Lawyer Inherited Millions in Stock, Cash From Clients : Ethics: Questions of impropriety are raised. Leisure World attorney acknowledges gifts but denies wrongdoing.
An Orange County lawyer who boasts of representing more than 7,000 Leisure World retirees has prepared numerous wills making himself the recipient of millions of dollars in cash, stock and real estate, a Times investigation has found.
Attorney James D. Gunderson, 67, has received the inheritances despite a longstanding California Supreme Court ruling that says accepting anything more than a “modest” gift from a client’s estate raises questions of impropriety.
In one recent case, Gunderson arranged for the execution of a will and trust that together bequeathed him stock valued at $3.5 million and made the other beneficiaries liable for an estimated $2 million in inheritance taxes he normally would have incurred.
That will--the final version of which Gunderson’s blind, bedridden, 98-year-old client signed only six weeks before his death--included a “no contest” provision that would deprive any other beneficiary of a share of the man’s $18-million estate if that person challenged any part of the will.
In another case, Gunderson persuaded a judge to name him guardian of a Canadian woman who was suffering from senile dementia and was incapable of managing her assets. Once in control of her affairs, Gunderson drafted a new will that gave him the lion’s share of her estate--about $225,000 worth of American Telephone & Telegraph Co. stock.
One of the woman’s heirs, who lives in Canada, accused Gunderson in court of defrauding the rightful beneficiaries with a will that the woman--who is now dead--was obliged to sign against her wishes. The heir reluctantly abandoned her court challenge when Gunderson offered her $60,000 to drop the case.
The heir’s Canadian attorney, Donald Fjeldsted, said the anticipated cost of waging a court fight in far-off California was the only reason his client settled. “You have to realize the difficulty and cost of traveling to California,” he said.
“I was flabbergasted that something like this could go on,” Fjeldsted said.
Gunderson has acknowledged in court records that he has received gifts or bequests “on a very few occasions . . . from close friends who were also clients.” But he has vigorously denied any wrongdoing. He said he has conducted his practice “with honor and dignity.”
Officials with the State Bar of California say there is no record of any disciplinary action against Gunderson.
In an interview in August, Gunderson declined to discuss details of the $3.5-million gift or other, similar cases that turned up in a Times investigation that included interviews with more than 100 people and reviews of more than 100 court cases.
Sitting in his penthouse office overlooking Leisure World, Gunderson spoke of himself, his exotic bird collection and how his law practice flourished since 1964, when he moved it into the sales office of the gated retirement community, now the world’s largest.
“Older people rely more on professional people than younger people do,” Gunderson said. “They listen to a professional person and say: ‘That sounds good for me,’ and pretty soon they sign up for it.
“It’s very difficult to separate yourself from your client. You’re a pretty lousy person if you know someone for 40 years and not have some as personal friends,” he said. “When you know some of them as long as I have, some of my clients are my best friends.”
When pressed for details, Gunderson invoked the attorney-client privilege, which prohibits lawyers from discussing the confidential affairs of clients.
Probate Court files, property records and private trust documents obtained by The Times revealed that the attorney has received, among other things:
* The tax-free, $3.5-million bequest from Merrill A. Miller, a 98-year-old man who relatives, in court documents, said “was blind and failing in his mental and physical faculties” at the time he signed a new will.
* The AT&T; stock worth at least $225,000 from Emerald Mary Sully, who was found to have senile dementia five months before her new will was drafted.
* Virtually all of the $427,000 estate of Martin Fisher, including a 316-acre farm in Fresno County, a Leisure World condominium valued at $67,000 and $75,000 that had been deposited in a Laguna Hills savings and loan founded by Gunderson. The will Gunderson prepared for Fisher bequeathed only $2,000 to Fisher’s sole surviving relative, Richard B. Fisher, a brother who lived in Ft. Worth. Richard Fisher’s daughter said her father died virtually penniless and heartbroken that he could not even have some family keepsakes that had been in his brother’s possession.
* A mortgage that ultimately gave Gunderson title to one square mile of land in San Bernardino County. The mortgage was originally held by Margaret Hough, one of Gunderson’s clients. A year after her death, Gunderson foreclosed on the property, and transferred it into his name. It is unclear how much, if anything, Gunderson paid to acquire the mortgage.
All these transactions involving Gunderson’s clients are revealed in public records. Many of the estates he has handled are private trusts, which are neither public nor under the oversight of the probate courts.
In the Miller case, the will conveyed the deceased man’s entire estate to a private trust, which in turn gave Gunderson--outside the scrutiny of probate court--the $3.5-million bequest.
Gunderson told The Times that he has drawn up trusts for more than half of his 7,000 Leisure World clients.
Several trusts gave Gunderson sole authority over estates valued in the hundreds of thousands of dollars. When disposing of their assets, he sometimes paid out large sums to parties with whom he was doing business, to his law partners for legal services, to various charities and to his alma mater.
