State v. Larsen, 900473-CA

• Decision Date: 07 February 1992
• Docket Number: No. 900473-CA,900473-CA
• Citation: 828 P.2d 487
• Parties: STATE of Utah, Plaintiff and Appellee, v. C. Dean LARSEN, Defendant and Appellant.
• Court: Utah Court of Appeals

Page 487

828 P.2d 487

STATE of Utah, Plaintiff and Appellee, v. C. Dean LARSEN, Defendant and Appellant.

No. 900473-CA.

Court of Appeals of Utah.

Feb. 7, 1992.

Larry R. Keller, Salt Lake City, for defendant and appellant.

R. Paul Van Dam and David B. Thompson, Salt Lake City, for plaintiff and appellee.

Before BENCH, P.J., and JACKSON and ORME, JJ.

OPINION

BENCH, Presiding Judge:

C. Dean Larsen appeals his conviction of eighteen counts of securities fraud and theft on the ground that the Office of the Utah Attorney General (the Attorney General) should have been disqualified from the case for a conflict of interest. Larsen further asserts that formal investigation into wrongdoing was prompted by disclosure of confidential information from his attorney, and constituted an ethical violation. Larsen also challenges the admissibility of opinion testimony by the State's expert, the court's failure to prohibit certain evidence, and its refusal to give certain jury instructions. We affirm.

I. FACTS

In the early 1970s, C. Dean Larsen, an attorney with a background in real estate that predated his law career, filed articles of incorporation for what became a real estate development company known as Granada, Inc. (Granada). Larsen served as president of Granada, a closely held corporation owned by him and members of his family. According to Larsen, Granada was "inactive" during the first few years after incorporation, but in the mid 70's began buying land for real estate development. The projects ranged from housing developments and apartments, to office buildings and a shopping center. The projects were mostly concentrated along Utah's Wasatch Front at first, but eventually they included real estate developments in Arizona and Nevada. The first fifteen or twenty projects were also very successful.

In simple terms, the capital for most of the projects was provided by Larsen's law clients, typically doctors and dentists for whom he had set up professional corporations and pension plans. These clients invested retirement and pension monies in various limited partnerships Larsen formed for real estate development. Granada served as general partner in many of the limited partnerships, and acted as manager in others when a different general partner was named. In all, close to one hundred real estate limited partnerships were organized. ¹

Granada had no employees during the first eight years after its incorporation, but hired its first employee in 1979. More employees were hired as Granada grew. Larsen said that, with this growth, he spent more of his time with Granada, and less time with his law practice. Larsen thereupon hired Brian Farr, a recently licensed attorney.

Larsen claims he hired Farr as his own personal attorney to advise him in representing his clients, thereby creating an attorney-client relationship nested within another attorney-client relationship. Although Larsen disputes that Farr was ever an associate, except briefly, he referred several legal matters to Farr to be performed on behalf of his clients. Larsen also assigned Farr some legal work of a personal nature, such as a parking violation by an office vehicle, pro bono litigation, a land sale, and preparing amendments to an unrelated family partnership as new family members were born. Larsen further assigned Farr some Granada-related projects, such as evictions and a health plan.

Larsen supervised Farr's work throughout their working "relationship." Farr reported the hours he worked to Larsen, who then billed the clients. In turn, the clients paid Larsen, and Larsen paid Farr for his services through an account in the name of Larsen's professional corporation. The Larsen-Farr relationship lasted approximately four years.

Larsen and Farr sometimes conferred together with clients. According to Farr, during one such meeting, after setting up a professional corporation and a pension plan for a doctor and his wife, Larsen explained about certain reporting requirements that were involved. Larsen informed the clients that an accountant, a bank or a specialized pension accounting service could discharge those duties. Farr asserted that Larsen discouraged the clients from using a bank or an accountant, but recommended that they use Professional Pension Services (PPS), an entity that Larsen said dealt exclusively with pension matters. Larsen also told the clients that if they were to use PPS, they would like its liquid mortgage fund because investments in the fund required no minimum deposit and carried no penalty for early withdrawal. It appears from the record that PPS was loaning the fund proceeds to Granada-related projects.

