Opinion ID: 4577870
Heading Depth: 2
Heading Rank: 1

Heading: M.'s valid consent.

Text: The evidence in the record and Murphy's concessions to this court support the panel's findings on his KRPC 1.7 violations. 31 Did Murphy Violate KRPC 2.1? The panel determined Murphy did not exercise independent professional judgment and render candid advice to his client in violation of KRPC 2.1 (2019 Kan. S. Ct. R. 345). For support, it found: (1) his judgment was influenced by the economic factors relevant to the entire situation, particularly so given his previous relationships with S.L.[] and IFC; (2) he failed to advise A.M. of the potential and actual problems with entering both agreements; (3) his failure to comply with KRPC 2.1 was particularly egregious after [he] learned of A.H.'s bankruptcy; and (4) Murphy testified he would not have advised 'an independent' client to proceed as A.M. proceeded because there are no barriers to enter the limousine service business. See KRPC 2.1 (In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors that may be relevant to the client's situation.). First, Murphy challenges the panel's conclusion that his representation was influenced by his relationships with S.L. and IFC. Murphy claims he received no consideration from them with regard to the transaction at issue. He admits S.L. asked him to draft a document for IFC but argues IFC did not hire him or pay him anything. But as correctly noted by the Disciplinary Administrator, there is ample evidence supporting the panel's finding that Murphy's relationships with the third parties would have influenced his independent professional judgment. During the 2006 deposition prepared for A.H.'s bankruptcy case, the following colloquy occurred: [Counsel for the trustee:] . . . [Y]ou've brought two other files, one labeled 'International Football Club, Inc., General Representation'; is that right? 32 [Murphy:] Yes. .... [Murphy:] . . . I got involved in the beginnings of [IFC]. It didn't go very far. At least, my involvement didn't go very far. .... [Counsel for the trustee:] Who were your client contacts for [IFC]? [Murphy:] [B.S.] and [A.H.] and Preki[, who is a soccer player.] .... [Counsel for the trustee:] And how was it that you came to represent [IFC]? Were you referred by someone? [Murphy:] Yes. [S.L.] .... [Counsel for the trustee:] What did you do for [IFC]? [Murphy:] I was brought in basically to try to memorialize . . . an arrangement between the founding members, [including A.H.], as to the operation of the [IFC]. That never was finalized either, at least not with my involvement. Murphy's testimony supports the panel's conclusion that he had a prior relationship with S.L. and IFC. Since A.H. was an IFC founding member, it appears Murphy's relationship with both influenced his representation in the transaction between A.H. and A.M. And the fact Murphy was not paid for his work drafting the IFC shareholder 33 agreement does not negate the existence of a lawyer-client relationship. See In re Hodge, 307 Kan. at 212 (existence of lawyer-client relationship is not dependent upon payment of a fee). Second, Murphy concedes he had a previous relationship with S.L., who referred him business from time to time, including the IFC matter and the limousine sale matter. He attempts to minimize this relationship by stating like most attorneys, [he] receives referrals from existing client[s] for new clients. That is what occurred here. But as correctly argued by the Disciplinary Administrator, [t]his was not the common scenario where an existing client refers a potential client for representation on some unrelated matter. Here, there was an interconnected relationship between the parties and the transactions. In the final hearing report, the panel found the following facts: A.H. and B.S. formed IFC. To raise capital for IFC, A.H. entered into an advisory fee agreement with B.C., a firm that raises capital for other companies. S.L. was the chief operating officer and 50% owner of B.C.; S.L. referred IFC to Murphy. Murphy became counsel for IFC. S.L. referred A.M. and A.H. to Murphy for the transaction at issue. And these facts are undisputed facts. For this it is easy to conclude S.L. not only had a financial interest in both transactions, but that S.L. benefited directly from the limousine sale. Murphy acted for S.L.'s benefit by including a provision for his brokerage fee in both agreements over A.M.'s objection by saying the commission was relevant and telling A.M. the provision was included for A.M.'s benefit. Third, Murphy disputes the panel's finding that his conduct was particularly egregious after he learned of the bankruptcy matter. He insists the panel failed to consider that he referred both clients to separate counsel for independent advice on