We Got Trouble (In Iowa City, Not River City)

The Iowa Supreme Court has suspended an attorney who took loans from a client

In an effort to salvage his troubled real estate investments, an attorney borrowed money from certain longtime clients. The attorney failed to advise the clients to obtain independent counsel, failed to obtain their written informed consent, and continued to represent those clients after borrowing the money. The attorney also did not disclose his perilous financial situation. The loans eventually totaled $177,000 in principal amount, none of which has been repaid.

There was a stipulation on the facts

In this case, all three branches of the rule—subparts (1), (2), and (3)—were violated. The loan terms were not fair and reasonable. Lynch went to the Bells because he needed immediate money and could not get it elsewhere. The interest rates were low for the risk involved, as subsequent events have proved. We agree with the commission that Lynch did not advise the Bells orally of the need to obtain independent counsel, let alone in writing as the rule requires. Informed consent in writing was not obtained. These rule violations were not just technical.

The stipulated facts and exhibits and the hearing record leave no doubt that Lynch did not convey the full extent of his financial distress to the Bells.

The court also found a concurrent conflict of interest.

Sanction

We conclude that Lynch’s license should be suspended indefinitely without possibility of reinstatement for six months. The misconduct here was more serious than that involved in Pederson and Willey. To bail out his collapsing real estate investments, Lynch turned to his longstanding clients, serially obtaining loans that undoubtedly no commercial lender would have made. Lynch provided no meaningful disclosures to his clients of the sort a commercial lender would have required and instead told them he needed the money right away. If Lynch had done even part of what rule 32:1.8 requires, in all likelihood the loans would never have occurred. Through his ethical violations, Lynch took advantage of his clients for his personal benefit. As the commission put it, “Respondent’s misconduct has made wholly vulnerable the relationship between the lawyer and the client.”

Still, the Board does not contend, nor has it attempted to prove, that Lynch engaged in fraud. The violations, although serious and recurring, had a single starting-point and were “uncharacteristic” when measured against the attorney’s lengthy legal career.

And

To establish his eligibility for reinstatement, Lynch must also demonstrate that he has either repaid the Bell loans, entered into agreed-upon plans with the Bells for repaying the loans (and be current on those plans), or filed bankruptcy in order to discharge or restructure the loans.

(Mike Frisch)