In re Karavidas , 999 N.E.2d 296 ( 2013 )

2013 IL 115767
IN THE
SUPREME COURT
OF
THE STATE OF ILLINOIS
(Docket No. 115767)
In re THEODORE GEORGE KARAVIDAS, Attorney-Respondent.
Opinion filed November 15, 2013.
CHIEF JUSTICE GARMAN delivered the judgment of the court,
with opinion.
Justices Freeman, Kilbride, Burke, and Theis concurred in the
judgment and opinion.
Justice Thomas dissented, with opinion, joined by Justice
Karmeier.
OPINION
¶1 The Administrator of the Attorney Registration and Disciplinary
Commission (ARDC) filed a one-count complaint against respondent,
Theodore George Karavidas, charging him with various violations of
the Illinois Rules of Professional Conduct. The Hearing Board found
that he breached his fiduciary duty to the beneficiaries of his father’s
estate by converting funds from the estate and recommended that he
be suspended for four months. The Review Board reversed and
recommended that the charges be dismissed. The Administrator filed
a petition for leave to file exceptions pursuant to Supreme Court Rule
753(e) (Ill. S. Ct. R. 753(e) (eff. Sept. 1, 2006)), which this court
allowed.
¶2 BACKGROUND
¶3 Respondent was admitted to practice law in Illinois in 1979 and
thereafter worked for the City of Chicago, the Attorney General, and
several law firms. In 1988, he opened his own practice, focusing on
personal injury law. He has no record of previous disciplinary actions
and no professional experience in matters of probate or trusts.
¶4 Attorney John Hayes, who specialized in estate and probate
matters, prepared a will and trust documents for respondent’s father,
George Karavidas. The elder Karavidas executed the documents on
February 17, 2000, and died later that day. Respondent was named in
the will to be executor of his father’s estate and in the trust documents
to be successor trustee. Respondent retained Hayes and his law firm,
Pedersen & Houpt, to represent him as executor. Hayes filed a
petition to probate the estate on April 11, 2000.
¶5 The will provided for George’s personal property to be given to
his wife, Lillian, and directed that the remainder of the estate pour
over into the unfunded trust. The will also authorized independent
administration of the estate, meaning that the executor was allowed
to take actions with regard to the estate without court approval. See
755 ILCS 5/28-1 (West 2000). The probate estate was valued at
approximately $700,000 and included investment accounts with
PaineWebber and Harris Investors. In addition, the estate included an
interest in a family business called Marie’s Pizza and Liquors
(Marie’s).
¶6 The trust documents provided that upon George’s death and the
resulting transfer of estate assets to the trust, the successor trustee was
to create two separate trusts. A family trust was to be funded first, in
an amount equal to the maximum federal estate tax exemption (then
$675,000); the remaining assets were to be placed in a marital trust
for Lillian’s benefit. Upon exhaustion of the funds in the marital trust,
the principal of the family trust was to be used for Lillian’s health and
support. In addition, the trustee was given the authority to distribute
family trust assets to George’s descendants, a group consisting of
respondent and his sister, Nadine, provided that the distributions were
for the beneficiary’s health, support, or education. When making
distributions from the family trust, the trustee was instructed to “give
primary consideration” to Lillian’s needs. Upon Lillian’s death, any
remaining assets of the family trust were to be distributed in equal
shares to respondent and Nadine, without regard to any distributions
made to them earlier. However, the trust document also gave Lillian
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a testamentary power of appointment, under which she could appoint
“any one or more” of George’s descendants and their spouses to take
the principal of the family trust upon her death. Thus, it was not
certain that either respondent or his sister would ever receive any
funds from this trust.
¶7 Respondent did not transfer any estate assets to the existing trust
or create the family and marital trusts. On August 9, 2000, he
withdrew $50,000 from one of the investment accounts for his own
use. In addition, between August 2, 2000, and July 1, 2005,
respondent made multiple withdrawals totaling $398,104 from
another investment account for his own use. Between February 1,
2001, and October 17, 2005, he deposited $349,604 of his own funds
into the same account. He also made payments of his own funds
directly to Marie’s, his mother, and his sister. The largest deficit of
estate funds due to these transactions at any time was $152,104,
which was less than one-third of the amount of the entire estate. The
Administrator does not allege that any further restitution is owed to
the estate.
¶8 Respondent also used estate funds to purchase a new Mercedes
automobile for Lillian, to pay her health insurance premiums and her
real estate taxes, to make contributions to Nadine’s Individual
Retirement Account (IRA) and to his wife’s IRA, to pay a portion of
the real estate taxes on the building that housed Marie’s, and to pay
Nadine’s personal income taxes. At the request of Nadine, who
operated Marie’s, he made advances from the estate of $339,247 to
keep Marie’s in business. He also paid approximately $20,000
directly to Nadine.
¶9 In 2006, Nadine learned that respondent had attempted to sell
Marie’s without her or her mother’s knowledge. She retained an
attorney to represent herself and Lillian, and he filed an appearance
in the probate case seeking to terminate independent administration.
The petition alleged, among other things, that respondent had not
circulated an inventory of the assets of the estate or an account of his
administration. Later, Lillian and Nadine sought to have respondent
removed as executor. Thereafter, the probate court terminated
respondent’s independent administration of his father’s estate, and he
resigned as executor. Nadine became executor of the estate.
¶ 10 On December 30, 2009, the Administrator filed a one-count
complaint against respondent, alleging that he engaged in: (1)
conversion of assets entrusted to him as executor of his father’s
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estate; (2) breach of fiduciary obligations owed to the beneficiaries of
the estate; (3) conduct involving dishonesty, fraud, deceit, or
misrepresentation, in violation of Rule 8.4(a)(4) (Ill. R. Prof. Conduct
R. 8.4(a)(4) (eff. July 6, 2001)); (4) conduct that is prejudicial to the
administration of justice, in violation of Rule 8.4.(a)(5) (Ill. R. Prof.
Conduct R. 8.4(a)(5) (eff. July 6, 2001)); and (5) conduct which tends
to defeat the administration of justice or to bring the courts or the
legal profession into disrepute, in violation of Supreme Court Rule
770 (Ill. S. Ct. R. 770 (eff. Apr. 1, 2004)).
¶ 11 At the hearing, the Administrator called five witnesses, including
Lillian and Nadine. Respondent called four witnesses and testified on
his own behalf.
¶ 12 Hayes testified that he prepared the will and trust documents and
that no assets were placed in the trust prior to George’s death. He
summarized the terms of the will and trust and explained that the
family trust would have to be funded before the estate could be
closed. If no funds remained after fully funding the family trust, the
marital trust would not be funded. As attorney for the estate, he
received copies of the monthly statements of the investment accounts.
The executor of the estate had the authority to act on behalf of the
estate with regard to these accounts. Hayes was not aware of the loans
to respondent when they occurred, but became aware of them when
he prepared an accounting of the estate in response to Nadine’s
motion in the probate case. By that time, all of the loans had been
repaid by respondent. The repayments did not include interest on the
amounts borrowed.
¶ 13 Hayes was aware of payments made by respondent on behalf of
his mother and sister, but was not aware of any notice to them
regarding any loans or payments of estate funds. He also knew of
payments made to fund repairs and operating expenses for Marie’s,
which was losing money, had overdrafts on its checking accounts,
and had ceased paying rent. Respondent’s transfers for Marie’s
totaled $339,236.50. Hayes was also aware that respondent had asked
one of Hayes’s law partners to draft a sales agreement because he
intended to sell the business to its manager. Hayes ceased
representing the estate when respondent withdrew as executor and
was replaced by his sister.
¶ 14 Attorney Theodore Rodes, Jr., who specializes in estate planning
and trusts, was called as an opinion witness. After reviewing the will
and trust documents, he concluded that neither the documents nor the
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Illinois Probate Act authorized the respondent to make loans from the
estate to himself. As independent executor, respondent was allowed
to take appropriate actions with regard to the estate without court
approval. However, as a fiduciary, he had a duty of loyalty, a duty to
avoid self-dealing, and a duty to protect the interests of the
beneficiaries. The duty to avoid self-dealing prohibits one from
placing oneself on both sides of a transaction, such as lender and
borrower. Rodes believed that these duties should have been clear to
the respondent. Absent specific authority in the documents, the loans
would have been proper only if authorized by court order or if the
beneficiaries had agreed.
