In re Karavidas

• Decision Date: 15 November 2013
• Docket Number: No. 115767.,115767.
• Citation: 2013 IL 115767,376 Ill.Dec. 413,999 N.E.2d 296
• Parties: In re Theodore George KARAVIDAS, Attorney–Respondent.
• Court: Illinois Supreme Court

2013 IL 115767

999 N.E.2d 296

376 Ill.Dec. 413

In re Theodore George KARAVIDAS, Attorney–Respondent.

No. 115767.

Supreme Court of Illinois.

Nov. 15, 2013

Charges dismissed.

Thomas, J., dissented and filed opinion. Steven R. Splitt, of Chicago, for the Administrator of the Attorney Registration and Disciplinary Commission.

Samuel A. Kavathas, Jr., of Kavathas and Castanes, of Chicago, for respondent.

OPINION

Chief Justice GARMAN delivered the judgment of the court, with opinion.

¶ 1 The Administrator of the Attorney Registration and Disciplinary Commission (ARDC) filed a one-count complaint against respondent, Theodore George Karavidas, charging him with various violations of the Illinois Rules of Professional Conduct. The Hearing Board found that he breached his fiduciary duty to the beneficiaries of his father's estate by converting funds from the estate and recommended that he be suspended for four months. The Review Board reversed and recommended that the charges be dismissed. The Administrator filed a petition for leave to file exceptions pursuant to Supreme Court Rule 753(e) (Ill.S.Ct. R. 753(e) (eff. Sept. 1, 2006)), which this court allowed.

¶ 2 BACKGROUND

¶ 3 Respondent was admitted to practice law in Illinois in 1979 and thereafter worked for the City of Chicago, the Attorney General, and several law firms. In 1988, he opened his own practice, focusing on personal injury law. He has no record of previous disciplinary actions and no professional experience in matters of probate or trusts.

¶ 4 Attorney John Hayes, who specialized in estate and probate matters, prepared a will and trust documents for respondent's father, George Karavidas. The elder Karavidas executed the documents on February 17, 2000, and died later that day. Respondent was named in the will to be executor of his father's estate and in the trust documents to be successor trustee. Respondent retained Hayes and his law firm, Pedersen & Houpt, to represent him as executor. Hayes filed a petition to probate the estate on April 11, 2000.

¶ 5 The will provided for George's personal property to be given to his wife, Lillian, and directed that the remainder of the estate pour over into the unfunded trust. The will also authorized independent administration of the estate, meaning that the executor was allowed to take actions with regard to the estate without court approval. See 755 ILCS 5/28–1 (West 2000). The probate estate was valued at approximately $700,000 and included investment accounts with PaineWebber and Harris Investors. In addition, the estate included an interest in a family business called Marie's Pizza and Liquors (Marie's).

¶ 6 The trust documents provided that upon George's death and the resulting transfer of estate assets to the trust, the successor trustee was to create two separate trusts. A family trust was to be funded first, in an amount equal to the maximum federal estate tax exemption (then $675,000); the remaining assets were to be placed in a marital trust for Lillian's benefit. Upon exhaustion of the funds in the marital trust, the principal of the family trust was to be used for Lillian's health and support. In addition, the trustee was given the authority to distribute family trust assets to George's descendants, a group consisting of respondent and his sister, Nadine, provided that the distributions were for the beneficiary's health, support, or education. When making distributions from the family trust, the trustee was instructed to “give primary consideration” to Lillian's needs. Upon Lillian's death, any remaining assets of the family trust were to be distributed in equal shares to respondent and Nadine, without regard to any distributions made to them earlier. However, the trust document also gave Lillian a testamentary power of appointment, under which she could appoint “any one or more” of George's descendants and their spouses to take the principal of the family trust upon her death. Thus, it was not certain that either respondent or his sister would ever receive any funds from this trust.

¶ 7 Respondent did not transfer any estate assets to the existing trust or create the family and marital trusts. On August 9, 2000, he withdrew $50,000 from one of the investment accounts for his own use. In addition, between August 2, 2000, and July 1, 2005, respondent made multiple withdrawals totaling $398,104 from another investment account for his own use. Between February 1, 2001, and October 17, 2005, he deposited $349,604 of his own funds into the same account. He also made payments of his own funds directly to Marie's, his mother, and his sister. The largest deficit of estate funds due to these transactions at any time was $152,104, which was less than one-third of the amount of the entire estate. The Administrator does not allege that any further restitution is owed to the estate.

