Iowa Supreme Court Attorney Disciplinary Board v. Mason James Ouderkirk , 2014 Iowa Sup. LEXIS 33 ( 2014 )

IN THE SUPREME COURT OF IOWA
No. 13–1124
Filed March 28, 2014
IOWA SUPREME COURT ATTORNEY DISCIPLINARY BOARD,
Appellee,
vs.
MASON JAMES OUDERKIRK,
Appellant.
Appeal from the report of the Grievance Commission of the
Supreme Court of Iowa.
Ouderkirk appeals from the grievance commission’s
recommendation of a public reprimand. COMPLAINT DISMISSED.
Michael J. Carroll of Babich Goldman, P.C., Des Moines, for
appellant.
Charles L. Harrington and Amanda K. Robinson, Des Moines, for
appellee.
2
WATERMAN, Justice.
How far can a lawyer go to assist a client in preserving assets from
a potential creditor? In this appeal, we must decide whether
Mason James Ouderkirk violated our prior disciplinary rules 1 in his
representation of Rodney Heemstra, a wealthy Iowa farmer who shot and
killed his neighbor, Tommy Lyon. Heemstra was charged with first-
degree murder and ultimately convicted of voluntary manslaughter.
Ouderkirk represented Heemstra at the outset of the criminal
proceedings and during part of the civil wrongful-death litigation, which
later resulted in a multimillion dollar judgment against Heemstra. The
Board’s complaint is based on Ouderkirk’s drafting of transfer
documents in the months following the shooting. These documents
conveyed property from Heemstra to his wife, then to various trusts, and
finally to purported third parties who were actually Heemstra relatives.
The Lyon estate brought collection actions challenging the asset
transfers as fraudulent conveyances. The district court ruled in favor of
the estate and found the transactions with which Ouderkirk assisted to
be “part of a complex shell game.” The court found the Heemstras
transferred assets in an “intentional, harsh and cruel effort to put truth
in Rodney Heemstra’s arrogant claim that Ronda Lyon would never see a
dime of his money.” The court unwound a number of the asset transfers
and awarded actual and punitive damages against the Heemstras.
Tommy Lyon’s widow, Ronda Lyon, filed an ethics complaint
against Ouderkirk, and the Iowa Supreme Court Attorney Disciplinary
Board charged him with violating several rules. The Grievance
1The Iowa Rules of Professional Conduct became effective July 1, 2005,
replacing the Iowa Code of Professional Responsibility for Lawyers. We apply the rules
in effect at the time of Ouderkirk’s conduct at issue in 2003.
3
Commission of the Supreme Court of Iowa found that the Heemstras had
deceived Ouderkirk, telling him that they had valid reasons for
transferring their property and that they were selling much of their
property to a bona fide purchaser. The commission also found that
Ouderkirk lacked actual knowledge the key transaction was a sham.
Nevertheless, the commission found Ouderkirk’s representation in one
transaction violated several rules and recommended a public reprimand.
For the reasons explained below, on our de novo review, we find the
Board failed to prove any rule violation by the requisite convincing
preponderance of the evidence. We therefore dismiss the Board’s
complaint against Ouderkirk with prejudice.
I. Scope of Review.
We review attorney disciplinary proceedings de novo. Iowa
Supreme Ct. Att’y Disciplinary Bd. v. Rhinehart, 827 N.W.2d 169, 171
(Iowa 2013). We give deference to the commission’s credibility findings
because the commission hears live testimony and observes the demeanor
of witnesses. Iowa Supreme Ct. Att’y Disciplinary Bd. v. Clarity, 838
N.W.2d 648, 659 (Iowa 2013). The Board must prove attorney
misconduct by a convincing preponderance of the evidence. Rhinehart,
827 N.W.2d at 171. This standard is more demanding than proof by
preponderance of the evidence, but less demanding than proof beyond a
reasonable doubt. Iowa Supreme Ct. Att’y Disciplinary Bd. v. Adams, 809
N.W.2d 543, 545 (Iowa 2012). We respectfully consider the commission’s
findings of fact and recommended sanction, but we are not bound by
them. Iowa Supreme Ct. Att’y Disciplinary Bd. v. Earley, 774 N.W.2d 301,
304 (Iowa 2009).
4
II. Background Facts and Proceedings.
The commission held a two-day evidentiary hearing on
December 18–19, 2012. Two witnesses testified for the Board. The
Board offered no expert testimony that Ouderkirk violated any of our
disciplinary rules. Ouderkirk testified on his own behalf, along with an
expert witness and six character witnesses, which included two district
court judges. In total, over two hundred exhibits were submitted. Based
on our de novo review of the record, we find the following facts.
Ouderkirk graduated from Drake University Law School in 1978
and joined his father in general practice at the Ouderkirk Law Firm in
Indianola. Ouderkirk has practiced law for over thirty-five years there
with an unblemished disciplinary record. He enjoys a reputation as a
zealous advocate for his clients and received an AV Rating from
Martindale-Hubbell.
Throughout the 1990s, Ouderkirk represented Rodney Heemstra
and his wife, Berta, in transactions involving their extensive farm real
estate interests. He periodically prepared title work, real estate
contracts, and deeds for the Heemstras. The Heemstras did not employ
Ouderkirk on a retainer, nor were they one of his law firm’s biggest
clients. According to Ouderkirk, the Heemstras were sophisticated real
estate buyers and sellers who “did all their own deals” and were intensely
private about their finances. Rodney would come to Ouderkirk for help
drafting land-transfer documents. Rodney would dictate the particulars
to Ouderkirk, who would draft the legal documents to effectuate
Rodney’s plan. James Dougherty, who practiced with Ouderkirk in the
1990s, described Rodney as “the type of client that would run in, say
something like, ‘I bought a farm. Here [are] the details, put down a
purchase agreement, I need it right now.’ ” Ouderkirk would give the
5
completed paperwork to the Heemstras, who then typically handled their
own closings and filings. According to Ouderkirk, the Heemstras “always
just took care of things” once he drafted the necessary documents.
On January 13, 2003, Rodney fatally shot Tommy Lyon over a
dispute relating to farmland and hid Tommy’s body in a cistern. See
State v. Heemstra, 721 N.W.2d 549, 551–52 (Iowa 2006) (describing the
facts of the criminal case). Rodney was arrested and charged with first-
degree murder on January 15. Rodney asserted he had shot Tommy in
self-defense and retained Ouderkirk to defend him against the charges.
Ouderkirk meanwhile continued to assist the Heemstras with real estate
transactions, as the Heemstras transferred millions of dollars of property
out of their names in the ensuing months. Ouderkirk’s assistance with
these transfers forms the basis of the Board’s complaint.
The Heemstras moved quickly after the shooting to ensure
continuity for their farming operation. On January 16, Ouderkirk wrote
to Berta to “follow up with a number of items regarding the business and
farming matters.” He enclosed a power of attorney to “aid [Berta] in
conducting the family business with respect to farming operation loans,
farm programs, refinancing farm programs, operating loans, etc.” He
also alerted Berta that, if any of the family property was transferred, “the
Lyon family may attempt to set aside any conveyance as fraudulent or an
attempt to avoid a creditor” and noted “should a court deem the
conveyance fraudulent . . . there is always the possibility that the
conveyances could be set aside.”
Ouderkirk recounted that the Heemstras’ creditors pressed for a
reorganization of the couple’s assets after Rodney’s arrest. The
Heemstras’ net worth—represented primarily by real estate holdings—
exceeded $4,000,000 in January 2003. They were considerably indebted
6
to Wells Fargo, John Deere, Commodity Credit Corporation, and Farm
Credit Services for money they had borrowed to purchase farm
implements and farmland. Farm Credit Services’s security interest was
secured on land, but Wells Fargo’s security interest was mostly in the
Heemstras’ farm equipment, which they had valued at around $900,000.