the situation immediately after hearing of A.H.'s bankruptcy. He claims the clients came back 34 later, announcing they had resolved the conflict, and directed Murphy to prepare a new agreement with terms and conditions they negotiated without Murphy. But Murphy's factual statements are unsupported by the evidence. At that time, he did not refer A.M. to another counsel; he said he would, but he did not. Rather, Murphy told A.M. there was no other option but to restructure the agreement. Murphy [n]ever told A.M. he had the option to walk away from this whole deal. Nevertheless, Murphy testified he would not have advised 'an independent' client to proceed as A.M. proceeded . . . . This shows he did not consider A.M. to be an independent client entitled to the duties owed any other clients. Murphy specifically told A.M. that this was our only option to avoid the bankruptcy problem. Furthermore, and contrary to his assertion that he ceased working on the transaction upon learning about the bankruptcy, and that none of the terms and conditions were 'negotiated' by [him], but rather provided by the parties, his own testimony supports the panel's finding that he gave legal advice to the parties after the bankruptcy issue emerged. For instance, the evidence shows: (1) Murphy told the clients there were no bankruptcy estate assets involved in the provision of services; (2) he said to the clients the company did not have any value, so they were only buying [A.H.]'s expertise and contacts; and (3) he helped A.H. and A.M. overcome the impasse on the price for the new services agreement by recommending adding an incentive payment provision that would reward A.H., if the company did better than A.M. expected. We hold clear and convincing evidence exists to sustain the panel's conclusion that Murphy violated KRPC 2.1 by selectively giving advice and withholding advice in ways that benefitted the interests of A.H., S.L., and the IFC transaction, to the detriment of A.M. 35 Did Murphy Violate KRPC 1.1? The panel concluded Murphy failed to provide competent representation to A.M. in the limousine business sale transaction, in violation of KRPC 1.1 (2019 Kan. S. Ct. R. 295). Under KRPC 1.1, [c]ompetent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. For support, the panel noted: (1) Murphy failed to treat A.M. as an independent client and did not offer A.M. candid advice concerning the transaction; (2) he failed to become aware that A.H. had filed for bankruptcy and listed his business with a zero value; and (3) Murphy admitted that he was not familiar with bankruptcy law. Murphy acknowledged the KRPC 1.1 violation to this court, but again with some equivocation. Our analysis will focus on the second and third findings because we addressed the panel's first finding above. Murphy argues that under the limited scope of his representation, he had no duty to know anything about A.H.'s business and no duty to discover the bankruptcy, but that once he learned about the bankruptcy matter, he acted competently by reviewing the case on PACER, seeking assistance from colleagues who practice in that area, and by referring both clients to separate counsel. He also claims he had enough bankruptcy knowledge to prepare the second agreement and the bankruptcy trustee approved that document. Murphy repeatedly insists throughout his amended brief that the bankruptcy trustee approved the second agreement. These positions clearly mischaracterize the evidence. The bankruptcy trustee only determined the second agreement was a contract for A.H.'s future services and, therefore, that payments to A.H. were not bankruptcy estate property. And that placation was only temporary, as it was accomplished by failing to disclose the first agreement. The adversary proceeding that followed resulted in the bankruptcy court's finding that the 36 funds paid under the second agreement were in fact for the business and were bankruptcy estate property. Moreover, a review of the record Murphy references in support of his argument actually shows the second agreement surprised the trustee because of the dollar amount involved in that transaction. The trustee called A.H.'s bankruptcy attorney to find out what was going on. The trustee thought A.M. paying $300,000 for A.H.'s advice of how to run a limousine business . . . sound[ed] absolutely crazy and did not make any sense at all. In that context, the trustee further noted generally he does not have any problem when an agreement transfers no assets. But Federal District Judge Smith found the [second agreement] contains many provisions one would expect to see only in a contract for the sale of a business or its assets. In short, the trustee did not approve the second agreement. Murphy's assertion that he provided competent representation