S054584, Opinion — In re Cobb

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Argued and submitted March 6, complaint dismissed July 17, 2008
In re Complaint as to the Conduct of
MONTGOMERY W. COBB,
Accused.
(OSB 05-07; SC S054584)
190 P3d 1217

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CJS, Attorney and Client § 76.

# En Banc

On review of the decision of a trial panel of the
Disciplinary Board.

Montgomery W. Cobb, Newberg, in propria persona,
argued the cause and filed the briefs. With him on the briefs
were Eric M. Bosse and Katharine W. Mathews, Newberg.

Stacy J. Hankin, Assistant Disciplinary Counsel,
Lake Oswego, filed the brief for the Oregon State Bar.

## PER CURIAM

The complaint is dismissed.

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107-d

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## PER CURIAM

The accused in this lawyer disciplinary case repre-
sented entities that invested and participated in a tax avoid-
ance enterprise created by Walter J. Hoyt III (Hoyt).1 The
Bar's allegations against the accused fall into two categories.
The first set of charges alleges that the accused committed
ethical violations in his representation of Hoyt & Sons
Master Limited Partnership (MLP), a Hoyt entity that was a
debtor in a Chapter 7 bankruptcy.2 The Bar alleges that MLP
falsely reported to the bankruptcy court that it had no signif-
icant assets or income, when, in fact, MLP owned promissory
notes, had the right to receive payments on those notes from
investor partnerships, and was receiving or diverting those
payments. The Bar charges that the accused made false rep-
resentations and acted dishonestly by filing MLP's false
financial disclosure statement and schedules and by giving
false answers to questions posed by the bankruptcy trustee;
that the accused engaged in conduct prejudicial to the admin-
istration of justice by failing to file both an amended financial
disclosure statement setting forth the existence of the notes
and payments and a statutorily required statement of his
fees; and that the accused failed to call upon MLP to rectify
its bankruptcy fraud.

As we will discuss, we conclude that the Bar did not
prove its first set of charges by clear and convincing evidence.
In large part, our conclusions rest on the Bar's failure to
prove that MLP had the right to receive note payments from
the investor partnerships and that the accused knowingly
made false statements about those notes and payments.

1 In 2001, the federal government convicted Hoyt for conspiracy, mail fraud,
bankruptcy fraud, and money laundering, resulting in a sentence of nearly 20
years imprisonment. United States v. Hoyt, 47 Fed Appx 834 (9th Cir 2002).

2 To be precise, the Bar charges that the accused violated ethical rules in his
representation of two entities that were debtors in the Chapter 7 proceeding. The
primary debtor was Hoyt & Sons Master Limited Partnership (MLP). The other
debtor was Hoyt & Sons Management Company (Management Company). Because
the Bar's allegations focus primarily on MLP, and because the additional allega-
tions relating to Management Company do not affect our analysis, we will specifi-
cally address only the allegations relating to MLP.

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The second set of charges that the Bar filed against
the accused alleges that the accused violated conflict of inter-
est rules. For several years before the accused represented
MLP, he represented the partnerships that had invested in
the Hoyt enterprise. The Bar charges that the accused had a
conflict of interest in undertaking representation of MLP
because the interests of MLP and the investor partnerships
were actually or potentially adverse and the accused never-
theless (1) simultaneously represented both; and (2) contin-
ued to represent the investor partnerships after he withdrew
from his representation of MLP. As we will explain, we con-
clude that the interests of MLP and the investor partnerships
were not actually adverse when the accused initially agreed
to represent MLP in the Chapter 7 bankruptcy and that the
accused appropriately advised his clients of the potential for
conflict and obtained their consent to his continued represen-
tation. We conclude that the Bar did not prove its second cat-
egory of charges by clear and convincing evidence, and we
therefore dismiss the Bar's complaint.

### I. FACTS

#### A. The Hoyt Enterprise

Hoyt began his enterprise in the early 1970s. That
enterprise was intended to operate in the following fashion.
Each individual investor would be a limited partner in an
investor partnership that would include approximately 30
other individual investors. The investor partnerships would
purchase cattle3 from Hoyt & Sons Ranches (Hoyt & Sons),
entitling the partnerships to tax depreciation deductions that
would flow through to the individual investors. The investor
partnerships would purchase the cattle by making small cash
investments and executing promissory notes to Hoyt & Sons
for the remainder.4 Another Hoyt entity, Laguna Tax

3 Not all the investor partnerships invested in cattle; some invested in sheep.
It is likely that all partnerships operated similarly, and, because the particular
livestock that each partnership owned is not material to our analysis, we will
describe and refer to only the purchase and ownership of cattle.

4 As general partners, the individual investors would be liable for the partner-
ship debt represented by the promissory notes, and, in addition, the individual
investors would execute partnership and subscription agreements agreeing to
pay their pro-rata portions of the promissory notes executed by the investor part-
nerships and agreeing to be bound to pay their partnerships' notes in their entirety,
should the other individual investors fail to pay their portions.

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Service, would prepare the individual investors' tax returns.
The individual investors would pay 75 percent of their result-
ing tax savings toward their partnership note obligations and
retain 25 percent of those savings for themselves. The money
that the individual investors paid would be dispersed to var-
ious other Hoyt entities that managed and maintained the
cattle herds. After 15 years, the note obligations would be
paid in full, and the cattle would be sold.

In the beginning, the Hoyt enterprise likely operated
as we have described. To what extent it continued to do so
over time is unclear, and that lack of clarity has a significant
effect on the result in this proceeding.

In the late 1980s or early 1990s, Hoyt & Sons was
liquidated. At about that same time, Hoyt created MLP and
intended to transfer the promissory notes made payable to
Hoyt & Sons to that new entity. In approximately 1991, the
Internal Revenue Service (IRS) began to freeze the tax
refunds that individual investors had been receiving, and
from that time forward, instead of making payments from
expected refunds, investors made payments from their own
funds. Whether Hoyt actually transferred the notes to MLP
for consideration, whether the notes were enforceable obli-
gations of the investors, and whether the payments by inves-
tors in 1996 and 1997 were payments on the notes or con-
tributions to their partnerships to cover the costs of
maintaining their herds are important issues in this case.

Hoyt was the creator and promoter of the enterprise
we have described. He was also the managing partner of all
the entities material to this case, including MLP and the
investor partnerships.

#### B. The Accused's Representation of Investors and Investor Partnerships

The accused's association with Hoyt's enterprise
began in 1994 when he was retained by the investor partner-
ships to represent a number of the individual investors in
test cases against IRS personnel asserting that they had

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violated the investors' constitutional rights.5 When the
accused undertook that representation, he thought that the
Hoyt organization was a legitimate for-profit operation. See
Bales v. Commissioner, 58 TCM (CCH) 431, 445 (1989) (tax
court concluded that Hoyt business was "a quality opera-
tion"). Shortly thereafter, the accused undertook representa-
tion of investor partnerships to challenge the disallowance of
deductions by the IRS in a number of administrative proceed-
ings.6 And, in 1995, the accused represented one of the inves-
tor partnerships in a federal court test case, again challeng-
ing the IRS disallowance of deductions.

In all those instances, the accused represented indi-
vidual investors or investor partnerships, usually in litiga-
tion, for specific limited purposes. The accused never served
as personal or general business counsel for Hoyt or any of his
entities; Hoyt retained other counsel to perform those roles.

