331 P.3d 1147
Wash.2014Background
- In 2004–2007, Brian Fair (manager of The Collection Group LLC, TCG) proposed a joint venture: TCG would provide 50% ownership in exchange for 50% of funding and no-cost legal/management services; Leslie Powers (attorney) and related entities (LKO, Law Firm, P&T Enterprises) became involved and provided funds and legal services without a written agreement.
- Payments from LKO appeared as counter checks handwritten “LK Operating, LLC” and were signed by a Law Firm employee; the Law Firm provided legal services to TCG without billing.
- Disputes arose in 2007 over ownership allocations and TCG’s cessation of portfolio purchases; LKO sued for declaratory relief/contract claims and Fair/TCG sued Powers for malpractice; cases were consolidated.
- The trial court found Powers violated former RPC 1.7 (conflict of interest) and granted rescission of the joint venture; it did not decide RPC 1.8(a) violations. The Court of Appeals affirmed rescission but based on an RPC 1.8(a) violation.
- The Washington Supreme Court reviewed due process arguments, whether former RPC 1.8(a) and 1.7 were violated as a matter of law, and whether rescission was an appropriate remedy.
Issues
| Issue | Plaintiff's Argument (Fair/TCG) | Defendant's Argument (Powers/LKO) | Held |
|---|---|---|---|
| Did appellate consideration of RPC 1.8(a) violate due process? | Court of Appeals could decide 1.8(a); parties had notice and chance to be heard. | Court of Appeals erred and deprived Powers/LKO of meaningful process. | No due process violation; parties had notice and opportunity to litigate 1.8(a). |
| Does former RPC 1.8(a) apply and was it violated? | The joint-venture proposal exchanged legal services for ownership; Powers provided legal services and did not comply with 1.8(a)’s written disclosure, independent counsel opportunity, or consent requirements. | The transaction was solely between nonlawyers (LKO and TCG); 1.8(a) therefore does not apply to LKO/TCG deal. | 1.8(a) applies to the entire set of arrangements; Powers entered the transaction as an attorney and violated 1.8(a) as a matter of law because the transaction and terms were not fully disclosed in writing. |
| Did Powers also violate former RPC 1.7? | N/A (plaintiffs relied on 1.8(a) and 1.7 in trial court). | Powers argued no simultaneous client relationship or informed-consent failure. | Yes; Powers simultaneously represented Fair/TCG and LKO without required disclosures/consent, breaching 1.7. |
| Is rescission an appropriate remedy for the RPC violations? | Rescission is warranted because the contract was formed in violation of RPC(s) and enforcement would contravene public policy. | Rescission is improper because RPCs are disciplinary tools and should not void a lawful third-party contract; LKO (an innocent investor) should not lose its bargain. | Rescission affirmed: contract entered in violation of 1.8(a) is presumptively unenforceable on public-policy grounds and rescission was appropriate on these facts. |
Key Cases Cited
- LK Operating, LLC v. Collection Grp., LLC, 181 Wn.2d 117 (2014) (this court's decision addressing 1.8(a), 1.7, due process, and rescission)
- Valley/50th Ave., LLC v. Stewart, 159 Wn.2d 736 (2007) (attorney bears burden to prove strict compliance with RPC 1.8)
- Hizey v. Carpenter, 119 Wn.2d 251 (1992) (RPCs should not create civil liability standards; limits on using RPCs in malpractice context)
- Belli v. Shaw, 98 Wn.2d 569 (1983) (prior Washington precedent recognizing RPC violations can affect contract enforceability)
- Sherwood & Roberts—Yakima, Inc. v. Leach, 67 Wn.2d 630 (1965) (inseparability and tainting of interconnected transaction terms)
- Danzig v. Danzig, 79 Wn. App. 612 (1995) (reluctance to apply disciplinary remedies via civil courts; limits on superior court disciplining attorneys)