Giovanazzi v. State Bar , 28 Cal. 3d 465 ( 1980 )

Opinion

THE COURT.

Review of recommendation of the State Bar Disciplinary Board that petitioner Joseph Giovanazzi be suspended from the practice of law for three years, that execution of suspension be stayed, and that petitioner be placed on probation on conditions including no actual suspension. We adopt the board’s recommendation with the added condition of probation that he be actually suspended from the practice of law for 30 days.¹

Petitioner, admitted to practice in 1969, is 39 years of age. He has no prior disciplinary record.

Petitoner was charged in the instant proceeding in two separate matters with violating his oath and duties as an attorney (Bus. & Prof. Code, §§ 6103, 6067, 6068) and commission of acts involving moral turpitude and dishonesty (Bus. & Prof. Code, § 6106). He was also charged with wilfully violating the following rules of professional conduct: Misleading the court by false pleading (rule 7-105), misappropriating a client’s funds (rule 8-101), and involving a client in business transactions adverse to the client’s best interests (rule 5-101). (West Ann. Bus. & Prof. Code, foil. § 6076.)

Petitioner and the board have formally stipulated to facts supporting the charges, to mitigating circumstances and to recommended discipline. Relevant facts disclose two separate incidents of professional misconduct—the Brian Kelly and the Marion Tatum matters.

In the Brian Kelly matter petitioner had represented Kelly in recovering a $750,000 claim for personal injuries. Petitioner’s fee was $250,000. Less than a year later, while Kelly was still petitioner’s client, petitioner negotiated a $100,000 loan from Kelly for purposes of making an investment. Petitioner did not advise Kelly that he should seek independent legal counsel, that the interest rate for the loan was usurious and could have legal consequences adverse to Kelly, or that Kelly should undertake particular action necessary to perfect Kelly’s security interest in property offered by petitioner as collateral for the loan.

Petitioner executed “A Promissory Note and Assignment” in favor of Kelly providing for 24 successive monthly principal payments of $4,166 each and prepaid interest in the amount of $12,500 at the beginning of each year of the two-year note.

The document also provides that petitioner “agrees” to “[s]ecure this promissory note with an assignment” of petitioner’s interest in described real property, and to give Kelly “a lien on the income from [petitioner’s] law practice” should the assignment of real property be insufficient security. For purposes of finalizing the loan transaction petitioner designated an associate, Eugene Alkana, as his agent and gave Alkana power of attorney. Petitioner negotiated the $100,000 cashier check delivered to him from Kelly through Alkana. Petitioner made the first interest and eight principal payments on the note, and thereafter defaulted.

Kelly commenced a civil action on the note. After petitioner’s default was taken for failure to timely file a responsive pleading, he moved to vacate the default and attached to his moving papers a “Proposed Demurrer to Complaint.” He alleged in the demurrer that he was unaware of any agency relationship between himself and Alkana, that he had no knowledge of any powers of attorney executed by him in favor of Alkana, and that he did not ratify any of Alkana’s actions.

After these disciplinary proceedings were commenced, petitioner paid the Kelly obligation in full.

In the Marion Tatum matter, petitioner received funds in settlement of clients’ claims and withheld the sum of $2,451.85 to cover fees charged by Tatum, an investigator who had furnished services in connection with the claims. The $2,451.85 was deposited in petitioner’s “Client’s Trust Account.” No portion of the $2,451.85 was paid to Tatum nor was any portion of this sum refunded to petitioner’s clients. During a three-year period following retention of the Tatum fund, the balance in petitioner’s trust account dropped to an amount $344.94 less than the amount he purportedly held in trust for the investigative fee.

The formal stipulation of facts, mitigating circumstances and recommendation has been approved by order of the board, thereby terminating proceedings before the board. (Former rule 25.40, Rules Proc. of State Bar, now rule 407, West Ann. Bus. & Prof. Code, foll. § 6087.) Petitioner has thus admitted the foregoing facts underlying charges against him and has concurred in recommended discipline based in part on stipulated mitigating circumstances as hereinafter appear. He did not seek judicial review until informed that this court might consider imposition of more severe sanctions than recommended. He urges the court to adopt the recommended discipline. Alternatively, if the court deems a more severe discipline be imposed, he requests the cause be remanded to the board for an evidentiary hearing limited to a fuller exposition of factors in mitigation of his misconduct. He does not challenge the accuracy of any fact to which he has stipulated.

