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Lawyers – Do You Want to Do Business With Your Client? Read This First!

On Behalf of | Feb 1, 2019 | Legal Malpractice

Some lawyers think the California Rules Of Professional Conduct prohibit them from doing business with clients. However, lawyers are free to engage in business transactions with clients if they follow three simple rules set forth in California Rule of Professional Conduct, rule 1.8.1:

1. the business transaction must be fair and reasonable;

2. the client must be represented in the transaction by independent counsel chosen by the client, or the client must be advised in writing to seek the advice of an independent lawyer of the client’s choice and is given a reasonable opportunity to seek that advice; and

3. the client must provide informed written consent to the terms of the transaction and the lawyer’s role in it.

The final rule requires the lawyer to prepare a document for the client’s signature, explaining the relevant circumstances of the transaction; the material risks (including actual and reasonably foreseeable adverse consequences of the proposed course of conduct) and the lawyer’s role in the transaction (e.g., the lawyer will be an investor in the client’s business and will own 20 percent of the outstanding stock).

Lawyers should not enter business transactions with clients who they fear will turn on them if the transaction goes badly for the client. Juries and judges have a bias against these deals and will scrutinize them carefully.

Mark Wilson, a trial attorney, has won nearly every case he has tried or arbitrated. He lost only one jury trial and obtained a complete reversal on appeal. Mr. Wilson represents clients in business litigation and legal malpractice cases and was named in the 2019 Super Lawyers Top 50 Orange County list and the 2019 Super Lawyers Top 100 Southern California list. Mr. Wilson is a California State Bar certified specialist in Legal Malpractice Law.