State ex rel. Counsel for Dis. v. Orr

Decision Date30 January 2009
Docket NumberNo. S-07-911.,S-07-911.
Citation759 N.W.2d 702,277 Neb. 102
PartiesSTATE of Nebraska ex rel. Counsel for Discipline of the Nebraska Supreme Court, relator, v. Jeffrey L. ORR, respondent.
CourtNebraska Supreme Court

Kent L. Frobish, Assistant Counsel for Discipline, for relator.

Mark A. Christensen and Brandon K. Dickerson, of Cline, Williams, Wright, Johnson & Oldfather, L.L.P., Lincoln, for respondent.

HEAVICAN, C.J., GERRARD, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ.

PER CURIAM.

INTRODUCTION

Jeffrey L. Orr, respondent in this attorney disciplinary proceeding, was found to have violated his oath of office as an attorney and to have violated disciplinary rules requiring an attorney to competently represent a client. The only issue presented is the appropriate sanction to be imposed.

FACTS

The underlying conduct in this case involves Orr's representation of Steve Sickler and Cathy Mettenbrink in connection with the franchising of a coffee shop business. Sickler and Mettenbrink had opened their first coffee shop together, Barista's Daily Grind (Barista's), in Kearney, Nebraska, in December 2001. In September 2002, Sickler met with Orr and asked whether Orr could help Sickler and Mettenbrink franchise their business.

Orr was engaged in private practice in Kearney, and his experience with franchising was limited. Orr testified that he had read franchise agreements on behalf of clients who either were or were interested in becoming franchisees, but had never represented a franchisor. Orr's role in those cases had been to generally advise clients as to the rights of a franchisor and duties of a franchisee under the agreement. Orr's experience had required him to review franchise agreements and disclosure statements, but he had not reviewed state or federal law governing franchising.

In response to Sickler's inquiry, Orr stated that he had recently reviewed a franchisee's agreement and that he believed he could "handle" the franchising of Barista's. Orr told Sickler and Mettenbrink that he would begin working on a franchise agreement, and he completed the first draft in October 2002. Orr stated that he had recently reviewed a restaurant franchise agreement and then utilized that document when drafting the Barista's document. Although he had never before drafted a franchise agreement, Orr believed it was simply "a matter of contract drafting," which he believed he was competent to do. Orr contacted an attorney in Washington, D.C., for assistance with the trademark and copyright portions of franchising, and that attorney warned Orr that franchising was a specialized field.

In December 2002, Orr drafted a disclosure statement. Orr used the disclosure statement he had recently reviewed on behalf of the previously mentioned franchisee, as well as "FTC documents," to finish the statement in January 2003. Orr's understanding was that a disclosure statement was required by the Federal Trade Commission (FTC) in order to inform the franchisee of the more important terms and conditions of the franchise agreement.

From 2003 to 2006, Barista's sold 21 franchises. In July 2004, Sickler was contacted by a banker in Colorado, inquiring on behalf of a prospective franchisee. The banker requested the "UFOC" of Barista's, and, unaware of what a UFOC was, Sickler referred the banker to Orr. Orr determined that the then-current disclosure statement of Barista's was "compliant and valid" and could be used anywhere. Sickler testified that Orr told him that the UFOC was a requirement of federal law which Barista's was "probably going to have to get" if it was "going to be selling franchises out of state."

In August 2004, Orr revised the franchise agreement and disclosure statement at Sickler's request due to problems Barista's was having with a franchisee in Iowa. The Iowa franchisee had been provided with copies of the initial franchise agreement and disclosure statement. However, in February 2004, the Iowa franchisee's attorney sent a letter to Sickler suggesting that Barista's had not complied with federal disclosure requirements.

Sickler and Orr dispute at what point Orr was provided with a copy of that letter. But despite being aware that Barista's was working with prospective franchisees in Iowa and Colorado, Orr did not advise Sickler to seek input from local counsel in those states. And Sickler testified that the revised franchise agreement and disclosure statement were also provided to prospective franchisees in Kansas.

In October 2004, due to an unrelated dispute, Sickler and Mettenbrink sued the Colorado franchisees to terminate the franchises. A counterclaim was filed alleging deceptive and unfair trade practices, violation of FTC rules, and violation of Nebraska's Seller-Assisted Marketing Plan Act.1 Orr's associate, Bradley Holbrook, became lead counsel for this litigation, although Orr remained primarily responsible for the representation of Barista's. Holbrook researched Nebraska law and discussed the case with Orr, including the fact that the Colorado franchisees were challenging the disclosure statement.

