Opinion ID: 2330334
Heading Depth: 1
Heading Rank: 6

Heading: Lindsey Loan

Text: Respondent provided estate planning services to Dustin and Barbara Lindsey (Mr. and Mrs. Lindsey, collectively, the Lindseys) on a periodic basis beginning in 2002. [9] In 2007 and 2008the timeframe of the loans at issue herean associate in Respondent's firm performed approximately $1,000.00 in legal services for the Lindseys. [10] Respondent and Mr. Lindsey, a retired alpaca rancher and construction company owner, skied and played golf together from time to time. In some instances, their outings were part of group events sponsored by Merrill Lynch, to which both men had a connection. Respondent stayed at least once at the Lindseys' second home in Vail, and he considered Mr. Lindsey a friend. Mr. and Mrs. Lindsey both attended Respondent's 2007 wedding, but Respondent did not have an independent friendship with Mrs. Lindsey. Mr. Lindsey characterized his relationship with Respondent as a friendly relationship that was based on business. In the face of mounting financial pressures, and knowing the Lindseys had previously loaned money to friends, Respondent asked Mr. Lindsey for a loan of $168,000.00 around July 30, 2007. He explained to Mr. Lindsey that he was having trouble paying salaries and rent for his firm's office space in the wake of Bates's departure. Respondent testified that he did not anticipate having trouble repaying the loan because his firm had been grossing $45,000.00 to $50,000.00 per month before Bates left and he believed the firm could return to that level of profitability. Mr. Lindsey responded by email to Respondent's entreaty, saying the Lindseys would be happy to help, noting that the transaction should be discreet, [11] and assuring Respondent, As to terms, repayment, interest rate and all, we'll work something out. [12] Respondent concedes he did not advise the Lindseys to seek independent advice regarding the loan, obtain their written consent to the transaction, or inform them about his indebtedness to Cook or his general creditworthiness. [13] He knew, however, that the Lindseys had wealth management advisers from whom they could solicit advice and that Mrs. Lindseywho had worked as an accounting manager for several companies, including Yahoowas financially savvy. Mr. Lindsey, for his part, did not doubt Respondent would repay the loan, so he did not deem any additional information necessary before agreeing to the transaction. [14] Mr. Lindsey had trusted Respondent enough to continue to retain him for estate planning services when he moved from one law firm to another, and Mr. Lindsey generally considered Respondent a good guy. Whether Respondent agreed to provide security for the Lindseys' loan is disputed. At some point after requesting the loan, Respondent created and gave the Lindseys a draft deed of trust indicating that he was placing his house in trust for the Lindseys' benefit. [15] According to Respondent, however, after he informed the Lindseys he had accrued only $75,000.00 of equity in his house, the parties agreed it was not worthwhile to follow through with the deed of trust. Although Mr. Lindsey affirms that Respondent disclosed the limited equity in his house, Mr. Lindsey believes the parties nonetheless agreed to partially secure the loan with a deed on Respondent's house, such that the Lindseys would hold the second lien on the residence. Mr. Lindsey also testified that, although he had entered into multiple real estate transactions in the past, he was not very knowledgeable about deeds and did not realize a deed of trust must be recorded to carry legal force. On August 15, 2007, the Lindseys and Respondent finalized the $168,000.00 loan transaction. [16] As reflected in the promissory note he drafted, Respondent agreed to pay the Lindseys ten percent interest per year, with eleven interest-only monthly payments of $1,375.00 beginning on September 15, 2007, and one final payment of $169,375.00 on August 15, 2008. [17] The signed note includes an uncompleted clause that reads, The indebtedness evidenced by this Note is secured by a Deed of Trust dated August ____, 2007 . . . . [18] The deed of trust was never finalized or recorded: the last draft is unsigned and contains blank spaces for dates and several sentences with strikethroughs. [19] Respondent did not remove the reference to the deed of trust from the promissory note, however, nor did the Lindseys insist upon receiving a final copy of the completed deed of trust or a corrected version of the note. [20] From fall 2007 through spring 2008, Respondent made the prescribed monthly payments to the Lindseys, in some instances after the due date. In August 2008, he told Mr. Lindsey he could not pay off the balance of the loan. As such, the Lindseys agreed to extend the loan's maturity date by one year. Mr. Lindsey testified that he felt he had no choice at the time but to agree to the extension and hope for the best. Respondent drafted and signed a new promissory note providing for two interest-only payments of $1,375.00, due in September and October 2008, respectively, followed by nine payments of $16,000.00 each month from November 2008 through August 2009, when any remaining balance was due. [21] As with the initial loan, Respondent did not suggest the Lindseys seek independent legal advice or obtain their written consent to the terms of the loan. [22] In partial satisfaction of the second note, Respondent made four payments of $1,375.00 each in 2008 and eight payments of $3,500.00 each in 2009. [23] He then stopped making payments on the loan in late 2009 and filed for bankruptcy, as explained in more detail below, leaving an unpaid loan balance of approximately $156,000.00. [24] As noted above, Respondent admits that he did not provide the safeguards required by Colo. RPC 1.8(a) (2007) when entering into the initial loan transaction with the Lindseys and that he failed to comply with Colo. RPC 1.8(a) (2008) in their second loan transaction. [25] Colo. RPC 1.8(a) (2008) provides that a lawyer shall not enter into a business transaction with a client unless the lawyer advises the client to seek independent legal advice regarding the transaction, and the client gives written consent to the terms of the transaction and the lawyer's role therein. [26] Comment 2 to Colo. RPC 1.8(a)(3) (2008) clarifies that a lawyer, when necessary, should discuss material risks of a proposed loan with a client before accepting the loan. These safeguards are mandated because [a] lawyer's legal skill and training, together with the relationship of trust and confidence between lawyer and client, create the possibility of overreaching when the lawyer participates in a business, property or financial transaction with a client. [27] Even though the Lindseys were somewhat sophisticated in financial matters and had access to other advisers, they had a right to expect that Respondent would structure the loan to protect their interests. [28] But Respondent failed to recognize the special duties he owed the Lindseys. By neglecting to provide the safeguards that would alert the Lindseys to his own self-interest, as contemplated by Colo. RPC 1.8(a), Respondent acted without the vigilant dedication to his clients' interests to which they were entitled. The Hearing Board must determine whether Respondent also breached Colo. RPC 8.4(c) in the Lindsey loan transactions, as the People charge. The People advance several arguments for the proposition that Respondent's conduct in these transactions involved dishonesty, fraud, deceit, or misrepresentation in violation of Colo. RPC 8.4(c). First, the People argue that Respondent misrepresented to the Lindseys the available amount of equity in his house. The evidence, however, does not support the People's contention. Mr. Lindsey testified that Respondent disclosed he had about $75,000.00 in equityan insufficient amount to fully secure the loanand the People have not directed us to evidence clearly demonstrating that Respondent's representation was inaccurate. The People next contend that Respondent misrepresented to the Lindseys that the loan would be secured by a deed of trust on his house. As noted above, Respondent and Mr. Lindsey gave conflicting testimony on this issue. We find it likely that the two men miscommunicated about the terms of the loan: the transaction took place through an informal process without face-to-face meetings and Mr. Lindsey had a hazy understanding of recording principlesboth factors that could lead to confusion. Perhaps more fundamentally, the informal and friendly context of this transaction suggests to us that Respondent lacked the reckless state of mind in his communications with the Lindseys necessary to support a violation of Colo. RPC 8.4(c). [29] The climate of this transaction was notably casual, as evidenced by Mr. Lindsey's comment, As to terms, repayment, interest rate and all, we'll work something out, his expressed desire to remain discreet, and his failure to insist upon receiving completed, signed copies of the promissory note and deed of trust. In light of Mr. Lindsey's apparent propensity to help Respondent regardless of the details of the loan, any ambiguity in Respondent's representations about the deed of trust more likely reflects the transaction's informal context than a disregard for the truth. Therefore, we do not find clear and convincing evidence that Respondent violated Colo. RPC 8.4(c) by misrepresenting that the Lindseys' loan would be secured. [30] For similar reasons, we also decline to subscribe to the People's theory that Respondent falsely told the Lindseys they would be the secondary lienholders on his house. Respondent testified he did not tell Mr. Lindsey their lien would be in the second position, but rather the parties focused on the amount of equity in Respondent's house. And our general skepticism that Respondent recklessly or knowingly misled Mr. Lindsey about the transactions is reinforced in this instance by the multiple meanings of the term secondary, which can mean either of the second position or of a subordinate position. [31] If he said the Lindseys would be secondary lienholders, Respondent could have intended to convey that their lien would be in a subordinate position, while Mr. Lindsey could have mistakenly construed that statement to mean the Lindseys' lien would be in the second position. Finally, the People argue that Respondent engaged in subterfuge by omitting mention of the Culter Trust from the deed of trust and failing to explain to the Lindseys that the Culter Trust held official title to the house. We could not credit this argument even if we found by clear and convincing evidence that Respondent agreed to secure the Lindseys' loan with a deed of trust. Respondent is the sole trustee of this revocable, self-settled trust, so it appears he could have deeded the house out of the trust and into his personal possession in order to satisfy his obligations to the Lindseys. The suggestion that Respondent hid the Culter Trust in order to defraud the Lindseys is neither supported by Mr. Lindsey's testimony nor consistent with our assessment of Respondent's character. In fact, the evidence demonstrates Respondent's commitment to honoring his debt. Therefore, as with the remaining Colo. RPC 8.4(c) claims asserted by the People with respect to the Lindsey loan, we find no clear and convincing evidence of a rule violation on this score.