Iowa Supreme Court Attorney Disciplinary Board v. John E. Cepican

IN THE SUPREME COURT OF IOWA
No. 14–1781
Filed April 3, 2015
IOWA SUPREME COURT ATTORNEY DISCIPLINARY BOARD,
Complainant,
vs.
JOHN E. CEPICAN,
Respondent.
On review of the report of the Grievance Commission of the
Supreme Court of Iowa.
Grievance commission recommended revocation of attorney’s
license. LICENSE SUSPENDED.
Charles L. Harrington and David J. Grace (until withdrawal) then
Amanda K. Robinson, Des Moines, for complainant.
John E. Cepican, Bettendorf, pro se.
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CADY, Chief Justice.
The Iowa Supreme Court Attorney Disciplinary Board charged
John E. Cepican with violating the Iowa Rules of Professional Conduct
pertaining to neglect of client matters, failure to follow trust account
procedures upon receipt of retainers, and failure to respond to the Board.
The Grievance Commission of the Supreme Court of Iowa found Cepican
converted client funds without a colorable future claim to them. It
recommended Cepican’s license to practice law be revoked. On our
review, we find Cepican violated the rules of professional conduct, but he
was not provided with adequate advance notice that he was charged with
converting client funds. We suspend his license to practice law for a
period not less than six months.
I. Background Facts and Proceedings.
John Cepican is an Iowa lawyer. He was admitted to practice law
in 1974 and developed a practice primarily limited to the area of
intellectual property. He maintained an office in Bettendorf, but was not
actively engaged in his practice by the time this disciplinary action
proceeded to hearing. Cepican is sixty-six years old.
The Board brought a three-count complaint against Cepican
alleging various violations of the Iowa Rules of Professional Conduct
involving his actions with three clients. Each count in the complaint
involved a different client, and the evidence at the hearing showed
Cepican caused substantial heartache and harm to each of them. In the
first count, Cepican represented a client to secure a patent for an
invention involving a toy. Over time, he neglected to perform certain
legal services and failed to adequately communicate with the client. After
the client brought a complaint against him, Cepican failed to reply to the
Board on numerous occasions.
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The two other counts in the complaint also involved neglect of
client matters. One of the counts involved a complex scientific invention
by the client. The neglect by Cepican was serious enough for the United
States Patent and Trademark Office (USPTO) to issue notices of
abandonment of the patent application of the client. The conduct by
Cepican in this and other cases eventually led to a default judgment
excluding him from practicing before the USPTO.
The final two complaints also alleged Cepican failed to follow
proper trust account procedures upon receiving client retainers. In the
second count, Cepican received a client retainer for legal work he agreed
to perform. He then neglected the work and failed to refund the retainer
after the client became dissatisfied with his inaction. In the third
complaint, Cepican received a $5000 retainer from the client to perform
legal work, but again failed to complete the work or return the retainer.
He also failed to place the retainer in his trust account and failed to
provide the client with an accounting. The client subsequently brought a
lawsuit against Cepican to recover the retainer and obtained a default
judgment in the amount of $5000.
After Cepican failed to respond to the allegations of the complaint,
the commission deemed the allegations in the complaint to be admitted.
Additionally, Cepican was prohibited from introducing witnesses or
evidence on the charges and was not permitted to object to any evidence
offered by the Board. These actions were a result of sanctions imposed
by the commission based on Cepican’s failure to respond to discovery
requests. The case then proceeded to a hearing limited to the imposition
of sanctions. In a prehearing brief, the Board explained that the trust
fund allegations involved the claim that Cepican “did not follow proper
trust account procedures with respect to said retainers.”
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The evidence at the hearing revealed Cepican had experienced
numerous problems in his personal and professional life over a period of
several years prior to the complaints and the hearing. Cepican testified
he had no desire to return to the active practice of law, but requested the
commission make a recommendation that he be suspended from the
practice of law for a period of time. At the close of the hearing, the Board
told the commission that Cepican’s trust fund conduct warranted a
revocation of his license based on his admission to the allegations that
he converted retainer funds for his personal use before the fees were fully
earned.
The commission concluded Cepican’s trust fund violation
constituted stealing because no evidence was presented during the
hearing that he had a colorable future claim to the $5000 retainer
provided by the client in the third count. The commission found this
conclusion was also supported by evidence that the client obtained a
judgment against Cepican for the full amount of the retainer.
Consequently, it recommended that his license to practice law be
revoked.
