Hawk v. State Bar

• Decision Date: 09 June 1988
• Docket Number: No. S001785,S001785
• Court: California Supreme Court
• Parties: , 754 P.2d 1096 Richard HAWK, Petitioner, v. The STATE BAR OF CALIFORNIA, Respondent.

Page 599

247 Cal.Rptr. 599

45 Cal.3d 589, 754 P.2d 1096

Richard HAWK, Petitioner, v. The STATE BAR OF CALIFORNIA, Respondent.

No. S001785.

Supreme Court of California,

In Bank.

June 9, 1988.

As Modified June 29, 1988.

[754 P.2d 1097] Godfrey J. Tencer, San Rafael, for petitioner

Herbert M. Rosenthal, Truitt A. Richey, Jr., Lawrence C. Yee and Sherrie B. McLetchie, Office of Gen. Counsel, State Bar of California, San Francisco, for respondent.

THE COURT ^*

This is a proceeding to review the recommendation of the Review Department of the State Bar Court that petitioner Richard Hawk be suspended from the practice of law for four years, that execution of the suspension be stayed, and that he be placed on probation for four years on specified conditions, including six months' actual suspension. ¹ The recommendation is based on a finding that petitioner violated rule 5-101 of the Rules of Professional Conduct (hereafter rule 5-101), which prohibits an attorney from acquiring an interest adverse to a client unless the terms are fully disclosed and fair and reasonable, and unless the client has consented in writing after having had an opportunity to consult independent counsel. ² The review department also concluded that petitioner had committed an act involving moral turpitude and dishonesty, in violation of Business and Professions Code section 6106. ³

The case presents a question of first impression: whether an attorney who takes a promissory note secured by a deed of trust in real property to secure payment of a fee must comply with rule 5-101. We conclude that rule 5-101 does apply to the taking of such a security interest.

FACTS

Petitioner was admitted to the practice of law in 1957. In 1975 he was publicly reproved for gross negligence in the handling of a client's trust account. In 1978 he was suspended from the practice of law for two months after a conviction for failing to file federal income tax returns.

The present disciplinary proceedings concern petitioner's representation of Mr. James Mederos, specifically, the fee agreement with Mr. and Mrs. Mederos. In December 1979 petitioner agreed to represent Mr. Mederos through trial for a fee of $15,000. The Mederoses did not have the amount in cash, so petitioner requested that they give him a promissory note secured by a deed of trust with a power of sale on real property which they owned. Mrs. Mederos testified that petitioner told her that "... it was no big thing to sign the note, that he would hold the note until [she] could pay him payments or until the property was sold." They agreed to sign the standard form note secured by a deed of trust which petitioner presented to them. By its terms, the note was payable on demand. Petitioner prepared the note without the amount of indebtedness filled in. He informed Mr. Mederos that the fee would be $15,000, and both Mr. and Mrs. Mederos executed the note. Then in only Mrs. Mederos's presence, he filled in the amount of $20,000. When she objected, he informed her that the additional $5,000 was an advance against litigation costs. Petitioner then accompanied Mrs. Mederos to a real estate office where she listed the property for sale.

As to this transaction, the hearing panel of the State Bar Court found that petitioner did not fully disclose and transmit in writing to the clients the terms of the security arrangement; that he did not advise and give them the opportunity to have the transaction reviewed by independent counsel; and that he did not provide them with copies of the promissory note and deed of trust. The hearing panel found that the clients did not understand how petitioner was to secure his fee or that he could foreclose on their property under the agreement.

In May 1980, petitioner acquired a second promissory note from the Mederoses secured by another deed of trust on the same property, this time for $10,000. This was to pay for additional services required by the Mederoses. Again, the hearing panel found that petitioner failed to disclose fully in writing the terms of the security arrangement, failed to give the clients an opportunity to consult independent counsel, and failed to provide them with a copy of the security agreement.

The Mederoses understood from petitioner that the fee eventually would be paid from the proceeds of their sale of the property. Instead of waiting for the clients to complete a sale, however, petitioner immediately assigned both notes and deeds of trust, and the assignee made a demand on the Mederoses. They had been unable to sell the property. They offered petitioner another piece of property to satisfy the debt. Petitioner said that he would discuss this with his partner, but they testified that he never responded to the offer again. The assignee assigned the note to a third party, who foreclosed.

