Ethics Advisory Opinion 13-05

Utah State Bar

 Ethics Advisory Opinion Committee

Opinion Number 13-05

 Issued September 10, 2013

 ISSUE

 

1.         To what extent may an attorney participate in an “on-site” fee/retainer funding program to obtain and finance attorney retainer or litigation funds?

 OPINION

 

2.         A lawyer may not participate in an “on-site” fee/retainer funding program, under the circumstances set forth herein, as such would violate the provisions of Rules of Professional Conduct 1.7(a) (Conflict of Interest: Current Clients), Rule 1.8(a) (Acquire a pecuniary interest adverse to the client).  The lawyer may, however, obtain a waiver of the conflict by complying with the terms of Rules 1.7(b) and 1.8(a), including making full disclosure and obtaining “informed consent” confirmed in writing.  Adequate measures must also be taken to safeguard the lawyer’s independent judgment under Rule 5.4(c) (A third party may not direct or regulate the lawyer’s professional judgment.)
Continue reading

Ethics Advisory Opinion 13-04

Utah State Bar

Ethics Advisory Opinion Committee

Opinion Number 13-04

Issued September 30, 2013

ISSUE

 1.        The question before the Committee concerns federal criminal law practice in the District of Utah.  Although it may have general application, this Opinion is confined to that arena.   The question is whether it is ethical under the Utah Rules of Professional Conduct for a criminal defense attorney (hereafter “the attorney”) to advise a client/defendant (hereafter “the client”) to negotiate and enter into a plea agreement whereby the client, as an integral part of his plea of guilty, waives all post-conviction claims the client may have, including claims of ineffective assistance of the attorney, except for claims of ineffective assistance of counsel based upon negotiating or entering in to the plea or waiver.

OPINION

 

2.         The Committee concludes that it is a violation of Rule of Professional Conduct 1.7 for an attorney to counsel his client to enter into a plea agreement which requires the client to waive the attorney’s prospective possible ineffective assistance at sentencing or other postconviction proceedings.[1]

BACKGROUND AND ANALYSIS

3.         Numerous federal courts, including the Tenth Circuit Court of Appeals, have concluded that waivers of post-conviction rights by criminal defendants are valid and enforceable so long as there is an adequate plea colloquy and such pleas are entered knowingly and voluntarily.[2] The Committee’s opinion is confined to the limited question of whether the attorney can negotiate and advise a client to enter into a guilty plea agreement which waives all postconviction claims, including those based upon ineffective assistance of counsel, consistent with the Utah Rules of Professional Conduct.  The Committee concludes that doing so would be a violation of Rule 1.7.  Under Rule 1.7(a), “a lawyer shall not represent a client if the representation involves a concurrent conflict of interest.”  In relevant part, the Rule defines a “concurrent conflict of interest” as the existence of “a significant risk” that the lawyer’s representation of “one or more clients” “will be materially limited” “by a personal interest of the lawyer.”  Utah R. Prof. C. 1.7(a)(2).[3]

4.         A defendant’s waiver of the statutory right to direct appeal contained in a plea agreement is enforceable if the defendant has agreed to its terms knowingly and voluntarily.  United States v. Atterberry, 144 F.3d 1299, 1300 (10th Cir.1998).  The issue of waiving the right to appeal is analyzed in the Tenth Circuit using the following factors:

(1) whether the disputed appeal falls within the scope of the waiver of appellate rights; (2) whether the defendant knowingly and voluntarily waived his appellate rights; and (3) whether enforcing the waiver would result in a miscarriage of justice . . . (Citation omitted).

United States v. Hahn, 359 F.3d 1315, 1325 (10th Cir. 2004).  Thus, given the third prong of the analysis, even in the presence of a waiver of appeal, a criminal defendant does not subject himself to being sentenced entirely at the whim of the district court.  Id.  Nevertheless the Committee’s Opinion is launched from the premise that the law is settled, certainly in the Tenth Circuit where this question arises, that a valid plea agreement waiver of either the right to appeal or  other collateral attack is entitled to be enforced according to its terms either on appeal or by way of collateral attack.  Such a waiver is subject to certain exceptions, e.g., where the agreement was involuntary or unknowing, where the court relied on an impermissible factor such as race, or where the agreement is otherwise unlawful, et cetera.  Numerous authorities exemplifying such exceptional circumstances are identified in the Tenth Circuit’s pivotal decision, United States v. Cockerham, supra n. 2, 237 F.3d at 1182.

5.         The Tenth Circuit in Cockerham identifies two critical components to determining whether the right to collateral relief survives a waiver.  First, whether there is a basis for a claim of ineffective assistance of counsel.  Second, whether that ineffectiveness claim pertains to the validity of the plea.  Id. 1187.

(W)e hold that a plea agreement waiver of postconviction rights does not waive the right to bring a § 2255 petition based on ineffective assistance of counsel claims challenging the validity of the plea or the waiver.  Collateral attacks based on ineffective assistance of counsel claims that are characterized as falling outside that category are waivable.  (Citation omitted).

Id.  This rubric applies equally to the waiver of the right to appeal as to waiver of other postconviction relief, such as a § 2255 petition.  Id. 1183.  Stated differently, a defendant cannot be held to a waiver of his right to the effective assistance of counsel if that waiver goes to the negotiation of the plea agreement itself.  If however, it goes to a matter “falling outside” the negotiation of the plea agreement including any other waiver contained within the ambit of the plea agreement, the waiver will be upheld.[4]  The most frequent and obvious matter “falling outside” the negotiation of the plea agreement itself, is the sentencing.  It may also include a motion to set aside the plea agreement or to extend the time in which to appeal or other such matters.  Primarily however the waiver goes to the attorney’s performance at sentencing.

6.         The Committee need not determine whether it would be unethical for an attorney to counsel a client to waive a claim of ineffective assistance of counsel in the actual negotiation and entry into a plea agreement.  Cockerham holds that, “(A) claim of ineffective assistance of counsel in connection with the negotiation of a plea agreement cannot be barred by the agreement itself.”  Id, 1184 (cases cited at n. 2).  The government and defense counsel seem to have come to an uneasy truce with regard to this fact by the wording of the waiver which is now included within the plea agreement at issue in this Opinion.  ¶ 7, infra.  As to postconviction matters, however, the question remains:  can the attorney ethically counsel the client to waive her ineffective assistance in futuro?[5]

7.         The specific waiver provision of the plea agreement in this instance states, in relevant part, as follows:

I also knowingly, voluntarily, and expressly waive my right to challenge my sentence, and the manner in which the sentence is determined, in any collateral review motion, writ or other procedure, including but not limited to a motion brought under 28 U.S.C § 2255, except on the issue of counsel’s ineffective assistance in negotiation or entering this plea or this waiver as set forth in United States v. Cockerham, 237 F.3d 1179 (10th Cir. 2001).

The plea agreement further states,

I further understand and agree that the word “sentence” appearing throughout this waiver provision is being used broadly and applies to all aspects of the Court’s sentencing authority, including, but not limited to: (1) sentencing determinations; (2) the imposition of imprisonment, fine supervised release, probation, and any specific terms and conditions thereof; and (3) any orders of restitution[.]

It also contains the standard language incorporated in such statements in support of a guilty plea:

I have no mental reservations concerning the plea.

I understand and agree to all of the above.  I know that I am free to change or delete anything contained in this statement.  I do not wish to make changes to this agreement because I agree with the terms and all of the statements are correct.

The attorney, in addition to the client, is required to execute the agreement.  The attorney certifies that,

I have discussed this statement with the defendant,  that I have fully explained his rights to him, and I have assisted him in completing this form.  I believe that he is knowingly and voluntarily entering the plea with full knowledge of his legal rights and that there is a factual basis for the plea.

Nowhere within this plea agreement is there an express waiver of the right to effective assistance of counsel subsequent to the entry of a plea of guilty at the trial court level.  Nor does it affirmatively suggest that the client is waiving his right to attack his sentence or other subsequent trial court proceedings on the basis of ineffective assistance of counsel in a 28 U.S.C § 2255 or similar such procedure (e.g., coram nobis, all of which are hereafter referred to generically by reference to “2255”).

8.         The question was also raised whether it is ethical for the attorney to counsel and negotiate the waiver of the right to appeal as part of the plea agreement.  However, no waiver of the right to appeal is included within the waiver language set forth in ¶ 7.  This has no practical impact on the reasoning underlying this opinion.  Whether at the appellate level or in a subsequent 2255 proceeding, the ethical question remains the same.  The question is whether the attorney can counsel the client to waive the attorney’s own prospective ineffective assistance, specifically, but not necessarily limited strictly, to sentencing.  In any case, the issue has little practical importance at the appellate level because under prevailing law of the Tenth Circuit, the ability to challenge the effectiveness of counsel on appeal is extremely limited.[6]  Nevertheless, the conclusions set forth herein regarding collateral proceedings apply with equal logic and force to such matters raised on appeal.

9.         Many circuits, the Tenth Circuit Court of Appeals included, hold that the waiver of appellate and postconviction rights in a plea agreement will be enforceable as against the claim of ineffective assistance of counsel only if the challenge is to the negotiation of the plea agreement rendering the plea unknowing, unintelligent and involuntary.[7]  The client who has waived a 2255 hearing, may challenge the basis of the plea agreement.  If the attorney wrongly determined that there was a genuine factual basis for the entry of a plea of guilty to the charges, that is an issue going to the negotiation, counseling, and entry of the plea of guilty itself.  That may be challenged.  But as to issues of sentencing, e.g., that the lawyer failed to object to the quantity of drugs, the calculation of which determines the length of the sentence[8], that issue would be barred from future litigation because the right to a 2255 hearing was waived and the issue does not go to the negotiation or entry of the plea.

10.       From the government’s perspective, without the waiver, substantial valuable legal and judicial resources must be spent litigating 2255 actions alleging ineffective assistance of counsel, the majority of which are likely to be frivolous.  This substantially degrades the government’s, the court’s, and the public’s interest in finality of criminal judgments.  On the other hand, defense counsel believe they cannot ethically counsel clients to waive actions such as those under 2255 because it implicitly requires attorneys to counsel their clients to waive not only the right to bring such claims generally, but to waive their own prospective ineffective assistance of counsel, during the sentencing or other post-plea procedure.  But the query put to the Committee cannot be effectively answered in a vacuum; it is necessary to be advised of the legal background in order to understand the competing considerations.  There appears to be no judicial opinion to date which addresses the issues presented within the context of the arguable denial of the right to counsel under the Sixth Amendment.

11.       Numerous State Bar ethics opinions have found such a waiver to be unethical on various grounds, usually including, but not always, on the basis of a “personal interest” conflict.[9]  The relatively recent opinion, Alabama State Bar Ethics Op. RO 2011-02, states with little fanfare:

The Disciplinary Commission finds it hard to conceive of a situation where it would be in the interests of a lawyer for his client to file an ineffective assistance of counsel claim.  Such claims against a lawyer can harm that lawyer’s reputation and subject that lawyer to discipline by the Bar or the courts.  However, there are times when it may be in the client’s best interest to file an ineffective assistance of counsel claim against his lawyer. It would be inappropriate under any scenario for the lawyer against whom the claim may be brought to counsel the client as to whether to bring that claim or to waive the right to bring such a claim. This is especially so in the context of a criminal case where the client’s freedom and liberty may be at stake.  As such, the lawyer may not counsel the client as to whether to waive his right to bring an ineffective assistance of counsel claim.

Unfortunately, this opinion limits itself to the bald question of “the ethical propriety of a criminal defense lawyer advising a client on whether to enter into a plea agreement that contains a provision requiring the client to waive the right to later bring an ineffective assistance of counsel claim against that attorney.”  It does not raise the question in the context of the instant query and, even then, contains little or no analysis.  Nevertheless, its conclusion is valuable because it deals squarely with Alabama’s Rule of Professional Conduct dealing with conflicts analogous to Utah’s RPC 1.7(a)(2) and finds that the attorney has a personal interest conflict.  We turn then to the issue of what kind of “personal interest” may be involved.

12.                An attorney’s “personal interest” may take several forms.  A personal interest conflict may result from entirely “altruistic” interests or “from a lawyer’s deeply held religious, political, or public policy beliefs.”  Restatement 3rd of the Law Governing Lawyers, § 125, A Lawyer’s Personal Interest Affecting Representation of a Client, Comment c.  Although it is increasingly a part of the everyday life of the criminal defense lawyer, no attorney wishes to have an action brought alleging ineffective assistance; it goes against the grain and is uncomfortable in varying degrees of intensity, based on the circumstances.  An attorney’s reputation is a highly valuable commodity, which a 2255 alleging ineffective assistance puts at risk.  Having to respond in some fashion, or having to prepare, appear and testify at a 2255 could involve very substantial time on the part of the attorney, at considerable loss of billable hours.  In some cases, the attorney, or errors and omissions insurer, may feel the need to put money out of pocket to hire counsel to represent her in such a proceeding.  And although such instances are rare, for serious enough conduct, an adverse finding against the attorney in a 2255 action could trigger disciplinary action by the Bar Association and/or affect the attorney’s malpractice coverage/premiums.  For counsel appointed in federal court under the Criminal Justice Act of 1964 (CJA), 18 USCA § 3006A, et seq., reliant upon payment by the government for their services, an adverse finding in a 2255 action could mean expulsion from the CJA panel and the consequent significant loss of income.  Another common situation is that many if not most criminal defense lawyers charge a flat fee in advance of entering an appearance on behalf of the client.  For those who have received a flat fee, whether or not the post-conviction portion is deemed earned at the time of the plea or only after sentencing, there exists a disincentive for the attorney to go the extra mile and may well have the psychological effect of diminishing devotion to the client’s cause knowing that the proceeding is already paid for and that any measure of ineffective assistance at sentencing would be a claim barred by the plea agreement anyway.[10]  There may be other personal interest conflicts not mentioned as well.  “Furthermore, unlike under Rule 1.7(a)(1), under Rule 1.7 (a)(2), there is no threshold requirement that the competing interest be ‘directly adverse’ to the client’s interest.  Any significant competing interest that threatens to ‘materially limit’ the representation is sufficient.”  (Emphasis in original)  The Law of Lawyering, 3rd, Hazard and Hodes, § 11.8 Model Rule and the Risk That Representation Will Be Materially Limited, Overview of Conflicts of Interest in the Law of Lawyering.[11]  Taking these various factors into consideration, it is evident that an attorney has a substantial personal interest in counseling a client to waive the 2255, thereby waiving any claim of ineffective assistance in postconviction matters.  Such a personal interest conflicts with the right of the client’s to unalloyed loyalty from the attorney.

13.                A more current decision, Florida Bar Professional Ethics of the Florida Bar, Op. 12-1, finds that, “(A) criminal defense lawyer has an unwaivable conflict of interest when advising a client about accepting a plea offer in which the client is required to expressly waive ineffective assistance of counsel. . . .”  While the question is posed in terms of an express or explicit waiver, the opinion itself does not seem so limited as the aforementioned Alabama opinion.  It quotes approvingly language from the Virginia State Bar issued Legal Ethics Opinion 1857 (2011):  “Defense counsel undoubtedly has a personal interest in the issue of whether he has been constitutionally ineffective, and cannot reasonably be expected to provide his client with an objective evaluation of his representation in an ongoing case.”  This of course raises the important point that, unlike their civil counterparts, criminal lawyers have a “duty of loyalty” imposed by the Sixth Amendment to the U.S. Constitution,[12] in addition to the duty of loyalty which runs as a theme throughout the Rules of Professional Conduct.[13]

14.                It is this duty of loyalty, heightened for the criminal lawyer by the duty of loyalty under the Sixth Amendment to the United States Constitution, which raises the objectivity factor to a level which, in part, constrains this Committee to opine that an unwaivable conflict arises under RPC 1.7(a)(2).  Waiver of ineffective assistance in futuro interferes with the relationship between the attorney and the client.  It shifts the focus from advice about the case and the plea agreement to the attorney-client relationship itself.  It demands that the attorney counsel the client that, even though she intends to do a good job in future matters, if she doesn’t, the client can do nothing about it.  It sets up an untenable “personal interest” conflict in the form of a professional, if not psychological, dilemma.  This is because the decision to advise the client to waive appeal and collateral attack in a plea agreement is inextricably intertwined with a waiver of the attorney’s prospective ineffective assistance of counsel.  Given the various types of personal interests involved, this will almost inevitably cloud the lawyer’s ability to give wholly un-conflicted advice.  This, the Committee believes, is a “material limitation” on the attorney’s ability to effectively represent the client.  Obviously, if an attorney were prescient enough to know whether she were going to be ineffective in the future, she would change her course of action.  Therein lies the problem.  Theoretically, although some cases are obviously much easier to predict than others, the attorney can never know for a certainty that her performance will not fall below the stringent standard required for there to be “effective assistance” under the Sixth Amendment as well as other professional requirements.[14]  In Rumsfeldian terms, the attorney simply does not know what the attorney does not know.  This professional dilemma, cognitive dissonance as it were, in separating the duty of loyalty to the client from the attorney’s personal interest in remaining free from future claims of ineffective assistance, portends that the attorney’s reasonable objectivity in counseling the client and negotiating the plea is at great risk of being lost.  This, the Committee believes gives rise to the sort of “material limitation” in representing a client which is proscribed by RPC 1.7(a)(2).

