Disciplinary Action Against Peterson, In re

• Decision Date: 25 May 1990
• Docket Number: No. C0-89-981,C0-89-981
• Citation: 456 N.W.2d 89
• Parties: In re Petition for DISCIPLINARY ACTION AGAINST Dennis R. PETERSON, an Attorney at Law of the State of Minnesota.
• Court: Minnesota Supreme Court

Page 89

456 N.W.2d 89

In re Petition for DISCIPLINARY ACTION AGAINST Dennis R.

PETERSON, an Attorney at Law of the State of

Minnesota.

No. C0-89-981.

Supreme Court of Minnesota.

May 25, 1990.

Syllabus by the Court

The misconduct warrants disbarment.

William J. Wernz, Director of the Office of Lawyers Professional Responsibility, St. Paul, for appellant.

Jack S. Nordby, Meshbesher, Singer & Spence, Ltd., Minneapolis, for respondent.

Heard, considered, and decided by the court en banc.

PER CURIAM.

Following a 2-day hearing, Judge David E. Christensen, referee, found that respondent Dennis R. Peterson had violated numerous Rules of Professional Conduct. The misconduct essentially grew out of respondent's involvement in a real estate development project. Respondent ordered a transcript, hence, the referee's findings and conclusions of law are not deemed conclusive but are subject to review.

Borrowing minor's funds

Respondent obtained a net arbitration award of about $142,000 for his client, Michael, 20 years old, who had sustained serious head injuries in an auto accident. Although the arbitrators recommended that a conservatorship be established to administer Michael's money, respondent did not act on this recommendation; instead, he borrowed $100,000 of Michael's funds for Wimbledon Hills, Inc., a real estate development corporation. Respondent was president and a shareholder of the corporation and acted as its attorney.

Wimbledon Hills issued its note dated May 13, 1988, for $100,000 at 15 percent interest payable to Michael, executed by respondent as the corporation's president, and payable on demand. Respondent kept the note. The money for this loan to Wimbledon Hills was borrowed by Michael from First Bank. On the same day as the Wimbledon note, respondent had Michael borrow $100,000 on a note payable to First Bank due June 9, 1988; subsequently, this loan was extended by a similar note to the bank due December 6, 1988, which was signed by both Michael and respondent. The second note called for monthly interest payments. These notes to the bank were secured by a $100,000 certificate of deposit with the bank, which respondent had Michael purchase with funds from his personal injury recovery.

The referee found that respondent had not discussed these financial arrangements with Michael's parents, although he may at one time have mentioned to them Wimbledon Hills as a possible investment. The referee found that respondent did not disclose to Michael or his parents that respondent's own business interests conflicted with Michael's interests; that he was not acting on behalf of Michael; that the loan transaction was not reasonable because Wimbledon's note was neither secured nor guaranteed nor was the bank obligated to renew its note at maturity; and that at the time of these transactions Wimbledon Hills had a negative bank balance and was in financial difficulties.

Although Wimbledon Hills was paying large sums to various creditors, it did not pay the August and September interest payments on Michael's note to the bank. Michael's parents first learned of the transaction in December 1988 when they received a letter from the bank's attorney about the delinquent interest payments. Respondent suggested to Michael's father that Michael delay his demand for payment on the Wimbledon note for 6 months. Eventually, after Michael had retained an attorney and after the matter was reported to the Lawyers Board of Professional Responsibility, the Wimbledon note was paid. The attorney fees incurred by Michael in collecting on the note were left unpaid, although respondent now says he will pay them.

The referee found violations of Minnesota Rules of Professional Conduct, Rule 1.7(a) (direct adverse interest between two clients); Rule 1.7(b) (representation materially affected by responsibilities to others); Rule 1.8(a) (entering into business transactions with client); Rule 1.1 (competent representation); and Rule 8.4(d) (conduct prejudicial to the administration of justice). The violations are fully supported by the record.

Respondent argues he made a full disclosure and the arrangement was not unfair or unreasonable. We disagree. There was no meaningful disclosure, much less one in writing. Michael did not understand the transaction and did not even realize he was signing a note to pay back $100,000 to the bank. At the hearing, respondent seemed to justify his actions by stating the parents never disagreed with the investment, but it is clear he dealt unilaterally with Michael and never really discussed the investment with the boy's parents. Respondent claims that Michael did not have diminished capacity and was not a vulnerable individual, but the record amply supports the referee's contrary findings. As Michael testified at the hearing, "[I]t's too bad that, you know, the lawyers happen to fall into the not trust category."

Failure to provide information to the Director

The Director made four requests for financial documentation relating to Wimbledon Hills and respondent over a period of some 60 days. Respondent stalled the first two requests with inadequate information. He did not respond to the third request nor the fourth. When also asked to sign a release for the bank to turn over information to the Director, respondent modified the release by narrowing its scope.

Later, when deposed, respondent claimed he had been denied access to the requested documents by Louis Krall, another shareholder. Krall, however, testified this was not true. ¹ The referee found that respondent "both legally and physically" could have produced the requested documents if he had chosen to do so. The evidence supports these findings. This constitutes a violation of Rule 8.1(a)(3) (failure to comply with demand for information); and Rule 8.4(d) (conduct prejudicial to the administration of justice).

Overdrafts and false representations

Wimbledon Hills kept a checking account with First Bank Southeast at Rochester. On August 5, 1988, respondent, as president of Wimbledon, drew a $150,000 check on this account. The bank balance at the time was $961.28. Three days later, when the bank refused to honor the check, respondent covered by depositing three other checks. The bank then paid the $150,000 check drawn on the Wimbledon account only to learn some 10 days later that one of the three deposited checks for $50,000 had been returned unpaid.

On August 12, respondent telephoned a bank officer to say he was contemplating writing certain checks on the Wimbledon account in excess of funds on deposit. He told the bank officer that he was leaving for Europe that day but later that day he would have $400,000 deposited in the Wimbledon account to cover the checks he was writing. The bank honored respondent's checks, but no deposit to cover was made, and, as a result, the account was overdrawn. From August 18 to August 26 the account was overdrawn by over $100,000; thereafter and until January 1989, it was overdrawn some $63,000. The debt was not paid until the bank sued. The referee found that the representations made to the bank officer on August 12 were false. Respondent does not contend the overdrafts did not take place. He claimed that a deposit was to have been made on August 12 but he could not state who was to make it or from where the money was to be obtained. The evidence supports the referee's findings, and the misconduct is a violation of Rule 8.4(c) (conduct involving dishonesty, fraud, deceit or misrepresentation).

False representations to contractor

On August 11, 1988, respondent wrote Fabricated Wood Products, Inc., a potential general contractor and supplier for the Wimbledon project. The letter stated Wimbledon had the necessary financing commitments to complete the project. The next day, respondent, as president of Wimbledon, signed a contract with Fabricated, calling for completion of the project by Fabricated "as quickly as possible" and committing Wimbledon to monthly payments totalling almost $1 million. In fact, Wimbledon did not have any financing commitments indeed, it had other contractual obligations aggregating over $1 million for which there was no evident source of payment.

Fabricated started work about August 12 but demanded written confirmation of the financial commitment. On August 18 respondent and Krall met with two First Bank officers who indicated a lack of interest in the project. Respondent took from the meeting a "working draft" of a pledge agreement that the bank had earlier drawn up at respondent's request. Under the draft agreement, the bank would provide a revolving line of credit if a $1 million certificate of deposit were pledged as security. Respondent had his secretary retype the draft agreement with some changes. For example, the words "working draft" were...