In the Matter of James C. Wollrab
Original Proceeding in Discipline Appeal from the Office of
the Presiding Disciplinary Judge 16PDJ062
Attorneys for Complainant-Appellee: James C. Coyle, Attorney
Regulation Counsel Jacob M. Vos, Assistant Regulation Counsel
Denver, Colorado
Attorneys for Respondent-Appellant: Fennemore Craig, P.C.
Troy R. Rackham Denver, Colorado
OPINION
HART
JUSTICE
¶1
In this attorney-discipline proceeding, we are confronted
with questions as to what Colorado Rules of Professional
Conduct 1.8 and 4.2 require of an attorney who enters into a
business relationship with his client. Respondent James C.
Wollrab asks us to reverse the Opinion and Decision Imposing
Sanctions Under C.R.C.P. 251.19(b) of the Presiding
Disciplinary Judge. Specifically, Wollrab appeals the Hearing
Board's conclusions that: (1) he violated Rule 1.8(a)
when he entered into a lifetime lease with his client's
company without following the Rule's requirements; (2) he
violated Rule 1.8(a) when he entered into an option agreement
with his client without complying with those requirements;
(3) he violated Rule 4.2 when he drafted that same option
agreement and had his client sign it without the knowledge of
the client's independent counsel; and (4) a suspension
from the practice of law for a year and a day was the
appropriate sanction for his misconduct.[1]
¶2
We conclude that the Hearing Board correctly determined that
Wollrab violated Rule 1.8(a) when he signed a lease with his
client's company. We also agree that Wollrab violated
Rule 1.8(a)(3) when he entered into an option agreement with
his client without obtaining his client's informed,
written consent to his role in the deal. Because Wollrab had
the implied consent of his client's independent counsel
for the purposes of the option agreement, however, we reverse
the Hearing Board's determination that he violated Rule
1.8(a)(1) and (2) and Rule 4.2 in the option agreement
transaction. We remand this case to the Hearing Board for
determination of the appropriate sanction in light of these
conclusions.
I.
Facts and Procedural History
¶3
Wollrab was admitted to the Colorado bar in 1972. In 1975, he
opened his own litigation firm in Boulder, Colorado, taking
both criminal and civil cases.
¶4
Laszlo and Wendy Bagi ("Laszlo Bagi" or
"Bagi," and "Wendy Bagi," respectively,
and "Bagis," collectively) run a residential and
commercial HVAC business, Bagi Mechanical, in Boulder. Since
1991, Wollrab has represented the Bagis in a variety of legal
matters, and he had an attorney-client relationship with them
at all times relevant to this case. Bagi considered Wollrab
his attorney "in everything," except for matters
outside of his expertise. For instance, the Bagis usually
hired Clark Edwards, a corporate attorney, as counsel for
their more complex business transactions. In addition,
Wollrab and the Bagis spent holidays together, and Wollrab
and Bagi were drinking buddies. Their attorney-client
relationship was informal: they established a barter
arrangement for their services in 2009, in which Wollrab
"intuitively" kept track of the balance between the
two.
¶5
The Bagis ran Bagi Mechanical out of leased offices in an
industrial space on the outskirts of Boulder ("the
Foothills property"). In 2010, the Bagis formed
Foothills Management Group, LLC ("FMG"), which, at
Wollrab's recommendation, obtained an option to purchase
the Foothills property. To exercise the option, FMG had to
provide $50, 000 in earnest money by April 15, 2011. After
searching unsuccessfully to find funding, and as the option
was nearing expiration, Bagi inquired whether Wollrab was
interested in investing in the property. In April 2011,
Wollrab decided that he wanted to invest in the Foothills
property and insisted that Bagi retain Edwards to represent
him in this deal. He did not, however, obtain the informed,
written consent of the Bagis to his involvement in the deal.
Edwards understood that Wollrab and Bagi had been having
"considerable discussion[s]" about the deal, and
did not prohibit or limit those discussions in any way after
he was retained.
¶6
On April 19, 2011, Wollrab, Bagi, and Edwards met for two
hours to discuss the deal and to hash out the terms of an
option for Wollrab's investment. They agreed that for
$50, 000, Wollrab would obtain an option for a fifty percent
ownership in BWI, LLC-a new company to which FMG would assign
its option on the Foothills property-which could be exercised
for an additional contribution of $150, 000. Edwards
understood that Wollrab would thus be providing the funds to
exercise the original FMG purchase option.
