Iowa Supreme Court Attorney Disciplinary Board v. Paul A. Caghan
This text of Iowa Supreme Court Attorney Disciplinary Board v. Paul A. Caghan (Iowa Supreme Court Attorney Disciplinary Board v. Paul A. Caghan) is published on Counsel Stack Legal Research, covering Supreme Court of Iowa primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
IN THE SUPREME COURT OF IOWA No. 18–2191
Filed May 10, 2019
Amended May 14, 2019
IOWA SUPREME COURT ATTORNEY DISCIPLINARY BOARD,
Complainant,
vs.
PAUL A. CAGHAN,
Respondent.
On review of the report of the Iowa Supreme Court Grievance
Commission.
Grievance commission recommends attorney be ordered to cease
and desist practicing law in Iowa for one year. ATTORNEY ORDERED TO
CEASE AND DESIST FROM THE PRACTICE OF LAW IN IOWA.
Tara van Brederode and Wendell J. Harms, for complainant.
Paul A. Caghan, Chicago, Illinois, pro se. 2
APPEL, Justice.
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
(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).
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) 3
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.
I. Factual and Procedural Background.
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 4
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 5
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
Free access — add to your briefcase to read the full text and ask questions with AI
IN THE SUPREME COURT OF IOWA No. 18–2191
Filed May 10, 2019
Amended May 14, 2019
IOWA SUPREME COURT ATTORNEY DISCIPLINARY BOARD,
Complainant,
vs.
PAUL A. CAGHAN,
Respondent.
On review of the report of the Iowa Supreme Court Grievance
Commission.
Grievance commission recommends attorney be ordered to cease
and desist practicing law in Iowa for one year. ATTORNEY ORDERED TO
CEASE AND DESIST FROM THE PRACTICE OF LAW IN IOWA.
Tara van Brederode and Wendell J. Harms, for complainant.
Paul A. Caghan, Chicago, Illinois, pro se. 2
APPEL, Justice.
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
(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).
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) 3
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.
I. Factual and Procedural Background.
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 4
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 5
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 6
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.
On November 21, the bank decided to press for resolution by issuing
a notice of acceleration on the loans based upon alleged defaults. 7
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.
Dane further declared, “[I]t is our position that the bank has failed to honor
its commitments and has acted beyond its authority.”
Venner’s 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 well.
On 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.
The 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. 8
D. Prosecution of Scott County Foreclosure Action and
Dismissal of Illinois Fraud Action. Pastrnak 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.
The 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, Illinois.
The 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.
After 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.” 9
In 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.
Further, 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 foreclosure action.
On 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.
On 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 undelivered.
On 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. 10
After 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.
The 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.
E. The Filing of Scott County Fraud Action and the Bank’s
Defense of Issue Preclusion Arising Out of the Scott County
Foreclosure Action. RAAJ and the guarantors filed a fraud action in Scott
County, Iowa, on November 4, 2015. The original lawyer in the action was
an Iowa attorney, Larry Thorson. The lawsuit alleged that the bank
induced the plaintiffs “with false agreements, phony court orders and
misrepresentations” and “used the plaintiffs as a mere business conduit,
instrument and tool solely for its own objective, benefit, and advantage, to
the detriment of the plaintiffs.” An amended pleading claimed that the
false documents included a “purported Consent Order” and a “supposed
Management Agreement.”
The bank filed a motion to dismiss the action, arguing that the
petition was too vague to provide fair notice of the claims. The district
court denied the motion to dismiss, stating that the pleading was
sufficient. The bank responded with an answer and affirmative defenses
that included the assertion that “[r]es judicata, or claim preclusion, bars
the Plaintiffs’ claim which could have been fully and fairly adjudicated in
[the Scott County foreclosure action].” 11
In the initial disclosures in the Scott County fraud case, the RAAJ
plaintiffs identified various documents in the Scott County foreclosure
action, including the original notice and application for a receiver, as
documents that may form the basis of testimony or expert opinions at trial.
The bank also identified various pleadings related to the Scott County
foreclosure action in its initial disclosures. RAAJ lawyer Thorson was
familiar with the initial disclosures in the Scott County fraud case.
On May 27, 2016, Caghan applied for permission to represent the
RAAJ plaintiffs pro hac vice in the Scott County fraud case. Although
Caghan disclosed unfavorable facts in his application regarding the denial
of admission to the Indiana bar and sanctions levied against him in Ohio
and Illinois courts, the bank did not resist the application. The district
court granted the application on June 13.
On July 2, Caghan sent the bank an exhibit list. The list identified
various filings in the Scott County foreclosure action.
The RAAJ plaintiffs answered interrogatories and a request for
document production in the Scott County fraud case. The interrogatory
answers and the response to the request for production both identified
various filings in the foreclosure case as trial exhibits. Madhiwala and
Upadhyay were identified as providing or assisting the answers to
interrogatories and signed verifications stating that the answers were true
and correct.
On November 9, the bank filed a motion for summary judgment in
the Scott County fraud case claiming, among other things, that the RAAJ
plaintiffs’ fraud claim was barred by claim preclusion. The bank took the
depositions of Madhiwala and Upadhyay during the pendency of the
summary judgment motion on November 22 and 29. Madhiwala and
Upadhyay testified that, prior to their depositions, they had never heard of 12
the Scott County foreclosure action. This testimony led to vigorous
postdeposition discussion between counsel for the bank and Caghan.
On December 5, the RAAJ plaintiffs filed a resistance to the bank’s
motion for summary judgment. The RAAJ plaintiffs claimed that Dane
was not their lawyer after October 9, 2014, and that they were never served
in the Scott County foreclosure action. Madhiwala and Upadhyay again
claimed that they were not aware of the Scott County foreclosure action
until their depositions were taken on November 22 and 29, 2016.
F. Bank’s Motion for Sanctions in Scott County Fraud Action.
In response to the RAAJ plaintiffs’ filings resisting summary judgment, the
bank filed a motion for sanctions against Caghan and the RAAJ plaintiffs
in connection with the filings. The motion for sanctions covered four
discrete subject areas.
