When lawyer discipline becomes debt collection

Attorney disciplinary hearings before the California Supreme Court, like the one argued in San Francisco last week involving Thomas John Spielbauer, are extremely rare.

By the court staff's count, there have been just five such hearings in the last 25 years.

And this one wasn't even chiefly about Spielbauer, of Brentwood, who has been in practice since 1977, first as a criminal defense lawyer and later focusing on civil foreclosure law. He ran afoul of the State Bar after he was found liable in a 2013 civil trial for fraud in a real estate transaction.

Of course, the spectacle of lawyers in trouble is hardly news. Last month, the high court officially disbarred former Chapman University School of Law Dean John C. Eastman and ordered his name stricken from the roll of attorneys for ethical violations regarding the 2020 presidential election. In 2022, celebrity attorney Thomas V. Girardi was disbarred following accusations of stealing millions of dollars from vulnerable clients.

But in those marquee cases and almost all others, the Supreme Court's attorney discipline system operates on the papers, with formal hearings confined to State Bar Court. In Eastman's case, the high court simply rejected his petition for review, finalizing his ouster from the State Bar. He has said he will appeal to the U.S. Supreme Court.

Spielbauer's State Bar case arose from an unpaid $800,000 judgment against him in a civil fraud matter with no client involved. The bar's plan to require Spielbauer to cough up the money raises a novel issue: whether State Bar disciplinarians can require an errant lawyer to pay a non-client a court judgment as a condition of exiting probation and returning to active practice.

Spielbauer contended the State Bar Court treated him unfairly by adopting a Superior Court's fraud findings, but the Supreme Court denied his petition for review of that claim. Instead, it was a clash within the State Bar itself over the validity of restitution to a non-client that got the justices' attention.

By now, a decade's worth of interest has accrued on that $800,000 judgment. The State Bar is calling for a six-month suspension, but the added restitution requirement could cost Spielbauer a million dollars to get his license back.

Spielbauer's lawyer says that's disbarment in disguise.

"Trial Counsel for the California Bar asks this Court to give it the power to convert attorney disciplinary proceedings into a debt collection forum for the benefit of non-client tort claimants of attorneys," wrote Glen L. Moss of Moss & Murphy in Hayward. Spielbauer on Discipline, S283172 (Ca. S. Ct., filed Feb. 16, 2024).

An alarmed underwriter of errors and omissions policies, Lawyers' Mutual Insurance Co., came on as a friend of the court to argue on Spielbauer's behalf that his misconduct fell outside his professional capacity as an attorney. No misappropriation of client funds was involved, making his case unlike the usual sort of misconduct that requires restitution as a condition of a lawyer's probation, the insurers pointed out.

Awarding restitution in this case would "transform a financial disciplinary mechanism that has always targeted professional misconduct by lawyers acting in their capacities as attorneys or fiduciaries into a cudgel to redress civil wrongs committed by attorneys in their private lives," the insurers wrote.

The State Bar suggested the insurers should butt out. "When, as here, private persons are forced to incur specific financial losses as a direct result of attorney misconduct, this Court has found that restitution is appropriate and independent of any civil remedy," the bar's lawyers wrote, citing a 1991 case.

Starting in 2005, Spielbauer practiced foreclosure law, partly through an outfit he called Devine Blessings Inc., of which he was president and sole shareholder. In 2013, he was found to have issued a fraudulent, inflated demand to a counterparty in a real estate deal. In the resulting lawsuit, a Santa Clara County Superior Court judge slapped Spielbauer with an $800,000 judgment including punitive damages.

In 2016, a state appellate panel affirmed the judgment. The state Supreme Court denied review. Spielbauer didn't pay.

State Bar investigators got wind of the case and charged Spielbauer with five counts of misconduct, including moral turpitude and failure to report a civil fraud judgment to the State Bar. The State Bar Court hearing department found him culpable of four of the counts. So did the review department.

In effect, the State Bar is wrestling with itself. The bar's chief trial counsel wants Spielbauer to pay the $800,000 before he gets his license back. The bar's review department says a civil judgment cannot be the basis for a restitution order.

The outcome could expand the State Bar's disciplinary toolbox.

Spielbauer declined an interview request and did not attend last week's oral argument session. His lawyer, Moss, complained to the justices that the State Bar knows Spielbauer cannot afford to pay the judgment.

"This is not like Shylock. The State Bar cannot get its pound of flesh," Moss argued. "Mr. Spielbauer should get the benefit of the bankruptcy laws, which show he does not have the ability to pay this judgment. So instead of its pound of flesh, the State Bar wants his disbarment."

Arguing for the State Bar was Assistant Chief Trial Counsel Rachel S. Grunberg. "Exhibit A in this case is Mr. Spielbauer himself," she told the court. "He committed fraud and incurred substantial compensatory and punitive damages, and a decade later he has not paid a single cent. He is unrepentant and a recidivism risk."

Afterwards, Grunberg declined to comment through a State Bar spokesperson. Moss said the justices appeared inattentive to his argument that Spielbauer had been treated unfairly by the State Bar Court. "To me, they seemed bored," he added. "You know, this case is nothing like Girardi or Eastman. No one accused Thomas Spielbauer of profiting from what he did wrong. And if the court rules that he has to pay a million dollars to get reinstated, that's going to double or triple the rates for E&O insurance for all lawyers."

Another unusual aspect of Spielbauer's case is that this was the second time in his 49-year career that he has had a case at the Supreme Court involving his own behavior. In 2009, Spielbauer was a former deputy public defender who unsuccessfully appealed his firing for deceptive conduct in criminal court and for disobeying his boss' orders to answer questions about his actions.

When the high court reviewed the matter, it held that a public employee can be compelled, by threat of job discipline, to answer questions about his job performance--as long as the employee is advised that his answers cannot be used against him criminally. Spielbauer v. County of Santa Clara (2009), 45 Cal.4th 704.

The so-called Spielbauer Advisement has been used ever since in the investigation of job-related conduct that may have criminal consequences.