In re Spencer

No. 45 June 26, 2014 679

IN THE SUPREME COURT OF THE

STATE OF OREGON

In re Complaint as to the Conduct of

MICHAEL L. SPENCER,

Accused.

(OSB 11-52; SC S060977)

En Banc

On review of the decision of a trial panel of the Disciplinary

Board.

Argued and submitted January 16, 2014.

Michael A. Spencer, Klamath Falls, argued the cause

and filed the brief in propria persona.

Mary A. Cooper, Assistant Disciplinary Counsel, argued

the cause and filed the brief for the Oregon State Bar.

PER CURIAM

The accused is suspended from the practice of law for a

period of 30 days, commencing 60 days from the filing of this

decision.

The Oregon State Bar charged the accused with violating two Rules of

Professional Conduct, RPC 1.7(a) and RPC 1.8(a), arising out of his simultane-

ous representation of a client in a bankruptcy proceeding while also serving as

her real estate broker. Held: (1) The accused’s agreement to serve as the client’s

real estate broker amounted to a business transaction within the meaning of

RPC 1.8(a); because the accused conceded that he did not provide the advice and

obtain the necessary consent that RPC 1.8(a) requires, he violated that rule; (2)

Because the prospect of the accused’s receipt of a real estate commission, stand-

ing alone, did not pose a significant risk of materially limiting his representation

of his client, the Bar did not establish a violation of RPC 1.7(a).

The accused is suspended from the practice of law for a period of 30 days,

commencing 60 days from the filing of this decision.

680 In re Spencer

PER CURIAM

In this lawyer disciplinary proceeding, the Oregon

State Bar charged the accused with violating two Rules

of Professional Conduct (RPC): RPC 1.7(a), which prohib-

its a lawyer from representing a client without informed

consent if “there is a significant risk that the represen-

tation *  * will be materially limited by *  * a personal

*  *

interest of the lawyer”; and RPC 1.8(a), which prohibits a

lawyer from “enter[ing] into a business transaction with

a client” without the requisite advice and the client’s con-

sent. A trial panel of the Disciplinary Board found that

the accused had violated both rules and imposed a 60-day

suspension. On de novo review, we find that the accused

violated RPC 1.8(a) and suspend him from the practice of

law for 30 days.

I. FACTS

The accused has been a member of the Bar since

1983 and a licensed real estate broker since 2003. In March

2008, a prospective client, Smith-Canfield, met with the

accused to ask about filing for bankruptcy. Smith-Canfield

told the accused that she anticipated receiving approxi-

mately $30,000 from the sale of real property in another

state. At that point, Smith-Canfield was living in rental

housing in Klamath Falls, and the accused advised her that

she could take advantage of an exemption in the bankruptcy

law if she used the proceeds from the out-of-state property

sale to buy a home and then filed a Chapter 13 bankruptcy

petition. To take advantage of that exemption, however, she

needed to buy a home within one year of the sale of her other

property.

When Smith-Canfield expressed concern that a

bank would not loan her money to buy a home, the accused

explained that he was a real estate broker and could look

for an owner-financed property for her.1 Having received

that advice, Smith-Canfield agreed to have the accused rep-

resent her, and the accused began searching for a suitable

property and also preparing the bankruptcy filing.

1

The sales agreement that the accused later prepared stated that he was

acting only as the buyer’s (Smith-Canfield’s) real estate agent.

Cite as 355 Or 679 (2014) 681

The next month, the accused learned about a rela-

tively new home that might fit Smith-Canfield’s needs. The

owner was in financial trouble, and the person who held the

trust deed was willing to finance Smith-Canfield’s purchase.

The accused estimated the amount due on the trust deed and,

based on that estimate, determined the lowest possible offer

that the owner would be likely to accept. He advised Smith-

Canfield to offer to pay $225,000 and to put $25,000 down.

That offer was below both the market value and the listed

price. Smith-Canfield accepted the accused’s advice and

asked him to prepare an offer to that effect. She was aware

that, if the owner accepted her offer, the accused would split

the sales commission with the owner’s real estate agent.

Based on the accused’s advice, Smith-Canfield made

her offer contingent on three conditions. First, the owner

had “to rebuild [a] retaining wall along Old Fort Rd.”2

Second, he had to “remove all junk from the house.” Third,

he had to “have the carpets cleaned. If the stains on the

carpet do not clean out,” then the owner had to give Smith-

Canfield $1,000 to replace the existing carpets. Based on the

accused’s advice, Smith-Canfield did not impose any other

conditions on the sale. As the accused later explained, the

goal was to purchase the property quickly at the lowest pos-

sible price. Additionally, the accused advised Smith-Canfield

to waive a professional inspection, even though the pre-

printed offer stated that it was advisable to have one.3 The

accused concluded that, because the house was relatively

new, a professional inspection was unlikely to be worth the

cost, especially in light of Smith-Canfield’s limited financial

resources. Based on the accused’s advice, Smith-Canfield

waived a professional inspection.

The owner accepted Smith-Canfield’s offer and took

steps to satisfy the conditions she had listed. During the

2

The back yard of the house sloped down to Old Fort Road. A three-foot high

retaining wall ran along the base of the slope. The retaining wall consisted of

masonry blocks stacked on top of each other. When the accused initially took

Smith-Canfield to see the home, they noticed that approximately 25 percent of

the blocks had fallen down.

3

The offer states that “Buyer understands that it is advisable to have a com-

plete inspection of the Property by qualified professional(s) relating to such mat-

ters as * * * soil condition/compaction/stability [and] zoning * * *.”

682 In re Spencer

final walk-through, the accused and Smith-Canfield noted

that the masonry blocks that formed the retaining wall had

been restacked and the carpets cleaned. The sale closed that

month, and the accused received approximately $5,000 as

his share of the real estate sales commission. The accused’s

commission came out of the proceeds that otherwise would

have gone to the seller.

