In Re Potts

No. 04-562

IN THE SUPREME COURT OF THE STATE OF MONTANA

2007 MT 81
___________________________________

IN THE MATTER OF STEVEN T. POTTS, ) OPINION
) AND
an Attorney at Law. ) ORDER
___________________________________

¶1 The Commission on Practice of the Supreme Court of the State of Montana (the

Commission) entered its Findings of Fact, Conclusions of Law, and Recommendations

on January 5, 2006, regarding a complaint filed against Steven T. Potts (Potts), an

attorney licensed to practice law in the State of Montana. The Commission concluded

that Potts violated Rules 1.2(d) and 3.3(a)(2) of the Montana Rules of Professional

Conduct (M.R.P.C.) during his representation of heirs in a will contest. We adopt the

Commission’s Findings of Fact and Conclusions of Law. We order Potts to appear

before this Court for public censure.

¶2 Potts presents the following issues for review:

¶3 1. Whether Rule 1.6, M.R.P.C., required Potts to maintain his clients’ confidences

to the exclusion of being candid with opposing counsel and candid with the tribunal.

¶4 2. Whether Potts violated Rule 1.2(d), M.R.P.C.

¶5 3. Whether Potts violated Rule 3.3(a)(2), M.R.P.C.

¶6 4. Whether the Commission improperly excluded Potts’s proposed expert witness

testimony.

¶7 5. Whether the Commission improperly excluded a portion of Potts’s testimony as

inadmissible hearsay.

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¶8 6. Whether the Commission’s proposed sanctions are appropriate.

FACTUAL AND PROCEDURAL BACKGROUND

¶9 This disciplinary action arises from Potts’s representation in a will contest

involving the estate of Ernestine Stukey (Ernestine). Ernestine died March 8, 2001.

Ernestine was survived by her daughter, Evon Leistiko (Evon), her six grandchildren,

including Tyson Leistiko (Tyson), and her niece, Charlene Howard (Charlene).

¶10 Ernestine executed a will on January 14, 1998, disinheriting Evon and bequeathing

most of her estate to Charlene. The will designated Charlene and Ernestine’s friend,

Verna Kessner (Verna), as co-personal representatives of her estate.

¶11 Ernestine’s mental health deteriorated over the next two years, and she was

involuntarily committed to the Montana State Hospital at Warm Springs. Evon

petitioned the Third Judicial District, Deer Lodge County, to become Ernestine’s

conservator. The district court appointed Evon as conservator. The law firm of Church,

Harris, Johnson & Williams, P.C. (Ernestine’s attorneys) represented Ernestine’s interests

throughout the conservatorship proceedings.

¶12 Evon filed an initial inventory (initial inventory) with the district court in the

conservatorship proceedings, reporting Ernestine’s net worth as $1,254,795. The initial

inventory included several accounts with a total worth of approximately $270,000, that

Evon held in joint tenancy ownership with Ernestine or in which Evon was named as a

beneficiary to the accounts (joint tenancy accounts). Ernestine established these joint

tenancy accounts with Evon in 1967 and 1991.

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¶13 As Ernestine’s conservator and guardian, Evon petitioned the court to distribute

gift money totaling $160,000 from Ernestine’s estate to family members. The district

court denied the petition on January 24, 2001, and authorized Ernestine’s attorneys to

investigate Evon’s conduct as conservator. Ernestine’s attorneys petitioned the court to

remove Evon as conservator as a result of the investigation. Ernestine’s attorneys later

filed an action seeking recovery of monetary damages for Evon’s alleged breach of

fiduciary duty and self dealing related to the conservatorship proceedings. Ernestine’s

attorneys alleged that Evon had misappropriated $10,000 of Ernestine’s money and

engaged in other mismanagement of Ernestine’s funds while Ernestine was incapacitated.

¶14 Without notifying the district court or Ernestine’s attorneys, Evon moved

Ernestine to an assisted living facility in the state of Washington. Ernestine purportedly

executed a second will (second will) with assistance of Washington counsel on February

12, 2001, while staying in the Alzheimer’s Unit of the facility. The second will

appointed Evon as personal representative and bequeathed the bulk of the estate to Evon

and Evon’s family.

¶15 Ernestine died on March 8, 2001. A will contest ensued. Ernestine’s attorneys

filed a petition in the Eighth Judicial District, Cascade County, on March 13, 2001, to

probate Ernestine’s 1998 will. Evon filed a competing petition to probate Ernestine’s

second will in Chelan County, Washington, on March 23, 2001.

¶16 Evon also filed a second inventory (second inventory) with her petition to probate

Ernestine’s second will in Chelan County, Washington. This second inventory reported

$1,253,000 as the gross value of Ernestine’s estate. Evon’s report of the estate’s total

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value in the second inventory comported with the total estate value in the initial inventory

that she had filed in the conservatorship proceeding in the Third Judicial District, Deer

Lodge County. It also matched the total estate value that she reported in the final

inventory (final inventory) to the Third Judicial District, filed May 10, 2001, in the

conservatorship proceedings. All three inventories filed by Evon listed all of Ernestine’s

assets and included the joint tenancy accounts. None of the three inventories

distinguished between probate assets and nonprobate assets, such as the joint tenancy

accounts.

¶17 Evon retained Potts to represent her and the six grandchildren, including Tyson, in

the will contest in the Eighth Judicial District, Cascade County. Evon’s attorney in the

conservatorship proceeding provided Potts with Evon’s legal file. These files included

the hearing transcript regarding the unauthorized gifts, the accountings, the inventories,

and the wills.

¶18 Attorney Ward E. Taleff (Taleff) represented Charlene. Attorney Sue Ann Love

(Love) represented the University of Wisconsin, a beneficiary under Ernestine’s 1998

will. Attorney Greg Hatley (Hatley) represented a church holding a charitable interest in

Ernestine’s estate under the 1998 will. Attorneys from Church, Harris, Johnson &

Williams, P.C., represented Ernestine’s estate.

