Court Opinion

ID: 2691124
Source: CourtListenerOpinion
Date Created: 2014-08-01 20:59:28.496735+00
Date Added: 2024-06-11T09:55:28.609248
License: Public Domain

[Cite as Toledo Bar Assn. v. Pheils, 129 Ohio St.3d 279, 2011-Ohio-2906.]

                         TOLEDO BAR ASSOCIATION v. PHEILS.
   [Cite as Toledo Bar Assn. v. Pheils, 129 Ohio St.3d 279, 2011-Ohio-2906.]
Attorneys — Misconduct — Providing financial assistance to client — Conflict of
         interest — One-year suspension with six months stayed on conditions.
   (No. 2010-1886 — Submitted February 16, 2011 — Decided June 23, 2011.)
     ON CERTIFIED REPORT of the Board of Commissioners on Grievances and
                      Discipline of the Supreme Court, No. 10-019.
                                    __________________
         Per Curiam.
         {¶ 1} Respondent, David R. Pheils Jr. of Toledo, Ohio, Attorney
Registration No. 0005574, was admitted to the practice of law in Ohio in 1974.
On February 8, 2010, relator, the Toledo Bar Association, filed a four-count
complaint charging respondent with numerous disciplinary violations, including
providing financial assistance to a client and creating a conflict of interest by
representing clients with adverse interests.
         {¶ 2} A panel of the Board of Commissioners on Grievances and
Discipline held a hearing and issued findings of fact, conclusions of law, and a
recommended sanction. The board adopted the panel’s findings and conclusions
and recommended that respondent be suspended from the practice of law for one
year with six months stayed on conditions.
         {¶ 3} For the following reasons, we adopt the board’s recommendation.
                                        I. Misconduct
         {¶ 4} Charles Robinson hired respondent to represent him as a plaintiff
in a civil action (the “Royal Homes” case).1 Respondent negotiated a settlement,

1. Respondent also represented two coplaintiffs in the Royal Homes case. However, because they
are irrelevant to resolving the disciplinary charges against respondent, we do not refer to them in
the opinion.
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pursuant to which Robinson was to receive $20,000. Defense counsel prepared
the settlement agreement, but respondent advised Robinson not to sign it because
he believed that the agreement imposed obligations to which Robinson had not
agreed. While Robinson was discussing with a coplaintiff whether to sign the
settlement agreement, respondent overheard Robinson say that he needed money
and that he wanted to settle the case so that he could get his money. Later,
Robinson asked respondent for a loan. Robinson testified that respondent told
him to come back later that afternoon and respondent would have a $4,000 check
ready.      Respondent arranged for his wife to lend Robinson $4,000.      When
Robinson returned to respondent’s office later that day, there was a $4,000 check
from respondent’s wife for Robinson. Robinson also signed a promissory note.
Robinson had never met respondent’s wife, and she was not present when
Robinson picked up the check.
          {¶ 5} Respondent prepared the promissory note and acted as his wife’s
attorney for purposes of the loan. However, respondent never advised Robinson
to seek independent counsel regarding the transaction, and he never acquired
Robinson’s informed consent before representing his wife’s adverse interests in
the loan.
          {¶ 6} Subsequent to the loan, respondent and defense counsel continued
to negotiate over the language of the settlement agreement in the Royal Homes
case. Eventually, the trial court granted the defendants’ motion to enforce the
agreement, and respondent advised Robinson to appeal.           Respondent had
Robinson sign an “Addendum to Representation Agreement,” in which Robinson
agreed to share costs and expenses from any recovery in excess of $20,000 in the
event of a retrial. On June 25, 2008, respondent filed an appeal on Robinson’s
behalf.
          {¶ 7} Robinson testified that he did not want to appeal; he wanted to
accept the settlement. Respondent was aware that Robinson was still having

