FOR THE RESPONDENT
135 N. Pennsylvania St., Ste. 1750
Indianapolis, IN 46204
FOR THE INDIANA SUPREME COURT DISCIPINARY COMMISSION
Donald R. Lundberg, Executive Secretary
Seth T. Pruden, Staff Attorney
115 West Washington Street, Suite 1060
Indianapolis, IN 46204
SUPREME COURT OF INDIANA
IN THE MATTER OF )
) CASE NO. 80S00-9711-DI-629
JOE F. WATSON )
August 22, 2000
By drafting for his client codicils that Respondent Joe F. Watson knew or
should have known had the potential of providing a substantial gift to himself
and his mother, the respondent engaged in an impermissible conflict of interest.
We find today that the respondents actions violate the Rules of Professional
Conduct for Attorneys at Law. For those violations, the respondent and
the Disciplinary Commission agree that the respondent should be suspended from the practice
of law for sixty days. That agreement is now before us
for final approval.
Our jurisdiction in this case is a result of respondents admission to the
bar of this state in 1958.
The respondent and the Commission agree that in 1982, the respondent wrote a
will for an 85 year old man (hereinafter the testator) who was the
largest single shareholder in an Indiana telephone company, owning 189 out of 800
shares. The will named the testators wife as residual beneficiary, or, upon
her death, the testators daughter. The respondents mother was the second largest
shareholder, owning 102 shares. The respondent owned one share, served as director
of the company, president of its board of directors, and as its general
counsel. A trust owned or controlled another 92 shares, and the respondents
mother was one of two life beneficiaries of the trust. In
all, the respondent and his mother owned or controlled some 103 of the
800 shares, and the respondents mother was a partial beneficiary of another 92
After the testator executed the will the respondent had drafted for him, the
testators wife died, leaving the daughter as the sole beneficiary. In 1988,
the respondent prepared for the testator a codicil which granted an option to
the company, upon the testators death, to purchase his 189 shares at a
price reflecting the stated book value,
subject to the consent of the daughter.
In 1992, when the testator was 96 years old, the respondent drafted
a second codicil identical the first, except that the need for the daughters
consent was excised from it. At that time, the respondent knew
or should have known that the option for the company to buy the
shares at book value was setting a price which could be substantially less
than fair market value.
The testator died on September 17, 1993. The respondent offered the
will and codicils for probate on October 1, 1993. The executor of
the estate (a local bank) hired the respondent as attorney for the estate.
The respondent sought and was granted approval of the probate court to
retain special counsel for the purpose of purchasing the testators shares of the
company. The Board of Directors elected to exercise the option to purchase the
estates shares at the listed book value, determined to be approximately $9,500 per
share, for a total purchase price of approximately $1.8 million. About two
years later, the respondent, his mother, and the companys remaining shareholders sold all
of the companys stock for $21,000 per share, realizing an amount per share
in excess of two times that paid to the testators estate for the
The parties dispute whether the book value of the stock was less than,
equal to, or greater than the fair market value (see footnote 1,
at the time the respondent drafted the two codicils and at the time
of the testators death. The Commission contends that the book value was
substantially less; the respondent claims it was equal to or greater than the
fair market value.
We find that the mere potential for the shares book value to be
less than the fair market value created a situation that should have precluded
the respondent from accepting employment as the testators attorney to draft the codicils.
Indiana Professional Conduct Rule 1.8(c) provides that a lawyer shall not prepare
an instrument giving the lawyer or a person related to the lawyer as
a parent, child, sibling, or spouse any substantial gift from a client, including
a testamentary gift, except where the client is related to the donee.
At that time, the respondent knew or should have known that the codicils
had the potential for providing a substantial testamentary gift to himself or his
mother. Had the book value been lower than the fair market value
at the time the option was exercised, the companys shareholders (including the respondent
and his mother) would have benefited because they would have experienced an increase
in their equity interest in the company that exceeded the indirect cost to
them of the companys exercising the option. Moreover, by purchasing the testators
shares, the company reduced the number of outstanding shares from 800 to 611,
correspondingly increasing the percentage of ownership in the company by the respondent, his
mother, and the trust, from approximately 25% to almost 33%. Accordingly, their
interests became correspondingly more influential in controlling corporate decision-making as a result of
the exercise of the stock option.
Where it is possible, as it was here, that a testamentary gift has
the potential substantially to benefit the drafting attorney or his family, the ethical
propriety of drafting the instrument should be evaluated in light of reasonably foreseeable
circumstances and not the capriciousness of market values years in the future.
Because the respondent drafted the codicils when it was reasonably foreseeable that the
instruments had the potential for providing a substantial gift to the respondent and
his mother, the respondent violated Prof.Cond.R. 1.8(c). Professional Conduct Rule 1.7(b)
inter alia, that a lawyer shall not represent a client if the
representation of the client may be materially limited by the lawyers own interests,
unless the lawyer reasonably believes the representation will not be adversely affected, and
where the client consents after consultation. The respondents drafting of the
codicils permitting book value sale could have allowed for some of the estates
assets to be disposed at far less than fair market value, to the
respondent and his mothers ultimate benefit. As such, the respondent violated
Having found misconduct, we examine the issue of appropriate discipline for it.
The respondent and the Commission agree that a 60-day suspension from the practice
of law is commensurate with the misconduct. They note several mitigating factors,
including the respondents recognition of the wrongfulness of his misconduct, the fact that
his relationship with the decedent was very close, and his 40 years of
unblemished legal practice. In light of consideration of these factors, we determine
that the agreed sanction is appropriate under the facts of this case.
It is, therefore ordered, that Joe F. Watson is suspended from the practice
of law in this state for a period of sixty (60) days, effective
September 30, 2000. At the conclusion of that period he shall be
automatically reinstated to the practice of law in this state.
The Clerk of this Court is directed to provide notice of this order
in accordance with Admis.Disc.R. 23(3)(d) and to provide the clerk of the United
States Court of Appeals for the Seventh Circuit, the clerk of each of
the United States District Courts in this state, and the clerks of the
United States Bankruptcy Courts in this state with the last known address of
respondent as reflected in the records of the Clerk.
Costs of this proceeding are assessed against the respondent.
The parties agree that book value is an accounting term that
bears no necessary relationship to fair market value. They agree that book
value, as relevant to this case, is determined by assets at cost less
depreciation. Fair market value, they agree, is determined by assets valued at
what a willing buyer would pay a willing seller, or the open market