business lawyers in the crosshairs: issues to spot and liabilities to avoid

Business Lawyers in the Business Lawyers in the Crosshairs: Issues to SpotCrosshairs: Issues to Spotand Liabilities to Avoidand Liabilities to Avoid

Presented by:Presented by:

Aaron E. HoffmanAaron E. Hoffman

Alison R. BostAlison R. Bost

Cyrus M. JohnsonCyrus M. Johnson

IntroductionIntroduction

• Business IntakeBusiness Intake

• Conflicts of InterestConflicts of Interest

• Avoiding Common Drafting Avoiding Common Drafting ErrorsErrors

Business IntakeBusiness Intake

• Engagement LettersEngagement Letters

- the Rules- the Rules

- the practical advantages- the practical advantages


• Who is your client?Who is your client?

- Who is authorized to act - Who is authorized to act for the corporation and for the corporation and direct the lawyer’s work?direct the lawyer’s work?


• Who is Who is notnot your client? your client?

- “I’m not your lawyer” - “I’m not your lawyer” lettersletters

- confidential information- confidential information


• What work will you do for the What work will you do for the client?client?

- description of scope of - description of scope of workwork


• What work will you What work will you notnot do for do for the client?the client?

- overly broad descriptions - overly broad descriptions of scope of workof scope of work

- “engagement creep”- “engagement creep”


• Should you accept the client Should you accept the client or matter?or matter?

- due diligence to screen for - due diligence to screen for unworthy clients: unworthy clients: incompetent, financially incompetent, financially weak, dishonestweak, dishonest


• A “hypothetical” – practical A “hypothetical” – practical analysis of certain business analysis of certain business intake issuesintake issues

Conflicts of Interest: Conflicts of Interest:

Rules ReviewRules Review

• Rule 1.7 – Current ClientsRule 1.7 – Current Clients

““a lawyer shall not represent a lawyer shall not represent a client if the a client if the representation involves a representation involves a concurrent conflict of concurrent conflict of interest”interest”



• A concurrent conflict exists if:A concurrent conflict exists if:““(1) the representation of one client (1) the representation of one client will be directly adverse to another will be directly adverse to another client; orclient; or

(2) there is a significant risk that the (2) there is a significant risk that the representation of one . . . client will representation of one . . . client will be materially limited by the lawyer’s be materially limited by the lawyer’s responsibilities to another client, a responsibilities to another client, a former client or a third person or by a former client or a third person or by a personal interest of the lawyer.” personal interest of the lawyer.”



• Current Clients – Rule of Current Clients – Rule of ThumbThumb

Cannot be adverse to a Cannot be adverse to a currentcurrent client in client in anyany matter matter without a waiver.without a waiver.



• Rule 1.9 – Former ClientsRule 1.9 – Former Clients

““A lawyer who has formerly A lawyer who has formerly represented a client in a matter represented a client in a matter shall not thereafter represent shall not thereafter represent another person in the same or a another person in the same or a substantially related matter in substantially related matter in which that person’s interests are which that person’s interests are materially adverse to the interests materially adverse to the interests of the former client” without a of the former client” without a waiverwaiver



• Former Clients – Rule of ThumbFormer Clients – Rule of Thumb

cannot be adverse to a cannot be adverse to a formerformer client in the client in the samesame matter or matter or a matter a matter substantially substantially relatedrelated to the matter(s) in to the matter(s) in which the lawyer/firm used to which the lawyer/firm used to represent the former client.represent the former client.



• Former clients – when are Former clients – when are matters substantially related?matters substantially related?

-- same transaction or legal same transaction or legal disputedispute

- substantial risk that substantial risk that information learned during information learned during first representation would first representation would materially advance new client’s materially advance new client’s positionposition

Conflicts of InterestConflicts of Interest

• Corporate Family ConflictsCorporate Family Conflicts

- General rule: corporate - General rule: corporate affiliates affiliates notnot treated as one treated as one and the same for conflicts and the same for conflicts purposes ABA Formal Op. 95-390purposes ABA Formal Op. 95-390

- - UnlessUnless there is some reason there is some reason to treat them as one and the to treat them as one and the samesame


• Corporate family issuesCorporate family issues

- any agreement with client, e.g., - any agreement with client, e.g., outside counsel guidelines?outside counsel guidelines?

