Caldwell v. State Bar

• Decision Date: 14 February 1975
• Citation: 13 Cal.3d 488,531 P.2d 785,119 Cal.Rptr. 217
• Court: California Supreme Court
• Parties: , 531 P.2d 785 Conrad C. CALDWELL, Petitioner, v. The STATE BAR of California, Respondent. L.A. 30328. In Bank

Page 217

119 Cal.Rptr. 217

13 Cal.3d 488, 531 P.2d 785

Conrad C. CALDWELL, Petitioner, v. The STATE BAR of California, Respondent.

L.A. 30328.

Supreme Court of California,

In Bank.

Feb. 14, 1975.

Rabern B. Prante, San Diego, for petitioner.

Herbert M. Rosenthal and Ronald W. Stovitz, San Francisco, for respondent.

BY THE COURT.

This is a proceeding to review a recommendation of the Disciplinary Board of the State Bar of California (Disciplinary Board) that petitioner be suspended from the practice of law for two years, the first year being actual suspension and the second year probation.

Petitioner was admitted to practice in California in 1938. He has no prior record of discipline.

In the mid-1950s petitioner befriended Mr. and Mrs. Philip R. Tarr, and began doing various legal work for them. Mr. Tarr had history of mental illness and had been committed intermittently to mental institutions, as petitioner was aware. The bulk of the Tarrs' assets was an inheritance held in trust for them in an eastern bank (the Mellon Trust), drawing interest at a modest rate. Petitioner, in addition to being a lawyer, held a real estate broker's license and had been engaged in the brokerage of trust deeds. In 1957 he advised the Tarrs to liquidate the Mellon Trust and invest locally in second trust deeds, telling them that by so doing they could earn 10 percent or more on their money.

Accordingly, between April 1958 and May 1962, by a series of partial revocations of the Mellon Trust, the Tarrs turned over to petitioner a total of $102,387.96. They furnished petitioner with a power of attorney, and entrusted him with the money for the sole purpose a investing in second trust deeds on their behalf. It is undisputed that petitioner did not reduce the agreement to writing, and failed to fully advise the Tarrs of their rights and obligations under the trust.

Beginning in July 1958 petitioner deposited the funds of the Tarrs in a trust account in a local bank. During the ensuing five years petitioner used that account to buy some 20 trust deeds on the Tarrs' behalf. After the first few transactions, however, petitioner did not inform the Tarrs of any such purchase, but simply acted on his own initiative without either prior or subsequent notice to his clients. Moreover, petitioner continued to use his power of attorney in such transactions even though he knew that Mr. Tarr had been recommitted to a state mental hospital. (Cf. Sullivan v. Dunne (1926) 198 Cal. 183, 192, 244 P. 343.)

Petitioner operated through at least two real estate brokerage firms incorporated by him and in which he held a beneficial interest, the Kensington Mortgage Company doing business as the San Diego National Mortgage Company, and the Tarr Investment Company. ¹ For present purposes we need not attempt to sort out the complex relationships between petitioner and these entities; it is enough to note that whenever petitioner purchased a second trust deed for the Tarrs' account one of these companies acted as broker and charged the seller a 10 percent commission for its services. Petitioner claimed at the hearings that he did not benefit personally from such commissions, and there is no evidence he did so directly. But he also testified that one-half of the profits of the companies went into an office account which paid petitioner's overhead expenses, his secretary's salary, and his rent. ² In addition, petitioner's wife acted as escrow agent and collected an escrow fee of $25 or $35 for each transaction. Petitioner did not inform the Tarrs of either of the latter indirect benefits he received from investing their trust funds. At the hearings petitioner conceded there was 'technically' a conflict of interest in this manner of discharging his duties as trustee.