within the limited scope of his representation also fails for several reasons. First, as previously discussed, he failed to obtain a valid consent after consultation under KRPC 1.2(c) to the alleged limited scope. Second, even assuming he had satisfied KRPC 1.2(c)'s requirement, that consent would not have relieved him of the duty of competence owed A.M. See Comment 5 to KPRC 1.2 (2019 Kan. S. Ct. R. 297) ([T]he client may not be asked to agree to representation so limited in scope as to violate Rule 1.1.). Third, Murphy conceded he would have looked at the Kansas Secretary of State to see where the corporation was, and when looking back, it might have been forfeited at the time for an administrative failure to file an annual report or something. See KRPC 1.1 (competent representation requires thoroughness and preparation reasonably necessary for the representation). 37 Finally, Murphy argues his effort to get advice from a bankruptcy colleague shows he acted competently. See Comment 1 to KRPC 1.1 (A lawyer who does not have the legal knowledge required for a particular matter may nonetheless provide competent representation by associat[ing] or consult[ing] with . . . a lawyer of established competence in the field in question.); see also Comment 2 to KRPC 1.1 (A lawyer need not necessarily have special training or prior experience to handle legal problems of a type with which the lawyer is unfamiliar. . . . A lawyer can provide adequate representation in a wholly novel field through necessary study.). And Murphy concedes his primary area of practice was matters involving business transaction and business litigation. But while he notes he sought out consultation with regular bankruptcy practitioners, he does not cite to the record facts to support that argument. In re Hawver, 300 Kan. 1023, 1039, 339 P.3d 573 (2014) (respondent's argument deemed abandoned or waived if respondent's brief advances argument without proper citation to the record to support that claim). Importantly, the evidence shows Murphy did not consult with any bankruptcy colleagues before offering legal advice to his clients that their transaction should be restructured as a service agreement. And while he may have attempted to consult with a bankruptcy attorney, he went ahead and gave advice, saying A.M.'s only option was redrafting the agreement as one for services. We hold clear and convincing evidence supports the panel's holding that Murphy failed to provide A.M. with the legal knowledge, skill, thoroughness, and preparation required by KRPC 1.1. 38 Did Murphy Violate KRPC 8.4(d)? The panel determined that when Murphy drafted the second agreement in an attempt to circumvent the bankruptcy problem, he violated KRPC 8.4(d) (2019 Kan. S. Ct. R. 387) (It is professional misconduct for a lawyer to . . . engage in conduct that is prejudicial to the administration of justice.). For support, the panel noted he knew that the assets of the limousine service, regardless of their value, were part of the bankruptcy estate. The panel agreed with the bankruptcy court's finding that attempting to restructure the deal was 'thinly disguised subterfuge designed to secure the transactions true nature; the artifice was specifically designed to skirt the bankruptcy law.' Murphy challenges the panel's conclusion by making the same unsubstantiated arguments he advanced on the other issues including that A.M. and A.H. independently negotiated the terms and conditions of the second agreement without Murphy's assistance, and again asserting that the very agreement was approved by the bankruptcy trustee. The remaining contentions for this violation are: (1) Murphy belie[ved] that the second agreement did not involve bankruptcy estate asset; and (2) the panel's reliance on the bankruptcy court's comment is totally prejudicial since he was not at that trial. As to his first assertion, and contrary to what is stated in his amended brief, Murphy noted in his exceptions that respondent knew that any assets of the limousine business would be bankruptcy estate asset. (Emphasis added.) And because he changed some language in the second agreement, he believed it would not violate any bankruptcy law. But this just shows Murphy at least knew the new agreement skirted the law and restructured the contractual language to that effect. Moreover, the services agreement expressly included asset transfers, including the office leases, office furniture, and the 39 1999 Lincoln Town Car and 2001 Lincoln Navigator, although it stated the leases had no value. Murphy also characterized the second agreement as an asset sale in a later agreement he drafted for A.H. involving the sale of the limousine business to Tess Limousine and Airport Services, Inc. This so-called Tess Agreement included a paragraph