Opinion ID: 2045446
Heading Depth: 1
Heading Rank: 1

Heading: Dealings with the Bank.

Text: In 1993 and 1994 Hansel owed several hundred thousand dollars to Midwest Heritage Bank of Chariton, Iowa. Midwest had a perfected security interest in all of Hansel's crops, livestock, machinery, equipment, and in all rights to payment by or through the Commodity Credit Corporation or the ASCS. ASCS payments, in this case, were disaster relief payments for Hansel's 1993 losses and were made by the Warren County Agricultural Stabilization and Conservation Office. In 1993 and 1994 Hansel was in default on his debt to Midwest and entered into a repayment agreement with the bank on June 14, 1994. Hansel drafted the agreement. The agreement required Hansel to sell all 1993 calves on hand within thirty days and apply the proceeds to the Midwest debt. The agreement also required Hansel to list his real estate for sale and to collect payment for 4000 bushels of 1993 corn and apply the proceeds to the Midwest debt. The agreement further provided that Hansel was to apply $15,000 of the expected ASCS payments to the Midwest debt. A. The ASCS payments. In negotiating the repayment agreement, Hansel told Midwest that he had not received the ASCS payments and that he expected $15,000. Hansel admitted at the disciplinary hearing, however, that at the time he had in fact already received between $38,000 and $43,000 in payments. (The checks totaled about $43,000, but Hansel claimed he may have given back one of the checks to the Warren County ASCS.) Hansel admitted that he cashed the checks and used the proceeds for purposes other than payment of the bank loans, including contract payments on land he was purchasing from third parties. In late June 1994, Midwest learned from the Warren County ASCS office that Hansel had received the payments. B. The livestock sales. Midwest representatives testified at the disciplinary hearing that they had told Hansel in 1993 that (1) he was to apply the proceeds from the sale of Midwest collateral to his indebtedness; (2) he was not to use the proceeds for crop inputs or other purposes; and (3) once such proceeds were applied, the bank would decide Hansel's appropriate operating expenses. Hansel, the representatives claimed, was not to use the proceeds himself to pay directly for operating or other expenses. The security agreements provided that Hansel's failure to apply the proceeds from sale of collateral as Midwest directed rendered the sale unauthorized. In contrast, Hansel testified that he and other farmer-debtors commonly controlled the use of proceeds from the sale of collateral without any objection from the bank. Midwest notified Humeston Livestock Auction, where Hansel sold most of his cattle, that it had a security interest in Hansel's livestock. When Midwest gave such notice is not clear in the record. After this notice, however, Humeston Livestock issued checks in both Hansel's name and Midwest's name. Sometime laterin 1994Hansel began selling livestock in his father's name. Midwest did not learn of the sales until the fall of 1994. Very little of the cattle proceeds made it to Midwest. Hansel admitted applying the proceeds instead to (1) contract payments or farmland purchases, (2) wages for hired help, and (3) crop inputs. The proceeds from the sale of the cattle amounted to more than $30,000. In July 1994, after learning of the ASCS payments, Midwest officials visited Hansel's farm with Hansel. When Midwest officials asked about which cattle were Hansel's, Hansel lied and indicated cattle that were not his. In truth, the cattle belonged to a neighboring farmer. Several days later Midwest called in Hansel's loan. The complaint charged that as to the ASCS payments and the sale of the cattle, Hansel violated Iowa Code of Professional Responsibility for Lawyers DR 1-102(A)(3) (lawyer shall not engage in illegal conduct involving moral turpitude) and (4) (lawyer shall not engage in conduct involving dishonesty, fraud, deceit, or misrepresentation). The commission, however, found the board failed to prove by a convincing preponderance of evidence that Hansel's dealings with Midwest violated DR 1-102(A)(3) and (4) by intentional conduct. On our de novo review of the record, we disagree and find that the board did prove the violations by a convincing preponderance of the evidence. Other than preparing the repayment agreement, Hansel was not acting as a lawyer in his dealings with Midwest. This, however, makes no difference because lawyers do not shed their professional responsibilities in their personal lives. Committee on Prof'l Ethics & Conduct v. Gross, 322 N.W.2d 82, 83 (Iowa 1982) (respondent-attorney acted as corporate fiduciary rather than as a lawyer; nevertheless lawyer violated ethical rules when he failed to escrow investment funds as required by option agreement and used money to pay his own salary and other expenses). As mentioned, DR 1-102(A)(3) prohibits lawyers from engaging in illegal conduct involving moral turpitude. Moral turpitude in the context of attorney misconduct means illegal conduct done with a fraudulent or dishonest intent. Committee on Prof'l Ethics & Conduct v. Cody, 412 N.W.2d 637, 639 (Iowa 1987). Under the repayment and security agreements, all of the ASCS payments were Midwest collateral. Contrary to Hansel's contention, we find that Midwest never authorized him to apply those payments to anything other than his debt to Midwest. Nevertheless, he admits receiving between $38,000 and $43,000 in ASCS payments and using those proceeds for purposes other than payments on his debt to Midwest. Under the repayment and security agreements, Hansel's livestock was also Midwest collateral. Hansel sold cattle belonging to him in his father's name, received proceeds from such sales to the tune of $30,000, and failed to apply any of the money to his debt to Midwest. We find as to these transactions that Midwest never authorized the sales in the father's name, nor authorized Hansel to use the $30,000 for anything other than his debt to Midwest. The unauthorized use of the ASCS payments and proceeds from the sale of the cattle amounted to a conversion of Midwest collateral and was dishonest. See Iowa Code § 714.1(5) (defining theft to include dispo[ing] of property in which someone else has a security interest, with intent to defraud the secured party.) As mentioned, DR 1-102(A)(4) prohibits lawyers from engaging in conduct involving dishonesty, fraud, deceit, or misrepresentation. On three different occasions, Hansel was deceitful in his dealings with Midwest. The first time occurred when he told Midwest that he had not received the ASCS payments when in fact he had received between $38,000 and $43,000. The second time occurred when he told Midwest certain cattle belonged to him when in fact the cattle belonged to another farmer. The third time occurred when he sold his cattle in his father's name, causing Humeston Livestock to omit Midwest's name from checks for the sales' proceeds. C. Failure to respond to board inquiries. On July 23, 1995, the board sent Hansel an initial notice of complaint about the conversion of Midwest collateral. Hansel made no response. A month later, the board sent him a second notice by restricted certified mail, but Hansel did not claim the notice. The Ethics Administrator wrote Hansel, reminding him that a failure to respond is an ethical violation. Hansel ignored that letter too. We find that Hansel's failure to respond to board inquiries violated DR 1-102(A)(5) (lawyer shall not engage in conduct prejudicial to the administration of justice) and (6) (lawyer shall not engage in any other conduct reflecting on lawyer's fitness to practice law). See Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Sather, 534 N.W.2d 428, 431 (Iowa 1995).