In re JOHN P. EDMONDS, Attorney, Respondent
An attorney was suspended from the practice of law for three months based on the serious violations of commingling in connection with his client trust account, neglect of an estate which resulted in its interest liability on overdue taxes, and misrepresentations to representatives of a church which was an estate beneficiary.
Susan Frederick Rhodes, Jerome E. Larkin, of Chicago, Attorney Registration and Disciplinary Commission.
Thomas P. McGarry, David E. Jones, Thomas P. Sukowicz, Hinshaw & Culbertson LLP, of Chicago, for Respondent.
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.
[¶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 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.
[¶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 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 ...