Iowa Supreme Court v. Johnston

• Decision Date: 25 May 2007
• Docket Number: No. 06-1362.,06-1362.
• Citation: 732 N.W.2d 448
• Parties: IOWA SUPREME COURT ATTORNEY DISCIPLINARY BOARD, Appellee, v. Gregory Alan JOHNSTON, Appellant.
• Court: Iowa Supreme Court

732 N.W.2d 448

IOWA SUPREME COURT ATTORNEY DISCIPLINARY BOARD, Appellee, v. Gregory Alan JOHNSTON, Appellant.

No. 06-1362.

Supreme Court of Iowa.

May 25, 2007.

Mark McCormick of Belin Lamson McCormick Zumbach Flynn, Des Moines, for appellant.

Charles L. Harrington and Wendell J. Harms, Des Moines, for appellee.

CADY, Justice.

The Iowa Supreme Court Attorney Disciplinary Board (Board) charged Gregory Alan Johnston with numerous violations of the Iowa Code of Professional Responsibility for Lawyers for his involvement in a business transaction with a client. The Grievance Commission of the Supreme Court of Iowa (Commission) found Johnston violated the Iowa Code of Professional Responsibility for Lawyers and recommended he be suspended from the practice of law for a minimum period of six months. Upon our review, we indefinitely suspend Johnston's license to practice law with no possibility of reinstatement for three months.

I. Background Facts and Proceedings.

Johnston is an Iowa lawyer. He was admitted to practice law in 1977, and is a sole practitioner in Muscatine. He was publicly reprimanded in 1991 for failing to file Iowa and federal income tax returns from 1984 to 1988. He has no other record of discipline. He is known as a bright and innovative advocate by other lawyers in his community.

Johnston represented Nelson Electric, Inc. In 2000, the corporation obtained a judgment of $4000 against a Muscatine building contractor named Thomas Corcoran. In 2001, the corporation obtained a second judgment against Corcoran for $1170.84. Several other individuals and businesses also acquired judgments against Corcoran during this period of time. One of the creditors, Jeff King, Inc. (King), executed on its judgment against two parcels of real estate owned by Corcoran in Muscatine, known as the blue building and the red building. The properties were subsequently purchased by King at a sheriff's sale for $5868. Corcoran was allowed a period of 180 days to redeem the property. The Nelson Electric judgment of $4000 was the only senior lien, and King paid the judgment, plus interest. Upon the apparent insistence of Nelson Electric, Johnston then set out to protect the remaining Nelson Electric judgment of $1170.84, in a rather complex and unusual manner.

Johnston first proposed to protect Nelson's junior judgment by preparing an involuntary bankruptcy petition against Corcoran, but eventually decided to personally meet with Corcoran to discuss the situation. Johnston met with Corcoran on February 17, 2002, the day before Corcoran's right of redemption would expire, in an Illinois jail where Corcoran was imprisoned. After discussing the situation, Johnston and Corcoran mutually agreed the best course of action was for Corcoran to assign his right of redemption to Johnston as agent for Nelson Electric, with Corcoran reserving the right to purchase the property back within a certain amount of time. Johnston believed this would allow Nelson Electric to protect its judgment by redeeming the property, and would also give Corcoran the ability to retain his property by buying it back at a later date. Accordingly, Corcoran signed a written acknowledgment indicating the assignment of his redemption rights to Johnston. The writing did not mention Corcoran's right to purchase the property back, or explain whether Johnston was acquiring redemption rights for himself or as an agent for Nelson Electric. Johnston then paid Corcoran all the money he had with him—$20 in cash—in part payment of the $250 purchase price. Johnston told Corcoran he would visit him the next day so the parties could complete their business.

The next day, the day Corcoran's period of redemption would expire, Corcoran and Johnston discussed the matter again. Johnston told Corcoran he believed the interest rate imposed on the judgment by King, the creditor who purchased the property at the sheriff's sale, was excessive. Johnston offered to represent Corcoran in an action to challenge the interest rate, which, if successful, would reduce the amount needed to redeem the properties. In doing so, he mentioned it would conflict with his representation of Nelson Electric.

Johnston then obtained the oral consent of Nelson Electric to represent Corcoran, and visited Corcoran later in the day to finalize the assignment of Corcoran's right of redemption and to represent Corcoran to challenge the interest rate. Johnston provided Corcoran with a written letter that disclosed the conflict of interest presented by representing him while also representing Nelson Electric. The letter disclosed that Johnston was only representing Corcoran to reduce the interest rate, and further stated that Johnston might ultimately purchase the properties. Johnston also had Corcoran sign two warranty deeds that he "anticipated using to transfer the title." The deeds, however, did not name a grantee. At the time Johnston did not know if he, Nelson Electric, or a partnership between them would take title to the properties.

