## Facts

- Robert D. Mershon, a Cedar Falls attorney, represented Leonard O. Miller in tax and property matters for decades.
- Miller sought to develop approximately 100 acres of farmland for residential use and consulted engineer R.O. Schenk and Mershon about the project.
- Because Miller lacked funds to pay professional fees, the three formed Union Township Development, Inc., intending to combine contributions: Miller’s land, Schenk’s engineering services, and Mershon’s legal services.
- In early 1970, Miller conveyed the land to the corporation at a capitalized value of $12,500 and received 400 shares.
- Schenk received 400 shares in exchange for an interest-free $12,500 promissory note payable at the corporation’s discretion, representing future services.
- Mershon received 200 shares in exchange for an interest-free $6,250 promissory note payable at the corporation’s discretion, representing future legal services.
- The project depended on financing secured by the land; lenders required personal guarantees by the principals, which were not provided, and financing was never obtained.
- The principals continued periodic meetings, but the development did not proceed before Miller died in 1978.
- Mershon later served as executor of Miller’s estate while also holding an ownership interest in the corporation.
- The disciplinary complaint alleged Mershon entered a business transaction with a client with differing interests without the disclosures and protections required by DR 5-104(A).

## Issues

1. Whether Mershon’s participation in a development corporation with a client, including accepting stock and issuing a promissory note in lieu of legal fees, constituted a business transaction with differing interests under DR 5-104(A).
2. Whether Mershon proved the transaction was fair and equitable and that Miller entered it freely and intelligently after full disclosure and informed consent.
3. What discipline was appropriate for any proven violation.

## Decision

- The Iowa Supreme Court reviewed the disciplinary matter de novo.
- The court found Mershon violated DR 5-104(A).
- The court determined Mershon and Miller had differing interests in the corporate arrangement.
- The court held Mershon did not carry his burden to show full disclosure, informed consent, and fairness.
- The court adopted the Grievance Commission’s recommendation and ordered a public reprimand.

## Legal Principles

- A lawyer may not enter into a business transaction with a client when interests differ and the client expects the lawyer to exercise professional judgment for the client’s protection unless there is full disclosure and informed consent under circumstances demonstrating fairness.
- In attorney–client business transactions, the lawyer bears the burden to prove the transaction was fair and equitable and that the client entered it freely and intelligently after full disclosure.
- “Differing interests” can exist even where lawyer and client share a general objective, when the lawyer’s compensation or financial position is tied to the venture’s success.
- Good faith or lack of proven client loss does not eliminate the disclosure and fairness requirements; the ethical rule regulates the process and fiduciary safeguards in client dealings.

## Conclusion

The Iowa Supreme Court publicly reprimanded Mershon for entering a joint business arrangement with a long-time client and accepting an equity stake tied to the venture’s success, without proving the heightened disclosures, informed consent, and fairness required for attorney–client business transactions under DR 5-104(A).


Comm. on Pro. Ethics & Conduct of Iowa State Bar Ass’n v. Mershon, 316 N.W.2d 895 (Iowa 1982)