Iowa Supreme Court Attorney Disciplinary Board Vs. Gregory Alan Johnston ( 2007 )

IN THE SUPREME COURT OF IOWA
No. 02 / 06-1362
Filed May 25, 2007
IOWA SUPREME COURT ATTORNEY
DISCIPLINARY BOARD,
Appellee,
vs.
GREGORY ALAN JOHNSTON,
Appellant.
________________________________________________________________________
On review of the report of the Grievance Commission.
Grievance Commission reports that respondent has committed
ethical misconduct and recommends a suspension from the practice of
law. LICENSE SUSPENDED.
Mark McCormick of Belin Lamson McCormick Zumbach Flynn,
Des Moines, for appellant.
Charles L. Harrington and Wendell J. Harms, Des Moines, for
appellee.
2
CADY, Justice.
The Iowa Supreme Court Attorney Disciplinary Board (Board)
charged Gregory Alan Johnston with numerous violations of the Iowa
Code of Professional Responsibility for Lawyers for his involvement in a
business transaction with a client. The Grievance Commission of the
Supreme Court of Iowa (Commission) found Johnston violated the Iowa
Code of Professional Responsibility for Lawyers and recommended he be
suspended from the practice of law for a minimum period of six months.
Upon our review, we indefinitely suspend Johnston’s license to practice
law with no possibility of reinstatement for three months.
I. Background Facts and Proceedings.
Johnston is an Iowa lawyer. He was admitted to practice law in
1977, and is a sole practitioner in Muscatine. He was publicly
reprimanded in 1991 for failing to file Iowa and federal income tax
returns from 1984 to 1988. He has no other record of discipline. He is
known as a bright and innovative advocate by other lawyers in his
community.
Johnston represented Nelson Electric, Inc. In 2000, the
corporation obtained a judgment of $4000 against a Muscatine building
contractor named Thomas Corcoran. In 2001, the corporation obtained
a second judgment against Corcoran for $1170.84. Several other
individuals and businesses also acquired judgments against Corcoran
during this period of time. One of the creditors, Jeff King, Inc. (King),
executed on its judgment against two parcels of real estate owned by
Corcoran in Muscatine, known as the blue building and the red building.
The properties were subsequently purchased by King at a sheriff’s sale
for $5868. Corcoran was allowed a period of 180 days to redeem the
property. The Nelson Electric judgment of $4000 was the only senior
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lien, and King paid the judgment, plus interest. Upon the apparent
insistence of Nelson Electric, Johnston then set out to protect the
remaining Nelson Electric judgment of $1170.84, in a rather complex
and unusual manner.
Johnston first proposed to protect Nelson’s junior judgment by
preparing an involuntary bankruptcy petition against Corcoran, but
eventually decided to personally meet with Corcoran to discuss the
situation. Johnston met with Corcoran on February 17, 2002, the day
before Corcoran’s right of redemption would expire, in an Illinois jail
where Corcoran was imprisoned. After discussing the situation,
Johnston and Corcoran mutually agreed the best course of action was
for Corcoran to assign his right of redemption to Johnston as agent for
Nelson Electric, with Corcoran reserving the right to purchase the
property back within a certain amount of time. Johnston believed this
would allow Nelson Electric to protect its judgment by redeeming the
property, and would also give Corcoran the ability to retain his property
by buying it back at a later date. Accordingly, Corcoran signed a written
acknowledgment indicating the assignment of his redemption rights to
Johnston. The writing did not mention Corcoran’s right to purchase the
property back, or explain whether Johnston was acquiring redemption
rights for himself or as an agent for Nelson Electric. Johnston then paid
Corcoran all the money he had with him—$20 in cash—in part payment
of the $250 purchase price. Johnston told Corcoran he would visit him
the next day so the parties could complete their business.
The next day, the day Corcoran’s period of redemption would
expire, Corcoran and Johnston discussed the matter again. Johnston
told Corcoran he believed the interest rate imposed on the judgment by
King, the creditor who purchased the property at the sheriff’s sale, was
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excessive. Johnston offered to represent Corcoran in an action to
challenge the interest rate, which, if successful, would reduce the
amount needed to redeem the properties. In doing so, he mentioned it
would conflict with his representation of Nelson Electric.
