FILED BEFORE THE HEARING BOARD

Transcription

1 FILED BEFORE THE HEARING BOARD ofthe NOV ILLINOIS ATTORNEY REGISTRATION AND ATTY REG &DISC COMM DISCIPLINARY COMMISSION CHICAGO In the Matter of: JAMES E. COSTON, No , Commission No. 2017PR00107 and PATRICIA E. RADEMACHER, No , Commission No. 2017PR00108 Attorney-Respondents. RESPONDENT JAMES E. COSTON'S ANSWER TO THE COMPLAINT COMES the Respondent, James E. Coston, by his attorney, Kathryne Hayes of the law firm Collins Bargione & Vuckovich, and for Respondent James E. Coston's Answer to the Complaint, states: COMMISSION RULE 231 STATEMENT Respondent was licensed to practice lawin the State of Illinois on October 29, Respondent is admitted to practice law in the Northern District of Illinois. Respondent holds no other professional licenses. ALLEGATIONS COMMON TO ALL COUNTS The Administrator alleges that Respondents Coston and Rademacher engaged in the following conduct: 1. Beginning in at least 2001, Respondent Coston and Respondent Rademacher practiced law as partners in the Chicago law firm of Coston and Rademacher, P.C., which represented asset-based lenders and equipment financing companies. Respondents renamed the firm Coston and Coston LLC in 2004, and remained

2 law partners in that firm until it dissolved in August Respondents were married in 1997, and Respondent Rademacher also used her married name, Coston. In October 2014, Respondent Rademacher set up her own law practice, and incorporated her firm as Rademacher, Inc. ANSWER: Respondent Coston admits paragraph In or around July 2009, Respondents and Associates Asset Management ("AAM") agreed that Respondents would represent AAM in various consumer debt collection and bankruptcy proceedings in Illinois. AAM engaged in debt collections relating to consumer receivables, including mortgage debt. ANSWER: Respondent Coston admits that in or around July 2009, Respondents and AAM agreed that Respondents would represent AAM in various consumer debt collection proceedings in Illinois. Respondent Coston denies that there was an agreement to represent AAM in bankruptcy proceedings in or around July Respondent Coston admits that AAM engaged in debt collections relating to consumer receivables, including mortgage debt. Respondent Coston further states that he later learned that AAM's operation in the State ofillinois was not lawful. 3. In July 2009, Respondents and AAM agreed that Respondents would accrue 30% of any amounts recovered by Respondents on behalf ofaam in the proceedings. Respondents agreed to send the remaining 70% of the amounts they recovered to AAM on a monthly basis. ANSWER: Respondent Coston admits that AAM agreed that Respondents' fee would be 30% of the recovery. Respondent further states that AAM agreed to advance all litigation costs. All remaining allegations are denied. 4. On August 8, 2010, AAM debtor Jami L. Menard filed a voluntary petition for Chapter 13 bankruptcy relief in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. That petition sought to discharge various debts Ms. Menard owed to creditors, one of which was AAM. That case was docketed as case number and presided over by the Honorable Jacqueline P. Cox. ANSWER: Respondent Coston admits that on or about August 10, 2010, Menard's voluntary petition was filed and docketed as case number Respondent Coston admits that the Administrator's summary of the petition contained in paragraph 4 is accurate. 5. On August 18, 2010, Respondent Rademacher (as an attorney with Coston & Rademacher, P.C.) filed a claim in the Menard case on behalfof AAM, asserting that AAM had an unsecured claim in the amount of $110, against Menard. The bankruptcy court directed all documents relating to activity in the case to

