Iowa Supreme Court Attorney Disciplinary Bd. v. Caghan
| Decision Date | 10 May 2019 |
| Docket Number | No. 18-2191,18-2191 |
| Citation | 927 N.W.2d 591 |
| Parties | IOWA SUPREME COURT ATTORNEY DISCIPLINARY BOARD, Complainant, v. Paul A. CAGHAN, Respondent. |
| Court | Iowa Supreme Court |
Tara van Brederode and Wendell J. Harms, for complainant.
Paul A. Caghan, Chicago, Illinois, pro se.
In this case, the Iowa Supreme Court Attorney Disciplinary Board (Board) charged an attorney who appeared pro hac vice in Iowa proceedings with violating Iowa Rules of Professional Conduct 32:3.1 (), 32:3.3(a)(1) (), and 32:8.4(d) ().
The charges arise out of Iowa litigation in which an out-of-state attorney admitted pro hac vice claimed, among other things, that his clients lacked knowledge of an Iowa foreclosure proceeding and, as a result, could not be precluded from bringing a separate fraud action arising out of the same transaction that gave rise to the foreclosure proceeding. In addition, the attorney supported his fraud action by claiming that his clients were without counsel at a key stage of the negotiations with the bank prior to the institution of the foreclosure. Finally, the attorney asserted that his clients were defrauded by "phony court orders" foisted upon them by the defendants.
After granting summary judgment in the fraud action adverse to the attorney’s clients, the district court found the above assertions were made "falsely and in bad faith" in an attempt to avoid the defendants’ motion for summary judgment. The district court imposed sanctions of $123,359.60 against the attorney and his clients. The district court also entered a monetary sanction of $2500 against an Iowa attorney serving as local counsel.
Proceedings were instituted by disciplinary authorities. After a hearing, the Iowa Supreme Court Grievance Commission (commission) found that the Board established the alleged violations of the Iowa Code of Professional Conduct by a convincing preponderance of the evidence and recommended that the court enter an injunction prohibiting the attorney from practicing law in Iowa for at least one year. The commission further recommended that the injunction not be lifted until the sanctions in the matter had been satisfied in full.
For the reasons expressed below, we affirm the commission’s findings and conclusions regarding the violations. We conclude that the proper sanction for these violations is an injunction prohibiting the attorney from practicing law within the State of Iowa for six months. We also order that the injunction not be lifted until the attorney demonstrates to the satisfaction of the Board that the sanctions imposed in the fraud case have been satisfied.
A. Introduction. Based on our review of the record, we find the following facts. Paul A. Caghan has been licensed as an attorney in Illinois since 1979. At the time of the allegations in this complaint, Caghan maintained an office in Cook County, Illinois.
Caghan has no history of disciplinary action in Iowa. In 1993, however, he was denied admission to the Indiana state bar because of outstanding debts. He was sanctioned in the past by an Ohio court in the amount of $141,475.63 for frivolous conduct and by an Illinois court in the amount of approximately $38,000 for filing a frivolous appeal.
The lender involved in the transaction that gives rise to this proceeding, American Bank and Trust Co., is a Quad Cities bank. Dan Jaros, the bank’s chief lending officer, was responsible for the transaction in question. The borrower, RAAJ Corp., is an Iowa corporation. At all times relevant, its registered agent in Iowa was attorney Jack Dane. Kirit Madhiwala is president and a director of RAAJ. Jayprakash Upadhyay is secretary, treasurer and a director of the corporation. Madhiwala and Upadhyay also own RAAJ. Madhiwala and Upadhyay were guarantors on the American Bank and Trust loans.
B. Negotiation of Forbearance Agreement. The allegations in the Board’s complaint arose out of financing arrangements related to the Bettendorf Ramada Inn. Beginning in 2006, RAAJ borrowed in excess of $3 million from American Bank and Trust to acquire, operate, and renovate the hotel. The loans were secured by real estate mortgages on the hotel and related real estate. The principal shareholders of RAAJ—Madhiwala and Upadhyay—personally guaranteed the loans.
In January 2014, the loans were delinquent. The parties entered into negotiations for a forbearance agreement. In the forbearance negotiations, RAAJ was represented by Dane. Thomas Pastrnak represented the bank.
On March 18, Pastrnak advised Dane that the bank had determined to forbear further collection activities provided certain terms and conditions were met. In order to agree to forbear, the bank required that the borrower agree to a forbearance agreement and a consent order appointing a receiver. Pastrnak sent Dane a set of documents for his review. On March 25, Dane returned executed documents to Pastrnak.
On April 1, Pastrnak wrote Dane regarding the forbearance documents. Some of the documents executed by Dane’s clients had blanks that were not completed. Pastrnak asked Dane for his permission to establish March 27, 2014, as the start date and September 27, 2014, as the expiration date of the forbearance agreement. He also asked Dane whether he could write in March 25, 2014, as the date for ordering an appraisal. Finally, with respect to the consent order, Pastrnak told Dane that the bank failed to remove certain language from the first paragraph.
Specifically, the bank sought to provide that the consent order would be filed in "an action in equity by American Bank" rather than in "an action in equity by American Bank to foreclose Mortgages given to American Bank by the Borrower." Pastrnak asked whether it was okay to make that change in the consent order without affecting the signature page.
