Neville, Matter of

• Citation: 708 P.2d 1297,147 Ariz. 106
• Decision Date: 23 September 1985
• Docket Number: No. SB-316,SB-316
• Parties: In the Matter of a Member of the State Bar of Arizona, Robert T. NEVILLE, Respondent.
• Court: Supreme Court of Arizona

Page 1297

708 P.2d 1297

147 Ariz. 106

In the Matter of a Member of the State Bar of Arizona, Robert T. NEVILLE, Respondent.

No. SB-316.

Supreme Court of Arizona, In Banc.

Sept. 23, 1985.

F. William Sheppard, Phoenix, for State Bar.

Philip E. von Ammon, Phoenix, for respondent.

FELDMAN, Justice.

Respondent Neville was charged with violations of the Code of Professional Responsibility Rule 29(a), Rules of the Supreme Court, 17A A.R.S. ¹ A formal complaint was filed against respondent on January 28, 1983 in three counts. A hearing was held before State Bar Local Administrative Committee for District 5H (Committee) on May 3 & 4, 1983. The Committee concluded that the violations charged in Counts One and Two were substantiated and recommended that respondent be suspended from the practice of law for ninety (90) days. Respondent objected to the Committee's original and amended Findings of Fact and Conclusions of Law and Recommendations. Those objections were heard by the Disciplinary Board (see Rule 36(b)) which voted to accept the Committee's Recommendations as to Counts I, II and III and recommended a sixty-day suspension. Respondent filed objections to the report and recommendation of the Disciplinary Board (see Rule 37(a)), thus bringing the matter before us for review. (See Rule 37.)

We approach the proceeding as trier of both fact and law in the exercise of our supervisory responsibility over the State Bar. In re Mercer, 133 Ariz. 391, 393, 652 P.2d 130, 132-33 (1982). We are guided by a standard of clear and convincing evidence, although the findings of the State Bar are entitled to deference and serious consideration. Id.; In re Moore, 110 Ariz. 312, 313, 518 P.2d 562, 563 (1974). The Committee and the Board concluded that respondent had violated Disciplinary Rules 5-104(A), 5-105 and 2-102(C). In general, these rules regulate a lawyer's business relationships with his client (5-104(A)), multiple representation of adverse interests (5-105) and the use of professional letterheads and notices (2-102(C)).

FACTS

The facts giving rise to this matter are complex and clearly illustrate the inherent risks to an attorney who conducts business with his client when their interests are adverse. In re Bentley, 141 Ariz. 593, 596, 688 P.2d 601, 604 (1984).

Respondent Neville was admitted to practice law in the State of Arizona in 1964 and has been a member of the State Bar ever since. Floyd Bly is a retired pharmacist who lived in Arizona from 1971 to 1981. He was a licensed real estate broker in Minnesota and was also licensed in Arizona in 1978. He is a knowledgeable and sophisticated real estate investor, but has no legal training. Bly first retained respondent in 1971, and they had an ongoing attorney-client relationship until approximately 1981. Respondent performed work for Mr. Bly on numerous transactions, although he was not Bly's sole legal counsel. Mr. Bly frequently purchased real estate and either exchanged it or sold it on deferred payments evidenced by note or contract. It would be fair to say that Bly was more of a trader than an investor.

The charges are based on three related transactions. The first (Count I) involves property called "Camp Phoenix" on East Van Buren Street in Phoenix. Bly exchanged Camp Phoenix for property in Chandler Heights which he simultaneously sold to respondent in exchange for respondent's promissory note. The second charge (Count II) involves respondent's representation of both Bly and another party in the original purchase of Camp Phoenix and respondent's subsequent representation of the other party in a bankruptcy action. The third charge (also Count II) involves respondent's use of stationery holding himself out as a partner in a partnership which never existed. ²

The Camp Phoenix property has a complex history. Mr. Bly obtained it and some undeveloped land in Litchfield Park in exchange for his interest in a promissory note secured by property in Idaho. Respondent acted as counsel in this transaction. Mr. Bly testified that respondent represented the seller in this transaction, a Mr. Kay but that he (Bly) had retained Neville prior to this time for other matters. The record is unclear on this point. The Committee found that respondent represented Bly in the acquisition.

