LaVigne, Matter of

• Decision Date: 15 November 1996
• Citation: 146 N.J. 590,684 A.2d 1362
• Parties: In the Matter of F. William LA VIGNE, An Attorney at Law.
• Court: New Jersey Supreme Court

Page 590

146 N.J. 590

684 A.2d 1362

In the Matter of F. William LA VIGNE, An Attorney at Law.

Supreme Court of New Jersey.

Argued June 20, 1995.

Reargued Sept. 24, 1996.

Decided Nov. 15, 1996.

John J. Janasie, First Assistant Ethics Counsel, Trenton, on behalf of Office of Attorney Ethics.

S.M. Chris Franzblau, Livingston, for respondent (Franzblau & Dratch, attorneys).

PER CURIAM.

This matter arises from a Report and Recommendation of the Disciplinary Review Board (DRB) that F. William LaVigne (respondent) be disbarred for his unethical conduct in connection with a series of related real estate transactions. This case illustrates the pitfalls that arise when a lawyer does not carefully observe the lines that distinguish the relationships of friend, business associate, and client. Specifically, this case illustrates how closely a lawyer may come to disbarment if the lawyer does not secure and follow explicit instructions from a client concerning the use of a client's funds. The transaction involved the sale of a client's farm to respondent in exchange for cash and for two building lots upon which homes would be built for the client's sons. The concept is simple but its implementation was complex. The Office of Attorney Ethics provides a summary of the transaction.

I

The Kayhart Farm is a twelve-acre property contiguous to the quarry of a sand and gravel company owned by respondent on Lenape Road in Andover Township, New Jersey. Robert DuPont, Sr. (DuPont, Sr.) acquired the Kayhart Farm from Mrs. Charlotte Kayhart in 1986. DuPont, Sr. bought the property for the use of his two sons, James and Robert, Jr., who occupied the two-family house on the farm. Over time, the sons' families grew, and they wanted homes of their own. The DuPonts explored the possibility of subdividing the Kayhart Farm and building separate dwellings on the subdivided lots.

Respondent had represented DuPont, Sr. in some business matters and was a social acquaintance of the family. When he learned of the plans to subdivide the Kayhart Farm, he approached the DuPont family with a proposal to acquire it. Ownership of the farm was desirable because it would provide respondent with additional land for his quarry. Respondent owned other residential parcels in Andover on which new homes were being built by Cranberry Builders, Inc. (Cranberry). Negotiations resulted in an agreement under which respondent would acquire the Kayhart Farm from DuPont, Sr. and the two DuPont sons, James and Robert, Jr., would purchase homes built by Cranberry on lots owned by respondent. Each transaction was a part of one package; all had to happen, or none.

The basic transaction, whatever the senior DuPonts' tax objective may have been, involved the sale by them of the Kayhart Farm to respondent in exchange for $175,000 plus two residential lots, 6.01 and 6.02, worth $230,000, to be deeded without cost to the two DuPont sons. Respondent was to arrange for homes to be built on the lots by Cranberry, whose owner, Doug Ferry (Ferry), was a long time friend and client. The sons were to pay for the cost of constructing the houses but not the land, which they were to receive free and clear. The transaction was documented by three contracts, all dated April 29, 1988, and all prepared by respondent, although the senior DuPonts had consulted with Raymond Obssuth, independent tax counsel. ¹ The Kayhart Farm contract reflected a sale price of $175,000, without reference to the lots and homes for the DuPont sons. On the same date, Ferry's company, Cranberry, signed separate contracts with James and Yolanda DuPont and with Robert and Cecelia DuPont. The first contract required Cranberry to build a house on lot 6.02 having an aggregate value of $318,900, and to convey the house and lot to James and Yolanda for $203,900, the difference of $115,000 representing the value of the lot, part of the consideration payable by respondent for the Kayhart Farm. Similarly, the second contract required Cranberry to build a house on lot 6.01 having an aggregate value of $339,000, and to convey the house and lot to Robert and Cecelia for $224,000, the difference of $115,000 equalling the balance due from respondent for the Kayhart Farm.

Respondent was required to transfer lots 6.01 and 6.02 to Cranberry, but those lots, owned by respondent's company, Good Earth, Inc. (Good Earth), were subject to a $300,000 blanket mortgage held by Sussex County State Bank (Sussex), which apparently required collateral of $100,000 to release the two lots from the mortgage. Although respondent was obligated to transfer those lots to Cranberry free and clear, he arranged a more complicated transaction with Cranberry. Respondent conveyed to Cranberry three lots, lot 6.01, lot 6.02, and lot 5, (and may have agreed to convey additional lots), and in return Cranberry issued a note to respondent for $100,000 secured by a mortgage on lot 6.02, which respondent assigned to Sussex in return for the release of lots 6.01, 6.02, and 5 from Sussex's blanket mortgage. Thus, respondent kept his commitment to transfer lots 6.01 and 6.02 to Cranberry, and conveyed lot 5 (and possibly additional lots) to reimburse Cranberry for the $100,000 note and mortgage it issued on lot 6.02. In that way, respondent ensured that his transaction with Cranberry carried sufficient value to satisfy respondent's obligations concerning the lots destined for James and Robert DuPont.