#### C. Chapter 11 Bankruptcy Proceeding

In 1995, one of the many entities that Hoyt had
created to carry out his enterprise, Hoyt & Sons Ranch
Properties (Ranch Properties), filed a Chapter 11 volun-
tary bankruptcy. Ranch Properties leased ranch lands to
another Hoyt entity, Hoyt & Sons Management Company
(Management Company), which grazed cattle owned by the
investor partnerships on the ranch lands. The Chapter 11
bankruptcy trustee asserted a landlord's lien on the cattle
and threatened foreclosure. The investor partnerships
engaged the accused to protect their cattle from the trustee's
seizure and sale. Raymond Jackson, a California bank-
ruptcy attorney with 30 years' experience, represented
Management Company. Jackson and the accused brokered a
settlement agreement with the Chapter 11 trustee that

5 Those cases are referred to as Bivens cases, because the plaintiffs in those
cases asserted a private right of action recognized in the Supreme Court case of
Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 403 US 388, 91
S Ct 1999, 29 L Ed 2d 619 (1971) (providing tort remedy for violation of constitu-
tional rights).

6 Those administrative cases are referred to as Final Partnership Administra-
tive Adjustment (FPAA) cases. When the IRS takes action affecting a partnership,
such as an audit, it does so by issuing an FPAA, and the partnership may contest
the FPAA in an administrative proceeding. See 26 USC § 6223(a) (describing notice
provisions for FPAA proceedings).

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required various Hoyt entities, including MLP, to make pay-
ments to the bankruptcy estate over time. To convince the
trustee to accept that agreement, Jackson and the accused
submitted a draft budget entitled "Management Co and MLP
Budget," which showed "monthly partnership income" of
$240,000 per month.

#### D. Chapter 7 Bankruptcy Proceeding

In 1996, several individual investors, represented by
attorney Eric Derbes, filed an action in Louisiana against
Hoyt, Management Company, and MLP, and obtained an
$11 million default judgment against them.

On February 24, 1997, the Derbes plaintiffs filed
involuntary petitions in bankruptcy for Management
Company and MLP, in an attempt to force them to liquidate
their assets to pay the Derbes judgment. Hoyt hired Jackson,
the attorney for Management Company in the Chapter 11
bankruptcy, to represent MLP. Jackson planned to assert a
jurisdictional defense known as the "farmer defense," a
defense under 11 USC section 303(a), which provides that
farmers cannot be forced into involuntary bankruptcy. Suc-
cessful assertion of that defense would avert appointment of
a Chapter 7 trustee and, therefore, lessen the likelihood that
a trustee would assert control over and require liquidation of
the herds. Jackson asked the accused to serve as local counsel
for the debtors in the Chapter 7 proceeding. The accused
agreed, thinking that assertion of the farmer defense and dis-
missal of the Chapter 7 bankruptcy would be in the interests
of his investor partnership clients, and he filed an answer on
behalf of MLP raising the farmer defense.

In May 1997, Jackson drafted an affidavit for signa-
ture by Dave Barnes, a manager in the Hoyt enterprise, in
support of MLP's motion to dismiss. The affidavit stated that
MLP was in the business of buying and selling cattle, that it
had earned gross income in the 12 months preceding
February 1997 of approximately $1.4 million, and that its
expenses had exceeded its income during that period.
Jackson did not finalize or file the affidavit, however, because
Hoyt instructed Jackson not to assert the farmer defense and

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insisted that MLP was not conducting business and had no
assets or income. On June 5, 1997, the bankruptcy court
issued an uncontested "order for relief." See 11 USC § 303(h)
(1997) (providing for entry of order for relief against debtor in
involuntary bankruptcy). Once that order issued, MLP was
required to cease business, and its income and assets became
the property of the bankruptcy estate subject to the control of
the trustee of the estate. See 11 USC § 303(f) (1997) (debtor's
business may continue until entry of order for relief). In this
case, the court appointed the United States Trustee, Jan
Ostrovsky, and his two assistant trustees, Neal Jackson and
Pamela Griffith, to perform that role. All three were experi-
enced attorneys.

#### E. The Accused Seeks to Withdraw

When Hoyt prevented his attorneys from asserting
the farmer defense, he also instructed the accused to with-
draw. On June 11, 1997, the accused filed such a motion,
together with a supporting affidavit indicating the limited
capacity in which he had been retained:

"1. I am one of the attorneys for the debtor herein.

"2. I was retained by the debtor in this matter on a tem-
porary basis to facilitate filing of initial pleadings and early
appearances in this case, only. I was not retained to per-
manently represent the debtor in this matter.

"3. I have now been instructed by W.J. Hoyt III, general
partner of the debtor, to take no further action in this mat-
ter and to withdraw as counsel of record."

The bankruptcy judge did not grant the accused's motion and
instead prevailed upon him to continue in his capacity as
local counsel to assist the court in administration of the case.
The accused recognized that his continued representation of
the investor partnerships potentially could pose a conflict of
interest. In July 1997, the accused wrote a letter to Hoyt and
three of Hoyt's independent attorneys, advising them that he
had a potential conflict of interest and seeking their "advice
and assistance in determining the appropriate role for me in
these cases."

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F. The Accused Files Debtor's Financial Disclosure
Statement and Fails to File his Report of Attorney Fees

The order for relief that the bankruptcy court
entered on June 5, 1997, required MLP to file a financial dis-
closure statement with attached schedules listing its income
and assets. Jackson prepared the documents, had Barnes, a
Hoyt manager, sign them, and forwarded them to the
accused. The accused briefly reviewed the documents, and an
assistant in his firm filed them. The bankruptcy court
rejected the attached schedules because they were on the
wrong form, and, after receiving reformatted schedules from
Barnes, a secretary in the accused's office refiled them. Nei-
ther the accused nor anyone in his firm signed the financial
disclosure statement or the schedules.

In bankruptcy cases, a lawyer is required to file, in
accordance with 11 USC section 329, a statement disclosing
any compensation paid or agreed to be paid, and the source of
the compensation, for services rendered in connection with
the bankruptcy. See also Federal Rule of Bankruptcy
Procedure (FRBP) 2016(b) (1997) (procedural rule relating to
filing of statements under Section 329). A lawyer must file
the statement, referred to as a 329 statement, within 15 days
after the order for relief is issued and must file supplemental
statements within 15 days after any payment or agreement
not previously disclosed. Id. Jackson sent his initial 329
statement to the accused for filing. The accused filed
Jackson's 329 statement along with MLP's financial disclo-
sure statement, but did not file a 329 statement of his own.

Other than filing MLP's answer, financial disclosure
statement and schedules, the accused did minimal work for
MLP in the Chapter 7 bankruptcy. The accused was, how-
ever, very busy with his representation of the investor part-
nerships in the Chapter 11 proceeding and in the administra-
tive and federal court tax cases.