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financial difficulties, and eventually, Robinson asked respondent for another loan.
Respondent arranged another loan from his wife to Robinson in July 2008. In
connection with this loan, respondent acquired a cashier’s check for $10,500
issued by the Huntington Bank payable to respondent’s firm’s escrow account.
Respondent testified that the money was withdrawn from his wife’s Huntington
Bank account. However, he never produced any evidence to indicate the source
of these funds. Respondent deposited the $10,500 cashier’s check into his firm’s
escrow account. On July 3, 2008, a $10,450 check from respondent’s firm’s
escrow account was issued with Robinson and his wife named as the payees. The
check was signed by respondent, but it included a typed notation indicating that it
was a loan from respondent’s wife. Robinson signed a promissory note for
$14,500. Ostensibly, $4,050 of the $14,500 loan was used to repay the principal
and interest on the $4,000 loan. Robinson also agreed to assign his rights in the
Royal Homes case to respondent’s wife as security for the loan.
        {¶ 8} Respondent drafted the promissory note and the assignment
agreement.    And respondent again acted as his wife’s attorney in the loan
transaction. Respondent did not advise Robinson to seek independent counsel
regarding the loan, nor did he acquire Robinson’s informed consent before
representing his wife’s adverse interest in the loan.
        {¶ 9} Several months after receiving the second loan, Robinson hired a
new attorney and signed a settlement agreement in the Royal Homes case.
Robinson terminated respondent as his lawyer in a letter dated November 17,
2008.
        {¶ 10} On December 17, 2008, respondent, representing his wife, filed
suit against Robinson seeking repayment of the loans pursuant to the promissory
note and the assignment agreement.            Respondent dismissed the case after
Robinson repaid the loans from proceeds he received in settling the Royal Homes
case.

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       {¶ 11} Pursuant to counts 1 and 3 of relator’s complaint, the panel found
that respondent had violated Prof.Cond.R. 1.8(e) (prohibiting a lawyer from
providing financial assistance to a client in connection with pending litigation)
and 8.4(a) (prohibiting a lawyer from violating the Ohio Rules of Professional
Conduct through the acts of another). Pursuant to counts 2 and 3, the panel also
found that respondent had violated Prof.Cond.R. 1.7(a) (prohibiting a lawyer’s
continued representation of a client if the representation of that client would be
directly adverse to another client) and 1.7(b) (prohibiting the continued
representation of a client if a conflict of interest would be created, unless the
affected client gives informed consent in writing).
       {¶ 12} However, pursuant to counts 1 and 3, the panel concluded that
there was insufficient evidence to prove that respondent had violated
Prof.Cond.R. 1.8(a) (forbidding business transactions with a client or the knowing
acquisition of a pecuniary interest adverse to a client, unless the transaction is fair
and reasonable, the client is advised in writing to seek independent legal counsel,
and the client gives informed consent in writing).               The panel further
recommended dismissal of the allegation in count 3 that respondent violated
Prof.Cond.R. 1.8(i) (prohibiting the acquisition of a pecuniary interest in the
litigation the lawyer is conducting for a client), as well as the charge in count 4 of
a violation of Prof.Cond.R. 8.1(b) (prohibiting a lawyer from failing to respond to
or failing to disclose a material fact in responding to a demand for information by
a disciplinary authority).
       {¶ 13} The board adopted the panel’s findings of fact and conclusions of
law, but rejected the panel’s recommendation of a one-year suspension, all stayed
on conditions. Based on respondent’s contempt for his obligations and for the
disciplinary system, as well as his repeated deceptions throughout the
proceedings, the board recommended that we suspend respondent for one year,
with six months stayed upon conditions.

