In re Spencer , 355 Or. 679 ( 2014 )

No. 45 June 26, 2014 679
IN THE SUPREME COURT OF THE
STATE OF OREGON
In re Complaint as to the Conduct of
MICHAEL L. SPENCER,
Accused.
(OSB 11-52; SC S060977)
En Banc
On review of the decision of a trial panel of the Disciplinary
Board.
Argued and submitted January 16, 2014.
Michael A. Spencer, Klamath Falls, argued the cause
and filed the brief in propria persona.
Mary A. Cooper, Assistant Disciplinary Counsel, argued
the cause and filed the brief for the Oregon State Bar.
PER CURIAM
The accused is suspended from the practice of law for a
period of 30 days, commencing 60 days from the filing of this
decision.
The Oregon State Bar charged the accused with violating two Rules of
Professional Conduct, RPC 1.7(a) and RPC 1.8(a), arising out of his simultane-
ous representation of a client in a bankruptcy proceeding while also serving as
her real estate broker. Held: (1) The accused’s agreement to serve as the client’s
real estate broker amounted to a business transaction within the meaning of
RPC 1.8(a); because the accused conceded that he did not provide the advice and
obtain the necessary consent that RPC 1.8(a) requires, he violated that rule; (2)
Because the prospect of the accused’s receipt of a real estate commission, stand-
ing alone, did not pose a significant risk of materially limiting his representation
of his client, the Bar did not establish a violation of RPC 1.7(a).
The accused is suspended from the practice of law for a period of 30 days,
commencing 60 days from the filing of this decision.
680 In re Spencer
PER CURIAM
In this lawyer disciplinary proceeding, the Oregon
State Bar charged the accused with violating two Rules
of Professional Conduct (RPC): RPC 1.7(a), which prohib-
its a lawyer from representing a client without informed
consent if “there is a significant risk that the represen-
tation *  * will be materially limited by *  * a personal
*  *
interest of the lawyer”; and RPC 1.8(a), which prohibits a
lawyer from “enter[ing] into a business transaction with
a client” without the requisite advice and the client’s con-
sent. A trial panel of the Disciplinary Board found that
the accused had violated both rules and imposed a 60-day
suspension. On de novo review, we find that the accused
violated RPC 1.8(a) and suspend him from the practice of
law for 30 days.
I. FACTS
The accused has been a member of the Bar since
1983 and a licensed real estate broker since 2003. In March
2008, a prospective client, Smith-Canfield, met with the
accused to ask about filing for bankruptcy. Smith-Canfield
told the accused that she anticipated receiving approxi-
mately $30,000 from the sale of real property in another
state. At that point, Smith-Canfield was living in rental
housing in Klamath Falls, and the accused advised her that
she could take advantage of an exemption in the bankruptcy
law if she used the proceeds from the out-of-state property
sale to buy a home and then filed a Chapter 13 bankruptcy
petition. To take advantage of that exemption, however, she
needed to buy a home within one year of the sale of her other
property.
When Smith-Canfield expressed concern that a
bank would not loan her money to buy a home, the accused
explained that he was a real estate broker and could look
for an owner-financed property for her.1 Having received
that advice, Smith-Canfield agreed to have the accused rep-
resent her, and the accused began searching for a suitable
property and also preparing the bankruptcy filing.
1
The sales agreement that the accused later prepared stated that he was
acting only as the buyer’s (Smith-Canfield’s) real estate agent.
Cite as 355 Or 679 (2014) 681
The next month, the accused learned about a rela-
tively new home that might fit Smith-Canfield’s needs. The
owner was in financial trouble, and the person who held the
trust deed was willing to finance Smith-Canfield’s purchase.
The accused estimated the amount due on the trust deed and,
based on that estimate, determined the lowest possible offer
that the owner would be likely to accept. He advised Smith-
Canfield to offer to pay $225,000 and to put $25,000 down.
That offer was below both the market value and the listed
price. Smith-Canfield accepted the accused’s advice and
asked him to prepare an offer to that effect. She was aware
that, if the owner accepted her offer, the accused would split
the sales commission with the owner’s real estate agent.
Based on the accused’s advice, Smith-Canfield made
her offer contingent on three conditions. First, the owner
had “to rebuild [a] retaining wall along Old Fort Rd.”2
Second, he had to “remove all junk from the house.” Third,
he had to “have the carpets cleaned. If the stains on the
carpet do not clean out,” then the owner had to give Smith-
Canfield $1,000 to replace the existing carpets. Based on the
accused’s advice, Smith-Canfield did not impose any other
conditions on the sale. As the accused later explained, the
goal was to purchase the property quickly at the lowest pos-
sible price. Additionally, the accused advised Smith-Canfield
to waive a professional inspection, even though the pre-
printed offer stated that it was advisable to have one.3 The
accused concluded that, because the house was relatively
new, a professional inspection was unlikely to be worth the
cost, especially in light of Smith-Canfield’s limited financial
resources. Based on the accused’s advice, Smith-Canfield
waived a professional inspection.
The owner accepted Smith-Canfield’s offer and took
steps to satisfy the conditions she had listed. During the
2
The back yard of the house sloped down to Old Fort Road. A three-foot high
retaining wall ran along the base of the slope. The retaining wall consisted of
masonry blocks stacked on top of each other. When the accused initially took
Smith-Canfield to see the home, they noticed that approximately 25 percent of
the blocks had fallen down.
3
The offer states that “Buyer understands that it is advisable to have a com-
plete inspection of the Property by qualified professional(s) relating to such mat-
ters as * * * soil condition/compaction/stability [and] zoning * * *.”
682 In re Spencer
final walk-through, the accused and Smith-Canfield noted
that the masonry blocks that formed the retaining wall had
been restacked and the carpets cleaned. The sale closed that
month, and the accused received approximately $5,000 as
his share of the real estate sales commission. The accused’s
commission came out of the proceeds that otherwise would
have gone to the seller.