#### G. The Bankruptcy Trustee Obtains and Seeks Information About Notes and Fees

In August 1997, Jensen, an assistant United States
Trustee, conducted a creditors' meeting pursuant to 11 USC

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section 341. At that meeting, Jensen specifically asked Hoyt
if MLP had any interest in contracts receivable, promissory
notes, or "the right to receive payment from any source." Hoyt
responded that MLP had "a book of accounts of notes receiv-
able" but that the obligors had stopped paying those notes
and they were not collectible. Jackson, who was present as
attorney for MLP, also indicated that he was aware of the
notes and that the obligors had stopped making payment.
During the Section 341 hearing, Jensen encouraged Hoyt to
consult with Jackson to see whether the notes should be
listed in the schedules, "so that the trustee can make an inde-
pendent determination as to whether or not they are viable."

On September 4, 1997, Jensen wrote to Jackson and
the accused, asking that MLP file amended schedules setting
forth the existence of the notes and requesting information
about transfers into or out of MLP during the preceding four
years. Jensen also specifically asked for a description of the
attorneys' fee arrangements.

That letter placed MLP and its attorneys in a bit of a
quandary as to how to accurately report MLP assets and
income. At times, even after the bankruptcy court had issued
the order for relief, Hoyt had insisted that MLP had assets to
protect and that he wished to proceed with the farmer
defense. At other times, Hoyt had declared that MLP had no
assets and demanded that the attorneys accede to its liqui-
dation. The accused also knew, as did the trustee, that, in
March 1997, the Derbes plaintiffs had sued DSR in Nevada,
claiming that it was the transferee of MLP's assets and that
Hoyt was using DSR to hide those assets. And, on June 9,
1997, Blackburn had sent a letter to Hoyt, with a copy to the
accused and others, stating that DSR had taken over the
responsibilities of MLP and had been paying investor part-
nership bills and receiving investor's payments "on their
notes."

Responding to Jensen's questions about attorney
fees also would be difficult. The accused had spent the bulk of
his time between February 1997, when the Chapter 7 pro-
ceeding had commenced, and September 1997, when Jensen
had made his request for fee information, representing the

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investor partnerships in other proceedings to preserve their
herds and tax benefits.7 The accused had not segregated his
time in his billing statements, but instead had billed collec-
tively for the time that he had spent on all Hoyt-related mat-
ters. Although the time that the accused had spent on the
Chapter 7 bankruptcy was small in comparison to his other
efforts, his total fees for that period were nearly $137,000.
Typically the accused had received payment of his fees from
Hoyt & Sons Feedlot Company (Feedlot),8 which served as a
repository for payments to and from the investor partner-
ships, but he had also received payments directly from inves-
tor partnerships, and in late 1996 he had begun receiving
payments from DSR.

On September 8, 1997, the accused conferred with
Jackson and discussed the requirement that he file a 329
statement disclosing the compensation that he had been paid
in the Chapter 7 bankruptcy and its source. The accused did
not immediately file a 329 statement, and he did not respond
to the letter from Jensen.

Jensen followed his September 4, 1997, letter with a
motion to compel MLP to file an amended financial disclosure
statement, which the court granted on October 24. On
October 27, the accused received a letter from Pamela
Griffith, an assistant United States Trustee, which included
copies of two checks that had alerted the trustee's office that
MLP was continuing to operate and to receive payments from
investors.

That same day, the accused determined that he
could no longer represent MLP, and he wrote a letter to attor-
neys with the Hoyt organization advising them that he
needed to resign his representation of MLP "due to the inev-
itable potential conflict of interest which will become actual
as soon as the partnerships, which this firm has represented
for a long time, assert claims against [MLP]." On October 31,
1997, the accused filed his motion to withdraw and asserted
that he was doing so because it had become clear that the

7 Those matters included filing an appellate brief in a tax case and represen-
tation in the Chapter 11 bankruptcy and related adversary proceedings.

8 Feedlot sold cull cattle and steers owned by the investor partnerships.

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bankruptcy would continue and that conflicts of interest
would inevitably arise. Around that same time, the accused
spoke with Jensen about the 329 statement that Jensen had
requested. According to the accused, Jensen told the accused
that they would "deal with it later."

On November 3, 1997, the accused met with Hoyt
and his attorneys and discussed the nature of the payments
by the individual investors and the role of DSR. The partici-
pants confirmed that there was "no paper trail" that could
establish that the notes actually had been transferred to
MLP and that MLP may not have paid consideration for the
notes. Hoyt explained that investors were continuing to
make payments to MLP as contributions to their partner-
ships to cover the costs of maintaining their herds and that
MLP served as a temporary repository for such payments. At
least some participants found Hoyt's explanations confusing
and came away with many questions about the nature of the
Hoyt operation.

On November 5, 1997, the accused and Jackson had
a telephone meeting with Ostrovsky and Jensen, the Chapter
7 trustee and assistant trustee. The accused related the sub-
stance of that meeting to his clients and Hoyt attorneys in a
letter dated November 6, 1997. The accused told them that,
"[w]ith regard to the interception of money, [Jackson] and I
took the position that MLP has no assets as far as we know
and hasn't had any. It merely served as a conduit, although it
may have had some incidental assets." The accused also
answered questions about DSR, the Hoyt entity that the
Derbes plaintiffs contended was being used to hide MLP
assets. The accused repeated that, as to DSR, he "could only
tell him the truth which is that I really do not know in detail
how the financial structure is set up and know very little
about DSR because that entity has not been involved in any
litigation in which I have participated."

Effective November 17, 1997, the bankruptcy court
granted the accused's motion to withdraw as attorney for
MLP. On January 30, 1998, however, Ostrovsky, on behalf of
the bankruptcy estate, waived all conflicts posed by the

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accused's continuing representation of the investor partner-
ships, and, on February 2, 1998, Jensen confirmed that
waiver in open court, stating:

"after much discussion, it is our opinion that we are better
off to waive the conflict that might exist with regard to [the
accused], rather than lose him as a representative for
potentially 2,500 investors, and maybe as many as 500
active investors in who knows how many partnerships. And
the benefit to be derived from having him continue to rep-
resent these various entities and have one individual to
whom we can communicate effectively outweighs the com-
peting concerns we have with regard to him having repre-
sented one of these-both of these debtors previously."

The accused then sent a letter to the investor partnerships
and the individual investors and sought and obtained their
consent to his continued representation. Thereafter, the trus-
tee authorized the creation of a fund to enable the investor
partnerships to pay the accused directly for his continued
services.

#### H. The Bankruptcy Court Consolidates the Hoyt Entities

Once the trustee began to investigate the Hoyt
enterprise, he found that he had a hard time isolating the
assets that belonged solely to MLP and that the entities that
comprised the Hoyt enterprise had been operated without
regard to the separate existence of each. As a result, in
December 1998, the bankruptcy court "substantively consol-
idated" all the Hoyt entities, effective from the date of the fil-
ing of the Chapter 7 proceeding. Also as a result of his inves-
tigation, the trustee decided not to assert claims against the
investors for payment of the promissory notes. He deter-
mined that the note obligations were either nonexistent or
unenforceable. It took the trustee several years to marshal
the assets of the Hoyt estate and shut down the Hoyt enter-
prise. During those years, as the trustee testified, the
accused worked "hand in glove" with the trustee to assist him
in determining how the Hoyt enterprise had operated. How-
ever, the trustee eventually came to think that the accused
himself had contributed to the losses that the estate had
incurred, and the trustee asserted claims against the
accused. The trustee sought, among other things, to have the

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accused disgorge the attorney fees that he had received prior
to the court's establishment of the fund for investor payments
of attorney fees. Eventually, the accused and the trustee
reached a settlement of that dispute.