¶ 15 Rodes further opined that respondent violated his duties as
executor when he made payments on behalf of his mother and sister.
Under the will, he was directed to distribute his father’s personal
property to Lillian, which he did, and then to turn over the residue of
the estate to the trust, which he failed to do. Any authority that the
trustee might have had to make distributions to himself and his
mother and sister did not exist under the terms of the will. Even if
respondent had funded the trust, the trust document did not authorize
self-dealing by way of loans.
¶ 16 Although he characterized respondent’s conduct as “dishonest,”
Rodes stated that he saw nothing in the records that suggested
respondent was aware that his conduct was improper or that he
attempted to conceal the transactions. Rodes also acknowledged that
respondent repaid the amounts, but stated that repayment did not
absolve him of the breach of duty.
¶ 17 Nadine testified that she had never seen the will or trust
documents, but that she understood that her brother was the executor.
She expected him to protect the estate and “make it grow.” She
understood that she, her mother, and her brother were the
beneficiaries of the estate. She did not know that her brother was
making loans to himself and would have objected if he had asked her
permission. She was aware that her brother used money from the
estate to buy their mother a new car, to make contributions to her
IRA, and to pay some of the real estate taxes on the building that
housed Marie’s. She had no objection to these expenditures of estate
funds. On the occasions when respondent paid her personal income
taxes, she gave permission for him to use estate funds. She did not
know if he used estate funds to pay his own taxes. She acknowledged
that when Marie’s was experiencing shortfalls and overdrafts, she
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asked respondent to fix the problem but did not know how he did it.
She assumed he used money from the estate. Nadine’s hiring of an
attorney and filing of a petition to terminate independent
administration was prompted by her discovery that respondent was
negotiating to sell Marie’s.
¶ 18 Lillian stated that respondent had informed her that he had taken
money from the estate, but he did not ask her permission to do so.
She did not tell Nadine that respondent had taken any money. She
also denied that respondent had used estate funds to keep Marie’s in
business.
¶ 19 Respondent stated that he had previously handled client funds and
he understood his duty as a fiduciary to segregate client funds from
his own property. He acknowledged that he used estate funds for his
own purposes, explaining that he believed that he was authorized to
do so as a beneficiary. Although he believed that he would have been
allowed to retain the funds, he chose to treat the withdrawals as loans
and to repay the estate. He testified that the attorney, Hayes, told him
that under independent administration, an executor could take
whatever actions he was authorized to take and make an accounting
when the estate was closed. He stated that Hayes did not tell him he
first needed to fund the trusts before he could take the actions he was
taking. He was unaware that there was any issue with the loans until
he received a letter from the ARDC. He denied any intent to convert
estate funds.
¶ 20 Chris Atsaves, vice president of investments at UBS Financial
Services, testified that he managed the account into which respondent
transferred the estate assets. He was familiar with the history of
transactions, including respondent’s loans to himself and transfers to
Marie’s. He understood that the funds advanced to Marie’s would be
repaid to the estate from the proceeds of the eventual sale of the
business. While respondent did not sign notes or specify interest rates
or terms of repayment when he transferred money to his personal or
law office accounts, Atsaves understood that these transfers were
personal loans. Respondent repaid these amounts. His first repayment
was several thousand dollars greater than the amount owed, and
Atsaves deemed the overage to represent interest on the loan.
Subsequent repayments did not include interest amounts because
respondent considered the interest offset by the approximately
$100,000 in unpaid rent owed to him as a part owner of the building
occupied by Marie’s. Atsaves was also aware that respondent used
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estate funds to open IRAs for himself, his wife, and Nadine; he repaid
the funds used for his own IRA and his wife’s, but not for Nadine’s.
¶ 21 Anthony Siragusa, another financial professional, testified that he
had known respondent for 50 years and that he was named in
respondent’s will to be executor of his estate. Respondent kept him
informed of his actions with regard to his father’s estate. Siragusa was
aware that respondent was using estate funds to keep Marie’s afloat
and that he was trying to sell the business as a going concern. Nadine
opposed any sale. Siragusa was also aware that respondent was
borrowing funds from the estate for his own use. Respondent kept
him informed so that if something happened to respondent, Siragusa
would make sure that a full accounting was made and any outstanding
debt repaid. Although he acknowledged that he had no information
on the terms or interest rates of the loans and that he did not hold a
promissory note, he was confident that he would have been able, if
necessary, to reconstruct the transactions.
¶ 22 The Hearing Board found that the will was the controlling
instrument, because the trust was never funded. Further, under the
will, respondent had no authority to lend money to himself. Even if
the trust had been funded, the terms of the trust did not authorize such
loans and, although respondent was authorized to distribute trust
funds to himself for certain specified purposes, he did not properly
document the transactions. The absence of promissory notes caused
the Hearing Board to “question” respondent’s characterization of the
transactions as loans. Respondent, an attorney, did not seek
clarification of his responsibilities from Hayes, the attorney for the
estate. Further, his self-dealing was not excused by the fact that he
used estate funds to benefit his mother and sister, or by the fact that
he repaid the funds he borrowed. Thus, the Hearing Board concluded
that respondent breached his fiduciary duty to the estate and its
beneficiaries.
¶ 23 The Hearing Board also found that because respondent had no
authority under either the will or the Probate Act to lend funds to
himself, he committed conversion when he took funds from the
estate. The Board concluded that because respondent failed “to follow
correct procedures, which failure eventually became the subject of
court proceedings,” his conduct was prejudicial to the administration
of justice in violation of Rule of Professional Conduct 8.4(a)(5) and
tended to defeat the administration of justice in violation of Supreme
Court Rule 770.
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¶ 24 On the issue of dishonesty, the Hearing Board concluded that
respondent did not intend to deceive or to defraud the estate or its
beneficiaries. He took no affirmative steps to conceal his actions, and
he repaid the amounts he borrowed. Indeed, repayment was complete
more than a year before his actions were reported to the ARDC. He
was unfamiliar with estate administration and did not appreciate the
separate roles of the will and trust documents or his separate roles as
executor and trustee. Thus, the Hearing Board concluded, he did not
violate Rule of Professional Conduct 8.4(a)(4).
¶ 25 The Hearing Board recommended that respondent be suspended
from the practice of law for four months.
¶ 26 Both parties appealed to the Review Board. Before the Review
Board, the Administrator argued that the Hearing Board erred by
finding that respondent did not violate Rule 8.4(a)(4) and by
recommending a suspension for four months rather than for one year.
Respondent argued that the Hearing Board erred by finding that he
breached his fiduciary duty to the estate and its beneficiaries and by
finding that his conduct amounted to conversion. In the alternative,
he argued that the appropriate discipline would be reprimand or
censure.
¶ 27 The Review Board concluded that in the absence of an attorney-
client relationship between respondent and the estate or its
beneficiaries, the charges of breach of fiduciary duty and conversion
could not serve as the basis for professional discipline in this case.
¶ 28 As a general matter, the Review Board discouraged the
Administrator’s use of breach of fiduciary duty as a free-standing
charge, absent an allegation of violation of a specific Rule of
Professional Conduct. The Board noted that breach of fiduciary duty
is not one of the specifically enumerated forms of misconduct in the
Rules and that as a general concept of tort liability, it encompasses a
wide variety of behavior, not all of which should be the basis for
professional discipline. Because the fiduciary duty in this case did not
arise from an attorney-client relationship and did not violate a specific
Rule, the Review Board stated that the charge had no basis “in law,”
that is, in the Rules of Professional Conduct.
¶ 29 Similarly, the Review Board stated that the only Rule of
Professional Conduct that would specifically encompass conversion
is Rule 1.15, which provides that “[a] lawyer shall hold property of
clients or third persons that is in a lawyer’s possession in connection
with a representation separate from the lawyer’s own property.” Ill.
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R. Prof. Conduct R. 1.15(a) (eff. Oct. 21, 2009). Again, the Review
Board concluded that, absent an attorney-client relationship,
respondent could not have violated this rule because he did not “hold”
the estate funds for a client or in connection with a representation.