First, the bank sought sanctions against Caghan for claiming that
the RAAJ plaintiffs had no knowledge of the Scott County foreclosure
action. The bank characterized the RAAJ plaintiffs’ position that they were
unaware of the Scott County foreclosure action prior to November 2016 as
“a ridiculous, desperate and bad faith attempt to resist [the bank’s] claim
preclusion argument.” The bank claimed that there were at least sixteen
instances where the RAAJ plaintiffs would have learned, either directly or
through counsel, that the bank had filed the Scott County foreclosure
action. The bank attached to its sanction motion various exhibits that the
bank claimed demonstrated the RAAJ plaintiffs had knowledge of the Scott
County foreclosure action.
Second, the bank sought sanctions against Caghan for “claiming
inadequate and/or non-existent service of process” on his clients in the
Scott County foreclosure action. The bank presented the court with an
email from Dane dated December 7, 2016, in which he confirmed that he 13
had been served on December 31, 2014, with papers related to the Scott
County foreclosure action. The bank also submitted affidavits of process
servers detailing their efforts to serve process on the guarantors by service
to family members at known addresses.
Third, the bank urged the court to impose sanctions on Caghan for
claiming that the consent order was somehow forced on the RAAJ plaintiffs
in October 2014 as part of an alleged fraud when, in fact, the consent order
was part of the March 2014 forbearance agreement. The bank submitted
both (i) excerpts of Madhiwala’s deposition in which he agreed that he
signed the consent order in March 2014 and (ii) various correspondence
related to the negotiation of the forbearance agreement.
Fourth, the bank sought sanctions on Caghan for claiming that
Dane was not the attorney for the RAAJ plaintiffs after October 9, 2014.
The bank attached various correspondence between the bank and Dane in
December 2014 regarding negotiations with the bank on behalf of the
RAAJ plaintiffs. The bank also attached an excerpt of Madhiwala’s
deposition in which he testified that Dane continued to represent the RAAJ
plaintiffs until December 2014.
Caghan resisted the motion for sanctions. He claimed that there
was overwhelming evidence that the RAAJ plaintiffs had no knowledge of
the Scott County foreclosure action until the November 2016 depositions
were taken. Caghan also repeated his claims that service was not effective
on RAAJ, Madhiwala, or Upadhyay. Caghan further reiterated his claim
that the evidence supported each element of fraud. Finally, Caghan
argued that lawyer Dane did not represent RAAJ after October 9, 2014.
G. District Court Grants Bank’s Motion for Summary Judgment
in the Scott County Fraud Action Against RAAJ Plaintiffs. In January
2017, the district court granted the bank’s motion for summary judgment 14
in the Scott County fraud action. The district court found that the RAAJ
plaintiffs were precluded from bringing the fraud action because they
failed to raise their claims in the foreclosure action.
Notwithstanding the issue preclusion ruling, the district court
addressed the RAAJ plaintiffs’ allegations of fraud. As to the allegations
of fraud, the district court concluded,
There is simply no evidence in the summary judgment record to support a reasonable inference for a finding that [the bank] knowingly made a false representation to Plaintiffs with the intent to deceive Plaintiffs in order to dispossess Plaintiffs of the Hotel.
The district court specifically rejected the RAAJ plaintiffs’ phony court
orders theory, concluding that there was no evidence that the consent
order, signed in March 2014 as part of the forbearance agreement, was
used by the bank to trick the plaintiffs in October 2014 into giving up
possession of their hotel. The district court rejected other assertions
concerning fraud raised by the RAAJ plaintiffs.
H. District Court Ruling on Bank’s Motion for Sanctions. In
February 2017, the district court entered an order on sanctions. The
district court analyzed Caghan’s conduct under Iowa Rules of Civil Procedure 1.981(7) (concerning affidavits presented in bad faith or solely
for purpose of delay) and 1.413(1) (stating that counsel’s signature is a
representation that pleading is well founded in fact and law).
The district court found that the assertions by Caghan in resistance
to the motion for summary judgment suggesting that the RAAJ plaintiffs
were not aware of the Scott County foreclosure action were directly
contradicted by communications sent by counsel for the bank and by
references to the foreclosure action in the plaintiffs’ own documents. As a 15
result, the court concluded that sanctions were appropriate for this factual
assertion.
The district court next considered the claim that the bank created
phony court documents. Such claims, according to the district court, were
untenable and fabricated in order to sustain the RAAJ plaintiffs’ cause of
action.
The district court further found that there was no reliable evidence
that Dane’s representation of the RAAJ plaintiffs ended in October 2014.
The court said, “Plaintiffs offer no evidence of termination of Dane’s
engagement or objection to his continued representation on their behalf
after October 9, 2014.”
On February 25, Caghan filed a resistance claiming that the district
court could not enter sanctions or set any other hearing dates after the
district court granted the bank’s motion for summary judgment. The
bank, citing Board of Water Works Trustees v. City of Des Moines, 469
N.W.2d 700, 702 (Iowa 1991), replied. The bank also provided the district
court with a letter it received from Upadhyay and Madhiwala on March 16.
In the letter, Upadhyay and Madhiwala declared, “We never understood
[Caghan’s] explanation or reasoning” and “[W]e should have known better
that our attorney’s assertion of fraud was a[n] extremist explanation of
what should have been a reasonable defense.”
The district court held a hearing on April 19 to consider the question
of what sanctions should be imposed. Madhiwala, Upadhyay, and
Thorson attended, while Caghan did not.
On April 28, the district court entered sanctions against Caghan,
Upadhyay, and Madhiwala in the amount of $123,359.60, the cost of the
bank’s defense of the two fraud lawsuits. The district court declared that
Madhiwala and Upadhyay “were willing stooges in executing the false, 16
misleading and wrongful statements of fact asserted by them and through
their attorney, Paul Caghan.” The district court concluded that it was
“fully satisfied [Caghan] conspired with his clients to make false
statements of fact for the purpose of misleading the tribunal.”
