As an attorney, it’s not unusual for friends and family to reach out to you for help with some fast and free legal advice. While it may seem natural to use your knowledge to help answer their questions, it’s a situation that could end in a lawsuit without the proper protections.
Attorneys are held to high standards of professionalism that apply even when you’re helping family and friends. Here is a recent professional liability claim example that demonstrates some of the dangers of providing free legal advice for friends.
How Free Legal Advice for a Friend Resulted in a Professional Liability Claim
In a recent professional liability claim, an attorney was approached by a friend to assist in forming a corporation.
The attorney helped the friend form a commercial real estate corporation (ABC), and then introduced the friend to the owner of another industry corporation (XYZ). The owners of ABC and XYZ agreed to go into business together, and approached the same attorney with a pre-drafted agreement to purchase a large commercial office building together. For a small fee, the attorney reviewed the agreement and their purchase was completed.
As part of the agreement, a third party became a lender to XYZ. Yet after the closing, the owner of XYZ stopped communicating and never made payments to the lender. It was discovered that the owner of XYZ had a fraudulent history, unbeknownst to the attorney.
The attorney had not performed due diligence on the owner of XYZ, because, in the attorney’s mind, he had only provided a simple introduction. However, both the lender and the owner of ABC brought claims against the attorney.
ABC claimed conflict of interest allegations as the attorney represented both ABC and XYZ when he reviewed the agreement. The lender claimed allegations of breach of fiduciary duty and that the attorney “recommended” XYZ and “approved” the agreement.
The attorney had to defend the lawsuit, which all began with providing a favor to a friend.
What Lessons Can Be Learned From This Example of a Professional Liability Claim
Regardless of whether the parties are getting along at the time, there is always the possibility that a business deal will end badly. When that happens, it may be the attorney who takes the blame.
It’s a good lesson to remember that professional legal advice provided to friends or family should meet the same high standards you would show to any paying client.
To avoid a claim, be sure to follow these tips when working with a friend or family member:
- Proceed with caution when giving any legal advice or reviewing documents.
- Always draft specific engagement letters or non-client letters and advise an independent attorney review.
- Use appropriate conflict waivers.
- Thoroughly review any paperwork before signing off on documents.
- Be careful when making introductions that may be construed as recommendations.
- Consider leaving the matchmaking to the experts.
It’s natural to want to help friends and family who have questions related to the law. Be sure to exercise the same high standard of care and due diligence you would show to a paying client for your friends and family to lower your risk of a claim.