¶ 30 Further, if the tort of conversion, as opposed to a violation of Rule
1.15, were to be the basis of professional discipline, the Review
Board stated that the Administrator should be required to prove the
elements of the tort by clear and convincing evidence, which was not
done in this case. In re Storment, 203 Ill. 2d 378, 390 (2002) (“In
attorney disciplinary proceedings, misconduct must be proved by
clear and convincing evidence.”). The Board criticized the suggestion
that an attorney could be disciplined for the wrongful deprivation of
another’s property, without proof of the other elements of the tort. In
addition, the Board observed, one cannot convert money unless it is
tangible, such as currency taken from a briefcase or a safe-deposit
box. For this proposition, the Board cited Sandy Creek Condominium
Ass’n v. Stolt & Egner, Inc., 267 Ill. App. 3d 291, 294 (1994)
(“Money may be the subject of conversion if the sum of money is
capable of being described as a specific chattel. [Citation.] However,
an action for the conversion of funds may not be maintained to satisfy
an obligation to pay an indeterminate sum of money. If such is the
case, the cause of action lies in debt, rather than conversion.”). Sandy
Creek, in turn, cites this court’s opinion in In re Thebus, 108 Ill. 2d
255, 260 (1985) (“It is ordinarily held, however, that an action for
conversion lies only for personal property which is tangible, or at
least represented by or connected with something tangible***.’ ”
(quoting 18 Am. Jur. 2d Conversion § 9, at 164 (1965))).
¶ 31 The Board concluded that because the Administrator did not plead
and prove either a violation of Rule 1.15 or commission of the tort of
conversion, the charge of conversion could not stand.
¶ 32 In sum, the Review Board reversed the Hearing Board’s decision
and recommended that the charges against respondent be dismissed
because the Administrator did not prove by clear and convincing
evidence that respondent violated the Rules of Professional Conduct
when he committed the alleged conversion and breach of fiduciary
duty.
¶ 33 ANALYSIS
¶ 34 The issues presented in this case are: (1) whether the
Administrator met the burden of proving by clear and convincing
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evidence that respondent’s actions with respect to his father’s estate
constituted a breach of fiduciary duty or conversion; and (2) if so,
whether his actions are professional misconduct that may be the basis
for the imposition of professional discipline.
¶ 35 The first question requires us to review the factual findings of the
Hearing Board under the manifest weight of the evidence standard. In
re Timpone, 208 Ill. 2d 371, 380 (2004). Respondent argues that he
did not breach his fiduciary duty or engage in conversion and that, in
any event, these charges were not proven by clear and convincing
evidence. The Administrator responds to this argument in its reply
brief, arguing that the Hearing Board’s findings of facts were correct.
¶ 36 The second question involves interpretation and application of the
Rules of Professional Conduct, which we review de novo. Id.
¶ 37 Factual Findings of Hearing Board
¶ 38 Breach of Fiduciary Duty
¶ 39 The Hearing Board found, and respondent does not deny, that he
was executor of his father’s estate and, as such, “was in a fiduciary
position that required him to exercise the highest degree of good faith
and fidelity toward the estate and toward its beneficiaries, and to
avoid placing his own interests above those of the estate.”
¶ 40 The Administrator argues that the Hearing Board’s finding of a
breach of fiduciary duty was correct because respondent “had no
authority under either his father’s will or Illinois probate law to lend
estate funds to himself yet he lent himself almost $450,000 over the
course of five years.”
¶ 41 Respondent argues that because the will provided for independent
administration of the estate under section 28-1 of the Probate Act of
1975 (755 ILCS 5/28-1 (West 2010)), he was authorized to act
without court approval. Further, he asserts that under section 28-10
of the Act, which provides that “the independent representative may
at any time or times distribute the estate to the persons entitled
thereto” (755 ILCS 5/28-10 (West 2010)), he was entitled to make
loans to himself because he would have been entitled to distribute a
portion of the estate to himself, without court approval or notice to
other beneficiaries. Respondent also relies on the language of the trust
document, which authorized the trustee to “make loans to the
fiduciary of any trust created by me or any member of my family ***
even though the trustee is such a fiduciary.” He states that this
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language gave him the authority to make loans of trust funds to
himself without notice or approval. Thus, respondent’s argument
concludes that the Administrator failed to prove a breach of fiduciary
duty by clear and convincing evidence.
¶ 42 The rules governing the fiduciary duty of an executor are well-
settled. “[T]he beneficiaries of an estate are intended to benefit from
the estate and are owed a fiduciary duty by the executor to act with
due care to protect their interests.” Gagliardo v. Caffrey, 344 Ill. App.
3d 219, 228 (2003). The executor’s duty is to “carry out the wishes of
the decedent,” acting in the utmost good faith to protect the interests
of the beneficiaries, “exercising at the very least that degree of skill
and diligence any reasonably prudent person would devote to [his]
own personal affairs.” Will v. Northwestern University, 378 Ill. App.
3d 280, 291-92 (2007). Ultimately, the executor’s duty is to
administer the assets of the estate so that any debts or obligations are
paid and the beneficiaries receive their just and proper benefits “ ‘in
an orderly and expeditious manner.’ ” Id. (quoting In re Estate of
Greenberg, 15 Ill. App. 2d 414, 424 (1957)). In addition, an executor
owes a duty of full disclosure to the beneficiaries under the testator’s
will. See In re Estate of Talty, 376 Ill. App. 3d 1082, 1089 (2007).
¶ 43 The father’s will named two beneficiaries: his wife, Lillian, and
the unfunded trust. As executor of his father’s will, respondent was
required to distribute his father’s personal property to Lillian and to
transfer all other estate assets to the trust. Then, in his role as trustee,
he was required to create two separate trusts. He did not transfer the
residue of the estate to the trust, as evinced by the fact that the checks
he drew on the account at USB Financial Services continued to list
the “Estate of George Karavidas” as the account holder. Thus, the
Hearing Board was correct in concluding that because the assets were
never transferred to the trust, the will is the controlling instrument
with respect to the transactions at issue.
¶ 44 We also agree with the Hearing Board that although the will
authorized independent administration, neither the will itself nor the
independent administration provision of the Probate Act (755 ILCS
5/28-1 (West 2010)), authorized respondent, as executor, to make
loans to himself or to use the estate assets as a line of credit for his
own benefit. Section 28-1 of the Probate Act permits an executor to
act on behalf of the estate without court approval; it does not permit
him to ignore the intent of the testator. The will gave the executor the
power to borrow money, not to lend it. It allowed the executor to
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“deal with” himself in his other role as trustee, but not to engage in
transactions with himself as an individual. The provision allowing
him to make distributions from the estate permitted such distributions
only to the named beneficiaries of the will—Lillian and the trust—not
to the eventual beneficiaries of the trust.
¶ 45 The facts of this case are similar to Prignano v. Prignano, 405 Ill.
App. 3d 801, 811-12 (2010), where the executor of the estate, who
was brother of the testator and co-owner of several businesses,
breached his fiduciary duty to carry out the express provisions of the
will. The will provided that the executor was to receive his late
brother’s share of the “assets” of a corporation owned by the brothers.
In addition to the assets of the business, the executor distributed to
himself his late brother’s share of the stock in the corporation. The
appellate court held that shares of stock are not assets of a
corporation; rather, they are units of ownership in the corporation. As
such, the stock was part of the residue of the estate, which was to be
distributed to the testator’s widow and their two minor children.
Thus, the executor “breached his fiduciary duty as executor to carry
out the express provisions of the will.” Id. at 811. In addition, because
the children’s share of the residue was to be placed in trust for them,
the executor also breached his fiduciary duty as trustee of the
children’s trusts “to secure for them the property that should have
formed the res of their trusts.” Id. at 812.
¶ 46 Similarly, in the present case, respondent breached his fiduciary
duty to carry out the express provisions of the will by failing to
transfer estate assets to the trust and by lending estate assets to
himself. Even if such loans had been permissible, his failure to
document the transactions as loans placed the assets of the estate at
risk if he were to die or become incompetent before the loans were
repaid.
