By Andrew C. Hall and Matthew P. Leto
Lawyers often have opportunities to enter into a business arrangement with a client. Bad opportunities are easy. Don’t invest. But when potentially good investments present themselves, what is a lawyer obliged to do? As a lawyer, we must always look beyond positive financial benefits. Simply saying yes can expose a lawyer to malpractice claims, the voiding of the investment, and Florida Bar sanctions.
The Florida Supreme Court in The Florida Bar v. Kramer acknowledged that “[b]usiness dealings between lawyers and clients are fraught with conflict-of-interest problems [and] [h]uman nature makes such conflicts virtually inevitable notwithstanding a lawyer's good intentions.” To minimize problems that arise in this situation, Florida Bar Rule 4-1.8 provides the standard that a lawyer must follow when considering a business opportunity with a client. To satisfy the rule, each necessary step must be documented in writing.
First, the lawyer must ensure that the terms of the transaction are fair and reasonable to the client. Second, the client must be advised to engage independent legal counsel for the transaction. Finally, the client must provide informed consent. While the requirements of this rule may seem somewhat onerous, compliance not only protects the client, but also the lawyer.
Imagine, for example, that a lawsuit takes a negative turn and leads to a fractured attorney-client relationship. The client’s dissatisfaction will almost certainly spill over into the business relationship. That dissatisfaction may result in claims by the client that the lawyer used his or her position to overreach and create an unfair business relationship. Florida law provides that a lawyer has a fiduciary obligation to always protect their client’s interests. Because that obligation exists, “the measure of good faith which an attorney must exercise in such transactions is much higher than is required in business dealings where the parties trade at arm’s length.” Waldeck v. Marks, 328 So. 2d 490, 493 (Fla. 3d DCA 1976). Without written proof that a client was provided the opportunity to obtain independent legal advice, this burden becomes impossible to meet and the business agreement will be deemed unenforceable. See e.g. Mursten v. Caporella, 619 Fed. Appx. 832 (11th Cir. 2015). Beyond the loss of the business arrangement, The Florida Bar has not hesitated to sanction lawyers who violated the rule. The Florida Bar v. Doherty, 94 So. 3d 443 (Fla. 2012); The Florida Bar v. Kramer, 593 So. 2d 1040 (Fla. 1992).
This does not mean a lawyer should automatically refuse to engage in a business relationship with a client. Rather, a lawyer must always be cognizant of his or her professional responsibility to the client and understand that the attorney-client relationship must always be prioritized.
Andrew C. Hall is the founder and managing partner and Matthew P. Leto is a partner of Hall, Lamb, Hall & Leto, P.A., a Miami-based law firm specializing in complex corporate, business, and securities litigation. The firm can be contacted at 2665 S. Bayshore Dr., PH 1 Miami, FL 33133 (305) 374-5030 www.hlhlawfirm.com