Galardi v. State Bar

• Decision Date: 03 August 1987
• Court: California Supreme Court
• Parties: , 739 P.2d 134 Lawrence J. GALARDI, Petitioner, v. The STATE BAR OF CALIFORNIA, Respondent. L.A. 32184.

Page 774

238 Cal.Rptr. 774

43 Cal.3d 683, 739 P.2d 134

Lawrence J. GALARDI, Petitioner, v. The STATE BAR OF CALIFORNIA, Respondent.

L.A. 32184.

Supreme Court of California.

Aug. 3, 1987.

Rehearing Denied Sept. 2, 1987.

Lawrence J. Galardi, Los Angeles, in pro. per.

Raoul D. Magana, Los Angeles, as amicus curiae on behalf of petitioner.

Herbert M. Rosenthal, Truitt A. Richey, Jr., and Richard J. Zanassi, San Francisco, for respondent.

BY THE COURT:

This is a proceeding to review a recommendation of the Review Department of the State Bar Court that petitioner be ordered suspended from the practice of law for three years, that execution of that order be stayed, and that he be placed on three years' probation with certain conditions, including actual suspension for at least one year and until petitioner pays restitution totalling $186,000 to his joint venturers in various real estate investment projects. The hearing panel had proposed the more lenient sanction of private reproval. We shall conclude that the circumstances of this case warrant 30 days of actual suspension, 5 years of probation and restitution.

I.

Petitioner, who was admitted to practice in California in 1971 and in New York in 1959, has no prior record of discipline.

Petitioner entered into two joint venture agreements, one with Bernie L. and the other with John T., to improve and sell two parcels of real estate in Malibu, California. Eventually, both properties were foreclosed, John T. and Bernie L. lost their investments, and petitioner filed for bankruptcy in the United States Bankruptcy Court.

In both matters, the hearing panel (panel) and review department (department) concluded that while no attorney-client relationships existed, petitioner had entered into joint venture agreements and had willfully breached fiduciary duties he owed to his coventurers.

A. The John T. Matter

The panel and department found that in October 1977, petitioner and John T. entered into a joint venture agreement to improve and sell real property on Eagle Pass Avenue in Malibu. Under the contract, petitioner, owner of the Eagle Pass property, promised to obtain construction financing and to sell the property once improvements were complete. John T., a contractor, invested $85,000 in the joint venture, and "[i]n consideration of said payment" petitioner promised to share with him profits from the sale of the property. John T. also agreed to perform certain construction work at the Eagle Pass property and at two other parcels owned by petitioner on Big Rock Drive and Selfridge Drive in Malibu. The fees for these construction services were negotiated in separate contracts.

The panel determined that petitioner, without John T.'s knowledge or consent, encumbered the Eagle Pass property with two loans, totalling $120,000 and $500,000, ¹ respectively, and that the proceeds from these loans were used for nonventure purposes, including petitioner's living expenses. The department agreed with these findings and further determined that John T. had no knowledge of and did not consent to a $30,000 encumbrance, a portion of which petitioner diverted to his personal use.

B. The Bernie L. Matter

Bernie L. was introduced to petitioner by his brother, Richard L., and became interested in investing in one of petitioner's real estate deals. Richard L., an attorney, negotiated for two months with petitioner on his brother's behalf, and in late 1978, Bernie L. and petitioner entered into a written joint venture agreement to purchase, improve and resell property on Bonsall Drive in Malibu. Bernie L. invested $101,000 in the joint venture.

Petitioner agreed to obtain financing and to supervise the remodelling and sale of the property. He also promised to pay property taxes and all costs and interest related to the financing. By the terms of the joint venture agreement, petitioner expressly promised to act as Bernie L.'s fiduciary and to obtain his consent before encumbering or selling the property; all construction financing was to be spent only on the Bonsall project.

In analyzing the various loans secured by the Bonsall property, the panel found that petitioner used portions of a $250,000 encumbrance and a $500,000 loan (previously discussed in connection with the John T. matter) for nonventure purposes. The department concurred, and additionally determined that all of a $50,000 encumbrance and some of a $60,000 loan were used to pay for petitioner's personal expenses. The department further concluded that all four loans were procured without Bernie L.'s consent and that petitioner had refused to furnish an accounting of funds secured by the Bonsall property; whereas, the panel had found that the $500,000 encumbrance was obtained without the knowledge or consent of petitioner's coventurer.