¶ 47 Respondent also breached his fiduciary duty by failing to disclose
the transactions to his mother or sister. In Estate of Talty, the testator
named as executor his brother, with whom he co-owned an
automobile dealership and the real estate on which it was located. The
will named the testator’s wife as the sole residuary beneficiary, giving
the brother the right to purchase the testator’s share of the dealership,
subject to certain conditions, including an independent appraisal of
the value of the dealership. Estate of Talty, 376 Ill. App. 3d at 1084.
The executor obtained an appraisal that falsely stated the value of the
dealership and closed the sale to himself. In ensuing litigation, the
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circuit court found that although the testator “knowingly waived any
conflict of interest” when he appointed his brother and business co-
owner as his executor, the executor nevertheless acted in bad faith. Id.
at 1086. The appellate court affirmed, stating that the testator had
waived any conflict of interest by placing his brother in “multiple
capacities as buyer, seller, and fiduciary.” Further, the court observed
that “an executor can serve potentially conflicting interests without
exercising bad faith as a fiduciary.” Id. at 1089. However, the
executor breached his fiduciary duty of full disclosure by failing to
disclose to the residuary beneficiary information regarding the
appraisals of the business and the real estate and the closing dates for
the sales. Id. at 1089-90.
¶ 48 The elder Karavidas named his son as executor and successor
trustee, knowing that his son was also a beneficiary of the trust. Thus,
as in Talty, he waived any conflict of interest by placing respondent
in multiple capacities as executor, trustee, and beneficiary. However,
such a waiver does not relieve the respondent of an executor’s
fiduciary duty of full disclosure. The record clearly demonstrates that
respondent did not inform his mother, who was a beneficiary under
the will and trust, of his repeated taking of loans from the estate. He
also failed to disclose the transactions to his sister, who, while not a
direct beneficiary of the will, was an intended beneficiary of the trust
that he failed to fund with estate assets.
¶ 49 Respondent argues that his position is supported by the case of In
re Nagler, M.R. 23644 (May 17, 2010), in which the respondent
attorney, who drafted a will and trust for his father and served as
executor of his father’s estate, failed to follow the directions in the
will. He did not set up separate trusts for himself and his sister as
instructed, but rather allowed all of the funds to remain in one trust
account, keeping a mental note of the amount to which each was
entitled and making sure that he did not distribute more than one half
of the funds to himself. He also made a loan of trust funds to a friend,
without informing his sister of the transaction. Although he was
found to have committed other forms of misconduct, Nagler was not
found to have breached his fiduciary duty. Respondent argues that his
conduct was less egregious than the conduct charged in In re Nagler
and, thus, he should be found not to have breached his fiduciary duty.
¶ 50 The Hearing Board considered and rejected this argument, noting
the significant distinction between respondent and Nagler. In contrast
to Nagler, respondent was acting as executor of his father’s estate, not
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as a trustee. An executor has a duty of full disclosure. Estate of Talty,
376 Ill. App. 3d at 1089-90. Further, although Nagler failed to
separate the residuary trust into two separate trusts, he was operating
under the terms and conditions of his father’s trust document, which
gave broad discretion to the trustee. In the present case, respondent
was operating under the terms of his father’s will, which did not
permit him to make loans to himself.
¶ 51 Although the will was the operative instrument, respondent
nevertheless relies on the trust document to argue that he was entitled
to distribute trust assets to himself and that, therefore, he cannot have
breached his fiduciary duty by taking the same funds directly from the
probate estate. We reject the implicit suggestion that the funding of
the trust was a mere formality that could be dispensed with. Further,
although respondent as trustee did have the authority to make
distributions of trust funds to himself, that authority was not
unlimited. During his mother’s lifetime, he was authorized to
distribute trust funds to himself and his sister only for their “health,
support and education” and only after consideration of their “other
resources.” Additionally, as trustee, he was required to give “primary
consideration” to his mother’s needs. Thus, even if he had funded the
trust, he was not authorized to use the trust as his personal line of
credit.
¶ 52 Respondent’s explanation that he at no time owed the estate more
than one-third of its total original value is not persuasive. Even had
he carried out his father’s wishes, he was not entitled to one-third of
the estate. Rather, he would have eventually received one-half of the
remaining principal in the family trust upon the death of his mother,
provided that she did not exercise her testamentary power of
appointment to reduce his share. Indeed, it was entirely possible that
the care and support of his mother would consume the entire corpus
of the family trust.
¶ 53 We acknowledge respondent’s assertion that he also made
payments of estate funds to or on behalf of his mother and sister.
While these payments do tend to support his claim that he was not
acting to defraud the estate, but simply did not understand his
obligations as executor, these transactions do not negate his breach of
fiduciary duty. Indeed, they, too, were breaches of fiduciary duty
because they were unauthorized by the will.
¶ 54 Had respondent followed the instructions in his father’s will, the
estate could have been closed in a timely manner. Instead, he allowed
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the assets to remain in the probate estate for over five years and
engaged in numerous undocumented transactions, some of which
benefitted his mother and sister and some of which benefitted
himself. He did so without disclosing the transactions to the other
intended beneficiaries and without their consent. We find, therefore,
that the Hearing Board’s finding that respondent breached his
fiduciary duty as executor of his father’s estate was not against the
manifest weight of the evidence.
¶ 55 Conversion
¶ 56 The same conduct that was alleged to constitute a breach of
fiduciary duty—respondent’s unauthorized taking of estate funds in
the form of undocumented loans for his personal use—was also
alleged to constitute conversion. In effect, the respondent was charged
with breaching his fiduciary duty by means of converting estate funds.
The Hearing Board concluded that his conduct met the definition of
conversion.
¶ 57 Respondent argues that he did not engage in conversion because
he was entitled to use all or part of the estate funds and that his
mother and sister were not deprived of anything to which they were
entitled because they had no greater right to the funds than he did. He
acknowledges that he borrowed the funds from the estate, rather than
creating the trusts and then disbursing funds to himself as a
beneficiary of the family trust, but insists that no conversion took
place when he would have been allowed to use the funds if they had
been placed in the family trust. He asserts that the Administrator
failed to prove any of the elements of the common law tort of
conversion and that the Review Board correctly found that he did not
convert estate funds.
¶ 58 The Administrator responds that respondent cites no authority for
his assertion that he was entitled to use the estate funds or that his
actions, particularly the utter lack of documentation for the loans,
would have been permitted if the trust had been funded. Thus, his
taking of the funds, even with subsequent repayment, was conversion.
¶ 59 At common law, conversion is the “wrongful possession or
disposition of another’s property as if it were one’s own; an act or
series of acts or willful interference, without lawful justification, with
an item of property in a manner inconsistent with another’s right,
whereby that other person is deprived of the use and possession of the
property.” Black’s Law Dictionary 381 (9th ed. 2009).
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¶ 60 “This court has stated that ‘[a] conversion is any unauthorized act,
which deprives a man of his property permanently or for an indefinite
time ***.’ (Union Stock Yard & Transit Co. v. Mallory, Son &
Zimmerman Co. (1895), 157 Ill. 554, 563. In Bender v. Consolidated
Mink Ranch, Inc. (1982), 110 Ill. App. 3d 207, 213, the court said,
‘The essence of conversion is the wrongful deprivation of one who
has a right to the immediate possession of the object unlawfully held.’
In Jensen v. Chicago & Western Indiana R.R. Co. (1981), 94 Ill. App.
3d 915, 932, it was stated: ‘One claiming conversion must show a
tortious conversion of the chattel, a right to property in it, and a right
to immediate possession which is absolute ***.’ In Farns Associates,
Inc. v. Sternback (1979), 77 Ill. App. 3d 249, 252, the court said, ‘The
essence of an action for conversion is the wrongful deprivation of
property from the person entitled to possession.’ ” Thebus, 108 Ill. 2d
at 259-60.
¶ 61 In the context of a civil case, “ ‘[t]o prove conversion, a plaintiff
must establish that (1) he has a right to the property; (2) he has an
absolute and unconditional right to the immediate possession of the
property; (3) he made a demand for possession; and (4) the defendant
wrongfully and without authorization assumed control, dominion, or
ownership over the property.’ ” Loman v. Freeman, 229 Ill. 2d 104,
127 (2008) (quoting Cirrincione v. Johnson, 184 Ill. 2d 109, 114
(1998)).