3 Respondents, who had appeared in the matter on behalf of AAM, and not directly to AAM. ANSWER: Respondent Coston admits that on or about August 18, 2010, Respondent Rademacher filed a Proofof Claim in the Menard case, on behalfof AAM, asserting that AAM had an unsecured claim in the amount of $110, Respondent Coston denies that the bankruptcy court directed all documents relating to activity in the case to both Respondents. Respondent states that the Proofof Claim filed by Respondent Rademacher states that notices should be sent to: "Patricia E. Rademacher W.Adams, Suite 1400 Chicago, IL [.]" Coston & Rademacher 6. On October 13, 2010, Judge Cox entered an order in the Menard matter confirming an August 10, 2010 Chapter 13 plan, as modified by an amendment filed on October 13, The confirmed plan provided for AAM to recover on its $110, claim, which would be paid through the bankruptcy estate. ANSWER: The documents filed with the Court speak for themselves and no answer is required. On information and belief, Menard was to pay the trustee $436 monthly for 60 months, for total payments, during the initial plan term, of $26, On information and belief, a significant portion of AAM's claim was discharged. Any remaining allegations are denied. COUNT I {Alleged Conversion offunds Belongingto AssociatesAssetManagement - March 2011 through April Respondents Coston and Rademacher) The Administrator alleges that Respondents Coston and Rademacher engaged in the following conduct: 7. During the months of March 2011 through April 2013, the United States Bankruptcy Trustee wrote 20 checks relating to the Menard matter payable to AAM and mailed them to Respondents. In total, the 20 checks amounted to $9, ANSWER: Respondent Coston admits that during the months of March 2011 through April 2013, the trustee wrote 20 checks relating to the Menard matter payable to AAM and that the checks were delivered to the law firm. Respondent Coston denies that the checks were directed to Respondent Coston. On information and belief, the checks were addressed to the law firm and/or Ms. Rademacher. 8. Respondents received the 20 checks described in paragraph seven, and the firm, at the direction of one or both Respondents, deposited all of the checks into a trust account they maintained ending in the four digits "3502" at JPMorgan Chase

4 Bank, N.A. Respondents used that account, which was entitled "Coston & Rademacher PC, IOLTA Trust Account" (hereafter, the "3502 Trust Account"), as the depository of funds belonging to Respondents' clients, to third parties, and, presently or potentially, to Respondents. Both Respondents were signatories on the 3502 Trust Account. ANSWER: Respondent Coston admits that he has a recollection of checks relating to the Menardbankruptcy matter being delivered to the law firm. Respondent admits the checks were deposited into the 3502 Trust Account. Respondent Coston does not have a specific recollection of what, if any, direction he gave regarding the deposit of the 20 checks described in paragraph 8. Respondent Coston states that it is his usual and customary practice to cause all "recovery" checks to be deposited into an IOLTA/trust account. Respondent Coston admits that 3502 Trust Account was used as an IOLTA account. Respondent Coston admits that he was a signatory on the 3502 Trust Account. Any remaining allegations are denied. 9. As of April 1, 2013, Respondents had not forwarded to AAM any of the funds they had received from the trustee in connection with the Menard case, nor had Respondents advised AAM of the receipt of funds in connection with that matter, or provided AAM with any written statement outlining the amounts that Respondents had recovered, the amounts to be remitted to AAM, or the method by which those amounts (or the amount of any claimed contingency fees to which Respondents might have asserted a claim) had been calculated. ANSWER: Respondent Coston admits that as of April 1, 2013, no distribution had been made to AAM related to any of the funds received from the Trustee in connection with the Menard case. On information and belief, Respondent Coston states that AAM received status updates, including written updates, from Respondent Rademacher regarding the Menard matter. Respondent further states that he does not recall working on the Menard matter. Any remaining allegations are denied. 10. As of May 31, 2013, Respondents had deposited $9, in funds relating to the Menard matter into the 3502 Trust Account. Based on their fee agreement with AAM, Respondents were entitled to no more than $2, (30% of the amounts received in connection with the Menardbankruptcy case), and Respondents should have had at least $6, of the funds they collected in the Menard matter in the 3502 Trust Account. By that date, Respondents had drawn checks, made other withdrawals, and used money from the 3502 Trust Account and had drawn the balance of that account down to $18.92, which was $9, less than the funds relating to the Menard matter that Respondents had received and deposited into that account. ANSWER: Respondent Coston admits that as of May 31, 2013, 20 checks relating to the Mendard matter had been deposited into the 3502 Trust Account. Respondent Coston admits that the earned fee was 30% of the amount received in connection with the Menard bankruptcy matter. Respondent states that, on information and belief, the

