In re Edmonds

2014 IL 117696
IN THE
SUPREME COURT
OF
THE STATE OF ILLINOIS
(Docket No. 117696)
In re JOHN P. EDMONDS, Attorney, Respondent.
Opinion filed November 20, 2014.
JUSTICE FREEMAN delivered the judgment of the court, with opinion.
Chief Justice Garman and Justices Thomas, Kilbride, Karmeier, Burke, and Theis
concurred in the judgment and opinion.
OPINION
¶1 The Administrator of the Attorney Registration and Disciplinary Commission
(ARDC) filed a complaint against respondent, John P. Edmonds, charging him with
professional misconduct. The Hearing Board found that respondent, as trustee of a
charitable trust, breached his fiduciary duty to various entities and individuals. The
Hearing Board also found that respondent engaged in dishonest conduct with respect to
the trust beneficiary and another person, neglected an estate matter associated with the
trust, and commingled his own funds with client or third-party funds in his client trust
account. The Hearing Board recommended that respondent be suspended from the
practice of law for one year.
¶2 A divided panel of the Review Board affirmed in part and reversed in part. The
Review Board upheld the Hearing Board’s findings that respondent violated the Illinois
Rules of Professional Conduct (Rules) by mishandling the estate matter and
commingling funds. However, the Review Board reversed the Hearing Board’s
findings of breach of fiduciary duty and dishonest conduct. The Review Board
recommended that respondent be suspended for 60 days. This court allowed the
Administrator’s amended petition for leave to file exceptions. Ill. S. Ct. R. 753(e) (eff.
Dec. 7, 2011).
¶3 I. BACKGROUND
¶4 Respondent was admitted to the Illinois bar in 1975, and has lived in Peoria since
1976. In 1989, respondent and his family moved to the Moss-Bradley area of Peoria,
and became members of St. Mark Roman Catholic Church. Respondent had been
active in both the neighborhood residential association and the parish. Respondent has
been a sole practitioner since 1991.
¶5 Respondent knew that John P. Sloan was a longtime Peoria attorney. Sometime
prior to June 1998, respondent received a letter from Sloan. They had not previously
met, and respondent did not know how Sloan found him. In the letter, Sloan asked
respondent to assist in rewriting Sloan’s will, and to provide ideas for a vehicle by
which Sloan could benefit St. Mark’s. Respondent met with Sloan, and they began
working on a will and charitable trust. They eventually became close friends, and
respondent learned that Sloan had graduated from St. Mark’s. At Sloan’s request,
respondent worked on the will and trust pro bono.
¶6 During this work with Sloan, respondent knew Lance Hannah. In 1982, Hannah
was admitted to the Illinois bar. However, in 1992, he was suspended from the practice
of law for one year for neglecting and misrepresenting client matters, failing to
maintain a client trust account, and commingling. In 1994, Hannah was suspended for
18 months and until further order of this court for: failing to comply with Illinois
Supreme Court Rule 764 (eff. Aug. 27, 1990) after his 1992 suspension, neglecting a
client’s civil appeal, and engaging in the unauthorized practice of law after his name
had been removed from the Master Roll of Attorneys for failing to pay his annual
registration fee. Hannah has not sought reinstatement.
¶7 Respondent was unaware of Hannah’s disciplinary status. Respondent then
believed that Hannah was a licensed attorney and an expert in estate planning.
Respondent and Hannah had worked together on some estate matters, including the
drafting of wills. Also, Hannah had been working at American Express. Having
complete trust in Hannah, respondent talked with him many times regarding different
types of investments. Respondent introduced Hannah to Sloan. The three of them met
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and discussed the formation of Sloan’s charitable trust. During this time, Sloan
transferred some of his assets to American Express for Hannah’s management. Two of
Hannah’s investments for Sloan significantly increased in value in a relatively short
time.
¶8 On June 11, 1998, Sloan executed his will, in which he made small bequests to
various individuals, and bequeathed the remainder of his estate to the “John F. Sloan
Perpetual Charitable Trust” (Sloan Trust or trust). Sloan nominated respondent to be
executor of his estate and South Side Trust and Savings Bank, in Peoria, to be successor
executor.
¶9 The trust agreement was executed on the same date. It declared Sloan’s intent to
create a charitable trust that conformed to Federal and Illinois law. The trust would be
used exclusively for charitable purposes, exempt from federal income tax, and would
qualify as a private foundation. Further, the trust agreement declared Sloan’s intent to
“specifically benefit St. Mark Roman Catholic Church and grade school” by providing
funds for: additional school personnel compensation; scholarships, books, supplies,
and equipment; repairs and maintenance; and property acquisition as needed.
¶ 10 The trust agreement granted the trustee broad fiduciary powers. The trustee was
authorized to “make distributions at such times and in such manner” as not to subject
the trust to federal income tax. The trust agreement authorized the trustee to sell trust
property, to borrow money, and to litigate or settle any demand in favor of or against
the trust. Regarding investments, paragraph 6.5 of the trust agreement granted the
trustee the following power:
“To invest in bonds, common or preferred stocks, notes, options, common
trust funds, mutual funds, shares of any investment company or trust or other
securities, in partnership interests, general or limited, joint ventures, real estate,
or other property of any kind, regardless of diversification and regardless of
whether the property would be considered a proper trust investment, except that
no principal or income shall be loaned, directly or indirectly, to the trustee or
anyone else, corporate or otherwise, who has made a contribution to this trust,
and any loan shall bear a market rate of interest and be secured as to its full
value.”
Further, the trustee was granted the powers of an owner of the securities held in trust,
and the power to take any action to conserve the value of trust assets.
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¶ 11 The trust agreement named Sloan as trustee, and respondent and the bank,
respectively, as successor trustees. While Sloan was alive, respondent was Sloan’s
attorney. In 1998, the trust held real estate valued at $300,000 and mutual funds valued
at $750,000, with a total fair market value of approximately $1.1 million. In 1999,
Sloan contributed to the trust additional assets valued at approximately $1.7 million. At
the end of 1999, the fair market value of trust assets, which still consisted of mutual
funds and real estate, was approximately $3.36 million. During Sloan’s personal
trusteeship, income from the trust provided $55,315 to St. Mark’s school in 1999.
