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Iowa Supreme Court Attorney Disciplinary Board v. Wintroub

Supreme Court of Iowa
2008 WL 466754, 2008 Iowa Sup. LEXIS 30, 745 N.W.2d 469 (2008)
ELI5:

Rule of Law:

When an attorney enters into a business transaction with a client where they have conflicting interests, the attorney has the burden to prove they acted in good faith by making a full disclosure of all relevant facts and circumstances, and by advising the client to seek independent legal counsel.


Facts:

  • Edward J. Wintroub and Ronald S. Bergman were close personal friends for many years before Wintroub began representing Bergman in legal matters.
  • In January 1999, while representing Bergman in at least two lawsuits, Wintroub sold Bergman 22.5 shares of stock in Takara Enterprises, Inc., a corporation Wintroub owned, for $150,000.
  • Wintroub did not provide Bergman with financial records for Takara, Inc., nor did he advise Bergman to seek independent counsel for the stock purchase.
  • Shortly thereafter, Wintroub procured a $275,000 personal loan from Bergman, which was unsecured and carried zero percent interest.
  • While Wintroub disclosed his own dire financial circumstances, he drafted the loan document himself and did not advise Bergman to seek independent counsel regarding the loan.
  • In 2001, after Bergman terminated Wintroub's representation in a specific litigation matter, Wintroub refused to turn over the case file for seven months.
  • Wintroub only returned the client's file after Bergman's new counsel made multiple requests and Bergman filed a declaratory judgment action to compel its return.

Procedural Posture:

  • The Iowa Supreme Court Attorney Disciplinary Board filed a three-count complaint against Edward J. Wintroub with the Iowa Supreme Court Grievance Commission.
  • The matter was tried before the Commission on a set of stipulated facts.
  • The Commission found Wintroub committed ethical violations related to improper business dealings with a client (Count I) and mishandling client funds (Count III).
  • The Commission dismissed the count related to client neglect (Count II).
  • The Commission recommended that Wintroub's law license be suspended for two years, to run concurrently with a prior, already-completed suspension.
  • The case was then submitted to the Iowa Supreme Court for de novo review of the Commission's findings and recommendations.

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Issue:

Does an attorney violate professional ethics rules by entering into business transactions with a client without providing full factual disclosure and without advising the client to seek independent legal counsel?


Opinions:

Majority - Appel, Justice

Yes, an attorney violates professional ethics rules by failing to provide full disclosure and advise a client to seek independent counsel before entering into a business transaction. Wintroub violated DR 5-104(A) because he failed to meet his burden of proving full disclosure. For the stock sale, he did not provide financial statements or advise Bergman about the risks of a minority interest in a closely-held corporation. For the loan, despite disclosing his personal financial troubles, he failed to urge Bergman to seek independent counsel, who would have advised against an unsecured, zero-interest loan. This failure to insist on independent counsel for both transactions was a clear ethical breach. Furthermore, Wintroub violated DR 9–102(B)(4) by failing to promptly return the client's file for seven months after termination, which is not the behavior expected of an attorney.



Analysis:

This decision strongly reinforces the high fiduciary duty attorneys owe their clients when engaging in personal business transactions. It clarifies that 'full disclosure' is a demanding standard that includes not only revealing material facts but also actively urging the client to seek independent legal advice and explaining why it is necessary. The case serves as a precedent emphasizing that even a sophisticated client or a pre-existing friendship does not lower this ethical bar. While the court found clear violations, its ultimate sanction of a reprimand shows how mitigating factors, such as procedural delays and prior punishments for conduct in the same time period, can influence the final disciplinary outcome.

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