¶19 The parties agreed to mediate all disputes concerning the will contest and Evon’s

alleged misconduct in the conservatorship proceedings. Ernestine’s attorneys filed a

confidential settlement brochure that indicated the parties assumed a total estate value of

$1.2 million, as Evon had reported in the three inventories, as the basis for settlement.

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¶20 Potts attended the settlement conference on November 12 and 13, 2001, with his

clients, Evon and Tyson. At that time, Evon already had claimed a fraction of the joint

tenancy accounts and was working to obtain the rest of the $270,000. Evon never

disclosed this fact at the mediation, even though the other parties apparently assumed that

they were negotiating based on the $1.2 million total estate value that included the joint

tenancy accounts. Potts also remained silent as to whether the settlement included the

joint tenancy accounts.

¶21 The parties reached an agreement during the second day of the mediation. They

drafted a memorandum of understanding (memorandum) before departing the mediation

to memorialize the terms of their settlement. The memorandum purported to resolve both

the will contest and conservatorship dispute. It called for portions of Ernestine’s estate to

go to specific beneficiaries and for fifty percent of the remainder to go to Charlene and

for fifty percent of the remainder to go to Evon and Ernestine’s grandchildren. The

memorandum referred to the division of “the Estate,” but failed to assign a particular

dollar value to the total settlement. The memorandum also made no mention of the three

separate inventories that Evon had filed in the conservatorship and probate proceedings

as representing the value of “the Estate.” The memorandum further stated that the parties

would stipulate to the dismissal of the conservatorship action filed against Evon and the

Washington probate proceeding. Glenn Tremper (Tremper), one of the attorneys

representing Ernestine’s estate from Church, Harris, Johnson & Williams, P.C., signed

the memorandum along with attorneys Taleff, Love, and Potts. Evon, Tyson, Charlene,

and Verna also signed the memorandum.

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¶22 In the week following the settlement conference, Tremper suspected that Evon

was attempting to secure the joint tenancy accounts. Tremper telephoned Potts to discuss

the matter on November 20, 2001. Tremper wrote a letter to Potts on the same day as the

telephone conversation, asking Potts to confirm that the parties had reached the

settlement in the mediation “based upon the good faith assumption that Ernestine’s estate

includes the assets identified by Evon as belonging to Ernestine in her proposed Final

Accounting before Judge Mizner,” in the conservatorship proceeding. The final

accounting of the conservatorship proceeding before Judge Mizner included the joint

tenancy accounts and valued the total estate at $1.2 million. Tremper’s letter requested

that Potts let him know “immediately” if his clients had a different understanding of the

settlement.

¶23 Potts showed Tremper’s letter to his client, Tyson. Potts testified that he advised

Tyson that any questions concerning what assets were included in the estate “will get

cleared up,” but that he would prefer to resolve any such dispute “sooner rather than

later.” Tyson instructed Potts not to respond because he wanted to deal only with a

personal representative to be appointed later by the court. Potts did not answer the letter.

Tremper construed Potts’s silence as confirmation that the parties had based the

settlement on the $1.2 million total estate value that Evon had reported to the courts in

the initial, second, and final inventories.

¶24 One week later, Potts drafted and circulated a stipulation that purported to resolve

“all” disputes regarding the division of Ernestine’s “estate” as stated in the memorandum.

The stipulation called for the appointment of attorney R. William Walsh (Walsh) to serve

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as personal representative of Ernestine’s estate. The stipulation also dismissed the

probate proceedings in Chelan County, Washington, and dismissed the conservatorship

action against Evon in the Third Judicial District, Deer Lodge County. Potts, Taleff,

Hatley, and Love signed the stipulation filed in the Eighth Judicial District, Cascade

County on November 28, 2001. Attorney Dan Shannon of Church, Harris, Johnson &

Williams, P.C., signed the stipulation on behalf of Tremper in representation of Verna

and Charlene.

¶25 A battle soon erupted over the meaning and effect of the stipulation and the

memorandum. Walsh filed a petition in the Eighth Judicial District on September 3,

2002, asking for the court’s direction on distribution of the joint tenancy accounts.

Charlene argued in response that Evon was not entitled to claim the joint tenancy

accounts outside the settlement agreement. The district court held a hearing on February

3, 2003, and determined that Evon had no right to the joint tenancy accounts because the

parties had relied on the $1.2 million total estate value, as she had reported in the final

inventory in the conservatorship proceeding, as the basis of the settlement. We affirmed

the district court’s determination that, although the memorandum was ambiguous, the

parties intended the $1.2 million total estate value, including the joint tenancy accounts,

to be included in the memorandum and the settlement. In Re Estate of Stukey, 2004 MT

279, ¶¶ 75-76, 323 Mont. 241, ¶¶ 75-76, 100 P.3d 114, ¶¶ 75-76. (Stukey I). We later

affirmed the personal representative’s request to distribute the estate according to the

formula set forth in Stukey I. See In Re Estate of Stukey, 2005 MT 349N, 330 Mont. 401,

126 P.3d 507. (Stukey II).

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¶26 The Office of Disciplinary Counsel of the State of Montana (ODC) received a

complaint regarding Potts’s conduct surrounding the settlement. ODC investigated and

filed a formal complaint against Potts on August 19, 2004, alleging that Potts committed

two counts of professional misconduct. The first count alleges that Potts engaged in or

assisted in client fraud, a violation of Rule 1.2(d), M.R.P.C., by following his client’s

instructions not to disclose material information to opposing counsel. The second count

charges that Potts breached the duty of candor to the tribunal, a violation of Rule

3.3(a)(2), M.R.P.C., by failing to disclose material information to the district court

presiding over the contested will action.

