When a lawyer goes into a partnership with a friend and drafts the agreement, must the lawyer advise the friend to get independent legal advice?

Plain-English summary

An attorney and a non-lawyer friend agreed to form a partnership to buy a parcel of vacation property for their private use, with the attorney agreeing to draft the partnership agreement. The friend, relying on the attorney's expertise, assumed he was in the position of a client. At execution, the friend had reservations about certain provisions but signed after the attorney said "they will be able to work things out later"; the friend never sought, and was never advised to seek, independent legal advice. A dispute later arose, and the friend appeared to be prejudiced by the operation of one of the provisions he had questioned. The inquiry asked whether the attorney had an obligation to advise the friend to seek independent legal advice.

The committee said the inquiry was controlled by Canon 5 and specifically DR 5-104(A), under which a lawyer shall not enter a business transaction with a client where they have differing interests and the client expects the lawyer to exercise professional judgment for the client's protection, unless the client consents after full and adequate disclosure and the transaction is not unconscionable, unfair, or inequitable when made. For the rule to apply, the friend's role had to be that of a client. The committee said the existence of an attorney-client relationship is a fact-based determination shown by many factors, and on the limited facts presented it would not assume that such a relationship existed. It opined that if the facts supported a finding that an attorney-client relationship existed, the attorney should have made full and adequate disclosure of the differing interests in the partnership agreement and that the client should seek independent legal advice before signing.

Currency note

This opinion was issued in 1988, under Virginia's former Code of Professional Responsibility (the disciplinary rule it cites), before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. As the committee note observes, current Rule 1.8(a) bars a lawyer from entering a business transaction with a client unless the client is given an opportunity to seek independent advice and there has been full disclosure and written consent. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Must a lawyer entering a partnership with a friend advise the friend to get independent counsel?

A: Under this 1988 opinion, that duty turned on whether an attorney-client relationship existed. If it did, the committee said the lawyer should have disclosed the differing interests and advised the friend to seek independent legal advice before signing.

Q: Did the committee decide whether a client relationship existed here?

A: No. The committee said that is a fact-based determination shown by many factors, and on the limited facts presented it would not assume an attorney-client relationship existed.

Background and rules framework

The opinion interpreted former Virginia DR 5-104(A) (business transactions with a client where interests differ), under Canon 5 of the Code. The current analog is Rule 1.8(a), the counterpart of ABA Model Rule 1.8(a); as the committee note records, it requires an opportunity to seek independent advice plus full disclosure and written consent.

Citations and references

Rules of Professional Conduct:

• Former Virginia DR 5-104(A) (business transactions with a client where interests differ)
• ABA Model Rule 1.8 (business transactions with clients)

See also

• VA LEO 1072: Title Insurance Through a Firm-Affiliated Agency
• VA LEO 1489: Lawyer Borrowing From a Client
• VA LEO 1593: Taking Client Stock as a Fee

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1041.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Committee Opinion
February 19, 1988
LEGAL ETHICS OPINION 1041

ATTORNEY/CLIENT – ENTERING
BUSINESS TRANSACTION WHEN
DIFFERING INTERESTS EXIST.

Your letter presents the following fact situation for the Committee's consideration: Attorney and a nonlawyer friend agree to form a partnership for the purpose of purchasing a parcel of vacation property for their private use. The attorney agrees to draft the partnership agreement. The friend, relying upon the attorney's expertise, assumes that he is in the position of a client. At execution, the friend has reservations regarding certain provisions of the agreement, but signs it after the attorney represents that “they will be able to work things out later.” At no time did the friend seek or was advised to seek independent legal advice. Recently, a dispute has arisen between the two parties and it appears that the friend may be prejudiced because of the operation of one of the provisions of the agreement that he had reservations about at the execution. Your inquiry is whether the attorney had an obligation to advise the friend to seek independent legal advice. Your inquiry is controlled by Canon 5 of the Virginia Code of Professional Responsibility. Specifically, Disciplinary Rule (DR) 5-104(A) [DR:5-104], provides that: A lawyer shall not enter into a business transaction with a client if they have differing interests therein and if the client expects the lawyer to exercise his professional judgment therein for the protection of the client, unless the client has consented after full and adequate disclosure under the circumstances and provided that the transaction was not unconscionable, unfair or inequitable when made. In order for this provision to be applicable, the role of the friend must be construed as that of a client. The existence of an attorney-client relationship is a fact-based determination and can be evidenced by many different factors. In this case, based on the limited number of facts that you have presented, the Committee will not assume that an attorney-client relationship existed. The Committee opines that if the facts support a finding that an attorney-client relationship existed, then the attorney should have made full and adequate disclosure of the fact that he and the client may have differing interests in the partnership agreement and that the client should seek independent legal advice prior to signing the agreement. Committee Opinion February 19, 1988 Legal Ethics Committee Notes. – Under Rule 1.8(a), a lawyer may not enter into a “business transaction” with a client unless the client is given an opportunity to seek independent advice, and there has been full disclosure and consent in writing.