[Letterhead] [Date]
Re: Dear LLC Members:
, LLC
As you know I have been asked to develop the limited liability company Articles of Organization and Operating Agreement and to advise the members on its formation and operation. Since each member has conflicting interests in this area, my representation for the members drafting of the limited liability company documents gives me a conflict of interest in advising the members. I will represent the limited liability company as an entity, and I will not represent the members or organizers of the company as individuals. ABA Model Rules of Professional Conduct Rule 1.7 "Conflict of Interest: General Rule" states: (a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless: (1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and (2) each client consents after consultation. (b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless: (1) The lawyer reasonably believes the representation will not be adversely affects; and (2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.
(c) For the purposes of this Rule, a client's consent cannot be validly obtained in those instances in which a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances of the particular situation. The comments to that Rule state: "Loyalty to a Client" Loyalty is an essential element in the lawyer's relationship to a client. An impermissible conflict of interest may exist before representation is undertaken, in which event the representation should be declined. If such conflict arises after representation has been undertaken, the lawyer should withdraw from the representation. See Rule 1.16. Where more than one client is involved and the lawyer withdraws because a conflict arises after representation, whether the lawyer may continue to represent any of the clients is determined by Rule 1.9. See also Rule 2.2(c). As to whether a client-lawyer relationship exists or, having once been established, is continuing, see Comment to Rule 1.3 and Scope. As a general proposition, loyalty to a client prohibits undertaking representation directly adverse to that client without that client's consent. Paragraph (a) expresses that general rule. Thus, a lawyer ordinarily may not act as advocate against a person the lawyer represents in some other matter, even if it is wholly unrelated. On the other hand, simultaneous representation in unrelated matters of clients whose interests are only generally adverse, such as competing economic enterprises, does not require consent of the respective clients. Paragraph (a) applies only when the representation of one client would be directly adverse to the other. Loyalty to a client is also impaired when a lawyer cannot consider, recommend or carry out an appropriate course of action for the client because of the lawyer's other responsibilities or interests. The conflict in effect forecloses alternatives that would otherwise be available to the client. Paragraph (b) addresses such situations. A possible conflict does not itself preclude the representation. The critical questions are the likelihood that a
conflict will eventuate and, if it does, whether it will materially interfere with the lawyer's independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client. Consideration should be given to whether the client wishes to accommodate the other interest involved. "Consultation and Consent" A client may consent to representation notwithstanding a conflict, but only after consultation which involves full disclosure of the possible effect of such dual representation on the exercise of the lawyer's independent professional judgment on behalf of each client. However, when a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client's consent. When more than one client is involved, the question of conflict must be resolved as to each client. Moreover, there may be circumstances where it is impossible to make the disclosure necessary to obtain consent. For example, when the lawyer represents different clients in related matters and one of the clients refuses to consent to the disclosure necessary to permit the other client to make an informed decision, the lawyer cannot properly ask the latter to consent. "Other Conflict Situations" Conflicts of interest in contexts other than litigation sometimes may be difficult to assess. Relevant factors in determining whether there is potential for adverse effect include the duration and intimacy of the lawyer's relationship with the client or clients involved, the functions being performed by the lawyer, the likelihood that actual conflict will arise and the likely prejudice to the client from the conflict if it does arise. The question is often one of proximity and degree. For example, a lawyer may not represent multiple parties to negotiation whose interests are fundamentally antagonistic to each other, but common representation is permissible where the clients are
generally aligned in interest event though there is some difference of interest among them.
Conflict questions may also arise in estate planning an estate administration. A lawyer may be called upon to prepare wills for several family members, such as husband and wife, and depending upon the circumstances, a conflict of interest may arise. In estate administration the identity of the client may be unclear under the law of a particular jurisdiction. Under one view, the client is the fiduciary; under another view the client is the estate or trust, including its beneficiaries. The lawyer should make clear the relationship to the parties involved. A lawyer for a corporation or other organization who is also a member of its board of directors should determine whether the responsibilities of the two roles may conflict. The lawyer may be called on to advise the corporation in matters involving actions of the directors. Consideration should be given to the frequency with which such situations may arise, the potential intensity of the conflict, the effect of the lawyer's resignation from the board and the possibility of the corporation's obtaining legal advice from another lawyer in such situations. If there is material risk that the dual role will compromise the lawyer's independence of professional judgment, the lawyer should not serve as a director. Full disclosure of the possible conflicts among the members is likely to include a discussion about shared financial information, shared confidential information regarding each member, manager and employees, possible future conflicts among the members, possible future disputes regarding the text of the Operating Agreement and its interpretation, possible future dissolution of the limited liability company and the disparate impact of a dissolution, disputes as to borrowing money for expansions, and the full gamut of issues that have been seen by other entities in the past. Since my representation of the limited liability company in its formation has an inherent conflict among the members, not only do I have a duty to advise each member of the conflict, I must advise each member that each may wish to seek separate counsel to advise such member regarding the limited liability company. If each member is willing to consent to my continued representation, each member should consent to my conflict in this matter.
Please sign the attached Waiver and Consent and return it to me. Sincerely, __________________
WAIVER AND CONSENT I have read the foregoing letter and I consent to your representation of the limited liability company in the preparation of an Operating Agreement and the presentation of the Articles of Organization to the Secretary of State. I understand the discussion of conflicts set forth above and agree that with respect to information I have in the past given to you, or information I may hereafter give to you will not be confidential communications between you and me and that it may be disclosed to the other member or the other member’s counsel or a Court.
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