### IN THE SUPREME COURT OF IOWA

No. 14

– 1781
Filed April 3, 20 15

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
.

C harles L. Harrington and David J . Grace (until withdrawal) then
Amanda K. Robinson , Des Moines, f or complainant

.

John E. Cepican, Bettendorf, pro se.2

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 color able 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 cl ient 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 th e 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 a gainst 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 heart ache 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
th e client brought a complaint against him, Cepican failed to reply to the
Board on numerous occasions.3 The two other counts in the complaint also involved neglect of
client matters. O ne of the counts involved a complex scientific invention by the client

. T he 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 th is and other case s eventually led to a default judg ment excluding him from practic ing 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 clien t 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 Cepica n 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 proh ibited 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

reques ts. 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 sa id retainers.”4 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

rev ocation 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 wa s 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 fo r 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 matter s de novo. ” Iowa Supreme Ct. Att’y Disciplinary Bd. v. Lemanski , 841 N.W.2d 13 1, 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 Rule s chapter 45, or commits theft in violation of the rules of professional conduct pertaining to misconduct involving dishonesty, fraud, deceit, or misrepre se ntation , Iowa Rules of Professional Conduct5

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 crit ical 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 t he 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 amoun t 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 recov er the retainer . There was also evidence from
the clients indicating Cepican did little work in their cases. On our de novo review, we conclude i t 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.6 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 suffic i ent 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 R s . Prof’l Conduct 32:1.15,
32: 8.4 ( c ) ; Iowa Ct. R s . 45.1, 45.2, 45.7. The complaint should specifically alleg e 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 retain er 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 i d. (finding attorney understood the charge and presented evidence to establish a colorable claim).7 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 allege d he obtained retainer s and did not deposit them
into his trust accoun t, even though the retainers had not been earned. Cepican admitted , as required by the commi ssion’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. Thi s 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 “sh ield 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

1 Two default judgments were imposed against Cepican. First, the USPTO entered a default judgment excluding Cepican from practice be fore 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

. The8 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 pr oceeding 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). A dditionally, a default judgme nt 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 p roceeding.

. . . . ‘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 violate d 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. Bas ed 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 2 015) ( suspending license for si x

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 co nclude Cepican performed no work on the case. _________________________9 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 v iolations); 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 ca used 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 revocatio n of license to practice law i s 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.