Be careful when doing business with clients.

Because attorneys are sometimes perceived as legal representatives in situations where they are merely participants, they must be cautious about becoming involved with clients in business ventures.

Potential for Malpractice Claims.

Legal malpractice claims are frequently made against lawyers involved in business transactions, whether or not the lawyer was representing a party to the transaction. The lawyer’s professional judgment is often alleged to have been affected by his business interest in the transaction. Most of these disputes are messy and often involve allegations of conflict of interest by claimants not represented by the lawyer. Not surprisingly, most often these claims arise from unsuccessful business transactions.

Possible Disciplinary Action.

Business dealings with clients often result in grievance complaints. Rule 1.08 of the Texas Disciplinary Rules of Professional Conduct prohibits certain transactions as involving unacceptable conflicts of interest that cannot be waived. A transaction between client and lawyer should be fair and reasonable to the client, and review of the transaction by independent counsel is wisely recommended.

How to Limit the Risk of Both.

If you decide to do business with your client despite the risks, we recommend:

• Do not also act as the lawyer for the venture or any party with an interest in it.
• Inform your clients or former clients in writing that you are not acting as their attorney or the attorney for the business venture.
• Explain potential conflicts to all parties in writing and advise them to seek independent counsel about the business deal.
• Determine if others involved in the business deal might think that you are acting as their lawyer. If so, inform them in writing that you do not represent them or their interests.
• Budget sufficient funds to defend yourself and pay any judgment if the business venture is unsuccessful. Most lawyers’ professional liability policies exclude coverage for malpractice claims in which the lawyer was doing business with the client.
• Do not buy property from a client unless an independent appraisal is obtained with the appraiser chosen by the client.
• Do not borrow money from a client.
• Do not loan money to a client.

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