Opinion ID: 2029197
Heading Depth: 1
Heading Rank: 5

Heading: Ultimate Findings.

Text: The master's ultimate findings on the defendants' claims that these transactions were improper are essentially identical. He found first that there was no overreaching or undue influence exerted by Mr. Jacobs as an attorney or by his law partners in any of the four transactions. In so doing, he found that there was no suggestion on the evidence presented to him that Marshall and Lever failed to understand the nature and consequences of the transactions. Second, he concluded that unless there is an absolute bar to an attorney's entering such financial arrangements with a client as occurred in this case without first recommending to the client that independent counsel be sought, he would not invalidate any of the transactions. The judge accepted both the master's subsidiary findings and these ultimate findings as his own. The defendants disagree with the master and the judge. They contend the challenged transactions should be set aside for two reasons. First, they argue the plaintiffs had a professional duty as attorneys to Marshall and the company to advise them to obtain independent counsel before entering the transactions. Second, they assert the transactions should be voided because they are unfair and therefore involve a breach of the plaintiffs' duty. We find no merit in either of these arguments. The scope of our review and that of the trial judge in cases referred to and reported by a master is well settled. Under Mass. R. Civ. P. 53 (e) (2), 365 Mass. 817 (1974), [9] the trial judge was required to accept the findings of the master unless they were clearly erroneous. See Chase v. Pevear, 383 Mass. 350, 359 (1981). `A finding is clearly erroneous when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake had been committed.' Building Inspector of Lancaster v. Sanderson, 372 Mass. 157, 160 (1977), quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948). We apply the same standard to the master's subsidiary findings of fact in determining whether the judge acted correctly in adopting them. See Jones v. Wayland, 374 Mass. 249, 254-255 (1978), S.C., 380 Mass. 110 (1980). As to a master's ultimate findings, our review differs depending on whether we are considering ultimate findings of fact or conclusions of law. Where the subsidiary findings of fact are reported, we review the master's ultimate findings of fact by considering them in light of the independent inferences we draw from the subsidiary findings. Indeed, where subsidiary findings are reported by the master, both the trial judge and the appellate court are obligated to draw their own inferences from these findings. Id. at 255. See USM Corp. v. Marson Fastener Corp., 379 Mass. 90, 92 n. 3 (1979); Wormstead v. Town Manager of Saugus, 366 Mass. 659, 660 (1975); Corrigan v. O'Brien, 353 Mass. 341, 346 (1967). Nevertheless, general findings, so far as they are findings of fact, will not be disturbed unless clearly erroneous. Chase v. Pevear, 383 Mass. 350, 360 (1981). To the extent that the master's ultimate findings are conclusions of law, they are subject to independent judicial review. Lucey v. Hero Int'l Corp., 361 Mass. 569, 571 (1972). We must apply our own view of the law, and we must consider whether the master's general findings, on a correct view of the law, are consistent with his subsidiary findings. Chase v. Pevear, supra at 359-360. The defendants do not contend that the master's subsidiary findings are clearly erroneous. We therefore accept the findings and turn to consider whether the master's ultimate findings are proper in light of his subsidiary findings and the controlling law. Attorneys are held to a high standard of fair dealing when entering transactions with their clients. That [u]nflinching fidelity to their genuine interests is the duty of every attorney to his clients is beyond question. Berman v. Coakley, 243 Mass. 348, 354 (1923). We have set aside transactions between attorneys and clients where that loyalty has been violated. See Israel v. Sommer, 292 Mass. 113, 124 (1935); Webster v. Kelly, 274 Mass. 564, 572 (1931). It is a well settled rule in equity, applicable to all transactions between attorney and client ... that the attorney who bargains with his client in a matter of advantage to himself must show ... that it was in all respects fairly and equitably conducted. Hill v. Hall, 191 Mass. 253, 262 (1906). At issue here is whether the master's ultimate findings are correct in light of our assessment, based on his subsidiary findings, of how fairly and equitably the challenged transactions were conducted. The defendants first challenge a rule of law upon which the master's ultimate findings are conditioned and which was applied by the judge in reviewing them. The master found the challenged transactions did not involve overreaching or undue influence by the plaintiffs unless attorneys are absolutely prohibited from engaging in transactions with clients without first advising the clients to obtain independent advice. The judge adopted the master's ultimate findings stating that [o]n the basis of this report, as adopted by the Court, the Court finds and rules that there is no requirement of law which would mandate that a transaction between an attorney and a client be set aside in the absence of independent advice. The defendants disagree with this statement of law. The defendants contend that an attorney violates his duty to a client whenever he contracts with a client who has no independent counsel and does not suggest the client obtain such counsel. They state that to deal with his client, (i) the lawyer must, at a minimum, suggest that the client obtain independent advice before entering the transaction and (ii) the transaction must be fair. Under this standard, a breach of duty would occur even where a transaction is fair if the attorney does not advise the client to obtain outside counsel. The standard establishes a per se rule: whenever an attorney enters a transaction with a client and fails to advise him to obtain outside counsel, the attorney will have violated his fiduciary duty to the client. We have not established such a per se standard in the past and we do not do so here. That an attorney did not advise his client to seek independent advice before entering a business transaction with him is only evidence that the transaction was not conducted fairly and equitably and that the attorney violated his fiduciary duty. Any transaction between an attorney and his client when called in question must be subjected to careful scrutiny and the burden is upon the attorney to prove that any influence over the client which might be presumed to have arisen out of the relationship was neutralized by independent advice given to the client or