This court stated in Inniss v. State Bar (1978) 20 Cal.3d 552 [143 Cal.Rptr. 408, 573 P.2d 852], that an attorney is bound by factual recitals in a stipulation even when the court considers imposition of harsher sanctions than those stipulated to by the attorney and the board. “[T]he stipulated facts may not be contradicted; otherwise, the stipulation procedure would serve little or no purpose, requiring a remand for further evidentiary hearings whenever an attorney deems it advisable to challenge factual recitals.” (Id., at p. 555.) However, an exception to the general rule was expressly recognized in Inniss. “On the other hand, fundamental fairness seems to require us to relieve an attorney from the legal conclusions to which he may have agreed solely because the recommended punishment seemed to him fair and reasonable.” (Ibid.) The stipulation includes matters best described as legal conclusions as, for instance, it is stipulated that petitioner “may be deemed to have had the responsibilities of a fiduciary to Brian J. Kelly,” and that petitioner’s conduct “is in violation of Business and Professions Code Section[s] 6067, 6065, and 6103, and Rules 5-101 and 7-105 of the Rules of Professional Conduct.” While petitioner does not expressly complain of these and other legal conclusions, we do not deem that he is bound to them under Inniss. We hereinafter independently consider the legal effect of the purely factual matters stipulated to, and draw our independent conclusions thereon.

Petitioner complains only that he is prejudiced by the finality of the stipulation insofar as it forecloses his right to submit additional mitigating materials relative to discipline. He contends that implicit in the stipulation process are assurances as to the final disposition of the cause in exchange for relinquishment of procedural rights. He states he will be deprived of rights to procedural and administrative due process if he is subjected to harsher than bargained-for discipline without benefit of a hearing.

Petitioner’s argument presupposes that the stipulation process— involving not only an agreed factual statement of an attorney’s misconduct and other relevant matters, but also a mutually arrived at conclusion as to sanctions warranted by that misconduct—results in a bargained-for commitment. If in a very broad sense that were true and the bargaining parties are each bound to some commitment, it is immediately clear that the only commitment the board can make is to recommend the particular discipline. This court has repeatedly held that it is for it and not the board to fix the discipline in any particular case. (See, e.g., Martin v. State Bar (1978) 20 Cal.3d 717, 723 [144 Cal.Rptr. 214, 575 P.2d 757]; Lester v. State Bar (1976) 17 Cal.3d 547, 552 [131 Cal.Rptr. 225, 551 P.2d 841]; Silver v. State Bar (1974) 13 Cal.3d 134, 147 [117 Cal.Rptr. 821, 528 P.2d 1157]; Fielding v. State Bar (1973) 9 Cal.3d 446, 452 [107 Cal.Rptr. 561, 509 P.2d 193]; Glickman v. State Bar (1973) 9 Cal.3d 179, 184 [107 Cal.Rptr. 65, 507 P.2d 593]; Sturr v. State Bar (1959) 52 Cal.2d 125, 127 [338 P.2d 897]; Burns v. State Bar (1955) 45 Cal.2d 296, 303 [288 P.2d 514].) Petitioner, as a member of the bar, must be deemed to have entered upon the stipulation with knowledge that this court would exercise an independent judgment, and he does not contend he was unaware.²

It further appears that the authorities on which petitioner relies in support of his contention of deprivation of due proces, do not aid him. (See North Carolina v. Alford (1970) 400 U.S. 25 [27 L.Ed.2d 162, 91 S.Ct. 160]; People v. West (1970) 3 Cal.3d 595 [91 Cal.Rptr. 385, 477 P.2d 409]; Pen. Code, § 1192.5.) Those cases and statutory law relate to pleas in criminal cases. It is settled that bar proceedings are not criminal in nature. (Lewis v. State Bar (1973) 9 Cal.3d 704, 713-714 [108 Cal.Rptr. 821, 511 P.2d 1173].) The principal objective in disciplinary proceedings is to protect the public, the courts, and the legal profession from persons unfit to practice, rather than to penalize the individual attorney. (Black v. State Bar (1972) 7 Cal.3d 676, 688 [103 Cal.Rptr. 288, 499 P.2d 968].) Accordingly, particular procedural safeguards applicable in criminal and civil litigation are not required in disciplinary proceedings to insure a right to due process. (Emslie v. State Bar (1974) 11 Cal.3d 210, 229 [113 Cal.Rptr. 175, 520 P.2d 991].)

