Iowa Supreme Court Attorney Disciplinary Board Vs. Edward L. Wintroub ( 2008 )

IN THE SUPREME COURT OF IOWA
No. 14 / 07-1701
Filed February 22, 2008
IOWA SUPREME COURT ATTORNEY
DISCIPLINARY BOARD,
Appellee,
vs.
EDWARD L. WINTROUB,
Appellant.
On review of the report of the Grievance Commission.
Iowa Supreme Court Grievance Commission recommends a two-
year suspension of the respondent’s license to practice law to run
concurrently with a previous suspension. ATTORNEY REPRIMANDED.
Waldine H. Olson, Omaha, Nebraska, and David A. Richter,
Council Bluffs, for appellant.
Charles L. Harrington and Wendell J. Harms, Des Moines, for
appellee.
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APPEL, Justice.
In this case, we consider the sanctions recommended by the Iowa
Supreme Court Grievance Commission (Commission) against a
previously suspended Iowa lawyer who allegedly engaged in improper
business transactions with a client, neglected a client matter, and
improperly retained an unearned fee. For the reasons expressed below,
we reprimand the lawyer for his misconduct, but impose no further
sanction in addition to his previously imposed two-year suspension.
I. Background Facts and Prior Proceedings.
A. Introduction. Edward J. Wintroub is a lawyer whose Iowa
license was suspended in 2004 through reciprocal discipline after his
Nebraska license was suspended by that state’s supreme court. In the
Nebraska matter, Wintroub was found to have committed a series of
transgressions including misappropriating client funds and comingling
personal funds with those of his clients. Wintroub denied the
allegations, asserted affirmative defenses of laches and estoppel, and
further suggested that at all relevant times he was taking medications
prescribed by physicians for a variety of medical conditions. Wintroub
alleged that the known side effects of such medications included
confusion, decreased concentration, decreased mental clarity, impaired
memory, temporary memory loss, sleep disturbances, slurred speech,
and seizures.
The Nebraska Supreme Court suspended Wintroub’s license for
two years, placed him on an additional two-year term of probation, and
imposed a number of additional conditions upon his reinstatement.
State ex rel. Counsel for Discipline, Nebraska Supreme Ct. v. Wintroub,
678 N.W.2d 103 (Neb. 2004). Pursuant to our rules, we imposed a two-
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year suspension on Wintroub’s Iowa license as a result of the Nebraska
decision.
B. Allegations of the Board. In May 2006, the Iowa Supreme
Court Attorney Disciplinary Board (Board) filed a new three-count
complaint against Wintroub. Count I alleged that Wintroub had engaged
in improper business dealings with a client, Ronald S. Bergman, in
violation of various ethical rules. Count II alleged that Wintroub
neglected a file when a client matter was dismissed for failure to
designate an expert in a timely fashion. Count III alleged that Wintroub
improperly handled funds received from a client, Mildred Van Winkle.
The events giving rise to these allegations all occurred between 1999 and
2002, approximately the same time period in which Wintroub committed
his prior ethical transgressions. The matter was tried to the Commission
on stipulated facts.
C. Bergman Matters. The undisputed facts reveal that Wintroub
and Bergman were close personal friends for many years before the two
entered into an attorney-client relationship. Over time, Bergman
retained Wintroub to represent him on legal matters, usually involving
litigation. Bergman frequently employed more than one attorney on the
same matter, however, and Wintroub was not Bergman’s attorney for
business, corporate, or personal financial matters. The parties
stipulated that Bergman believed that Wintroub was acting in his best
interest at all times relevant to this disciplinary proceeding and that
Bergman trusted Wintroub to do what was right.
In January 1994, Wintroub formed a Nebraska corporation called
Takara Enterprises, Inc. for the purpose of buying, promoting, and
selling artwork created by Seikichi Takara. In January 1999, at a time
when Wintroub was representing Bergman in at least two lawsuits,
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Wintroub sold Bergman 22.5 shares of stock in Takara, Inc. for the sum
of $150,000. Wintroub did not advise Bergman, a sophisticated investor,
to seek independent counsel in connection with the transaction.
Shortly thereafter, Wintroub also procured a personal loan from
Bergman. By May 25, 1999, loans totaling $275,000 from Bergman to
Wintroub were memorialized in a promissory note drafted by Wintroub.