Petitioner put the Tarrs' funds to three other uses which were the subject of disciplinary inquiry and findings. First, on at least six occasions he made what were in effect short-term loans to individuals in urgent need of cash by the device of purchasing their second trust deeds with Tarr funds and holding them until a buyer could be found. ³ From each such transaction petitioner's mortgage companies received a commission and his wife received an escrow fee. For this use of their money the Tarrs were supposed to receive a 'funding fee' of 1 percent a month or a minimum of $50; in almost every instance brought out in the testimony, however, petitioner conceded that fee had been 'overlooked.' None of these 'funding operations' was authorized by the Tarrs, who remained wholly ignorant they were taking place. Secondly, petitioner made two unsecured loans of Tarr funds to personal friends, in each case without the authorization or knowledge of the Tarrs. He lent $4,500 to his associates Roy Snyder and Peggy Kelly, receiving neither a promissory note nor security. He made no demand for repayment during the period in which he administered the Tarr trust, and the loan remained unpaid at the time the trust terminated in March 1963. Petitioner also lent a total of $7,700 of Tarr funds in three installments, to one Gerald Hol, a contractor who was a client of petitioner. Again petitioner received neither a promissory note nor, at that time, security. He made these loans despite his knowledge, as Hol's attorney, that Hol was unable to pay off a number of judgment creditors. Hol thereafter fled the jurisdiction and never repaid the loans. Petitioner admitted 'I was negligent in lending him the money,' and told the Tarrs he would make up the loss. With additional Tarr funds he had purchased second and third trust deeds on real property owned by Hol, in a belated effort to secure the original loan of $7,700. The second trust deed was in default at the time of purchase, and Hol never made any payments on the third. When Hol abandoned the property, petitioner made repairs with further Tarr funds and rented the house for income. In 1963 Mr. Tarr's son, on his father's behalf, foreclosed on the Hol property.

Thirdly, between 1958 and 1962 petitioner made six payments to himself out of the Tarr trust funds as fees for his legal services. The payments totaled $7,092.59, of which $382.62 was reimbursement of travel expenses on business of the Tarrs. It is not contended the amount of the fees was excessive. ⁴ But it is undisputed that (1) petitioner had no specific authorization from the Tarrs to pay himself fees out of the trust funds whenever he deemed he had earned them, and (2) petitioner never notified the Tarrs, either before or after doing so, of the amounts or times he thus paid himself. He claimed in his testimony that the 'full details' of such payments were discussed at a meeting in his office in July 1961 between himself, Mrs. Tarr, and Philip G. Tarr, Mr. Tarr's son and conservator. The latter testified, however, that at that meeting he specifically asked petitioner how he was compensated and how much he had been paid; according to the witness, petitioner declined to answer other than by saying, "I am not complaining,' and he smiled.' ⁵

Finally, throughout his management of the trust petitioner failed to maintain adequate books, and hence was never able to render a full accounting to the Tarrs. ⁶ Essentially petitioner's only records of all the trust transactions were his checkbook stubs and cancelled checks, the escrow files, and certain small ledger cards. Time and again in his testimony he was unable to produce appropriate written records of the transactions he described, finally admitting that 'I didn't keep too good books.' Philip G. Tarr testified that at the July 1961 meeting he asked petitioner for an accounting but did not receive any, either then or later. In July 1964 the Tarrs filed their civil action against petitioner for an accounting and for damages for breach of fiduciary duties; in that proceeding petitioner was still unable to produce satisfactory records and make a full accounting, and the court so found. ⁷

The local administrative committee made findings substantially in accord with the foregoing facts and concluded that petitioner had violated rules 4 and 9 of the Rules of Professional Conduct and thereby his oath and duties as an attorney (Bus. & Prof.Code, §§ 6067, 6068, 6103). The findings of the Disciplinary Board were essentially identical to those of the committee. Although petitioner does not expressly concede the issue of his culpability (compare Toll v. State Bar (1974) 12 Cal.3d 824, 826, 117 Cal.Rptr. 427, 528 P.2d 35), his petition for review does not attack either the conclusions of the local administrative committee or the principal findings of misconduct by the Disciplinary Board. He complains only of delays in the proceedings below, of certain alleged evidentiary errors, of the incompletencess of inaccuracy of a few of the findings of fact, and of the degree of discipline recommended.

In these proceedings, of course, petitioner has the burden of showing that the findings of the board are unsupported by substantial evidence. (Yokozeki v. State Bar (1974) 11 Cal.3d 436, 444, 113 Cal.Rptr. 602, 521 P.2d 858, and cases cited.) By failing to assume that burden petitioner may fairly be deemed to have conceded he is guilty of professional misconduct warranting discipline. Our review of the record leads us to the same conclusion. We therefore proceed to consider petitioner's specific contentions.

Petitioner asserts he was deprived of due process of law by the delay between the filing of the complaint against him in the State Bar proceedings (Nov. 26, 1963) and the ultimate issuance of the notice to show cause (Oct. 18, 1972). The first seven years of that delay, however, were occasioned by the disposition of the civil action filed against him by the Tarrs. At the preliminary investigation of January 23, 1964, the local committee suspended the proceedings against petitioner upon being advised such a lawsuit would be instituted. The suspension was...