(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
Argued June 20, 1995 -- Reargued September 24, 1996 -- Decided November 15, 1996
PER CURIAM
This is an attorney disciplinary case. The Disciplinary Review Board (DRB) issued a Decision
recommending that F. William LaVigne be disbarred for his unethical conduct in connection with a series of
related real estate transactions. The subject transaction involved the sale of a client's farm to respondent in
exchange for cash and for two lots upon which homes would be built for the client's sons. Although the
concept is simple, its implementation was complex.
In 1986, Robert DuPont, Sr. (DuPont, Sr.) acquired the Kayhart Farm, a twelve-acre property in
Andover Township contiguous to the quarry of a sand and gravel company owned by respondent, F. William
LaVigne. At some point thereafter, DuPont, Sr. decided to subdivide the Kayhart Farm to build two
separate dwellings on the subdivided lots for the benefit of his two sons and their families. When respondent
learned of the plan to subdivide, he approached the DuPont family with a proposal to acquire it. Prior
thereto, respondent had represented DuPont, Sr. in some business matters and was a social acquaintance of
the family.
Negotiations resulted in an agreement under which respondent would purchase the Kayhart Farm
for $175,000 plus two residential lots in Andover Township respondent owned, 6.01 and 6.02, worth $230,000,
to be deeded without cost to DuPont, Sr.'s two sons, James and Robert, Jr. The cash payment by
respondent to DuPont, Sr. was to be held in trust by respondent for the benefit of James and Robert, Jr.
The two sons were to then purchase homes to be built on the subject lots by Cranberry Builders, Inc.
(Cranberry), a construction company owned by Doug Ferry (Ferry) , who was a long-time friend and client
of respondent. The transactions were documented by three contracts, all bearing the same date and all
prepared by respondent.
Respondent was required to transfer lots 6.0l and 6.02 to Cranberry, which would then credit the
value of the lots to the DuPont sons in the house construction transactions. However, both lots were
subject to a $300,000 blanket mortgage held by Sussex County State Bank (Sussex), which required collateral
in the amount of $100,000 to release the two lots from the mortgage. In order to transfer the lots to
Cranberry free and clear, respondent conveyed to Cranberry three lots, lot 6.0l, lot 6.02 and lot 5. In return
Cranberry issued a note to respondent for $l00,000 secured by a mortgage on lot 6.02. Respondent then
assigned that mortgage to Sussex in return for the release of lots 6.0l , 6.02 and 5 from its blanket mortgage.
To finance construction of the two homes, Cranberry borrowed $200,000 for each house from Kenvil
Mortgage Company (Kenvil) and secured the loans by mortgages on both lots 6.0l and 6.02. Thereafter,
closing was held first on lot 6.02, which was then encumbered by a $200,000 mortgage in favor of Kenvil and
a $l00,000 mortgage in favor of Sussex. The closing proceeds were insufficient to satisfy the mortgages.
Therefore, Ferry informed respondent that he had reached an agreement with Kenvil to accept $100,000 in
exchange for releasing entirely its mortgage on lot 6.02. In return, Ferry would mortgage additional
Cranberry property to secure the $100,000 balance due Kenvil. Respondent relied on Ferry's representation
without obtaining confirmation from Kenvil.
From the closing proceeds, $100,000 was used to satisfy the Sussex mortgage and $100,00 was used
to reduce the outstanding balance on the Kenvil loan. Assuming that satisfaction of the full Kenvil mortgage
would be received, respondent completed the closing and prepared a RESPA statement that reflected the
pay-off of only a $l00,000 loan from Kenvil. Respondent further certified to National Community Bank
(NCB) , the purchase money lender for James DuPont, that it held a valid first mortgage lien on lot 6.02.
Despite its agreement, Kenvil failed to release its lien on lot 6.02.
Prior to the scheduled closing on lot 6.0l, Kenvil provided respondent with a payoff statement
showing a balance due on both lots 6.0l and 6.02, despite its credit for the $l00,000 paid at the prior closing
on lot 6.02. Ferry had previously informed respondent that Kenvil had firmly agreed to discharge its
mortgages on both lots if, at the forthcoming closing, Cranberry would pay off the balance of the loan on lot
6.02, as well as the interest due Kenvil on other Cranberry mortgage loans. In exchange, Cranberry would
provide additional collateral to secure its unpaid indebtedness to Kenvil. Again, respondent failed to obtain
written confirmation of that understanding.
At the subsequent closing on lot 6.0l, the bulk of the closing proceeds were used to pay off the
balance due on lot 6.02, reflecting Ferry's new arrangement with Kenvil. Thus, the closing proceeds from
lot 6.0l were used to pay off the Kenvil mortgage and interest on lot 6.02, to pay interest due Kenvil on
other Cranberry properties (including interest due on lot 6.0l, the subject of the closing) , to pay Cranberry
$l0,000 and to pay miscellaneous small expenses. Respondent expected to receive discharges of the Kenvil
mortgages on both lots 6.0l and 6.02. Although Kenvil reflected on its books that the loan secured by the
mortgage on lot 6.02 had been paid in full, it refused to discharge either mortgage.
After the closing, respondent failed to inform either of the two DuPont brothers of the problems
that had developed. In addition, respondent certified to NCB, the purchase money lender for lot 6.0l as well,
that the lot was unencumbered except for its purchase money mortgage.
At a subsequent meeting among respondent, Ferry, Kenvil representatives and its attorney, Kenvil
insisted on additional collateral as a condition for releasing its liens. Respondent, therefore, executed a
mortgage to Cranberry on property owned by Good Earth, respondent's company, to increase the value of
Cranberry's collateral. Cranberry then executed a blanket mortgage to Kenvil covering all its land as
collateral for a sizeable note. Kenvil still refused to release its liens, insisting on the payment of additional
cash.