¶ 12 In 1999 and 2000, Hannah was the financial advisor to the American Express
account that held the assets of the Sloan Trust. Sometime in 1999 or early 2000,
Hannah discussed Range Energy, Inc. (Range Energy or Range), with respondent and
Sloan. Formerly doing business as Range Petroleum, Range Energy was a publicly
traded corporation based in Calgary, Alberta, Canada. The company was involved in
the exploration and production of oil and natural gas. On January 28, 2000, respondent
received a letter from Hannah suggesting possible investments for the Sloan Trust.
Hannah stated that he could not give a “formal” recommendation to invest in Range
Energy because the company was too small for American Express Financial Advisers
to follow. “However, as we have discussed,” stated Hannah, Range Energy appeared to
be a good investment. Hannah stated that Sloan had already endorsed using 10% of the
trust assets to purchase stock in Range Energy, and the “remainder of the trust would
likely be [invested] in mutual funds.” There was no discussion of investing 100% of the
trust assets in Range Energy.
¶ 13 Sloan died on February 5, 2000, and respondent assumed the duties of executor of
Sloan’s estate and trustee of the Sloan Trust. An estate account was opened with
American Express, which continued to hold the Sloan Trust assets. According to
respondent’s testimony, he received trustee’s fees, and “also was paid money out of the
estate,” which he deposited into his law office operating account.
¶ 14 At respondent’s direction, the Sloan Trust and Sloan’s estate began to buy Range
Energy stock. In a series of purchases from February 7 through March 1, 2000, the trust
bought 933,000 shares of Range Energy costing approximately $556,000. On March
31, Sloan’s estate bought 100,000 shares of Range Energy.
¶ 15 In response to a request for a financial statement of the Sloan Trust, respondent sent
a letter dated April 11, 2000, to the pastor of St. Mark’s. Attached to the letter was the
trust’s financial statement for the period March 15 through March 31, 2000. The
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statement indicated the Range Energy holding, several mutual funds, and a money
market fund, all of which totalled approximately $2.3 million. Respondent did not send
any subsequent trust financial statements to St. Mark’s.
¶ 16 A June 2000 memorandum of understanding reflected “part of a larger agreement”
between the Sloan Trust and Range Energy. In exchange for its investment, the trust
obtained an interest in various Range Energy ventures. Respondent sent approximately
$580,000 in cash directly to Range Energy. He received no receipt or other
documentation to show that the money was a trust investment. In July 2000, respondent
transferred the funds in Sloan’s estate account to the account for the Sloan Trust.
¶ 17 Also during 2000, respondent and Hannah created the “2000 Oil and Gas Fund”
(2000 Fund) to obtain additional investors in Range Energy. Respondent was the
attorney for the 2000 Fund, and he accepted receipt of investment capital on behalf of
the 2000 Fund and forwarded the money to Range Energy. All of the investors in the
2000 Fund were Hannah’s relatives or acquaintances. Respondent made the Sloan
Trust a member of the 2000 Fund. As of December 2000, investors had provided
several hundred thousand dollars to the 2000 Fund.
¶ 18 On December 1, 2000, the 2000 Fund entered into a Production Sharing Agreement
with Range Energy. Hannah recommended the agreement as a means of accelerating
Range Energy’s development, and respondent executed the agreement as attorney for
the 2000 Fund. The agreement provided that in exchange for C$4 million, Range
Energy would provide the 2000 Fund with the rights to certain percentages of the
output of various oil and natural gas reserves which Range Energy claimed to have
established, and Range Energy would make interest payments to the investors during
the term of the agreement. Further, 2000 Fund investors would be entitled to a full
refund if Range Energy did not meet specified reserve levels within two years.
¶ 19 From December 1, 2000, through February 9, 2001, respondent transferred
approximately $2.1 million in additional assets of the Sloan Trust Fund to Range
Energy in fulfillment of the Production Sharing Agreement. 1 In sum, from Sloan’s
death in February 2000 through February 2001, respondent invested all of Sloan’s
personal assets and almost all of the trust assets into Range Energy. By December
2002, the Sloan Trust owned 1,603,768 shares of Range Energy. Also, respondent
1
In February 2001, Hannah left American Express Financial Advisors to become Chief Financial
Officer of Range Energy. In March 2002, Hannah became President and Chief Executive Officer of
Range Energy.
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personally invested approximately $3,100 in Range Energy stock, and he bought
$1,000 to $1,200 worth of stock for each of his two sons; his wife also invested
approximately $1,200 in Range Energy stock. In February 2005, the funds in the
American Express account for the Sloan Trust were depleted and the account was
closed.
¶ 20 In March 2003, the British Columbia Securities Commission suspended trading of
Range Energy stock and issued a cease-trading order to Range Energy because it failed
to file various required documents including financial statements and quarterly reports.
Range defaulted on the Production Sharing Agreement. Respondent attempted to
resolve the default through correspondence and a meeting with Range’s board of
directors in Canada. In May 2003, unbeknownst to respondent, one of the 2000 Fund
investors, Linn Biggs, filed a Canadian lawsuit on behalf of the 2000 Fund investors,
including the Sloan Trust, against Range. In June 2003, the Canadian court entered
judgment against Range in the amount of C$14,233,259.
¶ 21 In April 2005, respondent signed a forbearance agreement between the Sloan Trust
and Range Energy. Under the agreement, the trust would take a subordinate position as
a debtor to any person who provided new capital to Range Energy. Also, the trust
agreed not to seek payment of its C$14 million judgment, but rather only two payments
of $1 million to satisfy the judgment. However, Range Energy had no ability to pay the
$2 million even if the trust sought it.
¶ 22 Despite its shifting assets, the Sloan Trust maintained its distributions to St. Mark’s
during respondent’s trusteeship. In 2000, St. Mark’s received $121,004 from the Sloan
Trust. In 2001, St. Mark’s received an average monthly distribution of $13,750 for a
total of $165,000. In 2002, St. Mark’s received $13,750 per month for a total of
$165,000. The monthly distribution varied from year to year, such that St. Mark’s
received $123,540 in 2003, $123,120 in 2004, and $120,780 in 2005.
¶ 23 On August 30, 2005, respondent met with the pastor of St. Mark’s and a parish
trustee. The parish leaders asked where the Sloan Trust assets were invested.
