1.8 Conflict-of-Interest: Current Clients: Specific Rules

(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:

(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client;

(2) the client is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel on the transaction; and

(3) the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and the lawyer’s role in the transaction, including whether the lawyer is representing the client in the transaction.

(b) A lawyer shall not use confidences or secrets of a client to the disadvantage of the client unless the client gives informed consent, except as permitted or required by these Rules.

(c) A lawyer shall not solicit any substantial gift from a client, including a testamentary gift, or prepare on behalf of a client an instrument giving the lawyer or a person related to the lawyer any substantial gift unless the lawyer or other recipient of the gift is related to the client. For purposes of this paragraph, related persons include a spouse, child, grandchild, parent, grandparent or other relative or individual with whom the lawyer or the client maintains a close, familial relationship.

(d) Prior to the conclusion of representation of a client, a lawyer shall not make or negotiate an agreement giving the lawyer literary or media rights to a portrayal or account based in substantial part on confidences or secrets of the client.

(e) A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that:

(1) a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter; and

(2) a lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client.

(f) A lawyer shall not accept compensation for representing a client from one other than the client unless:

(1) the client gives informed consent;

(2) there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship; and

(3) the confidences and secrets of a client are protected as required by Rule 1.6.

(g) A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients, or in a criminal case an aggregated agreement as to guilty or nolo contendere pleas, unless each client gives informed consent, in a writing signed by the client. The lawyer’s disclosure shall include the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement.

(h) A lawyer shall not:

(1) make an agreement prospectively limiting the lawyer’s liability to a client for malpractice; or

(2) settle a claim or potential claim for such liability with an unrepresented client or former client unless that person is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel in connection therewith.

(i) A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client, except that the lawyer may:

(1) acquire a lien authorized by law against the proceeds of such action or litigation to secure the lawyer’s fee or expenses; and

(2) contract with a client for a reasonable contingent fee in a civil case, subject to the limitations in Rule 1.5(c) and (d).

(j) [Reserved]

(k) While lawyers are associated in a firm, a prohibition in the foregoing paragraphs (a) through (i) that applies to any one of them shall apply to all of them.

(l) A lawyer related to another lawyer (as parent, child, sibling, domestic associate or spouse), ordinarily may not represent a client in a matter where the related lawyer is representing another party who is or shall be adverse to the lawyer’s client, unless each client gives informed consent, confirmed in writing.


COMMENT

Business Transactions Between Client and Lawyer

[1] A lawyer’s legal skill and training, together with the relationship of trust and confidence between lawyer and client, create the possibility of overreaching when the lawyer participates in a business, property or financial transaction with a client, for example, a loan or sales transaction or a lawyer investment on behalf of a client. The requirements of paragraph (a) must be met even when the transaction is not closely related to the subject matter of the representation, as when a lawyer drafting a will for a client learns that the client needs money for unrelated expenses and offers to make a loan to the client. The Rule applies to lawyers engaged in the sale of goods or services related to the practice of law, for example, the sale of title insurance or investment services to existing clients of the lawyer’s legal practice. See Rule 5.7. It also applies to lawyers purchasing property from estates they represent. It does not apply to ordinary fee arrangements between client and lawyer, which are governed by Rule 1.5, although its requirements must be met when the lawyer accepts an interest in the client’s business or other nonmonetary property as payment of all or part of a fee. In addition, the Rule does not apply to standard commercial transactions between the lawyer and the client for products or services that the client generally markets to others, for example, banking or brokerage services, medical services, products manufactured or distributed by the client, and utilities’ services. In such transactions, the lawyer has no advantage in dealing with the client, and the restrictions in paragraph (a) are unnecessary and impracticable.

[2] Paragraph (a)(1) requires that the transaction itself be fair to the client and that its essential terms be communicated to the client, in writing, in a manner that can be reasonably understood. Paragraph (a)(2) requires that the client also be advised, in writing, of the desirability of seeking the advice of independent legal counsel. It also requires that the client be given a reasonable opportunity to obtain such advice. Paragraph (a)(3) requires that the lawyer obtain the client’s informed consent, in a writing signed by the client, both to the essential terms of the transaction and to the lawyer’s role. When necessary, the lawyer should discuss both the material risks of the proposed transaction, including any risk presented by the lawyer’s involvement, and the existence of reasonably available alternatives and should explain why the advice of independent legal counsel is desirable. See Rule 1.0(e) (definition of informed consent).