In May 2008, the accused filed Smith-Canfield’s

Chapter 13 bankruptcy petition. Shortly afterwards, Smith-

Canfield received a letter from the City of Klamath Falls,

stating that the dirt slope at the back of the yard violated

the city code and that she needed either to “[r]estore the

slope of [her] property to [city code] specifications *  * or

*

provide an engineered plan for a retaining wall.”4 Smith-

Canfield contacted the accused, who investigated the city’s

allegations. The accused wrote the seller and demanded

that he bring either the slope or the retaining wall into

compliance. The seller responded that, because he had

limited financial resources, he could not be of any help.

The accused also questioned whether the city had author-

ity to require Smith-Canfield to restore the slope or pro-

vide an engineered retaining wall. Although the accused

doubted the city’s authority, he was concerned that Smith-

Canfield did not have enough money to fund a legal dis-

pute with the city. He believed that she could have the

funds in a year’s time, based on her Chapter 13 plan.

Accordingly, he asked for and received a one-year exten-

sion from the city for Smith-Canfield to respond to the city’s

demand.

Several months later, Smith-Canfield mentioned

her dispute with the city to another lawyer. That lawyer

later contacted the accused, questioning his handling of both

the real-estate purchase and the city’s notice of a code vio-

lation. After receiving those communications, the accused

4

The accused testified, and the Bar offered no contrary testimony, that a pro-

fessional inspection would not have disclosed the city code violation. Additionally,

the Bar offered no testimony that a reasonable real estate broker or lawyer

would have been aware that the grade of the slope was too steep. Indeed, the

accused testified, without dispute, that similar grades were common at nearby

properties and that neither the county nor the state imposed a comparable grade

requirement.

Cite as 355 Or 679 (2014) 683

withdrew from representing Smith-Canfield. Represented by

a new lawyer, Smith-Canfield brought an adversary action

against the accused in the bankruptcy proceeding, alleg-

ing that he had breached his fiduciary obligation to dis-

close conflicts of interest and that he also had breached his

professional duty regarding the purchase of her home. The

bankruptcy court found, by a preponderance of the evidence,

that the accused had breached both duties and that Smith-

Canfield had suffered financial injury as a result.5

In early 2011, Smith-Canfield’s employer in Klamath

Falls went out of business, and Smith-Canfield lost her job.

Later that year, she converted her bankruptcy proceeding

from a Chapter 13 to a Chapter 7. Eventually, she gave up

the home that she had bought, with the result that she lost

her down payment and three years of payments on the home.

In July 2011, the Bar filed a complaint against

the accused, alleging that he had violated RPC 1.7(a) and

RPC 1.8(a). The trial panel found that the accused had vio-

lated both rules and determined that a 60-day suspension

was the appropriate sanction. The accused petitioned for

review in this court. We review the record de novo to deter-

mine whether the Bar established the alleged violations by

clear and convincing evidence. See Bar Rule (BR) 10.6 (pro-

viding for de novo review); BR 5.2 (requiring proof by clear

and convincing evidence).

II.  RPC 1.8(a)

RPC 1.8(a) prohibits a lawyer from “enter[ing] into

a business transaction with a client” or “knowingly acquir-

[ing] *  * [a] pecuniary interest adverse to a client” unless

*

certain conditions are met.6 A lawyer may enter into a

business transaction with a client if, among other things,

5

The accused assigns error to the trial panel’s ruling admitting a copy of

the bankruptcy court’s decision and judgment because the bankruptcy court’s

findings were based on a preponderance of the evidence standard rather than the

clear and convincing standard that applies in disciplinary proceedings. The chair

of the trial panel stated that the panel did not give the bankruptcy court’s deci-

sion preclusive effect, and neither do we. The trial panel did not err in admitting

the decision and judgment.

6

RPC 1.8(a) provides:

“A lawyer shall not enter into a business transaction with a client or know-

ingly acquire [a] * * * pecuniary interest adverse to a client unless:

684 In re Spencer

the terms of the transaction are fair, the client is advised

in writing of the desirability of seeking independent legal

advice, and the client consents in a signed writing to the

transaction’s essential terms and the role that the lawyer

will play in the transaction. RPC 1.8(a)(1)-(3). In this case,

the accused concedes that he did not obtain written consent

from Smith-Canfield after giving her the requisite advice.

The question under RPC 1.8(a) accordingly reduces to

whether, in agreeing to act as Smith-Canfield’s real estate

broker, the accused either entered into a “business transac-

tion” with her or “knowingly acquir[ed] a pecuniary interest

adverse to” Smith-Canfield’s interests.

This court has not previously construed RPC 1.8(a).

The predecessor rule, former DR 5-104(A), required disclo-

sure and consent regarding business transactions between

lawyers and clients if their interests differed and if the cli-

ent expected that the lawyer would exercise professional

judgment on the client’s behalf in the transaction. See In re

Samuels/Weiner, 296 Or 224, 232-33, 674 P2d 1166 (1983)

(business transactions with clients are not inherently uneth-

ical; instead, “[i]t is when the client and the lawyer have dif-

fering interests and the client expects the lawyer to exercise

*  * professional judgment for the protection of the client

*

that [(former)] DR 5-104(A) comes into play”); In re Bartlett,

283 Or 487, 496-97, 584 P2d 296 (1978) (same).

On review, the parties frame the question under

RPC  1.8(a) similarly; that is, they debate whether the

accused’s interests in this transaction either differed from

or were adverse to Smith-Canfield’s. We note, however,

that the text of RPC 1.8(a) differs from the text of former

DR 5-104(A). RPC 1.8(a) prohibits a lawyer from “enter[ing]

“(1)  the transaction and terms on which the lawyer acquires the interest

are fair and reasonable to the client and are fully disclosed and transmitted

in writing in a manner that can be reasonably understood by the client;

“(2)  the client is advised in writing of the desirability of seeking and is

given a reasonable opportunity to seek the advice of independent legal coun-

sel on the transaction; and

“(3) the client gives informed consent, in a writing signed by the cli-

ent, to the essential terms of the transaction and the lawyer’s role in the

transaction, including whether the lawyer is representing the client in the

transaction.”