Johnston then obtained the oral consent of Nelson Electric to
represent Corcoran, and visited Corcoran later in the day to finalize the
assignment of Corcoran’s right of redemption and to represent Corcoran
to challenge the interest rate. Johnston provided Corcoran with a
written letter that disclosed the conflict of interest presented by
representing him while also representing Nelson Electric. The letter
disclosed that Johnston was only representing Corcoran to reduce the
interest rate, and further stated that Johnston might ultimately
purchase the properties. Johnston also had Corcoran sign two warranty
deeds that he “anticipated using to transfer the title.” The deeds,
however, did not name a grantee. At the time Johnston did not know if
he, Nelson Electric, or a partnership between them would take title to the
properties.
Later that day Johnston filed papers with the district court to
redeem the properties. In doing so, Johnston deposited $11,497.01 with
the clerk of court. Johnston obtained the funds to redeem the property
from Nelson Electric, even though the redemption amount included
$4556.14 to reimburse King for the amount it had previously paid Nelson
Electric in discharging Nelson Electric’s senior lien.
Johnston also filed an objection to the amount of the redemption,
and asked the clerk to hold the redemption funds until the court
determined the correct amount of the redemption. In all documents filed
with the court, Johnston identified himself as the attorney for Corcoran
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and that he was filing the redemption and objection on behalf of
Corcoran.
Johnston then promptly met with King’s attorney to begin
negotiations over the objection to the redemption amount. On February
28, Johnston filed a stipulation in the King foreclosure action indicating
King and Corcoran agreed the amount of redemption was $10,632.32,
and the excess amount deposited with the clerk would be payable to
Johnston as the attorney for Corcoran. On March 1, the district court
approved the redemption amount and ordered the funds to be
distributed.
Around this same time Johnston discovered Corcoran had deeded
his interest in the blue building to a friend named Laura Enke.
Johnston promptly negotiated an agreement to purchase her interest for
$500 in exchange for a deed to the property. When the deed was signed
on March 25, 2002, it did not name a grantee. By the time the deed was
recorded on January 6, 2003, Welch Apartments, an entity owned by
Johnston, was named the grantee.
Corcoran contacted Johnston by letter on April 5, 2002 to clarify
the agreement regarding the property. In the letter he indicated he
would like to sell the red building for $60,000 to pay off all his debts. He
also intimated he would like Johnston to rent the blue building to pay
the building’s taxes and insurance, with remaining proceeds placed into
his checking account. Corcoran said he would sign a power of attorney
to enable Johnston to act for him, and concluded by saying, “I hope you
hang with me and charge or pay whatever you feel necessary.”
Johnston and Corcoran subsequently spoke over the phone about
the letter. Johnston said it was not his job to find a buyer for Corcoran,
and that he would not be his manager for the properties. Corcoran next
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communicated with Johnston in November of 2002. At this time
Corcoran sent another letter to Johnston and stated he hoped Johnston
was still helping him, and that “we should get down to business.”
Corcoran specifically wanted Johnston to try to sell his properties to Tom
Meeker for $65,000, and told Johnston he could keep $40,000 from the
sale. Johnston did not respond to this letter because he believed
Corcoran’s right to buy back the properties had expired.1 Johnston
acknowledged, however, that it was “probably very poor practice to not
respond,” and that he “should have responded and said . . . you’re
wrong, you’re done.”
Corcoran mailed another letter to Johnston in December of 2002.
In this letter, Corcoran told Johnston that Meeker had agreed to buy his
properties for $60,000, and that Johnston could keep $40,000 of it to
pay off Corcoran’s debts. Corcoran also mentioned that he had a year in
which to buy back the property according to their agreement, and that he
“still [has] two months to spare.” Johnston again did not respond to this
letter. He believed Corcoran was attempting to extract money from him,
and discontinued further discussions with him.
