Appeal from the Superior Court of the District of Columbia (ADM-1374-03) (Hon. Jose M. Lopez, Trial Judge).
The opinion of the court was delivered by: Farrell, Associate Judge
Before FARRELL, REID, and THOMPSON, Associate Judges.
Concurring opinion by Associate Judge REID at page 14.
Dissenting opinion by Associate Judge THOMPSON at page 17.
This appeal presents two questions. First, did the probate judge correctly find that appellant Michelle D. Smith had a conflict of interest when she simultaneously served as attorney to the personal representative of a decedent's estate and contracted with the latter to sell real property of the estate using Smith's services as sole owner of a real estate brokerage company? Second, having found a conflict of interest, did the judge have "equitable" authority to order the attorney to disgorge the realtor's commission she - or her company - had earned from the sale and return it to the estate? We answer the first question "yes," the second "no." Although the judge had undeniable authority to consider any conflict of interest on Smith's part (a) in reviewing the personal representative's conduct in effecting the sale through her, and (b) in assessing the reasonableness of the attorney's fee request made on Smith's behalf, no statutory authority enabled the judge to reach past the personal representative, as it were, and order a third-party contractor, including an attorney, to disgorge funds based on a conflict of interest in performing duties owed solely to the personal representative.
Solomon Brown died intestate leaving eleven heirs and one main estate asset, a townhouse on 15th Street, N.W. In 2003, one of his daughters, Auldrey Glover (Glover), was appointed unsupervised personal representative of the estate. Attorney Smith was retained by Glover to represent her in the estate administration. Smith was also a licensed real estate broker and sole owner of Smart Choice Real Estate, PLLC (Smart Choice).
Intending to sell the townhouse, Glover had received an October 2002 appraisal valuing the house at $258,000. In October 2003, Glover and Smith agreed in writing that Smart Choice would list and market the townhouse under an arrangement that would earn Smart Choice a (below-market) 3% commission in return for an exclusive listing, i.e., the property would not be entered in the Multiple Listing Service (MLS). Less than two months later, the townhouse was sold to a couple, the Chens, for $300,000, Smith thereby earning a $9,000 sales commission. As it happened, the Chens again listed the property for sale in March 2004 for $599,000, and sold it a few days later for $730,000.
Glover, as personal representative, had not received consent to the sale of the property from the other heirs before the townhouse was sold. In May 2004, she filed a Petition to Court for Approval of the Sale of the Real Property, at the same time filing her First and Final Account of the estate. That same month, she filed the Personal Representative's Request for Compensation in the amount of $6,250 for herself and $9,692.72 for legal services performed by Smith. Thereafter, all but two heirs consented to the sale of the townhouse and did not object to the account or the request for compensation. In June 2004, however, a son and the estate of a daughter of the decedent filed objections in the Probate Division to the sale of the property, the accounting, and the request for compensation, alleging that the townhouse had been sold without their knowledge by Smith and for a price based on an appraisal more than one year old. The objections asked for a hearing, inter alia, "to find out why [Smith] did not disclose her connection to Smart Choice . . . and why [Glover was seeking] to ratify a sales contract for a consideration far below the market and have the heirs . . . pay her for this activity." In reply, Smith made the listing agreement part of the record and asserted both that Smart Choice was "a separate legal entity from Michelle D. Smith's legal practice" and that her "relationship with Smart Choice was disclosed to the personal representative and was indicated in the listing agreement."
The probate judge held a status hearing in September 2004 and identified the issues for trial as whether "the personal representative acted [reasonably in selling the townhouse for $300,000] considering the market conditions," and whether, "as to the sales commission, . . . there was a conflict of interest" on Smith's part by virtue of the sale having been conducted through her real estate company. At a trial in late 2004 and early 2005, lengthy testimony was presented regarding the market value of the townhouse during the relevant time period, the main issue being whether - as the objectors argued - Glover had been negligent or even reckless in letting the property be sold for well below its actual value. But Smith also acknowledged that the judge was being asked to decide "whether there was a conflict of interest[,] with counsel for Ms. Glover being the owner of the company that did the real estate transactions." Although Glover was available to testify, Smith did not call her or anyone else as a witness regarding the circumstances of her listing agreement with Glover.
In February 2006, the judge issued an order finding that Glover had breached her duty as personal representative by not marketing the property in a prudent manner, including her use of a year-old appraisal and forgoing use of the multiple listing service. He ordered Glover to repay $75,000 to the estate, "the difference between the price she obtained for the property and the reasonable market value" shown by the appraisal testimony, "that is[,] $75,000." Glover took no appeal from that ruling.*fn1
The judge further found that Smith's "behavior and action" as attorney to the personal representative was marked by a conflict of interest between her roles as attorney and realtor.
Auldrey Glover used a broker . . . [who] was her own lawyer. . . . The conflict of interest arises because if . . . Glover had had an independent attorney she would have been told that the concession of commission to 3% [in the listing agreement] was of no benefit to the estate unless the property was to be marketed properly.
The judge thus concluded that an "equitable sanction should . . . be imposed against Ms. Smith," and ordered that "the commission of $9,000 to Ms. Smith's company shall be disgorged from her business" and returned to the estate by way of an offset against - a "reduc[tion in]" - the attorney's fees that otherwise "would be due to Ms. Smith." As an additional "sanction," the judge ruled that "the estate shall not be charged for [Glover's] fees and [those] of Ms. Smith regarding all time spent in this litigation."
We first consider whether the probate judge correctly found that Smith had a conflict of interest in simultaneously serving as attorney to the personal representative and contracting with her to sell the estate's townhouse through Smart Choice.*fn2 The judge was correct in this regard.
As relevant here, Rule 1.8 (a) of the District of Columbia Rules of Professional Conduct (2007) prohibits a lawyer from "enter[ing] into a ...