15.  Rule 1.7 provides for client waiver with informed consent.  See 1.7(b)(4).  Obtaining an informed consent from the client to such a conflict presents further problems.[15]   It is untenable for an attorney to have to be in the position of having to advise a client that it is wise to waive her own future possible ineffective assistance of counsel.  The official comments to the Rules of Professional Conduct indicate that any attorney who fails to “personally inform the client or other person assumes the risk that the client or other person is inadequately informed and the consent is invalid.”[16]  The only practicable remedy for such an oppositional conflict would be to bring in “conflict counsel,” who would be required, depending upon the complexity and circumstances presented, to review the documentation existing in the case, make a determination as to the possible future pitfalls which might arise, and attempt to render impartial neutral advice to the client regarding whether such waiver were advisable.[17]  This then spawns the further question as to the duty of loyalty of the lawyer charged with resolving the conflict question and whether that lawyer’s crystal ball advice could later be questioned on the basis of ineffective assistance.  No doubt that also could be waived.  Nevertheless, one can fantasize a daisy chain of conflict lawyers, each passing upon the soundness of the judgment of the next preceding one.  But the more realistic issue is the practicality of having to bring in separate counsel on each such plea agreement.  Such a requirement is simply too cumbersome and expensive to be practical.

16.  The Florida Bar Opinion, supra, cites several other state bar opinions which find a waiver of ineffective assistance to be unethical, for a variety of reasons.  Those grounded in a personal conflict of interest are worthy of mention.  The Missouri Formal Ethics Formal Opinion 126 (2009) arose in the context of a waiver of postconviction relief, much as the instant Opinion.  It opined, inter alia, in a brief opinion that it is impermissible for a lawyer to advise a criminal defendant to relinquish claims of ineffective assistance of counsel by that lawyer, because the lawyer cannot properly ask the client to waive this type of personal conflict.   State Bar of Nevada Standing Committee on Ethics and Professional Responsibility, Op. 48 (Citing The Nevada Rule of Professional Conduct (NRPC) 1.7(a)(2), which prohibits “representation in which a significant risk exists that representation of a client will be materially limited by a personal interest of the lawyer,” concluded that a waiver must exclude all potential claims of ineffective assistance of counsel, not only those claims limited to the plea agreement itself.).  Supreme Court of Ohio Board Of Commissioners On Grievances And Discipline OH Advisory OPINION 2001-6 determined it to be unethical under the Ohio Code of Professional Responsibility for a prosecutor to negotiate and a criminal defense attorney to advise a defendant to enter a plea agreement that waives the defendant’s appellate or post-conviction claims of ineffective assistance of trial counsel or prosecutorial misconduct.

17.     Texas Ethics Opinion 571 (2006) is perhaps the only opinion to set no hard and fast rule, leaving it to the attorney’s discretion in evaluating the circumstances on a case by case basis:

In summary, a criminal defense lawyer must consider the application of Rule 1.06 [analogous to Utah’s RPC 1.7(b)] in each case involving a plea agreement waiver of post-conviction appeals based on ineffective assistance of counsel.  In some cases, the criminal defense lawyer will be able to determine that there is no concern on the part of the lawyer as to the effectiveness of the lawyer’s assistance to the defendant that would create a conflict of interest for the lawyer under Rule 1.06(b)(2).  In that event, the lawyer may represent the defendant with respect to the plea agreement waiver.  In other cases, the representation will be permitted after the lawyer’s evaluation under Rule 1.06(c)(1) and disclosure and consent under Rule 1.06(c)(2).  In other cases, a conflict of interest will exist within the scope of Rule 1.06(b)(2) and it will not be possible for the lawyer to meet the requirements of Rule 1.06(c).  In that event, the defendant must be advised by separate counsel concerning the proposed waiver of post-conviction appeals based on claims of ineffective assistance of counsel.

This opinion does no more than place the attorney at square one, in exactly the position she would have been had the question not been asked and there were no opinion.  It provides no guidance except to leave it to the attorney’s discretion to determine whether the prosecution’s offer of a deal coupled with a 2255 waiver is just too sweet to pass up even if the attorney cannot objectively assess whether there is a possibility, remote though it may be, that she would be ineffective in postconviction proceedings in the trial court.  The Committee finds this opinion to be unpersuasive.

18.  The National Association of Criminal Defense Counsel Opinion 12-02, indicates that a criminal defense lawyer may not participate in a plea agreement that waives the client’s right to collaterally attack the plea with a claim of ineffective assistance of counsel, inter alia, because of the personal conflict of interest it presents for criminal defense counsel.  “(I)n such plea agreements, the lawyer is advising the client to waive his or her rights to challenge the constitutional effectiveness of the lawyer.  This is an obvious conflict of loyalty to the client.”  The opinion cites Model Rule of Professional Conduct 1.7(a), analogous to Utah Rule 1.7(b).  It further cites Comment ¶ 10 [analogous to Comment 10 of Utah’s Rule 1.7(b)][18]

19.         With regard to the further question put to the Committee, whether it would be unethical for a prosecutor to require the defense attorney to counsel his client to enter into a waiver with regard to her own ineffectiveness, if the latter activity is a violation of the Rules Of Professional Conduct, the Rules are clear and this Committee has previously ruled in an analogous context, such conduct would be an ethical violation.   RPC 8.4 states that it is professional misconduct for a lawyer to:

(a) violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another.

 

Consequently, “ . . . the conclusion cannot be avoided that a lawyer cannot require or ask opposing counsel to agree to (violate a Rule of Professional Conduct) as a condition of settlement since that would constitute inducing and assisting another to violate the Rules of Professional Conduct.”[19]

CONCLUSION

 

20.  It is a violation of Rule of Professional Conduct 1.7 for an attorney to counsel his client to enter into a plea agreement which requires the client to waive the attorney’s prospective possible ineffective assistance at sentencing or other postconviction proceedings.

_________________________________________________________________________

Dissenting Opinion

by

Ryan D. Tenney

Suppose that a defendant is charged in federal court with distributing child pornography.  This crime ordinarily carries a mandatory minimum sentence of 5 years in federal prison, with an upward possibility of up to 20 years in prison.  See 18 U.S.C. § 2252A(a)(2), (b)(1).  But because the defendant also has a prior sex offense conviction involving a minor, the potential sentence is actually much worse. Under § 2252A(b)(1), the defendant is now subject to a mandatory minimum of 15 years in prison, with an upward possibility of 40 years in prison.

After the defendant’s attorney meets and negotiates with federal prosecutors, however, the U.S. Attorney’s office agrees to offer a deal in which the defendant would plead guilty to one count of possessing child pornography. The sentencing range for this crime is 0 to 10 years.  See 18 U.S.C. § 2252A(a)(5), (b)(2).

In exchange for these substantial concessions, the U.S. Attorney’s office insists that the defendant agree to the following as part of the plea bargain: “I also knowingly, voluntarily, and expressly waive my right to challenge my sentence, and the manner in which the sentence is determined, in any collateral review motion, writ, or other procedure, including but not limited to a motion brought under 28 U.S.C. § 2255.”

Even with this waiver, the defendant would still have very good reason to accept the deal. As a starting point, the deal would remove the mandatory minimum—a pronounced benefit in its own right.  But perhaps more importantly, even if everything that could possibly go wrong at the upcoming sentencing hearing does go wrong, the defendant would still likely serve several fewer decades in prison than he would have without the deal.

Despite this, the Committee concludes today that it would be unethical for the defense attorney to advise the defendant to take this deal.  I disagree. 1

* * * * *

As indicated in the Committee’s opinion, the waiver provision at issue would bar the defendant from later claiming that his counsel was ineffective at the sentencing hearing. The Committee concludes that the defense attorney’s perceived personal interest in avoiding an ineffective assistance claim based on his own performance creates a conflict of interest under rule 1.7(a)(2) of the Utah Rules of Professional Conduct.  Under this rule, a “conflict of interest exists” when there is a “significant risk” that the lawyer’s representation will be “materially limited” by his own “personal interest.”

The underlying premise of the Committee’s opinion is that when a defendant raises an ineffective assistance claim, that claim is “against” the defense lawyer.  For example, the Committee relies on an ethics opinion from Alabama stating that it would be inappropriate “for the lawyer against whom the claim may be brought” to advise the client whether to agree to such a waiver.  See Cmte. Op. at ¶11 (emphasis added, quotations and citation omitted).

But this premise is simply wrong.  The ineffective assistance of counsel doctrine stems from the Sixth Amendment to the United States Constitution, which states that “[i]n all criminal prosecutions,” “the accused” shall have the assistance of counsel “for his defense.”  In Strickland v. Washington, 466 U.S. 668, 686 (1984), the Supreme Court clarified that the right to counsel also includes the right to the “effective assistance of counsel.”

Because an ineffective assistance claim is based on the Sixth Amendment, it ordinarily arises in the direct appeal from the “criminal prosecution[ ].”  Cf. Turner v. Rogers, 131 S.Ct. 2507, 2516 (2011) (“the Sixth Amendment does not govern civil cases”).  Or, pursuant to state or federal statute, it may also arise in a collateral attack on the criminal conviction that is filed in a post-conviction proceeding.  But in both scenarios, the parties to the case are the government and the defendant, not the defendant and his prior lawyer. Cf. Hinton v. Rudasill, 624 F.Supp.2d 48, 50 (D.D.C. 2009) (recognizing that “the Sixth Amendment restrains only governments, not private individuals”).  Thus, when a defendant raises an ineffective assistance claim under the Sixth Amendment, he does not raise it “against his lawyer”—rather, he raises it against the government which he claims has unconstitutionally convicted him even though he did not receive the effective assistance of counsel.

This is further demonstrated by the nature of the requested relief. If a defendant demonstrates that his trial counsel was ineffective, the defendant does not receive anything from the lawyer as a remedy.  Rather, what the defendant receives is a reversal of his criminal conviction or sentence.  Because of this, “the ineffective assistance doctrine does not deter misfeasance or malfeasance by counsel.  It is the government, not the defense attorney, who suffers adverse consequences when a defendant’s conviction is vacated due to ‘ineffective assistance.’”  Ramirez v. United States, 17 F.Supp.2d 63, 66 (D.R.I. 1998).

The Committee’s opinion assumes otherwise—i.e., it assumes that the waiver provision at issue in this opinion request is a broad one that would somehow protect the defense lawyer’s personal interests. But by its own terms, the effect of this waiver provision is actually very limited.  Again, when the defendant agrees to this provision, the only thing he agrees to waive is “my right to challenge my sentence, and the manner in which the sentence is determined, in any collateral review motion, writ, or other procedure, . . . .”  (Emphasis added).  This provision does not purport to waive anything else.  Thus, even if the defendant agrees to such a waiver, and even if his counsel subsequently underperforms at sentencing, the defendant could still hold the lawyer personally responsible using any and all means that would have been available to him if he did not agree to the waiver.

For example, nothing in this waiver would prevent the defendant from suing his lawyer for malpractice or breach of contract. Nothing in this waiver would prevent the defendant from filing a bar complaint alleging that his lawyer violated his professional obligations. Nothing would prevent him from contacting the Utah Bar’s Office of Professional Conduct and asking them to investigate the lawyer.  Nothing would prevent the defendant from telling all of his friends and neighbors and colleagues about what a terrible job his lawyer did representing him.  Instead, the only thing that the defendant would no longer be able to do is use his lawyer’s performance as a means for challenging his own sentence in his own case.

Despite this, the Committee maintains that there are still several ways in which an ineffective assistance claim might personally impact the defense lawyer to such a degree that a conflict of interest would exist under rule 1.7(a)(2).

First, the Committee suggests that an ineffective assistance claim might adversely impact the lawyer’s personal reputation.  Cmte. Op. at ¶12.  But I don’t believe this is a realistic problem, let alone one that is significant enough to create a conflict of interest under rule 1.7, because it is not the ordinary practice of either the 10th Circuit or Utah’s state appellate courts to publicly identify defense lawyers who are accused of having been ineffective.  In reviewing this ethics opinion request, I surveyed 10th Circuit opinions from the last 5 years.  The Tenth Circuit issued hundreds of opinions in criminal cases during that span.  So far as I can tell, though, only about 3 to 5 of them a year identified the trial lawyer by name as part of an ineffective assistance analysis. The rest either did not involve an ineffective assistance claim, or, more commonly, analyzed an ineffective assistance claim but did not identify the lawyer whose conduct was at issue.  Moreover, even of those that did analyze an ineffective assistance claim and did identify the lawyer, the majority of cases rejected the ineffective assistance claim, thereby negating any adverse reputational impact on the lawyer. When I reviewed decisions from Utah’s state appellate courts over the same time span, I found similarly sparse results.

Thus, even if a criminal defendant is dissatisfied with his attorney’s performance, the likelihood that the defense lawyer will ever be publicly identified as having been ineffective under the Sixth Amendment seems exceedingly remote.  As noted above, however, a conflict of interest exists under rule 1.7 only when there is a “significant risk” that the attorney’s performance will be “materially limited” by the personal interest at stake.  Here, where the possibility of being publicly identified in an ineffective assistance ruling is so small, I do not believe that the attorney’s perceived interest in avoiding this would materially limit the lawyer’s ability to advise the client about the pros and cons of a plea deal.

Second, the Committee suggests that an attorney might be motivated to advise his client to accept such a waiver in order to avoid the possibility of professional discipline.  Cmte. Op. at ¶12.  The Utah Bar Journal publishes a monthly summary of all attorneys who have been professionally disciplined.  I have reviewed those summaries for the past five years and cannot find a single instance in which a criminal defense lawyer was sanctioned because a court had concluded that he was ineffective under the Sixth Amendment.

To be clear, there were a number of reported instances in which criminal defense lawyers were sanctioned for their professional misconduct.  But in each of those instances, the professional discipline was based on the attorney’s violation of his professional obligations under Utah’s Rules of Professional Conduct.  In no instance that I could find was the discipline based on a court’s conclusion that the attorney was ineffective under the Sixth Amendment.

This distinction is critical.  The Utah Rules of Professional Conduct do not contain a predicate requirement under which a criminal defense lawyer can only be professionally disciplined if there was an ineffective assistance ruling in the criminal case.  Thus, if a criminal defense lawyer performs incompetently, he could always be professionally sanctioned for violating his obligations of competence and diligence under rules 1.1 and 1.3.  The existence or non-existence of an ineffective assistance claim in the criminal case would not foreclose this.  Nor, for that matter, would this waiver provision—which, again, only prevents the defendant from challenging his own sentence in his own case.  Thus, this waiver provision would not insulate the defense lawyer from professional discipline at all.

Third, the Committee is troubled by the idea that this waiver encompasses future events. Cmte. Op. at ¶14.  The principal concern here seems to be about the provision’s enforceability. See id.  As a volunteer ad hoc ethics advisory committee, however, such concerns would seem to be beyond our institutional competence. In any event, parties can choose to accept (or not accept) agreements that will impact future events.  In Penunuri v. Sundance Partners, 2013 UT 22, ¶¶23-33, 301 P.3d 984, for example, the Utah Supreme Court recently affirmed the validity of contractual waivers for future negligence.

In a given case, of course, accepting such a waiver may or may not be a good idea.  But whether it is a good idea seems to be an entirely separate question from whether an attorney would have a conflict of interest under rule 1.7 in advising the client to take it.  I don’t believe that the future component to the plea bargain creates such a conflict.

Finally, the Committee raises the possibility that this waiver would create an incentive for sloppy performance. Cmte. Op. at ¶12. The Committee is concerned that if the defense lawyer knows that the defendant will not be able to raise an ineffective assistance claim in the criminal case, the lawyer will no longer have an “incentive” to “go the extra mile” when preparing for sentencing.  Id.

I don’t agree that this impacts the lawyer’s personal incentives at all.  Even with such a waiver, the lawyer would still have the same principled incentives for competent performance that he would have had if the defendant never agreed to the waiver: the lawyer’s own professional obligations under the Rules of Professional Conduct, as well as his contract with the defendant. Neither of these are removed by this waiver.   Instead, the only thing that is now off the table is the defendant’s ability to challenge his own sentence in his own case based on the lawyer’s conduct.

Moreover, if it is true that a lawyer has a conflict of interest under rule 1.7 if he has conceivable reason to not work as hard, then flat fees in general would suffer from the same ethical defect.  After all, if a defendant agrees to pay a lawyer a flat fee for representing him up to a certain point in a case, then the lawyer now has a personal incentive to minimize his time expenditure on the case (and thus maximize his hourly return).

But despite this possible concern, flat fees are accepted in Utah.  Indeed, this Committee recently approved their use in criminal cases—with the caveat being that the defendant must have the ability to seek a refund of any unearned fees.  See generally Utah Ethics Advisory Committee Opinion 12-02.  In the scenario at issue here, the defendant would have that same ability to seek that same contractual recourse.  Given this, I do not see why the attorney’s ethical obligations suddenly change if the defendant no longer has the ability to challenge his own sentence in his own case.

Finally, this opinion may well end up harming the very people that the Committee ostensibly seeks to protect: criminal defendants.  Approximately “ninety-seven percent of federal convictions and ninety-four percent of state convictions are the result of guilty pleas.”  Lafler v. Cooper, 132 S.Ct. 1376, 1388 (2012). It is recognized that this process is ultimately a contract negotiation between two sides who are both seeking to maximize their own value.  See State v. Patience, 944 P.2d 381, 386 (Utah App. 1997).  It is, in essence, “horse trading” between prosecutor and defense counsel—“that is what plea bargaining is.”  Missouri v. Frye, 132 S.Ct. 1399, 1407 (2012) (quotations and citation omitted).

When the Eleventh Circuit looked at the validity of this kind of provision, it recognized that “plea agreements containing such waivers” are not only valuable to the government, but “also of value to a defendant, because it is another chip the defendant can bring to the bargaining table and trade for additional concessions from the government.” United States v. Bascomb, 451 F.3d 1292, 1294 (11th Cir. 2006).  Consistent with this, representatives from the U.S. Attorney’s Office have assured this Committee—both in writing and in person—that federal prosecutors only request this kind of waiver in cases where they are making “substantial concessions” to the defendant as a result. Representatives from the Federal Public Defender’s Office did not dispute this when directly asked about it at a meeting of this Committee.

Despite this, this Committee’s opinion will now likely remove this as a permissible bargaining chip in the plea negotiation process—at least in any case negotiated by attorneys who are subject to Utah’s Rules of Professional Conduct. But if the federal government can no longer ask for such waivers in such cases—thereby preventing the government from receiving this particular benefit—, then it stands to reason that the federal government will also be less inclined to make the same kinds of “substantial concessions” in its offers.  Thus, in many cases, the end result will be defendants who receive worse sentences than they would have if this provision were still an available negotiation item.

