Rule Avoiding the Representation of Adverse Interests
(d) If a conflict not reasonably foreseeable at the outset of representation arises . attorney's interest conflicts, including business transactions with clients; Rule. (B) A member shall not accept or continue representation of a client without one client in a matter in which the interests of the clients potentially conflict; or independence of professional judgment or with the client-lawyer relationship; and. New Rules: Chapter 1. Lawyer-Client Relationship Rule Scope of Representation and Allocation of Authority Rule Conflict of Interest: Current Clients.
An example provided in the Comment  to Rule 1. Transactions With Clients — Generally Neither the former code nor the current rules absolutely prohibit a lawyer from engaging in business dealings with a client.
Indeed, it is often impractical for a lawyer not to transact business with a client.
In Lindsay, three investors, Lindsay, Holland, and Marcus, entered into a commercial real estate investment as joint venturers to purchase ranch land for subdivision and development. Lindsay found and organized the real estate investment. Lindsay and Holland were neighbors and friends.
Holland persuaded Marcus to invest in the venture. The partners were each to have a one-third interest in the land, with Lindsay to take title to the property in his name and hold it in trust for Holland and Marcus. Holland, the lawyer, drafted documents for the transaction, in that case, the joint venture agreement. Holland met with Lindsay and Marcus, they each had the opportunity to read the contract, and Holland then read the document aloud and the parties made changes to the document before signing.
There were some difficulties negotiating subsurface mineral rights with the seller, but ultimately Lindsay closed the transaction in his own name, but then attempted to exclude Holland and Marcus from the transaction. Holland and Marcus sued for specific performance. The supreme court would have none of it.
It stretches the credulity of this court to the point of breaking to assert that after a prearranged conference, the reading of the joint venture agreement by each of the parties, the later reading of it out loud by Holland, and the making of agreed alterations to it, that anyone of three participants should assert that he did not understand it. There is no express evidence here that Lindsay had employed Holland as his attorney to represent him in this transaction or that he ever paid or agreed to pay him anything for his work in connection therewith.
Defendant had the burden of showing that the relationship of attorney and client existed, this he failed to do.
Hoar27 Cal. In the absence of fraud no person is excused from reading an agreement, nor can he say that he failed to understand it by showing that the other party was a lawyer who in the past had performed services as such for him. We cite with approval from Masters v.
ElderIll. Here The relation of attorney and client had not been of a continuous nature previously, but consisted of occasional and isolated transaction s of the type narrated above, and not of a continuing character, such as an annual or other retainer. The court has also held that contracts between lawyers and clients are not void but are voidable. Thus, while business dealings with clients are not per se improper, they are subject to extraordinary scrutiny and second-guessing, and a lawyer engages in business transactions with a client at his or her peril.
If the investment fails, the lawyer is often the only party with assets i.
Business Transactions With Clients Colo. The key principles are that the lawyer must fully disclose the transaction to the client and that the transaction be fair and reasonable to the client: Business Transactions Between a Lawyer and a Client A lawyer may not participate in a business or financial transaction with a client, except a standard commercial transaction in which the lawyer does not render legal service, unless: Business transactions between lawyers and clients are the subject of considerable civil litigation and numerous disciplinary actions.
In most of the published decisions, the lawyer has in some way violated at least one of the principles of Colo. For example, in People v.
The loan was secured by real property. The clients would not have been likely to obtain financing through conventional sources. The lawyer argued that since the clients could not have obtained financing elsewhere, they were not harmed by his undisclosed conflict and, in fact, received a benefit from the loan. On the other hand, Bucky is an example of a very sophisticated, longtime client. Even if there is a robust joint representation letter, the representation exposes the lawyer to the hindsight argument that a reasonable lawyer should have known he could not represent these two clients equally.
For example, Bucky and Sparty do not have the same tax issues.
The Increasing Danger of Conflicts of Interest – Peabody & Arnold
There is also a question of who oversees case expenses. Additionally, unlike Bucky, Sparty does not have its own in-house counsel to review the joint representation letter.
If you were to go forward with such a joint representation, the lawyer should insist that Sparty have outside counsel review the joint representation letter and even put the name of the reviewing attorney in the letter. The key is to look at whether the two clients really have a common interest, or if can you foresee different interests arising. The panel said that even when there is no animosity between the parties at the outset, that is typically because the parties plan to be sharing in success.
If success does not materialize, the parties could see things differently. The safest route is to suggest that Sparty gets its own counsel, even if your firm carries most of the work. Pursuant to their contract, Chippy agrees to indemnify CRU. Chippy is not a current client. In fact, CRU is often adverse to Chippy in contract disputes.
Chippy and CRU both sign a joint representation engagement letter. The situation arises when a big client would like you to defend another company or individual as well, because it puts everyone together with an aligned defense. Usually, the firm has no preexisting relationship with the accommodation client.
The lawyer first needs get a joint representation letter.
Where the problems arise is that some lawyers fail to think of Chippy as a true independent client. In order to accept Chippy as a client, the firm should have done its due diligence, given Chippy a full engagement letter, and obtained a full advanced waiver from Chippy. Everything about the representation should be included in the engagement letter. For the joint representation to work, you need to be aggressive and careful and leave no basis for misunderstanding on what you can and cannot do for the accommodation client.
The panel noted that although advanced waivers are important to obtain, they are not upheld in all states. The lawyer needs to be cognizant of applicable state laws. It is also helpful to put right into the engagement letter that you are only representing the accommodation client for this limited purpose. If accommodation clients are not treated as real clients, several problems can arise.
For example, sometimes a firm will not put an accommodation client in its database and, therefore, they do not show up during conflict checks. Another problem can arise when the accommodation client is not the one paying the bills. Sometimes a firm will confuse them as an inactive client and they will erroneously be closed out of a firm conflicts database. While conducting repairs, Joe slips on oil and is injured.
Jane is the only witness. In her first statement written shortly after the accident, Jane states that she did not see Joe fall, but saw Joe lying on the oily concrete floor immediately after the fall. In the second statement Jane says she saw Joe slip. Larry assures Jane he will be her attorney at the deposition. This hypothetical address by the panel is based on a California appellate case, Yanez v.
In that case, the plaintiff alleged that the lawyer favored Union Pacific Railroad to the detriment of its employee. The employee was a fact witness to an accident. The lawyer represented the employee for purposes of his deposition.
The allegations were that the defense attorney should have protected the employee from testimony that was adverse to him. The lower court granted summary judgment in favor of the lawyer, but the appellate court reversed.
The attorney was also disciplined based on his actions. In the Yanez case, the lawyer affirmatively accepted the case, as the lawyer in the hypothetical did. This makes it more difficult to do a proper conflicts check. However, the lawyer should be thinking about the consequences of accepting the attorney-client relationship.
A problem can arise if the witness tells the lawyer something the lawyer should tell the company, but the witness requests that it not be shared with the company.