In most cases, during a business transaction, both parties can’t hire the same attorney. They can, however, hire different attorneys from the same law firm. If a buyer and seller have the same attorney, it creates an ethical conflict of interest, and the attorney will not be able to represent both parties well. There are some exceptions to this rule, outlined by the Rules of Professional Conduct.
What Is a Conflict of Interest?
The foundations of being an attorney are to serve clients well, stay loyal to those clients, and keep information and casework confidential. If a lawyer is serving two parties who have opposing interests, the lawyer can’t adhere to these obligations. Conflicts of interest are a part of the Code of Professional Conduct, which prohibits certain practices of attorneys, including:
- Representing two sides in a dispute where both have adverse interests
- Acting against a former client by representing someone working against their interests
- Representing or acting for a client where the attorney’s personal interests may conflict with the ability to do their job well
These conflicts only apply to the relationships between a client and their attorney. In some situations, such as a divorce, civil dispute, or criminal case, a conflict of interest is straightforward. Even amicable divorcing couples have opposing interests, so they each need their own attorney to effectively advocate on their behalf.
Business transactions still present a conflict of interest, though both parties are working toward the same goal. Both sides in a transactional agreement will push for more agreeable rates and better margins to improve their profits. A transactional attorney can’t represent both sides of a merger and acquisition transaction, nor can they look out for the best interest of both parties during any business transaction.
Though not every business transaction will seem to have such a conflict of interest, that doesn’t make it ethical. Jointly represented clients will always risk conflicts of interest. Conflict of interest can be waived through informed consent, but it’s important to carefully analyze a situation for any possible conflicts before proceeding.
Types of Conflict of Interest
It’s the ethical responsibility of attorneys to never have a conflict of interest. They can come from multiple parties, another current client, a former client or third party, or the attorney’s own personal interests. Loyalty and unimpaired judgment to a client is an essential part of the lawyer-client relationship, and failing to avoid a conflict of interest is a violation of the state bar.
Directly Adverse
An attorney can’t represent two clients who have directly adverse interests. This includes the interests of former clients. Only a written waiver of informed consent allows an attorney to represent both, and even then, the attorney needs to be sure they can effectively advocate both parties. In many civil court matters, like divorce or child custody, these adverse interests are obvious and are avoided by experienced lawyers.
Even in transactional agreements, adverse interests can be an issue. Buyers and sellers, though they are working toward a mutual goal, should not be jointly represented. An attorney is even prohibited from representing a business seller if they’re presenting a buyer on an unrelated matter without informed consent.
Material Limitation
If the attorney’s ability to represent a client to the best of their ability is compromised by another client’s interest, this is a conflict of interest. If there’s a significant risk to the attorney’s capabilities to advocate, consider, or carry out a course of action, informed consent is needed from both clients before representation continues.
In a business transaction, both parties will advocate for a better deal, and this can limit or eliminate an attorney’s ability to advocate for both parties’ best interests.
Informed Consent Waiver
Even with signed conflict waivers, the attorney must be confident that there will be no material limitation on their representation. Not every situation has a waivable conflict of interest, such as representing a prosecutor and defendant in a criminal trial. A transactional agreement where one party wants a lower rate and the other wants an increased price will create a nearly impossible situation for an attorney, even with a waiver.
FAQs
Q: Can a Lawyer Represent Two Different Parties?
A: As long as both parties provide informed consent and their interests are not adverse, an attorney may represent both parties. However, some ethical responsibilities may still make it inadvisable to act for two parties who have related interests, and joint representation increases the likelihood of a conflict of interest arising.
Q: What Risks Are Involved When a Lawyer Simultaneously Represents Two Clients on the Same Side of Litigation?
A: Joint representation always comes with a risk of conflict of interest, even if it doesn’t seem likely when representation begins. If adverse interests arise and are unable to be reconciled or removed with a conflict waiver, it can create a bad situation for the attorney. Even a reconciled or waived conflict can result in an attorney being less able to do their job. The best way to avoid this risk is for one party to find different representation who can work well with the initial attorney.
Q: What Is the General Rule About Business Transactions Between Lawyers and Clients?
A: In Rule 1.8.1, the State Bar of California states that an attorney and client may not enter a business transaction, and that an attorney can’t acquire possession, ownership, or any financial interest in a client. In order for a lawyer and client to pursue a business transaction, several terms must be met, including the option for the client to hire a third-party attorney and written informed consent to a fair and reasonable deal.
Q: What Is the 1.7 rule?
A: This rule outlines what constitutes a conflict of interest between an attorney and their client. An attorney is not able to represent a client if it will negatively impact another client currently or previously represented. This negative impact could be on the same legal matter for both clients or a separate matter. Written informed consent is required from both clients to continue representation. However, if the lawyer feels they can’t represent a client to their fullest ability, they shouldn’t.
Business Transaction Attorneys
Business transactions can be made much easier if both parties have effective legal counsel who can represent their best interest with no conflict. For knowledgeable business attorneys, contact Fishman Larsen Callister today.