Summary
In Toledo Bar Assn. v. Miller, supra, 22 Ohio St.2d 7, 51 O.O.2d 4, 257 N.E.2d 376, the attorney was indefinitely suspended for misrepresenting his interest in an investment he recommended to his client and failing to disclose certain critical details.
Summary of this case from Stark Cty. Bar Assn. v. ButtacavoliOpinion
D.D. No. 103
Decided April 1, 1970.
Attorneys at law — Misconduct — Representing conflicting interests — Acquiring interest adverse to clients — Accepting employment without disclosing relationship with adverse party — Interest in subject matter of employment — Acts warranting suspension from practice for indefinite period.
ON CERTIFIED REPORT by the Board of Commissioners on Grievances and Discipline.
This disciplinary action against respondent attorney, Samuel D. Miller, was filed by the Toledo Bar Association, relator, charging that certain professional conduct of respondent violated his attorney's oath, the Rules of Professional Conduct under Rule XIX of the Rules of Practice of the Supreme Court and Canons Nos. 6, 11, 29 and 32 of the Canons of Professional Ethics.
The complaint arises out of respondent's representation of a brother and sister, James A. Kirkham and Anne K. Colwell, in connection with their investment in a mortgage transaction and embraces three specifications alleging that respondent:
1. "falsely and fraudulently counselled, advised and made representations";
2. "in counselling and advising them with respect to an investment, failed to disclose to and concealed from them that he had a personal interest in the subject-matter of said investment and said employment";
3. "in counselling and advising them with respect to an investment, failed to uphold the honor and maintain the dignity of the profession, and in connection therewith dishonored and brought the profession into disrepute."
Respondent attorney is also an accountant, and in the latter capacity had done work for the father of James A. Kirkham and Anne K. Colwell. The father owned an insurance agency, and when he died in November 1958, respondent was retained to do the legal work in the administration of the estate and likewise the estate of their mother who died several months later. In the course of the administration of the estates from which respondent's clients received substantial assets, the clients sought counsel from respondent as to investing their money. Respondent told them about a certain County Investment Company which borrowed money on first mortgages and which company was considering the purchase of the plant of Higgins Metal Products Company of Swanton, Ohio, and leasing it back to Higgins. Respondent also told them that the sales price was $105,000; that he intended to loan County Investment $20,000 of his own money; that the remaining $85,000 was open for investment by them; that the interest rate would be 6 per cent; and that regular monthly payments of $700 were to be paid from the rental proceeds.
The brother and sister indicated that they would be interested but did not have the full amount in cash available, and respondent suggested that partial distributions could be made from their parents' estates to make up the $85,000 needed. Mrs. Colwell testified that she still was concerned about the investment and that respondent called to convince her that it was a good investment. She testified that, because respondent was putting $20,000 into the deal, she felt assured, and they agreed to go ahead with the transaction authorizing the respondent to represent them in proceeding with the closing.
The transaction was closed on March 2, 1959. The following instruments were executed in connection with the closing of the transaction:
(1) A warranty deed from Higgins to County Investment Company;
(2) A 15-year lease from County Investment to Higgins, calling for the rental of $1,000 per month for the first five years, $1,100 for the next five years and $1,210 for the final five years;
(3) A promissory note in the amount of $85,000 from County Investment to the Kirkhams and Colwells (calling for payments of $700 per month);
(4) A 15-year mortgage deed from County Investment Company to the Kirkhams and Colwells;
(5) An assignment of the Higgins lease from County Investment to the Kirkhams and Colwells; and
(6) An agreement between Higgins and County Investment containing the various limitations on borrowing against personal property, salaries, etc.
As part of the transaction the Kirkhams and Colwells gave the respondent a cashier's check in the amount of $85,000 payable to Miller and Miller Escrow Fund which was used to close the purchase and loan transaction. The various papers were recorded, and on March 10, 1959, respondent advised the Kirkhams and Colwells under his legal letterhead that the transaction had been consummated and transmitted to them the promissory note, mortgage deed and assignment of the Higgins lease.
Monthly payments of $700 on the mortgage were received thereafter by the Colwells and Kirkhams for four years, when Higgins went into bankruptcy and defaulted on its rental payments to County Investment which, in turn, defaulted on its mortgage payments to the Kirkhams and Colwells. Foreclosure action was taken by the Kirkhams and Colwells in which they sustained a net loss of $26,000. After a $71,000 deficiency judgment was obtained by them against County Investment, that corporation was dissolved.
