author: GILBERTSON, Chief Justice.

text:
    2002 SD 112
    In the Matter of the DISCIPLINE OF Jon W. MATTSON, as an Attorney at Law.
    No. 21767.
    Supreme Court of South Dakota.
    Argued April 23, 2002.
    Decided Aug. 28, 2002.

      Robert B. Frieberg, Beresford, for Disciplinary Board.
    James S. Nelson of Gunderson, Palmer, Goodsell & Nelson, Rapid City, for Matt-son.
   GILBERTSON, Chief Justice.

[¶ 1.] Pursuant to SDCL 16-19-67, the Disciplinary Board of the State Bar of South Dakota filed a formal accusation against attorney Jon Mattson. The Disciplinary Board recommended that Mattson be suspended from the practice of law for three years. SDCL 16-19-35(2). Following a hearing, the Referee, Circuit Court Judge Rodney J. Steele, recommended that Mattson be disciplined by public censure. SDCL 16-19-35(4). We conclude that suspension from the practice of law for a period of two years is the appropriate discipline under the facts of this case.

GENERAL BACKGROUND

[¶ 2.] Mattson graduated from the University of South Dakota School of Law in 1967. He began practicing law in Deadwood with D.O. Dellavou. After Dellavou died in an automobile accident in 1968, Mattson served as state’s attorney for four years. He practiced alone for a time and practiced with his brother-in-law, Jerry Rachetto, and with Steve Christensen. Christensen left the partnership in 1994 or 1995 and Mattson and Rachetto terminated their partnership in 1994. Since then Mattson has been a sole practitioner.

[¶ 3.] Mattson married Barbara Ra-chetto in 1962. They have three grown children and four grandchildren. Barbara, a registered nurse, put Mattson through law school. During these disciplinary proceedings she was a Lawrence County Commissioner. She has also always done the book work for Mattson’s law practice.

FACTS SPECIFIC TO THIS COMPLAINT

[¶ 4.] Mattson’s uncle, T. Ralph Matt-son, was born on November 11, 1904. He was known as Pete Mattson and called Uncle Pete by relatives. He managed a bank in Hot Springs from 1935 until his retirement in the early 1970s.

[¶ 5.] Uncle Pete and his wife, Gertrude, had no children. When she died in 1981, Mattson probated her several hundred thousand dollar estate. Uncle Pete was the primary beneficiary of the estate.

[¶ 6.] Uncle Pete was described as an independent and stubborn man. He did not lead a lavish lifestyle. He was a frugal man who tended to tightly hang on to his money. While he did give Mattson nominal 'amounts of money while Mattson was in law school and exchanged Christmas gifts, by Mattson’s own account, Uncle Pete was not prone to giving generous gifts.

[¶ 7.] On September 16, 1990, Uncle Pete executed an “Appointment of Guardian” which appointed Norwest Bank, South Dakota, NA, Rapid City, South Dakota or its successor, to be the independent guardian of his person and estate should incompetency proceedings become necessary. The document stated that ’in making this appointment, “I am not unmindful I have sisters, nieces and nephews, but do not want any of them to be my guardian. In no case whatsoever, shall any or all of my heirs at law, sisters, nieces or nephews, or any members of their families serve as my Guardian.”

[¶ 8.] On November 22, 1994, Uncle Pete executed a Last Will and Testament that was drafted by attorney David P. Russell. He gave his house, its furnishings and a lot in Hot Springs to his wife’s niece, Gretchen Frey. Specific devises of personal property and money were given to twelve relatives and five charities. The residue of his estate was split between his sister, Mayme, his wife’s niece, Gretchen, two grandnieces, and one grandnephew. His sister received 3/10ths of the residue while Gretchen received 2/5ths. The grandnieces, one of whom was Whitney Mattson, the daughter of Mattson’s brother, each received l/10th of the estate as did the grandnephew.

[¶ 9.] The will directed that there be no proration of any federal estate tax or federal inheritance tax. It appointed Nor- west Bank to be its independent executor and Mattson to be attorney for the estate. The will specifically provided that Uncle Pete “purposely made no provision for any other person, whether claiming to be an heir of mine or not[.]” Mattson, his wife, children, and grandchildren received nothing under the will.

[¶ 10.] On November 26, 1994, four days after executing the will, Uncle Pete, who was then ninety years old, fell at his home and suffered a head injury which required his hospitalization in Rapid City. He suffered some mental incapacity for the next three months and was physically unable to return home. Mattson and Barbara began managing his assets and arranged for him to move to the Dorsett Health Care facility in Spearfish, South Dakota. He moved there in December 1994.

[¶ 11.] Because both of their mothers live at the Dorsett facility, Mattson and Barbara visited them and Uncle Pete several times a week. They took Uncle Pete to dinner at least twice a week and Barbara took him to medical appointments and did his laundry due to his allergy to soap. He was included in family events. Although his physical health progressively deteriorated, he regularly read Time magazine and the Wall Street Journal and kept up on Nebraska Cornhusker football.

[¶ 12.] On March 16, 1995 Uncle Pete executed a power of attorney drafted by Mattson. It appointed Mattson to be his attorney-in-fact. Uncle Pete executed a durable power of attorney on June 6, 1995. It, too, was drafted by Mattson and appointed him to be Uncle Pete’s attorney. Neither power of attorney gave Mattson the authority to make gifts of Uncle Pete’s assets to himself or to anyone else. Matt-son did not charge Uncle Pete for drafting either document.

[¶ 13.] During the spring of 1995 Matt-son began discussing estate planning with Uncle Pete. That summer Uncle Pete gave $5,000 to Mattson and $5,000 to Barbara, the proceeds from negotiated bonds that were cashed.

[¶ 14.] In August 1995 Mattson prepared an inventory of Uncle Pete’s assets. On September 20, 1995 he wrote to Uncle Pete, attached the inventory, and suggested that they visit about two methods of reducing his estate in order to save his heirs from federal and state death taxes. He advised Uncle Pete to make gifts or purchase Norwest annuities which, he said, would provide income to him during his lifetime and a nontaxable balance to the beneficiaries.

[¶ 15.] Two months later, on November 22, 1995 Barbara took Uncle Pete to Nor-west Bank. Mattson joined them as they met with financial consultant Eric Lee. According to Lee, Mattson made recommendations to Uncle Pete and served as a facilitator while Uncle Pete made the decision to invest in a Franklin Fund annuity. He purchased it for $136,920. Barbara was named as the primary beneficiary; Mattson was named the contingent beneficiary.

[¶ 16.] Between October 23, 1995 and July 29, 1996 Barbara received $6,016 and Mattson a total of $30,552.41 of Uncle Pete’s assets in seven transactions. In some instances checks were made payable to Mattson and his wife. While Uncle Pete signed some checks, Mattson signed others using Uncle Pete’s name in the signature block with no indication that he was signing on his behalf or pursuant to a power of attorney. In addition, other transactions were completed by cashing negotiated bonds and certificates of deposit and putting the proceeds in the form of cashier’s checks payable to Uncle Pete. Mattson then endorsed them by signing Uncle Pete’s name, again with no designation of the power of attorney, and deposited the money in his or Barbara’s checking account.

[¶ 17.] Mattson drafted a codicil to Uncle Pete’s November 22, 1994 will and presented it to him on August 2, 1996. It changed the will in two respects. First, instead of giving Whitney Mattson l/10th of the residue of the estate, the l/10th was equally divided between Whitney, Matt-son’s two sons and three grandsons, and Mattson’s brother’s grandchild. Second, Mattson replaced Norwest Bank as the personal representative.

[¶ 18.] On August 2, 1996, a series of checks totaling $42,500 were also written on Uncle Pete’s accounts. $24,000 was divided among seven relatives. Mattson received $8,500. Barbara was the recipient of $10,000. Mattson does not recall who signed these checks, but Barbara testified that she watched Uncle Pete sign them. Mattson advised the recipients of the checks to hold them until Uncle Pete’s Series E bonds were cashed and the proceeds were placed in Uncle Pete’s account.

[¶ 19.] On August 3, 1996, the day after the codicil was executed and the checks giving away $42,500 were written, Uncle Pete was rushed to the emergency room due to internal bleeding. He returned to the Dorsett facility two days later and began experiencing periods of confusion and disorientation.

