Lawyer as Business Advisor: Ethics and Conflicts of Interest, Slides of Commercial Law

Download Lawyer as Business Advisor: Ethics and Conflicts of Interest and more Slides Commercial Law in PDF only on Docsity! Role of the Lawyer Business Advisor Docsity.com Opportunities as Business Lawyer • Firm: Transactional vs litigation; Face time with Client; Billable hours; Long hours; Exit strategy • Temp Agencies: Project driven; Good for initial contact; Paralegal-legal work; limited to no access to clients • In-House Counsel: 9-5, One client, variety of work-Employment, IP, Contract, Tax, Litigation Management (outsourced) • Government: SEC, NASD, arbitration/mediation Docsity.com Tips on Billing Remember: - No ugly surprises - You can bear some risk - Efficiency is far more important than guarantees - Above all, make a fair deal - Never count the client’s money Docsity.com Question A brings in 70% of business but bill only 10% B brings in 30% of business but bills 35% C brings in 0 business but bills 55% Q: Who is the most valuable? Q: What formula should use for income? A should get 30% B should get 50-70% C should get 0-20% Docsity.com Role of the Lawyer Part 2: Assessing Ethical Conflicts Docsity.com ABA Formal Opinion 91–361 Multiple Representation • Explain up front in writing role and counsel for entity, and not to individuals; • Follow-up questions with discussion of implications of dual representation with governing body; • Default in the event of a conflict. • Obtain informed consent of the entity and individual partners. Docsity.com Dual Representation-Bottom Line Full disclosure and informed written consent Goal is to minimize disruption and cost later so avoid potential conflicts now. All the qualifiers will only be effective if the client understands the limits of representation. Do not want to inadvertently have to disclose information in capacity as director that you had knowledge of as the attorney. Docsity.com Lawyer as Director, Officer, Investor • Threshold Question: Why? • May compromise attorney-client privilege • May hinder independent professional judgment • May trigger conflicts of interest that may disqualify lawyer role • Ethical “fair and reasonable” standard for any equity as payment for legal services Docsity.com Rule 1.9: Duties To Former Clients (a)A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing. (b) A lawyer shall not knowingly represent a person in the same or a substantially related matter in which a firm with which the lawyer formerly was associated had previously represented a client (1) whose interests are materially adverse to that person; and (2) about whom the lawyer had acquired information protected by Rules 1.6 and 1.9(c) that is material to the matter; unless the former client gives informed consent, confirmed in writing. Docsity.com Rule 1.9: Duties To Former Clients (c) A lawyer who has formerly represented a client in a matter or whose present or former firm has formerly represented a client in a matter shall not thereafter: (1) use information relating to the representation to the disadvantage of the former client except as these Rules would permit or require with respect to a client, or when the information has become generally known; or (2) reveal information relating to the representation except as these Rules would permit or require with respect to a client. Docsity.com Dual Representation-Bottom Line Full disclosure and informed written consent Goal is to minimize disruption and cost later so avoid potential conflicts now. All the qualifiers will only be effective if the client understands the limits of representation. Do not want to inadvertently have to disclose information in capacity as director that you had knowledge of as the attorney. Docsity.com How to Invest If Must 1. Impose firm controls; 2. Avoid direct investing by firm; 3. Strictly limit the size of investments, e.g., $25,000–50,000 or 1–2% of the company; 4. Obtain a third-party valuation of the stock.; 5. Take all or the bulk of fees in cash; 6. Do not take stock for future services without vesting and termination provisions; 7. No insider trading; and 8. No resale. Docsity.com How to Invest If Must 1. Impose firm controls; 2. Avoid direct investing by firm; 3. Strictly limit the size of investments, e.g., $25,000–50,000 or 1–2% of the company; 4. Obtain a third-party valuation of the stock.; 5. Take all or the bulk of fees in cash; 6. Do not take stock for future services without vesting and termination provisions; 7. No insider trading; and 8. No resale. Docsity.com Attorney-Client Privilege • Rule 1.6 provides that “A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent.” • The exceptions to this rule include: 1) To prevent reasonably certain death or substantial bodily injury; 2) to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another; 3) to prevent, mitigate or rectify substantial injury to the financial interests or property of another caused by committing a crime or fraud; 4) to secure legal advice about the lawyer's compliance with the Code, and 5) to establish a claim or defense on behalf of the lawyer involved in a controversy with the client. Docsity.com Tips on Representing Different Types of Persons • Current or Former Business Partners: Preexisting agreements; Noncompete clauses; Other obligations; Judgments. • Strangers: Verification of assets, contributions, representations. • Spouses: Prenuptual and antenuptual agreements; estate planning issues • Family members: Interpersonal dynamics, estate planning issues Docsity.com Alternative 1 • The parties previously were in another business together in which one party sued the other party. The matter was settled out of court but left unresolved issues between the parties. One party has reluctantly agreed to multiple representations, but has not