### THE STATE OF SOUTH CAROLINA In The Supreme Court

In the Matter of David Weldon Gantt, Respondent.

Appellate Case No. 2014-002495

Opinion No. 27483 Submitted December 1, 2014 – Filed January 21, 2015

PUBLIC REPRIMAND

Lesley M. Coggiola, Discip linary Counsel, and Barbara

M. Seymour, Deputy Disciplinary Counsel, both of Columbia, for Office of Disciplinary Counsel.

Frank L. Eppes, Esquire, of Eppes & Plumblee, PA, of Greenville, for respondent.

PER CURIAM: In this attorney disciplinary matter, the Office of Disciplinary Counsel and respondent have entered into an Agreement for Discipline by Consent (Agreement) pursuant to Rule 21 of the Rules for Lawyer Disciplinary Enforcement (RLDE) contained in Rule 4 13 of the South Carolina Appellate Court Rules (SCACR). In the Agre ement, respondent admits mi sconduct and consents to the imposition of a confidential admoniti on or public reprimand with conditions. We accept the Agreement and issue a public reprimand with conditions as set forth hereafter in this opinion. The facts, as set forth in the Agreement, are as follows.

Facts

In 1999, respondent began practicing law with Fredrick Scott Pfeiffer. Over the years, Mr. Pfeiffer began to enter into various business ventures with clients, some

of which involved real estate investment and development. Re spondent developed a fairly extensive real estate practice a nd, from time to time, closed loans for entities with which Mr. Pfeiffer was involved, either as an investor or owner.Respondent represented a company (Cli ent A) owned by three clients in connection with the development of a tr act of property (Development 1). ABC Company, a company owned by Mr. Pfeiffer and his client, Client X, assisted Client A in financing the Development 1 project.

In April 2006, Mr. Pfeiffer approached respondent regarding a new development project (Development 2) with the three fi rm clients who owne d Client A. Mr. Pfeiffer and the three clients told responde nt that they needed someone with good credit to guarantee a loan in order to obtain financing for the Development 2 project. The clients agreed to give respondent an inte rest in the new development company, called Development 2 Company, as payment for legal fees incurred in connection with the Development 1 closings and other work performed for them. In exchange, respondent agreed to personally guarantee the loan obtained by Development 2 Company.

Mr. Pfeiffer prepared the corporate fo rmation documents for Development 2 Company on behalf of respondent and th e three clients. Although respondent believed that his interest in Developm ent 2 Company was only ten percent, the corporate documents show respondent as a fi fty percent shareholder. In any event, Development 2 Company wa s owned by respondent and the three clients from March 2006 until January 2007 when res pondent relinquished his ownership

interest.

Respondent acknowledges that it wa s a conflict of interest for him to engage in a

business transaction with law firm client s. See Rule 1.8(a), RPC, Rule 407,

SCACR. He acknowle dges he failed to ensure that the terms of the transaction were fully disclosed and transmitted in writing in a manner that could be easily understood by the clients. He further admits that he faile d to advise his clients in writing of the desirability of seeking th e advice of independent legal counsel regarding the formation of Developmen t 2 Company. Further, respondent acknowledges that he failed to communicat e to the clients reasonably adequate information and an explanation about the material risks and reasonably available alternatives to entering into a partnershi p with their attorney. Respondent admits

he failed to obtain his clients' informed c onsent, in writing signed by the clients, to proceeding with the formation of the pa rtnership and waiving the conflict of

interest.

During the time respondent held an ow nership interest in Development 2 Company, the company borro wed the initial funds to pur chase the Development 2 property with plans to subdivide it for de velopment and sale. Respondent assistedwith the closings on the loans to finance the initial purchase of the property by Development 2 Company, including prepari ng mortgages to secure those loans.

Development 2 Company obtained loans of approximately two million dollars from ABC Company to make the initial purch ase of Development 2. At various times during respondent's representation of Development 2 Company in connection with the funding and sales of Developm ent 2, Mr. Pfeiffer transferred partial ownership of ABC Company to various co mpanies in which respondent had an ownership interest, including the law firm.

To cover the remaining purchase pric e of Development 2, Development 2 Company obtained a loan of approximately four million dollars from Client B, a company owned by Client C. Respondent had represented both Client B and Client C in unrelated business litigation pr ior to assisting Development 2 Company with the financing from Client B.

Respondent acknowledges that it was a conflict of interest for him to engage in

business transactions betwee n law firm clients and comp anies in which he and/or his law partner held an interest. See Ru le 1.8(a), RPC, Rule 407, SCACR. He acknowledges he failed to ensure the terms of the transactions were fully disclosed and transmitted in writing in a manner th at could be easily understood by the

clients. He further admits that he failed to advise his clients in writing of the desirability of seeking the advice of independent legal counsel regarding Development 2 Company borrowing funds to finance the purchase of Development 2 from companies owned or represented by respondent and/or his law partner. Further, respondent acknowledges that he failed to communicate to the clients reasonably adequate information and an e xplanation about the material risks and reasonably available alternativ es to entering into transactions in which respondent and/or his law partner held an interest in the other contracting party. Respondent

further admits that he failed to obtain hi s clients' informed consent, in writing signed by the clients, to proceeding with th e financing transactions and waiving the

conflicts of interest.

The terms of the purchase money loan from Client B required Development 2 Company to repay two million dollars with in ninety days, then refinance the remaining amount of approximately two m illion dollars. There were two existing homes on the property that were not encumbered. Development 2 Company planned to sell those two parcels, then recruit several "investors" to purchase undeveloped lots and use those proceeds to pa y off the loan balances to both ClientB and ABC Company. Most of the i ndividual investors borrowed money from

traditional banks to fund their inve stments in Development 2.