In the course of the bankruptcy proceedings, the Colwells and Kirkhams learned that the sales price of the Higgins property was $90,000 rather than $105,000, as they were told by respondent; that there was a finder's fee of $10,000; that respondent actually invested only $5,000 in cash; that respondent was the sole shareholder in County Investment which he had incorporated with a capitalization of $500; that in March 1959, one week after the closing of their loan transaction, County Investment had executed and delivered a quit-claim deed of the Higgins real property from County Investment to respondent, as Samuel D. Miller, Trustee, which was never recorded; that the balance of the monthly rental payment of $1,000, after the payment of the monthly mortgage installment to the Colwells and Kirkhams was distributed to respondent rather than to County Investment; that, subsequent to the closing of the loan transaction, County Investment executed a subordination agreement enabling Higgins to give a Toledo bank a first lien on Higgins machinery and equipment.
The record shows that the respondent denied the testimony of the Colwells and Kirkhams that he failed to make a full disclosure or explain all of the details of the loan transaction.
The Board of Commissioners on Grievances and Discipline, upon a consideration of all of the record, found that respondent "misrepresented and failed to disclose to the Kirkhams and Colwells the details as to the actual selling price of this property, the amount of investment which he was making in the transaction, that he was the sole owner of County Investment Company, that County Investment Company had executed and delivered a quit-claim deed of the property to the respondent, what the respondent's return would be from this transaction and that the respondent had permitted the County Investment Company to enter into the subordination agreement with respect to its personal property."
The Board of Commissioners points out that "the economics of the transaction and particularly the benefits which would have accrued to the respondent also cast considerable doubt on the testimony of respondent." The board further points out that "if the mortgage to the Kirkhams and Colwells had been amortized over the fifteen year period, they would have received monthly payments totaling $126,000, with an additional payment of $4,975.16 to pay off the balance." Of this total of $130,975.16, $45,975.16 represents the interest over the full period, $85,000 being a return of the principal. During the same period, respondent would have benefited by the depreciation deduction against the entire property for income tax purposes. In the first five years, respondent would have received $18,000. For the next five years he would have received $24,000 and for the last five years he would have received $36,000, altogether totaling a return of $67,600 upon his $5,000 investment. Then, if Higgins chose to exercise its buy-back option at a price of $133,100 at the end of the 15-year lease, respondent would have received that amount also constituting a grand total of $205,700 from which he would have to pay the mortgage balance of $4,975.16. Respondent admitted that he did not tell his clients how he stood to make out on the transaction but that "they knew where they were coming out."
The Board of Commissioners on Grievances and Discipline found that the three specifications set out in the complaint had been proved. The board found that respondent violated his oath of office on admission to practice law, Sections 4, 6 and 7 of Rule XIX of the Rules of Practice of the Supreme Court, and Canons Nos. 6, 11, 29 and 32 of the Canons of Professional Ethics as adopted by the Supreme Court of Ohio. The board's recommendation was that respondent be suspended from the practice of law for an indefinite period.
The matter is before this court upon the findings and recommendation of the board, and upon respondent's objections thereto.
Mr. Charles W. Peckinpaugh, Jr., Mr. James A. Martin and Mr. Edward A. Kemper, for relator.
Mr. Marcus L. Friedman, for respondent.
As the Board of Commissioners on Grievances and Discipline pointed out in their findings of fact and recommendation, respondent had many years experience as a lawyer, and further had many years of experience as an accountant. He was dealing with inexperienced, young clients who trusted him completely because he had represented their parents for a long period. He had a lawyer's professional obligation not to acquire an interest adverse to his clients, not to represent conflicting interests except with their consent, and not to accept employment as a lawyer without first disclosing to these clients his relationship with any adverse party and his interest in the subject matter of the employment.
The board concluded that, while respondent "did not directly take his client's funds, but by his misrepresentations, contrived duplicity and continuing connivance, he in effect accomplished the same end by using the client's funds for his own personal benefit." They found that he violated the basic concepts of the most important duties which a lawyer owes to a client, honesty and integrity. The board recommended that the respondent be suspended for an indefinite period from the practice of law pursuant to Section 6(b) of Rule XVIII of the Rules of Practice of the Supreme Court of Ohio.
This court has carefully reviewed and considered the record, the findings of fact and recommendation of the Board of Commissioners on Grievances and Discipline, the objections of the respondent thereto and the briefs submitted, and we have concluded that the recommendation of the board is amply supported by the evidence and that the respondent should be suspended from the practice of law for an indefinite period. Such discipline is hereby imposed.
Judgment accordingly.
O'NEILL, SCHNEIDER, HERBERT, DUNCAN and CORRIGAN, JJ., concur.
CHIEF JUSTICE TAFT participated in this case which was, however, decided after his death.
MATTHIAS, J., not participating.