At each closing Ira Kaufman was the lawyer representing the LLC that was the supposed seller of the units. The closings took place in Kaufman’s law office and were conducted by Traditional Title Company LLC, owned by Kaufman. The loan applications included numerous misrepresentations on such subjects as the applicant's employment status, assets, and income. Each one falsely stated that the purchased unit was to be the applicant’s primary residence.
Fifth Third had instructed the title company to notify it immediately of any misrepresentations that would affect its decision to make the loan and to suspend the transaction if it learned that the borrower didn’t intend to occupy the unit as a primary residence. Kaufman knew of the misrepresentations, including the ones about occupying the units as primary residences. But he never alerted Fifth Third, not even when an applicant claimed an intention to occupy more than one unit as a primary residence.
The scheme worked so well that Kaufman’s client Ahmed did the same thing for units in other buildings, using Fifth Third as lender for four of the units, all with Kaufman acting as attorney for the seller.
When Fifth Third named Kaufman as a co-defendant in its fraud suit, he claimed that he had been unaware of the fraud. But wait, didn’t he notice that the same buyer claimed more than one unit as a primary residence? No, Kaufman responded, because he “really didn’t look at the people”--only at the numbers. And, he added, it’s not the job of the seller’s attorney to review the closing instructions or a buyer’s loan application.
Unfortunately for Kaufman, Ahmed testified that the lawyer was in on the scheme all along. And two closing agents testified that they told Kaufman about the misrepresentations in the loan applications.
After a bench trial, Kaufman was found liable for aiding and abetting the fraud in his roles as owner of the title insurance company and attorney for the sellers. On appeal, Kaufman argued that he couldn’t be held personally liable for the misdeeds of his title company or his client.
The Seventh Circuit unanimously affirmed the judgment of the lower court, ruling that Kaufman’s liability wasn’t based solely on his ownership of the title company LLC. It was also based on his individual actions in personally directing title company employees to conceal fraud from Fifth Third.
Kaufman argued that as a matter of law, an attorney can’t be charged with aiding and abetting a client’s fraud. The court rejected the argument out of hand, ruling that it was the opposite of the law, as reflected in a 2003 Illinois opinion stating that “one may not use his license to practice law as a shield to protect himself from the consequences of his participation in an unlawful or illegal conspiracy.”
The case is Fifth Third Mortgage Co. v. Kaufman, 7th Cir., citing Thornwood, Inc. v. Jenner & Block, Ill. App. Ct.