Dane responded to the proposed changes by email on April 1. Dane stated he did not have a problem with the proposed changes and had recommended them to the guarantors of the debt, but he needed their express consent for any changes. He asked Pastrnak to "bear with [him]."
Dane followed up with a subsequent email on April 4 stating, "I have authority from all guarantors to insert the dates requested by American bank." He did not expressly address the question of the changed language in the consent order. Dane did, however, ask Pastrnak to send a fully executed copy of the agreements for him to send to his clients. On April 7, Pastrnak’s assistant sent Dane fully executed copies of the documents that included the changed language in the consent order.
C. Negotiations for Sale, Acceleration of Loan, and Filing of Actions in Illinois and Iowa. For a period of months during the forbearance period, efforts were made to find a buyer for the hotel property. In July, RAAJ found outside financing that might take over part of the debt. However, the proposed transaction would require the bank to write off $700,000. The bank had no interest in this haircut.
In the fall of 2014, the parties pursued the possibility that Min Jung Kim, known as Steve Kim, and his company, SM Hospitality MGT Inc., might purchase the hotel. The bank’s executive committee met several times to consider the outlines of a potential transaction, and in September, the bank provided a commitment letter outlining the terms of a transaction that the bank would be willing to consider. The forbearance agreement was set to expire, however, on September 27, and the bank elected not to extend it beyond September 30.
On October 2, 2014, Dane sent an email to Pastrnak stating that he believed the bank had a deal for SM Hospitality to assume the RAAJ obligation and asking for details. Pastrnak responded with an email on October 8. The October 8 email discussed a potential transaction with Kim and SM Hospitality and provided some draft documents. Pastrnak emphasized that the bank had not yet reviewed the documents and that they were subject to revision. The documents included a management agreement and a purchase and sale agreement. Pastrnak stated, "Hopefully, I’ll have the financing documents ready by the end of this week, but American Bank would like to have the buyer begin management while we await comments to the Agreements as well as the financing documents when circulated."
On October 15 and 16, Pastrnak’s colleague, Troy Venner, exchanged emails with Dane related to the potential transaction. On October 15, Dane asked Venner for the purchase price and how the proceeds of any sale would be applied. On October 16, Venner provided the information which showed that the seller would be responsible for a deficiency obligation of $49,009. Dane responded that day with the declaration that "[t]he sellers will not agree to a deficiency."
The transaction became further clouded when, on October 20, Dane provided a signed management agreement for SM Hospitality to take over operations of the hotel but made it subject to an addendum.
The bank rejected the terms of the addendum.
To continue reading
Request your trial
-
Iowa Supreme Court Attorney Disciplinary Bd. v. Daniels
...by other rule violations. See, e.g. , Widdison , 960 N.W.2d at 97–98 (ninety-day suspension); Iowa Sup. Ct. Att'y Disciplinary Bd. v. Caghan , 927 N.W.2d 591, 607–08 (Iowa 2019) (six-month suspension of an out-of-state lawyer); Iowa Sup. Ct. Att'y Disciplinary Bd. v. Turner , 918 N.W.2d 130......
-
Iowa Supreme Court Attorney Disciplinary Bd. v. Rhinehart
...to sanctions for merely making factual assertions or legal arguments that ultimately are unsuccessful." Iowa Sup. Ct. Att'y Disciplinary Bd. v. Caghan , 927 N.W.2d 591, 601 (Iowa 2019).On de novo review, we conclude the Board failed to prove the violation by a convincing preponderance of th......
-
Iowa Supreme Court Attorney Disciplinary Bd. v. Daniels
...... frivolous pleadings and conduct prejudicial to the. administration of justice accompanied by other rule. violations. See, e.g. , Widdison , 960 N.W.2d. at 97-98 (ninety-day suspension); Iowa Sup. Ct. Att'y. Disciplinary Bd. v. Caghan , 927 N.W.2d 591, 607-08 (Iowa. 2019) (six-month suspension of an out-of-state lawyer);. Iowa Sup. Ct. Att'y Disciplinary Bd. v. Turner ,. 918 N.W.2d 130, 154, 158 (Iowa 2018) (one-year suspension);. Iowa Sup. Ct. Att'y Disciplinary Bd. v. Sporer ,. 897 N.W.2d 69, 90 ......
-
Iowa Supreme Court Attorney Disciplinary Bd. v. Daniels
...... frivolous pleadings and conduct prejudicial to the. administration of justice accompanied by other rule. violations. See, e.g. , Widdison , 960 N.W.2d. at 97-98 (ninety-day suspension); Iowa Sup. Ct. Att'y. Disciplinary Bd. v. Caghan , 927 N.W.2d 591, 607-08 (Iowa. 2019) (six-month suspension of an out-of-state lawyer);. Iowa Sup. Ct. Att'y Disciplinary Bd. v. Turner ,. 918 N.W.2d 130, 154, 158 (Iowa 2018) (one-year suspension);. Iowa Sup. Ct. Att'y Disciplinary Bd. v. Sporer ,. 897 N.W.2d 69, 90 ......