Entering a Business Transaction with Your Lawyer? Proceed with Caution

April 20, 2016 Garden State Gavel Blog

Recently, I litigated a breach of contract case brought by a lawyer against his client. Standard contract issues, right? Consideration, offer, acceptance? Not quite.

Because the alleged agreement was between an attorney and his client, special rules applied. The alleged contract was only enforceable if it complied with both contract law and the Rules of Professional Conduct governing lawyers. Indeed, without even considering contract law, the Court held the alleged agreement was unenforceable because it did not comply with the R.P.C.’s.

Added protections in attorney-client business transactions exist because, in such circumstances, the lawyer wears two hats – lawyer and businessman. On one hand, the lawyer is representing the client, receiving sensitive, personal, and confidential information. On the other hand, the lawyer is adverse to the client, sitting on the opposite side of the bargaining table. When wearing these two hats, the lawyer can potentially overreach in the transaction – to the client’s detriment.

To protect clients in attorney-client business transactions, R.P.C. 1.8 requires that lawyers provide clients with certain disclosures, including a writing delineating all of the transaction’s terms, and a writing advising the client of the desirability of seeking the advice of independent legal counsel concerning the transaction. Also, the client must give informed consent, in a signed writing, to the transaction and to the lawyer’s role in the transaction.

Before entering a business transaction with a lawyer, clients should consider: did the lawyer comply with this Rule? The Rule is critical, as it ensures that the client fully understands the transaction, and that the lawyer does not take advantage of the client.

After entering a business transaction with a lawyer, clients should ask the same question. If the lawyer seeks to enforce an agreement that fails to comply with R.P.C. 1.8, under the law, the agreement might not be enforceable. Bad news for the lawyer, who could also face ethical sanctions for violating the R.P.C.’s.