The loan was unsecured and bore a rate of zero percent interest.
Prior to formalizing the loan, Wintroub made several disclosures to
Bergman. He told Bergman that (1) he had monies owed to him from his
principal client; (2) he had expanded his business in reliance on this
client; (3) he had invested his personal financial resources to pay the
expenses of his law practice; (4) he had exhausted his credit; (5) he had
no other source of funds to keep his law practice in operation; (6) without
the loan he might have to cut back his law practice, but would continue
to represent Bergman; and (7) he had no idea when he would be able to
repay the loan, but that it would certainly be a while. Wintroub did not
advise Bergman to seek independent counsel to review the loan
documents or transaction.
In 2000 and 2001, Bergman asked Wintroub to start paying on the
promissory note, but Wintroub was unable to do so. In December 2000,
Wintroub released John Sens, an associate, from his law firm. Sens had
previously been assigned several of the Bergman matters. On
February 21, 2001, Bergman terminated Wintroub’s representation in a
litigation matter adverse to James Moyer. Bergman then retained Sens
as counsel. Sens sent Wintroub letters dated February 27, March 28,
April 4, and June 13 asking Wintroub to deliver the Moyer file to him.
Wintroub had conversations with Sens and Bergman in an attempt to
persuade them to allow him to continue the representation. Among
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other things, Wintroub claimed that he intended the attorney’s fees
earned in the Moyer matter to be a source of repayment of the Bergman
loan. Bergman, however, refused and, on September 12, 2001, filed a
declaratory judgment action against Wintroub that, among other things,
sought the return of the Moyer file. At this point, Wintroub returned the
file. He also declared bankruptcy, thereby frustrating efforts by Bergman
to collect on the loan.
D. Pack Matter. Wintroub was engaged by Randall and Laraine
Pack in connection with an action against Drake University and others,
including a nurse practitioner, related to the suicide of their son. During
the engagement, an attorney in Wintroub’s office failed to designate an
expert within the time limitations of Iowa Code section 668.11. As a
result, the action was dismissed.
E. Van Winkle Matter. In December 2000, Mildred Van Winkle
hired Wintroub to sue her former husband for personal injuries arising
from an alleged assault and battery and intentional infliction of
emotional distress. Suit was filed in March 2001. In connection with the
representation, Van Winkle signed a contingency fee agreement, but the
agreement was not signed by Wintroub or any member of his firm. On
January 11, 2002, Wintroub filed a motion to withdraw from the case
“for the reason that [Van Winkle] has retained other counsel to represent
her.” The district court allowed the withdrawal on the date the motion
was filed, but Van Winkle and her new husband met with Wintroub the
next day to discuss the case. At that time, Van Winkle signed a contract
that reduced Wintroub’s contingency fee to 25%, but required immediate
payment of $5000 “for work previously done and as a non-refundable
engagement retainer.” Wintroub did not deposit the $5000 payment in
his trust account. Ultimately, the lawsuit was eventually resolved
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adverse to Van Winkle on summary judgment because she had failed to
reserve the tort action in her marriage dissolution. This case was
dismissed through no fault of Wintroub or his firm.
F. Recommendations of the Commission. The Commission
took no testimony and deliberated on the basis of the undisputed
stipulations of fact and related exhibits. The Commission determined
that the Board proved by a convincing preponderance of the evidence
that Wintroub committed ethical violations in connections with Counts I
and III. The Commission dismissed the claim in Count II. In its
recommendation, the Commission did not specifically detail which
disciplinary rules were violated.
With respect to Count I involving business relationships with a
client, the Commission emphasized that Wintroub failed to meet his
burden of showing that his transactions with his client were done with
full and fair disclosure. With respect to Wintroub’s sale of stock to
Bergman, the Commission stated that no accounting or other financial
records were provided. In connection with the personal loan, the
Commission stated that an attorney exercising professional judgment
would insist, at a minimum, that sufficient collateral be required to
secure the loan. Finally, with respect to the Moyer matter, the
Commission observed that it should not have taken seven months and
the filing of a declaratory judgment action for Bergman and his counsel
to obtain the case file.