Nelson Electric, the entity whom Johnston claimed was the moving
force for the legal maneuvering to collect the judgment of $1170.84, later
decided it did not wish to pursue the collection any further. As a result,
Johnston acquired the interest of Nelson Electric in the properties by
giving Nelson Electric a credit of $20,000 for the legal services it owed
1Notably, Johnston claims Corcoran’s right to redeem the property was only
extended by six months pursuant to their agreement entered February 18, 2002. Thus,
Johnston believes Corcoran’s right to redeem the property expired in August of 2002,
and therefore Johnston and Nelson, or whomever the grantee of the deeds would
become, were the owners of the property. Their agreement in February of 2002
concerning Corcoran’s right to redeem the properties was not reduced to writing, and
therefore there is nothing that states whether Corcoran’s right to redeem the properties
was extended by six months as Johnston claims or by one year as Corcoran claims.
7
him. This allowed Johnston to continue to pursue his interest in the
property. The properties remain encumbered by substantial debt and
are the subject of current litigation to quiet title.
II. The Board’s Complaint.
The Board charged Johnston with multiple violations of the Iowa
Code of Professional Responsibility for Lawyers. These violations
included DR 1-102(A)(1) (lawyer shall not violate a disciplinary rule), DR
1-102(A)(6) (lawyer shall not engage in other conduct that adversely
reflects on the fitness to practice law), DR 2-101(B)(4)(a) (lawyer shall not
engage in the in-person or telephone solicitation of legal business), DR 2-
103(A) (lawyer shall not recommend his or her own employment), DR 2-
104(A) (lawyer shall not accept employment resulting from unsolicited
advice), DR 5-101(A) (lawyer shall not accept employment under certain
circumstances unless client consents and there is full disclosure), DR 5-
103(A) (lawyer shall not acquire a propriety interest in client matters), DR
5-103(B) (lawyer shall not advance or guarantee financial assistance to
clients), DR 5-104(A) (lawyer shall not enter into a business transaction
with a client when there are differing interests), DR 5-105(B) (lawyer
shall decline proffered employment in some circumstances), DR 5-105(C)
(lawyer shall not continue multiple employment in some circumstances),
DR 5-105(D) (lawyer may represent multiple clients in some
circumstances), DR 7-101(A)(3) (lawyer shall not intentionally prejudice
or damage a client), and DR 7-102(A)(8) (lawyer shall not knowingly
engage in other illegal conduct or conduct contrary to a disciplinary
rule). Johnston admitted he violated DR 2-101(B)(4)(a), DR 2-103(A), DR
2-104(A), and as a result also admitted he may have violated DR 1-
102(A)(1).
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The Commission found Johnston violated all of these rules except
DR 2-104(A), DR 5-103(B) and DR 7-101(A)(3). It made several key
findings to support the violations. The Commission found Johnston not
only represented Corcoran in the action to challenge the interest rate,
but also sought out Corcoran and ultimately represented him in the
redemption of the property. It also found the representation continued
after the interest rate matter was settled, and that Johnston not only
inserted his own interests into the transaction, but represented the
differing interests of Nelson Electric and Corcoran at the same time.
Finally, the Commission found Johnston failed to fully compensate
Corcoran for the purchase of his redemption rights in the properties.
The Commission recommended Johnston be suspended from the
practice of law with no possibility of reinstatement for six months. It also
recommended Johnston pay Corcoran $230 to satisfy the purchase of
assigning the redemption rights.
On our review, Johnston challenges the Commission’s conclusions
that he violated certain disciplinary rules. He also attacks certain factual
findings made by the Commission. Ultimately he requests we impose a
sanction that does not include the suspension of his law license.
III. Standard of Review.
We review attorney disciplinary matters de novo. Iowa Supreme Ct.
Bd. of Prof’l Ethics & Conduct v. Bernard, 653 N.W.2d 373, 375 (Iowa
2002). We give the findings of the Commission weight, but are not
bound by them. Id.
IV. Contested Factual Findings.
Johnston alleges the Board failed to establish numerous findings
made by the Commission. We consider these claims in addressing the
disputed violations raised by Johnston on appeal.
