BEFORE THE DISCIPLINARY BOARD OF THE
WASHINGTON STATE BAR ASSOCIATION
DOUGLAS SCHAFER, ANSWER
Bar No. 8652
As the above-named Respondent lawyer in this proceeding, I answer the Formal Complaint filed 5/26/99 in this proceeding as follows:
Count 1 (Confidentiality)--Admissions and Denials of Factual Allegations
Complaint ¶ 1. I admit, except that the last business matter as to which I advised or represented Mr. Hamilton was prior to 1996.
Complaint ¶ 2. I admit that I advised or represented Mr. Hamilton in a variety of business transactions, but I deny that I advised or represented him concerning the transaction in which he purchased a bowling alley called Pacific Lanes from Grant L. Anderson as Personal Representative of the Estate of Charles C. Hoffman, Deceased. I admit that in August 1992, I prepared papers at Mr. Hamilton's request to form a corporation that he indicated would be entering into that transaction. Except as admitted, this paragraph's allegations are denied.
Complaint ¶ 3. I admit that in July 1995, I represented Don Barovic, as co-counsel with two other lawyers, in contested proceedings that were assigned to Pierce County Superior Court Judge Grant L. Anderson. I admit that Judge Anderson's rulings in those cases caused me to doubt his competency as a judge, but not his fitness as a judge or integrity. My doubts as to his fitness and integrity were not caused by his rulings, but by the comments that I recalled Mr. Hamilton having made to me about him in 1992, and my doubts were later heightened by my investigation concerning the Hoffman Estate. Except as admitted, this paragraph's allegations are denied.
Complaint ¶ 4. I assert that I began my investigation of Grant L. Anderson's conduct concerning the Estate of Charles C. Hoffman on 7/28/95, when I checked-out that estate's court file and reviewed it in the court clerk's office. After a hearing in a Don Barovic matter before Judge Anderson on 12/15/95, I checked-out and copied in full the court file from the Hoffman Estate, and I then began communicating with third parties and obtaining public records concerning Grant L. Anderson and his actions as personal representative of the Hoffman Estate. Except as admitted, this paragraph's allegations are denied.
Complaint ¶ 5. I admit that I reviewed the Hoffman Estate court file. I deny that I possessed or reviewed any file concerning Mr. Hamilton's purchase of Pacific Lanes from the Hoffman Estate, but I admit that I reviewed a file of mine concerning Mr. Hamilton's formation of Pacific Recreation Enterprises, Inc. that he formed to purchase Pacific Lanes from the Hoffman Estate.
Complaint ¶ 6. I admit that I met with Mr. Hamilton on 12/18/95 to inquire of him about Grant L. Anderson's integrity. I deny that I outlined any efforts (by me or anyone else) to expose allegedly unscrupulous judges on the Pierce County Superior Court bench in general, or Judge Grant L. Anderson in particular.
Complaint ¶ 7. I deny that I told Mr. Hamilton I had reviewed any of his files, but I told him that I recalled his comments to me 1992 about Grant L. Anderson having "milked" the Hoffman Estate and about Mr. Hamilton's intention to repay him in some way for the good deal Anderson had given him on Pacific Lanes.
Complaint ¶ 8. I deny that Mr. Hamilton gave me any warning, about attorney-client privilege or anything else. He urged me not to "look for dirt" about Judge Anderson, but simply to run against him if I didn't like him.
Complaint ¶ 9. I admit that 2 or 3 days after my 12/18/95 meeting with Mr. Hamilton, he learned that I had inquired of William J. Rhodes, an officer of Sound Banking Company, if Mr. Hamilton had transferred to Judge Anderson the common stock (worth more that $50,000) of that closely-held bank that Judge Anderson reported he acquired in 1993, according to his Public Disclosure Commission filings. I admit that I represented Mr. Hamilton, Mr. Rhodes, and other organizers in the formation of Sound Banking Company in 1990. Except as admitted, this paragraph's allegations are denied.
Complaint ¶ 10. I admit that Mr. Hamilton then called me and firmly admonished me to stop investigating Judge Anderson, but I deny the other allegations of this paragraph.
