Fund Award to Pair Who Invested in Lawyer’s Business Upheld
By KENNETH OFGANG, Staff Writer/Appellate Courts
Two women who were persuaded to invest in a business operated by their attorney are entitled to reimbursement from the State Bar Client Security Fund, the Court of Appeal for this district ruled yesterday.
In an unpublished opinion by Presiding Justice Roger Boren, Div. Two rejected Monrovia attorney Mark M. O’Brien’s challenge to the fund commission’s award to Louise Parker and her daughter, Kathryn Parker.
Under the State Bar Act, awards are paid by the State Bar from the fund, to which all California attorneys contribute as part of their annual dues payment to the State Bar. The fund is then subrogated to the rights of the clients and may seek reimbursement from the attorney at fault.
The Parkers claimed that they gave O’Brien, who had represented them in real estate matters, $20,000 with the intent that he make a prudent investment on their behalf. They said he invested the money in Power Imaging Centers, a high-risk business that failed, and that they lost the entire sum.
The Parkers obtained a civil judgment against O’Brien, but it was discharged after he declared bankruptcy.
As a result of the Parkers’ complaint, a State Bar disciplinary proceeding—independent of the Client Security Fund process—was commenced and resulted in O’Brien being placed on probation. As part of that proceeding, the attorney stipulated that the Parkers made an unsecured investment in PIC, that he advised Louise Parker to loan money to PIC after she asked him for advice, that he knew of Kathryn Parker’s investment, that he did not advise the Parkers to seek independent counsel, and that he had an interest in the venture.
Good Faith Maintained
O’Brien maintained that he disclosed his interest in PIC to Kathryn Parker, and that he advised her in good faith to make the investment, but admitted that his failure to advise her to seek independent counsel with regard to an investment in which he had a personal interest violated the Rules of Professional Conduct. He also stipulated that he would not object to reimbursement by the Client Security Fund.
The State Bar Court ordered restitution of $10,000 to Kathryn Parker as a condition of probation.
In its separate proceeding, the fund commission found that O’Brien engaged in dishonest conduct by concealing his interest in PIC and that he had an attorney-client relationship with both Parkers. O’Brien’s objections, based in part on the fact that the State Bar had stipulated that he acted in good faith, were rejected by the commission, which found that he had no intention of repaying the money.
O’Brien petition for a writ of administrative mandate, claiming that the commission denied him due process and that its finding of dishonest conduct, a prerequisite for an award, is unsupported by substantial evidence.
Los Angeles Superior Court Judge David Yaffe denied the writ.
Boren, writing for the Court of Appeal, said the trial judge was correct.
The presiding justice explained that a client who loses money in an investment has a claim against the Client Security Fund if the loss arises out of the attorney-client relationship, the attorney engaged in dishonest conduct related to the investment, and the loss would not have occurred but for that misconduct.
The commission’s findings, Boren added, are reviewed for substantial evidence. The independent judgment test otherwise applied in administrative mandate cases does not apply, he explained, because payment by the commission does not implicate the fundamental rights of the attorney.
There was, Boren went on to say, substantial evidence that O’Brien never intended to repay the money.
The jurist reasoned:
“...O’Brien gave the Parkers unsecured notes. From this, an inference can be drawn that O’Brien intended to leave the Parkers without recourse in the event of default. The evidence indicated that the loans were made in 1993-1994. By 1996, the interest was delinquent. Default on the principal ensued. In 1997, the Parkers instituted a civil action on the notes. While the lawsuit was pending, O’Brien declared bankruptcy and had the debt discharged. It can be inferred that O’Brien lacked a reasonable ability to repay the loans. His claims of solvency are unsupported by any financial documentation, and are belied by his bankruptcy.”
Nor, Boren wrote, does the State Bar stipulation that O’Brien dealt with the Parkers in good faith preclude a finding of dishonesty the fund commission.
“Fund applications are handled separately from State Bar disciplinary matters and employ a lower standard of proof,” the appellate jurist wrote. “To the extent that O’Brien insists on invoking the terms of his disciplinary stipulation, he is estopped from denying his express waiver of ëany objection to payments by the Client Security Fund upon a claim for the principal amounts of restitution set forth herein.’ O’Brien cannot rely on those portions of the disciplinary stipulation that favor him while ignoring the portions that prevent him from challenging the Parkers’ claim to the Fund for restitution.”
O’Brien represented himself in the Court of Appeal. Colin P. Wong and Tracey L. McCormick of the general counsel’s office represented the State Bar.
The case is O’Brien v. State Bar of California, B179395.
Copyright 2005, Metropolitan News Company