Opinion ID: 1388651
Heading Depth: 2
Heading Rank: 3

Heading: the home ranch property

Text: As a result of the dispute over the partnership finances, Sato agreed in May 1968 to pay Yamakoshi $45,954.64, the amount Sato owed to the partnership because of his alleged financial irregularities. This agreement was evidenced by a promissory note from Sato to Yamakoshi and secured by a mortgage on the Home Ranch property. At the time, the Federal Land Bank, United Bank, and Valley Bank each had a prior mortgage on the Home Ranch Property. Sato failed to make the initial monthly payments due under the note. In October 1968, Yamakoshi sued Sato in Superior Court to foreclose the mortgage. On 10 January 1969, Sato gave Yamakoshi a $50,000 demand promissory note. Sato then executed and delivered to Yamakoshi a quit claim deed for the Home Ranch property on 17 January 1969. In April 1969, Yamakoshi's attorney demanded possession of the property covered by the quit claim deed. In June 1969, an accounting firm examined various books and records of Sato and Yamakoshi, and concluded that Sato owed the partnership even more than previously believed, specifically $71,171.96 as of December 1968. In April 1971, Yamakoshi's accountants indicated that Sato owed approximately $8,000 more to the Sato & Yamakoshi partnership. During this time, respondent was urging Sato to settle the dispute. A conference was held in respondent's office on 30 July 1971 to discuss a possible sale of the Home Ranch property to raise funds to effect a settlement. According to the notes of that conference, respondent computed that, if the $50,000 note and mortgage could be settled for $34,000, the total obligations against the property (including the three prior mortgages) would amount to $67,886.40. It was suggested that the property would have to sell for $75,000 to break even. This would cover the amount of the three prior mortgages and the discounted ($34,000) Yamakoshi note and mortgage. Respondent suggested that a sale to the S & M Trust Company (S & M) would avoid both a foreclosure and certain tax problems. Respondent and his wife held the stock of S & M, a corporation, in trust for their children. [2] There is no question at this time that respondent was representing both Sato and S & M. As the respondent testified: MR. TODD: Would you tell us your relationship to S & M? MR. WADE: The S & M Trust Company, the stock was owned by my children, or for my children. At that time I believe they would have all been minors and I think my wife, was custodian under the Arizona Gift to Minors Act, was the owner for the children. MR. TODD: And in that transaction, the sale of the Lehi Land to S & M, what was your role? As an attorney, who were you representing? MR. WADE: I was representing Mr. Sato. I also would have of course, been representing S & M Trust Company. That was fully explained and understood and consented to by Mr. and Mrs. Sato. Indeed, the sale was created as an effort in the continuing effort to solve a critical legal and financial problem of Mr. and Mrs. Sato and ... MR. TODD: Is there any writing that reflects what was discussed with the Satos in terms of  so that they made a knowing consent? MR. WADE: Ah, there is no  nothing in writing. We had some of our, you know, memos of conversations. Mr. Palmer, through his testimony, there was, I think, a couple of those introduced into evidence. An agreement was reached on 4 August 1971, to sell the Home Ranch property to S & M for a total purchase price of $68,943.96. Of this amount, $34,943.96 was the amount required to pay off the first three mortgages on the property. S & M did not assume these debts, but took the property subject to them, thereby avoiding personal liability. Sato, however, remained personally liable. The agreement stated: Seller [Sato] shall remain personally liable on the mortgages to the Federal Land Bank, United Bank and Valley National Bank; and Buyer [S & M] shall have no personal liability therefor. Buyer shall, however, use its best efforts to cause the property to be sold and the proceeds of the sale applied to pay off said mortgages as well as the mortgage created today. For the balance of the purchase price ($34,000), S & M gave Sato a note secured by a mortgage on the property. Monthly payments of principal and interest were not to begin for one year. The result of this agreement was that respondent, acting as S & M, purchased the Home Ranch property for the amount of the encumbrances against it. The parties neither discussed nor appraised the property's fair market value. Sato was not advised of the consequences of remaining personally liable on the existing encumbrance, nor