CBA Record November 2016

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CBA RECORD 35
Overcoming the Presumption of Undue
Influence
The motivation behind the language of
Rule 1.8(a) appears to focus on protecting
clients’ legal and business interests. The
rule, however, provides a framework for a
lawyer to meet his or her burden of proof
that the transaction was fair, equitable,
and just, and that the benefit did not
proceed from the lawyer’s undue influ-
ence. McGarry, Thomas P. and Sukowicz,
Thomas P., “Investing in a Client’s Business
is Risky Business.” Chicago Lawyer Maga-
zine, November 2004. A lawyer can actu-
ally use Rule 1.8(a) to protect himself or
herself by establishing, in writing, that the
terms of the investment transaction were
fair and reasonable, that the client received
advice from independent legal counsel, and
that the client gave informed consent to the
essential terms of the investment transac-
tion (Ill. R. Prof. Conduct 1.8(a)(1)-(3)).
This creates evidence that the investment
transaction was not a product of undue
influence.
Rule 1.8 does not define what would
make an investment agreement between
an attorney and a client “fair and reason-
able,” yet that phrase is also used in Rule
1.5, which provides the factors to deter-
mine whether an attorney’s fee is “fair and
reasonable.” Hartley, Joseph M., “A Piece
of the Action: The Promises and Perils of
Taking an Interest in a Client’s Company.”
GPSolo Magazine, April/May 2004. Those
factors include: (1) the time and labor
required, the novelty and difficulty of the
questions involved, and the skill requisite
to perform the legal service properly; (2)
the likelihood, if apparent to the client,
that the acceptance of the particular
employment will preclude other employ-
ment by the lawyer; (3) the fee customarily
charged in the locality for similar legal
services; (4) the amount involved and the
results obtained; (5) the time limitations
imposed by the client or by the circum-
stances; (6) the nature and length of the pro-
fessional relationship with the client; and (7)
the experience, reputation, and ability of the
lawyer performing the services. The inquiry
into whether an attorney’s fee is “fair and rea-
sonable” requires a thorough understanding
of the legal marketplace and the nature of
the matter. A similar understanding of the
proposed terms of the lawyer’s investment
into the client’s business would also be wise.
Therefore, concluding that an investment
transaction is “fair and reasonable” is not
simple. To determine whether an attorney’s
investment deal in a client’s business is fair, a
number of public and private circumstances
must be taken into consideration for both
the attorney and the client.
In regard to “full disclosure,” best
practices would call for the attorney to
UPDATE YOUR PROFILE
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Rule 1.8: Conflict Of Interest: Current Clients: Specific Rules
(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership,
possessory, security or other pecuniary interest adverse to a client unless:
(1) The transaction and terms on which the lawyer acquires the interest are fair and reasonable to
the client and are fully disclosed and transmitted in writing in a manner that can be reasonably
understood by the client;
(2) The client is informed inwriting that the client may seek the advice of independent legal counsel
on the transaction, and is given a reasonable opportunity to do so; and
(3) The client gives informed consent, in a writing signed by the client, to the essential terms of the
transaction and the lawyer’s role in the transaction, includingwhether the lawyer is representing
the client in the transaction.