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When a lawyer enters into a business transaction with his client where they have differing interests and when the client expects the lawyer to exercise his professional judgment in that transaction for the protection of the client, the lawyer should at least advise the client to seek outside counsel. If the advice to seek outside counsel has not been given, or though given, has not been taken, then full disclosure would require the type of advice which a prudent lawyer would be expected to give the client if the client consulted the lawyer regarding such a transaction to a third person.
In November of 1976, Gerald Bosworth represented Mrs. Helen Folse, in an action relating to the death of her husband. Said action was settled and Bosworth received attorney's fees in the sum of $370,000.00. At the same time, Bosworth borrowed an additional sum of $50,000.00 from Folse. He provided no collateral despite his assurances to Mrs. Folse that said note was fully secured and also failed to include a provision for attorney’s fees in a note that he prepared and submitted to Mrs. Folse. Said note matured on November 29, 1977, and, despite repeated requests, Bosworth failed, refused and neglected to pay said sum of $50,000.00 to Mrs. Folse, who has been compelled to retain an attorney to assist her.
A formal investigative hearing was held on March 12, 1984, as provided by article 15, section 3(b) of the articles of incorporation. Bosworth was present at the hearing and was represented by counsel and testified in his own behalf. Based upon the evidence adduced at this hearing, the committee, by a majority vote, was of the opinion that Bosworth had been guilty of a violation of the laws of this state relating to the professional conduct of lawyers and to the practice of law of sufficient gravity as to evidence a lack of moral fitness for the practice of law.
Did Mrs. Folse validly consent to the loan after full disclosure by Bosworth?
Mrs. Folse testified that when Bosworth asked if he could borrow $50,000.00 and she agreed, he then replied, "Don't worry about it, Helen, I will give you a promissory note with interest and everything. I can assure you you will get paid." She also testified that she was aware that Bosworth and his wife were involved in domestic litigation. Notwithstanding these facts, Bosworth made no further disclosure to Mrs. Folse. He did not furnish her with a financial statement nor did he provide or offer to provide collateral to secure the loan. Moreover, he did not disclose his true financial situation. Although Bosworth testified that he had earned in excess of a million dollars in legal fees in 1976, at the time he borrowed the money from Mrs. Folse, he had no other funds with which to operate his law firm except the fee he earned in the Folse case. Out of that fee, a total of $337,000.00 went to two banks to pay off loans and the remainder went to his ex-wife. Bosworth further testified that his office overhead was such that he had used up the entire $50,000.00 loan for payroll by the time his community property was settled in December of 1976. The Court is convinced that had Bosworth made full disclosure to Mrs. Folse, or had Mrs. Folse sought the advice of outside counsel, the loan would not have been made. Thus, Mrs. Folse's consent was not given after full disclosure by Bosworth.