II. Scope of Review.
“We review attorney disciplinary matters de novo.” Iowa Supreme
Ct. Att’y Disciplinary Bd. v. Lemanski, 841 N.W.2d 131, 133 (Iowa 2013).
III. Ethical Violations and Sanctions.
An attorney who misappropriates a client retainer fee either
violates the rules pertaining to the safekeeping of client funds and client
trust accounts, Iowa Rules of Professional Conduct 32:1.15 and Iowa
Court Rules chapter 45, or commits theft in violation of the rules of
professional conduct pertaining to misconduct involving dishonesty,
fraud, deceit, or misrepresentation, Iowa Rules of Professional Conduct
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32:8.4(c). The difference in the conduct is critical because of the
difference in the sanctions imposed. Theft of client funds is grounds for
revocation, while the failure to follow the rules governing retainer fees
normally results in a less severe sanction. See Iowa Supreme Ct. Att’y
Disciplinary Bd. v. Powell, 830 N.W.2d 355, 358–59 (Iowa 2013)
(recognizing a consistent pattern of revocation for client fund conversion
and suspension for trust fund violations involving the early taking of
fees). Often, the critical distinction between the two violations rests on
whether or not the attorney had a colorable future claim to the funds.
Iowa Supreme Ct. Att’y Disciplinary Bd. v. Carter, 847 N.W.2d 228, 232
(Iowa 2014). An attorney in a disciplinary proceeding has the burden to
produce evidence of a colorable future claim, but the burden of proving
theft remains with the Board. Id. at 232–33.
In this case, no evidence was presented by Cepican concerning a
colorable future claim to the client retainer in the amount of $5000. He
was precluded from introducing any evidence as a sanction for failing to
answer the complaint and discovery requests. Yet, there was evidence a
client obtained a judgment against Cepican in the amount of $5000 in a
lawsuit brought to recover the retainer. There was also evidence from
the clients indicating Cepican did little work in their cases.
On our de novo review, we conclude it is unnecessary for us to
determine if Cepican committed theft of retainer funds to justify the
recommended sanction of revocation. We conclude the complaint in the
proceedings before the commission did not provide adequate notice to
Cepican of the charge of theft, and this lack of notice denied him a
reasonable opportunity to defend against the claim and the sanction of
revocation.
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An attorney in a disciplinary action is entitled to notice of the
specific charges of misconduct alleged to have been committed. Iowa Ct.
R. 35.5. The charges must be known to the attorney before the hearing
begins. In re Ruffalo, 390 U.S. 544, 551, 88 S. Ct. 1222, 1226, 20
L. Ed. 2d 117, 122 (1968) (holding the quasi-criminal nature of
disciplinary cases requires fair notice of the charges); see also Iowa
Supreme Ct. Att’y Disciplinary Bd. v. Nelson, 838 N.W.2d 528, 536 n.2
(Iowa 2013) (citing Ruffalo and noting that “the [B]oard must disclose the
charges against an attorney before the proceedings commence”). The
notice requirement is a basic component of procedural due process.
Nelson, 838 N.W.2d at 536 n.2.
An attorney is given sufficient notice of misconduct alleging theft or
misappropriation of a client retainer when the complaint is not only
predicated on a violation of the rules pertaining to the safekeeping of
property and trust accounts, but also includes allegations that the rule
prohibiting conduct involving dishonesty, fraud, deceit, or
misrepresentation was violated. See Iowa Rs. Prof’l Conduct 32:1.15,
32:8.4(c); Iowa Ct. Rs. 45.1, 45.2, 45.7. The complaint should
specifically allege misappropriation or conversion of a client retainer for
personal use without a colorable future claim. See Iowa Supreme Ct.
Att’y Disciplinary Bd. v. Kelsen, 855 N.W.2d 175, 183 n.3 (Iowa 2014).
We recognize notice of an allegation of theft of a retainer may be satisfied
with less precise language in the complaint, but only when supplemented
by a record that shows the attorney actually had an opportunity to
submit evidence of a colorable future claim at the disciplinary hearing
and understood the issue was being litigated. See id. (finding attorney
understood the charge and presented evidence to establish a colorable
claim).
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In this case, the allegations in the complaint did not provide
adequate notice to Cepican that he faced a claim of misconduct in the
nature of theft that would support revocation of his license. The
complaint only alleged he obtained retainers and did not deposit them
into his trust account, even though the retainers had not been earned.
