diff --git a/mcp-server/src/legal_mcp/services/claude_session.py b/mcp-server/src/legal_mcp/services/claude_session.py
index c44916d..d49435a 100644
--- a/mcp-server/src/legal_mcp/services/claude_session.py
+++ b/mcp-server/src/legal_mcp/services/claude_session.py
@@ -29,6 +29,7 @@ from __future__ import annotations
 import asyncio
 import json
 import logging
+import os
 
 from legal_mcp.config import parse_llm_json
 
@@ -40,6 +41,32 @@ logger = logging.getLogger(__name__)
 DEFAULT_TIMEOUT = 1800
 LONG_TIMEOUT = 3600  # opus block writing on full case context
 
+# Environment markers a running Claude Code session exports into its child
+# processes. When an agent itself runs as ``claude -p`` (e.g. the CEO MCP
+# instance launched by Paperclip's claude_local adapter), its MCP server
+# inherits these, and a *nested* ``claude -p`` we spawn here inherits them
+# too. Stripping them makes every nested invocation launch as a clean
+# top-level session, decoupled from the parent's session/project state —
+# defensive hardening against the #85 nested-``exit 1`` failure (which could
+# not be reproduced in a plain interactive session, so the markers are a
+# suspect, not a proven cause). Auth/config vars (CLAUDE_CONFIG_DIR,
+# ANTHROPIC_*, PATH, HOME) are kept. See TaskMaster legal-ai #85.
+_SESSION_MARKER_PREFIXES = ("CLAUDECODE", "CLAUDE_CODE_", "CLAUDE_AGENT_")
+_SESSION_MARKER_EXACT = frozenset({"AI_AGENT", "CLAUDE_EFFORT"})
+
+
+def _clean_subprocess_env() -> dict[str, str]:
+    """Copy the current env minus Claude Code session markers.
+
+    Lets a nested ``claude -p`` start fresh instead of detecting it is
+    already inside a Claude Code session (the #85 nested-exit-1 bug).
+    """
+    env = dict(os.environ)
+    for key in list(env):
+        if key in _SESSION_MARKER_EXACT or key.startswith(_SESSION_MARKER_PREFIXES):
+            del env[key]
+    return env
+
 
 async def query(
     prompt: str,
@@ -100,6 +127,8 @@ async def query(
             stdin=asyncio.subprocess.PIPE,
             stdout=asyncio.subprocess.PIPE,
             stderr=asyncio.subprocess.PIPE,
+            env=_clean_subprocess_env(),
+            cwd=os.path.expanduser("~"),
         )
     except FileNotFoundError:
         raise RuntimeError(
@@ -125,9 +154,20 @@ async def query(
         raise RuntimeError(f"Claude CLI timed out after {timeout}s")
 
     if proc.returncode != 0:
-        stderr = stderr_b.decode("utf-8", errors="replace").strip()[:500] or "unknown error"
+        # Surface the real cause: the CLI sometimes writes its diagnostic to
+        # stdout (or nowhere) rather than stderr, so a stderr-only message
+        # collapsed to "unknown error" and hid the actual failure (#85).
+        stderr = stderr_b.decode("utf-8", errors="replace").strip()
+        stdout = stdout_b.decode("utf-8", errors="replace").strip()
+        diagnostic = stderr or stdout or "no output on stderr/stdout"
         size_info = f"; prompt_len={len(full_prompt):,} chars" if len(full_prompt) > 100_000 else ""
-        raise RuntimeError(f"Claude CLI failed (exit {proc.returncode}): {stderr}{size_info}")
+        logger.error(
+            "claude -p failed (exit %s): stderr=%r stdout=%r",
+            proc.returncode, stderr[:500], stdout[:500],
+        )
+        raise RuntimeError(
+            f"Claude CLI failed (exit {proc.returncode}): {diagnostic[:500]}{size_info}"
+        )
 
     stdout = stdout_b.decode("utf-8", errors="replace").strip()
     if not stdout:
@@ -232,6 +272,7 @@ async def query_streaming(
             stdout=asyncio.subprocess.PIPE,
             stderr=asyncio.subprocess.PIPE,
             cwd=cwd,
+            env=_clean_subprocess_env(),
         )
     except FileNotFoundError:
         yield {
diff --git a/mcp-server/tests/test_claude_session.py b/mcp-server/tests/test_claude_session.py
new file mode 100644
index 0000000..510d385
--- /dev/null
+++ b/mcp-server/tests/test_claude_session.py
@@ -0,0 +1,44 @@
+from __future__ import annotations
+
+import os
+
+from legal_mcp.services import claude_session as cs
+
+
+def test_clean_env_strips_session_markers(monkeypatch):
+    """Nested claude -p must not inherit the parent session markers (#85)."""
+    for k in (
+        "CLAUDECODE",
+        "CLAUDE_CODE_ENTRYPOINT",
+        "CLAUDE_CODE_SESSION_ID",
+        "CLAUDE_CODE_EXECPATH",
+        "CLAUDE_CODE_SSE_PORT",
+        "CLAUDE_AGENT_SDK_VERSION",
+        "AI_AGENT",
+        "CLAUDE_EFFORT",
+    ):
+        monkeypatch.setenv(k, "x")
+
+    env = cs._clean_subprocess_env()
+
+    assert "CLAUDECODE" not in env
+    assert "AI_AGENT" not in env
+    assert "CLAUDE_EFFORT" not in env
+    assert not any(k.startswith("CLAUDE_CODE_") for k in env)
+    assert not any(k.startswith("CLAUDE_AGENT_") for k in env)
+
+
+def test_clean_env_keeps_auth_and_path(monkeypatch):
+    """Auth/config + PATH/HOME must survive — they are needed by the CLI."""
+    monkeypatch.setenv("CLAUDECODE", "1")
+    monkeypatch.setenv("CLAUDE_CONFIG_DIR", "/home/chaim/.claude")
+    monkeypatch.setenv("ANTHROPIC_BASE_URL", "https://example")
+    monkeypatch.setenv("PATH", os.environ.get("PATH", "/usr/bin"))
+
+    env = cs._clean_subprocess_env()
+
+    # CLAUDE_CONFIG_DIR carries credentials — must NOT be stripped.
+    assert env.get("CLAUDE_CONFIG_DIR") == "/home/chaim/.claude"
+    assert env.get("ANTHROPIC_BASE_URL") == "https://example"
+    assert "PATH" in env
+    assert "CLAUDECODE" not in env