COMMERCIAL NEGOTIATIONS
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Lawyer has represented A and A's
company ("ACo.") for several years. Lawyer has also
represented B, an entrepreneur, for several years. Although they
are acquainted, A and B had no business dealings with one another until
recently. At a golf outing A mentioned to B that he wanted to sell
ACo., and B said he was interested in buying it. They knew they had
the same lawyer, and they asked Lawyer to meet with them. Can Lawyer
represent both A and B in the transaction?
The materials at the
article entitled "Joint/Multiple
Representation" assume that the lawyer has answered affirmatively
the threshold question in the above paragraph. Most joint
representation situations involve clients who are basically on the same
side of things - multiple purchasers, for example. Some guidance exists on joint representation where the parties are
across the table from each other - buyer vs. seller - lender vs.
borrower.
Comments
[26]-[33] to Model Rule 1.7, which purport to deal with these issues, and
many of which were adopted by the ABA House of Delegates in February 2002,
are not particularly helpful.
Restatement.
Go to § 122, cmt. g(iv). Two illustrations, 10 and 11,
provide situations where handling both sides of a deal would be
inappropriate. The first (10) involves a complex real estate
transaction where the parties are in sharp disagreement over several
important terms. The second (11) involves that same transaction,
except that there are no such disagreements. However, the deal is of
a sort that will require much counseling on a variety of issues such as
security interests, guarantees, and other rights of the parties against
each other.
N.Y. City Op.
2001-2 (2001) concludes that no hard and fast rule is
appropriate. Whether a lawyer or law firm can represent both sides
of a transaction depends on the circumstances. But, in In re
Peter G. Ford, 732 N.Y.S.2d 115 (N.Y. App. 2001), the court said simply that the lawyer should be
disciplined for representing both the buyer and seller in real estate
transactions. The court did not discuss whether the lawyer obtained
conflict waivers or whether the conflict could be waived. Nor, did
the court discuss Op. 2001-2. Opinion 2001-2 refers to several older
ethics opinions that suggest that representing both sides of a real estate
sale is permissible in some situations. N.Y. Op. 611 (1990); N.Y.
Op. 162 (1970); N.Y. County Op. 615 (1973).
Lender/borrower
in real estate sale. Mass. Op. 90-3 (1990) offers guidance
when a lawyer wants to represent a lender and borrower in the same real
estate transaction. The opinion says that a lawyer cannot do that,
even with consent, unless the transaction involves a single-family
residence where the essential terms have already been agreed to. The
opinion further provides that the lawyer must explain that if the lawyer
learns something from one party that would be relevant to the other, the
lawyer will make the disclosure. The following opinions approve of
representing both, provided adequate disclosure and consents are given:
Ill. Op. 90-31 (1991); N.Y. State Bar Op. 611 (1990); N.C. Op. 97-8
(1998); Tex. Op. 525 (1998); and Vt. Op. 2001-02 (undated).
Representing Lender and Borrower in Residential Mortgage Transaction.
Garrett v. Fleet Finance, Inc., 252 Ga.
App. 47 (Ga. App. 2001). The issue in this case did not
involve a conflict of interest, but the court did say that representing
both the lender and borrower in a residential mortgage transaction
violated Georgia's prior Code of Professional Responsibility. It
does not address whether the conflict can be waived; presumably not.
Can
Represent Lender and Borrower with Consent. Doe v. McMaster,
585
S.E.2d 773 (S.C. 2003).
The principal issue in this case was the unauthorized practice of
law in a real estate mortgage transaction.
In it, however, the court ruled that it is permissible for a lawyer
to represent both the lender and the borrower, provided adequate
disclosures are given and waivers obtained.
Representing Seller and Buyer of Real Estate. Authorities
that approve the practice under various circumstances: Mont. Op. 981216;
N.C. Op. 99-8 (1999); W.Va. Op. 89-1. Authorities that do not
approve: Fla. Op. 97-2 (1997); Nassau County, N.Y. Op. 98-10; N.Y. State
Bar Op. 694 (1997); Iowa Supreme Court Bd. of Prof. Ethics &
Conduct v. Wagner, 599 N.W.2d 322 (Ia. 1999); and Homa v. Friendly
Mobile Manor Inc., 612 A.2d 322 (Md. App. 1992).
Sale of tavern. In Van
Kirk v. Miller, 869 N.E.2d 534 (Ind. App.
2007),
the court held that, with waivers, a lawyer could represent both the
seller and purchaser of a tavern.
Note
especially, Baldasarre v. Butler, 625
A.2d 458 (N.J. 1993) (cannot represent both sides of "complex"
real estate sale, even with consent). Baldasarre is
about a lawyer who had done that very thing. One of the parties
sued the lawyer and his law firm and was awarded a judgment of almost $2
million. That whole sad story is told at the appellate court's
opinion, Baldasarre v. Butler, 604 A.2d 112 (N.J. Super. 1993).
Representing
Seller and Buyer of Farmland. Meyer v. Maus, 2001
N.D. 87 (2001). Lawyer malpractice proceeding. A lawyer
represented both the seller and buyer of farmland and evidently neglected
to recommend that the attorney-in-fact for the seller seek other
counsel. The court held that the jury was justified in finding that
the lawyer's conduct "constituted legal malpractice, a conflict of
interest, and a breach of a fiduciary duty." However, the court
affirmed the trial judge's finding that the plaintiff had not shown that
the conflict was the proximate cause of any damages to the plaintiff.
Liability for Representing Both Sides of
Asset Sale. Sitar v.
Sitar, 2008 N.Y. App. Div. LEXIS 2964 (N.Y. App. April 1, 2008).
Lawyer represented both sides in asset sale. Sued for not informing
one client about other client's information. Granting of motion to
dismiss reversed.
Confidences.
For an
expanded discussion of dealing with client confidences in multiple
representations, see Part A of
the section entitled "Joint/Multiple
Representation."
Therefore, the short answer to the
opening question is "maybe." The lawyer must be diligent
about explaining to the clients about potential conflicts and about
dealing with confidences. The lawyer must also take a realistic view
about the application of Model Rule 1.7; that is, the lawyer must
"realistically believe" that "the representation will not
be adversely affected," and the client must consent "after
consultation." If the lawyer does all those things, and is
honest, the chances for professional discipline are slight.
Caution! Discipline is only
part of the story. The author's experience at ALAS, as well as his
post-ALAS experience, is that whenever a lawyer represents more than one
party in a transaction, that lawyer is in substantial danger of a
malpractice claim. No matter how careful and diligent the lawyer has
been, a disadvantaged client will have a potent claim for a jury.
You will not usually read about these situations in cases; they are almost
always settled because they are so dangerous.
Law Review.
Ze’-ev Eiger
& Brandy Rutan, Conflicts of
Interest: Attorneys Representing Parties with Adverse Interests in the
Same Commercial Transaction, 14 Geo.
J. Legal Ethics 945 (2001)
.
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