|FOR THE RESPONDENT |FOR THE INDIANA SUPREME COURT |
| |DISCIPINARY COMMISSION |
| | |
|Leonard Opperman |Donald R. Lundberg, Executive |
|135 N. Pennsylvania St., Ste. 1750|Secretary |
|Indianapolis, IN 46204 |Seth T. Pruden, Staff Attorney |
| |115 West Washington Street, Suite 1060|
| |Indianapolis, IN 46204 |
IN THE
SUPREME COURT OF INDIANA
IN THE MATTER OF )
) CASE NO. 80S00-9711-DI-629
JOE F. WATSON )
DISCIPLINARY ACTION
August 22, 2000
Per Curiam
By drafting for his client codicils that Respondent Joe F. Watson
knew or should have known had the potential of providing a substantial gift
to himself and his mother, the respondent engaged in an impermissible
conflict of interest. We find today that the respondent’s actions violate
the Rules of Professional Conduct for Attorneys at Law. For those
violations, the respondent and the Disciplinary Commission agree that the
respondent should be suspended from the practice of law for sixty days.
That agreement is now before us for final approval.
Our jurisdiction in this case is a result of respondent’s admission
to the bar of this state in 1958.
The respondent and the Commission agree that in 1982, the respondent
wrote a will for an 85 year old man (hereinafter the “testator”) who was
the largest single shareholder in an Indiana telephone company, owning 189
out of 800 shares. The will named the testator’s wife as residual
beneficiary, or, upon her death, the testator’s daughter. The respondent’s
mother was the second largest shareholder, owning 102 shares. The
respondent owned one share, served as director of the company, president of
its board of directors, and as its general counsel. A trust owned or
controlled another 92 shares, and the respondent’s mother was one of two
life beneficiaries of the trust. In all, the respondent and his mother
owned or controlled some 103 of the 800 shares, and the respondent’s mother
was a partial beneficiary of another 92 shares.
After the testator executed the will the respondent had drafted for
him, the testator’s wife died, leaving the daughter as the sole
beneficiary. In 1988, the respondent prepared for the testator a codicil
which granted an option to the company, upon the testator’s death, to
purchase his 189 shares at a price reflecting the stated “book value,”[1]
subject to the consent of the daughter. In 1992, when the testator was 96
years old, the respondent drafted a second codicil identical the first,
except that the need for the daughter’s consent was excised from it. At
that time, the respondent knew or should have known that the option for the
company to buy the shares at book value was setting a price which could be
substantially less than fair market value.
The testator died on September 17, 1993. The respondent offered the
will and codicils for probate on October 1, 1993. The executor of the
estate (a local bank) hired the respondent as attorney for the estate. The
respondent sought and was granted approval of the probate court to retain
special counsel for the purpose of purchasing the testator’s shares of the
company. The Board of Directors elected to exercise the option to purchase
the estate’s shares at the listed “book value,” determined to be
approximately $9,500 per share, for a total purchase price of approximately
$1.8 million. About two years later, the respondent, his mother, and the
company’s remaining shareholders sold all of the company’s stock for
$21,000 per share, realizing an amount per share in excess of two times
that paid to the testator’s estate for the shares.
The parties dispute whether the “book value” of the stock was less
than, equal to, or greater than the “fair market value” (see footnote 1,
infra) at the time the respondent drafted the two codicils and at the time
of the testator’s death. The Commission contends that the book value was
substantially less; the respondent claims it was equal to or greater than
the fair market value.
We find that the mere potential for the shares’ book value to be less
than the fair market value created a situation that should have precluded
the respondent from accepting employment as the testator’s attorney to
draft the codicils. Indiana Professional Conduct Rule 1.8(c) provides that
a lawyer shall not prepare an instrument giving the lawyer or a person
related to the lawyer as a parent, child, sibling, or spouse any
substantial gift from a client, including a testamentary gift, except where
the client is related to the donee. At that time, the respondent knew or
should have known that the codicils had the potential for providing a
substantial testamentary gift to himself or his mother. Had the book value
been lower than the fair market value at the time the option was exercised,
the company’s shareholders (including the respondent and his mother) would
have benefited because they would have experienced an increase in their
equity interest in the company that exceeded the indirect cost to them of
the company’s exercising the option. Moreover, by purchasing the
testator’s shares, the company reduced the number of outstanding shares
from 800 to 611, correspondingly increasing the percentage of ownership in
the company by the respondent, his mother, and the trust, from
approximately 25% to almost 33%. Accordingly, their interests became
correspondingly more influential in controlling corporate decision-making
as a result of the exercise of the stock option.
Where it is possible, as it was here, that a testamentary gift has
the potential substantially to benefit the drafting attorney or his family,
the ethical propriety of drafting the instrument should be evaluated in
light of reasonably foreseeable circumstances and not the capriciousness of
market values years in the future. Because the respondent drafted the
codicils when it was reasonably foreseeable that the instruments had the
potential for providing a substantial gift to the respondent and his
mother, the respondent violated Prof.Cond.R. 1.8(c). Professional Conduct
Rule 1.7(b) provides, inter alia, that a lawyer shall not represent a
client if the representation of the client may be materially limited by the
lawyer’s own interests, unless the lawyer reasonably believes the
representation will not be adversely affected, and where the client
consents after consultation. The respondent’s drafting of the codicils
permitting book value sale could have allowed for some of the estate’s
assets to be disposed at far less than fair market value, to the respondent
and his mother’s ultimate benefit. As such, the respondent violated
Prof.Cond.R. 1.7(b).
Having found misconduct, we examine the issue of appropriate
discipline for it. The respondent and the Commission agree that a 60-day
suspension from the practice of law is commensurate with the misconduct.
They note several mitigating factors, including the respondent’s
recognition of the wrongfulness of his misconduct, the fact that his
relationship with the decedent was very close, and his 40 years of
unblemished legal practice. In light of consideration of these factors, we
determine that the agreed sanction is appropriate under the facts of this
case.
It is, therefore ordered, that Joe F. Watson is suspended from the
practice of law in this state for a period of sixty (60) days, effective
September 30, 2000. At the conclusion of that period he shall be
automatically reinstated to the practice of law in this state.
The Clerk of this Court is directed to provide notice of this order in
accordance with Admis.Disc.R. 23(3)(d) and to provide the clerk of the
United States Court of Appeals for the Seventh Circuit, the clerk of each
of the United States District Courts in this state, and the clerks of the
United States Bankruptcy Courts in this state with the last known address
of respondent as reflected in the records of the Clerk.
Costs of this proceeding are assessed against the respondent.
-----------------------
[1] The parties agree that “book value” is an accounting term that bears
no necessary relationship to fair market value. They agree that “book
value,” as relevant to this case, is determined by assets at cost less
depreciation. “Fair market value,” they agree, is determined by assets
valued at what a willing buyer would pay a willing seller, or the “open
market value.”