Farr claimed that Larsen failed, in recommending PPS, to disclose his former ownership of or continuing influence over PPS. Farr believed these omissions could put the clients' investments at risk. After the meeting, Farr contacted PPS at the request of the clients for information about the liquid mortgage fund. He learned that PPS did not have an offering statement or any agreement regarding the use of the liquid mortgage fund. Farr's concerns were further heightened when he was unable to find any recorded trust deeds securing the loans. After reviewing files at Granada and receiving additional information from PPS, Farr discovered that these problems were widespread.

Farr spoke to Larsen about what he had learned and perceived to be a problem. Larsen assured him that the matter would be resolved. Despite these assurances, nothing was done. Farr continued to press Larsen for a resolution and even volunteered to handle the matter. Larsen rejected the offer, and hired outside counsel to research any possible violations of state securities laws. As a result of the growing tension between Larsen and Farr, their work relationship was severed in 1982. ²

Following the breakup, Farr continued to be concerned about the interests of former "clients," especially their investments in Granada. As a result of what he perceived to be ongoing securities violations, Farr contacted Constance White of the Utah Securities Division (Securities Division) in 1983. Farr told White what he knew about Granada based on what he had seen, was told, or had heard. White then turned the matter over to the Securities Division staff for investigation. Later, in 1986, Farr was employed by the Attorney General in the Health Division.

Concurrent with these events, Granada began to experience serious cash flow shortages and its investments suffered. Larsen claimed he believed Granada was solvent, and sought Securities Division approval for a new mortgage fund offering by Granada. In early 1987, Larsen learned that the figures he relied on were inaccurate. The Securities Division told Larsen that Granada would be placed in receivership if Granada did not petition for bankruptcy. Granada then petitioned for bankruptcy in February 1987.

On October 19, 1988, the State filed a fifty-count criminal complaint against Larsen. The complaint alleged that Larsen had committed securities fraud and related acts of dishonesty in the sale of securities. Larsen was bound over on forty-two counts following a motion to amend and a lengthy preliminary hearing. Larsen then moved to sever the trial into five parts in order to more closely align the victims, dates, transactions, and entities involved. The trial court granted the motion and Larsen went to trial on the eighteen counts of securities fraud involving EFF Fund, Ltd. (EFF Fund or EFF).

Larsen then moved to disqualify the Attorney General on the ground that Farr's subsequent employment with the State, when coupled with his previous disclosures to the Securities Division, posed a conflict of interest that should have been imputed to the entire office of the Attorney General. After a two-day hearing in which Farr, Larsen, and White testified, the district court denied the motion.

Larsen filed a written opposition to the ruling, and filed an interlocutory appeal, both of which were denied. Before trial, Larsen moved to prohibit testimony about any entities other than EFF Fund, but the motion was denied. Larsen also moved to prohibit inquiry into the investigation by the Securities Division that led to the eventual suspension of EFF. That motion was deferred until trial. After a two-week trial, a jury found Larsen guilty of all eighteen counts.

II. DISQUALIFICATION

A. Attorney-Client Relationship

Larsen argues that the Attorney General should have been disqualified from prosecuting the case against him because Farr's employment with the Health Division mandated disqualification under the imputed conflict of interest rule. See Utah Rules of Professional Conduct Rule 1.10 (1990). Larsen also contends that his conviction should be reversed because Farr's disclosures to the Securities Division violated certain ethical duties of confidentiality owed to Larsen as a former client of Farr. The threshold issue of both these arguments is whether an attorney-client relationship existed. Cf. Williams v. Barber, 765 P.2d 887, 889 (Utah 1988) (threshold inquiry in legal malpractice is whether an attorney-client relationship existed). The trial court found that Farr was not Larsen's attorney except for a few minor transactional matters unrelated to securities or the criminal charges against him in this case, and denied Larsen's motion to disqualify.

To prove that the trial court's findings of fact were clearly erroneous, "an appellant must marshal all evidence in favor of the facts as found by the trial court and then demonstrate that even viewing the evidence in a light most favorable to the court below, the evidence is insufficient to support the findings of fact." Saunders v. Sharp, 806 P.2d 198, 199-200 (Utah 1991). If an appellant fails to marshal the evidence, "the appellate court assumes that the record supports the findings of the trial court and proceeds to a review of the accuracy of the lower court's conclusions...