Matter of Breen
171 Ariz. 250, 110 Ariz. Adv. Rep. 65, 830 P.2d 462 (1992)
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Rule of Law:
An attorney violates their fiduciary duty when entering into business transactions with a client if they have differing interests, unless the client consents after full disclosure. Full disclosure requires not only revealing the lawyer's personal stake but also advising the client of the need to seek independent counsel and explaining all associated risks.
Facts:
- Attorney Dennis M. Breen, III represented a husband and wife from 1979 to 1982.
- Breen formed the Albert Hubbell Corporation for the clients' investments, serving as the corporation's attorney, shareholder, and treasurer without fully disclosing his potential conflicts of interest.
- While representing the Hubbell corporation, Breen, who also represented C & T Air Conditioning and its owner Frank Trenary, arranged a $75,000 loan from Hubbell to C & T. Breen misrepresented to his clients that the loan's security was a second position deed of trust when it was actually a third.
- Without his clients' consent, Breen, acting as Hubbell's treasurer, endorsed C & T's loan payment checks back to C & T to support its operations.
- Breen arranged another loan from Hubbell to Jack Macy, altering the loan terms from the clients' instructions ($90,000 at 25%) to $100,000 at 15% plus a $10,000 premium, without disclosing the changes to the clients.
- After Macy defaulted on the loan and Breen no longer represented the clients, Breen represented Macy in a bankruptcy proceeding filed specifically to stop his former clients from foreclosing on the property securing the loan.
- Acting as an investment broker, Breen persuaded the clients to invest in two oil ventures from which he earned commissions, but he failed to conduct basic due diligence, such as investigating the geology or the managers' lack of experience.
Procedural Posture:
- The clients prosecuted a successful malpractice action against Dennis M. Breen, III in Pima County Superior Court (a trial court), winning a judgment of approximately $90,000 in 1985.
- Following the malpractice verdict, the State Bar of Arizona filed a formal complaint against Breen.
- A hearing was held before the State Bar Local Hearing Committee 5-D, which found Breen violated ethical rules and recommended a two-year suspension from the practice of law.
- Breen objected to the Committee's findings, and the objections were heard by the Disciplinary Commission.
- The Disciplinary Commission affirmed the Committee's findings and recommendation.
- Breen, the respondent, appealed the Disciplinary Commission's report to the Supreme Court of Arizona.
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Issue:
Does an attorney violate their ethical duties of loyalty and professional judgment by entering into business transactions with a client, representing multiple parties with conflicting interests in those transactions without full disclosure, and later representing a new client against the interests of a former client in a substantially related matter?
Opinions:
Majority - Claborne, J.
Yes, an attorney violates their ethical duties under these circumstances. Respondent Dennis M. Breen engaged in numerous transactions with obvious conflicts of interest, failed to provide the full disclosure required of a fiduciary, and actively worked against the interests of his former clients. Breen's simultaneous representation of the clients' corporation (Hubbell) and the borrowing corporation (C & T) without full disclosure was a clear violation. His subsequent representation of Macy in bankruptcy to thwart his former clients' foreclosure efforts was directly adverse and impermissible. Furthermore, when entering business with a client, as in the oil ventures, a lawyer is held to a high ethical standard and must exercise prudent judgment for the client's protection, which Breen failed to do. The bankruptcy code does not insulate an attorney from their state ethical obligations.
Dissenting - Corcoran, J.
Yes, the respondent's conduct was a flagrant violation of his ethical duties, but the recommended sanction is insufficient. Breen's misconduct was not a single incident but a repeated series of egregious ethical breaches across seven separate instances. This pattern of behavior demonstrates a failure to adhere to even the basic ethical standards required of a business person, let alone the higher standard expected of an attorney. Given the severity and repetitive nature of the misconduct, the appropriate sanction is disbarment, not a two-year suspension.
Analysis:
This case strongly reinforces the principle that an attorney's fiduciary duty to a client is paramount, especially in business transactions where the attorney has a personal financial interest. The court clarifies that 'full disclosure' is a robust requirement that extends beyond merely informing the client of a conflict; it often necessitates advising the client to seek independent legal counsel to ensure the client's interests are protected. The decision sets a high bar for lawyers entering into business with clients and serves as a stern warning that other legal frameworks, like bankruptcy law, do not provide a safe harbor from fundamental ethical obligations to current and former clients.
