              IN THE SUPREME COURT OF IOWA
                              No. 14–1781

                           Filed April 3, 2015


IOWA SUPREME COURT ATTORNEY DISCIPLINARY BOARD,

      Complainant,

vs.

JOHN E. CEPICAN,

      Respondent.



      On review of the report of the Grievance Commission of the

Supreme Court of Iowa.



      Grievance commission recommended revocation of attorney’s

license. LICENSE SUSPENDED.



      Charles L. Harrington and David J. Grace (until withdrawal) then

Amanda K. Robinson, Des Moines, for complainant.



      John E. Cepican, Bettendorf, pro se.
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CADY, Chief Justice.

      The Iowa Supreme Court Attorney Disciplinary Board charged

John E. Cepican with violating the Iowa Rules of Professional Conduct

pertaining to neglect of client matters, failure to follow trust account

procedures upon receipt of retainers, and failure to respond to the Board.

The Grievance Commission of the Supreme Court of Iowa found Cepican

converted client funds without a colorable future claim to them.        It

recommended Cepican’s license to practice law be revoked.         On our

review, we find Cepican violated the rules of professional conduct, but he

was not provided with adequate advance notice that he was charged with

converting client funds.     We suspend his license to practice law for a

period not less than six months.

      I. Background Facts and Proceedings.

      John Cepican is an Iowa lawyer. He was admitted to practice law

in 1974 and developed a practice primarily limited to the area of

intellectual property. He maintained an office in Bettendorf, but was not

actively engaged in his practice by the time this disciplinary action

proceeded to hearing. Cepican is sixty-six years old.

      The Board brought a three-count complaint against Cepican

alleging various violations of the Iowa Rules of Professional Conduct

involving his actions with three clients.   Each count in the complaint

involved a different client, and the evidence at the hearing showed

Cepican caused substantial heartache and harm to each of them. In the

first count, Cepican represented a client to secure a patent for an

invention involving a toy.     Over time, he neglected to perform certain

legal services and failed to adequately communicate with the client. After

the client brought a complaint against him, Cepican failed to reply to the

Board on numerous occasions.
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      The two other counts in the complaint also involved neglect of

client matters. One of the counts involved a complex scientific invention

by the client. The neglect by Cepican was serious enough for the United

States Patent and Trademark Office (USPTO) to issue notices of

abandonment of the patent application of the client.        The conduct by

Cepican in this and other cases eventually led to a default judgment

excluding him from practicing before the USPTO.

      The final two complaints also alleged Cepican failed to follow

proper trust account procedures upon receiving client retainers. In the

second count, Cepican received a client retainer for legal work he agreed

to perform. He then neglected the work and failed to refund the retainer

after the client became dissatisfied with his inaction.       In the third

complaint, Cepican received a $5000 retainer from the client to perform

legal work, but again failed to complete the work or return the retainer.

He also failed to place the retainer in his trust account and failed to

provide the client with an accounting. The client subsequently brought a

lawsuit against Cepican to recover the retainer and obtained a default

judgment in the amount of $5000.

      After Cepican failed to respond to the allegations of the complaint,

the commission deemed the allegations in the complaint to be admitted.

Additionally, Cepican was prohibited from introducing witnesses or

evidence on the charges and was not permitted to object to any evidence

offered by the Board. These actions were a result of sanctions imposed

by the commission based on Cepican’s failure to respond to discovery

requests. The case then proceeded to a hearing limited to the imposition

of sanctions. In a prehearing brief, the Board explained that the trust

fund allegations involved the claim that Cepican “did not follow proper

trust account procedures with respect to said retainers.”
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      The evidence at the hearing revealed Cepican had experienced

numerous problems in his personal and professional life over a period of

several years prior to the complaints and the hearing. Cepican testified

he had no desire to return to the active practice of law, but requested the

commission make a recommendation that he be suspended from the

practice of law for a period of time. At the close of the hearing, the Board

told the commission that Cepican’s trust fund conduct warranted a

revocation of his license based on his admission to the allegations that

he converted retainer funds for his personal use before the fees were fully

earned.

      The   commission     concluded        Cepican’s   trust        fund   violation

constituted stealing because no evidence was presented during the

hearing that he had a colorable future claim to the $5000 retainer

provided by the client in the third count.          The commission found this

conclusion was also supported by evidence that the client obtained a

judgment    against   Cepican   for   the    full   amount      of    the   retainer.

Consequently, it recommended that his license to practice law be

revoked.