#### I. The Bar's Complaint and Proceedings Below

The Bar filed the complaint in this case in March
2005, and the trial panel issued its decision in December
2006. Two members of the three-member panel ruled that
the accused had engaged in misrepresentation, dishonesty,
and conduct prejudicial to the administration of justice, and
that he had violated the duty to call upon his client to rectify
its fraud. The third member disagreed and wrote a detailed
dissent. The panel unanimously rejected the Bar's conflict of
interest charges. As to the appropriate sanction, the panel
majority recommended a public reprimand, reasoning that it
was not clear that the accused's misconduct had resulted in
harm to investors, that the accused is a conscientious, ethi-
cal, and well-respected lawyer, that "[t]here was no evidence
of dishonesty," that there had been no prior disciplinary
actions against the accused, and that there was no reason to
believe that his conduct was likely to reoccur.

The Bar sought review, asserting that the trial panel
had erred in finding that the accused had not violated the dis-
ciplinary rules regarding conflicts of interest. The Bar asks
that we impose a one-year suspension as a sanction for the
accused's misconduct. The accused, on the other hand, main-
tains that he committed no disciplinary violations and argues
that the complaint should be dismissed.

### II. DISCUSSION

#### A. Standard of Review

The standard of review in Bar matters is de novo:

"The court shall consider each matter de novo upon the
record and may adopt, modify or reject the decision of the
trial panel * * * in whole or in part and thereupon enter an
appropriate order."

BR 10.6. The Bar must prove each violation by clear and con-
vincing evidence, BR 5.2, which means that the truth of the

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asserted facts must be "highly probable." In re Claussen, 331
Or 252, 260, 14 P3d 586 (2000).

B. Misrepresentation, Dishonesty, Conduct Prejudicial to
the Administration of Justice, and Failure to Have Client
Rectify Fraud

3\.
The first category of charges relates to the accused's
representation of MLP in the bankruptcy proceeding.

##### 1. Misrepresentation and dishonesty

At the time of the accused's alleged misconduct, DR
1-102(A)(3) provided that "[i]t is professional misconduct for
a lawyer to * * * [e]ngage in conduct involving dishonesty,
fraud, deceit or misrepresentation."9 To prove misrepresen-
tation, the Bar must prove that the accused knowingly made
a false statement of material fact. In re Fitzhenry, 343 Or 86,
101, 162 P3d 260 (2007) (citations omitted). Proving dishon-
esty is slightly different, however, and does not require an
affirmative misrepresentation:

"In contrast to what is required to prove an affirmative mis-
representation, the Bar may prove dishonest conduct with-
out proving that the accused knowingly made affirmative
false statements. Dishonest conduct is 'conduct that indi-
cates a disposition to lie, cheat, or defraud; untrustworthi-
ness; or a lack of integrity.' Although proving that a lawyer
acted dishonestly does not require evidence that the lawyer
intended to deceive, it does require a mental state of knowl-
edge-that is, that the accused lawyer knew that his con-
duct was culpable in some respect."

In re Skagen, 342 Or 183, 203, 149 P3d 1171 (2006) (citations
omitted; emphases in original). The Bar charges the accused
with misrepresentation and dishonesty in several particu-
lars, and we proceed to consider the merits of each.

9 The Oregon Rules of Professional Conduct became effective January 1, 2005.
Because the conduct of the issue here occurred before that date, the Disciplinary
Rules of the Oregon Code of Professional Responsibility apply. In re Fitzhenry, 343
Or 86, 88 n 1, 162 P3d 260 (2007).

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#### a. Financial disclosure statement and schedules

The Bar first alleges that the accused engaged in
misrepresentation and dishonesty when he filed MLP's
financial disclosure statement and schedules, which had
been prepared by Jackson, the bankruptcy attorney for MLP,
and signed by Barnes, a manager of MLP. We begin by con-
sidering whether, in filing those documents, the accused him-
self made a statement of fact. See Fitzhenry, 343 Or at 101 (to
establish misrepresentation, Bar must prove that accused
made false statement of material fact).

The accused did not sign MLP's disclosure statement
or schedules, and the bankruptcy rules in effect at the time
did not require that he do so. FRBP 9011 (1997).10 At the time
that the accused filed the disclosure statement, FRCP 11 pro-
vided that, by filing a document, an attorney certified that
there was or would be an evidentiary basis for the facts set

1º In July 1997, FRBP 9011 provided as follows:

"(a) Signature. Every petition, pleading, motion and other paper served or
filed in a case under the Code on behalf of a party represented by an attorney,
except a list, schedule, or statement, or amendments thereto, shall be signed by
at least one attorney of record in the attorney's individual name, whose office
address and telephone number shall be stated. A party who is not represented
by an attorney shall sign all papers and state the party's address and telephone
number. The signature of an attorney or a party constitutes a certificate that
the attorney or party has read the document; that to the best of the attorney's
or party's knowledge, information, and belief formed after reasonable inquiry
it is well grounded in fact and is warranted by existing law or a good faith argu-
ment for the extension, modification, or reversal of existing law; and that it is
not interposed for any improper purpose, such as to harass or to cause unnec-
essary delay or needless increase in the cost of litigation or administration of
the case. If a document is not signed, it shall be stricken unless it is signed
promptly after the omission is called to the attention of the person whose sig-
nature is required. If a document is signed in violation of this rule, the court on
motion or on its own initiative, shall impose on the person who signed it, the
represented party, or both, an appropriate sanction, which may include an
order to pay to the other party or parties the amount of the reasonable
expenses incurred because of the filing of the document, including a reasonable
attorney's fee.

"(b) Verification. Except as otherwise specifically provided by these rules,
papers filed in a case under the Code need not be verified. Whenever verifica-
tion is required by these rules, an unsworn declaration as provided in 28 U.S.C.
Sec. 1746 satisfies the requirement of verification.

"(c) Copies of Signed or Verified Papers. When these rules require copies
of a signed or verified paper, it shall suffice if the original is signed or verified
and the copies are conformed to the original."

(Emphasis added.)

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forth in the document.11 However, the applicable bankruptcy
rules did not contain a similar provision, and the bankruptcy
rules, not FRCP 11, controlled.12 See In re Muscatell, 116 BR
295, 298 (Bankr MD Fla 1990) (FRBP 9011, not FRCP 11,
applies in bankruptcy cases). Therefore, by filing, without
signing, MLP's financial statement and schedules, the
accused himself did not represent that the facts in those doc-
uments were true, and he therefore did not make the affir-
mative representation that is necessary to a misrepresenta-
tion charge.

That does not resolve, however, the Bar's charge of
dishonesty. As we have explained, an affirmative misrepre-
sentation is not required to prove dishonesty. In considering
that charge, we must decide whether MLP's disclosure state-
ment and schedules were false and whether the accused
knew that they were false when he filed them.

11 In 1997, Rule 11 provided:

"(a) Signature. Every pleading, written motion, and other paper shall be
signed by at least one attorney of record in the attorney's individual name, or,
if the party is not represented by an attorney, shall be signed by the party.
Each paper shall state the signer's address and telephone number, if any.
Except when otherwise specifically provided by rule or statute, pleadings need
not be verified or accompanied by affidavit. An unsigned paper shall be
stricken unless omission of the signature is corrected promptly after being
called to the attention of the attorney or party.