¶ 62 However, when conversion is charged as a form of professional
misconduct, it has a more “specialized meaning.” Thebus, 108 Ill. 2d
at 259. Thus, the general rules as to the elements of the tort may be
altered to fit the requirements of the Rules of Professional
Responsibility. See id. at 261. For example, an attorney may be found
to have committed conversion when the balance in an account in
which client funds are being held falls below the amount then
belonging to clients. In re Cheronis, 114 Ill. 2d 527, 534-35 (1986).
This is true even though no client entitled to the funds has made a
demand for possession. Thus, in In re Lasica, No. 07-CH-125
(Review Board Jan. 22, 2010), the Review Board rejected the
attorney’s argument that demand for possession is a necessary
element of conversion in a disciplinary proceeding, observing that
“[a]ttorneys are not free to use funds that they hold on behalf of a
client or third party until such time as a demand for possession is
made.”
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¶ 63 In the context of a disciplinary proceeding where an attorney-
client relationship is involved, we use the term “conversion” as a term
of art and focus on the attorney’s conduct with respect to the property
or funds of the client or third party, not on the circumstances that
would be necessary to give rise to a claim in tort by the rightful
owner. See In re Rosin, 156 Ill. 2d 202, 206 (1993) (defining
conversion in the context of a disciplinary proceeding as “any
unauthorized act, which deprives a man of his property permanently
or for an indefinite time,” where the property at issue was the client’s
share of proceeds of a settlement (internal quotation marks omitted)).
Thus, when an attorney is acting as an attorney, he may be found to
have converted funds that are held in a trust account holding funds
owed to numerous clients, even though his misconduct does not fit
the common law definition of conversion.
¶ 64 As the Review Board correctly noted, respondent’s conduct did
not violate Rule 1.15(a) because the funds involved were neither
client funds nor funds held by respondent for a third person “in
connection with a representation.” Ill. R. Prof. Conduct R. 1.15(a)
(eff. Oct. 21, 2009). Thus, our term of art does not apply.
¶ 65 This raises the additional consideration that, at common law, not
all types of property are subject to being converted. See Thebus, 108
Ill. 2d at 260 (“ ‘It is ordinarily held, however, that an action for
conversion lies only for personal property which is tangible, or at
least represented by or connected with something tangible ***.’ ”
(quoting 18 Am. Jur. 2d Conversion, § 9, at 164 (1965))). Thus, if the
nonattorney executor of an estate were to help himself to a valuable
painting or piece of jewelry, he would not only be in breach of his
fiduciary duty, he would be liable in tort for conversion. However, the
Review Board observed that the funds that respondent “borrowed”
from the estate were not “capable of being described as a specific
chattel” and, thus, were not capable of being converted.
¶ 66 As established above in our discussion of breach of fiduciary
duty, respondent’s actions were indeed wrongful and without
authorization. In addition, he deprived the estate and its intended
beneficiary, the trust, of the funds for an indefinite period of time.
Because we have already found that respondent’s conduct with
respect to the estate funds was a breach of fiduciary duty, we need not
determine whether the means by which the breach was committed
may also be labeled as common law conversion.
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¶ 67 We briefly address the argument, made for the first time at oral
argument, that respondent could not have committed conversion of
funds from the estate or breached his fiduciary duty because the death
of George Karavidas “funded” the George Karavidas Trust and that
the trust document allowed the trustee to make loans.
¶ 68 The Administrator rightly points out that this is a change in the
respondent’s position before the Hearing Board and should not be
given any consideration. We also note that the assertion that estate
assets somehow automatically become trust principal upon the death
of a testator who has created an unfunded trust that is to be funded via
a pour-over will is unsupported by any citation to authority. Further,
respondent’s claim is contradicted by the fact that the investment
accounts continued to be held in the name of the “Estate of George
Karavidas,” not in the name of the trust.
¶ 69 The finding of the Hearing Board that respondent breached his
fiduciary duty is not against the manifest weight of the evidence. We
decline to determine whether his conduct might also be labeled as
conversion. The question remains whether this civil offense—for
which a civil remedy is available to aggrieved parties—is a proper
basis for professional discipline in this case.
¶ 70 Alleged Violations of Rules of Professional Conduct
¶ 71 The complaint states that respondent converted estate funds and
breached his fiduciary duty and that he violated Rules 8.4(a)(4) and
8.4(a)(5) of the Illinois Rules of Professional Conduct and Supreme
Court Rule 770. These charges are enumerated (1) through (5). This
is the Administrator’s standard way of stating charges, but it is not
entirely clear whether the respondent was being charged with five
separate types of misconduct, or he was being charged with violating
three separate rules by committing two types of misconduct, which
were, in turn, based on a single act.
¶ 72 We urge the Administrator to ensure that a complaint clearly and
unambiguously inform a respondent of the specific acts with which
he is charged and the specific rules that he is alleged to have violated
by engaging in those acts.
¶ 73 Supreme Court Rule 753(b) provides that a disciplinary complaint
“shall reasonably inform the attorney of the acts of misconduct he is
alleged to have committed.” Ill. S. Ct. R. 753(b) (eff. Sept. 1, 2006).
An accused attorney’s procedural due process rights, including the
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right to fair notice and the right to an opportunity to defend against all
charges, would be violated if an attorney were disciplined for
uncharged misconduct. In re Chandler, 161 Ill. 2d 459, 470 (1994).
When an attorney is accused of engaging in certain conduct, but that
accusation is not tethered to an alleged violation of a specific Rule of
Professional Conduct, it creates the risk that discipline might be
imposed for conduct that does not violate professional norms.
¶ 74 For example, in In re Mulroe, 2011 IL 111378, the respondent
attorney represented a friend in a dissolution proceeding, a matter
outside his usual areas of practice. He agreed to hold the proceeds
from the sale of the couple’s home until the allocation was
determined by the court. Id. ¶ 7. The Hearing Board found that he
converted client funds in violation of Rules 1.15(a) and (b) by failing
to hold the escrow funds separate from his own property and to
promptly deliver the funds upon demand by the rightful owner. In
addition, he violated Rule 8.4(a)(5) by engaging in conduct that was
prejudicial to the administration of justice and that brought the legal
profession into disrepute. Id. ¶ 12. However, the Hearing Board found
that the Administrator did not prove a violation of Rule 8.4(a)(4) by
clear and convincing evidence where the conversion “was a technical
one, not motivated by an intention to deprive” the rightful owner of
the funds. Id. The attorney had the financial means to deliver the
funds at all relevant times and honestly believed that he was not to
distribute the funds to the ex-wife until the issues on appeal were
resolved. Id.
¶ 75 This court rejected the Administrator’s argument that recklessness
in the handling of client funds is sufficient to satisfy the scienter
requirement of Rule 8.4(a)(4). Id. ¶ 19. While we acknowledged that
the holding of client funds “is a serious fiduciary duty and should not
be treated lightly,” we determined that “the question at hand is not
whether respondent committed conversion, but whether the
conversion constituted ‘conduct involving dishonesty, fraud, deceit,
or misrepresentation’ such that respondent violated Rule 8.4(a)(4).”
Id. ¶ 20. We declined to adopt a bright-line rule that reckless
conversion creates a presumption of dishonesty. Id. ¶ 23. We also
concluded that the Hearing Board’s finding of no dishonest intent
behind the conversion was not against the manifest weight of the
evidence. Id. ¶ 31. Thus, there was no violation of Rule 8.4(a)(4),
despite the conversion.
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¶ 76 In contrast, in In re Merriwether, 138 Ill. 2d 191 (1990), the
respondent attorney negotiated a settlement on behalf of a client in a
personal injury case. The client’s medical expenses had been paid by
the Illinois Department of Public Aid, which, thus, had a lien on the
settlement proceeds. He remitted to the client the funds to which she
was entitled, but despite repeated demands by the Department, failed
to remit the amount due under the lien. Id. at 194-96. The attorney
admitted that he used the money for personal purposes because he
was in a “financial predicament.” Id. at 198. As a result, the balance
in his client trust account fell below the amount of the lien. Id. at 197.