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                                January Term, 2011

       {¶ 14} Respondent objects to the board’s conclusions and recommended
sanction. The relator filed an answer to respondent’s objections. For the reasons
that follow, we overrule respondent’s objections and accept the board’s findings
of fact, conclusions of law, and recommended sanction.
                           II. Respondent’s Objections
                        A. Providing Financial Assistance
       {¶ 15} Respondent steadfastly maintains that he did not provide financial
assistance to Robinson, because it was respondent’s wife who lent money to
Robinson. Respondent argues that a violation of Prof.Cond.R. 1.8(e) can occur
only when the financial assistance comes directly from the attorney. Respondent
also argues that if we hold that he improperly provided financial assistance to
Robinson, it will discourage attorneys from assisting clients in securing loans
from a bank.
       {¶ 16} Except for advancing costs and expenses of litigation under certain
circumstances, “[a] lawyer shall not provide financial assistance to a client in
connection with pending or contemplated litigation.”           Prof.Cond.R. 1.8(e).
Comment 10 to this rule provides that “[l]awyers may not subsidize lawsuits or
administrative proceedings brought on behalf of their clients, including making or
guaranteeing loans to their clients for living expenses, because to do so would
encourage clients to pursue lawsuits that might not otherwise be brought and
because such assistance gives lawyers too great a financial stake in the litigation.”
       {¶ 17} Respondent testified that the funds used to finance both loans to
Robinson belonged to respondent’s wife. Respondent asserts that the fact that the
funds did not come directly from him is sufficient to exonerate him from a charge
of violating Prof.Cond.R. 1.8(e).      We disagree.     If respondent had referred
Robinson to a bona fide financial institution, our answer would be different. A
lending institution has absolutely no stake in the litigation and no interest in
encouraging a borrower to pursue litigation. However, respondent did not advise

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Robinson to seek such a loan. Instead, respondent, realizing that he could not
lend money to Robinson, arranged loans from his wife. Respondent suggested to
his wife that she lend the money to his client, telling her that the client “had a
judgment” and that assigning the client’s rights in that judgment to her “would be
enough that it would cover up to a $15,000 loan.” Clearly, respondent’s wife
relied on this advice, because she made the loans to Robinson even though she did
not know him. Furthermore, Robinson received the check from the first loan on
the day that he requested the loan.
       {¶ 18} Under these circumstances, we find that respondent significantly
influenced his wife to make the loan to Robinson.          Respondent’s personal
relationship with his wife and his professional relationship with Robinson in the
context of these loans placed him in a unique position to use financial leverage to
influence Robinson’s litigation of the Royal Homes case. This is precisely the
type of financial assistance that Prof.Cond.R. 1.8(e) was intended to prevent.
       {¶ 19} Even if respondent’s sole intention was to benefit Robinson, that
intention does not excuse his conduct. The prohibition against providing financial
assistance to a client is absolute. Prof.Cond.R. 1.8(e) does not inquire into the
attorney’s motivation in providing financial assistance to a client. The mere fact
that an attorney provides financial assistance to a client is a problem in and of
itself because it “gives lawyers too great a financial stake in the litigation.”
Comment 10, Prof.Cond.R. 1.8(e).
       {¶ 20} Finally, respondent’s actions promoted maintenance and/or
champerty. Prof.Cond.R. 1.8(e) has its basis in the common law of maintenance
and champerty.     See Comment 16 to Prof.Cond.R. 1.8.           “Maintenance” is
rendering assistance to a litigant in pursuing or defending a lawsuit provided by
someone who does not have a bona fide interest in the case, while “champerty” is
a form of maintenance in which a nonparty undertakes to further another person's
interest in a suit in exchange for a share if a favorable result ensues. Rancman v.

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                                 January Term, 2011