that referenced the previous agreement between A.H. and A.M. And that paragraph characterized the transaction as a sale of the limousine business and its assets: A prior agreement had been entered into by [A.H.] with [A.M.] for the sale of [A.H.'s] business to [A.M.]; however, following the closing thereunder, on July 30, 2004 [A.M.] abandoned all assets to be acquired thereunder, and failed to take assignment of the office lease, and the leases on the subject vehicles of this Agreement, also making no payments on either the office lease or the vehicles. Murphy's argument that the second agreement was not a business or asset sale, but merely a sale of services, contradicts how he described those same items in the Tess Agreement that he also drafted. As to his second claim, this issue should be deemed abandoned because he raises it only incidentally and with no authority. See In re Hawver, 300 Kan. at 1039 (respondent's argument deemed abandoned or waived if respondent's brief advances no support of it). But even when we consider it, the overwhelming evidence supports the same conclusion the bankruptcy court reached. And the panel simply stated that it agrees with the bankruptcy court based upon the evidence and arguments provided by both parties. Regardless, the evidence in the record shows what Murphy attempted to do ran afoul of bankruptcy law. And Norton testified the second agreement clearly violates 40 bankruptcy law, probably constitutes a bankruptcy crime and is a sham agreement that . . . is an attempt to sell assets that . . . belong to . . . the trustee. Both Norton's and Murphy's testimony and the language in the first and second agreements, as well as the Tess Agreement, combine to provide clear and convincing evidence supporting the panel's conclusion that Murphy violated KRPC 8.4(d). DISCIPLINE Having found clear and convincing evidence that Murphy violated the Kansas Rules of Professional Conduct, all that remains is the task of imposing discipline. The violations are KRPC 1.1 (2019 Kan. S. Ct. R. 295) (competence), 1.2(c) (2003 Kan. Ct. R. Annot. 332) (scope of representation), 1.7 (2003 Kan. Ct. R. Annot. 372) (conflict of interest), 2.1 (2019 Kan. S. Ct. R. 345) (independent judgment), and 8.4(d) (2019 Kan. S. Ct. R. 387) (conduct prejudicial to the administration of justice). The panel recommended Murphy's license be suspended for one year. In doing so, it relied upon State v. Callahan, 232 Kan. 136, 139-40, 652 P.2d 708 (1982). The panel found Callahan to be persuasive because of the factual similarities between the two cases. There, the court indefinitely suspended Callahan's license to practice law. Murphy argues the panel's recommendation is excessive, suggesting reprimand is the appropriate discipline. Alternatively, he asserts that if the court determines suspension is appropriate, the suspension should be stayed, and he be placed on probation. The Disciplinary Administrator's office stands by its recommendation of disbarment. Alternatively, if the court determines a suspension is the appropriate discipline, it recommends the suspension be indefinite, or if a suspension for a shorter term is considered, that Murphy be required to undergo a hearing for reinstatement under Supreme Court Rule 219 (2019 Kan. S. Ct. R. 270). 41 The Disciplinary Administrator opposes probation noting Murphy failed to submit a probation plan to the hearing panel as required by Supreme Court Rule 211(g)(1) (2019 Kan. S. Ct. R. 259) (If the Respondent intends to request that the Respondent be placed on probation for violating [KRPC] . . . , the Respondent shall provide each member of the Hearing panel and the Disciplinary Administrator with a workable, substantial, and detailed plan of probation at least fourteen days prior to the hearing on the Formal Complaint.). In his reply brief, Murphy appends a copy of PROPOSED PROBATION AND SUPERVISION PLAN. But that fails to comply with Rule 211(g) procedures. We agree with the Disciplinary Administrator and the request for probation is rejected. The hearing panel's recommendations are advisory only and do not prevent us from imposing greater or lesser sanctions. Supreme Court Rule 212(f) (2019 Kan. S. Ct. R. 261); In re Kline, 298 Kan. 96, 212-13, 311 P.3d 321 (2013). Each disciplinary sanction is based on the specific facts and circumstances of the violations and the aggravating and mitigating circumstances presented in the case. In re Mintz, 298 Kan. 897, 912, 317 P.3d 756 (2014). In arriving at its recommendation, the panel found Murphy knowingly and intentionally violated his duties. Murphy argues there is no evidence to sustain the panel's finding, stating the evidence was at worst that he made a poor judgment, and may have been negligent in representing both A.M. and A.H. The