¶7
Wendy Bagi had tendered a check to exercise FMG's
purchase option on April 15, 2011, which was the last day the
option could be exercised. On April 19, however, that check
was returned for insufficient funds. To keep the option
alive, the Bagis needed to provide $50, 000 that very day.
Thus, only hours after his meeting with Wollrab and Edwards,
Bagi came to Wollrab's office, urgently needing $50, 000.
Wollrab attempted to call Edwards in order to have him draft
a document reflecting the payment of $50, 000, but could not
reach him. Wollrab then quickly drafted the following
"Option to Purchase" (the "Option"),
which both he and Bagi executed that afternoon:
Laszlo Bagi and [FMG] has [sic] a contract to purchase 105
acres known as Foothills Business Park . . . . Laszlo Bagi
and [FMG] is grants [sic] an option to James C. Wollrab to
purchase fifty percent undivided interests [sic] in the
property for $150, 000.00 to be exercised at Mr.
Wollrab's discretion at any time within the next ten
years. Until the option is exercised, Laszlo Bagi and [FMG]
and any of their assigns, successions [sic] in interest,
partners, or joint ventures agree that the property will be
rented under the management of Laszlo Bagi for not less than
$60, 000 month [sic] until the note and deed of trust are
paid . . . for approximately 2.4 million dollars.
Wollrab
believed the Option to be a binding document to protect his
investment and intended to rely on it if needed. Wollrab
drafted a check for $50, 000, which Bagi took. Wollrab
emailed and faxed the signed Option to Edwards that same day.
Edwards did not respond or object to either the email or the
fax.
¶8
Weeks after Wollrab and Bagi signed the Option, Wollrab sent
an email to Edwards that stated, in pertinent part:
This letter is my offer to have a business relationship with
Laszlo Bagi. I need an acknowledgment that Laszlo Bagi has
been a client of mine for several years. That this proposal
to buy real estate together was not part of any of the legal
work that I did for Mr. Bagi. . . . Your firm is representing
him throughout the negotiations and your firm is drafting the
closing documents for the purchase and the closing documents
between myself and your clients . . . .
Ultimately,
the deal to have FMG or BWI purchase the Foothills property
fell through. A month later, Bagi purchased the property via
a new entity, Green Hill Investments, LLC ("GHI").
Bagi was both part-owner and manager of GHI. Wollrab was not
a party to this new deal.
¶9
Soon after GHI purchased the Foothills property, Wollrab
mentioned to Bagi that he was looking for new office space.
Bagi encouraged him to move his office into the Foothills
property, rent-free, in exchange for legal work that Wollrab
had previously performed without yet being compensated. In
September 2011, Wollrab asked Bagi for a lease to guarantee
that he would not have to move again before he retired in a
few years. Wollrab also wanted to protect his use of the
office space-including a below-market lease rate-against
subsequent purchasers and preserve his ability to sublease
the space. Bagi initially told Wollrab that he did not need a
lease, but eventually agreed and sent Wollrab a copy of
GHI's standard industrial lease-a fourteen-page document
with fifty-four numbered provisions-which had been approved
by the company's mortgage provider.
¶10
Wollrab took GHI's standard lease and "cut out
everything that didn't apply," reducing it to one
page (the "Lease"). Wollrab excised every standard
tenant commitment that appeared in the standard lease,
including tenant obligations to pay a security deposit, to
secure insurance, to pay a pro rata share of utilities, to
obtain consent to sublease or assign, to waive rights to
recovery against the landlord for loss or damage on the
premises, and to comply with the law. He also removed
landlord protections from the standard lease, including the
right to cancel the lease in the event of condemnation or
casualty, remedies available upon tenant's default,
and-critical to later events-a clause providing that the
parties would not record the lease. Wollrab also added
several key, unusual provisions that added additional
obligations to GHI: requirements to keep the building
"clean and professional"; to make improvements to
the ceiling, floor, and stairway "satisfactory to the
tenant"; to install air conditioning; and to prohibit
other tenants from using the premises for residential uses
while allowing Wollrab to use his offices for residential or
office use. Finally, Wollrab drafted the Lease to give
himself a lifetime tenancy at a rate of $3.00 per square
foot, or approximately $3000 per year in rent, including
insurance, maintenance, and taxes.
¶11
Bagi, as manager for GHI, signed the Lease. Wollrab never
advised Bagi to consult another attorney about the
Lease's terms, nor did he obtain Bagi's informed,
written consent to the ...