CONFLICTS OF INTERESTSCONFIDENCES OF A CLIENTAn attorney may not represent one partner of a partnership in a suit against the other partner arising out of the partnership relationship where the attorney originally prepared the partnership agreement, acted for both partners in the later sale of the business, and acted as trustee for both in the completion of the partnership's affairs.
Canon 6, 34.
The attorney for client A prepares an employment contract by which A is to hire E to act as manager of retail business A anticipates purchasing. Prior to signing of the contract a third party enters into negotiations and a three party partnership is discussed. The attorney prepares a partnership agreement at As request. Subsequently, the negotiations are concluded with A and E becoming partners in the business and the third party dropping out. At As request the attorney prepares the two party partnership agreement. A and E each put up one-half of the money. E is to act as full time manager, with A taking no active part in the business.
During the operation of the business some unusual financial dealings are discovered. A and E decide to sell the business, the attorney is employed to prepare the contract of sale to a third party purchaser. The attorney is also designated a trustee to collect all money due the business and to disburse it to the business's creditors.
The attorney and A have had a close relationship for several years. At all times the attorney is looked upon as attorney for A. E does not have an attorney of his own so far as is known. Both A and the attorney consider the attorney as having represented only A and not E. However, the attorney also advised E in connection with several small matters arising in the business.
There is evidence that E might be responsible to A for damages arising from Es operation of the business, and a lawsuit by A against R is contemplated. Would there be a conflict of interests in violation of the Canons of Ethics if the attorney were to represent A in a lawsuit against E?
Although the attorney was first employed by A only, he subsequently prepared the partnership agreement, acted for both partners in the sale of the business, and acted as trustee for both in the completion of the partnership affairs. Thus the attorney represented both A and E in the partnership relations from its formation, probably being paid with partnership funds. The relation of the attorney to both A and E is such that it would be a violation of Canon 6 if he should represent either A or E in a lawsuit growing out of the partnership relationship. (See Opinion 176.) (8-0.)
Two members also expressed the view that the attorney probably would also violate Canon 34 regarding maintenance of confidences of a client if he should represent A in any lawsuit, arising from the transaction in question.