Model Rule 1.8

Reporter's Explanation of Changes

Caption

Change to "Conflict of Interest: Current Clients: Specific Rules"

The caption has been changed to parallel the change in Rule 1.7 and to more accurately reflect the scope of the Rule.

Rule 1.8(a): Business Transactions between Client and Lawyer

TEXT:

1. Paragraph (a)(1): Stylistic changes

The changes to this paragraph are grammatical and stylistic. No change in substance is intended.

2. Paragraph (a)(2): Client to be advised in writing of desirability of seeking counsel

The Commission recommends adding a requirement that the client be advised in writing of the desirability of seeking the advice of independent legal counsel, in addition to affording the client a reasonable opportunity to seek such counsel. A number of jurisdictions have adopted such a requirement. The Commission believes these additional requirements are necessary for the protection of clients; moreover, some are already imposed by common-law decisions providing for the voidability of such transactions by clients.

3. Paragraph (a)(3): Informed consent to essential terms of transaction and lawyer's role

The Commission recommends clarifying the nature of the consent to be given by the client under this paragraph. Lawyers have reported considerable confusion regarding its meaning. Several states have specified that the consent refers to the essential terms of the transaction. Case law in some jurisdictions goes further and requires disclosure regarding the risks of the transaction. The Commission recommends informed consent to both the terms of the transaction and the lawyer's role, including whether the lawyer is representing the client in the transaction.

4. Paragraph (a)(3): Informed consent in writing signed by client

The Commission is proposing a number of revisions to the Rules that would require the lawyer to document certain communications or agreements in writing. The Commission believes that it should be clear in all instances what type of writing is required, particularly whether the writing needs to be signed by the client. Certain terms are defined in Rule 1.0, including the term "writing." Because there are only a few instances in which a client's signature is required, the Commission is recommending that those instances be clearly stated in the text of the Rule. The Commission believes that, because of the risk of overreaching in business transactions between lawyers and clients, the client's informed consent to both the essential terms of the transaction and the lawyer's role should be obtained in a writing signed by the client.

COMMENT:

Caption "Business" was added to the caption to clarify its meaning.

[1] This Comment was revised to state the rationale for the Rule and to clarify which transactions are covered.

[2] This new Comment emphasizes that the lawyer must comply with the requirements of all three subparagraphs. It also elaborates on the nature of the disclosure the lawyer must make under paragraph (a)(3), including a cross-reference to Rule 1.0(e), which gives the general definition of informed consent.

[3] This new Comment clarifies the relationship between Rules 1.8(a) and 1.7, which has not been well understood by lawyers. Both Rules apply whenever the client reasonably expects that the lawyer is representing the client in the transaction itself or when the lawyer's financial interest in the transaction otherwise creates a significant risk to the lawyer's representation of the client in another matter. Thus, Rule 1.8(a) focuses on the risks of the transaction itself, whereas Rule 1.7 focuses on the risks of the representation.

[4] This new Comment clarifies how paragraph (a) applies when the client is represented by independent counsel in the transaction.

Rule 1.8(b): Use of Information Related to Representation

TEXT:

1. Replace "consent after consultation" with "gives informed consent"

The Commission is recommending that throughout the Rules the phrase "consent after consultation" be replaced with "gives informed consent," as defined in Rule 1.0(e). No change in substance is intended.

2. Replace "Rule 1.6 or Rule 3.3" with "these Rules"

The Commission recommends that the enumeration of applicable Rules should be in commentary rather than in text. No change in substance is intended.

COMMENTARY:

Caption The caption was added to set off new Comment [5].

[5] This new Comment states the rationale for the Rule and gives examples of both prohibited and permissible uses of information relating to the representation.

Rule 1.8(c): Gifts to Lawyers

TEXT:

1. Add prohibition on lawyer solicitation of substantial gifts

The Commission recommends adding a prohibition on a lawyer soliciting a substantial gift from a client, in order to avoid the danger of overreaching. The current Rule has been criticized for regulating gifts made by instrument but not those made in other ways.

2. Change in definition of relationships that fall within the exception for lawyers related to client or donee

The Commission has retained the exception for related lawyers. It is recommending changes to clarify that the same degree of relatedness applies in determining whether the donee is related to both the lawyer and the client and to adopt the more expansive and flexible definition of the ABA Model Code of Judicial Conduct (defining "member of the judge's family").

COMMENTARY:

Caption The caption has been added to set off the following Comments.

