New Orleans • Baton Rouge • Houston

New Orleans Bar Association Sustaining Ethics & Professionalism CLEs

One CLE Credit Hour

Presented by

Ashley L. BelleauShareholder

Lugenbuhl, Wheaton, Peck, Rankin & Hubbard

September 23rd, 2016

Drafting Workshop: LLC Operating Agreements

Ethical Issues Affecting Representation of LLCs

Attorney-Client Relationship in LLC Formation

• When Does the Relationship Exist• Who Is the Client • Communications with the Client• Joint Representations• Confidentiality

When Does the Relationship Exist?

• If multiple persons, do their interests substantially diverge?

• Does this create a conflict?• Can the conflict be cured?

When Does the Relationship Exist?

o Identify who is client(s)o Description of services to be renderedo Fixed or contingency feeo Fees and expenses o Conflicts and waivers (Dual

Representations) – Be specific

• Engagement Letters

When Does the Relationship Exist?

• Be explicit in regard to scope of lawyer’s duties concerning contractual issues

• Limiting the Scope of Engagemento Rule 1.2--Lawyer may limit the objectives of the

representation if:o the limitation is reasonable under the circumstances, and

o the client gives informed consent, client consents after consultation

o Attorney-client relationship is contractual• Based upon express agreement

• As to nature of work to be undertaken

Who is the Client?

o Lawyer shall abide by a client's decisions concerning the objectives of representation

o Lawyer shall consult with the client as to the means by which they are to be pursued

o A lawyer shall abide by a client's decision whether to settle a matter

o A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent

• Rule 1.2 Scope of Representation

Who is the Client?

• Rule 1.13 Organization as Cliento Lawyer retained by organization represents organization

acting through its duly authorized constituentso Lawyer shall explain identity of the client when apparent

that organization’s interest is adverse to those of the constituents with whom lawyer is dealing

o Lawyer may represent members, partners or other constituents if organization consents to dual representation

o Communications from constituents protected by Rule 1.6 if made in the person’s organizational capacity

Who is the Client?

• Established client v. group of new clients• Former or current client v. new client• Majority investors v. minority investors• Business entity v. members• Reliance by non-clients• Non-engagement letters

Communications with Client

• Rule 1.4 Communicationo A lawyer shall:

promptly inform the client of any decision or circumstance with respect to which the client's informed consent is required;

reasonably consult with the client about the means by which the client's objectives are to be accomplished;

keep the client reasonably informed about the status of the matter;

promptly comply with reasonable requests for information; and consult with the client about any relevant limitation on the

lawyer's conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law.

Communications with Client

• Client should have “sufficient” information to participate intelligently in decisions concerning objectives of the representation and means by which they are pursued.o Explain default LLC governance ruleso Review Articles of Organizationo Review Operating Agreemento Duty to act in client’s best interesto Prudence to designate “decision maker” in some instances

Joint Representations

• Rule 1.7

representation of one will be directly adverse to another; or significant risk of material limitation.

o A concurrent conflict of interest exists if:

o Notwithstanding a concurrent conflict, a lawyer may represent a client if:

the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; . . . .

each affected client gives informed consent, confirmed in writing.

Joint Representations

• If joint representation creates conflict:o Suggest independent counselo Limit the scope of the engagement via

engagement lettero Issue formal non-engagement letters to

unrepresented memberso Is conflict curable?

Joint Representations

• Lawyer must reasonably believe clients will not be adversely affectedo Reasonable belief: reasonably prudent and competent lawyer

believes the matter in question and that the circumstances are such that the belief is reasonable.

o Lawyer’s own subjective judgment is irrelevant• Clients must give informed consent, confirmed in writing

o Informed consent: agreement to proposed course of conduct after the lawyer has communicated adequate information and explanation about material risks of and reasonably available alternative to proposed course of conduct

o Communicate information reasonably sufficient to permit client to appreciate significance of risks, advantages, and disadvantages

• E.g., effect of the common representation on the attorney-client privilege

Joint Representations

• If the conflict is curable:o Discuss how to handle communication issueso Discuss limitations of representationo In some instances, have the client sign the writing

confirming consent to joint representationo When the LLC is the cliento Include provision in Engagement Lettero Include provision in Operating Agreement

• Incurable Conflicts:o Directly adverse clientso Potential in LLC formation

context

Joint Representations• Comments to Rule 1.7

o Representation not allowed for antagonistic partieso Possible where parties are aligned, even where interests

do diverge slightlyo Develop mutual interests of partieso Effect on Attorney-Client Privilegeo Cannot keep material information from either partyo Agreement to keep confidential non-material information

o Nature of Representation

• Lawyer would probably have to withdraw

• Wasted time and legal fees

• E.g. Trade secrets

o Consequences of a Future Withdrawal of Consent by any Client

Confidentiality

• Rule 1.6—Confidentiality of Informationo Lawyer shall not reveal information relating to representationo Unless client gives informed consent after consultation

o No attorney-client privilege as between joint clientso Comment to 1.7: one client asks lawyer not to disclose to other client

information relevant to joint representation, lawyer would have to withdraw

E.g. Trade secrets

• Joint Representation and Confidentiality

• Explain consequences at outset of representation to avoid having to withdraw at later date

• Clients can agree in advance that some information will remain confidential as between parties

Confidentiality

• Attorney-client privilege o privilege applicable only to communications made for the

purpose of securing legal advice or assistanceo does not prevent disclosure outside the judicial processo privilege does not protect information received from

sources other than the client

o privileged communications made in the person’s organizational capacity or within scope of the employee's duties

o Communications with LLC managers and memberso Communications with LLC constituents

• Communications with Organizational Constituents under Rule 1.13

Conclusion

• Avoiding Conflicts of Interesto Only represent one client, not multiple clientso Have multiple clients seek independent counsel about

pros and cons of common representationo Explain pros and cons, and obtain informed consent,

confirmed in writing, preferably signed

New Orleans Bar Association Sustaining Ethics & Professionalism CLEs

One CLE Credit Hour

New Orleans • Baton Rouge • Houston

Ashley L. BelleauShareholder

Lugenbuhl, Wheaton, Peck, Rankin & HubbardEmail: abelleau@lawla.com

601 Poydras Street, Suite 2775 New Orleans, LA 70130

Phone: (504) 568-1990 Fax: (504) 310-9195Website: www.lawla.com

Drafting Workshop: LLC Operating Agreements Ethical Issues Affecting Representation of LLCs