In my view, rule 1.7(a)(2) does not require this.  Instead, I believe that, even with this waiver, a defense lawyer who still remains bound by his professional obligations of competence, diligence, and loyalty, not to mention his contractual obligations, would be able to competently advise his client about the plea bargain—particularly where the waiver’s only direct effect would be to foreclose the defendant’s ability to challenge his own sentence in his own case.

For these reasons, I respectfully decline to join the Committee’s opinion.

Christopher H. Glauser (concurring)

4812-6507-8806, v.  1


[1].  The term “postconviction proceedings” is used in this Opinion to mean those matters, specifically but not necessarily limited to sentencing, which may occur subsequent to the client’s plea of guilty pursuant to the negotiated plea agreement.  “Conviction” as used here does not mean the “judgment of conviction” as defined in Fed. R. Crim. P. 32(k).

[2]United States v. Cockerham, 237 F.3d 1179, 1183-1188 (10th Cir. 2001) citing, inter alia, Jones v. United States, 167 F.3d 1142, 1144-1145 (7th Cir.1999). ; U.S. v. Broughton-Jones, 71 F.3d 1143, 1147 (4th Cir. 1995) (A defendant may waive her right to appeal, if that waiver is the result of a knowing and intelligent decision to forgo the right to appeal); U.S. v. Henderson, 72 F.3d 463, 465 (5th Cir. 1995)(Waiver is valid, however, dismissal of an appeal based on a waiver in the plea agreement is inappropriate where the defendant’s motion to withdraw the plea incorporates a claim that the plea agreement generally, and the defendant’s waiver of appeal specifically, were tainted by ineffective assistance of counsel); DeRoo v. U.S., 223 F.3d 919, 923 (8th Cir. 2000)(Waiver of appeal, or challenge via post-conviction writs of habeas corpus or coram nobis, or the district court’s entry of judgment and imposition of sentence, is enforceable); Frederick v. Warden, Lewisburg Correctional Facility, 308 F.3d 192, 195-196 (2nd Cir. 2002) cert. denied, 537 U.S. 1146, 123 S. Ct. 946, 154 L. Ed. 847 (2003)(There is no general bar to a waiver of collateral attack rights in a plea agreement.  However, a waiver of appellate or collateral attack rights does not foreclose an attack on the validity of the process by which the waiver has been procured, e.g., the plea agreement); U. S. v. Pruitt, 32 F.3d 431 (9th Cir. 1994)(Waivers must be express and clear.  A plea agreement does not waive the right to bring a § 2255 motion unless it does so expressly. The government gets nothing more than what it bargains for); Davila v. U.S., 258 F.3d 448, 450-451 (6th Cir. 2001) (surveying cases and expressly adopting waiver)(A defendant may waive any right, even a constitutional right by means of a plea agreement so long at it is done knowingly, intelligently and voluntarily); Mason v. U.S. 211 F.3d 1065, 1069 (7th Cir. 2000)(Because defendant’s challenge has nothing to do with the issue of a deficient negotiation of the plea agreement, the waiver of right to seek post-conviction relief contained therein is enforceable).

[3]. Utah’s version of Rule 1.7 states as follows:

Rule 1.7. Conflict of Interest: Current Clients.

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

(a)(1) The representation of one client will be directly adverse to another client; or

(a)(2) There is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(b)(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(b)(2) the representation is not prohibited by law;

(b)(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

(b)(4) each affected client gives informed consent, confirmed in writing.

[4]Cockerham offers no reasoning for distinguishing between negotiation of the plea agreement and postconviction matters.  “The courts that have differentiated between ineffectiveness claims attacking the validity of the plea or waiver and claims challenging counsel’s performance with respect to sentencing have not adequately explained why they make this distinction.”  Id.1186.  And although Cockerham has seemingly withstood the test of time, it is a split decision, with the dissent observing, “My disagreement stems from the majority’s conclusion that a general waiver-of-appeal-rights provision, such as the one at issue here, is sufficient to preclude a defendant from asserting on direct appeal or in a § 2255 motion Sixth Amendment violations that occur after entering into the plea agreement.”  Id. 1191.

[5].  It does not appear than any federal court has taken on the ethical ramifications of waivers of ineffective assistance of counsel in a negotiated guilty plea agreement either with respect to counseling the client and negotiation of the agreement itself or the waiver of ineffective assistance in matters yet to come to pass.

[6].  “Ineffective assistance of counsel claims should be brought in collateral proceedings, not on direct appeal. Such claims brought on direct appeal are presumptively dismissible, and virtually all will be dismissed.” United States v. Galloway, 56 F.3d 1239, 1240 (10th Cir.1995) (en banc).

[7]. See note 2, supra.

[8].  See U.S.S.G. § 2D1.1.

[9]. Other opinions have found there to be potential for violation of provisions analogous to RPC 1.8(h)(1), prospectively limiting the lawyer’s liability for malpractice;  RPC 8.4(a) misconduct for a lawyer, i.e., a prosecutor to knowingly assist or induce another lawyer to violate the Rules of Professional conduct.  Because this Opinion is believed to be well grounded in the conflict of interest set forth in RPC 1.7, it is confined to that basis.

[10].  Several of these financially related conflicts could conceivably also implicate RPC 1.8(a), stating that,

(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:

(a)(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;

(a)(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

(a)(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.

As with Rule 1.7(a)(2), the requirements of this Rule would be difficult for the attorney to circumnavigate under the circumstances presented.  As pointed out by Hazard and Hodes, “there is often significant overlap between the two [1.7(a)(2) and 1.8(a)].  The Law of Lawyering, supra, § 11.17, Material Limitation on the Representation Arising from a Lawyer’s Financial or Other Professional Interests.

[11].  Rule 1.7(a)(2) further differs from Rule 1.7(a)(a) in terms of the assumed severity of the conflicts of interest addressed.  The latter paragraph applies where directly adverse representation will take place, as when one current client is about to file suit against another current client. . . .  Rule 1.7(a)(2) on the other hand, applies only when representation of a current client is at substantial risk of being material impaired by the lawyer’s responsibilities to others.  (Emphasis in original)

The Law of Lawyering, id.

[12].  “Representation of a criminal defendant entails certain basic duties (under the Sixth Amendment). Counsel’s function is to assist the defendant, and hence counsel owes the client a duty of loyalty, a duty to avoid conflicts of interest. See Cuyler v. Sullivan, supra, 446 U.S., at 346, 90 S.Ct., at 1717. From counsel’s function as assistant to the defendant derive the overarching duty to advocate the defendant’s cause and the more particular duties to consult with the defendant on important decisions and to keep the defendant informed of important developments in the course of the prosecution. Counsel also has a duty to bring to bear such skill and knowledge as will render the trial a reliable adversarial testing process. See Powell v. Alabama, 287 U.S., at 68–69, 53 S.Ct., at 63–64.”

 

Strickland v. Washington, 466 U.S. 668, 667-688, 104 S. Ct. 2052, 2064-2065, 80 L. Ed. 2d 674 (1984); Wood v. Georgia, 450 U.S. 261, 271, 101 S. Ct. 1097, 1103, 67 L. Ed. 2d 220 (1981) (“Where a constitutional right to counsel exists, our Sixth Amendment cases hold that there is a correlative right to representation that is free from conflicts of interest.); Glasser v. United States, 315 U.S. 60, 70, 62 S. Ct. 457, 465, 86 L. Ed. 680 (1942) (“’Assistance of Counsel’ guaranteed by the Sixth Amendment contemplates that such assistance be untrammeled and unimpaired by a court order requiring that one lawyer shall simultaneously represent conflicting interests.”)

[13].  “Loyalty to clients is one of the core values of the legal profession, perhaps equal in importance with maintaining confidentiality and diligently or zealously working to advance a client’s interest.”

The Law of Lawyering, 3rd, Hazard and Hodes, § 10.1 Overview of Conflicts of Interest in the Law of Lawyering.

[14].   “Counsel also has a duty to bring to bear such skill and knowledge as will render the trial a reliable adversarial testing process.”  Strickland, supra, 466 U.S. at 688, 104 S. Ct. at, 2065 citing Powell v. Alabama, 287 U.S., at 68–69, 53 S.Ct., at 63–64.

[15]. “Informed consent” denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.”

Rules of Professional Conduct, 1.0(f).

[16].  [6] Many of the Rules of Professional Conduct require the lawyer to obtain the informed consent of a client or other person (e.g., a former client or, under certain circumstances, a prospective client) before accepting or continuing representation or pursuing a course of conduct. See, e.g, Rules 1.2(c), 1.6(a) and 1.7(b). The communication necessary to obtain such consent will vary according to the rule involved and the circumstances giving rise to the need to obtain informed consent. The lawyer must make reasonable efforts to ensure that the client or other person possesses information reasonably adequate to make an informed decision. Ordinarily, this will require communication that includes a disclosure of the facts and circumstances giving rise to the situation, any explanation reasonably necessary to inform the client or other person of the material advantages and disadvantages of the proposed course of conduct and a discussion of the client’s or other person’s options and alternatives. In some circumstances it may be appropriate for a lawyer to advise a client or other person to seek the advice of other counsel. A lawyer need not inform a client or other person of facts or implications already known to the client or other person; nevertheless, a lawyer who does not personally inform the client or other person assumes the risk that the client or other person is inadequately informed and the consent is invalid. In determining whether the information and explanation provided are reasonably adequate, relevant factors include whether the client or other person is experienced in legal matters generally and in making decisions of the type involved, and whether the client or other person is independently represented by other counsel in giving the consent. Normally, such persons need less information and explanation than others, and generally a client or other person who is independently represented by other counsel in giving the consent should be assumed to have given informed consent.

 

[7] Obtaining informed consent will usually require an affirmative response by the client or other person. In general, a lawyer may not assume consent from a client’s or other person’s silence. Consent may be inferred, however, from the conduct of a client or other person who has reasonably adequate information about the matter. A number of rules require that a person’s consent be confirmed in writing. See Rules 1.7(b) and 1.9(a). For a definition of “writing” and “confirmed in writing,” see paragraphs (o) and (b). Other rules require that a client’s consent be obtained in a writing signed by the client. See, e.g., Rules 1.8(a) and (g). For a definition of “signed,” see paragraph (o).

Official Comments to RPC 1(f) Informed Consent.

 

[17].   . . . (W)hen the risk to a client is particularly high, the lawyer will sometimes make an initial determination that it is not reasonable to ask for consent.  In such situations, the client may have to hire other counsel and to expend time and money educating the new lawyer about the matter involved.  Theses consequences merely accentuate the fact that the long-term public interest in protecting cleints against foolish waivers must occasionally outweigh the short-term interest of individual lawyers and clients.

(Emphasis added)

 

The Law of Lawyering, 3rd, Hazard and Hodes, § 11.8, supra.

[18].  The lawyer’s own interests should not be permitted to have an adverse effect on representation of a client. For example, if the probity of a lawyer’s own conduct in a transaction is in serious question, it may be difficult or impossible for the lawyer to give a client detached advice. Similarly, when a lawyer has discussions concerning possible employment with an opponent of the lawyer’s client, or with a law firm representing the opponent, such discussions could materially limit the lawyer’s representation of the client. In addition, a lawyer may not allow related business interests to affect representation, for example, by referring clients to an enterprise in which the lawyer has an undisclosed financial interest. See Rule 1.8 for specific rules pertaining to a number of personal interest conflicts, including business transactions with clients. See also Rule 1.10 (personal interest conflicts under Rule 1.7 ordinarily are not imputed to other lawyers in a law firm).

 

Official Comment 10 to RPC 1.7(b).

 

[19]Utah State Bar Ethics Advisory Opinion Number 11-01, August 24, 2011; accord Alabama State Bar Ethics Op. 2011-02, supra; Florida Bar Professional Ethics of the Florida Bar, Op. 12-1, supra.

 

1 The waiver provision cited above makes no direct reference to the defendant waiving the right to challenge the attorney’s effectiveness on direct appeal.  The apparent reason for this is that this opinion request is based off a waiver provision currently being used in federal criminal litigation, and the Tenth Circuit has held that ineffective assistance claims must be brought in a collateral challenge, not on direct appeal.  See, e.g., United States v. Dyke, 718 F.3d 1282, 1294 n.3 (10th Cir. 2013).  In any event, the provision does include a general waiver of the right to raise an ineffective assistance claim in any “other procedure.” The opinion request contemplates that this would include a direct appeal, as does the Committee’s opinion.  This distinction does not change the result of the ethics question at issue, so, for consistency, I follow suit.

 

Ethics Advisory Opinion No. 11-02

UTAH STATE BAR ETHICS ADVISORY OPINION COMMITTEE

Opinion No. 11-02
Issued November 8, 2011

1. ISSUE: If an indigent litigation client asks his attorney for a financial gift, is the attorney permitted to provide that charitable gift or do the Utah Rules of Professional Conduct prohibit doing so?

2. OPINION: Utah Rule 1.8(e) prohibits “financial assistance” in connection with litigation, which includes paying living expenses for a client. However, a lawyer representing an indigent client may pay court costs, expenses of litigation and “minor expenses reasonably connected to the litigation.” The rule does not prohibit occasional small charitable gifts.

3. BACKGROUND: The attorney represents, by appointment, a death row inmate in a state habeas corpus matter. The client has asked the attorney to contribute a regular sum each month to the client’s prison account for his personal use (e.g. purchase of items from the commissary such as snacks, items of clothing, entertainment such as a television, radio or CD player.) The attorney suggests that many such clients suffer from mental illness and that CLE events have suggested making such charitable donations to elicit trust from difficult clients. Death row inmates have their basic needs provided for (food, clothing, necessary toiletries, paper) and are permitted to spend up to a certain amount each month in the commissary for items beyond this. They may earn some small amount of money doing prison work and may receive gifts.
Continue reading

ETHICS ADVISORY OPINION No. 08-01

OPINION NO. 08-01
MAIN OPINION:
For Dissent Opinion click here>>>
Issued April 8, 2008
1. Issue:
May an attorney provide legal assistance to litigants appearing before a tribunal pro se and prepare written submissions for them without disclosing the nature or extent of such assistance? If so, what are the attorney’s obligations when full representation is not undertaken?