Cepican admitted, as required by the commission’s sanction, all the
allegations in the complaint, but the possibility that he faced a
revocation of his license to practice law was not raised until the
conclusion of the hearing. Thus, his conduct in failing to respond to the
complaint cannot be deemed a waiver of his right to contest the
allegations of theft. Under the circumstances, Cepican did not have a
fair opportunity to know the issue of theft was in play and to produce
evidence to show he had a future colorable claim to the retainer. This
defense is established by evidence the attorney had a good-faith intent to
perform the work even when the attorney failed to perform enough of the
work to exhaust the retainer. See Carter, 847 N.W.2d at 233–34
(permitting a colorable future claim to “shield an attorney from
revocation when the premature fee claim exceeds the actual fee earned if
the funds converted were retainer funds”). Furthermore, a default
judgment entered against an attorney in the civil action over a retainer
would not render the colorable-future-claim defense inapplicable in a
subsequent disciplinary action. See Iowa Supreme Ct. Att’y Disciplinary
Bd. v. Rhinehart, 827 N.W.2d 169, 177–78 (Iowa 2013) (explaining the
requirements for issue preclusion based on prior proceedings). 1 The
1Two default judgments were imposed against Cepican. First, the USPTO
entered a default judgment excluding Cepican from practice before the USPTO. This
judgment was admitted for preclusive effect regarding Cepican’s neglect and
abandonment of his patent cases under Iowa Court Rule 35.7. The second default
judgment was from an Iowa court for the amount of the retainer in Count III. The
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difference in burden of proof between an ordinary civil action and a
disciplinary action generally means civil actions do not have preclusive
effect in disciplinary hearings. See Iowa Ct. R. 35.7(3)(b) (requiring the
burden of proof in the original proceeding be greater than mere
preponderance of the evidence); Iowa Supreme Ct. Bd. of Prof’l Ethics &
Conduct v. Murphy, 669 N.W.2d 254, 257 (Iowa 2003) (finding the
difference in burden of proof prevented issue preclusion). Additionally, a
default judgment is not a final judgment on the merits for the purposes
of issue preclusion. See Winnebago Indus., Inc. v. Haverly, 727 N.W.2d
567, 572 (Iowa 2006) (“Iowa law is clear that issue preclusion requires
that the issue was ‘actually litigated’ in the prior proceeding. . . . . ‘In the
case of a judgment entered by confession, consent, or default, none of
the issues is actually litigated.’ ” (Citations omitted.) (quoting
Restatement (Second) of Judgments § 27 cmt. e, at 257 (1982))). Thus,
Cepican could have asserted the defense of colorable future claim at the
hearing.
Accordingly, we do not consider whether Cepican violated the rules
of professional conduct pertaining to the misappropriation of a retainer
without a colorable future claim. The other violations alleged by the
Board in the complaint were established at the hearing and support the
imposition of discipline. Based on all the evidence presented at the
hearing, we suspend Cepican from the practice of law for a period of time
not less than six months. See Iowa Supreme Ct. Att’y Disciplinary Bd. v.
Bartley, ___ N.W.2d ___, ___, (Iowa 2015) (suspending license for six
_________________________
judgment is not included in this record. Further, no notice was provided to Cepican
that the Board intended to use it for preclusive effect. See Iowa Ct. R. 35.7(3)(c).
However, the commission effectively granted the judgment preclusive effect to conclude
Cepican performed no work on the case.
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months for neglect, trust account violations, and misrepresentation);
Iowa Supreme Ct. Att’y Disciplinary Bd. v. Hauser, 782 N.W.2d 147, 153–
54 (Iowa 2010) (suspending license for six months for severe neglect,
failure to communicate, and trust account violations); Iowa Supreme Ct.
Att’y Disciplinary Bd. v. Walker, 712 N.W.2d 683, 685–86 (suspending
license for six months for neglect, misrepresentation, and failure to
communicate resulting in harm to the clients).
The sanction imposed does not minimize the seriousness of the
conduct by the attorney or the harm caused to the clients. It considers
all the objectives of imposing sanctions on attorneys who violate the
rules of professional responsibility. But, it also recognizes, as we must,
that the legal process must be fair and, in this case, include fair advance
notice when a revocation of license to practice law is on the line.
IV. Conclusion.
We suspend the license of John E. Cepican to practice law in Iowa
for a period not less than six months. Cepican shall comply with all
rules pertaining to the suspension. See Iowa Ct. R. 35.13. Costs of this
proceeding are assessed against Cepican. See id. r. 35.27(1).
LICENSE SUSPENDED.
All justices concur except Wiggins, J., who takes no part.