Conduct of Johnson, In re

• Decision Date: 17 September 1985
• Citation: 707 P.2d 573,300 Or. 52
• Parties: , 54 USLW 2230 In re Complaint as to the CONDUCT OF Rees C. JOHNSON, Accused. OSB 81-83; SC S30430.
• Court: Oregon Supreme Court

Page 573

707 P.2d 573

300 Or. 52, 54 USLW 2230

In re Complaint as to the CONDUCT OF Rees C. JOHNSON, Accused.

OSB 81-83; SC S30430.

Supreme Court of Oregon,

In Banc.

Argued and Submitted Nov. 6, 1984.

Decided Sept. 17, 1985.

[300 Or. 53] Thomas E. Cooney, Portland, argued the cause for the accused. With him on brief was Cooney, Crew & Wihtol, Portland.

Lawrence Wobbrock, Portland, argued the cause for the Oregon State Bar. With him on brief were Dana R. Taylor and George A. Riemer, Portland.

[300 Or. 54] PER CURIAM.

Upon the complaint of Gerald Smith (Smith), a former client, the accused was charged by the Oregon State Bar with conflicts of interest and assisting his client in illegal or fraudulent conduct. The amended complaint listed five charges in three causes of complaint. The first cause related to transactions between Tri-Chem Corporation (Tri-Chem) and Merchants Building Maintenance, Inc. (Merchants) in 1978. The Bar alleged that the accused violated DR 5-105: ¹ (1) by representing both the buyer and seller in a land sale contract; and (2) by representing Victor King (King), Smith, Tri-Chem and Merchants in connection with the sale and transfer of stock. The second cause related to the land sale contract between the two corporations. The amended complaint alleged that the accused violated DR 7-102(A)(7) and DR 7-102(B)(1): ² (1) by "preparing, notarizing The Trial Board found ³ the accused guilty of the first charge in the first cause but not guilty of any other charge and recommended a public reprimand. The Disciplinary Review Board found the accused not guilty of any charge. The Bar sought review by this court of that decision pursuant to ORS 9.536.

and filing" a real estate contract signed by King as president of Tri-Chem when the accused knew or should have known that King was not the [300 Or. 55] president of Tri-Chem; and (2) by failing to inform Smith and Tri-Chem of the land sale contract when the accused knew or should have known that Smith was the president of Tri-Chem. The third cause involved unrelated litigation in which Smith and King were defendants. See In re Shannon, 297 Or. 168, 681 P.2d 794 (1984). The Bar alleged that the accused violated DR 5-105 by representing both Smith and King when the clients' interests were adverse or potentially adverse without obtaining the clients' consent to such representation after full disclosure of the adverse or potentially adverse interests and the conflict of interest for the accused in representing both men. The accused denied all the charges.

Because the complaint in this case was filed in 1982, we review pursuant to Rule 48 of the Oregon State Bar Rules of Procedure Relative to Admission, Discipline, Resignation and Reinstatement in effect at that time. Bar Rule 1.5. This court makes an independent review of the evidence to determine whether the presumption of the accused's innocence has been overcome by clear and convincing proof that a violation of a disciplinary rule has occurred. In re Chambers, 292 Or. 670, 672, 642 P.2d 286 (1982). "Clear and convincing evidence means that the truth of the facts asserted is highly probable." Supove et al v. Densmoor et ux, 225 Or. 365, 372, 358 P.2d 510 (1961).

We find the following to be the pertinent facts. The accused represented Smith and King as clients for several years prior to the incidents leading to these charges. Smith and King had conducted business together in the purchase, operation, and sale of janitorial accounts in California and Oregon since 1960. Both men owned and presided over several different business enterprises, including the corporations Tri- Chem and Merchants. At varying dates, Smith or King held different ownership interests and corporate positions in these two corporations. Both men actually operated much as a partnership, dividing the profits of numerous enterprises, without much regard for their status in any one of the enterprises at a given date. With Smith's approval, King was the up-front man, who made contact with people, including the lawyers, for the enterprises. Smith was the organization man, who stayed behind the scenes and insured that their enterprises operated efficiently. Ordinarily, the accused dealt with King, and not with Smith. Although the accused occasionally made attempts to involve Smith directly in the legal activities of the corporations, Smith generally declined to participate. Ordinarily, Smith and King would reach their agreements in private and King would inform the accused or members of the accused's firm of the business decisions and what documents were required. Neither Smith nor King took the accused or members of the accused's firm into their The accused represented Tri-Chem and Merchants. He had filed the articles of incorporation for both corporations. Tri-Chem was originally incorporated to market a cleansing solution. King initially owned 85 percent of the stock and a third party owned 15 percent of the stock and was president. In November 1976, Smith was "appointed" president of Tri-Chem but King retained 85 percent of the stock. A document attesting the appointment, dated December 12, 1976, was found in the files of the accused's law firm. On November 28, 1976, Tri-Chem purchased some real property, which property is the financial focal point of the several charges, with a residence for King situated thereon. Smith signed as president of Tri-Chem, the buyer. The real property, known as the Eagle Creek property, was Tri-Chem's sole asset.