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V. Violations.
We only address the violations Johnston contests on appeal. In
the end, we agree he violated the disciplinary rules as determined by the
Commission.
A. Solicitation.
It is axiomatic in Iowa that a lawyer may not engage in the in-
person solicitation of legal business. DR 2-101(B)(4)(a). The Commission
found Johnston violated this rule of ethics when he offered to represent
Corcoran in a claim to challenge the amount of the redemption.
Johnston asserts the ethics prohibition does not apply because he did
not solicit Corcoran for the purpose of pecuniary gain.
Even assuming Johnston did not solicit Corcoran for pecuniary
gain, DR 2-101(B)(4)(a) prohibits in-person solicitation “under any
circumstance.”2 DR 2-101(B)(4)(a). We have no pecuniary gain
requirement. This approach recognizes that face-to-face solicitation by
lawyers is “a practice rife with possibilities for overreaching, . . . undue
influence, and outright fraud.” Zauderer v. Office of Disciplinary Counsel,
471 U.S. 626, 641, 105 S. Ct. 2265, 2277, 85 L. Ed. 2d 652, 666 (1985).
The circumstances of this case, looking back, breathe life into these
unwanted possibilities and confirms our strict approach against in-
person solicitation. Johnston violated DR 2-101(B)(4)(a) when he
recommended his employment to challenge the amount of the
redemption.
2
Rule 7.3 of the ABA’s Model Rules of Professional Conduct generally prohibits
solicitation “when a significant motive for the lawyer’s doing so is the lawyer’s pecuniary
gain.” Model Rules of Prof’l Conduct R. 7.3 (2003). That is not the approach under DR
2-101(B)(4)(a), or the approach under our new rules. See Iowa R. of Prof’l Conduct
32:7.3(a) (“A lawyer shall not by in-person, live telephone, or real-time electronic contact
solicit professional employment from a prospective client.”).
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B. Fitness to Practice.
Ethical misconduct is defined in many ways under the rules of
professional responsibility. DR 1-102 identifies the types of misconduct,
including “illegal conduct involving moral turpitude,” DR 1-102(A)(3),
“conduct involving dishonesty, fraud, deceit or misrepresentation,” DR 1-
102(A)(4), conduct “prejudicial to the administration of justice,” DR 1-
102(A)(5), and “any other conduct that adversely reflects on the fitness to
practice law,” DR 1-102(A)(6) (emphasis added). This approach of listing
the various forms of misconduct followed by “other” conduct reveals the
broad nature of misconduct involving activities that adversely reflect on
the fitness to practice law. It involves conduct other than the specific
conduct identified in the rule, and focuses on matters that “lessen[]
public confidence in the legal profession.” Iowa Supreme Ct. Bd. of Prof’l
Ethics & Conduct v. Marcucci, 543 N.W.2d 879, 882 (Iowa 1996). We
have also said it “implicates more than legal competence. It also
embraces one’s character and one’s suitability to act as an officer of the
court.” Iowa Supreme Ct. Bd. of Prof’l Ethics & Conduct v. Shinkle, 698
N.W.2d 316, 324 (Iowa 2005) (citation omitted).
The Commission found Johnston’s conduct during the transaction
violated this disciplinary rule in several ways, including pursuing the
redemption in Corcoran’s name after attaining an assignment of his right
of redemption, backdating the assignment, failing to pay Corcoran the
amount promised for the assignment, taking deeds to the property
without a designated grantee, and failing to record the deeds to the
property. Johnston claims this conduct either did not occur or falls
short of conduct that adversely reflects on fitness to practice law.
We disagree with Johnston. He violated DR 1-102(A)(6) in at least
one of the respects found by the Commission. Generally, the conduct
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cited by the Commission to support the violation of the rule may or may
not adversely reflect on Johnston’s fitness to practice law. We are not
prepared to say this conduct alone reflects adversely on his fitness to
practice law. Only if this conduct is accompanied by an illegal or
unethical purpose, motive or intent are we prepared to say he violated
the rule. The commission obviously found such an intent when it
rejected Johnston’s testimony that Corcoran waived the remaining
payment in lieu of Johnston’s fee for representing Corcoran. We give
weight to this finding and come to the same conclusion in our de novo
review of the record.
