Spear, Matter of, SB-88-0009-D

• Decision Date: 16 May 1989
• Docket Number: No. SB-88-0009-D,SB-88-0009-D
• Citation: 774 P.2d 1335,160 Ariz. 545
• Parties: In the Matter of a Member of the State Bar of Arizona Donald B. SPEAR, Jr., Respondent.
• Court: Arizona Supreme Court

Page 1335

774 P.2d 1335

160 Ariz. 545

In the Matter of a Member of the State Bar of Arizona Donald B. SPEAR, Jr., Respondent.

No. SB-88-0009-D.

Supreme Court of Arizona, In Banc.

May 16, 1989.

Donald B. Spear, Jr., Tucson, pro se.

State Bar of Arizona by Suzette I. Pintard, Phoenix, Law Offices of Michael W.L. McCrory by Michael W.L. McCrory (substituted counsel), Tucson, for State Bar of Ariz.

FELDMAN, Vice Chief Justice.

In this case we again deal with an attorney's duty to fulfill his ethical obligations while engaging in for-profit business trans actions with his client. As in too many similar cases, the attorney's conduct did not comply with the demands of our ethical rules, and we must impose discipline. We have jurisdiction under Ariz. Const. art. 3 and art. 6, §§ (3) and (5), and Rules 46(a), 52, and 53(e), Ariz.R.Sup.Ct., 17A A.R.S. (1988).

I. PROCEDURE

A. Proceedings Below

The State Bar of Arizona charged respondent, Donald B. Spear, Jr., with violating three disciplinary rules of the former Arizona Code of Professional Responsibility, Rule 29(a), Ariz.R.Sup.Ct., 17A A.R.S. (1973). ¹ See Rule 53(c). The Local Administrative Committee (Committee) heard the two-count complaint on October 21, 1986. ² Respondent represented himself. Pursuant to Rule 53(c)(4), the Committee filed its report, finding that respondent violated DR 1-102(A)(4) by engaging in conduct involving "dishonesty, fraud, deceit, or misrepresentation." The Committee concluded, however, that respondent did not violate DR 4-101(B)(3) and 5-104(A), pertaining to unethical use of client confidences and unethical business relations with a client. Based on the single violation, the Committee recommended disbarment as the appropriate sanction.

The Disciplinary Commission (Commission) reviewed the case on September 12, 1987, see Rule 53(d), with counsel representing respondent. The Commission's report, see Rule 53(d)(2), affirmed the Committee's findings of fact and conclusions of law relating to Count I (DR 1-102(A)(4)). Unlike the Committee, however, the Commission found respondent also violated DR 4-101(B)(3) and 5-104(A), as alleged in Count II. The Commission further rejected the Committee's disbarment recommendation, instead recommending respondent be suspended from the practice of law for six months.

Respondent filed his notice of appeal to this court on November 9, 1987. See Rule 53(e). Respondent, appearing in propria persona, claims that (1) the Commission's findings are not supported by clear and convincing evidence; (2) the Commission erred by not admitting in evidence an affidavit he offered at the hearing; (3) the Commission could not revive charges that the Committee dismissed; and (4) the Commission's suspension recommendation is an excessive sanction.

B. Standard of Review

We approach this matter as an "independent trier of both fact and law in the exercise of our supervisory responsibility over the State Bar." In re Neville, 147 Ariz. 106, 108, 708 P.2d 1297, 1299 (1985). We do, however, "give deference and serious consideration" to the reports of both the Committee and Commission. In re Pappas, 159 Ariz. 516, 768 P.2d 1161 (1988). The State Bar bears the burden of proving by clear and convincing evidence that respondent violated his ethical obligations. Rule 54(c), (d). Clear and convincing evidence is evidence making it "highly probable" that the State Bar's contention that respondent committed professional misconduct is true. In re Kersting, 151 Ariz. 171, 172, 726 P.2d 587, 588 (1986).

II. FACTS

A. Background

Respondent, a Tucson attorney, began representing the complainant, David Canterman, in approximately 1982. Canterman is a Tucson businessman and entrepreneur with interests in various retail video tape rental and music stores. He has no special tax or real estate training. Sometime around 1982, Canterman's accountant suggested he utilize respondent's services as both a tax attorney and a certified public accountant (CPA). Canterman acted on this advice by contacting respondent after looking through the telephone directory and seeing respondent's advertisement. The advertisement represented respondent as both an attorney and a CPA licensed in Arizona.