"(b) Representations to Court. By presenting to the court (whether by sign-
ing, filing, submitting, or later advocating) a pleading, written motion, or other
paper, an attorney or unrepresented party is certifying that to the best of the
person's knowledge, information, and belief, formed after an inquiry reasonable
under the circumstances,-

"(1) it is not being presented for any improper purpose, such as to harass
or to cause unnecessary delay or needless increase in the cost of litigation;

"(2) the claims, defenses, and other legal contentions therein are war-
ranted by existing law or by a nonfrivolous argument for the extension, modi-
fication, or reversal of existing law or the establishment of new law;

"(3) the allegations and other factual contentions have evidentiary support
or, if specifically so indentified, are likely to have evidentiary support after a
reasonable opportunity for further investigation or discovery; and

"(4) the denials of factual contentions are warranted on the evidence or, if
specifically so identified, are reasonably based on a lack of information or
belief."

FRCP 11(a) and (b) (1997) (emphases added).

12 FRBP 9011 was modified effective December 1, 1997, to impose a Rule 11-
type requirement on attorneys who file and submit documents.

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The Bar contends that MLP's schedules were false in
three particulars: (1) in reporting negative gross income for
calendar year 1996; (2) in reporting zero gross income for the
period from January 1, 1997, until the bankruptcy proceed-
ing commenced on February 24, 1997; and (3) in failing to list
the promissory notes as assets of MLP.13

The Bar proved that MLP's schedules were false in
reporting negative gross income for calendar year 1996. A
partnership cannot have negative gross, as opposed to net,
income. It appears that MLP erred in reporting its negative
taxable income for fiscal year 1995-96, rather than its gross
income for the calendar year.

MLP's report that it did not receive any gross income
in 1997 and its failure to list the promissory notes as assets
require a more difficult weighing of competing facts. The Bar
proved that, in the early years of the Hoyt enterprise, inves-
tors had executed promissory notes in favor of Hoyt & Sons,
that Hoyt had intended that the notes be transferred to MLP,
and that Hoyt had taken the position in a federal tax case
that the transfer had occurred. The Bar offered the testimony
of individual investors that, in 1997, (1) they were making
payments to MLP that they viewed as payments on their
notes; and (2) that they thought that they were obligated to
make those payments. The Bar also pointed to two docu-
ments to prove that MLP had earned income in 1997: the
budget that Jackson and the accused had prepared for use in
settlement discussions in the Chapter 11 case, and the draft
affidavit that Jackson had prepared in May 1997 for submis-
sion to the court in the Chapter 7 case, in support of the
farmer defense. In the Chapter 11 case, the trustee had
asserted a lien on the cattle owned by the investor partner-
ships, and, to convince the Chapter 11 trustee to accept pay-
ments over time in lieu of seizure and sale of the cattle,
Jackson and the accused had submitted a draft budget enti-
tled "Management Co and MLP Budget, January 1997 to

13 The Bar also alleges that MLP failed to disclose on its schedules that DSR
had taken over the functions of MLP, including the collection of note payments.
However, the Bar does not indicate in its brief the particular portion of the sched-
ules that it contends requires that disclosure. That is not to say that payments to
or by DSR are not relevant. DSR's role is relevant to our consideration whether
MLP was hiding its assets or income diverting them to DSR.

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May 1997." That budget showed "monthly partnership
income" of $240,000 per month. In the Chapter 7 case,
Jackson had prepared a draft affidavit dated May 6, 1997,
that showed MLP gross income of $1.4 million in the preced-
ing year.

The accused presented countervailing evidence.
None of the promissory notes were made payable to MLP,
and no documents were produced to establish that the notes
that were made payable to Hoyt & Sons were actually trans-
ferred to MLP. The Hoyt organization did not credit pay-
ments by investors as note payments after 1988; rather, it
credited those payments as contributions to capital and as
"monthly payments." After 1988, the investors were not
receiving the tax benefits that they had been promised and
were using their own funds, rather than expected tax
refunds, to make payments. As general partners, the inves-
tors were required to contribute to their partnerships their
share of the costs of maintaining the herds that their part-
nerships owned. Those contributions were pooled and dis-
persed to other Hoyt entities to manage the herds.
Blackburn, an investor and later a representative of the
investor partnerships, testified that investors made pay-
ments to MLP, not because they owed money to MLP, but
because MLP served as a temporary repository for those
partnership payments until they could be transferred to
other Hoyt entities. The MLP bank account was jointly
owned by the investor partnerships, and the accused pointed
out that one of the two checks that the Bar proved that inves-
tors had sent to MLP in 1997 was made payable to SGE 84-4,
which appears to have been one of the investor partnerships.
The accused testified that the "monthly partnership income"
to which he and Jackson had referenced in their submitted
Chapter 11 budget represented payments that the investor
partnerships, as cattle owners, intended to pay for the
expenses of caring for the cattle, and that those expenses
were also set forth in the proposed budget. As to the income
mentioned in the draft affidavit that Jackson had prepared
for the Chapter 7 proceeding, Jackson never had filed that
document with the court, because Jackson thought that the
information contained therein was incorrect.

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In weighing which of the competing positions is most
worthy of belief, we find it significant that the bankruptcy
trustee determined, after extensive investigation, that the
note obligations were either nonexistent or unenforceable
and decided not to take action against investors to collect
them. The senior bankruptcy analyst assigned to both the
Chapter 11 and Chapter 7 cases did not testify at the trial
panel hearing, and the Bar did not offer any other expert tes-
timony to the effect that MLP had owned the promissory
notes and had a legal right to obtain payment of them. The
trustee also had been unable to determine how to allocate the
assets and income between the various Hoyt entities and, as
a result, substantively consolidated them. Until that time,
the investor partnerships had been operating as separate
entities, and it is understandable that the investors would
continue to make payments to the partnerships to care for
their cattle even after MLP, a separate entity, was forced into
bankruptcy. The investors may have thought of their
monthly payments as "note payments," but that does not
prove for purposes of these proceedings that those payments
were required or used for the purpose of reducing note obli-
gations. In our view, the Bar did not prove by clear and con-
vincing evidence that MLP owned the notes or had an
enforceable right to the payments that the investors made
after the bankruptcy was commenced. The Bar therefore did
not prove that MLP's statements of assets or income were
false.14

Perhaps just as importantly, we also conclude that
the Bar did not prove that the accused filed MLP's bank-
ruptcy schedules knowing that they were false. The Bar
proved that MLP's report of 1996 negative gross income was
technically false, but we credit the accused's assertion that,
at the time when he filed MLP's schedules in July 1997, he
had not reviewed them in sufficient detail to catch that error.
Neither did the accused review those schedules in sufficient
detail to consider whether they were false in reporting MLP's
1997 income and assets. At the time that the accused filed the

14 The Bar did establish that MLP failed to report the funds that it had received
from investors as at least funds "held for others" on the bankruptcy schedules.
However, the Bar did not seek to hold the accused responsible for that failure.

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schedules, he considered his role to be a very limited one, and
he testified at the trial panel hearing that, as a result, he did
not give the schedules more than a cursory examination.