signed the consent form. The other party does not care because he intends to seek independent advice from his personal attorney anyway. Docsity.com Alternative 2 • The parties are married to each other, but carry on separate personal lives and have a prenuptial agreement that covers most aspects of their marriage and business. They have been in business for ten years together and the business has been very profitable. Neither has any problem with the attorney representing both of them and the entity, although the wife has confided that she intends to file for a divorce, but has not yet informed her husband. Docsity.com Goal Of Client Interview 1) Collect pertinent facts about the business transaction; 2) Identify any actual or potential conflicts that may arise in representing multiple clients; and 3) Identify who is the preferred client in the event that multiple representations is improper. Docsity.com Talking Tips • Get rid of all “lawyer-like” transitions - “therefore” “notwithstanding”, “whereas” … • Focus on objections and solutions, not rules and exceptions. • Summarize first your conclusions, then provide analysis. Don’t hide the ball, create suspense, or try to build to climax. • Try to just tell a story. • Use diagrams, charts - anything visual to help. • When possible, tell war stories. Docsity.com Steps in Analysis • Step 1: Consider if you have all pertinent information to make a decision. If no, then a conclusion is premature. • Step 2: Decide if there any current or actual conflicts between the parties. If yes, then you cannot represent multiple parties and the entity. • Step 3: Determine if there is informed consent. If no, then you cannot represent multiple parties. Docsity.com Goal Of Client Interview 1) Collect pertinent facts about the business transaction; 2) Identify any actual or potential conflicts that may arise in representing multiple clients; and 3) Identify who is the preferred client in the event that multiple representations is improper. Docsity.com Components of a Retainer Letter Goal: Include basics for informed consent. • Elements of contract: Salutation, Define scope of service, fee and retainer • Use of professionals: extend attorney-client privilege • Identify who is the client: confirm oral agreement • Outline potential conflicts: General subject areas • Your obligations as a lawyer: Avoid conflicts, exercise independent judgment. • Default: What happens when conflict arises. • Consent: Confirm scope of consent. • Follow-up: Answer questions • Affirmation of consent: Restate scope with client signatures Docsity.com Drafting Tips 1) Draft letter to all of the parties, identifying who will be the client, requesting consent. 2) Begin letter with a salutation that expresses interest in business and parties. 3) Include a separate acknowledgment and signature line. 4) Make litigation separate and billed hourly. 5) Include provision to hire experts, consultants and bill separately. 6) Include description of type of services provided. Docsity.com Sample Form Affirmation “We, the undersigned organizers of [name of entity] hereby ratify and confirm our agreement not to be represented personally as set forth in the retainer contract attached to this document, and we now confirm that at no point during the process of organizing [name of entity] did [lawyer] form an attorney-client relationship with any of us. Each of us were free at any point during this process to retain a lawyer to guard and protect our own personal interests, and the fact that we chose not to do so is not any evidence that we relied on [lawyer] for that purpose.” Docsity.com Revised Affirmation Client Acknowledgement and Consent: “ The undersigned have been fully advised of any potential or actual conflicts and agree to the proposal as set forth above. We understand that we have the right and have been advised to seek independent counsel on this and any other matters before signing and returning this authorization and consent. Our signatures below evidence our consent to permit Attorney to handle those matters discussed above.” Docsity.com Sample Language in Retainer “It will be necessary to discuss numerous issues with each of you as the process of forming [name of entity] takes place. I have already advised you that I have agreed to serve as the lawyer for the entity—I am not the lawyer for any of you in this transaction. As I told you during our initial conference, you have the right to engage another lawyer of your choosing to represent your personal interests in this matter. The fact that I discuss issues with you during the process of forming [name of entity] must not be interpreted by you as any indication that I am your lawyer or that I am guarding your own individual interest in this matter. Because I am not your lawyer, I have the right, and perhaps the obligation at times, to share any information you provide to me with the other entity organizers.” Docsity.com Basic Facts: Present COMPU SERVE D.B.A COMPU DEVICES  The company has annual revenues of $250,000, with operating expenses of $200,000.  They have reinvested their earnings back into the company.  They have a backlog of orders and are having difficulty completing deadlines, leading to high accounts receivables.  They do not have any written agreement and have been splitting everything 70-30.  Andrew has some patents on circuit integration that have a book value of $250,000. Docsity.com Basic Facts: Future COMPU SERVE D.B.A COMPU DEVICES  Andrew and Bob intend to hire 15 employees to work the assembly line in assembling the computer components, making $10.00-$15.00/hr.  They have been using contract labor for the most part, but decide it's time to build their operations.  Bob has been working on his own patents, which he hopes to complete testing in the upcoming year. Docsity.com