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Commonwealth of Massachusetts

NO. BD-2006-092

IN RE: MICHAEL J. DUGGAN

S.J.C. Order of Term Suspension entered by Justice Cowin on October 31, 2006, with an effective date of November 30, 2006.1

SUMMARY2

The respondent entered into several business arrangements with his clients, including purchasing their home at a foreclosure sale. The clients retained new counsel and brought suit, culminating in a decision of the Appeals Court. Duggan v. Gonsalves, 65 Mass. App. Ct. 250 (2005) The Appeals Court held that the respondent had acted improperly, that he held the house in constructive trust for his clients, and that he was required to file an account and to return the assets to his clients. The respondent and bar counsel stipulated to a sanction of a six-month suspension. The Board accepted the stipulation, and the Supreme Judicial Court imposed the suspension.

The respondent was retained to represent a married couple with financial problems. Among those problems were substantial tax liens on the marital house and a pending foreclosure. He took various steps on their behalf, including filing a declaration of homestead and filing separate bankruptcy petitions for both clients. During the course of the bankruptcies, the respondent argued that the automatic stay should continue in effect to block the foreclosure. He was successful in convincing the court to continue the stay in effect, but his clients were unable to keep current on the mortgage payments or to refinance. Ultimately, the bank’s motion for relief from the automatic stay was granted.

1. When foreclosure was imminent, the respondent signed a purchase and sale agreement with his clients whereby he agreed to purchase their house for a sum approximately $95,000 below the appraised value. As part of the arrangement, the respondent agreed that his clients could continue to live in the house for one year, provided that they paid rent to offset his costs. He further agreed to “take care” of the tax liens.

The respondent did not fully disclose to his clients, either orally or in writing, the terms of the transaction, including the consequences for them if they defaulted on their obligations under the agreement and what would happen at the end of one year. He did not advise his clients to seek the advice of independent counsel and did not give them a reasonable opportunity to do so before signing the purchase and sale agreement. He did not obtain his clients’ consent in writing.

2. The respondent used the signed purchase and sale agreement in an effort to negotiate with the IRS and the Massachusetts DOR, but the negotiations were unsuccessful. Shortly before the scheduled foreclosure sale, the respondent withdrew from the purchase and sale agreement. He then informed his clients of his intent to bid at the sale. Once again, he told his clients that he would permit them to live in the house for one year provided that they paid rent to offset his costs. Once again he failed to make any disclosure in writing or to fully disclose – orally or in writing – the terms of the transaction. He did not advise them to seek the advice of independent counsel and did not give them any reasonable opportunity to do so. He did not obtain his clients’ consent in writing.

3. The respondent was the successful bidder at the foreclosure sale, which produced more than $125,000 above the amount needed to discharge the mortgage. When, shortly after the sale, he asked his clients to begin paying rent, they answered, in essence, that they had no funds to pay rent until they received their share of the surplus. The wife had a claim to one-half the funds, provided she defeated the tax liens by establishing her status as an “innocent spouse” and provided further that her interest took priority over the bankruptcy trustee by virtue of the homestead declaration. The respondent asked the foreclosing bank to file an interpleader (which it did) and drafted for the wife’s signature an affidavit calculated to establish her status as an innocent spouse. At the same time, he prepared a document entitled “Authorization to release funds” for her signature. By executing this document she would authorize the bank to pay the respondent “the amounts owed to him on account of rent … at the rate of $1600 per month.”

The respondent did not fully disclose to the wife, orally or in writing, the terms and consequences of the affidavit and authorization. He did not advise her to seek the advice of independent counsel and did not give her any reasonable opportunity to do so. He did not “consult” with her by communicating information reasonably sufficient to permit her to appreciate the significance of the matter in question, including the fact that his advice was or might be materially limited by his own interest in obtaining payment.

The wife declined to sign either the affidavit or the authorization. When the clients failed to make rent payments for two months, the respondent began eviction proceedings and retained a broker to sell the house. The clients obtained new counsel and filed a counterclaim. Since that date proceedings have continued in the Housing Court and the Superior Court, resulting in the Appeals Court decision described above.

The respondent’s actions in purchasing at the foreclosure sale constituted violations of the following rules:

Conflict of interest in violation of Mass. R. Prof. C. 1.7(b).

Knowingly acquiring an ownership, possessory, security, or other pecuniary interest adverse to a client in violation of Mass. R. Prof. C. 1.8(a).

Using confidential information relating to representation of a client to the disadvantage of the client and for the respondent’s advantage in violation of Mass. R. Prof. C. 1.8(b), and.

Acquiring a proprietary interest in the subject matter of litigation the respondent was conducting for a client in violation of Mass. R. Prof. C. 1.8(j).

The other business transactions that the respondent entered into with his clients without explaining in full and in writing the terms of the transaction and without obtaining the clients’ written consent were also violations of Mass. R. Prof. C. 1.8(a) and conflicts of interest in violation of Mass. R. Prof. C. 1.7(b).

The respondent’s preparation of the authorization for the wife’s signature and advice to her to sign it constituted a conflict of interest in violation of Mass. R. Prof. C. 1.7(b) and knowingly acquiring an ownership, possessory, security, or other pecuniary interest adverse to a client in violation of Mass. R. Prof. C. 1.8(a).

1 The complete Order of the Court is available by contacting the Clerk of the Supreme Judicial Court for Suffolk County.

2 Compiled by the Board of Bar Overseers based on the record before the Court.



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