- nature of work for corporate - nature of work for corporate client: for benefit of another client: for benefit of another entity, confidential information entity, confidential information of another entity?of another entity?


• Corporate family issues – cont’dCorporate family issues – cont’d

- relationship: alter ego?- relationship: alter ego? separate management? separate management? separate boards?separate boards? corporate formalities observed?corporate formalities observed? shared legal department?shared legal department? separate offices, business separate offices, business activities?activities?

ownership of sub’s voting stock?ownership of sub’s voting stock?



• Waivers – see Rule 1.7(b)Waivers – see Rule 1.7(b)

- lawyer must reasonably believe - lawyer must reasonably believe he can provide competent and he can provide competent and diligent representation to each diligent representation to each clientclient

- representation not prohibited- representation not prohibited

- cannot be on both sides in same - cannot be on both sides in same litigation or tribunal proceedinglitigation or tribunal proceeding



• WaiversWaivers- based on informed consent: - based on informed consent: what disclosures required?what disclosures required?

- confirmed in writing- confirmed in writing

- beware of representation - beware of representation beyond the scope of the waiverbeyond the scope of the waiver


• Future Waivers – ABA Formal Future Waivers – ABA Formal Opinion 05-436Opinion 05-436

- sophisticated client- sophisticated client

- separately represented by - separately represented by independent counselindependent counsel

- unrelated future matters- unrelated future matters

See also DC Ethics Opinion 309See also DC Ethics Opinion 309


• A “hypothetical” – lawyer for A “hypothetical” – lawyer for the deal/multiple the deal/multiple representation issuesrepresentation issues


• Joint/Multiple RepresentationJoint/Multiple Representation

(1) confidentiality?(1) confidentiality?

(2) what if a conflict develops?(2) what if a conflict develops?

(3) use of confidences of former (3) use of confidences of former joint client?joint client?


• Another “hypothetical” – Another “hypothetical” – litigating lawyer’s/firm’s litigating lawyer’s/firm’s own transactional workown transactional work


• Prospective ClientsProspective Clients

- confidential information- confidential information

- declination letters- declination letters

- screening?- screening?

A True StoryA True Storyfrom the Trenchesfrom the Trenches

• Donald Developer seeks new counsel Donald Developer seeks new counsel for a mixed-use real estate for a mixed-use real estate development, asks David Dealmaker development, asks David Dealmaker for representationfor representation

• Developer LLP and Co-Developer Developer LLP and Co-Developer Partnership, comprised of partners Partnership, comprised of partners Smith and Jones, to be equal Smith and Jones, to be equal partners in Sunshine Acres partners in Sunshine Acres Partnership, which would own Partnership, which would own development development


• First step – conflicts check: First step – conflicts check: how to classify parties?how to classify parties?

• Due diligence – any red flags?Due diligence – any red flags?

• Engagement letter – what should Engagement letter – what should be covered?be covered?


• Development plan – Developer to Development plan – Developer to contribute land ($5 million) and contribute land ($5 million) and cash ($5 million), Co-Developer to cash ($5 million), Co-Developer to contribute two parcels of land ($10 contribute two parcels of land ($10 million total), 50% share eachmillion total), 50% share each

• Land must have clear title, certain Land must have clear title, certain zoning, basic public utility access zoning, basic public utility access – if not, cash penalties or reduced – if not, cash penalties or reduced ownership shareownership share


• Co-Developer’s problems – mortgage Co-Developer’s problems – mortgage on one parcel and needed zoning on one parcel and needed zoning change for bothchange for both

• Co-Developer asked Dealmaker to Co-Developer asked Dealmaker to represent it in mortgage represent it in mortgage foreclosure and zoning matterforeclosure and zoning matter

• Time for penalties nearTime for penalties near


• What are the issues with What are the issues with representing Co-Developer?representing Co-Developer?