This case is distinguishable from Fitzhenry, in which
this court concluded that, despite his protestations to the con-
trary, the accused lawyer in that case knew that the contents
of a letter that he signed were false. The accused lawyer in
that case had participated in the negotiations underlying the
representations in the letter. And, the letter began with a
statement that the accused lawyer's signature was intended
to confirm the representations contained in the letter and the
lawyer admitted that he had read the letter in its entirety
with an eye toward confirming the truth of the legal matters
it contained. The particular representation at issue was con-
spicuously listed, and in the court's view, it was legal in
nature. 343 Or at 105-06. In contrast, here, the accused was
not a participant in the Hoyt operations. The accused
explained that he did not sign the documents that he had
filed or review them to determine their truth. The accused
may have had an obligation to his client or to the court to con-
duct a more thorough review of the documents than he did,
but a breach of that duty is not the issue before us.15 The Bar
did not prove, as required by DR 1-102(A)(3), that, in filing
MLP's schedules, the accused acted knowing that his conduct
was culpable.

#### b. Telephone conversation with trustee and counsel for trustee

By November 5, 1997, when the accused and
Jackson had a telephone meeting with Ostrovsky and
Jensen, the Chapter 7 trustee and his assistant trustee, the
accused had become well aware that MLP's schedules did not
reveal the existence of the notes or the payments by inves-
tors. However, by then, the trustee also had learned from
Hoyt himself that the notes existed, and he had written the
accused and Jackson asking that they file amended sched-
ules setting forth the existence of the notes and requesting

15 For that reason, we do not discuss the Bar's argument that the accused failed
to fulfill the requirement found in Local Rule 110-2(b) (1997), United States
District Court, District of Oregon, that local counsel "meaningfully participate" in
the case.

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information about transfers into or out of MLP during the
preceding four years. On November 3, 1997, the accused had
met with Hoyt and his lawyers to discuss the appropriate
response to Jensen's request. The participants had confirmed
that there were no documents transferring the notes from
Hoyt & Sons to MLP and that MLP may not have paid any
consideration for a transfer of the notes, and also had dis-
cussed whether the payments that the investors were mak-
ing could qualify as partnership contributions for the purpose
of maintaining their herds.

When the trustee made inquiry during the
November 5, 1997, telephone call, the accused related that,
"[w]ith regard to the interception of money, [Jackson] and I
took the position that MLP has no assets as far as we know
and hasn't had any. It merely served as a conduit, although it
may have owned some incidental assets." The accused main-
tains that he did not conceal or misrepresent the assets or
income of MLP in that telephone call. Instead, he simply took
the legal position that the payments were not income to
MLP-a legal position that the Bar has not proved was false.

The bankruptcy trustee also had inquired about
DSR. The accused knew, as did the trustee, that the Derbes
plaintiffs had filed an action against DSR, seeking to require
DSR to pay the judgment that the Derbes plaintiffs had
obtained against MLP and alleging that Hoyt fraudulently
had created DSR to avoid payment of the MLP judgment.
The accused also had received a copy of a letter from
Blackburn to Hoyt stating that DSR had taken over the
responsibilities of MLP and had been paying partnership
bills and receiving partners' payments "on their notes." Fur-
ther, the accused knew that DSR had been making payments
to him for attorney fees. The accused answered the trustee's
questions about DSR by stating that he "could only tell him
the truth which is that I really do not know in detail how the
financial structure is set up and know very little about DSR
because that entity has not been involved in any litigation in
which I have participated." The accused contends that that
response was truthful, although somewhat evasive. The
accused had played no part in the formation of DSR, and the
fact that payments were being made to or by DSR did not
establish that MLP had a right to those payments. Previously

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Feedlot or the investor partnerships, not MLP, had paid the
accused's fees, and the accused could not affirmatively have
concluded that the payments that he had received from DSR
were actually the property of MLP.

The accused was required to answer truthfully when
he answered the questions that the bankruptcy trustee
posed. But the accused was under no affirmative duty to pro-
duce facts in that forum with respect to, or to relay his grow-
ing concerns about, the legitimacy of the Hoyt operations. We
conclude that the accused's answers navigated, just barely,
the difficult line between responding truthfully and not vol-
unteering his subjective concerns.

##### 2. Conduct prejudicial to the administration of justice

DR 1-102(A)(4) (1997) forbade lawyers from engaging
in conduct prejudicial to the administration of justice:

"To conclude that a lawyer's conduct was prejudicial to the
administration of justice under DR 1-102(A)(4), we must
find that the lawyer engaged either in repeated acts caus-
ing some harm to the administration of justice or a single
act that caused substantial harm to the administration of
justice."

Skagen, 342 Or at 214. The Bar contends that the accused
engaged in conduct prejudicial to the administration of jus-
tice in three respects. We will examine each in order.

#### a. Misrepresentation and dishonesty

The Bar contends that the conduct of the accused
that it claims violated DR 1-102(A)(3), discussed above, also
qualifies as conduct prejudicial to the administration of jus-
tice. See In re Wilson, 342 Or 243, 249-50, 149 P3d 1200
(2006) (misrepresentations to court violated both DR 1-
102(A)(3) and (4)). In addition to our conclusions above that
the accused did not engage in misrepresentation or dishon-
esty, we also conclude that the accused's conduct did not prej-
udice the administration of justice in the Chapter 7 bank-
ruptcy. The trustee was independently aware of the existence

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of the notes, the payments by investors, the existence of DSR,
and the contention that DSR was diverting funds that were
the property of MLP.16 The trustee eventually decided not to
attempt collection action against the investors, and we can-
not conclude that the trustee would have been any more suc-
cessful in shutting down the Hoyt enterprise, collecting its
assets, or obtaining funds wrongly held by DSR, if any, had
the accused himself disclosed the existence of the notes or
investor payments earlier in the proceeding.

#### b. Failure to file amended bankruptcy schedules

The Bar also contends that the accused engaged in
acts prejudicial to the administration of justice by failing to
file an amended financial disclosure statement and schedules
on behalf of MLP setting forth the existence of the notes. The
bankruptcy trustee sent the accused a letter on September 4,
1997, asking for those documents, and, on October 24, 1997,
obtained an order requiring Hoyt to file them. The Bar cites
In re Brown, 262 Or 171, 177, 493 P2d 1376 (1972), for the
proposition that a lawyer's repeated failure to respond to a
court's request for information demonstrates "a lack of
respect" and conduct prejudicial to the administration of jus-
tice, but that citation demonstrates only the significant dif-
ference that this case presents. In Brown, the trial court's
rules and its numerous written requests were directed specif-
ically to the accused, not to his client. Here, the court's rule
and its one order required action by Hoyt. A lawyer does not
demonstrate a lack of respect for the court each time a client
is recalcitrant, and client recalcitrance alone does not estab-
lish a lawyer's violation of the code of ethics. Moreover, the
court's order requiring MLP to file amended documents came
so close to the date on which the accused filed his motion to
withdraw that we cannot attribute to him the willful noncom-
pliance that would justify a finding of guilt.

16 The accused contends that the trustee's independent awareness of those
facts should figure in our analysis of whether he engaged in misrepresentation or
dishonesty. The Bar is correct that neither the intent to deceive nor reliance are
required to prove a violation of DR 1-102(A)(3). See In re Kluge, 332 Or 251, 256, 27
P3d 102 (2001) (reliance not required to prove violation of DR 1-102(A)(3)); In re
Claussen, 322 Or 466, 482, 909 P2d 862 (1996) (intent to deceive not required to
prove violation of DR 1-102(A)(3)).