¶ 8 Respondent also used estate funds to purchase a new Mercedes automobile for Lillian, to pay her health insurance premiums and her real estate taxes, to make contributions to Nadine's Individual Retirement Account (IRA) and to his wife's IRA, to pay a portion of the real estate taxes on the building that housed Marie's, and to pay Nadine's personal income taxes. At the request of Nadine, who operated Marie's, he made advances from the estate of $339,247 to keep Marie's in business. He also paid approximately $20,000 directly to Nadine.

¶ 9 In 2006, Nadine learned that respondent had attempted to sell Marie's without her or her mother's knowledge. She retained an attorney to represent herself and Lillian, and he filed an appearance in the probate case seeking to terminate independent administration. The petition alleged, among other things, that respondent had not circulated an inventory of the assets of the estate or an account of his administration. Later, Lillian and Nadine sought to have respondent removed as executor. Thereafter, the probate court terminated respondent's independent administration of his father's estate, and he resigned as executor. Nadine became executor of the estate.

¶ 10 On December 30, 2009, the Administrator filed a one-count complaint against respondent, alleging that he engaged in: (1) conversion of assets entrusted to him as executor of his father's estate; (2) breach of fiduciary obligations owed to the beneficiaries of the estate; (3) conduct involving dishonesty, fraud, deceit, or misrepresentation, in violation of Rule 8.4(a)(4) (Ill. R. Prof. Conduct R. 8.4(a)(4) (eff. July 6, 2001)); (4) conduct that is prejudicial to the administration of justice, in violation of Rule 8.4.(a)(5) (Ill. R. Prof. Conduct R. 8.4(a)(5) (eff. July 6, 2001)); and (5) conduct which tends to defeat the administration of justice or to bring the courts or the legal profession into disrepute, in violation of Supreme Court Rule 770 (Ill. S.Ct. R. 770 (eff. Apr. 1, 2004)).

¶ 11 At the hearing, the Administrator called five witnesses, including Lillian and Nadine. Respondent called four witnesses and testified on his own behalf.

¶ 12 Hayes testified that he prepared the will and trust documents and that no assets were placed in the trust prior to George's death. He summarized the terms of the will and trust and explained that the family trust would have to be funded before the estate could be closed. If no funds remained after fully funding the family trust, the marital trust would not be funded. As attorney for the estate, he received copies of the monthly statements of the investment accounts. The executor of the estate had the authority to act on behalf of the estate with regard to these accounts. Hayes was not aware of the loans to respondent when they occurred, but became aware of them when he prepared an accounting of the estate in response to Nadine's motion in the probate case. By that time, all of the loans had been repaid by respondent. The repayments did not include interest on the amounts borrowed.

¶ 13 Hayes was aware of payments made by respondent on behalf of his mother and sister, but was not aware of any notice to them regarding any loans or payments of estate funds. He also knew of payments made to fund repairs and operating expenses for Marie's, which was losing money, had overdrafts on its checking accounts, and had ceased paying rent. Respondent's transfers for Marie's totaled $339,236.50. Hayes was also aware that respondent had asked one of Hayes's law partners to draft a sales agreement because he intended to sell the business to its manager. Hayes ceased representing the estate when respondent withdrew as executor and was replaced by his sister.

¶ 14 Attorney Theodore Rodes, Jr., who specializes in estate planning and trusts, was called as an opinion witness. After reviewing the will and trust documents, he concluded that neither the documents nor the Illinois Probate Act authorized the respondent to make loans from the estate to himself. As independent executor, respondent was allowed to take appropriate actions with regard to the estate without court approval. However, as a fiduciary, he had a duty of loyalty, a duty to avoid self-dealing, and a duty to protect the interests of the beneficiaries. The duty to avoid self-dealing prohibits one from placing oneself on both sides of a transaction, such as lender and borrower. Rodes believed that these duties should have been clear to the respondent. Absent specific authority in the documents, the loans would have been proper only if authorized by court order or if the beneficiaries had agreed.

¶ 15 Rodes further opined that respondent violated his duties as executor when he made payments on behalf of his mother and sister. Under the will, he was directed to distribute his father's personal property to Lillian, which he did, and then to turn over the residue of the estate to the trust, which he failed to do. Any authority that the trustee might have had to make distributions to himself and his mother and sister did not exist...