On Count II, dealing with the failure to timely designate experts in
a malpractice action, the Commission expressed concern regarding
Wintroub’s attempt to avoid responsibility for the problem. The
Commission, however, stated that the problem, while perhaps
appropriate for a malpractice claim, did not rise to an ethical violation.
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On Count III involving the Van Winkle payment, the Commission
simply did not believe Wintroub’s explanation that the $5000 fee was
received for earned work. The Commission noted that Wintroub filed a
motion to withdraw claiming that Van Winkle had retained other
counsel. Van Winkle denied any such claim. As a result, the
Commission found that Wintroub engaged in retainer fraud and
misrepresentation.
On the matter of sanction, the Commission noted that Wintroub
incurred a two-year suspension of his Iowa license on May 8, 2003 as a
result of reciprocal discipline for events that occurred during the same
time period as the current violations. Although the Commission believed
that the current violations warranted a suspension of Wintroub’s Iowa
license for two years, it recommended that the suspension run
concurrently with the prior Iowa suspension. Because the previous
suspension has expired, the Commission recommended that Wintroub be
allowed to apply for reinstatement of his Iowa license, if he so desires.
II. Standard of Review.
This court reviews attorney disciplinary actions de novo. Iowa Ct.
R. 35.11(3). The Board must prove all ethical violations by a convincing
preponderance of the evidence. Iowa Supreme Ct. Att’y Disciplinary Bd.
v. Walker, 712 N.W.2d 683, 684 (Iowa 2006). On review, the court is free
to adopt, increase, or reduce the sanction recommended by the
commission. Iowa Supreme Ct. Bd. of Prof’l Ethics & Conduct v. Eich, 652
N.W.2d 216, 217 (Iowa 2002).
III. Discussion.
A. Business Relations with Client. Wintroub engaged in two
business transactions with a client in which he and his client admittedly
had conflicting interests. While there is no blanket prohibition on such
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transactions, our ethical rules in this area are very demanding. We have
long held that when an attorney engages in business transactions with a
client involving conflicting interests, the burden is on the attorney to
show that he acted in good faith and made full disclosures. Comm. on
Prof’l Ethics & Conduct v. Mershon, 316 N.W.2d 895, 899 (Iowa 1982). As
a result of this burden, a record that fails to show affirmatively that a
client was fully advised about the facts of a transaction or its legal
consequences leads to an ethical violation. Id.; Donaldson v. Eaton &
Estes, 136 Iowa 650, 656, 114 N.W. 19, 21 (1907).
We have further found that full disclosure means more than simply
disclosing the material terms of a transaction. Full disclosure means the
use of active diligence on the part of the attorney to “fully disclose every
relevant fact and circumstance which the client should know to make an
intelligent decision concerning the wisdom of entering the agreement.”
Mershon, 316 N.W.2d at 898. Further, the attorney must give the same
kind of legal advice that the client would have received if the transaction
involved a stranger and not the attorney. Id. at 899. More recently, we
emphasized that lawyers engaged in business transactions with clients
involving conflicting interests “ ‘have a duty to explain carefully, clearly
and cogently why independent legal advice is required.’ ” Iowa Supreme
Ct. Bd. of Prof’l Ethics & Conduct v. Wagner, 599 N.W.2d 721, 727–28
(Iowa 1999) (quoting In re Wolk, 413 A.2d 317, 321 (N.J. 1980)).
Wintroub made significant material disclosures in connection with
both of the Bergman transactions. In connection with the sale of stock
in Takara, Inc., however, the stipulation upon which this case was tried
did not show that Wintroub disclosed the financial performance of the
company through financial statements, annual reports, or oral
summaries for the period beginning in January 1994, when Wintroub
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formed Takara, until the time of Bergman’s investment in January 1999.
As a result, Wintroub has failed to meet his burden of showing full
disclosure of every relevant fact and circumstance as required by our
cases involving business relations with clients. Mershon, 316 N.W.2d at
898. Further, there is no record that Wintroub advised Bergman
regarding the lack of liquidity ordinarily associated with minority
interests in closely held corporations or the lack of control minority
interests have over management. Finally, Wintroub admits that he did
not advise Bergman of the need to obtain independent counsel in
connection with the transaction. Because of Wintroub’s failure to
demonstrate full factual disclosure and his failure to urge Bergman to
seek independent counsel, we conclude Wintroub violated DR 5–104(A)
(a lawyer shall not enter into a business transaction with a client if they
have differing interests therein and the client expects the lawyer to
exercise professional judgment therein for the protection of the client
unless the client has consented after full disclosure).
