A lawyer is asked by a group of investors to serve as an intermediary to help them form a new limited liability company (LLC) where each investor will hold different percentages of ownership and have varying responsibilities. The lawyer has no prior relationship with any of the investors. To properly fulfill the role of intermediary, the lawyer must first:
- AObtain informed consent from each investor for the common representation, confirming no conflicts exist.
- BDetermine the fair market value of each investor's contribution to ensure equitable distribution.
- CDraft the operating agreement reflecting the investors' initial discussions.
- DAdvise each investor to seek independent legal counsel before proceeding.
Show answer & explanationAnswer & explanation
Correct answer: A. Obtain informed consent from each investor for the common representation, confirming no conflicts exist.
When acting as an intermediary, a lawyer represents multiple clients in a common matter. A crucial first step is to ensure that common representation is permissible under the rules of professional conduct, which requires obtaining informed consent from each client, confirming that no unmanageable conflicts of interest exist, and explaining the implications of common representation.
Why the other options are wrong
- B. Determining valuation is a business decision for the clients, not the lawyer's primary responsibility as an intermediary.
- C. Drafting documents without informed consent and conflict assessment is premature and potentially unethical.
- D. While advising independent counsel might be necessary if conflicts arise, the initial step is to determine if common representation is possible with informed consent.
Lawyer as Intermediary: Initial Requirements
Before acting as an intermediary for multiple clients, a lawyer must ensure that common representation is permissible, which involves obtaining informed consent from each client and confirming that no conflicts of interest preclude such representation.
- Requires informed consent from all parties.
- Must reasonably believe common representation is possible.
- No adverse effect on attorney-client privilege between clients.
Memory trick: Intermediaries Initiate Informed Inclusion.