Respondent explained that since the purpose of the trust was a perpetual legacy, his
focus had been on the school’s long-term goals. Therefore, he shifted trust assets from
the equity holdings during the trust’s early years to oil and natural gas. As an outgrowth
of the August 2005 meeting, respondent sent St. Mark’s pastor a “Report on the Assets
of John F. Sloan Perpetual Charitable Trust” (August 2005 Report). The August 2005
Report stated that the trust held a 20% interest in Range Energy and “various additional
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equity holdings,” despite respondent having sold all of the original holdings in the
Sloan Trust and invested the money in Range Energy, and having closed the American
Express account for the trust in February 2005. The August 2005 Report also stated that
the overall trust value was approximately $3 million and that “the health of the trust is
good and the value of the trust has not significantly changed” since September 2001.
However, respondent did not inform St. Mark’s that Range Energy had breached its
duty to make interest payments pursuant to the Production Sharing Agreement.
¶ 24 In 2006, the Sloan Trust monthly distributions were sporadic. It was not until
March that St. Mark’s received a $10,000 check designated for January, an April check
designated for February, and a May check designated for March. In June 2006, Father
Charles Klamut became pastor of St. Mark’s. He asked to meet with respondent to
discuss the Sloan Trust. Respondent and Hannah met with Father Klamut and gave him
a copy of the August 2005 Report. Respondent told Father Klamut that the trust had a
temporary cash flow problem that would resolve itself and result in greater returns for
the Sloan Trust. After the 20-minute meeting, Father Klamut had believed that the trust
was in good health, and he had no suspicions regarding respondent’s trusteeship.
¶ 25 On October 25, 2006, Bret Taylor, an attorney and parish trustee, faxed to Father
Klamut a document entitled “Brief Overview of Sloan Trust.” Taylor advised the
pastor that: all trust distributions are made at the discretion of the trustee; the trust does
not require a specific amount of money to be distributed at any specific interval;
“[t]here is no specific requirement to provide anyone, including beneficiaries or those
standing as representative[s] of beneficiaries, an accounting or reporting of the
financial status of the Trust”; and “[t]he Trustee has essentially full power to do
whatever [the trustee] feels appropriate to do regarding Trust principle and income, so
long as it is done in good faith, with the general purpose of the Trust in mind.”
¶ 26 St. Mark’s did not receive any more distributions in 2006. St. Mark’s received a
check in February 2007 designated April 2006 in the amount of $10,000. Thus, St.
Mark’s total distribution designated for 2006 was $40,000. In April 2007, the principal
of St. Mark School and a parish leader wanted to meet with respondent to find out what
regular distributions St. Mark’s could expect from the Sloan Trust, and whether St.
Mark’s could use some of the trust principal for a new building project. They met with
respondent and Hannah, who told them that the trust assets were tied up in an
investment with Range Energy and that the funds were unavailable for a potential St.
Mark’s building campaign.
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¶ 27 Distributions resumed in June 2007 and continued through December 2007. St.
Mark’s received $2,000 per month, for a 2007 total of $14,000. Father Klamut decided
to demand a more detailed accounting of the Sloan Trust assets. Taylor wrote a letter to
respondent inquiring about the health of the Sloan Trust and its sole investment in
Range Energy. The letter requested an accounting of the trust and a financial statement
for Range Energy. In March 2008, Taylor telephoned respondent as a follow-up to the
letter and recent telephone conversations between respondent and Father Klamut.
Respondent told Taylor that he had already provided Father Klamut and the previous
pastor a description of the Sloan Trust assets, referring to the August 2005 Report, and
that he would not provide St. Mark’s with any further information.
¶ 28 Father Klamut contacted Patricia Gibson, an attorney and the chancellor of the
Peoria diocese. In June 2008, Gibson wrote a letter to respondent, to which he replied.
Respondent described Range Energy’s activities and attached the August 2005 Report.
Respondent did not address Gibson’s requests for specific accounting information. In
2008, St. Mark’s received $2,000 monthly distribution checks from January through
June, and $3,000 checks for July and August. St. Mark’s last distribution check of
record was for $2,000 dated September 23, 2008, making the 2008 total distribution
$20,000. 2
¶ 29 On September 24, 2008, St. Mark’s filed suit against respondent, seeking an
accounting, damages, his removal as trustee, and the appointment of the successor
trustee. In October, respondent resigned as trustee of the Sloan Trust. In April 2009, the
successor trustee closed the Sloan Trust account, having a balance of $1,149. In May
2011, the civil suit between St. Mark’s and respondent was resolved in a confidential
settlement agreement.
¶ 30 In June 2010, the Administrator filed a seven-count complaint against respondent.
Count I alleged that respondent’s actions constituted a conflict of interest in violation
of Rule 1.7(b) (Ill. R. Prof. Conduct R. 1.7(b) (eff. Aug. 1, 2001)). Count II alleged that
respondent’s misrepresentations regarding the source of the monthly checks
constituted 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)). Count III alleged that
respondent’s misrepresentations regarding the financial health of the trust constituted a
conflict of interest and dishonesty. Count IV alleged that respondent engaged in a
conflict of interest by entering into the forbearance agreement without obtaining the
consent of, or even informing, church or school officials. Count V alleged that
2
The monthly distributions that St. Mark’s received from 1999 through 2008 totaled $947,759.
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respondent failed to act with reasonable diligence in handling Sloan’s estate in
violation of Rules 1.3 (Ill. R. Prof. Conduct R. 1.3 (eff. Aug. 1, 1990)) and 8.4(a)(5)
(Ill. R. Prof. Conduct R. 8.4(a)(5) (eff. July 6, 2001)). Counts I through V additionally
charged that respondent’s alleged actions constituted breaches of fiduciary duty owed
to the Sloan Trust and Sloan’s estate, St. Mark’s, and church and school officials.
Count VI alleged that respondent engaged in dishonesty with a 2000 Fund investor.
Count VII alleged that respondent commingled funds in his client trust account in
violation of Rule 1.15 (Ill. R. Prof. Conduct R. 1.15 (eff. Dec. 1, 1998)). Also, the
Administrator alleged in each count that respondent’s alleged misconduct constituted
conduct “which tends to defeat the administration of justice or to bring the courts or the
legal profession into disrepute,” in violation of Rule 770 (Ill. S. Ct. R. 770 (eff. Apr. 1,
2004)).