The RAAJ plaintiffs did not appeal the district court ruling granting
the bank’s motion for summary judgment in the Scott County fraud claim.
Further, neither Caghan, Madhiwala, nor Upadhyay appealed the district
court order on sanctions.
II. Proceedings Before the Commission.
A. Introduction. On April 27, 2018, the Board filed a complaint
against Caghan. In the complaint, the Board alleged that Caghan in his
representation of the RAAJ plaintiffs violated Iowa Rules of Professional
Conduct 32:3.1, 32:3.3(a)(1), and 32:8.4(d).
The commission held a hearing on the matter on August 27–28. The
Board admitted numerous exhibits by consent. The Board called
Pastrnak, Venner, attorney Jonathon Fox, and Iowa District Court Judge
Stuart Werling as witnesses. Caghan appeared pro se but did not call any
witnesses.
B. Ethical Violations. After hearing the evidence, the commission
found that the Board proved by a convincing preponderance of the
evidence all three charges against Caghan. The commission found that
there was no factual basis for Caghan’s repeated assertions that the RAAJ
guarantors had no knowledge of the Scott County foreclosure action before
November 2016. The commission also found that there was no factual
basis for the assertion made by Caghan that the consent order was signed
in October 2014 when in fact it had been signed as part of a forbearance
agreement in March 2014. The commission concluded that Caghan
violated rule 32:3.1 by making bad faith assertions regarding his clients’ 17
lack of knowledge of the Scott County foreclosure action and the allegedly
fraudulent nature of the consent order that was negotiated as part of the
forbearance agreement. The commission also concluded that Caghan
violated rule 32:3.3(a)(1) because he “knowingly” made these false
assertions. See Iowa Supreme Ct. Att’y Disciplinary Bd. v. Turner, 918
N.W.2d 130, 150 (Iowa 2018).
Finally, the commission concluded that Caghan violated rule
32:8.4(d) by engaging in conduct prejudicial to the administration of
justice. The commission concluded that Caghan’s conduct impeded the
efficient operation of the courts by wasting judicial resources on meritless
claims. See Iowa Supreme Ct. Att’y Disciplinary Bd. v. McGinness, 844
N.W.2d 456, 463 (Iowa 2014).
C. Sanctions. The commission considered both aggravating and
mitigating factors in considering the proper sanction. As aggravating
factors, the commission found that Caghan had prior similar disciplinary
offenses. The commission also found that Caghan had refused to
acknowledge even the possibility of wrongful conduct. In addition, the
commission concluded that Caghan’s answers and affirmative defenses
suggested that he did not intend to pay the sanctions that had been levied
against him.
Because of the nature of the offenses and the aggravating factors,
the commission recommended that Caghan be enjoined from the practice
of law in the State of Iowa for one year. The commission further
recommended that any lifting of the injunction should be contingent upon
satisfaction of the outstanding sanctions imposed by the district court in
this case. 18
III. Standard of Review.
“Our review of attorney disciplinary proceedings is de novo.” Iowa
Supreme Ct. Att’y Disciplinary Bd. v. Earley, 774 N.W.2d 301, 304 (Iowa
2009). While we give respectful consideration to the findings of the
commission, we are not bound by them. McGinness, 844 N.W.2d at 461.
The Board must prove alleged violations of disciplinary rules by a
convincing preponderance of the evidence. Id.
IV. Discussion.
A. Introduction. We begin our task by a review of the record in
this case to determine whether the Board proved by a convincing
preponderance of the evidence that Caghan committed the ethical
violations as alleged by the Board. If we determine that ethical violations
occurred, we then proceed to consider the appropriate sanction.
B. Ethical Violations.
1. Iowa Rule of Professional Conduct 32:3.1. The Board alleges
violations of rule 32:3.1. The rule states, “A lawyer shall not bring or
defend a proceeding, or assert or controvert an issue therein, unless there
is a basis in law and fact for doing so that is not frivolous . . . .” Iowa R.
Prof’l Conduct 32:3.1.
In reviewing the record, we recognize that an attorney is not subject
to sanctions for merely making factual assertions or legal arguments that
ultimately are unsuccessful. See Iowa Supreme Ct. Att’y Disciplinary Bd.
v. Sporer, 897 N.W.2d 69, 86 (Iowa 2017). We expect zealous advocacy
from our lawyers. Indeed, our adversary system of justice depends upon
it. Yet our system also depends upon attorneys not gaming the system
through the assertion of law or facts that the attorney knows are
unsupportable. As noted in comment 1 to rule 32:3.1, 19 The advocate has a duty to use legal procedure for the fullest benefit of the client’s cause, but also a duty not to abuse legal procedure. The law, both procedural and substantive, establishes the limits within which an advocate may proceed.
Iowa R. Prof’l Conduct 32:3.1 cmt. [1].
Several of our cases develop the contours of rule 32:3.1. In Iowa
Supreme Court Attorney Disciplinary Board v. Barnhill, 885 N.W.2d 408, 414, 420 (Iowa 2016), we considered a case in which a lawyer claimed in
an action brought by a client to enforce a fee arbitration award that she
had reimbursed the client for the excessive fee. In fact, the lawyer had not
done so. Id. at 414. The lawyer, of course, had personal knowledge that
the amount had not been paid. Id. Further, the lawyer knew that her
counterclaim for abuse of process was totally without merit as the lawyer
had not satisfied the fee arbitration award and the adverse client’s action
to enforce the arbitration award was entirely justified. Id. at 420. We
found a violation of rule 32:3.1 in this case. Id.
We also found a violation of rule 32:3.1 in Sporer, 897 N.W.2d at 85–
86. In Sporer, an attorney testified that it was “unfathomable” to him that
a legal secretary who arrived at his office to pick up papers associated with
a divorce did not have authority to bind a client. Id. at 73, 85. We found
that this remarkable assertion was a violation of rule 32:3.1. Id. at 86.