Wells Fargo urged a reorganization that would give it a security interest
in some of the Heemstras’ mortgaged real estate. Additionally, both
Wells Fargo and Farm Credit Services wanted a reorganization of the
Heemstras’ assets to place Berta in control, in order to provide continuity
if Rodney was convicted and imprisoned. Ouderkirk testified, “We had to
reorganize, or they would have called the loans.” Rodney was released on
bond January 21, and Ouderkirk and Rodney entered into negotiations
with Farm Credit Services and Wells Fargo.
Tommy Lyon’s widow, Ronda, filed a wrongful-death lawsuit
against Rodney on January 27 and secured writs of attachment on some
of the Heemstras’ Warren County real estate. Ouderkirk disputed the
validity of these writs of attachment on behalf of the Heemstras. The
writs were eventually set aside by the court of appeals in Estate of Lyon
v. Heemstra, No. 09–0164, 2010 WL 200454, at *3 (Iowa Ct. App.
Jan. 22, 2010) (unpublished opinion), after Wells Fargo moved to quash
the writs because they were adversely affecting the company’s ability to
enforce a judgment lien.
Throughout January and February of 2003, the Heemstras, with
Ouderkirk’s assistance, transferred ownership of a significant amount of
their property into revocable trusts. The Heemstras told Ouderkirk the
impetus for the transfers was Berta’s expected need for cash flow to
make scheduled loan payments to their creditors and to pay federal and
state real estate taxes. Ouderkirk drafted almost three dozen real estate
7
documents concerning fourteen parcels of land held by Rodney and
Berta. These documents created four revocable trusts and enabled the
Heemstras to transfer over a thousand acres of farmland—worth millions
of dollars—from Rodney, through Berta, to the trusts. All of the trustees
of the four revocable trusts were relatives of the Heemstras. Much of the
property passed through the Brisco Revocable Trust, for which Berta
served as the trustee.
The commission’s decision sets forth the timeline of these
transfers:
January 22, 2003 — Ouderkirk drafts and notarizes a
warranty deed in which Rodney and Berta convey their
interests in Parcel 22 to Rodney’s parents. . . .
January 28, 2003 — Ouderkirk drafts and notarizes a
quitclaim deed transferring Rodney and Berta’s interests in
Parcels 1, 3, 4, 5, 6, 7, 7A, and 10 to Berta.
January 30, 2003 — Ouderkirk drafts and notarizes a
quitclaim deed transferring Rodney and Berta’s interest in
Parcels 8, 9, and 11 to Berta.
January 31, 2003 — Ouderkirk (1) drafts Brisco
Revocable Trust and (2) drafts and notarizes a warranty deed
conveying Berta’s interest in Parcels 1, 3, 4, 5, 6, 7, 7A, 8, 9,
10, and 11 to Brisco Revocable Trust.
February 3, 2003 — Ouderkirk drafts several
documents related to parcels 14 and 15:
a. Parcel 14 — He drafts (1) a quitclaim deed
conveying Rodney and Berta’s interest in Parcel 14 to
Berta, (2) a warranty deed conveying Rodney and
Berta’s interest in Parcel 14 to Berta’s mother, and (3)
a mortgage between Berta and her mother.
b. Parcel 15 — He drafts and notarizes (1) a
quitclaim deed in which Rodney and Berta convey
their interest in Parcel 15 to Berta, (2) a warranty deed
in which Berta conveys her interest in Parcel 15 to
Rodney’s parents as co-trustees of the Heemstra
Revocable Trust, and (3) a mortgage between this trust
and Berta.
February 10, 2003 — Ouderkirk drafts a quitclaim
deed in which Rodney’s parents convey their interest in
Parcel 22 to themselves as trustees for the Heemstra
Revocable Trust.
8
February 19, 2003 — Ouderkirk drafts and notarizes a
correction warranty deed conveying Berta’s interest in
Parcels 8 and 9 to Brisco Revocable Trust.
(Internal citations and emphasis omitted.) All of these conveyances were
publicly recorded.
In February, Wells Fargo forced a nationally advertised sale of
Rodney’s farm equipment. The Heemstras had no control over this sale
and received no proceeds from it.
Ouderkirk recounted that the Heemstras came to his office around
March 10 to discuss various options to protect their assets for Berta and
their two sons. Ouderkirk rejected Berta’s suggestion that the couple
should create an irrevocable trust. Ouderkirk testified that he told the
Heemstras, “I really think this is a bad idea, and I think you guys should
really consider not doing any of this.” He further stated he was “very
happy” when Berta later called to say she would follow his advice and
abandon the irrevocable trust idea. On March 12, Ouderkirk wrote to
the Heemstras in confirmation of Berta’s phone call. His letter stated:
As I understand it, Berta and you have decided not to
proceed with irrevocable trusts, corporate formation, offshore
trusts, etc. Additionally, it appears that you are not in favor
of exchanges out of state or sales. Taking that approach will
certainly make judgment and asset collection easier in the
event judgments are entered against any assets held
individually or by the revocable trust.
Yet, only a week later, the Heemstras told Ouderkirk they had
found—through an arms’ length transaction—an unnamed, bona fide,
out-of-state buyer for much of the land now held by Brisco: the
Appleroon Irrevocable Trust. 2 Ouderkirk knew the Heemstras had
2It is unknown who created the Appleroon Irrevocable Trust, but Ouderkirk
testified it was not him. Appleroon was created March 24, 2003, at Berta’s request.
Berta, however, denies knowing who drafted the trust, and Rodney also testified he did
not know who was behind Appleroon.
9
previously listed this property for sale and believed the sale was nothing
out of the ordinary. Ouderkirk did not ask and was not told who was
behind Appleroon. In fact, Rodney’s sister was the initial trustee of
Appleroon, and the successor trustee was Rodney’s cousin’s wife. The
Heemstras’ two sons were the beneficiaries of the trust.
On March 26, Ouderkirk drafted a memorandum of contract for
the sale of parcels 3, 4, 5, 6, 7, 7A, 8, 9, 10, and 11—around 600 acres
total—from Brisco to Appleroon for the price of $2,300,000. The
Heemstras gave Ouderkirk the terms for the transfers, including the last
paragraph of the contract, which stated:
26. CLAIMED ATTACHMENT. Buyer acknowledges that
the Iowa District Court for Warren County has issued a writ
of attachment in a pending lawsuit entitled The Estate of
Tommy Ray Lyon vs. Rodney Heemstra which may be
purported to affect title to the real estate described herein,
even though Rodney Heemstra is not a party to this
transaction. Seller and Buyer are of the opinion that said
attachment does not effect [sic] the real estate which is the
subject of the contract because it was not in effect and/or
filed against the premises at the time Seller acquired title to
said real estate. Buyer shall suspend and not make any
payments due Seller which are attached, garnished, to be
paid to, executed upon, levied upon and/or assigned by, to
or for the Estate of Tommy Ray Lyon, or its personal
representative, the surviving spouse, heirs or devisees of
Tommy Ray Lyon, or successors or assigns and the same
shall be added to the principal balance due in the final
payment due Seller on April 1, 2033, under this contract but
shall not draw or accrue additional or delinquent interest on
said deferred payment amounts. Seller shall defend,
indemnify and hold Buyer harmless for any losses, damages
or other monetary sums arising out of such claim or actions.
Ouderkirk never saw any proof of an exchange of consideration
and was not present at the signing of the contract. Ouderkirk testified it
is not unusual, in his experience, to draft a contract for sale or other
transfer document and give it back to the client. He characterized the
10
proposed Appleroon transaction as a typical deal presented to him by
Rodney. The Heemstras publicly recorded the Appleroon conveyance.
Ouderkirk’s involvement with the Heemstras’ property transfers
and Rodney’s criminal case ended in late March of 2003. New counsel
took over Rodney’s criminal representation.