In May 2008, the accused filed Smith-Canfield’s
Chapter 13 bankruptcy petition. Shortly afterwards, Smith-
Canfield received a letter from the City of Klamath Falls,
stating that the dirt slope at the back of the yard violated
the city code and that she needed either to “[r]estore the
slope of [her] property to [city code] specifications *  * or
*
provide an engineered plan for a retaining wall.”4 Smith-
Canfield contacted the accused, who investigated the city’s
allegations. The accused wrote the seller and demanded
that he bring either the slope or the retaining wall into
compliance. The seller responded that, because he had
limited financial resources, he could not be of any help.
The accused also questioned whether the city had author-
ity to require Smith-Canfield to restore the slope or pro-
vide an engineered retaining wall. Although the accused
doubted the city’s authority, he was concerned that Smith-
Canfield did not have enough money to fund a legal dis-
pute with the city. He believed that she could have the
funds in a year’s time, based on her Chapter 13 plan.
Accordingly, he asked for and received a one-year exten-
sion from the city for Smith-Canfield to respond to the city’s
demand.
Several months later, Smith-Canfield mentioned
her dispute with the city to another lawyer. That lawyer
later contacted the accused, questioning his handling of both
the real-estate purchase and the city’s notice of a code vio-
lation. After receiving those communications, the accused
4
The accused testified, and the Bar offered no contrary testimony, that a pro-
fessional inspection would not have disclosed the city code violation. Additionally,
the Bar offered no testimony that a reasonable real estate broker or lawyer
would have been aware that the grade of the slope was too steep. Indeed, the
accused testified, without dispute, that similar grades were common at nearby
properties and that neither the county nor the state imposed a comparable grade
requirement.
Cite as 355 Or 679 (2014) 683
withdrew from representing Smith-Canfield. Represented by
a new lawyer, Smith-Canfield brought an adversary action
against the accused in the bankruptcy proceeding, alleg-
ing that he had breached his fiduciary obligation to dis-
close conflicts of interest and that he also had breached his
professional duty regarding the purchase of her home. The
bankruptcy court found, by a preponderance of the evidence,
that the accused had breached both duties and that Smith-
Canfield had suffered financial injury as a result.5
In early 2011, Smith-Canfield’s employer in Klamath
Falls went out of business, and Smith-Canfield lost her job.
Later that year, she converted her bankruptcy proceeding
from a Chapter 13 to a Chapter 7. Eventually, she gave up
the home that she had bought, with the result that she lost
her down payment and three years of payments on the home.
In July 2011, the Bar filed a complaint against
the accused, alleging that he had violated RPC 1.7(a) and
RPC 1.8(a). The trial panel found that the accused had vio-
lated both rules and determined that a 60-day suspension
was the appropriate sanction. The accused petitioned for
review in this court. We review the record de novo to deter-
mine whether the Bar established the alleged violations by
clear and convincing evidence. See Bar Rule (BR) 10.6 (pro-
viding for de novo review); BR 5.2 (requiring proof by clear
and convincing evidence).
II.  RPC 1.8(a)
RPC 1.8(a) prohibits a lawyer from “enter[ing] into
a business transaction with a client” or “knowingly acquir-
[ing] *  * [a] pecuniary interest adverse to a client” unless
*
certain conditions are met.6 A lawyer may enter into a
business transaction with a client if, among other things,
5
The accused assigns error to the trial panel’s ruling admitting a copy of
the bankruptcy court’s decision and judgment because the bankruptcy court’s
findings were based on a preponderance of the evidence standard rather than the
clear and convincing standard that applies in disciplinary proceedings. The chair
of the trial panel stated that the panel did not give the bankruptcy court’s deci-
sion preclusive effect, and neither do we. The trial panel did not err in admitting
the decision and judgment.
6
RPC 1.8(a) provides:
“A lawyer shall not enter into a business transaction with a client or know-
ingly acquire [a] * * * pecuniary interest adverse to a client unless:
684 In re Spencer
the terms of the transaction are fair, the client is advised
in writing of the desirability of seeking independent legal
advice, and the client consents in a signed writing to the
transaction’s essential terms and the role that the lawyer
will play in the transaction. RPC 1.8(a)(1)-(3). In this case,
the accused concedes that he did not obtain written consent
from Smith-Canfield after giving her the requisite advice.
The question under RPC 1.8(a) accordingly reduces to
whether, in agreeing to act as Smith-Canfield’s real estate
broker, the accused either entered into a “business transac-
tion” with her or “knowingly acquir[ed] a pecuniary interest
adverse to” Smith-Canfield’s interests.
This court has not previously construed RPC 1.8(a).
The predecessor rule, former DR 5-104(A), required disclo-
sure and consent regarding business transactions between
lawyers and clients if their interests differed and if the cli-
ent expected that the lawyer would exercise professional
judgment on the client’s behalf in the transaction. See In re
Samuels/Weiner, 296 Or 224, 232-33, 674 P2d 1166 (1983)
(business transactions with clients are not inherently uneth-
ical; instead, “[i]t is when the client and the lawyer have dif-
fering interests and the client expects the lawyer to exercise
*  * professional judgment for the protection of the client
*
that [(former)] DR 5-104(A) comes into play”); In re Bartlett,
283 Or 487, 496-97, 584 P2d 296 (1978) (same).
On review, the parties frame the question under
RPC  1.8(a) similarly; that is, they debate whether the
accused’s interests in this transaction either differed from
or were adverse to Smith-Canfield’s. We note, however,
that the text of RPC 1.8(a) differs from the text of former
DR 5-104(A). RPC 1.8(a) prohibits a lawyer from “enter[ing]
“(1)  the transaction and terms on which the lawyer acquires the interest
are fair and reasonable to the client and are fully disclosed and transmitted
in writing in a manner that can be reasonably understood by the client;
“(2)  the client is advised in writing of the desirability of seeking and is
given a reasonable opportunity to seek the advice of independent legal coun-
sel on the transaction; and
“(3) the client gives informed consent, in a writing signed by the cli-
ent, to the essential terms of the transaction and the lawyer’s role in the
transaction, including whether the lawyer is representing the client in the
transaction.”
