review of the report of the Iowa Supreme Court Grievance
commission recommends attorney be ordered to cease and desist
practicing law in Iowa for one year.
van Brederode and Amanda K. Robinson, for complainant.
A. Caghan, Chicago, Illinois, pro se.
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 (prohibiting lawyer from bringing a frivolous
proceeding or controverting a frivolous issue), 32:3.3(a)(1)
(prohibiting lawyer from knowingly making or failing to
correct false statements of material fact or law to a
tribunal), and 32:8.4(d) (prohibiting lawyer from engaging in
conduct prejudicial to the administration of justice).
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.
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.
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.
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.
Factual and Procedural Background.
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.
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.
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
Negotiation of Forbearance Agreement.
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.
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.
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.
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.
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]."
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.
Negotiations for Sale, Acceleration of Loan, and Filing of
Actions in Illinois and Iowa.
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
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.
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
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
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.
November 21, the bank decided to press for resolution by
issuing a notice of acceleration on the loans based upon
alleged defaults. According to Pastrnak, the bank was trying
to mix everything up to get a deal. On November 25, Dane sent
an email to Venner acknowledging acceleration of the loans
and stating that he did not understand what was going on.
Dane sought further information about the status of the
potential transaction, raised questions about a debit of $50,
000 from the RAAJ account, and stated,
It is our understanding that Mr. Kim assumed control of the
hotel at the direction of Mr. Jaros [a bank officer
responsible for the credit line], that Jay and Frank were
kicked out with the knowledge and consent of Mr. Jaros, and
fund belonging to Raaj were seized by either Mr. Kim or the
bank and some were sent back for reissue.
further declared, "[I]t is our position that the bank
has failed to honor its commitments and has acted beyond its
same-day response was an attempt to set up a meeting for the
following week. On December 2, Dane told Venner that his
clients wanted to attend and asked if Jaros could attend as
December 1, however, RAAJ and its owners filed an action
against the bank and various individuals in Cook County,
Illinois, alleging fraud. The plaintiffs in the Illinois
fraud action were represented by Caghan. The bank called off
any further meetings in light of the Illinois fraud action.
bank's next action was to file a foreclosure action in
Scott County, Iowa, on December 26, 2014. The bank also
requested the appointment of a receiver and alleged that RAAJ
and its guarantors had consented to the appointment of a
receiver in a prior forbearance agreement. Finally, the bank
requested the court set a hearing on the application for the
appointment of a receiver. The court granted the application
and set a hearing for January 29, 2015.
Prosecution of Scott County Foreclosure Action and Dismissal
of Illinois Fraud Action.
and Venner represented the bank in the Scott County
foreclosure action. Dane, however, told Venner that he did
not know whether he would be representing RAAJ and the
guarantors in the foreclosure action. He did not file an
appearance on their behalf in the foreclosure action.
bank served the original notice, foreclosure petition,
application for the appointment of a receiver, and order
setting a hearing on Dane, who was the registered agent for
RAAJ, on December 31, 2014. On January 8, 2015, the bank
served the Scott County foreclosure documents on Madhiwala by
serving his wife at an address in Skokie, Illinois. On
January 12, the bank served the documents on Upadhyay by
serving his daughter-in-law at an address in Winthrop Harbor,
January 29 hearing proceeded as scheduled. The district court
appointed a receiver for the property. Neither RAAJ,
Madhiwala, nor Upadhyay appeared either personally or through
counsel. Jill Dykes, an assistant for the Pastrnak firm,
served copies of the order by U.S. mail on Dane, Caghan,
Madhiwala, and Upadhyay. No mail was returned undelivered.
having initiated the Scott County foreclosure proceedings and
obtained the appointment of Kim as receiver, the bank turned
to address the Illinois fraud action filed by Caghan on
behalf of RAAJ and its guarantors. The bank filed a motion to
dismiss or to transfer, specifically alleging the Scott
County foreclosure action brought by the bank against RAAJ
and the guarantors. In support of the motion, the bank filed
an affidavit by Jaros, the bank's chief lending officer,
averring among other things that "a Petition in
Foreclosure was filed on behalf of [the bank] in Scott
County, Iowa, on December 26, 2014."
response to the bank's motion to dismiss the Illinois
fraud action, Caghan filed documents in the Illinois fraud
action, including an affidavit from Madhiwala. Madhiwala
stated, under oath, "My lawsuit against [the bank] was
filed on December 1, 2014, which was prior to the Iowa
lawsuit being filed by [the bank]." The affidavit thus
asserted that RAAJ, Madhiwala, and Upadhyay had won the race
to the courthouse.
the Madhiwala affidavit explicitly attacked the Jaros
affidavit filed in the Illinois action. The Madhiwala
affidavit asserted that a statement made by Jaros regarding
prior negotiations "in his affidavit is erroneous and
mistaken." The Madhiwala affidavit thus shows
familiarity with the Jaros affidavit. As noted, the Jaros
affidavit recited facts about the filing of the Scott County
April 2, the bank filed a motion for summary judgment in the
Scott County foreclosure action. The Pastrnak firm sent
copies of the motion by U.S. mail to Dane, Caghan, Madhiwala,
and Upadhyay. No mail was returned undelivered. No one,
however, appeared on behalf of RAAJ, Madhiwala, or Upadhyay.
April 20, the district court granted the bank summary
judgment in the Scott County foreclosure matter. The court
found that each of the defendants had been served in
accordance with the rules of civil procedure and that it had
in personam jurisdiction over RAAJ, Madhiwala, and Upadhyay.
The Pastrnak firm provided copies by U.S. mail to Dane,
Caghan, Madhiwala, and Upadhyay. No mail was returned
September 11, 2015, the bank filed an affidavit of protective
advances in the Scott County foreclosure action. Once again,
the Pastrnak firm provided copies by U.S. mail to Dane,
Caghan, Madhiwala, and Upadhyay. No mail was returned.
the bank bought the property at the resulting sheriff's
sale and on September 15, the sheriff issued a deed conveying
the hotel property to the bank. On January 11, 2016, the bank
filed a motion to discharge the receiver, and on January 12,
2016, the bank filed a motion for confirmation of deficiency
judgment. The Pastrnak firm provided copies of the January 11
and 12 documents to Dane, Caghan, Madhiwala, and Upadhyay by
U.S. mail without any return from the post office.
bank was also successful in the Illinois fraud action. The
Illinois court dismissed the lawsuit and directed the
plaintiffs to refile it in Scott County, Iowa, within six
months of the entry of the order of dismissal.
The Filing of Scott County Fraud Action and the Bank's
Defense of Issue Preclusion Arising Out of ...