Later that day Johnston filed papers with the district court to redeem the properties. In doing so, Johnston deposited $11,497.01 with the clerk of court. Johnston obtained the funds to redeem the property from Nelson Electric, even though the redemption amount included $4556.14 to reimburse King for the amount it had previously paid Nelson Electric in discharging Nelson Electric's senior lien.

Johnston also filed an objection to the amount of the redemption, and asked the clerk to hold the redemption funds until the court determined the correct amount of the redemption. In all documents filed with the court, Johnston identified himself as the attorney for Corcoran and that he was filing the redemption and objection on behalf of Corcoran.

Johnston then promptly met with King's attorney to begin negotiations over the objection to the redemption amount. On February 28, Johnston filed a stipulation in the King foreclosure action indicating King and Corcoran agreed the amount of redemption was $10,632.32, and the excess amount deposited with the clerk would be payable to Johnston as the attorney for Corcoran. On March 1, the district court approved the redemption amount and ordered the funds to be distributed.

Around this same time Johnston discovered Corcoran had deeded his interest in the blue building to a friend named Laura Enke. Johnston promptly negotiated an agreement to purchase her interest for $500 in exchange for a deed to the property. When the deed was signed on March 25, 2002, it did not name a grantee. By the time the deed was recorded on January 6, 2003, Welch Apartments, an entity owned by Johnston, was named the grantee.

Corcoran contacted Johnston by letter on April 5, 2002 to clarify the agreement regarding the property. In the letter he indicated he would like to sell the red building for $60,000 to pay off all his debts. He also intimated he would like Johnston to rent the blue building to pay the building's taxes and insurance, with remaining proceeds placed into his checking account. Corcoran said he would sign a power of attorney to enable Johnston to act for him, and concluded by saying, "I hope you hang with me and charge or pay whatever you feel necessary."

Johnston and Corcoran subsequently spoke over the phone about the letter. Johnston said it was not his job to find a buyer for Corcoran, and that he would not be his manager for the properties. Corcoran next communicated with Johnston in November of 2002. At this time Corcoran sent another letter to Johnston and stated he hoped Johnston was still helping him, and that "we should get down to business." Corcoran specifically wanted Johnston to try to sell his properties to Tom Meeker for $65,000, and told Johnston he could keep $40,000 from the sale. Johnston did not respond to this letter because he believed Corcoran's right to buy back the properties had expired.¹ Johnston acknowledged, however, that it was "probably very poor practice to not respond," and that he "should have responded and said . . . you're wrong, you're done."

Corcoran mailed another letter to Johnston in December of 2002. In this letter, Corcoran told Johnston that Meeker had agreed to buy his properties for $60,000, and that Johnston could keep $40,000 of it to pay off Corcoran's debts. Corcoran also mentioned that he had a year in which to buy back the property according to their agreement, and that he "still [has] two months to spare." Johnston again did not respond to this letter. He believed Corcoran was attempting to extract money from him, and discontinued further discussions with him.

Nelson Electric, the entity whom Johnston claimed was the moving force for the legal maneuvering to collect the judgment of $1170.84, later decided it did not wish to pursue the collection any further. As a result, Johnston acquired the interest of Nelson Electric in the properties by giving Nelson Electric a credit of $20,000 for the legal services it owed him. This allowed Johnston to continue to pursue his interest in the property. The properties remain encumbered by substantial debt and are the subject of current litigation to quiet title.

II. The Board's Complaint.

The Board charged Johnston with multiple violations of the Iowa Code of Professional Responsibility for Lawyers. These violations included DR 1-102(A)(1) (lawyer shall not violate a disciplinary rule), DR 1-102(A)(6) (lawyer shall not engage in other conduct that adversely reflects on the fitness to practice law), DR 2-101(B)(4)(a) (lawyer shall not engage in the in-person or telephone solicitation of legal business), DR 2-103(A) (lawyer shall not recommend his or her own employment), DR 2-104(A) (lawyer shall not accept employment resulting from unsolicited advice), DR 5-101(A) (lawyer shall not accept employment under certain circumstances unless client consents and there is full disclosure), DR 5-103(A) (lawyer shall not acquire a propriety interest...