ABA Standards identify three mental states: 'intent,' the highest culpable mental state; 'knowledge,' the intermediate culpable mental state; and 'negligence,' the least culpable mental state. Under the ABA Standards, a lawyer acts intentionally when acting with the 'conscious objective or purpose to accomplish a particular result,' while a lawyer acts with knowledge when acting 'with conscious awareness of the nature or attendant circumstances of his or her conduct both without the conscious objective or 42 purpose to accomplish a particular result.' Finally, a lawyer acts negligently when failing 'to be aware . . . that a result will follow . . . .' In re Hawkins, 304 Kan. 97, 141, 373 P.3d 718 (2016). But the record is replete with the evidence showing Murphy violated his duties owed to A.M. at least with knowledge. For instance, he knowingly violated KRPC 1.1 when he did not consult with a bankruptcy attorney before advising A.M. and A.H. Murphy knowingly violated KRPC 1.2(c) and 1.7 when he was aware of the then-existing conflicts, and he repeatedly did not provide adequate consultation before and after he learned of the bankruptcy matter. As to his violations of KRPC 2.1 and 8.4(d), the evidence strongly suggests he did so intentionally. As to KRPC 2.1, Murphy did not consider A.M. as an independent client and withheld advice and material information from A.M., to benefit the interests of A.H. and the third parties. He was acting with the conscious objective to accomplish the sale of the limousine business. Murphy intentionally did not advise A.M. there was another option, to walk away. Murphy admitted he knew that any assets of the limousine business would be bankruptcy estate asset, but he nonetheless suggested the services agreement would not violate any bankruptcy law. He was acting to accomplish the transaction for the sale of A.H.'s limousine business. The panel determined that as a result of Murphy's misconduct, he caused actual, serious injury: A.M. paid A.H. $300,420 for the business which A.H. did not own and which A.H. had previously valued at $0; and A.M.'s litigation to recover his loss lasted nearly 15 years. While Murphy initially took an exception to this finding, he later chose not [to] dispute in any way that there was injury as a result of his conduct. See In re Hodge, 307 Kan. at 209-10. 43 The panel also found seven aggravating factors: (1) Murphy had prior disciplinary offenses; (2) he was dishonest and had selfish motive; (3) he engaged in a pattern of misconduct; (4) he committed multiple rule violations; (5) he refused to acknowledge any wrongdoing; (6) A.M. was a vulnerable victim; and (7) he had substantial experience in the practice of law. As to the first factor, the panel found that while Murphy had not yet been disciplined at the time the misconduct occurred in this case, [he] now has a history of prior disciplinary offenses. Murphy did not take an exception to the factual finding that he had a history of previous disciplinary offenses, rather he claims those cases cannot be prior disciplinary because they occurred after the present case. In doing so, he offers no authority. But we have no difficulty including his disciplinary record as part of our consideration. See In re Kenny, 289 Kan. 851, 854, 856, 217 P.3d 36 (2009) (adopting the panel's finding of the prior-disciplinary-offenses factor when respondent's prior case was dismissed). With regard to the second factor, the panel determined Murphy falsely characterized his role as a mere scrivener. Characterizing his role in this fashion was dishonest. . . . Likewise, characterizing his role as a mere scrivener was also selfish. Murphy counters that he believed his role as such in good faith, and both clients consented to his limited representation. He also argues the panel is punishing him for advocating his position; but clear and convincing evidence supports the panel's finding and his argument has no merit. For the third factor, the panel concluded Murphy engaged in a pattern of misconduct because he repeatedly and falsely insisted he was a mere scrivener. He contends his good-faith belief should not be considered as a pattern of misconduct. He argues that [i]f he had a pattern of failing to communicate with his clients over the years, 44 that would be a pattern of misconduct, but his repeated assertions before the panel should not be. But this factor has been understood by this court to have broader meaning. See, e.g., In re Holmes, 307 Kan. 871, 888, 416 P.3d 143 (2018) (upholding the panel's finding of the pattern-of-misconduct factor when respondent repeatedly provided false and misleading information to the disciplinary administrator's office regarding his knowledge of the suspension and the extent of his unauthorized practice of