A Non-Consentable Conflict
The North Carolina Court of Appeals has affirmed the imposition of discipline consisting of a two-year suspension stayed with conditions for an attorney’s failure to safeguard funds and a concurrent conflict of interest in a business transaction.
The court rejected his claim that he was not on notice of the conflicts charge
We first note that in characterizing the allegations of the complaint, defendant relies exclusively on the allegations contained in the final conclusory paragraphs of the complaint, setting forth which Rules of Professional Conduct defendant violated, and completely ignores the factual allegations alleged in support of that conclusion. The factual allegations of the complaint state more specifically, in pertinent part, that on 24 January 2006, Merrell transferred the Gordons’ funds, without their knowledge or permission, to a CD account at Bank of America “in the name of ‘Dan L. Merrell, Special Trustee for Development Company of Columbia, LLC’, not in the name of the Gordons or as trustee for the Gordons.” The complaint further alleged that “[f]unds were withdrawn from this CD account without the Gordons’ knowledge, permission, or approval on January 27, 2006, February 14, 2006, and March 1, 2006” and that these withdrawals were for Lam’s benefit, including covering Lam’s costs to acquire the Tyrrell County property which was later resold to DCC.
These allegations not only gave defendant notice of the name of the CD account as found in the DHC’s order, but also of the underlying conduct that is the subject of the complaint: that defendant’s transfer of the Gordons’ funds, without their permission, resulted in the funds being accessed by and for the benefit of someone other than the owner of the funds. Although the complaint does not specifically allege that defendant used DCC’s tax identification number or that he failed to provide the Gordons with an accounting, these facts are incidental to the primary misconduct alleged: defendant’s failure to safeguard and hold in trust the Gordons’ funds. We hold that the allegations in the complaint were sufficient under the notice pleading standard to give defendant “sufficient notice of the events or transactions which produced the claim to enable the adverse party to understand the nature of it and the basis for it . . . and — by using the rules provided for obtaining pretrial discovery — to get any additional information he may need to prepare for trial.”
The court found that sufficient evidence supported the rule violations and that the representation of multiple parties in a commercial real estate closing creates a non-consentable conflict
the DHC’s conclusion that defendant’s dual representation created a conflict of interest is consistent with 2015 Formal Ethics Opinion 14 (“2015 FEO 14”), which held that in most instances, common representation in a commercial real estate closing is a “nonconsentable” conflict. “While not precedential authority for this Court, formal ethics opinions, as defined in the Procedures for Ruling on Questions of Legal Ethics of the North Carolina State Bar, ‘provide ethical guidance for attorneys and to establish a principle of ethical conduct.’ ”
The court
…the DHC’s findings, which we have held are supported by the evidence in the record, show that defendant had obtained information through his representation of Lam and Deepwater that would have been material to DCC in determining whether to go forward with the closing and that defendant failed to disclose to DCC before representing both DCC and Deepwater in the closing. There can be no question that a conflict of interest arises when an attorney obtains information through his representation of one party that is material to the attorney’s representation of a second party, and the attorney cannot or does not disclose that information to the second party. See In re Shay, 756 A.2d 465, 476 (D.C. 2000) (holding attorney’s “duties to her respective clients . . . were irreconcilable and resulted in a conflict of interest” where attorney drafted will for one client and did not disclose material information, obtained from a second client, which was necessary for first client to make informed decision regarding disposition of property); Matter of LaVigne, 146 N.J. 590, 607, 684 A.2d 1362, 1371 (1996) (“Respondent engaged in an impermissible conflict of interest, in violation of RPC 1.7(b) and (c), by his representation of the seller and two separate sets of purchasers when his own pecuniary interest materially limited his ability to counsel his clients. He failed fully to disclose and explain the nature of the conflict to the respective purchasers and lenders and made no effort to obtain their express consent to his multiple representation, in violation of RPC 1.7(b).”). In short, we hold that there is sufficient evidence to support the DHC’s finding of fact that Lam engaged in a conflict of interest and failed to provide full disclosure of his actions to the other members of DCC. These findings, in turn, support the DHC’s conclusion that defendant engaged in a conflict of interest in violation of Rule 1.7(a) because defendant’s representation of DCC at the closing was materially limited by his responsibilities to Deepwater and he had not obtained written informed consent to the dual representation.
(Mike Frisch)