Conflict of Interest: the Attorney-client Joint Business Venture
| Publication year | 1985 |
| Pages | 1975 |
1985, November, Pg. 1975. Conflict of Interest: The Attorney-Client Joint Business Venture
"Conflict of interest" is a concept that cuts across all areas of the law and affects every lawyer, regardless of the nature of the lawyer's practice. The number of conflict situations that could arise during the course of the attorney-client relationship is endless. For example, conflicts occur when (1) an attorney engages in the representation of a client with interests adverse to those of a former client, (2) an attorney undertakes to advise multiple parties in the same action, and (3) two members of the same law office represent conflicting interests. This article focuses on the conflict that arises when an attorney enters into a business relationship with a client.
The most obvious conflicts of interest are those in which the lawyer's personal interests clash with those of the client. A myriad of ethical and practical considerations militate against an attorney ever entering into a business relationship with a client. However, the magnetic nature of self-interest invariably contributes to a weakening of independent judgment.
This article recounts some situations in which this conflict of interest problem commonly arises. It also points out some of the considerations and standards with which attorneys should be familiar before embarking upon the precarious course of engaging in joint business ventures with clients.
At the heart of the skills which an attorney offers to the client is the ability to exercise independent professional judgment. A lawyer's total loyalty must be to the client, and must be restricted only by the lawyer's loyalty to the court and to the law. Thus, the necessity that lawyers avoid conflicts of interest is a keystone of the profession.
A conflict of interest exists when the attorney has interests that are in any way adverse to the advice or course of action available to the client. A conflict arises whenever this tension exists, even if the attorney eventually takes the course of action most beneficial to the client.
Obviously, a conflict arises when an attorney, for whatever reason, enters into any business transaction or joint venture with a client.
The American Bar Association's Code of Professional Responsibility defines such a conflict of interest in terms of the inherent dilution of a lawyer's loyalty to the client by stating:
The professional judgment of a lawyer should be exercised, within the bounds of the law, solely for the benefit of his client and free of compromising influences and loyalties. Neither his personal interests, the interests of other clients, nor the desires of third persons should be permitted to dilute his loyalty to his client.(fn1)
The potential variety of interests which might dilute loyalty to the client is limitless. These interests include the attorney's personal interests (financial security, prestige and self-esteem) and the interests of third persons (family, friends, business associates, the legal profession and society as a whole).
Many attorneys have engaged in a variety of business relationships with their clients and have reaped great financial and personal rewards as a result. Of course, the conflict problem is rarely brought to light when the business relationship is profitable to all. It is when the business relationship does not develop and prosper as anticipated that the inherent conflict suddenly takes on new proportions. What is most likely to happen at this juncture is that the lawyer becomes the target of claims, lawsuits and accusations.
The first code of ethics regulating the legal profession was adopted by the ABA in 1908. It expressly prohibited an attorney from representing conflicting interests unless all concerned consented after a full disclosure of the facts.(fn2)
The current ABA Code of Professional Responsibility ("Code") has adopted a stricter and more extensive set of rules governing conflicts of interest. The Code stresses the need of the lawyer to exercise professional judgment solely on behalf of the client. This prohibits lawyers from putting themselves in the position where their own interests are likely to infringe on the independent exercise of their judgment.
The Disciplinary Rules expressly prohibit the creation of such a situation:
Except with the consent of his client after full disclosure, a lawyer shall not accept employment if the exercise of his professional judgment on behalf of his client will be or reasonably may be affected by his own financial, business, property, or personal interests.(fn3)
It is apparent that client's rights to full and disinterested service by their lawyers are subordinate if the lawyers must choose between their own and their clients' interests.
The Disciplinary Rules also address an attorney's right to enter into business relations with a client:
A lawyer shall not enter into a business transaction with a client if they have differing interests therein and if the client expects the lawyer to exercise his professional judgment therein for the protection of the client, unless the client has consented after...
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