Title: Matter of Smyzer

State: new-jersey

Issuer: New Jersey Supreme Court

Document:

108 N.J. 47 (1987) 527 A.2d 857 IN THE MATTER OF ROGER E. SMYZER, AN ATTORNEY AT LAW. The Supreme Court of New Jersey. Argued March 31, 1987. Decided July 10, 1987. *48 Colette A. Coolbaugh, Executive Counsel, Disciplinary Review Board, argued the cause on behalf of Office of Attorney Ethics. Dennis S. Deutsch argued the cause for respondent (Gallo, Geffner, Fenster, Farrell, Turitz & Harraka, attorneys). PER CURIAM. This disciplinary proceeding arises out of two presentments filed by the District VIII Ethics Committee. Respondent is charged with fraudulent and deceptive conduct regarding certain business transactions with his clients, failing adequately to protect his clients' investments, and commingling personal monies with client trust funds. The Disciplinary Review Board *49 (DRB or Board) concluded that respondent was guilty of unethical conduct, and recommended that he be disbarred. Upon an independent review of the record, we find the Board's conclusions to be amply supported by the evidence, and therefore order respondent's disbarment. The facts of this case, as found by the DRB, are as follows: The DRB addressed three additional instances of respondent's misconduct: After representing Mr. and Mrs. Lawrence Edzek in the sale of their home in March 1979, respondent made a $10,000 loan to Equities on their behalf. As with the Whitesell and Clark/Gramache matters, respondent did not procure the documents *52 to support this transaction. By letter dated August 2, 1979, respondent disclosed that he owned a small amount of stock in Equities, and that he and several other clients had advanced funds to the company;[4] enclosed with this letter was a copy of the two notes totalling $40,000 referred to in connection with the Whitesell matter. Although the Edzeks did not appear at the ethics hearing, a letter from Mr. Edzek was presented to the Committee. In the letter, Edzek acknowledged that there had been no repayment of principal or interest, but expressed satisfaction that respondent had fully explained the transaction and his interest in it. Respondent represented Russell Baillet with respect to a real estate closing that took place on September 23, 1979. On June 26, 1979, Baillet transferred $1,750 to respondent to hold in trust until the closing. An audit of respondent's records revealed that his trust account balance was $687.39 on August 29, 1979. Although respondent denied knowledge of any impropriety in the maintenance of his trust account, the Ethics Committee concluded that he had invaded trust funds and maintained inadequate records, contrary to DR 9-102(B)(3) and (C). In 1979, respondent assisted Sam Rich in forming a corporation known as Concology. Respondent was to be compensated for his services with a stock participation in the company; he was also to be named a director and officer of the firm. In January 1980, respondent deposited an investor's check for $11,250 in his trust account, with instructions from Concology to draw various checks against this sum. All of the checks drawn were returned for insufficient funds. Respondent explained *53 that the overdrafts occurred because a check from Equities payable to Repsco Inc., and deposited into his trust account, was not paid. Apparently, respondent had already drawn on the Equities deposit. In a second matter, respondent issued a $30,000 check on Concology's behalf against his trust account to complete a closing. Respondent asked his adversary to wait to deposit this check until he had an opportunity to deposit a second $30,000 check, payable to Concology, into his trust account. Because respondent waited several days to deposit this item, the check drawn on his trust account was returned. Respondent subsequently replaced the check with a wire transfer. The Ethics Committee found that respondent violated DR 9-102(B)(4) and (C) by commingling Concology funds with those of Equities, by failing to maintain adequate records, and by invading trust funds. Upon reviewing these findings, the DRB reached the following conclusions: *54 The Board also found that because respondent commingled personal monies and trust funds, the overdrafts in his trust account constituted knowing misappropriation. Noting that the Clients' Security Fund had already paid claims in excess of $91,000 as a result of respondent's misconduct, the Board unanimously recommended his disbarment.[5] Our independent review of the record leads us to concur with the DRB's conclusion that respondent's repeated violations of the rules governing attorney conduct require imposition of the strongest discipline in this case. The most serious instances of respondent's misconduct concern the Whitesell, Clark/Gramache, and Edzek matters, and his role in the investment decisions made by these clients. Respondent was approached by these individuals for investment advice; in each case, he encouraged them to advance monies to financially-troubled companies in which he held an interest. Respondent's conduct in these matters constituted a clear violation of DR 5-104(A), which prohibits an attorney from entering into business transactions with a client if the two have differing interests, unless the client has consented after full disclosure.