Iowa Supreme Court Attorney Disciplinary Bd. v. Hamer

• Decision Date: 29 June 2018
• Docket Number: No. 17-1599,17-1599
• Parties: IOWA SUPREME COURT ATTORNEY DISCIPLINARY BOARD, Appellee, v. Mark T. HAMER, Appellant.
• Court: Iowa Supreme Court

915 N.W.2d 302

IOWA SUPREME COURT ATTORNEY DISCIPLINARY BOARD, Appellee,

v.Mark T. HAMER, Appellant.

No. 17-1599

Supreme Court of Iowa.

Filed June 29, 2018

David L. Brown and Alexander E. Wonio of Hansen, McClintock & Riley, Des Moines, for appellant.

Wendell J. Harms, Tara van Brederode, and Susan A. Wendel (until withdrawal), for appellee.

APPEL, Justice.

In this attorney disciplinary case, we are called upon once again to remind the Iowa bar that while our ethics rules allow attorneys to engage in financial transactions with clients and to represent both party clients in a financial transaction, the demanding nature of the disclosures required and the necessity of documenting informed consent mean that these matters may not be undertaken lightly as a matter of informal routine.

The Iowa Supreme Court Attorney Disciplinary Board (Board) charged attorney Mark Hamer with multiple violations of the Iowa Code of Professional Responsibility for Lawyers (code) and the Iowa Rules of Professional Conduct (rules)¹ arising from (1) several loan transactions occurring between multiple clients of Hamer without adequate conflict-of-interest disclosures and informed consent, (2) several loan transactions involving Hamer and a client without adequate conflict-of-interest disclosures and informed consent, (3) two failed joint investments in which Hamer and his client suffered substantial losses, and (4) a clearly excessive and dishonest attorney’s fee collected through a bonus to which the client did not agree. Hamer denied the allegations.

After an evidentiary hearing involving only two witnesses but over 2200 pages of documents, the Iowa Supreme Court Grievance Commission (commission) found Hamer violated numerous code and rule provisions with respect to the loans and the attorney’s fee issues but declined to find an ethical violation in connection with the failed investments. As a result, the commission recommends that Hamer’s license to practice law be suspended for six months.

Upon our de novo review, we conclude Hamer engaged in a number of ethical violations in connection with the loan transactions between Hamer’s clients and between Hamer himself and Douglas Paul. We also find Hamer engaged in deceit in connection with the bonus payment for legal work. Based on the violations, we conclude a six-month suspension is the appropriate sanction.

I. Factual and Procedural Background.

A. Background to the Events at Issue. Hamer received his license to practice law in Iowa in 1972 and represented businesses, entrepreneurs, franchisors, and franchisees for forty years. During all times relevant to the allegations in the complaint, Hamer worked for a prominent Iowa City law firm.

In 1982, Douglas Paul, an entrepreneur in the field of education, founded an education writing and editing business that eventually became known as Buckle Down Publishing Company. Buckle Down developed customized curriculum materials for school districts. Paul also owned ZAPS Learning Company, an ACT and SAT student-test-preparation company. In 1988, Hamer became Paul’s attorney for both business and personal matters. In addition to their business relationship, Hamer and Paul became friends and frequently socialized together.

In 2004, Hamer helped Paul sell both Buckle Down and ZAPS. Paul sold his interest in Buckle Down for $23 million cash and some preferred stock. Paul also sold his interest in ZAPS for $1.5 million. DLP Management, an entity wholly owned by Paul, was formed to handle the money generated by the sale of Buckle Down.

B. Bonus for the Successful Sale of Buckle Down. Paul was pleased with the Buckle Down sale and wanted to reward the people who worked on the transaction. Paul considered giving a cash bonus to Hamer, an accountant, and a secretary. The record does not clearly establish the amount of the proposed bonus that Paul was considering giving Hamer.

On April 15, Hamer accepted the bonus for his secretary, but told Paul that a cash bonus for himself was problematic because he would be required to share the bonus with the other partners of the law firm. Five days later, Hamer told Paul that the legal fees in connection with the Buckle Down transaction were $268,447.13. Paul paid the fees on April 21 and received an unitemized bill. The unitemized bill did not state it included a $110,000 bonus fee. When Paul received the unitemized bill he requested an itemized fee statement, but Hamer demurred. He told Paul he would give Paul an itemized bill the following week but did not do so.