law); In re Nwakanma, 306 Kan. 704, 754, 397 P.3d 403 (2017) ('The respondent engaged in repeated dishonest conduct—in his practice and before the hearing panel.'). As to the fourth, fifth, and seventh factors, clear and convincing evidence supports the panel's findings. See In re Kenny, 289 Kan. at 854 (practicing law for 10 years supports a finding of the substantial experience factor). But, for the sixth factor, the panel's determination that A.M. was vulnerable to Murphy since he was not an attorney alone is not sufficient for a vulnerability finding. In re Hodge, 307 Kan. at 234 (This court previously has ruled a victim's inexperience with legal matters alone is not sufficient for a vulnerability finding.). The panel found four mitigating circumstances: (1) Murphy fully cooperated with the disciplinary process although he did not acknowledge his misconduct; (2) he possesses a good character and reputation as evidenced by several letters received by the hearing panel; (3) he settled the dispute with the bankruptcy trustee; and (4) he showed remorse. We hold clear and convincing evidence supports these four mitigating factors. But the panel concluded the delay in bringing the disciplinary proceeding was not a mitigating factor. This is contrary to our caselaw. A.M. filed the complaint in 2016, which was 12 years after Murphy's misconduct occurred. And the delay factor covers instances in which charges may become so stale that it would be inequitable to act upon 45 them. In re Ratner, 194 Kan. 362, 373, 399 P.2d 865 (1965) (six years of delay) (citing In re Elliott, 73 Kan. 151, 158, 84 P. 750 [1906] [taking 14 years to file charges must at least be said that it is very stale]). In In re Carson, 252 Kan. 399, 410, 845 P.2d 47 (1993), the court held that to assert the delay as a defense, there must be a showing of prejudice to the party asserting such delay as a defense. In his statement of exceptions, Murphy claims [i]t is entirely reasonable for respondent not to remember every detail of the subject matter which took place 15 years in the past, and the contradiction stated by the panel is simply a reflection of the best recollection of respondent. While this statement was not provided before the panel, more than 10 years of the delay is an undisputed fact. That amount of delay can be considered prejudicial. See 252 Kan. at 410 (The evidence presented in Carson I was not stale. The factual basis for the disciplinary proceeding was preserved when the memory of the witnesses was still fresh.). But in this case we hold any prejudice is not so overwhelming that it outweighs the aggravating factors. Murphy's misconduct merits suspension We conclude a suspension with a two-year term is the appropriate discipline. In arriving at this, we have considered the aggravating and mitigating circumstances described above, as well as the clear and convincing evidence that supports the panel's findings and conclusions. Attorneys who attempt dual representation of parties to a business transaction do so knowing they are entering an ethical minefield. And while it is possible with diligence to avoid a disastrous slip, this case is a textbook example of what not to do. 46 That said, the court is amenable to staying respondent's two-year suspension after the first year so long as he adheres to a probation plan approved by the Disciplinary Administrator's office during the second year of his suspension. CONCLUSION AND DISCIPLINE IT IS THEREFORE ORDERED that Mark D. Murphy be and he is hereby suspended from the practice of law in the state of Kansas in accordance with Supreme Court Rule 203(a)(2) (2019 Kan. S. Ct. R. 240) for two years as of the date of the opinion. IT IS FURTHER ORDERED that the above suspension will be stayed after the first year provided respondent enters into a probation plan approved by the Disciplinary Administrator's office that is applicable for the second year of suspension. Approval of a probation plan by that office is required before the stay of respondent's suspension can commence. The provisions of Kansas Supreme Court Rule 211(g) (2019 Kan. S. Ct. R. 257) (discharge from probation) apply. IT IS FURTHER ORDERED that the respondent shall comply with Supreme Court Rule 218 (2019 Kan. S. Ct. R. 268) (notice to clients, opposing counsel, and courts of record following suspension). IT IS FURTHER ORDERED that the costs of these proceedings be assessed to respondent and that this opinion be published in the official Kansas Reports. 47 BEIER, J., not participating. MICHAEL E. WARD, Senior Judge, assigned. 1 1 REPORTER'S NOTE: Senior Judge Ward was appointed to hear case No. 122,036 under the authority vested in the Supreme Court by K.S.A. 20-2616 to fill the vacancy on the court by the retirement of Justice Carol A. Beier. 48