The Conflict of Interest in a Partnership Buyout
Attorney Okafor represents three siblings - Ben, Carla, and Dev - who inherited a hardware store as equal owners. Carla wants to buy out Ben and Dev. Okafor has represented all three for six years on business matters. Okafor drafts a buyout agreement pricing each departing share at $150,000, payable over five years at 4% interest, with a non-compete covering a 30-mile radius for three years. Ben and Dev sign without separate counsel. Two years later, the store's value has doubled and Ben learns the buyout price was below fair market value at the time. Ben sues Okafor, alleging Okafor favored Carla. Okafor says all three were long-standing clients and he disclosed the joint representation orally.
1. Did Okafor have a conflict requiring written informed consent, and what should he have done?
Read the worked answer
Yes. A buyout pits Carla against Ben and Dev on price, terms, and the non-compete - their interests are directly adverse. Representing all three in the same transaction is a concurrent conflict under the rules governing conflicts of interest. Okafor needed each client's informed consent, confirmed in writing, after disclosure of the material risks of the joint representation.
Oral disclosure is not enough where writing is required. The disclosure also had to be meaningful: Okafor should have explained that he could not advocate for Ben and Dev on price, that the buyout figure would be negotiated against them, and that they were free to retain independent counsel at their own expense. He should have documented each client's consent.
The non-compete is a further flashpoint: it burdens the departing sellers, who are his clients too. A reasonable attorney would have recognized that the sellers needed separate advice on the radius and duration. The failure to recommend independent counsel for Ben and Dev is itself strong evidence of a breach.
2. What must Ben prove to recover, and does he need to show the price was actually unfair?
Read the worked answer
Ben must prove duty, breach, causation, and damages. The duty arises from the attorney-client relationship. Breach is the conflicted joint representation without valid written consent and without advising independent counsel.
On causation and damages, Ben must show that the conflict caused him actual loss. That typically requires proving the buyout price was below fair market value at signing and that independent counsel or arm's-length negotiation would have produced a better price. If the price was fair, Ben has breach but no damages - malpractice requires actual harm, not just a rule violation.
So yes, unfairness matters, but the burden is on Ben to prove it by a preponderance. He would offer an appraisal of the store as of the buyout date. Okafor may counter that the 4% interest and five-year payout had value, and that Ben negotiated and signed voluntarily. The court will ask whether a reasonably competent, conflict-free attorney could have obtained more. If the appraisal shows the shares were worth, say, $220,000, Ben's loss is the gap plus the cost of the conflict-free process.
3. Could Okafor face consequences beyond a malpractice judgment? Explain.
Read the worked answer
Yes, several. First, professional discipline: representing adverse parties without written informed consent violates the conflict rules and can lead to sanctions, even if no civil damages result. Second, disqualification or fee forfeiture: a court may order disgorgement of fees earned in the conflicted matter, particularly where the conflict was not disclosed in writing.
Third, the other clients - Carla and Dev - may have their own claims or defenses. Carla might argue she relied on Okafor's neutrality; Dev may claim he, too, was harmed. Fourth, the non-compete could be challenged as unreasonable, exposing Okafor to a claim that he drafted an overbroad restriction favoring the buyer.
Finally, Okafor's oral-disclosure defense is weak because the rules require written confirmation for conflicts of this kind. His best strategy is early remediation - advising all three to obtain independent counsel now, documenting consent going forward, and possibly renegotiating the buyout. Note that a violation of an ethics rule does not automatically create a malpractice cause of action in every jurisdiction, but it is admissible as evidence of the standard of care, which is why Ben should plead both breach of fiduciary duty and negligence.