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#### c. Failure to disclose attorney fees and their source

The Bar next argues that the accused's failure to file
a timely 329 statement revealing the fees he had been paid
for representing MLP and the source of those payments, as
required by Section 329, caused harm to the administration
of justice because, if the trustee had been apprised of the pay-
ments that the accused had received, the trustee would have
been entitled to collect those funds for the benefit of the
estate. Under Section 329, the bankruptcy court may review
fees for reasonableness and order their return only if they are
excessive.17 The Bar does not argue that the accused's fees
were excessive under Section 329; rather, the Bar seems to
assert that the funds used to pay the accused's fees were
MLP's assets that were diverted to the accused. To prevail on
that argument, the Bar was required to establish that the
payments that the accused received were the property of
MLP at the time that the payments were made-a fact that
the Bar did not succeed in proving. The accused received pay-
ment of his fees from Feedlot, investor partnerships, and
DSR. The Bar did not prove by clear and convincing evidence
that the funds that those entities used to pay the accused
were owned by MLP.

The Bar adduced evidence that the bankruptcy trus-
tee was successful in reaching a settlement with the accused,

17 At the time of the proceedings at issue, Section 329 provided:

"(a) Any attorney representing a debtor in a case under this title, or in con-
nection with such a case, whether or not such attorney applies for compensa-
tion under this title, shall file with the court a statement of the compensation
paid or agreed to be paid, if such payment or agreement was made after one
year before the date of the filing of the petition, for services rendered or to be
rendered in contemplation of or in connection with the case by such attorney,
and the source of such compensation.

"(b) If such compensation exceeds the reasonable value of any such serv-
ices, the court may cancel any such agreement, or order the return of any such
payment, to the extent excessive, to-

"(1) the estate, if the property transferred-

"(A) would have been property of the estate; or

"(B) was to be paid by or on behalf of the debtor under a plan under chap-
ter 11, 12, or 13 of this title; or

"(2) the entity that made such payment."

11 USC § 329 (1997).

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the terms of which apparently required that the accused
return at least some of the fees that he received. By the time
of the settlement, however, the interests of the investor part-
nerships and the other Hoyt entities had been consolidated,
and the assets of all Hoyt entities had become assets of the
estate. The fact of that subsequent settlement does not estab-
lish that, when the accused initially received the fees, they
belonged to the MLP. In addition, we observe that Jensen, an
assistant trustee and an attorney who was aware that the
accused had not filed a 329 statement, told the accused near
the time of his withdrawal from representation of MLP that
they would "deal with it later," which they in fact did. We con-
clude that the Bar did not prove by clear and convincing evi-
dence that the accused caused harm to the estate by failing to
file a 329 statement.

##### 3. Duty to call upon client to rectify fraud

DR 7-102(B)(1) (1997) provided that a lawyer who
recognizes that a client has perpetrated a fraud must call
upon the client to rectify it:

"A lawyer who receives information clearly establishing
that [t]he lawyer's client has, in the course of the represen-
tation, perpetrated a fraud upon a person or tribunal shall
promptly call upon the lawyer's client to rectify the same,
and if the lawyer's client refuses or is unable to do so, the
lawyer shall reveal the fraud to the affected person or tri-
bunal except when the information is a confidence as
defined in DR 4-101(A)."

The Bar alleges without specification that the accused "pos-
sessed information clearly establishing that Management
Company and MLP were perpetuating a fraud upon the court
in the Chapter 7 proceeding." The Bar argues that the contin-
uing payments that the individual investors made to entities
other than the trustee and the continuing operation of the
Hoyt enterprise amounted to "fraud" for purposes of the dis-
ciplinary rule.

In bringing that charge and in making that argu-
ment, the Bar fails to recognize that the accused considered
the investor partnerships to be entities that were separate

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from MLP and that they were entitled to manage and pre-
serve their herds. Unless MLP had a right to require note
payments from the investors, and unless the partnerships
maintained their herds using funds that belonged to MLP,
there was nothing wrong with the investor partnerships con-
tinuing to protect their cattle. MLP was the entity that was in
bankruptcy, and the bankruptcy rules required that it cease
business after entry of the order for relief, but the partner-
ships were not similarly limited. Because the Bar failed to
prove the facts necessary to prove that MLP engaged in fraud
in the manner asserted, the Bar failed to prove that the
accused violated DR 7-102(B)(1) (1997).

##### C. Conflict of Interest

The Bar alleges that the accused had a current-
client conflict of interest when he represented MLP in the
Chapter 7 bankruptcy while simultaneously representing
investor partnerships adverse to MLP. The Bar also alleges
that the accused had a former-client conflict of interest in his
continued representation of the investor partnerships after
he had withdrawn from representation of MLP.

###### 1. Current-client conflict

DR 5-105(E) (1997) provided that a lawyer shall not
represent multiple current clients when such representation
would result in an actual or likely conflict. "An 'actual conflict
of interest' exists when the lawyer has a duty to contend for
something on behalf of one client that the lawyer has a duty
to oppose on behalf of another client." DR 5-105(A)(1). "A
'likely conflict of interest' exists in all other situations in
which the objective personal, business or property interests
of the clients are adverse." DR 5-105(A)(2). If the current con-
flict was actual, then representation of both clients was pro-
hibited, but if the current conflict was not actual, then rep-
resentation was permitted if the clients consented after full
disclosure. DR 5-105(F) (1997).

The Bar argues that an actual conflict of interest
existed when the accused represented both MLP, as debtor,
and the investor partnerships, as creditors, in the Chapter 7
proceeding. The Bar advances that, in such circumstances,
the debtor seeks to minimize its assets, while the creditor

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seeks to maximize them. However, when the accused initially
agreed to represent MLP, he understood that the purpose of
his representation would be to assist bankruptcy counsel in
filing a motion to dismiss the bankruptcy proceeding alto-
gether. The accused maintains that MLP and the investor
partnerships had congruent interests in achieving dismissal
because, if they were successful in doing so, they would pre-
serve the herds from the claims of the Derbes creditors and
the reach of the United States Trustee. We agree with the
Bar that the test of whether there is an actual conflict of
interest is objective, rather than subjective. See In re Cohen,
316 Or 657, 662, 853 P2d 286 (1993) (whether conflict exists
depends on client's objective interests). We disagree, how-
ever, that the investor partnerships were necessarily credi-
tors of MLP before the order for relief was entered. Until that
time, the efforts of both parties were directed toward the goal
of dismissing the bankruptcy.

