Title: In Re Whipple

State: oregon

Issuer: Oregon Supreme Court

Document:

673 P.2d 172 (1983)
296 Or. 105
In re Complaint As to the Conduct of Jay W. WHIPPLE, Accused.
No. SC 29728.

Supreme Court of Oregon, In Banc.
Argued and Submitted November 1, 1983.
Decided November 29, 1983.
Robert P. Van Natta, St. Helens, argued the cause for the accused. With him on the brief was Van Natta & Petersen, St. Helens.
Larry Brisbee, Hillsboro, Oregon, argued the cause and submitted the brief for Oregon State Bar.
PER CURIAM.
This is an attorney discipline case involving a loan from a client to the lawyer. The lawyer is accused of violating DR5-104(A) which provides:
In both In re Drake, 292 Or. 704, 642 P.2d 296 (1982) and In re Montgomery, 292 Or. 796, 643 P.2d 338 (1982) we analyzed the violation of DR5-104(A) by dividing the rule into four elements. The first three parts of the rule deal with the general prohibition of lawyers entering into business transactions with a client if the client has a differing interest in the transaction and expects the lawyer to exercise independent professional judgment for the client's protection. We are concerned here with the fourth element of the rule, "unless the client has consented after full disclosure." The primary question in this case is whether the accused adequately advised his client to seek out and obtain independent legal advice regarding the loan and whether the accused disclosed disadvantageous aspects of the loan to the client.
Between 1974 and 1979 the accused represented Henry primarily in matters involving wills for Henry and his wife and the drafting of a deed creating a tenancy by the entirety. In July, 1979, Henry asked the accused to represent him in a dissolution of marriage proceeding. As a part of the dissolution matter, the family residence was sold and the proceeds divided between Henry and his wife with Henry's share being $25,000. Thereafter, there was discussion between Henry and the accused about what Henry intended to do with the money and the parties agreed to an unsecured ninety day loan to the accused in the amount of $20,000. A promissory note was prepared by the accused which provided for interest at the rate of sixteen percent per annum.[1] It was signed by the accused and his wife. When the accused was unable to repay the loan, Henry sought other counsel. A default judgment was taken against the accused on the note. This disciplinary proceeding ensued.
*173 The Bar maintains that the accused failed to inform Henry that (1) at the time of the loan, the accused was in serious financial difficulty, (2) because of the usurious interest rate there was a potential that the loan was legally unenforceable, (3) a loan made at a usurious interest rate carried with it the potential that the principal of the loan could be forfeited to the county school fund, and (4) there were significant hazards in making an unsecured loan as opposed to a secured loan.
The testimony of Henry is as follows:
The testimony of both Henry and the accused indicates that Henry was desirous of placing his money where he could realize a better rate of interest than at the credit union where he had deposited it. The testimony is in conflict whether Henry or the accused took the initiative in proposing the loan.
The accused testified as follows:
The accused also testified that at the time of the loan he was delinquent on mortgages on one of the buildings he owned and that a balloon payment was due on his residence but that he did not tell Henry because he had made arrangements with the lenders to continue to make payments.
Other testimony of the accused that is pertinent is as follows:
There follows testimony regarding whether the accused would advise a client that a loan he is considering entering into is a "bad deal" because of a usurious interest rate. The accused's answers are equivocal but generally indicate that he would not necessarily counsel a client not to enter into a usurious loan.
Considering the above testimony as well as the entire testimony presented in the transcript we conclude the accused did not make a full disclosure to Henry as required by DR5-104(A) before entering into the loan agreement. We said in In re Drake, supra:
The accused testified that he suggested to Henry that he talk to his mother or his friends or another lawyer and that he specifically *176 told Henry he could not be his lawyer in this transaction. This was not adequate. The accused failed to inform Henry of his financial situation, the potential consequences of entering into a loan at a usurious interest rate and the hazards associated with making an unsecured loan. The accused is guilty of violation of DR5-104(A).
We now consider the appropriate sanction. The Trial Board recommended a public reprimand but the Disciplinary Review Board, relying on In re Drake, supra, and In re Scannell, 289 Or. 699, 617 P.2d 256 (1980), recommends a suspension from practice for two years. We think the case at bar is distinguishable from Drake and Scannell.