Since Inniss, this court has consistently imposed—when warranted— harsher discipline than that recommended on stipulation without remanding the cause for an evidentiary hearing on the issue of mitigation. (See Olguin v. State Bar (1980) 28 Cal.3d 195 [167 Cal.Rptr. 876, 616 P.2d 858]; Tenner v. State Bar (1980) 28 Cal.3d 202 [168 Cal.Rptr. 333, 617 P.2d 486].) We conclude petitioner is bound to the stipulated facts including facts asserted in mitigation, and if we deem it necessary to impose harsher punishment than that recommended he is not entitled to an evidentiary hearing.

Petitioner’s conduct in the Brian Kelly matter violated his oath and duties as an attorney and involved acts of moral turpitude. Because an attorney is a fiduciary to his client, all dealings between them which are beneficial to the attorney must be closely scrutinized for unfairness. Where an attorney’s conduct disregards this duty, severe discipline is warranted. (Marlowe v. State Bar (1965) 63 Cal.2d 304, 308 [46 Cal.Rptr. 326, 405 P.2d 150] (three months’ actual suspension); Clancy v. State Bar (1969) 71 Cal.2d 140, 152 [77 Cal.Rptr. 675, 454 P.2d 329] (six months’ actual suspension).)

Petitioner has additionally misled a court by filing dishonest and inaccurate pleadings in the action commenced by Kelly. The court has denounced such conduct by the offending attorney even in instances where there was no direct evidence of malice, intent to deceive, or hope of personal gain. (See Pickering v. State Bar (1944) 24 Cal.2d 141, 145 [148 P.2d 1] (one-year actual suspension); Paine v. State Bar (1939) 14 Cal.2d 150, 153-154 [93 P.2d 103] (six months’ actual suspension).)

In mitigation of petitioner’s misconduct in the Kelly matter, it is stipulated that petitioner knew or believed at the time that Kelly was experienced in real estate transactions; that Kelly had consulted other attorneys on business matters on a regular basis; that Kelly had attended law school and Kelly’s father and a brother were lawyers; that the note and assignment given Kelly adequately protected his interests; that the real property assigned as security had a value “between $75,000.00 and $100,000.00” encumbered by a $32,500 deed of trust. It is also stipulated that petitioner’s failure to further perfect Kelly’s security interests was due to petitioner’s lack of experience in business and real estate matters; that two years after the Kelly transaction petitioner sold real property and took back a note in a transaction structured in the same manner as the Kelly transaction; that petitioner believed he would have the financial ability to repay the Kelly loan within its terms and was justified in such belief based on his reported income for the three-year period immediately preceding the loan; that between the time of the Kelly transaction and the commencement of action by Kelly, petitioner suffered “serious financial problems,” the causes of which are stated in the stipulation; that in filing the proposed demurrer to Kelly’s complaint petitioner did not intend to deceive the court; that the proposed demurrer was prepared in haste in an attempt to put all allegations of the complaint in issue; and that the Kelly obligation has been paid in full.³

With respect to the second incident of misconduct petitioner concedes he mismanaged his client’s trust account, resulting in a trust account balance $344.95 below an amount withheld from a client and deposited in the trust account to pay an investigative fee to Marion Tatum, and that he had not paid Tatum during the period of the shortage.

The mere fact that the balance in an attorney’s trust account has fallen below the total of amounts deposited in and purportedly held in trust, supports a conclusion of misappropriation. This is a serious violation of professional ethics likely to undermine the public confidence in the legal profession. (Greenbaum v. State Bar (1976) 15 Cal.3d 893, 905 [126 Cal.Rptr. 785, 544 P.2d 921]; see Demain v. State Bar (1970) 3 Cal.3d 381, 387 [90 Cal.Rptr. 420, 475 P.2d 652].)

In mitigation of the Tatum matter it is stipulated that the Tatum claim was in substantial dispute; that the dispute involved not only the amount of the claim but also the respective obligations therefor between petitioner and three other attorneys representing other clients involved in the investigation; that Tatum had commenced a still pending court action against the attorneys; that at all times petitioner had intended “to retain a sufficient balance in his Client Trust Account to cover the investigative fees of Marion Tatum;” that maintenance of the trust account had been delegated to petitioner’s support staff, and that the relocation of his law offices after deposit of the Tatum funds in the trust account resulted in the misplacement or loss of trust account records.