Respondent and Ferry then collectively borrowed over $200,000 to meet Kenvil's demands. Kenvil
applied the $200,000 payment instead to other properties covered by Cranberry's blanket mortgage and
continued to refuse to release its liens.
Kenvil subsequently instituted a foreclosure action in the Chancery Division seeking to foreclose its
mortgage on lot 6.0l. The Chancery Division found that Kenvil had acted unilaterally and self-servingly when
it applied the $200,000 payment to other loans, instead of to the mortgage on lot 6.0l. The Chancery
Division further found that respondent intended over $430,934 to be applied towards the loans on both lots
and that Kenvil could not deny its agreement and its obligation to discharge both mortgages. The Chancery
Division entered an order awarding the DuPonts punitive damages against both Kenvil and respondent and
discharging the Kenvil mortgages on both lots.
Both the Special Ethics Master and DRB concluded that respondent had committed numerous
violations of the Rules of Professional Conduct, including a conflict of interest, misrepresentation and
knowing misappropriation. Specifically, the DRB found respondent guilty of knowing misappropriation as to
the disposition of the funds of both of the DuPont brothers by a variety of actions.
The Supreme Court issued an Order to Show Cause why F. William LaVigne should not be
disbarred or otherwise disciplined.
HELD: Respondent's commission of multiple ethics offenses, which included engaging in an impermissible
conflict of interest in violation of RPC l.7(b) and (c) and RPC 1.8, failing to safeguard client funds and to
deliver those funds to third persons entitled to receive them in violation of RPC l.l5(a) and (b) and engaging
in a pattern of deceit and dishonesty in violation of RPC 8.4(c), warrant the imposition of a three-year
suspension from the practice of law. Respondent shall also arrange to satisfy the judgment for punitive
damages in favor of his clients.
1. The multiple and conflicting representation that respondent undertook in the course of the land swap
sealed his fate. Because consent to the multiple representation was not obtained, there is no need to
determine whether this constituted a “complex real estate transaction” in which an attorney is barred from
representing both buyer and seller even with their consent, pursuant to Baldasarre v. Butler,
132 N.J. 278
(1993). (pp. 11-12)
2. Respondent's transfer of the subject lots did not constitute a misappropriation of client funds, as transfer
was necessary to effectuate the planned land exchange. (p. 17)
3. The use of James' funds (lot 6.02) to pay only part of the Kenvil mortgage and the use of Robert's funds
(lot 6.01) to satisfy James' liens does not constitute a knowing misappropriation of client funds. Were it not
that respondent appeared to regard the separate James and Robert transactions as part of a single unified
deal, respondent's actions would amount to knowing misappropriation that, under In re Wilson, 8l N.J. 45l
(l979), would warrant disbarment. Had respondent properly secured Kenvil's compliance with its
arrangement with Ferry, there would have been no misuse of client funds. Thus, malpractice rather than
misappropriation is at the root of this record. (pp. 17-22)
4. Kenvil's dishonesty, even more than respondent's incompetence, was the primary cause of the DuPont's
difficulties. (p.21)
5. Cases in which lawyers have been disbarred for conduct other than knowing misappropriation have
involved misconduct more venal than that displayed by respondent. (pp.22-24)
6. Respondent's numerous misrepresentation to clients, banks and title companies warrant severe discipline.
“Candor and honesty are a lawyer's stock and trade. Truth is not a matter of convenience.. Absolute
candor coupled with an absolute duty to disclose, no matter how painful, is required.” (pp. 24-26)
7. Although respondent acted with a clear self interest and profited personally from the deal, he derived no
unfair advantage from the transactions. (p. 26)
8. This case stands as a stark reminder to the bar that an attorney may only use client funds for purposes
authorized by the client. But for the inter-relationship between these transactions that rendered the use of
the separate funds as disposition for each client's mutual purposes, respondent would be subject to
disbarment. (p.26)
CHIEF JUSTICE PORITZ and JUSTICES POLLOCK, O'HERN, GARIBALDI, STEIN and
COLEMAN join in the Court's opinion. JUSTICE HANDLER did not participate.
SUPREME COURT OF NEW JERSEY
D-
1 September Term 1996
IN THE MATTER OF
F. WILLIAM LA VIGNE,
An Attorney at Law.
Argued June 20, 1995 -- Reargued September 24, 1996 -- Decided November 15, 1996
On an Order to show cause why respondent
should not be disbarred or otherwise
disciplined.
John J. Janasie, First Assistant Ethics
Counsel, argued the cause on behalf of Office
of Attorney Ethics.
S.M. Chris Franzblau argued the cause for
respondent (Franzblau Dratch, attorneys).
PER CURIAM
This matter arises from a Report and Recommendation of the
Disciplinary Review Board (DRB) that F. William LaVigne
(respondent) be disbarred for his unethical conduct in connection
with a series of related real estate transactions. This case
illustrates the pitfalls that arise when a lawyer does not
carefully observe the lines that distinguish the relationships of
friend, business associate, and client. Specifically, this case
illustrates how closely a lawyer may come to disbarment if the
lawyer does not secure and follow explicit instructions from a
client concerning the use of a client's funds. The transaction
involved the sale of a client's farm to respondent in exchange
for cash and for two building lots upon which homes would be
built for the client's sons. The concept is simple but its
implementation was complex. The Office of Attorney Ethics
provides a summary of the transaction.
The Kayhart Farm is a twelve-acre property contiguous to the quarry of a sand and gravel company owned by respondent on Lenape Road in Andover Township, New Jersey. Robert DuPont, Sr. (DuPont, Sr.) acquired the Kayhart Farm from Mrs. Charlotte Kayhart in 1986. DuPont, Sr. bought the property for the use of his two sons, James and Robert, Jr., who occupied the two-family house on the farm. Over time, the sons' families grew, and they wanted homes of their own. The DuPonts explored the possibility of subdividing the Kayhart Farm and building separate dwellings on the subdivided lots.