[3] The risk to a client is greatest when the client expects the lawyer to represent the client in the transaction itself or when the lawyer’s financial interest otherwise poses a significant risk that the lawyer’s representation of the client will be materially limited by the lawyer’s financial interest in the transaction. Here the lawyer’s role requires that the lawyer must comply, not only with the requirements of paragraph (a), but also with the requirements of Rule 1.7. Under that Rule, the lawyer must disclose the risks associated with the lawyer’s dual role as both legal adviser and participant in the transaction, such as the risk that the lawyer will structure the transaction or give legal advice in a way that favors the lawyer’s interests at the expense of the client. Moreover, the lawyer must obtain the client’s informed consent. In some cases, the lawyer’s interest may be such that Rule 1.7 will preclude the lawyer from seeking the client’s consent to the transaction.

[4] If the client is independently represented in the transaction, paragraph (a)(2) of this Rule is inapplicable, and the paragraph (a)(1) requirement for full disclosure is satisfied either by a written disclosure by the lawyer involved in the transaction or by the client’s independent counsel. The fact that the client was independently represented in the transaction is relevant in determining whether the agreement was fair and reasonable to the client as paragraph (a)(1) further requires.

Use of Confidences and Secrets

[5] Use of confidences and secrets of the client to the disadvantage of the client violates the lawyer’s duty of loyalty. Paragraph (b) applies when the information is used to benefit either the lawyer or a third person, such as another client or business associate of the lawyer. For example, if a lawyer learns that a client intends to purchase and develop several parcels of land, the lawyer may not use that information to purchase one of the parcels in competition with the client or to recommend that another client make such a purchase. The Rule does not prohibit uses that do not disadvantage the client. Paragraph (b) prohibits disadvantageous use of client information unless the client gives informed consent, except as permitted or required by these Rules. See Rules 1.2(d), 1.6, 1.9(c), 3.3, 4.1(b), 8.1 and 8.3.

Gifts to Lawyers

[6] A lawyer may accept a gift from a client, if the transaction meets general standards of fairness. For example, a simple gift such as a present given at a holiday or as a token of appreciation is permitted. If a client offers the lawyer a more substantial gift, paragraph (c) does not prohibit the lawyer from accepting it, although such a gift may be voidable by the client under the doctrine of undue influence, which treats client gifts as presumptively fraudulent. In any event, due to concerns about overreaching and imposition on clients, a lawyer may not suggest that a substantial gift be made to the lawyer or for the lawyer’s benefit, except where the lawyer is related to the client as set forth in paragraph (c).

[7] If effectuation of a substantial gift requires preparing a legal instrument such as a will or conveyance the client should have the detached advice that another lawyer can provide. The sole exception to this Rule is where the client is a relative of the donee.

[8] This Rule does not prohibit a lawyer from seeking to have the lawyer or a partner or associate of the lawyer named as executor of the client’s estate or to another potentially lucrative fiduciary position. Nevertheless, such appointments will be subject to the general conflict-of-interest provision in Rule 1.7 when there is a significant risk that the lawyer’s interest in obtaining the appointment will materially limit the lawyer’s independent professional judgment in advising the client concerning the choice of an executor or other fiduciary. In obtaining the client’s informed consent to the conflict, the lawyer should advise the client concerning the nature and extent of the lawyer’s financial interest in the appointment, as well as the availability of alternative candidates for the position.

Literary Rights

[9] An agreement by which a lawyer acquires literary or media rights concerning the conduct of the representation creates a conflict between the interests of the client and the personal interests of the lawyer. Measures suitable in the representation of the client may detract from the publication value of an account of the representation. Paragraph (d) does not prohibit a lawyer representing a client in a transaction concerning literary property from agreeing that the lawyer’s fee shall consist of a share in ownership in the property, if the arrangement conforms to Rule 1.5 and paragraphs (a) and (i).

Financial Assistance

[10] Lawyers may not subsidize lawsuits or administrative proceedings brought on behalf of their clients, including making or guaranteeing loans to their clients for living expenses, because to do so would encourage clients to pursue lawsuits that might not otherwise be brought and because such assistance gives lawyers too great a financial stake in the litigation. These dangers do not warrant a prohibition on a lawyer lending a client court costs and litigation expenses, including the expenses of medical examination and the costs of obtaining and presenting evidence, because these advances are virtually indistinguishable from contingent fees and help ensure access to the courts. Repayment of an advance of these costs and expenses may be waived by the lawyer.