Complaint ¶ 11. I admit that on 2/2/96, I presented to Judge Anderson, via his judicial assistant, a pleading titled "Motion of Prejudice and Supporting Statement" that included the following:"Concerning, specifically, Department 12 (Judge Grant L. Anderson), I do not believe that I or my client, Don Barovic, can receive fair and impartial rulings by him. He has presided and made discretionary rulings in two other cases involving disputes between members of the Barovic family, namely Foley and Roseberg v. Barovic and Barovic (Cause No. 93-2-07375-1, hereafter the "Partition Action") and In re Estate of Mike Barovic (Cause No. 94-4-00800-8). Subsequent to those rulings, I have determined, through reviewing Public Disclosure Commission reports and other documents, that opposing (and successful) counselors in those cases (Messrs. Dille, Campbell, and Vandenberg) had been public endorsers and financial contributors to Judge Anderson's prior election campaign to this Court and/or the Washington State Supreme Court. The receiver selected by Judge Anderson in the Partition Action, Mr. Dayle Collison, was also a campaign contributor of his, and presently is now the listing agent for one of the partitioned properties awarded recently in the action jointly to the sisters who opposed my client.
"In addition, I personally have been making inquiries into the handling by Judge Grant L. Anderson, during the almost four years, and particularly the last few months, before he became a judge, of the Estate of Charles C. Hoffman (Cause No. 89-4-00326-3). Based upon the public documents that I have reviewed and the individuals with whom I have spoken, I believe that a full investigation into his and his firm's handling of that estate is necessary. Attorney S. Alan Weaver, who represents Key Trust Co. of the Northwest in this action, represented Mr. Anderson in his capacity as personal representative in the Hoffman Estate; and Mr. Weaver is aware of my investigation into that matter. I also know that Judge Anderson's judicial assistant, Ms. Fontana (a/k/a Ms. Van Sittert), who was an associate lawyer at his firm during the period in question, and other former members of his firm are aware that I am investigating that matter; and I believe that Judge Anderson likely has been made aware of my activities in that regard. If a full investigation by appropriate authorities or private counsel for affected parties confirms my suspicions, then Judge Anderson may be removed from the bench."I admit that Judge Anderson thereupon recused himself from any Barovic family cases. Except as admitted, the allegations in paragraph 11 of the Complaint are denied.
Complaint ¶ 12. I admit that on 2/1/96, Mr. Hamilton faxed me a letter that he had addressed to me that stated, "you do not presently represent me" and "you have no authority to disclose any privileged information." Except as admitted, the allegations of this paragraph are denied.
Complaint ¶ 13. I admit these allegations: that I met on 2/1/96 with Mr. Hamilton and his lawyer Phil Sloan at the latter's office, and I then reviewed with them the results of my investigation of Judge Anderson.
Complaint ¶ 14. I assert that Mr. Sloan told me that because I began looking into Judge Anderson's handling of the Hoffman Estate as a result of Mr. Hamilton's comment to me about him, I was barred by the attorney-client privilege from disclosing anything about that investigation to anybody. I admit that Mr. Sloan faxed me a scrawled note on 2/2/96 at 3:36 p.m. that stated, "Bill H. instructs you not to disclose any communications re Grant Anderson to anyone." Except as admitted, the allegations of this paragraph are denied.
Complaint ¶ 15. I admit that on 2/16/96, I prepared and executed a document titled "Declaration Under Penalty of Perjury," a full copy of which is attached as Exhibit 1, that included the excerpt quoted in the ¶ 15 of the Complaint. I admit that on 2/29/96, I prepared and executed a document titled "Memo" addressed to "Appropriate Public Officials," a full copy of which is attached as Exhibit 2. I admit that I provided these documents, along with copies of voluminous public records and other memoranda that I prepared, to the Washington Commission on Judicial Conduct, the Washington State Bar Association's Office of Disciplinary Counsel, the Office of the Washington Attorney General, the Office of the Pierce County Prosecutor, the Federal Bureau of Investigation, and the Internal Revenue Service Criminal Investigations Division. The Commission on Judicial Conduct staff had graciously duplicated for me the voluminous public documents so that I might deliver full sets to each of these appropriate public officials, and had graciously reimbursed me for the out-of-pocket expenses of $247.51 that I had incurred to obtain those public documents.
