State ex rel. Counsel for Discipline of the Neb. Supreme Court v. Chvala
| Decision Date | 22 November 2019 |
| Docket Number | No. S-17-773.,S-17-773. |
| Citation | 304 Neb. 511,935 N.W.2d 446 |
| Parties | STATE of Nebraska EX REL. COUNSEL FOR DISCIPLINE OF the NEBRASKA SUPREME COURT, relator, v. Janet L. Krotter CHVALA, respondent. |
| Court | Nebraska Supreme Court |
Kent L. Frobish, Assistant Counsel for Discipline, for relator.
David A. Domina, of Domina Law Group, P.C., L.L.O., Omaha, for respondent.
Heavican, C.J., Miller -Lerman, Stacy, Funke, Papik, and Freudenberg, JJ.
This is an original action brought by the Counsel for Discipline of the Nebraska Supreme Court against attorney Janet L. Krotter Chvala, alleging she violated several disciplinary provisions and her oath as an attorney by, among other things, entering into business transactions with clients without providing the full disclosure mandated by the disciplinary rules and engaging in conduct involving deceit and dishonesty. Chvala denied the allegations. A referee was appointed, and an evidentiary hearing was held. The referee found clear and convincing evidence of multiple disciplinary violations and recommended that Chvala be disbarred. Chvala filed an exception to the referee’s report, challenging both the findings and the recommended sanction.
On de novo review, we find clear and convincing evidence that Chvala violated several disciplinary provisions and her attorney oath. And given the seriousness of the violations, we agree with the referee that the appropriate sanction for Chvala’s misconduct is disbarment.
Chvala has been licensed to practice law in Nebraska since 1984. She is an experienced, well-respected lawyer with a busy law practice focused primarily on business formation, real estate, and probate in the area of O’Neill and Atkinson, Nebraska.
Chvala has not been the subject of any prior disciplinary action.
Brothers Wayne Kaup and Kurt Kaup operate several farming-related businesses in the O'Neill and Atkinson area. In the 7 years before the 2003 real estate transaction at the heart of this disciplinary action, Chvala regularly provided legal services to Wayne and Kurt and represented them in a variety of matters, including the purchase of farmland, the handling of crop liens, and the organization of business entities for hay operations, livestock operations, and hauling grain. Chvala also performed a variety of legal services for Wayne and Kurt’s mother, Diane Kaup, during this time period.
On January 2, 2003, Wayne and Kurt signed a contract to purchase a section of prime farmland in Holt County, Nebraska, known as the Morrison Land. The purchase price was $996,880.50. They put 5 percent down and sought private financing for the remainder of the purchase price.
Their mother, Diane, agreed to finance a quarter section of the land, and their aunt, Rita Olberding (Rita), agreed to finance another quarter section. Wayne and Kurt contacted Chvala at her law office and asked if she would be interested in hearing about an investment proposal regarding the Morrison Land. She said she was, and on January 12, 2003, Wayne and Kurt met with Chvala and her husband, Gary Chvala (Gary), at Chvala and Gary’s home.
It is undisputed that during the January 12, 2003, meeting at Chvala and Gary’s home, Wayne and Kurt discussed their need to finance the Morrison Land purchase. But Chvala and the Kaup brothers disagree as to what specifically was said during the meeting.
According to Chvala, the meeting was primarily between Gary and the Kaup brothers. Chvala testified she merely introduced Wayne and Kurt to Gary, and then explained: According to Chvala, she was not otherwise involved in the January 12, 2003, meeting.
Wayne and Kurt testified that Chvala actively participated in the meeting and that she was the one with whom they negotiated. They denied that Chvala made any statement about it being only Gary’s deal. Wayne testified that Chvala did most of the talking during the meeting and that Gary remained mostly silent. Wayne explained that although he and Kurt had approached Chvala about financing a quarter section, Chvala told them she was interested in two quarter sections (which total a half section) and did not want to loan them money. Instead, Chvala offered to purchase a half section of the Morrison Land and then lease it back to Wayne and Kurt with an option to purchase the land at the end of the lease term.
The parties discussed several ways to structure the arrangement. One proposal, made by the Kaup brothers, was that Chvala and Gary would receive a guaranteed 5-percent rate of return and the Kaup brothers would have an option to purchase for the fair market value of the land at the end of the lease term. However, they ultimately agreed Chvala and Gary would purchase the half section of the Morrison Land and lease it back to Wayne and Kurt pursuant to a 10-year triple-net lease that would guarantee a 7-percent rate of return to Chvala and Gary, with an option for the Kaup brothers to purchase the land at the end of the lease term for the original purchase price. Both Wayne and Kurt testified that near the end of the meeting, Chvala told them the half section of land would be titled in Gary’s name for estate planning purposes.
A few days after the January 12, 2003, meeting, and in reliance on the agreement reached with Chvala and Gary, Wayne and Kurt assigned their rights under the purchase agreement to Gary so he could purchase the half section of the Morrison Land. Wayne and Kurt executed similar assignments in favor of Diane and Rita for the respective quarter sections of the Morrison Land they planned to purchase.
Gary was a high school teacher and coach, and a respected member of the community. Prior to January 2003, he had not been involved in purchasing or leasing farmland. Gary died unexpectedly before the evidentiary hearing in this disciplinary case. But his deposition was taken in a related civil case filed by Wayne and Kurt against Chvala and Gary, and a transcript of that deposition was received as an exhibit during the disciplinary hearing. In his deposition, Gary testified he did not remember how the Morrison Land deal was first presented to him, but he consistently described it as "my land" and insisted that "[i]t has nothing to do with [Chvala], she’s got her own situation."
Gary testified he and Chvala decided the Morrison Land would be titled in his name, but admitted that their "joint funds" were used to purchase the land and that Chvala was obligated on a promissory note for a substantial portion of the purchase price. Gary’s deposition testimony also showed he was unfamiliar with virtually all the details of the deal. When asked whose idea it was to lease the property back to Wayne and Kurt, Gary said, "Well, I'm not really sure." Gary did not understand and could not explain the triple-net lease provisions, and when asked why he chose such a lease arrangement for the deal, Gary testified he got the idea from forms he had seen around Chvala’s law office. Gary was not able to explain how he planned to make a profit on the investment as it was structured. When pressed, he testified,
The referee further found that Wayne and Kurt’s testimony about the discussions and agreements reached during the January 12, 2003, meeting was credible, and he expressly found that Chvala’s testimony was not credible.
Closing on the Morrison Land occurred in February 2003. Gary became the titled owner of a half section of the Morrison Land, which he purchased for $497,637. To finance the purchase, Gary used approximately $240,000 from Chvala’s personal savings account, and he and Chvala jointly borrowed the balance of the purchase price. Both Gary and Chvala signed the promissory notes and loan agreements.
Rita became the titled owner of a quarter section of the Morrison Land, and Diane took title to the other quarter section through Sandyland, LLC, an entity formed by Chvala expressly for that purpose.
Chvala prepared the deeds, transfer statements, and bills of sale for Gary, Sandyland, and Rita.
After the closings, Chvala drafted lease termination notices on behalf of all of the new owners of the Morrison Land—Gary, Sandyland, and Rita. In the notices, Chvala represented herself as the attorney for each Morrison Land owner. In a subsequent letter dated February 28, 2003, and addressed collectively to "Diane, Rita, Wayne and Kurt," Chvala provided copies of the lease termination notices she had sent to the former tenants, explaining:
Chvala testified that she prepared the termination notices "for all of the parties to ensure that the previous tenants were not going to show up and try to farm this property."
At the time of closing, the leases and...
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