2. Opinion: Under the Utah Rules of Professional Conduct, and in the absence of an express court rule to the contrary, a lawyer may provide legal assistance to litigants appearing before tribunals pro se and help them prepare written submissions without disclosing or ensuring the disclosure to others of the nature or extent of such assistance. Although providing limited legal help does not alter the attorney’s professional responsibilities, some aspects of the representation require special attention.
3. Background: Our Committee has previously issued three opinions regarding limited-scope legal representation under certain circumstances regarding various aspects of limited-scope legal representation.1 These opinions were issued under the Utah Code of Professional Responsibility that was superseded by the Utah Rules of Professional Conduct, adopted by the Utah Supreme Court in 1988 and modified in certain respects by amendments that were adopted by the Court in November 2005. A synopsis of those opinions is found in Appendix A to this Opinion. In this opinion, we undertake a more comprehensive analysis of the “behind the scenes” limited representation under the current Utah rules.
4. Recently, the ABA Standing Committee on Ethics and Professional Responsibility has issued Formal Opinion 07-446 (May 5, 2007), comprehensively discussing assistance to pro se parties and expressly superseding ABA Informal Opinion 1414, which disapproved certain undisclosed assistance of pro se litigants under the prior Code of Professional Conduct. ABA Opinion 07-446 concluded that under the Model Rules of Professional Conduct, “a lawyer may provide legal assistance to litigants appearing before tribunals ‘pro se’ and help them prepare written submissions without disclosing or ensuring the disclosure of the nature or extent of such assistance.”
5. Analysis: In addressing the issue posed, we begin by recognizing that a new regulatory framework is in place nationally and in Utah that provides directly for limited-scope legal representation of clients who, for various reasons, engage lawyers for narrowly circumscribed participation in their legal affairs.
6. Rules of Professional Conduct: Rule 8.4(c) of the Rules of Professional Conduct prohibits “conduct involving dishonesty, fraud, deceit or misrepresentation.” However, none of the comments to that rule suggest that failure to notify opposing parties and the court of limited assistance to a pro se party involves such dishonest conduct.2 Recently issued ABA Formal Opinion 07-446 expressly concludes that it does not: “[W]e do not believe that nondisclosure of the fact of legal assistance is dishonest so as to be prohibited by Rule 8.4(c).” Because the Rules of Professional Conduct include comments that explain and illustrate “the meaning and purpose of the rule” and “are intended as guides to interpretation,”3 and because the ABA drafters certainly knew of Informal Opinion 1414, it would have been obvious to include this example to illustrate dishonest conduct if that had been intended.
7. More significantly, however, is that the Utah and ABA Rules of Professional Conduct include a rule that explicitly addresses the possibility of a lawyer’s limiting the scope of representation of a client. Rule 1.2(c) provides: “A lawyer may limit the scope of representation if the limitation is reasonable under the circumstances and the client gives informed consent.” Comments [6], [7] and [8] address such limited-scope representation. None of these comments suggest that “extensive undisclosed assistance” to a pro se party is an inappropriate limited-scope representation.
8. Similarly, Rule 1.2(d) also addresses the issue of a lawyer’s assisting a client in “criminal or fraudulent” behavior and provides in relevant part: “A lawyer shall not counsel a client to engage, or assist a client in conduct that the lawyer knows is criminal or fraudulent . . . .” Comments [9] through [14] provide illustrations of Rule 1.2(d) and again fail to identify that providing undisclosed assistance to a pro se party is assisting a client’s fraud. If the drafters of the Rules of Professional Conduct had intended to impose a prohibition against undisclosed assistance to pro se litigants, Rule 1.2 regarding both limited-scope representation and assisting in a client’s fraud would have been one place to make this clear.
9. The Rules of Professional Conduct further signal the appropriateness of limited-scope representation through Rule 6.5, Nonprofit and Court-Annexed Limited Legal Service Programs. This rule addresses conflicts of interest when “a lawyer . . . under the auspices of a program sponsored by a nonprofit organization or court, provides short-term limited legal services to a client without expectation by either the lawyer or the client that the lawyer will provide continuing representation in the matter.” The comments to Rule 6.5 recount the fact that such limited-scope programs exist and what they do:
Legal services organizations, courts and various nonprofit organizations have established programs through which lawyers provide short-term limited legal services such as advice or the completion of legal forms that will assist persons to address their legal problems without further representation by a lawyer . . . [through] programs, such as legal-advice hotlines, advice-only clinics or pro se counseling programs . . . . 4
Here again, if the drafters of the Rules had wanted to prohibit “substantial professional assistance” that was not disclosed, Rule 6.5 would have been a likely place to include such a provision.
10. Accordingly, given the decision to expressly include and permit limited-scope representation in the Rules of Professional Conduct and the failure of the Rules and comments to state or even suggest that nondisclosure of substantial assistance to pro se parties is dishonest conduct, we conclude that the drafters of the current Rules did not intend to prohibit undisclosed, substantial professional assistance to pro se parties.
11. Rules of Civil Procedure: We also believe that the ethical requirements for limited-scope representation must be put in the wider context of other law and court rules. Some states have adopted rules of procedure that address how a lawyer who is providing limited legal help must act and what must be disclosed to the court. For example, Colorado Rules of Civil Procedure 11(b) provides that pleadings filed by a pro se party that were prepared with the drafting assistance of a lawyer must include the lawyer’s name and contact information, and the assisting attorney must so advise the pro se party. Rule 12.040 of the Florida Family Law Rules of Procedure requires a pro se party who has received a lawyer’s help to certify that fact in the pleadings. Rule 102(a)(1) of the Wyoming Rules for District Court provides that the appearance of an attorney’s name on the pleadings indicates that the attorney assisted in their preparation does not constitute an appearance by the attorney. Utah has no comparable court rules for attorneys who engage in ghost writing for a pro se client to notify the court of this assistance.
12. Utah Rules on Disclosure: Utah has addressed two circumstances in which an attorney must disclose to the tribunal the limited services provided to a client. Rule 2.4(c) of the Utah Rules of Professional Conduct uniquely permits a lawyer mediator to “prepare formal documents that memorialize and implement the agreement reached in mediation” and “with the informed consent of all parties confirmed in writing, may record or may file the documents in court, informing the court of the mediator’s limited representation of the parties for the sole purpose of obtaining such legal approval as may be necessary.” 5
13. Rule 75 of Utah’s Rules of Civil Procedure, “Limited Appearance,” provides in relevant part:
(a) An attorney acting pursuant to an agreement with a party for limited representation . . . may enter an appearance limited to one or more of the following purposes:
(1) filing a pleading or other paper;
(2) acting as counsel for a specific motion;
(3) acting as counsel for a specific discovery procedure;
(4) acting as counsel for a specific hearing, including a trial, pretrial conference, or an alternative dispute resolution proceeding; or
(5) any other purpose with leave of the court.
(b) Before commencement of the limited appearance the attorney shall file a Notice of Limited Appearance signed by the attorney and the party. The Notice shall specifically describe the purpose and scope of the appearance and state that the party remains responsible for all matters not specifically describe in the Notice . . . . The Notice of Limited Appearance and all actions taken pursuant to it are subject to Rule 11.
Utah Rules of Civil Procedure 74, Withdrawal of Counsel, and 5, Service, both reference and provide further guidance regarding how the “limited appearance” will affect service and withdrawal.
14. The Utah Supreme Court recently approved both of these rules permitting certain limited -scope services by a lawyer and requiring notice to the court in these circumstances. The fact that the Court did not require any disclosure except in these circumstances suggests that assistance short of an actual appearance without disclosure is permitted and is not considered “dishonest conduct.”
15. It is also important to consider the requirements imposed by Rule 11 of the Utah Rules of Civil Procedure to understand the context of this issue. Rule 11(a) requires that every paper filed with the court be signed by “one attorney of record” or “if the party is not represented by an attorney, . . . by the party.” Under Rule 11(b), that signature “is certifying that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, (1) it is not being presented for any improper purpose . . . . . (2) the claims . . . are warranted by . . . law, (3) the allegations . . . have evidentiary support . . . .”6
16. If an attorney drafts and appears to argue one motion only, the attorney will appear under Rule 74 and comply with Rule 11 for that portion of the case. The attorney must have performed “reasonable inquiry” to insure that the facts presented (e.g., in supporting affidavits) have “evidentiary support.” However, where an attorney provides limited -scope representation to assist a party to draft a complaint or answer after the attorney has simply interviewed the party, but is not engaged to appear in court, it is doubtful that the attorney could sign the complaint or answer as part of a limited appearance under Rule 75 and in compliance with Rule 11, since that attorney would have made no “inquiry” beyond talking with the client. In that case, it must be the client who certifies that he has “evidentiary support” as required by Rule 11, since only the client will have investigated the facts. Where the client will alone sign the papers, there is no court rule or procedure that requires the attorney who assists with drafting to notify the court of this assistance, no rule that tells the lawyer how to inform the court of the limited legal help provided, and no rule that tells the client how to inform the court of the limited legal help received. Accordingly, the “nondisclosure” of the assistance could not reasonably be considered “dishonest conduct” prohibited by the Rules of Professional Conduct since there is no procedure provided to disclose.
17. Other States’ Rules: Both Washington and Colorado have amended their Rule 11 provisions to provide that “in helping to draft” a pleading “the attorney certifies” that it is well-grounded in fact and law and not interposed for any improper purpose. These rules further provide that when an attorney provides drafting assistance the attorney “may rely on the otherwise self-represented persons’ representation of facts, unless the attorney has reason to believe that such representations are false or materially insufficient, in which instance the attorney shall make an independent reasonable inquiry into the facts.”7 Colorado further provides that when an attorney assists a pro se party “in filling out pre-printed and electronically published forms that are issued through the judicial branch” the attorney is not subject to the certification or name disclosure requirements. Should the Utah Supreme Court wish to impose some requirement for lawyers who provide drafting assistance to notify the court, we would expect that it would do so by explicitly setting forth the requirement, as has been in certain other states. (We note, as a practical matter, that when attorneys at court-annexed legal clinics provide advice and drafting assistance under Rule 6.5, it may be impossible for the attorney to insure that the client ultimately provides notice of that assistance to the court on the final draft papers the client eventually files.8)
18. Moreover, even Opinion 74 approved of the drafting of one document. It was the “extensive undisclosed participation by an attorney that permits the litigant falsely to appear as being without substantial professional assistance” that was identified as improper by Utah Opinion 74 and ABA Informal Opinion 1414. The imprecision of that standard is itself troublesome. In a typical case in which a party obtains assistance in drafting a divorce petition, the party then may obtain brief advice as to service of process. Thereafter the party may need assistance with a motion for temporary orders or information about how to mark the case for a pre-trial hearing. It is not clear to this Committee at what point such a typical pro se party needing limited scope legal help has obtained “extensive” or “substantial” help that appears dishonest. Because over 80% of respondents and 49% of petitioners in divorce cases are unrepresented, these are the typical pro se parties and needed limited assistance of counsel.9
19. Indeed, ABA Informal Opinion 1414 did not closely analyze the Code of Professional Responsibility, but relied instead on two New York cases which “condemned” ghostwriting, both involving the same “habitual litigant who in the past five or six year . . . commenced well over thirty law suits.” Various courts have condemned ghost-written pleadings and briefs based on the notion that courts give pro se parties greater leeway and that undisclosed legal assistance is therefore an unfair advantage. However, Professor Jona Goldschmidt has rebutted the idea of unfair advantage, noting that courts liberally construe pleadings regardless of who drafted them.10 Likewise, ABA Formal Opinion 07-446 considered and rejected the notion that pro se parties are granted “unwarranted ‘special treatment.’”
20. In any event, Utah law provides that “as a general rule, a party who represents himself will be held to the same standard of knowledge and practice as any qualified member of the bar.”11 While a judge may give an unrepresented party leniency, this is not required under Utah law. Therefore, the “unfair advantage” that pro se parties ostensibly gain through the court’s liberal construction of their pleading—one of the bases for prohibiting “ghost-writing”—does not appear to apply under Utah law.
21. Finally, we note that the Utah State Courts website explicitly describes “limited legal help” on its Self-Help Resources page, indicating that an attorney might “only advise” or “help draft” or “review a draft” or “any combination of these kinds of services.”12
22. Judicial Precedent: The Committee is not aware of any Utah Supreme Court opinion that addresses the questions presented here.
23. It is important, however, to take account of Duran v. Carris,13 a Tenth Circuit opinion. In this case, a New Mexico lawyer who had represented the plaintiff/appellant in the trial court, was criticized for ghost-writing the brief appealing the dismissal of the case for failure to state a claim. This per curiam opinion relied on Rule 11 of the Federal Rules of Civil Procedure, which requires pleadings be signed, Rule 3.3 of the Rules of Professional Conduct, which requires candor to the tribunal, Rule 8.4 of the Rules of Professional Conduct, which prohibits conduct involving misrepresentation, and case law that accords pro se parties leniency. The Tenth Circuit opinion states:
[The attorney’s] actions in providing substantial legal assistance to [the client] . . . without entering an appearance in this case not only affords [the client] . . . the benefit of this court’s liberal construction of pro se pleadings . . . but also inappropriately shields [the attorney] . . . from responsibility and accountability for his actions and counsel.14
The opinion holds as follows:
We recognize that, as of yet, we have not defined what kinds of legal advice given by an attorney amounts to “substantial” assistance that must be disclosed to the court. Today, we provide some guidance on the matter. We hold that the participation by an attorney in drafting an appellate brief is per se substantial, and must be acknowledge by signature. In fact, we agree with the New York City Bar’s ethics opinion that “an attorney must refuse to provide ghostwriting assistance unless the client specifically commits herself to disclosing the attorney’s assistance to the court upon filing.” . . . We hold today, however, than any ghostwriting of an otherwise pro se brief must be acknowledged by the signature of the attorney involved. 15
24. Certainly, Utah lawyers who appear before Tenth Circuit must be aware of this opinion and comply with it. A Utah lawyer who writes a brief for a pro se party must acknowledge this participation by signing the brief filed with the Tenth Circuit.
25. However, it is not clear how far the Duran v. Carris opinion extends beyond its own rather unusual facts. First, the Tenth Circuit opinion regarding a New Mexico lawyer’s failure to comply with ethical rules that apply to him does not bind the Utah Supreme Court in its interpretation of the Utah Rules of Professional Conduct. Second, the lawyer’s conduct in failing to sign a brief suggests malfeasance that providing limited legal help in the trial court typically does not. Here, the lawyer wrote a brief for an appeal from a dismissal for failure to state a claim, yet declined to sign the brief. This suggests that the lawyer was intentionally assisting a client to pursue a cause of action knowing it was frivolous, but declining to appear to avoid sanction. In Utah, Rule of Professional Conduct 3.3 requires candor and prohibits a lawyer from failing to disclose to a tribunal legal authority the lawyer knows is directly adverse to his position. And Rule 3.1 prohibits a lawyer from bringing any proceeding “unless there is a basis in law and fact for doing so that is not frivolous.” The facts of Duran v. Carris suggest that the attorney was avoiding being charged with violating those provisions by declining to sign the brief.
26. There are many reasons other than dishonesty and malfeasance that an attorney might provide extensive assistance with a trial-court matter, yet would not sign a pleading and enter appearance as counsel. Initially, the attorney may interview the client, advise about the claims that are well founded, and draft a complaint. Yet, unless the attorney further investigates the facts and accepts the case for full representation, the attorney would not enter an appearance. The attorney may provide further assistance with service, with discovery, and with trial preparation either on a pro bono or reduced-fee basis to permit the client to prosecute his claim without paying for full-service representation. The Duran v. Carris case should not be extended to prohibit such assistance in the absence of the attorney’s intentionally aiding a client to bring a case the lawyer believes is frivolous or without legal foundation.
27. We agree that attorneys who intentionally assist pro se parties to file frivolous cases can be sanctioned for this behavior under Rule 8.4. Similarly, an attorney cannot act as a mere scrivener and draft a complaint (or a brief) at the client’s behest without forming a professional opinion that a cause of action has a basis in law and fact based on the client’s description of the facts. Such negligent conduct could be sanctioned as incompetence in interviewing, analyzing and advising the client. Indeed, both the Duran v. Carris case and early New York cases16 that condemned ghost-writing for a frequent litigant suggest that the misconduct is in helping a litigant bring a frivolous matter, not providing extensive help to a pro se litigant who has a meritorious claim. This Committee believes that sanctioning such intentional wrong-doing or negligence is preferable to a sweeping prohibition of extensive assistance to pro se parties.
28. For all of the reasons set forth above, in the absence of any court rule addressing the issue, we conclude that it is not dishonest behavior of an attorney to provided limited legal help to a pro se litigant, including assistance with drafting of pleadings, without disclosing the fact of that assistance to the court.
29. Disclosures Required for Limited Legal Help: As set forth above, we conclude that the only disclosures that an attorney must make to the court (or to other parties) are disclosures expressly required either by court rule or the Rules of Professional Conduct. Disclosure to the court is required where a lawyer-mediator prepares documents to file in court after a successful mediation.17 Similarly, Rule 75 of the Utah Rules of Civil Procedure sets forth requirements, including that the lawyer enter an appearance in accordance with Rules 11, when the attorney makes a limited appearance.
30. Rule 1.2(c) of the Utah Rules of Professional Conduct does require that the attorney obtain “informed consent” from the client prior to providing a limited scope of representation, and this requires appropriate disclosures to the client. The Rules define “informed consent” as agreement “after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.”18 Exactly what must be explained to a client prior to providing limited-scope assistance—the information that will permit the client to make an informed decision whether to proceed in this way, including alternative courses the client could consider—is, of necessity, highly fact-intensive and case-specific. Increasingly, books and articles and web-posted reports provide advice and suggested forms for undertaking limited representation.
31. We note one important limit on securing client agreement to limited representation. It is only permitted “if the limitation is reasonable under the circumstances.” A comment illustrates this limitation:
If . . . a client’s objective is limited to securing general information the client needs in order to handle a common and typically uncomplicated legal problem, the lawyer and client may agree that the lawyer’s services will be limited to a brief telephone consultation. Such a limitation, however, would not be reasonable if the time allotted was not sufficient to yield advice upon which the client could rely.19
Obviously there are other circumstances in which a proposed limitation would not be “reasonable” given the nature of the case.
32. Providing unbundled legal services does require particular attention and care to various other ethical rules. Comment [8] to Rule 1.2 instructs that “all agreements concerning a lawyer’s representation of a client must accord with the Rules of Professional Conduct and other law.
33. First, Rule 1.1 expressly insists that the legal services be “competent.” As Opinion 330 of the District of Columbia Bar states: “In other words, the scope of the services may be limited but their quality may not. When hired to diagnose legal problems, an attorney providing services under an unbundling arrangement must be as thorough in identifying legal issues as an attorney who intends to continue with a case through its conclusion.” In providing limited legal help, an attorney must nevertheless alert the client to any legal problem the attorney discovers, even if outside the scope of the representation, according.20 We have previously opined that an attorney does not perform competently if the lawyer is merely a scrivener.
Various state bars have addressed the limitation on legal services where the lawyer provides only legal analysis and drafting services. We can find no judicial or ethics opinion that approves drafting services alone; the drafting services are always an adjunct to analysis and advice provided by the lawyer. Finally, best practices in “unbundled” legal services are addressed in various books and articles, and we can find none that suggest drafting services alone are adequate or appropriate . . . . It is difficult to understand how a lawyer could appropriately assist an individual to file pro se divorce pleadings without advising the party when his claims appear to lack any legal support and without advising the party regarding the evidentiary support the party will need to support certain contentions. In the absence of any court rules that address the propriety of ghostwritten pleadings, this Committee concludes that, at a minimum, a lawyer may not limit her services to conforming a party’s pleadings to proper form without providing analysis and advice to the party seeking such advice.21
Accordingly, prior to drafting a paper for a client, the lawyer must interview the client sufficiently and know the law adequately to conclude that the paper is warranted based on the facts as reported by the client.
34. Other duties that are not diminished by the limited legal service agreement are the duties of diligence, Rule 1.3, the duty to communicate, Rule 1.4, and the duty of confidentiality, Rules 1.6 and 1.8.
35. Rule 6.5 alters slightly the lawyer’s duty of loyalty. It applies when limited legal services are rendered as part of a court-annexed or nonprofit program. In this situation, the lawyer is prohibited from providing the limited legal services only if the lawyer “knows” that there is a personal “conflict of interest” under Rule 1.7 or Rule 1.9(a) or “knows” that another lawyer in the lawyer’s firm has a conflict of interest that would disqualify the firm under Rule 1.10.
36. Another aspect of limited representation that warrants comment is Rule 4.2, which prohibits communicating with persons a lawyer “knows” to be represented “in the matter” without that lawyer’s permission. When the lawyer has entered a limited appearance in court, Utah Rule of Civil Procedure Rule 75 governs and explicitly provides that “the party remains responsible for all matters not specifically described in the Notice” of limited appearance. When there is no appearance in the court, the matter is less clear. District of Columbia Bar Opinion 330 concludes that:
Even if the lawyer has reason to know that the pro se litigant is receiving some behind-the-scenes legal help, it would be unduly onerous to place the burden on that lawyer to ascertain the scope and nature of that involvement. In such a situation, opposing counsel acts reasonably in proceeding as if the opposing party is not represented, at least until informed otherwise.
This seems a sensible approach.
37. Conclusion: It is not dishonest conduct to provide extensive undisclosed legal help to a pro se party, including the preparation of various pleadings for the client, unless a court rule or ethical rule explicitly requires disclosure. Undertaking to provide limited legal help does not generally alter any other aspect of the attorney’s professional responsibilities to the client.
38. To the extent that our previous Opinions 47, 53 and 74 are inconsistent with this opinion, they are superseded.
APPENDIX A
1. In 1978, Utah Ethics Opinion 47 dealt with a lawyer’s providing “legal advice, consultation, and assistance to inmates regarding the preparation of initial pleadings in civil matters,” including preparing “complaints, summons, affidavits of impecuniosity, and motions for leave to proceed in forma pauperis,” after which the inmates would proceed pro se. The opinion concluded there was “nothing inherent in the proposal that is unethical” and discussed the need fully to inform the inmate of the limited nature of the representation and the need to warn the State of Utah (which would pay for the lawyer’s services) that the State could have no influence over the services.
2. A year later, Opinion No. 53 similarly approved of a lawyer’s providing “limited legal services to persons wishing to handle their own divorces,” where the attorney interviewed the client and provided the client with a manual of instructions and forms to use. The opinion referenced and distinguished this “more limited” involvement of the lawyer from the situation presented and disapproved of in the then recently issued ABA Ethics Committee Informal Opinion 1414 (1978). ABA Opinion 1414 involved a lawyer’s assisting in the preparation of jury instructions and memoranda for the client and attending the trial to advise the litigant on procedural matters. The ABA opinion concluded that the litigant was not in fact proceeding pro se and, therefore, the lawyer’s conduct constituted a misrepresentation as to his undisclosed involvement and ran afoul of the rule prohibiting a lawyer from engaging in conduct involving dishonesty, fraud, deceit of misrepresentation.22
3. In 1981, Utah Opinion No. 74 addressed “the propriety of an attorney preparing a responsive pleading showing the party to be appearing pro se,” where the client was financially unable to pay the lawyer’s retainer but wanted to have an answer filed to protect his rights. That opinion again relied on DR 1-102(A)(4) of the old Code, which prohibited “conduct involving dishonesty, fraud, deceit or misrepresentation” and adopted the reasoning and standard set forth in (but did not cite) ABA Informal Opinion No. 1414. Opinion No. 74 holds:
There is nothing improper in an attorney giving initial advice to a litigant who is proceeding pro se nor is it improper for an attorney to prepare or assist in the preparation of pleadings.
However, when the attorney gives any additional assistance and the litigant continues to inform the court that he is proceeding pro se, he has engaged in misrepresentation by professing to be without representation. The attorney who engages in this conduct is involved in the litigant’s misrepresentation contrary to DR 1-102(A)(4) . . . .23
The opinion goes on to advise that determining whether the attorney’s conduct is proper or improper “will depend upon the particular facts” and:
The extent of the attorney’s participation . . . is the determining factor. Minimal participation by the attorney is not improper. However, extensive undisclosed participation by an attorney that permits the litigant falsely to appear as being without substantial professional assistance is improper for the reasons noted above.24
4. Opinion 74 approved of the drafting of one document. It was the “extensive undisclosed participation by an attorney that permits the litigant falsely to appear as being without substantial professional assistance” that was identified as improper this opinion and ABA Informal Opinion 1414. The imprecision of that standard is itself troublesome. In a typical case in which a party obtains assistance in drafting a divorce petition, for example, the party then may obtain brief advice as to service of process. Thereafter, the party may need assistance with a motion for temporary orders or information about how to mark the case for a pre-trial hearing. It is not clear to us at what point such a typical pro se party’s needing limited-scope legal help has obtained “extensive” or “substantial” help that appears dishonest. Because over 80% of respondents and 49% of petitioners in divorce cases are unrepresented, these are the typical pro se parties and needed limited assistance of counsel.25
5. Indeed, ABA Informal Opinion 1414 did not closely analyze the Code of Professional Responsibility, but relied instead on two New York cases which “condemned” ghostwriting, both involving the same “habitual litigant who in the past five or six year . . . commenced well over thirty law suits.” Various courts have condemned ghost-written pleadings and briefs based on the notion that courts give pro se parties greater leeway and that undisclosed legal assistance is therefore an unfair advantage. However, Professor Jona Goldschmidt has rebutted the idea of unfair advantage, noting that courts liberally construe pleadings regardless of who drafted them.26 Likewise, ABA Formal Opinion 07-446 considered and rejected the notion that pro se parties are granted “unwarranted ‘special treatment.’”
In 1983 the ABA replaced its Model Code of Professional Responsibility with the entirely re-conceptualized Model Rules of Professional Conduct. In 1988, Utah likewise replaced the Utah Code of Professional Responsibility with the Utah Rules of Professional Conduct based on the 1983 ABA Model Rules. The ABA Model Rules received a comprehensive retooling in the ABA’s “Ethics 2000” project, and the Utah Rules were modified in 2005 to adopt many of the changes made to the ABA Model Rules.
Footnotes
1. Utah Eth. Adv. Op 47 (Utah St. Bar 1978); Utah Eth. Adv. Op. 53 (Utah St. Bar 1979); Utah Eth. Adv. Op. 74 (Utah St. Bar 1981).
2. Utah Rules of Professional Conduct, Rule 3.3, Candor Toward the Tribunal, addresses related issues and prohibits the lawyer from knowingly (1) making a false statement of fact or law to a tribunal, (2) failing to disclose legal authority directly adverse, and (3) offering evidence the lawyer knows to be false.
3. Id., Preamble ¶ [21].
4. Id., Rule 6.5, cmt. [1].
5. Id., Rule 2.4(c) (emphasis added).
6. Utah R. Civ. P. 11(b) (emphasis added).
7. Colo. R. Civ. P. 11(b) and Wash R. Civ. P. 11(b).
8. The Utah State Courts website lists many free legal clinics that provide brief advice and help with forms. http://www.utcourts.gov/howto/legalclinics/
9. Committee on Resources for Self-Represented Parties Strategic Planning Initiative Report to the Judicial Council, p. 5 (July 25, 2006) reporting statistics from 2005.At: http://www.utcourts.gov/resources/reports: 2006 Survey of Self-Represented Parties in the Utah State Courts.pdf
10. Jona Goldschmidt, In Defense of Ghostwriting, 29 FORDHAM URBAN L.J. 1145 (2002).
11. Nelson v. Jacobsen, 669 P.2d 1207, 1213 (Utah 1983).
12.http://www.utcourts.gov/howto/legalassist/
13. 238 F.3d 1268 (10th Cir. 2001).
14. Id. at 1271-72.
15. Id. at 1273 (emphasis added). The Tenth Circuit court did not, however, sanction the lawyer but resolved that issue as follows: “Therefore, we admonish [the lawyer] . . . that this behavior will not be tolerated by this court, and future violations of this admonition will result in the possible imposition of sanctions.”
16. See ¶ 41, App. A.
17. Utah R. Prof. Conduct 2.4(c).
18. Id., Rule 1.0(f).
19. Id., Rule 1.2(c), cmt. [7].
20. See also Los Angeles Co. Bar Assoc. Eth. Op. 502.
21. Utah Eth. Adv. Op. 02-10, 2002 WL 31922503 (Utah St. Bar) (references omitted).
22. DR 1-102(A)(4) of the ABA Code of Professional Responsibility.
23. Utah Ethics Op. 74, at 1-2 (emphasis added).
24. Id. at 2 (emphasis added). The standards set forth: “extensive undisclosed participation by an attorney that permits the litigant falsely to appear as being without substantial professional assistance is improper for the reasons noted above.” This is an exact, though unattributed quote of ABA Informal Opinion No. 1414.
25. Committee on Resources for Self-Represented Parties Strategic Planning initiative Report to the Judicial Council, at 5 (July 25, 2006) (reporting statistics from 2004). http://www.utcourts.gov/resources/reports/Self%20Represented%20Litigants%20
Strategic%20Plan%202006.pdf
26. Jona Goldschmidt, In Defense of Ghostwriting, 29 FORDHAM URBAN L.J. 1145 (2002).