A lawyer who fails to satisfy a financial obligation under a contract
based on a false claim that the obligation was waived in exchange for
legal services engages in conduct that adversely reflects on the practice
of law. No attorney should assert loose, unsupported claims for attorney
fees as a means to avoid contractual obligations. We agree with the
Commission that Johnston engaged in conduct that adversely reflected
on his fitness to practice law in violation of DR 1-102(A)(6).
C. Acquiring Interest in Litigation.
DR 5-103(A) prohibits a lawyer from acquiring “a proprietary
interest in the cause of action or subject matter of the litigation being
conducted for the client,” subject to exceptions not applicable in this
case. DR 5-103(A). The Commission found Johnston violated this rule
by representing Corcoran when he had purchased the assignment of his
redemption rights. Johnston claims he did not violate the rule because
there was no “litigation being conducted” for Corcoran once Johnston
acquired Corcoran’s redemption rights. In other words, Johnston claims
he acquired Corcoran’s interest in the litigation prior to representing him
in the litigation.
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Lawyers are generally prohibited from injecting themselves into the
legal affairs of clients. See Comm. on Prof’l Ethics & Conduct v. Bitter,
279 N.W.2d 521, 523 (Iowa 1979). While DR 5-104 addresses the
prohibition against engaging in business with clients, DR 5-103(A)
specifically targets the acquisition of a proprietary interest in litigation
being conducted by an attorney for a client. Recognizing the limitation in
DR 5-103(A), Johnston attempts to sidestep the rule with his claim that
Corcoran had no actual legal interest in the pending foreclosure litigation
once Corcoran became his client.
While we recognize the obvious inconsistency in Johnston’s claim,
the record shows Johnston inserted himself into Corcoran’s litigation and
agreed to represent Corcoran in the litigation as a part of the same
transaction. Clearly, Johnston’s conduct violated DR 5-103(A). The rule
captures conduct where a lawyer is both a litigator for a client in
litigation and a party to the litigation.
D. Conflict of Interest.
A client has a right to expect loyalty and independent judgment
from an attorney. See Comm. on Prof’l Ethics & Conduct v. Minette, 499
N.W.2d 303, 305 (Iowa 1993). Many specific rules embrace this concept,
including the final three disciplinary rules Johnston argues he did not
violate: DR 5-101(A) (refusing employment when professional judgment
may be affected by attorney’s own interest), DR 5-104(A) (limiting
business relations with clients), and DR 5-105(C) and (D) (multiple client
representation). These rules do not apply if client consent has been
obtained after full disclosure. See DR 5-101(A); DR 5-104(A); DR 5-
105(C), (D).
The Commission found each rule was violated based on Johnston’s
multiple representation of Nelson Electric and Corcoran, as well as the
13
presence of his own interests, including his apartment operation. We
agree the multiple interests involved in the transaction implicated DR 5-
101(A), DR 5-104(A) and DR 5-105(C), (D). We are not persuaded by
Johnston’s argument that he did not violate DR 5-105(C) because he
stopped representing Corcoran before he purchased Enke’s deed to the
blue building. Even though Johnston may have ended his
representation of Corcoran before acquiring a deed to the property, he
still represented Corcoran and Nelson Electric at a time when the
exercise of his “independent professional judgment on behalf” of one
client would be adversely affected by the representation of the other
client. DR 5-105(C). During this time, both Nelson Electric and
Corcoran had competing interests in the redemption of the property.
Johnston could not exercise independent judgment for one client without
adversely affecting his representation of the other. Because the consent
obtained by Johnston failed to satisfy the full disclosure standard, which
he admits, Johnston violated these disciplinary rules. See Iowa Supreme
Ct. Bd. of Prof’l Ethics & Conduct v. Fay, 619 N.W.2d 321, 326 (Iowa
2000).