Person Paying for a Lawyer’s Services

[11] Lawyers are frequently asked to represent a client under circumstances in which a third person will compensate the lawyer, in whole or in part. The third person might be a relative or friend, an indemnitor (such as a liability insurance company) or a co-client (such as a corporation sued along with one or more of its employees). Because third-party payers frequently have interests that differ from those of the client, including interests in minimizing the amount spent on the representation and in learning how the representation is progressing, lawyers are prohibited from accepting or continuing such representations unless the lawyer determines that there will be no interference with the lawyer’s independent professional judgment and there is informed consent from the client. See also Rule 5.4(c) (prohibiting interference with a lawyer’s professional judgment by one who recommends, employs or pays the lawyer to render legal services for another).

[12] Sometimes, it will be sufficient for the lawyer to obtain the client’s informed consent regarding the fact of the payment and the identity of the third-party payer. If, however, the fee arrangement creates a conflict-of-interest for the lawyer, then the lawyer must comply with Rule. 1.7. The lawyer must also conform to the requirements of Rule 1.6 concerning confidentiality. Under Rule 1.7(a), a conflict-of-interest exists if there is significant risk that the lawyer’s representation of the client will be materially limited by the lawyer’s own interest in the fee arrangement or by the lawyer’s responsibilities to the third-party payer (for example, when the third-party payer is a co-client). Under Rule 1.7(b), the lawyer may accept or continue the representation with the informed consent of each affected client, unless the conflict is nonconsentable under paragraph 1.7(c). Under Rule 1.7(b), the informed consent must be confirmed in writing.

Aggregate Settlements

[13] Differences in willingness to make or accept an offer of settlement are among the risks of common representation of multiple clients by a single lawyer. Under Rule 1.7, this is one of the risks that should be discussed before undertaking the representation, as part of the process of obtaining the clients’ informed consent. In this circumstance the informed consent must be in writing, signed by the clients. In addition, Rule 1.2(a) protects each client’s right to have the final say in deciding whether to accept or reject an offer of settlement and in deciding whether to enter a guilty or nolo contendere plea in a criminal case. The rule stated in this paragraph is a corollary of both these Rules and provides that, before any settlement offer or plea bargain is made or accepted on behalf of multiple clients, the lawyer must inform each of them about all the material terms of the settlement, including what the other clients will receive or pay if the settlement or plea offer is accepted. See also Rule 1.0(e) (definition of informed consent). Lawyers representing a class of plaintiffs or defendants, or those proceeding derivatively, may not have a full client-lawyer relationship with each member of the class; nevertheless, such lawyers must comply with applicable rules regulating notification of class members and other procedural requirements designed to ensure adequate protection of the entire class.

Limiting Liability and Settling Malpractice Claims

[14] Agreements prospectively limiting a lawyer’s liability for malpractice are prohibited because they are likely to undermine competent and diligent representation. Also, many clients are unable to evaluate the desirability of making such an agreement before a dispute has arisen, particularly if they are then represented by the lawyer seeking the agreement. This paragraph does not, however, prohibit a lawyer from entering into an agreement with the client to arbitrate legal malpractice claims, provided such agreements are enforceable and the client is fully informed of the scope and effect of the agreement. Nor does this paragraph limit the ability of lawyers to practice in the form of a limited-liability entity, where permitted by law, provided that each lawyer remains personally liable to the client for his or her own conduct and the firm complies with any conditions required by law, such as provisions requiring client notification or maintenance of adequate liability insurance. Nor does it prohibit an agreement in accordance with Rule 1.2 that defines the scope of the representation, although a definition of scope that makes the obligations of representation illusory will amount to an attempt to limit liability.

[15] Agreements settling a claim or a potential claim for malpractice are not prohibited by this Rule. Nevertheless, in view of the danger that a lawyer will take unfair advantage of an unrepresented client or former client, the lawyer must first advise such a person in writing of the appropriateness of independent representation in connection with such a settlement. In addition, the lawyer must give the client or former client a reasonable opportunity to find and consult independent counsel.

Acquiring Proprietary Interest in Litigation

[16] Paragraph (i) states the traditional general rule that lawyers are prohibited from acquiring a proprietary interest in litigation. Like paragraph (e), the general rule has its basis in common law champerty and maintenance and is designed to avoid giving the lawyer too great an interest in the representation. In addition, when the lawyer acquires an ownership interest in the subject of the representation, it will be more difficult for a client to discharge the lawyer if the client so desires. The Rule is subject to specific exceptions developed in decisional law and continued in these Rules. The exception for certain advances of the costs of litigation is set forth in paragraph (e). In addition, paragraph (i) sets forth exceptions for liens authorized by law to secure the lawyer’s fees or expenses and contracts for reasonable contingent fees. The law of each jurisdiction determines which liens are authorized by law. These may include liens granted by statute, liens originating in common law and liens acquired by contract with the client. When a lawyer acquires by contract a security interest in property other than that recovered through the lawyer’s efforts in the litigation, such an acquisition is a business or financial transaction with a client and is governed by the requirements of paragraph (a). Contracts for contingent fees in civil cases are governed by Rule 1.5.

