Thursday, August 23, 2007
A lawyer who served as attorney for the personal representative of an estate also owned a real estate brokerage firm. The PR (now deceased) agreed with the lawyer to sell the estate's key asset--real property--through the brokerage firm for a reduced commission. The buyers quickly resold at a huge profit and estate heirs who had not consented to the sale sued the PR. The probate court found that the lawyer had engaged in a conflict of interest and had been negligent in selling the property for less than full value. The judge ordered that legal fees be repaid and the real estate commission disgorged.
On appeal, the D.C. Court of Appeals upheld the conflict if interest finding but found that the judge did not have the equitable authority to order the commission disgorged. The lawyer violated the business transactions with a client rule. The lawyer has the burden of proof to demonstrate compliance with the rule. However, the lawyer owed no ethical duties to the heirs and was not a party to the suit. Thus, the order of disgorgement was vacated.
Judge Thompson dissented, finding that the result was unfair to the lawyer. The dissent would find no basis to conclude that the lawyer violated the business transactions rule. "As far as I have been able to determine, the principle that the lawyer bears the burden of proving compliance with the rules of professional conduct has not heretofore been applied in a case such as this, where it is a third party, not the client, that alleges a violation and that third party fails utterly to present any evidence on the issue." (Mike Frisch)