¶ 31 Proceedings before the Hearing Board, which included testimony, exhibits, and
other submissions, elicited the above-recited evidence. The Hearing Board found that
respondent engaged in most of the misconduct alleged in the complaint. However, the
Hearing Board found that the Administrator failed to prove by clear and convincing
evidence the allegations of conflict of interest. After considering evidence in
aggravation and mitigation, the Hearing Board recommended that respondent be
suspended from the practice of law for one year.
¶ 32 Respondent filed exceptions to the report and recommendations of the Hearing
Board with the Review Board. The Review Board unanimously concluded that the
allegations of breach of fiduciary duty did not constitute attorney misconduct because
they did not arise out of an attorney-client relationship. Further, a majority of the
Review Board concluded that the representations of respondent to church officials and
a 2000 Fund investor did not constitute attorney misconduct. Accordingly, the Review
Board reversed the findings of the Hearing Board as to counts I, II, III, IV, and VI.
Additionally, the Review Board overturned the Hearing Board’s findings in each count
that respondent violated Rule 770. 3
¶ 33 However, the Review Board unanimously upheld the findings of the Hearing Board
as to respondent’s neglect of Sloan’s estate as charged in count V 4, and respondent’s
misuse of his client trust account as charged in count VII. The Review Board
3
See In re Thomas, 2012 IL 113035, ¶ 92 (holding that an attorney does not violate Rule 770 per se,
but “becomes subject to discipline pursuant to Rule 770 upon proof of certain misconduct”).
4
The Review Board reversed the Hearing Board’s findings of breach of fiduciary duty in count V as
“duplicative and unnecessary.”
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recommended that respondent be suspended from the practice of law for 60 days. The
case is now before us on the Administrator’s exceptions to the findings and
recommendations of the Review Board. Additional pertinent background will be
discussed in the context of our analysis of the issues.
¶ 34 II. ANALYSIS
¶ 35 Before this court, the Administrator and respondent each assign error to various
findings, conclusions, and recommendations of the Hearing and Review Boards. In an
attorney disciplinary proceeding, the Administrator bears the burden of proving the
allegations in the complaint by clear and convincing evidence. In re Thomas, 2012 IL
113035, ¶ 56; In re Timpone, 208 Ill. 2d 371, 380 (2004). The Hearing Board
determines whether the Administrator has met this burden. In re Winthrop, 219 Ill. 2d
526, 542 (2006). The findings of fact made by the Hearing Board are to be treated
virtually the same as the findings of any initial trier of fact. In re Cutright, 233 Ill. 2d
474, 488 (2009). The Hearing Board is afforded deference because it is in the best
position to observe the witnesses’ demeanor, judge their credibility, and resolve
conflicting testimony. In re Storment, 203 Ill. 2d 378, 390 (2002). Accordingly, this
court will generally not disturb the Hearing Board’s factual findings unless they are
against the manifest weight of the evidence. Timpone, 208 Ill. 2d at 380. A decision is
against the manifest weight of the evidence only if the opposite conclusion is clearly
evident. Cutright, 233 Ill. 2d at 488.
¶ 36 Although the Hearing Board’s findings of fact are afforded deference, this court is
responsible for correcting errors in the application of those facts to the law. Winthrop,
219 Ill. 2d at 543. We review de novo questions of law, including the interpretation of
supreme court rules. Storment, 203 Ill. 2d at 390.
¶ 37 A. Administrator
¶ 38 The Administrator contends that respondent committed attorney misconduct by:
(1) breaching his fiduciary duty to the Sloan Trust and Sloan’s estate, and St. Mark’s
and its representatives, as alleged in counts I, II, III, and V 5; (2) engaging in dishonesty
5
The Administrator has not excepted to the Review Board’s recommended dismissal of the breach
of fiduciary duty allegation in count IV.
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with church and school officials, as alleged in counts II and III; and engaging in
dishonesty with a 2000 Fund investor, as alleged in count VI.
¶ 39 1. Breach of Fiduciary Duty: Karavidas
¶ 40 Counts I, II, III, and V of the complaint charged that respondent’s alleged actions
constituted breaches of fiduciary duties that respondent owed to various entities and
their representatives. In November 2011, the Hearing Board found against respondent
as charged. However, in December 2012, the Review Board concluded that these
charges were without basis in law because the alleged circumstances did not involve an
attorney-client relationship. The Administrator filed in this court a petition for leave to
file exceptions to the findings and recommendations of the Review Board. The
Administrator took exception to the Review Board’s dismissal of the remaining
charges of breach of fiduciary duty.
¶ 41 In November 2013, this court decided In re Karavidas, 2013 IL 115767. We agreed
with “the proposition that an attorney’s breach of fiduciary duty *** does not, standing
alone, warrant the imposition of professional discipline.” Id. ¶ 78. We held 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.” Id. ¶ 79.
¶ 42 In December 2013, the Administrator filed a motion for leave to amend his petition
for leave to file exceptions. The proposed amended petition purportedly deleted the
arguments contained in his original petition assigning error to the Review Board’s
dismissal of the breach of fiduciary duty charges, and purportedly presented arguments
consistent with Karavidas. On March 14, 2014, this court entered an order that denied
the amended petition without prejudice to refile. Ill. S. Ct. M.R., 25901 (eff. Mar. 14,
2014). Our order expressly directed the Administrator to review the above-discussed
holding in Karavidas “and not pursue exceptions to the Review Board’s findings”
pertaining to respondent’s alleged breach of fiduciary duty as a ground for discipline.
¶ 43 Despite this court’s order, the Administrator continues to seek discipline based on
respondent’s conduct as trustee and executor without basing the charge on a specific
alleged violation of a Rule of Professional Conduct. The Administrator’s brief is
replete with argument based on the legal theory of breach of fiduciary duty rather than
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specific disciplinary rules. In keeping with our March 14, 2014, order, we do not
address this issue.
¶ 44 2. Dishonesty: St Mark’s Representatives
¶ 45 Count II of the complaint alleges several instances of what the Administrator
characterizes as respondent’s intentional misleading in violation of Rule 8.4(a)(4). Ill.