¶27 The Commission heard the matter on July 27 and 28, 2005. Tremper testified

before the Commission that “the estate” encompassed the $1.2 million total value of

Ernestine’s estate, as Evon had reported to the courts in the initial, second, and final

inventories. Tremper admitted that he knew Evon had asserted an interest in at least

some of the joint tenancy accounts. He testified that he believed, based on discussions at

the mediation, however, that the settlement included the joint tenancy accounts to satisfy

both the will contest and the claim for damages related to Evon’s alleged mishandling of

funds while Ernestine had been incapacitated. Tremper also testified that Potts assured

him in their telephone conversation shortly after the mediation that the settlement

encompassed the $1.2 million total value of the estate. Potts denied having made the

statement.

¶28 Potts testified that he believed the settlement conference included only probate

assets and not the joint tenancy accounts that Evon held with Ernestine. He further

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testified that he was “confused” by Evon’s conduct regarding the joint tenancy accounts.

Evon contradicted Potts, however, in testimony given at a February 3, 2003, hearing in

the Eighth Judicial District to determine the basis of the settlement as stated in the

memorandum. Evon testified that her lawyer knew, before the November mediation, that

she had planned to obtain the joint tenancy accounts. The Commission admitted Evon’s

previous testimony at the disciplinary hearing. Potts does not contest here the

Commission’s decision to admit Evon’s previous testimony on this point. Potts also

admitted that Tyson had told him as early as four months before the mediation that Evon

planned to obtain jointly held property regardless of the outcome of any settlement.

¶29 The Commission determined that the parties to the mediation had negotiated the

settlement based on the $1.2 million total value of the estate as Evon had reported to the

courts in three separate inventories and two petitions. The Commission found that Potts’s

clients, Evon and Tyson, had informed him well in advance of the mediation that Evon

had intended to take the joint tenancy accounts outside of any settlement agreement. The

Commission further found that Potts failed to answer Tremper’s specific inquiry as to

whether the joint tenancy accounts were included in the settlement. Potts instead had

drafted and circulated the stipulation declaring that all disputes had been settled. The

Commission found that Potts had failed to inform the district court and the other parties

that the value of the settlement remained at issue.

¶30 The Commission concluded that, based on these findings, clear and convincing

evidence supported the conclusion that Potts knew that his clients were using his services

to perpetuate fraud in violation of Rules 1.2(d) and 3.3(a)(2), M.R.P.C., as the rules

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existed in 2001. The Commission concluded that Potts’s clients had negotiated a

settlement based on Ernestine’s $1.2 million estate and then improperly had taken money

outside the settlement agreement. The Commission concluded that Potts had an ethical

obligation to inform his clients that he would not actively or passively assist in their

fraudulent conduct. As a result, the Commission determined that clear and convincing

evidence supported the finding that Potts had failed to fulfill this ethical obligation, a

violation of Rule 1.2(d), M.R.P.C. The Commission also determined that the duty of

candor toward the tribunal under Rule 3.3(a)(2), M.R.P.C., superseded Potts’s duty of

confidentiality under Rule 1.6, M.R.P.C. Finally, the Commission determined that Potts

violated his duty of candor toward the tribunal when he failed to disclose material facts to

the district court. The Commission recommended that Potts be censured publicly, be

suspended from the practice of law for a period of thirty days, and be required to pay the

costs of the disciplinary proceedings. Potts objects.

STANDARD OF REVIEW

¶31 This Court “possesses original and exclusive jurisdiction and responsibility under

Article VII, Section 2(3) of the 1972 Montana Constitution and the provisions of Chapter

61, Title 37, Montana Code Annotated, in addition to its inherent jurisdiction, in all

matters involving admission of persons to practice law in the State of Montana, and the

conduct and disciplining of such persons.” See Introduction, Montana Rules for Lawyer

Disciplinary Enforcement (MRLDE). We created the Commission in 1965 to act under

the aegis of this Court for the purpose of receiving, investigating, and reporting on

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allegations of misconduct of lawyers in the State of Montana. Matter of Goldman, 179

Mont. 526, 529, 588 P.2d 964, 966 (1978).

¶32 As a result, our review of the Commission’s decisions differs from the scope of

review applicable in an appeal of a decision by an agency-selected hearings examiner,

wherein such factual findings are difficult to overturn. Goldstein v. Commission on

Practice, 2000 MT 8, ¶ 30, 297 Mont. 493, ¶ 30, 995 P.2d 923, ¶ 30. Instead, we review

de novo the Commission’s findings of fact, conclusions of law, and recommendations.

Goldstein, ¶ 30. Our duty includes weighing the evidence upon which the Commission’s

findings rest. Goldman, 179 Mont. at 545, 588 P.2d at 974. Even in light of our duty to

weigh the evidence, we remain reluctant to reverse the decision of the Commission when

its findings rest on testimonial evidence. We recognize that the Commission stands in a

better position to evaluate conflicting statements after observing the character of the

witnesses and their statements. Goldman, 179 Mont. at 545, 588 P.2d at 975.

DISCUSSION

¶33 Whether Rule 1.6, M.R.P.C., required Potts to maintain his clients’ confidences to

the exclusion of being candid with opposing counsel and candid with the tribunal.

¶34 Potts argues that Rule 1.6, M.R.P.C., prevented him from disclosing his clients’

allegedly fraudulent conduct to anyone, including the court. Rule 1.6, M.R.P.C.,

prohibits a lawyer from revealing “information relating to representation of a client

unless the client consents after consultation . . . .” Potts contends that his clients never

consented to revealing such information. Potts further points out that Rule 1.6, M.R.P.C.,

sets out a few exceptions to the duty of confidentiality, but provides no exception for

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reporting or disclosing client fraud. Potts contends that the Commission erred by failing

to consider the duty of confidentiality under Rule 1.6, M.R.P.C., in its analysis of Rule

1.2(d), M.R.P.C., in which the Commission concluded that Potts had assisted in client

fraud.