Cite as 355 Or 679 (2014) 685
into a business transaction with a client” without first mak-
ing certain disclosures and obtaining the client’s written
consent. It does not expressly require that the lawyer and
the client’s interests in the transaction differ. To be sure,
RPC 1.8(a) also prohibits lawyers from “knowingly acquir-
[ing] an ownership, possessory, security or other pecuniary
interest adverse to a client.” However, not only are the two
prohibited acts separated by “or,” but the second prohibited
act—acquiring a pecuniary interest adverse to a client—is
modified by the adverb “knowingly.” The first prohibited act
is not similarly limited. The text of the rule suggests that
entering into a business transaction with a client is itself
prohibited, unless the terms of the transaction are fair and
reasonable to the client, the requisite disclosures are made,
and the necessary consent obtained.
The history of the rule confirms that interpretation.
For the purposes of this issue, RPC 1.8(a) tracks ABA Model
Rule 1.8(a) verbatim. See Oregon Rules of Professional Con-
duct 8 (explaining that RPC 1.8(a) “replaces DR 5-104(A)
and incorporates the Model Rule prohibition against busi-
ness transactions with clients even with consent except
where the transaction is ‘fair and reasonable’ to the client”).
We accordingly look to the commentary to ABA Rule 1.8(a)
for guidance in construing RPC 1.8(a). See In re Hostetter,
348 Or 574, 590, 238 P3d 13 (2010) (looking to the com-
mentary to the model rule for its persuasive value when an
Oregon rule is identical to the model rule). The commentary
does not suggest that, for the “business transaction” prohi-
bition to apply, the lawyer and client must have differing
or adverse interests. Instead, the commentary explains that
the rule recognizes “the possibility of overreaching when
the lawyer participates in a business, property or financial
transaction with a client” and disfavors an arrangement in
which the lawyer has an “advantage in dealing with the cli-
ent.” American Bar Association’s Model Rules of Professional
Conduct (ABA Model Rules), Rule 1.8, comment [1] (2007).
Additionally, in discussing the advice that a lawyer gives a
client, the commentary recognizes that a lawyer’s actions
may violate ABA Rule 1.8(a) but not ABA Rule 1.7(a). Id.7
7
Specifically, the commentary to ABA Rule 1.8 states that, when a lawyer
enters into business transactions with a client,
686 In re Spencer
The commentary to ABA Rule 1.8(a) establishes that
the first part of that rule serves as a general prophylactic
against lawyers entering into business transactions with cli-
ents and does so regardless of whether the lawyer knowingly
acquires a pecuniary interest adverse to his or her client, see
RPC 1.8(a), or whether entering into the transaction creates
a significant risk of materially limiting the lawyer’s ability
to represent his or her client, see RPC 1.7(a)(2). Given the
identity between the text of RPC 1.8(a) and the text of the
ABA rule on which it was modeled, we find the commentary
to ABA Rule 1.8(a) persuasive in interpreting the meaning
of Oregon’s rule. Specifically, we conclude that the accused
violated RPC 1.8(a) if he entered into a business transaction
with Smith-Canfield without first providing the advice that
that rule requires and obtaining the necessary consent.
The accused argues that, when he agreed to act
as Smith-Canfield’s real estate broker, he was not entering
into a “business transaction” with her within the meaning
of RPC  1.8(a). We reach a different conclusion. The com-
mentary to ABA Rule 1.8 explains that that rule applies to
transactions that are both unrelated and related to the sub-
ject of the legal representation. ABA Model Rules, Rule 1.8,
comment [1]. Specifically, the commentary states that the
rule “applies to lawyers engaged in the sale of goods or ser-
vices related to the practice of law, for example, the sale of
title insurance or investment services to existing clients of
the lawyer’s legal practice.” Id. If, as the commentary states,
the rule against entering into business transactions with a
client applies to the sale of title insurance, it is difficult to
see why it does not also apply to an agreement to serve as
the client’s real estate broker. That type of agency agree-
ment is a common feature of the real estate business and is
separate from the practice of law, even though, in this case,
“[t]he risk to a client is greatest when the client expects the lawyer to repre-
sent the client in the transaction itself or when the lawyer’s financial interest
otherwise poses a significant risk that the lawyer’s representation of the cli-
ent will be materially limited by the lawyer’s financial interest in the transac-
tion. [In that situation,] the lawyer’s role requires that the lawyer must com-
ply, not only with the [disclosure and consent] requirements of paragraph (a)
[of ABA Rule 1.8], but also with the [disclosure and consent] requirements
of [ABA] Rule 1.7.”
ABA Model Rules, Rule 1.8, comment [3].
Cite as 355 Or 679 (2014) 687
the agreement was ancillary to the accused’s representation
of Smith-Canfield in the bankruptcy proceeding.
The accused advances two contrary arguments. He
argues initially that, when a lawyer agrees to represent a
client, that agreement could be characterized as a “business
transaction.” He reasons, however, that no one would suggest
that an agreement to provide legal services is a business
transaction that is subject to RPC 1.8(a). In the accused’s
view, an agreement to serve as a real estate broker is no
different from an agreement to serve as a lawyer. It follows,
he concludes, that neither agreement should be viewed as a
“business transaction” to which RPC 1.8(a) applies.
Even if an agreement to provide legal services could
be characterized, in the abstract, as a “business transac-
tion,” the Oregon Rules of Professional Conduct regulate that
transaction differently from other business transactions.
For example, RPC 1.1 requires that a lawyer provide com-
petent legal representation to his or her client. RPC  1.2
governs when a lawyer can limit the scope of legal repre-
sentation. RPC 1.4 requires that a lawyer keep clients rea-
sonably informed about certain matters regarding the legal
representation. RPC 1.5 regulates the fees that a lawyer can
charge a client for engaging in legal representation.
