Q: Dear Ethics Lawyer, Our firm represents a well-respected private equity fund company. I am a products liability lawyer and have not personally done legal work for this client. The company is now raising capital for a new fund and I would like to invest by accepting the terms of their offering, but I am concerned with the requirements of Model Rule 1.8(a) that appear to be triggered whenever a lawyer enters into a business transaction with a client. Do these requirements apply even though I don’t personally represent the client? Do they apply even though I am simply investing under the terms of an offer made to the market in general, i.e., there would be no negotiation about it?
A: Model Rule 1.8(a) applies when a lawyer enters into a business transaction with a client. It requires that (1) the terms of the transaction are fair and reasonable to the client and disclosed to the client in an understandable writing; (2) that the client is advised in writing of the desirability of seeking counsel and given an opportunity to do so; and (3) that the client provide consent in a signed writing to the terms and the lawyer’s role in the transaction. Rule 1.8(k) states that the requirements of Rule 1.8(a) apply to all lawyers in a firm, even if the lawyer involved in the business transaction does not represent that client personally. However, Comment (1) to the Rule makes clear that “the Rule does not apply to standard commercial transactions between the lawyer and the client for products or services that the client generally markets to others, for example, banking or brokerage services, medical services, products manufactured or distributed by the client, and utilities’ services. In such transactions, the lawyer has no advantage in dealing with the client and the restrictions in paragraph (a) are unnecessary and impracticable.” Here, if the company is offering investment terms in the new fund to the market, and you are simply accepting those terms and making an investment accordingly, Rule 1.8(a) does not apply.