R. Prof. Conduct R. 8.4(a)(4) (eff. July 6, 2001). Three such occurrences are before us.
¶ 46 In January 2003, the Sloan Trust had insufficient liquid assets to make that month’s
distribution to St. Mark’s. Respondent maintained a business line of credit at Wells
Fargo, which he used to pay various office expenses. On January 3, 2003, respondent
borrowed $13,750 from his business line of credit and deposited it in his client trust
account. Respondent then drew a check on his client trust account payable to the Sloan
Trust in the amount of $13,750, and deposited it in the Sloan Trust account.
Respondent then sent St. Mark’s its monthly check drawn on the Sloan Trust account.
Respondent did not inform church officials that he had borrowed money from his
business line of credit to make the Sloan Trust’s January 2003 distribution.
¶ 47 The trust also had insufficient liquid assets to make its February 2003 distribution
to St. Mark’s. On January 22, 2003, respondent deposited into his client trust account a
check for $30,000, which had been drawn on a personal account controlled by Hannah.
Respondent then drew a check on his client trust account payable to the Sloan Trust in
the amount of $13,750. Respondent then sent St. Mark’s its February 2003 distribution.
Respondent did not inform church officials that he used funds that he received from
Hannah to make the Sloan Trust’s February 2003 distribution.
¶ 48 In August 2003, the Sloan Trust again had insufficient liquid assets to make its
monthly distribution. Hannah wrote a $10,000 check to respondent, who deposited it in
his client trust account. Respondent then drew a check on his client trust account
payable to the Sloan Trust in the amount of $9,066.67, and deposited the check into the
Sloan Trust account. Respondent then sent St. Mark’s its monthly check drawn on the
Sloan Trust account. Respondent did not inform church officials that he used Hannah’s
personal funds to make the Sloan Trust’s August 2003 distribution.
¶ 49 The complaint alleged that respondent intended to mislead school and church
officials as to the source of the funds for the three above-cited distributions. In his
answer, respondent admitted the facts of the occurrences, but denied that he intended to
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mislead anyone. At the hearing, respondent testified: “I thought that the interruption in
cash flow was temporary, and there’s $20,000 of my money that went to the church.
Yes. I admit that.” He further testified that he did not intend to deceive or mislead St.
Mark’s in his communications with church leaders.
¶ 50 The Hearing Board found that in each of these three occurrences respondent
“purposefully engaged in dishonesty and deceit.” The Board concluded that by not
informing St. Mark’s of the source of the funds used to make these three distributions,
respondent made it falsely appear that the distributions came from trust income.
According to the Board: “There was simply no reason for the Respondent [to] take the
steps he did, if not to hide the source of the funds from St. Mark’s.” Further, according
to the Board, respondent made it falsely appear by this deception that the Sloan Trust
was doing well financially when, in fact, it lacked sufficient liquid assets to make those
monthly distributions.
¶ 51 The Review Board majority recited the three occurrences of alleged dishonesty
with the observation: “Respondent did not disclose the lack of liquid assets to St.
Mark’s but he was not required to make such a disclosure under the terms of the trust
agreement.” The Review Board further observed that “not all omissions of information
amount to dishonest conduct in violation of Rule 8.4(a)(4).” According to the Review
Board: “the only direct evidence of Respondent’s intent was Respondent’s own
testimony. Respondent testified he did not intend to deceive St. Mark’s but was only
attempting to help the school by continuing to make payments to them. The
Administrator offered no evidence to contradict Respondent’s testimony.” The Review
Board concluded that “[i]n the absence of countervailing evidence, the Hearing Board
was not entitled to simply disbelieve the only competent evidence adduced with regard
to Respondent’s intent.” Accordingly, the Review Board found that the Hearing
Board’s findings of misconduct as to count II were against the manifest weight of the
evidence.
¶ 52 One Review Board member dissented on this issue. She would have upheld the
Hearing Board’s finding that respondent engaged in dishonesty and deceit regarding
count II. She recommended a 90-day suspension.
¶ 53 Before this court, the Administrator relies on the Hearing Board’s findings that
respondent engaged in dishonesty and deceit in violation of Rule 8.4(a)(4). We agree
with the reasoning and conclusion of the Hearing Board. Rule 8.4(a)(4) is broadly
construed to include anything calculated to deceive, including the suppression of truth
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and the suggestion of falsity. In re Yamaguchi, 118 Ill. 2d 417, 426 (1987). This type of
conduct has been proved in this case.
¶ 54 The Review Board observed that the trust agreement did not require respondent to
disclose the lack of liquid assets in the trust. However, a mere lack of disclosure is not
at issue here. Respondent’s misconduct goes to the suppression of truth and the
suggestion of falsity. See Yamaguchi, 118 Ill. 2d at 426. The Review Board concluded
that respondent’s exculpatory testimony “was the only direct evidence” of his intent.
“However, motive and intent are rarely proved by direct evidence, but rather must be
inferred from conduct and the surrounding circumstances.” In re Stern, 124 Ill. 2d 310,
315 (1988).
¶ 55 In the instant case, there is abundant circumstantial evidence that respondent
calculated to deceive St. Mark’s, and that he took steps to suppress truth or suggest
falsity. Respondent conceded that he did not simply forward his or Hannah’s funds
directly to St. Mark’s, although he certainly could have done so. Rather, he deliberately
engaged in the above-described convoluted process to ultimately make the monthly
distribution from the trust. His actions speak for themselves. As the Hearing Board
found, there was no reason for respondent to take the actions he did unless he was
attempting to conceal from St. Mark’s and its representatives the true source of the
funds. In assessing an attorney’s conduct, “we need not remain blind or insensitive to
the reasonable and clear cut intendments arising from respondent’s own admissions
and business records.” In re Krasner, 32 Ill. 2d 121, 127 (1965). Disagreeing with the
Review Board, we hold that respondent is subject to discipline for dishonesty to St.
Mark’s representatives in violation of Rule 8.4(a)(4), as alleged in count II.
¶ 56 Count III of the complaint alleged that in August 2005, respondent knew that:
Range had breached the Production Sharing Agreement; Range was sued; and that
judgment was entered against Range for C$14,233,259. However, the August 2005
Report stated that “the health of the trust is good and the value of the trust has not
significantly changed.” Count III alleged that the August 2005 Report constituted
dishonesty and deceit in violation of Rule 8.4(a)(4).
