Crooks v. State Bar

• Decision Date: 29 October 1970
• Citation: 475 P.2d 872,3 Cal.3d 346,90 Cal.Rptr. 600
• Court: California Supreme Court
• Parties: , 475 P.2d 872 John E. CROOKS, Petitioner, v. The STATE BAR of California, Respondent. L.A. 29664.

Page 600

90 Cal.Rptr. 600

3 Cal.3d 346, 475 P.2d 872

John E. CROOKS, Petitioner, v. The STATE BAR of California, Respondent.

L.A. 29664.

Supreme Court of California,

In Bank.

Oct. 29, 1970.

John E. Crooks, in pro per.

Joseph R. Laird, Jr., Calabasas, for petitioner.

F. LaMar Forshee and Herbert M. Rosenthal, San Francisco, for respondent.

PER CURIAM.

This is a proceeding to review a decision of the State Bar Disciplinary Board publicly reproving petitioner. (Bus. & Prof.Code, § 6083, subd. (b); Rule 59(b), California Rules of Court.) The reproval is based on petitioner's knowing disregard of his responsibilities as a fiduciary in handling escrow funds.

On or about September 11, 1964, petitioner was requested by Orange County Business Sales, a business opportunities broker and his client, to act as escrow holder in connection with the sale of a beer bar business, known as Bristol Gardens, from Mr. and Mrs. Harold Torborg to Robert E. Dobucki. The escrow instructions prepared by petitioner provided that the buyer would deposit $2,000 in cash and assume a conditional sales contract on certain bar fixtures held by Dunkirk Investment Company. An additional $2,000 cash was to be supplied by 'deposit by vendor' ('vendor' meaning a company who advances money to an establishment in exchange for the right to install coin-operated vending machines in the premises). As escrow holder, petitioner was instructed to pay 'forthwith out of the first cash funds deposited into escrow' the broker's commission of $1,250, all delinquent payments on the conditional sales contract held by Dunkirk, and all delinquent rent. The escrow was to close 'when the beer license is transferred and the Sellers have deposited into escrow releases from the Department of Labor and the Board of Equalization.'

Out of the $2,000 deposited by the buyer, petitioner disbursed $1,250 to the broker and $650 to Dunkirk in part payment of the delinquencies on the conditional sales contract, leaving a balance of $100 of escrow funds on hand.

Petitioner was notified by the vendor, Rockwell Music Company (hereafter called Silco ¹), that it intended to advance $2,000 to the buyer for the exclusive rights of supplying music through a coin-operated phonograph in the bar, repayment of the advance to be made from collections from the machine. Thereafter Silco's check was hand-delivered to petitioner by Mr. Connors, an employee of the broker, with a letter dated November 19, 1964, reading: 'Escrow Instructions: You are herewith handed our check. #1794 in the amount of two thousand dollars ($2,000.00) made payable to Robert E. Dobucki dba Bristol Gardens which You are hereby authorized to deliver to Robert E. Dobucki only upon the close of your escrow and the issuance of his license.' (Italics added.) Outside of escrow, Silco procured the buyer's note for $2,000. The check bore the purported endorsement of the buyer, and petitioner deposited it in his Crooks & Laird law partnership trust account.

At the same time he received Silco's letter and check, petitioner received another demand from Dunkirk for $1,309.70 representing five past due installments on the conditional sales contract. He told Connors he could not comply with Silco's instructions to hold the check until the close of escrow and also follow his own instructions to pay claims against the escrow and would have to have different instructions from Silco. Connors said he would get amended instructions but did not do so. About a week later petitioner received a claim from the buyer for $1,051 representing the cost of needed repairs and replacements that the seller was required to, but did not, make. Faced with these demands ond only $100 in funds, petitioner telephoned Mr. Johnson, Silco's manager, on December 8, 1964. Petitioner's version of their telephone conversation was that he told Johnson it was impossible to comply with his (Johnson's) instructions because the sale was conditioned upon the buyer's obtaining an immediate loan from the vendor to make payments that were due on equipment and unpaid rent. Johnson told him that he would be willing to give petitioner a different letter if he wanted one but Johnson was of the opinion that the letter was sufficient to allow petitioner to do what needed to be done. Thereafter petitioner noted on Silco's letter: '12/8/64--called Johnson--he said go ahead and use the $2,000 To close escrow.' (Italics added.) Johnson testified that petitioner sought permission to cash the check and was told that he definitely could not cash it prior to close of escrow. He did not know that the check had already been cashed because cancelled checks went to the company's New Jersey office.