[¶ 20.] Mattson continued to manage Uncle Pete’s affairs. On August 5, 1996 Uncle Pete was issued 1,520 shares of First Bank System common stock. That day Mattson went to Uncle Pete’s safety deposit box and removed some bonds and a deed executed in 1981 which transferred his house to Gretchen Frey. Mattson negotiated the bonds and filed the deed. A week later, on August 12, Mattson transferred the proceeds of two of Uncle Pete’s certificates of deposit that totaled $22,273.43 to Mattson’s bank account.

[¶ 21.] On August 26, 1996 Mattson and Barbara were leaving for a fishing vacation in Montana. Mattson wrote a- $5,000 check to himself on Uncle Pete’s account. On the way out of town he delivered 2,600 shares of Uncle Pete’s Norwest stock to Norwest Investment Services. He instructed the service representative to set up two accounts, one for Mattson and Barbara, the other for Gretchen and Don Frey.

[¶ 22.] Uncle Pete died the next day, August 27. He would have been ninety-two years old that November.

[¶ 23.] On September 3, 1996 Mattson, as attorney for the estate, filed an application with the Lawrence County Clerk of Courts seeking informal probate of Uncle Pete’s will and codicil and appointment of himself as the personal representative.

[¶ 24.] On September 12, 1996 Mattson signed a letter written and also signed by a Norwest investment services investment officer to Norwest Client Services. The letter directed Client Services to transfer the 2,600 shares of Norwest Corporation stock from Uncle Pete’s account and put 1,300 shares in Mattson and Barbara’s account and 1,300 shares in the account of Gretchen and Don Frey. Under Mattson’s signature, “POA is still in full force and in effect,” was typed.-

[¶ 25.] Then, on October 4, 1996, the 1,520 shares of First Bank System stock issued to Uncle Pete on August 5, 1996 were reissued. In this transaction five weeks after Uncle Pete’s death a) 506 shares were issued to Uncle Pete and Barbara Mattson, joint tenants; b) 506 shares were issued to Uncle Pete and Gretchen Frey, joint tenants; c) 253 shares were issued to Uncle Pete and Jana Nolte, joint tenants; and d) 253 shares were issued to Uncle Pete and Reid P. Edwards, joint tenants.

[¶ 26.] ■ In the course of probating Uncle Pete’s estate, Mattson prepared and filed a state inheritance tax report. In it he included a deduction of $6,650 as an overdraft on Uncle Pete’s checking account. The account, however, was not overdrawn. He failed to include the transfer of the house to Gretchen Frey and the $136,920 annuity that Barbara was the primary.benefieiary of and he, the contingent beneficiary. Mattson paid $68,195.23 in inheritance tax from the residue of Uncle Pete’s estate. He did not prorate the tax among the beneficiaries. Neither he, nor any member of his family, paid any inheritance or estate taxes on the non-probate transfers they received.

[¶ 27.] Mattson also filed a federal estate tax return. Once, again, the home transfer and annuity were omitted from the return. The certified public accountant who assisted in the preparation of the return testified that the annuity was omitted because Mattson told him.that it was a life insurance policy owned by Barbara. Although Mattson signed the federal estate tax return, he cannot recall reviewing it and its schedule requiring the disclosure and reporting of annuities owned by a decedent. The federal estate tax, $12,931, was paid without proration.

[¶ 28.] Mattson paid himself both attorney’s fees and executor’s fees from Uncle Pete’s residuary estate. In October 1998 the final accounting and verified statement for the informal, closing of the estate was filed with the Lawrence County Clerk of Courts and served upon the heirs.

[¶ 29.] As a result of the omissions in the state inheritance tax report and federal estate tax return, the amount of state and federal taxes increased. The additional amounts matured after the estate had been distributed to the heirs. Mattson paid $54,903.57 in additional. federal tax and $6,181 in additional state tax. He paid these amounts from his own funds and did not attempt to collect the additional taxes from the other heirs.

[¶ 30.] Mattson moved to a smaller law office in 1998. Among the items he moved were two large filing cabinets filled with Uncle Pete’s personal and financial records including over twenty-five years of bank statements and documents. Mattson’s term as personal representative would not end until October 1999. Despite this and the fact that he had a barn filled with client files at his home and was notorious for keeping records and not destroying them unless copies were made, Mattson directed Barbara to dispose of Uncle Pete’s records in March 1999.

[¶ 81.] On April 27, 1999 Karen Matt-son, Whitney Mattson’s guardian,- filed a claim in Uncle Pete’s estate. On June 7, 1999 she initiated a lawsuit against Matt-son and Barbara. She claimed that the codicil was invalid as well as several transactions prior to and under the power of attorney. At issue was the validity of Uncle Pete’s signatures, an issue made difficult by the destruction of his records, although copies of some checks were recovered from banks. She claimed that Mattson breached his fiduciary duty. She sought damages for the loss of inheritance to which Whitney may have been entitled and made a demand for punitive damages.

[¶ 32.] Following a motions hearing on June 1, 2000, the trial court dismissed the punitive damage claim against Barbara but allowed the claim against Mattson to be submitted to the jury. The court held:

The claim for punitive damages against Jon Mattson will, in fact, be allowed, by virtue of the relationship of Jon Mattson to Ralph Mattson, not only I guess being a relative of his by blood but by virtue of SDCL Chapter 55-2, which provides for the duties and liabilities of trustees. It provides in there, as you are all aware, of certain statutory provisions providing for the duty of a trustee, and under 55-2-7 it provides that every violation of the provisions of 55-2-1 through 55-2-6 is a fraud. So if the jury were to find that the actions of Jon Mattson were in violation of the duties as provided by statute then it’s a fraud, and if it’s fraud then punitive damages are allowed under our statute;
Further, under 55-2-8 by virtue of this relationship and the properties that have flowed from the decedent to Jon MatL son there is a presumption of undue influence.
So I find that pursuant to SDCL 21-1-4.1 that the evidence submitted is clear and convincing, and that there is a reasonable basis to believe there has been willful, wanton or malicious conduct or fraudulent conduct, and therefore I will allow the punitive damages issue against Jon Mattson.

The trial court also ordered that Mattson be removed as the personal representative. He was ordered to pay the successor personal representative $96,200, the value of the Norwest stock, and $30,000, the value of the August 2 checks not paid prior to Uncle Pete’s death.

[¶ 33.] The lawsuit on behalf of Whitney Mattson was settled by stipulation on August 2, 2000. The settlement included the payment of $130,000 to Whitney Matt-son and $10,000 to Karen Mattson. Matt-son borrowed money to pay his $90,000 share of the settlement while his malpractice insurance company paid the balance.

[¶ 34.] The Disciplinary Board concluded that Mattson violated Rules 1.2(d), 1.7(b), 1.8(a)(b) and (c) and 8.4(a)(e) and (d) of the Rules of Professional Conduct, SDCL ch 16-18 Appx. It recommended that he be suspended from the practice of law for three years and not be allowed to act as a legal assistant during the suspension.

[¶ 35.] After reviewing the facts in this case, the Referee filed a report and recommendation. In it he noted:

To the objective observer, the above scenario is certainly indicative of someone who at the very least took advantage of his uncle’s situation to enrich himself. Although the evidence is not clear and convincing that any influence exercised by [Mattson] was undue to the extent that the transactions should be voided, it does come close. By catering to his uncle and acting as a trusted legal advis- or, there is no doubt that the defendant benefited unduly therefrom.

[¶ 36.] Citing Matter of Discipline of Theodosen, 303 N.W.2d 104 (S.D.1981) the Referee concluded that Mattson acted inappropriately by receiving fees for acting as both the estate’s attorney and the personal representative. He concluded that Mattson violated the fiduciary duty owed a client by his attorney. As power of attorney for Uncle Pete, Mattson had the fiduciary duty to act in the highest good faith and refrain from obtaining any advantage by the slightest misrepresentation or adverse pressure. By not doing so, the Referee concluded that Mattson violated SDCL 55-2-1 and 59-3-11. The Referee also concluded that Mattson violated the spirit of the preamble of the Rules of Professional Conduct, as well as Rules 1.7, 1.8 and 8.4.

[¶ 37.] The Referee recommended that Mattson be disciplined by public censure. SDCL 16-19-35(4). The Referee did so on the basis that Mattson admitted he acted improperly, the situation involved a relative, the victims had been fully reimbursed by the lawsuit settlement, and Mattson, until now, had a good reputation and no history of disciplinary problems.

