Opinion ID: 2164852
Heading Depth: 1
Heading Rank: 2

Heading: hamburger matter

Text: Late in 1973, the complainant, a widow, retained respondent as attorney for her husband's estate, valued at approximately $65,000. Respondent, who had represented the husband during his life, had also been named executor of the estate. Approximately two months after her husband's death, the widow asked respondent to suggest an appropriate investment for a portion of her inheritance. Respondent suggested that she invest $10,000 in a second mortgage on a multi-family dwelling [3] in Hoboken owned by the First Fort Lee Mortgage Company. Before closing the loan, respondent informed the widow that he was a stockholder and officer of the Company. It is unclear whether respondent gave her this information when the investment was first discussed or at the point of closing the loan. In fact, respondent owned a 25 percent interest in the First Fort Lee Mortgage Company and was its president as well as its attorney. Respondent testified that he advised the widow to seek independent legal advice before making the loan. The record establishes, however, that she relied solely on his legal representation. Respondent further testified that he counseled her to seek independent investment advice, and the record shows that she did engage in some discussion of the proposed investment with her adult son, then in the children's clothing business. Respondent prepared the bond and mortgage and closed the loan. The mortgage provided that it would be subordinated to a new first mortgage, not yet obtained and without limit as to amount. Respondent apparently never explained the significance of the subordination provision to his client. Moreover, at no time did he disclose to his client that this building which was the security for her $10,000 second mortgage had been purchased only eight months earlier by his corporation for a total of $8,000, consisting of $5,000 cash and a $3,000 purchase money mortgage, and that 1973 real estate taxes on the property had not been paid. Additionally, he did not conduct a title search, did not provide an affidavit of title in the usual form, and did not reveal the actual condition of the property. [4] In January 1975, respondent's corporation, First Fort Lee Mortgage Company, was sued in a foreclosure action on the property; [5] a deputy sheriff personally served respondent as registered agent for the Company. This deputy also so served respondent as agent for the widow, the second mortgagee, upon respondent's representation that he would accept service for her. Nevertheless, respondent failed to defend the action on her behalf and failed to notify her of his receipt of the summons and complaint. In June, July and August of 1976, complainant telephoned respondent to inquire why she had stopped receiving regular monthly payments on her second mortgage. He assured her that payments would resume shortly. They did not. He did not mention the foreclosure proceeding. In October 1976 complainant retained new counsel. Respondent spoke with him several times between November 1976 and January 1977, and similarly failed to advise him of the foreclosure proceedings. New counsel independently learned that a foreclosure proceeding had been instituted and a sheriff's sale held. He obtained a court order which vacated complainant's default and set aside the sheriff's sale. Subsequently, respondent helped arrange to have each of the four shareholders of First Fort Lee Mortgage Company agree to pay complainant $50 per month until the full debt was satisfied. [6] Respondent concealed from his client the recent purchase price of the property, its real value, and the fact that taxes were unpaid. It is clear that he had a duty to provide her with this information. Cf. In re Greenberg, 21 N.J. 213 (1956). Respondent knew that his client was naive and inexperienced in business matters, and that she was relying not only upon his advice but upon his judgment and upon the confidence she had in him based on his past 16 years of service as her late husband's attorney. That he suggested she seek independent advice is of little consequence under the circumstances of this case; he had every reason to believe that she would not do so. Given his client's obvious lack of understanding of the transaction and her failure to grasp the significance of respondent's interest in the company that was to benefit from her money, his suggestion that she seek independent legal and financial advice appears designed to protect him rather than his client. Respondent cannot shield himself behind the glib recitation of a disclosure the practical meaning of which was unknown to his client. Lawyers have a duty to explain carefully, clearly and cogently why independent legal advice is required. When a lawyer has a personal economic stake in a business deal, he must see to it that his client understands that his objectivity and his ability to give his client his undivided loyalty may be affected. An attorney is bound to disclose to his client every adverse retainer, and even every prior retainer, which may affect [his] discretion.... No man can be supposed to be indifferent to the knowledge of facts, which work directly on his interests, or bear on the freedom of his choice of counsel. When a client employs an attorney, he has a right to presume, if the latter be silent on the point, that he has no engagements, which interfere, in any degree, with his exclusive devotion to the cause confided to him; that he has no interest, which may betray his judgment, or endanger his fidelity. [ Williams v. Reed, 3 Mason 405, 418 (C.C. Maine 1824) (Story, J.), quoted in In re Kamp, 40 N.J. 588, 595 (1963)]. Given the widow's total dependence upon respondent, the one-sidedness of the transaction, the financial realities of a $10,000 investment in a building worth perhaps half that sum, any possible advantage in this deal was on the side of the owners of First Fort Lee Mortgage Company. Respondent was one of the owners as well as president and general counsel of the Company. It is clear that he exploited his client for his own financial benefit. It was unthinkable in the first place for respondent to have suggested such an investment, but, having done so, it was unconscionable for him to have continued to represent the widow. He should have insisted that she retain independent counsel or refused to consummate the transaction. [7] Independent counsel would have made a proper title search, would have discussed the status of second mortgage vis-a-vis first mortgage, [8] would have discovered the unpaid taxes. Tax and title searches would have uncovered the recent purchase price and delinquent tax status. Undoubtedly, independent counsel would never have allowed the widow to make this investment. Respondent's conduct in this matter was in violation of DR 5-104(A) and DR 5-105(B), which restrict an attorney in entering or continuing a professional relationship that may be in conflict with his own or another client's interests. Nor did respondent's dual role in this sorry affair cease when the loan was closed. His continued concealment and misrepresentations breached his professional obligation to her in violation of DR 1-102(A)(4), (5) and (6). His corporation had obtained and then defaulted upon a purchase money mortgage. Respondent also concealed this situation from his client. When payments on the second mortgage ceased, respondent was able to give her an explanation, but he simply refused. The original lie, feeding upon itself, grew until discovery was inevitable. Had respondent been better able to juggle his financial manipulations and those of his corporation, the second mortgage might have been paid back with no economic loss to his client. This possibility does not alter the fact that during the period the loan was outstanding, respondent would have had, pursuant to a course of concealment and deception, a sum of his client's money at his disposition. This Court will no more tolerate the hoodwinking of helpless clients out of funds in a business venture that is essentially for the benefit of the lawyer than it will outright misappropriation of trust funds. In re Wilson, 81 N.J. 451 (1979).