5 remaining funds were applied by Respondent Rademacher as expenses incurred by AAM and owed to the law firm. Respondent Coston denies any remaining allegations. 11. As of May 31, 2013, Respondents had not told AAM that they had received any checks in the Menard matter. When Respondents used the funds collected in the Menard matter, they knew that those funds belonged to AAM. At no time prior to May 31, 2013 did AAM authorize Respondents to use any portion of the amounts recovered in the Menard matter for their own business or personal purposes. ANSWER: On information and belief, Respondent Coston denies paragraph By using the amounts recovered prior to May 31, 2013 in the Menardmatter, Respondents engaged in conversion of those funds. ANSWER: Respondent Coston denies paragraph By reason of the conduct described above, Respondents Coston and Rademacher have engaged in the following misconduct: a. failure to keep AAM reasonably informed about the status of the Menard matter, by conduct including failing to inform representatives of AAM that Respondents were regularly collecting funds from the bankruptcy trustee on its behalf, in violation of Rule 1.4(a)(3) of the Illinois Rules of Professional Conduct (2010); ANSWER: Denied. b. failure to hold property of clients that is in the lawyer's possession in connection with representation separate from the lawyer's own property, by conduct including converting funds belonging to AAM for their own use and causing the balance in their IOLTA account to fall below the amount then belonging to AAM, in violation of Rule 1.15(a) of the Illinois Rules ofprofessional Conduct (2010); and ANSWER: Denied. c. failure to promptly notify the client about and deliver client funds to which the client is entitled, by conduct including failing to inform AAM of the funds received from the bankruptcy trustee in connection with the Menard matter, and failing to promptly and accurately deliver those funds to AAM, in violation of Rule 1.15(d) ofthe Illinois Rules ofprofessional Conduct (2010). ANSWER: Denied. COUNT II (False Statement to AAM Regarding Status ofmenardmatter- Respondent Rademacher)

6 The Administrator alleges that Respondent Rademacher engaged in the following conduct: 14. The Administrator realleges paragraphs 7 through 12 of Count I, above. ANSWER: Paragraph 14 is not directed against Respondent Coston and therefore no 15. During the time that Respondents handled the matters described in paragraph 2, above, Respondent Rademacher periodically provided status reports to AAM that purported to report upon the collection matters that Respondents were handling. The reports identified the name of the account, the case number, the status of the matter, the next actions that Respondents planned to take, and the costs associated with each matter. ANSWER: Paragraph 15 is not directed against Respondent Coston and therefore no 16. No earlier than August 29, 2012, Respondent Rademacher sent a status report to AAM that purported to report upon the status of the AAM matters. For the Menard matter, Respondent Rademacher reported as the status that "[w]e will receive a small percentage from the BK at some point," and that the next step was to "[m]onitor BK payments." ANSWER: Paragraph 16 is not directed against Respondent Coston and therefore no 17. Respondent Rademacher's statements in the report provided to AAM, that AAM would receive payments relating to the Menard bankruptcy at some point in the future and that the next action would be to monitor those payments, were false because, as of August 29, 2012, Respondents had already received 14 checks from the trustee in the Menardmatter totaling $6, ANSWER: Paragraph 17 is not directed against Respondent Coston and therefore no 18. Respondent Rademacher knew that her statements in the status report to AAM were false, because Respondents had already received 14 checks from the trustee in the Menard matter. Respondent Rademacher knew that Respondents had received these checks, but she chose not to include that with the information conveyed to AAM. Respondent Rademacher also knew that the next action in the Menard matter was not to "monitor" the payments because Respondents had already received and deposited 14 checks. ANSWER: Paragraph 18 is not directed against Respondent Coston and therefore no

