1. California’s professional standards
expressly prohibit lawyers from taking equity positions in client companies or
organizations.
2. Acquisition of stock in a client company in lieu of fees for legal
services creates a presumption of undue influence.
3. Generally, business clients are concerned that awarding their
lawyers stock in lieu of attorneys’ fees will heighten their lawyer’s focus on
their own self-interest and create divided loyalties.
4. Some policies for legal malpractice insurance exclude coverage for
legal malpractice claims in which the lawyer or law firm acquired an equity position in a
client company.
5. Some policies of legal malpractice insurance exclude coverage for
legal malpractice claims in which the lawyer or law firm acquired an equity position in a
client company which was outside the terms specified in the policy.
6. California’s ethics committee has opined that taking an
equity position in a client company creates an inherent conflict of interest and is
therefore prohibited.
7. In taking stock in a client company in lieu of attorneys’
fees, a lawyer should ensure that the transaction does not result in the collection of an
unconscionable fee.
8. Lawyer’s firm represents ABC Corp. Lawyer purchases 1,000
shares of ABC’s publicly traded stock on the New York Stock Exchange. This purchase
does not violate any professional obligations the attorney may have.
9. In order for rule 3-300 to apply to a financial transaction with a
client, the lawyer’s acquisition must be “adverse” to the client.
10. “Adverse” to the client means that the lawyer has
acquired the ability to summarily extinguish the client’s interest in the client’s
property.
11. A lawyer attempting to secure the payment of past due fees
through the acquisition of stock in the client company does not have to comply with rule
3-300.
12. A lawyer who intentionally entered into an agreement for an
unreasonable fee, which is not unconscionable, is subject to discipline in California.
13. The terms of a lawyer’s acquisition of stock in a client’s
company in lieu of fees must be fair and reasonable to the client.
14. A lawyer’s acquisition of stock in a client’s company
in lieu of fees does not have to be documented, since the face of the shares show the
amount of the stock and the client’s direction to issue the shares demonstrate the
client’s consent.
15. A lawyer who is acquiring stock in a client’s company in
lieu of fees must advise the client to seek the advice of an independent lawyer.
16. If a client does not have the advice of independent counsel about
a lawyer’s acquisition of stock in a client’s company in lieu of fees, the
lawyer is subject to discipline.
17. A client must consent, in writing, to a lawyer’s acquisition
of stock in the client’s company in lieu of fees in order for the lawyer to comply
with rule 3-300.
18. Some clients perceive giving stock in their companies to lawyers
in lieu of legal fees as a means of gaining access to legal services.
19. Giving lawyers stock in a client company in lieu of fees is a
benefit to the client because it enables the company to reserve operating cash.
20. Ethics opinions of other jurisdictions cannot be consulted for
guidance by California attorneys. |
