Opinion ID: 1454365
Heading Depth: 1
Heading Rank: 10

Heading: TWENTY-NINTH, THIRTIETH, THIRTY-FIRST and THIRTY-SECOND CAUSES OF COMPLAINT

Text: The Trial Panel in its opinion considered these four causes of complaint together. It found Griffith not guilty of each of the four causes. We will not discuss the 31st cause because the Bar's limited brief in this court has not persuaded us to change the result reached by the Trial Panel. In each of the three remaining causes the Bar alleged that Griffith violated former rules DR 1-102(A)(2) and (6), DR 5-101(A), DR 5-104(A) and DR 5-105(A), (B), (C) and (D), all supra. The underlying property in these causes of complaint is the 16-acre subdivision in the Medford area that has been previously mentioned in this opinion. [21] The Bar alleged that these causes of action arose out of the following facts: In January 1982, Griffith and Wolf caused Central Point Development Corporation to be incorporated. The initial shareholders were Griffith, Brookens, Wolf and the members of Village Joint Venture. Simultaneously with the incorporation of Central Point, members of the Village Joint Venture conveyed the 16 acres known as Village Subdivision to Central Point, with the intent that Central Point would complete the subdivision and pay off the debt owed by the members of Village Joint Venture to First Northwest. In order to capitalize Central Point, Wolf instructed some of the individual members of Village Joint Venture to borrow $250,000 from lending institutions and pay those funds into Central Point. $120,000 of that sum was borrowed from Columbia Pacific. Griffith and Wolf then caused the $250,000 to be applied to the loan balance owing to First Northwest from Village Joint Venture. The Bar also alleged: In July 1982, members of Village Joint Venture owed First Northwest in excess of $1 million on the Village Subdivision construction loan. The loan was past due. At the same time, First Northwest, Griffith, Brookens, and Hardy owed Columbia Pacific in excess of $1.7 million on past due loans. Griffith and Wolf were guarantors on all of these loans owed to Columbia Pacific. In July 1982, Wolf formulated a plan whereby Village Joint Venture and others obtained a $1.1 million loan from Columbia Pacific which was used to pay off the loan owing by Village Joint Venture to First Northwest. The Bar in effect divided the above facts into three causes: The incorporation of Central Point and the conveyance of the 16-acre tract as the 29th cause, the capitalization of Central Point and the payment of $250,000 from Central Point to First Northwest as the 30th cause, and the payment of the $1.1 million from Columbia Pacific through Village Joint Ventures and others to First Northwest as the 33rd cause. (A) Twenty-ninth Cause: The Bar in effect leveled a shotgun blast of conflicts of interest charges in each of the three causes under consideration. This is demonstrated by the 29th cause. The Bar alleged: 68. At all times herein, Wolf was legal counsel to Central Point, with the knowledge of Accused. As a member of the law firm with Wolf, Accused was also legal counsel for Central Point and performed legal services for Central Point.    70. The Village Joint Venture, its members, and Central Point relied upon the law firm for professional judgment and advice generally and in regard to the formation of Central Point and the real property conveyance in particular. 71. The exercise of Accused's professional judgment as a member of the law firm on behalf of Central Point, the Village Joint Venture and its members was, or reasonably may have been expected to be affected by Accused's financial, business or personal interests. 72. The interests of Accused in the formation of Central Point and in the conveyance of property from the Village Joint Venture to Central Point differed from the interests of Central Point, the Village Joint Venture and its members. 73. The exercise of Accused's independent professional judgment as a member of the law firm on behalf of Central Point, the Village Joint Venture and its members was or was likely to be adversely affected by the law firm's representation of First Northwest. It was not obvious the law firm could adequately represent the interests of each of its clients. 74. Accused did not make required ethical disclosures to, or obtain the informed consent of, Central Point, the Village Joint Venture and its members at any time prior to or during the formation of Central Point and the real property conveyance described herein. 75. Accused knowingly engaged in or failed to exercise reasonable care to prevent Wolf and Accused from engaging in the conduct set forth in this Cause of Complaint. It is obvious from the above allegations that: Paragraph 71 alleges a violation of former DR 5-101(A). Paragraph 72 alleges a violation of former DR 5-104(A). Paragraph 73 alleges a violation of former DR 5-105(A) and/or (B). Paragraph 74 alleges that Griffith did not comply with the bail out exception of former DR 5-105(C). Paragraph 75 attempts to allege a violation of former DR 1-102(A)(2). Griffith's answer to the 29th cause was a general denial. The Trial Panel found Griffith not guilty of any of the alleged violations on the following basis: Wolf orchestrated the transactions between the parties. Griffith was not employed by any of the organizations in any of the matters described in this cause. In most instances Griffith was not aware of what advice Wolf and the other members of his law firm were giving the organizations and people involved. ORS 40.135(1)(x) provides