At trial that autumn, Rodney argued that he shot and killed
Tommy in self-defense. The jury rejected this defense and convicted
Rodney of first-degree murder in October 2003. Based on the conviction,
Tommy’s estate secured a civil judgment against Rodney for
$8,913,431.44 in February 2006. 3 This award was vacated after our
court reversed Rodney’s conviction and remanded the case for a new
trial. See Heemstra, 721 N.W.2d at 563. 4
On retrial in April 2007, a jury convicted Heemstra of voluntary
manslaughter. State v. Heemstra, 759 N.W.2d 151, 152–53 (Iowa Ct.
App. 2008) (affirming conviction). Rodney was ordered to pay $150,000
in restitution to Tommy’s estate, pursuant to Iowa Code section
910.3B(1). The issue of damages in the civil wrongful-death action was
tried to the court a second time in November 2008, and the estate
secured a judgment for $5,700,000.
Immediately after the first civil judgment in 2006, the estate filed a
civil lawsuit alleging the Heemstra family conspired to fraudulently
transfer and conceal Rodney and Berta’s real estate in an attempt to
evade collection of the wrongful-death judgment. The estate accused
Rodney, Berta, and other family members, trusts, and entities of
3The court entered partial summary judgment in favor of the estate on the issue
of liability. The only issue at the bench trial was the amount of damages.
4After Rodney’s conviction, Wells Fargo sued the Heemstras for multiple
defaulted loans and obtained a default judgment in January 2004.
11
conspiracy to commit fraud, conspiracy to commit abuse of process,
fraudulent transfer, intentional infliction of emotional distress, and
fraudulent preference of creditors. 5
Ouderkirk was not named as a defendant in the collection action,
nor did he represent any of the defendants. The Lyon estate did,
however, seek to compel Ouderkirk’s testimony. At the time the district
court ruled on the motion to compel, the court had knowledge of the
revocable trusts Ouderkirk created, but not of the Appleroon Irrevocable
Trust or the Appleroon transfer. The district court refused to order
Ouderkirk to testify under the crime-fraud exception to the attorney–
client privilege, stating, “Based on the current state of the record in this
case, the court does not find that the Plaintiffs have made a prima facie
showing of fraud encouraged or participated in by Mason Ouderkirk.”
The fraudulent-conveyance action proceeded to trial to the court after the
second criminal jury trial and second wrongful-death civil trial.
On September 18, 2009, the district court entered a seventy-page
ruling, finding in favor of the estate on the fraudulent-transfer claims
against Rodney and Berta but rejecting the other claims. The district
court summarized the Heemstras’ actions following Tommy’s death:
Rodney Heemstra transferred millions of dollars’ worth of
real estate from his name, without consideration, while
maintaining liability for all of the existing debt. The
transfers were repeated by Rodney, Berta, and the Brisco
Revocable Trust into additional trusts. The assets were
encumbered with mortgages, sold on 30-year contracts, and
generally made a part of a complex shell game.
5Several legal actions arose from the estate’s efforts to collect on the civil
judgments. See, e.g., Estate of Lyon v. Heemstra, No. 08–0934, 2009 WL 1676662 (Iowa
Ct. App. June 17, 2009) (unpublished opinion) (relating to estate’s attempt to garnish
Rodney’s $1,000,000 cash bond); Estate of Lyon v. Heemstra, No. 10–0390, 2010 WL
5394795, at *6 (Iowa Ct. App. Dec. 22, 2010) (unpublished opinion) (finding redemption
of real estate in possession of referee and garnishment of rents on that property void).
12
Based on these actions, the court found the Heemstras “transferred
assets with the actual intent to hinder, delay and defraud [Rodney’s]
creditors, specifically Ronda Lyon and the Estate of Tommy Lyon.” 6
The court specifically addressed paragraph 26 of the Brisco-to-
Appleroon contract, concluding it established Berta’s “absolutely
fraudulent intent.” The court stated, “Rodney and Berta Heemstra were
willing to forego any payment, including interest, for up to 30 years
rather than have any of his assets made available to satisfy any debt
owed to Ronda Lyon or the Tommy Lyon estate.” In sum, the district
court found:
The conduct of the Defendants Rodney and Berta Heemstra
was oppressive and conniving. It was not only an intentional
failure to discover or prevent the wrong, but an intentional,
concerted, and protracted effort to cause the wrong. It was
conduct motivated by greed. The nature and complexity of
their scheme shows that their conduct was far more than a
willful and wanton disregard for the rights of another. It was
the intentional, harsh and cruel effort to put truth in Rodney
Heemstra’s arrogant claim that Ronda Lyon would never see
a dime of his money.
The court awarded the estate $203,895 in compensatory damages
against Rodney and others 7 and $750,000 in punitive damages against
Rodney and Berta. The court also voided the conveyances of ten parcels
of land and appointed a referee to take control of the properties. As for
the other parcels, the court determined that, although the real estate was
fraudulently conveyed, the estate did not suffer any prejudice from the
conveyances and was not entitled to relief. Finally, noting “[t]he huge
6The district court found several other Heemstra family members were knowing
participants in the conspiracy to commit fraud and held them liable for damages.
7This $203,895 compensated plaintiffs for the losses suffered due to Rodney’s
assignment of his cash-rent revenue to various other parties. Rodney stated, “My intent
on the assignment of rent was to assure, because we knew this litigation as coming up,
that . . . under no circumstances would I have had access or any benefit to those rental
proceeds.”
13
expenditure of time and effort involved in attempting to unravel the
tangled web of transfers,” the court ordered the Heemstras to pay the
plaintiff’s attorney fees, which were later calculated at $250,000. 8 The
estate settled with the Heemstras in December 2012.
III. Disciplinary Proceedings.
Ronda Lyon filed a complaint with the Board in December 2009,
three months after the judgment in the second wrongful-death action,
stating Ouderkirk assisted Rodney in transferring his assets “into
fraudulent family entities designed for the sole purpose of defeating,
delaying and hindering Heemstra’s creditors.” The Board filed a
complaint alleging Ouderkirk, by assisting the Heemstras in transferring
their land, violated Iowa Code of Professional Responsibility for Lawyers
DR 1–102(A)(4) (conduct involving dishonesty, fraud, deceit, or
misrepresentation), DR 1–102(A)(5) (conduct prejudicial to the
administration of justice), DR 7–102(A)(1) (action to harass or maliciously
injure another), and DR 7–102(A)(7) (assisting a client in fraudulent
conduct).
After the hearing in December 2012, the commission issued its
findings of fact, conclusions of law, and recommended sanction on
July 18, 2013. The commission concluded the proof was insufficient to
find Ouderkirk violated the disciplinary rules in relation to the revocable
trust transfers because (1) the four trusts Ouderkirk drafted were
revocable and, thus, transfers to the trusts could be voided if they were
8After the 2010 court of appeals opinion setting aside the estate’s original
attachments, the Heemstras filed a motion to vacate the district court’s ruling. The
Heemstras argued the district court relied upon the attachments in finding the
Heemstras had fraudulently transferred property, and therefore, the court of appeals
opinion finding the writs were invalid nullified the district court’s ruling. The district
court denied the Heemstras’ motion, and the court of appeals affirmed. Estate of Lyon
v. Heemstra, No. 10–1025, 2011 WL 443900, at *3–4 (Iowa Ct. App. Feb. 9, 2011)
(unpublished opinion).
14
later determined to be fraudulent; (2) the land transferred into the Brisco
revocable trust was not subject to the estate’s writs of attachment; (3) the
estate did not have a judgment at the time of the transfers and, in any
event, the judgment would only make the estate an unsecured creditor;
(4) the district court, in denying Ronda’s motion to compel Ouderkirk’s
testimony in the fraudulent conveyance action, found no evidence that
Ouderkirk “encouraged or participated” in the fraud; (5) the commission
felt Ouderkirk did not owe an obligation to the estate under Iowa Code
chapter 684 regarding the revocable trust documents; and (6) all of the
conveyances were publicly recorded and available for anyone to see. The
commission found Ouderkirk “reasonably believed” the explanation the
Heemstras gave as motivating the transfers into revocable trusts.