In arriving at a proper discipline consistent with the purpose of disciplinary proceedings to protect the public from attorneys unfit to practice (see Schultz v. State Bar (1975) 15 Cal.3d 799, 803 [126 Cal.Rptr. 232, 543 P.2d 600]), we must balance all relevant factors including mitigating circumstances on a case-to-case basis. (See Bernstein v. State Bar (1972) 6 Cal.3d 909, 919 [101 Cal.Rptr. 369, 495 P.2d 1289], Codiga v. State Bar (1978) 20 Cal.3d 788, 796 [144 Cal.Rptr. 404, 575 P.2d 1186].) We also attach great weight to the discipline recommended by the board. (Martin v. State Bar, supra, 20 Cal.3d 717, 723.)

Acknowledging other significant mitigating factors in the Kelly matter, we note that perhaps the most significant of those urged by petitioner is repayment of the obligation to Kelly. However, petitioner did not take this action until notified of the board’s impending disciplinary investigation. During the two years preceding payment, petitioner had made no installment payments, notwithstanding an overdue balance of approximately $75,000, and he had asserted a frivolous defense in Kelly’s suit when there was a clear obligation to pay. Thus restitution to Kelly is entitled to slight weight as a mitigating factor. (See Fitzpatrick v. State Bar (1977) 20 Cal.3d 73, 88 [141 Cal.Rptr. 169, 569 P.2d 763].)

We deem on the record before us that petitioner’s misappropriation in the Tatum matter was not intentional, and resulted from poor management of his client trust account and careless supervision of his staff. Matters asserted in mitigation establishing that the amount of the Tatum claim was unresolved, cannot excuse the misappropriation of any part of funds held to satisfy the claim when resolved. While “‘the good faith of an attorney is a matter to consider in determining whether discipline should be imposed for acts done through ignorance or mistake’” (Black v. State Bar, supra, 7 Cal.3d 676, 692), we have repeatedly held that trust account deficiencies are attributable to attorneys —not to their employees. (Id., at p. 692; Vaughn v. State Bar (1972) 6 Cal.3d 847, 857 [100 Cal.Rptr. 713, 494 P.2d 1257].) Gross carelessness and negligence constitute violations of the oath of an attorney to faithfully discharge his duties to the best of his knowledge and ability, and involve moral turpitude as they breach the fiduciary relationship owed to clients. (Simmons v. State Bar (1970) 2 Cal.3d 719, 729 [87 Cal.Rptr. 368, 470 P.2d 352].)

We conclude that the seriousness of petitioner’s professional misconduct warrants some period of actual suspension. It is ordered that petitioner be suspended from the practice of law for three years. The execution of such suspension is stayed and petitioner is placed on probation subject to all conditions recommended by the disciplinary board with the additional condition that he be actually suspended for 30 days.

This order is effective 30 days after the filing of this opinion.

1 Recommended probationary conditions require petitioner to (1) report quarterly regarding the status of client trust funds, (2) report within 15 days after entering on a business transaction with a client or acquiring any pecuniary interest adverse to a client, (3) include a client’s consent to the transaction in the filed report, (4) answer any inquiries from State Bar representatives regarding compliance with probationary terms, except to the extent prohibited by specific privileges, (5) take and pass the Professional Responsibility Examination, and (6) comply with the State Bar Act and Rules of Professional Conduct.

2 Petitioner is in no position to so contend. Before the stipulation was entered into both he and his counsel were delivered copies of this court’s opinion in Inniss v. State Bar, supra, 20 Cal.3d 552. In addition to holding in Inniss that an attorney is bound to the factual matters to which he has stipulated, even when the court is to consider harsher sanctions than those recommended by the board, we made it unmistakably clear that more severe punishment than that stipulated to and recommended may be imposed in appropriate cases. (Id., at pp. 556-558.) Petitioner was thus put on notice before signing the stipulation that there could be no commitment to the recommended discipline.

3 So far as petitioner has been able to advise us, there are no mitigating circumstances which he would put in evidence on a remand which do not now appear in the stipulation. However, he states he would highlight particular factors in mitigation by adding background and color through third party witnesses whose testimony might be more persuasive than his self-serving representation of mitigating factors—the context in which the stipulation is cast.