Respondent had represented DuPont, Sr. in some business matters and was a social acquaintance of the family. When he learned of the plans to subdivide the Kayhart Farm, he approached the DuPont family with a proposal to acquire it. Ownership of
the farm was desirable because it would provide respondent with
additional land for his quarry. Respondent owned other
residential parcels in Andover on which new homes were being
built by Cranberry Builders, Inc. (Cranberry). Negotiations
resulted in an agreement under which respondent would acquire the
Kayhart Farm from DuPont, Sr. and the two DuPont sons, James and
Robert, Jr., would purchase homes built by Cranberry on lots
owned by respondent. Each transaction was a part of one package;
all had to happen, or none.
The basic transaction, whatever the senior DuPonts' tax objective may have been, involved the sale by them of the Kayhart Farm to respondent in exchange for $175,000 plus two residential lots, 6.01 and 6.02, worth $230,000, to be deeded without cost to the two DuPont sons. Respondent was to arrange for homes to be built on the lots by Cranberry, whose owner, Doug Ferry (Ferry), was a long time friend and client. The sons were to pay for the cost of constructing the houses but not the land, which they were to receive free and clear. The transaction was documented by three contracts, all dated April 29, 1988, and all prepared by respondent, although the senior DuPonts had consulted with Raymond Obssuth, independent tax counsel.See footnote 1 The Kayhart Farm
contract reflected a sale price of $175,000, without reference to
the lots and homes for the DuPont sons. On the same date,
Ferry's company, Cranberry, signed separate contracts with James
and Yolanda DuPont and with Robert and Cecelia DuPont. The first
contract required Cranberry to build a house on lot 6.02 having
an aggregate value of $318,900, and to convey the house and lot
to James and Yolanda for $203,900, the difference of $115,000
representing the value of the lot, part of the consideration
payable by respondent for the Kayhart Farm. Similarly, the
second contract required Cranberry to build a house on lot 6.01
having an aggregate value of $339,000, and to convey the house
and lot to Robert and Cecelia for $224,000, the difference of
$115,000 equalling the balance due from respondent for the
Kayhart Farm.
Respondent was required to transfer lots 6.01 and 6.02 to
Cranberry, but those lots, owned by respondent's company, Good
Earth, Inc. (Good Earth), were subject to a $300,000 blanket
mortgage held by Sussex County State Bank (Sussex), which
apparently required collateral of $100,000 to release the two
lots from the mortgage. Although respondent was obligated to
transfer those lots to Cranberry free and clear, he arranged a
more complicated transaction with Cranberry. Respondent conveyed
to Cranberry three lots, lot 6.01, lot 6.02, and lot 5, (and may
have agreed to convey additional lots), and in return Cranberry
issued a note to respondent for $100,000 secured by a mortgage on
lot 6.02, which respondent assigned to Sussex in return for the
release of lots 6.01, 6.02, and 5 from Sussex's blanket mortgage.
Thus, respondent kept his commitment to transfer lots 6.01 and
6.02 to Cranberry, and conveyed lot 5 (and possibly additional
lots) to reimburse Cranberry for the $100,000 note and mortgage
it issued on lot 6.02. In that way, respondent ensured that his
transaction with Cranberry carried sufficient value to satisfy
respondent's obligations concerning the lots destined for James
and Robert DuPont.
To finance construction of the two homes, Cranberry borrowed
$200,000 for each house from Kenvil Mortgage Company (Kenvil),
whose affiliate, Roxbury Lumber Company, sold building supplies
to Cranberry. Kenvil's loans were secured by mortgages on both
lots, and other Kenvil loans to Cranberry were secured by
mortgages on other properties. Cranberry had maintained good
business relationships with Kenvil for several years, and
respondent had represented Cranberry in numerous transactions
involving property encumbered by mortgages to Kenvil.
On September 30, 1988, the closing took place on lot 6.02,
which was then encumbered by a $200,000 mortgage to Kenvil and a
$100,000 mortgage to Sussex. The closing proceeds of
approximately $203,900 (excluding extras) were obviously
insufficient to satisfy the mortgages. Ferry informed respondent
that he had reached an agreement with Kenvil to accept $100,000
in exchange for releasing entirely its mortgage on lot 6.02, in
return for which Ferry would mortgage additional Cranberry
property to secure the $100,000 balance due to Kenvil.
Respondent relied on Ferry's representation without obtaining
confirmation from Kenvil. Out of the closing proceeds, $100,000
was used to pay off the Sussex mortgage and $100,000 was used to
reduce the outstanding balance on the Kenvil loan and trigger
Kenvil's agreement to release the lien on lot 6.02 and transfer
that lien to other Cranberry property. Assuming that
satisfaction of the full Kenvil mortgage would be received in due
course, respondent completed the closing, prepared a RESPA
statement (a federally required disclosure statement that sets
forth items of receipt and disbursement at a real estate closing)
that reflected the pay-off of only a $100,000 loan from Kenvil,
and certified to National Community Bank, James and Yolanda's
lender, that it had a valid first mortgage lien on lot 6.02.
Despite its agreement, Kenvil failed to release its lien on
lot 6.02. Between the closing on lot 6.02 and the impending
closing on lot 6.01, respondent spoke regularly with Ferry about
Kenvil's refusal to release its lien. Ferry informed respondent
that Kenvil was "working on it," and that Kenvil was involved in
a refinancing and would release the mortgage when that was
completed.
