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December 3, 2003

BGJ Associates v. Jeff Wilson, et al. (2003) 113 Cal.App.4th 1217

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Violation of the Rule of Professional Conduct against entering into business transactions with a client subjects an attorney to disciplinary proceedings, but is not a basis for civil liability without a corresponding statutory or common law proscription.

While Jerome Janger represented Maynard Brittan in a real property dispute they entered into a joint venture for the purchase of the property.  The parties reached an impasse while negotiating an operating agreement for this joint venture.  After becoming evident that the dispute could not be resolved, Janger substituted out as counsel for Brittan in the easement lawsuit.  Brittan eventually purchased the land independent of the joint venture.

When Janger sued Brittan for breach of contract, Brittan cross-claimed to rescind any agreement because of Janger’s breach of fiduciary duty.  The trial court found that Janger’s business venture with his client violated Rule 3-300 of the California Rules of Professional Conduct and its counterpart, Probate Code § 16004.  Since § 16004’s presumption of undue influence was not overcome, the alleged contract was found void as against public policy.

The Court of Appeal held that Janger was required to satisfy three requirements of Rule 3-300.  First, the transaction and its terms had to be fair, reasonable and fully disclosed to the Brittan.  Second, Janger was required to advise Brittan in writing that Brittan could seek the advice of independent counsel, and give him reasonable opportunity to do so.  Third, Brittan must consent in writing to the terms of the transaction.  However, violation of Rule 3-300 only subjects an attorney to disciplinary proceedings, it does not provide a basis for civil liability.

Probate Code § 16004 provides that a transaction during an ongoing attorney-client relationship is presumed to violate the attorney’s fiduciary duty and to have been entered into without sufficient consideration and under undue influence.  The Court of Appeal agreed with the trial court’s conclusion that the agreement was the result of undue influence and a violation of Janger’s fiduciary duties under § 16004.  Thus, the contract, while not void, was voidable at the election of Brittan.

Comment: This decision is consistent with precedent that rejects civil causes of action based solely on a violation of the Rules of Professional Conduct.  A violation subjects an attorney to civil liability only if a statutory or common law prohibition penalizes the conduct.

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