Wednesday, October 17, 2007

Reasonable Belief Insufficient

A lawyer admitted in Ohio was granted pro hac vice status to represent the interests of two  entities and individual partners in Arizona. He sued a limited partner for legal fees and received a substantial award in federal district court based on a finding that he reasonably believed that his former client was a general partner. On appeal, the United States Court of Appeals for the Ninth Circuit held that the lawyer could not rely on such a belief: "such a holding would be perverse because [the lawyer] acted as legal counsel to both the [entity clients] and the [individual limited partners] and owed a fiduciary duty of care to both." The lawyer was bound by the ethical rules applicable to members of the Arizona Bar. As a matter of basic competency, it was incumbent upon the lawyer to review the organic corporate documents. The lawyer may not benefit from the failure to examine the corporate documents, which would have clearly established the limited partner status of the defendants in the suit for fees. The case was remanded for further proceedings. (Mike Frisch)

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The parties even disputed who the clients were. (The Ltd. vs. the individuals.) How can a lawyer not be clear on that from the outset?

His failure to review the organic documents was even worse than your post lets on. He was engaged to evaluate the partners' liability exposure for the Ltd.'s obligations. Reading the organic docs was the very first thing he should have done!

Posted by: Greg May | Oct 17, 2007 11:36:35 PM

Thanks for the clarification.

Posted by: Mike Frisch | Oct 18, 2007 9:27:58 AM

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