In re Disciplinary Action against Bullis

• Decision Date: 13 November 2006
• Docket Number: No. 20060132.,20060132.
• Parties: In the Matter of the DISCIPLINARY ACTION AGAINST James R. BULLIS, a Member of the Bar of the State of North Dakota. Disciplinary Board of the Supreme Court of the State of North Dakota, Petitioner, v. James R. Bullis, Respondent.
• Court: North Dakota Supreme Court

Page 667

723 N.W.2d 667

2006 ND 228

In the Matter of the DISCIPLINARY ACTION AGAINST James R. BULLIS, a Member of the Bar of the State of North Dakota.

Disciplinary Board of the Supreme Court of the State of North Dakota, Petitioner, v. James R. Bullis, Respondent.

No. 20060132.

Supreme Court of North Dakota.

November 13, 2006.

Brent J. Edison, Assistant Disciplinary Counsel, Bismarck, N.D., for petitioner.

Ronald H. McLean (argued) and Joseph A. Wetch, Jr., (on brief), Serkland Law Firm, Fargo, N.D., for respondent.

SUSPENSION ORDERED.

PER CURIAM.

[¶ 1] James R. Bullis challenges a Disciplinary Board hearing panel report finding that he violated N.D.R. Prof. Conduct 1.7(a), (b), and (c), and 1.8(a) and (b), and recommending that Bullis be reprimanded, complete six hours of non-self-study continuing legal education ("CLE") in the area of conflicts of interest within the next two years in addition to the mandatory CLE requirements, and pay the costs and expenses of the disciplinary proceeding in the amount of $5,181.15. We conclude there is clear and convincing evidence Bullis violated N.D.R. Prof. Conduct 1.7(a), (b), and (c), and 1.8(a) and (b). We order that Bullis be suspended from the practice of law for 90 days, rather than be reprimanded, and adopt the other sanctions recommended by the panel.

I

[¶ 2] Bullis was admitted to practice law in North Dakota on October 1, 1992. Since then, he has worked in law offices located in Fargo and Moorhead, Minnesota. In 1997, Bullis began acting as Michael Volk's attorney for various personal and business matters.

[¶3] In 2000, Bullis opened a new law firm in the Amber Valley Parkway area of Fargo. Kevin Christianson was the landlord of the building in which the law firm was located. At that time, Volk was employed as the chief financial officer for Intellisol, Inc., an Australian computer software company which had offices in the same building as the law firm. Intellisol granted Volk an option to purchase 110,000 shares of Intellisol stock for $10 per share, which was less than the market value of the stock. However, Volk did not have the funds available to exercise the option. Volk consulted with Bullis, and Bullis recommended that Volk contact Bruce Hager, a Fargo stockbroker, for suggestions on how to raise the money to exercise the option. Bullis also set up a series of limited liability companies to be used as holding companies to effectuate the transfer of Volk's Intellisol stock.

[¶ 4] Hager found a group of investors willing to purchase the stock, and in April 2000, Bullis and Volk traveled to Phoenix, Arizona, and met with the Fargo Capital Group to structure the transaction. The Fargo Capital Group was a limited liability company consisting of former Fargo residents living in the Phoenix area. Volk sold the Fargo Capital Group approximately 30,000 of his option shares for $1.2 million. Bullis used his law firm trust account to handle the money for Volk's Intellisol stock transactions. Hager received a 5 percent commission on each sale of stock and Bullis received 5 percent for "legal fees."

[¶ 5] After the sale, Volk had approximately 80,000 shares of stock remaining, but he also needed funds to pay for his income tax liability incurred in exercising the option. Hager found another investor, James D. Ellefson from Ada, Minnesota, who was interested in purchasing Intellisol stock. Ellefson had approached Hager for financial advice in early 2000, and Hager began managing a substantial amount of his investments. Ellefson chose Hager because Hager advertised as a full service investment advisor with connections to certified public accountants and attorneys. In June 2000, Ellefson purchased approximately 30,000 shares of Intellisol stock for $100,000. Hager had Bullis complete the paperwork for the transaction and the money was paid to Bullis's law firm. Ellefson also completed a prospective investor questionnaire for Bullis disclosing his net worth. According to Bullis, he acted as Volk's attorney for this transaction. The shares were then transferred to Ellefson's revocable living trust. In October 2000, Volk was fired from his position with Intellisol.

[¶ 6] In December 2000, Hager sold Ellefson life insurance to be held in trust for estate planning purposes and had Bullis handle the legal work for the transaction. Bullis drafted an irrevocable trust agreement for Ellefson. Bullis served as Ellefson's attorney in the transaction and was named trustee of the trust.