This commingling and conversion of funds involved “client money,”
but it did not involve money owed to the client; rather, it involved
funds owed to a state agency to reimburse it for funds expended on
the client’s behalf. Id. at 200. The Hearing Board found violations of
numerous provisions of the Code of Professional Responsibility. (The
Code of Professional Responsibility was replaced in 1990 by the
Rules of Professional Conduct.)
¶ 77 This court found that the attorney’s conduct resulted in his client’s
becoming subject of a body attachment order and a contempt
proceeding when the Department, not knowing that the attorney
retained a portion of the settlement amount, attempted to collect the
funds owed from the client. This conduct violated the Code by
inconveniencing the client. Id. at 200-01. See Ill. S. Ct. Code of Prof.
Res. R. 7-101(a)(3) (eff. July 1, 1980) (prohibiting conduct that may
damage or prejudice a client). In addition, the attorney also violated
the Code by acting dishonestly in his dealings with the Department
and by attempting to conceal his misdeeds. Merriwether, 138 Ill. 2d
at 201. See Ill. S. Ct. Code of Prof. Res. R. 1-102(a)(4) (eff. July 1,
1980) (prohibiting conduct involving dishonesty, fraud, deceit, or
misrepresentation). Thus, it was not the conversion per se that
constituted professional misconduct. It was the violations of several
provisions of the Code of Professional Conduct. Conversion was the
means of committing the violations.
¶ 78 Mulroe and Merriwether support the proposition that an
attorney’s breach of fiduciary duty or conversion does not, standing
alone, warrant the imposition of professional discipline. As the
Review Board noted in the present case, discipline for conduct
occurring outside the attorney-client relationship should be limited to
situations where the attorney’s conduct violates the Rules by
demonstrating “a lack of professional or personal honesty which
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render[s] him unworthy of public confidence.” In re Bruckner, No.
00-CH-12, at 30 (Hearing Board Aug. 8, 2001), approved and
confirmed M.R. 17722 (Nov. 28, 2001).
¶ 79 In sum, we hold that professional discipline may be imposed only
upon a showing by clear and convincing evidence that the respondent
attorney has violated one or more of the Rules of Professional
Conduct. Mere bad behavior that does not violate one of the Rules is
insufficient.
¶ 80 Supreme Court Rule 770
¶ 81 The Hearing Board concluded that respondent’s conversion of
estate funds “tended to defeat the administration of justice in
violation of Supreme Court Rule 771.” (Effective April 1, 2004, a
new Rule 771 was adopted and the former Rule 771, to which the
Hearing Board was referring, was renumbered as Rule 770.)
¶ 82 The Administrator argues that Rule 770 specifically provides that
“attorneys may be disciplined for conduct that does not violate the
Rules of Professional Conduct.” This argument focuses on the use of
the word “or” in Rule 770 to argue that discipline may be imposed on
an attorney either for violating the Rules or for engaging in conduct
that does not violate the Rules, but that defeats the administration of
justice or tends to bring the courts or the profession into disrepute.
¶ 83 We begin our analysis by noting that Rule 770 is a procedural rule
of this court, not a Rule of Professional Conduct. As we noted in In
re Thomas, 2012 IL 113035, ¶ 92:
“Supreme Court Rule 770 is not itself a Rule of Professional
Conduct. Rather, it is contained in article VII, part B, of our
rules, which governs ‘Registration and Discipline of
Attorneys.’ Rule 770 is titled ‘Types of Discipline’ and
provides that ‘[c]onduct of attorneys which violates the Rules
of Professional Conduct contained in Article VIII of these
rules or which tends to defeat the administration of justice or
to bring the courts or the legal profession into disrepute shall
be grounds for discipline by the court.’ [Citation.] The rule
then lists eight levels of discipline ranging from disbarment
to reprimand. Thus, one does not ‘violate’ Rule 770. Rather,
one becomes subject to discipline pursuant to Rule 770 upon
proof of certain misconduct.”
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¶ 84 We do not attach the significance to the word “or” that the
Administrator suggests. Aside from the placement of Rule 770 in
article VII of our court rules, which signifies the procedural nature of
the rule, the Rules of Professional Conduct are sufficiently broad to
encompass conduct that defeats the administration of justice. Indeed,
Rule 8.4(a)(5) prohibits conduct that is “prejudicial” to the
administration of justice. Ill. R. Prof. Conduct R. 8.4(a)(5) (eff. July
6, 2001). Further, one may bring the courts or the legal profession
into disrepute by violating any of the Rules. However, attorney
conduct that does not violate any of the Rules may not be the basis for
professional discipline.
¶ 85 In the past, we have referred to Rule 770 and its predecessor Rule
771 as if they were Rules of Professional Conduct. For example, in
In re Winthrop, we stated that the respondent attorney, who made a
false statement of material fact to opposing counsel, “violated both”
Rule of Professional Conduct 8.4(a)(4) and Supreme Court Rule 771.
In re Winthrop, 219 Ill. 2d 526, 558 (2006). A more precise statement
would have been that he violated Rule 8.4(a)(4) by making the false
statement and, thus, was subject to discipline pursuant to Rule 771.
¶ 86 We reiterate: by definition, violation of any of the Rules of
Professional Conduct may tend to defeat the administration of justice,
to bring the courts or the profession into disrepute, or both. If an
attorney is proven to have violated the Rules of Professional Conduct,
he is then subject to discipline under Supreme Court Rule 770. Rule
770 cannot support a separate charge against an attorney because it is
not a Rule of Professional Conduct; it governs the types of discipline
that may be imposed upon a showing of a violation of a Rule.
¶ 87 Rule of Professional Conduct 8.4(a)(5)
¶ 88 Respondent was charged with violating Rule 8.4(a)(5), which at
the relevant time enumerated nine types of professional misconduct.
In pertinent part:
“A lawyer shall not:
***
(3) commit a criminal act that reflects adversely on the
lawyer’s honesty, trustworthiness or fitness as a lawyer in
other respects.
(4) engage in conduct involving dishonesty, fraud,
deceit or misrepresentation.
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(5) engage in conduct that is prejudicial to the
administration of justice.” Ill. R. Prof. Conduct R. 8.4(a)
(eff. July 6, 2001).
¶ 89 Depending on the facts of the case, an attorney’s breach of
fiduciary duty might involve criminal conduct, which could subject
the attorney to discipline under subsection (3), or it could involve
dishonesty, fraud, deceit, or misrepresentation, subjecting him to
discipline under subsection (4). In the present case, the Administrator
charged respondent with violating subsection (5).
¶ 90 The Hearing Board stated that respondent’s failure to properly
document the loans was prejudicial to the administration of justice in
violation of Rule 8.4(a)(5) because his failure to properly document
the loans “eventually became the subject of court proceedings.”
¶ 91 In In re Vrdolyak, 137 Ill. 2d 407, 425 (1990), we interpreted this
rule as requiring proof of actual prejudice to the administration of
justice. Vrdolyak, an attorney who was also a Chicago alderman,
operated under a conflict of interest when he represented a client in
a dispute with the city. He did not, however, violate Disciplinary Rule
1-102, which forbade engaging in “conduct that is prejudicial to the
administration of justice” Ill. S. Ct. Code of Prof. Res. R. 1-102(a)(5)
(eff. July 1, 1980)), because “clear and convincing evidence that the
administration of justice was, indeed, prejudiced” was lacking.
Vrdolyak, 137 Ill. 2d at 425.
¶ 92 Thus, in In re Storment, 203 Ill. 2d 378 (2002), we found that the
Hearing and Review Boards’ conclusion that the respondent attorney
had not violated Rule 8.4(a)(5) was not against the manifest weight
of the evidence, despite his violation of Rule 1.5(f), which required
a client’s written agreement to an attorney fee-sharing arrangement.
The violation of the writing requirement had no impact on the
attorney’s representation of the client or on the outcome of the case.
Thus, the record lacked clear and convincing evidence of any
prejudice to the administration of justice. Id. at 397-98.
