Ethical Boundaries When Serving as Business Partner and Lawyer

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Written by Kelsey Jae Nunez, Kelsey Jae Nunez, LLC

Thanks to social media, I’ve seen many inspiring videos about creative new businesses that focus on building community. Recently, I learned about Fleet Farming, a company whose team travels the town on bikes converting lawns into gardens.[1] I’ve seen documentaries about urban greenhouses and food hubs, portable shower trucks and tiny-home villages for the homeless, bicycle-pickup compost services, manufacturing furniture with repurposed plastic . . . awesome ideas! As I’m watching, I start wishing that we had these companies in my town. I think to myself, “Who do I know that could do this? What organizations out there could take this project on? Is there a business model that would work here?” This naturally leads to me pondering my role in encouraging social enterprises in our developing cooperative and sharing economy. As a lawyer creating a new niche practice, what can I do to act as a catalyst?  And, when projects start taking shape, what are the ethical liabilities associated with acting as a deal maker and attorney?

Janelle Orsi’s book, Practicing Law in the Sharing Economy,[2] is a great source of knowledge and inspiration, and one of the key points that stood out to me in the early chapters is the need to educate the community on what a cooperative and sharing economy can look like. Building a practice requires communicating your value and drawing people to your services. I know many compassionate and brilliant people making this community better, but due to various circumstances they are stuck in conventional models of adversarial negotiations and top-down hierarchical working relationships. Turning these people into my clients is more than “rainmaking” - it becomes its own form of community building.

As pollinators of this movement, we can emulate what the Sustainable Economies Law Center does in the Bay Area in our own communities by hosting public workshops or teaching community education programs. My long list of things-to-do includes putting together a series that I will teach in Idaho in various formats, and I hope that this will generate interest in the cooperative and sharing economy and spin off some paid work for me. While teaching courses is a significant way of stimulating the creation of new social enterprises, there’s not a lot of control over what information will sink in and how it will be used.

Taking this engagement to the next level can include working to put together a team and a business deal: coming up with an idea (or adapting one from other communities), identifying who in the community would work well together to make that happen, and then orchestrating the delicate and exciting dance of project implementation. Something a few colleagues and I are working on in Boise is creating a “who’s who” of the green scene and analyzing unfinished projects or ideas that haven’t taken off yet - we are exploring whether we can facilitate a matchmaking climate and take a leadership role in getting some profitable and beneficial projects off the ground.

As the attorney in the group, it is likely that I will be asked to do legal work associated with entity formation and regulatory compliance for these new ventures. I’d be glad to, of course! As I mentioned, I know that building a community of clients is an important part of building my practice. But there is a potential for conflicts of interest when an attorney goes into business with a client or, as often happens when funds are scarce, exchanges legal work for an ownership interest in a company the attorney helps start. Sustainable economy lawyers who will navigate the role of project facilitator, attorney, and owner should be aware of their state’s version of Model Rule of Professional Conduct 1.8.[3] Rule 1.8(a) states:

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 advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel in the transaction; and

  3. The client gives informed consent, in writing signed by the client, to the essential terms of the transaction and the lawyer’s role in the transaction, including whether the lawyer is representing the client in the transaction.[4]

This rule is designed to protect clients/business owners from lawyers that overreach or take advantage of the power that comes with legal skills and gaining the client’s trust and confidence. The biggest risk to the client is that the lawyer’s financial interest would cause the lawyer to structure the transaction or give legal advice that favors the lawyer’s interest at the expense of the client. A related rule is Rule 1.8(b), which prohibits a lawyer from using information relating to the representation of a client to the disadvantage of that client unless the client gives informed consent, or the rules otherwise permit or require it.[5] For example, when a lawyer who knows his client seeks to purchase and develop certain property purchases it himself to profit from the sale.[6]

These rules are reasonable restrictions on potentially sticky relationships because they emphasize good intentions, honesty, open communication, and consent. If we continuously check in with ourselves to ensure we are not misusing information and everyone we are working with is fully informed and being treated fairly, sharing economy lawyers can leverage our business savvy and legal skills to create new partnerships that will benefit us and our community. As we learn and create with our community of clients, we can spread the knowledge we gain together to facilitate even more social good. These ethical boundaries are useful and completely manageable in the sharing and cooperative legal community we are building.

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1. http://fleetfarming.com/.

2. Janelle Orsi’s book, Practicing Law in the Sharing Economy, was published by the American Bar Association in 2012 and has changed my life! If you don’t have a copy, it’s available at http://www.theselc.org/book.

3. I’ll save how to overcome hesitancy from entrepreneurs who view lawyers as overly-cautious impediments for another conversation. See e.g., Alison R. Weinberg and Jamie A. Heine, Counseling the Startup: How Attorneys Can Add Value to Startup Clients’ Businesses, 15 J. Bus. & Sec. L. 39 (Fall 2014).

4. Model Rule of Professional Responsibilty 1.8, available at http://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_1_8_current_clients_specific_rules.html. Comments explaining the rule are available at http://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_1_8_current_clients_specific_rules/comment_on_rule_1_8.html.

5. Id.

6. Note that the rule does not prohibit the lawyer from using information in a way that does not disadvantage the client (or violate confidentiality), such as learning about pending legislation during a representation and letting other clients know.

(Image Credit: johnhain via Pixabay.com)