Citation. Committee on Professional Ethics & Conduct of Iowa State Bar Asso. v. Mershon, 316 N.W.2d 895, 1982)
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Brief Fact Summary.
Respondent attorney is recommended for discipline in regards to his participation in a development deal with a client in which he accepted stock in the corporation in lieu of payment.
Synopsis of Rule of Law.
Attorneys should be very cautious about entering into business transactions with clients, doing so only after a full disclosure in situations in which each party has a “differing interest.”
Facts.
Respondent, Iowa attorney Mershon, served as personal attorney to local farmer Leonard Miller for 19 years. Miller wished to develop some of his farmland, but would not be able to pay for Respondents services or the services of the engineer he wished to help him develop it. In lieu of such fees, the three men agreed to form a corporation in which their services would be provided in exchange for shares in the property. The development deal fell through shortly before Miller’s death, however, and Respondent (who was also executor for his estate) was recommended to the board for discipline regarding his participation in the transaction.
Issue.
Was Respondent’s conduct here a violation of Iowa’s rule against going into business with clients when each party has “differing interests”?
Held.
Yes. Respondent and Miller clearly had “differing interests” here, in that Respondent’s fee was tied to the success of the corporation and he was effectively contracting to make himself a debtor of the corporation to ensure that his services would be performed. Miller also failed to make anything approaching the full disclosure required by the relevant Iowa rule. Reprimand recommended.
Discussion.
Attorneys should generally avoid going into business with their clients. Those willing to take this risk must recognize that courts will always view the transaction in the light most favorable to the client should the situation go awry.