[6] We have consistently emphasized that an *55 attorney should approach such business arrangements with caution, and must carefully explain to his client the need for independent legal advice: See In re Miller, 100 N.J. 537, 543 (1985); In re Barrett, 88 N.J. 450, 453 (1982). Nor will a passing suggestion that the client consult a second attorney discharge the lawyer's duty when he and his client have differing interests. See In re Wolk, supra, 82 N.J. at 333; In re Hurd, 69 N.J. 316, 329 (1976). In view of the trust placed in an attorney by his clients and the attorney's often superior expertise in complicated financial matters, a lawyer must take every possible precaution in ensuring that his client is fully aware of the risks inherent in the proposed transaction and of the need for independent and objective advice. Even the most casual review of this record reveals that respondent's disclosures to his clients were woefully inadequate. His interests in Equities and Repsco were well-documented at the Ethics Committee hearing. At the time he was approached by Whitesell, Clark, and the Edzeks, respondent had already lent significant sums to Equities, and held a stock interest in the company. He was the sole shareholder of Repsco, Inc., which was the direct or indirect recipient of $40,000 of his clients' funds. Moreover, respondent obviously had extensive knowledge of the nature of Equities business and of its tenuous financial condition. He testified before the Ethics Committee that he was aware of the company's severe cash-flow problems, which were in part a result of its inability to obtain bank financing. His own difficulty in depositing checks received from Equities should have put respondent on notice that the company had a *56 questionable future. That the firm was forced to raise funds by paying 10% interest per month on its obligations should have reinforced respondent's knowledge that this was an inordinately risky investment. As the record makes painfully clear, respondent chose not to make full disclosure to his clients, all of whom were financially unsophisticated individuals relying heavily on respondent for investment advice. The limited disclosures made by respondent were so misleading that they constituted independent violations of DR 1-102(A)(4), DR 2-101(A), and DR 2-101(B)(6), which prohibit the making of a false, fraudulent, misleading, or deceptive statement in connection with any aspect of a lawyer's engagement. We note the following excerpts from the testimony adduced at the Ethics Committee hearing: Respondent's own testimony reveals the inadequacy of the information given to his clients: A lawyer is required to maintain the highest professional and ethical standards in his dealings with his clients. In re Gavel, 22 N.J. 248, 262 (1956). No exception to this duty exists merely because the attorney chooses to become involved in business transactions with such individuals. In re Carlsen, 17 N.J. 338, 346 (1955). As we stated in Wolk, "[t]his Court will no more tolerate the hoodwinking of helpless clients out of funds in a business venture that is essentially for the benefit of the lawyer than it will outright misappropriation of funds." 82 N.J. at 335 (citing In re Wilson, 81 N.J. 451 (1979)). Contrary to our admonition in Wolk, respondent deceived his clients in order to protect his investment in a company whose financial condition was rapidly deteriorating. He also diverted large sums of those individuals' funds to a firm in which he was the lone shareholder. We agree with the DRB that respondent's flagrant abuse of the trust placed in him by his clients permits no other alternative but to strike his name from the roll of attorneys in this state. The DRB also concluded that respondent commingled funds, DR 9-102(A), (B)(3), (B)(4), and that the overdrafts in his trust account established knowing misappropriation of client funds in violation of In re Wilson, supra, 81 N.J. 451. In view of our *58 conclusion that respondent's repeated violations of DR 5-104(A) require imposition of our strongest sanction, we need not decide whether respondent's misuse of his trust account supports a finding of knowing misappropriation under our decision in Wilson, supra. In accordance with our findings above, the judgment is that respondent be disbarred. Respondent shall reimburse the Ethics Financial Committee for appropriate administrative costs. For disbarment Chief Justice WILENTZ and Justices CLIFFORD, HANDLER, POLLOCK, O'HERN, GARIBALDI and STEIN 7. Opposed None. [1] The record reveals that a "guarantee" was never executed. The document referred to in respondent's letter merely guaranteed performance of an agreement under which certain rental income of Equities would be diverted to respondent's trust account. However, no payments were made under that agreement. [2] Specifically, the Ethics Committee found that respondent violated DR 2-101(A) and DR 2-101(B)(6) (providing misleading and deceptive information to a client), DR 5-104(A) (entering into business transactions with a client), DR 9-102(B)(3) and (4) (failure to maintain appropriate records with respect to client funds and failure to promptly pay same to the client when due), and DR 1-102(A)(4) and (6) (engaging in conduct involving dishonesty, fraud, deceit, and misrepresentation). Effective September 10, 1984, the Rules of Professional Conduct or the American Bar Association, as modified by this Court, govern the conduct of the members of the bar of this State. R. 1:14. Respondent's actions occurred prior to this date, and are consequently governed by the Disciplinary Rules then in force. [3] This sum constituted the proceeds of the annuity in the name of Mrs. Clark's grandfather, held in trust for Mrs. Clark's grandmother pursuant to the trust agreement dated August 2, 1979. [4] In testimony before the Ethics Committee in connection with the Whitesell matter, respondent denied having any ownership interest in Equities, and stated that he had refused an offer of 525 shares made to him by the company's chairman. [5] Respondent was suspended from the practice of law by our order dated April 15, 1981. He did not appear before the Board in connection with this matter; respondent's counsel advises us that he no longer resides in this state. [6] This rule has been carried forward with minor modifications into the Rules of Professional Conduct, which became effective on September 10, 1984. RPC 1.8(a) now provides: A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless (1) the transaction and terms in which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in manner and terms that should have reasonably been understood by the client, (2) the client is advised of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent counsel of the client's choice on the transaction, and (3) the client consents in writing thereto.