We need not detail all the Rules of Professional Con-
duct that regulate agreements to provide legal services to
demonstrate that the Oregon Rules of Professional Conduct
regulate that transaction differently from other business
transactions. It follows, we conclude, that RPC 1.8(a) does
not apply to agreements to provide legal services but it does
apply to other business transactions.8
Were there doubt about the issue, the commentary to
ABA Rule 1.8(a) removes it. The commentary explains that
8
The commentary to ABA Rule 1.8(a) also notes that the rule does not apply
“to standard commercial transactions between the lawyer and the client for prod-
ucts or services that the client generally markets to others, for example, banking
or brokerage services, medical services, products manufactured or distributed by
the client, and utilities’ services.” ABA Model Rules, Rule 1.8, comment [1]. That
is, if the client generally markets services, such as banking services, to the pub-
lic, Rule 1.8(a) does not prevent the lawyer from availing him- or herself of those
services. In such transactions, the lawyer has no advantage in dealing with the
client, rendering the prohibition “unnecessary and impractical.” Id.688 In re Spencer
ABA Rule 1.8(a) “does not apply to ordinary fee agreements
between client and lawyer, which are governed by [ABA] Rule
1.5.” ABA Model Rules, Rule 1.8, comment [1]. ABA Rule 1.8,
however, does apply to related business transactions, such
as “the sale of title insurance” and, we conclude, to an agree-
ment to serve as a client’s real estate broker. Interpreted in
the same way, RPC 1.8(a) protects clients from “the possibil-
ity of overreaching when the lawyer participates in a busi-
ness, property or financial transaction with the client,” such
as serving as the client’s real estate broker. Id. It also pro-
tects clients from (or puts them on notice of) the differing
obligations that lawyers and brokers may have in real estate
transactions. See California Formal Ethics Opinion 1982-69
(explaining that a real estate broker’s obligation to disclose
information can conflict with a lawyer’s obligation to protect
confidential client communications).
The accused advances a second argument. Starting
from the premise that the phrase “business transaction” in
RPC 1.8(a) does not include agreements to provide legal ser-
vices, the accused reasons that his agreement with Smith-
Canfield to serve as her real estate broker and to represent
her in the Chapter 13 bankruptcy proceeding were “differ-
ent parts of the same transaction.” It follows, he contends,
that both parts of that single transaction were exempt from
RPC 1.8(a). We do not doubt that the accused’s agreement to
serve as Smith-Canfield’s real estate broker was related to
his agreement to represent her in the bankruptcy proceed-
ing. As the commentary to the Model Rule notes, however,
the fact that “a sale of goods or services” is “related to the
practice of law” does not exclude it from being a business
transaction within the meaning of ABA Rule 1.8(a) and,
by extension, RPC 1.8(a). We agree with the Bar that the
accused violated RPC 1.8(a).
III.  RPC 1.7(a)
The Bar also alleged that the accused violated RPC
1.7(a). That rule provides that “a lawyer shall not represent
a client if the representation involves a current conflict of
interest,” unless the lawyer reasonably believes, among
other things, that he or she can provide competent and dil-
igent representation and the client gives informed consent
in writing, RPC 1.7(b)(1), (4). Because the accused did not
Cite as 355 Or 679 (2014) 689
obtain the requisite consent, the issue reduces to whether his
representation of Smith-Canfield “involve[d] a current con-
flict of interest.” On that issue, RPC 1.7(a)(2) provides that a
current conflict exists if “there is a significant risk that the
representation of one or more clients will be materially lim-
ited by * * * a personal interest of the lawyer.”
On review, the Bar advances two theories why
that risk existed here. It argues initially that the accused’s
personal financial interest in obtaining a share of the real
estate commission presented a “significant risk” of “materi-
ally limit[ing]” his legal representation of Smith-Canfield.
Alternatively, the Bar argues that a current conflict arose
when the City of Klamath Falls notified Smith-Canfield that
she needed either to restore the slope behind her house or
build an engineered retaining wall. The Bar contends that,
at that point, the accused’s “personal interest in avoiding
or minimizing his own potential liability as lawyer and/or
real estate broker for this purchase unavoidably inhibited
his ability to advocate on Smith-Canfield’s behalf.”
Whatever the merits of the Bar’s alternative theory,
the Bar did not allege that theory in its complaint, and it is
not properly before us. See In re Chambers, 292 Or 670, 676,
642 P2d 286 (1982); In re Ainsworth, 289 Or 479, 487, 614
P2d 1127 (1980). The Bar’s claim under RPC 1.7(a) accord-
ingly rests on its initial theory, which it did allege in its com-
plaint, that “[a]t all relevant times there was a significant
risk that the Accused’s representation of Smith-Canfield
would be materially limited by the Accused’s personal inter-
est in a sales commission.”
As we understand the Bar’s first theory, it runs
as follows. Smith-Canfield reasonably understood that the
accused would act as her lawyer in both the bankruptcy pro-
ceeding and the real estate transaction.9 She thus looked to
him for advice and guidance in protecting her from unnec-
essary legal risks in buying a home. The accused, however,
9
Smith-Canfield testified that she understood that the accused was acting
as her lawyer in both matters. On review, the accused does not dispute that point;
indeed, he argues that the transactions were so integrally related that they were,
in effect, one matter. Without a timely explanation to Smith-Canfield that he
was acting as her lawyer only in the bankruptcy proceeding, and the accused
provided none, we accept the premise of the Bar’s argument.
690 In re Spencer
had a financial interest in closing the real estate sale that
was independent of, and adverse to, his obligation to protect
Smith-Canfield’s legal interests in the real estate transac-
tion. Specifically, protecting Smith-Canfield’s legal inter-
ests in the real estate transaction could have prevented the
sale from closing and, as a result, could have precluded the
accused from recovering a sales commission. In the Bar’s
view, the accused’s conflict of interest is self-evident.
The accused responds that, even if his financial
interest in recovering a real estate commission was poten-
tially adverse to Smith-Canfield’s, that interest did not pose
a “significant risk” of “materially limiting” his representa-
tion. He notes that, as a real estate broker, he had a fidu-
ciary duty to advance Smith-Canfield’s interests. See ORS
696.810(3)(c) (imposing an affirmative duty on a buyer’s
real estate broker “[t]o be loyal to the buyer by not taking
action that is adverse or detrimental to the buyer’s interest
in a transaction”). He argues that the prospect of receiving
a commission if the real estate sale closed did not create a
conflict of interest any more than the prospect of receiving
a contingency fee creates a conflict of interest for a lawyer.
