Committee on Professional Ethics and Conduct of the Iowa State Bar Ass'n v. Wunschel, 90-112

• Decision Date: 17 October 1990
• Docket Number: No. 90-112,90-112
• Citation: 461 N.W.2d 840
• Parties: The COMMITTEE ON PROFESSIONAL ETHICS AND CONDUCT OF THE IOWA STATE BAR ASSOCIATION, Appellee, v. Russell S. WUNSCHEL, Appellant.
• Court: Iowa Supreme Court

Page 840

461 N.W.2d 840

The COMMITTEE ON PROFESSIONAL ETHICS AND CONDUCT OF THE IOWA STATE BAR ASSOCIATION, Appellee, v. Russell S. WUNSCHEL, Appellant.

No. 90-112.

Supreme Court of Iowa.

Oct. 17, 1990.

Rehearing Denied Nov. 26, 1990.

Mark McCormick and Margaret C. Callahan of Belin, Harris, Helmick, Lamson & McCormick, P.C., Des Moines, for appellant.

Charles L. Harrington, Des Moines, for appellee.

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

NEUMAN, Justice.

This is an appeal by attorney Russell Wunschel, and a cross-appeal by The Committee on Professional Ethics and Conduct of the Iowa State Bar Association (hereinafter "Committee") from findings of fact and a disciplinary sanction recommended by a division of the Grievance Commission. The proceedings arise out of Wunschel's involvement in the lease/sale of a Clinton, Iowa motel owned by his wife, Lois, to tenants/purchasers Ron and Zelda Noyes. In a nutshell, the case presents a lesson in how a prudent lawyer ought not to act when consummating a $2 million real estate transaction with strangers who appear to be unrepresented by counsel. We publicly reprimand Wunschel for his failure to uphold the high standards of the legal profession.

I. Background facts and proceedings. The facts giving rise to this controversy are described at length in this court's opinion concerning Wunschel's appeal from civil litigation spawned by the same circumstances, Cornell v. Wunschel, 408 N.W.2d 369 (Iowa 1987). ¹ We stress at the outset, however, that the record developed in Cornell differs significantly from the record made in these disciplinary proceedings. In particular, the evidence of nondisclosure of material financial data which we found sufficient to sustain a claim of fraudulent misrepresentation in Cornell, see id. at 374, was largely discredited by expert accounting testimony in the present case. Therefore, although the relationship of the parties and Wunschel's corresponding professional duty are still very much at issue, the context in which we consider these competing claims appears far less egregious than one might assume from reading Cornell.

The case centers on negotiations leading up to the lease of a 100 unit motel in Clinton, Iowa known as the Clinton House. The motel was owned by a corporation whose sole shareholder was Lois Wunschel, wife of attorney Russell Wunschel. The Wunschels had invested in a number of motels through the years and had purchased the Clinton House in 1978 for $1,350,000. Russell Wunschel, who has practiced law in Carroll, Iowa for over thirty-five years, handled all the legal and financial affairs related to these investments.

In late October 1980, a motel broker named Richard Snyder contacted Wunschel about Ron and Zelda Noyes' interest in the Clinton House. The four of them met at Wunschel's office in Carroll. At the meeting, the Noyes requested information on the income and expenses of the motel since December 1979. The record discloses that Wunschel gave them all the financial information they sought concerning the motel's day-to-day operation. The Noyes did not ask for, and Wunschel did not volunteer, information about his sizable infusion of personal savings to reduce debt related to capital expenditures at the motel.

Following the meeting, the Noyes and Snyder reportedly pored over the financial statements given them by Wunschel in an effort to determine whether purchasing the motel would be a profitable venture. With Snyder's encouragement, the Noyes made an offer to purchase the motel for $1.8 million. The proposed down payment was Zelda Noyes' vendor's interest in a contract on a smaller motel. Wunschel rejected the offer because it included no cash down payment. Zelda Noyes was apparently annoyed with Snyder over this rejection because she claimed he led her to believe Wunschel was interested in such a deal.

What happened next is hotly contested. Zelda claims that Wunschel called them in Arkansas, urging them to come back up to Iowa and stating that if they really wanted the motel they could work something out. Wunschel steadfastly denies he made such a call; he asserts Ron called him. Ron's testimony on the matter is ambivalent.

