Opinion ID: 2316688
Heading Depth: 2
Heading Rank: 3

Heading: Sale of Bartholdi Property

Text: Respondent's most egregious conduct with respect to the Bartholdi property was his purchase of the Bartholdi property from his client without advising her to secure independent counsel. In 1984, Humen induced Mrs. O'Connell to sell the Bartholdi property to him for $40,000  $14,000 less than the reconstructed appraisal valuation of $54,000 and $4,000 less than she had paid for the property three years earlier. Mrs. O'Connell testified that she sold the property because based on respondent's representations she believed she was losing money on her investment. She further testified that respondent had discouraged her from seeking other buyers or contacting a realtor. Before the DEC, respondent contended that the lower price reflected the deterioration of the Jersey City neighborhood, although in fact property values were on the rise. He further contended that the actual purchase price was $48,000, but that he reduced the price by $8,000 to allow for fees that Mrs. O'Connell owed him. In his initial Response to Grievance as well as in his formal answer, respondent stated that he had advised Mrs. O'Connell to seek independent counsel. At the DEC hearing, however, he admitted that he had never advised her to seek other counsel. The October 9, 1984, contract for sale provided, in paragraph four, that respondent, as purchaser, was to be given credit for legal fees and payments made on the property, and was to be given further credit for any major repairs done, being done or to be done to maintain the integrity of the property. Additionally, in paragraph 5, respondent claimed a credit for mortgage payments made to the Barbour County Bank on the West Virginia property. As previously stated, mortgage payments on that property were covered by income from the Bartholdi property, not by funds paid by respondent. Subsequently, an Agreement for Sale of Real Estate dated August 11, 1986, purported to convey the Bartholdi property to respondent for $1.00. That document further grants an unrestricted power of attorney to respondent, which shall not be affected by any intervening circumstances, including death or incapacity, but shall survive to allow Peter L. Humen, Esq., the right to effect any transfer he shall so see fit. In late 1986, prior to recording any documents regarding the sale from Lewandowski to O'Connell or from O'Connell to Humen, respondent asked Lewandowski to sign a deed transferring the property directly to him. Lewandowski refused and retained his own attorney. Lewandowski and his wife then signed and filed an amended instrument deeding the property to O'Connell. Thereafter, a deed reflecting the transfer of the property from Mrs. O'Connell to M.L.H. Properties (respondent) was signed on May 28, 1987, and recorded on September 15, 1987. Following the payoff of the balance of approximately $26,000 on the Lewandowski mortgage in May 1987, respondent advised Mrs. O'Connell that he would retain the nearly $14,000 remaining from the purchase price to cover his fees and monies allegedly owed to him for payments on both the Bartholdi and West Virginia properties. In his Response to Grievance, Humen stated that he had incurred financial obligations by paying the Lewandowski and West Virginia mortgages and by managing the Bartholdi property. That was untrue. In testimony before the DEC, respondent admitted that the rental income on the Bartholdi property was more than enough to cover both mortgages. Despite repeated requests, neither a formal accounting of the Bartholdi property nor a statement of services in support of fees taken by respondent was ever provided to the grievant. Admittedly, Mrs. O'Connell owed some fees to respondent, but he never submitted any bill or statement of services to her. At the hearing before the DRB, the presenter contended that there isn't $5,000 worth of work in those files. There's little work for Lillian O'Connell. There's a lot of work for Peter Humen. Mrs. O'Connell did not receive a penny from the sale of the Bartholdi property. Moreover, she did not receive any income from the property once respondent took over its management in 1983, despite its admitted profitability. Both the DEC and DRB were very disturbed by respondent's production in the course of the DEC hearing of a new document purporting to be an agreement of sale between respondent and Mrs. O'Connell. As the DRB reported the incident: In his initial response to the O'Connell grievance, respondent contended that he had an agreement of sale with Mrs. O'Connell as early as 1982, but was unable to locate the document. In the middle of the ethics hearings, respondent produced Exhibit C-30 in evidence, dated April 9, 1982, in which Mrs. O'Connell allegedly agreed to sell the Bartholdi Avenue property to him for $44,000. after her death, if her children had no interest in purchasing it; permitted him to manage the property and agreed further that a sum in excess of $5,000 in fees was then due to him. At hearing, Mrs. O'Connell admitted that the signature was hers, but denied ever signing the document. Her claim that respondent often had her sign documents in blank was supported by various blank documents in the record, provided by respondent and signed in blank by Mrs. O'Connell. Exhibit R-28. The Committee further considered that the document, which was typed, had only a pencil line for Mrs. O'Connell's signature, that respondent did not produce the document in compliance with discovery, and that he was unable to explain the purpose of the document. Based on these facts, the Committee concluded that the document had been fabricated by respondent after he obtained Mrs. O'Connell's signature. Although agreeing that the evidence supported a strong suspicion that the document was not genuine, the DRB did not find sufficient evidence to establish that respondent had fabricated the document. Respondent had a personal interest in obtaining the Bartholdi property at least as of April 1982. His interest in, and subsequent purchase of, that property placed him in an incurable conflict-of-interest situation. He was fully aware of Mrs. O'Connell's reliance on his advice and of her lack of sophistication in business matters. As soon as he broached the subject of purchasing the property, he should have insisted that Mrs. O'Connell obtain independent counsel. That he failed to do. He thereby violated DR 5-104(A) and 5-105(A) as well as RPC 1.7(b) and 1.8(a). We find as did the DRB that [s]eparate violations of these rules were committed by respondent at each step of the transaction, including: the October 9, 1984 contract for sale, drafted by him; the 1986 attempt to have Lewandowski sign the deed directly over to him; the August 11, 1986 Agreement of Sale of Real Estate (Exhibit C-18 in evidence); and the May 28, 1987 deed from Mrs. O'Connell to M.L.H. Properties (the respondent). The Board is further troubled by several aspects of this transaction. Mrs. O'Connell testified, in essence, that she believed the property to be a bad investment and therefore determined to sell it. Respondent dissuaded her from seeking other buyers or the services of a real estate broker, and subsequently purchased the property from her for $14,000 less than the reconstructed appraisal value. Exhibit C-26 in evidence. These are not the actions of an attorney looking out for his client's best interests. The Board finds, further, that respondent's failure to provide a statement of services to Mrs. O'Connell in support of his claim for fees of approximately $14,000 allegedly due him (and counted against the purchase price after respondent's payoff of the Lewandowski Mortgage) was improper and violated RPC 1.5 and RPC 1.15(b). This failure, combined with respondent's original claims that the funds represented payoff of sums advanced by respondent to cover the Bartholdi Avenue and West Virginia mortgage, raises a strong suspicion that the claim of fees earned cannot be justified. Once more, however, the record falls short of the requisite level of proof, and neither overreaching nor misappropriation can be found.