STANDARD OF REVIEW

[¶ 38.] The Disciplinary Board and the Referee conducted detailed hearings and made findings, conclusions and recommendations regarding the appropriate discipline in Mattson’s case. Because they had the advantage of seeing and hearing the witnesses, this Court gives careful, due consideration to their findings. In re Discipline of Light, 2000 SD 100, 615 N.W.2d 164; Matter of Discipline of Wehde, 517 N.W.2d 132 (S.D.1994). We do not, however, defer to a sanction that the Referee recommends. Discipline of Claggett, 1996 SD 21, 544 N.W.2d 878. While we may adopt the Referee’s findings, it does not necessarily follow that we will adopt the Referee’s recommended sanction. In re Discipline of Dorothy, 2000 SD 23, 605 N.W.2d 493. “The final determination for the appropriate discipline of a member of the State Bar rests firmly with the wisdom of this Court.” Wehde, 517 N.W.2d at 133.

ANALYSIS

[¶ 39.] The purpose of disciplinary proceedings is to protect the public from fraudulent, unethical or incompetent practices by attorneys. Matter of Discipline of Kallenberger, 493 N.W.2d 709 (S.D.1992). They are not conducted to punish the lawyers. Petition of Pier, 1997 SD 23, 561 N.W.2d 297.

[¶ 40.] The preservation of trust in the legal profession is essential. Pier, 1997 SD 23 at ¶ 8, 561 N.W.2d at 299. Lawyers in the practice of law have a formidable responsibility to protect their clients’ “property, their freedom, and at times their very lives.” Matter of Chamley, 349 N.W.2d 56, 58 (S.D.1984). “Only by providing high quality lawyering can the integrity of the legal profession remain inveterate and the confidence of the public and the Bar remain strong.” Wehde, 517 N.W.2d at 133.

[¶ 41.] When ninety-year-old Uncle Pete fell on November 26, 1994, his testamentary scheme was in place. His 1990 “Appointment of Guardian” appointed Norwest Bank to be his guardian and directed that “[i]n no case whatsoever” should heirs, including Mattson, serve as his guardian. His November 22, 1994 will which, like the “Appointment of Guardian” document was drafted by attorney David P. Russell, made specific devises to relatives and charities and split the residue among specific relatives. While the will appointed Mattson to be the attorney for the estate, he and his family received nothing under the will. Mattson and Barbara would, however, receive approximately $17,000 as the surviving joint tenants of Series E savings bonds and certificates of deposits.

[¶ 42.] Uncle Pete’s testamentary scheme was dramatically altered after Mattson, who was aware of the 1990 “Appointment of Guardian,” drafted the first power of attorney in March 1995 and the attorney-client relationship began. Throughout the next eighteen months Uncle Pete’s other relatives received nominal amounts while Mattson and Barbara received over $325,000 which was half of Uncle Pete’s estate. With the exception of the Franklin annuity and four checks, there are no records available to corroborate that Uncle Pete consented to the transfers or beneficiary designations that Mattson made.

[¶ 43.] Throughout these proceedings Mattson has steadfastly maintained that he did not take any action or assist in any gift which was not known, requested, directed or intended by Uncle Pete. He admits that he blurred the relationship between relative and lawyer and that an independent lawyer should have assisted Uncle Pete in changing his testamentary scheme. At oral argument before this Court, a less than remorseful Mattson did acknowledge breaching the Rules of Professional Conduct. He did not acknowledge that he violated any fiduciary duty and contended that Rule 1.8(c) allows gifts to a lawyer from a relative. Because of Mattson’s concession, we only address the latter.

[¶ 44.] “The nature of the relationship between attorney and client is highly fiduciary. It consists of a very delicate, exacting and confidential character. It requires the highest degree of fidelity and good faith. It is a purely personal relationship, involving the highest personal trust and confidence.” Rosebud Sioux Tribe v. Strain, 432 N.W.2d 259, 264 (S.D.1988). “By virtue of his fiduciary duties to his client, an attorney is forbidden from using his official position for private gain.” Himrich v. Carpenter, 1997 SD 116, ¶ 13, 569 N.W.2d 568, 572. While representing a client an attorney must not do anything knowingly that is inconsistent with the terms of his employment or contrary to the best interests of his client. Speckels v. Baldwin, 512 N.W.2d 171 (S.D.1994). This is “fundamental law.” Speckels, 512 N.W.2d at 176. When Mattson became his uncle’s attorney in March 1995 their relationship went beyond the familial to that of attorney and client. As such, the relationship “is of a confidential and fiduciary nature, that is, it is one of trust and confidence, and in all his relations with his client, it is his duty to exercise and maintain the utmost good faith, honesty, integrity) fairness, and fidelity.” 7A CJS, Attorney & Client § 234 (1980).

[¶ 45.] We have cautioned attorneys “that it is a fine line between attorney and business partner/friend when one serves in a dual capacity with the same person.” Matter of Discipline of Martin, 506 N.W.2d 101, 103 (S.D.1993). The same is true with an attorney and a family member.

[¶ 46.] Generally, a lawyer “shall not” represent a client if the representation of the client may be materially limited by the lawyer’s own interests, Rule 1.7(b), unless the lawyer reasonably believes the representation will not be adversely affected and the client consents after consultation. Rule 1.7(b)(1) and (2). A lawyer’s own interests should not be permitted to have an adverse effect on representation of client. Comment, Rule 1.7. “If the probity of a lawyer’s own' conduct in a transaction is in serious question, it may be difficult or impossible for the lawyer to give a client detached advice.” Id.

[¶ 47.] In addition, a lawyer “shall not” acquire a pecuniary interest adverse to a client unless:

(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which can be reasonably understood by the client,
(2) the client is given a reasonable opportunity to seek the advice of inde- • pendent counsel in the transaction; and
(3)" the client'consents in writing thereto.

Rule 1.8(a).

[¶ 48.] For less than two years Mattson catered to his infirm, yet capable, ninety-year-old uncle’s needs. He served as Uncle Pete’s trusted legal advisor. Mattson’s ostensible advice to reduce his estate by gift giving in order to reduce inheritance taxes clearly conflicted with Uncle Pete’s interest in preserving the estate to pay for his expensive nursing home care. And, the primary beneficiaries of Uncle Pete’s gifts were Mattson and his wife who received over half of the estate. At no time did Mattson, who before this time was not an exceptional object of his uncle’s bounty, advise Uncle Pete to obtain independent legal advice. Mattson’s egregious course of conduct violated Rules 1.7 and 1.8. “We cannot — we will not — condone this overreaching activity in the practice of law in -South Dakota.” Martin, 506 N.W.2d at 104.

[¶ 49.] Mattson, however, claims that his actions were ethically proper under Rule 1.8(c) which provides:

A lawyer shall not prepare an instrument giving the lawyer or person related to the lawyer as parent, child, sibling, or spouse any substantial gift from a client, including a testamentary gift, except where the client is related to the donee.

His contention fails for three reasons.

[¶ 50.] First, Mattson did not prepare “an instrument” to allow the transfer of half of Uncle Pete’s estate to himself and Barbara. Rather, he sidestepped any kind of written document and proceeded by a series of inter vivos transactions using various methods and signatures to transfer funds. Second, we agree with the referee that, Rule 1.8(c) cannot be used to excuse substantial gifts which are facially disproportionate to gifts made to other relatives in the same class. See, Restatement (Third), The Law Governing Lawyers § 127(1) (1998)(lawyer may not prepare an instrument effecting gift from client to lawyer, including testamentary gift, unless lawyer is a relative or other natural object of the client’s generosity, and gift is not significantly disproportionate to those given to other donees similarly related to donee). Third, the comment to Rule 1.8 does provide that “[a] lawyer may accept a gift from a client, if the transaction meets general standards of fairness.” Examples given include a simple gift given at a holiday or as a token of appreciation. The “gift” of over $325,000 to Mattson and Barbara in a short period of time which changed Uncle Pete’s long-standing testamentary scheme and was highly disproportionate to Uncle Pete’s other heirs clearly does not meet any semblance of a general standard of fairness. It does not constitute simple gift or gifts. See Restatement (Third), The Law Governing Lawyers § 127(a) (1998) (lawyer may not accept a gift from a client, including testamentary gift, unless a) the lawyer is a relative or other natural object of the client’s generosity, b) the value conferred by the client and the benefit to the lawyer are insubstantial in amount, or. c) the client, before making the gift, has received independent advice or has been encouraged, and given a reasonable opportunity, to seek such advice.)