In one case, Gunderson approached Woodland Park Zoological Gardens in Seattle with an offer to donate $5,000 from the estate of Anne Clay if the organization would use the money to buy a pair of exotic African birds that were available for sale from a California company. He did not mention that his son and daughter ran the company.
People who know Gunderson well say that he has a consuming passion for exotic birds. A personalized license plate on his Mercedes-Benz sedan reads BIRDS 7. He boasts one of the West Coast’s most extensive private collections, one that rivals even that of the world-famous San Diego Zoo, which says it has bought from or bartered with Gunderson for at least 200 rare birds.
He and his agents travel the world over in search of rare specimens. According to a former employee, one bird safari to Africa resulted in the acquisition of several hundred exotic species from Tanzania.
Gunderson’s hilltop home, overlooking Saddleback Valley in San Juan Capistrano, has a back-yard aviary that is a regular destination for schoolchildren on field trips. The aviary, built by the firm that constructed the one at San Diego Zoo, houses hundreds of birds, including toucans, hornbills, rollers, hummingbirds and pheasants--some that come from as far away as the frozen foothills of the Himalayas, the Amazon jungle or South Pacific islands.
But Leisure World residents know Gunderson as one of the community’s most prominent attorneys, who was willing to make house calls in the early days of conducting business there.
One practice employed by Gunderson has been formally condemned by the American Bar Assn., whose guidelines specifically prohibit lawyers from preparing trusts or wills in which they are beneficiaries.
Those guidelines have been adopted in 38 states--although not in California--as the lawyers’ code of conduct, and lawyers can be disciplined, even disbarred, for violating them.
“A lawyer shall not prepare an instrument giving the lawyer or a person related to the lawyer . . . any substantial gift from a client, including a testamentary gift,” the ABA’s Model Code reads.
The State Bar of California’s Rules of Professional Conduct state that “a member (lawyer) may accept a gift from a member’s client, subject to general standards of fairness and absence of undue influence.” The rules add that California lawyers “shall not induce a client to make a substantial gift” to them or their relatives.
The most authoritative interpretation of the California rule is contained in an oft-quoted 1962 California Supreme Court decision, Magee vs. the State Bar of California.
In that decision, the court held “there is no rule that attorneys should never draw wills in which they receive gifts.” But the justices went on to say that “if the gift to the attorney is a modest one . . . there is nothing improper in drawing wills for close friends or for clients.”
And the justices then noted that the $21,000 inheritance involved in the case was a “substantial gift,” and San Francisco lawyer Edward Howard Magee lost his claim to the money.
“Even though an attorney may be acting only to carry out the wishes of his client in drawing a will containing a gift to himself,” the Supreme Court said, “he should send the client to another lawyer when the circumstances would support an inference of wrongdoing.”
After being told of Gunderson’s inheritances, Orange County Superior Court Judge Tully H. Seymour, the sitting probate judge in Santa Ana, said he could “envision it happening once, where it’s a special relationship, and the attorney becomes a surrogate relative, particularly where there aren’t other close relations. But for (an attorney to inherit from a client) many other times, it’s highly unusual. I’m concerned.”
Gunderson was the first attorney to set up shop in Leisure World when the retirement community opened in 1964 so new residents would have a lawyer on hand to draw up legal documents.
That was when the community had fewer than 2,000 residents. Today, it is home to 21,000 senior men and women, many of them flush with cash after selling their homes or businesses before retiring. Brokers estimate the average resident’s estate at $300,000 to $400,000.
Gunderson has seen his own fortune rise over the years. His office is perched on the top floor of a five-story glass building that is among a row of banks, brokerage houses, insurance companies and other money handlers who cater to Leisure World’s residents.
From the early days, Gunderson’s law practice has changed as the ravages of aging have altered the lives of his clients. The lawyer said one-fifth of his practice involves frail and feeble retirees who can no longer care for themselves or manage their assets.
As conservator, or legal guardian, for those retirees, Gunderson is empowered to take charge of his clients’ bank accounts, handle their investments and make critical medical decisions. But he has also used his role to benefit organizations and businesses connected to him--particularly a savings and loan association and a bank that he founded, some charities and his family’s bird business.
In the August interview with The Times, Gunderson said he has only acted in his clients’ interests: “If the people weren’t sure that I’d carry out their wishes, they would never tell me to do it.”
Since then, Gunderson has declined to be interviewed. Santa Ana attorney Barry Michaelson, who is representing Gunderson, said he has advised his client not to comment.
Gunderson has donated tens of thousands of dollars from some of his clients’ estates to bird groups and zoos that buy or trade rare exotic birds with him.
Take the case of Clay, who died in 1984, leaving an estate valued at almost $600,000. Clay said in her will that her wish was that, after certain bequests were made, some of the residue “might be used to provide help for the American Indians.” But the document gave Gunderson the power to distribute the estate’s residue--$271,000--to charitable organizations chosen by him.