The closing on lot 6.01 occurred on May 25, 1989. In April
1989, respondent wrote Kenvil requesting mortgage payoff
statements on lots 6.01 and 6.02. Kenvil responded, stating that
the balance due on lot 6.01 (Robert and Cecelia's lot) was
$208,194.16 and the balance on lot 6.02 was $117,609.85,
including accrued interest, and reflecting a credit for the
$100,000 paid at the prior closing. Ferry previously had
informed respondent that he now had a firm agreement from Kenvil
that it would discharge its mortgages on both lots 6.01 and 6.02
if at the forthcoming closing Cranberry would pay off the balance
of the loan on lot 6.02 (James' and Yolanda's lot), as well as
the interest due Kenvil on other Cranberry mortgage loans. In
exchange, Cranberry would provide additional collateral to secure
its unpaid indebtedness to Kenvil.
Again, respondent failed to obtain written confirmation of
that understanding. Although the proceeds at the closing of lot
6.01 were sufficient to pay off Kenvil's lien on that lot in
full, the bulk of the proceeds, reflecting Ferry's new
arrangement with Kenvil, were used to pay off the balance due on
lot 6.02. Thus, respondent "misused" the closing proceeds from
lot 6.01 and applied them as follows: (1) $117,609.85 to pay off
the Kenvil mortgage on lot 6.02, with interest to May 23, 1989;
(2) $368.96 to pay the interest on lot 6.02 through May 31, 1989;
(3) $22,239.16 to pay interest due Kenvil on other Cranberry
properties (including $11,972.35 in interest due on lot 6.01, the
subject of the closing); (4) $10,000 to Cranberry (out of what
respondent described as excess cash); and (5) miscellaneous small
disbursements. Respondent personally delivered the checks to
Kenvil, informing one of the principals of Kenvil that he
expected to receive in exchange discharges of the Kenvil
mortgages on both lots 6.01 and 6.02. Although Kenvil reflected
on its books that the loan secured by the mortgage on lot 6.02
was paid in full, it refused to discharge either mortgage.
After the closing, respondent failed to inform either Robert
or James of the problems that had developed. He also transmitted
to the title company and National Community Bank certifications
that Robert and Cecelia's lot 6.01 was unencumbered except for
the National Community Bank's purchase money mortgage.
When the passage of several months confirmed that Kenvil
would not honor its agreement with Ferry, respondent and Ferry
met in January 1990 with two Kenvil partners and their lawyer,
Ronald Kevitz (Kevitz). According to respondent, Kenvil
initially insisted on additional collateral as a condition of
releasing its liens. Respondent then executed a mortgage to
Cranberry on property owned by Good Earth to increase the value
of Cranberry's collateral, and Cranberry executed a blanket
mortgage to Kenvil covering all its land as collateral for a
$973,000 note. Kenvil still refused to release its liens, and
informed Ferry and respondent that it now required additional
cash in order to discharge the mortgages.
Accordingly, respondent borrowed $96,596 and Ferry borrowed
$104,357.30. Respondent's trust account check to Kenvil
contained a notation that the money was to satisfy the mortgage
on lot 6.01 (Robert and Cecelia's lot), but Kenvil refused to
accept the check. A new check was delivered to Kenvil without
any condition. Kenvil, however, applied the $200,000 payment to
properties covered by Cranberry's blanket mortgage other than lot
6.01 and continued to refuse to release its liens.
In 1990, Kenvil instituted a foreclosure action seeking to
foreclose its mortgage on lot 6.01. In an unpublished opinion
dated August 4, 1993, the Chancery Division made the following
findings:
A meeting took place in January 1990
involving Roy Solondz and Stanley Levitt of
Kenvil, Ronald Kevitz, Esq.[,] Kenvil's
attorney, LaVigne, and Donald Ferry of
Cranberry. The overall status of all Kenvil
loans to Cranberry was discussed, but a
special concern was the mortgage of Lot 6.01.
The approximate sum of $200,000 was then due
on Lot 6.01. An agreement was struck for the
release of Kenvil's mortgage on Lot 6.01 and
in reliance on that agreement both LaVigne
and Ferry borrowed money from third parties.
LaVigne raised $96,596 from American Business
Credit and a check in that sum was tendered
to Kenvil. As to the agreement, the
testimony of Ferry, LaVigne and Kevitz on
January 5, 1993 was believable. Ferry
refinanced his home and tendered $104,357.30
to Kenvil. Instead of applying the two
checks to pay off the mortgage on Lot 6.01,
Kenvil unilaterally and self-servingly
applied the $200,943.30 to other loans. None
of the proceeds were applied against Lot
6.01.
The evidence showed that more than
sufficient moneys were paid on behalf of both
DuPont families to satisfy the two Kenvil
mortgages. Specifically, I am satisfied that
the following moneys were intended by LaVigne
and Ferry to be applied toward the loans on
Lots 6.01 and 6.02:
October 7, 1988 $ 100,000.00
May 30, 1989 117,609.85
May 31, 1989 398.96
June 17, 1989 11,972.35
April 19, 1990 96,596.00
June 6, 1990 104,357.30
$ 430,934.46
Kenvil clearly accepted the first four
payments on account of either Lot 6.01 or
6.02, and promised at the January 1990
meeting to apply the last two checks as
against Lot 6.01. Under these circumstances,
Kenvil cannot be permitted to deny its
agreement and its obligation to discharge
both mortgages. James/Yolanda and
Robert/Cecelia, who are all totally innocent
parties, are entitled to a cancellation of
the respective mortgages against their
properties. NCB is entitled to first
mortgagee status on both Lots. Kenvil is not
entitled to a judgment of foreclosure as to
Lot 6.01, or Lot 6.02 as to which, in
fairness to plaintiff, that relief was not
sought.
Kenvil's refusal to discharge without
justification the mortgages constitutes a
slander of title on each DuPont property.
Kenvil's refusal is more egregious,
outrageous and malicious with respect to Lot
6.02 which it concedes was paid in full. The
refusal to cancel the 6.01 Lot mortgage was
intentional and wrongfully motivated although
not as egregious in comparison to the other
lot. In both instances, Kenvil demonstrated
a wanton and wilful disregard for the rights
of the DuPonts.