[¶ 51.] The disciplinary options available to this Court are private reprimand, public censure, placement on probationary status, suspension for up to three years, and disbarment. SDCL 16-19-35. Because of the humiliation he has suffered due to the state-wide publicity in this matter, Mattson urges us to accept the Referee’s recommendation of a public censure. While the publicity surrounding this proceeding may have inflicted a harsh personal punishment, “under art V, § 12 of our Constitution, this Court, and not the media nor any third party, is solely charged with the responsibility for determining what is appropriate discipline in an attorney misconduct case.” Matter of Discipline of Hopewell, 507 N.W.2d 911, 917 (S.D.1993); In re Discipline of Wilka, 2001 SD 148, ¶ 17, 638 N.W.2d 245, 250.

[¶ 52.] “Appropriate discipline in any given ease necessarily depends upon the seriousness of the misconduct by the attorney and the likelihood of repeated instances of similar misconduct.” Martin, 506 N.W.2d at 105. In determining the appropriate sanction, this Court reviews the totality of the attorney client relationship to determine if any mitigating factors warrant consideration. Claggett, 1996 SD 21 at ¶ 12, 544 N.W.2d at 880.

[¶ 53.] In this case Mattson took advantage of a man he claimed to have a father/son relationship with by engaging in an egregious course of conduct to enrich himself and his wife. He failed to get verification that he was carrying out Uncle Pete’s wishes and failed to have an independent lawyer advise Uncle Pete about the financial transactions. In the course of these transactions Mattson breached his fiduciary duties, destroyed records, used the power of attorney after Uncle Pete’s death, signed Uncle Pete’s name without using his own name with the power of attorney designation, and used cashier’s checks so transactions would not go through Uncle Pete’s bank records. Matt-son elevated his personal monetary gain over Uncle Pete’s best interests and over the Rules of Professional Conduct. See Martin, 506 N.W.2d at 105.

To gain [and maintain] admission to the bar, [a person] does not have to fit into any preconceived stereotype. Membership in the Bar should be [as] diverse as is the public it is charged with serving. However, for the legal system to properly function, certain common denominators are mandatory. One of these is that members and applicants for membership, exhibit good moral character. In South Dakota a three piece suit and leather briefcase is not a prerequisite to be a lawyer- — good moral character is.

In re Ogilvie, 2001 SD 29, ¶ 73, 623 N.W.2d 55, 71 (Gilbertson, J., dissenting) [¶ 54.] We are not unmindful that Mattson has enjoyed a reputation as a trustworthy and conscientious attorney who does not have a history of disciplinary problems. While this may be relevant in the determination of proper level of discipline, it hardly can rise to the level of exoneration. See Dorothy, 2000 SD 23 at ¶ 52, 605 N.W.2d at 503, (20 years of practice without a previous complaint not a basis to avoid professional discipline).

[¶ 55.] We have not ignored the fact that the misconduct arose out of a unique family relationship which will hopefully reduce the likelihood of a repeat occurrence. See Claggett, 1996 SD 21 at ¶ 13, 544 N.W.2d at 880. However this argument for leniency was examined at length and rejected as inconsistent with the full justifications for professional discipline in Matter of Discipline of Tidball, 503 N.W.2d 850, 856 (S.D.1993):

The scope of our consideration is broader than the current status of the Respondent. The fact that he has effectively removed himself from private practice may protect his would be clients, but all attorneys in this state are subject to these rules and all citizens of this state desire and deserve the protection afforded by the rules. Matter of Discipline of Bergren, 455 N.W.2d 856, 857 (S.D.1990) “[A]n application of common sense would show that the discipline for attorney misconduct also serves to deter similar conduct in the profession which, in turn, fosters and maintains the ethics of the legal profession.” Matter of the Discipline of Dana, 415 N.W.2d 818, 823 (S.D.1987). “The foundation of an attorney’s relationship with clients and the legal system is trust.” [Matter of] Pier, [472 N.W.2d 916,] supra at 917 [(S.D.1991)]. Public confidence that the legal profession, under the supervision of this Court, can keep its affairs in order must be zealously maintained. In re Kunkle, 88 S.D. 269, 218 N.W.2d 521, 527 (1974), [Matter of] Walker[ 254 N.W.2d 452 (S.D.1977)], supra; [Matter of] Weisensee, 296 N.W.2d [717] at 722 [(S.D.1980)]. In an age where the legal profession is under heavy attack, a “slap on the wrist ... would not lend credibility to the high ethical standards of the profession.” Weisensee, 296 N.W.2d at 722-723.

See also Dorothy, 2000 SD 23 at ¶ 39, 605 N.W.2d at 504-05. Moreover, these acts were not an isolated “foolish and negligent” incident, id., they were intentional and numerous in number. Hopewell, 507 N.W.2d at 917.

[¶ 56.] We are also aware that Mattson as a result of his conduct paid substantial additional taxes in regard to this matter to the State of South Dakota and the Internal Revenue Service. Moreover he was sued civilly and ultimately had to settle out of court by paying in excess of $90,000 out of his own pocket. The imposition of discipline is not based on whether the ethical violations resulted in the perpetrator turning a profit on his misdeeds. While payment of the proper amount of tax due and reimbursing the victims of his acts is appropriate, it does not operate to avoid professional discipline. Wilka, 2001 SD 148 at ¶ 17, 688 N.W.2d at 249-50.

[¶ 57.] After reviewing this record, we are convinced that Mattson’s professional conduct is “of such serious professional nature that in the best interests of the public and legal profession it warrants a suspension from the practice of law.” Martin, 506 N.W.2d at 105. A two year suspension will allow Mattson “to realize that the ethics of the legal profession must be maintained and are paramount” over his personal enrichment. Id. This sanction is consistent with the ABA Standards for Imposing Lawyer Sanctions and the analogous case of Martin, 506 N.W.2d 101.

[¶ 58.] Pursuant to SDCL 16-19-35(2) a judgment of suspension will be entered. In addition, Mattson will be taxed with all necessary costs incurred in this proceeding. SDCL 16-19-70.2.

[¶ 59.] SABERS, KONENKAMP and ZINTER, Justices, and DOBBERPUHL, Circuit Judge, concur.

[¶ 60.] DOBBERPUHL, Circuit Judge, for AMUNDSON, Justice, disqualified.

      . SDCL 55-2-1 provides:
      In all matters connected with his trust a trustee is bound to act in the highest good faith toward his beneficiary and may not obtain any advantage therein over the latter by the slightest misrepresentation, concealment, threat, or adverse pressure of any kind.
      SDCL 59-3-11 provides:
      An authority expressed in general terms, however broad, does not authorize an agent to do any act which a trustee is forbidden to do by the law on trusts.

      . At the Disciplinary Board's hearing Matt-son, until prompted by Barbara, did not know what they did with this money. Most of it went into their land development.

      . Rule 4.12 of these standards provides:
      Suspension is generally appropriate when a lawyer knows or should know that he is dealing improperly with client property and causes injury or potential injury to a client. Rule 4.32 provides:
      Suspension is generally appropriate when a lawyer knows of a conflict of interest and does not fully disclose to a client the possible effect of that conflict, and causes injury or potential injury to a client.


source: Caselaw Access Project

author: Kathleen A. Blatz Chief Justice

license: Public Domain

text:
    STATE of Minnesota, Respondent, v. Michael Angel ROSILLO, Petitioner, Appellant.
    No. C2-00-1610.
    Supreme Court of Minnesota.
    Aug. 21, 2002.
    Rehearing Denied Oct. 7, 2002.
    John M. Stuart, State Public Defender, Charles F. Clippert, Assistant State Public Defender, Minneapolis, MN, for Appellant.
    Mike Hatch, Minnesota Attorney General, Thomas R. Ragatz, Assistant Attorney General, St. Paul, MN, for Respondent.
    Craig S. Nelson, Freeborn County Attorney, Albert Lea, MN, for Respondent.
   ORDER

Based upon all the files, records, and proceedings and upon an evenly divided court,

IT IS HEREBY ORDERED that the decision of the Court of Appeals in this matter is affirmed without opinion.

BY THE COURT:

Kathleen A. Blatz Chief Justice

MEYER, J., not having been a member of this court at the time of argument and submission, took no part in the consideration or decision of this case.


author: ANDERSON, PAUL H., Justice.

text:
    Sharon NELSON, Petitioner, Appellant, v. AMERICAN FAMILY INSURANCE GROUP, Respondent.
    No. C4-01-226.
    Supreme Court of Minnesota.
    Aug. 29, 2002.
    Rehearing Denied Oct. 9, 2002.