Accordingly, the commission concluded Ouderkirk did not know he was
facilitating a fraudulent conveyance by assisting the Heemstras in
transferring property into revocable trusts.
The commission did, however, conclude Ouderkirk violated DR 1–
102(A)(4) and DR 7–102(A)(1) by creating the transfer documents to
convey the Heemstras’ property to Appleroon. The commission found
credible Ouderkirk’s testimony that, at the time he drafted the Appleroon
contract, he was unaware of the identity of the buyer, the familial
relationship between buyer and seller, and the fact that the buyer was
not bona fide. Yet, paragraph 26 of the Appleroon contract convinced the
commission that Ouderkirk should have recognized the Heemstras’
illegitimate motives. The commission viewed paragraph 26 as an obvious
attempt to shield the Heemstras’ assets from the estate and noted the
language of paragraph 26 was “tellingly absent” from the other real
estate transfer documents Ouderkirk created. The commission
highlighted the fact that Ouderkirk had warned the Heemstras against
15
creating an irrevocable trust shortly before drafting the Appleroon
transfer documents. The commission concluded “[t]he record lacks a
defensible reason” for the transfer from a revocable trust into an
irrevocable trust. Deeming Ouderkirk’s actions “an isolated and
uncharacteristic lapse of his professional judgment,” the commission
faulted Ouderkirk for failing to recognize the red flags of a fraudulent
conveyance:
Because the Heemstras’ intent is apparent on the face of
paragraph 26, we don’t see how Ouderkirk could not have (1)
known it, (2) been concerned about it given his recent
written warning and his understanding from Berta that she
and Rodney had abandoned the irrevocable trust idea, (3)
questioned the Heemstras about why they wanted this
provision before he drafted it, and (4) asked them why they
were moving land from a revocable trust into an irrevocable
trust—the only irrevocable trust involved in the transactions
the Board complains of.
But, the commission found that Ouderkirk’s drafting of the
Appleroon transfer documents did not violate the disciplinary rule
prohibiting conduct that is prejudicial to the administration of justice,
DR 1–102(A)(5). The commission also declined to find a violation of
DR 1–102(A)(7), concluding that finding a violation of this rule in addition
to DR 1–102(A)(4) “would be tantamount to double-counting the cited
cases frown[ed] upon.”
IV. Alleged Ethical Violations.
As the Board noted at oral argument, assisting clients to defraud
creditors is a type of behavior that increases public distrust of attorneys.
Yet, lawyers routinely and appropriately advise clients on asset
protection measures and represent clients defending collection actions.
We would not want to chill proper advocacy or deter lawyers from
representing clients who need legal advice and who without it may be
more likely to break the law in evading creditors. We also note the
16
dearth of precedent sanctioning lawyers, in the absence of self-dealing,
for assisting clients in transactions later found to be a fraud on creditors.
We recognize the factual and legal complexities in determining whether a
particular conveyance is a fraud on creditors. And, we approach with
caution ethics complaints initiated by a litigation adversary.
We first consider Ouderkirk’s argument that a fraudulent
conveyance in and of itself cannot be a “fraud” for the purposes of our
disciplinary rules. See Iowa Code of Prof’l Responsibility DR 1–102(A)(4)
(prohibiting “conduct involving dishonesty, fraud, deceit, or
misrepresentation”); id. DR 7–102(A)(7) (prohibiting “[c]ounsel[ing] or
assist[ing] a client in conduct that the lawyer knows to be illegal or
fraudulent”). Iowa Code Chapter 684 governs fraudulent transactions. 9
9Courts apply Iowa Code section 684.4 to determine if a transfer is fraudulent as
to present or future creditors. That section states in full:
1. A transfer made or obligation incurred by a debtor is
fraudulent as to a creditor, whether the creditor’s claim arose before or
after the transfer was made or the obligation was incurred, if the debtor
made the transfer or incurred the obligation under any of the following
circumstances:
a. With actual intent to hinder, delay, or defraud any creditor of
the debtor.
b. Without receiving a reasonably equivalent value in exchange
for the transfer or obligation, if either of the following applies:
(1) The debtor was engaged or was about to engage in a business
or a transaction for which the remaining assets of the debtor were
unreasonably small in relation to the business or transaction.
(2) The debtor intended to incur, or believed or reasonably should
have believed that the debtor would incur, debts beyond the debtor's
ability to pay as they became due.
2. In determining actual intent under subsection 1, paragraph
“a”, consideration may be given, among other factors, to any or all of the
following:
a. Whether the transfer or obligation was to an insider.
b. Whether the debtor retained possession or control of the
property transferred after the transfer.
c. Whether the transfer or obligation was disclosed or concealed.
17
“A fraudulent conveyance is a transaction by means of which the owner
of real or personal property has sought to place the land or goods beyond
the reach of his creditors, or which operates to the prejudice of their legal
or equitable rights.” Benson v. Richardson, 537 N.W.2d 748, 756 (1995)
(internal quotation marks omitted). Ouderkirk asserts that proving fraud
for the purposes of disciplinary proceedings is a higher bar: he argues
the Board must prove the common law elements of a fraud claim—
“materiality, falsity, representation, scienter, intent to deceive, justifiable
reliance, and resulting injury and damage.” Plymouth Farmers Mut. Ins.
Ass’n v. Armour, 584 N.W.2d 289, 291 (Iowa 1998).
The Iowa Code of Professional Responsibility for Lawyers did not
contain a definition of “fraud.” “In its most basic sense, ‘[d]eliberate
action that misleads another is fraud, and a lawyer may not counsel or
assist a client in such conduct.’ ” 16 Gregory C. Sisk & Mark S. Cady,
Iowa Practice Series: Lawyer and Judicial Ethics § 8:1(d), at 761 (2013
ed.) (quoting 2 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of
_________________________
d. Whether, before the transfer was made or obligation was
incurred, the debtor had been sued or threatened with suit.
e. Whether the transfer was of substantially all the debtor’s
assets.
f. Whether the debtor absconded.
g. Whether the debtor removed or concealed assets.
h. Whether the value of the consideration received by the debtor
was reasonably equivalent to the value of the asset transferred or the
amount of the obligation incurred.
i. Whether the debtor was insolvent or became insolvent shortly
after the transfer was made or the obligation was incurred.
j. Whether the transfer occurred shortly before or shortly after a
substantial debt was incurred.
k. Whether the debtor transferred the essential assets of the
business to a lienor who transferred the assets to an insider of the
debtor.
Iowa Code § 684.4 (2003) (emphasis added).
18
Lawyering § 37.5, at 37-12 (3d ed. Supp. 2004). Iowa Rule of
Professional Conduct 32:1.0(d) defines “fraud” as “conduct that is
fraudulent under the substantive or procedural law of the applicable
jurisdiction and has a purpose to deceive.”
We have previously sanctioned a lawyer for preparing a sham
mortgage for a client who believed placing a large mortgage on his
already over encumbered property “would discourage other persons from
filing new liens.” Comm. on Prof’l Ethics & Conduct v. Jacobsen, 511
N.W.2d 611, 615 (Iowa 1994). In Jacobsen, the junior mortgage had no
effect on the client’s creditors. Id. Yet, we recognized that fraudulent
transactions—even those that do not involve “fraud, dishonesty, or an
attempt to deceive any known person to that person’s disadvantage”—
can violate DR 1–102(A)(4). Id. We stated, “Although this was not a
misrepresentation intended to defeat the present interest of a known
person . . . , it did involve a misrepresentation of material fact spread
upon and perpetuated upon the public record.” Id. at 616. We conclude
assisting a client with a fraudulent transaction can in the appropriate
circumstances constitute a “fraud” under our disciplinary rules. See id.
Courts in other jurisdictions have similarly concluded that lawyers
can run afoul of disciplinary rules by facilitating fraudulent conveyances
or fraudulently conveying property themselves. See, e.g., In re Morris,
No. 11-O-13518, 2013 WL 6598701, at *1 (Cal. Bar Ct. Dec. 4, 2013)
(unpublished opinion) (finding lawyer violated rule prohibiting moral
turpitude, dishonesty, and corruption by assisting a client in creating
promissory notes and recording deeds of trust to delay a creditor’s
collection of its judgment); Fla. Bar v. Rood, 620 So. 2d 1252, 1255 (Fla.