The Chancery Division also stated that it "accepted as
truthful the testimony of the two DuPonts, Ferry, respondent and
Kevitz on all critical issues." The Chancery Division awarded
the DuPonts punitive damages of $35,000 against Kenvil and
$50,000 against respondent, and ordered the Kenvil mortgages on
lots 6.01 and 6.02 discharged. The court determined that the
DuPonts had not proved any right to recover compensatory damages
from respondent.
As a result of the Chancery Division's judgment, James and
Yolanda DuPont and Robert and Cecelia DuPont have obtained good
title to their properties, subject only to the lien of their
purchase money mortgages, and have been awarded punitive damages
because of Kenvil's wilful refusal to perform its agreement to
release its liens, and because of respondent's egregious
misconduct.
The multiple and conflicting representations that respondent undertook in the course of the land swap sealed his fate. He was the only attorney involved in the actual negotiations and real estate transactions. Obssuth counseled DuPont, Sr. regarding only the tax consequences of the deal. The record suggests that both DuPont sons believed that respondent was representing them. Respondent's conduct confirmed that belief. Likewise, respondent represented Cranberry, the seller, and its principal, Douglas
Ferry, with whom respondent had a long-standing personal and
professional relationship.
As determined by the Special Master (Master) and the DRB,
respondent represented the senior DuPonts and himself in the
Kayhart Farm transaction, and also represented the DuPont sons
and spouses as well as Cranberry in the new home transactions,
all without disclosing his adverse interests, without obtaining
their written consent, and without advising them to consult with
independent counsel as required by RPCs 1.7 and 1.8.
Respondent's violations of the RPCs are incontestable. Fairly
viewed, however, given the origins of the transaction, the
likelihood that Cranberry, as well as the DuPonts, would have
consented to respondent's multiple representation is strong.
Doug Ferry was a friend and client for twenty years. James
DuPont testified that "it was a good honest deal for both parties
and that it was a good swap," and Robert DuPont testified that
respondent did not charge for his legal services in the
transaction. Because consent was not obtained, we need not
determine whether this constituted a "complex commercial real
estate transaction" in which an attorney is barred from
representing both buyer and seller even with their consent. See
Baldasarre v. Butler,
132 N.J. 278, 295-96 (1993).
In addition, respondent failed to keep his various clients
completely informed of developments that detrimentally affected
their interests. Whether it was his long-time association with
Cranberry, Doug Ferry, or local banks that he did not wish to
jeopardize, or his self-interest in keeping the Kayhart Farm,
respondent never advised any of the DuPonts of the complications
that arose with respect to their acquisitions. The DuPonts did
not begin to learn of all the problems saddling these
transactions until discovery proceedings in civil litigation that
led to the Chancery Division cancellation of the Kenvil
mortgages. DuPont, Sr. and Robert DuPont, Jr. both testified
that respondent ignored their requests for information, even
after they had been informed by Kenvil, which provided
construction financing to Cranberry, that it intended to
foreclose its mortgage on Robert, Jr.'s property.
Respondent handled all of the DuPont transactions in a
misleading fashion, never explaining to either James or Robert,
Jr., or their respective wives, Yolanda and Cecelia, the nature
of the disbursements that were reflected on the RESPA forms. In
fact, the funds were not disbursed as respondent indicated on the
RESPA forms. For example, respondent prepared a RESPA statement
for James and Yolanda's closing (the first closing) that showed a
$100,000 construction loan held by Kenvil when the mortgage was,
in fact, $200,000. Respondent contends that theoretically this
representation would have been accurate had Kenvil kept its
promise to transfer the remaining $100,000 of the lien to a
different Cranberry property after it was paid $100,000 of the
closing proceeds.
In the case of the closing for Robert, Jr. and Cecelia,
without their knowledge or consent, respondent dealt with their
funds much as he saw fit. He used $117,000 of their mortgage
proceeds to pay off the balance due on the Kenvil lien on James'
property. Respondent claims that he was relying in good faith
upon representations made to him by Doug Ferry that an agreement
was being negotiated with Kenvil; however, he had no personal
conversations with any of the principals of Kenvil prior to the
closings, nor did he confirm in writing any of the supposed
agreements that had been reached. Respondent acknowledged that
he gave Kenvil no formal notice of the September 30, 1988,
closing on James and Yolanda's property.
Respondent falsely certified to title companies and to the
mortgagee banks that he had transferred clear title to the
DuPonts, that all prior liens had been satisfied, and that the
purchase money mortgages were in place on the DuPont properties.
The affidavits of title prepared and submitted by respondent and
his representations to all parties were untrue. In the May 25,
1989 closing on Robert, Jr. and Cecelia's property, instead of
utilizing their mortgage proceeds to pay off the existing liens
on their property, respondent used the funds to pay off the
outstanding mortgage on James and Yolanda's lot as well as
construction loan interest on a lot unrelated to the DuPont
transactions. Even more egregiously, he disbursed $10,000 to
Cranberry after the closing, although it had failed to bring more
than $30,000 to the closing as required to satisfy various liens.
After reviewing all the evidence, the Special Master reached the "inescapable" conclusion that respondent committed numerous violations of the Rules of Professional Conduct. The Master found clear and convincing evidence that respondent had entered these transactions with an evident self-interest and that his obligations to the DuPonts to transact their purchases so that
any prior liens would be satisfied, to Cranberry to discharge any debts attendant to development and to the purchase-money lenders to see that the loan funds assumed a first priority position were totally unfulfilled. In addition, the entire flawed transaction was colored by respondent's self-interest in acquiring the Kayhart Farm for himself. The Master found that respondent neglected to explain the significance of this potential conflict
of interest to James and Yolanda or Robert, Jr. and Cecelia and failed properly to seek their consent to multiple representation. This conduct amounts to a plain violation of RPC 1.7(b), which prohibits an attorney from acting with a conflict of interest absent a full disclosure of the conflicting interests. The Master also found a violation of RPC 1.15 (a) and (b) because the purchase monies of James and Yolanda and Robert, Jr. and Cecelia were entrusted to respondent to effectuate their purchases free
and clear of liens other than their new mortgages. That did not
happen in either transaction. The expectation that Kenvil would
transfer to other Cranberry properties its unsatisfied mortgage
on the Robert, Jr. and Cecelia lot was neither documented nor
realized. The Master found that this expectation did not excuse
the fact that the purchase monies entrusted to respondent were
used as part of an overall plan to realign Cranberry's debts and
only indirectly to permit the DuPont sons to acquire clear title.
