Banks, In re, 25221

• Decision Date: 12 September 1978
• Docket Number: No. 25221,25221
• Citation: 584 P.2d 284,283 Or. 459
• Parties: , 1 A.L.R.4th 1105 In re complaint as to the conduct of Roland F. BANKS, accused. In re complaint as to the conduct of Douglas M. THOMPSON, accused. SC
• Court: Oregon Supreme Court

Page 284

584 P.2d 284

283 Or. 459, 1 A.L.R.4th 1105

In re complaint as to the conduct of Roland F. BANKS, accused.

In re complaint as to the conduct of Douglas M. THOMPSON, accused.

SC No. 25221.

Supreme Court of Oregon, In Banc.

Argued and Submitted March 6, 1978.

Decided Sept. 12, 1978.

[283 Or. 460-A] Richard F. Deich, Portland, argued the cause for Oregon State Bar. With him on the brief were Grover C. Dahn and Robert L. Dressler, Portland.

W. V. Deatherage, Medford, argued the cause for the accuseds. With him on the brief were Frohnmayer & Deatherage and Karen C. Allan, Medford.

Before HOLMAN, P. J., and HOWELL, BRYSON, LENT and LINDE, JJ.

PER CURIAM.

This is a combined disciplinary proceeding brought by the Oregon State Bar against two of its members. The accuseds are partners in a large firm, the accused Thompson being in the firm's business department, and the accused Banks being in its litigation department. The charges against both arise out of legal business transacted for United Medical Laboratories, a corporation (UML), its board of directors, its officers, the members of the family who owned the corporate stock, and a corporation competing with UML. As would be anticipated, the facts are complicated.

UML was engaged in operating a medical testing laboratory, a large amount of whose business was done by mail. Its creator, organizer, founder, chief executive, and driving force was R. S. Michel. The stock was originally owned solely by Michel and his wife, but, through subsequent estate planning, successive gifts of stock were made to two daughters, resulting ultimately in 29 shares each being owned by Michel and his wife and 21 shares each being owned by the daughters. However, Michel was a completely dominating force and ran the business as his private fief.

The business was tremendously successful. From its start in the basement of a private home, it grew to employ in excess of 1,500 people and to become the largest user of the mails in Oregon and one of the larger users of the telephone. The accuseds' firm began its representation of the Michels and their business in 1965. Most of the transactions out of which the present charges arise occurred in 1972. At that time the legal business of both the corporation and the Michel family was one of the substantially lucrative accounts possessed by the firm of which the accuseds are members. Thompson did estate planning, will drawing and other private business for Mr. and Mrs. Michel, as well as representing the corporation in its business transactions; Banks handled UML's litigation. Because of the identity of interests, corporate and private, all legal services were billed to the corporation regardless of whether the work performed was corporate or private.

The board of directors of UML was composed of Mr. and Mrs. Michel and their two daughters. Michel was president and Mrs. Michel held various offices in the corporation. There is no record of any dividends ever having been paid. Michel had a 10-year employment contract with the corporation whereby he received a percentage of the Gross income of the corporation. There is no evidence of any income to anyone else except for the possibility of a salary to Mrs. Michel. Michel was thus in a position to assure himself of substantially all immediate benefits from the operation of the corporation. The employment agreement between Michel and the corporation was entered into in 1967 and was drawn by Thompson. By 1972 both daughters were grown and married. One lived in Seattle, where her husband was a professor at the University of Washington, and the other lived in Portland, where her husband was employed by UML.

UML's equipment was owned by a separate corporation, UML Leasing (Leasing), which leased it to UML. Leasing was owned by the Michel family and was controlled by Michel in the same manner as was UML. The real property used by UML was owned by a UML employee profit sharing trust which leased it to UML. Thompson was a trustee of the profit sharing trust, as was Michel.

UML had non-competition contracts with its salesmen and with most of its administrative personnel. The contracts were not originally drawn by the accuseds' firm. However, Banks engaged in considerable litigation for the corporation in the enforcement of these contracts and from time to time would suggest changes in the form of the contracts as his experience in their enforcement dictated.