      II. Scope of Review.

      “We review attorney disciplinary matters de novo.” Iowa Supreme

Ct. Att’y Disciplinary Bd. v. Lemanski, 841 N.W.2d 131, 133 (Iowa 2013).

      III. Ethical Violations and Sanctions.

      An attorney who misappropriates a client retainer fee either

violates the rules pertaining to the safekeeping of client funds and client

trust accounts, Iowa Rules of Professional Conduct 32:1.15 and Iowa

Court Rules chapter 45, or commits theft in violation of the rules of

professional conduct pertaining to misconduct involving dishonesty,

fraud, deceit, or misrepresentation, Iowa Rules of Professional Conduct
                                      5

32:8.4(c).    The difference in the conduct is critical because of the

difference in the sanctions imposed. Theft of client funds is grounds for

revocation, while the failure to follow the rules governing retainer fees

normally results in a less severe sanction. See Iowa Supreme Ct. Att’y

Disciplinary Bd. v. Powell, 830 N.W.2d 355, 358–59 (Iowa 2013)

(recognizing a consistent pattern of revocation for client fund conversion

and suspension for trust fund violations involving the early taking of

fees). Often, the critical distinction between the two violations rests on

whether or not the attorney had a colorable future claim to the funds.

Iowa Supreme Ct. Att’y Disciplinary Bd. v. Carter, 847 N.W.2d 228, 232

(Iowa 2014). An attorney in a disciplinary proceeding has the burden to

produce evidence of a colorable future claim, but the burden of proving

theft remains with the Board. Id. at 232–33.

      In this case, no evidence was presented by Cepican concerning a

colorable future claim to the client retainer in the amount of $5000. He

was precluded from introducing any evidence as a sanction for failing to

answer the complaint and discovery requests. Yet, there was evidence a

client obtained a judgment against Cepican in the amount of $5000 in a

lawsuit brought to recover the retainer. There was also evidence from

the clients indicating Cepican did little work in their cases.

      On our de novo review, we conclude it is unnecessary for us to

determine if Cepican committed theft of retainer funds to justify the

recommended sanction of revocation. We conclude the complaint in the

proceedings before the commission did not provide adequate notice to

Cepican of the charge of theft, and this lack of notice denied him a

reasonable opportunity to defend against the claim and the sanction of

revocation.
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      An attorney in a disciplinary action is entitled to notice of the

specific charges of misconduct alleged to have been committed. Iowa Ct.

R. 35.5. The charges must be known to the attorney before the hearing

begins.   In re Ruffalo, 390 U.S. 544, 551, 88 S. Ct. 1222, 1226, 20

L. Ed. 2d 117, 122 (1968) (holding the quasi-criminal nature of

disciplinary cases requires fair notice of the charges); see also Iowa

Supreme Ct. Att’y Disciplinary Bd. v. Nelson, 838 N.W.2d 528, 536 n.2

(Iowa 2013) (citing Ruffalo and noting that “the [B]oard must disclose the

charges against an attorney before the proceedings commence”).                The

notice requirement is a basic component of procedural due process.

Nelson, 838 N.W.2d at 536 n.2.

      An attorney is given sufficient notice of misconduct alleging theft or

misappropriation of a client retainer when the complaint is not only

predicated on a violation of the rules pertaining to the safekeeping of

property and trust accounts, but also includes allegations that the rule

prohibiting   conduct     involving        dishonesty,     fraud,   deceit,    or

misrepresentation was violated.       See Iowa Rs. Prof’l Conduct 32:1.15,

32:8.4(c); Iowa Ct. Rs. 45.1, 45.2, 45.7.                The complaint should

specifically allege misappropriation or conversion of a client retainer for

personal use without a colorable future claim.            See Iowa Supreme Ct.

Att’y Disciplinary Bd. v. Kelsen, 855 N.W.2d 175, 183 n.3 (Iowa 2014).

We recognize notice of an allegation of theft of a retainer may be satisfied

with less precise language in the complaint, but only when supplemented

by a record that shows the attorney actually had an opportunity to

submit evidence of a colorable future claim at the disciplinary hearing

and understood the issue was being litigated. See id. (finding attorney

understood the charge and presented evidence to establish a colorable

claim).
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      In this case, the allegations in the complaint did not provide

adequate notice to Cepican that he faced a claim of misconduct in the

nature of theft that would support revocation of his license.               The

complaint only alleged he obtained retainers and did not deposit them

into his trust account, even though the retainers had not been earned.