Cite as 355 Or 679 (2014) 685

into a business transaction with a client” without first mak-

ing certain disclosures and obtaining the client’s written

consent. It does not expressly require that the lawyer and

the client’s interests in the transaction differ. To be sure,

RPC 1.8(a) also prohibits lawyers from “knowingly acquir-

[ing] an ownership, possessory, security or other pecuniary

interest adverse to a client.” However, not only are the two

prohibited acts separated by “or,” but the second prohibited

act—acquiring a pecuniary interest adverse to a client—is

modified by the adverb “knowingly.” The first prohibited act

is not similarly limited. The text of the rule suggests that

entering into a business transaction with a client is itself

prohibited, unless the terms of the transaction are fair and

reasonable to the client, the requisite disclosures are made,

and the necessary consent obtained.

The history of the rule confirms that interpretation.

For the purposes of this issue, RPC 1.8(a) tracks ABA Model

Rule 1.8(a) verbatim. See Oregon Rules of Professional Con-

duct 8 (explaining that RPC 1.8(a) “replaces DR 5-104(A)

and incorporates the Model Rule prohibition against busi-

ness transactions with clients even with consent except

where the transaction is ‘fair and reasonable’ to the client”).

We accordingly look to the commentary to ABA Rule 1.8(a)

for guidance in construing RPC 1.8(a). See In re Hostetter,

348 Or 574, 590, 238 P3d 13 (2010) (looking to the com-

mentary to the model rule for its persuasive value when an

Oregon rule is identical to the model rule). The commentary

does not suggest that, for the “business transaction” prohi-

bition to apply, the lawyer and client must have differing

or adverse interests. Instead, the commentary explains that

the rule recognizes “the possibility of overreaching when

the lawyer participates in a business, property or financial

transaction with a client” and disfavors an arrangement in

which the lawyer has an “advantage in dealing with the cli-

ent.” American Bar Association’s Model Rules of Professional

Conduct (ABA Model Rules), Rule 1.8, comment [1] (2007).

Additionally, in discussing the advice that a lawyer gives a

client, the commentary recognizes that a lawyer’s actions

may violate ABA Rule 1.8(a) but not ABA Rule 1.7(a). Id.7

7

Specifically, the commentary to ABA Rule 1.8 states that, when a lawyer

enters into business transactions with a client,

686 In re Spencer

The commentary to ABA Rule 1.8(a) establishes that

the first part of that rule serves as a general prophylactic

against lawyers entering into business transactions with cli-

ents and does so regardless of whether the lawyer knowingly

acquires a pecuniary interest adverse to his or her client, see

RPC 1.8(a), or whether entering into the transaction creates

a significant risk of materially limiting the lawyer’s ability

to represent his or her client, see RPC 1.7(a)(2). Given the

identity between the text of RPC 1.8(a) and the text of the

ABA rule on which it was modeled, we find the commentary

to ABA Rule 1.8(a) persuasive in interpreting the meaning

of Oregon’s rule. Specifically, we conclude that the accused

violated RPC 1.8(a) if he entered into a business transaction

with Smith-Canfield without first providing the advice that

that rule requires and obtaining the necessary consent.

The accused argues that, when he agreed to act

as Smith-Canfield’s real estate broker, he was not entering

into a “business transaction” with her within the meaning

of RPC  1.8(a). We reach a different conclusion. The com-

mentary to ABA Rule 1.8 explains that that rule applies to

transactions that are both unrelated and related to the sub-

ject of the legal representation. ABA Model Rules, Rule 1.8,

comment [1]. Specifically, the commentary states that the

rule “applies to lawyers engaged in the sale of goods or ser-

vices related to the practice of law, for example, the sale of

title insurance or investment services to existing clients of

the lawyer’s legal practice.” Id. If, as the commentary states,

the rule against entering into business transactions with a

client applies to the sale of title insurance, it is difficult to

see why it does not also apply to an agreement to serve as

the client’s real estate broker. That type of agency agree-

ment is a common feature of the real estate business and is

separate from the practice of law, even though, in this case,

“[t]he risk to a client is greatest when the client expects the lawyer to repre-

sent the client in the transaction itself or when the lawyer’s financial interest

otherwise poses a significant risk that the lawyer’s representation of the cli-

ent will be materially limited by the lawyer’s financial interest in the transac-

tion. [In that situation,] the lawyer’s role requires that the lawyer must com-

ply, not only with the [disclosure and consent] requirements of paragraph (a)

[of ABA Rule 1.8], but also with the [disclosure and consent] requirements

of [ABA] Rule 1.7.”

ABA Model Rules, Rule 1.8, comment [3].

Cite as 355 Or 679 (2014) 687

the agreement was ancillary to the accused’s representation

of Smith-Canfield in the bankruptcy proceeding.

The accused advances two contrary arguments. He

argues initially that, when a lawyer agrees to represent a

client, that agreement could be characterized as a “business

transaction.” He reasons, however, that no one would suggest

that an agreement to provide legal services is a business

transaction that is subject to RPC 1.8(a). In the accused’s

view, an agreement to serve as a real estate broker is no

different from an agreement to serve as a lawyer. It follows,

he concludes, that neither agreement should be viewed as a

“business transaction” to which RPC 1.8(a) applies.

Even if an agreement to provide legal services could

be characterized, in the abstract, as a “business transac-

tion,” the Oregon Rules of Professional Conduct regulate that

transaction differently from other business transactions.

For example, RPC 1.1 requires that a lawyer provide com-

petent legal representation to his or her client. RPC  1.2

governs when a lawyer can limit the scope of legal repre-

sentation. RPC 1.4 requires that a lawyer keep clients rea-

sonably informed about certain matters regarding the legal

representation. RPC 1.5 regulates the fees that a lawyer can

charge a client for engaging in legal representation.

We need not detail all the Rules of Professional Con-

duct that regulate agreements to provide legal services to

demonstrate that the Oregon Rules of Professional Conduct

regulate that transaction differently from other business

transactions. It follows, we conclude, that RPC 1.8(a) does

not apply to agreements to provide legal services but it does

apply to other business transactions.8

Were there doubt about the issue, the commentary to

ABA Rule 1.8(a) removes it. The commentary explains that

8

The commentary to ABA Rule 1.8(a) also notes that the rule does not apply

“to standard commercial transactions between the lawyer and the client for prod-

ucts or services that the client generally markets to others, for example, banking

or brokerage services, medical services, products manufactured or distributed by

the client, and utilities’ services.” ABA Model Rules, Rule 1.8, comment [1]. That

is, if the client generally markets services, such as banking services, to the pub-

lic, Rule 1.8(a) does not prevent the lawyer from availing him- or herself of those

services. In such transactions, the lawyer has no advantage in dealing with the

client, rendering the prohibition “unnecessary and impractical.” Id.

