Rule 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 information relating to representation 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, or grandparent.

(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 information relating to the representation.

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

(1) A lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter, provided that the expenses were reasonably incurred. Court costs and expenses of litigation include, but are not necessarily limited to, filing fees; deposition costs; expert witness fees; transcript costs; witness fees; copy costs; photographic, electronic, or digital evidence production; investigation fees; related travel expenses; litigation related medical expenses; and any other case specific expenses directly related to the representation undertaken, including those set out in Rule 1.8(e)(3).

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

(3) Overhead costs of a lawyer’s practice which are those not incurred by the lawyer solely for the purposes of a particular representation, shall not be passed on to a client. Overhead costs include, but are not necessarily limited to, office rent, utility costs, charges for local telephone service, office supplies, fixed asset expenses, and ordinary secretarial and staff services.

With the informed consent of the client, the lawyer may charge as recoverable costs such items as computer legal research charges, long distance telephone expenses, postage charges, copying charges, mileage and outside courier service charges, incurred solely for the purposes of the representation undertaken for that client, provided they are charged at the lawyer’s actual, invoiced costs for these expenses.

With client consent and where the lawyer’s fee is based upon an hourly rate, a reasonable charge for paralegal services may be chargeable to the client. In all other instances, paralegal services shall be considered an overhead cost of the lawyer.

(4) In addition to costs of court and expenses of litigation, a lawyer may provide financial assistance to a client who is in necessitous circumstances, subject however to the following restrictions.

(i) Upon reasonable inquiry, the lawyer must determine that the client’s necessitous circumstances, without minimal financial assistance, would adversely affect the client’s ability to initiate and/or maintain the cause for which the lawyer’s services were engaged.

(ii) The advance or loan guarantee, or the offer thereof, shall not be used as an inducement by the lawyer, or anyone acting on the lawyer’s behalf, to secure employment.

(iii) Neither the lawyer nor anyone acting on the lawyer’s behalf may offer to make advances or loan guarantees prior to being hired by a client, and the lawyer shall not publicize nor advertise a willingness to make advances or loan guarantees to clients.

(iv) Financial assistance under this rule may provide but shall not exceed that minimum sum necessary to meet the client’s, the client’s spouse’s, and/or dependents’ documented obligations for food, shelter, utilities, insurance, non-litigation related medical care and treatment, transportation expenses, education, or other documented expenses necessary for subsistence.

(5) Any financial assistance provided by a lawyer to a client, whether for court costs, expenses of litigation, or for necessitous circumstances, shall be subject to the following additional restrictions.

(i) Any financial assistance provided directly from the funds of the lawyer to a client shall not bear interest, fees, or charges of any nature.

(ii) Financial assistance provided by a lawyer to a client may be made using a lawyer’s line of credit or loans obtained from financial institutions in which the lawyer has no ownership, control and/or security interest; provided, however, that this prohibition shall not apply to any federally insured bank, savings and loan association, savings bank, or credit union where the lawyer’s ownership, control and/or security interest is less than 15%. Where the lawyer uses such loans to provide financial assistance to a client, the lawyer should make reasonable, good faith efforts to procure a favorable interest rate for the client.

(iii) Where the lawyer uses a line of credit or loans obtained from financial institutions to provide financial assistance to a client, the lawyer shall not pass on to the client interest charges, including any fees or other charges attendant to such loans, in an amount exceeding the actual charge by the third party lender, or ten percentage points above the bank prime loan rate of interest as reported by the Federal Reserve Board on January 15th of each year in which the loan is outstanding, whichever is less.

(iv) A lawyer providing a guarantee or security on a loan a made in favor of a client may do so only to the extent that the interest charges, including any fees or other charges attendant to such a loan, do not exceed ten percentage points (10%) above the bank prime loan rate of interest as reported by the Federal Reserve Board on January 15th of each year in which the loan is outstanding. Interest together with other charges attendant to such loans which exceeds this maximum may not be the subject of the lawyer’s guarantee or security.

