Case Title: In Re Hockett

Citation: 303 Or. 150, 734 P.2d 877

Docket Number: 

State: oregon

Court: Oregon Supreme Court

Date: 1987-03-31T00:00:00Z

Document:
734 P.2d 877 (1987)
303 Or. 150
In re Complaint As to the Conduct of Verden L. HOCKETT, Jr., Accused.
84-77; SC S32958.

Supreme Court of Oregon, In Banc.
Argued and Submitted October 7, 1986.
Decided March 31, 1987.
*878 James H. Spence, Roseburg, argued the cause and filed the brief for accused.
George A. Riemer, Portland, argued the cause and filed the brief for the Oregon State Bar.
PER CURIAM.
In this lawyer discipline case the accused was charged and found to have violated, inter alia, former DR 1-102(A)(4), presently DR 1-102(A)(3), (lawyer shall not engage in conduct involving dishonesty, fraud, deceit or misrepresentation), DR 5-105(A) (conflict of interest) and DR 7-102(A)(7) (lawyer shall not assist client in conduct *879 known to be illegal or fraudulent).[1] We, too, find that the accused violated those rules and order that he be suspended from the practice of law for 63 days.
DR 5-105 provided:
The Trial Panel made these findings, which we adopt as our own:
DR 5-105(A) commands undivided loyalty to a client. "It is never proper for a lawyer to represent clients with conflicting interests no matter how carefully and thoroughly the lawyer discloses the possible effect and obtains consent." In re Jans, 295 Or. 289, 295, 666 P.2d 830 (1983). Accord In re Johnson, 300 Or. 52, 58-59, 707 P.2d 573 (1985).
Here, during August and September 1983, the accused was concurrently representing (a) Mr. Beecroft and Mr. Neptune on BBN matters, and (b), Mrs. Beecroft and Mrs. Neptune in their dissolution complaints against Mr. Beecroft and Mr. Neptune.
As the lawyer for Mr. Beecroft and Mr. Neptune, the accused's obligation was to protect them from the claims of creditors, to the fullest permissible extent. As the lawyer for Mrs. Beecroft and Mrs. Neptune, his duty was to maximize their award in the dissolution proceedings, by way of property division, spousal support or both. The persons from whom such property or spousal support would be obtained were his other clients, Mr. Beecroft and Mr. Neptune.
There is no way that the accused could discharge his duty of unswerving loyalty to either spouse without violating that duty to the other spouse. The conflict was patent.
Although the accused and others testified that his conflict of interest was discussed, no valid consent was obtained. No valid consent could be obtained in such a situation. In re Jans, supra, 295 Or. at 295, 666 P.2d 830. Compare Aronson, Conflict of Interest, 52 Wash.L.Rev. 807, 826-27 (1977).
This principle could not be better demonstrated than under the present facts. The property transfers likely were part of a collusive effort on the part of all four spouses and the accused to move assets out of the reach of creditors. Although the financial consequences of the accused's representation are not clear, in this case it may have been the wives who paid the bigger price for the lack of independent representation. They were conveyed property. The conveyances were subject to being voided as "fraudulent." See infra at 9. Spousal support was not discussed, as is evident from the testimony of Mrs. Beecroft:
The accused also was charged with violating ORS 9.460(3) and (4) which provide, and DR 1-102(A)(4) and 7-102(A)(1) and (7), which provided:
On these charges, the Trial Panel found:
We agree with that finding and adopt it as our own. In addition, we find that on November 18, 1983, Northwest Acceptance Corporation filed a complaint in Lane County Circuit Court against BBN, the Neptune, the Beecroft and Beckley. Its fifth claim for relief alleged that the conveyance from Kenneth Neptune to Barbara Neptune, resulting from the divorce decree, was fraudulent. It sought to set aside the conveyance. Its sixth claim for relief made the same claim and sought the same relief against Lyle Beecroft and Patricia Ann Beecroft. Summary judgment was entered against Kenneth Neptune and Barbara Neptune holding the Neptune decree to be fraudulent conveyance. Summary judgment was entered against Lyle Beecroft holding the Beecroft decree to be a fraudulent conveyance. The claim against Patricia Beecroft was the only remaining claim at the time of the hearing in this case.