7 19. By reason of the conduct described above, Respondent Rademacher has engaged in the following misconduct: a. failure to keep AAM reasonably informed about the status of the Menard matter, by conduct including failing to inform representatives of AAM that Respondents were regularly collecting funds from the bankruptcy trustee on its behalf, in violation of Rule 1.4(a)(3) of the Illinois Rules of Professional Conduct (2010); and ANSWER: Paragraph 19(a) is not directed against Respondent Coston and therefore no b. conduct involving dishonesty, fraud, deceit or misrepresentation, by providing AAM with a report purporting to show the status of the matters that Respondents were handling that contained false statements, or intentionally omitted truthful information, in an effort to conceal Respondents' receipt of the checks from the trustee, in violation of Rule 8.4(a)(4) ofthe Illinois Rules of Professional Conduct (2010). ANSWER: Paragraph 19(b) is not directed against Respondent Coston and therefore no COUNT III (Alleged Commingling and Conversion offunds Belonging to Associates Asset Management - May 2013 through November Respondents Coston and Rademacher) The Administrator alleges that Respondents Coston and Rademacher engaged in the following conduct: 20. The Administrator realleges paragraphs 7 through 12 of Count I and paragraphs 15 through 18 ofcount II, above. ANSWER: Respondent re-alleges paragraph 7 through 12 of Count I. Paragraphs 15 through 18 of Count II are not directed against Respondent Coston and therefore no 21. On October 17, 2012, another of AAM's debtors filed a lawsuit against AAM and Coston & Coston, LLC in the United States District Court for the Northern District of Illinois, Eastern Division. The case was captioned Zahniser v. Associates Asset Management, LLC, andcoston & Coston, LLC, and docketed as case number 2012-cv The lawsuit alleged that AAM had violated the Illinois Collection Agency Act, the Illinois Consumer Fraud Act, the Fair Debt Collection Practices Act, and the lawsuit also asserted a claim for public nuisance. The complaint also alleged that Coston and Coston, LLC had improperly sued the plaintiff in Cook County rather than in Winnebago County because the plaintiff

8 resided in Winnebago County at the time Respondents filed the lawsuit, and the note attached to the complaint had been executed in that county. ANSWER: Respondent Coston admits that on or about October 17, 2012, Zahniser v. Associates Asset Management, LLC, and Coston & Coston, LLC, was filed. The complaint speaks for itself and therefore no 22. On or about April 9, 2013, Respondents and AAM entered into a mutual release. The mutual release purported to resolve fully and finally any and all disputes between Respondents and AAM. As part of that release, Respondents waived their rights to collect any costs from AAM, and they waived their right to be further compensated on any ofthe AAM matters, including the Menard case. This meant that after April 9, 2013, Respondents waived any right to assert a claim to or accrue 30% ofthe amounts recovered by AAM in the Menard matter. ANSWER: Respondent Coston admits that Respondents and AAM entered into a mutual release. The mutual release speaks for itself and therefore no further Any remaining allegations are denied. 23. AAM and Coston & Coston, LLC settled the Zahniser matter, and the court dismissed the lawsuit on April 30, ANSWER: Respondent Coston admits paragraph As part of the mutual release referred to in paragraph 22, above, AAM purported to release Respondents from any claims against them. However, as of April 9, 2013, Respondents did not disclose to AAM that it had been receiving payments on AAM's behalf in the Menard matter. Rather, Respondent Rademacher had advised AAM that it would receive payments relating to the Menardbankruptcy at some point in the future and that the next action would be to monitor those payments. ANSWER: The mutual release referred to in paragraph 22 speaks for itself and therefore no On information and belief, Respondent Coston denies the remaining allegations contained in paragraph During the months of May 2013 through October 2015, the United States Bankruptcy Trustee wrote 22 additional checks relating to the Menard matter payable to AAM, beyond those identified in Count I, above, and mailed them to Respondents. In total, the 22 checks amounted to $11, ANSWER: On information and belief, Respondent Coston admits that the trustee sent the 22 checks described in paragraph 22. Respondent Coston denies that they were directed to him. On information and belief, the checks were addressed to either the law firm and/or Respondent Rademacher.