¶35 Rule 3.3(a)(2) sets forth the duty of candor toward the tribunal and prohibits a

lawyer from failing “to disclose a material fact to a tribunal when disclosure is necessary

to avoid assisting a criminal or fraudulent act by the client.” Once Potts made

representations to the court in the signed stipulation, the duty of candor to the tribunal as

stated in Rule 3.3(a)(2), M.R.P.C., trumped any duty of confidentiality that he owed to

his clients. See State Bar of Montana Advisory Ethics Opinion 87-0326. Regardless of

the duty of confidentiality as stated in Rule 1.6, M.R.P.C., Potts had an affirmative duty

to be truthful in his statements to the court as mandated by Rule 3.3(a)(2), M.R.P.C.

¶36 Alternatively, Rule 1.6, M.R.P.C., may have absolved Potts from disclosing any

information relating to the representation of his clients even if they had engaged in

fraudulent conduct. Under Rule 1.6(b)(1), M.R.P.C., a lawyer may disclose information

relating to client representation only if the client consents to a disclosure or to prevent a

client from committing a criminal act that the lawyer believes is likely to result in

imminent death or substantial bodily harm. The rule provides no exception for disclosing

fraudulent conduct of a client to prevent, rectify, or mitigate fraud. Potts could not have

disclosed his clients’ confidences under Rule 1.6, M.R.P.C.

¶37 Rule 1.6, M.R.P.C., does not stand alone, however, and thus our analysis does not

end here. Rule 1.2(d), M.R.P.C., prohibits the lawyer from counseling or assisting a

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client to engage in conduct that the lawyer knows is criminal or fraudulent. Under certain

circumstances, a lawyer’s nondisclosure of a material fact can be taken too far even in

light of the duty of confidentiality. Nondisclosure of client information “can amount to a

misrepresentation in some circumstances and can also have the effect of assisting a

criminal or fraudulent act by a client, thus implicating the lawyer in the client’s

wrongdoing.” ABA Center for Professional Responsibility, A Legislative History of the

Model Rules of Professional Conduct 215 (1999). Under Rule 4.1, M.R.P.C., such

nondisclosures can be revealed only to “a third person when disclosure is necessary to

avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by

Rule 1.6.” (Emphasis added).

¶38 Here, Rule 1.6, M.R.P.C., prevented Potts from disclosing his clients’ information

because his clients had not consented to a disclosure and his clients’ conduct was not

likely to result in imminent death or substantial bodily harm so as to warrant disclosure

outside of their consent. Potts cannot use the duty of confidentiality, however, to shield

himself from other potential misconduct. Potts, while maintaining his duty of

confidentiality, also must comply with the other rules of professional conduct, including

Rule 1.2(d), M.R.P.C., the rule that prohibits a lawyer from assisting a client in fraud.

¶39 Rule 1.16, M.R.P.C., requires a lawyer to withdraw from representing a client if

such representation will result in violation of the rules of professional conduct. Potts

should have withdrawn from representation as soon as his clients’ demands for

nondisclosure of information propelled his services into the realm of assisting in his

clients’ fraudulent behavior. We concede that Rule 1.6, M.R.P.C., prevented Potts from

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disclosing the information against his clients’ wishes. We will not endorse legitimate

nondisclosure under Rule 1.6, M.R.P.C., however, as an excuse for noncompliance with

Rule 1.2(d), M.R.P.C. The Commission, therefore, did not err by failing to consider the

duty of confidentiality in its analysis of whether Potts violated Rule 1.2(d), and assisted

in his clients’ fraudulent conduct.

¶40 Whether Potts violated Rule 1.2(d), M.R.P.C.

¶41 Rule 1.2(d), M.R.P.C., prohibits a lawyer from counseling “a client to engage, or

assist a client, in conduct that the lawyer knows is criminal or fraudulent . . . .” Potts

argues first that his clients did not commit any underlying fraud so he cannot be accused

of having assisted in fraudulent conduct. Second, Potts contends that the memorandum

was ambiguous, as determined by our decision in Stukey I, ¶ 75, and thus cannot serve as

a basis for determining fraud. Potts next suggests that he did not know at the time of the

events that his clients’ conduct was fraudulent. Finally, Potts asserts that his failure to

apprise the other parties of relevant information falls outside the definition of fraud.

¶42 Potts argues that the Commission’s finding that his clients engaged in fraud rests

on the erroneous conclusion that the joint tenancy accounts were included in Ernestine’s

estate. Potts contends that his clients, Evon and Tyson, never engaged in fraudulent

conduct because the joint tenancy accounts passed as a matter of law to Evon upon

Ernestine’s death and as a result could not have been included as a part of the settlement

basis.

¶43 The 2001 M.R.P.C. fails to provide a specific definition of “fraud” or

“fraudulent.” The allegedly fraudulent conduct in this case surrounds Evon’s

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representations of the basis of the settlement value. Settlement agreements are contracts

and subject to the provisions of contract law. Dambrowski v. Champion Intern. Corp.,

2003 MT 233, ¶ 9, 317 Mont. 218, ¶ 9, 76 P.3d 1080, ¶ 9. Under contract principles, a

party’s conduct rises to the level of actual fraud when he acts with the intent to deceive

another to induce him to enter into the contract. See § 28-2-405, MCA.

¶44 A party commits actual fraud by making a “suggestion as a fact that which is not

true by one who does not believe it to be true.” Section 28-2-405, MCA. Actual fraud

also occurs when a party suppresses “that which is true by one having knowledge or

belief of the fact,” or by making a promise without any intention of performing it, or

through “any other act fitted to deceive.” Section 28-2-405, MCA. Conduct constituting

constructive fraud consists of “any breach of duty, which, without an actually fraudulent

intent, gains an advantage to the person in fault or anyone claiming under him by

misleading another to his prejudice . . . .” Section 28-2-406, MCA.

