Broke With Lawyer Over Actions, Say Ex-Partners : Suit: Two testify that James D. Gunderson’s inheriting gifts from clients’ estates and investing client funds in a partnership he partly owned led them to quit.

Two onetime partners of former lawyer James D. Gunderson testified Friday that they quit his law firm after they discovered that he was inheriting gifts from his clients’ estates and also investing clients’ money in a partnership he partly owned.

Sallie T. Reynolds and John Deily, who have since formed their own probate law practice in Laguna Hills, said they severed ties with Gunderson in 1990 after he had broken a promise to refer cases presenting conflicts of interest to lawyers outside the firm.

The two lawyers were called to testify in a Superior Court suit alleging that Gunderson coerced a Leisure World man into leaving him a $3.5-million tax-free gift. The benefactor, Merrill A. Miller, died in February, 1992, at the age of 98.

Gunderson, 69, has denied the allegations, saying that Miller was a close friend who had always wanted him to have the inheritance.

Lawyers for Miller’s other heirs want Judge Byron K. McMillan to order Gunderson to return the money. They say Gunderson has on several occasions inherited lucrative gifts from his deceased clients.

Both Reynolds and Deily testified that they had warned Gunderson that receiving inheritances from clients’ estates could be improper. The warning came in 1988, they said, when they discovered that he had received a sizable gift from the estate of widow Emerald Mary Sully of Laguna Hills.

In that case, Gunderson inherited nearly $250,000 in AT&T; stock from Sully, who had been declared senile four months before Gunderson prepared her last will and testament, in which he made himself the major beneficiary of the estate. Sully’s other heirs sued, and Gunderson reached a confidential out-of-court settlement, which included a payment by Gunderson of $60,000 to settle the case.

Reynolds testified that the firm’s partners met to discuss the issue after the Sully settlement and that Gunderson acknowledged then that he was involved in handling “one or two more” estates in which he was a beneficiary but promised to refer clients to independent lawyers for advice. Reynolds said that Linda Gunderson, Gunderson’s daughter and a partner in the firm, then interjected that “there was more than one or two, and you ought to send them (the cases) out.”

But Reynolds said she later discovered that Gunderson was still investing money from at least six clients’ estates in a partnership named GWP, in which he had a financial interest.

She said she became “terribly frightened” and decided to end her 16-year relationship with the law firm, Reynolds said.

Reynolds said that she had inherited gifts--worth $30,000 and $40,000--from two clients but that she did not prepare the documents that bequeathed those gifts.

Under cross examination from Gunderson’s attorney, Stuart Lesansky, Reynolds denied that she attempted to extort from Gunderson 40% of the $3.5-million bequest from Miller’s estate.

She acknowledged that a court ordered her and Deily to pay a $94,000 court judgment to Gunderson after the dissolution of the law firm.

Asked if she felt hostile toward Gunderson, Deily said: “I feel betrayed. I’ve always prided myself on doing the right thing. They’re trying to destroy my reputation.”

Gunderson’s law firm has been embroiled in controversy since November of 1992, when The Times disclosed that he had inherited or otherwise acquired substantial sums of money from the estates of his clients. Gunderson retired in January after prosecutors for the State Bar of California said they were ready to file conflict-of-interest charges that could have led to his being disbarred.

Gunderson’s attorneys have maintained that he surrendered his license because of failing health, not the conflict-of-interest investigation. Lesansky also said that Gunderson received gifts “a mere handful of times,” and that each inheritance was a “unique circumstance.”

Deily testified Friday that after The Times articles appeared, Gunderson asked for a meeting with him. Gunderson was “concerned and upset” about the newspaper stories, Deily said, and accused Reynolds of leaking information to the newspaper.

When Deily told him that Reynolds had not cooperated with the newspaper, Deily said, Gunderson commented that “ ‘It makes sense because she would be dragged into this too.’

“I felt sorry for Mr. Gunderson,” Deily said.