In re Complaint as to the Conduct of LEONARD D. DuBOFF, Respondent.
OSB 19-123; SC S069006
Supreme Court of Oregon
February 16, 2023
370 Or 720; 525 P3d 62
Argued and submitted September 22, 2022
The Oregon State Bar brought a disciplinary action against respondent, alleging a violation of Oregon Rule of Professional Conduct (RPC) 1.8(a), which prohibits the lawyer from entering into a “business transaction” with the client unless certain requirements are met. Held: On de novo review, the Court held that (1) respondent‘s agreement with the clients that the clients would pay some or all of the amounts that they owed respondent‘s law firm with construction services was a “business transaction” within the meaning of RPC 1.8(a); and (2) respondent violated RPC 1.8(a) when he entered into that business transaction with the clients without fully disclosing the essential terms of the transaction in writing.
Respondent is publicly reprimanded.
On review of the decision of a trial panel of the Disciplinary Board.
David J. Elkanich, Buchalter, P.C., Portland, argued the cause and filed the briefs for respоndent. Also on the briefs was Amber Bevacqua-Lynott.
Eric Collins, Assistant Disciplinary Counsel, Tigard, argued the cause and filed the brief for the Oregon State Bar.
Before Flynn, Chief Justice, Duncan, Nelson, Garrett, and DeHoog, Justices, and Balmer and Walters, Senior Judges, Justices pro tempore.*
PER CURIAM
Respondent is publicly reprimanded.
In this lawyer disciplinary proceeding, respondent Leonard D. DuBoff challenges the conclusion of a trial panel of the Disciplinary Board that respondent had violated
Respondent has been a member of the Oregon State Bar since 1977. He describes his practice as focused on business law, art law, international law, copyright and trademark law, high-tech law, and publishing and entertainment law. Around 1999, respondent‘s law firm began representing Mr. Leascu and Mrs. Leascu and their construction company, Dependable Home Remodeling, Inc. For many years, the relationship was that of lawyer and clients, with respondent representing the clients on a variety of legal matters and the clients paying respondent‘s charges for those legal services. That changed around November 2014, when respondent started hiring the clients to perform construction projects on properties that he owned. Around the same time, the clients’ need for legal services began to substantially increase, and they accumulated a large outstanding balance for those legal services.
At some point, the clients proposed that they could work off their accruing legal fees by performing additional construction projects for respondent, and respondent agreed to the proposal. As respondent described at the disciplinary hearing, he and Mr. Leascu agreed that respondent “would pay for out-of-pocket expenses” on the construction projects but that Mr. Leascu‘s “labor, his employees’ labor, [and] independent contractors’ labor” on the projects “would be used to offset the legal fees” that the clients owed to respondent‘s firm.
The agreement was in effect at least by July 2015, when respondent emailed a letter to the clients with the subject line “In[-]Kind Payments for Legal Services.” The letter “confirm[ed]“:
“We have now agreed that you will pay some or all of the amounts you owe, or will owe in the future, to The Duboff Law Group with construction services including but not limited to carpentry, electrical, plumbing, painting, and the like, instead of by paying with money.”
The letter then explained:
“Oregon ethical rules consider such an in[-]kind payment arrangement to be a business transaction between the law firm and [the] client. The DuBoff Law Group will not be representing you in this business transaction.
“The Duboff Law Group will continue to calculatе its billings based on its then-standard hourly rate and will credit you for the in[-]kind payments based on your rates for the work you perform. You will provide this firm with a 1099 form for the value of these in[-]kind payments.”
The letter went on to describe potential risks to the arrangement, including that respondent‘s “interests in this transaction could at some point be different than or adverse to” those of the clients. “Specifically,” the letter advised, there was a possibility that respondent‘s firm and the clients “may disagree as to the value of the in[-]kind payments, or a dispute may arise over how a refund will [be] made if necessary.”
The clients signed and dated the letter under a statement that read, “I hereby consent to the legal representation, the terms of the business transaction, and the lawyer‘s role in [the] transaction as set forth in this letter.”
For the next two years, the clients worked on multiple projects for various residential and commercial properties that respondent or his family members owned, including: numerous projects at an address in Portland where respondent‘s son and his family lived; a complete remodel of the Portland home where respondent‘s daughter lived; six projects at respondent‘s Portland home; several projects at two cabins that respondent owned in Nehalem; and a renovation of a property that respondent intended to sell. In addition, for nearly a year, Mr. Leascu took on the job of performing landscaping work twice a month at respondent‘s personal residence, and he handled tasks like snow-removal and emergency repairs at two office parks in which respondent had an interest.
