misuse and conversion of her funds by giving her a document which they represented to be a true and accurate accounting of the settlement proceeds, but which, in fact, contained false and fraudulent information concerning the expenses paid by the Gerards, the fees incurred by the Gerards as trustees, and the amount of money being held by the Gerards for Lawson. Also, on April 27, 1993, the Gerards made false and fraudulent representations to the state court in order to obtain a court order granting them extraordinary attorneys' fees totalling $ 666,666 for their work on Lawson's malpractice suit. In seeking additional fees, the Gerards attempted to deceive the state court by making false and misleading statements concerning the impact of Lawson's case on their ability to handle other matters and concerning the litigation expenses paid by the defendants. Also, after a state court ordered the Gerards to file an accurate accounting of Lawson's money, Gerard attempted to conceal his misuse and conversion of Lawson's money by submitting pages from his business diary that had been altered so as to reflect that a larger amount of time had been spent on trust matters than was originally entered.
The indictment's mail fraud counts relate to conduct by the Gerards in causing a bank document (Count I), a dividend check (Count III), and a mobile phone bill (Count V) to be delivered by mail in execution of their scheme to defraud Ethel Lawson. The interstate transportation of stolen goods counts all relate to conduct by the Gerards in causing checks, representing Lawson's money, to be mailed interstate, knowing that money had been converted or obtained by fraud.
Proposed 404(b) Evidence
(1) Ruth Randolph
The following facts relating to Gerard's prior conduct with a client named Ruth Randolph are drawn from the Illinois Supreme Court's opinion affirming Gerard's one-year suspension from the practice of law. In re Gerard, 132 Ill. 2d 507, 548 N.E.2d 1051, 139 Ill. Dec. 495 (1989). In 1985, Ruth Randolph, who was 84 years old at the time and in the hospital as a result of injuries suffered in a fall, asked Gerard to prepare a will for her. She also asked Gerard to help her find certain paper assets that she owned and which were missing. She told Gerard over the phone that she believed someone at the hospital had taken them. Over the phone, Gerard discussed with Randolph his fee for "recovering" the missing assets, indicating that he could charge a fixed rate of $ 175 per hour, or they could enter into a contingent fee. Randolph said she preferred a contingent fee agreement. On August 20, 1985, Gerard met with Randolph and presented a document he had prepared as the contingent fee agreement. The document--which was the first contingent fee agreement Gerard had drafted in his then 24 year career--stated: "This is to confirm my understanding that William J. Gerard Ltd. will receive as a retainer an amount equal to one-third of all assets recovered for the undersigned." Although this was the first contingent fee agreement Gerard had ever drafted, he did not consult any form books or any other reference sources. However, Gerard had served on the Chicago Bar Association's Professional Fees Committee for four years.
At the time of drafting the agreement, Gerard did not know the nature of the assets, their value, or the complete circumstances of their disappearance. Some of these details were filled in at the meeting of August 20, at which time Randolph informed Gerard that the assets were certificates of deposit that she held in seven financial institutions which she named. Gerard still did not know the number of CDs involved or their value.
At the August 20 meeting, Gerard and Randolph also agreed that Gerard would prepare a trust agreement and a will with a pour-over provision. Gerard and Randolph would be named as co-trustees. Gerard advised Randolph to place stock she owned as well as the CDs, if recovered, into the trust and Randolph accepted this advice. When Gerard left that day, he left the continent fee agreement with Randolph. He met with Randolph two days later so that she could execute the will and trust agreement that he had prepared. Randolph also gave Gerard the contingent fee agreement which she had signed.
During the next month, Gerard contacted all seven of the financial institutions Randolph had named as having issued her CDs. Gerard found that all of Randolph's CDs were still safe in accounts under Randolph's name. Gerard also discovered that the total value of the certificates was approximately $ 450,000.
On September 26, 1985, Randolph gave Gerard a list of the banks she had named on August 20 and the number of CDs which each bank held for her, for a total of 23. This information corresponded with that obtained by Gerard through his inquiries to the banks.
Having identified all of the "missing" CDs, Gerard reregistered each of them in the name of the trust he had established for Randolph. Gerard accomplished all of his work relating to these CDs by telephoning, visiting and writing letters to the banks and by meeting with Randolph. At no time were any adverse claims made by third parties, nor was litigation ever required. Gerard claims to have spent 160 hours within a period of two months "recovering" the CDs.