9 26. During the months of May 2013 through November 2015, Respondents deposited $6, from the checks remitted by the Trustee in the Menard case into the 3502 Trust Account. ANSWER: Respondent Coston admits that during the months of May 2013 through November 2015, $6, from the checks remitted by the trustee in the Menard case was deposited into the 3502 Trust Account. 27. During the months of May 2013 through January 2014, Respondents deposited $1, from the checks remitted by the trustee in the Menard case into an account they maintained ending in the four digits "3247" at JPMorgan Chase Bank, N.A. Respondents used that account, which was entitled "Coston & Rademacher PC" (hereafter the "3247 Operating Account"), as the depository of funds belonging to Respondents, and the account from which Respondents paid their operating expenses. Both Respondents were signatories on the 3247 Operating Account. ANSWER: Denied. On information and belief, Respondent Coston denies depositing these checks into the 3247 Operating Account. Respondent Coston admits that he was a signatory on the 3247 Operating Account. 28. During the months of January 2015 through May 2015, Respondents deposited $1, from the checks remitted by the trustee in the Menard case into a trust account they maintained ending in the four digits "9186" at Citibank, N.A. Respondents used that account, which was entitled "Coston & Coston, Attorney Trust Account" (hereafter the "9186 Trust Account"), as the depository offunds belonging to Respondents' clients, to third parties, and, presently or potentially, to Respondents. Both Respondents were signatories on the 9186 Trust Account. ANSWER: On information and belief, Respondent Coston admits that the checks described in paragraph 28 were deposited into the 9186 Trust Account. Respondent Coston denies that he utilized the 9186 Trust Account. Respondent Coston denies that he was a signatory on the 9186 Trust Account. Any remaining allegations are denied. 29. During the months of April 2015 through November 2015, Respondent Rademacher deposited $2, from the checks remitted by the trustee in the Menardcase into a trust account she maintained ending in the four digits "9005" at Citibank, N.A. Respondent Rademacher used that account, which was entitled "Rademacher Inc, IOLTA Client Trust Account" (hereafter the "9005 Trust Account"), as the depository of funds belonging to her clients, to third parties, and, presently or potentially, to Respondent Rademacher. Respondent Rademacher was a signatory on the 9005 Trust Account. ANSWER: On information and belief, Respondent Coston admits paragraph 29.

10 30. Respondent Rademacher also deposited personal funds, including earned fees and money that she inherited into the firm's trust accounts in an attempt to hide the money from Respondent Coston. ANSWER: Paragraph 30 is not directed against Respondent Coston and therefore no In the alternative, Respondent Coston states that he lacks information and can neither admit nor deny. 31. As of October 30, 2015, Respondents should have been holding at least $13, (70%» of the amounts deposited prior to the mutual release, and 100% of the amounts deposited thereafter) for AAM in 3502 Trust Account. By that date, Respondents had drawn checks, made other withdrawals, and used money from the 3502 Trust Account and had drawn the balance of that account down to $0.00, which was $16, less than the funds relating to the Menard matter that Respondents had received and deposited into that account. ANSWER: Admitted that as of October 30, 2015, AAM funds should have been in the account. Respondent Coston further states that Respondent Rademacher caused to be sent Check No in the amount of $12, to AAM. Respondent Coston denies all remaining allegations contained in paragraph As of March 1, 2014, Respondents should have been holding the $1, that they deposited in 3247 Operating Account in a trust account for AAM. Respondents had not earned any portion of the $1,508.94, and had waived any right to accrue any portion of that amount. By depositing the $1, into their operating account, Respondents commingled and converted those funds. By March 1, 2014, Respondents had drawn checks, made other withdrawals and used money from the 3247 Operating Account and had overdrawn that account by $252.72, which depleted the entire $1, in funds relating to the Menardmatter that Respondents had received and deposited into that account. ANSWER: Respondent Coston admits that the $1, deposited into the 3247 should have been deposited and held in a trust account for AAM. Respondent Coston admits that the firm waived any right to accrue any portion of that amount. Respondent Coston further states that Respondent Rademacher caused to be sent Check No in the amount of $12, to AAM. Respondent Coston denies all remaining allegations contained in paragraph As of December 31, 2015, Respondents should have been holding $1, for AAM in 9186 Trust Account. By that date, Respondents had drawn checks, made other withdrawals, and used money from the 9186 Trust Account and had drawn the balance of that account down to $65.06, which was $1, less than the funds relating to the Menard matter that Respondents had received and deposited into that account. 10