More recently, in Turner, 918 N.W.2d at 150, we considered whether
an attorney violated rule 32:3.1 by filing baseless or frivolous pleadings
during his representation of bankruptcy clients. The attorney’s pleadings
omitted required information, contained inaccurate information, and
lacked client authorization. Id. at 136–38. We found the attorney’s actions
violated the rule. Id. at 150.
We now turn to the question of whether Caghan violated rule 32:3.1
by advancing the notion that his clients did not know about the underlying 20
foreclosure action. After the bank filed its motion for summary judgment
in the Scott County fraud action urging application of claim preclusion,
Madhiwala and Upadhyay filed affidavits and provided testimony claiming
that they had no knowledge of the foreclosure action until November 2016
when their depositions were taken by the bank. Caghan sought to use
this testimony to defeat application of claim preclusion arising out of the
Scott County foreclosure action.
Ordinarily, when a client claims knowledge of certain facts, a lawyer
is not required to function as judge and jury regarding credibility issues.
But here, we are convinced that Caghan must have known that the
testimony was simply not true. Under all of the facts and circumstances,
it seems impossible that these sophisticated businessmen had no idea that
the bank had commenced a foreclosure proceeding in Iowa. We come to
this conclusion not because of one single circumstance that arouses
suspicion that Madhiwala and Upadhyay may be lying, but on at least
eight significant factors that compel the conclusion that they must have
known about the underlying Scott County foreclosure action.
First, Dane, RAAJ’s lawyer in negotiations with the bank, was
personally served with the papers as registered agent for RAAJ on
December 31, 2014. Madhiwala is president and a director of RAAJ, and
Upadhyay is secretary, treasurer, and a director of the corporation. It
strains credulity to believe that lawyer and registered agent Dane, after
having been served with the papers related to the Scott County foreclosure
action filed by the bank, did not advise the RAAJ principals about it.
Second, while there might be an argument that the bank did not
successfully achieve service of the foreclosure action papers on Madhiwala
and Upadhyay, the service was nevertheless of a character likely to inform
them of the pending action. With respect to Madhiwala, a process server 21
served the papers on Madhiwala’s wife at an address in Skokie that no one
claims was not Madhiwala’s home or residence. Caghan argued that the
service was ineffective for lack of compliance with Illinois law, which
Caghan asserts requires first class mail as part of service, but this legal
question is beside the point for purposes of this disciplinary proceeding.
The point here is that is seems very unlikely that Madhiwala’s wife, after
being served with papers related to the Scott County foreclosure action,
would not have given Madhiwala the papers which were served that related
to the hotel property which formed the basis of his livelihood.
As to Upadhyay, substituted service was achieved on his daughter-
in-law at a motel in Windsor Heights, Illinois. Caghan asserted that this
service was ineffective because Upadhyay did not reside at the motel but
instead lived in a separate structure owned by the motel but not physically
attached to the main structure. Perhaps the substituted service could be
challenged under Iowa law for failure to achieve it at the home or place of
abode of the person being served. But once again, that is not the question
here. The question is whether Upadhyay would not have received the legal
documents served on his daughter-in-law under the circumstances. That
seems unlikely.
Third, in the Illinois fraud action, Madhiwala filed an affidavit after
the bank moved to dismiss the case. In the affidavit, Madhiwala stated,
“My lawsuit against [the bank] was filed on December 1, 2014, which was
prior to the Iowa lawsuit being filed by [the bank].” The only action filed
by the bank in Iowa related to Madhiwala was the Scott County foreclosure
action. Further, in the affidavit, Madhiwala attacks an affidavit provided
by Dan Jaros as containing inaccurate information. The Jaros affidavit,
with which Madhiwala was apparently familiar, included narrative about
the filing of the Scott County foreclosure. And, of course, Caghan was 22
representing Madhiwala and RAAJ in the Illinois fraud action, and we may
thus presume his familiarity with Madhiwala’s affidavit filed therein.
Fourth, Caghan was obviously fully aware of the Scott County
foreclosure proceeding even though he may not have made an appearance
in the proceeding itself. After Caghan filed the Illinois fraud action, the
bank sent Caghan a courtesy copy of filings related to the Scott County
foreclosure at his office by U.S. mail. It seems extremely unlikely that
Caghan would not have discussed with his sophisticated business clients
the Iowa filings and the relationship between the filings and the Illinois
Further, the pleadings and discovery associated with the Illinois
fraud action demonstrate that Caghan was well aware of the Scott County
foreclosure proceedings. The plaintiffs’ August 10, 2016 exhibit list in the
fraud action identified documents previously filed in the Scott County
foreclosure action. Additionally, the interrogatory answers identifying the
Scott County foreclosure documents were verified as “true and complete”
by Madhiwala and Upadhyay.
Fifth, events early in the Scott County fraud litigation suggest that
Madhiwala and Upadhyay must have known about the Scott County
foreclosure proceedings. The Scott County fraud action was filed by an
Iowa lawyer, Larry Thorson. In initial disclosures in the case, Thorson, on
behalf of his clients, identified documents related to the Scott County
foreclosure proceeding as relevant to the fraud action. In assembling the
disclosures, it is difficult to see how attorney Thorson would have not had
communications with his clients about documents related to their claims.
Sixth, in June 2016, Caghan entered the Scott County fraud case
as counsel for Madhiwala and Upadhyay. Again, Caghan was aware of the
Scott County foreclosure action. Further, in the Scott County fraud 23
action, the plaintiffs hired two experts who generated reports that stated
they had reviewed documents connected with the foreclosure action.
Madhiwala and Upadhyay verified interrogatories describing the testimony
of these experts.
Seventh, Madhiwala and Upadhyay each received a blizzard of
documents by U.S. mail related to the foreclosure action. The mail was
sent to Madhiwala’s residence and, in the case of Upadhyay, to a motel
where he received mail. None of the mail was returned as undeliverable.
