Lawyer to Settle Suit Over Estate : Courts: Relatives of a Leisure World widow claimed that James D. Gunderson’s actions as trustee resulted in a loss of more than $500,000.

James D. Gunderson, the Laguna Hills lawyer who inherited millions of dollars in cash, real estate and corporate stock from his elderly clients, has agreed to settle a lawsuit involving a Leisure World widow whose relatives claimed that Gunderson caused her to lose in excess of $500,000 from her estate.

Gunderson and the widow’s relatives have agreed to keep details of the settlement confidential, and both parties declined comment Wednesday.

But The Times learned that Gunderson’s insurance carrier has agreed to pay a substantial sumbetween $150,00O and $425,000--to a trust established by 92-year-old Gladys Grove. Under terms of the settlement with her relatives, Gunderson has agreed to resign as trustee of the trust, which he has managed since 1985.

Gunderson’s lawyer, Stuart Lesansky, said in a confidential statement filed in Orange County Superior Court that his 68-year-old client “does not feel he did anything wrong” but suffers from “a heart condition which is reactive to stress and for which he takes medication designed to lower his blood pressure. It is certain that he could not endure a trial in this matter without suffering physically.”

The statement said that to avoid the stress of a trial, “Mr. Gunderson is willing to put this matter behind him and allow Gladys Grove to go about her life. . . .”

The Orange County public guardian’s office was alerted in late 1992 to the Grove case after revelations in The Times that Gunderson had received millions of dollars from wills and trusts that he had prepared for his elderly Leisure World clients.

Since then, Gunderson’s law practice--located just outside the gates of the retirement community of 22,000 residents--has been under investigation by the Orange County Sheriff’s Department, the State Bar of California and the Orange County Bar Assn.

The settlement stems from a lawsuit brought by Martin J. Thompson, a Los Angeles lawyer and grandnephew of Grove. He filed an action last March in Orange County Superior Court to remove Gunderson as trustee of Grove’s estate, saying that the Laguna Hills lawyer had paid himself fees from the estate totaling $169,000 during the last seven years. The estate at one time was worth well over a million dollars.

Gunderson, a San Juan Capistrano resident who has boasted of representing 7,000 clients, lost through risky investments another $336,000 in capital and estimated income in Grove’s estate, court documents allege.

Earlier this year, Thompson hired a trust expert to analyze Gunderson’s handling of the estate. In a declaration filed in court, Charles I. Hargrove, a former vice president of the Bank of America, found that Gunderson had “violated his fiduciary duties in several respects,” charging that the lawyer had lost in excess of half a million dollars by investing in high-risk oil and real estate partnerships.

The declaration said Gunderson also commingled Grove’s assets with other accounts he handled, noting that in one case the lawyer held in his name a partnership owned by Grove.

Gunderson responded in court documents that he was not responsible for Grove’s losses, saying he made the investments at Grove’s direction.

The Grove matter is not the first in which Gunderson has agreed to an out-of-court settlement involving a client’s estate.

Four years ago, Gunderson paid $60,000 to a Canadian woman who accused him in court documents of defrauding the rightful beneficiaries of her aunt’s estate.

In that case, Gunderson persuaded a judge to name him legal guardian of a senile Leisure World woman. Once in control of her affairs, Gunderson drafted a new will that gave him the lion’s share of her estate--nearly $250,000 worth of AT&T; stock.

One of the woman’s heirs sued. But she reluctantly abandoned her challenge when Gunderson offered her $60,000 in exchange for dropping the court action.

In addition to the investigations by the Sheriff’s Department and the bar associations, Gunderson is being asked to return about $3.5 million he received last year from the estate of a 98-year-old Leisure World man who died in February, 1992. The estate of Merrill A. Miller alleges in a Superior Court action that Gunderson defrauded Miller’s rightful heirs.

Today, Orange County Superior Court Judge James L. Smith Jr. will be asked to order Gunderson to answer questions “concerning wrongful acts with respect to other clients where he, his family, or employees of his firm were named as beneficiaries in wills and trusts.”

During depositions in the Miller case, Gunderson refused to answer questions about previous inheritances, saying that those transactions were protected by the “lawyer-client privilege” and rights to privacy of his clients and himself.

Today’s hearing involves a final will and a trust Gunderson had the blind, bedridden Miller sign only six weeks before his death. The will 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, including the bequest to Gunderson.

Lawyers for Miller’s relatives say Gunderson should be compelled to answer the questions. They believe that his answers would show a pattern “inconsistent with Mr. Gunderson’s defense that he was a friend” of Miller, and that he intended to “exercise undue influence and defraud” the estate.

Gunderson’s inheritances have also spurred introduction in the Legislature of a bill that would restrict lawyers from making themselves beneficiaries of their clients’ estates.

On Tuesday, the Senate Judiciary Committee voted 8 to 0 to approve the bill, which goes to the full Senate for a vote in two weeks. The bill, authored by Assemblymen Tom Umberg (D-Garden Grove) and Bill Morrow (R-Oceanside) would invalidate, with certain exceptions, any bequests to attorneys who prepare or arranged for wills or trusts that gave them gifts.

Thirty-eight states have already adopted similar legislation, modeled after an American Bar Assn. guideline stating that 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.”

Aside from the proposed legislation, the State Bar is proposing to add to its rules of professional conduct a stipulation forbidding lawyers to prepare wills or trusts that bequeath them gifts.