• Review and comments on Review and comments on waivers – Exhibits C, C-2, C-waivers – Exhibits C, C-2, C-3 and D3 and D


• Dealmaker resolved foreclosure Dealmaker resolved foreclosure matter for Co-Developer – Co-matter for Co-Developer – Co-Developer to obtain bank financingDeveloper to obtain bank financing

• Dealmaker unable to obtain zoning Dealmaker unable to obtain zoning changes for 1 of Co-Developer’s changes for 1 of Co-Developer’s parcels – default under parcels – default under partnership agreement, Co-partnership agreement, Co-Developer accepted reduced shareDeveloper accepted reduced share


• Golf course borders development – Golf course borders development – Dealmaker meets with owner to Dealmaker meets with owner to discuss possible acquisitiondiscuss possible acquisition

• Development project in trouble – Development project in trouble – Developer tells Dealmaker of another Developer tells Dealmaker of another developer who may want to buy whole developer who may want to buy whole project if golf course includedproject if golf course included

• Dealmaker concludes purchase of golf Dealmaker concludes purchase of golf course – straight cash purchasecourse – straight cash purchase


• Construction delays – partners Construction delays – partners must contribute more capitalmust contribute more capital

• Co-Developer failed to contribute Co-Developer failed to contribute – share reduced – share reduced

• Flippee offers to purchase project Flippee offers to purchase project – partners eventually agree – partners eventually agree


• Substantial profit to Substantial profit to Developer from saleDeveloper from sale

• Only small profit to Co-Only small profit to Co-Developer – greater profit if Developer – greater profit if it had not reduced its shareit had not reduced its share


• The Fall OutThe Fall Out

Co-Developer sues Developer and Co-Developer sues Developer and Law Firm – fraud, breach of Law Firm – fraud, breach of fiduciary duty and contract, legal fiduciary duty and contract, legal malpracticemalpractice

Golf course owner sues Developer Golf course owner sues Developer and Law Firm – fraud and breach of and Law Firm – fraud and breach of fiduciary dutyfiduciary duty


• The Fall Out – P.S.The Fall Out – P.S.

If any judgment against If any judgment against Developer, Developer will sue Developer, Developer will sue Dealmaker and Law FirmDealmaker and Law Firm

Common Drafting ErrorsCommon Drafting Errorsand How to Avoid Themand How to Avoid Them

• The Varied Species of Drafting The Varied Species of Drafting ErrorsErrors

The pure drafting bobbleThe pure drafting bobble

The failure to understand the The failure to understand the dealdeal

The conflict or bad client, The conflict or bad client, thrown in for spicethrown in for spice

The Pure Drafting BobbleThe Pure Drafting Bobble

• InattentionInattention

• Misuse of technologyMisuse of technology- dropping phrases between drafts- dropping phrases between drafts- cannibalizing a previous document, - cannibalizing a previous document, failing to recognize deal differencesfailing to recognize deal differences

• Failing to reconcile documents when the Failing to reconcile documents when the deal changes mid-streamdeal changes mid-stream

• Misuse of defined termsMisuse of defined terms

Failure to Understand Failure to Understand the Dealthe Deal

• Mistakes in formulas, e.g., prepayment Mistakes in formulas, e.g., prepayment provisionsprovisions

• Failure to include information in proxy Failure to include information in proxy statementstatement

• Failure to identify all inventors on a Failure to identify all inventors on a patentpatent

• Failure to provide for real estate tax Failure to provide for real estate tax payments in a leasepayments in a lease

The Conflict or Bad The Conflict or Bad ClientClient

• A recurring problem – trying to A recurring problem – trying to litigate your way out of your own litigate your way out of your own (alleged) mistakes(alleged) mistakes

• Allegations of divided loyaltyAllegations of divided loyalty

• The client who claims that changes The client who claims that changes in the deal had not been explainedin the deal had not been explained

ConclusionsConclusions

• Vet new clients and mattersVet new clients and matters

• Written Engagement LettersWritten Engagement Letters- identify client (and non-clients)- identify client (and non-clients)- scope of work – and update- scope of work – and update

• Careful with ConflictsCareful with Conflicts

• Involve risk management/loss Involve risk management/loss prevention expertsprevention experts

Aaron E. HoffmanAaron E. HoffmanAttorneys’ Liability Assurance SocietyAttorneys’ Liability Assurance Society

[email protected]@alas.com 312-697-6939312-697-6939

Alison R. BostAlison R. Bost

Womble Carlyle Womble Carlyle Sandridge & Sandridge & Rice, PLLCRice, PLLC

[email protected]@wcsr.com

336-721-3666336-721-3666

Cyrus M. JohnsonCyrus M. Johnson

Womble Carlyle Womble Carlyle Sandridge & Sandridge & Rice, PLLCRice, PLLC

[email protected]@wcsr.com

704-331-4923704-331-4923

business lawyers in the crosshairs: issues to spot and liabilities to avoid

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