¶ 93 In contrast, in In re Cutright, 233 Ill. 2d 474 (2009), the
respondent attorney was found to have engaged in conduct prejudicial
to the administration of justice in violation of Rule 8.4(a)(5) when he
neglected an estate of which he was executor, allowing it to remain
open for 17 years. Id. at 485. The actual prejudice to the
administration of justice was that two heirs died before ever receiving
their share of the estate and other heirs were forced to wait 17 years
before receiving any distribution. Id. at 486.
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¶ 94 The attorney conduct at issue in In re Thomas was also prejudicial
to the administration of justice in violation of Rule 8.4(a)(5). The
respondent attorney, who had been suspended from practicing law,
appeared before the Seventh Circuit to represent a corporation of
which he was the president and sole shareholder. We noted that the
corporation had filed for bankruptcy and that any recovery that might
have been made in the litigation would have been part of the
bankruptcy estate. Thus, because the respondent represented only his
own interests as a shareholder, and not the interests of the bankrupt
corporation’s creditors, his conduct did indeed prejudice the
administration of justice. Thomas, 2012 IL 113035, ¶ 91. This was so
even though his conduct did not result in actual harm to the creditors;
his conduct undermined the judicial process and, thus, prejudiced the
administration of justice.
¶ 95 Attorney Thomas also engaged in conduct that prejudiced the
administration of justice by continuing to represent other clients after
the date of his suspension. This conduct placed the interests of his
clients in jeopardy because his unauthorized practice of law could
have resulted in a default judgment for the opposing party. Id. ¶ 123.
¶ 96 In the present case, the Hearing Board concluded that
respondent’s sister’s filing of a motion in the probate case implicated
the judicial process, so that respondent’s conduct was prejudicial to
the administration of justice. However, the record reveals no conduct
by respondent regarding the motion to terminate independent
administration or the later motion to replace him as executor that
could have undermined the judicial process. The loans were made and
repaid in full before her papers were filed. His breach of fiduciary
duty, while not acceptable conduct for any executor, had no actual or
potential effect on the administration of justice.
¶ 97 We, therefore, agree with the Review Board that respondent’s
conduct, because he was not acting as an attorney and he was not
involved in the judicial process at the time of the breach, did not
undermine the administration of justice. While an attorney’s breach
of fiduciary duty owed to a nonclient could constitute an act that is
prejudicial to the administration of justice, this did not occur in this
case. Further, if an attorney is to be disciplined for such conduct, the
Administrator must, as a matter of due process, plead and prove that
the breach of fiduciary duty had a prejudicial effect on the
administration of justice. To the extent that our earlier decisions state
or imply otherwise, they are hereby overruled.
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¶ 98 Rule of Professional Conduct 8.4(a)(4)
¶ 99 Rule 8.4(a) lists nine separate acts that constitute misconduct. The
Administrator charged respondent with violating Rule 8.4(a)(4),
engaging in “conduct involving dishonesty, fraud, deceit, or
misrepresentation.” The Hearing Board found no violation of this rule
despite respondent’s breach of his fiduciary duty. We agree.
¶ 100 Under the manifest weight of the evidence standard of review, we
give deference to the factual findings of the Hearing Board, because
the Hearing Board is in a position to observe the witnesses’
demeanor, judge their credibility, and resolve conflicting testimony.
Timpone, 208 Ill. 2d at 380.
¶ 101 We see no reason in the present case to reject the Hearing Board’s
findings. The record suggests that respondent did not fully understand
his obligations as executor and trustee, not having practiced in this
area, and that he may have been given confusing legal advice (or the
questions he posed to his legal advisor were not sufficiently detailed
to elicit correct advice). Whatever the case, there is no suggestion that
he acted to deceive or to defraud; at most, he was careless in his
duties.
¶ 102 CONCLUSION
¶ 103 In sum, before professional discipline may be imposed under
Supreme Court Rule 770, the Administrator must demonstrate that
the attorney violated the Rules of Professional Conduct. To the extent
that any of our prior cases suggest that an attorney may be subjected
to professional discipline for conduct that is not prohibited by the
Rules of Professional Conduct or defined as misconduct therein, we
hereby reject such a suggestion. As a matter of due process, an
attorney who is charged with misconduct and faces potential
discipline must be given adequate notice of the charges, including the
rule or rules he is accused of violating. Personal misconduct that falls
outside the scope of the Rules of Professional Conduct may be the
basis for civil liability or other adverse consequences, but will not
result in professional discipline. We, therefore, accept the
recommendations of the Review Board and dismiss the charges
against respondent.
¶ 104 Charges dismissed.
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¶ 105 JUSTICE THOMAS, dissenting:
¶ 106 The majority holds that, although respondent breached his
fiduciary duty in no less than four distinct ways while serving as the
executor of his late father’s $700,000 estate, he nevertheless is
immune from professional discipline because none of his misconduct
violated a specific Rule of Professional Conduct. According to the
majority, “before professional discipline may be imposed under
Supreme Court Rule 770, the Administrator must demonstrate that
the attorney violated the Rules of Professional Conduct.” Supra
¶ 103. By way of corollary, the majority then adds that, “[t]o the
extent that any of our prior cases suggest that an attorney may be
subjected to professional discipline for conduct that is not prohibited
by the Rules of Professional Conduct or defined as misconduct
therein, we hereby reject such a suggestion.” Supra ¶ 103.
¶ 107 The problem with the majority’s reasoning is that this court has
not merely suggested that an attorney may be subjected to
professional discipline for conduct that is not specifically prohibited
by the Rules of Professional Conduct. On the contrary, this court has
expressly held as much. In In re Rinella, 175 Ill. 2d 504 (1997), this
court began its analysis by “reject[ing] respondent’s contention that
attorney misconduct is sanctionable only when it is specifically
proscribed by a disciplinary rule.” Id. at 514. In doing so, this court
explained that “the standards of professional conduct enunciated by
this court are not a manual designed to instruct attorneys what to do
in every conceivable situation.” Id.
¶ 108 Quite notably, the foregoing portion of Rinella is not, as the
majority would have us believe, anchored in an imprecise reading of
Rule 770 (then Rule 771). In fact, this portion of Rinella is not
anchored in Rule 770 at all. Rather, Rinella is simply an articulation
of this court’s understanding of its own rules. And as Rinella points
out, that understanding was memorialized in the 1990 preamble to the
Rules of Professional Conduct themselves, which states in relevant
part:
“ ‘Violation of these rules is grounds for discipline. No set
of prohibitions, however, can adequately articulate the
positive values or goals sought to be advanced by those
prohibitions. This preamble therefore seeks to articulate those
values ***. Lawyers seeking to conform their conduct to the
requirements of these rules should look to the values
described in this preamble for guidance in interpreting the
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difficult issues which may arise under the rules.’ ” Id. at 514-
15 (quoting Ill. R. Prof. Conduct, Preamble).
According to Rinella, “[t]he preamble *** likens the practice of law
to a public trust, and charges lawyers with maintaining public
confidence in the system of justice by acting competently and with
loyalty to the best interests of their clients.” Id. at 515. Consequently,
Rinella explained, it is appropriate to look not just to the specific
language of the Rules themselves but also to the principles set forth
in the preamble in determining whether an attorney’s conduct is
sanctionable. Id. at 514-15.
¶ 109 Although it is nowhere mentioned by the majority, Rinella is of
paramount importance in this case. Indeed, once Rinella is taken into
account, the majority’s reading of Rule 770 becomes untenable.
Again, Rule 770 provides, in relevant part:
“Conduct of attorneys which violates the Rules of
Professional Conduct contained in article VIII of these rules
or which tends to defeat the administration of justice or to
bring the courts or the legal profession into disrepute shall be
grounds for discipline by the court.” Ill. S. Ct. R. 770 (eff.
Apr. 1, 2004).
Now on its face, this language would seem to state very plainly that
there are two categories of conduct for which an attorney may be
disciplined by the court: (1) conduct “which violates the Rules of
Professional Conduct contained in article VIII of these rules,” and (2)
conduct “which tends to defeat the administration of justice or to
bring the courts or the legal profession into disrepute.” Indeed, such
a reading is compelled by numerous well-settled canons of
construction, not the least of which are that clear and unambiguous
language must be enforced as written (Hines v. Department of Public
Aid, 221 Ill. 2d 222, 230 (2006)) and that a statute or rule should be
construed, wherever possible, such that no word, clause, or sentence
is rendered meaningless or superfluous (People v. Jones, 168 Ill. 2d
367, 375 (1995)).
