On an order to show cause why respondent should not be disbarred or otherwise disciplined.
For Suspension -- Chief Justice Wilentz and Justices Clifford, Handler, Pollock, O'Hern, Garibaldi and Stein. Opposed -- None.
This case arises from a report and recommendation of the Disciplinary Review Board (DRB) that respondent be suspended from the practice of law for one year. The discipline arises from an imprudent and uncounseled business loan that respondent obtained from his clients. Our independent review of the record leads us to agree that it has been demonstrated by the required standard of clear and convincing proof that respondent engaged in unethical and unprofessional conduct and that the recommended period of suspension is warranted. In the circumstances, we add only the requirement that respondent reimburse his clients for the lost funds before restoration to practice.
In 1972, respondent represented two clients in their acquisition of a Camden County liquor store. His clients incurred substantial debt in acquiring the business and the liquor license. Only after delicate negotiations with a prior owner who held a security interest on the business was the attorney successful in negotiating a deal for his two clients. A key feature of the deal was that the prior owner would not call in a loan that was secured by the assets of the business. That loan, however, contained a balloon payment of $120,000 that was due in April 1982. Respondent's skill in these negotiations engendered trust and confidence in his clients.
About the end of 1980, respondent called one of the partners at the store and told him that he had an "investment opportunity" for them that was "tremendous." His clients' version of the events thereafter is that they told him that they had paid $325,000 for their business and could not take chances, especially with their balloon note coming due in early 1982. They made him aware that they were "not interested in anything speculative." He told them that he was so certain of the investment that he would personally guarantee it. "My friend[s,] if there is any risk at all, it will be borne by me."
Based on those assurances, the partners agreed to loan to the respondent's corporation $10,000 at 35% interest with his personal guarantee. When the note came due, respondent's fortunes had taken a drastic turn for the worse. The respondent was substantially retired from the practice of law, and had moved to Florida. What particularly aggrieved his clients was that he had moved without prior notification to them and it was extremely difficult to locate him. Respondent claims to have transferred his office affairs to another attorney in Camden County who could keep in touch with him.
As it turns out, respondent never invested the $10,000 in a business opportunity. It went straight into his firm account. It will profit us little to debate whether he sought the loan intending to invest the funds, because clearly when the loan was made it was in form and substance a personal loan.
It is enough for this disciplinary matter to find that he never advised his clients to obtain independent counsel before making a loan at a time when he was well aware that their balloon payment was coming due. Nor did he provide them with any form of security for the loan.
This conduct is unprofessional. Our Court has previously held that:
All transactions of an attorney with his client are subject to close scrutiny. As Justice Jacobs said, "[a]n attorney who enters into business ventures with his client does not, in the eyes of his client or the public, shed in chameleon fashion
his professional standing and obligation and there is no just reason why he should be permitted to do so." In re Carlsen, 17 N.J. 338, 346 (1955). Accord In re Gallop, 85 N.J. 317 (1981). As a general rule, an attorney should refrain from engaging in transactions with a client or former client who has not obtained independent legal advice on the matter. In re Hurd, 69 N.J. 316 (1976). Here, although respondent had a personal interest in the transaction, he did not even suggest that [the client] seek outside legal counsel. Respondent's argument that his client had many years experience in such matters does not exonerate him. See In re Honig, 10 N.J. 74, 79 (1952). A lawyer ...