      Daniel L. Giles, Christenson, Stoneberg, Giles & Stroup, P.A.,- Marshall, for appellant.

      Richard Dale, Sioux Falls, SD, for respondent.
   OPINION

ANDERSON, PAUL H., Justice.

Appellant Sharon Nelson commenced this action in Murray County District Court to recover no-fault benefits from respondent American Family Insurance Group. Both parties brought motions for summary judgment. The court granted American Family’s motion and dismissed Nelson’s claim on the grounds that any recovery would be a double recovery and would frustrate the purpose of the No-Fault Act. The Minnesota Court of Appeals affirmed. We reverse.

Sharon Nelson was involved in an automobile accident in Minnesota on March 2, 1990. At the time of the accident, she was insured by American Family Insurance Group. Following this accident, Nelson received $20,000 in no-fault income loss benefits, the maximum payable under the limits of her American Family policy. Approximately 14 months later, on May 16, 1991, Nelson was involved in a second automobile accident, which occurred in South Dakota. American Family was still Nelson’s insurer at the time of the second accident, but this time it denied her no-fault claims in part on the ground that she had not yet returned to work after the first accident.

After being denied no-fault benefits for the second accident, Nelson commenced a personal injury action in South Dakota against the tortfeasor to recover damages for this accident. Coincidentally, Nelson’s no-fault insurer, American Family, was also the insurer for the South Dakota tort-feasor. • Six years after the accident and three years after bringing her South Dakota action, Nelson prevailed in a jury trial. Nelson v. Erickson, No. 94-1604 (Second Judicial Circuit Court, Minnehaha County, S.D. Mar, 12, 1997) (jury verdict). Along with other damages, the jury awarded Nelson $37,000 for past income loss and American Family paid this amount in full in its capacity as the tortfeasor’s insurer. Nelson’s recovery for past income loss was subject to a one-third contingency fee arrangement with her attorney, resulting in Nelson receiving a net amount of $24,666.67.

Nelson then commenced this action in Minnesota against American Family to recover future medical expenses and past income loss caused by the second accident. American Family asserted the defenses of claim preclusion, issue preclusion, accord and satisfaction, and payment. The parties settled Nelson’s no-fault claims for future medical expenses, but were unable to resolve her claim for past income loss. The parties subsequently brought cross motions for summary judgment on stipulated facts. The district court granted American Family’s motion and dismissed Nelson’s complaint. The court explained its reasoning in a memorandum, stating that (1) Nelson had a no-fault policy limit of $20,000 for loss of income; (2) Nelson had been awarded $37,000 for past income loss; and (3) any further award or recovery for loss of income would frustrate the purpose of the No-Fault Act by allowing a double recovery.

Nelson appealed, characterizing her action as a simple breach of contract case and asserting that the No-Fault Act does not prevent a double recovery in every case. Nelson specifically argued that even if no-fault benefits had been paid prior to the verdict, there would be no comparable set-off in South Dakota because South Dakota does not have offset and subrogation provisions comparable to those found in Minnesota’s No-Fault Act. Nelson first asserted that she was entitled to receive the entire $20,000 no-fault benefit for past income loss because she had $37,000 of income loss at the time of the South Dakota trial. In the alternative, Nelson argued that she was partially uncompensated for her total $37,000 judgment for past income loss because after subtracting attorney fees, she was left with only $24,666.67 as a net recovery. Nelson argued that she was uncompensated for $12,333.33, but acknowledged that she was entitled to recover only $10,483.33 because under the No Fault Act, an injured party is entitled to income loss benefits at 85% of the actual loss. Minn.Stat. § 65B.44, subd. 3 (2000). Nelson arrived at $10,483.33 by applying this 85% limitation to the amount of $12,333.33. Finally, Nelson argued that her claim was not barred by accord and satisfaction, claim preclusion, or issue preclusion.

The court of appeals affirmed, agreeing with the district court that Nelson was seeking a double recovery. Nelson v. Am. Family Ins. Group, 632 N.W.2d 264, 268 (Minn.App.2001). First, the court of appeals concluded that the No-Fault Act precluded double recoveries, regardless of their label. Next, the court concluded that the South Dakota judgment was a foreign judgment that did not alter the result. The court went on to dismiss Nelson’s argument that, because of the one-third contingency fee arrangement, the South Dakota judgment did not fully- compensate her. Finally, the court did not address the applicability of claim preclusion, issue preclusion, or accord and satisfaction. On appeal to this court, Nelson raises the single issue of whether she is entitled to no-fault benefits for that part of her past income loss that she argues remains uncompensated because of the one-third con-' tingency fee paid to her attorney.

I.

The issue presented in this case involves interpretation of the No-Fault Act and examination of a district court’s grant of summary judgment on undisputed facts. Statutory interpretation is a question of law, which this- court reviews de novo. See Brookfield Trade Ctr., Inc. v. County of Ramsey, 584 N.W.2d 390, 393 (Minn.1998). Similarly, when a district court grants summary judgment based on the application•, of a statute, to,undisputed facts, the result is a legal conclusion that is reviewed de novo. Lefto v. Hoggsbreath Enters., Inc., 581 N.W.2d 855, 856 (Minn.1998).

A., Relevant Provisions of Minnesota’s No-Femit Act

Minnesota’s No-Fault Act, Minn.Stat. §§ 65B.41-.71 (2000), contains a statement of purpose, which provides in pertinent part that the Act’s purposes are:

(1) To relieve the severe economic distress of uncompensated victims of automobile accidents * * *;
(2) To prevent the overcompensation of those automobile accident victims suffering minor .injuries by restricting the right to recover general damages to cases of serious injury;
(3) To encourage appropriate medical and rehabilitation treatment of the automobile accident victim by assuring prompt payment for such treatment;
(4) To speed the administration of justice, to ease the burden of litigation on the courts of this state * * *;
(5) To * * * provide offsets to avoid duplicate recovery * * *.

Minn.Stat. § 65B.42 (emphasis added). We heed these stated purposes when we construe the No-Fault Act. See Minn.Stat. § 645.16 (2000) (requiring courts to interpret statutes according to the legislative intent); see also Scheibel v. Illinois Farmers Ins. Co., 615 N.W.2d 34, 38 (Minn.2000) (interpreting the No-Fault Act according to its stated purposes).

When an insured person suffers injuries arising out of the maintenance or use of a motor vehicle, that person is entitled to “basic economic loss benefits,” which include medical expense benefits and income loss benefits. Minn.Stat. § 65B.44, subd. 1. The Act requires minimum insurance coverage of $20,000 in medical expense benefits and $20,000 in income loss benefits. Id. Income loss benefits are to be paid at “85 percent of the injured person’s loss of present and future gross income * * * to a maximum of $250 per week.” Minn.Stat. § 65B.44, subd. 3. The statute also provides that “[ojverdue payments shall bear simple interest at the rate of 15 percent” per year. Minn.Stat. § 65B.54, subd. 2.

When an insured receives benefits under the No-Fault Act, the insured’s ability to recover similar benefits in tort is subject to an offset provision as follows:

With respect to a cause of action in negligence * * * the court shall deduct from any recovery the value of basic or optional economic loss benefits paid or payable, or which would be payable but for any applicable deductible.

Minn.Stat. § 65B.51, subd. 1. Further, the Act provides that the no-fault insurer has a right of subrogation when the accident occurs in another state:

[The no-fault insurer] paying or obligated to pay basic or optional economic loss benefits is subrogated to the claim for the recovery of damages for economic loss that the [no-fault recipient] has against another person whose negligence in another state was the direct and proximate cause of the injury for which the basic economic loss benefits were paid or payable. This right of subrogation exists only to the extent that basic economic loss benefits are paid or payable and only to the extent that recovery on the claim absent subro-gation would produce a duplication of benefits or reimbursement of the same loss.

Minn.Stat. § 65B.53, subd. 2.

The Act also provides that the no-fault insurer’s right of subrogation is enforceable only when the no-fault insurer agrees to pay the insured’s attorney fees in such a proportion as the amount of the subrogation interest bears to the amount of the ultimate recovery. Id., subd. 8. In essence, this provision requires that if the no-fault insurer asserts a subrogation interest in the insured’s tort recovery, the no-fault insurer must pay a proportionate share of the attorney fees for the amount of the tort recovery that is duplicative of the no-fault benefits. The result of this provision is that the insured bears the cost of attorney fees for only that part of the recovery over and above the previously paid no-fault benefits.