688 In re Spencer

ABA Rule 1.8(a) “does not apply to ordinary fee agreements

between client and lawyer, which are governed by [ABA] Rule

1.5.” ABA Model Rules, Rule 1.8, comment [1]. ABA Rule 1.8,

however, does apply to related business transactions, such

as “the sale of title insurance” and, we conclude, to an agree-

ment to serve as a client’s real estate broker. Interpreted in

the same way, RPC 1.8(a) protects clients from “the possibil-

ity of overreaching when the lawyer participates in a busi-

ness, property or financial transaction with the client,” such

as serving as the client’s real estate broker. Id. It also pro-

tects clients from (or puts them on notice of) the differing

obligations that lawyers and brokers may have in real estate

transactions. See California Formal Ethics Opinion 1982-69

(explaining that a real estate broker’s obligation to disclose

information can conflict with a lawyer’s obligation to protect

confidential client communications).

The accused advances a second argument. Starting

from the premise that the phrase “business transaction” in

RPC 1.8(a) does not include agreements to provide legal ser-

vices, the accused reasons that his agreement with Smith-

Canfield to serve as her real estate broker and to represent

her in the Chapter 13 bankruptcy proceeding were “differ-

ent parts of the same transaction.” It follows, he contends,

that both parts of that single transaction were exempt from

RPC 1.8(a). We do not doubt that the accused’s agreement to

serve as Smith-Canfield’s real estate broker was related to

his agreement to represent her in the bankruptcy proceed-

ing. As the commentary to the Model Rule notes, however,

the fact that “a sale of goods or services” is “related to the

practice of law” does not exclude it from being a business

transaction within the meaning of ABA Rule 1.8(a) and,

by extension, RPC 1.8(a). We agree with the Bar that the

accused violated RPC 1.8(a).

III.  RPC 1.7(a)

The Bar also alleged that the accused violated RPC

1.7(a). That rule provides that “a lawyer shall not represent

a client if the representation involves a current conflict of

interest,” unless the lawyer reasonably believes, among

other things, that he or she can provide competent and dil-

igent representation and the client gives informed consent

in writing, RPC 1.7(b)(1), (4). Because the accused did not

Cite as 355 Or 679 (2014) 689

obtain the requisite consent, the issue reduces to whether his

representation of Smith-Canfield “involve[d] a current con-

flict of interest.” On that issue, RPC 1.7(a)(2) provides that a

current conflict exists if “there is a significant risk that the

representation of one or more clients will be materially lim-

ited by * * * a personal interest of the lawyer.”

On review, the Bar advances two theories why

that risk existed here. It argues initially that the accused’s

personal financial interest in obtaining a share of the real

estate commission presented a “significant risk” of “materi-

ally limit[ing]” his legal representation of Smith-Canfield.

Alternatively, the Bar argues that a current conflict arose

when the City of Klamath Falls notified Smith-Canfield that

she needed either to restore the slope behind her house or

build an engineered retaining wall. The Bar contends that,

at that point, the accused’s “personal interest in avoiding

or minimizing his own potential liability as lawyer and/or

real estate broker for this purchase unavoidably inhibited

his ability to advocate on Smith-Canfield’s behalf.”

Whatever the merits of the Bar’s alternative theory,

the Bar did not allege that theory in its complaint, and it is

not properly before us. See In re Chambers, 292 Or 670, 676,

642 P2d 286 (1982); In re Ainsworth, 289 Or 479, 487, 614

P2d 1127 (1980). The Bar’s claim under RPC 1.7(a) accord-

ingly rests on its initial theory, which it did allege in its com-

plaint, that “[a]t all relevant times there was a significant

risk that the Accused’s representation of Smith-Canfield

would be materially limited by the Accused’s personal inter-

est in a sales commission.”

As we understand the Bar’s first theory, it runs

as follows. Smith-Canfield reasonably understood that the

accused would act as her lawyer in both the bankruptcy pro-

ceeding and the real estate transaction.9 She thus looked to

him for advice and guidance in protecting her from unnec-

essary legal risks in buying a home. The accused, however,

9

Smith-Canfield testified that she understood that the accused was acting

as her lawyer in both matters. On review, the accused does not dispute that point;

indeed, he argues that the transactions were so integrally related that they were,

in effect, one matter. Without a timely explanation to Smith-Canfield that he

was acting as her lawyer only in the bankruptcy proceeding, and the accused

provided none, we accept the premise of the Bar’s argument.

690 In re Spencer

had a financial interest in closing the real estate sale that

was independent of, and adverse to, his obligation to protect

Smith-Canfield’s legal interests in the real estate transac-

tion. Specifically, protecting Smith-Canfield’s legal inter-

ests in the real estate transaction could have prevented the

sale from closing and, as a result, could have precluded the

accused from recovering a sales commission. In the Bar’s

view, the accused’s conflict of interest is self-evident.

The accused responds that, even if his financial

interest in recovering a real estate commission was poten-

tially adverse to Smith-Canfield’s, that interest did not pose

a “significant risk” of “materially limiting” his representa-

tion. He notes that, as a real estate broker, he had a fidu-

ciary duty to advance Smith-Canfield’s interests. See ORS

696.810(3)(c) (imposing an affirmative duty on a buyer’s

real estate broker “[t]o be loyal to the buyer by not taking

action that is adverse or detrimental to the buyer’s interest

in a transaction”). He argues that the prospect of receiving

a commission if the real estate sale closed did not create a

conflict of interest any more than the prospect of receiving

a contingency fee creates a conflict of interest for a lawyer.

