When parties anticipate a friendly commercial deal or business transaction, they may consider retaining the same attorney or law firm to handle all the associated legal work rather than each of them hiring their own counsel. Joint representation sounds efficient and financially sound, but the risk of legal malpractice or breach of fiduciary duty can be a real concern. While the parties may not have any disputes or concerns about each other going into the transaction, legal issues can arise at any time about which each party should have their own independent lawyer to advise them and to negotiate with the others to resolve differences.
Client interests in conflict
To ethically undertake representation of more than one party to a deal, each client should be meaningfully advised of what potential conflicts of interests exist should they share counsel and sign a knowing waiver of liability and acknowledgment of informed consent to the multiple representation. Without a frank verbal discussion, client understanding of what the waiver could mean may be insufficient. Ethics rules require “consent after consultation.”
Situations in which conflicts that are materially adverse among parties to a deal may arise include real estate development deals, construction projects, company mergers or acquisitions, real estate sales, commercial leases and many others.
Examples of issues that may develop during a transaction that can put the lawyer’s duty of client loyalty at risk:
- Boundary, land use or zoning dispute in a real estate development project
- Dispute about contract drafting, terms, adherence or interpretation
- Disagreement about financial issues
- Problem with real estate titling or easements
- Failure to advise a party to a deal that they should not complete the transaction or that they should renegotiate terms
- Failure to disclose all relevant information to all parties
- And many others
Can the lawyer exercise independent judgment for each client?
The crux of the malpractice risk is when a dispute develops, whose side will the lawyer take? How can they vigorously advocate for their clients who are suddenly at odds without taking a side? Is the lawyer motivated by a resolution that appears more lucrative for the attorney or law firm or do they favor one client over another? How can you negotiate for more than one side to a dispute? All these problems illustrate the potential harm to clients in multiple representation.
As the Minnesota Supreme Court put it in one case, “An attorney who undertakes to represent at the same time adverse parties in any type of legal relationship … clearly owes no lesser duty to each of his clients, and he must protect the interests of each as zealously as if their interests were his sole responsibility.” The court observed that the lawyer in that case “placed himself in a position which, by its very nature, made it more difficult for him to conform to the required standard of practice in protecting his clients’ interests.”
Of course, in such a situation, the attorney should withdraw and advise all parties to retain their own independent counsel to protect their interests. But when the lawyer continues to represent multiple parties, ignoring the conflicting interests, the duties of loyalty candor are at risk of violation, putting each clients’ financial and business interests at risk.
(The Minnesota case is Hill v. Okay Const. Co., Inc., available on Westlaw at 252 N.W.2d 107.)