BD. OF PROF. ETHICS & CONDUCT v. Wagner

• Decision Date: 09 September 1999
• Docket Number: No. 99-623.,99-623.
• Citation: 599 N.W.2d 721
• Parties: IOWA SUPREME COURT BOARD OF PROFESSIONAL ETHICS AND CONDUCT, Complainant, v. John C. WAGNER, Respondent.
• Court: Iowa Supreme Court

599 N.W.2d 721

IOWA SUPREME COURT BOARD OF PROFESSIONAL ETHICS AND CONDUCT, Complainant, v. John C. WAGNER, Respondent.

No. 99-623.

Supreme Court of Iowa.

September 9, 1999.

Mark McCormick of Belin Lamson McCormick Zumbach Flynn, P.C., Des Moines, for respondent.

Norman G. Bastemeyer, Charles L. Harrington, and David J. Grace, Des Moines, for complainant.

Considered by McGIVERIN, C.J., and LARSON, LAVORATO, NEUMAN, and SNELL, JJ.

LAVORATO, Justice.

This disciplinary proceeding is a textbook example of the pitfalls that await an attorney who decides to represent both the buyer and the seller in a large commercial transaction. The Iowa Supreme Court Board of Professional Ethics and Conduct alleged that, in representing both the buyer and the seller, attorney John C. Wagner failed to make full disclosures to the buyer as required by our disciplinary rules. The Grievance Commission found that the board had established the violations alleged, and it recommended a three-month suspension. After carefully reviewing the record, we concur in the commission's findings and recommendation. We therefore suspend Wagner's license to practice law in this state indefinitely with no possibility of reinstatement for three months from the date of this opinion.

We review the record de novo. Ct. R. 118.10. Generally, the board has the burden to prove allegations of misconduct by a convincing preponderance of the evidence; this burden is greater than that required in civil cases, but less than that required in criminal cases. Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Evans, 537 N.W.2d 783, 784 (Iowa 1995).

However, when a respondent represents a client whose interests differ from those of another client, or from the respondent's own interests, the burden shifts to the respondent to prove that all the transactions were fair and equitable. Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Sikma, 533 N.W.2d 532, 535 (Iowa 1995). Additionally, the respondent must prove that he or she

faithfully discharged all [the respondent's] duties to the [respondent's] client, not only by refraining [from] any misrepresentation or concealment of any material fact, but by active diligence to see that [the respondent's] client was fully informed of the nature and effect of the transaction proposed and of [the client's] own rights and interests in the subject matter involved, and by seeing to it that [the respondent's] client either has independent advice in the matter or else receives from [the respondent] such advice as the latter would have been expected to give had the transaction been one between [the respondent's] client and a stranger.

Id. at 535-36 (citation omitted).

I. Facts.

Upon our de novo review, we find the following facts. Wagner has practiced law in this state since 1979. He has offices in Amana, Marengo, and Cedar Rapids. For a period of time, he served as a part-time judicial magistrate. Wagner devotes at least twenty-five percent of his practice to business and real estate matters and does some domestic and personal injury work.

Before April 1995, Carl Oehl and his family operated a restaurant known as Colony Market Place in South Amana. Titles to the business and the real estate upon which the restaurant was located were in the name of Colony Market Place, Inc., a corporation whose shareholders included Oehl and his family. The restaurant had been in existence for twenty-eight years and included a gift shop and a specialty food line.

In December 1993, Oehl closed all but the gift shop and specialty food line and decided to sell the business. He listed the property for six months with a Cedar Rapids Realtor, and his asking price was $475,000. Oehl received no offers during the listing.

Oehl then listed the property with Great Western, a national organization dealing primarily with the sale of restaurants. Great Western had an appraisal firm, The Fisher Business Group, appraise the property. The Fisher Business Group appraised the property at $750,000. Oehl listed the property at this figure for eight months without success. He then dropped the price to $600,000, but he still had no success.

In February 1995, Oehl and Wagner agreed that, if Wagner found a buyer and would represent Oehl in the sale, Oehl would pay him a commission of ten percent of the gross sale price as compensation for all of Wagner's services. If the property were sold on contract, Wagner was to receive ten percent of the down payment and ten percent of each payment on principal until the purchase price was paid in full.