Because of the rapid growth of the corporation, some unsuccessful ventures, and difficulty in operating an expensive computer effectively, the corporation became short of operating funds. By 1972 it was in debt to a bank for approximately $3,000,000 and was dependent upon the continued advancement of operating funds from the bank. In addition, it had many past-due bills. The bank was becoming progressively more demanding about a refinancing of the corporation or its sale so it could be reimbursed for the money it had advanced.

In an effort to relieve the pressure and to break the logjam caused by the computer, Michel directed the computer technicians to remove certain limits or safeguards from the computer which had been set by the medical directors employed by the corporation. As a result, 60,000 test results were spewed out, the accuracy of which was doubted by the medical directors. As a consequence of this action, high level employees became concerned about the moral aspect of the accuracy of the published test results as well as their personal responsibility therefor and were threatening to go to the federal agencies which licensed and regulated medical testing laboratories. Mrs. Michel's and her daughters' concerns about the removal of the computer safeguards and about the solvency of the company and its ability to meet its debts caused, for the first time, a confrontation between Michel and the members of his family. For the first time his absolute control was questioned. As a result, Michel made the tactical mistake of physically assaulting his wife.

On the morning of July 4, 1972, after having been assaulted by her husband, Mrs. Michel promised to assign her stock to him. As a result, Michel called Thompson to his home early in the morning to have him arrange the stock transfer. Before Thompson arrived Mrs. Michel had slipped away from her husband and had gone to the home of the daughter who lived in Portland. Also present there were the other daughter, who had come down from Seattle, and an attorney from New York City, who had been called for consultation by the daughter from Seattle. Michel, having missed his wife, went to the daughter's home and, in the ensuing imbroglio, made a physical assault upon the Seattle daughter. Michel then returned to his home and directed Thompson, who in the meantime had arrived, to go to the daughter's home to see what was going on. Thompson went to the daughter's home and spent considerable time with the New York lawyer and the other members of the Michel family talking over the difficulty which was presented. The creation of a voting trust for the corporate stock was discussed, but there was no indication at that time that such a trust, if created, would not include all the stock of the corporation.

Subsequently, on July 6, at a stockholder's meeting, the New York attorney presented the right to vote the stock of both Mrs. Michel and the two daughters pursuant to an irrevocable voting trust which they had created, and a new board of directors was elected which retained Michel as a member of the board but substituted new directors in place of the other members of the family. This was an attempt by the other members of the family to curb Michel and at the same time to isolate themselves from constant confrontation with him, since they did not feel they could emotionally withstand such confrontation. Mrs. Michel went into hiding. The new board permitted Michel to remain as president and executive officer but attempted to institute stringent controls on his authority. A voting trust without the inclusion of Michel's stock came as a surprise to both Michel and Thompson.

This status existed about a month, with Michel and the board at odds and with the situation gradually deteriorating. Thompson continued to advise Michel as the executive head of the organization, and he also advised other members of the board regarding their problems, which Michel took as a display of disloyalty to him. On August 2, the board put Michel on a leave of absence. Thompson then told Michel he could no longer advise him and that he would have to secure other counsel for this purpose.

The bank requested, as a condition of continuing to advance operating money, that Leasing subordinate its claims against UML for rent on equipment to the indebtedness of the bank. Michel still controlled Leasing, as it had not been made subject to the voting trust created by the other members of the family; he refused to so subordinate the debt. Pursuant to a request of the board, Banks rendered an opinion to it that Michel's failure to cooperate in subordinating Leasing's claim for rent constituted a violation of Michel's employment contract with UML. Ultimately, Michel did subordinate Leasing's claims to the bank's loans.

After Michel was relieved as executive officer, he made up with his wife who, as a result, had a change of heart and decided she had made a mistake in establishing the voting trust. Though the accuseds claim otherwise, the plain inference is that under Michel's guidance she sought separate legal counsel and commenced litigation challenging both the legality of the voting trust and the election of the new board of directors. This put her in conflict with her daughters, who had joined with her in the formation of the voting trust. The defendants in the litigation were the daughters, the trustees of the voting trust and the new board of directors for UML. UML was not a defendant. At the request of the board, the...