Interim Settlement Funding Corp., 99 Ohio St.3d 121, 2003-Ohio-2721, 789
N.E.2d 217, ¶ 10. It is a disciplinary violation for an attorney to make such an
agreement with a client. See Disciplinary Counsel v. Williams (1990), 51 Ohio
St.3d 36, 553 N.E.2d 1082 (interpreting former DR 5-103(A)).
        {¶ 21} Respondent’s wife, who had no interest in the Royal Homes case,
lent money to Robinson, and in return, Robinson assigned to her his rights in the
Royal Homes case.        Clearly, this agreement promoted maintenance and /or
champerty.
        {¶ 22} Therefore, we hold that respondent violated Prof.Cond.R. 1.8(e)
and 8.4(a).
                                B. Conflict of Interest
        {¶ 23} Respondent also argues that he did not create a conflict of interest
by representing both his wife and Robinson in the loan transactions. Specifically,
he asserts that his representation of Robinson was expressly limited to the Royal
Homes case, and therefore, Robinson was not his client with regard to the loans.
Thus, respondent argues that he did not create a conflict of interest by
representing his wife in those transactions.
        {¶ 24} We acknowledge that Prof.Cond.R. 1.2(c) provides, “A lawyer
may limit the scope of a new or existing representation if the limitation is
reasonable under the circumstances and communicated to the client, preferably in
writing.” (Emphasis sic.) However, the issue is not about limiting the scope of
representation. Respondent still represented Robinson in the Royal Homes case,
the very matter that he agreed to undertake. The settlement was not concluded.
This rule does not excuse an attorney for committing misconduct in representing
clients with conflicting interests.
        {¶ 25} Respondent represented Robinson in the Royal Homes case.
However, because the attorneys could not agree on the terms of a settlement in
that case, Robinson was unable to recover the proceeds from the settlement at a

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time when he needed the money. Consequently, Robinson asked respondent for
loans on two different occasions during the pendency of the litigation.
Respondent arranged two loans from his wife so that he could buy time by
reducing Robinson’s financial pressures, which allowed respondent to continue
negotiating the settlement. Under these particular circumstances, we find that
both loan transactions fell within the scope of respondent’s representation of
Robinson in the Royal Homes case.
       {¶ 26} Thus, respondent represented both his wife and Robinson in the
two loans.   Representing both the lender and the borrower within the same
transaction creates a conflict of interest. Columbus Bar Assn. v. Ewing (1992), 63
Ohio St.3d 377, 588 N.E.2d 783. And respondent acknowledged that he did not
advise Robinson to seek independent counsel for either loan, nor did he acquire
informed consent from Robinson. Indeed, this conflict resulted in respondent’s
suing his own client for the proceeds of the loan after respondent’s services were
terminated, and the loan was in fact repaid from the proceeds of the eventual
settlement, the very situation that Prof.Cond.R. 1.7 was designed to prevent.
Accordingly, we hold that respondent’s conduct created a conflict of interest in
violation of Prof.Cond.R. 1.7(a) and 1.7(b).
                                  III. Sanction
       {¶ 27} When imposing sanctions for attorney misconduct, we consider all
relevant factors, including the ethical duties that the lawyer violated and the
sanctions imposed in similar cases. Stark Cty. Bar Assn. v. Buttacavoli, 96 Ohio
St.3d 424, 2002-Ohio-4743, 775 N.E.2d 818, ¶ 16. In making a final
determination, we also weigh evidence of the aggravating and mitigating factors
listed in Section 10(B) of the Rules and Regulations Governing Procedure on
Complaints and Hearings Before the Board of Commissioners on Grievances and
Discipline (“BCGD Proc.Reg.”). Disciplinary Counsel v. Broeren, 115 Ohio
St.3d 473, 2007-Ohio-5251, 875 N.E.2d 935, ¶ 21.

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                      A. Mitigating and Aggravating Factors
       {¶ 28} In support of mitigation, respondent argues that he is retired and
does not intend to practice law again, and therefore our sanction should be limited
to a reprimand. While respondent claims that he has voluntarily decided to retire
from practicing law, he is currently registered as an active attorney with this
court. Unlike an attorney who has retired or resigned from the practice of law
pursuant to Gov.Bar R. VI(6), an act that is “unconditional, final, and
irrevocable,” Gov.Bar R. VI(6)(A)(1)(c), respondent could decide to begin
practicing again at any time. Therefore, respondent’s claim that he is retired will
not affect the sanction that we will impose.
       {¶ 29} In mitigation, the board found that respondent did not have any
prior disciplinary violations. BCGD Proc.Reg. 10(B)(2)(a). However, the panel
found the following aggravating factors: respondent committed multiple offenses
(BCGD Proc.Reg. 10(B)(1)(d)), he did not cooperate with the disciplinary process
(10(B)(1)(e)), he engaged in deceptive practices (10(B)(1)(f)), and he refused to
acknowledge the wrongful nature of his conduct (10(B)(1)(g)). We agree with all
the board’s conclusions regarding the mitigating and aggravating factors. It is
clear that respondent committed multiple violations and that he continues to deny
wrongdoing.
       {¶ 30} Further, respondent failed to disclose material facts in an attempt
to deceive the panel regarding the source of funds for the second loan to
Robinson. In response to relator’s interrogatory requesting a list of respondent’s
bank accounts, either personal or business, respondent answered that he had none.
However, when questioned regarding the source of the funds for the loans to
Robinson, respondent testified that he and his wife kept their accounts separate.
He contradicted himself again when he later said that his wife kept her accounts
separate, but he did not have any.

