Transactions and Relationships Between Lawyer and Client - June 29 Flashcards
In general, may a lawyer enter into a business transaction with a client or knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to a client? (Q)
No. In general, a lawyer may not enter into a business transaction with a client or knowingly acquire an ownership or other pecuniary interest adverse to a client. This rule also applies to all lawyers in that lawyer’s firm.
However, this prohibition does not apply if:
the terms of the transaction or acquisition are fair and reasonable to the client and are fully disclosed to the client in writing in a manner that the client can reasonably understand;
the client is advised in writing of the importance of obtaining advice from independent counsel and is given a reasonable opportunity to obtain that advice; and
the client gives informed consent, in a signed writing, to the transaction’s essential terms and the lawyer’s role in the transaction, including whether the lawyer is representing the client in the transaction.
Does the prohibition on a lawyer entering a business transaction with a client apply to ordinary commercial transactions with a client in the course of the client’s business? (Q)
No. The general prohibition on a lawyer entering a business transaction with a client does not apply to a standard commercial transaction between the lawyer and a client for products or services that the client generally markets to others. In that case, the lawyer has no advantage in dealing with the client, and the restrictions on the lawyer are unnecessary.
If a lawyer enters into a business transaction with a client, do the MRPC impose heightened responsibilities if the lawyer simultaneously represents the client in that transaction? (Q)
Yes. The MRPC impose heightened responsibilities on a lawyer who enters a business transaction with a client while simultaneously representing the client in that transaction. In this situation, the lawyer must obtain the client’s informed consent after disclosing the risk of conflict associated with the lawyer’s dual role as legal adviser and participant in the transaction (e.g., that the lawyer may structure the transaction or give legal advice in a way that favors the lawyer’s interests over the client’s). In some situations, the conflict of interest may be so severe as to be nonconsentable.
A lawyer was drafting a will for a client. During one of their meetings, the lawyer learned that the client needed money to open an ice-cream parlor. The lawyer offered to lend the client the necessary money. The client accepted the lawyer’s offer.
Must the lawyer comply with the ethical rules for entering into a business transaction with a client with respect to this loan? (Q)
Yes. The lawyer must comply with the ethical rules. In general, for a lawyer to enter into a business transaction with a client, the lawyer must:
ensure the transaction and terms are fair to the client and fully disclosed to the client in writing;
provide the client an opportunity to seek advice from independent legal counsel; and
obtain the client’s written, signed informed consent to the transaction’s essential terms and the lawyer’s role.
These requirements generally must be met if a lawyer enters into a business, property, or financial transaction with a client, even if the transaction is not closely related to the subject matter of the representation.
Here, the loan was for the client’s ice-cream parlor and was unrelated to the will representation. However, it was nonetheless a business transaction between the lawyer and the client. Thus, the lawyer must comply with the ethical rules.
A lawyer was drafting trust documents for a client, who was a plastic surgeon. At a meeting, the client described the types of nose jobs she typically performed. The lawyer decided that he would like the client to operate on his own nose. The client agreed to perform the surgery on the lawyer’s nose and did so the next day. The lawyer subsequently finished the trust documents.
Was the lawyer’s purchase of the surgeon’s services subject to the ethical rules for entering into a business transaction with a client? (Q)
No. The purchase was not subject to the ethical rules about transactions with clients. Although a lawyer generally must meet specific requirements to enter into a business transaction with a client (i.e., ensuring the terms are fair and disclosed to the client, providing the client the opportunity to seek independent counsel, and obtaining informed consent), these requirements do not apply to a standard commercial transaction between the lawyer and a client for products or services that the client generally markets to others. In that case, the lawyer has no advantage in dealing with the client and the restrictions on the lawyer are unnecessary.
Here, although the client operated on the lawyer’s nose, this was a service that the client generally marketed to others as a plastic surgeon. Thus, the ethical restrictions on the lawyer did not apply to this standard commercial transaction.
In general, may a lawyer accept compensation for a representation from someone other than the client? (Q)
No. In general, a lawyer may not accept compensation for a representation from someone other than the client. This arrangement presents the danger that the lawyer will be influenced in her professional judgment and loyalty by the person paying the fee instead of by the client. This prohibition applies both to an individual lawyer and to all lawyers in that lawyer’s firm.
However, the lawyer may accept third-party payment if:
the client gives informed consent,
the fee arrangement does not interfere with the lawyer’s independent professional judgment or other aspects of the client-lawyer relationship, and
the lawyer protects all information related to the representation as required by the general rules of client confidentiality.
