On an Order to show cause why respondent should not be disbarred or otherwise disciplined.
Chief Justice Poritz and Justices Pollock, O'hern, Garibaldi, Stein and Coleman join in the Court's opinion. Justice Handler did not participate.
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
In the Matter of F. William LaVigne, An Attorney at Law (D-1-96)
Argued June 20, 1995 -- Reargued September 24, 1996 -- Decided November 15, 1996
This is an attorney disciplinary case. The Disciplinary Review Board (DRB) issued a Decision recommending that F. William LaVigne be disbarred for his unethical conduct in connection with a series of related real estate transactions. The subject transaction involved the sale of a client's farm to respondent in exchange for cash and for two lots upon which homes would be built for the client's sons. Although the concept is simple, its implementation was complex.
In 1986, Robert DuPont, Sr. (DuPont, Sr.) acquired the Kayhart Farm, a twelve-acre property in Andover Township contiguous to the quarry of a sand and gravel company owned by respondent, F. William LaVigne. At some point thereafter, DuPont, Sr. decided to subdivide the Kayhart Farm to build two separate dwellings on the subdivided lots for the benefit of his two sons and their families. When respondent learned of the plan to subdivide, he approached the DuPont family with a proposal to acquire it. Prior thereto, respondent had represented DuPont, Sr. in some business matters and was a social acquaintance of the family.
Negotiations resulted in an agreement under which respondent would purchase the Kayhart Farm for $175,000 plus two residential lots in Andover Township respondent owned, 6.01 and 6.02, worth $230,000, to be deeded without cost to DuPont, Sr.'s two sons, James and Robert, Jr. The cash payment by respondent to DuPont, Sr. was to be held in trust by respondent for the benefit of James and Robert, Jr. The two sons were to then purchase homes to be built on the subject lots by Cranberry Builders, Inc. (Cranberry), a construction company owned by Doug Ferry (Ferry), who was a long-time friend and client of respondent. The transactions were documented by three contracts, all bearing the same date and all prepared by respondent.
Respondent was required to transfer lots 6.01 and 6.02 to Cranberry, which would then credit the value of the lots to the DuPont sons in the house construction transactions. However, both lots were subject to a $300,000 blanket mortgage held by Sussex County State Bank (Sussex), which required collateral in the amount of $100,000 to release the two lots from the mortgage. In order to transfer the lots to Cranberry free and clear, respondent conveyed to Cranberry three lots, lot 6.01, lot 6.02 and lot 5. In return Cranberry issued a note to respondent for $100,000 secured by a mortgage on lot 6.02. Respondent then assigned that mortgage to Sussex in return for the release of lots 6.01, 6.02 and 5 from its blanket mortgage.
To finance construction of the two homes, Cranberry borrowed $200,000 for each house from Kenvil Mortgage Company (Kenvil) and secured the loans by mortgages on both lots 6.01 and 6.02. Thereafter, closing was held first on lot 6.02, which was then encumbered by a $200,000 mortgage in favor of Kenvil and a $100,000 mortgage in favor of Sussex. The closing proceeds were insufficient to satisfy the mortgages. Therefore, Ferry informed respondent that he had reached an agreement with Kenvil to accept $100,000 in exchange for releasing entirely its mortgage on lot 6.02. In return, Ferry would mortgage additional Cranberry property to secure the $100,000 balance due Kenvil. Respondent relied on Ferry's representation without obtaining confirmation from Kenvil.
From the closing proceeds, $100,000 was used to satisfy the Sussex mortgage and $100,00 was used to reduce the outstanding balance on the Kenvil loan. Assuming that satisfaction of the full Kenvil mortgage would be received, respondent completed the closing and prepared a RESPA statement that reflected the pay-off of only a $100,000 loan from Kenvil. Respondent further certified to National Community Bank (NCB), the purchase money lender for James DuPont, that it held a valid first mortgage lien on lot 6.02. Despite its agreement, Kenvil failed to release its lien on lot 6.02.
Prior to the scheduled closing on lot 6.01, Kenvil provided respondent with a payoff statement showing a balance due on both lots 6.01 and 6.02, despite its credit for the $100,000 paid at the prior closing on lot 6.02. Ferry had previously informed respondent that Kenvil had firmly agreed to discharge its mortgages on both lots if, at the forthcoming closing, Cranberry would pay off the balance of the loan on lot 6.02, as well as the interest due Kenvil on other Cranberry mortgage loans. In exchange, Cranberry would provide additional collateral to secure its unpaid indebtedness to Kenvil. Again, respondent failed to obtain written confirmation of that understanding.
At the subsequent closing on lot 6.01, the bulk of the closing proceeds were used to pay off the balance due on lot 6.02, reflecting Ferry's new arrangement with Kenvil. Thus, the closing proceeds from lot 6.01 were used to pay off the Kenvil mortgage and interest on lot 6.02, to pay interest due Kenvil on other Cranberry properties (including interest due on lot 6.01, the subject of the closing), to pay Cranberry $10,000 and to pay miscellaneous small expenses. Respondent expected to receive discharges of the Kenvil mortgages on both lots 6.01 and 6.02. Although Kenvil reflected on its books that the loan secured by the mortgage on lot 6.02 had been paid in full, it refused to discharge either mortgage.