¶ 57 At the hearing, respondent testified that he asked Hannah for information to
provide to St. Mark’s. Hannah testified that he prepared the August 2005 Report.
Respondent testified that he received the report from Hannah and forwarded it to St.
Mark’s.
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¶ 58 The Hearing Board found that respondent engaged in dishonesty and deceit by: (1)
leading St. Mark’s officials to believe that the contents of the report were true to the
best of his knowledge, when respondent actually had no idea of the truth or falsity of
the report’s contents; and (2) failing to inform church officials that he did not prepare
the report. The Hearing Board also found that respondent “knew that some of the
information in the report was false or, at least, highly misleading.” After reciting the
history of the trust up to August 2005, the Hearing Board concluded that respondent
knew that the report’s description of the trust’s health as “good” and the trust’s value as
“not significantly changed” were misrepresentations.
¶ 59 The Review Board rejected the Hearing Board’s findings that respondent engaged
in dishonesty, concluding that they were against the manifest weight of the evidence.
Referring to respondent’s testimony that he relied on Hannah, the Review Board
reasoned that it would create an unreasonable burden for trustees to suggest that a
trustee cannot rely on information from a financial advisor in making statements to
beneficiaries. The Review Board further found: “Nor do we believe that Respondent’s
failure to disclose Lance Hannah as the source of the information contained in the letter
was intended to deceive anyone.”
¶ 60 Before this court, the Administrator relies on the Hearing Board’s conclusion that
respondent engaged in dishonesty and deceit as charged. However, we agree with the
Review Board that the Hearing Board’s ultimate finding was against the manifest
weight of the evidence. Respondent’s reliance on: (1) Hannah, his financial advisor, to
prepare the report; and (2) the information contained therein, was not dishonest or
deceitful. Respondent’s delivery of the report to St. Mark’s was not dishonest; he never
claimed that he prepared the report. There was no evidence that respondent knew that
authorship of the report was an issue for church officials. In any event, he was under no
duty to provide any information to St. Mark’s.
¶ 61 Further, the Review Board correctly concluded that the Administrator failed to
offer any evidence regarding respondent’s knowledge of the truth or falsity of the
contents of the August 2005 Report. The Review Board correctly found that no
evidence was presented at the hearing that indicated what the value of the trust was in
2005, when the report was prepared, or in 2006 and 2008, when respondent again gave
the report to church officials. The Administrator offered no evidence to prove that the
value of the trust was anything other than the stated $3 million. The Review Board
correctly concluded that the Administrator failed to meet his burden of proof on this
issue.
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¶ 62 This court has observed that “[t]here is essentially no way to define every act or
form of conduct that would be considered a violation of Rule 8.4(a)(4). Each case is
unique and the circumstances surrounding the respondent’s conduct must be taken into
consideration.” Cutright, 233 Ill. 2d at 490. Based on the unique circumstances of this
case, we decline to reverse the conclusion of the Review Board, and conclude that
respondent did not violate Rule 8.4(a)(4) as alleged in count III.
¶ 63 3. Dishonesty: 2000 Fund Investor
¶ 64 In early 2001, Hannah visited Shirley Boers and asked her to invest in Range, and
told her that she would earn 10% annual interest on her investment. They agreed that
Boers would invest $100,000 in the 2000 Fund, and that Boers would receive her
interest in monthly installments. Shortly thereafter, Hannah discussed the meeting with
respondent.
¶ 65 On March 1, 2001, at Hannah’s direction, Boers mailed respondent a check in the
amount of $100,000 made payable to respondent’s client trust account. Respondent
sent Boers a letter acknowledging that her check constituted her investment in the 2000
Fund’s Production Sharing Agreement with Range. Respondent deposited the check
into his client trust account, and then transferred Boers’s $100,000 to Range.
¶ 66 On April 18, 2001, respondent sent a letter to Boers, copied to Hannah, explaining
that her monthly interest payments should be approximately $833.33. Enclosed with
the letter was a check drawn on respondent’s client trust account in the amount of
$833.33. From May 2001, to August 2003, respondent signed and sent 21 form cover
letters on his office stationery with each check. Each letter stated: “Enclosed is the
interest payment for [month, year], in the amount of $833.33. If you have any
questions, please feel free to contact this office.” 6
¶ 67 Count VI alleged that respondent’s statements concerning “interest” to Boers were
false. The complaint alleged that neither Range nor any other source paid interest on
Boers’s 2000 Fund investment. The complaint further alleged: “Respondent knew that
his representations to Boers were false because he knew Range Energy had paid no
6
Boers’s August 2003 check was her last check. That cover letter stated: “Lance has asked that I
send this to you and to advise you that we are in the process of setting up a Corporation. Once this has
been established, payments should be smoother and easier each month.” Boers received no further
payments or correspondence from respondent.
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interest or dividends and the letters and the ‘interest’ checks were intended to mislead
her.”
¶ 68 In his testimony, Hannah acknowledged that the monthly cover letters stated that
her “interest” was enclosed. However, he recognized that each payment was not
“interest per se, but it was her interest.” Respondent testified that the cover letters
contained what Hannah told him to write. Respondent was asked if he knew that the
monthly checks to Boers “weren’t actually interest payments.” Respondent answered:
“I didn’t know what they were. They were given to me, and Lance [Hannah] asked me
to send them to her. That’s what I did.”
¶ 69 The Hearing Board found that respondent violated Rule 8.4(a)(4) (Ill. R. Prof.
Conduct R. 8.4(a)(4) (eff. July 6, 2001)), by engaging in dishonesty as charged. The
Hearing Board found that respondent made false representations in the cover letters
that he signed and sent to Boers. The Hearing Board reasoned that when respondent
sent the letters, he knew that he did not know if the statements in the letters were true or
false; however, respondent made no effort to ascertain if the payments were “interest”
payments. The Hearing Board concluded that respondent “deliberately and knowingly
signed and sent to Boers letters containing factual assertions about which he chose to
remain ignorant” and, thus, acted to deceive Boers.
¶ 70 The Review Board reversed these findings. The Review Board observed that it was
the Administrator’s burden to prove by clear and convincing evidence that
respondent’s statement regarding “interest” in his cover letters were false. The Board
concluded that “the Administrator failed to prove that the payments to Boers were
something other than interest on her investments. Accordingly, we find that the
Administrator failed to prove misconduct as to Count VI.”