Both prospects pose a risk that a lawyer or a real estate
broker may put his or her own financial interest in receiv-
ing a fee ahead of the client’s interests. The accused notes,
however, that contingency fees are an accepted part of legal
practice, and he concludes from that fact that the prospect
of receiving a contingency fee (or a real estate commission)
does not pose a “significant risk” of materially limiting a
lawyer’s representation of his or her client.
In our view, neither party identifies the exact inter-
ests that are at stake when a lawyer seeks to serve both as
a client’s legal advisor and real estate broker. Contrary to
the Bar’s argument, the accused’s interest in obtaining a
share of the sales commission is not necessarily adverse to
Smith-Canfield’s interests. She had an interest in closing
the real estate deal so that she could shelter her assets from
creditors in the bankruptcy proceeding. The accused had a
parallel interest in closing the deal. Put differently, this is
not a situation where the accused’s financial interests were
directly adverse to Smith-Canfield’s. Cf. Restatement (Third)
Cite as 355 Or 679 (2014) 691
of the Law Governing Lawyers § 125 comment c, illustrations
1 and 2 (2000) (explaining that a lawyer could not represent a
client suing a business in which the lawyer or a close relative
held a significant stake because the lawyer’s and the client’s
interests would be directly adverse). Rather, the accused’s
interests were largely aligned with Smith-Canfield’s.
Conversely, and contrary to the accused’s argument,
the accused’s interest in acquiring a share of the sales com-
mission is not identical to a lawyer’s interest in recovering a
contingency fee. A lawyer will recover a contingency fee only
if the client succeeds in the matter on which the lawyer pro-
vides legal representation. In contrast, the accused’s ability
to recover a sales commission did not turn on whether he
advanced Smith-Canfield’s legal interests in the transac-
tion. Indeed, an insistence on protecting Smith-Canfield’s
legal interests could have prevented a sale from closing that,
from a broker’s perspective, may have made business sense.
Therein, we think, lies the problem in the accused’s serving
as both Smith-Canfield’s broker and lawyer. In advancing
his client’s business interests as a broker, the accused may
have discounted risks that, as a lawyer, he should counsel
his client to avoid or at least be aware of.10
In our view, the accused’s analogy between sales
commissions and contingency fees fails to recognize that he
may have different goals in seeking to advance his client’s
business interests as her broker and in seeking to advance
her legal interests as her lawyer. In this case, however,
the Bar has not alleged that those differing goals were the
source of a current conflict under RPC 1.7(a)(2). We accord-
ingly have no occasion to consider whether those differing
goals would give rise to a current conflict. Rather, the Bar
has alleged only that the prospect of recovering a share of
the sales commission created a current conflict. On that
narrow issue, we agree with the accused that ordinarily the
prospect of receiving a commission or a contingency fee is
not enough, standing alone, to create a “significant risk” of
10
For example, the accused testified that he advised Smith-Canfield to limit
the number of contingencies to keep the sale price low. While that may have
been a reasonable business strategy as a broker, that strategy did not necessarily
advance his client’s legal interests to the extent it left her exposed to the sort of
losses that occurred in this transaction.
692 In re Spencer
materially limiting the lawyer’s representation of his or her
client. The risk that a lawyer will disserve his client’s inter-
est to obtain a real estate sales commission is no greater
than the risk that a lawyer will disserve his client’s inter-
ests to obtain a contingency fee.
In that respect, we note that RPC 1.5 imposes only
limited restrictions on contingency fees. RPC  1.5(a) gen-
erally prohibits “illegal” and “clearly excessive fee[s],” and
RPC 1.5(c) prohibits contingency fees in certain domestic
relation cases and also in criminal cases. Beyond that, the
Rules of Professional Conduct rely on other, more general
rules to ensure that a lawyer does not place his or her own
interests in receiving a fee ahead of the client’s interests. See,
e.g., RPC 2.1 (providing that a lawyer “shall exercise inde-
pendent professional judgment and render candid advice”).
Those same, more general rules applied to the accused when
he undertook to represent Smith-Canfield’s legal interests
in the real estate transaction.
To be sure, the prospect of receiving a contingency
fee (or a real estate commission) poses a risk that a lawyer
(or a lawyer acting as a client’s broker) will put the lawyer’s
interests ahead of the client’s. However, we cannot say that
that prospect alone poses a “significant risk” that the law-
yer will do so. See ABA Model Rules, Rule 1.7, comment [8]
(explaining that “[t]he mere possibility of subsequent harm”
does not constitute a significant risk; there must be a “like-
lihood that a difference in interests will eventuate”); In re
Tonkon, 292 Or 660, 666, 642 P2d 660 (1982) (explaining
that former DR 5-101(A) required, at a minimum, a “substan-
tial risk” that the lawyer’s personal interest would affect his
or her advice). In this case, the Bar has based its claim that
the accused violated RPC 1.7(a)(2) solely on the allegation
that the prospect of receiving the commission posed a “sig-
nificant risk” of materially limiting the accused’s represen-
tation of Smith-Canfield. The Bar has not persuaded us that
that fact alone is sufficient.11
11
We do not foreclose the possibility that the evidence in a particular case
may show that either the size of the commission or a lawyer’s specific need for
immediate funds created a significant risk of materially limiting the lawyer’s
representation. That is not this case, however. Similarly, we do not foreclose the
possibility that additional aspects of the accused’s dual roles as a broker and
a lawyer may, either singly or in combination, give rise to a current conflict.
Cite as 355 Or 679 (2014) 693
The Bar advances two contrary arguments. First,
the Bar cites a 2006 Oregon State Bar ethics opinion as sup-
port for its position that the prospect of recovering a real
estate commission will always create a conflict of interest
for lawyers who serve as their clients’ legal advisors and
brokers in real estate transactions. The Bar notes that
“Oregon’s analysis of this issue is not unique” and cites eth-
ics opinions from three other jurisdictions, California, New
York, and Kentucky. In our view, those opinions provide less
support than the Bar perceives.