a presumption that the law has been obeyed and therefore Griffith could reasonably assume that Wolf and other members of the firm made the disclosures required    and obtained the required informed consent   . Former DR 5-101(A) and former DR 5-104(A) concern the conflict of interest between a lawyer and his client who may have differing financial, business, property or personal interests. On the other hand, former DR 5-105(A) and (B) concern the conflict of interest between two or more clients. The ground rules for the application of former DR 5-105(A) and (B) are set out in In re Johnson, 300 Or. 52, 707 P.2d 573 (1985). First, we determine if the conflicting interests of the clients are actual, likely or unlikely. This is dictated by the rules themselves. Each rule refers to if the exercise of [the lawyer's] independent professional judgment in behalf of a client will be or is likely to be adversely affected   . (Emphasis supplied.) The distinction between actual and likely is important because when there is an actual conflict DR 5-105(C) does not apply and a lawyer cannot avoid the obligations of DR 5-105(A) or (B) by disclosure and consent. In the case of In re Jans, 295 Or. 289, 295, 666 P.2d 830 (1983), this court said: It is never proper for a lawyer to represent clients with conflicting interests no matter how carefully and thoroughly the lawyer discloses the possible effect and obtains consent. See also In re Jordan, 300 Or. 430, 436, 712 P.2d 97 (1985). In re Johnson, supra , also sets out a two-step test to be used to determine the degree of culpability to which a lawyer will be held in conflict of interest cases: (1) The lawyer must have actual or imputed knowledge of the conflict. Knowledge of facts may be imputed to the lawyer if it is shown by clear and convincing evidence that by the exercise of reasonable care such facts should have been known to the lawyer. (2) Given the facts as found then the Trial Panel or this court on de novo review must determine whether there was a conflict of interest between the lawyer's clients. The lawyer's recognition of the conflict of interest is not a part of the test. Former DR 5-105(A) and former DR 5-105(B) are designed to cover different situations. Former DR 5-105(A) provides that the lawyer shall refuse to accept the employment when there is a conflict of interest. Former DR 5-105(B) provides that the lawyer shall discontinue his employment when a conflict of interest develops. It is difficult to determine from the Bar's allegations in paragraph 73, set out above, whether it intended to allege a violation of former DR 5-105(A) or former DR 5-105(B). If this were a civil case the paragraph would have been vulnerable to a motion to make more definite and certain. We hold that a violation of former DR 5-105(A) was pleaded in the 29th cause. We will not consider former DR 5-105(B) further in this cause. The next question is to determine if there was an actual, likely or unlikely conflict of interest between Central Point, Village Joint Venture, and First Northwest when Central Point was formed and the 16-acre tract was conveyed to it by Village Joint Venture. There is no doubt that Griffith's law firm represented all three principals. At the time in question, Village Joint Venture was delinquent on substantial loans that it had received from First Northwest. Central Point received property which had been mortgaged to First Northwest by Village Joint Venture. The position of Central Point and Village Joint Venture was adverse to that of First Northwest. An actual conflict of interest exists when a lawyer undertakes to represent both sides in a real estate transaction. In re Baer, 298 Or. 29, 34, 688 P.2d 1324 (1984). See In re Jans, supra ; In re Hershberger, 288 Or. 559, 606 P.2d 623 (1980). In the later case of In re Bristow, 301 Or. 194, 203, 721 P.2d 437 (1986), this court said that an actual conflict exists when a lawyer places himself in a position where the exercise of his independent professional judgment on behalf of one client would be adversely affected by the differing interests of the other client, quoting In re Porter, 283 Or. 517, 524, 584 P.2d 744 (1978). Griffith had actual knowledge of the conflict between the parties. Not only was he one of the lawyers for Central Point and First Northwest, he was also a shareholder and officer of both corporations. By clear and convincing evidence we find Griffith guilty of violating former DR 5-105(A) of the 29th cause. Former DR 5-105(C) does not apply and is unavailable to Griffith. The Bar should not charge a violation of that rule. In re Jordan, supra, 300 Or. at 436, 712 P.2d 97. Next we consider whether Griffith violated former DR 5-101(A) or former DR 5-104(A) in the 29th cause. In the above described paragraph 71 the Bar in effect alleged that Griffith violated former DR 5-101(A) because he accepted employment by Central Point and Village Joint Venture when the exercise of his professional judgment on behalf of them was or reasonably may have been affected by his financial or property interest in First Northwest. Paragraph 74 alleges that Griffith did not obtain the consent of Central Point and Village Joint Venture after a full disclosure. In the above described paragraph 72 the Bar in effect alleged that Griffith violated former DR 5-104(A) by entering into a business transaction with Central Point and Village Joint Venture by the formation of Central Point and the conveyance to it of the 16-acre tract when his interests differed from those of Central Point and Village Joint Venture. Paragraph 