Ethics Advisory Opinion No. 06-01

June 2, 2006
Issue:
May members of the County Attorney’s Office provide pro bono legal assistance to victims of domestic violence in seeking civil protective orders?
If so, is it thereafter permissible for the County Attorney’s Office to prosecute the subsequent violation of the protective order?

Would it be permissible for the County Attorney’s Office to provide such legal assistance to victims of domestic violence as a governmental service and thereafter prosecute subsequent violations of the protective order if the civil division of the office assisted in the civil protective order and the criminal division in any subsequent prosecution?
Opinion: While statute, ordinance or employment contract may prohibit a government lawyer from representing individuals on a pro bono basis, the only ethical prohibition would arise from conflicts of interest provisions. Conflicts of interest rules would not prohibit the initial private representation but would prohibit the individual government lawyer from thereafter having any involvement in the prosecution of the abuser. It is conceivable that the pro bono work of one government lawyer in a large office with different divisions would have no impact upon another government lawyer in a different division handling a related matter for the government. However, it would be improper for the second lawyer to undertake to represent the governmental entity if the pro bono work undertaken by the first lawyer could create a material limitation for that second lawyer. Finally, two separate divisions of a governmental office can be established to undertake potentially conflicting work, provided that attorneys in one unit do not in any way “participate” in the work of the other unit (best achieved through “screening”) and provided that any representation of an individual or non-governmental entity fully complies with Rule 1.8(f).
Facts: The County Attorney’s Office seeks to help victims of domestic violence obtain protective orders in civil cohabitant abuse actions, since such individuals may be deterred from obtaining this protection without legal representation. The County Attorney seeks to provide full representation, including appearing in court on behalf of the victim, not merely to provide information sufficient to permit the victim to proceed pro se. 1 The County Attorney’s Office, however, does not wish to provide this assistance at the expense of being able to prosecute the abuser, either for the initial incident or for future incidents, including incidents that are violations of the order. The County Attorney’s Office asks about the possibility of one attorney providing this representation “pro bono” and about the possibility of a division of the Office providing this representation as part of its regular public service. Both scenarios are addressed here.
Authority: The questions must be answered in light of the Utah Rules of Professional Conduct (2005) and EAOC Opinions:
Rule 1.7 regarding concurrent conflicts of interest (actual and potential) of the attorney
Rule 1.9 regarding successive conflicts of interest of the individual attorney
Rule 1.11 regarding conflicts of interest for government lawyers
Opinion No. 98-01
Opinion No. 01-06A
Analysis:
Applicable Rules
Rule 1.7 provides in relevant part:
. . . A lawyer shall not represent a client if . . . There is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or . . . by a personal interest of the lawyer.
Rule 1.9 provides in relevant part:
A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed consent. . . .
Rule 1.11 provides in relevant part:
(d) Except as law may otherwise expressly permit, a lawyer serving as a public officer or employee:
(d)(1) is subject to Rules 1.7 and 1.9 and
(d)(2) shall not
(d)(2)(I) participate in a matter in which the lawyer participated personally and substantially while in private practice or nongovernmental employment, unless the appropriate government agency gives its informed consent, confirmed in writing .
County Attorney Undertaking Private Pro Bono Representation
This Committee has previously addressed similar questions of conflicts of interest as they apply to an individual part-time county attorney who also maintains a part-time private practice. 2 To the extent that the County Attorney’s office contemplates permitting one of its attorney employees to occasionally engage in pro bono work for private clients, we rely upon these prior opinions. 3
Our prior Opinions largely answer the first two questions. Opinion No. 01-06A (issued June 12, 2002) and Opinion No. 98-01 both address the conflicts involved when a part-time county attorney undertakes private representation in a civil cohabitant abuse action. Opinion No. 01-06A concluded that a part-time county attorney is not prohibited from representing a defendant in a civil protective order case, but if a criminal case arises out of the initial incident or is brought for violation of the protective order, that individual county attorney may not represent the defendant client or the county in such a case. 4 Opinion No. 98-01 considered the situation in which the part-time county attorney represents the victim/plaintiff in a cohabitant abuse action. There, if a subsequent criminal case is filed against the opponent/respondent, that individual part-time county attorney need not withdraw from representing the victim/plaintiff in the civil action but cannot be involved in the prosecution and must refer it to an appropriate conflict attorney. The Committee reasoned that because the interests of the victim-client and the county might diverge, the attorney may have confidential information from the private client, and the prosecutor’s neutrality might be compromised by his private representation; it would be unethical for the part-time county attorney to be involved in the prosecution of this matter. 5
Thus, an individual county attorney may, under the rules of professional conduct, provide pro bono legal assistance to victims of domestic violence in seeking civil protective orders. However after the county attorney has done so he may not be involved in the prosecution of the perpetrator for the initial act or for a subsequent violation of the protective order. And he may only continue the pro bono representation if he is fully able to comply with Rule 1.7(a) where his personal interest in his paid work for the County does not create a material limitation.
Our prior Opinions have further established that the part-time county attorney must, at the outset, fully inform the client of potential conflicts and the need to withdraw if actual conflicts arise. Moreover if the possibility of a conflict arising is likely and if that possibility will materially interfere with the lawyer’s representation, the lawyer should not undertake the case initially.
Imputation of Conflicts of Interest to Other Attorneys in County Attorney Office
The second issue is whether the conflict of one county attorney undertaking individual pro bono representation is attributed to others in the office.
In the past some have looked to Rule 1.10 to indicate when conflicts of interest are imputed to others within a governmental law office. However, in November, 2005 the Utah Supreme Court adopted revised versions of Rules 1.10 and 1.11 which now make clear that Rule 1.10 is not intended to and does not apply to impute conflicts of interest within a government law office. 6 Instead, solely Rule 1.11 governs any imputation of conflicts of interest for government lawyers 7 unless the Rules expressly provide otherwise. 8
Rule 1.11(d) expressly deals with conflicts of interest for the current government lawyer and provides that the government lawyer “shall not participate in a matter in which the lawyer participated personally and substantially while in private practice or nongovernmental employment. . . .” As comment [2] to Rule 1.11 states, “paragraph (d) does not impute the conflicts of a lawyer currently serving as an officer or employee of the government to other associated government officers or employees, although ordinarily it will be prudent to screen such lawyers.” Hazard and Hodes likewise note:
Because governmental lawyers in the same government agency are not subject to the imputation rule, the legal work of the government may go forward whether or not other affected parties consent, and whether or not the personally disqualified lawyer is screened in the normal sense. HAZARD AND HODES, THE LAW OF LAWYERING § 15.2
* * * * * * *
Rule 1.11(d) does not require disqualification of anyone except the affected government lawyer individual. Accordingly, there is no reason for this paragraph to advert to screening and it does not. However . . . the lawyer is required to avoid ‘participating’ in the matters in question. This could imply that isolating the lawyer from the office’s work in the matter – a form of screening – is required after all . . . . One important reason to screen government lawyers . . . is to avoid a motion to disqualify the entire government office or “firm.” HAZARD AND HODES, THE LAW OF LAWYERING § 15.9
Similarly, the amendments make clear that Rule 1.11 applies to concurrent representation by government lawyers as well as successive representation. The name of the rule was changed from “Successive Government and Private Employment” to “Special Conflicts of Interest for Former and Current Government Officers and Employees.” Likewise, comment [9] and expert commentary clarify that it should apply to concurrent representation as well. Hazard and Hodes explain that Rule 1.11(d) applies when a government lawyer has a concurrent conflict:
Paragraph (d) controls situations in which a lawyer is currently serving the government. . . A government lawyer might have competing responsibilities to others that could materially limit representation of the government. For example, it is not unheard of for lawyers representing state and local government units to be representing other clients with conflicting interests while also representing the government. HAZARD AND HODES, THE LAW OF LAWYERING § 15.2
Rule 1.11 has been looked to when considering concurrent conflicts of interest of government lawyers given “the policy and practical reasoning behind the rule.” See Vermont Ethics Opinion No. 2003-04 at www.vtbar.org (addressing part-time assistant attorney general who also serves “of counsel” at a law firm).
For these reasons we conclude that the pro bono work of one government lawyer will not create a conflict of interest that will be imputed to others in the government office providing that the pro bono lawyer does not “participate” in the conflicting work that the government office undertakes. We further note, however, that Rule 1.7 regarding concurrent personal conflicts of interest must be fully complied with by both the pro bono lawyer and the government lawyer. Thus, if there is a “significant risk that the representation of” either the pro bono or the government client “will be materially limited” by the attorneys’ relationships with one another or by either attorney’s personal interests, the conflicting representation cannot go forward.
Finally, we note that this interpretation of the Rules of Professional Conduct does not control whether a court will find grounds to disqualify an attorney or an office, particularly where there are constitutional rights involved. While “screening” is not required of government lawyers under these rules, undertaking a screening mechanism (see below) may be wise to minimize the possibility of disqualification.
Establishing Separate Divisions to Handle Possible Conflicts
The County Attorney asks about the viability of assigning civil work for domestic violence victims to an individual or division within the County Attorney’s Office separate from the individual or division that prosecutes criminal cases.
This scenario adds one further complication to the analysis above in that it proposes doing work for a client (the victim) while being paid by another entity (the county) as addressed in Rule 1.8(f) Utah Rules of Professional Conduct. Such an arrangement is permissible only if the attorney maintains a confidential relationship solely with the victim-client (not the county-employer), permits only the victim client to direct the attorney’s work, and obtains informed consent to this arrangement from the victim client. “Informed consent” is now defined in the Utah Rules of Professional Conduct as denoting “an agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.”
Here, again, Rule 1.11 would not impute the disqualification of one government attorney to other governmental attorneys if each of the two attorneys did not “participate” in the conflicting work of the other. The underlying concern is that for each client confidentiality and independent legal judgment must be fully protected.
This Committee considered the issue of conflicts of interest within a governmental law office in Opinion No. 142 (1994) dealing with the office of the Attorney General. Opinion No. 142 established that Rule 1.10 (defining a “firm” and imputing disqualification to all within the “firm”) does not apply to the office of the Attorney General and the conflicts of one Assistant Attorney General are not necessarily imputed to all other attorneys in that office. Opinion No. 142 (1994). That Opinion concludes that the Office may represent different agencies with adverse interests or positions so long as “the attorneys with conflict problems are removed and screened from the particular representation at issue.” Accordingly, the Attorney General’s office has been organized to operate through different “divisions.”
While there were constitutional reasons for that analysis with regard to the Attorney General, we now make clear that other governmental law offices are also permitted to organize themselves in such a way as to constitute two separate “firms” 9 and undertake conflicting representation. In order to guard most effectively against disqualification motions, it would be “prudent” for the attorneys with potentially conflicting responsibilities to be entirely screened from one another, not sharing access to the same confidential files (see Rule 1.6) or operating so that one attorney has “managerial authority” or “supervisory authority” over the other (see Rule 5.1). However, even if no formal screening system is put in place, government attorneys comply with the ethical rules if they ensure they do not “participate” in any matter for which they have a personal conflict of interest.
We further note that undertaking such an endeavor in which one section of a government office represents victim-clients would result in the governmental entity owing all the duties of a lawyer to the victim-clients and those victim-clients having possible claims against the governmental entity.
Conclusion:
The conclusion is that it could be possible for a County Attorney’s Office to organize itself in such a way as to ethically provide representation for individual client victims in civil cohabitant abuse actions and then later permit a separate division or attorney in the Office to represent the state in any related criminal prosecution. However, any such organization would have to prohibit any confidential information from flowing from one sector to the other. Similarly, it is possible for a government lawyer to undertake pro bono representation without having a conflict imputed to other government lawyers provided the pro bono lawyer is kept entirely apart from any conflicting representation (and the other government lawyers have no access to the pro bono lawyer’s confidential files and no ability to influence the pro bono lawyer in his work.) Whether those services are provided by separate divisions or by pro bono representation, the County Attorney’s Office would have to assure that there was no “significant risk” that the county attorney’s representation of the victim client would be “materially limited by the lawyer’s responsibilities” to the county or by the attorney’s “personal interest” as a county attorney. Rule 1.7(a).
Footnotes
1 We note that providing “general legal information” or “clerical assistance” to a victim seeking a protective order is not the “practice of law” and hence can be undertaken by the staff of the court or the county attorney’s office. See Supreme Court R. Prof. Prac., ch. 13A, Rule 1.0 (c) (2005).
2 This Committee has also addressed conflicts of interest as they apply to the Office of the Attorney General Opinion in No. 142, to an Assistant Attorney General serving as a hearing officer in Opinion No. 03-01, and to a private attorney with a partner who serves as a part-time judge in Opinion No. 95-02A which are related and relied upon to some extent here.
3 We note that such pro bono work would not be part of the attorney’s duties for the county and thus the county could incur no liability for it and the client would need to be fully and clearly advised that the attorney is not acting in the capacity as a government lawyer but as a private volunteer.
4 State v. Brown 853 P.2d 851 (Utah 1992) prohibits a prosecutor from appearing as defense counsel in a criminal case. The Committee concluded that the on-going civil representation of a person also charged with a crime would be prohibited under Rule 1.7 because the lawyer’s responsibilities to another client (the county) would materially limit his representation of the client.
5 Inconsistent with Opinion No. 98-01, we concluded in Opinion 01-06A that a part-time county attorney would have to withdraw from representing the victim in a civil cohabitation abuse action as well. To the extent that conclusion is over broad, our opinion here is to be considered as modifying Opinion 01-06A. Rather, Rule 1.7(a) would find a conflict where “there is significant risk that the representation” of the victim client would be “materially limited by the lawyer’s responsibilities” to the county or by the attorney’s “personal interest” as a county attorney. This is a fact-specific and case-specific inquiry. We note that the “personal interest” of a part-time county attorney who also maintains a part-time private practice may be factually different from the interest of a full-time county attorney undertaking occasional pro bono representation.
6 Paragraph (e) and Comment [7] were added to Rule 1.10 and Comments [2], [3] and [9] were added to Rule 1.11 together with a redrafted paragraph (d) of Rule 1.11 seeking to clarify that Rule 1.11 is the exclusive rule governing imputation of conflicts of interest applicable to current or former government lawyers. See ABA Model Rules 2000 with Redlining and the Reporters Explanation Memos available on the ABA website at: http://www.abanet.org/cpr/e2k-report_home.html
7 This Committee’s Opinion 98-01 states: “In withdrawing from the criminal matter, the limitations and requirements of Rule 1.10 . . . describing imputed disqualification among attorneys associated in a firm, must also be strictly followed.” While this interpretation applies to the part-time attorney withdrawing from his private practice representation; it does not apply to a part-time county attorney withdrawing from any governmental representation.
8 Rule 1.12 governs imputed disqualification of an attorney (including a government attorney) who had previously served as a judge, other adjudicative officer or law clerk.
9 Utah Rules of Professional Conduct (2005) now define “firm” to include “other association authorized to practice law . . . or lawyers employed in . . . the legal department of a corporation or other organization.” Rule 1.0

