Facts

Respondent was admitted in 1977 and had no prior discipline. Years earlier he prepared a will and trust for a client, Leonard Crutcher. The instrument nominated respondent’s then law firm as trustee, with the remainder of the estate to be held in trust for Crutcher’s four minor grandchildren until the youngest reached age 21. After Crutcher died, respondent served as executor and later received the estate assets “as Trustee,” consisting largely of cash.

Without doing meaningful legal research into trustee investment restrictions, respondent decided to increase returns by making private loans at roughly 10–12% interest, based mostly on informal discussions with friends. In 1990 he borrowed trust funds for personal use: first a $25,000 loan documented by a promissory note requiring interest-only payments at 10% with no maturity date for principal, purportedly secured by a deed of trust on his home. A month later he borrowed an additional $5,000, also at 10% interest-only and with no principal due date; the parties stipulated that this $5,000 loan was unsecured even though the form note suggested security. Respondent’s payment history did not match the stated terms, and he later “re-papered” the $25,000 obligation with a new note tied to different collateral while still leaving principal open-ended.

Respondent did not disclose the loan terms to the beneficiaries or obtain their informed written consent, did not advise them in writing to seek independent counsel, and did not seek advance court approval. In 1991, respondent filed a “First and Current Account and Report of Trustee and Petition for Fees” with an accounting prepared by a CPA based on respondent’s file. The CPA did not audit and did not request confirming documentation for loans. Respondent signed a verification under penalty of perjury asserting the accounting was true of his own knowledge, yet admitted he only “glanced” at schedules and did not examine line items. The accounting incorrectly listed certain unsecured loans as secured. Beneficiaries later objected, alleging self-dealing.

Charges

• Rule 3-300: Entering into business transactions / acquiring interests adverse to “clients” without fair and reasonable terms, full written disclosure, advice to seek independent counsel, and written consent.
• Bus. & Prof. Code §6106: Moral turpitude based on filing a misleading pleading/accounting with the court.
• Bus. & Prof. Code §6068(a): Duty to support the laws of California (alleged via Probate Code-based trustee duties).
• Aggravation finding: Uncharged Rule 3-110(A) (reckless failure to perform services competently) based on respondent’s overall handling of the trust and accounting.

Defenses

Respondent primarily argued lack of intent to deceive: the accounting errors were inadvertent and reflected, at most, ordinary negligence in failing to proofread. He also argued his motives were to benefit the beneficiaries by obtaining higher returns than bank accounts. On review, he sought reduced discipline (reproval), emphasizing repayment and claimed absence of harm.

Mitigation

• No prior discipline over many years of practice.
• Eventual repayment of the loans (including principal repayment after the notice in the larger loan) and some restitution credit.
• Good character evidence, community service, remorse, and cooperation/candor in the disciplinary process.

Outcome

The Review Department agreed Rule 3-300 applied even though the beneficiaries were not traditional “clients,” because respondent assumed fiduciary duties as trustee and could be disciplined as if they were clients. The loans to himself were not fair and reasonable: one was unsecured, both lacked a principal due date, and the structure gave respondent unilateral control. The court treated the §6068(a) theory as cumulative to Rule 3-300.

Although the hearing judge found no moral turpitude, the Review Department found respondent culpable under §6106 because the misleading accounting stemmed from grossly negligent handling of the estate/trust—deficient records, careless use of pre-printed secured-loan forms for unsecured transactions, inadequate supervision of the accounting preparation, and signing a perjury verification without meaningful review.

Sanctions