Gunderson donated $45,000 from that amount to three American Indian organizations. The remainder went to Woodland Park Zoological Gardens and four other avian organizations with which Gunderson had business dealings: the San Diego Zoo and World Pheasant Assn. of USA Inc. received $45,000 each, the Los Angeles Zoo received $20,000 and the avian sciences department of UC Davis got $2,000. Gunderson also gave $5,000 each to his alma mater, Augsburg College in Minneapolis, and his daughter’s alma mater, the McGeorge School of Law Alumni Fund.
Gunderson regularly trades exotic birds with the San Diego and Los Angeles zoos, and he is listed as a director, agent and attorney for the World Pheasant Assn.
James Gunderson’s alma mater and the San Diego Zoo also benefited from the attorney’s generosity in the case of another estate.
Gunderson gave the two groups $50,000 each from the estate of Lulu Berniece Thompson, a Leisure World widow who died last year at age 99, leaving assets valued at almost $1 million.
A document filed in probate court said that Thompson, whose affairs had been managed by Gunderson since 1982, wanted her entire estate to fund medical scholarships. In 1983, an independent attorney asked by a judge to interview Thompson reported that she said she had no beneficiaries and that her estate “will be left to UCI Medical Center for scholarships.”
But a will dated June, 1989, left not a dime to UC Irvine, or for scholarships. Instead, it bequeathed half of Thompson’s estate--$461,000--to Gunderson’s then-secretary, Margaret Perez, 52, who told The Times that she planned to use the money for her retirement.
Perez, who is now employed as a secretary for probate lawyer Sallie T. Reynolds, Gunderson’s former law partner, said Thompson never mentioned that she wanted to endow medical scholarships with her estate.
Perez said she first met Thompson in Gunderson’s office in 1976 and “somehow we clicked.” Their friendship developed to the point where “she considered me family,” she said.
“She was lonesome,” Perez said. “In the last days, she lost hope in everything.”
Gunderson did not receive a direct gift from the estate, but records show that his law firm collected $109,264 in conservator and attorney fees from the estate between May, 1983, and August, 1991. His law firm prepared Thompson’s will after Gunderson was appointed her legal guardian. He also witnessed her signature on the document, which named him executor and empowered him to distribute 37% of the estate--$341,000--to charities designated by him.
An official at Augsburg College said the school received $50,000 from Thompson’s estate shortly after he visited Gunderson’s San Juan Capistrano home to ask for help with the school’s fund-raising efforts.
“We had asked him to keep his eyes open for people who want to make donations,” said Thomas Benson, director of the college’s fund-raising program. “As far as I know, he’s never asked anyone to give money to Augsburg. He’s been administrator of estates where there’s (no blood heir and) the estate asked him to pick out one or two other charities. He gets a lot of satisfaction out of helping” charities.
Officials at the San Diego Zoo acknowledged receiving at least two bequests from estates handled by Gunderson, but said that Gunderson received no special consideration in their business dealings in return.
“We’ve never cut him a deal,” said spokesman Jeff Jouett, after noting that Gunderson has sold and traded up to 200 birds with the zoo’s aviary over a number of years. “We’ve traded with him at market value; we never gave him a break.”
Gunderson and his wife, Marjorie, have been members of the Zoological Society of San Diego since 1977, Jouett said. He acknowledged that Gunderson specified how the bequests from the Thompson and Clay estates should be spent: on projects involving exotic birds at the zoo and its Wild Animal Park.
In the past, Gunderson also engaged in the practice of depositing his clients’ trust funds in financial institutions in which he had an ownership interest.
Probate records reveal that on numerous occasions Gunderson kept his clients’ funds, first in Saddleback Savings & Loan--which was sold to Coast Savings & Loan in 1980--and later in Saddleback National Bank, which he controlled before its collapse in 1986.
While the bank was in business, Gunderson sometimes deposited funds there from his clients’ estates. Often, the deposits exceeded the $100,000 amount insured by the Federal Deposit Insurance Corp., which financial advisers warn against.
The State Bar’s Rules of Professional Conduct in force at the time said lawyers should avoid such conflict-of-interest situations unless they have the express written consent of the client. It was unclear whether Gunderson disclosed to his clients that he had professional relationships with financial institutions in which some of their funds were deposited.
Ron Talmo, dean of the Irvine campus of Western State University College of Law and a specialist in professional responsibility, said he was puzzled that any attorney could acquire millions of dollars from his clients.
“Clients bake pies for you, they might offer to build your bookcases, but when it comes to leaving sums of money or land for you in a will, it’s not common. Normally, people leave their things to their relatives, not to their lawyers.”
Times staff librarian Sheila A. Kern contributed to the research for this report.