To finance construction of the two homes, Cranberry borrowed $200,000 for each house from Kenvil Mortgage Company (Kenvil), whose affiliate, Roxbury Lumber Company, sold building supplies to Cranberry. Kenvil's loans were secured by mortgages on both lots, and other Kenvil loans to Cranberry were secured by mortgages on other properties. Cranberry had maintained good business relationships with Kenvil for several years, and respondent had represented Cranberry in numerous transactions involving property encumbered by mortgages to Kenvil.

On September 30, 1988, the closing took place on lot 6.02, which was then encumbered by a $200,000 mortgage to Kenvil and a $100,000 mortgage to Sussex. The closing proceeds of approximately $203,900 (excluding extras) were obviously insufficient to satisfy the mortgages. Ferry informed respondent that he had reached an agreement with Kenvil to accept $100,000 in exchange for releasing entirely its mortgage on lot 6.02, in return for which Ferry would mortgage additional Cranberry property to secure the $100,000 balance due to Kenvil. Respondent relied on Ferry's representation without obtaining confirmation from Kenvil. Out of the closing proceeds, $100,000 was used to pay off the Sussex mortgage and $100,000 was used to reduce the outstanding balance on the Kenvil loan and trigger Kenvil's agreement to release the lien on lot 6.02 and transfer that lien to other Cranberry property. Assuming that satisfaction of the full Kenvil mortgage would be received in due course, respondent completed the closing, prepared a RESPA statement (a federally required disclosure statement that sets forth items of receipt and disbursement at a real estate closing) that reflected the pay-off of only a $100,000 loan from Kenvil, and certified to National Community Bank, James and Yolanda's lender, that it had a valid first mortgage lien on lot 6.02.

Despite its agreement, Kenvil failed to release its lien on lot 6.02. Between the closing on lot 6.02 and the impending closing on lot 6.01, respondent spoke regularly with Ferry about Kenvil's refusal to release its lien. Ferry informed respondent that Kenvil was "working on it," and that Kenvil was involved in a refinancing and would release the mortgage when that was completed.

The closing on lot 6.01 occurred on May 25, 1989. In April 1989, respondent wrote Kenvil requesting mortgage payoff statements on lots 6.01 and 6.02. Kenvil responded, stating that the balance due on lot 6.01 (Robert and Cecelia's lot) was $208,194.16 and the balance on lot 6.02 was $117,609.85, including accrued interest, and reflecting a credit for the $100,000 paid at the prior closing. Ferry previously had informed respondent that he now had a firm agreement from Kenvil that it would discharge its mortgages on both lots 6.01 and 6.02 if at the forthcoming closing Cranberry would pay off the balance of the loan on lot 6.02 (James' and Yolanda's lot) as well as the interest due Kenvil on other Cranberry mortgage loans. In exchange, Cranberry would provide additional collateral to secure its unpaid indebtedness to Kenvil.

Again, respondent failed to obtain written confirmation of that understanding. Although the proceeds at the closing of lot 6.01 were sufficient to pay off Kenvil's lien on that lot in full, the bulk of the proceeds, reflecting Ferry's new arrangement with Kenvil, were used to pay off the balance due on lot 6.02. Thus, respondent "misused" the closing proceeds from lot 6.01 and applied them as follows: (1) $117,609.85 to pay off the Kenvil mortgage on lot 6.02, with interest to May 23, 1989; (2) $368.96 to pay the interest on lot 6.02 through May 31, 1989; (3) $22,239.16 to pay interest due Kenvil on other Cranberry properties (including $11,972.35 in interest due on lot 6.01, the subject of the closing); (4) $10,000 to Cranberry (out of what respondent described as excess cash); and (5) miscellaneous small disbursements. Respondent personally delivered the checks to Kenvil, informing one of the principals of Kenvil that he expected to receive in exchange discharges of the Kenvil mortgages on both lots 6.01 and 6.02. Although Kenvil reflected on its books that the loan secured by the mortgage on lot 6.02 was paid in full, it refused to discharge either mortgage.

After the closing, respondent failed to inform either Robert or James of the problems that had developed. He also transmitted to the title company and National Community Bank certifications that Robert and Cecelia's lot 6.01 was...