Reporter's Explanation of Changes
Ethics 2000 Commission Draft for Public Comment
March 23, 1999
Change caption to read "Concurrent Conflict of Interest: Specific Rules"
The Commission recommends changing the caption to more accurately reflect the scope of the Rule, which addresses concurrent conflicts. In addition, the Commission recommends the use of "specific rules" in place of "prohibited transactions," because many of the Rules do not in fact prohibit the covered conduct but rather establish conditions under which the transactions may go forward.
RULE 1.8(a): BUSINESS TRANSACTIONS WITH CLIENTS
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 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 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, as does 207 of the Restatement of the Law Governing Lawyers. 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.
4. Informed consent to the essential terms of the transaction and the lawyer's role
The Commission recommends clarifying the nature of 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.
COMMENT:
[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 of the Rule. It also elaborates on the nature of the disclosure the lawyer must make under paragraph (a)(3), including a cross reference to Rule 1.4, which, as proposed, 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.
RULE 1.8(b): USE OF INFORMATION RELATED TO REPRESENTATION
TEXT:
1. Replace "consent after consultation" with "gives informed consent"
As set forth in the memorandum accompanying the proposed amendments to Rule 1.4, the Commission is recommending that throughout the Rules the phrase "consent after consultation" be replaced with "gives informed consent," as defined in Rule 1.4. No substantive change is intended.
2. Reference to Rule 3.3 (candor toward the tribunal) in brackets
The bracketed language suggests that, after Rule 1.6 is finalized, an amendment may be necessary to ensure parallel treatment of the recognized exceptions to the duty of confidentiality owed to current clients.
COMMENT:
[4] 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. Addition of prohibition on lawyer solicitation of substantial gifts
The Commission recommends adding a prohibition on a lawyer soliciting a substantial gift from a client. The present Rule has been criticized for regulating gifts made by instrument but not those made in other ways. Restatement 208 goes further and prohibits lawyers from accepting such gifts, even when they have not been solicited. The Commission rejected this approach on the grounds that the Rule should directly address the evil sought to be avoided, which is the danger of overreaching. The exception is retained for lawyers related to the client.
2. Elimination of specification of relatives
This proposed change is intended to clarify that the same degree of relatedness applies in determining whether the donee is related to both the lawyer and the client. In addition, the Commission reviewed the category of relationships to determine if there were any other relationships that should be included. The Commission recommends adopting a definition taken from the Code of Judicial Conduct (defining "member of the judge's family") and moving this definition to the Comment.
COMMENT:
[5] This Comment has been revised to reflect the Commission's decision to prohibit lawyer solicitation of non-testamentary 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. This Comment also sets forth the definition of "relative" for purposes of this Rule.
[6] A cross reference to the statement in the preceding Comment regarding degrees of relatedness has been added.
[7] 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.
COMMENT:
[8] The sole revision adds an additional cross reference to Rule 1.8(a).
PROPOSED RULE 1.8(e): FINANCIAL ASSISTANCE
TEXT:
No change recommended.
COMMENT:
[9] 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 substantive change is intended.
RULE 1.8(f): THIRD-PARTY PAYMENT AND DIRECTION
TEXT:
1. Adding "or direction" to both the text and the caption to the Rule.
This addition is intended to clarify that the Rule covers not only accepting compensation but also taking direction from a person other than the client.
2. Paragraph (1): Requiring written informed consent under conditions stated in Rule 1.7
As set forth above, the Commission is recommending that "consent after consultation" be replaced with "gives informed consent" throughout the Rules. In addition, the Commission is recommending a new requirement that the consent to third-party payment be given in writing in all cases. Finally, by referring to "the conditions stated in Rule 1.7," the Commission is recommending a clear statement that there are some circumstances under which conflict between a client and a third-party payer (whether or not a co-client) is so severe that the acceptance of payment by the third-party payer is prohibited, even with the informed consent of the client. This is the position of the Restatement, following case law in some jurisdictions.
COMMENT:
[10] This new Comment replaces former 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 considered a third-party payer.
