Fair Dealing In Iowa

The Iowa Supreme Court has reaffirmed longstanding principles in lawyer-client business transactions in suspending an attorney for six months. 

In this attorney disciplinary case, we are called upon once again to remind the Iowa bar that while our ethics rules allow attorneys to engage in financial transactions with clients and to represent both party clients in a financial transaction, the demanding nature of the disclosures required and the necessity of documenting informed consent mean that these matters may not be undertaken lightly as a matter of informal routine.

The Iowa Supreme Court Attorney Disciplinary Board (Board) charged attorney Mark Hamer with multiple violations of the Iowa Code of Professional Responsibility for Lawyers (code) and the Iowa Rules of Professional Conduct (rules)   arising from (1) several loan transactions occurring between multiple clients of Hamer without adequate conflict-of interest disclosures and informed consent, (2) several loan transactions involving Hamer and a client without adequate conflict-of-interest disclosures and informed consent, (3) two failed joint investments in which Hamer and his client suffered substantial losses, and (4) a clearly excessive and dishonest attorney’s fee collected through a bonus to which the client did not agree. Hamer denied the allegations.

After an evidentiary hearing involving only two witnesses but over 2200 pages of documents, the Iowa Supreme Court Grievance Commission (commission) found Hamer violated numerous code and rule provisions with respect to the loans and the attorney’s fee issues but declined to find an ethical violation in connection with the failed investments. As a result, the commission recommends that Hamer’s license to practice law be suspended for six months.

Upon our de novo review, we conclude Hamer engaged in a number of ethical violations in connection with the loan transactions between Hamer’s clients and between Hamer himself and Douglas Paul. We also find Hamer engaged in deceit in connection with the bonus payment for legal work. Based on the violations, we conclude a six-month suspension is the appropriate sanction.

The attorney had taken a $110,000 bonus for a very successful sale of the client’s business. He failed to provide an itemized bill for services despite the client’s requests.

The misconduct thereafter involved a series of loans that the client made to the attorney and other clients.

One of the transactions was a fraud which generated substantial losses for both client and attorney.

The client complained in 2013. 

The bar case involved a course of conduct that spanned two versions of the rules

First, considering the transactions between Paul and other Hamer clients that occurred before July 2005, we hold the Board has shown by a convincing preponderance of the evidence that Hamer violated Iowa Code of Professional Responsibility for Lawyers DR 5–105(B)–(D). For later conduct, we also hold the Board has shown Hamer violated Iowa Rule of Professional Conduct 32:1.7(a) and (b) by a convincing preponderance of the evidence.

Under both the code and the rules, the Board must show there was a concurrent conflict of interest between Paul and the other Hamer clients in order to trigger Hamer’s duty of obtaining informed consent from Paul and the other clients, after full disclosure. The Board has done this by showing that Hamer represented Paul as the lender and the other clients as the borrowers in the private loans. As we explained under similar circumstances in Willey, there was a concurrent conflict of interest when Hamer represented both the lender Paul and the borrowers because the interests of Paul and the borrowers “were at odds from the beginning.” 889 N.W.2d at 656.

In attempting to argue there was no conflict of interest between Paul and the borrowers, Hamer stressed Paul and the borrowers had similarly aligned interests. This is simply wrong. While it is generally true that both lenders and borrowers have an interest in successfully completing the loan transaction, lenders and borrowers have conflicting interests at the initiation of the transaction in obtaining favorable terms. It hardly needs to be said that a term that is a favorable term for the borrower tends to be an unfavorable term for the lender and vice versa.

Burden of proof

We first address Hamer’s argument that the commission erred in requiring him to affirmatively show he fully disclosed the conflict of interest to Paul. Hamer is incorrect under our longstanding precedent described above. Once the Board shows an attorney engaged in business transactions with a client and they had conflicting interests, the burden shifts to the attorney to show good faith and full disclosure. If the attorney cannot affirmatively show this, the attorney has violated the code or the rules.

The fact that an attorney’s disclosure requirements are “harsh and demanding,” and that our rules require the attorney to demonstrate good faith and full disclosure at a disciplinary hearing, serves to remind attorneys to be very careful when engaging in these type of transactions…

With respect to the loans between Paul and Hamer, we find Hamer has failed to meet his burden of showing that he obtained Paul’s informed consent for the transactions. We wish to stress the loans between Paul and Hamer were not standard commercial transactions. While Paul and Hamer may have termed Paul’s loans “private banking,” they bear little resemblance to actual banks and their lending practices. For example, borrowers did not need to fill out any forms for Paul or disclose their financial information. Paul did not run a credit check on the borrowers prior to lending them money. Because the loans between Paul and Hamer were not standard commercial transactions, and because Hamer has not shown that Paul was advised of the need to seek independent legal counsel or that he gave informed consent to the terms of the transaction and the lawyer’s
role in the transaction, we find Hamer violated DR 5–101(A), DR 5–104(A) and rule 32:1.8

And the misconduct regarding the fees

Based on the cold record, it is difficult to determine whether there was a double bonus or whether there was simply some kind of misunderstanding between Paul and Hamer. At a minimum, however, we think Hamer acted deceitfully when he presented Paul with an unitemized bill with an undisclosed substantial bonus and refused to provide him with an itemization for five years. We thus think the Board proved a violation of DR 1–102A(4) by a clear and convincing preponderance of the evidence.

Sanction

Hamer displays an obviously cavalier attitude toward the requirements of our disciplinary rules. Because of the nature of Hamer’s practice and the nature of his clients, the disclosure rules, according to Hamer, are somehow inapplicable, unnecessary, or optional. This is incorrect. The disclosure rules are always mandatory…

There is no clear-cut formula for the determination of appropriate sanction in disciplinary cases. Based on the totality of circumstances, however, we think that a six-month suspension is required in this case.

The briefs and argument may be found here. (Mike Frisch)