Shortly thereafter, Wagner and his intern, Jeff Ritchie, visited the restaurant, viewed the appraisal, and reviewed the books and records of the business. Ritchie then prepared a sales brochure listing the asking price at $600,000. At one place in the brochure under the heading, Financial Information, appear the words "assurance of a profitable operation" and "a low risk factor for new ownership." Apparently, Oehl prepared this part of the brochure. Between March 16 and April 18, Ritchie contacted a number of people about buying the business but was unsuccessful in receiving any offers.

On April 18 David Childers met with Wagner at Wagner's Amana office to gather information about Oehl's restaurant. Childers knew that the restaurant had been closed for about fifteen months, but he did not know whether the restaurant was for sale. (At the time, Childers was a kitchen manager at another local restaurant.) Childers went to Wagner because Wagner had represented him in the past and Wagner was the only attorney he knew.

In that first meeting, Childers discussed buying the restaurant and starting his own business. He offered that he had never owned a business and had limited financial resources. Wagner told Childers that he represented Oehl in regard to the sale of Oehl's restaurant, but he could not be involved in negotiating a purchase price. Wagner also told Childers that it may be in his best interest to have independent counsel, but he did not explain why. And Wagner never mentioned he would receive a ten percent commission if he found a buyer for the restaurant. Additionally, Wagner mentioned that Childers could have his own appraisal but this would cost $1000 to $2000. Wagner, however, did not advise Childers that he ought to pay the money and obtain the appraisal. Wagner charged Childers for this meeting and for all subsequent work he did for Childers.

The following day Childers signed a confidentiality agreement regarding any financial information he learned about Oehl's restaurant and received a copy of the sales brochure. Wagner and Ritchie then accompanied Childers to Oehl's restaurant to meet Oehl and view the restaurant.

On the same day, Wagner began making inquiries to a local bank about financing for Childers. Those efforts continued for several more days and resulted in the bank agreeing to finance a portion of the purchase price. Wagner prepared several documents the bank required as a condition for the loan. One of the documents was a subordination agreement for which he charged Childers one-half of the preparation time because the services benefited both Childers and Oehl. Apparently, the bank required the titleholder to subordinate its vendor's interest to the bank's loan to Childers.

Childers and Oehl agreed to a purchase price of $400,000 with a down payment of $150,000. Wagner prepared the offer to buy, which included these amounts. After Childers signed the offer on April 24, Wagner presented it to Oehl that evening. Oehl wanted some additional terms that Wagner included in a counteroffer. Childers accepted the counteroffer the next day. On the same day, Wagner and Oehl amended their fee agreement, reducing the total amount of compensation from $40,000 to $37,500 and providing that Wagner receive $30,000 immediately instead of $15,000 and the balance a year later.

Two days after the counteroffer was signed, Wagner sent a congratulatory letter to Oehl and Childers in which he stated:

I know I have repeatedly explained my legal ethics to all of you as this matter progressed, but I want to reiterate that I have represented all of you in the past. In regard to this transaction, it is my opinion that I can continue to provide representation to the Oehl family and to the Childers family as long as you are fully informed of such representation, and as long as there are no controversies. This will also confirm that I took no part with either of you in the development of the purchase price amount or any negotiations relating thereto.

Wagner invited responses only if either party disagreed with these representations.

Wagner prepared the documents for closing, which included required real estate filings, a title opinion to Childers, the real estate contract between the parties, and closing statements for both parties. The closing took place on May 26. Oehl's closing statement disclosed Wagner's commission, but Childers' statement did not. Childers never received a copy of Oehl's closing statement.

In his title opinion to Childers, Wagner wrote:

Prospective purchasers are also advised that the title examiner also represents the seller on this transaction. Buyers are advised that such representation is a conflict of interest as the interest of the parties are different and likely adverse. Buyers are advised that it would be prudent for them to consult with other counsel concerning this opinion.

To complete the purchase, Childers borrowed the $150,000 down payment from the bank; $50,000 of this amount was secured by a mortgage on his home and $100,000 was secured by the business. Additionally, Childers borrowed $54,000 as working capital from his brother.

Childers took possession of the restaurant on May 26. The first contract payment of $9375 was due December 31. Childers only paid $6000 of that payment. Childers asked Wagner for help regarding his financial problems. In response, Wagner tried to...