On or about September 23, 1983, Douglas National Bank filed a complaint against the Neptunes and the Beecrofts which also sought to set aside the conveyances resulting from the divorce decrees. At the time of the accused's hearing in this case, this complaint was still in litigation.
We also find that, in prosecuting the dissolution cases, the accused was acting on behalf of all four spouses in attempting to get the real property in the hands of the wives with the intent to make the property unavailable to the creditors of Mr. Beecroft and Mr. Neptune. The transfers, albeit under an uncontested decree, were made in anticipation of the impending actions of Northwest Acceptance and Douglas National *882 Bank, the transferors were insolvent, and a confidential relationship existed between the grantor and grantee. Although the court documents are not in the record, there was testimony that a proceeding to set aside the conveyances was filed and was successful.
The question is whether this conduct violates any of the rules or statutes quoted above.
Both the Bar and the accused suggest that the terms "fraud" and "deceit" refer to fraud and deceit that are actionable in Oregon. We decide this case on that basis. This is consistent with Rule 8.4 of the ABA Model Rules of Professional Conduct. See also Wolfram, Modern Legal Ethics 698 (1986).
As stated earlier, in pressing the dissolution cases, the accused was acting with the intent to transfer the real property to Mrs. Beecroft and Mrs. Neptune to keep the property from the reach of creditors of Mr. Beecroft and Mr. Neptune. There is no evidence, however, suggesting that the transfer was a subterfuge in the sense that any interest was secured or reserved to the transferor husbands. The evidence points to the conclusion that the husbands were insolvent beyond hope and that rather than have their creditors get the property, the parties would arrange for its transfer to the wives.
We find no fraud or deceit in a tortious sense. Fraud and deceit require, among other things, a false representation to another, with the intent that the other act upon the false representation to his or her damage. Rice v. McAlister, 268 Or. 125, 128, 519 P.2d 1263 (1974). We cannot say that the accused was guilty of fraud or deceit in that sense. His conduct was more in the nature of one intending illegally to put property beyond the lawful claims of creditors. This is discussed below.
The term "dishonesty" is not defined in the code. In his supplemental brief filed after oral argument at the court's request, the accused suggests that dishonesty "would cover any misconduct intentionally done in bad faith." This definition fails because "misconduct" itself requires a definition.
In its supplemental brief, the Bar states:
Dishonesty is defined by Black's Law Dictionary 421 (5th ed 1979), as a "[d]isposition to lie, cheat or defraud; untrustworthiness; lack of integrity." Trustworthiness and integrity are key concepts in the Code of Professional Responsibility as well as in the Black's definition. See, e.g., EC 1-1, 9-6. This is consistent with the obligation as stated by DR 1-102(A)(4)'s predecessor  Canon 22 of the former Canons of Ethics. DR 1-102(A)(4) is "substantially equivalent to, but somewhat broader than, Canon 22 of the former Canons of Ethics which imposed upon an attorney an obligation to be candid and fair `before the Court and with other lawyers.'" ABA Formal Opinion 337 (August 10, 1974) (emphasis added).
On the meaning of "dishonesty," as that term is used in DR 1-102(A)(4), courts of *883 other jurisdictions usually determine whether acts constitute dishonesty on a case-by-case basis. One court has stated that a lawyer's acquiescence in a client's conveyance of property to avoid lawful claims of creditors would be conduct in violation of DR 1-102(A)(4), which "simply stated, requires honesty." In Matter of Proceedings Against Sedor, 73 Wisc.2d 629, 640, 245 N.W.2d 895 (1976).
Assisting clients to cheat creditors is "dishonesty" under DR 1-102(A)(4). We conclude that the accused's act of assisting his clients in "fraudulent" transfers, see infra at 15, was done with the intent to cheat creditors of their lawful debts. Such conduct is "conduct involving dishonesty", a violation of DR 1-102(A)(4).
