Agenda 23-September 1999.
JUSTICE BILANDIC delivered the opinion of the court:
The Administrator of the Attorney Registration and Disciplinary Commission (Administrator) filed a complaint with the Hearing Board charging respondent, William Nelson Twohey, with various instances of misconduct evolving from his advising a client to loan funds to Fox River Minerals, Inc., a corporation that respondent represented in his capacity as an attorney. The Hearing Board found that respondent had violated numerous provisions of the Illinois Rules of Professional Conduct (134 Ill. 2d R. 1.1 et seq.). The Hearing Board recommended that respondent be suspended from the practice of law for one year, but that respondent should not be ordered to pay restitution to his client. The Review Board adopted the factual findings of the Hearing Board, agreed that restitution was not proper in this case, but reduced the recommended suspension to a period of six months. This court granted respondent's petition for leave to file exceptions. See 166 Ill. 2d R. 753(e). Respondent challenges only the recommended sanction of six months' suspension.
For the reasons that follow, we approve the recommendation of the Review Board, and we approve in part and reject in part the recommendation of the Hearing Board. Respondent is suspended from the practice of law for six months.
Respondent is 60 years old and was admitted to the practice of law in Illinois in 1967. Respondent has been a resident of Ottawa, Illinois, for most of his life. Respondent is a sole practitioner with a general practice in Ottawa. Respondent has no prior disciplinary complaints against him.
A. Respondent's Relationship with Fox River Minerals, Inc.
Fox River Minerals, Inc. (FRM), was a sand processing company located in Seneca, Illinois. FRM was incorporated and began operations in 1991. According to the record, the sand processing business involves significant start-up costs and large operating expenses. There is no revenue until sand sales begin. FRM was significantly undercapitalized and had substantial debt and ongoing cash-flow problems.
In June 1992, respondent became legal counsel for FRM. In early September 1992, respondent became the sole signatory on a bank account referred to as FRM's "special account," into which all receipts were deposited. Respondent wrote checks from the special account to creditors and transferred money into a payroll account as needed. Respondent worked an average of 15 to 20 hours per week for FRM. From approximately October 1992 through August 1993, FRM paid respondent $500 per week for his work.
As of September 3, 1992, FRM owed creditors approximately $400,000. This figure included two liens totaling $83,000 that were not reflected on FRM's accounts payable statements. On July 22, 1992, the Internal Revenue Service filed a $14,000 tax lien against FRM. Respondent testified that he was not aware of this lien until approximately October 1992. William Peabody, the accountant for FRM, testified that the tax lien was sent to the FRM post office box. Peabody testified that he was aware of the lien immediately, but that he did not recall discussing the matter with respondent, and that he did not recall forwarding a copy of the tax lien to respondent.
Also on July 22, 1992, Serena Construction Company (Serena) filed a mechanic's lien against FRM in the amount of $69,000. Respondent testified that he was not aware in August 1992 of the actual filing of the mechanic's lien. William Peabody testified that he too was not aware at this time that Serena had filed a mechanic's lien. Respondent testified, however, that he was aware of a claim by Serena against FRM, but that the parties disputed the amount owed. Respondent was also aware in late September 1992 that Serena had actually filed a lawsuit against FRM.
On July 23, 1992, respondent accompanied David Remy, FRM's chief executive officer and principal stock holder, to a meeting where Remy signed a "promissory note" in the amount of $120,000 payable to Joseph Thoesen. This note provided that it was secured by an assignment of all of Remy's stock in FRM. Thoesen testified that this was a "personal loan" by him to Remy as a "capital infusion" into FRM. Respondent testified that he was present when Remy signed the note. Respondent believed that Thoesen had made a capital investment of $120,000 in FRM and was not in the position of a lender or creditor. Respondent therefore advised Remy not to sign the note. Respondent was informed that, even though Thoesen was an investor in FRM, and not a creditor, "[t]his was their way of accounting, of keeping track, and that this was a receipt system." David Remy died in June 1994, and therefore did not testify at the hearing in this case.