On July 28, a Paul-owned entity made a five-year loan of $1,000,000 at 2.5% yearly interest to a Hamer-owned entity, Quad Four, L.L.C. Paul claimed this attractive loan was three percent below what Hamer would have otherwise been required to pay and was made in lieu of a cash bonus on the Buckle Down transaction that Hamer would have had to share with other members of the firm if paid as part of the bill.

Over the years, Paul continued to press Hamer several times for an itemized bill related to the Buckle Down transaction, including in an email on January 21, 2009. Hamer did not provide an itemized bill, however, until Paul’s new lawyer sent a demand letter asking for documentation in early 2010.

When Paul received the itemized bill in February 2010, there was a note in Hamer’s handwriting attached to the file copy of Paul’s payment check stating the bill included a $110,000 bonus. The note attached to the check included the words "CF Doug Paul 4/20/04." Paul later testified that the notation meant nothing to him. Paul stated he did talk to Hamer on April 20, 2004. He claimed, however, there was no discussion about the bonus but only about the total amount of the bill.

C. Paul’s Investments with Other Hamer Clients in "Private Banking." After the sales of Buckle Down and ZAPS in 2004, Paul began making investments that he and Hamer called "private banking." In these transactions, Paul directly loaned money to individuals and businesses.

From March 2004 to August 2005, Hamer presented to Paul, and Paul accepted, opportunities to loan money to nine individuals or entities who were also clients of Hamer. In all but one of the loans, Hamer made no effort to get Paul’s informed consent in writing. Paul would later testify he had no knowledge the other parties in these loans were Hamer’s clients. He also testified that Hamer never discussed the perils of multiple representation or obtained Paul’s verbal informed consent to any real or potential conflicts of interest arising out of the transactions. Paul also testified Hamer informed him that most of the loans would be secured by adequate collateral. In fact, Hamer never perfected the various security interests or filed the required mortgages nor did he advise Paul that Paul would need to do so himself.

Paul signed a multiple-client representation letter dated December 29, 2004, that he received from Hamer for one of the transactions. The letter began, "As we understand your request, we will be dealing with the documentation and reporting relating to these transactions." The letter was lengthy and contained mostly generalizations:

Before entering in this agreement, we believe it is necessary and appropriate for us to spell out for you the potential ramifications of our representation of you.

As you may be aware, the Iowa Code of Professional Responsibility for Lawyers, and in particular Canon 5, requires that a lawyer must exercise independent professional judgment on behalf of his client. In this connection, any lawyer requested to undertake representation of multiple clients having potentially differing interests must weigh carefully the possibility that his judgment may be impaired or his loyalty divided if he accepts the employment and the lawyer must resolve all doubts about the propriety of the representation prior to accepting the engagement. Once a lawyer accepts such employment and in the event the interests of the clients do become actually differing, the lawyer must withdraw from the employment.

There are, of course, many instances in which a lawyer may properly serve multiple clients having potentially differing interests in matters not involving litigation. For example, if the interests vary only slightly, it is generally likely that the lawyer will not be subjected to an adverse influence and can retain his independent judgment on behalf of each client and if the interests do become differing, withdrawal is less likely to have a disruptive effect upon the clients.

However, in those instances in which a lawyer is justified in representing multiple clients, it is nevertheless essential that each client be given the opportunity to evaluate his need for independent representation and to obtain other counsel if desired. Further, each client should be fully advised concerning the implication of the common representation (which we hope this letter will do) and be fully advised as to any other circumstances that might cause one of the clients to question the undivided loyalty of the lawyer to the engagement and or interests of all the clients (which we will do later in this letter).

....

In regard to our requested representation, we have evaluated our knowledge of your respective interests. It appears to us that all of you are experienced; that you are willing and capable of completing these transactions; that you can make relatively equal though substantially different business decisions; and, finally, that you appear to share the same business philosophy. While those factors alone are not enough to suggest that you should enter into this transaction, these factors do suggest to us that your individual interests and goals are sufficiently similar to convince us that we can represent you without any concern of the propriety of the multiple representation and without any concern that our judgment will be impaired or our loyalty divided among you.

On the other hand, however, you must both be advised (and we’re sure already

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