The Master also found an extended course of deceit,
dishonesty and misrepresentation in that respondent did not
disclose to his purchaser-clients how their monies were being
used; he did not disclose to Kenvil, in September 1988, that a
closing was taking place on lot 6.02; and he represented to the
mortgage lender that its mortgages constituted valid first liens
when that was not the case. Finally, even though he determined
that the facts presented did not reflect any intent by respondent
to steal, the Master concluded that there was a fundamental
problem with how and when respondent used the funds. The Master
found clear and convincing evidence that respondent used client
funds in an unauthorized manner on two separate occasions. The
clearest occasion was in the second, or Robert, Jr. and Cecelia
purchase. Respondent used the proceeds from that closing to
clear James and Yolanda's liens, knowing that those funds were
intended for Robert, Jr. and Cecelia's purchase only. "Viewed
thusly," the Master concluded, "[r]espondent knowingly used
client funds for purposes other than those for which he was
authorized, and this violates the maxims of both Wilson [In re
Wilson,
81 N.J. 451 (1979)] and In re Hollendonner,
102 N.J. 21
(1985)."
In its review of the matter, the DRB agreed with the
findings of the Master. It emphasized the "great distress and
enormous economic injury" that respondent caused the DuPonts and
concluded that "no amount of reparation may ever be sufficient to
redress the harm visited on them." The DRB found knowing
misappropriation as to the disposition of both James' and Robert,
Jr.'s funds. First, it concluded that the $230,000 credit (in
the form of two building lots) due to the sons was improperly
passed on to Cranberry. It then found that respondent knowingly
misappropriated the cash and value from James' closing when he
permitted Cranberry to keep the closing proceeds without
advancing corresponding cash to make up the shortfall at closing.
Finally, the DRB concluded that in the case of Robert, Jr. and
Cecelia, respondent made unauthorized use of funds entrusted to
him by applying them towards the James and Yolanda property, and,
even more importantly, to other Cranberry obligations that were
unrelated to the transaction.
We disagree that the transfer of lots 6.01 and 6.02 to
Cranberry constituted a misappropriation of client funds. The
transfers of the lots were necessary to effectuate the planned
land exchange. Moreover, the title to the lots had been
transferred to Cranberry's name even before the September 30,
1988, transfer of the Kayhart Farm.
The more difficult questions are whether the use of James'
funds to pay only part of the Kenvil mortgage and the use of
Robert, Jr. and Cecelia's funds to satisfy James and Yolanda's
liens constitutes a knowing misappropriation of client funds.
Misappropriation is "any unauthorized
use by the lawyer of clients' funds entrusted
to him, including not only stealing, but also
unauthorized temporary use for the lawyer's
own purpose, whether or not he derives any
personal gain or benefit therefrom." In re
Wilson,
81 N.J. 451, 455 n.1 (1979). As we
stated in In re Noonan,
102 N.J. 157 (1986),
knowing misappropriation "consists simply of
a lawyer taking a client's money entrusted to
him, knowing that it is the client's money
and knowing that the client has not
authorized the taking." Id. at 159-60.
Whether respondent's conduct constituted a "knowing misappropriation" is on this record a troubling question. In a literal sense, respondent misused his clients' closing funds. However, subsequent judicial proceedings confirmed that respondent relied on Kenvil's representations that respondent's disposition of the mortgage proceeds would clear both titles. See In re Hecker, 109 N.J. 539 (1988) (explaining effect in disciplinary proceedings of collateral civil findings). Were it not, as stated by the Special Master, that "respondent appeared to regard the separate James/Yolanda and Robert, Jr./Cecelia transactions as part of a single unified deal," we would find a
knowing misappropriation of clients' funds that under In re
Wilson, supra,
81 N.J. 451, warrants disbarment. It was at least
reasonable for respondent to regard the exchange as a single
transaction with multiple parts. And, as the Special Master also
determined, respondent's intent was not malicious and the
"misapplication" of his clients' funds was based on his
expectation that Kenvil would release its liens in exchange for
the stipulated payments for the mutual benefit of his clients.
Had respondent prior to the closings adequately secured Kenvil's
agreement to release its liens, his otherwise irregular
disposition of the closing funds would have been entirely
appropriate, which suggests that malpractice rather than
misappropriation is at the root of this record. The Chancery
Division determined that Kenvil, despite its prior agreement, had
refused wrongfully to discharge its mortgage liens, and had
slandered the title of the buyers, and the court therefore
assessed punitive damages against Kenvil, as it did against
respondent. The record before the Chancery Division demonstrates
that respondent and Cranberry, respondent's longtime client,
continued at all times to attempt to meet Kenvil's demands for
additional funds in order to remove the liens from the properties
purchased by the DuPont sons.
We read the record to conclude that Kenvil not only misled
Ferry and respondent at the January 1990 post-closing meeting, as
the Chancery Division found, but also misrepresented its
intentions in September 1988 and May 1989, when it told Ferry
what it would require to release its liens on both lots. So
read, respondent's misdeeds are more sins of neglect than
avarice. If respondent honestly believed that Ferry had Kenvil's
agreement in September 1988 (when he closed lot 6.02 for James
and Yolanda) to release its lien on lot 6.02 for $100,000, then
respondent's inaccurate RESPA statement and incorrect
certifications to the title company and purchase money mortgagee
were irresponsible rather than fraudulent. Respondent assumed
that Kenvil would keep its word. (Respondent had cleared Kenvil
liens in the past on the basis of oral assurances.) Respondent
should have secured the arrangement by requiring Kenvil to
endorse for cancellation its mortgage on lot 6.02, subject only
to payment of $100,000 and delivery of equivalent collateral.