Client-Lawyer Sexual Relationships

[17] The Maine Rules of Professional Conduct do not include the Model Rule (2002) categorically prohibiting sexual relations between lawyer and client. See Rule 1.7 Comment [12].

[18] Reserved.

[19] Reserved.

Imputation of Prohibitions

[20] Under paragraph (k), a prohibition on conduct by an individual lawyer in paragraphs (a) through (i) also applies to all lawyers associated in a firm with the personally prohibited lawyer. For example, one lawyer in a firm may not enter into a business transaction with a client of another member of the firm without complying with paragraph (a), even if the first lawyer is not personally involved in the representation of the client. The prohibition set forth in paragraph (l) is personal and is not applied to associated lawyers.


REPORTER’S NOTES:

Model Rule 1.8 (2002) outlines the conflict-of-interest rules that arise in certain specified circumstances. The rule is consistent, in substance with M. Bar R. 3.4(b) and (f). Accordingly, the Task Force recommended that adoption of the structure and substance of Model Rule 1.8 (2002).

Rule 1.8(a) tracks the substance (and much of the language) of M. Bar R. 3.4(f)(1) and (2)(i). The recommendation of the adoption of the Model Rule 1.8(a) structure is not meant to be a substantive departure from the Maine Bar Rules. RESTATEMENT 16, 36, 54, 126 and 127 are generally in accord with Model Rule 1.8 (2002).

Paragraph (b) addresses the issue of the “use” of client confidences and secrets. As stated in the Reporter’s Notes to Maine Rule Professional Conduct 1.6, above, there is a distinction between “using” information and “revealing” information. Model Rule 1.8(b) (2002) prohibits the use of confidences and secrets of a client to the disadvantage of a client, in the absence of informed consent. This is consistent with (although somewhat narrower than) the rule set forth in the former (and the 2005 revision) M. Bar R. 3.6(h)(1), prohibiting the use of a confidence or secret. Consider the following example (as set forth in the Reporter’s Notes to Rule 1.6). You know that your client is about to develop a tract of land. As a result, neighboring tracts will become more valuable. You buy a neighboring tract. The purchase does not reveal what you know as a result of your client representation. If the use of the information (purchasing the land) does not disadvantage your client, you are not prohibited from doing so under Model Rule 1.8(b) (2002). If however, the lawyer uses the information learned from a client to purchase one of the parcels in competition with the client, the use of the information would be to the disadvantage of the client, and thus prohibited. “Use” of information is a concept more closely aligned with a conflict-of-interest and thus implicates issues of loyalty, than with the revelation of confidential client information. See also RESTATEMENT 60, stating that “a lawyer who uses confidential information of a client for the lawyer’s pecuniary gain . . . must account to the client for any profits made,” based upon principles of agency.

A client’s informed consent to the conflicts of interest set forth in Model Rule 1.8(a) (2002) (consent to a business transaction with a lawyer or consent to a lawyer acquiring a pecuniary interest adverse to a client), and (g) (consent to aggregate settlements and plea bargains) must be in writing, signed by the client. The requirement of written consent to aggregate settlements and plea bargains is departure from the Maine Bar Rules, which requires only informed consent. Because it is in the best interest of both clients and lawyers to memorialize the specifics of consent in these contexts, the Task Force recommended the adoption of the Model Rule 1.8 (2002) requirement that clients’ informed consent be confirmed in writing. The Task Force agreed with the Model Rule drafters that the requirement that the client sign a written consent in the circumstances set forth in Rule 1.8(a)(3) and 1.8(g) provided the client with greater protection than a mere written confirmation presented by a lawyer. This added client protection is warranted because of the potential for client exploitation or a lawyer’s over-reaching. Requiring the client to sign a written consent presents a further opportunity for the client to understand and reflect upon the conflict being waived.

As noted in the Reporter’s Notes to Rule 1.7, the definition of “informed consent” in Rule 1.0(e) has been expanded to include the factors that bear on the determination of whether a client has given informed consent, as found in M. Bar R. 3.4(b)(2).