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                              SUPREME COURT OF OHIO

       {¶ 31} Finally, respondent’s interaction with relator’s counsel during the
investigation was at times uncooperative. For example, when relator’s counsel
inquired by e-mail about respondent’s failure to provide discovery in a timely
manner, respondent replied:
       {¶ 32} “Have you ever practiced trial Law? Do you have any familiarity
with the rules of discovery? Can you read and understand the English Language?
I do not believe that my cooperation requires me to correct your incompetence
and/or ignorance and/or do your work for you. We await any cogent, informed,
rational and fact base [sic] response which to date we have been denied.”
       {¶ 33} Accordingly, we find that the aggravating factors outweigh the
mitigating factors in this case.
                                   B. Case Law
       {¶ 34} In Cleveland Metro. Bar Assn. v. Podor, 121 Ohio St.3d 131,
2009-Ohio-358, 902 N.E.2d 488, an attorney represented clients in a personal-
injury case. During the litigation, the attorney, through his corporation, lent his
clients $19,800. We concluded that respondent had provided his clients financial
assistance in violation of former DR 5-103(B) (prohibiting a lawyer from
advancing financial assistance to client except in certain circumstances). We
imposed a one-year suspension of respondent’s license, with the entire suspension
stayed on conditions.
       {¶ 35} However, in the instant case, providing financial assistance to a
client was not respondent’s only disciplinary violation. Respondent also caused a
conflict of interest by representing both his wife and Robinson in the loan
transaction between his wife (the lender) and Robinson (the borrower). And in
fact, respondent, on behalf of his wife, eventually filed suit against Robinson to
recover the proceeds from the loans. We have held that an actual suspension is
appropriate when an attorney’s representation of multiple clients creates an actual

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conflict of interest. See, e.g., Cuyahoga Cty. Bar Assn. v. Newman, 102 Ohio
St.3d 186, 2004-Ohio-2068, 808 N.E.2d 375 .
                                  IV. Conclusion
       {¶ 36} In considering the sanction that we have imposed in similar cases,
the aggravating and mitigating factors in this case, and respondent’s conduct in
this case, including his uncooperative attitude and deceptive responses pertaining
to the investigation, we agree with the board that an actual suspension is
warranted.     Accordingly, we accept the recommendation of the board.
Respondent is therefore suspended from the practice of law for one year, with six
months stayed upon the conditions that respondent complete an additional six
hours of continuing legal education in ethics and office management and that he
not commit further disciplinary violations.      If he fails to comply with these
conditions, the stay will be lifted, and he will serve the full one-year suspension.
       {¶ 37} Costs are taxed to respondent.
                                                              Judgment accordingly.
       O’CONNOR, C.J., and PFEIFER, LUNDBERG STRATTON, O’DONNELL,
LANZINGER, CUPP, and MCGEE BROWN, JJ., concur.
                               __________________
       Kitch, Drutchas, Wagner, Valitutti & Sherbrook and Patrick B.
Cavanaugh; and Michael A. Bonfiglio, Bar Counsel, for relator.
       David R. Pheils Jr. and Marshall D. Wisniewski, for respondent.
                            ______________________

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