McBride Law Blog

The Perils of Joint Representation (Part 2)

McBride Law Blog

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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, meaning 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]  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.  After all, there is only so much pie to go around.

At times, a conflict is more obvious. In criminal defense cases, for example, one defendant’s defense may be inconsistent with that of the other, creating an unavoidable conflict of interest for the lawyer representing both defendants.  Similarly, it would not be difficult to see a conflict of interest if a lawyer represents both spouses in a contested divorce matter.  But it is often difficult to identify, let alone address, a potential conflict in transactional matters, which, by nature, tend to be collaborative.

Take, for example, two entrepreneurs entering into a joint venture.  Let’s assume 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 is likely to be cordial and their interests well-aligned with those of the other.  Many lawyers in such 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 the joint venture situation described above, for example, 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 only one of the members assumes managerial responsibilities and wants to eliminate fiduciary duties to the extent possible, which 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 advise them fairly and adequately.  A buy-sell could be very favorable to one party and harmful to the other, based on the facts and circumstances that are unique to each party.

And there are other, perhaps deeper, issues.  For instance, as between jointly represented clients, the attorney-client privilege does not attach for communications between the clients and the lawyers and, thus, if litigation develops between the clients, the privilege will not protect any communications between the lawyer and the clients.[3]

The critical questions, then, are not whether there is direct adverseness, but the likelihood that a difference in interests will eventuate and, if it does, whether it will materially interfere with the lawyer’s independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client.[4]  Needless to say, 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 small changes to a transaction structure to favor one client could have huge financial impacts in the future for that client, not to mention the fact that a little advance planning that is tailored to a particular client’s situation could save additional costs and trouble down the road.

This post was a 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 interest in a joint representation.

 

This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including 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.

Steps have been taken to verify the contents of this article prior to publication.  However, readers should not, and may not, rely on this article.  Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.

About the Author

Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C. which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. Shawn can be contacted at: (214) 418-0258; shawn.mcbride@rsmlawpllc.com, or www.mcbrideattorneys.com.

[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.

Posted In: Legal Ethics, Uncategorized

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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