It may be questionable whether one, two, or even three pieces of U.S. mail
actually get through to a party, and U.S. mail alone may be insufficient to
support service of process. But the frequency of documents related to the
foreclosure action sent on at least six separate occasions by the bank’s
representatives by U.S. mail to addresses where Madhiwala and Upadhyay
receive mail makes it unlikely that they did not know about the foreclosure
Eighth, Madhiwala and Upadhyay attended the district court’s
hearing related to what sanctions should be imposed in the case. They
heard oral argument presented by the bank’s attorneys regarding why
sanctions should be imposed not only on Caghan but also on them
personally. The bank pressed the case that sanctions should be imposed
based on the assertions by Caghan, Madhiwala, and Upadhyay that they
did not know about the Scott County foreclosure proceedings.
At the close of the bank’s presentation, the district court asked
Madhiwala and Upadhyay whether they wished to add anything to the
record. Neither of them defended their conduct or the claim that they had
no knowledge of the Scott County foreclosure proceedings. Upadhyay told
the court, 24 What our Attorney Paul Caghan asked us to do, I did, just like a doctor. You know, he said, “Take this medicine,” so we take that medicine. So we followed his advice. And whatever he suggested that it should go like this, and we did that, Your Honor.
Based on the record, we think that there was not a good faith basis
in fact for claiming that Madhiwala and Upadhyay had no knowledge of
the foreclosure action. While none of the above eight factors individually,
in isolation, would necessarily support such a conclusion, the cumulative
effect of the totality of facts and circumstances makes the claim that Madhiwala and Upadhyay did not know about the foreclosure action
absurd.
Further, we think Caghan, who was familiar with the underlying
litigation, must have known it. He knew of the service on Dane and the
attempted service on his clients, he knew that the bank sent copies of its
filings in the action to his clients, he had to have been communicating with
his clients about the posture of their fraud case, he must have reviewed
the discovery in the fraud case and worked with his clients to comply with
required disclosure, and he had to have known about Madhiwala’s race-
to-the-courthouse affidavit.
We can only conclude that Caghan’s factual assertion that
Madhiwala and Upadhyay had no knowledge of the Scott County
foreclosure action was a fiction created to buttress Caghan’s effort to avoid
summary judgment on the ground that the issues in the fraud case were
precluded because of the prior Scott County foreclosure case. We thus
find that Caghan violated rule 32:3.1 as found by the commission.
We now turn to the question of whether Caghan violated rule 32.3.1
when he claimed that Madhiwala and Upadhyay were unrepresented when
the bank allegedly engaged in fraudulent action beginning on October 8,
2014. Caghan was trying to paint a picture suggesting that the bank took 25
advantage of defenseless borrowers who were abandoned by counsel and
fraudulently induced to surrender their property.
For starters, the paper trail does not support Caghan’s assertion.
Lawyer Dane remained involved in the discussions with the bank well after
October 8. The paper trail also indicates that he was communicating with
Madhiwala and Upadhyay about matters at least through December 1,
2014. In early December, Dane was attempting to arrange a meeting with
his clients and Jaros, the bank’s chief lending officer, in an attempt to
resolve the dispute. Caghan was clearly aware of Dane’s representation
between October 8 and November 25 because email traffic between Dane
and the bank’s attorneys was provided to plaintiffs’ experts in the Scott
County fraud action. And more importantly, Madhiwala admitted in his
deposition that Dane represented RAAJ at least through the beginning of
December.
It is not clear exactly when Caghan knew that he could not claim
that his clients were unrepresented in discussion with the bank, but
certainly by the time of Madhiwala’s deposition he knew that he could no
longer press that assertion. And yet he continued to defend the claim in
the litigation. As a result, Caghan violated rule 32:3.1.
We now turn to the question of whether Caghan is subject to
discipline for making an assertion that the bank utilized a phony court
order, namely, the executed consent order that was part of the March 27
forbearance agreement. Caghan claimed that the consent order in this
case was a phony court order which his clients believed was part of a
pending court action and that they had no choice but to abandon the
property in October 2014 because of it. But that is not what happened.
The consent order was part of the March 2014 forbearance
agreement. There is nothing unusual about it. As a term of the 26
forbearance agreement, the bank wanted a swift remedy in the event of a
default under the agreement. The consent order was fairly presented to
attorney Dane, who clearly understood its purpose and had no objection
to it. Yet Dane made clear that he needed express approval from
Madhiwala and Upadhyay before proceeding. He got that approval in late
March or early April 2014. The document’s origin had absolutely nothing
to do with events in October, when the forbearance agreement had expired.
It may be, perhaps, that Madhiwala or Upadhyay had an incomplete
understanding of the consent order. That incomplete understanding,
however, was not caused by any statement or representation by the bank.
The bank handled the documentation of the forbearance agreement and
the consent order through lawyer Dane. Caghan had no evidence that
someone from the bank made a misrepresentation related to the consent
order in October.
In short, there was nothing phony about it. The consent order was
a protective device held in reserve by the bank during the life of the
forbearance agreement in the event of a default under the forbearance
agreement. The forbearance agreement expired on September 27 and so
did the consent order, which could be used solely in the event of default
under the March 27 forbearance agreement. Caghan violated rule 32:3.1
by asserting that the consent order amounted to a phony court order that
was part of a fraudulent scheme in October to oust the defendants from
their property.
2. Iowa Rule of Professional Conduct 32:3.3(a)(1). The Board further
alleges that Caghan violated rule 32:3.3(a)(1). This ethics provision states,
“A lawyer shall not knowingly . . . make a false statement of fact or law to
a tribunal or fail to correct a false statement of material fact or law
previously made to the tribunal by the lawyer.” Iowa R. Prof’l Conduct 27
32:3.3(a)(1). Rule 32:1.0(f) in turn defines “knowingly” as “actual
knowledge of the fact in question. A person’s knowledge may be inferred
from circumstances.” Id. r. 32:1.0(f).
