Ethics Question of the Month March 2025

Have I Got a Deal For You

Can a lawyer ethically enter into a business transaction with a client?

The Situation

https://www.legalethicstexas.com/ethics-question-of-the-month/Attorney Shawn’s longtime client, Carla, is a successful entrepreneur who has created several thriving businesses. Shawn handles the business creation and corporate matters for each of Carla’s businesses. Carla is about to start a new business, and she thinks it would be good to include an attorney as a business partner. She offers Shawn a 10% interest in the new business entity.

Shawn has long been intrigued by his entrepreneurial clients who create and grow businesses. He wants to participate in building a new business from scratch so he can gain experience to someday launch his own businesses.

Shawn assumes that lawyers are permitted to enter a business arrangement with clients as long as they do not violate any ethical obligations. He meets with Carla in person and tells her that he is inclined to accept her offer. But he tells Carla that she should consult with another lawyer to review the terms of their agreement and provide independent advice on whether the transaction is fair to her. Carla says that won’t be necessary, given their long relationship and the high level of confidence and trust that she has in Shawn. They shake hands to signify their agreement and agree to move forward as partners.

The Question

Which of the following actions constitute a violation by Shawn of the Texas Disciplinary Rules of Professional Conduct?

The Correct Answer is G Of 38 Responses, 44% are correct.

  1. A 5
  2. B 2
  3. C 1
  4. D 1
  5. E 4
  6. F 6
  7. G 17
  8. H 2

The Explanation

In 2024, Rule 1.08(a) of the Texas Disciplinary Rules of Professional Conduct was amended to clarify the precise steps an attorney should take when entering into a business relationship with a client. The Rule states:

a) 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 terms of the transaction or acquisition are fair and reasonable to the client and are fully disclosed and transmitted to the client in a writing that can be reasonably understood by the client;

(2) the client either is represented in the transaction or acquisition by an independent lawyer of the client’s choice or the client is advised in writing to seek the advice of an independent lawyer of the client’s choice and is given a reasonable opportunity to seek that advice; and

(3) the client thereafter provides informed consent in writing to the terms of the transaction or acquisition, and to the lawyer’s role in it, including whether the lawyer is representing the client in the transaction.

Significantly, under the amended Rule, each of these three requirements must be in writing. Here, Shawn did not comply with any of the three requirements to reduce their understandings and agreements to writing. A handshake is not sufficient to meet the requirements of Rule 1.08(a)(1). Moreover, he did not advise Carla in writing to seek the advice of an independent lawyer, nor did he obtain Carla’s informed consent in writing. The correct response is G.

Bluebook Citation

Have I Got a Deal For You: Ethics Question of the Month - March 2025, Texas Center for Legal Ethics (2025), from https://legalethicstexas.com/ethics-question-of-the-month/ethics-question-of-the-month-march-2025/ (last visited Mar 23, 2025)

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