by some other means so that there was no overreaching of the client and no abuse of confidence. Whether that burden has been sustained depends upon the facts in each particular case (emphasis added). Barnum v. Fay, 320 Mass. 177, 181 (1946). See Israel v. Sommer, 292 Mass. 113, 123 (1935) ([U]nless it appears that the presumed influence resulting from the relationship has been neutralized, by completely unselfish advice from the attorney, by independent legal advice from another, or in some other manner, the attorney cannot expect his bargain to stand [emphasis added]). The master found here that Mr. Jacobs did not advise Marshall or the company to obtain independent counsel before entering the challenged transactions. The plaintiffs did, however, establish other facts which tend to negate any presumption that the transactions were unfairly or inequitably conducted. First, Marshall was found to have had full knowledge of, understood, and consented to all the transactions. There is no evidence he objected to them. Moreover, the master found Marshall was bright, financially prudent, and a strong administrator who was described ... as `no pushover.' Second, the transactions were found, as a matter of fact, not to have involved any overreaching or undue influence by the plaintiffs. At issue is whether these facts, as established, suffice to negate any presumption of undue influence. We think that they do. The defendants' reliance on our decision in Israel v. Sommer, 292 Mass. 113, 124 (1935), is misplaced. In Sommer, we voided a trust agreement between an eighty year old businessman and an attorney who worked for him. In that case there was no finding of fact that the client knew of and understood all aspects of the transaction. Rather, there was considerable evidence that he was reluctant to enter or recognize the transaction. The instant case is different. Marshall was an intelligent, young businessman who understood all the challenged transactions and never evidenced any disapproval of them. Similarly, the Appeals Court's decision in Goldman v. Kane, 3 Mass. App. Ct. 336 (1975), does not support the defendants' position. In Goldman, the Appeals Court struck down a transaction between an attorney and his client, who had attended law school, even though the attorney had suggested that the client not enter the deal. That case, however, turned on the Appeals Court's determination of the unfair and overreaching nature of the transaction: The fundamental unfairness of the transaction and the egregious overreaching by Kane in his dealings with Hill are self-evident. Id. at 342. No such overreaching or unfairness was found in the instant case. The defendants' position derives no support from our disciplinary rules governing the conduct of attorneys. S.J.C. Rule 3:07, DR 5-104 (A), as appearing in 382 Mass. 781 (1981), provides: A lawyer shall not enter into a business transaction with a client if they have differing interests therein and if the client expects the lawyer to exercise his professional judgment therein for the protection of the client, unless the client has consented after full disclosure. There was full disclosure in the case at bar. Rule 3:07, DR 5-104 (A), does not require in all circumstances that a lawyer advise a client to obtain outside counsel before entering a transaction with the lawyer. Accord In re Schuyler, 91 Ill.2d 6 (1982) (While independent legal advice to a client, or advising the client to secure independent legal advice, may be a very compelling means of rebutting the presumption of undue influence, it is not an indispensible means). Contra In re Bartlett, 283 Or. 487 (1978). We conclude that in the circumstances of these cases the judge and master were correct in finding that the plaintiffs' failure to advise Marshall and the company to seek independent counsel before entering the challenged transactions did not constitute a breach of fiduciary duty. The other basis upon which the defendants challenge the master's ultimate findings is that the challenged transactions in substance were unfair. They devote a considerable portion of their brief to demonstrating how the plaintiffs benefited from the transactions. In so doing, they are apparently arguing that the master's findings of no overreaching or undue influence by the plaintiffs cannot be upheld based on his subsidiary findings and the controlling law set forth supra. We disagree. Whether a transaction between an attorney and a client is advantageous to the client is certainly important in reviewing how fairly and equitably the transaction was conducted. Evidence of disadvantage to the client can make an attorney's burden to negate any presumption of undue influence or overreaching more difficult to bear. See Israel v. Sommer, 292 Mass. 113, 124 (1935); Goldman v. Kane, 3 Mass. App. Ct. 336, 342 (1975). In some circumstances the grossly unfair nature of an agreement between an attorney and a client alone may render it impossible for the attorney to meet his burden. That, however, is not the situation in this case. Neither the master nor the judge made findings as to the over-all fairness of the transactions. They found only that the transactions involved no overreaching or undue influence by the plaintiffs. These findings alone do not establish whether the transactions were fair. Nonetheless, the master here reported his extensive subsidiary findings to the judge and they are part of the record before us. Upon review of these subsidiary findings, we may reasonably infer that the challenged transactions were not unfair. We so conclude. Finally, anticipating our conclusions here, the defendants assert in their brief an alternate remedy to rescission of the transactions. They observe that the master found a breach of fiduciary duty by Mr. Jacobs. That breach was in connection with an employment contract between the company and Mr. Jacobs entered shortly after Marshall's death. The judge accepted the master's finding and entered judgment for the defendants on this counterclaim. The plaintiffs have not appealed the judgment. The defendants contend that because the plaintiffs violated their duty to the company when Mr. Jacobs entered this employment agreement, they should not be allowed to benefit from any appreciated value of their stock after the date of the breach. We disagree. The defendants have cited no case to us in which a breach of an attorney's duty in one transaction affects his ability to retain the appreciated value of stock obtained in a different, and earlier, transaction not tainted by the breach. The defendants already have obtained relief for Mr. Jacobs's violation of his duty to the company. No more is due them here. The plaintiffs did not violate their duty in obtaining and retaining their shares of the company. Judgments affirmed.