Legal Memorandum: Avoiding Interests Adverse to a Client

Issue: What actions on the part of an attorney satisfy the requirements of Rule 3-300 of the California Rules of Professional Conduct, and what is the effect of compliance with the rule vis-a-vis the contract?

Rule 3-300 sets forth the actions an attorney must take to satisfy its requirements.  The Rule provides:

A member shall not enter into a business transaction with a client; or knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to the client, unless each of the following requirements has been satisfied:

(A)       The transaction or acquisition and its terms are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner that should reasonably have been understood by the client; and

(B)       The client is advised in writing that the client may seek the advice of an independent lawyer of the client’s choice and is given a reasonable opportunity to seek that advice; and

(C)       The client thereafter consents in writing to the terms of the transaction or the terms of the acquisition.

In Kirsch v. Huber, 264 F.2d 387 (9th Cir. 1959), Kirsch, the owner of a large quantity of standing timber, retained a law firm to arrange for the logging and sale of the lumber, collect the sales proceeds, pay the bills and keep the books. 264 F.2d at 389.  Once logging started, Kirsch had second thoughts and sought an injunction against the cutting and removing of the lumber.  Id.  The attorneys counterclaimed, asserting that the contract was not terminable at the will of Kirsch.  Kirsch responded by asserting that the attorneys violated their duty of trust and confidence imposed under […]