In the Matter of Crane & DePew (Review Dept. 1990) 1 Cal. State Bar Ct. Rptr. 139

Court: State Bar Court of California, Review Department | Date: 1990 | Panel: Opinion by the Review Department.

Charges Brought Against Respondents

Crane served as in-house counsel for a video-game company (SEGA). While occupying that fiduciary post, he secretly formed and owned a separate company, “Universal Licensing,” and caused his client to license a game to that entity. Using aliases and intermediaries, Universal then sublicensed the property to third parties on more favorable terms, diverting profits away from Crane’s client. DePew acted as Universal’s “president/general counsel,” assisted in the deal flow, and helped advance the scheme. The State Bar charged both attorneys with dishonest conduct amounting to moral turpitude and with violating the rule governing attorneys who enter business transactions with a client without full disclosure and written consent (former Rule 5-101, now Rule 3-300). Disciplinary counts also alleged failures of candor and loyalty arising from the undisclosed self-dealing.

Defenses

Respondents did not dispute the core transactional facts but urged that the misconduct occurred in a commercial setting and not in litigation or client trust accounting. They emphasized that once outside counsel flagged the ethical conflicts, they promptly disclosed their interests, cooperated with the internal review, and disgorged profits/restituted funds so the client would be made whole. They argued the matter reflected poor judgment and immaturity rather than a sustained pattern of defrauding a client, and they asked the court to give substantial weight to their immediate remorse and candor.

Findings

The Review Department found that Crane’s undisclosed ownership of Universal and his orchestration of the license and sublicenses—while serving as in-house counsel—constituted an egregious conflict of interest and deceit toward his client. That conduct violated the business-transaction rule because the client was never given a full written disclosure, the opportunity to seek independent counsel, or informed written consent. The court further held that the use of aliases and concealment to capture “spread” revenue demonstrated moral turpitude (Bus. & Prof. Code § 6106). As to DePew, the court found he knowingly aided the arrangement by acting for Universal and facilitating the sublicensing despite knowing (or being charged with knowing) that Crane was SEGA’s lawyer and that the arrangement was undisclosed to the client.

At the same time, the Review Department rejected characterizations of the case as one involving a “pattern” comparable to serial client theft. Although there were multiple acts of dishonesty within a single course of dealing, the misconduct was not the kind of prolonged, pervasive pattern that the Standards reserve for the harshest sanctions. The court also clarified that this was not a §6068(d) “misrepresentation to a tribunal” case; the misconduct arose from undisclosed self-dealing and deceit toward the client in a commercial transaction.

Mitigation

The court credited several compelling mitigating factors. First, both respondents were comparatively young/inexperienced at the time of the events and lacked sophisticated ethics judgment in corporate licensing. Second, once outside counsel surfaced the issues, they displayed immediate remorse and full candor, making complete disclosure to the victim-client and cooperating in the internal and disciplinary inquiries. Third, there was prompt disgorgement/restitution of profits so that the client suffered no enduring loss, and both lawyers accepted responsibility without minimizing the seriousness of their conduct. Finally, the record contained substantial character evidence attesting to honesty and public service outside of this episode.

Outcome

The hearing referee initially recommended very heavy actual suspensions (three years for Crane; two months for DePew). On independent review, the Review Department reweighed aggravation and mitigation and reduced the terms while preserving meaningful protection to the public and the profession. The court imposed a two-year actual suspension for Crane (within a longer stayed suspension/probation structure) and a 45-day actual suspension for DePew (also within stayed suspension and probation). The decision stresses that undisclosed self-dealing by a lawyer—particularly an in-house lawyer—constitutes serious moral-turpitude misconduct even when clients’ funds are not stolen and even in a transactional setting; but where there is early, complete remediation, strong character evidence, and credible insight, lengthy actual suspension rather than disbarment can satisfy the disciplinary goals.

Sanctions Table