was he told that he should consult independent counsel, or that respondent had a conflict of interest. Contemporaneous with this transaction, respondent had Sato and his wife execute a previously prepared letter acknowledging an obligation to pay respondent's firm the sum of $12,400 for legal fees rendered, expenses incurred, and future services at the usual hourly rate. Sato also agreed to continue his effort to find prospective buyers and perform certain services to facilitate the sale. There were no provisions for the application of any portion of the proceeds from the sale of the property towards the Satos' past or future legal expenses. Yamakoshi's original foreclosure action was dismissed without prejudice for failure to prosecute. On 5 November 1971, Yamakoshi filed an expanded foreclosure action in the superior court. Yamakoshi sought to foreclose, as a mortgage, his 27 January 1969 quit claim deed for the Home Ranch property. This litigation was eventually settled and compromised. Evidence suggests that, at this time, respondent failed to advise Sato of certain rights in connection with these transactions, including his right to cancel the escrow set up for sale of the property. In the interim, United Nisei Investment (UNI), a separate partnership of outside investors in Sato & Yamakoshi, instituted litigation in Chicago against Sato, Yamakoshi, and the partnership (Sato & Yamakoshi). Because of this action, Yamakoshi no longer wished to resolve his differences with Sato. In February 1972, S & M deeded a portion of the Home Ranch property to T & G Investments, a corporation controlled by one of respondent's colleagues. The purchase price was $34,000, $8,000 payable in cash and the balance in the form of a note payable to S & M. In mid-1983, Sato began asking respondent for an accounting of the proceeds from sales of portions of the Home Ranch property. In March 1984, Sato's son, an accountant, formally requested an accounting and other pertinent information concerning the dispositions that respondent had made of portions of the property. Some time later, respondent produced an accounting, which indicated that S & M Trust Company and related entities had realized a gain of approximately $61,984 on sales of portions of the Home Ranch property. The attorney for the Bar, in closing argument before the Commission, noted the position in which Sato found himself: [I]n the late `60's and early 1970's, Mr. Sato had mortgaged a bunch of parcels of property near his home with his partner, Mr. Yamakoshi, and he was at the point where he could not sell any more of these parcels because of tax laws and sub-division laws, and he was at the point during several mortgage foreclosure proceedings where he had to do something, and he was essentially in fairly desperate straits at that time. Mr. Wade, who had been his attorney throughout these proceedings, according to Mr. Sato, agreed to take the property and to subdivide it and sell it, and to account back to Mr. Sato for any of the profits after all of the encumbrances, mortgages, et cetera had been paid off. According to Mr. Wade, it was not a transfer in trust, as Mr. Sato explained it, but rather an outright sale, and Mr. Wade contended that he was entitled to keep all of the profits.       In the end the property was sold; a substantial profit was acquired by Mr. Wade in the amount of 61,000 and some odd dollars, and Sato went back to Wade and said, several years later, you know, You have had this property for a long time. My tax accountant wants to know how I should account for it on my income tax returns, and his accountant was his son  Mr. Sato's son. Can you please give me some accounting? Can you please tell me how much money I made, or how much money I lost, and in the end he did obtain an accounting, and Mr. Wade still refused to account for the profits, but Mr. Wade did return some of the unsold portions of the Home Ranch Property. Again, this was a significant fact to the committee, that why would Wade return the unsold portions, if, in fact, he had purchased these properties outright. What motivated Mr. Wade to return some of the property back to Mr. Sato if, in fact, it was not a conditional sale. We agree with the Bar counsel's summation of the testimony. It appears, by clear and convincing evidence, that the property was not sold to respondent (S & M), but transferred to him in trust. This was the finding not only of the Committee and the Commission, but the superior court in the later foreclosure action. Because respondent held the property in trust for Sato's benefit, respondent had an ethical and legal obligation to account to Sato for the trust status.