1993) (finding rule violation when lawyer fraudulently transferred
property to his father); Att’y Grievance Comm’n v. Culver, 849 A.2d 423,
19
444 (Md. 2004) (sanctioning lawyer for, among other things, advising
client “how she could avoid repaying” creditors); Dayton Bar Ass’n v.
Marzocco, 680 N.E.2d 970, 971 (Ohio 1997) (disbarring lawyer based in
part on lawyer’s “apparent attempt to transfer property to evade the
effect of a judgment”); In re Conduct of Hockett, 734 P.2d 877, 883–84
(Or. 1987) (suspending lawyer for violating rules prohibiting
misrepresentation and illegal conduct when lawyer helped client
unlawfully convey property to avoid the claims of creditors).
Ouderkirk next argues he cannot be found to be in violation of our
disciplinary rules because he owed no duty to the Heemstras’ creditors.
We disagree. As EC 7–10 instructs:
The duty of a lawyer to represent a client with zeal
does not militate against a concurrent obligation to treat
with consideration all persons involved in the legal process
and to avoid the infliction of needless harm.
Iowa Code of Prof’l Responsibility EC 7–10; see also Comm. on Prof’l
Ethics & Conduct v. Hurd, 360 N.W.2d 96, 104 (Iowa 1984)
(“Respondent’s conduct cannot be defended as zealous representation of
his client. The disciplinary rules set boundaries within which zeal must
be confined.”). While Ouderkirk’s primary duty was to his clients, this
alone does not excuse a violation of the disciplinary rules. See Iowa
Supreme Ct. Att’y Disciplinary Bd. v. McGinness, ___ N.W.2d ___, ___ (Iowa
2014) (finding lawyer violated disciplinary rules by making
misrepresentation to opposing counsel and the district court, despite
lawyer’s explanation that “he was ‘motivated by a misguided loyalty and
[was] attempt[ing] to protect a client’ ”); Iowa Supreme Ct. Att’y
Disciplinary Bd. v. Nelsen, 807 N.W.2d 259, 266 (Iowa 2011) (revoking
license of attorney who helped divert to his clients $141,335 in accounts
receivable that belonged to a third-party secured creditor and noting
20
“[a]lthough an attorney has a duty to represent his or her client
zealously, the attorney must do so within the bounds of the law”); Comm.
on Prof’l Ethics & Conduct v. Chipokas, 493 N.W.2d 414, 418 (Iowa 1992)
(finding lawyer violated DR 1–102(A)(4) by misrepresenting his settlement
authority to opposing counsel).
Yet, we do not believe that an attorney who drafts documents for a
transaction that is later set aside as a fraudulent conveyance has
necessarily participated in a fraud within the meaning of the disciplinary
rules. Clearly, an attorney who creates sham documents to falsify what
he knows to be the true state of affairs has committed a fraud. See
Jacobsen, 511 N.W.2d at 615–16. Also, an attorney who accurately and
transparently documents a transaction that he nonetheless knows is a
fraudulent conveyance may well have violated our disciplinary rules.
However, short of either of these two scenarios, an attorney should be
able to assist a client in achieving his business purposes, including asset
protection, even if the attorney believes the transaction potentially could
be set aside.
The maxim that “[t]he bounds of the law in a given case are often
difficult to ascertain” applies in fraudulent conveyance cases. Iowa Code
of Prof’l Responsibility EC 7–2. The question of whether a transaction is
fraudulent can be a close one that “must be decided upon facts peculiar
to it alone.” Prod. Credit Ass’n of Midlands v. Shirley, 485 N.W.2d 469,
473 (Iowa 1992). “All of the circumstances of any given transaction must
ordinarily be considered together,” id., and a lawyer who does not know
all of the circumstances is at a disadvantage in evaluating whether a
transaction is legitimate. 10
10Iowa attorneys are now permitted to limit the scope of their representation, see
Iowa Ct. R. 32:1.2(c), and in a limited-representation relationship, the client may not
21
We must take into account the complexity of the fraudulent-
transfer statute. For example, under one alternative, a transfer is
fraudulent if made “with actual intent to hinder, delay, or defraud any
creditor of the debtor.” Iowa Code § 684.4(1)(a) (2003). This is a
complicated inquiry subject to the consideration of a number of factors.
See id. § 684.4(2). Under the other statutory alternative, a transfer is
fraudulent if made “without receiving a reasonably equivalent value” if
the debtor “was engaged or was about to engage in a business or a
transaction for which the remaining assets of the debtor were
unreasonably small” or the debtor “intended to incur, or believed or
reasonably should have believed that the debtor would incur, debts
beyond the debtor’s ability to pay as they became due.” Id.
§ 684.4(1)(b)(1)–(2). To conclude that a transaction meets this standard,
an attorney would have to know a good deal about the value of the
client’s property, what the client was getting in return, and what the
client’s overall financial picture was.
A lawyer’s inability to read a client’s mind creates additional
uncertainties as to whether a given conveyance is legitimate. See Ralfs v.
Mowry, 586 N.W.2d 369, 373 (Iowa 1998) (noting “an otherwise valid
[transaction] may be set aside if the facts reveal bad faith and an intent
to deceive”). Clients do not always share their true intent with their
attorneys, and a client may have more than one purpose. As EC 7–6
acknowledges:
Whether the proposed action of a lawyer is within the
bounds of the law may be a perplexing question when a
client is contemplating a course of conduct having legal
_________________________
fully inform the lawyer of all the relevant circumstances. See Sabin v. Ackerman, ___
N.W.2d ___, ___ (Iowa 2014) (discussing rule providing for limited representation). The
former rules did not include a provision for limited representation.
22
consequences that vary according to the client’s intent,
motive, or desires at the time of the action.
Iowa Code of Prof’l Responsibility EC 7–6.
In deciding if a conveyance is fraudulent, the court does not
presume fraud. Shirley, 485 N.W.2d at 473. Nor do we expect lawyers to
presume their clients are committing fraud. EC 7–3 admonishes lawyers
to “resolve in favor of the client doubts as to the bounds of the law,” and
when a lawyer “may not be certain as to the client’s state of mind,” EC 7–
6 reiterates that the lawyer is to “resolve reasonable doubts in favor of
the client.” Lawyers generally should be able to rely on a client’s
representation that a conveyance is legitimate and zealously argue for
the client’s position.
An attorney’s knowledge of the facts can determine whether ethical
lines have been crossed. See Nelsen, 807 N.W.2d at 266, 268 (revoking
license of attorney who “knowingly assisted his clients in defrauding [a]
bank” (emphasis added)). The Board relies on cases from other
jurisdictions to argue fraudulent conveyances justify disciplinary
sanctions. Most of the cases cited by the Board, however, involve
lawyers who were self-dealing. See People v. Koller, 873 P.2d 761, 762,
763 (Colo. 1994) (per curiam) (suspending lawyer who fraudulently
conveyed his property to his wife); People v. Bennett, 843 P.2d 1385,
1385–86 (Colo. 1993) (per curiam) (disbarring attorney who fraudulently
conveyed his property to his wife and his wife’s parents); Rood, 620
So. 2d at 1254–55 (disbarring lawyer who transferred his property to his
father to hinder creditors); In re Diller, 763 N.Y.S.2d 827, 829–30 (App.