Gerard began collecting his contingent fee on October 10, 1985, when he redeemed two CDs, now registered in the Randolph trust's name, and deposited the money in his corporate account. Gerard redeemed eight more CDs over the course of the next three months. On January 10, 1986, Gerard redeemed the tenth CD, which because it was unmatured was reduced by a penalty of $ 225, and deposited the resulting sum of $ 40,275 in his corporate account. By redeeming these ten CDs, Gerard collected a total fee of $ 159,648.60, which exceeds one-third of the $ 453,443.37 value of the CDs "recovered" by Gerard. The previous day, Randolph signed a document revoking the trust agreement and instructing Gerard, as co-trustee, to deliver to her all trust assets and trust documents, and to render an accounting for all transactions made during the trust's existence. Randolph mailed this revocation to Gerard, who states that he did not receive it until January 14, 1986.
Gerard delivered all the requested documents to Randolph on or about January 31, 1986. At the same time Randolph signed a release prepared by Gerard, which stated that Randolph acknowledged the return of the trust assets and released Gerard from "all claims in connection with the trust."
Randolph died seven months later. The executrix of Randolph's estate filed a complaint with the ARDC regarding Gerard's $ 159,648.60 fee. She also commenced in action in the Circuit Court of Cook County seeking the return of the fee. Gerard settled the civil action in November of 1987 (four months after the Administrator of the ARDC filed a complaint charging Gerard with misconduct). Under the terms of the settlement, Gerard's fee was renegotiated down to $ 28,000, which represents 160 hours of work at Gerard's $ 175 hourly fee. Accordingly, Gerard repaid the estate $ 131,648.60 plus interest. The settlement agreement included a release of claims whereby the executrix released all claims arising out of Gerard's representation of the estate. A clause in the settlement agreement provides states that "Gerard has asserted and continues to assert a right to said fees paid to him based on the terms of a disputed contingency contract . . . ."
An ARDC Hearing Board panel conducted a hearing at which Gerard and two character witnesses testified. The panel found that Gerard's $ 159,648.60 fee was excessive and predatory, and that Gerard had engaged in conduct involving dishonesty, fraud and deceit. The panel recommended that Gerard be suspended from the practice of law for six months. Both Gerard and the ARDC Administrator filed exceptions with the Review Board. The Review Board accepted the panel's findings and conclusions of law, but it increased the severity of the recommended sanction to a one-year suspension. The Review Board also made two of its own conclusions: (1) Gerard's conduct was extreme overreaching and (2) Gerard acted fraudulently when he entered into the fee agreement because at that time there were no assets to be recovered. Significantly, however, neither the Review Board nor the hearing Board made any factual finding that Gerard knew this at the time of entering into the fee agreement. On appeal to the Illinois Supreme Court, the Court found that Gerard had charged an excessive fee, and suspended Gerard from the practice of law for one year.
The government seeks to introduce the factual statement contained in the Illinois Supreme Court's opinion as well as portions of the opinion relating to an attorney's duties and ethical obligations.
(2) Pauline Armstrong's Estate
Gerard served as the attorney for the estate of Pauline Armstrong, who died in 1987. According to Michael Snyder, who was the executor of the Armstrong estate (and was Gerard's former partner), Gerard had to and ordinarily did submit his bills to Snyder in order to receive payment for services rendered to the estate. Gerard was not authorized to pay himself any monies from the estate without permission from Snyder. In December of 1988, Snyder became concerned about the amount of money being billed by Gerard as fees. So, he told Gerard that he wanted to see more specific information concerning the services that had been rendered.
In connection with the administration of the Armstrong estate, certain real property was sold in December of 1988. Gerard submitted bills for the services he rendered in connection with the sale, and Snyder paid those bills. After the closing, Snyder asked to see the closing documents, which Gerard provided. Upon review of the documents, Snyder discovered that Gerard had received $ 9,000 from the proceeds of the sale, which Gerard had paid to him directly at the real estate closing rather than causing the money to be paid to the estate. Gerard had not previously informed Snyder that he had structured the closing in such a manner that the $ 9,000 would be paid to him directly, nor was Gerard otherwise authorized by Snyder to take that money.
After discovering the $ 9,000 payment, Snyder met with Gerard and fired him from his position as the estate's attorney. Snyder told Gerard that he would have to report the matter to the Illinois Attorney Registration and Disciplinary Commission (ARDC). Gerard asked Snyder not to report the matter, and after talking to his client Snyder decided not to report it. Snyder told Gerard to repay the $ 9,000. Gerard repaid $ 4,000.
