Often, friends or family will approach attorneys for free and quick legal advice. While it may seem like a good idea, providing such advice, without taking the proper measures, can end in a lawsuit.

Professional Liability Claim Background

In a recent professional liability claim, a friend approached an attorney (a Swiss Re insured) to assist in forming a corporation.

The attorney helped form a commercial real estate corporation (ABC), and then introduced his friend to the owner of another industry corporation (XYZ). ABC and XYZ agreed to go into business together, and approached the attorney with a pre-drafted agreement to purchase a large commercial office building. For a small fee, the attorney reviewed the agreement.

As part of the agreement, a third party became a lender to XYZ. After the closing, the owner of XYZ stopped communicating and never made payments to the lender. 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. 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.

Professional Liability Claim Lesson

Regardless of whether the parties are getting along at the time, there is always the possibility that a deal will end badly. When that happens, the attorney is often dragged into the disagreement.

Follow these tips when working with a friend or family member:

  • Proceed with caution when giving 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 match making to the experts.

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