VI. Discipline.
“The nature of the alleged violations, the need for deterrence, the
protection of the public, maintenance of the reputation of the [Bar] as a
whole, and the respondent’s fitness to continue” to practice law are all
relevant when determining the appropriate discipline. Iowa Supreme Ct.
Bd. of Prof’l Ethics & Conduct v. Waters, 646 N.W.2d 111, 113–14 (Iowa
2002). In addition, all aggravating and mitigating circumstances are
considered. Id. Ultimately, discipline is imposed based on the particular
facts of each case. Iowa Supreme Ct. Bd. of Prof’l Ethics & Conduct v.
McKittrick, 683 N.W.2d 554, 563 (Iowa 2004).
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We disagree with the Commission’s factual finding that there are
no mitigating circumstances in this case. We believe the testimony
demonstrated Johnston to be a generally honest lawyer. See Iowa
Supreme Ct. Bd. of Prof’l Ethics & Conduct v. Isaacson, 565 N.W.2d 315,
317 (Iowa 1997) (“We consider a lawyer’s general character for honesty . .
. in applying sanctions.”). In addition, he acknowledged he violated our
disciplinary rules in certain respects. See Iowa Supreme Ct. Bd. of Prof’l
Ethics & Conduct v. Tofflemire, 689 N.W.2d 83, 93 (Iowa 2004) (“A
mitigating factor is the attorney’s recognition of some wrongdoing.”).
Furthermore, the prior discipline imposed on Johnston carries little
weight as an aggravating factor under the circumstances of this case. See
Iowa Supreme Ct. Bd. of Prof’l Ethics & Conduct v. Hohenadel, 634
N.W.2d 652, 656 (Iowa 2002) (recognizing a previous reprimand was an
aggravating circumstance “warranting more severe discipline”).
Johnston’s previous discipline was imposed more than eighteen years
ago, was based on conduct unrelated to the present misconduct and no
other discipline has been imposed since the past misconduct.
The misconduct engaged in by Johnston was unusual, and there is
little precedent to serve as a guide in the imposition of discipline.
Generally, sanctions in cases involving improper business transactions
between lawyers and clients range from a public reprimand to revocation.
Iowa Supreme Ct. Bd. of Prof’l Ethics & Conduct v. Wagner, 599 N.W.2d
721, 730 (Iowa 1999). While egregious violations of the canon 5 conflict
of interest rules have resulted in lengthy periods of suspension, other
violations have resulted in suspensions ranging from one to three
months. See Iowa Supreme Ct. Attorney Disciplinary Bd. v. Clauss, 711
N.W.2d 1, 4–5 (Iowa 2006) (citing cases). Moreover, we have observed
that an attorney who engages in a series of actions that collectively reveal
15
a general indifference to the core responsibilities owed to the client and
the legal system as a whole warrants a suspension. See, e.g., McKittrick,
683 N.W.2d at 563 (three-month suspension).
Johnston violated numerous disciplinary rules by acquiring
ownership rights in property that was the subject of his clients’ litigation.
In the end, the overall transaction engaged in by Johnston illustrates the
reasons for the rules that discourage attorneys from becoming involved
in client matters and that require lawyers to serve clients with the
utmost loyalty and confidence. Under all the circumstances, we
conclude Johnston should be suspended from the practice of law for a
period of three months.
The Commission has requested that as part of Johnston’s sanction
we direct the clerk to tax the costs of reporting Corcoran’s depositions to
Johnston. Finding this request unopposed, we grant the Commission’s
request.
VII. Conclusion.
We suspend Johnston’s license to practice law in Iowa indefinitely,
with no possibility of reinstatement for a period of three months from the
date of filing of this opinion. The suspension imposed applies to all
facets of the practice of law as provided by Iowa Court Rule 35.12(3), and
requires notification to clients as provided in Iowa Court Rule 35.21. The
costs of this proceeding are taxed against Johnston pursuant to Iowa
Court Rule 35.25(1), and Johnston shall pay the costs of Corcoran’s
depositions.
LICENSE SUSPENDED.
All justices concur except Ternus, C.J., who takes no part.