Div. 2003) (per curiam) (suspending lawyer who helped her husband
fraudulently convey property). In the remaining cases, the lawyers were
found to have knowingly facilitated fraudulent conveyances. See Bd. of
23
Overseers of the Bar v. Murphy, 570 A.2d 1212, 1213 (Me. 1990)
(per curiam) (finding rule violation when lawyer “actively promot[ed] a
fraudulent conveyance”); In re Orlow, 964 A.2d 303, 303 (N.J. 2009)
(suspending lawyer based on disciplinary review board’s conclusion that
the respondent assisted a client to conceal his assets from creditors);
Mahoning Cnty. Bar Ass’n v. Sinclair, 822 N.E.2d 360, 364–65 (Ohio
2004) (per curiam) (suspending lawyer who drafted deed despite
“kn[owing] of tax judgments against [client] and that [he] was trying to
hide assets from creditors”). In contrast, the Missouri Supreme Court
dismissed an ethical complaint after finding the prosecuting body failed
to prove by a preponderance of the evidence that the lawyers knew of
their clients’ fraudulent intentions. In re Mirabile, 975 S.W.2d 936, 941
(Mo. 1998) (dismissing ethical complaint when attorneys testified “they
believed [their clients’] separation was real” and was not attempt to
fraudulently avoid husband’s prior child support obligations).
If a lawyer knows a transfer is fraudulent and assists a client in
completing the transfer nonetheless, it is no defense that the lawyer is
acting merely as a scrivener. Though a client has “the ultimate authority
to determine the purposes to be served by legal representation,” this
authority is subject to the limitations of the law and the attorney’s
professional obligations. Iowa R. Prof’l Conduct 32:1.2 cmt. 1. As the
New Jersey Supreme Court observed:
It is no excuse for an attorney to say that he only did what
he did because [he was] directed to do so by his client. The
propriety of any proposed course of action must be initially
considered by the attorney, and it may be thereafter pursued
only if the lawyer is completely satisfied that it involves no
ethical compromise. It is for the lawyer, not the client, to
make this decision.
24
In re Blatt, 324 A.2d 15, 18 (N.J. 1974). It should also go without saying
that a lawyer cannot avoid disciplinary sanctions simply because a
particular unethical practice is commonplace among lawyers. See Iowa
Supreme Ct. Bd. of Prof’l Ethics & Conduct v. Rauch, 650 N.W.2d 574, 579
(Iowa 2002) (“[The] contention that everyone does it is without merit.”).
We now turn to the specific rules the Board alleges Ouderkirk
violated.
A. DR 7–102(A)(1). DR 7–102(A), captioned “Representing a
Client Within the Bounds of the Law,” prohibits a lawyer from “tak[ing
an] action on behalf of a client when the lawyer knows or when it is
obvious that such action would serve merely to harass or maliciously
injure another.” Iowa Code of Prof’l Responsibility DR 7–102(A)(1).11
Accordingly, to determine if Ouderkirk violated this rule, we first must
decide if he knew or if it was obvious that the Heemstras’ conveyances
were fraudulent and would “serve merely to harass or maliciously injure”
the estate. Id. “ ‘[K]nowingly’ . . . requires actual knowledge of the fact in
question” and “an attorney’s knowledge may be inferred from the
circumstances.” Iowa Supreme Ct. Att’y Disciplinary Bd. v. Barry, 762
N.W.2d 129, 139 (Iowa 2009) (applying DR 7–102(A)(8) and noting “[t]he
definition of ‘knowingly’ contained in the Iowa Rules of Professional
Conduct is consistent with prior pronouncements of this court”). “An
ostrich-like, head-in-the-sand approach” does not “immunize attorneys
from an inference of actual knowledge.” Iowa Supreme Ct. Att’y
Disciplinary Bd. v. Hearity, 812 N.W.2d 614, 621 (Iowa 2012).
11The current rules do not contain an exact corollary to DR 7–102(A)(1), but its
spirit is reflected in the preamble to the Iowa Rules of Professional Conduct: “A lawyer
should use the law’s procedures only for legitimate purposes and not to harass or
intimidate others.” Iowa R. of Prof’l Conduct Preamble [5].
25
Lacking direct evidence of Ouderkirk’s actual knowledge, the Board
asks us to infer knowledge from the circumstances. In the Board’s view,
the most telling circumstances are the “highly suspicious” timing of the
transactions and the language of paragraph 26. The Board points out
that when Ouderkirk drafted the revocable trust transfer documents, he
knew Rodney was transferring his ownership interests while retaining
responsibility for the debt and knew no consideration was exchanged.
The Board summarizes what Ouderkirk knew at the time he drafted the
Appleroon contract, stating Ouderkirk had
knowledge Heemstra had killed someone, knowledge that
Heemstra covered up that homicide, knowledge that
Heemstra and his wife had completed multiple previous real
estate transactions moving property in direct response to
threat of wrongful death lawsuit, and knowledge that only a
week before being asked to draft the Appleroon contract, the
Heemstras were asking about how to transfer their assets to
another entity such as an irrevocable trust or other business
entity, and had even brought in a proposed irrevocable trust.
The Board argues that paragraph 26 alone justifies a sanction from our
court. The Board finds it significant that the Lyon family was the only
creditor mentioned in the Appleroon contract, arguing paragraph 26
made it “clear that the Heemstras were specifically targeting the Lyon
family and attempting to prevent them from collecting any money for the
wrongful death of Tommy Lyon.” The Board asserts it was obvious that
helping the Heemstras convey their property would harass or maliciously
injure the estate because: (1) a reasonable attorney in Ouderkirk’s
position would have known the Heemstras intended to fraudulently
convey their property; (2) under the circumstances, Ouderkirk had a
duty to inquire into the Heemstras’ motives and who was behind the
Appleroon Irrevocable Trust; and (3) Ouderkirk’s failure to ask any
questions about the Appleroon transaction amounts to willful blindness.
26
Ouderkirk denies knowing the Heemstras were fraudulently
conveying their property. His expert, attorney Greg Kenyon, testified that
the circumstances surrounding the transfers supported Ouderkirk’s
belief that they were not fraudulent. Kenyon has over thirty-five years of
experience practicing in the areas of collections, trusts, and bankruptcy.
Kenyon testified that the transfers to the Brisco Revocable Trust served a
legitimate purpose: the transfers consolidated the Heemstras’ property
under “one tent,” which would allow Berta to more easily manage the
farming operations.
Focusing on the Appleroon conveyance, Ouderkirk asserts he
should not have been expected to know the transfer was fraudulent
simply because it involved an irrevocable trust. Kenyon testified that a
sale to an irrevocable trust is not inherently suspicious and that nothing
on the face of the Appleroon contract indicated it was not an arms’ length
deal. Ouderkirk testified he believed the Heemstras’ representation that
they had found an unrelated, third-party, out-of-state, bona fide
purchaser for their land and that “[a]s a bona fide sale, by definition the
sale could not be fraudulent.” Kenyon highlighted that the contract
indicated the buyers were paying “apparently market value.” Kenyon
further testified that even if Ouderkirk would have discovered a member
of the Heemstra family was a trustee of Appleroon, this alone would not
make the contract fraudulent; because the terms of the contract led
Ouderkirk to believe consideration had been paid for the property, he
could reasonably believe the sale was bona fide. Ouderkirk argues he
cannot be held accountable for relying on the Heemstras’ representations
and not probing into who was behind the Appleroon Irrevocable Trust.
Moreover, Ouderkirk argues paragraph 26 did not make the
Appleroon conveyance illegitimate. He argues paragraph 26, standing
27
alone, is not fraudulent or illegal because that paragraph was merely a
condition of sale and “[f]raud is predicated upon a transfer, not a
condition of sale.” Ouderkirk asserts that, if Appleroon was a bona fide
purchaser as he believed it to be, the transfer would not have been
fraudulent—regardless of paragraph 26. He further argues paragraph 26
served a legitimate purpose and was not intended merely to hinder or
delay the estate’s collection efforts. He states, “It would be entirely
expected that the buyer would want and demand that required payments
would be suspended rather than throw its money away if the underlying
mortgages were foreclosed upon.” In Kenyon’s view, paragraph 26 served
to disclose the Lyon family’s potential claim to the buyer “so that the
buyer would not have grounds to rescind the deal later on or to ask for
some further credit or something on the payments.” Kenyon pointed out
that paragraph 26 also contained a “hold harmless” provision, obligating
the Heemstras to defend the buyer from any claims against the property.