On December 10, 1964, petitioner paid Dunkirk's demand for $1,309.70 ($1,209.70 of Silco's money and $100 of the buyer's) leaving a balance on band of $790.30. In the meantime, the beer license was transferred to the buyer and Silco installed some of its vending machines. After operating the bar for about three months Dobucki closed the door and walked out. The releases from the Department of Labor and Board of Equalization had not been received, and the escrow had not closed.

On January 6, 1965, Silco notified petitioner that it was stopping payment on its check and rescinding its authorization to deliver the check to Dobucki, and requested petitioner to return the check. Shortly thereafter, Dobucki notified petitioner that 'inasmuch as the escrow instructions have not been complied with,' he was withdrawing from the escrow and requested a return of all monies deposited by him as well as Silco's check. After learning from petitioner that the check had been cashed and about $1,300 had been spent, Silco claimed that Dobucki's endorsement was forged and was successful in having petitioner's trust account charged with $2,000. However, negotiations between petitioner and the bank's attorney resulted in restoration of that amount of his trust account. ²

On March 6, 1965, petitioner filed a complaint for declaratory relief, alleging that a controversy existed among the parties as to their rights and duties; that he held $790.30 'for the use of the defendants in whatever proportions may be rightfully theirs, subject to reasonable expenses and attorney fees in connection with plaintiff's services in conducting the escrow and of maintaining this lawsuit; plaintiff claims no interest in said sum, but is unable to determine which defendant or which defendants may be entitled thereto.' (Named as defendants were the Torborgs (seller), Dobucki (buyer) and Silco. The Torborgs and Dobucki were served but did not answer. Silco cross-complained against petitioner, alleging that he failed to return $2,000 on demand and had deposited and disbursed the check in violation of its written instructions. Petitioner answered, denied Silco's allegations, and alleged that he had authority to cash the check.

About two years later the case came to trial. Petitioner testified that Silco's letter of November 19, 1964, was 'ambiguous' in that it instructed him to deliver the check at the close of escrow when the facts as he understood them would make it impossible for the escrow to close unless Silco's money were used to pay debts of the seller, and further 'it is an ambiguous situation to me when I have an endorsed check that I am supposed to keep, rather than deposit.' In answer to the question, 'It (the letter) says, does it not, there are two conditions before you pay the money, two conditions to be fulfilled before you are to give Mr. Dobucki the $2,000 check. Is that correct?' he replied, 'Well, it says what is says.' As to his telephone conversation with Johnson on December 8, 1964, petitioner testified that he sought and received oral authorization to use Silco's check 'as was necessary in order to get this escrow closed.' Petitioner did not indicate what he considered to be reasonable attorney's fees; he spent $14.50 for publishing and recording a notice of sale in connection with the escrow and $47.55 for filing the complaint and serving summonses.

Mr. Johnson testified in the civil action that Mr. Connors of Orange County Business Sales applied for a loan on Dobucki's behalf; that he (Johnson) agreed to lend him $2,000 for the privilege of placing pool tables, juke boxes and cigarette machines in the bar; that his letter to petitioner was a form letter sent to every escrow officer, containing two conditions that had to be satisfied before delivery to the borrower, since it was his company's policy not to permit the use of its money before close of escrow; and that he had not read the escrow instructions prepared by petitioner, was not aware that the loan was sought to facilitate the purchase of the bar, and had he been aware of such fact he would not have approved the loan. Regarding the telephone conversation between petitioner and himself, Johnson testified that he told petitioner that under no circumstances was he to cash the check. After he learned that the check had been cashed he telephoned petitioner and asked that the money be returned. Petitioner told him he had disbursed about $1,300 and there was approximately $700 left. Johnson refused petitioner's offer to send him the $700 and wanted his $2,000 back.

Called as a witness in the civil action, Dobucki testified that he borrowed $1,000 from Silco to be used 'to try to get the business on its feet,' and that an additional $2,000 was to be placed in escrow and paid at the end of escrow; that he had received a copy of Silco's letter to petitioner and was aware that a $2,000 check had been placed in escrow; that the money was borrowed to purchase the bar and on the close of escrow he would receive only a portion of the proceeds for himself; that he had not endorsed the check and had not authorized anyone to disburse the proceeds; that he received his beer license and operated the bar for about three months; and that during that period...