Opinion ID: 2208277
Heading Depth: 1
Heading Rank: 5

Heading: The Charge of Fraudulent Conduct

Text: The Administrator's complaint began by alleging, inter alia, the facts that respondent received a $159,648.60 fee, by redeeming 10 specified certificates of deposit, in exchange for his services of requesting the financial institutions where Randolph had certificates of deposit to reissue them in the name of the newly formed trust; the Administrator's complaint then charged that these acts constituted five different kinds of unethical conduct, including conduct involving dishonesty, fraud, deceit, or misrepresentation violating Rule 1-102(a)(4). After receiving the complaint, respondent filed with the Hearing Board first a motion to dismiss, which the Board denied, and then a demand for a bill of particulars, which the Board also denied. In both pleadings respondent argued that the form of the complaint  charging that respondent was guilty of various types of unethical conduct based on the same set of facts  prejudiced him because he did not know which facts were relevant to which charges of unethical conduct. Respondent now argues that the charge of misconduct violating Rule 1-102(a)(4) should be dismissed for failure to state a cause of action, and that the Hearing Board erred in denying his demand for a bill of particulars. Respondent further argues that the Administrator failed to bear his burden of proving a violation of Rule 1-102(a)(4) by clear and convincing evidence, and thus when sanctioning him this court cannot consider this charged but unproved Code violation. Respondent argues that the complaint fails to state a cause of action that he violated Rule 1-102(a)(4) because it does not allege the specific false statements made by respondent, that respondent knew these statements were false when he said them, that he said them intending to deceive or defraud Randolph, and which of respondent's acts were intended to deceive, and did deceive, Randolph. According to respondent, a cause of action for fraud in the context of a disciplinary proceeding must contain such specific allegations. We disagree. 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). A complaint filed by the Administrator with the Hearing Board must reasonably inform the attorney of the acts of misconduct he is alleged to have committed. (107 Ill.2d R. 753(b); In re Harris (1982), 93 Ill.2d 285, 292.) Although an attorney usually can be disciplined only for misconduct that is charged in a complaint, a disciplinary complaint need not be as specific as a criminal complaint. ( E.g., Harris, 93 Ill.2d at 292; but see In re Broverman (1968), 40 Ill.2d 302, 307 (respondent may be disciplined for uncharged misconduct if it was effectively encompassed by the charged misconduct, and if respondent was not misled or prejudiced); In re Thompson (1963), 30 Ill.2d 560, 566-67 (respondent can be disciplined for uncharged misconduct if the finding was based solely on respondent's own testimony).) More recently, this court stated that a disciplinary complaint not only must contain sufficient information to reasonably inform the respondent of the conduct that he must defend as acceptable under the Code, but also must state every fact essential to prove the specific charged misconduct. In re Beatty (1987), 118 Ill.2d 489, 499-500 (affirming dismissal of a disciplinary complaint against six attorneys charging them with knowingly making false statements, inter alia, but failing to allege how certain statements made by a committee they had created were false, what facts were true, and that respondents knew that the committee's statements were false when made, and, most importantly, failing to specify which of the six respondents were responsible for which statements, making it difficult for each to defend himself). 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. For the same reasons, we hold that the Hearing Board did not abuse its discretion when it denied respondent's demand for a bill of particulars. In addition, we find that the Administrator proved by clear and convincing evidence that respondent's conduct constituted fraud. Collecting an excessive fee in and of itself can constitute fraud subject to discipline under Rule 1-102(a)(4); intent to defraud or to deceive is not an element. Unfortunately, when the Hearing Board concludes in its report that respondent engaged in conduct involving dishonesty, fraud, and deceit in violation of 1-102(4) [ sic ] it does not specify to what conduct it is referring; from the report, however, we deduce that the Hearing Board is referring to respondent's collecting the excessive fee, not to any other false statements or deceptive conduct that were unalleged in the complaint. The Hearing Board could have concluded validly that this conduct was fraudulent under Rule 1-102(a)(4). This court has adopted a broad definition of fraud: Fraud is any conduct, statement, or omission that is `calculated to deceive.' ( In re Segall (1987), 117 Ill.2d 1, 7, quoting In re Armentrout (1983), 99 Ill.2d 242, 251 (forgery is fraudulent conduct violating Rule 1-102(a)(4)); see also Majewski v. Gallina (1959), 17 Ill.2d 92, 99 (fraud includes all acts and omissions involving a breach of legal or equitable duty, trust, or confidence; action to establish a constructive trust).) The Hearing Board, which observed respondent's demeanor when he testified, reasonably could have found clear and convincing evidence that respondent never explained to Randolph the simple procedures he used to recover the certificates of deposit (respondent testified only that he reported