Ethics Advisory Opinion No. 06-03

Issued December 8, 2006
1. Issue:
Under what circumstances may a Utah lawyer be personally involved in a lending transaction to finance a client’s cause of action or obtain funds for the payment of the lawyer’s legal fees and expenses?

2. Conclusion: (a) A lawyer may not directly or indirectly represent a lender to the lawyer’s client in connection with a loan that is made for the purpose of enabling the client to pay the lawyer’s fees or costs. (b) A lawyer may not participate in a contingent, non-recourse loan with a third-party lender to finance the costs and expenses of litigation where the terms of the lending arrangement create the potential that the financial risk to the lawyer of the lending arrangement are lessened if the lawyer obtains no recovery for the client.
3. The Committee has received two separate requests regarding the propriety of financial transactions between Utah lawyers and third-party lending sources. Although the factual backgrounds are substantially different, they both raise similar questions concerning lawsuit funding for clients who may not be in a position to pay a lawyer’s ongoing fees or costs up front.
4. Background for EAOC File No. R0206: In the first situation, a Utah lawyer (“Lawyer”) has clients who cannot pay Lawyer’s retainer or flat fee because they do not have sufficient available cash on hand, although they are employed and could repay a loan over time. Lawyer proposes to organize and manage a consumer money-lending company (“Affiliated Lending”) as a limited liability company that would be capitalized and owned by Lawyer’s relatives. Affiliated Lending would be a manager-managed limited liability company (“LLC”), and Lawyer would be the sole manager of the LLC. Lawyer would review loan applications, initiate and service loans for Affiliated Lending. Lawyer also would receive compensation from Affiliated Lending for these services. Affiliated Lending would consider and make loans to the public, as well as to Lawyer’s clients. If the client were subsequently to default on a loan, any judicial collection action would be referred by Affiliated Lending (presumably acting through its manager-lawyer) to a third-party collection agency. Lawyer would never represent Affiliated Lending in pursuing a collection action against one of Lawyer’s clients.1
5. In referring clients to Affiliated Lending, Lawyer would explain potential conflicts of interest to the client in a written disclosure. This disclosure would explain that Affiliated Lending is owned by Lawyer’s relatives, that Lawyer manages Affiliated Lending, that the client has the right to have the arrangement reviewed by independent counsel, that there would be severe repercussions to the client if there is a default on a loan, and that a potential conflict could arise between Lawyer and the client if the client did default. The client would be required to sign this written disclosure before applying for a loan from Affiliated Lending. The loans would be made at or below market rates for comparable high risk, short-term loans.2
6. Analysis: The proposed lending-fee arrangement here places Lawyer in a dual relationship with conflicting loyalties. On the one hand, Lawyer owes a duty of loyalty to the client, while, at the same time, Lawyer owes a duty of loyalty to Affiliated Lending as its sole, managing employee. The relationship between Affiliated Lending and the client is adverse: Affiliated Lending is a creditor of the client. As such, Lawyer’s duties to both the client and Affiliated Lending are in conflict. More importantly, Lawyer’s dual loyalties make it difficult, if not impossible, for Lawyer to provide objective, unbiased advice and representation to the client where, by doing so, the interests of Affiliated Lending might be impaired, or the personal interests of Lawyer in Affiliated Lending might be adversely affected.
7. For example, Lawyer has an interest in causing Affiliated Lending to make a loan to the client that is sufficient to pay Lawyer’s fees, whereas it may not be prudent for Affiliated Lending to make such a loan, or for the client to obtain such funds on the terms offered. Lawyer’s personal interest in the loan proceeds also may taint the lawyer’s judgment in negotiating and documenting the loan. Further, Lawyer’s loan documents and credit negotiations with the client might be called into question if the client subsequently were to default on the loan.
8. Rule 1.6(a) 3 provides:
A lawyer shall not reveal information relating to the representation of a client, unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b).4
9. Comment [2] of this rule describes client confidentiality as a “fundamental principle in the client-lawyer relationship” and notes that the principle “contributes to the trust that is the hallmark of the client-lawyer relationship.” Comment [4] of Rule 1.6 further notes that “[t]his prohibition also applies to disclosures by a lawyer that do not in themselves reveal protected information but could reasonably lead to the discovery of such information by a third person.”
10. Here, information that Lawyer learns about the client may prejudice the client in either the negotiations to obtain the loan or in the lender’s efforts to collect the loan. If Lawyer were to withhold this information from the lender, Lawyer’s duty of loyalty to the lender likewise would be compromised. On the other hand, if Lawyer were to reveal sensitive information to the lender, then Lawyer’s duty of confidentiality to the client is compromised.
11. Rule 1.7 provides, in part:
(a) Except as provided in paragraph (b) a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if: . . . .
(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.
(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:
(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or another proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in writing.
(Emphasis added.)
12. As is made clear by Comment [1] of Rule 1.7: “Loyalty and independent judgment are essential elements in the lawyer’s relationship to a client. Concurrent conflicts of interest can arise from the lawyer’s responsibilities to another client, a former client or a third person or from the lawyer’s own interests.” (Emphasis added.)
13. Further, Comment [8] of Rule 1.7 provides:
Even where there is no direct adverseness, a conflict of interest exists if there is a significant risk that a lawyer’s ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer’s other responsibilities or interests. . . . The mere possibility of subsequent harm does not itself require disclosure and consent. The critical questions are the likelihood that a difference in interests will eventuate and, if it does, whether it will materially interfere with the lawyer’s independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client.
(Emphasis added.) And, as stated in Comment [9] of Rule 1.7, “a lawyer’s duties of loyalty and independence may be materially limited . . . by the lawyer’s responsibilities to other persons, such as fiduciary duties arising from a lawyer’s service as a trustee, executor or corporate director.”
14. Comment [13] of Rule 1.7 addresses the subject of third persons who pay for a lawyer’s service:
A lawyer may be paid from a source other than the client, including a co-client, if the client is informed of that fact and consents and the arrangement does not compromise the lawyer’s duty of loyalty or independent judgment to the client. See Rule 1.8(f). If acceptance of the payment from any other source presents a significant risk that the lawyer’s representation of the client will be materially limited by the lawyer’s own interest in accommodating the person paying the lawyer’s fee or by the lawyer’s responsibilities to a payer who is also a co-client, then the lawyer must comply with the requirements of paragraph (b) before accepting the representation, including determining whether the conflict is consentable and, if so, that the client has adequate information about the material risks of the representation.
(Emphasis added.)
15. Here, if the client defaults on the loan, Lawyer will be required to take certain steps on behalf of Affiliated Lending to collect the obligation. Those efforts will place Lawyer in an adverse position to the client, even if Lawyer is not directly involved in any judicial collection proceedings. For instance, prior to initiating a collection action, Affiliated Lending must give the client notice of default, make a demand for payment and, where appropriate, negotiate modified repayment terms with the client. Presumably, all of these activities will be conducted by Lawyer as the manager of Affiliated Lending. During these negotiations, Lawyer might still be representing the client. In addition, as the principal spokesperson for Affiliated Lending, it will be difficult, if not impossible, for Lawyer to represent Affiliated Lending adequately in its collection activities if Lawyer is not involved in reviewing and approving recommendations made by the third-party collection agency. Finally, if Lawyer is representing the client in a bankruptcy, Affiliated Lending’s loan will be directly affected by Lawyer’s services for the client.
16. Other services provided by Lawyer for the client also could affect Affiliated Lending. For example, if Lawyer is retained by the client to defend a criminal proceeding, the outcome of the criminal proceeding could affect the client’s ability to repay the loan, particularly if the client is incarcerated, required to pay a fine, or required to pay restitution to a victim. All of these situations place Lawyer in the untenable position of having divided loyalties between Lawyer’s client and Lawyer’s employer.
17. In the case before us, Affiliated Lending is not a client of Lawyer, but, as Lawyer’s employer, it is a “third person” to which Lawyer has duties and responsibilities and in which Lawyer has a familial, personal and financial interest. With such duties and responsibilities, the proposed arrangement compromises the loyalty and independent judgment of Lawyer to the client.
18. The appropriate inquiry is whether the arrangement would materially interfere with Lawyer’s independent professional judgment in considering alternatives, or foreclose courses of action that reasonably should be pursued on the client’s behalf.5 Violations commonly occur when Lawyer has a financial or proprietary interest that may be affected by the advice given to the client.6 Here, Lawyer has a direct financial interest in the client’s loan from the Lending Company, a familial interest in the owners of the Lending Company, and a personal interest in the future success of the Lending Company.
19. In addition, the prohibitions in Rule 1.8(a) and (b) may be implicated by the proposed arrangement. Lawyer has a close familial relationship with the owners of Affiliated Lending and is a key employee of the company. Under certain circumstances, the relationship between Lawyer and the lender may be so close as to blur the distinctions between Lawyer and the entity, especially in the mind of the client. In such circumstances, a lending arrangement like the one proposed may run afoul of Rule 1.8(a).7 Comment [1] of Rule 1.8 is instructive:
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.
20. Comment [3] of Rule 1.8 further provides:
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.
21. Thus, there is a clear conflict of interest under both Rules 1.7(a)(2) and 1.8(a). We next examine whether the facts permit the lawyer to seek the client’s “informed consent” to such a lending arrangement. Lawyer proposes to require that the client sign a written disclosure. This disclosure would explain the relationship between the lender and Lawyer, would advise the client of the right to have the arrangement reviewed by independent counsel, would explain the consequences to the client if there is a default on the loan, and would further explain that a potential conflict could arise between Lawyer and the client if the client defaulted on the loan.
22. Some conflicts cannot be waived because Lawyer’s personal interest in obtaining the waiver casts doubt about the effectiveness of the client’s consent and about the adequacy of the information provided by Lawyer to the client in seeking the consent.8
23. “Informed consent” is defined in Rule 1.0(f) as denoting “the agreement of a person to a proposed course of conduct after Lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of action.” If the client is asked to consent to a possible future conflict, the effectiveness of a waiver is generally determined by the extent to which the client reasonably understands the material risks that the waiver entails.9
24. Here, Lawyer is employed by the debtor-client’s lender, earns a fee for services performed for the lender in making a loan to the client and also has a personal interest in both the lender and in the loan proceeds. We conclude that this combination of conflicts is so problematic that a lawyer could not “reasonably believe[ ] that the lawyer [would] be able to provide competent and diligent representation to [the] client.”10
25. For the reasons stated above, the proposed funding arrangement creates a nonconsentable conflict of interest under Rule 1.7.
26. Background for EAOC File No. R0506: In the second situation, a Utah lawyer proposes to borrow money in the form of a contingent, non-recourse loan from an independent third-party lending company (“Third-Party Lender”) for the purpose of financing the costs and expenses of litigation. The client is not a party to the agreement and the client gives written informed consent to the arrangement. Before the loan is approved, the lawyer is required to sign a litigation-funding agreement (“Agreement”) that contains carefully structured provisions to avoid conflict with Rule 1.6 (Confidentiality of Information) and Rule 1.8 (Conflict of Interest). The essential terms of the agreement are:
* Funding fee options. The lawyer can borrow up to 80% of the litigation costs from Third-Party Lender. If the lawyer is successful and receives a recovery for the client, the lawyer is obligated to repay to the Third-Party Lender the lesser of the funding or the recovery, plus an additional funding fee. The funding fee is calculated using one of three options available to the lawyer. Under Option 1, the funding fee is equal to the amount of the funding advanced (i.e., the equivalent of 100% return on the funding 11). Under Option 2, the funding fee is equal to a percentage of the funding that depends on when the recovery is obtained (85% of the funding if the recovery is obtained within 24 months, ranging to 125% of the funding if the recovery is obtained after 36 months). Under Option 3, the funding fee is a negotiated percentage (e.g., 5%) of the net recovery (gross recovery minus litigation expenses), subject to a negotiated cap on the funding fee expressed as a multiple of the funding advanced (e.g., 5 times the funding). 12
* The client is not a party to the Agreement. The only parties to the Agreement are Third-Party Lender and the lawyer. However, the lawyer must provide the client with reasonable and adequate information about the material risks and reasonable alternatives to entering into the Agreement.
* The client must sign a disclosure and consent form. Before the lawyer may enter into a contract with Third-Party Lender, the lawyer is required to disclose fully the lending arrangement to the client, and the client must give written consent to the Agreement.
* There is no expressed security interest in lawyer’s fees or client recovery. Third-Party Lender requires that lawyer establish a bank account at Third-Party Lender’s bank to be utilized by Third-Party Lender for funding advances for the borrowing lawyer and by lawyer for making payments to Third-Party Lender. Third-Party Lender is granted a security interest in this account. Third-Party Lender’s conditional right to payments under the Agreement is not secured by any lien, security interest or assigned interest upon or in any funds held by the borrowing lawyer in any other account, the lawyer’s interest in the contingent fee agreement with the client, or any funds held by the client. The lawyer, however, agrees upon a recovery to “subordinate” the lawyer’s right to repayment by the client of costs advanced directly by the lawyer for the client, to Third-Party Lender’s right to repayment of the funding and the funding fee.13
* Repayment is contingent only upon recovery. If the borrowing lawyer does not obtain any recovery for the client in the case, then the lawyer owes nothing and is not obligated to pay any amounts advanced by Third-Party Lender.
* Lawyer will not pass Third-Party Lender’s fees to client. The fee for the funding that is owed to Third-Party Lender by the lawyer may not be passed on to the client in any way, nor can the lawyer charge a different fee to the client based upon the fact that the client’s case is being funded. The client will also not be held responsible for paying any funding fees owed by the lawyer to Third-Party Lender.
* No solicitation of clients. Third-Party Lender will have no involvement in soliciting, obtaining or referring any client or in the lawyer’s decision to file suit on behalf of the client.
* Lawyer has involvement, interest, and control of litigation. Third-Party Lender will exercise no control or influence on the lawyer’s handling of the case or on any decision that requires the exercise of the professional judgment of the lawyer.
* Client confidentiality is addressed. Third-Party Lender will require the lawyer to provide to Third-Party Lender limited information about the client or case for the purpose of processing the funding requests, but only with the written consent of the client. This information would include monthly expense statements, copies of pleadings in the case, agreements between the lawyer and the client regarding payment of legal fees and expenses, and a signed statement by the client at the end of the case verifying the total expenses incurred. Although the Third-Party Lender retains the right to audit the litigation expenses of the lawyer, the Third-Party Lender may not obtain information relating to the representation beyond that authorized by the client.