Mr. Bly operated Camp Phoenix as a motel and trailer park and then sold it to the manager, a Mr. Cummings, in 1975. Mr. Neville prepared the documents necessary to effectuate this transaction. Mr. Bly thought that respondent was his lawyer in this matter. Mr. Cummings had no independent legal advice and testified that he, too, considered respondent to be his lawyer. Respondent never clarified who he thought he represented in this transaction, but his testimony is consistent with that of Cummings as to respondent's statement that he would be unable to represent either party in any later dispute. Cummings thereafter defaulted on his obligations to Bly, who then asked respondent to represent him in a lawsuit to regain possession of the property and to obtain a deficiency judgment from Cummings for the balance due. Respondent refused and sent Bly to Attorney Ferrin who pursued the matter. Bly regained possession of Camp Phoenix and on November 5, 1976 obtained a judgment against Cummings for $60,550.25.

Respondent later obtained an interest in the Camp Phoenix property by purchasing options from Bly. The options, drafted by respondent, have not been introduced into evidence. As consideration for the first option, respondent gave his promissory note for $5,000, eventually paid half by jewelry and half by credit against legal fees which Bly owed to respondent. Respondent purchased the option based on plans to develop the property as a government motor pool, however the government subsequently purchased an adjacent property. Thereafter, respondent drafted a second option, hoping to develop the property with mini-warehouses. This development would have required that Bly subordinate his security for respondent's debt to a construction loan. Respondent put considerable effort into the project, got the property rezoned, but was unable to make the financial arrangements necessary to bring the project to fruition.

At this time the Lau family agreed to purchase Camp Phoenix from Bly in exchange for property they owned in Chandler Heights plus $25,000 in cash. Apparently respondent initiated this transaction, seeking permission from Bly to sell his option to the Lau group. Bly did not want title to either the Camp Phoenix or the Chandler property; accordingly, the transaction was structured so that the Laus paid Bly $25,000 cash and conveyed the Chandler Heights property to him in return for his conveyance of Camp Phoenix to them. Simultaneously, Bly transferred the Chandler Heights property to respondent in exchange for respondent's note for $257,774. Bly's participation was conditioned upon respondent's purchase of the Chandler Heights property.

Respondent drafted the contract for all the parties. It is undated, but was notarized on June 15, 1976 and signed by respondent, Lau, and Bly. Respondent testified that he told them that as a principal he could not represent any of them in the transaction and that they should each get independent counsel. The Laus were advised by a CPA and independent legal counsel. Mr. Bly was not. Nevertheless, respondent continued with the transaction. Bly stated that he thought respondent represented him in these transactions and denied that respondent advised him to the contrary. He admitted knowing that respondent and he had adverse interests.

Clause 2 of the agreement between Bly, Lau and respondent provides that

Bly does hereby grant, bargain, sell and convey to NEVILLE the [Chandler] property ... for a total consideration of Two Hundred Fifty-Seven Thousand Seven Hundred Seventy-Four Dollars ($257,774) by promissory note and deed of trust payable as follows: Said $257,774 shall bear interest at the rate of eight percent (8%) per annum beginning thirty (30) months from the date of this Agreement. Said interest will be payable semiannually beginning thirty-six (36) months from the date of this Agreement. The balance shall become due only upon the contingency that NEVILLE sell said property and only to the amount of the pro rata amount of actual cash or trade received as to the total purchase price of said property. NEVILLE agrees not to sell said property for less than $257,774.

Bly created the substantive terms, and respondent accepted these terms with no negotiation. For the most part, these provisions were later included in the standard form escrow agreement dated June 5, 1978, prepared by Minnesota Title Company, and in the formal "Agreement for Sale" of the Chandler Heights property from Bly to respondent. The record does not indicate who drafted the Agreement for Sale.

Subsequently Bly telephoned respondent and complained that respondent's personal obligation on the instrument evidencing the purchase price had been omitted from the agreement. Bly was concerned that if respondent sold the property to a third party who later defaulted, Bly would have no choice but to take possession of the land, which he did not want. Neville responded by confirming, on stationery bearing the name of Ferrin & Neville, the oral understanding that he was personally obligated for the amount of $257,774.

Respondent later sold the Chandler Heights property to Reeder and Shill who made the interest payments to Bly as required under respondent's contract. Respondent also received at least $42,000 in cash from the Reeder/Shill sale, none of which was paid to Mr. Bly. In 1981 Bly learned of the sale and wrote respondent to demand his pro rata share of the proceeds. Respondent had no funds, and Bly then filed a complaint with the State Bar. After receiving the initial notice of the complaint, respondent wrote to the Committee explaining that he had not paid Bly from the Reeder/Shill...