Although Oregon law requires a written contract for residential construction projects exceeding $2,000,
Throughout the years of this arrangement, the clients sent invoices totaling more than $300,000 for the clients’ costs on the various projects, and respondent paid the invoices. Mr. Lеascu testified, however, that the invoices included only his costs for labor and materials for the job. They did not include charges for his time and his wife‘s time on the project, because Mr. Leascu understood that those charges would be offset against legal fees. Mr. Leascu also did not charge respondent for things like bringing equipment and trailers to the job—things that he considered to be “overhead.” And Mr. Leascu did not include charges for profit on the jobs.
For reasons that are not apparent from the record, however, the clients never submitted an accounting of the services that they understood could be credited against their legal fees. And respondent never asked for documentation of those services until 2017, when he became dissatisfied with the clients’ construction services. In a June 2017 email to the clients, respondent demanded that the clients provide documentation for all of their work on the projects and emphasized his frustration with their failure to provide the documentation:
“The agreement we had was that, when doing any contractor work for us, you would charge us for the actual ‘out of pocket’ cost of materials and we would pay for those materials. You also agreed that you would keep track of the time you, your employees and any independent contractors worked on our jobs and provide a description of the work performed as well as letting me know how much time was spent on each job and what the total labor costs for that job [were] as well.”
Respondent‘s email insisted that the clients “were supposed to provide those descriptions, times and prices on a regular basis” but “never did.” The email concluded that respondent was “very disappointed” in the way that the clients had conducted themselves and that his firm would be withdrawing from all representation of the clients, their family, and all the family businesses. Respondent had given the clients no credit against accrued fees for the work that they had performed on his properties, and he demanded that the clients pay their outstanding bill—which exceeded $175,000—“immediately.”
Respondent eventually filed a lawsuit against the clients on behalf of himself, several family members, and two business entities that respondent owns. The complaint alleged negligence, negligence per se, fraud, conversion, nuisance, breach of contract, and unlawful trade practices, and it sought almost $1,000,000 in damages.2 At the suggestion of the clients’ nеw counsel, the Leascus sent a letter to the Bar‘s Client Assistance Office describing their experience with respondent.
After an investigation, the Bar charged respondent with one violation of
“(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:
“(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 counsel on the transaction; and
“(3) the client gives informed consent, in a writing signed by the client, 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.”
At the trial panel proceeding, respondent argued that
The trial panel disagreed. It determined that respondent had entered into a “business transaction” with his clients and that respondent had failed to satisfy several of the requirements that
II. DISCUSSION
In this court, respondent reprises his argument that his arrangement with the clients was not a “business transaction” for purposes of
RPC 1.8 sets out numerous specific rules governing circumstances that create a conflict of interest between a lawyer and current clients. As explained above, paragraph (a) is the requirement at issue in this case. For convenience, we again set out the text of the rule:
“(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:
“(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 counsel on the transaction; and “(3) the client gives informed consent, in a writing signed by the client, 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.”
This court has previously explained that
A. “Business Transaction”
The first question that we must resolve is whether the arrangement between respondent and the clients was a “business transaction” for purposes of
In fact, considering only the common meaning of the term “business transaction,” there is little doubt that the term describes the arrangement between respondent and the clients. The clients, who were in the business of performing construction projects, entered into an ongoing arrangement with respondent in which the clients performed numerous construction projects that respondent asked them to perform, and respondent agreed to compensate them for performing those projects. That arrangement fits the ordinary usage of the term “business transaction.” See Webster‘s Third New Int‘l Dictionary 302 (unabridged ed 2002) (defining “business” as “a usu[ally] commercial or mercantile activity customarily engaged in as a means of livelihood and typically involving some independence of judgment and power of decision“); id. at 2425-26 (defining “transaction” as “an act, process, or instance of transacting” or “something that is transacted“); id. at 2425 (defining “transact” as “to prosecute negotiations : carry on business“).4
Moreover, our decision in Spencer, and the commentary to Model Rule 1.8(a) that Spencer highlights, identify important general principles that point to the same conclusion. In the transaction at issue in Spencer, the lawyer had advised a prospective bankruptcy client that it would be advantageous to her bankruptcy case if she promptly applied money from the sale of property to the purchase of a home. 355 Or at 680. When the prospective client expressed concern about finding a home that she could afford, the lawyer explained that he also was a real estate broker and could help her with the real estate purchase. Id. The client agreed to have the lawyer represent her both in the bankruptcy and the real estate purchase, and the arrangement eventually led to a Bar complaint against the lawyer for violating
This court concluded that the real estate arrangement in Spencer was a “business transaction.” Id. at 688. In reaching that conclusion—as set out above—this court looked to the commentary to Model Rule 1.8(a) as “persuasive in interpreting the meaning of”
But respondent understands Spencer to have identified two exceptions to the otherwise broad category of “business transactions,” and respondent relies on both exceptions to contend that his transaction with the clients was not a “business transaction” within the meaning of