Count 1 (Confidentiality)--Defenses.
Defense 1.1. A Lawyer's Moral Duty to Report Judicial Corruption. The Rules of Professional Conduct ("RPC") are not the exclusive guide for the moral and ethical conduct of lawyers. The RPC preamble describes lawyers as "guardians of the law" and acknowledges that "[n]ot every situation which a lawyer may encounter can be foreseen." The Washington Supreme Court has acknowledged that lawyers have inherent moral and ethical duties as "officers of the court" to protect the judicial system from true threats. In State v. Hansen, 122 Wn.2d 712, 721 (1993), the Court, applying no authority but relying on common sense and values held "that attorneys, as officers of the court, have a duty to warn of true threats of harm to members of the judiciary communicated to them by clients or third parties." [Emphasis added.] The Court offered no hair-splitting academic analysis to distinguish between cases in which the lawyer's client communicated in confidence a third party's threat to harm a judge--disclosure of which would violate the lawyer's duty of confidentiality to that client under RPC 1.6(a)--from a case in which disclosure of a client's own criminal intentions is permitted by RPC 1.6(b)(1). This case illustrates that there is room within the boundaries of legal ethics for a moral and ethical lawyer "to do what is right," regardless of what any black-letter rules may provide, for the rules drafters cannot foresee every ethical encounter.
A lawyer may do, and must do, what is fundamentally right to protect the judicial system from true threats. When a lawyer learns that a judge's bodily integrity is threatened, the lawyer is permitted, and in fact since 1993 in this state has an affirmative duty, to warn the judge, without regard to any confidentiality duties under the RPCs. Likewise, when a lawyer learns that the judicial system's integrity is threatened by the presence of a corrupt judge, the lawyer should be permitted (in fact, should be required) to report the corrupt judge to appropriate authorities, without regard to any confidentiality duties under the RPCs. Protecting citizens from lawless judges is no less important than protecting judges from lawless citizens, for "[a]n independent and honorable judiciary is indispensable to justice in our society." [Emphasis added.] Code of Judicial Conduct, Canon 1.
Defense 1.2. Crime-Fraud Exception to Attorney-Client Confidentiality. Countless judicial decisions nationally, including several by the courts of this state going back 100 years, have recognized a crime-fraud exception to the general policy that communications between an attorney and a client are protected by confidentiality. Under the judicially-created crime-fraud exception, courts refuse to afford confidential protection to communication with an attorney by a client to further a criminal or fraudulent purpose. The Federal Court of Appeals for the Second Circuit explained the rationale for the crime-fraud exception as follows:"Whereas confidentiality of communications and work product facilitates the rendering of sound legal advice, advice in furtherance of a fraudulent or unlawful goal cannot be considered 'sound.' Rather advice in furtherance of such goals is socially perverse, and the client's communications seeking such advice are not worthy of protection." In re Grand Jury Subpoena Duces Tecum Dated Sept. 15, 1983, 731 F.2d 1032 (2nd Cir., 1984).Mr. Hamilton engaged me in 1992 to form a corporation in furtherance of his and his friend Grant L. Anderson's fraudulent goal of exploiting the Hoffman Estate, including transfering Pacific Lanes from the Hoffman Estate to Hamilton's corporation upon terms and conditions more favorable to Hamilton than would exist in an arm's length transaction. As Mr. Anderson was the court-appointed personal representative of the Hoffman Estate, such a transaction was a fraudulent breach of his fiduciary duty of loyalty. Attached as Exhibit 3 is a demand letter by counsel for the hospital beneficiary of the Hoffman Estate alleging, at paragraph 8, that Mr. Anderson sold Pacific Lanes to Mr. Hamilton for at least $500,000 less than fair market value.
Based upon the crime-fraud exception to attorney-client confidentiality, my disclosure of any communications by Mr. Hamilton to me concerning his acquisition of Pacific Lanes, the Hoffman Estate or its personal representative, Grant L. Anderson, did not violate any privilege of his or any duty of mine that those communications be protected.
