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Jeffrey T. Haley (WSBA No. 9526, admitted 1979), of Bellevue, was ordered to receive a reprimand on January 26, 2006, by order of the Washington State Supreme Court following a hearing. This discipline was based on his conduct in 1988 and 1991 involving conflicts of interest. In addition, the Supreme Court held prospectively that RPC 4.2 prohibits a lawyer who is acting pro se from contacting a party the lawyer knows to be represented by counsel. For additional information, see In re Discipline of Haley, 156 Wn.2d 324, 126 P.3d 1262 (2005).
In 1988, Mr. Haley and four other individuals formed a corporation engaged in the software-development business. In addition to being a shareholder, board member, and secretary of the corporation, Mr. Haley also served as the principal lawyer for the company. To raise capital, the corporation obtained a $75,000 line of credit from a bank. The line of credit was personally guaranteed by the shareholders/directors. This credit was properly secured with a security agreement and a UCC-1 financing statement. As a result, the bank maintained a first-priority security interest in the corporation’s assets. Additional capital was obtained in 1988 in the form of $40,000 loaned to the corporation by Mr. Haley, the funds for which Mr. Haley obtained via personal loan. Mr. Haley obtained a promissory note from the corporation and a signed UCC-1 financing statement as part of the loan transaction. However, there was no separate security agreement securing the note, and the UCC-1 financing statement was not filed until October 1990. Mr. Haley’s security interest had second priority behind the bank’s interest.
In late 1990, the corporation’s board of directors came to realize that the company’s financial viability was hopeless. The board concluded that the best option was to form another corporation that would purchase the original corporation’s assets for an amount at least covering the $75,000 from the bank, thereby discharging all personal liability that they had individually incurred by guaranteeing the line of credit. With the agreement or acquiescence of the board, Mr. Haley formed a new corporation for the purpose of purchasing the original corporation’s assets while leaving as many liabilities as possible behind. He conducted a foreclosure sale on the original corporation’s assets, which he appeared to be in a position to do as a second-priority security interest holder. Mr. Haley was one of the owners of the new corporation and acted as the new corporation’s attorney. As the only bidder at the sale, the new corporation purchased the original corporation’s assets for an amount that covered both the bank’s $75,000 and the $26,000 remaining due on Mr. Haley’s $40,000 loan.
Mr. Haley’s duty to the original corporation and its shareholders conflicted with his interests in recovering on his personal loan and in moving the original corporation’s assets to the new corporation at the lowest possible price. Mr. Haley made certain that the new corporation took on only those assets and liabilities beneficial to the new corporation, including foreclosing on assets not covered by his UCC-1 financing statement. When the original corporation’s board members agreed to the formation of the new corporation and the foreclosure sale, Mr. Haley did not obtain a written consent from the original corporation before the sale.
Mr. Haley’s conduct violated RPC 1.7, prohibiting a lawyer from representing a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person or by the lawyer’s own interests, unless the lawyer reasonably believes the representation will not be adversely affected and the client consents in writing after a full disclosure of material facts.
Julian C. Dewell represented the Bar Association at the hearing. Randy V. Beitel represented the Bar Association on appeal. Kenneth S. Kagan represented Mr. Haley at the hearing. Mr. Haley represented himself on appeal. Stew Cogan was the hearing officer. |