There were three parties in these transa ctions: 1) the investor who was the borrower; 2) Development 2 Company whic h was the seller; and 3) the bank which was the lender. Essentially, the invest or borrowed money from the bank and paid that money to Developmen t 2 Company at the closi ng. The bank received a mortgage and promissory note from the inve stor. The investor entered into a "buy

back" agreement with Development 2 Company in which Development 2 Company would make the monthly paymen ts on the investor's mortgage during construction and would then buy the property back from the investor once the house was built. Development 2 Company ag reed to "buy-back" the property from the investor by paying off the mortgage ba lance and paying the investor a "fee" of between ten and fifty thousand dollars within one year.

In conducting these closings, respondent used a document entitled "Conflict of Interest Disclosure" (Disclosure) in which the investor/purchaser and Development 2 Company/seller acknowledged respondent's dual representation of the parties in the closing and his limited obligations to the lender. Respondent added a sentence to the Disclosure that stated, "Finally, the closing attorney has a limited equity interest in the Seller." Approximately ha lf of the closing files did not contain a signed Disclosure. Of those that did, many of the Disclosures were undated. Respondent did not disclose to the banks or the investor/purchasers the extent of his interest in Development 2 Company. Further, he di d not disclose to the banks or the investor/purchasers that the funds were being used to repay Development 2 Company's obligations to ABC Company (respondent's partner's company) and to Client B (respondent's client's company) instead of for the construction of homes on the property.

Respondent conducted the closings on the sa le of the two existing homes. He disbursed the sales proceeds to Developmen t 2 Company. In addition, respondent conducted all of the closings on the "s ale" parcels of Development 2 from Development 2 Company to individual inve stors. Respondent paid the funds from the investor closings to Development 2 Company. Respondent did not know how those funds were spent and had no contro l over the management of Development 2 Company's accounts. Although he was a pa rt owner of Development 2 Company, respondent did not examine any Developm ent 2 Company financial records to confirm that the company had the financ ial ability to feasibly make the loan payments or buy back th e properties as agreed.In the course of trying to obtain commerc ial financing to restructure Development 2 Company and pay off the high interest loans from Client B and ABC Company,

one traditional bank would not permit respondent to close the loan because of his

conflict of interest. In Ja nuary 2007, respondent transferred his interest back to Development 2 Company to allow the othe r members to restructure the company and refinance the project. This transfer of ownership did not release respondent's personal guarantees.

Ultimately, Development 2 Company defa ulted on ABC Company's and Client B's loans. Further, the investors defa ulted on many of the bank loans because Development 2 Company failed to make the required mont hly payments to pay off the mortgages. Various lawsuits, bankrup tcies, and receiversh ips followed. At least one bank alleged that it was not aware of the buy-back/investor arrangements

and believed it was maki ng construction loans and that the investors were in fact buyers.

Respondent acknowledges it was a conflict of interest for him to conduct closings on loans to which his company was a party. See Rule 1.7 and 1.8(a), RPC, Rule 413, SCACR. He further admits that his Disclosure form was insufficient because it failed to advise the parties in writing of the desirability of seeking the advice of independent legal counsel regarding the transactions. He further acknowledges

that the Disclosure form was insufficien t because he failed to communicate to the parties reasonably adequate information and an explanation about the material risks and reasonably available alternatives to going forward with a closing attorney

who had an interest in the transactions. Respondent further admits that he failed to obtain the parties' informed consent, in writing signed by the parties, to proceeding with the closings and a wa iver of the conflict of in terest in each case.

Law

Respondent admits that by his conduct he has violated the following provisions of the Rules of Professional Conduct, Rule 407, SCACR: Rule 1.7 (notwithstanding conflict of interest, lawyer may represent client if: (1) lawyer reasonably believes lawyer will be able to provide competen t and diligent representation to affected client; (2) representation is not prohib ited by law; (3) representation does not involve the assertion of a claim by one clie nt against another client represented by lawyer in the same litigation or other pr oceeding before a tribunal; and (4) affected client gives informed consent, confirmed in writing) and Rule 1.8(a) (lawyer shall not enter into a business transaction with client or knowingly acquire an ownership, possessory, security or other pec uniary interest adverse to client unless:(1) transaction and terms on which lawyer acquires interest are fair and reasonable to client and are fully disclosed and tr ansmitted in writing in manner that can be reasonably understood by client; (2) client is advised in writing of desirability of seeking and is given reasonable opportunity to seek advice of independent legal counsel on transaction; and (3) client gi ves informed consent, in writing signed by client, to essential terms of transaction and lawyer's role in the transaction, including whether lawyer is repr esenting client in transaction).

Respondent also admits he has violated the following Rules for Lawyer Disciplinary Enforcement, Rule 413, SCACR: Rule 7(a)(1) (it shall be ground for discipline for lawyer to violate Rules of Professional Conduct).

Conclusion

We find respondent's misconduc t warrants a public reprimand. 1 Accordingly, we accept the Agreement and publicly reprim and respondent fo r his misconduct. Respondent shall pay the costs incurred in the investigation and prosecution of this matter by ODC and the Commi ssion on Lawyer Conduct (t he Commission) within thirty (30) days of the date of this opini on. Further, respondent shall complete the Ethics School portion of the South Car olina Bar's Legal Ethics and Practice Program within one (1) year of the date of this opinion and provide certification of completion of the program to the Commission no later than ten (10) days after the conclusion of the program.

PUBLIC REPRIMAND.

TOAL, C.J., PLEICONES, BEATTY , KITTREDGE and HEARN, JJ.,

concur.

1 Respondent's disciplinary history includes an admonition issued in 2010. See Rule 7(b)(4), RLDE (Court can consider admonition in subsequent proceeding as evidence of prior misconduct solely upon issu e of the sanction to be imposed).