74 alleged that Griffith did not obtain the consent of Central Point and Village Joint Venture. At the time in question Village Joint Venture was in default on a substantial loan that it had obtained from First Northwest to develop the 16 acre subdivision. At this same time Griffith not only held his original one-fourth interest in First Northwest but had participated in a sham transaction to buy most of Wolf's stock in the same corporation. (See second cause). Griffith testified that before the transactions in question, he made a trip to Medford with Wolf to meet the members of Village Joint Venture. The purpose of the trip was to meet them and kind of to get a sense of whether First Northwest should be suing, foreclosing, working with them or what. It is obvious that the formation of Central Point and the conveyance of the 16 acres was designed to protect the interest of First Northwest. In the original incorporation Wolf, Brookens, and Griffith held 51 percent of the stock in Central Point while the Medford people held 49 percent. Griffith's first loyalty was to First Northwest. It could be argued that First Northwest and not Griffith entered into a business transaction with Central Point and the members of Village Joint Venture. It could be further argued that Griffith was not the alter ego of First Northwest. In any event, Griffith did enter into a business transaction with the individual members of Village Joint Venture when they joined forces to form Central Point. The Bar complaint is broad enough to include the latter situation. Griffith's actions violated both former DR 5-101(A) and former DR 5-104(A) unless the members of Village Joint Venture consented after full disclosures. [22] We do not agree with the Trial Panel that Griffith had a right to reasonably assume that Wolf and other members of the firm made the disclosures required by the Disciplinary Rules and obtained the required informed consent of the parties represented by the firm. The Trial Panel's conclusion brings into sharp focus one of Griffith's major contentions in this case: That he was an intersection or personal injury trial lawyer and that he placed complete trust in Wolf who was expert in the field of business and finance law and therefore he paid very little attention to the affairs of First Northwest. The record shows that Wolf was the quarterback who called the signals. It also shows that Griffith was not a third-string tackle who sat on the far end of the bench. He made at least two trips to meet with members of Village Joint Venture. Griffith was an incorporator, shareholder, director and an officer of Central Point. The Articles of Incorporation were forwarded to the State of Oregon over his signature. Later Griffith was responsible for firing a $3,000-per-month employe of Central Point to save money and thereafter met periodically with the company's accountant to discuss the Medford project. Griffith's role was more like a first-string blocking back who played most of the time and who along with the quarterback was responsible for the win or loss. We find by clear and convincing evidence that in the 29th cause, Griffith is guilty of violating former DR 5-101(A) and former DR 5-104(A). The Bar also alleged in the 29th cause that Griffith violated former rules DR 1-102(A)(2) and (6). As previously set out in this opinion, former DR 1-102(A)(2) provides that a lawyer shall not circumvent a disciplinary rule through the actions of another. This rule does not fit the situation alleged in this cause of complaint and Griffith did not violate it. Former DR 1-102(A)(6) provides that a lawyer shall not engage in conduct that adversely reflects on his fitness to practice law. In the second cause in this case, we pointed out that In re Magar, 296 Or. 799, 818, 681 P.2d 93 (1984), holds that a lawyer who violates a disciplinary rule, by definition also violates former DR 1-102(A)(6). In the 29th cause we have held that Griffith has violated former rules DR 5-101(A), DR 5-104(A) and DR 5-105(A). Therefore he has also violated former DR 1-102(A)(6). (B) Thirtieth and Thirty-third Causes: These causes of complaint are the second and third verses of the same song that gave rise to the 29th cause. The Bar carved these causes of complaint out of the series of events that made up the recovery by Wolf, Griffith and Brookens on the bad loan that First Northwest had made to the members of Village Joint Venture on the 16 acre subdivision. The 30th cause involves the capitalization of Central Point by the borrowing of $250,000 by some of the members of Village Joint Venture and the payment of those funds to First Northwest. The 33rd cause involves borrowing $1.1 million from Columbia Pacific by Central Point and others and the payment of the funds to First Northwest. The allegations in the 30th and 33rd causes are the same as those in the 29th cause  only the names have been shuffled and the dates and amounts changed. The alleged violations of the disciplinary rules are the same. There is no point in our rehashing what is obvious. We hold by clear and convincing evidence that Griffith is guilty in the 30th and 33rd cause of violating the same former disciplinary rules that he violated in the 29th cause with one exception. He did not violate former DR 5-104(A). He did not personally enter into further business relationships with a client. First Northwest entered into further business relationships with others who were Griffith's law firm's clients. The Bar has not argued that First Northwest was Griffith's alter ego  it is a separate entity.