We begin with the Bar’s 2006 ethics opinion. The
question that opinion addressed was whether a lawyer
simultaneously could play three roles in a real estate trans-
action: (1) representing a client who wished to buy or sell real
estate; (2) acting as the real estate broker; and (3) acting as
the “mortgage broker or loan officer.” OSB Formal Opinion
2006-176. The opinion concluded that playing those three
roles simultaneously would create a current conflict under
RPC 1.7(a)(2) because “there is a significant risk that these
other roles would interfere with Lawyer’s representation of
Client.” The opinion also stated that “Lawyer’s interest in
fees or income from these other roles, if not also Lawyer’s
liability concerns from those other roles, would create a sig-
nificant risk that Lawyer’s ability to ‘exercise independent
professional judgment and render candid advice’ (Oregon
RPC 2.1) would be compromised.”
The Bar’s 2006 opinion considered whether a law-
yer can play three roles simultaneously.12 Two of those roles
would appear to be directly adverse (representing the buyer
in a real estate transaction and acting as the loan officer for
the lender in that transaction). Additionally, acting as the
seller’s broker could impose disclosure and other obligations
on the lawyer that conflict with the lawyer’s obligations to
his client. See State Bar of Cal., Standing Comm on Prof’l
However, the Bar’s RPC 1.7(a) claim in this case rests solely on the accused’s
interest in recovering a sales commission, and we limit our decision on RPC 1.7(a)
to that issue.
12
The Bar’s opinion appears to treat buyers’ and sellers’ real estate agents
as if they were interchangeable. As discussed more fully in the California ethics
opinion on which the Bar relies, buyers’ and sellers’ real estate agents may have
different obligations in the transaction with the result that those differing roles
may raise different conflict-of-interest questions.
694 In re Spencer
Responsibility and Conduct, Formal Opinion No. 1982-69
(1989). Finally, it is worth noting that the Bar’s opinion did
not rely solely on the financial incentive from those other
two roles (real estate broker and loan officer) in concluding
that a current conflict existed. It also factored a lawyer’s
concerns about liability from those roles into its conclusion
that a significant risk of limiting a lawyer’s ability to exer-
cise independent judgment existed. The broad combination
of circumstances and considerations that underlie the Bar’s
ethics opinion undercuts its persuasive value in considering
the narrow circumstance on which the Bar’s current claim
against the accused rests.
The California ethics opinion, on which the Bar also
relies, concludes that, when a lawyer serves as both a legal
adviser and a broker, four considerations create a current
conflict: (1) a broker’s duty of disclosure may conflict with
a lawyer’s duty of confidentiality; (2) a lawyer’s duty of loy-
alty may conflict with the expectation that the seller’s bro-
ker can provide advice to or represent both sides of the real
estate transaction; (3) the potential for receiving a commis-
sion “might lead the attorney to encourage consummation of
the transaction on terms and conditions which the attorney
might not endorse”; and (4) the obligation for a seller’s bro-
ker to share the commission could run afoul of the prohibi-
tion against sharing fees. Cal Formal Opinion No. 1982-69
(1989). The California opinion identified all four consider-
ations in concluding that a current conflict would exist; it
did not focus solely on the possibility of receiving a commis-
sion, as the Bar does in this case.
The 2012 New York ethics opinion on which the
Bar relies comes closer to the mark. See NY State Bar Ass’n
Comm. on Prof’l Ethics, Formal Op 919 (2012). That opin-
ion states that “a lawyer should not have a personal stake
in the advice rendered, and a broker who is paid only if the
transaction closes cannot be fully independent in advising
the client as a lawyer.” Id. (internal quotation marks omit-
ted). The opinion bases that statement on a series of cases
that find their source in a 1971 ethics opinion, NY State Bar
Ass’n Comm. on Prof’l Ethics, Formal Op 208 (1971). See NY
Ethics Op 919.
Cite as 355 Or 679 (2014) 695
The 1971 opinion relied on two rationales for find-
ing a conflict. The initial rationale—that lawyers may not
use a business, such as a brokerage service, to solicit clients
for their law practice—has been undercut by more recent
decisions recognizing that lawyers have a First Amendment
right to advertise their services. See NY Ethics Op 208
(stating that rationale); Cal Formal Opinion No. 1982-69
(recognizing that that rationale has been undercut by later
decisions).13 The 1971 New York ethics opinion noted, as
a subsidiary rationale, that there was a “possible conflict
between [the] client’s and [the lawyer’s] own personal inter-
est,” a conflict that the opinion grounded in both the prospect
of recovering a sales commission and the lawyer’s later act of
suing his client for it. NY Ethics Op 208. With the loss of the
primary rationale for its conclusion, the subsidiary rationale
in the 1971 opinion has become the sole rationale for the
conclusion that the 2012 New York ethics opinion reaches.14
The Kentucky ethics opinion the Bar cites reaches a simi-
lar conclusion. Bar Ass’n, Op KBA E-408 (1999). Although
we appreciate the conclusions that New York and Kentucky
have reached, we come to a different conclusion from those
two jurisdictions, for the reasons stated above.
The Bar appears to advance a second, retrospective
argument. The Bar recounts the events that surrounded
Smith-Canfield’s purchase of her home—namely, the advice
that the accused gave Smith-Canfield in structuring the
offer and the problems that she experienced after the city
notified her of the code violation. The Bar reasons that the
problems that Smith-Canfield experienced demonstrate
that the accused put his own interest in obtaining a sales
commission ahead of his obligation to protect his client’s
interests. We question, as an initial matter, whether that
13
The California ethics opinion explained that, historically, the prohibition
against lawyers acting as both legal advisors and brokers primarily reflected
a “concern that attorneys might use the non-lawyer occupation as a basis for
advertising and solicitation, with the rendering of non-lawyer services acting as
a ‘feeder’ of clients for the law practice.” Cal Formal Opinion No. 1982-69. It also
recognized that that primary concern has been undercut by First Amendment
decisions recognizing lawyers’ free-speech interests in advertising their services.
Id.14
A 2002 ethics opinion drew the conclusion from the 1971 ethics opinion
that the 2012 ethics opinion repeats. See NY State Bar Ass’n Comm. on Prof’l
Ethics, Formal Op 753 (2002).
