In re: Smith-Canfield, No. 08-61630-fra13 (Bankr. D. Oregon, May 17, 2011)
In a recent 9th Circuit decision, a bankruptcy court in Oregon dealt with an attorney who also attempted to represent his client as a real estate agent.
The Plaintiff in this case consulted the Defendant, an attorney and real estate agent, regarding relief under the Bankruptcy Code. She was currently living in an apartment and earning approximately $8,000 a month. The attorney advised her to buy a home as a bankruptcy planning tool, so that she could take advantage of the homestead exemption and thereby reduce her disposable income and payment to creditors under a Chapter 13 plan.
Since the Defendant was also a real estate agent, he helped the Plaintiff buy a home from another one of his clients, who was in financial hardship and needed to sell his home. The Plaintiff felt that the Defendant was behaving as her attorney in every respect, while he believed he was her attorney for purposes of the bankruptcy filing, but her real estate agent for purposes of the home sale.
When the Plaintiff filed her Chapter 13 petition, the plan was confirmed without objection, and the Defendant was paid $4,000 in attorney's fees in addition to the $1000 she had previously paid him. It later became apparent that there were problems with the home she had purchased, and the city in which she lived was fining her monthly for the issues until she fixed them.
The Plaintiff then claimed that the Defendant breached his fiduciary duty to her as his client, and committed malpractice as her real estate agent. The bankruptcy court held that the Defendant was negligent as a real estate agent for not disclosing that the seller was in financial hardship and taking more care to have the property inspected before the sale. Additionally, the court held that the Defendant breached his fiduciary duty to his client as an attorney because there was a conflict of interest between his two clients, as well as between his interest in the commission upon sale of the property and the best interest of his client. As a result, the court awarded the Plaintiff the return of the attorney's fees she had paid the Defendant as well as the amount of repairs needed on the property in question.