(v) The lawyer shall procure the client’s written consent to the terms and conditions under which such financial assistance is made. Nothing in this rule shall require client consent in those matters in which a court has certified a class under applicable state or federal law; provided, however, that the court must have accepted and exercised responsibility for making the determination that interest and fees are owed, and that the amount of interest and fees chargeable to the client is fair and reasonable considering the facts and circumstances presented.

(vi) In every instance where the client has been provided financial assistance by the lawyer, the full text of this rule shall be provided to the client at the time of execution of any settlement documents, approval of any disbursement sheet as provided for in Rule 1.5, or upon submission of a bill for the lawyer’s services.

(vii) For purposes of Rule 1.8(e), the term “financial institution” shall include a federally insured financial institution and any of its affiliates, bank, savings and loan, credit union, savings bank, loan or finance company, thrift, and any other business or person that, for a commercial purpose, loans or advances money to attorneys and/or the clients of attorneys for court costs, litigation expenses, or for necessitous circumstances.

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

(1) the client gives informed consent, or the compensation is provided by contract with a third person such as an insurance contract or a prepaid legal service plan;

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

(3) information relating to representation of a client is 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, or a court approves a settlement in a certified class action. 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 unless the client is independently represented in making the agreement; 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 to secure the lawyer’s fee or expenses; and

(2) contract with a client for a reasonable contingent fee in a civil case.

(j) [Reserved].

(k) A lawyer shall not solicit or obtain a power of attorney or mandate from a client which would authorize the attorney, without first obtaining the client’s informed consent to settle, to enter into a binding settlement agreement on the client’s behalf or to execute on behalf of the client any settlement or release documents. An attorney may obtain a client’s authorization to endorse and negotiate an instrument given in settlement of the client’s claim, but only after the client has approved the settlement.

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

Background

The Louisiana Supreme Court adopted this rule on January 20, 2004. It became effective on March 1, 2004, and was amended in 2006 to address financial assistance to clients. The rule contains several significant differences from the corresponding model rule.

Paragraph (a): Business Transactions With Clients

Paragraph (a) is identical to ABA Model Rule of Professional Conduct 1.8(a) (2002).

In 2002, the ABA adopted a provision requiring that a lawyer seeking to do business with a client must advise the client of the desirability of seeking independent counsel. See ABA Ethics 2000 Commission Revision Notes to Model Rule 1.8 (2002). The ABA added this provision because it believed that it, and other requirements, were necessary for the protection of clients; moreover, the ABA recognized that some of these requirements were already imposed by common-law decisions providing for the voidability of such transactions.

In addition, the ABA clarified the nature of the consent to be given by the client under this paragraph. Lawyers had reported to the ABA Ethics 2000 Commission that there was considerable confusion regarding its meaning. Several states had specified that the consent refers to the essential terms of the transaction. Case law in some jurisdictions went further and required disclosure regarding the risks of the transaction. For these reasons, the ABA adopted the requirement of 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. See id.

Finally, in 2002 the ABA added a signed-writing requirement. It did so because of the perceived risk of overreaching in business transactions between lawyers and clients. See id.

Paragraph (b): Use of Information Relating to Representation

Paragraph (b) is identical to Model Rule 1.8(b) (2002).

Paragraph (c): Client-to-Lawyer Gifts

Paragraph (c) is nearly identical to Model Rule 1.8(c) (2002), with one substantive change. The Louisiana Rule excludes language found in the ABA Model Rule that attempts to sweep within the rule an unspecified class of relatives, namely, “other” relatives or individuals “with whom the lawyer or the client maintains a close, familial relationship.” The LSBA was concerned that this language was too indeterminate to give lawyers fair notice regarding which relatives are included within its scope.

In 2002, the ABA added a prohibition in the corresponding Model Rule prohibiting a lawyer from soliciting a substantial gift from a client. It adopted this prohibition in order to avoid the danger of overreaching by the lawyer, and because the predecessor Model Rule had been criticized for regulating gifts made by instrument, but not those made in other ways. See ABA Ethics 2000 Commission Revision Notes to Model Rule 1.8 (2002).

Paragraph (d): Literary Rights

Paragraph (d) is identical to Model Rule 1.8(d) (2002).