696 In re Spencer
sort of retrospective analysis is logically correct. The fact
that a client later experiences problems does not necessar-
ily mean that there was a “significant risk” of a conflict at
the inception of the attorney-client relationship or that any
risk that may have existed gave rise to the problems the
client experienced; the problems may have resulted from a
completely different cause. We need not decide that larger,
methodological question, however, to resolve the Bar’s retro-
spective argument here. In this case, the Bar has failed to
persuade us that the problems Smith-Canfield later expe-
rienced in fact derived from the specific risk that the Bar
alleged—the risk that the accused’s interest in recovering
a share of the sales commission would materially limit his
representation of Smith-Canfield.
As we understand the Bar’s argument, it starts
from the premise that a reasonable lawyer would have rec-
ommended that Smith-Canfield have a professional inspec-
tion, which would have disclosed the city code violation.
However, the only testimony in the record is that a profes-
sional inspection would not have disclosed the city code vio-
lation.15 Moreover, the accused explained why he did not rec-
ommend a professional inspection in this instance (the fact
that the house was relatively new and Smith-Canfield could
not afford a professional inspection). At the hearing, the Bar
offered no direct evidence that the accused’s stated reason
for recommending that Smith-Canfield waive a professional
inspection was not the reason that motivated him. Rather,
all that the Bar has pointed to is the accused’s prospect of
recovering a share of the sales commission if the sale closed,
and it infers that that prospect caused the accused to rec-
ommend that Smith-Canfield waive her right to ask for a
professional inspection.
As an abstract matter, we might question whether
the accused should have taken additional steps, as his cli-
ent’s lawyer, to protect her interests in purchasing a home.
On this record, however, the inference that the Bar draws
is a weak one. Considered as a whole, the record does not
15
The accused testified, and the Bar offered no contrary testimony, that a
professional inspection would have revealed the presence of dry rot and the like
but that it would not have revealed the city code violation that later came to light.
Cite as 355 Or 679 (2014) 697
provide persuasive support for the Bar’s argument that the
problems that followed Smith-Canfield’s purchase of her
home stemmed from the accused’s interest in recovering a
share of the sales commission. Put differently, the sequence
of events surrounding Smith-Canfield’s purchase of her home
does not persuade us that the prospect of recovering the
sales commission materially limited the accused’s represen-
tation of Smith-Canfield. That, however, is the only ground
that the complaint alleged for finding that the accused had a
current conflict under RPC 1.7(a)(2). Given the complaint’s
limited focus, we conclude that the Bar has not established
that the accused violated RPC 1.7(a).
We note that RPC 1.8(a) requires that a lawyer who
wishes to serve as his or her client’s broker in a real estate
transaction provide the requisite disclosure and receive the
client’s informed consent before doing so. If, as other juris-
dictions have held, additional aspects of a real estate trans-
action (on which the Bar does not rely here) can result in
a current conflict under RPC 1.7(a)(2), careful lawyers who
seek to serve as both a client’s legal advisor and broker in
the same real estate transaction would be advised to satisfy
the advice and consent requirements of both RPC 1.8(a) and
RPC 1.7(b). See ABA Model Rules, Rule 1.8, comment [3]
(recognizing that the same transaction can implicate both
rules and require that both consent requirements be satis-
fied).16
IV. SANCTION
Having concluded that the accused violated only
RPC 1.8(a), we turn to appropriate sanction.
“We first consider the duty violated, the accused’s state
of mind, and the actual or potential injury caused by the
accused’s conduct. We next decide whether any aggravating
16
Starting from the proposition that both lawyers and real estate brokers
owe similar fiduciary duties to their clients, the accused argues that it would vio-
late Article I, section 20, of the Oregon Constitution to treat a broker’s prospect
of receiving a sales commission differently from a lawyer’s prospect of receiving
a contingency fee. Because our interpretation of RPC 1.8(a) does not turn on the
prospect of receiving a commission, the accused’s Article I, section 20, argument
has no application to that holding. Because we hold that the Bar has not proved
a violation of RPC 1.7(a), we need not reach the accused’s Article I, section 20,
defense to that claim.
698 In re Spencer
or mitigating circumstances exist. Finally, we consider the
appropriate sanction in light of this court’s case law. In
determining the appropriate sanction, our purpose is to
protect the public and the administration of justice from
lawyers who have not discharged properly their duties to
clients, the public, the legal system, or the profession.”
In re Renshaw, 353 Or 411, 419, 298 P3d 1216 (2013) (inter-
nal citations omitted).
A.  Duty Violated
In violating RPC 1.8(a), the accused violated his duty
to Smith-Canfield to avoid conflicts of interest. American
Bar Association’s Standards for Imposing Lawyer Sanctions
(ABA Standards) 4.3 (1991) (amended 1992); see also RPC  1.8
(Rules of Professional Conduct categorize RPC 1.8 as involv-
ing “Conflict[s] of Interest: Current Clients: Specific Rules”).
B.  Mental State
In violating RPC 1.8(a), the accused acted know-
ingly; that is, he demonstrated a conscious awareness of the
nature or attendant circumstance of his conduct, but with-
out the conscious objective or purpose to accomplish a par-
ticular result. ABA Standards at 7; In re Schenck, 345 Or
350, 369, 194 P3d 804 (2008) (a lawyer acts knowingly when
the lawyer is consciously aware of essential facts giving rise
to violation, even if the lawyer does not think his or her con-
duct violates any rule).
C.  Actual or Potential Injury
We have concluded that the accused violated RPC
1.8(a) when he entered into a business transaction with
Smith-Canfield without advising her to seek independent
legal advice and giving her reasonable opportunity to do so,
and without obtaining her written consent. That rule viola-
tion caused potential injury to Smith-Canfield, because she
was denied the opportunity to consider the extent to which
the business transaction might place the accused in an
advantageous position or permit him to engage in overreach-
ing, or to consult independent counsel in that regard. That
rule violation also caused actual injury to Smith-Canfield.
Much of the accused’s advice to Smith-Canfield was based
Cite as 355 Or 679 (2014) 699
on his determination that the real estate transaction was a
good business deal that, in the accused’s view, posed little
risk. If the accused had clarified the role he was playing in
the transaction and advised Smith-Canfield to seek indepen-
dent legal advice, as RPC 1.8(a) requires, Smith-Canfield
could have obtained advice from a lawyer who focused sep-
arately on protecting her legal interests, without balancing,
as the accused did, the legal risks the transaction entailed
against the business benefits it offered. We conclude that
the accused’s failure to distinguish the two roles led to his
client’s experiencing actual harm.
