State v. Callahan

Brief Fact Summary.

Attorney Callahan (Defendant) represented both the buyer and the seller in a real estate sale, and he failed to disclose to the seller his ongoing business relationship with the buyer, and only later did he inform the buyer that she held only a promissory note, not a second mortgage on the property

Synopsis of Rule of Law.

When an attorney seeks to represent multiple parties in a transaction with adverse interests, the consent of each party must be obtained after fully disclosing all conflicts of interest, actual and potential, and the possible effect of such representation on the exercise of the attorney’s independent professional judgment

Facts.

After the seller of Kansas farmland, Fulton, and the buyer, Lygrisse, reached a tentative agreement by phone, Lygrisse suggested that attorney Callahan (Defendant) handle both transactions.  Fulton agreed.  Defendant prepared the sale contracts in accordance with the terms provided by Lygrisse, without consulting Fulton.  Nor did Defendant reveal to Fulton the ongoing business relationship he had with Lygrisse.  Fulton thought she held a second mortgage on the property.  Only when Lygrisse defaulted on the final yearly payment did Defendant refer Fulton to another attorney and advise her that she held only a promissory note.  The Board for Discipline of Attorneys (Plaintiff) recommended indefinite suspension of Defendant for violation of certain disciplinary rules.  Defendant appealed

Issue.

When an attorney seeks to represent multiple parties in a transaction with adverse interests, must the consent of each party be obtained after fully disclosing all conflicts of interest, actual and potential, and the possible effect of such representation on the exercise of the attorney’s independent professional judgment?

 

 

Held.

(Per curiam)  Yes.  When an attorney seeks to represent multiple parties in a transaction with adverse interests, the consent of each party must be obtained after fully disclosing all conflicts of interest, actual and potential, and the possible effect of such representation on the exercise of the attorney’s independent professional judgment.  The disciplinary rules further provide that an attorney shall not engage in conduct involving dishonesty, fraud, deceit, or misrepresentation.  In this case, when the Fultons asked Callahan (Defendant) about foreclosure proceedings, he advised them not to foreclose.  They were not advised that they had no security interest to foreclose until almost two years after Lygrisse defaulted on the final payment.  The Fultons looked to Callahan (Defendant) for assistance, and his conduct clearly rose to the level of deceit and dishonesty.  Affirmed.

Discussion.

The duty of good faith imposed upon an attorney does not always end immediately when his employment is terminated.  It continues as long as the influence created by the relationship continues.  However, there is conflict between the full disclosure requirement of DR 5-105(c) of the Model Code and of Rule 1.7 of the Model Rules and the rules of confidentiality.  Adequate common representation is doubtful if one client asks the attorney not to reveal information to the other client that is relevant to the common representation.  Rule 1.7, Comment 31.