Defense 1.3. A Lawyer's Moral Duty to Rectify or Mitigate Fraud. The national tide of responsible legal ethics opinion is swelling in support of the recognition, in formal codes of legal ethics, that lawyers have a moral duty to rectify or mitigate frauds that the lawyer has unknowingly furthered for a dishonorable client. The American Bar Association's ("ABA") Commission on the Evaluation of Professional Ethics (popularly called the "Ethics 2000 Commission") is recommending the ABA's adoption of a revised Rule 1.6 to the Model Rules of Professional Conduct that will permit lawyers to fulfill that moral duty. Proposed Rule 1.6, Public Discussion Draft of March 23, 1999, posted at http://www.abanet.org/cpr/e2k/rule16draft.html. The American Law Institute similarly now recognizes that a lawyer may ethically disclose client confidences to rectify or mitigate the client's fraud upon a third party. ALI, Restatement of the Law Governing Lawyers, Section 117B (Proposed Final Draft No. 2, April 6, 1998). It is only a matter of time before the Washington Supreme Court comes to the same recognition and amends RPC 1.6 accordingly.
The current ABA Model Rule 1.6, that bars disclosures to rectify or mitigate client frauds, has been criticized since its adoption in 1983:"Many lawyers will chafe under a rule that threatens to punish them if they do what they know is morally right. The public, when it understands these implications, will not praise the profession for granting maximum protection to clients, but will condemn the profession for imperiously decreeing that its 'ethics' supersede prevailing notions of morality." Professors G. Hazard, Jr., and W. Hodes, The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct, Section 1.6:302 (2nd Ed., 1998 Supp.).A lawyer should not be punished for conduct that he knows is morally right, particularly when the black-letter ethics rule he allegedly broke is in the process of being changed to comport with prevailing notions of morality and to permit lawyer conduct such as the lawyer committed.
As a result of my disclosures and revelations in the resulting Commission on Judicial Conduct proceedings, the defrauded public hospital beneficiary of the Hoffman Estate made claims against Mr. Anderson, Mr. Hamilton, and their cohorts for over $1 million, and settled before litigation for payment by them of $500,000. The hospital's administrator testified to a committee of the Washington Legislature on 3/18/99 that the hospital was shorted about $1.5 million by them.
Defense 1.4. A Lawyer's Duty to Report Misconduct by Court-Appointed Fiduciary. In 1990, the Washington Supreme Court recognized that client confidentiality should not have priority over protecting the integrity of the judicial process. The State Bar Board of Governors recommended a change to RPC 1.6 upon recognizing that a lawyer could be disciplined for reporting his client's theft of estate funds or other serious misconduct while serving as guardian or personal representative. The Board felt, and the Supreme Court agreed, that the goal of protecting estate beneficiares from misconduct by court-appointed fiduciaries was more important than the goal of preserving clients' confidences. The report by the drafting committee explained the rationale for the change as follows:"Such a change would reach the major concern which the Board of Governors and our Committee has with Washington's present RPC's which require that the Rule on client's confidence take precedence over the Rule on candor to the Tribunal even in cases where the client is a court-appointed fiduciary and the victims of his fraud are the very beneficiaries whose interest the court proceedings were instituted to protect. Report of Subcommittee on Rule Change re: Misappropriation by Guardian or Personal Representative. Page 8. (August 30, 1989).The change was the adoption of RPC 1.6(c), stating:"(c) A lawyer may reveal to the tribunal confidences or secrets which disclose any breach of fiduciary responsibility by a client who is a guardian, personal representative, receiver, or other court appointed fiduciary."I assert that the policy underlying the 1990 adoption of this provision applies equally to a lawyer's revelation to appropriate officials of confidences of a client who is knowingly acting in concert with a court-appointed fiduciary to breach his responsibilities to the court and to the beneficiaries whose interests the judicial proceeding is intended to protect. The provision should be interpreted accordingly, and should be formally amended accordingly.
Defense 1.5. Whistleblower Protection Policies. Wise governmental leaders over the years have recognized that effective enforcement of our laws and rules depends in great part upon the willingness of citizens to report violations of those laws and rules to appropriate officials. They further have recognized that the fear of adverse personal consequences will deter many, if not most, citizens from reporting the unlawful or improper acts of others. Various protective provisions have been enacted or adopted to protect whistleblowers in such circumstances.