Paragraph (e): Financial Assistance to Clients

Paragraph (e) diverges significantly from Model Rule 1.8(e). Under the Model Rule, a lawyer “shall not provide financial assistance to a client” in connection with litigation other than assisting with court costs and litigation expenses. In 2006, the Louisiana Supreme Court amended Louisiana Rule 1.8(e) to permit certain types of financial assistance unrelated to court costs and litigation expenses, but only under tightly-regulated circumstances. Prior to this revision, Louisiana Rule 1.8(e)–like the corresponding ABA Model Rule–flatly prohibited lawyers from advancing living expenses to clients. Nevertheless, providing living expenses to clients was a well-established practice in Louisiana. See In re Maxwell, 783 So. 2d 1244, 1249 (La. 2001) (“Arguably, a plain reading of Rule 1.8 would indicate that any advance to a client, other than one for court costs and litigation expenses, would constitute a violation of this rule.”). This well-established practice stemmed from La. State Bar Ass’n v. Edwins, 329 So. 2d 437, 445 (La. 1976), a case in which the Louisiana Supreme Court held that a lawyer may advance “minimal living expenses” to a client to prevent the client from being forced into accepting an unfavorable early settlement. Id.; see also Maxwell, 783 So. 2d at 1249.

Paragraph (f): Third-Party Payors

Paragraph (f) is identical to Model Rule 1.8(f) (2002), except with the addition of the following language to subsection (i): “. . . or the compensation is provided by contract with a third person such as an insurance contract or a prepaid legal service plan.” This is identical to language in the former Louisiana rule, and was intended by the LSBA to relieve lawyers of the burden of securing a client’s “informed consent” to payment of fees by a third party when the client has already given consent by contracting for the payment.

Paragraph (g): Aggregate Settlements

Paragraph (g) is identical to Model Rule 1.8(g) (2002), except with the addition of language to address aggregate settlements in “certified class action[s].” The LSBA proposed this addition to relieve class-action lawyers of the obligation of obtaining signed writings from all members of a certified class in order to settle a class-action matter. The LSBA believed that this step is unnecessary to protect clients’ interests because the presiding court, in reviewing the settlement, can do so.

In 2002, the ABA added a signed-writing requirement to the corresponding Model Rule. It did so because it believed that aggregate settlements entail settlement offers posing potentially serious conflicts of interest between the clients. See ABA Ethics 2000 Commission Revision Notes to Model Rule 1.8 (2002).

Paragraph (h): Agreements Limiting the Lawyer’s Liability to the Client

Paragraph (h) is identical to Model Rule 1.8(h) (2002).

As to prospective waivers, the ABA in 2002 deleted language in the former Model Rule allowing such agreements when “permitted by law.” It did so because it believed that the phrase had no significant role in addressing these conflicts. Instead, the ABA adopted language permitting such agreements when the client is independently represented. The ABA believed 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. See ABA Ethics 2000 Commission Revision Notes to Model Rule 1.8 (2002).

As to retrospective waivers, the ABA added language “or potential claim,” to clarify that the Model 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. See id.

Paragraph (i): Proprietary Interests in Causes of Action

Paragraph (i) is identical to Model Rule 1.8(i) (2002).

In 2002, the ABA substituted the term “authorized by law” for the term “granted by law” found in the former Model Rule. In so doing, the ABA clarified that the exemption applies to all liens authorized by substantive law, including those liens that are contractual in nature. See ABA Ethics 2000 Commission Revision Notes to Model Rule 1.8 (2002).

Paragraph (j): Sex With Clients

Paragraph (j) (reserved) differs from the corresponding Model Rule addressing sex with clients. In 2002, the ABA adopted this per se rule 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 ABA believed that such Rules may not be sufficient. Given the number of complaints of lawyer sexual misconduct that have been filed, the ABA believed 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. Furthermore, the ABA adopted a complete, rather than a partial, ban on client-lawyer relationships, except for those pre-dating the formation of the client-lawyer relationship. The ABA believed that partial bans–such as those prohibiting relationships when they involve coercion or incompetence–did not effectively address the problem of conflicts of interest, particularly the difficulty of obtaining an adequately informed consent from the client. See ABA Ethics 2000 Revision Notes to Rule 1.8 (2002).