Respondent‘s first argument depends on a distinction that we noted in Spencer between a “business transaction” and a “standard commercial transaction.” 355 Or at 687 n 8. We observed that the commentary to Model Rule 1.8(a) indicates that “‘standard commercial transactions between the lawyer and the client for products or services that the client generally markets to others‘” are not considered to be “business transactions” for purposes of the rule. Id. (quoting ABA Model Rules, Rule 1.8, comment [1] (emphasis omitted)). We explained that excluding such transactions aligns with the protective purpose of the Model Rule because, “[i]n such transactions, the lawyer has no advantage in dealing with the client, rendering the prohibition ‘unnecessary and impractical.‘” Id. (quoting ABA Model Rules, Rule 1.8, comment [1]). Although Spencer did not expressly consider whether
Although the Commentary to Model Rule 1.8 does not specifically define a “standard commercial transaction,” it provides guidance by describing the relevant “standard commercial transactions” as those “for products or services that the client generally markets to others.” ABA Model Rules, Rule 1.8, comment [1]. And we find further relevant guidance in the parallel section of the Restatement (Third) of the Law Governing Lawyers, which also excludes “standard commercial transactions” from the reach of the rule governing “business transactions” with a client. Restatement (Third) of the Law Governing Lawyers § 126 comment c (2000). The Restatement describes “standard commercial transactions” as “those regularly entered into between the client and the general public, typically in which the terms and conditions are the same for all customers.” Id.
According to respondent, when he first began hiring the clients to perform construction projects for him—what respondent calls “Phase 1“—the arrangement was a “standard commercial transaction,” because the clients performed construction services that they “generally marketed to others” and for which respondent paid “just as any other customer would.”
We need not decide whether respondent entered into a “standard commercial transaction” when he first hired the clients to complete a construction project, because the arrangement that respondent describes as “Phase 2“—the period when he agreed to provide a credit against the client‘s legal fees for portions of the construction projects that the clients agreed to perform—was not a “standard commercial transaction.” Although the clients were in the business of performing construction projects, the terms and conditions on which they offered their construction services to respondent differed
Respondent also argues, alternatively, that the arrangement after July 2015 was simply a “modification” of his original fee agreement with the clients, and thus—according to respondent—not subject to
But Spencer addressed only “agreements to provide legal services,” and the July 2015 letter was not an agreement to provide legal services. The letter does not describe any legal work that respondent was agreeing to perform for the clients or describe any fees that respondent intended to charge for legal work—apart from indicating that respondent‘s firm “will continue to calculate its billings based on its then-standard hourly rate.”
Moreover, Spencer‘s conclusion that fee agreements are regulated “differently from other business transactions,” flowed from the premise that such agreements are separately regulated under thе rules governing the lawyer‘s legal representation and the fees that the lawyer can charge. 355 Or at 687. That reasoning and conclusion would extend to a “modified fee agreement” only if the modified agreement also is governed by the rules that regulate the lawyer‘s legal representation or the fees that the lawyer can charge. But respondent has offered no persuasive reason to conclude that the construction services agreement in this case, which did not modify respondent‘s legal representation or the fees that he would charge for that representation, should be understood as a modified fee agreement that would be regulated by
Instead, the record reflects that respondent and the clients had multiple fee agreements covering different categories оf legal work that respondent had agreed to perform for the clients. And the July 2015 letter does not modify the legal work that respondent had agreed to perform under any of those prior fee agreements. Nor does it modify the rate that respondent would charge for those services. In fact, it does not identify any other term of any of the prior fee agreements that is being modified. Rather, the letter describes a parallel agreement under
Respondent acknowledges that some agreements related to the payment of a legal fee can be subject to
We emphasize that
interpreting the meaning of”
Thus, both the text and purpose of
Having concluded that respondent‘s arrangement with the clients was a “business transaction” within the meaning of
“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;”
and that
“the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction ***”
The Bar argues that respondent failed to meet the requirements of
When evaluating conflicts of interest, this court has required strict adherence to the terms of the conflict-of-interest rules. See In re Lawrence, 332 Or 502, 512, 31 P3d 1078 (2001) (explaining that the lawyer violated former DR 5-101(A)(1), which required “full disclosure,” in writing, of a conflict of interest, and rejecting the lawyer‘s argument that he had complied with the “spirit” of the rule by taking various actions to protect the client‘s interests); In re Leuenberger, 337 Or 183, 212-13, 93 P3d 786 (2004) (concluding that the lawyer violated former DR 5-101(A)(1) when he failed to advise the client to seek independent legal advice, notwithstanding that the lawyer had notified the client orally and in writing of potential conflict of interest). In In re Brandt/Griffin, 331 Or 113, 124-25, 10 P3d 906 (2000), for example, two lawyers sent a disclosure letter to a client in an effort to comply with former DR 5-101(A), regarding a waiver of a potential personal conflict of interest. This court determined that the content of the letter was insufficient to show the nature and extent of the potential divergеnce of the lawyers’ and the client‘s interests. Id. at 136. And this court concluded that the lawyers had violated the rule, even though the client had obtained independent legal advice about the conflict. Id. at 136-37. In so concluding, this court‘s focus was on the sufficiency of the writing and not on the client‘s subjective understanding of the conflict of interest. Id. at 137.
