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Charlie S. Martinez Jr. says he went to attorney Earl King for legal advice about his tax problems. King says Martinez came to him for a loan. But the result of the relationship — whatever it might have been — is a suit that ethics experts say is a prime example of why lawyers should never mix financial dealings with legal services. On April 13, Martinez filed Martinez v. Lawyers Trust Co., et al. in Tarrant County, Texas, Probate Court No. 2, a complicated suit in which Martinez alleges the defendants are liable for legal malpractice, fraud and breach of fiduciary duty among other things. In his petition Martinez alleges that King and his Weatherford, Texas, firm, King & King, took advantage of him, namely by setting up a business transaction that resulted in Martinez losing thousands of dollars worth of real estate to King. King says he’s done nothing wrong and all he tried to do was help Martinez financially. King is adamant that he never represented Martinez as an attorney, aside from minor matters such as creating a trust for Martinez. But three ethics experts say the attorney-client relationship often blurs when lawyers enter into business deals. There are often misunderstandings in such arrangements, they say. The Texas Disciplinary Rules of Professional Conduct do not prohibit attorneys from entering into business dealings with clients, but they do strictly regulate them. The rules require that the deal be “fair and reasonable to the client” and that the terms of the deal “be reasonably understood by the client.” Martinez is a longtime factory worker who began supplementing his income in the 1970s by buying small houses in south Fort Worth and renting them, says his attorney, Joel Fineberg of Dallas’ Law Offices of Joel Fineberg. By 1991, Martinez had accumulated more than 20 rental properties but was having trouble paying the property taxes on them as they rose in value, he alleges in his petition. A certified public accountant referred Martinez to King that year for help in securing refinancing for his property debt. “I understood it was a combination — he was an attorney who was going to loan me money and he would be my personal attorney,” Martinez says in an interview referring to his first meeting with King. King set up a corporate structure for Martinez and loaned him $50,000 to cover his outstanding tax debt, as alleged in the petition. After that initial loan, Martinez kept going to King for loans. As alleged in his petition, the plaintiff accuses King of “self dealing” that allowed him to “rape and pillage the profits” out of Martinez’s properties. When Martinez fell behind on his loan payments, which had ballooned to a $150,000 debt to King, King foreclosed on the properties — including Martinez’s homestead, as alleged in the petition. King stood to make a substantial profit off the sale of the houses — several times the loan amount owed, Fineberg alleges. King disputes that the properties could be sold for profit. But King says he had no attorney-client relationship with Martinez. King, a former banker, says he retired from the practice of law many years ago but occupies his time managing King & King’s pension fund by occasionally making real estate loans. “He came to me to borrow money out of our pension fund. He didn’t come to me as a lawyer,” says King, who keeps his law license active and is of counsel at King & King. King says he required Martinez to sign a waiver that he was not acting as his lawyer each time he closed on a loan, and that Martinez should take the matter to another lawyer for an independent review. “And he signed it every time,” King says. King says he did do some legal work for Martinez when asked, such as setting up a trust for Martinez and setting up a corporation for Martinez. But King maintains he never had a continuing attorney-client relationship with Martinez. After Martinez filed for bankruptcy in 2000, King says he was free to foreclose on the loan by order of the U.S. Bankruptcy Court in Fort Worth. He says he was not aware that one of the properties he was foreclosing on was Martinez’s homestead. ETHICS QUESTIONS James McCormack, a former general counsel for the State Bar of Texas who’s now a partner in Austin’s Tomblin, Carnes, McCormack, often answers questions about business relationships that lawyers want to forge with clients. He says the burden always is on the lawyer to make sure the client knows exactly what he or she is getting into. Business relationships are governed by Rule 1.08 of the Texas Disciplinary Rules of Professional Conduct, McCormack says. That rule requires that the terms of the transaction between the lawyer and the client be “fair and reasonable” to the client; be understood by the client; that the client be given reasonable opportunity to seek independent counsel about the transaction; and the client consent to the transaction in writing. Lawyers often get into ethics trouble in situations in which they are investing in a business, for example, and provide legal advice to their fellow investors, McCormack says. “That’s part of the problem with a lawyer trying to wear two hats,” McCormack says. “This lawyer says he did make a distinction. But it was probably a mistake perhaps to then say, ‘Well let me do a little legal work or respond to a request for legal work.’” “Sometimes it doesn’t take much to create an attorney-client relationship,” McCormack says. “You have to look at the circumstances closely.” Randy Johnston, a legal malpractice lawyer partner in Dallas’ Johnston and Tobey, says he doubts the transaction between Martinez and King amounts to legal malpractice. But it does raise ethical questions, Johnston says. It’s always a bad idea for an attorney to do business with someone and do legal work with that same person, Johnston says. “It’s one of those situations where virginity matters. If you say I never represented him or I never did business with him, you’re OK,” Johnston says. “But if you say I represented him a little bit, the public doesn’t understand it. They have different expectations than the lawyers.” “And it’s always interesting to me because I’ve never seen a situation where the layman took advantage of the lawyer,” Johnston says. The trial court likely will have to apply a “reasonable person” test in Martinez to determine if there was an attorney-client relationship between Martinez and King, says Linda Eads, a professor at Southern Methodist University Dedman School of Law who teaches professional responsibility. “It doesn’t matter what King thinks or what [Martinez] thinks,” Eads says. “It’s what a reasonable person thinks about what their conversations were when they first met and the work that was done and the warnings given.” OTHER DEFENDANTS Earl King’s attorney in Martinez is his son, state Rep. Phil King, R-Weatherford. Martinez has filed two petitions against Earl King, Phil King says. The original petition was filed in September 2003 on Martinez’s behalf by David Bakutis of Fort Worth’s Bakutis, McCully & Sawyer. The amended petition Fineberg filed this month takes the place of the petition Bakutis filed. Bakutis, who still is an attorney of record on the case, refers a call for comment about the suit to Fineberg. “We were asked to come into the case given our area of expertise,” Fineberg says. “We do a lot of civil litigation.” The issues in both petitions are largely the same except Fineberg added Phil King and Fort Worth’s Law, Snakard & Gambill as defendants. The other defendants include Earl King, King & King and the Lawyers Trust Co., the trust Earl King created that holds the liens on Martinez’s property. King & King was associated with Law Snakard until earlier this year when the relationship ended. Phil King says the firms ended their relationship because his legislative job could have conflicted with the interests of Law Snakard clients. Ed Huddleston, a shareholder and member of the board of directors of Law Snakard, says he has no idea why Martinez is suing his firm. Martinez was never a client of his firm and his firm has no connection to the case, Huddleston says. Phil King, a partner in King & King, says he believes he was named as a defendant in the suit as a way to embarrass him politically. Fineberg says Phil King is not above the law, despite his position in politics. “I didn’t even know that I’d been sued until a reporter called,” Phil King says. “Guess [Fineberg] thought that if he embarrassed me politically I’d push dad to surrender. It had just the opposite effect.” But the amended petition did have one effect. The day after it was filed, Earl King says he deeded all the property back to Martinez. All Martinez has to do now is pay back the money that was loaned to him, Earl King says. “We don’t want his property,” Earl King says. “We never wanted his property.” “I didn’t even know about that,” Martinez says when told of the move by Earl King. But Fineberg says the suit will go forward. “That offer had not been communicated to us,” Fineberg says. “I’m not a believer that someone can [take] your property, give it back and forgive the misdeeds. That’s not the way it works. That’s not the law, and that’s not justice. And until we get justice and accountability, we will not stop.”

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