B. The Parties’ Arguments

In the instant case, the parties present a single set of contrary alternatives for interpreting the No-Fault Act— calculation of no-fault benefits based on net tort recovery, or no further recovery. Neither of these alternatives fully acknowledges the Act’s scheme for coordination and reconciliation of no-fault and tort recoveries or properly achieves the full purposes of the Act. As explained more fully below, American Family’s result would impose on Nelson the cost of recovering in her tort action amounts that essentially represent the no-fault benefits covered by her American Family policy. Conversely, Nelson’s resolution would improperly shift to American Family her costs of recovering a judgment that exceeds the amount of no-fault benefits due. To avoid these improper results, we conclude that Nelson is entitled to receive $6,666.67 from American Family. Nelson’s recovery of this amount represents American Family’s proportionate share of the attorney fees charged in the South Dakota action. The following analysis demonstrates why the language and policy of the Act mandate this result.

1. American Family’s Position

American Family argues that Nelson is not entitled 'to no-fault benefits because any payment of no-fault benefits in addition to the $37,000 South Dakota judgment would constitute a double recovery that is against the- policy of the No-Fault Act. However, the' result advocated by American Family leaves Nelson worse off than she would have been if American Family had promptly paid no-fault benefits and then asserted a subrogation interest under Minn.Stat. § 65B.53. Further, it places American Family in a better position than it would have been had it paid Nelson no-fault benefits when she originally requested them. American Family would, in essence, receive the equivalent benefit of its full subrogation interest from the tort judgment without contributing anything for the attorney fees paid to obtain that judgment. American Family’s position is summarized as follows:

No-Fault Benefits Paid Before Tort Action $ 0.00
Nelson’s Tort Judgment $37,000.00
Nelson’s Attorney Fees -$12,333.33
Nelson’s Net Tort Recovery $24,666.67
American Family’s Payment Following Tort Action $ 0.00
Nelson’s Combined Net Recovery $24,666.67

If we adopt American Family’s argument, we will be providing an incentive for similarly situated no-fault insurers to deiiy prompt payment of no-fault benefits in anticipation of the insured recovering a judgment against a tortfeasor. We conclude that such an incentive is contrary to the stated purposes of the No-Fault Act to provide prompt payment of benefits and speed the administration of justice. Minn. Stat. § 65B.42.

2. Nelson’s Position

The position advocated by Nelson is equally untenable. Under Nelson’s argument, she would begin with her net tort recovery of $24,666.67. She claims that she would then be entitled to recover from American Family the entire $12,333.33 paid in 'attorney'fees because this amount represents income loss for which she remains uncompensated. Nelson argues that this amount is compensable under the No-Fault Act because the tort judgment represents her actual past income loss, while she was only compensated to the extent of her net tort recovery. Nelson’s position is summarized as follows:

No-Fault Benefits Paid Before Tort Action $ 0.00
Nelson’s Tort Judgment For Past Income Loss $37,000.00
Nelson’s Attorney Fees -$12,333.33
Nelson’s Net Tort Recovery - $24,666.67
Nelson’s “Uncompensated” Loss Due from American Family ($37,000-$24,666.67) $12,333.33
Nelson’s Combined Net Recovery $37,000.00

Nelson relies primarily on Ferguson v. Illinois Farmers Ins. Group Co. to support her claim. 348 N.W.2d 730 (Minn.1984). She argues that Ferguson and three subsequent court of appeals cases support the use of the net amount of recovery to determine whether an insurer’s payment of no-fault benefits results in a double recovery. Nelson asserts that Ferguson is relevant to this case because it addressed the interplay of (1) the Act’s policy against double recoveries, (2) a tort judgment, and (3) attorney fees — a situation similar to that presented here. While we conclude that Ferguson is relevant to this issue, it does not provide the definitive guidance that Nelson asserts it does. The problems with Nelson’s interpretation of Ferguson become apparent when the full consequences of her interpretation are explored.

In Ferguson, a plaintiff was involved in an automobile accident and subsequently sued the tortfeasor for damages; the plaintiff then sued the no-fault insurer when benefits were denied and the cases were consolidated for trial. 348 N.W.2d at 731. The jury eventually awarded $10,000 as damages for future medical expenses. Id. Applying the principle that duplicate recoveries are to be prevented, w<p held that the plaintiff was not entitled to receive benefits from her no-fault insurer for future medical expenses until she first exhausted her net tort recovery for future medical expenses. Id. at 733.

Having concluded in Ferguson that the plaintiffs net tort recovery must be exhausted before any no-fault benefits were payable, we then computed the net recovery by deducting the plaintiffs costs of collection, including attorney fees. Id. We explained that if additional medical expenses were incurred above the net tort recovery, the plaintiff would be entitled to payment for those medical expenses from the no-fault insurer up to the policy limits. Id. In effect, we allowed the net tort judgment to function as a bank that had to be exhausted before the no-fault insurer’s future obligations took effect.

Nelson • contends that Ferguson established a general principle that when assessing whether no-fault benefits would constitute a double recovery, any attorney fees paid in the tort action must be deducted from the tort judgment. However, when this general principle is applied to other provisions of the No-Fault Act, a confusing and contrary result is reached. More particularly, when the principle Nelson advocates is applied to compute the extent of a double recovery for purposes of calculating the no-fault insurer’s subrogation claim, her net recovery is more than that- allowed under MinmStat. § 65B.53.

C. Subrogation Rights Under Section 65B.5S

To illustrate the problems with Nelson’s argument, we first compare her proposal to what would have occurred had American Family not disputed the amount of any income loss and promptly paid the benefits due under its policy. It is possible to make this comparison because the No-Fault Act explicitly addresses' this situation. For purposes of this comparison, the following facts remain the same: (1) Nelson is a Minnesota resident; (2) the second accident occurred in South Dakota; (3) Nelson brought a tort action in South Dakota; (4) the South Dakota jury awarded $37,000 for past income loss; ánd (5) Nelson paid her attorney a one-third contingency fee. Accordingly, the only difference would be that instead of denying no-fault benefits, American Family would have paid them before the South Dakota tort action was resolved.

If American Family, as Nelson’s no-fault insurer, had paid no-fault benefits upon request up to the policy limits of $20,000, Nelson would have subsequently pursued the South Dakota tortfeasor on a negligence theory to recover ,any additional damages. With a jury award of $37,000 in past income loss, Nelson would have received a net recovery of $24,666.67 after having incurred $12,333.33 of attorney fees. But, under the Act, this recovery would be subject to American Family’s subrogation interest. Minn.Stat. § 65B.53, subd. 2 (stating that the no-fault insurer “is subrogated to the claim for the recovery of damages for economic loss that the [no-fault recipient] has against another person”).

As- previously noted, Minn.Stat. §' 65B.53, subds. 2 and 8, allow a subrogation interest in the amount of benefits actually paid by the no-fault insurer. But the statute limits the subrogation interest to the extent that the insured’s recovery, absent the subrogation interest, would produce a duplication of benefits or reimbursement of the same loss — i.e., a double recovery. Minn.Stat. § 65B.53, subd. 2. Accordingly, American Family would have á subrogation interest of $20,000.

However, under the statute, American Family’s $20,000 subrogation interest is subject to its obligation to pay a proportionate share of Nelson’s attorney fees. Minn.Stat. § 65B.53, subd. 8. This proportionate share is calculated by using the ratio of the subrogation claim ($20,000) to the judgment ($37,000), or 54.054%. Id. American Family would then be obligated to compensate Nelson for 54.054% of her attorney fees of $12,333.33, which is $6,666.67. Therefore, because of its obligation to pay a proportionate share of Nelson’s attorney fee's, American Family’s subrogation claim would be reduced from $20,000 to a net subrogation claim of $13,333.33. This would leave Nelson with a combined net recovery 'of $31,333.33. The results of the' subrogation statutory scheme applied to this scenario are summarized as follows:

No-Fault Benefits Paid Before Tort Action $20,000.00
Nelson’s Tort Judgment For Past Income Loss $37,000.00
Less Nelson’s Attorney Fees - $12,333.33
American Family’s Subrogation Claim - $20,000.00
Net amount after subrogation $ 4,666.67
American Family’s'Proportionate Share of Nelson’s Attorney Fees + $ 6,666.67
Nelson’s Net Tort Recovery $11,333.34 $11,333.34
Nelson’s Combined Net Recovery $31,333.34
American Family’s Net Expenditure $ 6,666.67
American Family’s Net Subrogation Recovery $13,333.33

When the foregoing analysis is done, it becomes obvious that there is an inconsistency between Nelson’s argument 'that Ferguson mandates that she recover $37,000 and the $31,333.34 Nelson would have been entitled to had American Family paid no-fault benefits before the tort action was resolved. While it may appear that the statute and the holding in Ferguson are inconsistent when applied to the facts in this case, this is not necessarily so. The purposes behind both are the same and can be reconciled by examining them in the context of (1) the purpose of the no-fault insurer’s obligation to pay a part of the attorney fees when an accident occurs in another state under Minn.Stat. § 65B.53, subd. 8, and (2) the specific facts in Ferguson. Both assure that the no-fault insurer pays its fair share of any costs incurred in receiving any benefit from the insured’s tort judgment.