Cepican admitted, as required by the commission’s sanction, all the

allegations in the complaint, but the possibility that he faced a

revocation of his license to practice law was not raised until the

conclusion of the hearing. Thus, his conduct in failing to respond to the

complaint cannot be deemed a waiver of his right to contest the

allegations of theft. Under the circumstances, Cepican did not have a

fair opportunity to know the issue of theft was in play and to produce

evidence to show he had a future colorable claim to the retainer. This

defense is established by evidence the attorney had a good-faith intent to

perform the work even when the attorney failed to perform enough of the

work to exhaust the retainer.         See Carter, 847 N.W.2d at 233–34

(permitting a colorable future claim to “shield an attorney from

revocation when the premature fee claim exceeds the actual fee earned if

the funds converted were retainer funds”).            Furthermore, a default

judgment entered against an attorney in the civil action over a retainer

would not render the colorable-future-claim defense inapplicable in a

subsequent disciplinary action. See Iowa Supreme Ct. Att’y Disciplinary

Bd. v. Rhinehart, 827 N.W.2d 169, 177–78 (Iowa 2013) (explaining the

requirements for issue preclusion based on prior proceedings). 1            The

      1Two   default judgments were imposed against Cepican. First, the USPTO
entered a default judgment excluding Cepican from practice before the USPTO. This
judgment was admitted for preclusive effect regarding Cepican’s neglect and
abandonment of his patent cases under Iowa Court Rule 35.7. The second default
judgment was from an Iowa court for the amount of the retainer in Count III. The
                                          8

difference in burden of proof between an ordinary civil action and a

disciplinary action generally means civil actions do not have preclusive

effect in disciplinary hearings. See Iowa Ct. R. 35.7(3)(b) (requiring the

burden of proof in the original proceeding be greater than mere

preponderance of the evidence); Iowa Supreme Ct. Bd. of Prof’l Ethics &

Conduct v. Murphy, 669 N.W.2d 254, 257 (Iowa 2003) (finding the

difference in burden of proof prevented issue preclusion). Additionally, a

default judgment is not a final judgment on the merits for the purposes

of issue preclusion. See Winnebago Indus., Inc. v. Haverly, 727 N.W.2d

567, 572 (Iowa 2006) (“Iowa law is clear that issue preclusion requires

that the issue was ‘actually litigated’ in the prior proceeding. . . . . ‘In the

case of a judgment entered by confession, consent, or default, none of

the   issues    is   actually    litigated.’ ”   (Citations    omitted.)    (quoting

Restatement (Second) of Judgments § 27 cmt. e, at 257 (1982))). Thus,

Cepican could have asserted the defense of colorable future claim at the

hearing.

       Accordingly, we do not consider whether Cepican violated the rules

of professional conduct pertaining to the misappropriation of a retainer

without a colorable future claim.          The other violations alleged by the

Board in the complaint were established at the hearing and support the

imposition of discipline.       Based on all the evidence presented at the

hearing, we suspend Cepican from the practice of law for a period of time

not less than six months. See Iowa Supreme Ct. Att’y Disciplinary Bd. v.

Bartley, ___ N.W.2d ___, ___, (Iowa 2015) (suspending license for six

_________________________
judgment is not included in this record. Further, no notice was provided to Cepican
that the Board intended to use it for preclusive effect. See Iowa Ct. R. 35.7(3)(c).
However, the commission effectively granted the judgment preclusive effect to conclude
Cepican performed no work on the case.
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months for neglect, trust account violations, and misrepresentation);

Iowa Supreme Ct. Att’y Disciplinary Bd. v. Hauser, 782 N.W.2d 147, 153–

54 (Iowa 2010) (suspending license for six months for severe neglect,

failure to communicate, and trust account violations); Iowa Supreme Ct.

Att’y Disciplinary Bd. v. Walker, 712 N.W.2d 683, 685–86 (suspending

license for six months for neglect, misrepresentation, and failure to

communicate resulting in harm to the clients).

      The sanction imposed does not minimize the seriousness of the

conduct by the attorney or the harm caused to the clients. It considers

all the objectives of imposing sanctions on attorneys who violate the

rules of professional responsibility. But, it also recognizes, as we must,

that the legal process must be fair and, in this case, include fair advance

notice when a revocation of license to practice law is on the line.

      IV. Conclusion.

      We suspend the license of John E. Cepican to practice law in Iowa

for a period not less than six months.      Cepican shall comply with all

rules pertaining to the suspension. See Iowa Ct. R. 35.13. Costs of this

proceeding are assessed against Cepican. See id. r. 35.27(1).

      LICENSE SUSPENDED.

      All justices concur except Wiggins, J., who takes no part.
