Matter of Swartz

630 P.2d 1020, 129 Ariz. 288, 1981 Ariz. LEXIS 199
CourtArizona Supreme Court
DecidedJune 15, 1981
DocketSB-72-2
StatusPublished
Cited by12 cases

This text of 630 P.2d 1020 (Matter of Swartz) is published on Counsel Stack Legal Research, covering Arizona Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Matter of Swartz, 630 P.2d 1020, 129 Ariz. 288, 1981 Ariz. LEXIS 199 (Ark. 1981).

Opinion

GORDON, Justice:

Respondent-attorney John F. Swartz was charged with unethical conduct in a formal complaint dated March 23, 1979. The Local Administrative Committee found respondent to have violated Disciplinary Rules 1-102(A)(4) 1 and 7-102(A)(3) 2 and recommended that he be suspended from the practice of law for a period of six months. The findings and recommendations of the Committee were approved by the Disciplinary Board of the State Bar of Arizona on a vote of six in favor and one opposed. Respondent objected to the action of the Disciplinary Board, and the matter is now before this Court pursuant to Rule 37, Rules of the Supreme Court, 17A A.R.S.

In the early 1960’s respondent was one of a number of purchasers of the Denny Ranch, a cattle ranch in Arizona consisting of approximately 47,000 acres in Mohave, Coconino and Yavapai Counties. The fifteen or sixteen co-purchasers resided in Michigan, California, Florida and Arizona and owned various percentages of the property due to differences in their investments. Each had been induced by respondent to invest in the Denny Ranch purchase and each had been assured by respondent that he personally would guarantee that they would not suffer financially for having made the investment. Because of this assurance, respondent bought out several investors, resulting in respondent and his brother increasing their investment to an undivided 18% ownership each in the property.

A Mr. Regorrah of Detroit at one time owned a 25% interest in the ranch. After Regorrah died in 1969, his interest passed to the Regorrah Trust, which was represented by Mr.' David Raitt, an attorney in Detroit, Michigan. At least 25% of the remaining ownership interests were held by Phoenix investors who were informally represented by Phillip Marr.

Respondent acted as attorney in fact for his fellow investors, including the Regorrah Trust, in connection with their sale of the ranch. The agreement concerning his authority to act on the investors’ behalf was that he was to handle the sale in ways which met with the approval of those who owned a majority interest in the ranch. Respondent testified that when a matter needed to be decided, he would contact everyone who owned an interest in the property, if possible, and abide by the decision of those in the majority in ownership. Most decisions were made by respondent after contacting Mr. Marr, because the consensus of over 50% of the ownership in the ranch could be obtained through the agreement of respondent and his brother, who together owned 36% of the ranch, and Mr. Marr, who represented 25% or more of the investors.

*290 In early 1972 the investors in the ranch received an offer from a Mr. Albert Burke, a real estate broker, who was previously known by respondent, to purchase the Denny Ranch for the sum of $4,700,000 with $10,000 payable at the close of escrow and the balance to be paid in varying installments beginning on April 19, 1973. Pursuant to respondent’s authority as attorney in fact, an escrow was established for the sale to Burke. The escrow closed on June 13, 1972, with Burke having nominated the Albert Burke Corporation as the buyer.

One of the terms of the escrow instructions provided that Foster Mori, Burke’s attorney, would receive 9% of the purchase price as attorney’s fees, and that respondent would receive 1% of the purchase price as attorney’s fees. It is undisputed that all co-investors-sellers, including the Regorrah Trust, were aware of these provisions and understood that the 9% referred to as Mori’s attorney’s fees was in actuality a reduction of the purchase price of the ranch or a rebate in favor of Burke. Mori testified that his arrangement with Burke was that he would collect the 9% and hold it for him, because at the time of the establishment of the escrow Burke had not yet decided whether to treat this sum as a real estate commission or a lower cost base for the property, which depended on how he would later develop or sell the ranch.

Prior to the close of escrow, the preliminary title report showed that it was not possible to convey clear title to Burke or his corporation because of the existence of certain timber and mineral reservations outstanding on the property in favor of a third party. In order to get the buyer to waive these defects in title, respondent, acting on his own behalf and also on behalf of his co-investors, agreed by letter dated June 13, 1972, to use every effort to get the reservations removed before September 30, 1972, and, if unsuccessful, to allow the buyer to elect to either rescind the sale with full refund or have the purchase price of the ranch reduced by $1,000,000. This agreement evidently satisfied Burke as his corporation allowed the escrow to close, which had the effect of saving the sale.

Within a year or two after the close of escrow the sale developed problems. Burke’s corporation was in default in its first installment payment and, because a subdivision plat had been recorded on the ranch, the real estate taxes had increased from $4,000 per year on the ranch to $100,-000 per year. It appeared to respondent at this point as though the deal was going to fall through and the sellers would have to cancel the sale and repossess the ranch with the attendant increased tax obligations. This result would be costly to respondent both as a repossessing owner and as an indemnitor who would be called upon to make good on his promise to reimburse his co-investors. At this stage, acting for himself and his co-investors, respondent amended the sale agreement allowing more desirable parcels to be sold earlier by Burke.

Thereafter, some sales were made by the Burke corporation to individual purchasers, and upon the closing of these sales some small amounts of money were sent to Mori by virtue of the escrow instruction that he receive the 9% attorney’s fee. After consulting with Burke, Mori deposited these amounts in his trust account.

Respondent and Burke then agreed to a change in the status of the 9% attorney’s fees to be received by Mori in order to, as respondent explains it, give some additional protection to himself and to his co-investors to secure Burke’s performance. Respondent convinced Burke to hold the funds that were accruing to Burke’s benefit in Mori’s trust account to secure respondent and his co-investors until approximately $1,000,000 worth of property had been sold to third parties. What respondent got Burke to agree to do was to not use the money which was accruing through this source until a minimum amount of sales had occurred. Because respondent and Burke were friends, Burke agreed to this and advised Mori to hold these funds subject to respondent’s directions. To achieve this result, rather than notifying the title company of a change in the escrow instructions or the agreement of sale, Mori prepared the following document:

*291 “DECLARATION OF TRUST
“The undersigned does hereby declare that the 9% commission payable to the undersigned under the terms of Escrow No. 104138 with Title Insurance Company of Minnesota or the commissions payable to the undersigned under the terms of Trust Nos. 591 or 592 are in fact being received by the undersigned as trustee for the full use and benefit of John M. Swartz.

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Cite This Page — Counsel Stack

Bluebook (online)
630 P.2d 1020, 129 Ariz. 288, 1981 Ariz. LEXIS 199, Counsel Stack Legal Research, https://law.counselstack.com/opinion/matter-of-swartz-ariz-1981.