Disagreements were also ongoing with the Iowa franchisee, who eventually demanded rescission of the franchise agreement based on Barista's failure to comply with federal and Iowa disclosure laws. The Iowa franchisee's attorney demanded that Sickler return the franchise fee and pay attorney fees and other damages, and informed Sickler that he and Mettenbrink could be held personally liable under certain provisions of Iowa law. Sickler then informed Orr of the problem. Orr advised Sickler that the firm was going to contact an Omaha, Nebraska, attorney for a second opinion. Holbrook then contacted the Omaha attorney for a second opinion, which was provided in a June 2005 memorandum. It is not clear whether a copy of the memorandum was provided to Sickler and Mettenbrink, but they were ultimately informed of its conclusions and advised by Orr not to sell any more franchises without considerable changes to the disclosure statement.

A third version of the disclosure statement was created and used. Sickler stated he was told that the disclosure statement was now "compliant with every state," but Orr stated he also told Sickler that for out-of-state franchises, Sickler should get advice from local counsel. Orr stated that before the third revision of the disclosure statement, he had been under the impression that FTC requirements overrode state law. But he advised Sickler to obtain local counsel because he had become aware that state law could be more stringent than federal requirements.

The Iowa franchisee filed suit in Iowa and, according to Sickler, obtained personal judgments against Sickler and Mettenbrink. Barista's sold seven more franchises using the third disclosure statement, but was notified by the FTC in November 2005 that Barista's was under investigation. Holbrook contacted an attorney specializing in franchise law regarding the FTC investigation. The specializing attorney reviewed the franchise documents of Barista's and concluded those documents—including the third disclosure statement—did not comply with FTC rules. The attorney characterized the deficiencies as "major."

Recognizing that it now had a conflict of interest, Orr's law firm withdrew from representing Sickler and Mettenbrink. The attorney specializing in franchising law continued to represent Sickler and Mettenbrink, and Barista's, with respect to the FTC issues. The FTC civil penalty has been suspended indefinitely, and will not have to be paid so long as the disclosures of Barista's are truthful. By April 2006, however, the franchising of Barista's had "virtually been shut down." Orr's law firm has paid for the revision of the franchising documents, as well as the research and second opinion obtained regarding the original franchising document.

Formal charges were filed against Orr on August 24, 2007, alleging that Orr had violated several sections of the Nebraska Rules of Professional Conduct and several sections of the now-superseded Code of Professional Responsibility. This court appointed a referee, and after a hearing, the referee found that Orr had violated his oath of office as an attorney. The referee also found that Orr had violated Canon 1, DR 1-102(A)(1), and Canon 6, DR 6-101(A)(1) and (2), of the Code of Professional Responsibility, as well as §§ 1.1 and 8.4(a) of the Nebraska Rules of Professional Conduct (now codified at Neb. Ct. R. of Prof. Cond. §§ 3-501.1 and 3-508.4(a)). DR 1-102(A)(1) and § 3-508.4(a) prohibit an attorney from violating the relevant rules of conduct.

Section 3-501.1 provides that "[a] lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness, preparation and judgment reasonably necessary for the representation." Similarly, DR 6-101 provides that a lawyer shall not handle a legal matter "which the lawyer knows or should know that he or she is not competent to handle, without associating with a lawyer who is competent to handle it," or "without preparation adequate in the circumstances." The referee recommended that a public reprimand be issued.

Orr did not take exception to the referee's report. This court granted the Counsel for Discipline's motion for judgment on the pleadings, but ordered briefing and argument on the appropriate sanction to be imposed.

ANALYSIS

As an initial matter, we first note that because some of the conduct at issue occurred prior to September 1, 2005, it is governed by the now-superseded Code of Professional Responsibility; other conduct occurred on or after September 1, the effective date of the Nebraska Rules of Professional Conduct, and is therefore governed by those rules.2

A proceeding to discipline an attorney is a trial de novo on the record.3 To sustain a charge in a disciplinary proceeding against an attorney, a charge must be supported by clear and convincing evidence.4 Violation of...

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