Model Rule 1.8(c) (2002) substantively is consistent with M. Bar R. 3.4(f)(2)(iv). Both rules set forth prohibitions against lawyers preparing an instrument pursuant to which he or she receives substantial gifts from clients. Both rules make an exception for when the lawyer is related to the client. Model Rule 1.8(c) (2002) however, in its broader formulation of prohibitions, represents a positive expansion of the Maine Bar Rules.

Model Rule 1.8(d) (2002) substantively is similar to M. Bar R. 3.4(f)(2)(iii). The Model Rule, however, expands the prohibition against a lawyer acquiring publication rights with respect to the subject matter of a client’s representation to literary, media, portrayal or other accounts based in substantial part on information relating to the representation. The Task Force recommended the more thorough formulation of the prohibition set forth in Model Rule 1.8(d) (2002).

Model Rule 1.8(e) (2002) is in accord with M. Bar R. 3.7(d), prohibiting a lawyer from providing financial assistance to a client in connection with pending or contemplated litigation, except for court costs and other litigation expenses. The Model Rule (2002) formulation is explicit in stating that although the allowed financial assistance may be initially characterized as an advance, repayment may not be forthcoming. This is not a departure from the Maine Bar Rules.

Model Rule 1.8(f) (2002) prohibits a lawyer from accepting compensation from a third party, except under certain, specified conditions. This rule is in accord with M. Bar R. 3.12(b). The Model Rule (2002) is more stringent however in requiring informed client consent in addition to a lawyer’s reasonable judgment that the third party compensation will not interfere with the lawyer’s independence of professional judgment, or with the client-lawyer relationship. The Task Force recommended the adoption of the additional safeguards found in Model Rule 1.8(f) (2002).

Model Rule 1.8(h)(1) (2002) allows a prospective waiver of a lawyer’s malpractice liability, if the client is independently represented in making the agreement. M. Bar R. 3.4(f)(2)(v) categorically prohibits such a prospective waiver. The Task Force discussed that business clients are becoming increasingly sophisticated, as is the complexity of the lawyer/client relationship. The Task Force further deliberated whether, in some instances, it may be in the best interest of the client to allow such a waiver. The Task Force ultimately recommended, however, that the rule prohibiting prospective waivers of malpractice liability be retained.

Model Rule 1.8(i) (2002) is consistent with M. Bar R. 3.7(c), both prohibiting a lawyer from acquiring a proprietary interest in the cause of action or the subject matter of litigation, with certain exceptions. The first of these exceptions allows a lawyer to acquire a lien to secure payment of a lawyer’s fees or expenses. M. Bar R. 3.7(c) explicitly states the lien may be against only the proceeds of the action or litigation, and not against a client’s files. The Task Force recommended including this explicit distinction between acceptable and unacceptable liens in the text of the Rule. Reasonable contingent fees are allowable under both the Model Rules (2002) and the Maine Bar Rules, subject to the limitations set forth in Maine Rules of Professional Conduct 1.5(c) and (d).

The Task Force recommended not to adopt (with a minority dissenting) the Model Rule 1.8(j) (2002) categorical prohibition on sexual relationships between lawyers and clients. See Rule 1.7 Comment [12].

Model Rule 1.8(k) (2002) states that if a lawyer finds a Rule 1.8 conflict-of-interest (except for one that grows out of a personal relationship), that conflict is imputed to associates, partners and other affiliated lawyers of the conflicted lawyer. M. Bar R. 3.4(b)(3)(i) similarly imputes such conflicts of interest.

When a lawyer who is related to another lawyer is representing a client in a matter where the related lawyer is representing another party, there is a conflict-of-interest under M. Bar R. 3.4(f)(3). Comment [11] to Model Rule 1.7 (2002) describes the same situation and identifies it as a conflict. The Task Force thought this type of conflict-of-interest ought to be described in the Rule (rather than merely in a Comment) and thus recommended the addition of Rule 1.8(l).

M. Bar R. 3.4(f)(2)(ii) categorically prohibits a lawyer from purchasing property “at a probate, foreclosure, or judicial sale in an action or proceeding in which the lawyer or any partner or associate appears as attorney for a party or is acting as executor, trustee, administrator, guardian, conservator, or other personal representative.” The Model Rules (2002) include no such categorical prohibition and requires such transactions be analyzed under Rule 1.8(a)’s general rubric governing business transactions with clients. (See Comment [1], noting that the Rule “applies to lawyers purchasing property from estates they represent.) The Task Force recommended adopting the Model Rule approach (2002). The protections set forth in Rule 1.8(a) are sufficient to protect the interest of clients; the categorical prohibition appears to be idiosyncratic in Maine and creates a potential trap for the unwary.