11 ANSWER: Respondent Coston admits that as of December 31, 2015, AAM funds should have been in an account for AAM. Respondent Coston further states that Respondent Rademacher caused to be sent Check No in the amount of $12, to AAM. Respondent Coston denies all remaining allegations in paragraph As of January 31, 2016, Respondent Rademacher should have been holding $2, for AAM in 9005 Trust Account. By that date, Respondent Rademacher had drawn checks, made other withdrawals, and used money from the 9005 Trust Account and had drawn the balance of that account down to $95.66, which was $2, less than the funds relating to the Menard matter that Respondent Rademacher had received and deposited into that account. ANSWER: Respondent Coston admits paragraph 34 on information and belief. 35. On January 28, 2016, the trustee in the Menard matter filed the Final Report and Accounting relating to the administration ofthe Menard estate. The report showed that the case had been completed on October 26, 2015, and it showed that the trustee had made payments to AAM in the amount of $20, At no time prior to February 5, 2016 did Respondents inform AAM that the matter had concluded, nor did Respondents provide AAM with notice of the outcome of the matter or a calculation of any amounts that would be remitted to AAM. ANSWER: The Final Report and Accounting filed by the trustee in the Menard matter speaks for itself and no Respondent Coston admits that at no time prior to February 5, 2016, did he inform AAM that the matter had concluded, nor did he provide AAM with notice of the outcome of the matter or a calculation of any amounts that would be remitted to AAM. Respondent Coston further states that he was not personally involved with the Menard matter. On information and belief, Respondent states that Respondent Rademacher communicated with AAM. Any remaining allegations are denied. 36. As described in paragraphs 31 through 34, above, Respondents used most of the money they received from the trustee relating to the Menard matter for their own business and personal purposes. When Respondents used those funds, they knew that those funds belonged to AAM. At no time did AAM authorize Respondents to use any of the amounts recovered after May 2013 in the Menard matter for their own business or personal purposes. ANSWER: Respondent Coston denies paragraph By using AAM's portion of the amounts recovered in the Menard matter after May 2013, Respondents engaged in conversion of those funds. ANSWER: Respondent Coston denies paragraph

12 38. By reason of the conduct described above, Respondents Coston and Rademacher have engaged in the following misconduct: a. failure to keep AAM reasonably informed about the status of the Menard matter, by conduct including failing to inform representatives of AAM that Respondents were regularly collecting funds from the bankruptcy trustee on its behalf, in violation ofrule 1.4(a)(3) ofthe Illinois Rules of Professional Conduct (2010); ANSWER: Respondent Coston denies paragraph 38(a). b. failure to provide AAM with a written statement advising AAM that the Menard matter had concluded, stating the outcome ofthe matter and including a determination of any amounts that would be remitted to AAM, in violation of Rule 1.5(c) of the Illinois Rules of Professional Conduct (2010); ANSWER: Respondent Coston denies paragraph 38(b). c. failure to hold property of clients that is in the lawyer's possession in connection with representation separate from the lawyer's own property, by conduct including converting funds belonging to AAM for their own use and causing the balance in their IOLTA accounts to fall below the amounts then belonging to AAM and by commingling personal funds into the lawyers' trust account, in violation of Rule 1.15(a) ofthe Illinois Rules ofprofessional Conduct (2010); ANSWER: Respondent Coston denies paragraph 38(c). d. failure to promptly notify the client about and deliver client funds to which the client is entitled, by conduct including failing to inform AAM of the funds received from the bankruptcy trustee in connection with the Menard matter, and failing to promptly and accurately deliver those funds to AAM, in violation of Rule 1.15(d) ofthe Illinois Rules of Professional Conduct (2010); and ANSWER: Respondent Coston denies paragraph 38(d). e. conduct involving dishonesty, fraud, deceit or misrepresentation by entering into a mutual release whereby AAM purported to waive all claims against Respondents after Respondents made false statements, or intentionally omitted truthful information, in an effort to conceal Respondents' receipt of the checks from the trustee, in violation of Rule 8.4(a)(4) of the Illinois Rules of Professional Conduct (2010). ANSWER: Respondent Coston denies paragraph 38(e). 12

13 WHEREFORE, Respondent respectfully requests that this cause be considered and that the Hearing Board make a just recommendation. Kathryne Hayes (khayes@cb-law.com) COLLINS BARGIONE & VUCKOVICH One North LaSalle Street, Suite 300 Chicago, Illinois (312) By: Counsel for Respondent James Coston 13