Both prospects pose a risk that a lawyer or a real estate

broker may put his or her own financial interest in receiv-

ing a fee ahead of the client’s interests. The accused notes,

however, that contingency fees are an accepted part of legal

practice, and he concludes from that fact that the prospect

of receiving a contingency fee (or a real estate commission)

does not pose a “significant risk” of materially limiting a

lawyer’s representation of his or her client.

In our view, neither party identifies the exact inter-

ests that are at stake when a lawyer seeks to serve both as

a client’s legal advisor and real estate broker. Contrary to

the Bar’s argument, the accused’s interest in obtaining a

share of the sales commission is not necessarily adverse to

Smith-Canfield’s interests. She had an interest in closing

the real estate deal so that she could shelter her assets from

creditors in the bankruptcy proceeding. The accused had a

parallel interest in closing the deal. Put differently, this is

not a situation where the accused’s financial interests were

directly adverse to Smith-Canfield’s. Cf. Restatement (Third)

Cite as 355 Or 679 (2014) 691

of the Law Governing Lawyers § 125 comment c, illustrations

1 and 2 (2000) (explaining that a lawyer could not represent a

client suing a business in which the lawyer or a close relative

held a significant stake because the lawyer’s and the client’s

interests would be directly adverse). Rather, the accused’s

interests were largely aligned with Smith-Canfield’s.

Conversely, and contrary to the accused’s argument,

the accused’s interest in acquiring a share of the sales com-

mission is not identical to a lawyer’s interest in recovering a

contingency fee. A lawyer will recover a contingency fee only

if the client succeeds in the matter on which the lawyer pro-

vides legal representation. In contrast, the accused’s ability

to recover a sales commission did not turn on whether he

advanced Smith-Canfield’s legal interests in the transac-

tion. Indeed, an insistence on protecting Smith-Canfield’s

legal interests could have prevented a sale from closing that,

from a broker’s perspective, may have made business sense.

Therein, we think, lies the problem in the accused’s serving

as both Smith-Canfield’s broker and lawyer. In advancing

his client’s business interests as a broker, the accused may

have discounted risks that, as a lawyer, he should counsel

his client to avoid or at least be aware of.10

In our view, the accused’s analogy between sales

commissions and contingency fees fails to recognize that he

may have different goals in seeking to advance his client’s

business interests as her broker and in seeking to advance

her legal interests as her lawyer. In this case, however,

the Bar has not alleged that those differing goals were the

source of a current conflict under RPC 1.7(a)(2). We accord-

ingly have no occasion to consider whether those differing

goals would give rise to a current conflict. Rather, the Bar

has alleged only that the prospect of recovering a share of

the sales commission created a current conflict. On that

narrow issue, we agree with the accused that ordinarily the

prospect of receiving a commission or a contingency fee is

not enough, standing alone, to create a “significant risk” of

10

For example, the accused testified that he advised Smith-Canfield to limit

the number of contingencies to keep the sale price low. While that may have

been a reasonable business strategy as a broker, that strategy did not necessarily

advance his client’s legal interests to the extent it left her exposed to the sort of

losses that occurred in this transaction.

692 In re Spencer

materially limiting the lawyer’s representation of his or her

client. The risk that a lawyer will disserve his client’s inter-

est to obtain a real estate sales commission is no greater

than the risk that a lawyer will disserve his client’s inter-

ests to obtain a contingency fee.

In that respect, we note that RPC 1.5 imposes only

limited restrictions on contingency fees. RPC  1.5(a) gen-

erally prohibits “illegal” and “clearly excessive fee[s],” and

RPC 1.5(c) prohibits contingency fees in certain domestic

relation cases and also in criminal cases. Beyond that, the

Rules of Professional Conduct rely on other, more general

rules to ensure that a lawyer does not place his or her own

interests in receiving a fee ahead of the client’s interests. See,

e.g., RPC 2.1 (providing that a lawyer “shall exercise inde-

pendent professional judgment and render candid advice”).

Those same, more general rules applied to the accused when

he undertook to represent Smith-Canfield’s legal interests

in the real estate transaction.

To be sure, the prospect of receiving a contingency

fee (or a real estate commission) poses a risk that a lawyer

(or a lawyer acting as a client’s broker) will put the lawyer’s

interests ahead of the client’s. However, we cannot say that

that prospect alone poses a “significant risk” that the law-

yer will do so. See ABA Model Rules, Rule 1.7, comment [8]

(explaining that “[t]he mere possibility of subsequent harm”

does not constitute a significant risk; there must be a “like-

lihood that a difference in interests will eventuate”); In re

Tonkon, 292 Or 660, 666, 642 P2d 660 (1982) (explaining

that former DR 5-101(A) required, at a minimum, a “substan-

tial risk” that the lawyer’s personal interest would affect his

or her advice). In this case, the Bar has based its claim that

the accused violated RPC 1.7(a)(2) solely on the allegation

that the prospect of receiving the commission posed a “sig-

nificant risk” of materially limiting the accused’s represen-

tation of Smith-Canfield. The Bar has not persuaded us that

that fact alone is sufficient.11

11

We do not foreclose the possibility that the evidence in a particular case

may show that either the size of the commission or a lawyer’s specific need for

immediate funds created a significant risk of materially limiting the lawyer’s

representation. That is not this case, however. Similarly, we do not foreclose the

possibility that additional aspects of the accused’s dual roles as a broker and

a lawyer may, either singly or in combination, give rise to a current conflict.

Cite as 355 Or 679 (2014) 693

The Bar advances two contrary arguments. First,

the Bar cites a 2006 Oregon State Bar ethics opinion as sup-

port for its position that the prospect of recovering a real

estate commission will always create a conflict of interest

for lawyers who serve as their clients’ legal advisors and

brokers in real estate transactions. The Bar notes that

“Oregon’s analysis of this issue is not unique” and cites eth-

ics opinions from three other jurisdictions, California, New

York, and Kentucky. In our view, those opinions provide less

support than the Bar perceives.