D.  Preliminary Sanction
As noted, the accused’s misconduct under RPC  1.8(a)
implicated ABA Standard 4.3, which applies to conflicts of
interest. Under Standard 4.32, “[s]uspension is generally
appropriate when a lawyer knows of a conflict of interest
and does not fully disclose the possible effect of that conflict,
and causes injury or potential injury to a client.” That stan-
dard generally applies here.
E.  Aggravating and Mitigating Circumstances
The Bar argues that four aggravating circumstances
apply. We agree that two aggravating circumstances apply.
The accused has been disciplined before. See ABA Standard
9.22(a). In 2002, this court suspended the accused for
60 days for violating former DR 1-102(A)(3) (dishonesty,
deceit, and misrepresentation) after he assisted clients in
registering a motor home in Oregon when the clients did
not reside in Oregon, and former DR 9-101(C)(4) (failure
to return client property) for failing to return property to
a different, potential client. In re Spencer, 335 Or 71, 58
P3d 228 (2002). We assign moderate weight to those ethical
violations, given that there is more than one and that the
accused had been sanctioned for those offenses before engag-
ing in the misconduct at issue here. See In re Jones, 326 Or
195, 200, 951 P2d 149 (1997) (listing the factors to consider
in determining the weight to give prior ethical violations).
Additionally, the accused has substantial experience in the
practice of law. See ABA Standard 9.22(i).
700 In re Spencer
The trial panel found that the accused had acted
with a dishonest or selfish motive, ABA Standard 9.22(b),
because his “selfish interest in earning a commission in
[Smith-Canfield’s] purchase of her residence motivated
him to engage in the violations at hand.” We agree that the
accused had a financial interest in the business transaction,
in the form of his real estate commission, but the record
does not show that that financial interest caused him either
not to make the required disclosures to Smith-Canfield or
to fail to obtain her written consent. We therefore decline to
apply that factor.
The Bar argues that Smith-Canfield was a vulnera-
ble victim because she was an unsophisticated client in des-
perate financial circumstances. See ABA Standard 9.22(h).
The accused points out, however, that Smith-Canfield was
not an unsophisticated purchaser. She had owned real prop-
erty before and, at the time of the events at issue, was work-
ing as the controller for an automobile dealership. In the
course of that work, she regularly handled financial mat-
ters. We decline to apply the “vulnerability of victim” aggra-
vating factor.
One mitigating factor applies. The assistant disci-
plinary counsel testified at the trial panel hearing that the
accused “absolutely” had cooperated in the Bar’s investiga-
tion. ABA Standard 9.32(e).
F.  Case Law
This court has decided a number of cases involving a
single violation of former DR 5-104(A), the predecessor busi-
ness transactions rule. In In re Montgomery, 292 Or 796, 643
P2d 338 (1982) (Montgomery I), the court imposed a public
reprimand on a lawyer who had obtained an unenforceable
loan from a client with financial expertise without making
appropriate disclosures, when the client reasonably had relied
on the lawyer to exercise independent legal judgment. In In
re Whipple, 296 Or 105, 116, 673 P2d 172 (1983), the court
determined that a three-month suspension was warranted
for misconduct similar to that in Montgomery I because
the client in Whipple—unlike the client in Montgomery I—
had not been an “astute, knowledgeable businessman.” See
Cite as 355 Or 679 (2014) 701
also In re Baer, 298 Or 29, 688 P2d 1324 (1984) (60-day sus-
pension, when a lawyer purchased a home at the same time
as representing the sellers in the transaction and violated
a different conflict-of-interests rule); In re Brown, 277 Or
121, 559 P2d 884 (1977) (30-day suspension for violations
of the business transactions rule and another conflicts rule,
involving a lawyer’s ongoing business relationship with a cli-
ent and the client’s estate; no evidence that the lawyer acted
fraudulently or absconded with any funds). Finally, in In re
Montgomery, 297 Or 738, 687 P2d 157 (1984) (Montgomery
II), the court imposed a seven-month suspension on the
same lawyer in Montgomery I, after he purchased a client’s
building using complex financing arrangements that cre-
ated a risk that the client would not receive full payment of
the agreed sales price, and did not make full disclosures to
the client.
Longer suspensions are appropriate for multiple
rule violations, where the misconduct involved self-interest
and caused injury. See Schenck, 345 Or at 367-72 (one-year
suspension, when the lawyer entered into a loan agreement
with a client without obtaining consent in writing, together
with other rule violations); In re Wittemyer, 328 Or 448, 980
P2d 148 (1999) (120-day suspension, when a lawyer per-
suaded a widowed client to loan substantial sums to a busi-
ness for which he served as general counsel); In re Gildea,
325 Or 281, 926 P2d 975 (1997) (four-month suspension,
when the lawyer failed to account for client property and
engaged in a self-interest conflict and a business transac-
tion with a client); In re O’Byrne, 298 Or 535, 694 P2d 955
(1984) (four-month suspension for multiple rule violations,
including the failure to make full disclosure or advise cli-
ents to seek independent legal advice before entering into a
joint business venture with them; a longer suspension was
not warranted because no fraud or dishonesty was involved).
G.  Sanction
This case involves a single violation of RPC 1.8(1)(a).
Unlike most cases decided under former DR 5-104(A), the
accused’s misconduct did not involve nondisclosure or lack
of consent regarding a financial transaction in which the
accused’s role was directly adverse to or intertwined with
702 In re Spencer
the client’s, such as obtaining a loan from a client, engaging
in a real estate transaction with a client that involved both
the buyer and the seller, or commencing a joint business ven-
ture. If no aggravating factors applied and if Smith-Canfield
had not suffered actual injury, a public reprimand might be
an appropriate sanction. However, the accused’s prior viola-
tions coupled with the injury to Smith-Canfield persuade us
that a 30-day suspension is appropriate.
The accused is suspended from the practice of law
for a period of 30 days, commencing 60 days from the filing
of this decision.