Opinion ID: 2791283
Heading Depth: 1
Heading Rank: 3

Heading: Ethical Violations and Sanctions.

Text: 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 5 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. 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 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). 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 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 8 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. 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 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.