[¶ 7] In spring 2001, Ellefson decided to invest further in Intellisol. Ellefson purchased $500,000 worth of stock warrants, giving him an option to acquire additional shares of Intellisol stock. In exchange for the stock warrants, Ellefson was required to co-make a note with Intellisol at Wells Fargo Bank in Moorhead, Minnesota, for $500,000 with a maturity date of September 1, 2001. Bullis served as Intellisol's attorney in this transaction, but Ellefson testified he believed Bullis was acting as his attorney because "it was represented to me that Bruce Hager and Jim Bullis were representing my best interests."

[¶ 8] By October 2001, Intellisol was in default with its creditors, including Ellefson, the Fargo Capital Group, and Christianson, Intellisol's landlord. The Fargo Capital Group took over control of Intellisol to protect its investment in the company. The Fargo Capital Group proposed a work-out agreement under which Intellisol could cure its defaults with its larger creditors. Bullis represented Ellefson and Christianson in connection with the proposed work-out agreement. Bullis did not advise Ellefson of his joint representation of Christianson, but Ellefson learned of the joint representation when he was copied on correspondence indicating Christianson was also Bullis's client. In November 2001, Bullis also represented Ellefson in connection with Ellefson's negotiations with Intellisol regarding the terms for renewal of the $500,000 note Ellefson had previously signed as co-maker. Bullis invoiced legal services to both Ellefson and Intellisol for work completed in connection with the work-out agreement and the renewal of the note, but the invoices were submitted to Intellisol for payment.

[¶ 9] In March 2002, Intellisol ceased operations and was taken over by Workforce ROI, LLC, a company consisting of some members of the Fargo Capital Group. At this time, Ellefson still owed the Wells Fargo Bank $500,000. Ellefson declined an opportunity afforded him as a convertible note-holder to purchase shares in Workforce ROI. After Ellefson declined, Bullis informed Ellefson that Bullis and others were interested in purchasing Ellefson's right to buy shares in Workforce ROI. Bullis told Ellefson he would have a conflict of interest in advising Ellefson concerning the transaction, telling him "I can't represent you. I can't tell you why I can't represent you, but Bruce [Hager] can tell you why I can't represent you. You may want to check with your estate planning counsel if you have any concerns about this." Ellefson did not consult with another attorney, and Ellefson's right to acquire shares was purchased for $100,000 by AV IV, LLC, a limited liability company composed of Hager, Christianson, and GMB Investments, LLC. GMB Investments is a limited liability company composed of Bullis and his law partners, which also owned 50,000 shares of Intellisol stock. Bullis drafted the agreement under which Ellefson's interests were purchased and acted as AV IV's lawyer in the transaction. The agreement allowed for the possibility of Ellefson recouping $483,259.67, but only if AV IV first recouped its original investments and prior Intellisol losses in the amount of $1,046,837.54.

[¶ 10] During the time he represented Ellefson, Bullis did not advise him of his relationship with Volk, Hager, and Intellisol; the various legal entities Bullis had created for Volk to effectuate the transfer of Intellisol stock; the arrangement in which Bullis and Hager each received 5 percent for each sale of stock; and Bullis and his law partners' ownership of 50,000 shares of Intellisol stock. Ellefson filed a complaint with the Disciplinary Board upon learning of Bullis's various relationships through a newspaper article.

[¶ 11] Following a hearing, the hearing panel found that Bullis violated N.D.R. Prof. Conduct 1.7(a), (b), and (c) because his loyalties were impaired by conflicting responsibilities as the lawyer for Volk, Intellisol, Ellefson, Christianson, and AV IV; as the business associate of Volk, Hager and Christianson; as trustee of the Ellefson irrevocable trust; and as an owner of Intellisol stock. The panel also found that Bullis violated N.D.R. Prof. Conduct 1.8(a) and (b) because Bullis used his knowledge of Ellefson's investment strategies to his advantage and failed to advise Ellefson to seek independent counsel. The panel recommended:

1. Reprimand under Standard 4.33, N.D. Stds[.] Imposing Lawyer Sanctions;

2. A requirement that, in addition to the mandatory continuing legal education (CLE) requirements of Rule 3, N.D.R. Continuing Legal Ed., Bullis complete six hours of CLE in the area of conflicts of interest and how to avoid them within the next 24 months, these six hours shall be active CLE courses and not self study;

3. An assessment of costs and expenses of the disciplinary proceeding in the amount of $5,181.15.

II

[¶ 12] In In re Chinquist, 2006 ND 107, ¶ 7, 714 N.W.2d 469 (citations omitted), we set forth our standard of review for disciplinary proceedings:

We review disciplinary proceedings de novo on the record. We accord due weight to the findings, conclusions, and recommendations of the hearing panel, but we do not act as a mere rubber stamp. Disciplinary counsel bears the burden of proving each alleged violation of the disciplinary rules by clear and convincing evidence. Each disciplinary case must be considered upon its own facts to decide what discipline, if any, is...