Rule 12.11(b) of Washington's Rules for Lawyer Discipline purports to grant absolute protection to persons who report lawyer misconduct to State Bar officials, as I reported lawyer/judge Grant L. Anderson. That rule states that such communications "are absolutely privileged, and no lawsuit predicated thereon may be instituted against any grievant, witness or other person providing information." RCW 2.64.080 provides a similar shield to persons providing information to the Commission on Judicial Conduct, making their statements "absolutely privileged in actions for defamation." The Washington Legislature adopted a comprehensive whistleblower protection bill in 1989, codified at RCW 4.24.500 through -.520. The central provision of that bill, RCW 4.24.510, provides:"A person who in good faith communicates a complaint or information to any agency of federal, state, or local government regarding any matter reasonably of concern to that agency shall be immune from civil liability on claims based upon the communication to the agency. A person prevailing upon the defense provided for in this section shall be entitled to recover costs and reasonable attorneys' fees incurred in establishing the defense."I communicated in good faith the information to appropriate federal, state, and local agencies about the misconduct by Mr. Hamilton, Mr. Anderson, and others. The policy underlying the state's whistleblower protection provisions, if not their express terms, should prevent the prosecution against me of this disciplinary proceeding for which the potential civil sanctions are the revocation of my license to practice law and the assessment against me of potentially great costs and expenses.
Defense 1.6. Information from Mr. Hamilton Not a Confidence or Secret. Not every communication from a layman to an attorney is a confidence or secret. The purpose behind granting communications the protections afforded those categories is to permit free and open communications by clients to lawyers in order to obtain legal advice. Mr. Hamilton engaged me solely to form his corporation after he had made his deal with his friend Grant L. Anderson for the purchase of Pacific Lanes. The communications by Mr. Hamilton to me concerning his friend Grant L. Anderson's "milking" of the Hoffman Estate had nothing whatsoever to do with Mr. Hamilton's purpose in coming to me to form his corporation; neither did his boastful comment that he was getting a good deal on Pacific Lanes and would pay back Mr. Anderson later. No reasonable client could think that such comments might be germaine to the engagement of a lawyer to form a corporation. They were simply boasts about misconduct that he and Mr. Anderson had gotten away with or were about to get away with.
Defense 1.7. Advice of Counsel. Before communicating to appropriate public officials about the misconduct of Judge Anderson and Mr. Hamilton concerning the Hoffman Estate, I sought and received advice from two Seattle University Law School professors with recognized expertise in legal ethics. I met for nearly an hour on 2/5/96 with Professor John A. Strait about the ethical aspects of reporting their misconduct, and he supported my doing so, as I subsequently did. I also the same day sought advice from Professor David Boerner, who informed me later that he discussed my inquiry with Professor Strait after I had met with the latter, and that he concurred with the advice I had been given by his colleague.
When a lawyer is faced with a difficult ethical decision that requires balancing important interests of the public at large against the private interests of a former, dishonorable client, the lawyer should not be judged too harshly for, after getting advice from two experts on legal ethics, taking the moral path that is most protective of the public's interests.
Count 2 (False Statement/Orlando)--Admissions and Denials of Factual Allegations
[Webmaster's Note: Count 2 was dropped on Jan. 6, 2000.]
Complaint ¶ 16. I admit that on 12/15/95 I presented Pierce County Superior Court Commissioner James Orlando in chambers with a routine, fill-in-the-blanks proposed order permitting me to remove the Hoffman Estate court file from the County-City Building.
Complaint ¶ 17. I deny the allegations of this paragraph. I did not tell Commissioner Orlando that I "was representing some people who had purchased property from the estate and who had several questions concerning the probate."
Count 2 (False Statement/Orlando)--Defenses.
[Webmaster's Note: Count 2 was dropped on Jan. 6, 2000.]
Defense 2.1. Truth. Commissioner Orlando has admitted in writing that he prepared, at the specific request of one of his direct supervisors--Judge Grant L. Anderson--a written declaration in May of 1996 accusing me of having made the false statement to him in mid-December of 1995 when I presented to him in chambers a routine order to check-out the Hoffman Estate court file. Commissioner Orlando recently acknowledged by letter to me of 2/10/99, "My memory is not foolproof, and I tried to recall in 1996 the extent of our December 15, 1995 exchange to best of my ability." Statements that Commissioner Orlando made in his declaration about the court file are contrary to the condition of the court file at the time of our 1995 exchange. Commissioner Orlando may have recalled inaccurately, or may even have misunderstood comments that I may have made in 1995, but there is no truth in the allegation that I made a false statement to him.