After the closing, respondent failed to inform either of the two DuPont brothers of the problems that had developed. In addition, respondent certified to NCB, the purchase money lender for lot 6.01 as well, that the lot was unencumbered except for its purchase money mortgage.
At a subsequent meeting among respondent, Ferry, Kenvil representatives and its attorney, Kenvil insisted on additional collateral as a condition for releasing its liens. Respondent, therefore, executed a mortgage to Cranberry on property owned by Good Earth, respondent's company, to increase the value of Cranberry's collateral. Cranberry then executed a blanket mortgage to Kenvil covering all its land as collateral for a sizeable note. Kenvil still refused to release its liens, insisting on the payment of additional cash.
Respondent and Ferry then collectively borrowed over $200,000 to meet Kenvil's demands. Kenvil applied the $200,000 payment instead to other properties covered by Cranberry's blanket mortgage and continued to refuse to release its liens.
Kenvil subsequently instituted a foreclosure action in the Chancery Division seeking to foreclose its mortgage on lot 6.01. The Chancery Division found that Kenvil had acted unilaterally and self-servingly when it applied the $200,000 payment to other loans, instead of to the mortgage on lot 6.01. The Chancery Division further found that respondent intended over $430,934 to be applied towards the loans on both lots and that Kenvil could not deny its agreement and its obligation to discharge both mortgages. The Chancery Division entered an order awarding the DuPonts punitive damages against both Kenvil and respondent and discharging the Kenvil mortgages on both lots.
Both the Special Ethics Master and DRB concluded that respondent had committed numerous violations of the Rules of Professional Conduct, including a conflict of interest, misrepresentation and knowing misappropriation. Specifically, the DRB found respondent guilty of knowing misappropriation as to the Disposition of the funds of both of the DuPont brothers by a variety of actions.
The Supreme Court issued an Order to Show Cause why F. William LaVigne should not be disbarred or otherwise disciplined.
HELD: Respondent's commission of multiple ethics offenses, which included engaging in an impermissible conflict of interest in violation of RPC l.7(b) and (c) and RPC 1.8, failing to safeguard client funds and to deliver those funds to third persons entitled to receive them in violation of RPC l.l5(a) and (b) and engaging in a pattern of deceit and dishonesty in violation of RPC 8.4(c), warrant the imposition of a three-year suspension from the practice of law. Respondent shall also arrange to satisfy the judgment for punitive damages in favor of his clients.
1. The multiple and conflicting representation that respondent undertook in the course of the land swap sealed his fate. Because consent to the multiple representation was not obtained, there is no need to determine whether this constituted a "complex real estate transaction" in which an attorney is barred from representing both buyer and seller even with their consent, pursuant to Baldasarre v. Butler, 132 N.J. 278, 625 A.2d 458 (1993). (pp. 11-12)
2. Respondent's transfer of the subject lots did not constitute a misappropriation of client funds, as transfer was necessary to effectuate the planned land exchange. (p. 17)
3. The use of James' funds (lot 6.02) to pay only part of the Kenvil mortgage and the use of Robert's funds (lot 6.01) to satisfy James' liens does not constitute a knowing misappropriation of client funds. Were it not that respondent appeared to regard the separate James and Robert transactions as part of a single unified deal, respondent's actions would amount to knowing misappropriation that, under In re Wilson, 81 N.J. 451 (1979), would warrant disbarment. Had respondent properly secured Kenvil's compliance with its arrangement with Ferry, there would have been no misuse of client funds. Thus, malpractice rather than misappropriation is at the root of this record. (pp. 17-22)
4. Kenvil's dishonesty, even more than respondent's incompetence, was the primary cause of the DuPont's difficulties. (p.21)
5. Cases in which lawyers have been disbarred for conduct other than knowing misappropriation have involved misconduct more venal than that displayed by respondent. (pp.22-24)
6. Respondent's numerous misrepresentation to clients, banks and title companies warrant severe discipline. "Candor and honesty are a lawyer's stock and trade. Truth is not a matter of convenience.. Absolute candor coupled with an absolute duty to disclose, no matter how painful, is required." (pp. 24-26)
7. Although respondent acted with a clear self interest and profited personally from the deal, he derived no unfair advantage from the transactions. (p. 26)
8. This case stands as a stark reminder to the bar that an attorney may only use client funds for purposes authorized by the client. But for the inter-relationship between these transactions that rendered the use of the separate funds as Disposition for each client's mutual purposes, respondent would be subject to disbarment. (p.26)
CHIEF JUSTICE PORITZ and JUSTICES POLLOCK, O'HERN, GARIBALDI, STEIN and COLEMAN join in the Court's opinion. ...