¶ 71 Before this court, the Administrator assigns error to this conclusion. The
Administrator contends that he proved that Range had paid no interest to St. Mark’s or
the 2000 Fund during the time that respondent was sending checks to Boers. We
disagree.
¶ 72 The Administrator presented no evidence whatsoever showing the exact nature of
the monthly checks sent to Boers. Based on the record before us, there is no way to
determine that they were not interest payments, and that respondent’s cover letters
characterizing them as “interest” payments were false.
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¶ 73 Also, there is no evidence that respondent intended to deceive. To the contrary, the
evidence establishes that respondent provided what he believed to be truthful
information to Boers. The first letter, dated April 18, 2001, set forth respondent’s
understanding of the arrangement between Boers and Hannah, including that she
would receive “interest” on her investment. Respondent had no independent
knowledge of whether the monthly payments to Boers were or were not actually
interest. Hannah sent to respondent the funds remitted to Boers, and the cover letters to
Boers stated exactly what Hannah told respondent to write to her. The subsequent
cover letters merely followed a form repeating the message that respondent received
from Hannah: the checks represented “interest.” There is no clear and convincing
evidence that respondent made a statement that he knew was false.
¶ 74 It was the Administrator’s burden to prove by clear and convincing evidence that
respondent’s statements in his cover letters to Boers were false. However, the
Administrator presented no evidence whatsoever to establish what was the nature of
the payments. After carefully reviewing the record, we hold that the Hearing Board’s
finding of dishonesty in violation of Rule 8.4(a)(4) was against the manifest weight of
the evidence. We conclude that respondent did not violate Rule 8.4(a)(4) as alleged in
count VI.
¶ 75 B. Respondent
¶ 76 Respondent assigns error to the Review Board’s conclusions that he committed
attorney misconduct by: (1) neglecting Sloan’s estate as alleged in count V, and (2)
commingling funds in his client trust account as alleged in count VII. 7
¶ 77 1. Neglect of Sloan’s Estate
¶ 78 Sloan died on February 5, 2000. On February 8, 2000, respondent filed in the
circuit court of Peoria County a petition to probate Sloan’s will and for issuance of
letters testamentary. On the same date, the circuit court admitted the will to probate and
issued letters of office to respondent. A certified copy of the court file indicated that
7
“Either party may assert error in any ruling, action, conclusion or recommendation of the Review
Board without regard to whether the party filed exceptions.” Ill. S. Ct. R. 753(e)(5)(a) (eff. Sept. 1,
2006).
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respondent never filed any accounting of his administration of the estate, or took any
action in the probate case since February 2000.
¶ 79 In October 2001, the Internal Revenue Service notified respondent that the Sloan
Trust owed a disputed amount of federal estate taxes. In November 2001, respondent
remitted a $10,000 check and in May 2002 a $1,000 check, each drawn on the Sloan
Trust account. As of September 2009, the IRS claimed an unpaid tax balance of
$65,717 plus $35,048 in accrued interest, for a federal tax liability of the Sloan estate
totalling $100,765. During the proceedings, respondent acknowledged that he
“couldn’t pay the IRS back because [he] had disbursed all the money.” In 2011,
respondent began negotiations with the IRS to obtain a reduction of the tax lien against
the Sloan estate. The Administrator alleged, respondent admitted, and the Hearing
Board found, that at the time of the hearing Sloan’s estate remained open. 8
¶ 80 The Hearing Board found that respondent’s general neglect of the Sloan estate from
2000 to 2011 was an unreasonable and unjustified delay. The Board specifically found
that respondent’s failure to take any steps during the nine-year period from 2002 to
2011 to resolve the estate’s tax liability, so that the estate could be closed, constituted
an unreasonable and unjustified delay. The Board found that “respondent’s lack of
diligence has resulted in an increase of tax liability, including interest, for the Sloan
estate.” The Board found that the Administrator proved by clear and convincing
evidence that respondent, inter alia, failed to act with reasonable diligence and
promptness in representing a client in violation of Rule 1.3 (Ill. R. Prof. Conduct R. 1.3
(eff. Aug. 1, 1990)), and engaged in 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)).
¶ 81 The Review Board upheld these findings. Respondent argued that he did not violate
Rule 1.3 because he was acting as an executor, and he was not acting as a lawyer
representing a client. The Review Board rejected this argument, concluding that
respondent neglected the estate both as an executor and as the attorney for the estate.
Because a judicial proceeding was involved, the Review Board also upheld the Hearing
Board’s findings as to respondent’s violation of Rule 8.4(a)(5). See In re Smith, 168 Ill.
2d 269, 285-88 (1995) (Rule 1.3 violation can be prejudicial to administration of justice
in violation of Rule 8.4(a)(5)).
8
He further acknowledged that Sloan’s estate was “still open *** because the estate doesn’t have the
money to pay that tax.”
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¶ 82 Before this court, respondent contends that the complaint alleged only that he
neglected Sloan’s estate in the capacity of executor. Respondent argues that there was
no allegation that he neglected the estate as the attorney for the estate.
¶ 83 We reject this argument. Respondent overlooks his admissions in his answer to the
Administrator’s complaint. Respondent admitted that he acted in his capacity of
attorney in drafting Sloan’s will and the trust agreement, and opening the probate estate
in the circuit court. Further, as the Review Board observed, respondent charged fees to
work on the estate matter, and deposited those fees into his law office account because
he considered them to be legal fees. We agree with the Review Board that respondent’s
roles as attorney and executor were intertwined. We hold that respondent is subject to
discipline for his neglect of Sloan’s estate in violation of Rules 1.3 and 8.4(a)(5).
¶ 84 2. Commingling
¶ 85 Between February 2000 and June 2009, respondent paid personal and business
expenses from his client trust account. In his answer, respondent admitted to the several
payments alleged in the complaint. The Hearing Board found that the Administrator
proved by clear and convincing evidence that respondent failed to hold client or
third-party funds separate from his own property in violation of Rule 1.15(a) (Ill. R.
Prof. Conduct R. 1.15(a) (eff. Dec. 1, 1998)). The Review Board upheld the Hearing
Board’s findings.