In Drake, in which a three year suspension from the practice of law was imposed, the accused lawyer borrowed money from his client for the purpose of loaning it to a third person. It was to be repaid in ninety days at twenty-five percent interest. Although a promissory note was prepared by Drake, it was not delivered to the client. The loan was not repaid within the ninety days. One year later Drake made an interest payment and also suggested to the client that he had another party interested in using the money at the same rate of interest. The client told Drake he was not interested in a reloan, but Drake informed the client he had already made the loan to a third party. At this point a demand note was executed by Drake but at the time of the hearing it had not been paid. We concluded that Drake had not only violated DR5-104(A) but that he also had violated DR5-101(A) which requires a lawyer to refuse employment "[e]xcept with the consent of his client after full disclosure * * * if the exercise of his professional judgment on behalf of his client will be or reasonably may be affected by his own financial, business, property, or personal interests." In addition, we found Drake had violated DR1-102(A)(4) which provides that a lawyer shall not engage in conduct involving dishonesty, fraud, deceit, or misrepresentation and we thought that to be particularly significant to the imposition of a three year period of suspension.
In Scannell, which involved a violation of DR5-104(A), we suspended the accused from the practice of law for a period of sixty days followed by a two year period of probation during which the accused could not engage in the representation of private clients. The latter condition was in recognition that the accused was at the time employed by the Department of Justice. Scannell obtained a loan from a client and used the money to pay off a land sale contract on a building owned by Scannell. A deed to the client for the property was prepared but it was never recorded. Scannell then purchased another building; again a deed to the client was prepared but was not signed or recorded. The client was never advised to seek independent legal counsel. Noting that Scannell had left private practice, we said,
We concluded it was appropriate to the violation "that the accused not deal with private clients for an extended period more than that he be disqualified from any legal work whatsoever." Id.
We imposed only a public reprimand in In re Montgomery, supra, for violation of DR5-104(A) after the Trial Board recommended a reprimand and the Disciplinary Review Board concluded there had been no violation of the rule. There the question turned on whether there was clear and convincing evidence that the client expected the lawyer "* * * to exercise his professional judgment therein for the protection of the client * * *." Because the lenders were astute, knowledgable, successful businessmen the Disciplinary Review Board concluded that there was no reliance upon Montgomery for advice regarding the creditworthiness of the borrower. We agreed *177 with that but concluded that because these lenders were not in the business of making loans, they were not expected to know of the consequences of making a loan at a usurious rate of interest. We said:
We indicated that a lawyer advising a client about making a loan to a third person would inform the client about the potential effects of a usurious rate of interest as well as the hazards of making an unsecured loan. Because the loan in Montgomery would not have been made if the lenders had known of the implications of a usurious interest rate and Montgomery did not advise them of that, we held there was a violation of DR5-104(A). There is no indication in the opinion why only a public reprimand was imposed rather than a period of suspension.
We noted recently in In re Boyer, 295 Or. 624, 669 P.2d 326 (1983) the disparity in sanctions involving violations of the Disciplinary Rules relating to conflict of interests but we said the disparity is accounted for by the particular circumstances of each matter. While we imposed a seven months suspension in Boyer we said: "We note, however, that this particular type of unethical conduct appears to be on the rise. Deterrence thereof for the public good may be accomplished by more severe penalties for this kind of unprofessional conduct which may occur after the date this opinion is published." 295 Or. at 630, 669 P.2d 326.
Because the conduct in question in this case occurred before the Boyer decision and because we do not consider the facts of this case to be as egregious as those in Drake and Scannell we believe a two year suspension to be too severe. On the other hand, because the client in this case was not an astute, knowledgeable businessman, as in Montgomery, we believe more than a public reprimand is required.
The accused shall be suspended from the practice of law for a period of three months beginning with the effective date of this decision. See Oregon Rules of Appellate Procedure, 11.03(4). We also advise the accused to take the necessary steps to notify his clients and opposing counsel in any pending matter of his suspension and to refrain from any actions that may give the appearance that the accused is not complying with this order of suspension. See In re Kraus, 295 Or. 743, 670 P.2d 1012 (1983).
The Oregon State Bar is awarded its actual and necessary costs and disbursements. ORS 9.535(4).
[1]  At the time of the loan sixteen percent interest exceeded the statutory maximum for interest rates on this kind of loan. See ORS 82.010 (1979), amended in 1981, and ORS 82.120(5) (1979), repealed in 1981. Or. Laws 1981, ch. 412 § 24.