June 6, 1995
A law firm may undertake representation to document a sales transaction which has been independently negotiated between a seller and purchaser who are both current clients of the law firm, if the relationship with the clients will not be adversely affected and both clients consent after consultation.
If a lawyer "of counsel" to the law firm is an estate fiduciary representing the majority ownership interests of the seller in the particular transaction, the law firm may not undertake representation to document the sale, even if the "of counsel" subsequently withdraws as estate fiduciary.
If the law firm has previously represented the fiduciary in matters involving the estate which is interested in selling the assets, the law firm may not undertake representation to document the sale for the seller and purchaser.
References: MRPC 1.7, 1.10(a), 2.2; R-10; RI-90, RI-102, RI-139, RI-194; CI-472.
A law firm has for several years represented two separate clients, each engaged in the construction business. One client is a corporation involved in commercial construction. The other client is a partnership involved in multi-family residential construction.
The partnership is composed of two corporations. The majority shareholder owner of each partnership corporation is now deceased, such that the controlling interest in the partnership now rests with the decedent's estate. The estate personal representative is a retired partner of the law firm, who remains with the law firm in an "of counsel" capacity; the law firm has appeared in probate court on behalf of the estate fiduciary.
The beneficiaries of the estate and the personal representative now desire to sell certain partnership assets to the corporation client. The economic terms of the transaction have been negotiated between the partnership and the corporation with the participation of personal representative in a fiduciary capacity but without participation of counsel. The parties now seek counsel to document the terms of the transaction.
The law firm asks whether it may represent the purchaser corporation in documenting the transaction under the following circumstances:
- Separate counsel would be retained to represent the interests of the partnership, the two partnership corporations, and the estate beneficiaries.
- The purchasing corporation would retain separate counsel to advise it on the issue of conflict waiver.
- All parties to the transaction would consent to the law firm's representation of the purchasing corporation in the matter after consultation with separate counsel.
- The terms of the transaction would be presented to the probate court for approval, and the consent of all estate beneficiaries.
MRPC 1.7 states:
"(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless:
"(1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and
"(2) each client consents after consultation.
"(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests unless:
"(1) the lawyer reasonably believes the representation will not be adversely affected; and
"(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved."
In this fact situation the inquiring law firm has three current clients: the selling partnership which the firm has represented on unrelated matters; the purchasing corporation which the firm has represented on unrelated matters; and the estate fiduciary whom the firm has represented in probate. In resolving conflict of interest questions involving multiple clients and multiple lawyers, it is useful to view the situation from the perspective of the "most tainted" lawyer in the firm. Under MRPC 1.10(a), conflicts arising under MRPC 1.7 are imputed to all members of the law firm. If the proposed representation could be undertaken by the "most tainted" lawyer in the firm, it could be undertaken by another lawyer in the firm.
If the fiduciary "of counsel" could not ethically undertake the documentation representation directly, neither can any other member of the law firm. RI-102, RI-194. The fiduciary is a member of the law firm, in an "of counsel" capacity. For an "of counsel" designation to be proper, "the relationship must be a close, regular, personal one, involving frequent contact, similar to that of a retired or semi-retired partner who remains available to the firm for consulting and advice." CI-472, RI-90.
As pointed out in R-10, an estate fiduciary has statutory duties to fulfill for the benefit of the estate and makes decisions to maximize and preserve the assets of the estate, and to resolve claims. As fiduciary of the majority shareholder of the partnership corporations, the "of counsel" has made decisions in the best interests of the estate, including decisions favoring the sale of the partnership assets which the decedent controlled. The estate fiduciary, we are told, "participated substantially" in the sale discussions. The fiduciary has therefore acted to ensure that the sale terms are to the advantage of the selling partnership.
Under MRPC 1.7(b), the fiduciary duties of the "of counsel" lawyer materially limit the "of counsel's" ability to undertake the representation to document the sale for the seller and purchaser. The seller and the purchaser are on opposite sides of the transaction. Having already represented the interests of the seller in determining the terms of the transaction, even though this "representation" was in a fiduciary capacity and not as counsel for the estate, the "of counsel" lawyer could not now switch sides and purport to impartially document the transaction for both parties. The conflict is not vitiated by the involvement of the probate court, since the estate fiduciary is responsible for recommending the matter to the court and is not impartial.
The test for satisfying MRPC 1.7(b)(1) is whether a lawyer could or could not reasonably believe that the circumstances would not adversely affect the relationship with the other client is often stated as whether "a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances . . . ." A disinterested lawyer could not reasonably believe the documentation representation would not be adversely affected by the "of counsel's" fiduciary duties, and thus MRPC 1.7(b)(1) would not be satisfied. Client consent would not vitiate that conflict.
Since the "of counsel" lawyer could not undertake representation of the purchasing corporation while simultaneously acting as fiduciary for the selling interests, neither may any other member of the firm represent the purchasing corporation. MRPC 1.10(a).
Even if the proposed representation is seen as merely documenting the arrangements already agreed upon, a direct conflict is presented under the terms of MRPC 1.7(a). We note that the law firm represented the estate fiduciary in probate matters. The proposed sale transaction involves assets of the very estate in which the law firm delivered representation to the fiduciary. The law firm would be representing one client, the purchasing corporation, in a transaction directly adverse to two other clients, the selling partnership and the estate fiduciary. Although the selling partnership and the estate fiduciary may be in agreement concerning the sale of assets to the purchasing corporation, the fact that both the selling partnership and the estate fiduciary are current clients of the law firm exacerbates the law firm's conflict in documenting the transaction impartially and independently for all parties.
The standard under MRPC 1.7(a)(1) is distinctively different than that under MRPC 1.7(b)(1), in that a disinterested lawyer must reasonably believe the relationship would not be adversely affected. It would seem that all parties would be desirous of wrapping up the transaction which had been negotiated. Both the seller and the purchasing parties have developed confidence and trust in the law firm's services in unrelated matters. Participation of trusted counsel in preparing the paperwork for a completed transaction, without providing advice or counsel to either party may enhance, rather than hinder, the relationship between clients and counsel.
If this analysis is an accurate assessment of the relationship between the law firm and the current clients, then MRPC 2.2 would allow the law firm to document the transaction with the knowing consent of the clients under MRPC 1.7(a)(2). The law firm must disclose both the conflict and the possible ramifications resulting from a waiver of the conflict, so that the clients can both make informed decisions on the waiver issue.
Therefore, since the estate fiduciary is "of counsel" to the law firm, the law firm may not ethically undertake the documentation representation. Although the law firm might be able to undertake the documentation representation if the estate fiduciary were not "of counsel" to the firm, the participation of the firm member as fiduciary acting in the transaction prohibits the firm from documenting the transaction on behalf of all parties. Neither screening the "of counsel" lawyer from the documentation representation nor withdrawal of the "of counsel" as estate fiduciary would cure the conflict that has already arisen. RI-139. If no member of the law firm had been involved in this transaction on behalf of the seller, the law firm could have undertaken the documentation representation with the informed consent of the partnership and the purchasing corporation.