¶45 Potts’s clients refused to waive confidential mediation communications, thus we

do not have the privilege of reviewing Potts’s version of what happened in mediation.

We are convinced by testimony of others and evidence presented at the disciplinary

hearing before the Commission that Potts’s clients, Evon and Tyson, engaged in

fraudulent conduct during their procurement of the settlement agreement.

¶46 The evidence shows that Evon represented in three inventories to the courts that

$1.2 million constituted the total value of Ernestine’s estate. These inventories made no

distinction between probate and nonprobate assets, such as the joint tenancy accounts.

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By the time the parties met for mediation, Evon had taken a fraction of the joint tenancy

accounts from the $1.2 million estate and was working to secure the rest.

¶47 By all accounts in the record, Evon never disclosed to the other parties at the

mediation her intent to take part of the $1.2 million estate. Evon suggested as fact, or at

the very least by her silence perpetuated, the untrue statement that the settlement basis

constituted the full $1.2 million value of the estate. Evon knew, however, at the time of

the mediation that the $1.2 million value did not represent an accurate settlement basis

because she already had taken a fraction of that money and had intended to secure several

hundred thousand dollars in the days after the mediation. Evon’s misrepresentation of the

value of the estate fraudulently induced the other parties to enter into the settlement

agreement. The settlement agreement benefited Evon in that it included a stipulation to

dismiss the conservatorship action against her and the potential liability associated with

it.

¶48 Tyson also engaged in fraud by suppressing the truth that the settlement value

could not have included the full $1.2 million. Potts testified that Tyson informed him

months before the mediation that Evon had intended to take the joint tenancy accounts

from the estate. After mediation, Tremper informed Potts and his clients, including

Tyson, that Evon’s final inventory comprised the basis of the settlement. Tremper

requested that Potts notify him immediately if there had been a different understanding of

the settlement. Tyson instructed Potts not to respond. Tyson’s suppression of this

relevant fact caused Tremper to believe that the settlement basis included the joint

tenancy accounts.

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¶49 We now turn to Potts’s argument that we deemed the memorandum to be

ambiguous in Stukey I, ¶ 75, thus it cannot serve as a basis for finding fraud. We

concluded that the term “remainder,” as stated in the memorandum, was ambiguous and

capable of two meanings in that it may or may not have included the joint tenancy

accounts in the estate value. Stukey I, ¶ 75. We also determined, however, that the “bulk

of the evidence” showed that the negotiating parties had relied on Evon’s final inventory,

making no distinction between probate and nonprobate assets, for the basis of the

settlement value. Stukey I, ¶ 76.

¶50 We recognize that the memorandum emerged after two long days of negotiations

and the weariness of the parties likely contributed to its somewhat skeletal outline.

Nonetheless the parties allowed material ambiguities to remain in the memorandum. The

memorandum refers to the division of “the Estate,” but makes no mention of the

particular dollar value of “the Estate.” Tremper testified that he believed that “the

Estate” and the settlement basis included both probate and nonprobate assets to satisfy

the will contest and damages sought for Evon’s alleged breach of fiduciary duties in

relation to the conservatorship proceedings. The memorandum hints at Tremper’s belief

by dismissing both the will contest and conservatorship dispute, but fails to state the

inclusion of the joint tenancy accounts. These significant ambiguities lead us to agree

with Potts that the memorandum cannot provide the sole basis for finding that Potts

violated Rules 1.2(d) and 3.3(a)(2), M.R.P.C.

¶51 The memorandum constitutes only a first step, however, as most of Potts’s alleged

misconduct occurred after the parties had executed the memorandum. Tremper first

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brought the memorandum’s ambiguity to light in his telephone conversation with Potts.

Tremper immediately followed up with a letter to Potts on November 20, 2001, asking

for confirmation that the settlement amount included the $1.2 million total value relied on

by the parties.

¶52 Potts’s client, Tyson, could have been forthcoming with the truth—that Evon

already had claimed part of the funds from the joint tenancy accounts and soon would

grab the rest. Instead, Tyson, with the help of Potts’s services as a lawyer, encouraged

the ambiguity by failing to respond to Tremper’s inquiry. Potts maintains he had no duty

to correct opposing counsel’s error. We disagree.

¶53 Rule 4.1, M.R.P.C., prohibits Potts from knowingly making a false statement of

fact to a third party. Comment 1, Rule 4.1, ABA Model R. Prof. Conduct, provides that a

lawyer, while having no affirmative duty to inform an opposing party of relevant facts,

must be truthful when dealing with others on a client’s behalf. Comment 1 also warns

that “a misrepresentation can occur if the lawyer incorporates or affirms a statement of

another person that the lawyer knows is false . . . or by omissions that are the equivalent

of affirmative false statements.” Statements of price estimates or value during

negotiations are not considered material facts requiring disclosure unless nondisclosure

would otherwise constitute fraud. See Comment 2, Rule 4.1, ABA Model R. Prof.

Conduct.

¶54 In light of the guidance provided by the comments to the ABA Model Rules, we

find the holding in State ex rel. Neb. State Bar v. Addison, 412 N.W.2d 855 (Neb. 1987),

persuasive in this matter. In Addison, the Nebraska Supreme Court determined that a

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lawyer engaged or assisted in fraud and knowingly made a false statement of fact when

he negotiated a release of a hospital’s lien based on the hospital’s mistaken belief that

two insurance policies were in place instead of three. Addison, 412 N.W.2d at 856. The

Addison court suspended the lawyer from practice for the period of six months based on

the referee’s findings that the lawyer’s omission in failing to correct the hospital’s false

impression constituted a violation of the tenets of professional conduct. Addison, 412

N.W.2d at 856.