When the order for relief was entered, Hoyt
instructed the accused to withdraw. However, the bank-
ruptcy court requested that the accused continue in his role
as local counsel to provide assistance to the court. The
accused acceded to the court's request, explained the poten-
tial conflict that that presented in a letter to both sets of cli-
ents, and obtained their consent to his continued represen-
tation. 18

The Bar contends that the accused's disclosure of
the potential conflict was insufficient. DR 10-101(B) (1997)
defined "full disclosure" to mean "an explanation sufficient to
apprise the recipient of the potential adverse impact on the

18 The Bar also argues that the accused had a likely current-client conflict of
interest because he represented the investor partnerships in the Chapter 11 pro-
ceeding at the same time that he represented MLP in the Chapter 7 proceeding.
The Bar contends that, in the Chapter 11 proceeding, the accused was required to
assert and did assert that MLP had significant assets, while, in the Chapter 7 pro-
ceeding, he took the opposite position. We do not accept the Bar's argument,
because, in fact, the accused's assertions in both proceedings were consistent. In
the Chapter 11 proceeding, the accused argued, on behalf of the investor partner-
ships, that those partnerships had the financial means to maintain their herds and
that their payments would enable the obligors to fulfill their obligations under the
settlement agreement. In the Chapter 7 proceeding, the accused also took the posi-
tion that the investors' payments were payments to conserve their herds.

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recipient of the matter to which the recipient is asked to con-
sent," including a required "recommendation that the recipi-
ent seek independent legal advice," confirmed contempora-
neously in writing. The Bar argues that the accused failed to
confirm in writing his recommendation that MLP seek inde-
pendent legal advice. The Bar's argument is not well taken.
The accused's July 1997 letter discussing the potential con-
flict issues was addressed to three of Hoyt's independent
attorneys, as well as to Hoyt and Blackburn. That letter laid
out the potential conflict and ended with the request, "I
would appreciate your advice and assistance in determining
the appropriate role for me in these cases." We agree with the
Bar that lawyers are required to abide by the black letter of
DR 10-101(B) and that compliance with its "spirit" alone is
insufficient. See In re Lawrence, 332 Or 502, 512, 31 P3d 1078
(2001) (accused's failure to confirm advice that client obtain
independent legal advice in writing not obviated because
accused arranged for client to consult with another lawyer).
However, in our view, the accused in this case did meet the
rule's requirement, as well as its purpose. The accused set
forth the facts that created the potential conflict in a letter to
his client and to independent counsel selected by his client
and asked counsel to provide advice as to the potential con-
flict presented.

###### 2. Former-client conflict

When the accused learned, in late October 1997, that
the interests of the investor partnerships and MLP had
changed from interests that potentially could conflict to
interests that did, by then, actually conflict, he renewed his
motion to withdraw as attorney for MLP. After the bank-
ruptcy court allowed the accused to withdraw, he continued
to represent the investor partnerships in the Chapter 7 pro-
ceeding. DR 5-105(C) (1997) provided that a lawyer who has
represented a client in one matter is prohibited from subse-
quently representing another client in the same matter when
the interests of the current and former clients are in likely
conflict, unless the lawyer obtains the client's consent after
full disclosure from both the former client and the current cli-
ent. According to the Bar, the accused's disclosure of the con-
flict that he concedes was likely was inadequate, because he

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did not reveal to the bankruptcy trustee, who represented the
interests of MLP, that the investor partnerships had made
payments to the accused and to Hoyt entities that instead
should have been directed to MLP.

The Bar's argument is not well taken. A lawyer who
recognizes a likely conflict is required to advise the client of
the potentially adverse consequences of the multiple repre-
sentation, not of all facts known to him that could be helpful
to the former client. DR 10-101(B); see In re Brandt / Griffin,
331 Or 113, 135, 10 P3d 906 (2000) (lawyer must provide dis-
closure sufficient to apprise client of adverse consequences
and permit independent counsel to assess the conflict). In the
affidavit that the accused filed in support of his motion to
withdraw, the accused notified the trustee of the nature of
the conflict, i.e., that the interests of MLP and the investor
partnerships could diverge and that he could not advocate for
both. The trustee gave his consent to the accused's continued
representation, because the trustee determined that it was
essential that he have one representative of the investors
with whom he could communicate, given that 2,500 individ-
ual investors could be affected by the bankruptcy proceeding.
The trustee may have benefitted had the accused also dis-
closed information about payments by investors or investor
partnerships that would have assisted him in marshaling
MLP assets, but that is not information that the accused was
required to disclose to comply with conflict of interest rules.

Finally, the Bar complains that the accused failed to
comply with the requirement that he recommend that the
trustee obtain independent legal advice and confirm that rec-
ommendation in writing as defined by DR 10-101(B)(2). The
Bar is correct factually, and the Bar is also correct, as we
have noted, that compliance with the letter of the rule is
required. See In re Leuenberger, 337 Or 183, 212, 93 P3d 786
(2004) (lawyer did not advise client to seek independent
counsel regarding his conflict of interest and did not confirm
advice in writing); Lawrence, 332 Or at 512 (court rejected
lawyer's argument that he complied with "spirit" rather than
"the letter of DR 10-101" in failing to advise client in writing
of the potential conflict of interest); In re Barber, 322 Or 194,
196, 904 P2d 620 (1995) (lawyer sanctioned because he
"never disclosed in writing the nature and extent of a likely or

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actual conflict of interest, nor did he advise his clients to seek
independent legal advice to determine whether consent to
continued joint representation should be given"); In re
Altstatt, 321 Or 324, 330-31, 897 P2d 1164 (1995) (lawyer,
who was both indebted to and representing estate, failed to
make full disclosure in writing); Cohen, 316 Or at 662 (lawyer
represented both husband and wife in juvenile proceeding, in
which authorities accused husband of mistreating wife's
daughter, and failed to make full disclosure in writing); In re
McKee, 316 Or 114, 129-30, 130 n 15, 849 P2d 509 (1993)
(lawyer filed slander-of-title action against former client
without making full disclosure in writing). In each of those
cases, the client the lawyer was required to advise of the
potential conflict was a client of the lawyer with whom the
lawyer had had a direct and continuing relationship. In each
case, the rule required the lawyer to inform the client both
orally and in writing that the client should seek independent
legal advice, and the lawyer failed to do so.

Here, the Bar contends that the accused failed to
advise his former client, MLP, to seek independent legal
advice. The bankruptcy court had put a trustee in control of
MLP's affairs, and the trustee, who was an experienced gov-
ernment lawyer, also represented the bankruptcy estate.
Only the trustee could decide, on behalf of the estate,
whether to assent to the accused's continued representation
of the investor partnerships. The trustee and the estate never
had been clients of the accused and never had relied upon
him to make decisions on their behalf. The circumstances of
this case are unique in that the bankruptcy court specifically
had appointed the trustee to provide the independent legal
advice of which DR 10-101 speaks. Therefore, the accused
was not required to advise the trustee to seek other advice on
MLP's behalf. We find no violation of DR 5-105(C) or DR 10-
101(B)(2).

### III. CONCLUSION

Hoyt created and operated a fraudulent enterprise.
For many years, the accused believed in the legitimacy of
that enterprise and represented the partnerships that
invested in it. The accused heeded the separate existence of
those investor partnerships and each of the other entities

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that made up the Hoyt enterprise, including MLP. Ulti-
mately, of course, the accused was wrong: The enterprise was
not legitimate in either substance or form. But it took from
February to November 1997 for the accused to understand
that reality. That the accused did not act as promptly as he
should have to disassociate himself from Hoyt and other
aspects of his conduct in connection with the Hoyt matters
are not above criticism. However, the Bar did not prove by
clear and convincing evidence that the accused committed
the ethical violations that it charges. We therefore dismiss
the complaint in its entirety.

The complaint is dismissed.