27. Analysis: The Committee addressed third-party lending agreements in two previous opinions. In Opinion 97-11,14 we considered whether a lawyer could finance the expected costs of a case by borrowing money from a third-party lender pursuant to a non-recourse promissory note, where the note was secured by the lawyer’s interest in a contingent fee in the case. In that opinion, we did not approve of the non-recourse loan and concluded that because a security interest in the recovery of contingent fees from a particular case was to be granted, Rule 5.4 15 was implicated. We stated: “Upon that grant, Lender has an interest in the attorney’s contingent-fee award, which Lender has the right to attach upon a default in payment on the loan.”16 Accordingly, the lawyer’s grant of a security interest in a contingent fee to secure a loan constituted the sharing of fees with a non-lawyer in violation of Rule 5.4(a).
28. In contrast, the Committee has approved a third-party lending agreement involving a low-interest, recourse loan to the lawyer who used the potential fees from the case as collateral. In Opinion 02-01, we concluded that the proposed financial arrangement did not have the objectionable features found in Opinion 97-11:
Here, the lending institution has no interest in the lawyer’s contingent-fee award because, under the separate loan agreement between the lawyer and the lender, the lawyer is obligated to repay the loan whatever the outcome of the case. Because this obligation is not contingent, the lawyer is not compromised, as was the lawyer under the arrangement described in Opinion 97-11. Similarly, in this case, the client, by separate agreement, remains obligated to the lawyer for the payment of litigation costs. The lawyer is not compromised because the client’s obligation is not contingent upon the outcome of litigation. The arrangement described above simply makes it easier for clients and attorneys to finance litigation and is mutually beneficial to both.17
29. The requestor here contends that, because Third-Party Lender will not receive a security interest in the client’s recovery or in the lawyer’s contingent fee, Opinion 97-11 is not applicable. However, in light of Opinion 02-01, ethical issues regarding the lawyer’s professional independence of judgment are not so easily satisfied. The Agreement provides Third-Party Lender with a return of the amount funded, but not to exceed the recovery, plus a funding fee based on the amount funded 18 if the lawyer receives a recovery for the client. If the lawyer receives no recovery for the client, the non-recourse nature of the loan absolves the lawyer of any liability to repay the amount funded or to pay a funding fee. The economic aspects of the Agreement may impair the lawyer’s independence of judgment and may materially limit the lawyer’s representation of the client. Similar impairments and limitations were the thrust of the Committee’s conclusion in Opinion 02-01.
30. For example, assume the lawyer funds litigation costs of $100,000 under a net-recovery contingent fee of one-third, 19 borrowing $80,000 from Third-Party Lender under Option 1, and obtaining a recovery of $100,000 for the client. The lawyer would be obligated to pay Third-Party Lender the original $80,000, plus the funding fee of the same amount, for a total of $160,000. This would result in a net, out-of-pocket loss to the lawyer of $80,000, for which the client would have no liability. 20 More significantly for our analysis, $60,000 of the out-of-pocket loss to the lawyer is avoided under the Agreement if there is no recovery by the client. The outcome is similar under Option 2. 21
31. Rule 1.7 is implicated by such an arrangement, as is made clear by Comment [1] to the rule, “Loyalty and independent judgment are essential elements in the lawyer’s relationship to a client. Concurrent conflicts of interest can arise from the lawyer’s responsibilities to another client, a former client or a third person or from the lawyer’s own interests.” (Emphasis added.) Comment [10] to Rule 1.7 further states, “The lawyer’s own interests should not be permitted to have an adverse effect on representation of the client.” We must examine whether the lawyer’s potentially large debt obligation in this arrangement would have an adverse effect on his representation of the client.
32. Rule 1.5 is also implicated by the proposed funding arrangement: “(a) A lawyer shall not make an agreement for, charge or collect an unreasonable fee, or an unreasonable amount for expenses.” Comment [5] of Rule 1.5 further provides: “An agreement may not be made whose terms might induce the lawyer improperly to curtail services for the client or perform them in a way contrary to the client’s interest.”
33. Because under Options 1 and 2 the payment of the funding fee is the personal obligation of the lawyer and is based on the amount funded and not on the amount of the recovery ultimately obtained, there is potential that the lawyer will have financial incentives that are, or may be, adverse to the client’s best interests. First, the lawyer has an incentive to set a very high percentage retention to the contingent-fee arrangement with the client, which, in turn, might be “unreasonable” under Rule 1.5.
34. Second, even if the contingent fee is reasonable, a lawyer who participates in a nonrecourse, contingent loan will be vulnerable to several potential ethical dilemmas. The lawyer’s personal financial obligations to Third-Party Lender potentially could place the lawyer’s financial interests in conflict with the client’s interests and affect the exercise of the lawyer’s independent judgment on behalf of the client, especially in situations where the lawyer learns during the course of the case that the amount of the potential recovery is likely to be small. 22 It is possible that the amount of the funding and funding fee owed to Third- Party Lender, which is a personal obligation of the lawyer, might exceed the lawyer’s contingent fee interest in the recovery. 23 The lawyer could be faced with the unusual predicament of being tempted to intentionally abandon the case or lose the case at trial to circumvent the personal financial consequences from receiving insufficient recovery.
35. Option 3 may not create the same potential that the lawyer is advantaged by obtaining no recovery for the client in a case where an insubstantial recovery is probable. Under Option 3, the funding fee that is the personal obligation of the lawyer is not based on the amount funded, but is based on the net recovery (gross recovery minus litigation expenses). Assuming that the funding recoverable by the Third-Party Lender under Option 3 is the lesser of the amount funded or the recovery (as it is under Options 1 and 2), it is mathematically impossible for the lawyer to be able to reduce the lawyer’s losses by obtaining no recovery for the client. This is because the funding fee, being a percentage of the net recovery, does not become a positive number until the gross recovery exceeds the funding plus the litigation expenses directly paid by the lawyer. 24
36. Rule 1.7(a)(2) states that a lawyer has a concurrent conflict of interest if there is a significant risk that the representation of the client will be materially limited by the lawyer’s responsibilities to a third party Lender or by the personal interest of the lawyer. We conclude that under Options 1 and 2, the lawyer’s personal interest involving the potentially large funding and funding fee payment obligations combined with the potential that the financial risk to the lawyer of the lending arrangement is lessened if the lawyer obtains no recovery for the client, present a significant risk of compromising the lawyer’s ability to provide independent counsel and of materially limiting the lawyer’s representation of the client. We conclude that when a lawyer may have a financial incentive under the terms of a lending arrangement to obtain no recovery for the client, that the conflict of interest is not consentable. 25 The lawyer’s original analysis of the case may be that such a risk is not “material” and that, should the analysis of the case change at a later time, the conflict analysis would be re-visited. But, we think that is an unrealistic view of the dynamic of such a contingent-fee case. As the probability of a large recovery might diminish over time to a point where the lawyer’s interests become significantly different from the client’s, there will be no light bulb that goes on in the attorney’s head to induce a reassessment of the conflict. 26 We conclude that the overall framework of Options 1 and 2 of the litigation-funding Agreement presents a conflict of interest to which the lawyer may not seek the client’s consent.
37. Option 3 of the litigation-funding Agreement does not present the potential that the lawyer will have a financial incentive not to obtain a recovery for the client. However, Option 3 of the litigation funding Agreement does involve a non-recourse loan and such arrangements do create a significant risk of compromising the lawyer’s duty of independent judgment and duty of client loyalty. 27 Therefore, Option 3 creates a conflict of interest under Rule 1.7 (a) (2), but this conflict of interest may be consented to by the client.
38. Accordingly, a lawyer may not participate in Options 1 or 2 of the contingent, non-recourse loan program described, because the representation will create a significant risk that the representation of the client will be materially limited by the personal interest of the lawyer, who has the potential to reduce the financial risk of the loan program to the lawyer by obtaining no recovery for the client. A lawyer may ethically participate in Option 3 of the contingent, non-recourse loan program described, if the lawyer complies with Rule 1.7 (b) and obtains the informed consent of the client, confirmed in writing.
Footnotes
1. We assume, however, that, as the manager of Affiliated Lending, Lawyer would be the principal contact person for the third-party collection agency and would be involved in, or would at least review and approve, decisions about how to prosecute and collect the defaulting client’s loans.
2. Typically, this type of arrangement would be used in representing clients where large up-front fees are required, such as bankruptcies, defense of criminal matters and the like.
3. All citations to the “Rules” in this opinion are to the Utah Rules of Professional Conduct, adopted November 1, 2005, by the Utah Supreme Court.
4. None of the exceptions stated in Rule 1.6(b) are applicable to these questions.
5. See also RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 121 cmt. c(ii) (2000); see, generally, GEOFFREY C. HAZARD, JR. & W. WILLIAM HODES, THE LAW OF LAWYERING § 11.8 et seq. (3d ed. 2001).
6. See In re Bond, 723 N.Y.S.2d 811 (App. Div. 2001) (conflict of interest when lawyer arranged loan from his wife and mother to clients to enable them to avoid foreclosure action).
7. Rule 1.8(a) provides:
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.
8. The recent case of In re McGregory, Docket No. 05-6054EM (Bankr. 8th Cir., March 24, 2006), is a good example of the application of this principle. In McGregory, a lawyer for a Chapter 13 debtor also was employed as a “home mortgage consultant” for a bank. In this capacity, the lawyer arranged home mortgages for Chapter 13 debtors to enable them to refinance their existing home loans, reduce the interest rates on their mortgages and obtain additional cash from the equity in their homes. While representing a Chapter 13 debtor, and with the written consent of the debtor, the lawyer arranged for such a loan from the bank. The loan benefitted the debtor by reducing the debtor’s mortgage interest rate, reduced the debtor’s monthly mortgage payments and generated sufficient cash to make a full payment to the debtor’s unsecured creditors. Nevertheless, the Bankruptcy Court found the lawyer had an impermissible conflict of interest in representing the debtor while being employed by the debtor’s lender, and the 8th Circuit affirmed: “[T]his type of dual representation, particularly in the bankruptcy context, presents such an inherent and impermissible conflict that it cannot be waived.” Id. at 8.
9. See Rule 1.7, cmt. [22].
10. Rule 1.7(b)(1) and cmt. [2], cl. 3).
11. In light of the risks to Third-Party Lender, a yield equal to 100% or more on the loan may not be unreasonable in the commercial marketplace. We make no comment on the commercial propriety of the funding fees charged by Third-Party Lender.
12. The third option was not included in the sample Agreement submitted by the requestor. Our understanding of Option 3 is based on the narratives provided by the requestor. We have assumed that under Option 3, as under Options 1 and 2, the amount of the funding recoverable by the Third-Party Lender from the lawyer cannot exceed the recovery.
13. If and to the extent that this arrangement gives Third-Party Lender a priority (vis-a-vis general creditors of the lawyer) in the lawyer’s rights to recovery from the client of the portion of the litigation expenses funded directly by the lawyer (i.e., the 20% or more of the litigation expenses the Third-Party Lender does not fund), then this arrangement may violate Rule 5.4(a), Utah Rules of Professional Conduct, as explained in Utah Eth. Adv. Op. 97-11, 1997 WL 770890 (Utah St. Bar). Given the Committee’s disposition of this request under Rule 1.7 of the Utah Rules of Professional Conduct and the lack of details regarding this “subordination” in the request, the Committee expresses no opinion on whether costs should be afforded different treatment than fees under Rule 5.4(a) and our Opinion 97-11, or on whether this arrangement violates Rule 5.4(a).
14. Utah Eth. Adv. Op. 97-11, 1997 WL 770890 (Utah St. Bar).
15. Rule 5.4(a) provides that a lawyer or a law firm “shall not share legal fees with a non-lawyer”, except under the limited circumstances authorized in the Rule.
16. Id. 14.
17. Utah Eth. Adv. Op. 02-01, at 6, 2002 WL 231939 (Utah St. Bar).
18. The amount of the yield to the lender is irrelevant to the ethical implications of this arrangement.
19. “Net recovery” here means that the client is obligated to repay the costs advanced by the lawyer dollar for dollar from any recovery (but no more than the recovery), with the remainder—the net— subject to the contingent-fee percentage.
20. The lawyer’s contingent fee in this example is $0: (100,000 recovery – 100,000 in costs) x 1/3 = $0. The lawyer’s out-of-pocket loss is ($20,000 of costs funded directly by Lawyer + $160,000 repayment obligation to Third-Party Lender) – 100,000 cost recovery = $80,000 loss. Of this $80,000 loss, $60,000 can be avoided by the lawyer under the Agreement if there is no recovery by the client.
21. Assume Option 2 is selected by the lawyer, and the recovery occurs in the 38th month. The lawyer’s out-of-pocket loss is $100,000. The lawyer is obligated to repay Third-Party Lender the funding of $80,000, plus a funding fee of $100,000 (1.25 x 80,000), for a total of $180,000. The lawyer has also directly funded $20,000 of costs. The total costs to the lawyer of $200,000 minus the $100,000 cost recovery results in a $100,000 net loss to the lawyer. Of this net loss, $80,000 can be avoided under the Agreement if there is no recovery by the client.
22. At inception of the lending arrangement, the lawyer presumably believes that the anticipated recovery would justify the associated loan costs. As the case progresses, however, the likelihood and amount of the recovery may diminish. Nevertheless, the lawyer’s obligation to the lender remains the same.
23. In the above example using Option 1 and $100,000 in litigation costs, assume the actual recovery to be $250,000 and that the lawyer took the case on a ? contingent-fee basis calculated on net recovery. The lawyer would still be out-of-pocket a net $30,000: ($250,000 recovery – $100,000 in costs) ? ? = $50,000 contingent fee to the lawyer, or $30,000 less than the lawyer’s net obligation to Third-Party Lender of $60,000 plus the lawyer’s direct payment of costs of $20,000. Of this $30,000 loss, the Lawyer avoids $10,000 of the loss if there is no recovery by the client.
24. Assume Option 3 is selected and the lawyer negotiates a funding fee of 5% of the net recovery (gross recovery minus litigation expenses), subject to a cap of 5 times the funding. Using the hypothetical of a $100,000 recovery with $100,000 of litigation expenses, the lawyer’s out-of-pocket loss is $0. The lawyer is obligated to pay Third-Party Lender the funding of $80,000, plus a funding fee of $0: ($100,000 gross recovery – 100,000 total costs) x .05 = $0. The lawyer has directly paid $20,000 of costs. The total costs to the lawyer is $100,000, equal to the $100,000 cost recovery, resulting in $0 loss to the lawyer. If the recovery is reduced to $50,000, the lawyer’s out-of-pocket loss is $20,000: (funding of $50,000 owed to the Third-Party Lender + funding fee of $0 + $20,000 of costs directly paid by lawyer) – $50,000 cost recovery = $20,000 net out-of-pocket loss. Lawyer cannot, however, avoid any portion of this net out-of-pocket loss by obtaining no recovery for client.
25. Under these circumstances, the lawyer can not reasonably believe that the lawyer will be able to provide competent and diligent representation to the affected client. See, Rule 1.7(b)(2).
26. Even if that did happen and the lawyer concluded that a nonconsentable conflict had arisen, the prejudice to the client of withdrawing at such a point would be unacceptable.
27. Utah Eth. Adv. Op. 97-11, 1997 WL 770890 (Utah St. Bar); Utah Eth. Adv. Op. 02-01, at 6, 2002 WL 231939 (Utah St. Bar).

Ethics Advisory Opinion No. 04-01a

December 2, 2004
Amendment of Opinion No. 04-01: On March 29, 2004, the Utah Ethics Advisory Opinion Committee issued Utah Ethics Advisory Op. No. 04-01, 2004 WL 870583 (Utah St. Bar).1 The Office of Professional Conduct of the Utah State Bar filed a petition for review with the Board of Bar Commissioners pursuant to § III(e)(1) of the Ethics Advisory Opinion Committee Rules of Procedure and § VI(a)(1) of the Utah State Bar Rules Governing the Ethics Advisory Opinion Committee. The Commission asked the Committee to reconsider Opinion No. 04-01. Having reviewed the issues raised by the Office of Professional Conduct, we issue this amended opinion, which revises the conclusion and analysis of Opinion No. 04-01. Accordingly, this amended opinion replaces and supersedes Opinion No. 04-01.
Issue: What action, if any, may a lawyer for an employer ethically undertake on behalf of a vanished former employee who, along with the employer, has been named as a defendant in an action arising when the person was an employee?


