Friday, November 22, 2019

Bad Business In Nebraska

A 69-page bar discipline decision from the Nebraska Supreme Court extensively discusses the business transactions with client rule and disbars an attorney notwithstanding her 30 years of otherwise blemish-free practice

This is an original action brought by the Counsel for Discipline of the Nebraska Supreme Court against attorney Janet L. Krotter Chvala, alleging she violated several disciplinary provisions and her oath as an attorney by, among other things, entering into business transactions with clients without providing the full disclosure mandated by the disciplinary rules and engaging in conduct involving deceit and dishonesty. Chvala denied the allegations. A referee was appointed, and an evidentiary hearing was held. The referee found clear and convincing evidence of multiple disciplinary violations and recommended that Chvala be disbarred. Chvala filed an exception to the referee’s report, challenging both the findings and the recommended sanction.

On de novo review, we find clear and convincing evidence that Chvala violated several disciplinary provisions and her attorney oath. And given the seriousness of the violations, we agree with the referee that the appropriate sanction for Chvala’s misconduct is disbarment.

The link does not work. The case is State of Nebraska ex rel. Counsel for Discipline of the Nebraska Supreme Court, relator, v. Janet L. Krotter Chvala, respondent.

The clients

Brothers Wayne Kaup and Kurt Kaup operate several farming-related businesses in the O’Neill and Atkinson area. In the 7 years before the 2003 real estate transaction at the heart of this disciplinary action, Chvala regularly provided legal services to Wayne and Kurt and represented them in a variety of matters, including the purchase of farmland, the handling of crop liens, and the organization of business entities for hay operations, livestock operations, and hauling grain. Chvala also performed a variety of legal services for Wayne and Kurt’s mother, Diane Kaup, during this time period.

The transaction at issue had led to a civil suit against the attorney by her former clients

While the civil lawsuit was pending, Chvala contacted the Counsel for Discipline to self-report that there had been “some suggestion” her actions with respect to the Morrison Land may have violated the disciplinary rules. Wayne and Kurt subsequently filed a grievance against Chvala with the Counsel for Discipline, also regarding the Morrison Land.

The transaction covered a period of time during which the governing ethics rules changed

Because the alleged disciplinary violations against Chvala span from 2003 through 2013, Chvala was charged with violations of various provisions under both the code and the rules. Some of the sections of the Nebraska Rules of Professional Conduct have been amended after 2013, but for purposes of this opinion, the current version of the rules will be referenced, because the amendments do not impact the applicability of the rules to Chvala’s alleged disciplinary violations. Chvala denied all charges.

Key conclusion

In defending against these disciplinary charges, Chvala emphatically denies that she (1) played any role whatsoever in the Morrison Land deal or (2) provided any legal representation regarding the Morrison Land. We soundly reject both arguments. Instead, we find clear and convincing evidence that Chvala played a central role in negotiating the purchase of the half section of the Morrison Land, that Chvala was an owner of that land, and that Chvala provided simultaneous legal advice and representation to both the lessors and the lessees of the Morrison Land.

The court discusses the "business transaction with client" rule and the obligation of full disclosure.

Nebraska lawyers in or contemplating such an arrangement should pay close attention. 

There was also a conflict in multiple representation

There is no evidence that Chvala provided any client in the Morrison Land transactions with the full disclosure required by DR 5-105(C).

A measure of deceit and dishonesty

The referee found that Chvala engaged in a pattern of dishonest and deceitful conduct regarding the Kaup brothers’ attempts to close on the sale of the half section of Morrison Land and that she did so “for the sole purpose of enriching herself at their expense.”

Thus disbarment

Chvala entered into the deal to purchase the half section of the Morrison Land, a transaction in which her interests clearly differed from her clients’ interests, without obtaining her clients’ consent after full disclosure. Chvala also impermissibly represented multiple clients with directly competing interests in multiple transactions related to the Morrison Land, without providing full disclosure. But most egregious of all, Chvala took advantage of her clients’ trust, misrepresented her intentions in the business deal, and engaged in conduct that was dishonest and deceitful in order to realize personal financial gain at the expense of her clients.

Moreover, although all of the violations stemmed from the same prohibited business transaction with clients, the violations were neither technical nor isolated. Instead, the prohibited business transaction continued for a period of 10 years and the resulting ethical violations were serious and ongoing. Chvala’s failure to carefully follow the disciplinary rules when entering into that business transaction, and her decision to remain in that business transaction for the next 10 years and provide legal services to all participants in that matter, resulted in cumulative acts of misconduct under the Nebraska disciplinary code and rules. Cumulative acts of attorney misconduct are distinguishable from isolated incidents, therefore justifying more serious sanctions.

A "textbook example" of the dangers of mixing business interests and ethical obligations

Despite the fact that Chvala has been a highly respected member of the bar for more than 30 years, her misconduct in this case was egregious and ongoing, and her violations of client trust and loyalty resulted in significant financial consequences and served to undermine confidence in the legal profession.

And

Chvala initially self-reported to the Counsel for Discipline, and this is a mitigating factor we consider. But we cannot overlook the aggravating factor that during the evidentiary hearing, Chvala displayed an attitude of defiance and avoidance and showed no remorse for her misconduct. We also find very troubling the fact that the referee found some of Chvala’s testimony to be “implausible and not credible” and expressly stated that “[t]hroughout these proceedings” Chvala “testified falsely, and refused to accept responsibility for her actions.” Our de novo review of the record supports these findings, and we see no reason to discount the referee’s finding that Chvala’s “lack of credibility in these proceedings [was] egregious.”

(Mike Frisch)

https://lawprofessors.typepad.com/legal_profession/2019/11/a-69-page-bar-discipline-decision-from-the-nebraska-supreme-court-this-is-an-original-action-brought-by-the-counsel-for-disc.html

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