Conduct of Kinsey, In re
| Decision Date | 08 March 1983 |
| Docket Number | No. OSB,OSB |
| Citation | 294 Or. 544,660 P.2d 660 |
| Parties | In re Complaint as to the CONDUCT OF William H. KINSEY, Accused. 80-49; SC 28742. |
| Court | Oregon Supreme Court |
Jack L. Kennedy, of Kennedy & King, Portland, argued the cause and filed the brief for the accused.
Garry P. McMurry, Portland, argued the cause for the Oregon State Bar. With him on the brief were Ronald L. Wade and Rankin, McMurry, VavRosky & Doherty, Portland.
Before LENT, C.J., LINDE, PETERSON, CAMPBELL, ROBERTS and CARSON, JJ., and JONES, J. Pro Tem.
This is a disciplinary proceeding brought by the Oregon State Bar against William H. Kinsey, who practiced law in a large firm's business department. He has been a member of the Oregon State Bar since 1948. This case interprets disciplinary rules involving the ethical duty of a lawyer when confronted with employment by clients having conflicting interests.
The complaint contains three charges. The first two allege that the accused accepted and continued in the employment of clients having conflicting interests, in violation of DR 5-105(A) and (B). The third charge alleges that the accused violated DR 5-102(A) by defending his clients in a stockholder derivative suit when it was obvious that the accused ought to have been called as a witness on behalf of his clients.
After considering the evidence admitted at the hearing and the arguments of counsel, a majority of the trial board found the accused guilty of the second charge, but not guilty on the first and third charges. The majority recommended a penalty no more severe than a public reprimand on the second charge.
The Disciplinary Review Board found the accused not guilty of all charges. We make the following findings based on our independent review of the evidence. In re Robeson, 293 Or. 610, 629, 652 P.2d 336 (1982); In re Chambers, 292 Or. 670, 642 P.2d 286 (1982); In re Galton, 289 Or. 565, 615 P.2d 317 (1980).
Kim Lundgren and F.R. Klinicki had become friends while serving as fellow employees of Pan American Airways, piloting aircraft to and from Berlin. They took leave from their Pan American Airways employment to seek entry into the air carrier market in Berlin through an air taxi service. They hoped to expand this initial service into a more substantial and regular air carrier business. Kim Lundgren's father, Leonard Lundgren, an Oregon businessman, was invited to join the venture. It was agreed that a corporation should be formed in which Kim Lundgren and his father would combine as stockholders with F.R. Klinicki.
The accused and his Portland law firm had previously represented Leonard Lundgren in several tax and business matters. In 1977, the Lundgrens, with the consent of Klinicki, employed the accused and his firm to organize a corporation called Berlinair, Inc. (Berlinair) and to act as its corporate counsel. Klinicki knew that the accused and his firm had represented Leonard Lundgren on previous matters.
The accused and his firm organized Berlinair as an Oregon corporation in 1977. Kim Lundgren was initially the sole subscriber of all capital stock of the corporation, but the corporation's capital stock was eventually issued in 1978 to Kim Lundgren (100 shares), Lelco, Inc., a corporation whose stock was entirely owned by the two Lundgrens (100 shares), F.R. Klinicki (100 shares), and the accused (3 shares). The accused, the Lundgrens, Kim Lundgren's spouse and Klinicki were the five directors of the corporation at this time.
When Berlinair was organized, all stockholders understood that its initial purpose would be to operate an air taxi service in and out of Berlin, but with the further intent of using this service as a foothold for gaining more substantial business as an air carrier to and from Berlin.
In 1978, Berlinair applied for rights as an air carrier between Berlin and Saarbrucken, West Germany. The plan was to obtain the rights first, and then use the governmental grant of these rights as a means of obtaining financing to acquire the aircraft and equipment needed to perform the service. On May 30, 1978, the accused as counsel to the corporation traveled to Germany to assist in presenting an application to the air attaches of the United States, Great Britain and France. The attaches made it known that a financing commitment would be required before they would consider Berlinair's application.
