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Matter of Shannon6/21/1994
rity-rent-back program was to continue as long as the rental program was in effect. Plaintiffs alleged that Fairfield arbitrarily discontinued the program without notice to or consent of plaintiffs.
Under a 1975 Consent Decree with the United States Securities and Exchange Commission (SEC), Fairfield was prohibited from marketing condominiums in conjunction with any priority-rent-back program, and its employees or sales representatives could neither discuss any such rent-back program with prospective purchasers nor directly operate any such program. Fairfield believed, however, that it would not violate the Consent Decree if a separate entity such as Client A made representations about the priority-rent-back program. This belief led to the contract between Fairfield and Client A in which Client A contracted to provide rental management services to parties who purchased condominiums from Fairfield. Client A's contract with Fairfield was effective from November 1, 1982 to October 31, 1983. Because of the Consent Decree against Fairfield, it was important to Fairfield that Client A's operations be viewed as a separate entity with Client A acting on their own without Fairfield's knowledge or consent.
Fairfield's position on this matter was consistent from the very beginning. Nabours testified that he had been in contact with representatives of Fairfield before filing the complaint. He testified that Fairfield seemed to be taking the position that it had made no representations to prospective purchasers concerning a priority-rent-back program, and that any representations were made by others, specifically Client A or their representatives.
In January 1987, Fairfield retained Respondent's brother to defend it in the lawsuit. Shortly thereafter, Respondent assumed primary responsibility for the litigation. Respondent filed Fairfield's answer. Fairfield's answer was consistent with Nabours's initial impression that Fairfield was denying any knowledge of the priority-rent-back program. Fairfield denied allegations that it had a contract with Client A to handle the program, that Client A's office was in the Fairfield sales office building, that Client A was in continuous contact with the Fairfield sales agent, and that Fairfield sales agents and/or Client A made representations about the priority-rent-back program to induce plaintiffs to purchase their condominiums.
Nabours tried to discuss the priority-rent-back program with Client A before filing plaintiffs' lawsuit. Client A refused to discuss the matter with Nabours and contacted Fairfield. Fairfield told Client A that Fairfield would defend them if Nabours filed suit. After being served, Client A again contacted Fairfield and was reassured that Fairfield would defend the action. As the time to file an answer approached, however, Client A retained Tucson attorney Marc Montijo.
Montijo contacted Respondent, following up on Client A's expectation that Fairfield would provide a defense. In a January 13, 1987 letter, Respondent answered Montijo's inquiry indicating that Fairfield's "objective appears to be one to indemnify and protect [Client A]" and promising to get back to Montijo with a final answer as soon as he could. Because the answer was due and Client A had not yet received final notification from Fairfield, Montijo filed an answer on behalf of Client A. The answer appears to have been filed on January 16, 1987. Because both Client A and Montijo anticipated that Fairfield would be defending this suit, Montijo and Client A spent little time formulating the answer. Accordingly, Client A's response was substantially a "general denial."
Respondent waited more than 5 months before advising Montijo
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