confidence as to the inner workings of the businesses.

Merchants operated a janitorial service. Smith had been president and sole shareholder in Merchants, but in August 1977, he sold his stock to King. King became president of Merchants at that time.

In May of 1978, the accused, at the request of King, prepared new stock certificates showing ownership of 100 shares of stock in Tri-Chem in the name of Smith. The accused was not informed whether the stock transfer had been accomplished. Also in May of 1978, Smith left a telephone message at the office of the accused requesting preparation of a lease option for the Eagle Creek property from Tri-Chem to King, which document was prepared. The accused never was informed whether the document was executed. On October 13, 1978, upon the instruction of King, the accused prepared a contract of sale which contracted to convey the Eagle Creek property from Tri-Chem to Merchants. King informed the accused that he, King, was then the president of both Tri-Chem and Merchants. King signed the contract as president of each corporation and the accused took his acknowledgment. The accused caused the contract to be recorded. The accused represented King, Tri-Chem and Merchants as clients in this transaction. The accused did not know that King was not the president of Tri-Chem on October 13, 1978. It was common for Smith and King to change the ownership and officers in various corporations without informing the accused.

A document found in the accused's law firm's files indicates that on November 6, 1978, the accused wrote Smith enclosing the original corporate records of Tri-Chem and informing Smith that the accused could no longer represent him due to a possible conflict of interest. The October 13, 1978, contract of sale was not included among the enclosures.

FIRST CAUSE OF COMPLAINT

The first charge of the first cause of complaint alleged that the accused represented King, Smith, Tri-Chem and Merchants until November 1978, and that Smith and King had interests in Tri-Chem and Merchants which were adverse or potentially adverse in respect of the October 13, 1978, land sale transaction. This conduct was alleged to have been unethical and in violation of DR 5-105, which provides, in pertinent part:

"(B) A lawyer shall not continue employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by his representation of another client, except to the extent permitted under DR 5-105(C)."

Since its adoption by this court in 1970, DR 5-105 has undergone a judicially-crafted metamorphosis. For instance, one aspect of this rule that is not readily apparent from the precise wording of the rule is the concept of "conflicts of interest." The rule is couched in terms of the effect upon the exercise of the lawyer's independent judgment but has been interpreted to concern conflicts of interest which, in turn, in this rule, are measured by the conflict ⁴ between Further, disciplinary opinions of this court have developed levels of conflicting interests of clients, to which different requirements upon the lawyer apply. The actual, likely or unlikely conflict of interest between two clients determines the appropriate action by the lawyer:

the interests of two or more existing clients (a so-called "open file" conflict). See In re Brandsness, 299 Or. 420, 423, 702 P.2d 1098 (1985); In re Thorp, 296 Or. 666, 677, 679 P.2d 857 (1984), and In re Banks, 283 Or. 459, 476-77, 584 P.2d 284 (1978).

1. Actual Conflict. For some years, this court has recognized a distinction between an actual conflict and a potential conflict. In the case of In re Porter, 283 Or. 517, 523, 584 P.2d 744 (1978), drawing upon the language of DR 5-105, we observed that:

" * * * if the representation of multiple clients is such that the lawyer's independent professional judgment on behalf of one client will be adversely affected (an 'actual conflict'), or is likely to be adversely affected (a 'potential' conflict), the representation is improper unless the exception provided in DR 5-105(C) applies." (Emphasis in original.)

Thereafter, in the case of In re Jans, 295 Or. 289, 666 P.2d 830 (1983), we interpreted DR 5-105 flatly to prohibit the representation of multiple clients who have an actual, as opposed to a potential conflict. We said: "It is never proper for a lawyer to represent clients with conflicting interests no...