¶55 Similarly, Potts knew that the parties held different understandings as to the

settlement basis and he failed to correct the mistake. Tremper’s letter raised the question

of whether $1.2 million represented the total value of the estate. The letter specifically

requested Potts to respond if his clients had a different understanding as to the basis of

the settlement. Tyson instructed Potts not to respond even though Tyson had told Potts

months before that Evon intended to take the joint tenancy accounts outside of any

settlement. Potts’s testimony that he advised Tyson that the problem would have to be

“cleared up” at some point shows that he knew the settlement basis was at issue. Potts’s

omission constituted a misrepresentation that assisted in his clients’ fraudulent purpose of

taking the joint tenancy accounts outside of the settlement agreement, a violation of Rule

1.2(d), M.R.P.C. Potts could have avoided this situation by withdrawing from

representation under Rule 1.16, M.R.P.C.

¶56 Potts next argues that he did not know at the time of the events in question that his

clients’ conduct was fraudulent, and, therefore, he cannot be accused of violating Rule

1.2(d), M.R.P.C. Evon testified at a February 3, 2003, hearing that her lawyer knew

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before the mediation that she would claim the joint tenancy accounts outside of any

settlement agreement. The Commission admitted Evon’s testimony on this point at the

disciplinary proceedings, and Potts does not raise the issue on appeal.

¶57 Neither Potts nor his clients, Evon and Tyson, disclosed Evon’s plans concerning

the joint tenancy accounts at the November mediation. They offered no correction to the

parties who had negotiated the settlement based on the $1.2 million total estate value that

Evon had reported to the court in her final inventory in the conservatorship proceedings.

Evon already had claimed a small portion of the money from the joint tenancy accounts

by that time and was working on obtaining the remainder of the $270,000 in the week

following the settlement. The evidence supports the Commission’s finding that Potts

knew of Evon’s fraudulent conduct in misrepresenting to the other parties and the court

her intent to secure the joint tenancy accounts outside the settlement.

¶58 Finally, Potts argues that his conduct did not constitute fraud under the definition

provided in the April 1, 2004, amendments to the M.R.P.C. We note first that the ODC

never accused Potts of fraud. The ODC accused Potts of assisting his clients in engaging

in fraudulent conduct. Second, we note that the M.R.P.C., as they existed in 2001, at the

time of the conduct in question, provided no definition of fraud or fraudulent conduct.

As stated in ¶¶ 47-48, we conclude, however, that Potts’s clients, Evon and Tyson,

knowingly misrepresented the truth in order to prompt the other parties to the settlement

to act to their detriment. In particular, Tyson directed Potts not to respond to Tremper’s

letter that had asked for confirmation on the settlement amount. Potts did more than

acquiesce to his client’s demands of silence in the face of Tremper’s inquiries. Potts

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assisted in his clients’ fraud by drafting, circulating, and filing with the court a

stipulation, stating that all disputes had been settled, when he knew that the other parties

had relied on Evon’s misrepresentation of the settlement basis in reaching the agreement.

We agree with the Commission’s conclusion that Potts violated Rule 1.2(d), M.R.P.C.

¶59 Whether Potts violated Rule 3.3(a)(2), M.R.P.C.

¶60 Potts argues that he could not have violated Rule 3.3(a)(2), M.R.P.C., because his

clients were not engaging in continuing fraudulent acts and Potts was not assisting in

such fraudulent acts. Potts further argues that he did not know at the time that his clients’

conduct was fraudulent.

¶61 Rule 3.3(a)(2), M.R.P.C., sets forth the duty of candor toward the tribunal and

prohibits a lawyer from knowingly failing “to disclose a material fact to a tribunal when

disclosure is necessary to avoid assisting a criminal or fraudulent act by the client.” As

stated in ¶¶ 47-48, Potts’s clients engaged in fraudulent conduct that intended to deceive

the other parties as to the scope of the settlement. Potts assisted in their deception.

¶62 Potts also violated the duty of candor toward the tribunal when he failed to

disclose to the court the material fact that, contrary to what the parties believed, Evon

planned on taking the joint tenancy accounts. Tremper’s letter notified Potts that the

settlement basis was at issue. Potts acknowledged the fact that the value of the settlement

would have to be cleared up “sooner or later.” At his client’s request, Potts said nothing

to Tremper about the potential misunderstanding. Knowing that this ambiguity existed in

the memorandum, Potts nevertheless proceeded to misrepresent in the signed stipulation

to the court that “all” disputes had been settled, when in fact they were just beginning to

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brew under the surface. The stipulation caused the parties to forge ahead with the

settlement, even though Potts and his clients knew that no agreement had been reached

on the settlement amount.

¶63 Tremper’s letter put Potts on notice that the parties were relying on Evon’s $1.2

million final inventory as the value of the settlement when they signed the stipulation

drafted by Potts and filed it with the district court. Potts did not report to the district

court in the stipulation that Evon had taken some, and planned to take the rest, of the joint

tenancy accounts outside the $1.2 million settlement. Potts had a duty of truthfulness in

filing or representing any matter to the court. Potts’s failure to do so violated Rule

3.3(a)(2), M.R.P.C.

¶64 Whether the Commission improperly excluded Potts’s proposed expert witness

testimony.