We begin with the Bar’s 2006 ethics opinion. The

question that opinion addressed was whether a lawyer

simultaneously could play three roles in a real estate trans-

action: (1) representing a client who wished to buy or sell real

estate; (2) acting as the real estate broker; and (3) acting as

the “mortgage broker or loan officer.” OSB Formal Opinion

2006-176. The opinion concluded that playing those three

roles simultaneously would create a current conflict under

RPC 1.7(a)(2) because “there is a significant risk that these

other roles would interfere with Lawyer’s representation of

Client.” The opinion also stated that “Lawyer’s interest in

fees or income from these other roles, if not also Lawyer’s

liability concerns from those other roles, would create a sig-

nificant risk that Lawyer’s ability to ‘exercise independent

professional judgment and render candid advice’ (Oregon

RPC 2.1) would be compromised.”

The Bar’s 2006 opinion considered whether a law-

yer can play three roles simultaneously.12 Two of those roles

would appear to be directly adverse (representing the buyer

in a real estate transaction and acting as the loan officer for

the lender in that transaction). Additionally, acting as the

seller’s broker could impose disclosure and other obligations

on the lawyer that conflict with the lawyer’s obligations to

his client. See State Bar of Cal., Standing Comm on Prof’l

However, the Bar’s RPC 1.7(a) claim in this case rests solely on the accused’s

interest in recovering a sales commission, and we limit our decision on RPC 1.7(a)

to that issue.

12

The Bar’s opinion appears to treat buyers’ and sellers’ real estate agents

as if they were interchangeable. As discussed more fully in the California ethics

opinion on which the Bar relies, buyers’ and sellers’ real estate agents may have

different obligations in the transaction with the result that those differing roles

may raise different conflict-of-interest questions.

694 In re Spencer

Responsibility and Conduct, Formal Opinion No. 1982-69

(1989). Finally, it is worth noting that the Bar’s opinion did

not rely solely on the financial incentive from those other

two roles (real estate broker and loan officer) in concluding

that a current conflict existed. It also factored a lawyer’s

concerns about liability from those roles into its conclusion

that a significant risk of limiting a lawyer’s ability to exer-

cise independent judgment existed. The broad combination

of circumstances and considerations that underlie the Bar’s

ethics opinion undercuts its persuasive value in considering

the narrow circumstance on which the Bar’s current claim

against the accused rests.

The California ethics opinion, on which the Bar also

relies, concludes that, when a lawyer serves as both a legal

adviser and a broker, four considerations create a current

conflict: (1) a broker’s duty of disclosure may conflict with

a lawyer’s duty of confidentiality; (2) a lawyer’s duty of loy-

alty may conflict with the expectation that the seller’s bro-

ker can provide advice to or represent both sides of the real

estate transaction; (3) the potential for receiving a commis-

sion “might lead the attorney to encourage consummation of

the transaction on terms and conditions which the attorney

might not endorse”; and (4) the obligation for a seller’s bro-

ker to share the commission could run afoul of the prohibi-

tion against sharing fees. Cal Formal Opinion No. 1982-69

(1989). The California opinion identified all four consider-

ations in concluding that a current conflict would exist; it

did not focus solely on the possibility of receiving a commis-

sion, as the Bar does in this case.

The 2012 New York ethics opinion on which the

Bar relies comes closer to the mark. See NY State Bar Ass’n

Comm. on Prof’l Ethics, Formal Op 919 (2012). That opin-

ion states that “a lawyer should not have a personal stake

in the advice rendered, and a broker who is paid only if the

transaction closes cannot be fully independent in advising

the client as a lawyer.” Id. (internal quotation marks omit-

ted). The opinion bases that statement on a series of cases

that find their source in a 1971 ethics opinion, NY State Bar

Ass’n Comm. on Prof’l Ethics, Formal Op 208 (1971). See NY

Ethics Op 919.

Cite as 355 Or 679 (2014) 695

The 1971 opinion relied on two rationales for find-

ing a conflict. The initial rationale—that lawyers may not

use a business, such as a brokerage service, to solicit clients

for their law practice—has been undercut by more recent

decisions recognizing that lawyers have a First Amendment

right to advertise their services. See NY Ethics Op 208

(stating that rationale); Cal Formal Opinion No. 1982-69

(recognizing that that rationale has been undercut by later

decisions).13 The 1971 New York ethics opinion noted, as

a subsidiary rationale, that there was a “possible conflict

between [the] client’s and [the lawyer’s] own personal inter-

est,” a conflict that the opinion grounded in both the prospect

of recovering a sales commission and the lawyer’s later act of

suing his client for it. NY Ethics Op 208. With the loss of the

primary rationale for its conclusion, the subsidiary rationale

in the 1971 opinion has become the sole rationale for the

conclusion that the 2012 New York ethics opinion reaches.14

The Kentucky ethics opinion the Bar cites reaches a simi-

lar conclusion. Bar Ass’n, Op KBA E-408 (1999). Although

we appreciate the conclusions that New York and Kentucky

have reached, we come to a different conclusion from those

two jurisdictions, for the reasons stated above.

The Bar appears to advance a second, retrospective

argument. The Bar recounts the events that surrounded

Smith-Canfield’s purchase of her home—namely, the advice

that the accused gave Smith-Canfield in structuring the

offer and the problems that she experienced after the city

notified her of the code violation. The Bar reasons that the

problems that Smith-Canfield experienced demonstrate

that the accused put his own interest in obtaining a sales

commission ahead of his obligation to protect his client’s

interests. We question, as an initial matter, whether that

13

The California ethics opinion explained that, historically, the prohibition

against lawyers acting as both legal advisors and brokers primarily reflected

a “concern that attorneys might use the non-lawyer occupation as a basis for

advertising and solicitation, with the rendering of non-lawyer services acting as

a ‘feeder’ of clients for the law practice.” Cal Formal Opinion No. 1982-69. It also

recognized that that primary concern has been undercut by First Amendment

decisions recognizing lawyers’ free-speech interests in advertising their services.

Id.

14

A 2002 ethics opinion drew the conclusion from the 1971 ethics opinion

that the 2012 ethics opinion repeats. See NY State Bar Ass’n Comm. on Prof’l

Ethics, Formal Op 753 (2002).