As stated earlier, ORS 9.460(4), requires that an attorney "[e]mploy, for the purpose of maintaining the causes confided to [him] such means only as are consistent with truth, and never seek to mislead the court or jury by any artifice or false statements of law or fact * * *."
In re Hiller, 298 Or. 526, 531-32, 694 P.2d 540 (1985) involved ORS 9.460(4), and our comments there are germane here:
ORS 107.065(2) permits a court to grant a decree prior to the 90 days required by ORS 107.065(1) on motion "supported by affidavit setting forth grounds of emergency or necessity and facts which satisfy the court that immediate action is warranted or required to protect the rights or interest of any party or person who might be affected by a final decree * * *." The affidavits prepared and filed by the accused refer to "emotional stress and strain upon respondent and myself" as the emergency or necessity for immediate action. We find that this was a part of the effort to avoid the claims of creditors, an "artifice" to further the effort to make the property unavailable to creditors. It was not the use of "means only as are consistent with truth" as required by ORS 9.460(4) and involved a "misrepresentation" for purposes of DR 1-102(A)(4).
DR 7-102(A)(1) stated that a lawyer shall not
We must apply the rule according to its terms. We cannot say that the accused's conduct in his handling of the dissolution cases "serve[d] merely to harass or maliciously injure" the creditors. His conduct did harass and injure the creditors, but that was not his sole aim.
DR 7-102(A)(7) prohibits lawyers from engaging in conduct "the lawyer knows to be illegal" in the representation of a client, or as more generally stated by Canon 7, a lawyer's zealous representation of a client must remain "within the bounds of the law." A lawyer must be able to advise and assist clients in their affairs without fear of discipline if he is wrong in interpreting close questions of law. He or she must be given some latitude to be wrong. If, for example, a close question were presented whether a course of conduct violated a criminal law, we would not discipline a lawyer under DR 7-102(A)(7) for advising or assisting a client to engage in conduct "the lawyer knows to be illegal or fraudulent." (Emphasis added.)
The rule clearly prohibits lawyers from counseling or assisting clients to engage *884 in criminal conduct. But the rule means more than that. Zealous representation is limited by more than the criminal law. Read in conjunction with EC 7-1, DR 7-102(A)(7) defines and limits the duty of the lawyer to securing for his client "available legal rights and benefits" or "lawful objectives through legally permissible means."
It is well settled that some conveyances may not be used to avoid the lawful claims of creditors. Former ORS 95.070[2] provided:
Although this statute is not part of the criminal law, it in effect prohibits specified conduct and provides for a remedy to undo the effect of such conduct. Here, the lawyer assisted the client in what has been determined to be an unlawful conveyance. See Nelson v. Hansen, 278 Or. 571, 577, 565 P.2d 727 (1977); Boone v. Burden, 259 Or. 402, 404, 487 P.2d 74 (1971); Maidment v. Russell, 159 Or. 653, 664, 81 P.2d 136, 81 P.2d 692 (1938); Hesse v. Barrett, 41 Or. 202, 204, 68 P. 751 (1902); Jolly v. Kyle, 27 Or. 95, 101-02, 39 P. 999 (1895).
The accused's conduct is similar to conduct in In re Gooding and Ricker, 254 Or. 38, 456 P.2d 998 (1969). There the lawyers filed a divorce action on behalf of a client's wife just before a judgment was entered against their client in a case they handled for him. The divorce was filed in a different county and sought to have all of the husband's property awarded to the wife. One of the lawyers filed a lis pendens notice in the county in which the first action was pending earlier in the day that the decree of foreclosure against the husband was filed. This court reprimanded the lawyers for participating in a scheme to defraud the husband's creditors.
Advising and assisting clients to engage in conduct forbidden by statute violates DR 7-102(A)(7). We find that the accused knowingly engaged in assisting his clients in conduct "that the lawyer knew to be illegal" under DR 7-102(A)(7).[3]