In other words, both the no-fault insurer’s obligation to pay a share of the attorney fees and the net recovery analysis unde^ Ferguson demonstrate the price a no-fault insurer pays to offset the benefit it receives when the insured brings a successful tort action against a tortfeasor. See 2 Michael Z. Steenson, Minnesota No-Fault Automobile Insurance 268 (2d ed.1989). In the out-of-state subrogation context, the no-fault insurer pays a share of the insured’s attorney fees because the insured bore the costs of recovery for the entire judgment, including the part that ultimately belongs to the no-fault insurer through subrogation. If the no-fault insurer did not have to pay a share of the fees, it would essentially be receiving a windfall because it paid no part of the insured’s cost to recover the no-fault insurer’s subrogation interest.

Although less obvious, the rationale behind the costs and attorney fee-sharing in the subrogation context was also behind our decision in Ferguson. In Ferguson, we held that the net tort recovery must first be exhausted before collecting further no-fault benefits for future medical expenses from the no-fault insurer. 348 N.W.2d at 733. Requiring the insured first to exhaust the net tort recovery is a benefit to the no-fault insurer because, rather than paying first-dollar coverage for future medical expenses, the no-fault insurer incurs no obligation unless and until those expenses exceed the net tort recovery. However, we were not specific in Ferguson when we discussed how the net recovery, and hence the no-fault insurer’s benefit, would be calculated other than specifying that the costs of collection, including reasonable attorney fees, were to be deducted. Id.

While we were not specific in calculating the net tort recovery, given the similarity in purpose between the subrogation fee-sharing provision and the benefit in Ferguson, it is logical to calculate the net recovery in a Ferguson scenario by using a similar calculation and including the no-fault insurer’s share of the attorney fees. See Steenson at 268. In effect, the calculation in Ferguson takes into consideration the insurer’s share of the insured’s attorney fees.

After having worked through the foregoing comparisons, we conclude that when analyzed in the proper context, Ferguson does not, as Nelson argues, stand for the proposition that an insured is uncompensated to the full extent of her attorney fees paid in achieving a tort recovery. Instead, Ferguson’s use of the net tort recovery as a bank, which must be .offset by the no-fault insurer’s share of the fees, has more to do with ensuring that the no-fault insurer does not receive an unintended benefit than in making a broad statement about how an uncompensated loss or a double recovery should be calculated.

More importantly, application of Nelson’s interpretation of Ferguson to either the facts of this case or to the analysis in the customary case scenario is problematic. Under Nelson’s application of Ferguson to the facts of this case, she asserts that she is entitled to receive $12,333.33 from American Family. In essence, Nelson would have American Family assume responsibility for attorney fees for both (1) that part of her recovery that would have been paid as no-fault benefits, and (2) that part of her recovery that is in addition to what she would have received under the-Act. As shown above, while the Act does make provision for some fee-sharing to ensure that the no-fault insurer does not receive a windfall, it does not contemplate reimbursing the insured for all of her attorney fees.

D. Nelson is Entitled to Receive No-Fault Benefits from, American Family

As previously noted, neither American Family’s nor Nelson’s position fully acknowledges the No-Fault Act’s scheme for coordination and reconciliation of benefits and tort recoveries, or achieves the full purposes of the Act. Neither position reconciles the tension between two policies of the Act — prevention of double recoveries and ensuring prompt payment of benefits. See Minn.Stat. § 65B.42.

There is a resolution that accommodates both of these policies — allowing Nelson a recovery that mirrors what she would have received if American Family had initially paid the no-fault benefits. Nelson would then have had a net recovery .of $31,333.34, comprising her original $20,000 of no-fault benefits and her post-subrogation and post-attorney fee net tort judgment of $11,333.34. American Family’s net payment to Nelson would have been $6,666.67 after recovering its subrogation interest, which amounts to its proportionate share of Nelson’s attorney fees.

Because American Family has not paid no-fault benefits to Nelson, in economic terms it is in the same position as it would have been if it collected a $20,000 subrogation interest in Nelson’s tort recovery. Having received an equivalent financial benefit from- Nelson’s tort action, American . Family should pay an equivalent price — that is, its proportional share of Nelson’s attorney fees. Nelson paid a one-third contingency fee to recover the tort judgment and American Family benefited from $20,000 of that judgment. Therefore, American Family must reimburse Nelson for the attorney fees incurred to achieve that benefit, one-third of $20,000. Accordingly, we ■ conclude that American Family is obligated to pay Nelson $6,666.67, representing its proportional share of the $12,333.33 attorney fees paid by Nelson. When this $6,667.67 award is added to Nelson’s net tort recovery of $24,666.67, her total recovery of $31,333.34 and American Family’s expenditure of $6,667.67 will put both parties in the same financial position as in section 65B.53 sub-rogation.

Under the foregoing interpretation of the Act, Nelson’s recovery is exactly what the Act would have required if American Family' had promptly paid the no-fault benefits. American Family is ultimately no worse off than if it had paid the benefits promptly, except for the interest it must pay as a penalty. The reasonableness of this outcome is especially apparent when compared to the outcome of American Family’s argument to leave the status quo in place, which would allow Nelson no further recovery and would have American Family pay nothing — $6,666.67 less than if it had paid the benefits promptly. Essentially, American Family is asking to receive a windfall. We have stated that, “as between an insurer and [an] insured, if there is to be a windfall, it should be to the insured.” Wallace v. Tri-State Ins. Co. of Minn., 302 N.W.2d 337, 340 (Minn.1980). In addition, adopting American Family’s position would frustrate the Act’s purpose to ensure prompt payment of no-fault benefits because it would encourage insurers to delay payment of no-fault benefits in the hope that the insured would recover up to the policy limits from a third-party tortfea-sor.

E. Conclusion

Based on the foregoing analysis, we conclude that Nelson is entitled to receive $6,666.67 from American Family in no-fault benefits. This amount represents the attorney fees Nelson incurred to recover an amount that she should have received from American Family upon demand. Any greater recovery is not contemplated by the Act because the Act contemplates that an insured is responsible for any attorney fees incurred to recover amounts above the no-fault policy limit. Although Nelson recovered $37,000 from the tortfea-sor, she was entitled to receive $20,000 of that recovery as no-fault benefits under her policy with American Family and she should not have to bear the burden of that part of the attorney fees. Nevertheless, Nelson actually recovered $17,000 more than this $20,000 and she is responsible for the fees expended in the recovery of the amount greater than her no-fault entitlement. Therefore, we conclude that when a no-fault insurer has denied no-fault benefits for an out-of-state accident and the insured subsequently recovers in the other state a tort judgment that includes damages covered by basic economic benefits under the No-Fault Act, the insured is entitled to recover from the no-fault insurer an amount equal to that portion of the insured’s attorney fees incurred in obtaining the tort judgment that is proportional to the benefit to the no-fault insurer of having the basic economic benefits paid by the tort judgment. Accordingly, we hold that the district court erred when it dismissed Nelson’s complaint.

II.

American Family also raised three other defenses to Nelson’s claim — collateral es-toppel (issue preclusion), res judicata (claim preclusion), and accord and satisfaction. We shall address each of these defenses in turn.

A. Collateral Estoppel

The doctrine of collateral estop-pel is employed to prevent “parties to an action from relitigating in subsequent actions issues that were determined in the prior action.” In Re Special Assessment for Water Main Extension in the Vill. of Byron, 255 N.W.2d 226, 228 (Minn.1977). Collateral estoppel applies when “(1) the issue was identical to one in a prior adjudication; (2) there was a final judgment on the merits; (3) the estopped party was a party or in privity with a party to the prior adjudication; and (4) the estopped party was given a full and fair opportunity to be heard on the adjudicated issue.” Willems v. Comm’r of Pub. Safety, 333 N.W.2d 619, 621 (Minn.1983) (citation omitted). Courts do not apply collateral estoppel rigidly and focus instead on whether an injustice would be worked upon the party upon whom the estoppel is urged. Johnson v. Consol. Freightways, Inc., 420 N.W.2d 608, 613-14 (Minn.1988).

