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 disciplinary proceeding arises out of a presentment filed by the District VI Ethics Committee (DEC) against respondent, Peter Humen, based on his representation of Lillian O'Connell. The DEC found respondent guilty of unethical conduct, and the Disciplinary Review Board (DRB) agreed with that finding. A majority of the DRB recommended that respondent be suspended from the practice of law for one year, two members recommended that he be suspended for two years, and one member voted to recommend disbarment. Our independent review of the record leads us to conclude that respondent has been guilty of unethical conduct. However, we think that a two-year suspension from the practice of law more appropriately reflects the seriousness of respondent's conduct.
Respondent first met the grievant, Lillian O'Connell, in 1965. Later, they became friendly when he attended St. Peter's College where Mrs. O'Connell was employed. Their friendship continued after respondent was admitted to the bar in 1977.
Respondent had prepared Mrs. O'Connell's husband's will. After her husband's death in 1978 Mrs. O'Connell, who had inherited a sizeable estate under the will, retained respondent to represent her. Due to their friendship and Mrs. O'Connell's lack of business sophistication, she relied primarily on respondent for advice concerning substantially all her legal and financial affairs for the next eight years (until Mrs. O'Connell filed the grievance that led to this proceeding).
Respondent's primary ethical transgressions involve his representation of Mrs. O'Connell with respect to the purchase, management, and sale of property located on Bartholdi Avenue in Jersey City (the Bartholdi property).
A. Purchase of Bartholdi Property
Respondent's representation of the grievant as a buyer of the Bartholdi property "was fraught with irregularities and improprieties." In 1981, allegedly "for tax purposes," respondent advised Mrs. O'Connell to purchase a two-family house on Bartholdi Avenue that was owned by respondent's friend, Thaddeus Lewandowski. Lewandowski, who was not independently represented, agreed to take back a purchase money mortgage in the amount of $28,000 on the total purchase price of $44,000.
According to respondent, Lewandowski had reservations about Mrs. O'Connell's ability to meet the mortgage payments. Because of those concerns, respondent drafted a rider to the contract of sale that provided that the deed and mortgage would not be recorded for thirty months. Respondent contended that this was done to allow Lewandowski to regain title to the property without necessitating a foreclosure action if Mrs. O'Connell defaulted on the mortgage. The effect of the rider was that there was no formal record of Mrs. O'Connell's ownership of the property.
Although respondent claims that Mrs. O'Connell was aware of the rider, we find by clear and convincing evidence that she was never shown nor advised of the rider when she signed the contract of sale. At the time of the purchase, there was no traditional closing, nor was Mrs. O'Connell given copies of any deed, mortgage, or other closing documents.
Despite the fact that respondent was aware that Lewandowski was married, he did not insist on a signature from the seller's spouse. He had no explanation of why he allowed the closing to continue without ensuring transfer of good title to his client. Indeed, no documents regarding the sale to Mrs. O'Connell were recorded until 1987.
Respondent's failure to record the deed and mortgage for a period of six years, as well as his failure to insist upon the signing of the deed by Lewandowski's spouse at the time of closing, presents a clear case of gross negligence, in violation of
DR 6-101(A)(1).*fn1 Respondent's failure to advise Mrs. O'Connell of the existence of the rider was grossly improper. By his action he admittedly attempted to protect the interests of a non-client friend over those of his own client. In so doing, respondent created a conflict of interest in violation of DR 5-105(A) and DR 7-101(A)(1) and (3).
B. Management of Bartholdi Property
Humen's conduct was also unethical with respect to the management of the Bartholdi property. For the first year after her purchase, Mrs. O'Connell managed the Bartholdi property without assistance from respondent. The record reflects that she collected the rents and made certain disbursements during that time period. In 1983, however, respondent induced Mrs. O'Connell to allow him to take over the management of the property. In his "Response to Grievance," Humen stated that he took over the management because the property was losing money and because Mrs. O'Connell was late on her mortgage payments to Lewandowski. The statements that Mrs. O'Connell was late in her mortgage payments were contradicted by Mr. Lewandowski, who testified that all the mortgage payments had been made within the time specified by the mortgage.
During the years he managed the property, respondent never formally reported or accounted to his client for the income produced by the Bartholdi property, the expenses required to maintain it, or the profit it earned. Respondent failed to claim either a profit or a loss for the Bartholdi property on Mrs. O'Connell's income tax returns, which he prepared. From 1982 through 1987, the only reference to the Bartholdi property on
Mrs. O'Connell's tax returns is a 1982 claim for depreciation of the property based on fifteen-year life. That claim did not reappear in any subsequent year. Moreover, Humen made no claim for any tax deduction for interest paid on the Lewandowski mortgage, and prepared no schedule of income or expenses, as required by the tax code.
Respondent's failure to account regularly to his client concerning both the rental income earned by the Bartholdi property and the maintenance expenses incurred thereon is inexcusable. Moreover, from the client's testimony and respondent's "Response to Grievance," any limited "accounting" actually provided to the client by respondent on an informal basis was misleading: Mrs. O'Connell testified that respondent told her not only that the property did not show a profit, but also that she was obligated to respondent who was paying part of the mortgage payments on that property as well as the mortgage payments on property she owned in West Virginia. However, respondent testified before the DEC that the property was indeed making a profit, sufficient to pay not only Lewandowski's mortgage but also the mortgage on Mrs. O'Connell's West Virginia property.
Respondent's conduct with respect to the management of the Bartholdi property shows a lack of reasonable diligence, in violation of RPC 1.3; a failure to communicate properly with his client, in violation of RPC 1.4; a misrepresentation to his client of her financial situation, in violation of RPC 8.4(c); and a failure to safeguard his client's property, in violation of RPC 1.15(b).
C. Sale of Bartholdi Property
Respondent's most egregious conduct with respect to the Bartholdi property was his purchase of the Bartholdi property from his client without advising her to secure independent counsel. In 1984, Humen induced Mrs. O'Connell to sell the Bartholdi property to him for $40,000 -- $14,000 less than the
reconstructed appraisal valuation of $54,000 and $4,000 less than she had paid for the property three years earlier. Mrs. O'Connell testified that she sold the property because based on respondent's representations she believed she was losing money on her investment. She further testified that respondent had discouraged her from seeking other buyers or contacting a realtor. Before the DEC, respondent contended that the lower price reflected the deterioration of the Jersey City neighborhood, although in fact property values were on the rise. He further ...