McBride Law Blog

The Dangers of Joint Representation (Part 2)

McBride Law Blog

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In this post, we will discuss why every client needs to have his or her own lawyer.

It may not be readily apparent to most non-lawyers (and even some lawyers), but in every case or matter where a lawyer represents more than one person, there is potential for a conflict of interest. This means the representation of one client will be directly adverse to another client or there is a significant risk that the representation will be materially limited by the lawyer’s responsibilities to another client. [1]

To explain it in everyday terms, this often means that, if a lawyer is working for two clients on the same issue, what is good for one client could be bad for the other client.

At times, a conflict is more obvious. For example in criminal defense cases, one defendant’s defense may be inconsistent with that of the other defendant which creates an obvious conflict of interest for the lawyer representing both defendants.  Likewise, it would not be difficult to see a conflict of interest if a lawyer represents both spouses in a contested divorce matter.  However, sometimes it is difficult to recognize a potential conflict in transactional matters, which, by nature, tend to be collaborative.

For example, let’s assume that two entrepreneurs entered into a joint venture and they have developed some software together and want to form an LLC to commercialize the software.  At this point, the relationship between the two members/owners are likely to be cordial and their interests well-aligned. Many lawyers in this situations would proceed to get to work and not give much thought to who the lawyer represents.  Even when there is no direct adverseness, however, a conflict of interest may exist if there is a significant risk that a lawyer’s ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer’s other responsibilities or interests.[2]  In this situation, one of the members may have other projects of his own in the same field as the company’s and not want to have an unreasonably restrictive non-compete provision in the agreement.  Or it could be only one of the members assumes managerial responsibilities and wants to eliminate fiduciary duties to the extent possible, which of course would not be beneficial to the other member or the company.

And what about buy-sell provisions?  It is not difficult to see that a lawyer representing both clients in a situation like this would not be able to give advice fairly and sufficiently.  A buy-sell could be very advantageous to one party and detrimental to the other, based on the facts and circumstances.

And there are other deeper issues such as between jointly represented clients, the attorney-client privilege does not attach for communications between the clients and the lawyers. This can become a real problem if litigation develops between the clients because the privilege will not protect any communications between the lawyer and the clients. [3]

The critical questions to consider is not whether there is direct adverseness, but rather the likelihood that a difference in interests will eventuate and, if it does, whether it will significantly interfere with the lawyer’s independent professional judgment in considering alternatives that should be pursued on behalf of the client. [4]

It would be in every client’s best interest to obtain independent legal counsel, separate from that of their business partner or company, to zealously look out for them.

A few seemingly small changes to a transaction structure to favor one client may have huge financial impacts in the future for that client. Some advance planning that is tailored to a particular client’s situation could save additional costs and issues down the road.

This post is part of a multi-post blog series on joint representation, conflict of interest, and the need to obtain independent legal counsel.  You can find the other posts by searching our blogs.  In our next post, we will discuss how to address a conflict of interest in a joint representation.

1] ABA, Model Rules of Professional Conduct, Rule 1.7(a).

[2] Id. at cmt. 8.

[3] Id. at cmt. 30.

[4] Id. at cmt. 8.

 

This posting is intended to be a tool to familiarize readers with some of the issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity. Freeimages.com/Photographer Daniel Battiston.

About the Author

Shawn McBride — R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Firm, PLLC. Shawn works successful, private business owners in their growth and missions to make a company that stands the test of time. You can email R. Shawn McBride or call (214) 418-0258.

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Posted In: Business Management, Disagreement

Facebooktwittergoogle_pluslinkedinmailAbout the Author Shawn works successful, private business owners in their growth and missions to make a company that stands the test of time. You can email or call (214) 418-0258.


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