B. The Real Estate Deal

In late 1983, Canterman approached respondent for advice on how to reduce the tax consequences of a $30,000 to $50,000 cash bonus Canterman would receive from one of his business affiliations. Respondent informed Canterman that Spear Investment Co., an Arizona limited partnership of which he was a partner, owned and was interested in selling two duplexes in Tucson. Respondent explained to Canterman that tax benefits accruing from the purchase of the duplexes (depreciation and resultant book loss) would help minimize the negative tax consequences from receiving a large cash bonus so late in the tax year.

Respondent never informed Canterman that previously he had unsuccessfully listed the duplexes with a realtor. With Canterman's interest piqued, in October 1983, he and respondent began to work out the mechanics of the sale. Because Canterman could not close the purchase before the end of 1983, Canterman signed two land sale contracts, supposedly securing tax benefits for the 1983 tax year.

1. The Land Contracts

Two admittedly contemporaneous contracts memorialize the November 1983 land deal between Canterman and respondent. The first is the mortgage company's form "Deposit Receipt & Agreement," accurately showing a signature date and payment of earnest money on November 1, 1983. The second is a "Land Contract," drafted by respondent and dated "the 31st day of March, 1983." This contract recites that Canterman had paid the earnest money on March 31. It also provides for a January 14, 1984 closing date, although Canterman was to receive all rents and accept responsibility for mortgage payments and other liabilities as of November 1, 1983.

Respondent testified that he drafted the Land Contract and dated it "March 31" solely to establish the date from which Canterman would be entitled to claim depreciation on the two duplexes from April through December 1983, while Spear Investment would take the depreciation from January through March 1983. This backdated contract is the gravamen of these disciplinary proceedings.

2. The Tax Problem

Based on the backdated contract, respondent completed Canterman's 1983 tax returns, claiming a depreciation allowance for the two duplexes for the period April through December 1983. Canterman told the Committee he questioned the legality of the backdated contract before he signed it, but respondent assured him it was legal.

Subsequently, Canterman filed a civil action against respondent and his partners. The action raised various issues arising out of the purchase of the duplexes, including the backdating scheme. During discovery, Canterman sought independent advice concerning the backdated contract. A CPA told Canterman the depreciation allowances were inappropriate. Relying on this advice, Canterman filed amended returns for the 1983 tax year, paying $10,034 in back taxes, interest, and penalties to the federal and state governments.

III. THE CHARGES

A. Count I--Misrepresentation and Fraud

1. The Backdated Contract

The Committee and Commission found respondent violated DR 1-102(A)(4). This disciplinary rule prohibits an attorney from "engag[ing] in conduct involving dishonesty, fraud, deceit, or misrepresentation." The State Bar contends respondent intentionally misrepresented the date Canterman acquired an interest in the duplexes so Canterman could claim depreciation allowances to which he was not entitled, thus defrauding the federal and state governments. Filing false or fraudulent documents to secure unwarranted tax benefits violates this disciplinary rule. See In re Goldman, 124 Ariz. 105, 602 P.2d 486 (1979) (attorney's filing of false documents with bank implicates DR 1-102(A)(4)).

Acknowledging that the contract states it was "entered into on March 31, 1983," respondent admits nothing in the document would alert a reader that he and Canterman actually negotiated, signed, and exchanged partial consideration for the contract in November 1983, or that Canterman did not know of the property until late 1983. Instead, respondent asserts that the backdated contract was only intended to show that he and Canterman agreed the purchase was to be "effective" as of March 31, 1983, and, at worst, he should have inserted such language into the contract. Thus, respondent denies any illegality or intent to defraud the federal or state governments. He claims federal law allows the retroactive transfer of depreciation allowances provided the seller has not claimed the allowances for the same tax period on his own tax return and the buyer acquires an "investment interest" in the property. Respondent argued to the Committee that Canterman had such an investment interest in the duplexes because the backdated contract assigned the risk of loss to Canterman as of March 31, 1983. Respondent also testified that Canterman could acquire an investment interest in the duplexes merely because "we [the parties to the contract] said he had it." Reporter's Transcript (RT), Oct. 21, 1986, at 111.

Evidently finding such explanations disingenuous, the Committee made, and the Commission approved, the following findings of fact and conclusions of law: (1) respondent intentionally backdated the contract, (2) respondent "calculated" to mislead the revenue agencies into believing the contract was negotiated and agreed upon in March 1983, (3) respondent intentionally misrepresented the validity of the contract's tax benefits to Canterman, and (4) tax depreciation benefits are not retroactively assignable before the buyer and seller at least agree to general sale terms, which in this case did not occur until November 1983.

We believe clear and convincing evidence supports the Committee's factual findings. As noted, res...