Creative entrepreneurs are always on the lookout for new opportunities. There’s good money in matching the right business opportunity to the right business model—and talent. It pays to assemble a talented team, but you might want to think twice before making your attorney part of that team.
A recent legal malpractice case highlighted the dangers of going into business with your attorney. You rely on your attorney for good legal advice, but business interests can change the dynamic.
A potential conflict of interests
The case in question comes from Illinois, although it can still serve as a warning for those of us in California. According to the courts, the case revolves around one real estate investor’s claims that his attorney betrayed his interests.
The investor had sought to go into business with another investor. During their business, they started working with an attorney. Soon, both investors and the attorney sought a shared investment. But the first investor said the attorney mishandled his case. He claimed the other investor and the attorney ignored his role in the shared investment. He didn’t get his equal share. He got nothing.
Notably, the investor and attorney disagreed about whether they had ever had an attorney-client relationship. The investor said they had. The attorney said they hadn’t. Either way, the case illustrates the dangers of expecting sound legal advice and pouring an attorney’s personal business interests into the mix.
Rule 1.8.1
The California Rules of Professional Conduct anticipate such conflicts of interest with Rule 1.8.1. It sets the boundaries for lawyers who think about going into business with their clients. They must satisfy several standards:
- The business deal or transaction must be reasonably fair to the client. The attorney cannot take advantage of an unwary entrepreneur.
- The lawyer’s role should be clearly spelled out in writing in a fashion the client can understand.
- The client should be represented by another attorney in the matter or be advised to seek out independent counsel.
- The client must sign off on the lawyer’s role in the business.
These standards exist to prevent potential conflicts of interest. The Rules of Professional Conduct assume that your attorney’s priority is to advance your legal interests. Adding other business interests to the mix can complicate and confuse matters. There may be times you and your attorney agree that the benefits outweigh the risks, but these standards aim to make sure you enter such deals with your eyes wide open.
Know what you’re getting into
The Rules of Professional Conduct don’t stop you from doing business with your attorney. However, they do draw some boundaries. If you choose to conduct business with your attorney, you want to make sure you understand these boundaries and how they may affect your ongoing attorney-client relationship.