The hearing panel concluded that petitioner had violated rule 5-101. It found the terms of the transactions fair and reasonable, but found that the terms were not fully disclosed in language that the clients could understand. It found that the petitioner failed to provide a written explanation, and that the clients actually did not understand the legal significance of the agreement. The review department found, in addition, that the failure to comply with rule 5-101 and the modification of the first promissory note without the consent of the clients were acts of moral turpitude in violation of Business and Professions Code section 6106. The hearing panel recommended Petitioner first contends that he was denied due process when the hearing panel conducted hearings on this matter in his absence, and when the panel refused to grant him a continuance so that he could be present, or to allow him to put on evidence on the merits at the hearing on discipline. He asks us to set aside his "defaults" under Code of Civil Procedure section 473 or under our equitable powers. He also argues in the most conclusory possible terms that taking a note secured by a deed of trust to secure payment of a fee is not subject to rule 5-101.

a one-year suspension with actual suspension of ninety days. Both petitioner and the examiner for the State Bar sought review. The review department increased the recommended discipline to four years' suspension and six months' actual suspension on the grounds that petitioner's acts [754 P.2d 1099] involved moral turpitude and that he had more than one prior discipline involving money matters.

DISCUSSION

1. Denial of Further Continuance.

Petitioner claims that he was summarily denied a continuance, and that the hearing panel thereafter immediately commenced the hearing in his absence. He claims that he had not made any previous requests for continuance. This is patently false.

Petitioner claims that hearing in this matter was set for June 24, 1985; that on June 21, 1985, he advised the State Bar Court and trial counsel that he would be unavailable because he would be making closing argument in a murder case on that date, and that the State Bar Court denied his motion for continuance and commenced the hearing. He claims that at the conclusion of the June 24 hearing, the matter was set for further hearing on July 16, 1985. The hearing panel continued the matter to August 12, 1985, without asking petitioner if he was available. Petitioner was selecting a jury in a capital trial on August 12, and he requested a continuance. The request was denied and a further evidentiary hearing was held in his absence. The matter was then set for hearing regarding discipline on September 9, 1985. On August 30, 1985, petitioner retained counsel to represent him. Counsel requested a continuance on September 3, 1985, and requested permission to introduce evidence for petitioner on the merits. The request to introduce evidence on the merits was denied, though the motion for continuance was granted.

Petitioner's picture of the procedural history of the matter is too rosy. Actually, he failed to respond in a timely fashion and failed to appear at almost every opportunity presented to him.

On April 25, 1984, the notice to show cause was filed. On August 8, 1984, the State Bar served a request for admissions on petitioner. Petitioner failed to respond. The State Bar served notice that the requests for admissions were deemed admitted. On September 13, 1984, petitioner stipulated that he was seeking counsel, that he would notify the State Bar no later than October 15, 1984, of the name of counsel, that he would file a response to the notice to show cause no later than October 15, 1984, and that he would provide answers to interrogatories no later than October 12, 1984, on condition that the notice of admissions be set aside. Also at the September 13, 1984, hearing, in petitioner's presence, hearing dates of April 8, 9 and 10, 1985, were set.

Petitioner failed to notify the State Bar of the name of counsel, failed to file a response to the notice to show cause, and failed to provide answers to interrogatories.

On February 7, 1985, the State Bar served an order to file a response to the order to show cause by February 12, 1985. Petitioner filed his response on February 27, 1985. On February 21, 1985, the State Bar confirmed the hearing date of April 8, 1985. On the day of the hearing, petitioner telephoned to request a continuance since he was in jury trial in a murder case. The request was granted and the matter continued to April 29, 1985. On April 29, 1985, petitioner again telephoned to request a continuance on the ground that he was in jury trial in a murder case. The request was granted and the matter was continued to May 29, 1985. On May 29, petitioner appeared and requested a continuance because he needed to prepare for the penalty phase of a capital trial. The request was granted and the hearing was continued to June 24, 1985, a date petitioner agreed he would be available. Petitioner was ordered to arrange his calendar to make sure that he was available. ...