Voluntarily inactive lawyer found to have been acting as attorney

On Behalf of | May 18, 2015 | Legal Malpractice Law

An attorney in New Jersey can choose to go on voluntary inactive status with regard to his or her law license. Having done so, it is an assumption that the inactive attorney will not serve in the capacity of attorney for others, but in a recent Bergen County case this appears to have been what happened when an inactive lawyer became involved first as an advisor and later as an investor in a commercial real estate transaction that ultimately led to litigation against her and which may spread to other attorneys before it is ultimately concluded.

The inactive attorney became involved in the transaction when she was contracted by a married couple who were attempting to help structure a multi-million dollar commercial real estate purchase. She eventually became in investor herself in the planned purchase, but the basis of her compensation was never made clear. That was when things began to go wrong.

The complaint against the inactive attorney alleged, among other things, that she effectively began to act in the role of an attorney during the transaction, and later participated in a restructuring of her role as an investor to significantly increase her return on her investment in a way that her de facto clients claimed not to have known about or agreed to. In so doing, she enlisted the assistance of a Hackensack law firm, which now also faces the possibility of facing civil claims as a result of its role in making the underlying documentation so difficult to understand as to make them incomprehensible to a non-lawyer – something that may have led to the two-year interval before the changes made to the original investor agreement were discovered.

The trial judge concluded that through her activities the inactive attorney was in fact acting as a lawyer, raising the question of legal ethics violations that she may have committed by engaging in a business transaction adverse to her clients’ interests and failing to have her retainer fees put down into writing.

Both sides to the matter have appealed the trial court ruling.

Engaging with a legal professional to assist in matters that involve significant funding amounts is something that prospective clients should carefully consider in advance, especially when the status of the attorney’s ability to practice is unclear and when the attorney may also take on a financial interest of his or her own in the underlying transaction.

Source: New Jersey Law Journal, “Real Estate Battle, Ethics Accusations Underlie Fee Suit, David Gialanella, May 15, 2015

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