696 In re Spencer

sort of retrospective analysis is logically correct. The fact

that a client later experiences problems does not necessar-

ily mean that there was a “significant risk” of a conflict at

the inception of the attorney-client relationship or that any

risk that may have existed gave rise to the problems the

client experienced; the problems may have resulted from a

completely different cause. We need not decide that larger,

methodological question, however, to resolve the Bar’s retro-

spective argument here. In this case, the Bar has failed to

persuade us that the problems Smith-Canfield later expe-

rienced in fact derived from the specific risk that the Bar

alleged—the risk that the accused’s interest in recovering

a share of the sales commission would materially limit his

representation of Smith-Canfield.

As we understand the Bar’s argument, it starts

from the premise that a reasonable lawyer would have rec-

ommended that Smith-Canfield have a professional inspec-

tion, which would have disclosed the city code violation.

However, the only testimony in the record is that a profes-

sional inspection would not have disclosed the city code vio-

lation.15 Moreover, the accused explained why he did not rec-

ommend a professional inspection in this instance (the fact

that the house was relatively new and Smith-Canfield could

not afford a professional inspection). At the hearing, the Bar

offered no direct evidence that the accused’s stated reason

for recommending that Smith-Canfield waive a professional

inspection was not the reason that motivated him. Rather,

all that the Bar has pointed to is the accused’s prospect of

recovering a share of the sales commission if the sale closed,

and it infers that that prospect caused the accused to rec-

ommend that Smith-Canfield waive her right to ask for a

professional inspection.

As an abstract matter, we might question whether

the accused should have taken additional steps, as his cli-

ent’s lawyer, to protect her interests in purchasing a home.

On this record, however, the inference that the Bar draws

is a weak one. Considered as a whole, the record does not

15

The accused testified, and the Bar offered no contrary testimony, that a

professional inspection would have revealed the presence of dry rot and the like

but that it would not have revealed the city code violation that later came to light.

Cite as 355 Or 679 (2014) 697

provide persuasive support for the Bar’s argument that the

problems that followed Smith-Canfield’s purchase of her

home stemmed from the accused’s interest in recovering a

share of the sales commission. Put differently, the sequence

of events surrounding Smith-Canfield’s purchase of her home

does not persuade us that the prospect of recovering the

sales commission materially limited the accused’s represen-

tation of Smith-Canfield. That, however, is the only ground

that the complaint alleged for finding that the accused had a

current conflict under RPC 1.7(a)(2). Given the complaint’s

limited focus, we conclude that the Bar has not established

that the accused violated RPC 1.7(a).

We note that RPC 1.8(a) requires that a lawyer who

wishes to serve as his or her client’s broker in a real estate

transaction provide the requisite disclosure and receive the

client’s informed consent before doing so. If, as other juris-

dictions have held, additional aspects of a real estate trans-

action (on which the Bar does not rely here) can result in

a current conflict under RPC 1.7(a)(2), careful lawyers who

seek to serve as both a client’s legal advisor and broker in

the same real estate transaction would be advised to satisfy

the advice and consent requirements of both RPC 1.8(a) and

RPC 1.7(b). See ABA Model Rules, Rule 1.8, comment [3]

(recognizing that the same transaction can implicate both

rules and require that both consent requirements be satis-

fied).16

IV. SANCTION

Having concluded that the accused violated only

RPC 1.8(a), we turn to appropriate sanction.

“We first consider the duty violated, the accused’s state

of mind, and the actual or potential injury caused by the

accused’s conduct. We next decide whether any aggravating

16

Starting from the proposition that both lawyers and real estate brokers

owe similar fiduciary duties to their clients, the accused argues that it would vio-

late Article I, section 20, of the Oregon Constitution to treat a broker’s prospect

of receiving a sales commission differently from a lawyer’s prospect of receiving

a contingency fee. Because our interpretation of RPC 1.8(a) does not turn on the

prospect of receiving a commission, the accused’s Article I, section 20, argument

has no application to that holding. Because we hold that the Bar has not proved

a violation of RPC 1.7(a), we need not reach the accused’s Article I, section 20,

defense to that claim.

698 In re Spencer

or mitigating circumstances exist. Finally, we consider the

appropriate sanction in light of this court’s case law. In

determining the appropriate sanction, our purpose is to

protect the public and the administration of justice from

lawyers who have not discharged properly their duties to

clients, the public, the legal system, or the profession.”

In re Renshaw, 353 Or 411, 419, 298 P3d 1216 (2013) (inter-

nal citations omitted).

A.  Duty Violated

In violating RPC 1.8(a), the accused violated his duty

to Smith-Canfield to avoid conflicts of interest. American

Bar Association’s Standards for Imposing Lawyer Sanctions

(ABA Standards) 4.3 (1991) (amended 1992); see also RPC  1.8

(Rules of Professional Conduct categorize RPC 1.8 as involv-

ing “Conflict[s] of Interest: Current Clients: Specific Rules”).

B.  Mental State

In violating RPC 1.8(a), the accused acted know-

ingly; that is, he demonstrated a conscious awareness of the

nature or attendant circumstance of his conduct, but with-

out the conscious objective or purpose to accomplish a par-

ticular result. ABA Standards at 7; In re Schenck, 345 Or

350, 369, 194 P3d 804 (2008) (a lawyer acts knowingly when

the lawyer is consciously aware of essential facts giving rise

to violation, even if the lawyer does not think his or her con-

duct violates any rule).

C.  Actual or Potential Injury

We have concluded that the accused violated RPC

1.8(a) when he entered into a business transaction with

Smith-Canfield without advising her to seek independent

legal advice and giving her reasonable opportunity to do so,

and without obtaining her written consent. That rule viola-

tion caused potential injury to Smith-Canfield, because she

was denied the opportunity to consider the extent to which

the business transaction might place the accused in an

advantageous position or permit him to engage in overreach-

ing, or to consult independent counsel in that regard. That

rule violation also caused actual injury to Smith-Canfield.

Much of the accused’s advice to Smith-Canfield was based

Cite as 355 Or 679 (2014) 699

on his determination that the real estate transaction was a

good business deal that, in the accused’s view, posed little

risk. If the accused had clarified the role he was playing in

the transaction and advised Smith-Canfield to seek indepen-

dent legal advice, as RPC 1.8(a) requires, Smith-Canfield

could have obtained advice from a lawyer who focused sep-

arately on protecting her legal interests, without balancing,

as the accused did, the legal risks the transaction entailed

against the business benefits it offered. We conclude that

the accused’s failure to distinguish the two roles led to his

client’s experiencing actual harm.