In connection with the personal loan, Wintroub made a robust
disclosure of his own dire financial circumstances. Nevertheless,
Wintroub committed an ethical violation when he failed to urge Bergman
to seek independent counsel prior to entering into this substantial
transaction and to explain why independent counsel was important. In
connection with the loan transaction, competent independent counsel
would have engaged in an interactive process that would have questioned
the unsecured nature of the loan, the lack of interest or timetable for
repayment, and possible contingencies that could arise, likely
demonstrating why the unstructured nature of the loan was not in
Bergman’s best interests. While Wintroub may have fairly disclosed his
financial circumstances, competent counsel would have explored
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Bergman’s own financial needs and the potential for the unstructured
loan transaction serving as a point of contention in the future. The
record is devoid of evidence that Wintroub made any of these disclosures.
We conclude that Wintroub violated DR 5–104(A) in connection with the
loan transaction.
We reiterate, again, our statement in Mershon that perhaps the
safest and best course for an attorney is to decline to personally
participate in business transactions where the attorney and the client
have differing interests. Id. at 899. The high standard of disclosure
expected in these situations is difficult to meet. By insisting that the
client obtain independent legal advice, the attorney may avoid any
perception that his communications with his client have been colored or
less than candid on the transaction in question, but even so, full
disclosure of all relevant facts and circumstances is required.
B. Failure to Return the Client File. In the aftermath of the
loan transaction, Bergman ended Wintroub’s representation in the Moyer
matter. Thereafter it took seven months, the exchange of multiple
letters, and ultimately the filing of an action for declaratory judgment, for
new counsel to obtain the file. A seven-month effort to convince a client
to change his mind regarding the surrender of a file, culminating in the
necessity of filing a declaratory judgment action to enforce the client’s
rights, is not the kind of behavior expected of attorneys under our
disciplinary rules. Clients have a right to the return of their property,
including their file. Iowa Supreme Ct. Bd. of Prof’l Ethics & Conduct v.
Plumb, 589 N.W.2d 746, 748 (Iowa 1999). Through such behavior,
Wintroub violated DR 9–102(B)(4) (a lawyer shall promptly deliver to the
client as required by a client the properties in the possession of the
lawyer which the client is entitled to receive).
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C. Missed Expert Deadline. The Board has charged Wintroub
with neglect based upon the failure of an associate in his firm to meet an
expert deadline in a medical malpractice action. We agree with the
Commission that this one incident does not give rise to an ethical
breach. Iowa Supreme Ct. Att’y Disciplinary Bd. v. Tompkins, 733 N.W.2d
661, 666–67 (Iowa 2007).
D. Payment from Van Winkle. With respect to the payment of
$5000 from Van Winkle, the parties stipulated that the payment was
made “for work previously done and as a non-refundable engagement
retainer” and that the $5000 was not deposited in Wintroub’s trust
account. While an attorney must deposit unearned fees into a trust
account and cannot convert unearned fees for his own use, Iowa
Supreme Court Board of Professional Ethics & Conduct v. Apland, 577
N.W.2d 50, 55 (Iowa 1998), the precise nature of the $5000 payment is
not clear. As a result, we conclude that the Board has not established,
on the present record, by a convincing preponderance of the evidence
that the $5000 payment was unearned. As a result, we find no Apland
violation.
E. Laches and Equitable Estoppel. Wintroub asserts that the
affirmative defenses of laches and equitable estoppel preclude the Board
from proceeding with the charges against him. In the alternative,
Wintroub argues that the delay in resolving these matters is a factor
which mitigates any potential sanction.
The Bergman matters arose during a two-and-a-half-year time
frame from January 1999 to June 2001. The Board received a complaint
against Wintroub relating to Bergman in February 2002. The Board,
however, did not file its charges in this matter for four-and-a-half years.