As set out above,
In pertinent part, the July 2015 letter provided:
“This letter confirms that we have now agreed that you will pay some or all of the amounts you owe, or will owe in the future, to The Duboff Law Group with construction
services including but not limited to carpentry, electrical, plumbing, painting, and the like, instead of by paying with money. “Oregon ethical rules consider such an in[-]kind payment arrangement to be a business transaction between the law firm and [the] client. The DuBoff Law Group will not be representing you in this business transaction.
“The Duboff Law Group will continue to calculate its billings based on its then-standard hourly rate and will credit you for the in[-]kind payments based on your rates for the work you perform. You will provide this firm with а 1099 form for the value of these in[-]kind payments.”
Respondent argues that there was no ambiguity in any of the terms in the writing and that the clients were not confused about the description of the services they were to provide in exchange for a credit against their legal fees. Respondent points out that Mr. Leascu had been in the construction industry for decades and argues that he would have fully understood what was meant by the part of the letter stating that the clients would pay their legal bill with “construction services” rather than with money. Respondent also points to testimony from Mrs. Leascu that she understood that she and her husband “would do repair, remodeling work and [that Mr. Leascu‘s] work would be credited
toward the bills.” Finally, respondent emphasizes that he advised the clients to “consider the situation carefully,” recommended that they consult with another lawyer, and obtained their written consent to the agreement.
But the letter nonetheless omits other terms that we conclude were essential to this business transaction. For example, the letter does not specify how the parties would determine what construction projects the clients would perform, for whom, when they would be performed, or—most significantly—how respondent would calculate the amount of credit that he would provide to the clients for their services. Instead, the letter sets out only that the credit will be “based on your rates for the work you perform,” which does not describe how the clients would calculate those “rates” and whether the credit would include other standard costs on a construction project, such as overhead, equipment usage or profits. The failure to specify how the client‘s credit would be determined is a particularly significant omission given that respondent recognized at the time of his letter that there was a risk that the clients and the firm might in the future “disagree as to the value of the in[-]kind payments.”
In addition, the July 2015 letter fails to disclose other terms that respondent himself considered to be essential to the arrangement, such as which out-of-pocket costs he would pay and what documentation he would require from the clients. For instance, when respondent eventually wrote to the clients to explain that he was terminating his representation of them, he emphasized:
“The agreement we had was that, when doing any contractor work for us, you would charge us for the actual ‘out of pocket’ cost of materials and we would pay for those materials. You also agreed that you would keep track of the time you, your employees and any independent contractors worked on our jobs ***”
And later, in testimony before the trial panel, respondent emphasized that he intended the clients to exclude costs for labor performed by the client‘s employees and independent contractors from the “out of pocket” costs for which respondent would pay:
“Well, the essential terms are I would—my wife and I would pay for out-of-pocket expenses for equipment and materials. [Mr. Leascu] would list his labor, his employees’ labor, independent contractors’ labor; and that would be used to offset the legal fees he owed my firm.”
The July 2015 letter does not describe that limitation on the out-of-pocket costs for which rеspondent intended to pay.
Respondent‘s termination letter to the clients also includes references to terms that were not included in the July 2015 letter. For example, the termination letter states that the clients had agreed to “provide a description of the work performed as well as letting [respondent] know how much time was spent on each job and what the total labor costs for
Given those omissions, we are persuaded that the July 2015 letter failed to “fully disclose[]” the “essential terms” of the transaction by which the clients agreed to provide construction services in exchange for a credit against their legal fees. And respondent has identified no other writing that disclosed those terms. Thus, respondent‘s business transaction with the clients violated
C. Summary
We reiterate that
D. Sanction
Both parties have agreed that, if this court concludes that respondent violated
Respondent is publicly reprimanded.