Thomas P. McGarry
Jerome Larkin
SPRINGFIELD — The application of a landmark attorney-discipline case decided last year by the state’s high court was tested during oral arguments Thursday.
The Illinois Supreme Court heard debate over whether a Peoria attorney acted dishonestly in representing the health of a trust he oversaw.
Its ultimate ruling — and future disciplinary decisions — could hinge on the justices’ November ruling in In re Karavidas, which narrowed the slate of misconduct charges the Attorney Registration & Disciplinary Commission can bring against attorneys.
In that case, the court held that disciplinary charges for attorneys must be tethered to a specific violation of the Supreme Court’s Rules of Professional Conduct.
“Mere bad behavior that does not violate one of the rules is insufficient,” Chief Justice Rita B. Garman wrote in last year’s 5-2 decision that overturned Theodore G. Karavidas’ suspension for breach of fiduciary duty and conversion of estate assets.
In 2010, sole practitioner John P. Edmonds was accused by the ARDC of mishandling a charitable trust set up for St. Mark Catholic Church and Grade School in Peoria and withholding information about it.
Edmonds had helped another attorney, John F. Sloan, set up the fund, and he became its trustee in 2000 after Sloan died. At that point, it was worth about $3.8 million.
Over time, however, Edmonds wound up investing about 90 percent of it in a Canadian oil company that performed poorly.
A hearing board determined that constituted a breach of fiduciary duty, and once it occurred, Edmonds and an associate began using their own money in place of monthly payments to the school that were supposed to come from the trust.
Additionally, the board found Edmonds misled the school by saying in 2005 that the trust had not degraded and having his associate compose communications to the school that purportedly came from him.
An ARDC hearing board ruled Edmonds should lose his law license for a year.
But a review panel reversed the decision on the basis that no attorney-client relationship existed.
ARDC Administrator Jerome Larkin admitted that in a post-Karavidas world, simply making bad investment decisions cannot sustain disciplinary charges.
“We understand clearly from this court’s opinion in Karavidas that the common law duty breaches are not an independent and sole basis for discipline,” he told the justices.
However, he said, duty breaches can be used as part of the analysis to determine whether an attorney acted dishonestly — a violation of rules against misrepresentation, deceit or fraud.
Besides, he argued, this case did arise from Edmonds’ work as a lawyer because he helped Sloan set up the fund in the first place.
“It started with the testamentary plan. Respondent is the lawyer for the trustee. He becomes the trustee and fulfills the plan he created for Mr. Sloan,” Larkin said.
After that, Justice Lloyd A. Karmeier jumped in.
“Didn’t the review board, though, reverse on the basis that there was no attorney-client relationship alleged in regard to the violation of breach of duty?” he asked.
Larkin responded that the review board made its ruling before Karavidas was decided, and he believes the decision simply limited what types of cases the ARDC could bring from outside the practice arena.
“I think what the court has done is very carefully limit what cases we might take from outside the practice setting — and did so by saying (the) ARDC may not bring a case if it doesn’t involve a rule violation, but you also may, to inform and to prove a charge, reference other violations of the law,” he said.
Edmonds is represented by Thomas P. McGarry, a partner at Hinshaw & Culbertson LLP, who argued the decision in Karavidas means the board could not bring misconduct charges against his client merely for a breach of fiduciary duty.
“This case was charged as breach of fiduciary duty inside and out; lock, stock and barrel,” he told the justices. He added later: “The entire case was about a terrible breach of fiduciary duty of putting 88 percent of a charitable trust in these ventures.”
He also said the disciplinary panel did not prove his client acted dishonestly.
In an exchange with Justice Robert R. Thomas, McGarry said the evidence did not overcome the “clear and convincing” standard.
“Doesn’t classifying something as an interest payment act like things are going well with an investment?” Thomas asked, regarding the communications between Edmonds and the church.
McGarry said it could, but in this case, “the evidence was that Mr. Edmonds didn’t know whether it was interest or not.”
He added that the review board “said the administrator failed to put in evidence that it wasn’t interest. So they found that, on the clear and convincing standard, that it wasn’t proved.”
The case is In re John P. Edmonds, No. 117696.