California attorney ordered to pay restitution to non-client for real estate misconduct

(CN) — The California Supreme Court unanimously ruled Thursday that attorney Thomas John Spielbauer must pay more than half a million in restitution to a non-client as part of his discipline ordered by the state bar for acts of misconduct.

The decision sidesteps the state bar review department’s conclusion that Spielbauer did not have to pay restitution as part of his discipline because the injured party was not a client of his.

“We find that the review department misinterpreted our precedents and that a restitution order is appropriate in this case,” Associate Justice Kelli M. Evans wrote for the court. “We therefore order that Spielbauer make restitution in accordance with the terms set forth at the end of this opinion. We otherwise adopt the review department’s recommended discipline.”

In a statement, Rachel Grunberg, assistant chief trial counsel for the State Bar of California, praised the ruling.

“We are very pleased with the decision, which finds an order for restitution appropriate in this case as a condition of discipline,” she said. “More broadly, the court’s opinion clarifies the role of restitution in attorney discipline proceedings, recognizing, as the state bar argued, that in a wide range of cases, restitution furthers the protective and rehabilitative purposes of discipline by forcing an attorney to acknowledge the results of their misconduct.”

In contrast, in an interview with Courthouse News, Spielbauer’s attorney, Glen L. Moss of Moss & Murphy, called the decision a “disaster” and warned it could negatively impact the legal profession.

“It’s a substantial expansion of the restitution liability that lawyers have, even in situations like this, where they’re not even working as lawyers,” he said, adding later, “It’s going to increase their malpractice rates substantially, which is unfortunate too because a lot of lawyers are not going to be able to afford the increased rates.”

The state bar’s case against Spielbauer stems from a 2010 real estate deal he conducted on behalf of Devine Blessings, Inc., of which Spielbauer was the president and sole shareholder.

In 2013, a court found Spielbauer to have intentionally offered an inaccurate, inflated payoff demand to the other party involved in the transaction.  The following year, a judge ordered Spielbauer to pay more than $860,000 in damages, fees and costs. Spielbauer subsequently filed for bankruptcy. He never paid the judgment.

Moss added the case was best illustrated by the adage “a man with himself for an attorney has a fool for a client,” claiming Spielbauer’s “failure to mount a defense” and explain how he arrived at the payoff demand led to “what appeared to be an outrageous discrepancy between the amount due and the amount that should have been due.”

The Office of Chief Trial Counsel of the State Bar later learned of the civil fraud judgment and filed five counts of misconduct against Spielbauer, including fraud, two counts of moral turpitude and failure to report the civil fraud judgment. A state bar hearing found Spielbauer culpable for four counts and recommended disciplinary measures of suspension and probation, but declined to recommend restitution.

The review department found similarly and denied recommending restitution, noting the other party in the real estate deal was “a non-client entity,” citing the high court’s decision in Sorensen v. State Bar.

In Thursday’s opinion, Evans said the review department misread Sorensen and other precedents when it concluded Spielbauer did not have to pay restitution to a non-client.

“Our point was not, as the review department concluded, that an award of restitution is impermissible insofar as it ‘compensat[es] the victim of wrongdoing,’” he wrote. “Rather, it was that the primary purposes of ordering ‘restitution [as] a necessary condition of probation’ in attorney discipline cases are ‘effectuat[ing]’ the attorney’s ‘rehabilitation and … protect[ing] the public from similar future misconduct,’ and that compensating the victim through an ‘award [of] restitutive monetary relief’ is permissible ‘when doing so is “merely incidental to” these ‘proper, primary . . . purpose[s].’"

The court further rejected several of Spielbauer’s arguments he made to the state bar hearing judge and the review department, including that the 2014 judgment had expired and was unenforceable, that he believed his conduct was justified and that the other party was never his client and had no out-of-pocket losses.

The high court ordered Spielbauer to be suspended from practicing law for two years and placed on probation for two years. He will be prohibited from practicing law for the first six months of probation and until he pays nearly $540,000 in restitution, plus interest. He will be required to pay one-fifth of the total restitution each year for the next five years.

Evans wrote the court was skeptical Spielbauer would end up paying what he owes, given he never made payments on his judgment in 2014, but concluded the amount was “appropriate to protect the public.”

“Spielbauer’s misconduct was not garden-variety civil misbehavior, but was fraudulent activity, which raises questions about his ability to represent clients in a manner consistent with his professional obligations,” he said.

Chief Justice Patricia Guerrero, Associate Justices Carol A. Corrigan, Goodwin H. Liu, Leondra R. Kruger and Joshua P. Groban and Associate Justice Jose S. Castillo, sitting by designation, concurred.

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