Ouderkirk highlights that paragraph 26 supported his belief that the
contract was arms’ length, as paragraph 26 would be unnecessary if the
contract was an inside deal and no consideration would be exchanged.
The commission stopped short of finding Ouderkirk had actual
knowledge that he was assisting the Heemstras to fraudulently convey
their property. It specifically found Ouderkirk did not knowingly assist
his clients in committing fraud. The commission therefore found the
Board failed to prove Ouderkirk violated any rule by drafting the
revocable trust transfer documents. The commission further found:
The record reasonably supports a finding that the
Heemstras were not candid with Ouderkirk concerning the
true nature of Appleroon. Ouderkirk cannot be subject to a
recommendation for sanction for what they failed to reveal to
him. We also credit Ouderkirk’s testimony that he would not
have proceeded with the Brisco-to-Appleroon transaction
28
had he known the true facts underlying the Heemstras’
drafting request.
(Internal citations omitted.) Despite these findings, the commission
concluded the Heemstras’ fraudulent intent was apparent on the face of
paragraph 26 and therefore imputed the Heemstras’ intent to Ouderkirk.
The commission faulted Ouderkirk for failing to ask the Heemstras the
purpose of paragraph 26 or why they were conveying land to an
irrevocable trust.
On our de novo review of the record, we conclude the Board has
failed to prove by a convincing preponderance of the evidence that
Ouderkirk knew he was helping the Heemstras fraudulently convey their
property or that it was obvious. See Iowa Supreme Ct. Att’y Disciplinary
Bd. v. Olson, 807 N.W.2d 268, 283 (Iowa 2011) (finding Board failed to
meet its burden of proof).
We decline to infer knowledge from the circumstances here. The
Board makes much of the facts Ouderkirk knew at the time he drafted
the various documents for the Heemstras, arguing these facts should
have alerted him that the conveyances were fraudulent. But, there were
additional facts Ouderkirk knew that arguably justified his actions at the
time. He knew the Heemstras frequently bought and sold farmland, and
knew they were under financial pressure. He knew the Heemstras had
previously listed for sale the property conveyed to Appleroon. As
Rodney’s criminal defense lawyer, Ouderkirk knew Rodney had a self-
defense claim. When Ronda filed her wrongful-death suit on January 27,
2003, Ouderkirk knew she was a creditor with a claim under chapter
684—a disputed claim that would not be collectible until she received a
judgment awarding her damages. Ouderkirk knew the Heemstras were
heavily indebted to various secured lenders and that the lenders’ claims
29
would have priority over a judgment for the estate. Ouderkirk knew
there was a meritorious argument that the attachments on the
Heemstras’ Warren County land were legally flawed, as the court of
appeals later confirmed. We note that the district court in the collection
litigation found the Heemstras liable for fraudulently conveying their
property based in large part on activities they undertook without
Ouderkirk’s assistance or knowledge. 12 Hindsight is twenty-twenty.
Lawyers are to be judged based on the information available to them at
the time of the challenged transaction.
Ouderkirk trusted his clients’ representation that the transfers to
revocable trusts were needed to better manage their farming operation
and that the Appleroon sale was bona fide. The commission heard
Ouderkirk’s testimony and found he was credible, a finding with which
we agree. See Clarity, 838 N.W.2d at 659 (giving deference to
commission’s credibility determination). The ethical considerations to
the 2003 disciplinary rules encourage lawyers to trust their clients, see
Iowa Code of Prof’l Responsibility EC 7–3; 7–6, and Ouderkirk did so.
Based on what he knew at the time, Ouderkirk believed the
Heemstras had a colorable basis to proceed with the conveyances. In
judging whether a transaction is a fraudulent conveyance, courts look for
“badges of fraud,” including:
inadequacy of consideration, the transferor’s insolvency,
pendency or threat of third-party creditor litigation, secrecy
or concealment, departure from usual business methods,
reservation of benefits to the transferor, and the debtor’s
retention of the property.
12This includes the Heemstras’ further transfers to various corporate entities
and trusts and their assignments of rental proceeds to different trusts.
30
Ralfs, 586 N.W.2d at 373. Iowa Code section 684.4(2) lists additional
factors, including whether the transfer was to an insider and whether the
debtor absconded. Iowa Code § 684.4(2); cf. Shirley, 485 N.W.2d at 472
(noting “although a ‘blood relationship’ is not per se a badge of fraud, it
may strengthen the inference arising from the circumstances, requiring
strict proof of consideration and fairness of the transaction”). For the
revocable trust transfers, even though they were to relatives, Rodney did
not abscond, and, to Ouderkirk’s knowledge, there was no insolvency, no
secrecy or concealment, and no departure from the Heemstras’ usual
business methods. For the Appleroon conveyance—which Ouderkirk
believed to be an arms’ length deal for consideration—the only “badge of
fraud” was the threat of third-party creditor litigation. The conveyances
therefore appeared legitimate. See Ralfs, 586 N.W.2d at 373 (“Ordinarily,
proof of more than one of these ‘badges’ will be necessary to warrant an
inference of fraud in a transaction.”). Though Ouderkirk recognized a
risk that a court might deem the Heemstras’ conveyances fraudulent, he
satisfied his duty by warning the Heemstras of that risk. See Iowa Code
of Prof’l Responsibility EC 7–3 (noting lawyers should provide clients with
“a professional opinion as to what the ultimate decisions of the courts
would likely be as to the applicable law”).
The Board concluded paragraph 26 justifies a sanction and the
commission also concluded paragraph 26 tips the scales against
Ouderkirk. We agree with Ouderkirk that paragraph 26 does not itself
justify a sanction. It was not paragraph 26 that made the Appleroon
conveyance fraudulent; it was the fact that it was not a bona fide sale.
Paragraph 26 is relevant only to the extent it provides circumstantial
evidence that Ouderkirk knew—or that it was obvious—the Appleroon
conveyance was fraudulent.
31
We find Ouderkirk’s explanations for paragraph 26 credible.
Nothing in the language of paragraph 26 would alert Ouderkirk that
Appleroon was not a bona fide buyer. The fact that paragraph 26 may
have indicated the Heemstras’ desire to prevent the estate from collecting
its judgment does not render the paragraph useless. “It must . . . be
remembered that ordinarily a debtor may prefer one creditor over
another, ‘even if the debtor’s intentions . . . are spiteful and the action
will delay or prevent the nonpreferred creditor from obtaining payment.’ ”
Ralfs, 586 N.W.2d at 373 (quoting Benson, 537 N.W.2d at 757); see also
Shirley, 485 N.W.2d at 472 (“It is generally immaterial that other
creditors . . . may by the preference be delayed or wholly prevented from
obtaining payment, since this is the natural result of the preferential
transfer.”). We conclude paragraph 26 did not make it obvious that the
Appleroon transfer was a sham. Paragraph 26 fails to prove Ouderkirk’s
scienter.
This case is analogous to that of In re Mirabile. In Mirabile, the
Chief Disciplinary Counsel of Missouri charged two lawyers with filing a
fraudulent petition for legal separation and a sham stipulation in order
to help a husband and wife avoid a child support obligation to the
husband’s ex-wife. 975 S.W.2d at 937. In child support proceedings
with his ex-wife, the husband listed his monthly income at $7000. Id.
The court found the husband’s true income was $16,250 and advised
him of the court’s intention to increase his monthly child support
obligation from $500 to $2080. Id. The next day, the lawyers entered a
stipulation whereby the husband would separate from his wife and pay
her $7000 in maintenance and child support. Id. at 937–38.
