The Free Consultation Comes Back: Prospective-Client Conflicts, Equity Fees, and a Client Loan
Dana Whitcomb is a sole practitioner in Ann Arbor. In February 2024, Priya Raman consulted her for 45 minutes, free of charge, about a dispute with her LLC co-member, Nolan Marsh, over BrightLeaf Analytics. Priya showed Dana the operating agreement, a valuation memo, and her litigation strategy, then hired another firm; no fee agreement was signed and nothing was billed. Dana kept detailed notes. In October 2024, Nolan asks Dana to defend him in BrightLeaf's suit against him for breach of fiduciary duty - the same operating agreement, the same 2022 buyout negotiation. Nolan has signed a written waiver of any objection to the representation. Separately, Nolan asks Dana to (a) accept a 12% equity interest in Marsh Logistics, a trucking company he owns outright that is not involved in the BrightLeaf litigation, in lieu of $60,000 of her fee, and (b) lend him $20,000 for living expenses while the case is pending, repayable only out of any recovery.
1. May Dana represent Nolan in the BrightLeaf suit? Analyze under the Michigan Rules of Professional Conduct, including whether Nolan's written waiver changes the answer.
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No - not without Priya's informed written consent, which is unlikely to be obtainable.
Priya never became a client (no fee agreement, nothing billed), so MRPC 1.18 governs. Under 1.18(b) Dana owes a continuing duty of confidentiality to a prospective client. Under 1.18(c) she may not represent a client with interests materially adverse to Priya in the same or a substantially related matter if she received information that could be significantly harmful to Priya. Both elements are met: the operating agreement, the valuation memo, and Priya's strategy are exactly what Nolan would want, and the 2022 buyout is the same matter.
Rule 1.18(d) is the only off-ramp. Screening (1.18(d)(2)) works when a tainted lawyer can be isolated from the rest of the firm. Dana is a sole practitioner - she is the firm - and cannot screen herself from her own memory. That leaves 1.18(d)(1): informed consent from both the affected client and the prospective client. Nolan's written waiver is worthless here. Priya is the person whose confidences are at risk, and she has no incentive to consent.
Dana also may not use the information to Priya's disadvantage (1.18(b)) - not as leverage, not as a cross-check, not to draft around the valuation memo.
Practical guidance: decline, return Nolan's materials, and confirm in writing. If Nolan insists, opposing counsel will move to disqualify, and absent Priya's consent disqualification is likely. A letter asking Priya for consent is permissible but itself signals that Dana is now adverse to her, so weigh that before sending it.
2. May Dana take the 12% equity interest in Marsh Logistics in lieu of $60,000 of fees? Identify every rule that bears on the arrangement and any safer alternative.
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Permissible only if MRPC 1.8(a) is satisfied to the letter - and in practice, don't do it.
Taking equity as a fee is a business transaction with a client, so 1.8(a) applies: (1) the terms must be fair and reasonable to the client and fully disclosed in writing in a manner the client can reasonably understand; (2) the client must be advised in writing to seek independent counsel; and (3) the client must give informed written consent. The disclosure must state the valuation, the risk that the interest is worthless, how the stake is calculated, and what happens on dissolution or a later sale.
Two problems survive even a perfect 1.8(a) letter. First, 1.5(a) reasonableness: $60,000 paid in a speculative, illiquid minority interest in a small trucking company may be an unreasonable fee, especially if the interest is subject to transfer restrictions. Second, 1.7(a)(2): owning 12% of Marsh Logistics means Dana's interests may diverge from Nolan's - if the BrightLeaf judgment threatens assets that reach his Marsh Logistics shares, or if Marsh Logistics later becomes a party or a witness, Dana's independent professional judgment is materially limited.
MRPC 1.8(i) - no proprietary interest in the subject matter of litigation - is not directly violated because Marsh Logistics is not the litigation subject, but a stake in the client's overall financial health implicates the same concern.
Safer structure: a written fee agreement at a defined hourly or flat rate, plus a payment plan with a disclosed, reasonable interest rate, with the client's informed written consent to the payment terms. If equity is truly the goal, insist on independent counsel for Nolan and document the valuation methodology.
3. May Dana lend Nolan $20,000 for living expenses while the BrightLeaf case is pending, with repayment contingent on a recovery? What may she pay for?
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Prohibited.
MRPC 1.8(e) bars a lawyer from providing financial assistance to a client in connection with pending or contemplated litigation. Two narrow exceptions exist: (1) the lawyer may advance court costs and litigation expenses, with repayment contingent on the outcome; and (2) the lawyer may pay court costs and litigation expenses on behalf of an indigent client. Rent, groceries, car payments, and utility bills are not court costs or litigation expenses, so a $20,000 personal loan violates 1.8(e) even if repayment is contingent on a recovery. The contingency makes it worse, not better: it gives Dana an ownership-like stake in the litigation's outcome and an incentive to steer settlement.
Contrast what she may properly advance: filing fees, expert retention deposits, deposition transcripts, medical records, investigation, and copying. Repayment of those advances may be contingent on recovery (1.8(e)(1)), but she should ledger them separately from fees and the engagement letter should say so.
Alternatives inside the rule: refer Nolan to a litigation-finance company or a bank (revealing no confidences), restructure the fee as a contingent fee if the matter permits, or help him seek hardship deferrals from creditors. If the money has already changed hands, Dana should consult ethics counsel and consider unwinding the loan - a prohibited advance can be disciplined and can render the fee agreement unenforceable.