We considered a claim that an attorney violated this rule in Iowa
Supreme Court Attorney Disciplinary Board v. Casey, 761 N.W.2d 53, 60
(Iowa 2009) (per curiam). In this case, an attorney representing two
children as coexecutors of an estate filed documents with the district court
and tax authorities stating that the deceased did not have a surviving
spouse when, in fact, there was a surviving spouse and that spouse was
specifically mentioned in the testator’s will. Id. at 57, 60. We found that
the conduct violated rule 32:3.3(a)(1). Id. at 60.
We think the evidence here establishes knowing violations of rule
32:3.3(a)(1). Caghan knew of all the facts and circumstances surrounding
the litigation and must have understood that his clients’ assertions—that
they did not know about the Scott County foreclosure litigation—were not
true. Caghan would have learned in discovery about the Dane paper trail
and consequently that Dane did, in fact, continue to represent Upadhyay
and Madhiwala until early December. Further, the phony court order
claim packs a punch, but that is part of the problem. It packed a punch
without any factual support. Caghan had access to the March 27
forbearance agreement and the consent order that was part of that
agreement. Yet he hung onto the phony court order claim in resisting the
bank’s motion for summary judgment in the Scott County fraud case.
3. Iowa Rule of Professional Conduct 32:8.4(d). Rule 32:8.4(d)
provides, “It is professional misconduct for a lawyer to . . . engage in
conduct that is prejudicial to the administration of justice.” Iowa R. Prof’l
Conduct 8.4(d). We have said that “there is no typical form of conduct”
that violates the rule. Iowa Supreme Ct. Bd. of Prof’l Ethics & Conduct v. 28
Steffes, 588 N.W.2d 121, 123 (Iowa 1999). The attorney’s conduct must
“hamper[] the efficient and proper operation of the courts.” Iowa Supreme
Ct. Att’y Disciplinary Bd. v. Kingery, 871 N.W.2d 109, 121 (Iowa 2015); see
also McGinness, 844 N.W.2d at 463. We think Caghan’s assertions clearly
made the underlying litigation unnecessarily complicated and contributed
to a needless expenditure of court resources. We therefore find a violation
of rule 32:8.4(d).
C. Sanctions.
1. Authority over out-of-state attorneys appearing in Iowa
proceedings. As a preliminary matter, we note that this court has
authority over out-of-state attorneys who appear in Iowa proceedings
pro hac vice. Iowa Ct. R. 31.14(9)(a); id. r. 34.10(1). In Iowa Supreme
Court Attorney Disciplinary Board v. Carpenter, 781 N.W.2d 263, 265, 271–
72 (Iowa 2010), we enjoined a Minnesota attorney from the practice of law
in Iowa for at least two years. Similarly, in Iowa Supreme Court Attorney
Disciplinary Board v. Mendez, 855 N.W.2d 156, 160, 175 (Iowa 2014), we
entered an injunction against an attorney, prohibiting him from practicing
law in Iowa for at least sixty days.
2. Appropriate sanctions in this case. In evaluating sanctions, we
consider aggravating and mitigating factors. We find aggravating factors
include Caghan’s experience as an attorney and his admitted previous
violations related to frivolous proceedings. See Iowa Supreme Ct. Att’y
Disciplinary Bd. v. Jacobsma, 920 N.W.2d 813, 819 (Iowa 2018) (“Years of
experience as an attorney can be considered an aggravating factor.”); Iowa
Supreme Ct. Att’y Disciplinary Bd. v. Kennedy, 837 N.W.2d 659, 674 (Iowa
2013) (finding prior discipline to be aggravating factor). Caghan is not an
attorney recently out of law school, and he has simply not learned from
his past experiences about the importance of keeping his advocacy within 29
the bounds of the law. We also believe the fact that the record is devoid of
any remorse is an aggravating factor. See Iowa Supreme Ct. Bd. of Prof’l
Ethics & Conduct v. Tofflemire, 689 N.W.2d 83, 93 (Iowa 2004) (finding
aggravating factor in attorney’s refusal to take blame for her actions and
attempt to shift the blame to others).
In other cases involving similar conduct, we have imposed sanctions
ranging from three months to a year. For instance, in Iowa Supreme Court
Attorney Disciplinary Board v. Barry, 908 N.W.2d 217, 221–22 (Iowa 2018),
an attorney failed to file and serve a dissolution decree, misrepresented
the status of the proceeding to his client for fourteen months, and
ultimately prepared a fraudulent dissolution decree to which he attached
a signature page bearing a judge’s signature from a different case. The
attorney presented the fraudulent decree to his client, after which judicial
resources were expended investigating the deception. Id. at 226, 234. He
also took advantage of a client in a vulnerable position. Id. at 234. We
held the attorney’s conduct violated our rules associated with diligence;
keeping clients informed and responding to requests for information;
criminal acts, in this case forgery, reflecting adversely on honesty,
trustworthiness, or fitness as a lawyer; dishonesty, fraud, deceit, or
misrepresentation; and conduct prejudicial to the administration of
justice. Id. at 223–27. We suspended his license for one year. Id. at 234.
Another case, Sporer, 897 N.W.2d at 85, involved an attorney who
testified under oath that the signature of an opposing counsel’s secretary
bound that counsel’s client to a settlement agreement. In light of that
conduct, we found the attorney knowingly made a false statement of fact
or law to a tribunal, and asserted or controverted an issue without a basis
in law or fact. Id. at 86. The attorney additionally claimed that he
annotated a document sent by opposing counsel and provided it to 30
opposing counsel on the same date, which we found to be another instance
of a false statement to a tribunal as well as misrepresentation or deceit.
Id. at 89–90. As a result, his license was suspended for six months. Id.
at 91.
In Barnhill, 885 N.W.2d at 419–20, an attorney argued in a different
proceeding that another attorney committed abuse of process by not
accepting multiple checks she purportedly sent and by filing a lawsuit
against her instead. We found the argument without a plausible factual
basis and therefore a violation of our rule against making frivolous claims.