Had he done so, respondent's disposition of the closing proceeds,
preparation of the RESPA statement and certifications to the
purchaser's bank and title company would have been entirely
appropriate. When Kenvil did not honor its promise, however,
respondent's failure to disclose the problem to all parties
compounded his already inexplicable and egregious misconduct.
Similarly, if respondent believed Ferry in May 1989 that
Kenvil would release its lien on lot 6.01 if the loan on lot 6.02
and all other interest were paid in full, and, if respondent had
protected the DuPonts by requiring Kenvil to deliver the
mortgages endorsed for cancellation before he tendered those
payments, then respondent's payments to Kenvil and to Cranberry
out of those closing proceeds would not have been improper. From
that perspective, his misapplication of the second closing's
proceeds again was more a matter of professional incompetence
than of misappropriation of funds. And if respondent properly
had secured Kenvil's compliance with its arrangement with Ferry,
there would have been no misuse of client funds. Thus, the
question posed is whether respondent was a rogue or a too
trusting and very sloppy lawyer.
Finally, if Kenvil had honored the promise that the Chancery
Court found it had made in January 1990, to release the liens for
$200,000 in additional cash, this matter might never have been
before us. Respondent and Ferry raised the cash, and Kenvil
breached its commitment and applied the money to other lots,
resulting in a foreclosure action that took four years to
resolve, and led to these disciplinary proceedings. From that
perspective, Kenvil's dishonesty, even more than respondent's
incompetence, was the primary cause of the DuPonts' difficulties.
But there is more to this case than whether the handling of
the closing proceeds was a misappropriation of client funds. The
DRB concluded that "even if this conduct were found not to be,
strictly speaking, knowing misappropriation, respondent's
deceitful conduct was so egregious that he should suffer the same
consequences attached to conduct involving knowing
misappropriation." Based on our independent review of the
record, we too find clear and convincing evidence of the
commission of multiple offenses. Respondent engaged in an
impermissible conflict of interest, in violation of RPC 1.7(b)
and (c), by his representation of the seller and two separate
sets of purchasers when his own pecuniary interest materially
limited his ability to counsel his clients. He failed fully to
disclose and explain the nature of the conflict to the respective
purchasers and lenders and made no effort to obtain their express
consent to his multiple representation, in violation of RPC
1.7(b). He failed to safeguard client funds and he failed to
deliver those funds to third persons entitled to receive them, in
violation of RPC 1.15(a) and (b). And, finally, he engaged in a
pattern of deceit and dishonesty and made numerous
misrepresentations, both to his clients and to third persons, in
violation of RPC 8.4(c).
The question is whether this conduct requires disbarment.
The cases in which we have disbarred lawyers for conduct other
than knowing misappropriation have involved misconduct more venal
than that displayed by respondent. See, e.g., In re Goldberg,
142 N.J. 557 (1995) (disbarring attorney convicted of mail fraud
and conspiracy to defraud the United States); In re Ort,
134 N.J. 146 (1993) (disbarring attorney who had withdrawn fees from
estate account without authorization, knowingly misrepresented
value of services, prepared deceitful time records, and charged
excessive and unreasonable fees); In re Messinger,
133 N.J. 173
(1993) (disbarring attorney convicted of several serious federal
charges involving income tax fraud and conspiracy); In re Jones,
131 N.J. 505 (1993) (disbarring attorney who solicited bribe
while a public official for his own personal gain); In re
LaRosee,
122 N.J. 298 (1991) (disbarring attorney who engaged in
forgery of public documents and encouraged former client to
present false testimony); In re Zauber,
122 N.J. 87 (1991)
(disbarring attorney convicted of RICO conspiracy, soliciting
kickbacks in connection with employee benefit plan, forgery, and
obtaining prescription drugs by fraud or misrepresentation); In
re Spina,
121 N.J. 378 (1990) (disbarring attorney who knowingly
misused substantial amounts of employer's funds for personal
use); In re "X",
120 N.J. 459 (1990) (disbarring attorney who
engaged in repeated acts of sexual assault on his three minor
daughters over eight year period); In re Cohen,
120 N.J. 304, 308
(1990) (disbarring attorney previously suspended from practice of
law for "his numerous ethical infractions, [and] his continuous
unresponsive and uncooperative attitude towards his clients, the
courts, and the entire disciplinary system"); In re Lunetta,
118 N.J. 443 (1989) (disbarring attorney who pled guilty to
conspiracy to receive and sell stolen securities); In re
Yaccarino,
117 N.J. 175 (1989) (disbarring former judge who
suborned perjury and conspired to acquire property belonging to
litigants); In re Spagnoli,
115 N.J. 504 (1989) (disbarring
attorney who accepted retainer fees from 14 clients without ever
intending to represent them, lied to court, and failed to
cooperate in ethics proceedings); In re Edson,
108 N.J. 464
(1987) (disbarring attorney who counseled client to fabricate
defense involving knowingly false material facts, and knowingly
permitting client to offer false evidence at trial); In re
Conway,
107 N.J. 168 (1987) (disbarring attorney convicted of
conspiracy to obstruct justice by tampering with witness); In re
Rigolosi,
107 N.J. 192 (1987) (disbarring attorney collaterally
involved in conspiracy to bribe witness to secure dismissal of
criminal charges); In re Baldino,
105 N.J. 453 (1987) (disbarring
attorney convicted of conspiracy to commit official misconduct by
subverting member of grand jury); In re Goldberg,
105 N.J. 278
(1987) (disbarring attorney who actively participated in
conspiracy to distribute narcotics); In re Surgent,
104 N.J. 566
(1986) (disbarring attorney convicted of conspiracy to commit
theft by deception and 14 felony offenses including conspiracy,
securities fraud, mail fraud, wire fraud, sale of unregistered
securities, and subornation of perjury); In re Tuso,
104 N.J. 59
(1986) (disbarring attorney convicted of conspiracy to commit
bribery and solicitation of misconduct and two counts of offering
bribe to public official).