Defense 2.2. Materiality. The allegedly false statement, even if it were made, would not have been material. Under established practices and local rules of the Pierce County Superior Court, its Clerk, and its local bar, any lawyer or legal assistant acting for a lawyer may obtain from any judicial officer an order permitting removal from the building of any unsealed, public court file without needing to identify their client or their reason for the request. Furthermore, without even needing any order they could readily photocopy the entire file within the building using a copier in the law library or in the local bar's attorney lounge.
Defense 2.3. Elements and Form of Proof. The only possible evidence supporting this accusation is the testimony of Commissioner Orlando, that I adamantly deny. The Washington Supreme Court recently declared that in attorney discipline cases, a finding of fact that the lawyer made a false statement requires the elements and form of proof that are required to prove perjury. The falsehood "must be shown by the testimony of two witnesses or one witness with other corroborative evidence." Discipline of Huddleston, 137 Wn.2d 560, 570 (April, 1999). A mere allegation by one witness is insufficient.
Count 3 (False Statement/Hamilton)--Admissions and Denials of Factual Allegations
[Webmaster's Note: Count 3 was dropped on Jan. 6, 2000.]
Complaint ¶ 18. I admit making within my "Declaration Under Penalty of Perjury" dated 2/16/96 (Exhibit 1) the statement "Hamilton was telling me about major structural problems he had encounted with the Pacific Lanes building, for which he recently recovered his costs from the insurer." I deny that the statement was false.
Complaint ¶ 19. I deny for lack of knowledge the allegation of when the issue of cost recovery was decided between Mr. Hamilton and his insurer. I admit that he received a check for $525,000 from the insurer on 1/4/96 in full settlement of their dispute.
Count 3 (False Statement/Hamilton)--Defenses.
[Webmaster's Note: Count 3 was dropped on Jan. 6, 2000.]
Defense 3.1. Truth. The statement that I made on 2/16/96--"he recently recovered his costs from the insurer"--was a true statement, for Mr. Hamilton had fully recovered his costs of repairing the structure as well as his lost profits and any other damages 43 days earlier--on 1/4/96. He may have mentioned that to me when we met on 2/1/96. I had understood from his comments when we met on 12/18/95 that he had beaten the insurer on the coverage issue and either had been or was about to be reimbursed for his costs to repair the building. As it now has been over three-and-a-half years, I do not recall exactly what caused me to state on 2/16/96 that he had recovered his costs from the insurer. But, by 2/16/99 when I made the allegedly false statement, he clearly had.
The chronology that I have recently been given by a representative of the insurer shows that by the time I met with Mr. Hamilton on 12/18/95, negotiations had centered on just how much above and beyone the cost of repairs to the structure would be necessary for a settlement. Mr. Hamilton had won a summary judgment against the insurer on 9/29/95 on the issue of coverage for his initial $150,000 claim for the structural damage. How the settlement amount ballooned to $525,000 by 1/4/96 is unknown to me.
Defense 3.2. Knowledge of Falsity. RPC 4.1(a) declares it misconduct for a lawyer to knowingly make a false statement of a material fact to a third person. Even if the allegedly false statement was false, and even if it is deemed to be material, I deny that I knew that it was false. I genuinely believed it to be true.
Defense 3.3. Materiality. RPC 4.1(a) declares it misconduct for a lawyer to knowingly make a false statement of a material fact to a third person. For the life of me, I fail to see how any reasonable and honest person could read the Declaration Under Penalty of Perjury and conclude that the allegedly false statement was material in the context in which it was made.
Respondent's Address for Service of Documents
Pursuant to RLD 4.5(a)(3), I request that documents in this proceeding be served on me by mailing them to me at: P.O. Box 1134, Tacoma, WA 98401-1134.
Signed on July 6, 1999.
/s/ Douglas A. Schafer
Douglas A. Schafer, WSBA No. 8652