Id. The attorney also made numerous statements to a tribunal and third
parties—including that a payment had been tendered and that she
received documents at a date later than revealed by emails—which we
found to be knowingly false in violation of our ethical rules against such
conduct, as well as being conduct prejudicial to the administration of
justice. Id. at 420–22. Further, because the attorney knowingly disobeyed
a court order compelling discovery responses, we found violations of our
ethical rules against knowing disobedience of a court order and failing to
comply with an opponent’s proper discovery request. Id. at 423. We
suspended her license for six months. Id. at 426.
Other cases have involved lesser sanctions. In Casey, 761 N.W.2d
at 60, we found the attorney knowingly made false representations to the
court misrepresenting the marital status of a decedent. He had an
obligation, we said, not to assist his clients in conduct he knew to be
fraudulent. Id. The attorney also neglected his cases, prematurely
withdrew probate fees, failed to comply with the board’s investigation, and
engaged in conduct prejudicial to the administration of justice. Id. at 59–
61. As a result, we suspended his license for three months. Id. at 62–63.
In Iowa Supreme Court Board of Professional Ethics & Conduct v. 31
Hohnbaum, 554 N.W.2d 550, 552 (Iowa 1996), we also imposed a three-
month suspension when an attorney made misleading statements to the
court and persisted in a defense position “that was patently frivolous.”
Based on all the facts and circumstances of this case, we think an
injunction enjoining Caghan from appearing pro hac vice in Iowa courts
for at least six months is the appropriate sanction. We find Caghan’s
conduct less egregious than that in Barry but more egregious than that in
Casey and Hohnbaum.
We also agree with the commission that before the injunction is
lifted, Caghan must show that the sanctions levied in the case involving
the RAAJ parties and the bank have been satisfied. We have no occasion
to consider any potential issues surrounding the imposition of the
monetary sanctions. No appeal was taken from the district court’s
sanction order. But we will not allow an enjoined out-of-state attorney to
return to practice law in Iowa, even on a pro hac vice basis, when a final
order imposing sanctions related to unethical conduct is unsatisfied.
V. Conclusion.
For all the above reasons, we enjoin Caghan from the practice of law
in this state for a period of at least six months. To appear pro hac vice
after that time, Caghan must provide proof that the sanctions award
against him in the Scott County fraud action has been satisfied.
ATTORNEY ORDERED TO CEASE AND DESIST FROM THE
PRACTICE OF LAW IN IOWA.
All justices concur except Waterman, Christensen, and McDonald,
JJ., who concur in part and dissent in part. 32 #18–2191, Iowa Supreme Ct. Att’y Disciplinary Bd. v. Caghan
WATERMAN, Justice (concurring in part and dissenting in part).
I respectfully dissent from the majority’s six-month sanction as too
lenient for this Chicago attorney whose own lies and the lies told by his
clients at his direction caused considerable harm to the opposing party,
his own clients, and our court system. I would extend the injunction to at
least one year as recommended by the Iowa Supreme Court Grievance
Commission and the Iowa Supreme Court Attorney Disciplinary Board. The majority correctly concludes that Paul Caghan violated our
disciplinary rules prohibiting intentionally false statements to the court,
frivolous claims, and conduct prejudicial to the administration of justice.
But the majority’s otherwise thorough review of the underlying litigation
omits salient observations by the district court judge and fails to properly
analyze our precedent on sanctions. The majority rests its six-month
sanction on several cases involving less egregious attorney misconduct
and lacking the harm to the victim and clients present here. I will begin
with some choice words by the judge tasked with adjudicating the fraud
action Caghan filed.
The district court found the claim by Caghan’s clients that they were
unaware of the Scott County foreclosure action until November 2016 was
“demonstrably untrue.” The judge said this about the fake fraud claims
Caghan invented and prosecuted:
[W]ith respect to the so-called “phony court orders,” the Court finds these allegations to be completely unsupported and frivolous. The [consent order], signed by Plaintiffs, was a condition of the Forbearance Agreement. Plaintiffs signed the Consent Order in April of 2014, as was required by the Forbearance Agreement. Plaintiffs were represented by counsel at that time. It is, quite frankly, ridiculous for Plaintiffs to come back two and a half years later and allege that they were under the impression that the consent order which they had signed in connection with the Forbearance 33 Agreement was a “phony court order” that Defendants used to trick them into thinking a judge had ordered Plaintiffs to hand over the Hotel. This theory of liability on Plaintiffs[’] behalf is a complete fabrication without a shred of evidence in support thereof.
The district court granted the bank’s motion for sanctions, finding that the
affidavits Caghan’s clients filed resisting summary judgment “were made
falsely and in bad faith.” The court stated,
Plaintiffs and [their] counsel said what needed to be said in order to survive summary judgment without regard for whether there was a legitimate basis for these statements. Plaintiffs’ assertions that [they] had no knowledge of the Scott County foreclosure action is directly contradicted by the many examples of not only communications sent by counsel for Defendants, but references to the foreclosure action in Plaintiffs’ own documents and reports generated by Plaintiffs’ expert witnesses. The clearest and most obvious smoking gun was Madhiwala’s 2015 affidavit offered in support of his case against Defendants in Cook County, in which he specifically references the Scott County foreclosure case. When examining these blatant contradictions from an objective standpoint, the Court cannot help but conclude that Plaintiffs and [Caghan] violated Iowa Rules of Civil Procedure 1.981(7) and 1.413(1).
The district court believed the plaintiffs’ arguments about the
consent order left “the Court no choice but to conclude that the allegations
concerning the Consent Order were fabricated in order to sustain the cause of action.” Caghan’s misconduct is reprehensible and led directly
to the court’s entry of judgment on its sanction award of $123,359 against
Caghan and his clients who the court found “willingly made false
representations at Caghan’s urging.”