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Wintroub argues that the events for which he is now charged
occurred during the same time frame that gave rise to charges in
Nebraska, which ultimately led to his suspension from the practice of law
in Nebraska for two years. If all these matters had been considered at
once, Wintroub argues, he would have received one consecutive period of
suspension beginning in 2004.
With respect to laches, Wintroub makes only generalized
arguments that he has been prejudiced by the delay in bringing the
proceedings. There is nothing in the factual stipulation which identifies
witnesses that have died, specific exculpatory evidence that has been
destroyed, or specific matters that cannot be developed due to faded
memories. We have generally required a factual showing of concrete
prejudice before a defense of laches may be invoked. Iowa Supreme Ct.
Bd. of Prof’l Ethics & Conduct v. Mulford, 625 N.W.2d 672, 680 (Iowa
2001).
On the equitable estoppel issue, Wintroub’s argument has similar
factual shortcomings. Even assuming that equitable estoppel applies in
attorney grievance proceedings, nothing in the record of this case
supports the claim that Wintroub has relied upon any action of the Iowa
authorities to his detriment. See The Florida Bar v. McCain, 361 So. 2d
700, 706 (Fla. 1978) (holding equitable estoppel in disciplinary
proceeding requires inducement to change position). In this case, the
Iowa complaints were filed, the investigations were opened, and the
proceedings initiated. There is nothing in the record to indicate that
Iowa authorities made any representation or took any action to induce
Wintroub into changing his position in reliance. While it is true that the
dates of the Bergman matters overlap with other matters for which
Wintroub was sanctioned by Nebraska and by Iowa, the mere existence
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of overlapping time frames does not establish a basis for asserting an
estoppel defense.
Yet, Wintroub does have a point. He has been severely sanctioned
for his past misconduct, but has had no recent misconduct. In addition
to a two-year suspension, he complied with the terms of an additional
two-year probation in Nebraska. Further, some of his past misconduct
appears to have been associated with various medical conditions, which
appear to have been resolved. Wintroub’s license to practice law in
Nebraska has been reinstated.
While Wintroub has not yet sought reinstatement of his Iowa
license, an additional period of suspension in Iowa could lead to
reciprocal sanctions in Nebraska, thereby unfairly disrupting Wintroub’s
efforts at rehabilitation. While this disruptive feature does not establish
a complete defense, we do find it a factor that should be considered in
mitigation. Indeed, it appears that the Commission, which recommended
its two-year suspension run concurrently with Wintroub’s past
suspension, agreed with Wintroub on this point. The impact of the
Commission’s recommendation would be that no further period of
suspension would be required and Wintroub could seek reinstatement in
Iowa at any time.
F. Sanction. Based on the ethical violations found in Count I, we
must consider the appropriate sanction for Wintroub. As indicated
above, we agree with Wintroub that the lengthy delay in the proceedings
is a mitigating factor. Wintroub has already served his two-year
suspension in Nebraska and Iowa, and has satisfied the terms of his
probation in Nebraska. He has apparently addressed medical problems
that the Nebraska Supreme Court found to be a contributing factor in his
ethical lapses. Without this history, Wintroub’s ethical violations would
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require suspension of his license for a three- to six-month period of time.
See Plumb, 589 N.W.2d at 749 (imposing two-month suspension for
failure to return client file upon request from new attorney); Comm. on
Prof’l Ethics & Conduct v. Hall, 463 N.W.2d 30, 35–36 (Iowa 1990) (noting
that sanctions for conflicting business relations vary from public
reprimand to revocation).
In light of all the facts and circumstances, however, and rather
than imposing an additional suspension to run concurrently with
Wintroub’s already completed suspension as recommended by the
Commission, we find it more appropriate to issue a public reprimand to
Wintroub for the violations therein described. We are confident that this
additional sanction in light of the unusual historical circumstances of
this file will not be interpreted as a relaxation of our approach to
situations where attorneys engage in business relations with clients,
which remain subject to the strictest scrutiny, or to the need for
attorneys to return client property.
IV. Conclusion.
We impose a public reprimand on Wintroub rather than the
concurrent suspension recommended by the Commission. We tax the
costs of this action to Wintroub pursuant to Iowa Court Rule 35.25.
ATTORNEY REPRIMANDED.
All justices concur except Wiggins and Hecht, JJ., who take no
part.