back to Randolph as he got information, not that he explained to her what he was doing and that no adverse claims had been made), and could have further found that by failing to explain this to Randolph while collecting a $159,648.60 fee respondent engaged in fraudulent conduct by omission. Thus, there is clear and convincing evidence upon which the Hearing Board could have based a finding that respondent engaged in conduct involving fraud as that term has been defined by this court. In addition, we conclude that respondent's conduct was constructive fraud, and that the scope of Rule 1-102(a)(4) encompasses constructive fraud. Constructive fraud does not require as an element that the actor have a dishonest purpose or an intent to deceive, and constructive fraud can be inferred from the parties' relationship and the circumstances. ( E.g., Beaton & Associates, Ltd. v. Joslyn Manufacturing & Supply Co. (1987), 159 Ill. App.3d 834, 843-44.) The appellate court has further defined constructive fraud as: any act, statement or omission which amounts to positive fraud or which is construed as a fraud by the courts because of its detrimental effect upon public interests and public or private confidence.    [It is] a breach of legal or equitable duty which, irrespective of the moral guilt of the wrongdoer, the law declares fraudulent because of its tendency to deceive others. ( In re Estate of Neprozatis (1978), 62 Ill. App.3d 563, 568.) In the present case, the attorney-client relationship between respondent and Randolph was a fiduciary relationship as a matter of law. ( E.g., Coughlin v. SeRine (1987), 154 Ill. App.3d 510, 515.) We hold that when respondent collected the excessive fee of $159,648.60 from Randolph as payment for his services in connection with the recovery of the certificates of deposit, and then failed to initiate a renegotiation of his fee, respondent breached his fiduciary duty and, as a consequence, committed a constructive fraud; we so hold even though there is no evidence that respondent intended to cheat or to defraud Randolph. This, however, has not been the Administrator's argument as to how respondent's conduct constituted fraud; before the Hearing Board, the Review Board, and this court, the Administrator has argued that respondent acted fraudulently because, when he entered into the agreement making his fee contingent on whether he recovered the missing assets, there were no assets to be recovered. The Review Board adopted this reasoning when it found that Respondent's conduct in entering into a contingent fee agreement whereby he was to receive one-third of the assets when there were no assets to be recovered is fraud. We disagree, and hold that the Administrator did not state a cause of action for fraud under Rule 1-102(a)(4) based on this argument. The complaint contained no factual allegations supporting such an argument and reasonably informing respondent that the Administrator viewed respondent's act of initially entering into the fee agreement as dishonest or fraudulent. For example, the complaint did not state the contingency aspect of the fee or explain that while the agreement used the word recovered Randolph's right to the certificates of deposit was never questioned, and so they never needed to be recovered; instead, the complaint merely stated that respondent had the certificates of deposit reregistered and for that received an excessive fee of $159,648.60. Furthermore, the Administrator did not prove his argument about respondent's fraudulent conduct by clear and convincing evidence. (See, e.g., Enstrom, 104 Ill.2d at 416 (Administrator must prove each allegation by clear and convincing evidence).) To prove this argument, the Administrator would have had to introduce evidence that when Randolph and respondent entered into the fee agreement on August 22, 1985, respondent knew for a fact that Randolph had merely misplaced the certificates of deposit, and therefore no adverse claims would be made and no assets would need to be recovered. Yet the Administrator presented no evidence directly or inferentially establishing such knowledge by respondent. In addition, the Hearing Board, which observed respondent's demeanor when he testified, and whose findings are accepted if based on clear and convincing evidence ( e.g., In re Harth (1988), 125 Ill.2d 281, 287), did not find that when respondent entered into the fee agreement he knew there were no assets to be recovered. Thus, the Review Board, with no direct evidence of such knowledge, and not having observed respondent testify, erred in making the above conclusion of law. We judge respondent's conduct in entering into the contract in light of the circumstances existing on August 22, 1985, and we cannot conclude that he acted fraudulently at that time. (See In re Teichner (1984), 104 Ill.2d 150, 158 (although insurance company paid claim in normal course of business, respondent's conduct in entering into a contingent fee agreement was not improper because at time he did so he did not know that claim would not be challenged).) Thus, not only does the complaint fail to state a cause of action for fraud in entering into the fee agreement, but the Administrator also failed to present clear and convincing evidence of such fraud. For the same reasons, we hold that the Hearing Board did not err when it denied respondent's demand for a bill of particulars. To summarize, we conclude that by collecting an excessive fee from Randolph respondent violated Rule 1-102(a)(4) of the Code, as well as Rule 2-106(a). It is for this ethical misconduct that we will sanction respondent.