¶65 Potts argues that he should have been allowed to present expert witness testimony

at his disciplinary hearing on the interplay between the duty of confidentiality and the

duty of candor as stated in the M.R.P.C. The Montana Rules of Evidence apply to formal

disciplinary proceedings before the Commission. Rule 12(C)(2), MRLDE. Under Rule

702, M. R. Evid., a party may offer expert testimony to assist the trier of fact in

understanding the evidence or determining a fact in issue. Expert opinions that state a

legal conclusion or apply the law to the facts are inadmissible. Perdue v. Gagnon Farms,

Inc., 2003 MT 47, ¶ 28, 314 Mont. 303, ¶ 28, 65 P.3d 570, ¶ 28. Potts disclosed to the

Commission that the expert witness would opine that Potts did not violate the Rules of

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Professional Conduct. The Commission properly excluded Potts’s expert testimony as

improperly offering an opinion on a legal question. Perdue, ¶ 28.

¶66 Whether the Commission improperly excluded a portion of Potts’s testimony as

inadmissible hearsay.

¶67 Potts argues that the Commission improperly excluded as hearsay his testimony

regarding what Tremper had told him concerning the joint tenancy accounts. Potts

testified that Tremper stated, three days before the parties signed the stipulation, that

Tremper was “going after” the joint tenancy accounts if the case did not settle

immediately. The Commission struck this statement from Potts’s testimony on grounds

that it constituted inadmissible hearsay. Potts argues that the statement does not qualify

as hearsay because he did not offer the comment to prove the truth of the matter

asserted—that Tremper would go after the joint tenancy accounts. He contends that he

offered the statement instead to show Tremper’s knowledge that the joint tenancy

accounts existed and that the parties intended to exclude the accounts from the settlement.

¶68 Hearsay is “a statement, other than the one made by the declarant while testifying

at the trial or hearing, offered in evidence to prove the truth of the matter asserted.” Rule

801(c), M. R. Evid. Hearsay is inadmissible unless the Montana Rules of Evidence

provide an exception. Rule 802, M. R. Evid. A statement offered to show the effect on

the witness, but not for the truth of the matter asserted, falls outside of the definition of

hearsay. Vincelette v. Metropolitan Life Ins., Co., 1998 MT 259, ¶ 19, 291 Mont. 261, ¶

19, 968 P.2d 275, ¶ 19.

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¶69 Potts appears to have offered the statement to demonstrate Tremper’s alleged

knowledge that the parties had intended to exclude the joint tenancy accounts from the

settlement, and not for the truth of the matter asserted that Tremper would go after the

joint tenancy accounts. Potts offered Tremper’s statement to explain its effect on him,

showing why he believed the joint tenancy accounts were separate from the settlement.

For that reason, we conclude that the statement falls outside the definition of hearsay and

that the Commission should have allowed it in evidence at Potts’s disciplinary hearing.

Vincelette, ¶ 19.

¶70 We also conclude, however, that improperly excluding the statement does not

warrant reversal of the Commission’s decision. An error must cause substantial prejudice

to warrant reversal. See In re A.J.E., 2006 MT 41, ¶ 28, 331 Mont. 198, ¶ 28, 130 P.3d

612, ¶ 28. The Commission’s error in excluding the statement did not substantially

prejudice Potts.

¶71 Tremper admitted on direct examination that he knew the joint tenancy accounts

existed, but he believed them to be included in the settlement to satisfy Evon’s alleged

self dealing in the conservatorship proceedings. Tremper stated this belief in a letter to

Potts dated November 20, 2001, that the Commission admitted into evidence at Potts’s

disciplinary hearing. Potts admitted that he did not respond to the letter. The

nonresponse reasonably caused Tremper to believe that the parties intended to include the

joint tenancy accounts in the settlement.

¶72 Tremper’s knowledge of the joint tenancy accounts before the settlement

conference does not change the fact that Potts later made a false representation to the

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court in the stipulation. The stipulation wrongfully reported to the court that the parties

had resolved all of the disputes surrounding the will contest and conservatorship.

Tremper’s letter informed Potts as to Tremper’s belief that the settlement included the

joint tenancy accounts. Potts ignored Tremper’s inquiry. He proceeded to represent

falsely in the stipulation to the court that the parties had resolved all the disputes

surrounding the will contest and conservatorship.

¶73 Whether the Commission’s proposed sanctions are appropriate.

¶74 Potts urges the Court to consider the mitigating factors as stated in the 1991

American Bar Association Standards for Imposing Lawyer Sanctions when determining

the appropriateness of his discipline. Under ABA § 9.32, mitigating factors include: 1)

the absence of prior discipline; 2) absence of a dishonest or selfish motive; 3) full and

free disclosure and cooperative attitude toward the proceedings; and 4) character and

reputation.

¶75 Potts contends that he has satisfied all the mitigating factors, including

maintaining good character and reputation as an attorney since becoming a member of

the State Bar of Montana in 1986. He argues that this factor renders a public censure

unwarranted. The Commission responds that Potts’s transgression includes aggravating

factors, such as dishonesty, that warrant the imposition of a 30-day suspension from the

practice of law or even harsher discipline.

¶76 We consider the following factors in determining the appropriate discipline for

lawyer misconduct: 1) the duty violated; 2) the lawyer’s mental state; 3) the actual or

potential injury caused by the lawyer’s misconduct; and 4) the existence of aggravating

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or mitigating factors. Rule 9(B), MRLDE. We conclude that public censure is

appropriate in light of Potts’s misconduct in this matter and other mitigating

circumstances.

¶77 The evidence clearly demonstrates that Potts assisted his clients in their fraudulent

conduct by misrepresenting the scope of the settlement to the other parties, a violation of

Rule 1.2(d), M.R.P.C. The evidence also supports the conclusion that Potts

misrepresented to the district court that all disputes had been settled when in fact he knew

that the settlement agreement lacked the requisite meeting of the minds to be enforceable,

a violation of Rule 3.3(a)(2), M.R.P.C. Potts’s misconduct resulted in considerable injury

to the parties, requiring one district court proceeding and two appeals to this Court to

determine the meaning and scope of the memorandum and stipulation.