In 2004, the Louisiana Supreme Court, on recommendation of the Ethics 2000 Committee of the Louisiana State Bar Association, declined to adopt paragraph (j). By a 5-5 vote, the Committee recommended no change to the LSBA rules, and thus, did not recommend the adoption of ABA Model Rule 1.8(j).[1]

No member of the LSBA House of Delegates moved the adoption of ABA Model Rule 1.8(j). Thereafter, the LSBA House of Delegates, without further debate, concurred with the Committee’s proposal. For Louisiana case law finding that a lawyer’s sexual relationship with a client violated other rules of professional conduct, see infra.

Paragraph (k): Powers of Attorney

Paragraph (k) is not contained in Model Rule 1.8. The LSBA recommended that the court retain this provision in order to clarify that a lawyer must have the consent of the client prior to settling a matter, but thereafter, they may obtain a specific mandate from the client to endorse or negotiate an instrument given in settlement of the claim.

Paragraph (l): Imputation of Conflicts of Interest

Paragraph (l) of this rule is identical to Model Rule 1.8(k), with the exception of a reference to Louisiana Rule 1.8(k).

In 2002, the ABA amended the Model Rules to address issues relating to imputation of the prohibitions in Model Rule 1.8 directly in Rule 1.8 (rather than by reference to Rule 1.10). In addition, former Model Rule 1.10 imputed only the prohibition of paragraph (c) (gifts to a lawyer) to another lawyer in a firm, while current Model Rule 1.8 imputes the prohibitions found in all paragraphs–except (j) (sex with clients)–to other members of the conflicted lawyer’s firm. See ABA Ethics 2000 Commission Revision Notes to Model Rule 1.8 (2002).

Comments to ABA Model Rule 1.8

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 Information Related to Representation

[5] Use of information relating to the representation 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. For example, a lawyer who learns a government agency’s interpretation of trade legislation during the representation of one client may properly use that information to benefit other clients. 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. Similarly, an exception allowing lawyers representing indigent clients to pay court costs and litigation expenses regardless of whether these funds will be repaid is warranted.

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 that paragraph. 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 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 unless the client is independently represented in making the agreement 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 relationship between lawyer and client is a fiduciary one in which the lawyer occupies the highest position of trust and confidence. The relationship is almost always unequal; thus, a sexual relationship between lawyer and client can involve unfair exploitation of the lawyer’s fiduciary role, in violation of the lawyer’s basic ethical obligation not to use the trust of the client to the client’s disadvantage. In addition, such a relationship presents a significant danger that, because of the lawyer’s emotional involvement, the lawyer will be unable to represent the client without impairment of the exercise of independent professional judgment. Moreover, a blurred line between the professional and personal relationships may make it difficult to predict to what extent client confidences will be protected by the attorney-client evidentiary privilege, since client confidences are protected by privilege only when they are imparted in the context of the client-lawyer relationship. Because of the significant danger of harm to client interests and because the client’s own emotional involvement renders it unlikely that the client could give adequate informed consent, this Rule prohibits the lawyer from having sexual relations with a client regardless of whether the relationship is consensual and regardless of the absence of prejudice to the client.

[18] Sexual relationships that predate the client-lawyer relationship are not prohibited. Issues relating to the exploitation of the fiduciary relationship and client dependency are diminished when the sexual relationship existed prior to the commencement of the client-lawyer relationship. However, before proceeding with the representation in these circumstances, the lawyer should consider whether the lawyer’s ability to represent the client will be materially limited by the relationship. See Rule 1.7(a)(2).

[19] When the client is an organization, paragraph (j) of this Rule prohibits a lawyer for the organization (whether inside counsel or outside counsel) from having a sexual relationship with a constituent of the organization who supervises, directs or regularly consults with that lawyer concerning the organization’s legal matters.

Imputation of Prohibitions

[20] Under paragraph (k) [Louisiana Rule 1.8(l)], 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 (j) is personal and is not applied to associated lawyers.