We have a monetary measure for the harm Caghan’s misconduct
caused the opposing party: the $123,359 in attorney fees incurred
defending the false claims in court actions in two states. The district
court’s sanction award in that amount remains unsatisfied, which leaves
the victim uncompensated. And because Caghan’s clients are jointly and 34
severally liable for the cost judgment, we also have client harm in that
amount to consider in calibrating the disciplinary sanction. Yet the
majority fails to discuss this victim harm or client harm in setting its six-
month sanction.
The majority relies primarily on the six-month suspension imposed
in Iowa Supreme Court Attorney Disciplinary Board v. Barnhill, 885 N.W.2d
408, 426 (Iowa 2016), which in turn found a “useful comparator” in the
six-month suspension imposed in Iowa Supreme Court Attorney
Disciplinary Board v. McGinness, 844 N.W.2d 456, 467 (Iowa 2014).
McGinness lied about serving discovery responses and doubled down on
his false story when challenged, resulting in needless court proceedings.
McGinness, 844 N.W.2d at 466. McGinness had an unblemished
disciplinary history and a strong record of community service, and we
viewed his misconduct as “an extraordinary one-time occurrence that is
out of character for him.” Id. at 467. During the disciplinary proceedings,
McGinness “largely [fell] on his sword” and “unequivocally concede[d] the
record support[ed] the ethics violations.” Id. at 464.
By contrast, Caghan, throughout these disciplinary proceedings,
has continued to claim the fraud actions were justified. Caghan has a
history of frivolous claims resulting in sanctions of $141,475 imposed by
an Ohio court and $38,000 by an Illinois court.
We equated Barnhill’s conduct to that of McGinness and warned
that if the pattern of frivolous litigation “continues, the sanctions will
escalate further . . . including possible revocation.” Barnhill, 885 N.W.2d
at 426. Caghan’s pattern of false or frivolous claims in three states
justifies escalating his sanction to at least one year. We noted Barnhill’s
volunteerism and pro bono work and her voluntary cessation of practice
in mitigation. Id. at 425. No mitigating factors justify leniency for Caghan. 35
The majority also relies on Iowa Supreme Court Attorney Disciplinary
Board v. Sporer, imposing a six-month suspension on a lawyer who gave
false testimony litigating contempt proceedings over a disputed settlement.
897 N.W.2d 69, 90–91 (Iowa 2017). In imposing the six-month
suspension, we concluded Sporer’s conduct was most analogous to the
conduct in McGinness. Id. We determined that the Board failed to
establish that Sporer had engaged in conduct prejudicial to the
administration of justice “because the Board has not shown that the
hearings associated with the contempt matter would not have occurred
but for the ethical violations or that they were materially delayed or
extended by Sporer’s unfounded testimony.” Id. at 87. There is no such
failure of proof here—Caghan’s misconduct resulted in multiple court
hearings and two lawsuits that never should have been filed and cost
$123,359 to defend.
“We have said ‘[d]ishonesty, deceit, and misrepresentation by a
lawyer are abhorrent concepts to the legal profession, and can give rise to
the full spectrum of sanctions, including revocation.’ ” Iowa Supreme Ct.
Att’y Disciplinary Bd. v. Van Beek, 757 N.W.2d 639, 643 (Iowa 2008)
(quoting Iowa Supreme Ct. Att’y Disciplinary Bd. v. Hall, 728 N.W.2d 383,
387 (Iowa 2007)). “Because honesty is crucial to the judicial process and
administration of justice, a misrepresentation by a lawyer ‘generally
results in a lengthy suspension of the license to practice law.’ ” Iowa
Supreme Ct. Bd. of Prof’l Ethics & Conduct v. Ruth, 656 N.W.2d 93, 100
(Iowa 2002) (quoting Iowa Supreme Ct. Bd. of Prof’l Ethics & Conduct v.
Hohenadel, 643 N.W.2d 652, 656 (Iowa 2001)). We have previously stated,
Fundamental honesty is the base line and mandatory requirement to serve in the legal profession. The whole structure of ethical standards is derived from the paramount need for lawyers to be trustworthy. The court system and the 36 public we serve are damaged when our officers play fast and loose with the truth.
Hohenadel, 643 N.W.2d at 656 (quoting Comm. on Prof’l Ethics & Conduct
v. Bauerle, 460 N.W.2d 452, 453 (Iowa 1990)).
Our cases provide ample support for at least a one-year suspension
for false court filings. See, e.g., Iowa Supreme Ct. Att’y Disciplinary Bd. v.
Barry, 908 N.W.2d 217, 234–35 (Iowa 2018) (imposing one-year
suspension on attorney who repeatedly lied about the status of a
dissolution action he never filed and who falsified a dissolution decree and judge’s signature); Iowa Supreme Ct. Att’y Disciplinary Bd. v. Kallsen, 814
N.W.2d 233, 238–40 (Iowa 2012) (imposing one-year suspension on an
attorney who notarized and filed a forged guilty plea agreement without
informing his client beforehand); Iowa Supreme Ct. Att’y Disciplinary Bd.
v. Cunningham, 812 N.W.2d 541, 554 (Iowa 2012) (imposing eighteen-
month suspension on attorney who knowingly violated a discovery order,
neglected client matters, and made misrepresentations to clients and
officers of the court); Iowa Supreme Ct. Att’y Disciplinary Bd. v.
Rickabaugh, 728 N.W.2d 375, 381–82 (Iowa 2007) (revoking an attorney’s
license for fabricating documents, forging signatures, making
misrepresentations, neglecting cases, accepting fees prematurely,
practicing while suspended, and for otherwise “demonstrat[ing] a blatant
disregard for his duty as an attorney to be honest and truthful”).
For these reasons, I am unable to join the majority’s opinion.
Christensen and McDonald, JJ., join this concurrence in part and
dissent in part.
Related
Cite This Page — Counsel Stack
Iowa Supreme Court Attorney Disciplinary Board v. Paul A. Caghan, Counsel Stack Legal Research, https://law.counselstack.com/opinion/iowa-supreme-court-attorney-disciplinary-board-v-paul-a-caghan-iowa-2019.