¶78 The first sentence of the preamble to the M.R.P.C. (2005) states that a lawyer must

“pursue the truth.” The duties of candor toward the tribunal under Rule 3.3(a), M.R.P.C.,

and the prohibition against assisting in a client’s fraudulent conduct under Rule 1.2(d),

M.R.P.C., guide the lawyer in this quest for truth. In breaching this fundamental tenet,

Potts shunned his most basic responsibility owed to the profession.

¶79 This level of misconduct ordinarily would draw punishment in the form of

suspension from the practice of law or disbarment. Mitigating factors warrant a lighter

penalty in this case. First, the evidence shows that the parties entered into a vague

settlement agreement that failed to define the basis and scope of the agreement. Potts

certainly took advantage of this rushed agreement for his clients’ benefit and against the

duty of truthfulness incumbent upon a lawyer. Potts should not carry all the blame,

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however, for the extra litigation resulting from the vague agreement. Though we do not

condone Potts’s conduct in this matter, we recognize that the other parties could have

resolved the question of the basis and scope of the settlement by specifically assigning a

dollar amount to the estate value in the memorandum. Next, Potts benefits from the fact

that the district court limited the actual damage caused by his misconduct. The district

court determined that Potts’s clients, Evon, had no right to the joint tenancy accounts in

light of the parties’ reliance on the $1.2 million total estate value. As a result, the actual

damages occasioned by Potts’s misconduct take the form of increased litigation costs

rather than the hundreds of thousands of dollars of which the parties to the settlement

agreement would have been deprived. Finally, the absence of any prior discipline against

Potts and his character and good reputation to this point militate in his favor.

¶80 In light of these mitigating factors, especially Potts’s history of compliance with

the rules of professional conduct and his character and good reputation to this point, we

determine that the Commission’s recommendation to suspend Potts from practice is

unwarranted. We conclude that a public censure will apprise Potts sufficiently of the

gravity of his misconduct under the given circumstances. Moreover, a public censure

will alert the public that the Court will not tolerate such misconduct from a lawyer. We

also order Potts to pay the costs of the disciplinary proceedings before the Commission.

ORDER

THEREFORE IT IS ORDERED:

¶81 1. Steven T. Potts is ordered to appear before the Supreme Court of the State of

Montana on May 2, 2007, at 1:30 p.m., for the administration of a public censure;

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¶82 2. Steven T. Potts shall pay, or make arrangements to pay, the costs of the

proceedings before the Commission. Pursuant to Rule 9(A)(8), MRLDE, Disciplinary

Counsel is directed to assemble and serve upon Steven T. Potts an itemized list of the

costs and expenses incurred in this matter. Steven T. Potts shall then have 10 days

thereafter to file written objections and, if he desires, to request a hearing before an

Adjudicatory Panel;

¶83 3. It is further ordered that Potts’s Motion to Strike Portions of ODC’s Brief, filed

with this Court on August 10, 2006, is denied;

¶84 4. The Clerk of this Court is directed to mail copies of this Order to Steven T.

Potts by certified mail, return receipt requested, and by ordinary mail to Steven T. Potts’s

attorney, the Chairman and the Secretary of the Commission on Practice, the Clerk of the

Federal District Court for the District of Montana, the Clerk of the Circuit Court of

Appeals of the Ninth Circuit, the Office of Disciplinary Counsel, the Executive Director

of the State Bar of Montana, and by electronic transmission to all Clerks of the District

Courts of the State of Montana and to all District Judges.

DATED this 22nd day of March 2007.

/S/ BRIAN MORRIS
/S/ JOHN WARNER

/S/ JEFFREY M. SHERLOCK
District Court Judge Jeffrey M. Sherlock sitting
for Justice W. William Leaphart

/S/KURT KRUEGER
District Court Judge Kurt Krueger sitting for
Justice James C. Nelson

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Justice Jim Rice concurs in part and dissents in part.

¶85 I concur with the Court’s resolution of the issues related to the professional

conduct rule violations and the evidentiary questions raised herein. I dissent, however,

from the Court’s determination to revise the sanction recommended by the Commission

on Practice.

¶86 The Court’s opinion establishes that Potts should have withdrawn from

representation as soon as his clients’ demands “propelled his services into the realm of

assisting in his clients’ fraudulent behavior.” However, he did not withdraw, thereby

violating Rule 1.16, M.R.P.C. Further, he proceeded to violate Rule 1.2, M.R.P.C., by

making misrepresentations “that assisted in his clients’ fraudulent purpose.”

Recognizing that “Potts did more than acquiesce to his clients’ demands of silence,” the

Court holds that “Potts assisted in his clients’ fraud by drafting, circulating, and filing

with the court a stipulation[] stating that all disputes had been settled” when he knew

otherwise. The Court concludes by holding that Potts violated Rule 3.3, M.R.P.C., by

violating the duty of candor to the tribunal before which he had appeared.

¶87 The Office of Disciplinary Counsel has argued that this serious matter warrants a

more severe sanction than recommended by the Commission, but that the recommended

discipline is “appropriate as a minimum” necessary to “justify the public’s faith in the

concept that lawyers must always pursue the truth.”

¶88 After hearing the evidence in this complex proceeding, assessing the credibility of

the parties, and drawing on its experience in the handling of many disciplinary matters,

the Commission recommended the imposition of a thirty-day suspension, in addition to a

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public censure and payment of costs. I cannot concur with the Court’s conclusion that a

thirty-day suspension is “unwarranted” under the facts of this case, and I would adopt the

Commission’s recommendation.

/S/ JIM RICE

We join in the concurring and dissenting opinion of Justice Rice.

/S/ JOHN C. McKEON
Honorable John C. McKeon, District
Judge, sitting in place of Chief Justice
Karla M. Gray

/S/ HOLLY BROWN
Honorable Holly Brown, District Judge,
sitting in place of Justice Patricia Cotter

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