B. Respondent's Relationship with Nancy Weck
Respondent represented Nancy Weck and her husband, Peter Weck, in various legal matters for several years. Peter Weck died in August 1991. Nancy Weck was left with assets including a commercial rental property in Ottawa and approximately $140,000. Respondent continued to represent Nancy Weck. In 1992, respondent represented Weck in a lawsuit in which Weck sought damages against an oil company for environmental contamination of the commercial rental property. Respondent also reviewed lease agreements for this property, and he prepared a will for Weck.
C. Financial Transactions Involving Respondent, FRM, and Nancy Weck
The disciplinary charges against respondent center on three monetary transactions involving respondent, FRM, and Weck, which occurred on August 5, 1992, a day in late September 1992, and October 23, 1992.
Transaction of August 5, 1992
On August 5, 1992, Weck went to respondent's office to discuss her legal matters. Weck and respondent discussed Weck's finances. Weck had approximately $142,000 in liquid assets. She had deposited this money in a bank account. Respondent suggested that Weck invest money in FRM so that she would receive a better rate of return. Respondent told Weck about FRM's favorable earnings projections. FRM was located near prospective sand buyers, and there were estimates of significant sand reserves on FRM's site. Respondent told Weck that his wife was planning to invest in FRM. Respondent's wife did in fact later invest approximately $16,000 in FRM. Although respondent did not inform Weck of FRM's debts, Weck was advised that the company was in the start-up phase, had significant start-up expenses, and needed a loan to meet operating expenses.
Weck loaned FRM $15,000. David Remy signed a promissory note, which was prepared by respondent, stating that the note was due on October 1, 1992, and would bear interest of $2,500 for the period of the loan. As collateral for the loan, Remy executed a document that purported to assign to Weck 10% of Remy's unencumbered stock in FRM. This assignment recited that Remy owned 100% of the stock in FRM. It also stated that Remy had previously pledged or transferred 45% of the stock and owned 55% of the stock unencumbered.
Respondent did not advise Weck that Remy had no unencumbered stock because of the earlier assignment of all of his shares to Joseph Thoesen as collateral for the $120,000 "promissory note." Respondent testified that, although he knew of Remy's assignment of his shares to Thoesen, respondent thought that other unencumbered shares were available.
Transaction of September 1992
Weck met with respondent in late September 1992 and wrote a check to FRM for $5,000. At this point, Weck converted her position, for the full $20,000 that she had advanced, from a loan to an equity investment. Pursuant to this arrangement, Weck was to receive 5% of the outstanding stock in FRM. The only stock outstanding, however, was the 1,000 shares originally owned by Remy. Respondent did not advise Weck that Remy had pledged all of his shares as collateral to Thoesen.
Respondent deposited Weck's $5,000 check into FRM's special account. This money was used to cover payroll expenses, including respondent's retainer. Weck knew that FRM needed funds to cover payroll, but respondent did not tell Weck that some of her funds would be used to pay his fees.
Conflicting testimony was presented as to whether Weck first discussed the additional $5,000 with Remy, or whether respondent approached Weck about the additional loan. Weck testified that she was concerned about advancing additional funds, but that respondent assured her that she would soon be receiving a large amount of money from the environmental contamination lawsuit in which respondent was representing Weck. Respondent also told Weck that if she did not loan the additional $5,000 to FRM, she would lose the money that she had already loaned to the company. Weck further testified that respondent suggested that she convert her position to an equity investor, rather than a creditor, as that would be the most effective way to obtain the highest return, given FRM's projected sales. Weck never received any stock certificates or documentation reflecting her stock ownership.
Weck later told her boyfriend, now her husband, George Weems, that she had loaned money to FRM. Weems was a close friend of respondent. Weems was familiar with FRM and its financial condition, and ...