The department delineated the following aggravating factors in both matters: (1) petitioner willfully and deliberately breached obligations he owed to his coventurers; (2) despite petitioner's willful and deliberate wrongdoing, he denied culpability and failed to appreciate his fiduciary obligations; and (3) the diversion of loan proceeds to his personal use "constituted a conversion of joint venture assets." As a result, the department concluded petitioner committed acts involving moral turpitude.

II.

It is well settled that this court must independently examine the evidence and pass upon its sufficiency in attorney discipline matters. (Alberton v. State Bar (1984) 37 Cal.3d 1, 11, 206 Cal.Rptr. 373, 686 P.2d 1177.) Furthermore, we must resolve all reasonable doubts in favor of the attorney. (Ibid.) However, the findings of the State Bar Court are entitled to great weight (id. at p. 12, 206 Cal.Rptr. 373, 686 P.2d 1177; accord Himmel v. State Bar (1971) 4 Cal.3d 786, 794, 94 Cal.Rptr. 825, 484 P.2d 993), and are presumed to be supported by the record (Bus. & Prof.Code, § 6083, subd. (c)).

As we have often observed, the petitioner bears the burden of demonstrating that the findings of the State Bar are not supported by the evidence. (Trousil v. State Bar (1985) 38 Cal.3d 337, 341, 211 Cal.Rptr. 525, 695 P.2d 1066.) "In meeting this burden, the petitioner must demonstrate that the charges of unprofessional conduct are not sustained by convincing proof and to a reasonable certainty. [Citation.]" (Himmel, supra, 4 Cal.3d at p. 794, 94 Cal.Rptr. 825, 484 P.2d 993.) In this case, neither petitioner nor amicus, appearing in his support, has met that burden.

A. Joint Ventures or Loans

Petitioner and amicus claim the agreements were characterized as joint ventures to conceal the fact that Bernie L. and John T. were loaning petitioner money at usurious rates of interest. In his brief, petitioner characterizes the Bernie L. contract as a "sham" agreement. Even if we were persuaded by his factual claim, petitioner could not escape discipline. Such sham agreements involve deception, which would warrant substantial sanction by the State Bar.

Moreover, we find implausible the claim that petitioner was forced to sign the agreements because he had no other source of funds for escrows on the properties which were about to close. After the escrows closed, he was able to obtain many bank loans encumbering the properties. Indeed, petitioner, who successfully developed numerous other parcels in the Malibu area, testified that he had an excellent credit rating with local banking institutions. Furthermore, petitioner drafted the John T. agreement, and he negotiated for two months with Richard L. before entering into the contract with Bernie L. These facts significantly undermine his assertion that he was forced into signing the agreements due to his inability to garner financing before the impending escrow closings.

Conflicting testimony was elicited at the hearing as to whether the parties intended their agreements to be joint ventures or mere loans. As we have often stated, however, we are reluctant to disturb the panel's resolution of conflicting testimony, because it "has the opportunity to observe first-hand the demeanor of the witnesses and can better evaluate the veracity of their testimony. [Citation.]" (Baranowski v. State Bar (1979) 24 Cal.3d 153, 162, 154 Cal.Rptr. 752, 593 P.2d 613.) This principle is especially applicable in a case where, as here, the documentary evidence does not support petitioner's version of the facts.

The written contracts--both signed by petitioner--repeatedly characterize the agreements as joint ventures. The contracts provide for a sharing of "net profits" between petitioner and his coventurers. Nowhere in the documents are the payments from John T. and Bernie L. characterized as loans. Furthermore, petitioner admitted that he had written the following notation on a check: "6112 Bonsall Joint Venture--Galardi/[L.]"

Petitioner and amicus point to the many bankruptcy proceedings in this case for support for the proposition that petitioner merely borrowed money and did not enter into joint venture agreements with Bernie L. and John T. The State Bar, however, was not a party to the bankruptcy actions and as such is not bound by the findings or conclusions of the bankruptcy courts. (See 7 Witkin, Cal. Procedure (3d ed. 1985) Judgment, § 299, pp. 737-738 and cases cited.) Furthermore, various bankruptcy courts in this matter have arrived at conflicting interpretations of the agreements signed by petitioner and his coventurers, making reliance on the conclusions of any one bankruptcy judge problematic.

We also conclude that the panel's finding that a joint venture existed between Bernie L. and petitioner is not seriously undermined by the fact that Bernie L. declared to the bankruptcy court that he had "agreed to lend" petitioner $101,000 and that he was not petitioner's partner. Reviewing the record as a whole, we conclude that the panel correctly discounted the probative value of the bankruptcy declaration. Given the vast amount of evidence that the...