Annotations

Business Transactions with Clients

Louisiana Rule 1.8(a) prohibits a lawyer from engaging in any business dealings, either with clients or with others, that are not “fair and reasonable to the client.” However, even as to “fair” transactions, the lawyer still must obtain the client’s written consent to the transaction after the client has received a written, understandable description of the terms of the deal and has had a reasonable opportunity to seek advice from another lawyer. La. Rules of Professional Conduct Rule 1.8(a) (2004). The formalities of this rule apply to transactions undertaken to secure the client’s payment of the lawyer’s fee. See Breeden v. Cella, 832 So. 2d 1072, 1079 (La. Ct. App. 4th Cir. 2002) (“[A] collateral mortgage package would clearly be a business transaction . . . and would thus trigger the ethical rule,”). Transactions that should be considered “unfair” under this rule would include those in which a lawyer received a referral kickback from a third-party vendor. The Louisiana Supreme Court has reprimanded a lawyer for improperly entering into business transactions with clients, such as taking out unfair unsecured loans from them regardless of the client’s knowledge or consent. See In re Bradley, 917 So. 2d 1068, 1078 (La. 2005) (disciplining lawyer for entering into a transaction in which client knowingly pledged collateral for the lawyer’s bank loan); see also In re Yokum, 85 So. 3d 645, 649, 663 (La. 2012) (sanctioning lawyer who pledged client’s funds for personal bank loan unbeknownst to the client); In re Letellier, 742 So. 2d 544, 547-48 (La. 1999); La. State Bar Ass’n. v. Reis, 513 So. 2d 1173 (La. 1987); La. State Bar Ass’n. v. Bosworth, 481 So. 2d 567 (La. 1986).

Ordinary contingent-fee agreements–even in commercial cases–do not necessarily constitute “business transactions with clients” for purposes of Louisiana Rule 1.8(a). However, unusual fee arrangements permitting recovery regardless of results coupled with loan guarantees can implicate this rule. See In re Curry, Spillers & Theus, 16 So.3d 1139 (La. 2009).

Use of Information Adverse to Client

A lawyer may not use any information relating to the representation of a client (that is, confidential information) to the disadvantage of a client without the client’s consent. See La. Rules of Prof’l Conduct R. 1.8(b) (2004); see also In re Maxell, 44 So. 3d 668 (La. 2010) (disciplining a lawyer who convinced a mentally incapacitated client to endorse checks to the lawyer without performing legal services). As to whether a lawyer may use confidential client information to the lawyer’s advantage when the client’s interests would be unaffected, see supra Annotations to Louisiana Rule of Professional Conduct 1.6.

Gifts from Clients

Louisiana Rule 1.8(c) prohibits a lawyer from preparing an instrument to effect a substantial gift from the client to the lawyer or a close relative of the lawyer–unless the donee is related[2] to the client. According to the Louisiana Supreme Court, “[t]he purpose of the rule is prophylactic” to assure that the client has the opportunity to receive “independent advice.” In re Grevemberg, 838 So. 2d 1283, 1288 (La. 2003) (disciplining lawyer for writing a will for client naming the lawyer–and alternatively his wife–as executor and residual legatee); Succession of Parham, 755 So. 2d 265, 270 (La. Ct. App. 1st Cir. 1999) (holding that a legacy to lawyer that violates Rule 1.8(c) is invalid and unenforceable). Although this rule would seem to allow a lawyer to accept an unsolicited donation from a client that does not require the preparation of a written juridical act, such a transaction would still have to satisfy the requirements of Rule 1.8(a). See Model Rules of Prof’l Conduct R. 1.8 cmt. 2. Note that this rule applies even if a lawyer is ignorant about its existence. See id. at 1288 (“‘[I]gnorance of the Disciplinary Rules which set forth the minimum level of conduct below which no lawyer may fall . . . is no excuse.’”) (quoting La. State Bar Ass’n v. Marinello, 523 So. 2d 838, 842 (La. 1988)).