 32
Citing the attorneys’ testimony that “they believed [their clients’]
separation was real,” 13 the Missouri Supreme Court found the chief
disciplinary counsel had failed to prove an ethical violation by a
preponderance of the evidence. Id. at 940. The court declined to infer
the lawyers knew the husband and wife intended to separate for the
purpose of avoiding the husband’s prior child support obligation, stating,
“On the key issue, the respondents and their clients testified consistently
and adamantly that the clients truly desired a legal separation.” Id. The
court recognized that the “inability to pay debts as they become due” is a
badge of fraud and emphasized that the husband-client “was solvent at
all relevant times.” Id. (internal quotation marks omitted). The Mirabile
court additionally noted that the lawyers discussed the child support
proceedings with the judge who accepted the separation stipulation,
which demonstrated the attorneys “did not perpetuate a fraud” on the
court. Id.
Mirabile is similar to this case in three key aspects. First,
Ouderkirk, like the lawyers in that case, testified that he believed his
clients’ representations. Second, the lawyers in both cases believed the
challenged transactions left the client solvent. Because the transfer to
Appleroon was made for “apparently market value,” Ouderkirk had no
reason to believe the transfer left the Heemstras insolvent, just as the
lawyers in Mirabile believed the marital separation left their client with
13Three judges concurred in part and dissented in part. Those judges
“reluctantly” concluded that the evidence was insufficient to prove one of the two
lawyers knew of the husband and wife’s “ulterior motive.” Mirabile, 975 S.W.2d at 944
(Holstein, J., concurring in part and dissenting in part). The dissenters concluded the
other lawyer had knowledge of the clients’ fraudulent intent based on the presence of
several badges of fraud. Id. at 942–43. We note that the fact finders in Mirabile found
the testimony of the two lawyers and the clients incredible and the majority disregarded
this finding. Id. at 939–40 (majority opinion). Here, the commission’s credibility
findings support our conclusion.
33
enough income to satisfy his prior child support obligation. Finally,
there was no concealment; the child support proceedings in Mirabile were
disclosed to the judge who accepted the separation stipulation, and the
Heemstras’ conveyances were publicly recorded.
For those reasons, we conclude the Board has failed to prove by a
convincing preponderance of the evidence that Ouderkirk violated DR 7–
102(A)(1).
B. DR 1–102(A)(4) & DR 7–102(A)(7). We next consider rules
DR 1–102(A)(4) and DR 7–102(A)(7) together because they both prohibit
fraudulent behavior and require scienter. DR 1–102(A)(4) provides, “A
lawyer shall not . . . [e]ngage in conduct involving dishonesty, fraud,
deceit, or misrepresentation.” 14 Iowa Code of Prof’l Responsibility DR 1–
102(A)(4). Though the text of DR 1–102(A)(4) does not contain a scienter
requirement, we have held the same language in Iowa Rule of
Professional Conduct 32:8.4(c) “requires something more than
negligence.” Iowa Supreme Ct. Att’y Disciplinary Bd. v. Netti, 797 N.W.2d
591, 605 (Iowa 2011) (interpreting Iowa Rule of Professional Conduct
32:8.4(c), which contains the same operative language as DR 1–
102(A)(4)); see also Iowa Supreme Ct. Bd. of Prof’l Ethics & Conduct v.
Smith, 569 N.W.2d 499, 501 (Iowa 1997) (noting the “key question” under
DR 1–102(A)(4) “is whether the effect of the lawyer’s conduct is ‘to
mislead rather than to inform’ ” (quoting Comm. on Prof’l Ethics &
Conduct v. Baudino, 452 N.W.2d 455, 458 (Iowa 1990))). Thus, we look
to whether an attorney made a “knowing misrepresentation.” Netti, 797
N.W.2d at 605. DR 7–102(A)(7) further proscribes “[c]ounsel[ing] or
assist[ing] a client in conduct that the lawyer knows to be illegal or
14The current version of this rule is found at Iowa Rule of Professional Conduct
32:8.4(c).
34
fraudulent.” 15 Iowa Code of Prof’l Responsibility DR 7–102(A)(7)
(emphasis added). As set forth above, we conclude the Board has failed
to prove by a convincing preponderance of the evidence that Ouderkirk
knew the transactions he helped complete were fraudulent. Accordingly,
we conclude Ouderkirk did not violate DR 1–102(A)(4) and DR 7–
102(A)(7).
C. DR 1–102(A)(5). DR 1–102(A)(5) provides, “[a] lawyer shall not
. . . [e]ngage in conduct that is prejudicial to the administration of
justice.” Id. DR 1–102(A)(5). This rule is worded identically to Iowa Rule
of Professional Conduct 32:8.4(d). “An attorney’s conduct is prejudicial
to the administration of justice when it violates the well-understood
norms and conventions of the practice of law such that it hampers the
efficient and proper operation of the courts or of ancillary systems upon
which the courts rely.” Rhinehart, 827 N.W.2d at 180 (internal quotation
marks omitted).
The commission found Ouderkirk did not violate DR 1–102(A)(5).
We agree. The Board, relying on Iowa Supreme Ct. Attorney Disciplinary
Board v. Stowers, 823 N.W.2d 1 (Iowa 2012), argues Ouderkirk’s conduct
was prejudicial to the administration of justice because the conveyances
forced the Lyon estate to pursue costly litigation in order to unwind the
transactions and collect on its judgment. In Stowers, an attorney
violated a protective order by sending threatening emails to persons
represented by counsel, conduct we found constituted extortion. 823
15Iowa Rule of Professional Conduct 32:1.2(d) contains this language, stating:
A lawyer shall not counsel a client to engage, or assist a client, in
conduct that the lawyer knows is criminal or fraudulent, but a lawyer
may discuss the legal consequences of any proposed course of conduct
with a client and may counsel or assist a client to make a good faith
effort to determine the validity, scope, meaning, or application of the law.
35
N.W.2d at 4–7, 14. We concluded this conduct violated rules 32:3.4(c),
32:4.2(a), and 32:8.4(b). 16 Id. at 7–14. We also concluded Stowers’s
conduct was prejudicial to the administration of justice, in violation of
rule 32:8.4(d), because it “triggered a series of unnecessary court
proceedings.” Id. at 15.
In contrast, we have concluded the Board failed to prove
Ouderkirk’s conduct violated any disciplinary rule. We have never found
an attorney’s conduct to be prejudicial to the administration of justice
without an underlying violation of some other disciplinary rule. Cf. Iowa
Supreme Ct. Att’y Disciplinary Bd. v. Rasmussen, 823 N.W.2d 404, 410
(Iowa 2012) (finding lawyer who exercised self-help remedy of
repossession did not violate rules 32:8.4(c), 32:4.1(a), 32:4.2(a),
32:8.4(b), or 32:8.4(d) because such action was legally permissible—
though unadvisable). Fundamentally, it was the Heemstras’
misrepresentations that triggered the lengthy court proceedings to
unwind their fraudulent transactions, not Ouderkirk’s conduct. The
Board provided no expert testimony that Ouderkirk’s role in the
transactions violated “the well-understood norms and conventions of the
practice of law.” See Rhinehart, 827 N.W.2d at 180 (internal quotation
marks omitted). We conclude the Board failed to prove by a convincing
preponderance of the evidence that Ouderkirk’s conduct violated DR 1–
102(A)(5).
16See Iowa R. Prof’l Conduct 32:3.4(c) (“knowingly disobey[ing] an obligation
under the rules of a tribunal”); id. r. 32:4.2(a) (“communicat[ing] about the subject of
the representation with a person the lawyer knows to be represented by another lawyer
in the matter”); id. r. 32:8.4(b) (“criminal act that reflects adversely on the lawyer’s
honesty, trustworthiness, or fitness as a lawyer”).
36
V. Conclusion.
We conclude the Board has failed to prove by a convincing
preponderance of the evidence that Ouderkirk violated Iowa Code of
Professional Responsibility DR 7–102(A)(1), DR 1–102(A)(4), DR 7–
102(A)(7), or DR 1–102(A)(5). Accordingly, we dismiss with prejudice the
Board’s complaint against him.
COMPLAINT DISMISSED.
All justices concur except Cady, C.J., who takes no part.