¶ 110 Yet the majority’s reading of Rule 770 turns both of these canons
on their heads. According to the majority, though Rule 770 clearly
identifies two distinct categories of conduct for which an attorney
may be disciplined by the court (conduct that violates a rule and
conduct that tends to defeat the administration of justice or to bring
the courts or the legal profession into disrepute), in fact, Rule 770
identifies only one category (conduct that violates a rule). This
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reading renders the phrase “or which tends to defeat the
administration of justice or to bring the courts or the legal profession
into disrepute” entirely meaningless. Indeed, if the majority’s reading
of Rule 770 is correct, what possible reason is there for the inclusion
of that phrase in the rule? The fact is, the majority’s reading of Rule
770 is not driven by the plain language of that rule but rather by the
majority’s conviction that due process prohibits an attorney from
being “subjected to professional discipline for conduct that is not
prohibited by the Rules of Professional Conduct or defined as
misconduct therein.” Supra ¶ 103. But this is the very argument we
rejected outright in Rinella. See Rinella, 175 Ill. 2d at 514 (rejecting
respondent’s argument that “imposing *** sanction[s] under these
circumstances would violate due process because [respondent] did
not have adequate notice that his conduct was prohibited”). In other
words, the majority’s entire reading of Rule 770 stems from a false
premise.1
¶ 111 Once Rinella’s holding is taken into account, Rule 770 makes
perfect sense on its face, and it becomes easy to give full effect to
every one of its words, rather than to only half of them. Again,
Rinella makes crystal clear both that “the standards of professional
conduct enunciated by this court are not a manual designed to instruct
attorneys what to do in every conceivable situation” and that attorneys
may be sanctioned for engaging in misconduct that is not “specifically
proscribed by a disciplinary rule.” In light of this holding, it should
come as no surprise that Rule 770, which authorizes the imposition
of discipline for attorney misconduct, authorizes it both for
“[c]onduct of attorneys which violates the Rules of Professional
Conduct” and for conduct that “tends to defeat the administration of
justice or to bring the courts or the legal profession into disrepute.”
1
The majority cites this court’s recent statement from In re Thomas that
“one does not ‘violate’ Rule 770. Rather, one becomes subject to discipline
pursuant to Rule 770 upon proof of certain misconduct.” Supra ¶ 83
(quoting In re Thomas, 2012 IL 113035, ¶ 92). Of course, this statement
does not settle the question at hand; it raises it: What “certain misconduct”
subjects one to discipline pursuant to 770? I believe that question is
answered clearly both in Rinella and in Rule 770 itself: conduct which
violates the Rules of Professional Conduct and conduct that, though not
violating a specific Rule of Professional Conduct, tends to defeat the
administration of justice or to bring the courts or the legal profession into
disrepute.
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Indeed, Rule 770 reflects and enables the very policy that the court
articulated in Rinella. The two go hand-in-hand.
¶ 112 Now I recognize that, in 2010, the Rules of Professional Conduct
were overhauled and that, with the overhaul, came a whole new
preamble. This is of no consequence, however, for at least two
reasons. First, all of respondent’s conduct in this case occurred prior
to the 2010 overhaul, which means that at all relevant times
respondent was operating under the very rules (and preamble) that the
court construed in Rinella. But even if that were not the case, the
preamble enacted in 2010 continues to reflect this court’s belief that
“the standards of professional conduct enunciated by this court are
not a manual designed to instruct attorneys what to do in every
conceivable situation.” Rinella, 175 Ill. 2d at 514. Indeed, paragraph
16 of the 2010 preamble expressly states that the rules “do not ***
exhaust the moral and ethical considerations that should inform a
lawyer, for no worthwhile human activity can be completely defined
by legal rules.” Ill. R. Prof. Conduct (2010), Preamble, ¶ 16 (eff. Jan.
1, 2010). Thus, there is absolutely no reason to believe this court’s
understanding of its rules has in any way changed since Rinella.
¶ 113 In sum, I am convinced that, contrary to the majority’s
conclusion, an attorney absolutely may be disciplined for misconduct
that is not specifically set forth in our Rules of Professional Conduct.
That was this court’s express holding in Rinella, and it is a policy
clearly reflected in the plain language of Rule 770.
¶ 114 The next question is whether respondent’s conduct in this case
justifies the imposition of professional discipline. I am convinced that
it does. Again, this court has expressly held that an attorney may be
subject to professional discipline for misconduct that is not
specifically proscribed by a disciplinary rule, and Rule 770 authorizes
the imposition of discipline for “[c]onduct of attorneys which ***
tends to defeat the administration of justice or to bring the courts or
the legal profession into disrepute.” Ill. S. Ct. R. 770 (eff. Apr. 1,
2004). There is no question that respondent’s conduct in this case
tends to bring the legal profession into disrepute. As the majority
itself points out, respondent, a licensed attorney, engaged in
numerous and serious breaches of his fiduciary duty while acting as
executor of his father’s $700,000 estate. These breaches included (1)
not funding the various trusts as required by the will but instead
keeping the estate open and lending nearly $450,000 in estate assets
to himself for his own personal benefit (supra ¶ 46); (2) failing to
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document any of these personal loans and thereby placing the assets
of the estate at risk (supra ¶ 46); (3) failing to disclose to any of the
estate beneficiaries that he was treating the estate as a personal line
of credit (supra ¶ 47); and (4) making unauthorized distributions out
of the estate (supra ¶ 53). These breaches extended over a period of
five years, and they came to an end only after respondent’s sister, a
co-beneficiary of the estate, learned of respondent’s conduct and filed
a petition to terminate independent administration. Supra ¶¶ 4-9.
¶ 115 The 1990 preamble states that the “practice of law is a public
trust” and that “[l]awyers seeking to conform their conduct to the
requirements of these rules should look to the values described in this
preamble for guidance.” Ill. R. Prof. Conduct, Preamble. Among the
values articulated in the 1990 preamble is that lawyers should
“maintain[ ] public confidence in the system of justice by acting
competently and with loyalty to the best interests of their clients.” Id.
Similarly, paragraph 5 of the 2010 preamble now states that “[a]
lawyer’s conduct should conform to the requirements of the law, both
in professional service to clients and in the lawyer’s business and
personal affairs.” Ill. R. Prof. Conduct (2010), Preamble, ¶ 5 (eff. Jan.
1, 2010). The majority’s own analysis confirms that respondent’s
conduct in this case did not accomplish any of these things. On the
contrary, respondent’s conduct undermined confidence in the legal
profession, displayed a profound lack of loyalty to the best interests
of those to whom he was acting as fiduciary, and certainly did not
conform to the requirements of the law governing fiduciary
relationships. And while this may have been only a “personal affair,”
it is worth noting that, as far as personal affairs go, the administration
and execution of an estate is about as closely connected to the formal
legal process as one can get. Historically, estate executors and
administrators served formally as agents of the court itself, exercising
by delegation the court’s power and the court’s responsibility over the
estate. See Will v. Northwestern University, 378 Ill. App. 3d 280, 292
(2007). The rise of independent administration has weakened that
connection over the years, but the fact remains that even independent
executors and administrators are discharging responsibilities that are
closely connected with and directly serve the legal system. All this to
say that respondent’s conduct in this case, while technically
“personal,” also bore a very close connection to the profession he
occupies. Accordingly, a higher standard of conduct was to be
expected than what respondent displayed here.
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¶ 116 The Hearing Board recommended that respondent’s law license
be suspended for four months. The Administrator is asking this court
to suspend it for one year. In light of the mitigating factors that are
present in this case—e.g., that respondent repaid everything he
borrowed and apparently at no time acted with an intent to deceive or
defraud—I believe the Hearing Board’s recommendation is
appropriate, and that is the judgment I would support in this case.
¶ 117 For these reasons, I respectfully dissent.
¶ 118 JUSTICE KARMEIER joins in this dissent.
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