[6] Current Comment [2] has been revised to reflect the Commission's decision to prohibit lawyer solicitation of nontestamentary gifts, except when such gifts are insubstantial. It also reminds lawyers that, while the Rule does not prohibit lawyers from accepting substantial gifts not solicited by the lawyer, such gifts may be voidable by the client under the doctrine of undue influence.

[7] This Comment is also based on current Comment [2]. The changes are stylistic. No change in substance is intended.

[8] This new Comment clarifies a present ambiguity by addressing the question of whether appointment of the lawyer or the lawyer's firm as executor constitutes a "substantial gift" within the meaning of this Rule. The Commission believes that such appointments are not "gifts" but that they may create a conflict of interest between the client and the lawyer that would be governed by Rule 1.7.

Rule 1.8(d): Literary Rights

TEXT:

No change recommended.

COMMENTARY:

[9] The sole revision to current Comment [3] adds an additional cross-reference to Rule 1.8(a).

Proposed Rule 1.8(e): Financial Assistance

TEXT:

No change recommended.

COMMENTARY:

Caption The caption has been added to set off the new Comment.

[10] This new Comment states the rationale for the Rule, explains that it covers both making and guaranteeing loans and indicates more specifically the kind of expenses that lawyers are permitted to advance. No change in substance is intended.

Rule 1.8(f): Person Paying for Lawyer's Services

TEXT:

Change "consents after consultation" to "gives informed consent"

The Commission is recommending that throughout the Rules the phrase "consent after consultation" be replaced with "gives informed consent," as defined in Rule 1.0(e). No change in substance is intended.

COMMENTARY:

[11] This new Comment replaces current Comment [4]. It presents a more detailed explanation of the rationale for and requirements of the Rule. It also clarifies that a client who pays for the representation of a co-client is governed by this Rule. Finally, it adds a cross-reference to Rule 5.4(c).

[12] This new Comment explains the relationship between this Rule and Rule 1.7.

Rule 1.8(g): Aggregate Settlements

TEXT:

1. Replace "consents after consultation" with "gives informed consent"

The Commission is recommending that throughout the Rules the phrase "consent after consultation" be replaced with "gives informed consent," as defined in Rule 1.0(e). No change in substance is intended.

2. Client consent required to be "in a writing signed by the client"

The Commission is proposing a number of revisions to the Rules that would require the lawyer to document certain communications or agreements in writing. The Commission believes that it should be clear in all instances what type of writing is required, particularly, whether the writing needs to be signed by the client. Certain terms are defined in Rule 1.0, including the term "writing." Because there are only a few instances in which a client's signature is required, the Commission is recommending that those instances be clearly stated in the text of the Rule. The Commission believes that because aggregate settlements entail settlement offers posing potentially serious conflicts of interest between the clients, each client's informed consent should be obtained in a writing signed by the client.

COMMENTARY:

Caption The caption has been added to set off the new Comment.

[13] This new Comment states the rationale for the Rule, which is an application of Rules 1.7 and 1.2. In addition, it reminds lawyers involved in class actions that, while this Rule does not apply, lawyers must comply with procedural requirements regarding notification of the class.

Rule 1.8(h): Limiting Liability and Settling Malpractice Claims

TEXT:

1. Break Rule into two paragraphs

The purpose of this change is to clarify the two separate obligations under this Rule. No change in substance is intended.

2. Paragraph (h)(1): Delete "unless permitted by law"

The Commission is unaware of any statute or case law that addresses the question of whether such agreements should be permitted. Given that the phrase "unless permitted by law" appears to play no significant role in addressing these conflicts, the Commission is recommending that such agreements be permitted when the client is independently represented. The Commission believes that there may be good reasons to permit a lawyer to limit liability prospectively and that the client is adequately protected when represented by independent counsel.

3. Paragraph (h)(2): Add "potential claim"

The purpose of this change is to clarify that the Rule applies even when the client has not actually asserted a claim, for example, when the lawyer asks the client to sign a release as part of settling a dispute over legal fees.

4. Paragraph (h)(2): Reword advice to obtain independent counsel

The purpose of this change is to conform the language to that used in Rule 1.8(a). No change in substance is intended.

COMMENTARY:

Caption The caption has been changed to better reflect the two separate obligations in the Rule.

[14] This new Comment states the rationale for paragraph (h)(1). It also addresses three questions that frequently arise concerning the application of the Rule - whether the Rule prohibits agreements requiring arbitration of a legal malpractice claim, whether the Rule applies to lawyers practicing in limited-liability entities and whether the Rule prohibits agreements limiting the scope of the representation.

