Opinion ID: 1679379
Heading Depth: 1
Heading Rank: 4

Heading: The Conflict of Interest.

Text: The last count of the complaint charges a conflict of interest in the respondent's business dealings with a client. In 1981, the respondent drafted the organizational documents for a corporation called IEM, Inc. The respondent received stock in the corporation in lieu of attorney fees. The respondent and James Smith were the sole shareholders, officers, and directors of the corporation with Smith owning the majority of the stock. The bylaws drafted by the respondent, in effect, provided that (1) neither Smith nor the respondent could be voted out as director without the vote of 100% of the shares, (2) compensation of officers and directors required the vote of the majority of the directors, (3) the election or removal of officers required the vote of the two directors, and (4) both directors would have to vote on incurring corporate debt. The effect of the corporate documents was to secure the respondent's position in the corporation and make it impossible for the owner of the majority of the stock to act in any of the above respects without Humphreys' concurrence. Additionally, the corporation borrowed several thousand dollars from the respondent. In 1982, the respondent loaned the corporation $4000. The corporation repaid the loan in two months with $500 interest. The respondent in November 1982 loaned $16,808 to the corporation, and the loan was repaid within twelve days, together with $1060 interest. In December 1982, the respondent loaned the corporation $8000, and the corporation repaid the loan in less than two months with $2178 interest. During this entire period, the respondent acted as attorney for the corporation. Disciplinary rule 5-101(A) provides: Except with the consent of the client after full disclosure, a lawyer shall not accept employment if the exercise of the lawyer's professional judgment on behalf of the client will be or reasonably may be affected by the lawyer's own financial, business, property, or personal interests. In connection with business transactions with a client, DR 5-104(A) provides: 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 professional judgment therein for the protection of the client, unless the client has consented after full disclosure. We have said in connection with a similar matter that an attorney must disclose not only the attorney's adverse interest, but also the effect it will have on the exercise of his professional judgment. Committee on Professional Ethics & Conduct v. Mershon, 316 N.W.2d 895, 899 (Iowa 1982). There was no evidence that the respondent advised the other shareholder about the possibility of a conflict of interest. An attorney and his client have conflicting interests in a transaction in which the attorney is given corporate stock or other investments in exchange for legal services. Mershon, 316 N.W.2d at 898. The respondent eventually received a twenty-five percent interest in the corporation with no cash contribution. In addition, the parties have divergent interests when the attorney is a creditor of the corporation. See Committee on Professional Ethics & Conduct v. Schooler, 482 N.W.2d 426, 427 (Iowa 1992). We agree with the Commission that the Committee adequately established violation of DR 5-101(A) and DR 5-104(A).