Financial Assistance to Client

Although a lawyer may advance litigation costs and medical expenses to a client, a lawyer’s refusal to do so is not “just cause” for denying the lawyer quantum meruit after dismissal by the client. See Sims v. Selvage, 499 So. 2d 325, 328 (La. Ct. App. 1st Cir. 1986). A Louisiana lawyer may violate this rule by failing to properly account for overhead and nonlawyer costs, which should not be allocated to fees for legal services of a client without consent. See e.g., In re Brown, 42 So. 3d 967 (La. 2010) (finding 1.8(e)(3) violations for lawyer who unsatisfactorily supervised nonlawyer and inadequately billed expenses); In re Interdiction of DeMarco, 38 So. 3d 417, 426 n.3. (determining no violation for lawyer who charged $75 per hour for “nurse-paralegal” with client consent).

Third-Party Payment of Fees

Louisiana Rule 1.8(f) prohibits a lawyer from accepting compensation from a non-client unless the client gives informed consent, the lawyer’s professional independence is not compromised, and the lawyer does not disclose confidential client information to the non-client. See La. Rules of Prof’l Conduct R. 1.8(f) (2004); see also id. Rule 5.4(c) (“A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the exercise of the lawyer’s professional judgment in rendering such legal services.”). Unlike the comparable ABA Model Rule, Louisiana Rule 1.8(f) specifically allows a lawyer to accept compensation from insurance companies for representing policyholders without the necessity of seeking the insured’s consent. Given that policyholders expect the insurer to provide a defense pursuant to the contract of insurance, this modification is sensible.

Aggregate Settlements

The Louisiana Supreme Court has observed that the aggregate-settlement provisions of Rule 1.8(g) exist because “a lawyer might be tempted ‘to sacrifice the interests of once client to gain an advantage for the other.’” In re Hoffman, 883 So. 2d 425 at 432 (La. 2004) (quoting Charles W. Wolfram, Modern Legal Ethics 493 (1986)). As a result of this risk, a lawyer seeking to enter into an aggregate settlement must consult with each client “directly,” and “fully disclose all details of the proposed settlement including information about each client’s claim and share of the proposed settlement.” Id. at 433. Furthermore, the “requirement of informed consent cannot be avoided by obtaining client consent in advance to a future decision by the attorney or by a majority of the clients about the merits of an aggregate settlement.” Id.

Prospective Limitations on Lawyer’s Liability for Malpractice

Louisiana Rule 1.8(h) prohibits a lawyer from making an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless the client is independently represented in making the agreement. The United States Fifth Circuit has held that this provision does not apply to a forum-selection clause in a lawyer-client agreement. Such a clause “is usually not a limitation on malpractice liability.” See Ginter v. Belcher, Prendergast & Laporte, 536 F.3d 439, 444 (5th Cir. 2008). The same reasoning may apply to lawyer-client arbitration agreements. See id. at 443.

Settling Malpractice Claims

Louisiana Rule 1.8(h) prohibits a lawyer from, among other things,[3] attempting to settle malpractice claims without first advising the client in writing that independent representation is advisable. A lawyer who is involved in disputes with clients or who realizes that they have committed professional negligence sometimes attempt to resolve the situation by offering to settle any malpractice claims that may exist. To comply with this rule, the lawyer must make any such settlement offer in writing and must inform the client that independent representation is advisable. See La. Rules of Prof’l Conduct Rule 1.8(h) (2004).

The Louisiana Office of Disciplinary Counsel routinely charges lawyers with violations of this rule when they attempt to extricate themselves from liability and discipline through a quick settlement with their client. See, e.g., Yokum, 85 So. 3d at 651-53 (finding 1.8(h) violation for lawyer who settled with client by refunding half of the fee without advising client to seek independent representation); In re Petal, 972 So. 2d 1138, 1142 (La. 2008); In re Thompson, 712 So. 2d 72 (La. 1998); In re Dunn, 713 So. 2d 461 (La. 1998). Note, however, that tendering compensation to a client unconditionally and without seeking a release of claims does not run afoul of this rule. See In re. Leblanc, 884 So. 2d 552, 557-58 (La. 2004). Moreover, the Louisiana Supreme Court has held that a mere offer to settle a lawyer malpractice claim does not trigger the notice requirements of Rule 1.8(h)(2); see In re Fazande, 864 So. 2d 174, 180 (La. 2004) (where “discussions never progressed to the point of a formal offer of settlement . . . or acceptance of any offer . . . the requirement of Rule 1.8(h), that [the lawyer] advise his clients in writing that independent counsel is appropriate, was never triggered”); see also In re Schiro, 886 So. 2d 1117, n.5 (La. 2006) (ODC cannot prove violation of Rule 1.8(h) if client does not accept offer to settle).

