Legal Ethics Opinion #1593

Conflict of Interest--Business Transaction With Client: Attorney
Receiving Corporate Stock as Payment of Legal Fees

You have presented a hypothetical situation in which an attorney
is asked to perform legal services for a three-person partnership
relating to (1) negotiation and drafting contracts between the
partnership and third parties; (2) preparing a written
partnership agreement; (3) eventually incorporating the
partnership; and (4) negotiation and drafting contracts between
the new corporation and third parties in the future. 

You have asked the committee to opine whether, under the facts of
the inquiry, it is permissible for the attorney to receive as all
or part of this compensation for his services, shares of stock in
the to-be-formed corporation.

The appropriate and controlling Disciplinary Rule related to your
inquiry is DR 5-104(A), which states that a lawyer shall not
enter into a business transaction with a client if they have
differing interests therein and if the client expects the lawyer
to exercise his professional judgment therein for the protection
of the client, unless that client has consented after full and
adequate disclosure under the circumstances and provided that the
transaction was not unconscionable, unfair or inequitable when
made.  Further guidance is provided by Ethical Consideration 5-l8
which admonishes in pertinent part that 

   [a] lawyer employed or retained by a corporation or similar
   entity owes his allegiance to the entity and not to a
   stockholder, director, officer, employee, reopresentative, or
   other person connected with the entity.  In advising the
   entity, a lawyer should keep paramount its interests and his
   professional judgment should not be influenced by the
   personal desires of any person or organization.

The committee is of the opinion that it is not per se improper
for an attorney to accept compensation in the form of corporate
stock for legal services rendered to a corporation and to its
predecessor partnership.  The committee believes that an attorney
may, under DR 5-104(A), provide legal services to a corporation
in consideration of the stock issued so long as he feels his
independent professional judgment will not be affected by his
status as a stockholder, the client consents after full
disclosure by the lawyer of the potential conflicts of interest,
and provided that the transaction is not unconscionable, unfair
or inequitable when made.  The committee is of the view, however,
that an attorney may not continue employment if his independent
professional judgment will be affected by his business interest
in a corporation.  Further, an attorney may accept stock in a
newly formed corporation as compensation for legal services
previously rendered.  See Michigan State Bar Legal Ethics Opinion
CI-1059 (undated), ABA/BNA Law. Man. on Prof. Conduct, 801:4890.  

Committee Opinion
April 11, 1994