On the other hand, respondent's misconduct was severe and
warrants substantial discipline. In cases of misrepresentation,
the Court has imposed a range of discipline, taking into
consideration the severity of the misconduct and the existence of
aggravating and mitigating factors. For example, the Court has
suspended for three years an attorney who misrepresented to the
court allegations in his own personal injury suit, In re Lunn,
118 N.J. 163 (1990); has suspended for three years an attorney
who filed a false certification in a civil matter to induce a
court to grant relief for the attorney's own benefit, In re
Kushner,
101 N.J. 397 (1986); has suspended for two years an
attorney who forged the name of the sheriff on a deed of
foreclosure, witnessed the forged instrument and later recorded
it, In re McNally,
81 N.J. 304 (1979); has suspended for one year
an attorney who made a knowingly false statement in a disposition
in a civil matter in which the attorney was the plaintiff, In re
Schleimer,
78 N.J. 317 (1978); and suspended for three months an
attorney who fabricated and submitted a motor vehicle insurance
card in defense of a charge of driving without insurance, In re
Poreda,
139 N.J. 435 (1995).
Respondents's numerous misrepresentations to clients, banks
and title companies warrant severe discipline. "Candor and
honesty are a lawyer's stock and trade. Truth is not a matter of
convenience. Sometimes lawyers may find it inconvenient,
embarrassing or even painful to tell the truth. . . . Absolute
candor coupled with an absolute duty to disclose, no matter how
painful, is required." In re Whitmore,
117 N.J. 472, 477-78
(1990) (citation omitted). Respondent gravely erred in failing
to disclose his own mistakes and in attempting to correct them
without notifying the affected parties. His issuance of an
inaccurate RESPA statement and title certifications at the first
closing, and his unauthorized application of funds from the
second closing, without securing in advance the mortgage
discharges, constituted gross negligence. His subsequent failure
to disclose that misconduct was similarly egregious. We do not
find in this record, however, clear and convincing evidence
either of knowing misappropriation or of conduct so venal as to
persuade us that respondent should never again be permitted to
practice law. While respondent benefitted from the deal by
acquiring the Kayhart Farm, he did meet or exceed all
requirements imposed on him under the contract. Thus, although
he acted, as the Special Master found, with a "clear self
interest," and did "profit personally" from the deal, he derived
no unfair advantage from the transactions. We note also that
respondent has been a member of the bar since 1970, with no prior
history of ethics violations.
Nonetheless, this case stands as a stark reminder to the
bar. An attorney may only use client funds for purposes
authorized by the client. An attorney may not assume that a
client would, if asked, approve an otherwise unauthorized use of
funds. An attorney must obtain and follow the client's
instructions before using the client's funds for previously
unauthorized purposes. But for the inter-relationship between
these transactions that rendered the use of the separate funds as
dispositions for each client's mutual purposes, respondent would
be subject to disbarment.
We order that respondent be suspended for a period of three
years. Respondent shall also arrange to satisfy the judgment for
punitive damages in favor of his clients. We also impose on
respondent the obligation to reimburse the Disciplinary Oversight
Committee for appropriate administrative costs.
So ordered.
CHIEF JUSTICE PORITZ and JUSTICES POLLOCK, O'HERN,
GARIBALDI, STEIN and COLEMAN join in the Court's opinion.
JUSTICE HANDLER did not participate.
Graphic file number 0 named ethics1.wpg with height 497 p and width 662 p Center aligned
Graphic file number 1 named ethics2.wpg with height 487 p and width 662 p Center aligned SUPREME COURT OF NEW JERSEY
D- 1 September Term 1996
IN THE MATTER OF :
F. WILLIAM LA VIGNE, : ORDER
AN ATTORNEY AT LAW :
It is ORDERED that F. WILLIAM LA VIGNE of ANDOVER, who was
admitted to the bar of this State in 1970, is hereby suspended
from the practice of law for a period of three years, effective
December 9, 1996, and until the further Order of the Court; and
it is further
ORDERED that respondent arrange to satisfy the judgment for
punitive damages in favor of his clients; and it is further
ORDERED that respondent be restrained and enjoined from
practicing law during the period of his suspension and that he
comply with Rule 1:20-20, which governs suspended attorneys; and
it is further
ORDERED that the entire record of this matter be made a
permanent part of respondent's file as an attorney at law of this
State; and it is further
ORDERED that respondent reimburse the Disciplinary Oversight
Committee for appropriate administrative costs incurred in the
prosecution of this matter.
WITNESS, the Honorable Deborah T. Poritz, Chief Justice, at
Trenton, this 15th day of November, 1996.
/s/ Stephen W. Townsend
CLERK OF THE SUPREME COURT
NO. D-1 SEPTEMBER TERM 1996
Application for
Disposition 3-year suspension
Decided November 15, 1996
Order returnable
Opinion by PER CURIAM
Footnote: 1Tracing these related transactions is difficult and we have attempted to set them forth, for convenience, in graphic form in the appendix to this opinion. The monetary figures have been rounded off and the steps portrayed in the graphic chart are not in exact chronological order. For example, LaVigne had placed the two lots in Cranberry's name before he finalized the deal with DuPont, Sr., and Cranberry had obtained its construction loans before it made its deal with the DuPont sons. The chart portrays the
conceptual implementation of the planned swaps.