(3) Elaine Tsiros
In December, 1992, Elaine Tsiros wrote a $ 5,000 check made payable to "William J. Gerard, Escrowee." The check was intended as an earnest money deposit in connection with a real estate transaction.
The check was deposited into Gerard's Client Funds Account. She did not authorize the use of that money for any other purpose prior to the closing of the real estate transaction. By the end of December 1992, Gerard's Client Funds Account had only $ 534.14 in it; and, by April 7, 1992, the account contained only $ 21.96. On April 7, 1992, Gerard wrote two checks totalling $ 5,000, both of which were drawn on Gerard's personal checking account and included notations indicating that the checks related to the D'Cruz matter. The real estate transaction ultimately did not close and on April 11, 1992 Gerard wrote a check, drawn on his Client Fund Account for $ 5,000, payable to Tsiros' attorney for the purpose of returning Tsiros' earnest money deposit The government contends that this incident evidences Gerard's previous conversion of money that was entrusted to him and his efforts to conceal that conversion.
Fed. R. Evid. 404(b) Standards
Federal Rule of Evidence 404(b) provides in pertinent part:
Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith. It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident . . . .
FED. R. EVID. 404(b). Thus, as the first sentence of this rule makes clear, the government may not introduce prior bad act evidence in order to show that the defendant's character is consistent with a propensity to commit the crime in question; but, such evidence may be properly admitted as evidence of intent and absence of mistake or accident, among other things. United States v. Wilson, 31 F.3d 510, 514 (7th Cir. 1994); United States v. York, 933 F.2d 1343, 1349 (7th Cir. 1991).
In determining the admissibility of prior bad act evidence, the Court employs a four-factor inquiry which asks "whether the evidence (1) is directed toward establishing a matter in issue other than the defendant's propensity to commit the crime charged, (2) shows that the other act is similar enough and close enough in time to be relevant to the matter in issue, (3) is sufficient to support a jury finding that the defendant committed the similar act, and (4) has probative value which is not substantially outweighed by the danger of unfair prejudice." United States v. Gregory, 74 F.3d 819, 822 (7th Cir. 1996); United States v. Lloyd, 71 F.3d 1256, 1264 (7th Cir. 1995). With these criteria in mind, we now consider the government's proposed Fed. R. Evid. 404(b) evidence. We pause to note, however, that in several instances the government indicates that the relevance of its proposed evidence derives from anticipated defenses (e.g., mistake, accident, lack of knowledge). Thus, the Court is presented with the difficult, if not impossible, task of assessing the relevance of evidence to an issue that is only vaguely identified to the Court. Accordingly, the Court's rulings on the instant pretrial motion must be regarded as preliminary and subject to reconsideration in light of the evidence that develops at trial.
(1) Ruth Randolph
(a) Factual Statement
The government seeks to introduce evidence of Gerard's conduct in the Randolph case as evidence of intent and/or absence of mistake or accident in the Lawson matter. Specifically, the government wishes to introduce the factual statement from the Illinois Supreme Court's opinion.
The offense of mail fraud is a specific intent offense, United States v. Hickok, 77 F.3d 992, 1003 (7th Cir. 1996); and, where intent "is a material element to be proved by the government, it is necessarily in issue and the government may submit evidence of other acts in an attempt to establish the matter in its case-in-chief, assuming the other requirements of [Federal Rules of Evidence] 404(b) and 403 are satisfied." United States v. Shackleford, 738 F.2d 776 (7th Cir. 1984); see also United States v. Macey, 8 F.3d 462, 466 (7th Cir. 1993). Thus, the government's proposed use of the evidence concerning the Randolph matter is proper under Rule 404(b). However, the government "must show the relevance of the evidence to the question of intent. It cannot simply flood the courtroom with other-crimes evidence on the grounds that the crime was one of specific intent." United States v. Manganellis, 864 F.2d 528, 533 (7th Cir. 1988) (quoting United States v. Chaimson, 760 F.2d 798, 813 (7th Cir. 1985) (Cudahy, J. concurring)).
In this sense, the analysis required under Fed. R. Evid. 404(b) must be more than merely inquiring if an exception is applicable and then automatically allowing in all evidence that seemingly fits into the exception. Thus, the proper analysis is more than mechanically attempting to fit a square peg into a square hole. See United States v. Leight, 818 F.2d 1297, 1302 (7th Cir. 1987). Instead, Rule 404(b) must be implemented as a rule of prohibition with certain limited exceptions. The Court therefore views its role as one of a "gate-keeper" similar to the non-involved role that judges have with respect to expert witnesses. See Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 125 L. Ed. 2d 469, 113 S. Ct. 2786 (1993).