ORS 9.460(3) requires lawyers to counsel or maintain such actions "only as may appear to the attorney legal and just." We have found the accused guilty of violating DR 7-102(A)(7) by knowingly engaging in conduct known "to be illegal." That also makes out a violation of ORS 9.460(3), and we so find. Compare In re Reinmiller, 213 Or. 680, 695, 325 P.2d 773 (1958).
We now consider the sanction. Beecroft and Neptune were hopelessly insolvent; there was no way that they could meet creditors' claims. The record shows that the marriages were not happy ones. Apparently the decision was made to whip through the dissolutions, saving to the wives the maximum possible property, for the wives had not signed the notes to the creditors. Otherwise, the creditors would get the real property.
The accused, for little or no personal financial gain, apparently perceived that the best he could do for the four of them was to place Mr. Beecroft's and Mr. Neptune's property interests in the hands of the spouses. There is testimony that either the accused or one of his clients, at a *885 meeting on September 1 or 2, 1983, mentioned that the dissolutions would be used as a bargaining tool with the bank. The accused likely was proceeding from a misguided sense of loyalty to these four persons, who had been friends as well as clients, but his conduct was nonetheless unethical.
On the conflict of interest finding, section 4.32 of the ABA Standards for Imposing Lawyer Sanctions recommends:
From the record we cannot determine whether the net result of the events was a plus or minus to any client, in a financial sense. The record shows that some or all of the property was forthwith sold to third persons and that litigation ensued to set aside the transfers. Mrs. Beecroft has sued the accused for malpractice.
We have no hesitancy in concluding that the conduct created the potential for injury to a client. Actions were filed against them. Mrs. Beecroft has filed a damage claim against the accused.
An aggravating factor  a serious one, also observed by the Trial Panel  was the accused's lack of candor. He was evasive in his testimony. The Panel observed, in its Order on Sanctions:
The accused has no prior disciplinary record.
In previous conflict cases, a reprimand often has been the sanction. However, we have imposed suspension in cases involving serious aggravating circumstances. See In re Moore, 299 Or. 496, 703 P.2d 961 (1985) (one year suspension  also violated DR 5-104(A) and DR 5-101(A)); In re O'Byrne, 298 Or. 535, 694 P.2d 955 (1985) (four month suspension for violation of DR 5-101(A) and DR 5-104(A), no allegation of DR 5-105 violation); In re Baer, 298 Or. 29, 688 P.2d 1324 (1984) (60 day suspension  also violated DR 5-101(A) and DR 5-104(A)); In re Boyer, 295 Or. 624, 669 P.2d 326 (1983) (seven month suspension  also violated DR 5-101(A); In re Jans, supra (1983) (30 day suspension for violating DR 5-105). The Trial Panel, in this case, ordered a 30 day suspension.
By itself, the violation of the conflicts rule, DR 5-105, would justify a 30 day suspension. The violations of DR 1-102(A)(4) and DR 7-102(A)(7) are not insubstantial, however, and we have concluded that a longer suspension is appropriate.
We order that the accused be suspended from the practice of law for a period of 63 days. See ORAP 11.03(3)(b). Costs to the Oregon State Bar.
[1]  References are to disciplinary rules in effect when the conduct at issue occurred. DR 1-102, DR 5-105 and DR 7-102 have subsequently been amended in a manner which does not affect the substance of the rules. References to DR 1-102(A)(4) in the text are to former DR 1-102(A)(4).
[2]  ORS 95.010 to 95.100 was repealed by Oregon Laws 1985, chapter 664, section 16, and replaced with the Uniform Fraudulent Transfer Act, codified at ORS 95.200 to 95.310. ORS 95.230(2) codifies the factors used to determine intent to hinder, delay or defraud creditors enumerated in Oregon caselaw and discussed in this opinion. A conveyance may be a "fraudulent conveyance" even though the elements of common law fraud are not required to be proven.
[3]  The limits of DR 7-102(A)(7) are anything but clear. See Wolfram, Modern Legal Ethics 703-04 (1986) for a discussion of this point. He correctly states that "a lawyer with a reasonable and good faith basis for concluding that the conduct is legal may so advise a client without risk of incurring a disciplinary sanction for ultimately being proved wrong." Id. at 704.