American Family asserts that the issues resolved in the South Dakota action are identical to the issues raised in this litigation because the issue of income loss was identical. Nelson argues that the' main issue here is different even though she would be prevented from relitigating the amount of income loss. More specifically, Nelson argues that the issue presented here .is whether American Family was obligated to pay no-fault benefits under Nelson’s insurance policy — an issue not addressed in the prior litigation.

• Although similarities do exist on a- superficial level, the actual legal issues raised in the two cases are not identical. The litigation in South Dakota was a tort action for personal injuries while the instant action is a breach of contract claim for payment of no-fault insurance benefits. The damages in the tort action and the amount o'f benefits at issue in this case are identical, but the actual legal issue decided in South Dakota was whether the defendant in that action was negligent; the legal issue here is whether American Family is required to pay rio-fault benefits. Therefore, we conclude that Nelson is not collaterally estopped from asserting her claim because the issues in the South Dakota litigation were not the same as the issues presented here.

B. Res Judicata

The doctrine of res judicata (claim preclusiqn) bars a claim when litigation on a prior claim involved the same cause of action, there was a judgment on the merits, and the claim involved the same parties or their privies. Veline v. Dahlquist, 64 Minn. 119, 121, 66 N.W. 141, 142 (1896) (citations omitted), cited with approval in Beutz v. A.O. Harvestore Prods., Inc., 431 N.W.2d 528, 531 (Minn.1988), and Youngstown Mines Corp. v. Proud, 266 Minn. 450, 466,124 N.W.2d 328, 340 (1963). In addition, the party against whom res judicata is applied must have had a full and fair opportunity to litigate the-matter in the prior proceeding. See Dorso Trailer Sales, Inc. v. Am. Body and Trailer, Inc., 482 N.W.2d 771, 774 (Minn.1992). If those requirements are met, res judicata bars not only claims as to matters actually litigated, but also as to every matter that might have been litigated in the prior proceeding. Care Inst., Inc.—RoSeville v. County of Ramsey, 612 N.W.2d 443, 447 (Minn.2000); Veline, 64 Minn. at 121, 66 N.W. at 142 (citations omitted), cited with approval in Beutz, 431 N.W.2d at 531, and Youngstown Mines Corp., 266 Minn. at 466, 124 N.W.2d at 340.

Nelson’s South Dakota cause of action was a personal injury tort action brought to recover damages arising out of personal injuries and the negligence of the defendant. Nelson’s cause of action in this case is for breach of contract to recover mandatory no-fault insurance benefits under an insurance policy. Accordingly, we conclude that Nelson is not barred by res judicata from asserting her cause of action because the cause of action in the prior litigation is not identical to the cause of action in this litigation.

C. Accord, and Satisfaction

We have stated that accord is “a contract in which a debtor offers a sum of money, or some other stated performance, in exchange for which a creditor promises to accept the performance in lieu of the original debt.” Webb Bus. Promotions, Inc. v. Am. Elecs. & Entm’t Corp., 617 N.W.2d 67, 72 (Minn.2000). “[S]atisfaction is the performance of the accord, generally the acceptance of money, which operates to discharge the debtor’s duty as agreed to in the accord.” Id. at 72-73 (citations omitted).

The purpose of accord and satisfaction is to allow parties to resolve disputes without judicial intervention by discharging all rights and duties under a contract in exchange for a stated performance, usually a payment of a sum of money.
An enforceable accord and satisfaction arises when a party against whom a claim of breach of contract is asserted proves that (1) the party, in good faith, tendered an instrument to the claimant as full satisfaction of the claim; (2) the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim; (3) the amount of the claim was unliquidated or subject to a bona fide dispute; and (4) the claimant obtained payment of the instrument.

Id. at 73 (citations omitted.).

To successfully raise the defense of accord and satisfaction, American Family must prove that it, in good faith, intended its satisfaction of judgment on the tort claim to be full satisfaction of Nelson’s pending no-fault claim. Additionally, American Family must prove that the instrument with which it paid the judgment contained a statement to the effect that it was tendered in full satisfaction of Nelson’s no-fault claim.

There is nothing in the record other than the official “Satisfaction of Judgment” signed by Nelson’s attorney with respect to the South Dakota judgment. This document contains no indication that it, or the actual instrument of payment, was to be in satisfaction of anything more than Nelson’s tort claim against the tortfeasor. Accord and satisfaction is an affirmative defense, and therefore its elements must be proved by American Family. We conclude that Nelson’s claim is not barred by accord and satisfaction because American Family cannot prove the first or second elements of the defense on the record before this court.

As a matter of law, we hold that American Family’s defenses of collateral estop-pel, res judicata, and accord and satisfaction do not bar Nelson’s recovery.

We reverse the court of appeals and remand to the district court for further proceedings in accordance with this opinion.

MEYER, J., not having been a member of this court at the time of the argument and submission, took no part in the consideration or decision of this case.

      . Essentially, the no-fault insurer pays a proportion of the insured’s fees equivalent to the ratio of the judgment for the tort recovery to the subrogation interest. For example, if the insured recovers $30,000 in a tort judgment and the no-fault insurer had a subrogation interest of $10,000, the no-fault insurer is responsible for one-third of the insured’s attorney fees.

      . Nelson cites three court of appeals cases applying Ferguson to different factual scenarios. Simpson v. Am. Family Ins. Co., 603 N.W.2d 860, 863 (Minn.App.2000) (applying Ferguson analysis to a tort award for loss of future earning capacity); State Farm Mut. Auto. Ins. Co. v. Spartz, 588 N.W.2d 173, 176 (Minn.App.1999) (using Ferguson to note difference between no-fault and uninsured motorist claims); LeBeau v. John Deere Ins. Co., 574 N.W.2d 83, 85-86 (Minn.App.1998) (applying Ferguson analysis to facts involving settlement before benefits paid).

      . We note that under the result we reach, American Family will be required to pay statutory interest on the $6,666.67 under Minn. Stat. § 65B.54, subd. 2, but the Act appears to have contemplated this result as.an incentive to promote prompt payment.

      . We also note that the rationale behind our conclusion that Nelson should have been awarded an additional $6,666.67 is bolstered when this result is compared to what would have happened if the second accident had occurred in Minnesota and American Family had paid $20,000 in no-fault benefits up front. When an accident occurs in Minnesota, the Act provides for an offset instead of a subro-gation interest to reduce Nelson’s tort recovery. Minn.Stat. § 65B.51, subd. 1. Unlike a subrogation interest, this offset does not inure to the benefit of American Family; instead, it reduces Nelson's recovery. Id.

      If American Family had paid $20,000 of no-fault benefits up front, this amount would be deducted from Nelson’s $37,000 in damages under Minn.Stat. § 65B.51, subd. 1. Nelson would then be left with a $17,000 tort judgment, out of which she would pay her one-third contingency fee of $5,666.67, leaving her with a net tort recovery of $11,333.33. When combined with the $20,000 of no-fault benefits she initially received, Nelson would have a combined net recovery of $31,333.33— the same total recovery we have held that she is entitled to receive. The difference between the two recoveries is that, in Minnesota, American Family would have paid the entire $20,000 and had no recovery through subro-gation.

      . American Family was also the insurer for the defendant in the South Dakota litigation.


author: Sam Hanson Associate Justice

text:
    Allan LUNDEBREK, Relator, v. TOM’S MOBIL SERVICE, and Western National Mutual Group, Respondents, and Glacial Ridge Hospital District, Principal Life Insurance Company/HRI, Inc., Blue Cross/Blue Shield, Blue Plus of Minn., Intervenors.
    No. C5-02-1198.
    Supreme Court of Minnesota.
    Sept. 25, 2002.
   ORDER

Based upon all the files, records and proceedings herein,

IT IS HEREBY ORDERED that the decision of the Workers’ Compensation Court of Appeals filed June 27, 2002 be, and the same is, affirmed without opinion. See Minn. R. Civ.App. P. 186.01, subd. 1(b):

BY THE COURT:

Sam Hanson Associate Justice