonestly misappropriated $2,487 in escrow funds, repaid the money with little delay, cooperated in the proceedings, expressed remorse, and had performed pro bono work for a charity for many years); In re Davies, 96 CH 644, petition to impose discipline on consent allowed, M.R. 13668 (May 30, 1997) (six-month suspension where attorney dishonestly misappropriated $5,000 in earnest money, then refused to communicate with the buyer's attorney when he was seeking return of the funds, causing the buyer to file suit against the attorney; but where attorney cooperated in his disciplinary proceedings and made arrangements to pay over the funds); In re Rumley, 95 CH 435, petition to impose discipline on consent allowed, M.R. 11433 (Sept. 29, 1995) (six-month suspension where attorney dishonestly converted $3,333 of client's settlement proceeds, but made restitution quickly and with interest, acknowledged his misconduct, cooperated in the proceedings, and opened a client trust account); In re Macchitelli, 02 CH 112 (Hearing Board, Feb. 18, 2004), approved and confirmed, M.R. 19380 (May 17, 2004) (six-month suspension where attorney dishonestly converted $4,000 in escrow funds and failed to comply with a court order, but also admitted wrongdoing, expressed remorse, and engaged in extensive pro bono and charitable work).

While no case is identical to this one, we find that, on balance, the foregoing cases have parallels to this case and provide sound guidance as to an appropriate sanction. The amounts converted in Defourneau and this matter are similar, and, to the extent Respondent took a lesser amount than that converted in the other cases, those cases involved significantly more mitigation than is present here. Moreover, Respondent's misconduct was aggravated by factors

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not present in those cases, including that he evaded service of the complaint, failed to accept responsibility or express remorse for his actions, and was not entirely truthful in his testimony before the Hearing Board.

We are particularly disturbed by Respondent's failure to accept responsibility and lack of remorse for his actions. The Court has stated that an attorney's attitude regarding his conduct is significant when considered in conjunction with one of the objectives of attorney discipline - to protect the public. "An attorney's failure to recognize the wrongfulness of his conduct often necessitates a greater degree of discipline than is otherwise necessary, in order that the attorney will come to appreciate the wrongfulness of his conduct and not again victimize members of the public with such misconduct." In re Mason, 122 Ill. 2d 163, 173-74, 522 N.E.2d 1233 (1988).

We are concerned that, to date, Respondent has shown no understanding of, acceptance of responsibility for, or remorse for his misconduct. We believe his failure to appreciate or acknowledge the wrongfulness of his conduct poses a risk to the public that he will engage in similar misconduct in the future. See In re Samuels, 126 Ill. 2d 509, 531, 535 N.E.2d 808 (1989) (respondent's belief that he acted properly in the matters at issue in his disciplinary proceeding "does not inspire confidence that respondent is ready to recognize his duty as an attorney and to conform his conduct to that required by the profession").

We conclude that a suspension of six months is commensurate with Respondent's misconduct, falls within the range of discipline that has been imposed for comparable misconduct, and is sufficient to serve the goals of attorney discipline. We also agree with the Hearing Board that Respondent would benefit from a review of his professional responsibilities,

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and therefore recommend that he be required to complete the ARDC Professionalism seminar before being reinstated to law practice.

CONCLUSION

For the foregoing reasons, we affirm the Hearing Board's findings of fact and findings of misconduct, and recommend that, for his misconduct, Respondent be suspended for six months and until he completes the ARDC Professionalism seminar.

Respectfully Submitted,

Johnny A. Fairman, II
Robert M. Henderson
Claire A. Manning

CERTIFICATION

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 May 5, 2017.

Kenneth G. Jablonski, Clerk of the
Attorney Registration and Disciplinary
Commission of the Supreme Court of Illinois