Friday, May 22, 2020

No Colorable Claim Leads To Iowa License Revocation

In a matter that had drawn a recommended public reprimand, the Iowa Supreme Court imposed license revocation.

The Iowa Supreme Court Attorney Disciplinary Board filed a complaint against Michael D. Kozlik. The complaint alleged Kozlik violated Iowa Rules of Professional Conduct 32:8.4(b) and 32:8.4(c) while acting as the administrator of his uncle’s estate. A division of the Iowa Supreme Court Grievance Commission found the Board failed to prove a violation of rule 32:8.4(b) and dismissed that complaint. The commission found the Board proved Kozlik violated rule 32:8.4(c) and recommended a public reprimand as the sanction. We find and conclude Kozlik violated rules 32:8.4(b) and (c) by misappropriating funds from the estate without a future colorable claim to said funds. We revoke Kozlik’s license to practice law in the State of Iowa.

Michael Kozlik was admitted to practice law in Nebraska in 1979 and in Iowa in 2000. His law office is located in Omaha. Kozlik’s primary practice is estate planning and administration. He has served as the personal representative in a number of estates. He has served as an expert witness on probate fees in proceedings in Nebraska. While Kozlik primarily practices law in Nebraska, he has performed probate work on this side of the river.

The uncle had no children

Duane passed away in June 2015, and [spouse] Frances was the sole beneficiary of his estate. Attorney Leo Martin opened Duane’s estate in March 2016 in Pottawattamie County. Kozlik was appointed administrator of Duane’s estate, and TS Bank was appointed executor. Mary Jewell, a trust officer at TS Bank, served as the representative of TS Bank.

Six months after Duane’s estate was opened, Kozlik began to write checks from the estate’s bank account to himself. Over the next two years Kozlik wrote a total of twelve checks on the estate’s account made payable to himself in the total amount of $39,350.

When Frances died

The unauthorized payments came to light at the end of 2018. Frances passed away in April 2018. Her will was admitted to probate later that month. Christopher Juffer served as the attorney for Frances’s estate, and TS Bank served as the executor. Because Frances was Duane’s sole beneficiary and because Duane’s estate was still pending, TS Bank needed additional information from Duane’s estate to prepare an inventory and report in Frances’s estate. Juffer filed two delinquency notices in Duane’s estate, alleging “substantial delays in the finalization” of Duane’s estate. Juffer filed a petition in November 2018 to remove Kozlik as administrator of Duane’s estate, to obtain records from Duane’s estate, and for an accounting of Duane’s estate. Martin, the attorney for Duane’s estate, immediately contacted Kozlik and Juffer to make arrangements to prepare the requested documents. When Martin reviewed the documents Kozlik sent to him, Martin discovered the unauthorized payments Kozlik had made to himself. Martin quickly contacted Kozlik. Kozlik did not make any excuses and took full responsibility for his conduct.

Shortly thereafter, in December 2018, Martin arranged a meeting attended by Martin, Kozlik, Juffer, and Jewell. At the December meeting, Martin did most of the talking, but Kozlik admitted to making payments to himself from Duane’s estate without court authorization.

He made restitution with interest and reported himself to the Bar

While these matters in Duane’s estate were being litigated and resolved, the ethical complaint moved forward. Kozlik did in fact self report the unauthorized payments from the estate. The day after the December meeting with Martin, Juffer, and Jewell, Kozlik addressed a letter to the Iowa State Bar Association. He stated, “I am the administrator of my uncle’s estate. I paid myself administrator fees without prior court order.” The Iowa State Bar Association forwarded the letter to the Board.

In the bar proceeding

On Kozlik’s motion for directed verdict, the commission found “the evidence does not establish that the Respondent committed any criminal act that reflected adversely on his honesty, trustworthiness or fitness as a lawyer.” The commission dismissed the complaint based on Kozlik’s alleged violation of rule 32:8.4(b). The commission did find Kozlik’s unauthorized fee payments violated rule 32:8.4(c). The commission recommended Kozlik receive a public reprimand. The Board contends suspension of Kozlik’s license is an appropriate sanction.

The court 

The estate’s funds were held in trust for the administration of the estate and the beneficiary of the estate, Frances. Over the course of two years, Kozlik made unauthorized payments out of the estate’s account to himself in the amount of $39,350. Kozlik testified he deposited the funds into his personal checking account and his operating account at his law firm. He returned $9700 of the funds to the estate’s account prior to his selfpayments being discovered. Kozlik used the remainder of the funds to pay personal bills and living expsenses [sic] and to pay expenses and disbursements related to his law practice. The misappropriation of funds is a clear violation of both rules.

The river is no defense

Kozlik contended he did not know the payments were improper because Nebraska law does not require an administrator to obtain court approval prior to payment. He testified he primarily practices in Nebraska and was merely following Nebraska law in the administration of the estate.

We find Kozlik’s testimony unconvincing and argument unavailing for a variety of reasons. Kozlik’s testimony and contention that he did not know he needed court authorization prior to payment rings hollow. Kozlik has been licensed to practice law in Iowa since 2000. He practices primarily in the area of estate planning and administration. He has attended numerous CLEs in the relevant area. He has worked as a lawyer and administrator on many matters. Indeed, the evidence shows Kozlik worked on other cases in Iowa in which he acknowledged the relevant statutes and sought court approval of fees prior to payment. In the Bilunas estate, Kozlik served as the attorney for the personal representative of an estate. Kozlik filed an application for an order for personal representative fees.

...We also note Kozlik’s testimony and contention that the unauthorized payments were for earned fees does not square with the facts.

Sanction

Several considerations lead us to conclude Kozlik had no colorable future claim to the funds he paid himself out of the estate’s account. First, Kozlik’s claim that he had a colorable future claim to the misappropriated funds is implausible on its face. Pursuant to Iowa Code section 633.197, the ordinary fee for Duane’s estate was capped at $9263.37 plus actual and necessary expenses. The evidence shows Kozlik had filed applications for fees in other Iowa probate matters in which he specifically acknowledged the statutory cap for ordinary fees. The evidence shows, however, Kozlik made payments to himself for alleged fees earned and expenses incurred in the amount of $29,350 or more than three times the scheduled amount for ordinary fees.

But there is nothing in this record supporting the contention Kozlik would have been entitled to extraordinary fees in the administration of his uncle’s estate.

Thus

As the administrator of his uncle’s estate, Kozlik owed a fiduciary duty to the estate. See Iowa Code § 633.160. Kozlik breached that fiduciary duty when he paid himself funds from his uncle’s estate without a colorable claim or colorable future claim to the funds. Revocation is required where an attorney, acting as a fiduciary, misappropriates funds.

(Mike Frisch)

https://lawprofessors.typepad.com/legal_profession/2020/05/in-a-matter-that-had-drawn-differing-proposed-dispositions-the-iowa-supreme-court-imposed-disbarment-the-iowa-supreme-court.html

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