In its defined gate-keeping role, the Court must reject the government's arguments regarding the Randolph evidence. The Court specifically finds that Gerard's conduct in the Randolph case is not sufficiently similar to the charged conduct to be relevant to the issue of his intent in the instant case and that the danger of unfair prejudice substantially outweighs whatever probative value this evidence has.
As the government correctly notes, the Seventh Circuit has observed on many occasions that "when evidence is offered to prove intent, '"the degree of similarity is relevant only insofar as the acts are sufficiently alike to support an inference of criminal intent." . . . The prior acts need not be duplicates of the one for which the defendant is now being tried.'" York, 933 F.2d at 1351 (quoting United States v. Radseck, 718 F.2d 233, 237 (7th Cir. 1983), cert. denied, 465 U.S. 1029, 79 L. Ed. 2d 693, 104 S. Ct. 1291 (1984) (quoting United States v. O'Brien, 618 F.2d 1234, 1238 (7th Cir.), cert. denied, 449 U.S. 858, 66 L. Ed. 2d 73, 101 S. Ct. 157 (1980))); Lloyd, 71 F.3d at 1265 (same). However, the Seventh Circuit has also cautioned that "similarity means more than sharing some common characteristics; the common characteristics must relate to the purpose for which the evidence is offered." United States v. Torres, 977 F.2d 321, 326 (1992). It is in this respect that the Randolph evidence is fatally deficient.
Before reaching that issue, however, we note that it is far from clear whether Gerard's conduct in the Randolph matter is probative of intent at all. In its opinion suspending Gerard from the practice of law for one year as a result of his conduct in the Randolph matter, the Illinois Supreme Court noted that "this entire incident arose from [Gerard's] ignorance of contingent fees, ignorance which he did not bother to rectify, and which caused him to draft a badly worded fee agreement and, apparently, to poorly advise his client both before and after she agreed to the fee agreement." In re Gerard, 132 Ill. 2d at 522, 548 N.E.2d at 1056. The ignorance to which the court was referring was Gerard's ignorance of the fact that a contingent fee may only be collected when a client obtains a recovery through settlement or successful litigation. Id. In response to Gerard's rejoinder that Randolph never asked him to renegotiate the contingent fee, the court again highlighted that Gerard's ignorance of contingent fees was to blame: "Randolph's failure to ask for a renegotiation likely resulted from [Gerard's] never explaining to Randolph the correct terms of a contingent fee . . . due to [Gerard's] own ignorance." Id., 132 Ill. 2d at 524, 548 N.E.2d at 1057. In the end, the court concluded that Gerard had collected an excessive fee, finding that "[a] lawyer of ordinary prudence would [have been] left with a definite and firm conviction that [a $ 159,648.60] fee [was] in excess of a reasonable fee" . . . for the nonlegal services of identifying the certificates of deposit that Randolph owned, and having them reregistered, even if it did take 160 hours over a period of two months." What is significant about the foregoing is the court's repeated characterization of Gerard's state of mind as one of ignorance. There is no suggestion of a deliberate intent to extract an excessive fee from Randolph.
Nor did the court purport to attribute to Gerard an intent to defraud or deceive in that portion of its opinion addressing the Hearing Board's finding that Gerard engaged in conduct involving dishonesty, fraud, deceit, or misrepresentation in violation of Illinois Supreme Court Rule 1-102(a)(4). Gerard challenged this finding before the Illinois Supreme Court on the grounds that the Administrator's complaint did not state a cause of action under Rule 1-102(a)(4) because it did not allege fraud with the requisite specificity, and the Administrator did not prove that Gerard's conduct constituted fraud by clear and convincing evidence.
In holding that the complaint sufficiently stated a cause of action, the court remarked, in pertinent part as follows:
The complaint sufficiently stated a cause of action for conduct involving dishonesty, fraud, deceit, or misrepresentation in violation of Rule 1-102(a)(4) insofar as his collection of an excessive fee can also be characterized as a violation of Rule 1-102(a)(4). . . .
Respondent was reasonably informed that he was charged with a violation of Rule 1-102(a)(4) due to his collecting a $ 159,648.60 fee, which the Administrator alleged was excessive, to reregister Randolph's certificates of deposit. The complaint also alleged all facts essential to establish a Rule 1-102(a)(4) violation: respondent's services consisted of reregistering the certificates in the trust's name, and he collected a fee of $ 159,648.60, which was excessive. We hold that the Administrator stated a Rule 1-102(a)(4) cause of action. . . .