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In re Wollrab

Supreme Court of Colorado, En Banc

June 25, 2018

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


          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 ...

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