While on his trip to Berlin, the accused was told by the Lundgrens that they were considering the possibility of obtaining an advance financing commitment using the personal guaranties of Leonard Lundgren. The accused also knew that Leonard Lundgren would not give a guaranty for the debt of a corporation in which the minority stockholder, Klinicki, had preemptive rights to future stock issued by the corporation.
On June 1, 1978, during an informal dinner at the Journalist Club in West Berlin attended by Kim Lundgren, Klinicki and the accused, the possibility of organizing a separate corporation to pursue the Saarbrucken application with an advance financing commitment was discussed. Klinicki said that he wanted equivalent ownership participation in any such new corporation. While the discussion at this time was in the context of the Saarbrucken application the accused understood that Klinicki's position would be the same as to any other opportunity for air service in and out of Berlin that might arise in the future.
The evidence is in conflict as to whether the accused assured Klinicki that he would have the right to equivalent ownership in any such new corporation. Klinicki testified the accused so advised him at the Journalist Club in West Berlin on June 1, 1978. We find that the accused never gave any assurance to Klinicki that he would have the right to equivalent ownership in any such new corporation.
On June 9, 1978, the accused had a conference with the Lundgrens and was informed that Kim Lundgren and Klinicki were then at odds personally. The accused was asked to advise the Lundgrens how they could separate their business interests from Klinicki. The accused suggested a buy-out by one of the contending factions of the other's stock ownership in Berlinair.
On July 7, 1978, Kim Lundgren requested the accused form a new corporation for the purpose of pursuing the possibility of contracting with Berlin Flug Ring, a consortium of travel agencies, to fly tourists between Berlin and various other points in Europe. The Lundgrens desired to have the stock of this corporation owned by themselves or by Lelco, Inc., without participation by Klinicki. Kim Lundgren asked the accused at this conference whether the Lundgrens were legally required to include Klinicki as a stockholder in the new corporation to be formed to pursue the Berlin Flug Ring business. The accused viewed the question as whether the Lundgrens were required to choose between entering the Berlin Flug Ring deal with Klinicki as a participant, or foregoing this business opportunity. The accused told Kim Lundgren at this conference that it was not necessary to face up to this question until it was determined whether obtaining the contract would require a financing commitment supported by more than the contract itself, and, if so, the nature and extent of such financing. The accused was of the opinion that if financing commitments were required beyond security of the Berlin Flug Ring contract itself, such as guaranties by Leonard Lundgren or other methods of financing beyond the financial capacity of Klinicki on a pro rata basis, then there would be no legal obligation of the Lundgrens to offer Klinicki an opportunity to participate. If, on the other hand, the business would be "self-financing" through the security of the contract itself with Berlin Flug Ring, then Klinicki would have a right to participate pro rata in the new corporation, to the same extent as his participation in Berlinair.
On July 11, 1978, the accused organized Air Berlin Charter Co. (ABC) as an Oregon corporation, and prepared a subscription by Lelco, Inc. for all of the outstanding shares of its capital stock. The accused did not inform Klinicki of the organization of ABC or of the subscription for its capital stock, nor did he believe that the Lundgrens had informed Klinicki of these developments.
The accused knew from at least July 7, 1978, that organization of ABC and its pursuit of a contract with Berlin Flug Ring, with Klinicki excluded from an opportunity to participate as a shareholder, presented a question of whether Berlinair was being wrongfully deprived of a corporate opportunity.
The accused was unaware that ABC actually obtained a contract with Berlin Flug Ring on September 1, 1978, until a stockholder derivative suit was filed by Klinicki and served on October 4, 1978. The parties to the lawsuit were: F.R. Klinicki v. Kim S. Lundgren, Berlinair, Inc., an Oregon corporation, and Air Berlin Charter Company, an Oregon corporation. The accused was not named as a defendant in that suit and a stipulation was reached between the accused and Klinicki's lawyers that he would not be called as a witness and that the accused's law firm could represent all the defendants in the lawsuit. During the course of the trial, then Circuit Judge Van Hoomissen became concerned about the possible conflict of interest of the accused and warned the accused in the following discussion sua sponte with counsel.
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