D.  Preliminary Sanction

As noted, the accused’s misconduct under RPC  1.8(a)

implicated ABA Standard 4.3, which applies to conflicts of

interest. Under Standard 4.32, “[s]uspension is generally

appropriate when a lawyer knows of a conflict of interest

and does not fully disclose the possible effect of that conflict,

and causes injury or potential injury to a client.” That stan-

dard generally applies here.

E.  Aggravating and Mitigating Circumstances

The Bar argues that four aggravating circumstances

apply. We agree that two aggravating circumstances apply.

The accused has been disciplined before. See ABA Standard

9.22(a). In 2002, this court suspended the accused for

60 days for violating former DR 1-102(A)(3) (dishonesty,

deceit, and misrepresentation) after he assisted clients in

registering a motor home in Oregon when the clients did

not reside in Oregon, and former DR 9-101(C)(4) (failure

to return client property) for failing to return property to

a different, potential client. In re Spencer, 335 Or 71, 58

P3d 228 (2002). We assign moderate weight to those ethical

violations, given that there is more than one and that the

accused had been sanctioned for those offenses before engag-

ing in the misconduct at issue here. See In re Jones, 326 Or

195, 200, 951 P2d 149 (1997) (listing the factors to consider

in determining the weight to give prior ethical violations).

Additionally, the accused has substantial experience in the

practice of law. See ABA Standard 9.22(i).

700 In re Spencer

The trial panel found that the accused had acted

with a dishonest or selfish motive, ABA Standard 9.22(b),

because his “selfish interest in earning a commission in

[Smith-Canfield’s] purchase of her residence motivated

him to engage in the violations at hand.” We agree that the

accused had a financial interest in the business transaction,

in the form of his real estate commission, but the record

does not show that that financial interest caused him either

not to make the required disclosures to Smith-Canfield or

to fail to obtain her written consent. We therefore decline to

apply that factor.

The Bar argues that Smith-Canfield was a vulnera-

ble victim because she was an unsophisticated client in des-

perate financial circumstances. See ABA Standard 9.22(h).

The accused points out, however, that Smith-Canfield was

not an unsophisticated purchaser. She had owned real prop-

erty before and, at the time of the events at issue, was work-

ing as the controller for an automobile dealership. In the

course of that work, she regularly handled financial mat-

ters. We decline to apply the “vulnerability of victim” aggra-

vating factor.

One mitigating factor applies. The assistant disci-

plinary counsel testified at the trial panel hearing that the

accused “absolutely” had cooperated in the Bar’s investiga-

tion. ABA Standard 9.32(e).

F.  Case Law

This court has decided a number of cases involving a

single violation of former DR 5-104(A), the predecessor busi-

ness transactions rule. In In re Montgomery, 292 Or 796, 643

P2d 338 (1982) (Montgomery I), the court imposed a public

reprimand on a lawyer who had obtained an unenforceable

loan from a client with financial expertise without making

appropriate disclosures, when the client reasonably had relied

on the lawyer to exercise independent legal judgment. In In

re Whipple, 296 Or 105, 116, 673 P2d 172 (1983), the court

determined that a three-month suspension was warranted

for misconduct similar to that in Montgomery I because

the client in Whipple—unlike the client in Montgomery I—

had not been an “astute, knowledgeable businessman.” See

Cite as 355 Or 679 (2014) 701

also In re Baer, 298 Or 29, 688 P2d 1324 (1984) (60-day sus-

pension, when a lawyer purchased a home at the same time

as representing the sellers in the transaction and violated

a different conflict-of-interests rule); In re Brown, 277 Or

121, 559 P2d 884 (1977) (30-day suspension for violations

of the business transactions rule and another conflicts rule,

involving a lawyer’s ongoing business relationship with a cli-

ent and the client’s estate; no evidence that the lawyer acted

fraudulently or absconded with any funds). Finally, in In re

Montgomery, 297 Or 738, 687 P2d 157 (1984) (Montgomery

II), the court imposed a seven-month suspension on the

same lawyer in Montgomery I, after he purchased a client’s

building using complex financing arrangements that cre-

ated a risk that the client would not receive full payment of

the agreed sales price, and did not make full disclosures to

the client.

Longer suspensions are appropriate for multiple

rule violations, where the misconduct involved self-interest

and caused injury. See Schenck, 345 Or at 367-72 (one-year

suspension, when the lawyer entered into a loan agreement

with a client without obtaining consent in writing, together

with other rule violations); In re Wittemyer, 328 Or 448, 980

P2d 148 (1999) (120-day suspension, when a lawyer per-

suaded a widowed client to loan substantial sums to a busi-

ness for which he served as general counsel); In re Gildea,

325 Or 281, 926 P2d 975 (1997) (four-month suspension,

when the lawyer failed to account for client property and

engaged in a self-interest conflict and a business transac-

tion with a client); In re O’Byrne, 298 Or 535, 694 P2d 955

(1984) (four-month suspension for multiple rule violations,

including the failure to make full disclosure or advise cli-

ents to seek independent legal advice before entering into a

joint business venture with them; a longer suspension was

not warranted because no fraud or dishonesty was involved).

G.  Sanction

This case involves a single violation of RPC 1.8(1)(a).

Unlike most cases decided under former DR 5-104(A), the

accused’s misconduct did not involve nondisclosure or lack

of consent regarding a financial transaction in which the

accused’s role was directly adverse to or intertwined with

702 In re Spencer

the client’s, such as obtaining a loan from a client, engaging

in a real estate transaction with a client that involved both

the buyer and the seller, or commencing a joint business ven-

ture. If no aggravating factors applied and if Smith-Canfield

had not suffered actual injury, a public reprimand might be

an appropriate sanction. However, the accused’s prior viola-

tions coupled with the injury to Smith-Canfield persuade us

that a 30-day suspension is appropriate.

The accused is suspended from the practice of law

for a period of 30 days, commencing 60 days from the filing

of this decision.