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Greenberg v. Ventre Construction Company

A-385-01T2 and A-506-01T2 (N.J. Super. App. Div. 2004) (Unpublished)

AGREEMENTS; ATTORNEYS—When a client joins with its attorney in a business transaction, it can’t automatically be regarded as being the attorney’s client for purposes of the venture and should not expect that when the attorney prepares a document governing that relationship, he or she will advance the client’s interest over that of its attorney.

An attorney and his client entered into a joint venture agreement. The agreement stated that a company owned by the attorney would provide the client with funds to purchase and develop land. The venture failed, and after sustaining heavy financial losses, the attorney brought suit against his client. The client contended that the attorney’s actions had caused its losses. Specifically, it asserted that the attorney improperly failed to disclose that he had a propriety interest in lenders with whom some of the joint venture’s mortgages were placed. In addition, the client contended that the attorney failed to tell it that he was not acting as its lawyer in their business transactions.

The lower court found that the cause of the joint venture’s financial difficulties was the collapse of the real estate market. That collapse prolonged the duration of the loans, which cost the parties more then they had planned. The lower court found that the attorney had not violated any terms of the agreement. Instead, it attributed the problem, in part, to the agreement’s failure to provide for the possible emergency infusion of capital. The relationship was not that of a debtor and creditor, but more akin to a partnership. Thus, the only fault the lower court found was the attorney’s malpractice in the drafting of the agreement.

On appeal, the Appellate Division affirmed the lower court’s holding that there was no malpractice by reason of a conflict of interest or the attorney’s failure to disclose any conflict. When an attorney is a business participant with a client, he or she cannot automatically be regarded as the client’s attorney. Thus, a client cannot reasonably believe that the lawyer who prepared a document governing that relationship did so for the client’s protection or to advance the client’s interests over those of the lawyer himself. However, RPC 1.8 requires that in such a scenario, an attorney must advise his client of the desirability of having independent counsel in respect of the business agreement. The Appellate Division noted that the lower court did not make a finding about whether the attorney had drafted the joint venture agreement as the client’s attorney or whether the client believed that the attorney was acting as its lawyer in the preparation of that document. As a consequence, this issue was remanded to the lower court because there can’t be malpractice unless there was an attorney-client relationship.

The Appellate Division pointed out that even if the lower court subsequently found that the attorney had acted as his client’s lawyer, the lower court still had to rule whether the agreement was negligently drafted. Even though the lower court clearly held that the agreement was negligently drafted, it made this finding without any expert testimony by the attorney. If the drafting of the agreement was an act of malpractice, the attorney was entitled to adequate notice of this theory and an opportunity to address it with expert testimony.

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