Proprietary Interests in Subject Matter of Litigation

Louisiana Rule 1.8(i) generally prohibits a lawyer from acquiring an interest in the subject matter of litigation. The Louisiana Supreme Court has not hesitated to discipline Louisiana lawyers who have acquired an interest in property that is the subject matter of litigation. For example, the court suspended a lawyer for nine months for acquiring disputed mineral rights in exchange for legal services. See La. State Bar Ass’n v. Sanders, 568 So. 2d 1025 (La. 1990); see also Succession of Cloud, 530 So. 2d 1146 (La. 1988). Nevertheless, 1.8(i) permits a lawyer to acquire a lien to secure payment of fees. For legislation relating to a lawyer’s special privilege, see La. Rev. Stat. Ann. §§ 9:5001 & 37:218 (2007). Rule 1.8(i) allows a lawyer holding an ownership interest while acting as general counsel for an organization to draft business contracts for the organization as long as the lawyer does not give the impression of representing both parties to the agreement. See Lighthouse MGA, L.L.C. v. First Premium Insurance Group, Inc., 448 F. App’x 512, 516 (5th Cir. 2011).

Settlement Authority

Louisiana Rule 1.8(k) prohibits a lawyer from obtaining a client’s prospective consent to settle a claim without further authorization. However, a lawyer may obtain authority from the client to endorse a settlement check on behalf of a client after the client has specifically approved the settlement for which the check was given.

Disciplinary Sanctions

For the disciplinary sanctions that are appropriate for a lawyer’s failure to avoid conflicts of interest, see supra Annotations to Louisiana Rule 1.7.

Notes

This page was updated on July 30, 2013.

 

 



[1] Those members of the LSBA Ethics 2000 Committee who voted against adopting Rule 1.8(j) did so for the following reasons: (1) they felt that the court’s existing case law adequately addresses the complex and variable issues associated with “unethical” sexual conduct; (2) they felt that a bright-line rule could serve as a safe harbor sheltering lawyers engaged in sexual conduct that is inappropriate, but that comports with the letter of Rule 1.8(j); and, (3) they felt that there may be situations in which sexual conduct should not be treated as per se sanctionable.

On the other hand, those committee members who voted for adopting ABA Model Rule 1.8(j) did so for the following reasons: (1) they felt that a refusal to adopt Rule 1.8(j) could be misconstrued by the bar and the public as indicating that Louisiana has opted for a more permissive attitude with respect to sexual relations with clients, when that is clearly not the case; (2) they felt that the proposed rule is not inconsistent with existing jurisprudence in Louisiana; and (3) they felt that even if a sexual relationship predates the representation–and thus is not covered by the proposed rule–the lawyer is nonetheless constrained by other rules, including Rule 1.7(b), which the court already has interpreted to prohibit sexual misconduct adversely affecting the client, as was the case in Ashy and Schambach, contrary to the “safe harbor” contention.

[2] The Louisiana Supreme Court has interpreted the term “related” to include “those ‘related’ by blood or marriage,” including those related as second cousins. See Succession of Walters, 943 So. 2d 1165, 1167 (La. Ct. App. 1st Cir. 2006).

[3] Paragraph (h) of this rule also prohibits prospective agreements limiting a lawyer’s malpractice liability. See La. Rules of Prof’l Conduct Rule 1.8(h)(1) (2004). According to the Louisiana Supreme Court, “[t]he prospective agreement contemplated by this section of the rule refers to an agreement made at the beginning of the representation, such as a hold harmless clause.” See In re Fazande, 864 So. 2d 174 (La. 2004) (citing ABA/BNA’s Lawyer’s Manual on Professional Conduct § 51:1104). The court noted that few cases have arisen under this paragraph.