[11] This new Comment explains the relationship between this Rule and Rule 1.7.
[12] This new Comment explains when lawyers may accept direction from agents designated by a client to make decisions on the client's behalf.
[13] This new Comment explains when lawyers may accept direction from third parties who have an interest in the matter.
[14] This new Comment describes how the Rule applies when the third-party payer is an insurance company. It is not intended to be comprehensive but rather to suggest some of the applications of the rule. This Comment and Comment [15] replace material now found in Comment [10] of Rule 1.7.
[15] This new Comment describes how the Rule applies when the third-party payer is an employer, another common circumstance. Again, it is not intended to be comprehensive but rather to suggest some of the applications of the Rule. This Comment and Comment [14] replace material now found in Comment [10] of Rule 1.7.
RULE 1.8(g): AGGREGATE SETTLEMENTS
TEXT:
1. Replace "consent after consultation" with "gives informed consent in writing"
As set forth in the memorandum accompanying proposed amendments to Rule 1.4, the Commission is recommending that throughout the Rules the phrase "consent after consultation" be replaced with "gives informed consent," as defined in Rule 1.4. In addition, the Commission is recommending a new requirement that the consent to the agreement be given in writing in all cases.
2. Possible further reconsideration of Rule in context of mass torts
The Commission has not yet considered changes that may be recommended to facilitate representation in mass tort cases. Suggested changes will be considered at a future time, along with other ethical issues arising from mass torts.
COMMENT:
[16] 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 sections.
The purpose of this proposed change is to clarify the two separate obligations under this Rule. No substantive change is intended.
2. Paragraph (h)(1): delete "unless permitted by law and the client is independently represented in making the agreement"
The purpose of this proposed change is to adopt a per se rule prohibiting prospective limitations on liability, as has been done in a number of jurisdictions. This is not a significant change because it is virtually impossible to think of a situation in which such agreements are now permitted by law.
3. Paragraph (h)(2): add "potential claim"
The purpose of this proposed 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 proposed change is to conform the language to that used in Rule 1.8(a). No substantive change is intended.
COMMENT:
[17] 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.
[18] This new Comment states the rationale for paragraph (h)(2).
RULE 1.8(i): LAWYER'S FAMILY RELATIONSHIPS
TEXT:
1. Extending covered relationships
The purpose of this proposed change is to recognize the need to extend coverage of the Rule to relationships closely approximating marriage. There may be other relationships raising conflicts of interest, but these relationships can be addressed under Rule 1.7 on a case-by-case basis, as set forth in Comment [21].
2. Limitation of conflict to representation "in the same or in a substantially related matter"
The purpose of this proposed change is to narrow the scope of representations in which client consent is required. There appears to be no reason why client consent should be required when the lawyer's spouse or other relative represents the opponent in an entirely unrelated case.
3. Replace "consent after consultation" with "gives informed consent in writing"
As set forth in the memorandum accompanying proposed amendments to Rule 1.4, the Commission is recommending that throughout the Rules the phrase "consent after consultation" be replaced with "gives informed consent," as defined in Rule 1.4. The reference to "the conditions stated in Rule 1.7" incorporates that Rule's standards with regard to non-consentability.
COMMENT:
[19] This Comment retains present Comment [6]. The sole recommended change is that under Rule 1.10, as presently proposed, the conflict will be imputed in the limited case in which there is a significant risk that the representation of one or more of the clients may be materially limited as a result of the conflict.
[20] This new Comment states the rationale for the Rule.
[21] This new Comment explains the relationship between this Rule and Rule 1.7.
RULE 1.8(j): 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.
COMMENT:
[22] 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(k): CLIENT-LAWYER SEXUAL RELATIONSHIPS
TEXT:
Adoption of 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.
COMMENT:
[23] This new Comment states the rationale for the Rule.
[24] This new Comment states the rationale for the Rule's exception for pre-existing relationships, noting that even though the Rule does not apply, sexual relationships may give rise to conflicts of interest under Rule 1.7.