¶ 86 Before this court, respondent argues, as he did below, that he should not be
disciplined because he did not pay his personal bills with “client” funds. Rather, he had
left earned fees in the client trust account for a period of weeks, and then paid his
personal bills with his earned fees. Respondent reasons: “No client was harmed or
could have been harmed, as all funds belonging to clients were always in the trust
account.” According to respondent, “[t]his isolated conduct is arguably not worthy of
any formal disciplinary action” and, therefore, count VII should be dismissed.
¶ 87 This argument lacks merit. It is “absolutely impermissible” for an attorney to
commingle his or her funds with those of a client. In re Clayter, 78 Ill. 2d 276, 278-79
(1980). It is a paramount obligation of each member of the bar to study the applicable
professional conduct rules and abide by their terms and principles. In re Cheronis, 114
Ill. 2d 527, 535 (1986). This court has consistently condemned commingling. Clayter,
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78 Ill. 2d at 281. We hold that respondent is subject to discipline for failing to hold
client property separate from his own property in violation of Rule 1.15(a).
¶ 88 C. Sanction
¶ 89 The Hearing Board recommended that respondent be suspended from the practice
of law for one year. The Review Board recommended a 60-day suspension.
Challenging the Review Board’s recommendation, the Administrator contends that
respondent’s misconduct warrants a suspension for at least one year. Respondent
contends that the appropriate sanction is reprimand or censure. 9
¶ 90 This court is not bound by the disciplinary recommendations of either the Hearing
Board or the Review Board because those recommendations are only advisory, and the
ultimate responsibility for imposing discipline on attorneys rests with this court. The
purpose of attorney discipline is not punishment, but rather to protect the public,
maintain the integrity of the legal profession, and protect the administration of justice
from reproach. Cutright, 233 Ill. 2d at 490-91; Winthrop, 219 Ill. 2d at 559. We
acknowledge the goals of consistency and predictability in the imposition of sanctions.
However, we recognize that each case is unique and must be decided on its own facts.
In re Mulroe, 2011 IL 111378, ¶ 25; Winthrop, 219 Ill. 2d at 559. In determining the
appropriate sanction, we consider the nature of respondent’s misconduct and any
aggravating or mitigating circumstances. In re Gorecki, 208 Ill. 2d 350, 360-61 (2003).
¶ 91 Regarding the neglect of Sloan’s estate, this court has repeatedly observed that
neglect in the performance of an attorney’s duties to a client can be sufficient to warrant
discipline. Where a corrupt motive and moral turpitude are not clearly shown,
suspension is a proper punishment. In re Levin, 77 Ill. 2d 205, 210 (1979); In re
Chapman, 69 Ill. 2d 494, 501 (1978). Regarding the finding of commingling, we
recognize that respondent maintained a client trust account. However, he used the
account as he would any other business account, commingling his personal funds with
client funds. This practice violated respondent’s professional duty to maintain client
funds in a separate account. This court has repeatedly stated that commingling will not
be countenanced. Mulroe, 2011 IL 111378, ¶ 26 (quoting Cheronis, 114 Ill. 2d at 535).
Commingling is a ground for suspension (Cheronis, 114 Ill. 2d at 535), as is
misrepresentation (In re Merriwether, 138 Ill. 2d 191 (1990)).
9
See Ill. S. Ct. R. 770 (eff. Apr. 1, 2004) (nonexclusive list of types of discipline).
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¶ 92 Respondent relies on the Review Board’s findings that his only misconduct was
neglecting a probate estate and commingling. Respondent cites to disciplinary cases
involving neglect or commingling where this court has imposed censure. See, e.g., In
re Young, 111 Ill. 2d 98 (1986) (commingling); In re Kink, 92 Ill. 2d 293 (1982)
(neglect); In re Clayter, 78 Ill. 2d 276 (1980) (commingling); In re Sherman, 60 Ill. 2d
590 (1975) (same); In re Ahern, 23 Ill. 2d 69 (1961) (neglect). Rejecting this
suggestion, we agree with the Review Board’s observation: “Respondent’s total lack of
diligence in handling the Sloan estate resulted in the estate incurring interest liability on
the overdue taxes owed. Respondent took no action to resolve the tax liability issues.
He offered no justification or reasonable explanation for his neglect.” Also, even
absent a dishonest motive, commingling presents a substantial risk of harm to the
client. See Cheronis, 114 Ill. 2d at 536. Additionally, we agree with the Hearing Board
that respondent’s misrepresentations to church representatives violated Rule 8.4(a)(4).
Therefore, respondent’s conduct warrants a period of suspension.
¶ 93 We next address the length of the suspension. In aggravation, the Administrator
recounts the Hearing Board’s findings of misconduct as charged in all seven counts of
the complaint. The Hearing Board recommended a one-year suspension, which the
Administrator argues should be the minimum sanction. However, as the Review Board
observed, the Hearing Board recommended a one-year suspension based on its findings
against respondent in all seven counts of the complaint. We are now imposing
discipline for respondent’s violations of only three counts. Therefore, we initially agree
with the Review Board that a one-year suspension, which the Hearing Board
recommended, is not warranted.
¶ 94 We observe that this court has imposed three-month suspensions in cases involving
neglect (In re Harth, 125 Ill. 2d 281 (1988); Levin, 77 Ill. 2d 205; Chapman, 69 Ill. 2d
494), commingling (Mulroe, 2011 IL 111378; Cheronis, 114 Ill. 2d 527), and
misrepresentation (Merriwether, 138 Ill. 2d 191). Of course, there are cases where the
suspensions have been longer and other cases where the suspensions have been shorter.
Using these sanctions in previous cases as a guide, we nonetheless base our
determination on the unique circumstances surrounding this case.
¶ 95 Respondent has been licensed since 1975, and has never before been disciplined.
He was cooperative during the disciplinary proceedings. The testimony of multiple
character witnesses indicates that respondent has a good reputation for honesty and
integrity in the Peoria area. He has been active in the Peoria community and at St.
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Mark’s parish. He has taken an ARDC professionalism seminar and has revised his
office procedures pertaining to his client trust account.
¶ 96 Having considered the serious nature of the offenses, the circumstances of this
case, as well as our previous decisions, we conclude that a three-month suspension is
the appropriate sanction in this case.
¶ 97 III. CONCLUSION
¶ 98 For the foregoing reasons, respondent is suspended from the practice of law for
three months.
¶ 99 Respondent suspended.
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