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Conflicts of Interest in Commercial Transactions: Representing Multiple Parties

Dessel v. Dessel and Donohue,431 N.W.2d 359 (Sup. Ct. 1988).

Iowa underlying partnership dissolution

Student contributor: Cheryl Neuman

Facts: Two brothers, James and George, were partners in a business and wanted to dissolve the partnership. Both brothers retained one lawyer, the defendant in the present action. The agreement stated that James’ share of the partnership would be sold to George and the accounts receivable would be divided equally between the two brothers.   After the partnership was dissolved, James died. James’ wife was appointed executor of the estate and she also retained defendant attorney as her attorney. James’ wife and George got into an argument regarding the division of the accounts receivable. Defendant counseled both George and James’ wife during the dispute. After the dispute could not be resolved, defendant, acting for the estate, sued George, claiming he breached his fiduciary duties in collecting the accounts receivable. George retained separate counsel and filed a legal malpractice case against defendant.

Issue 1: Was defendant liable for inserting a “hold harmless clause” in the dissolution agreement, as it was the sole basis for James’ wife’s suit against George?

Ruling 1: Yes, because this specific provision was inserted by mistake and in direct violation of the brother’s wishes and instructions. Defendant was therefore negligent.

Issue 2: Did defendant attorney have a conflict of interest in representing both George and James’ wife?

Ruling 2: Yes, because George stopped taking the 6% fee that James and George had orally agreed upon as a result of defendant’s advice. Defendant would not have given this advice had he not been retained to represent James’ wife. Furthermore, defendant’s negligence in inserting this clause, proximately caused George to pay legal expenses to defend the estate’s suit against him. Defendant’s advice to George was clearly the reason George surrendered the commission he had earned.

Lesson: A lawyer should not represent two parties in a matter when there is a clear conflict. There was information in this case that defendant questioned George about his activities and then used that information as the basis for the lawsuit against George; a clear violation of the professional rules of conduct. Rather than trying to retain the most amount of clients for the most amount of profit, it is wise to only represent those parties that are proper to represent and steer clear of malpractice litigation.  

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Posted in: Commercial, Conflicts of Interest, Duties: Conflict Avoidance, Iowa