[15] This new Comment states the rationale for paragraph (h)(2).

Deletion of Current Rule 1.8(i): Family Relationships between Lawyers

TEXT:

At the time this Rule was first enacted, there was concern that lawyer-spouses would be unable to find employment in different firms in the same city because of the fear that one spouse's conflicts would result in the disqualification of the other spouse's law firm. Thus, the primary purpose for treating such conflicts under Rule 1.8 rather than Rule 1.7 was to avoid the imputation of the conflict under Rule 1.10. The Rule, however, is both under and over-inclusive. It is underinclusive because it does not address personal-interest conflicts arising from close family or family-like relationships other than those enumerated in the Rule, such as couples who live together in a relationship approximating marriage. Moreover, it is limited to directly adverse conflicts and does not include material limitation conflicts, for example when lawyer-spouses represent coplaintiffs or codefendants with significantly different positions in the litigation. The Rule is overinclusive because it permits the representation with the consent of the client, regardless of whether the conflict would otherwise be deemed nonconsentable under Rule 1.7. Moreover, while imputation is unnecessary in most cases, in some instances it may be indicated. Under the changes proposed for Rule 1.10, personal interest conflicts are not imputed unless they present a significant risk of materially limiting the representation of the client by the remaining lawyers in the firm. As a result of these changes, the Commission is recommending deletion of this Rule and the addition of a Comment to Rule 1.7 addressing conflicts of interest arising from a lawyer's family relationships. See Rule 1.7, Comment [11].

COMMENTARY:

[6] The Commission is proposing deleting this Comment and the associated caption along with the text.

Rule 1.8(i): Acquiring Proprietary Interest in Litigation

TEXT:

Substitute "authorized by law" for "granted by law"

The purpose of this change is to clarify that the exemption applies to all liens authorized by substantive law, including those liens that are contractual in nature.

COMMENTARY:

Caption The caption has been changed to better reflect the meaning of the Rule.

[16] This expanded Comment further explains the rationale for the Rule and adds a cross-reference to Rule 1.8(a), which will apply when a lawyer acquires by contract a security interest in property other than that recovered through the lawyer's effort in the litigation.

Rule 1.8(j): Client-Lawyer Sexual Relationships

TEXT:

Adopt new per se Rule prohibiting most client-lawyer sexual relationships

The Commission recommends following the lead of a number of jurisdictions that have adopted Rules explicitly regulating client-lawyer sexual conduct. Although recognizing that most egregious behavior of lawyers can be addressed through other Rules, the Commission believes that such Rules may not be sufficient. Given the number of complaints of lawyer sexual misconduct that have been filed, the Commission believes that having a specific Rule has the advantage not only of alerting lawyers more effectively to the dangers of sexual relationships with clients but also of alerting clients that the lawyer may have violated ethical obligations in engaging in such conduct.

The Commission further recommends a total, rather than a partial, ban on client-lawyer relationships, except for those pre-dating the formation of the client-lawyer relationship. Partial bans, i.e., those that prohibit relationships only when they involve coercion or cause the lawyer to act incompetently, do not effectively address the problem of conflicts of interest, particularly the difficulty of obtaining an adequately informed consent from the client. Moreover, they do little to prevent problems from arising in the first place.

COMMENTARY:

Caption The caption has been added to set off the new Comments.

[17] This new Comment states the rationale for the Rule.

[18] This new Comment states the rationale for the Rule's exception for pre-existing relationships, noting that even though the Rule does not apply, such relationships may give rise to conflicts of interest under Rule 1.7.

[19] This new Comment was added to explain how the Rule is applied in the case of an organizational client.

Paragraph (k): Imputation of Prohibitions

TEXT:

1. Treat imputation under Rule 1.8 rather than 1.10

The Commission is recommending that imputation of the prohibitions in Rule 1.8 be addressed by Rule 1.8 rather than by Rule 1.10. Under paragraph (k), an associated lawyer may not necessarily proceed with the informed consent of the client (as the lawyer could under Rule 1.10); moreover, there is no exception here (as there is in Rule 1.10) for personal-interest conflicts of the individually disqualified lawyer.

2. Impute all prohibitions except paragraph (j)

Under current Rule 1.10, only the prohibition of paragraph (c) (gifts to lawyers) is imputed to other lawyers in a firm. The Commission recommends that the prohibition of all paragraphs except (j) be so imputed.

COMMENTARY:

Caption The caption has been added to set off the new Comment.

[20] This new Comment explains the rationale for paragraph (k).

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