In any event, Ron and Zelda drove back to Iowa from Arkansas and met with Wunschel in his law office on November 2, 1980, a Sunday afternoon. Dissatisfied with Snyder, the Noyes had decided to negotiate the deal themselves. As it turned out, Zelda and Ron both had realtor's licenses and considerable experience in operating, buying, and selling motels. Zelda had owned and operated the Cheery Motel in Ottumwa, Iowa for seven years before it was sold on contract in 1979. That same year she and Ron assigned their vendor's interest in the Cheery Motel contract as a down payment to buy the Twin Torches Inn in Waterloo. The Noyes' contract for the Twin Torches Inn was rescinded in June 1980. Ron had also purchased and failed in the operation of the Hub Motel in Bethany, Missouri, early in 1980. In sum, the Noyes portrayed themselves as optimistic and eager buyers with substantial experience in real estate as well as motels, but neither revealed to Wunschel their true track record in such financial matters.

At the Sunday meeting the discussion centered on the concept of a lease/purchase rather than outright sale of the motel. This would enable the Noyes to acquire the motel without a cash down payment. It would also save Wunschel a sizable real estate commission, retain a $75,000 per year write-off for depreciation, and postpone capital gains liability. As part of the deal, Wunschel agreed to pay for $80,000 in planned refurbishing of the motel's rooms and lobby.

Wunschel drafted a five-year lease calling for monthly payments of $13,500 plus five percent of gross sales in excess of $480,000. The lease further provided that at its expiration the Noyes were obligated to purchase the motel for a sum equal to the greater of $2 million or four and one-half times the previous two years' annual gross receipts. In a separate document drafted by Wunschel, the Noyes assigned to Lois Wunschel their interest in the Cheery Motel contract to cover the first and last months' lease payments. Wunschel placed a discounted value of $80,000 on this contract which had a remaining principal balance of $165,000.

The documents drafted by Wunschel on Sunday were picked up by the Noyes on Monday morning. They returned to Wunschel's office the following Wednesday to close the transaction. Wunschel did not inquire, and the Noyes did not state, whether they had discussed the transaction with independent counsel in the meantime.

Ron and Zelda took possession of the motel on November 15, 1980. Due to a combination of general mismanagement and marital strife, the operation was in financial straits by April 1981. In an effort to stave off an eviction, Zelda sued Wunschel for breach of contract. Her pleadings made no claim of fraud or misrepresentation. A dispute over venue led to an interlocutory appeal. See Cornell v. Wunschel, 329 N.W.2d 651 (Iowa 1983). Following remand, Zelda amended her petition in 1984 to charge Wunschel with fraud for misrepresenting the motel's financial position. In 1986, a jury awarded a substantial verdict in Zelda's favor. We reversed due to error in the damage instructions and remanded for a new trial. Cornell, 408 N.W.2d at 382.

With retrial pending, Zelda filed an ethics complaint against Wunschel in August 1987. Wunschel promptly responded and denied all allegations of misconduct. The civil litigation was settled without retrial in March 1988. One year later, in March 1989, the Committee filed its formal complaint against Wunschel. The Committee charged Wunschel with violating EC 1-5 (duty to maintain high standards of professional conduct), DR 1-102(A)(1), (4), and (6) (prohibiting conduct involving dishonesty, fraud, deceit, or misrepresentation or any other conduct adversely reflecting on fitness to practice law), and nearly all of Canon 5 of the Iowa Code of Professional Responsibility for Lawyers (requiring a lawyer's independent professional judgment on behalf of a client).

Based on evidence developed at the hearing in this matter, the Committee was allowed (over Wunschel's objection) to assert additional violations of EC 7-18 and DR 7-104. These provisions require that a lawyer not communicate with a party known to be represented by another lawyer or, when dealing directly with an unrepresented party, require that the lawyer give no advice to the unrepresented party except the advice to obtain a lawyer. The Committee also belatedly charged Wunschel with violating the lawyer's duty under EC 9-6 to maintain the integrity of the profession by avoiding even the appearance of impropriety.

The Grievance Commission concluded that the Committee failed to sustain its burden of proving the existence of an attorney-client relationship between Wunschel and the Noyes, thereby eliminating any violation of the conflict-of-interest provisions of Canon 5. The Commission further found that because the Noyes had no attorney at the time of the transaction, Wunschel could not have violated DR 7-104(A)(1)'s prohibition against communicating directly with a party known to be represented by counsel. The Commission made no finding about the scope of Wunschel's communication with the Noyes given their unrepresented status.

Notwithstanding the foregoing conclusions, the Commission found that Wunschel "deliberately orchestrated, practiced and tolerated a series of circumstances which misled or could reasonably be expected to mislead the buyers into passive trust in his efforts in order to secure an unfair gain for himself and/or his client" in violation of EC 1-5 and DR 1-102(A)(4). For this misconduct, the Commission recommended we suspend Wunschel's license to practice law for six months. It is from these findings and recommended sanction that Wunschel appeals....