Section 4.2: Current Client Conflicts: Personal Interests & Business Transactions

Current Client Conflicts: Personal Interests & Business Transactions (Rules 1.7, 1.8(a)-(d), (f)-(i))

A lawyer's duty of loyalty requires that they prioritize the client's interests above their own. When a lawyer's personal interests or financial dealings intersect with the representation, the risk of abuse is high because of the lawyer's legal expertise and the client's trust. Model Rule 1.8 sets forth specific, strict prohibitions and requirements for transactions and activities where the lawyer's personal interests are most likely to conflict with those of the client.

Business Transactions with Clients (Rule 1.8(a))

A lawyer must 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 the transaction meets a strict four-part test. This rule applies to transactions such as lending or borrowing money, buying or selling property, or acquiring stock in a client's business in lieu of a legal fee. The four mandatory requirements are:

1. Fair and Reasonable Terms: The terms of the transaction must be fair and reasonable to the client.
2. Clear Written Disclosure: The terms must be fully disclosed and transmitted in writing to the client in a manner that can be reasonably understood by the client.
3. Advice to Seek Independent Counsel: The client must be advised in writing of the desirability of seeking, and given a reasonable opportunity to seek, the advice of independent legal counsel on the transaction.
4. Client's Signed Consent: The client must give 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.

Note on the Signature: Unlike the general conflict rule under Rule 1.7, which only requires consent "confirmed in writing," Rule 1.8(a) specifically requires a writing signed by the client.

Standard Commercial Transactions Exception: This rule does not apply to standard commercial transactions for products or services that the client routinely markets to others (e.g., buying a car from a client who owns a dealership, or opening a bank account at a client's bank), because the lawyer has no special advantage in such dealings.

Gifts and Instrument Preparation (Rule 1.8(c))

Lawyers are prohibited from soliciting substantial gifts from clients or preparing legal instruments that convey substantial gifts to the lawyer or their close relatives.

• Solicitation: A lawyer cannot ask a client for a substantial gift (e.g., a car, cash, or real estate) for the lawyer or the lawyer’s relative.
• Preparation of Instruments: A lawyer must not prepare a will, trust, or other 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. "Related persons" include a spouse, child, grandchild, parent, grandparent, or other relative or individual with whom the lawyer or client maintains a close, familial relationship.

Literary or Media Rights (Rule 1.8(d))

Prior to the conclusion of representation, a lawyer must 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. This rule prevents a conflict of interest where the lawyer might conduct the case in a way that maximizes dramatic or publicity value (e.g., refusing a favorable plea deal to secure a sensational trial) rather than acting in the client's best interest. Once the representation is completely concluded, including all appeals, the lawyer may negotiate such rights.

Financial Assistance and Loans to Clients (Rule 1.8(e))

As a general rule, a lawyer must not provide financial assistance or loans to a client in connection with pending or contemplated litigation. This prohibition prevents lawyers from "buying" clients by offering financial incentives and ensures that the lawyer does not acquire a personal financial stake in the outcome of the lawsuit that could compromise their independent judgment.

There are three narrow exceptions to this rule:

1. Advancement of Litigation Expenses: A lawyer may advance court costs and expenses of litigation (such as filing fees, deposition costs, and expert witness fees), the repayment of which may be contingent on the outcome of the matter.
2. Indigent Clients: A lawyer representing an indigent client may pay court costs and litigation expenses outright on behalf of the client, without expecting repayment.
3. Modest Gifts in Pro Bono Matters (Rule 1.8(e)(3)): A lawyer representing an indigent client pro bono may provide modest gifts to the client for basic necessities (such as food, rent, transportation, or medicine). The lawyer cannot promise or advertise these gifts to secure the representation, cannot seek reimbursement, and cannot provide financial assistance if it would create an improper incentive.

Third-Party Fee Payments (Rule 1.8(f))

A lawyer may not accept compensation for representing a client from anyone other than the client (e.g., a parent paying for a child's defense, or an insurance company paying for an insured) unless three conditions are met:

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. Information relating to the representation is kept confidential in accordance with Rule 1.6. The third-party payor is not the client, and they have no right to direct the representation or access confidential information.

Aggregate Settlements (Rule 1.8(g))

A lawyer representing multiple clients cannot participate in making an aggregate settlement of civil claims, or an aggregated agreement as to guilty or nolo contendere pleas in a criminal case, unless each client gives informed consent in a writing signed by the client. The lawyer must disclose the existence and nature of all claims and pleas involved, including what each client will receive or pay under the settlement.

Malpractice Liability and Settlements (Rule 1.8(h))

• Limiting Liability Prospectively: A lawyer cannot make an agreement prospectively limiting their liability to a client for malpractice unless the client is actually represented by independent legal counsel in making that agreement.
• Settling Malpractice Claims: A lawyer cannot settle a claim or potential claim for malpractice liability with an unrepresented client or former client unless they advise that person in writing of the desirability of seeking, and give them a reasonable opportunity to seek, the advice of independent legal counsel.

Proprietary Interest in Litigation (Rule 1.8(i))

A lawyer must not acquire a proprietary interest in the cause of action or subject matter of litigation, 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.

Sexual Relations with Clients (Rule 1.8(j))

A lawyer is strictly prohibited from having sexual relations with a client, unless a consensual sexual relationship existed between them before the client-lawyer relationship commenced. This prohibition is absolute: client consent cannot waive this conflict, and it applies even if the relationship does not appear to prejudice the representation. Under Rule 1.8(k), this conflict is personal and is not imputed to other lawyers in the firm.