Opinion
: The lawyer may not act on behalf of or purport to represent the vanished former employee unless the lawyer has an existing attorney-client relationship with the former employee or the former employee agreed to the representation prior to vanishing and, in either case, the lawyer complies with Rules 1.7 and 1.8(f) of the Utah Rules of Professional Conduct. The lawyer who represents the employer may engage in acts that may benefit the vanished former employee provided the lawyer makes it clear that he is acting on behalf of the employer as the employer’s lawyer and not on behalf of the vanished former employee as the former employee’s lawyer.
Facts: Plaintiff filed suit naming a company and its former employee as defendants. The company concedes that the former employee was acting in the course and scope of his employment and has asked the company’s lawyers to represent the missing former employee. The company is concerned that absence of a formal answer to the complaint by the former employee may result in a default judgment being entered against the absent former employee. We have no information about the reasons for the employee’s absence, but we assume that a reasonable effort has been made to locate the person and determine the reason for the absence. We also assume that, at this early stage of the proceeding, the interests of the employer and employee are not directly adverse with respect to the matter.2 The lawyer requesting this opinion also indicated that the employer has liability insurance that covers the incident giving rise to the lawsuit.3 The company has requested that the lawyer represent the vanished former employee.
Analysis: This case presents two competing concerns: On the one hand, a basic ingredient of the representation of a client is that, under Rule 1.4, the lawyer communicate with the client, keep the client informed about the status of the case, and provide sufficient information to the client that the client may make informed decisions; and, under Rule 1.2, the lawyer must abide by the client’s decisions regarding the goals of the representation. On the other hand, the interests of a party missing from a proceeding will go unprotected with an application of the Rules. The Rules of Professional Conduct are rules of reason,4 to be interpreted to further the administration of justice when the Rules are unclear. However, in this instance, we conclude the Rules are clear and must be applied despite arguments of countervailing public policy.5
The employer’s lawyer may not purport to represent the vanished former employee or take action (including the filing of an answer or other papers with the court) as the vanished employee’s lawyer, unless the lawyer already has an existing attorney-client relationship or the former employee has agreed to the representation prior to vanishing, and the lawyer complies with the conflict-of-interest requirements of Rules 1.7 and 1.8(f). To do so would be a violation of Rules 1.2, 1.4 and 1.8 and, in some situations, Rules 1.7, 3.1 and 3.2.
The attorney-client relationship is grounded in principles of agency, which require that the agent (attorney) must be authorized to act for the principal (client) and that the principal must have control over the agent.6 The Rules of Professional Conduct reflect this principle. Rule 1.2 states that “[a] lawyer shall abide by a client’s decisions concerning the objectives of representation . . . and shall consult with the client as to the means by which they are to be pursued.” Under the facts here, the Committee assumes that the lawyer and client have not communicated at all. Thus, the lawyer cannot consult with the client regarding the objectives of the representation or the means by which to achieve those objectives.7
Rule 1.4 requires the attorney to maintain reasonable communication with the client. In situations in which the attorney has had no contact with the client, we believe the “reasonable” communication requirement cannot be satisfied.
Rule 1.7 governs conflicts of interest. The employer may be liable to the plaintiff if the employee was acting within the scope of his employment. However, the employer may have a cause of action against the employee for indemnity if the employee’s actions were in dereliction of duty (e.g., drunk on the job). Under the facts in this case, the potential for a conflict of interest does exist. Although we assume that the employer and employee are not likely to assert claims against one another initially (see note 2, supra), due to the potential conflict of interest, Rule 1.7(b)(2) requires the client’s consent to the representation “after consultation.” Rule 1.7(b)(2) further requires for representations of multiple clients in a single matter that “the consultation shall include explanation to each client of the implications of the common representation and the advantages and risks involved.” If the attorney cannot communicate with the client, the attorney cannot make the explanation required by the rule, cannot obtain the client’s consent to representation and would therefore violate Rule 1.7. Moreover, if it is later discovered that the employer’s and the employee’s interests conflict, the attorney may be prohibited from representing either of them.
In addition, Rule 1.8(f)(1) prohibits an attorney from accepting compensation for representing a client from one other than the client unless the client consents after consultation. Under the facts before us, the attorney cannot obtain this consent and would therefore violate Rule 1.8.
Rule 3.1 requires the attorney to make only meritorious claims and contentions. The attorney may be able to perform an adequate investigation to comply with this rule. If, however, the employer did not take a sufficiently detailed statement from the employee regarding the facts of the incident and other employees do not have sufficient knowledge of the facts, the attorney may not have sufficient information to determine whether the defenses raised are meritorious.
This opinion does not prohibit a lawyer from taking some action on behalf of an existing client when the lawyer and client lose contact. For example, a lawyer has a general obligation to preserve a client’s assets that may be in the lawyer’s possession when the client disappears and to make reasonable attempts to locate the client.8 There are numerous opinions that find it ethical to file pleadings on behalf of a missing existing client to toll a statute of limitations.9 This obligation is stated in Rule 1.16(d), which requires an attorney to take steps to the extent reasonably practicable to protect a client’s interest prior to terminating representation. Similarly, if the former employee had consented to the representation at the employer’s expense prior to vanishing, the lawyer would be permitted to undertake the representation, provided the lawyer complied with Rule 1.7.
The employer-client may have a contractual obligation to (and contractual authorization of) its employees and former employees to provide representation where the employees were acting within the course and scope of their employment.10 Even absent a contractual obligation and authorization to represent the vanished employee, the company’s lawyer has the general obligation to protect the company’s interests and to advance the administration of justice. When Rule 1.7 is complied with, a single lawyer may ethically represent both the employee or former employee and the employer.
The Committee concludes that the company’s lawyer may take limited action that may have the effect of benefitting the vanished former employee, so long as the lawyer does so on behalf of the company and as the company’s lawyer, not purporting to act on behalf of or as the former employee’s lawyer.
For example, in connection with seeking an extension of time to file an answer or motion in response to a complaint on behalf of the company, the lawyer may also seek an extension of time to permit the former employee to file an answer or motion, provided the lawyer makes clear the lawyer is acting on behalf of the company and as the company’s lawyer. The lawyer may also file with the court, as the company’s lawyer, a motion to intervene, a motion for appointment of a guardian ad litem for the vanished employee or other similar pleading. Such actions may be taken as appropriate to protect the company’s legitimate interests, and the Rules of Professional Conduct are not violated even though the result of such acts may benefit the vanished former employee.
Some may argue that the Rules of Professional Conduct may lead to harsh, and even unfair, results for both the employee and the employer. The first concern is that a default judgment would be entered against the former employee if the attorney does not file the answer. As discussed, above, unless the former employee is eventually located, the lawyer will likely not be able to change the ultimate outcome, but may delay the result. Further, the Utah Rules of Civil Procedure and existing case law allow the former employee to seek to set the judgment aside in some situations.
The second concern is that the employer may be harmed because a default against the former employee may bind the employer and the employer has no other procedural means to protect itself. The Committee could not find any Utah case law directly addressing this issue. There are two Utah cases that suggest (without directly deciding) that the employer has means in the law to protect itself against a default judgment against the former employee.11 Cases from other jurisdictions also show that in at least some states courts refuse to bind the employer based upon a default judgment entered against a former employee.12 If Utah were to adopt this rule of law, there would be no valid concern about prejudice to the employer based on a default judgment against the employee. At this point, this Committee cannot conclude that potential harm to the employer raises a significant concern.
Finally, the representation may have a detrimental impact on the former employee. Because the lawyer cannot receive any direction regarding the objectives of the representation, the lawyer runs the risk of acting in contravention to the desires of the former employee. If the former employee had decided not to make an appearance in the litigation because the former employee had consciously decided not to subject himself to the jurisdiction of the court, and if the lawyer took action that subjected the former employee to the jurisdiction of the court, then the former employee could be substantively prejudiced by the lawyer’s actions.
In our opinion, the Rules of Professional Conduct are clear in prohibiting the unauthorized and unassisted representation of the former employee, and the potential concerns that support allowing representation of the former employee are not grounds for ignoring the Rules.
Summary: The lawyer may not ethically represent a vanished former employee unless the lawyer has an existing attorney-client relationship or the former employee agreed to the representation at the company’s expense prior to vanishing and the lawyer complies with Rule 1.7. A lawyer who represents an employer may engage in limited acts that may serve to benefit the vanished former employee provided the lawyer acts on behalf of the employer as the employer’s lawyer and does not purport to act on behalf of the vanished former employee or as the vanished former employer’s lawyer.
Footnotes
1. The Committee’s opinions can be found at http://www.utahbar.org/rules_ops_pols/Welcome.html.
2. For example, we assume that neither the employer nor employee are likely to have and pursue a claim against the other with respect to the matter. See Utah Rules of Professional Conduct 1.13(e) (2004).
3. It may also be that the employer’s defense lawyer has been retained by the insurance carrier. However, this factor does not play a role in our analysis.
4. Utah Rules of Professional Conduct, Scope, 1 (2004).
5. As evidenced by the Committee’s change of ultimate position with respect to the original opinion on this matter, the matter has raised difficult issues that have rendered it a close call for some members of the Committee.
6. Dunkley v. Shoemate, 515 S.E.2d 442, 444 (N.C. 1999), quoting Johnson v. Amethyst Corp., 463 S.E.2d 397, 400 (N.C. App. 1995) (“no person has the right to appear as another’s attorney without the authority to do so, granted by the party for which he is appearing”).
7. Although it might be presumed that the former employee does not want a default judgment entered, this may not always be the case. Occasionally, people decide not to defend lawsuits. If the former employee had decided not to defend the lawsuit, the attorney would not be abiding by those wishes. It is even possible to imagine other cases where an employee would want a judgment taken to protest or highlight an employer’s alleged misconduct.
8. See, e.g., Utah Ethics Advisory Op. 97-01, 1997 WL 45140 (Utah St. Bar); Fla. Comm. on Professional Ethics Op. 77-2, 1977 WL 23165 (Fla. St. Bar Ass’n).
9. See, e.g., Philadelphia Bar Op. 98-8; So. Car. Bar Op. 98-07; So. Dak. Bar Op. 92-6.
10. This authorization for representation may be withdrawn by the employee or former employee. Utah Rules of Professional Conduct 1.16(a)(3) (2004).
11. See Lima v. Chambers, 657 P.2d 279 (Utah 1982); Chatterton v. Walker, 938 P.2d 255 (Utah 1997). In both of these cases, the Utah Supreme Court allowed insurers to invoke Rule 24 of the Utah Rules of Civil Procedure to intervene in negligence lawsuits in which their insureds sued uninsured defendants with the hope of proving negligence of the uninsured driver and collecting uninsured driver benefits from the plaintiffs’ insurer. The Chatterton court suggested that the insurer’s ability to intervene for the purpose of contesting liability has constitutional foundations. 938 P.2d at 260.
12. “Courts hold that in actions against several defendants jointly, where the defense interposed by the answering defendant is not personal, but common to all, as where it goes to the whole right of the plaintiff to recover at all, as distinguished from his or her right to recover as against any particular defendant, or where it questions the merits or validity of the plaintiff’s entire cause of action or his or her right to sue, such defense, if successful, inures to the benefit of the defaulting defendants, with the result that final judgment must be entered not merely in favor of the answering defendant, but also in favor of the defaulting defendants.” 46 Am. Jur. 2d Judgments § 282. See also Brazos Valley Community Action Agency v. Robinson, 900 S.W.2d 843 (Tex. App. 1995) (employees default could not be binding on the employer; the appellate court also noting that the employer did not have authority to answer on behalf of the employee.); Gearhart v. Pierce Enterprises, Inc., 779 P.2d 93 (Nev. 1999) (suit against a principal and surety; default judgment against the principal was not binding on the surety).

Ethics Advisory Opinion No. 04-05

December 2, 2004
Issue:
Do the Utah Rules of Professional Conduct preclude a lawyer from forming a cooperative organization that offers certain non-legal, but law-related, services such as trust administration and investment management; referring clients to that organization; and participating in the organization’s profit sharing?

Opinion: It is not per se unethical for a lawyer to refer a client to a cooperative organization created by the lawyer to provide non-legal services and for the lawyer to participate in the organization’s profit sharing. If the lawyer complies with the following, then the arrangement is permissible: (1) objectively concludes that any identifiable conflicts between the lawyer and the cooperative organization would not materially affect the representation of that client; (2) affirms in writing to the client that the referral will not compromise the client’s interests in any way; (3) fairly concludes that the services provided by the cooperative organization are being provided at fair and reasonable fees; (4) discloses that the lawyer will receive a share of profits from the cooperative organization; (5) advises the client to seek independent counsel as to the referral; and (6) secures the client’s consent.
Facts: A group of Utah lawyers proposes the formation of a cooperative organization (the “Co-op”) to offer certain non-legal, but law-related, foundation and charitable trust services and products, such as plan designs, administration, wealth enhancement, insurance and investment management (the “services” and “products”) for a fee or for customary compensation where products are involved. The Co-op would serve as the provider. A lawyer-member of the Co-op would refer a client to the Co-op’s staff, who would, in turn, arrange to provide the desired services and/or products.
Although the lawyers would be members of the Co-op, the legal services they would provide to the clients would be independent from the Co-op. The lawyers would provide and bill for their legal services through their respective law firms. The billed legal services would not involve the Co-op in any way. The lawyer-members would receive a proportionate share of the Co-op’s profits.
Analysis: The most relevant rules to the issue at hand are Rules 1.7 and 1.8 of the Utah Rules of Professional Conduct and ABA Model Rule of Professional Conduct 5.7,1 which provide in pertinent part:
[Utah] Rule 1.7. Conflict of Interest: General Rule
(b) A lawyer shall not represent a client if the representation of the client may be materially limited by the lawyer’s responsibilities to another client or to a third person or by the lawyer’s own interest, unless:
(1) The lawyer reasonably believes the representation will not be adversely affect; and
(2) Each client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation to each client of the implications of the common representation and the advantages and risks involved.2
[Utah] Rule 1.8. Conflict of Interest: Prohibited Transactions
(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 to the client in a manner which can be reasonably understood by the client; and
(2) The client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and
(3) The client consents in writing thereto.3
[ABA Model] Rule 5.7. Responsibilities regarding Law-Related Services
(a) A lawyer shall be subject to the Rules of Professional Conduct with respect to the provision of law-related services, as defined in paragraph (b), if the law-related services are provided:
(1) by the lawyer in circumstances that are not distinct from the lawyer’s provision of legal services to clients; or
(2) in other circumstances by an entity controlled by the lawyer individually or with others if the lawyer fails to take reasonable measures to assume that a person obtaining the law-related services knows that the services are not legal services and that the protections of the client-lawyer relationship do not exist.
(b) The term “law-related services” denotes services that might reasonably be performed in conjunction with and in substance are related to the provision of legal services, and that are not prohibited as unauthorized practice of law when provided by a nonlawyer.4
Here, quite clearly, representation “may be materially limited,” within the meaning of Rule 1.7(b), because of at least two potential conflicts. First, there is a potential conflict between the lawyer’s representation of the client and the lawyer’s interest in receiving compensation for referrals to the Co-op. Second, there is a potential conflict between the client’s interest and a “third person”—namely, the Co op. The threshold question, then, is under what circumstances, if any, could a lawyer reasonably seek consent under Rule 1.7(b)(2). The follow-up question is what disclosures or representations should the lawyer make to the client, assuming the lawyer can reasonably seek the client’s consent for the referral to the Co-op.
This Committee has addressed and decided this issue as applied to lawyer referrals to investment advisors in Opinion 99-07.5 The issue in Opinion 99-07 was, “May a lawyer refer a client to an investment advisor for investment and financial planning and take a referral fee from the commission paid by the client to the investment advisor?” The Committee concluded, “It is not per se unethical for a lawyer to refer a client to an investment advisor and take a referral fee from the commission paid to that advisor, although the lawyer has a heavy burden to insure compliance with applicable ethical rules.”
In our analysis in Opinion 99-07, we identified multiple potential conflicts that may arise under such circumstances, and the analysis, disclosures and consent the lawyer must undertake and secure to comply with Rule 1.7.
For example, notwithstanding having given written approval for the transaction, the client may later have concerns that the lawyer is not providing unbiased advice or that loyalty to the client is compromised by the financial arrangement with the investment advisor. It is possible that the lawyer’s professional judgment might be compromised by a motivation, overt or subconscious, to preserve the advisor’s fee-sharing arrangement, even though a change in the client’s financial interests might suggest some other arrangement. It is possible a lawyer might be motivated to give the client different or inferior legal advice due to the pecuniary interest involved with the financial advisor. There is a potential conflict if the lawyer were asked to mediate, litigate, or otherwise remedy a problem due to deficiencies on the part of the financial advisor. There is the possibility that the client might have been able to negotiate a lower commission had the lawyer not been receiving a commission from the investment advisor, and hence the arrangement might not be fair to the client. For example, a lawyer performing estate-planning services for the client might be in a position that is more likely to exert undue influence than a lawyer providing entirely unrelated legal services. Additional issues arise if the investment advisor is also a client of the lawyer.6
Opinion 99-07 notes that some jurisdictions have concluded such referral arrangements are strictly prohibited, while others have found them acceptable under carefully circumscribed conditions. States prohibiting such referrals include New York, Kentucky, and Arizona,7 which conclude that the lawyer’s fee arrangement is likely to interfere materially with the lawyer’s independent judgment. Other states, including Connecticut and Missouri, conclude that the potential for conflict, although high, does not establish a per se prohibition against such referral arrangements.8 Our Committee agreed that application of Rule 1.7(b) did not result in a per se proscription and outlined the conditions under which lawyers—after careful consideration—might enter into such arrangements.
Opinion 99-07 also found that the referral transaction described there was a “business transaction with a client” subject to Rule 1.8(a). Neither the rule nor Opinion 99-07 expressly defines what constitutes a “business transaction with a client,” but we assume, for purposes of this opinion, that the lawyer referral to a Co-op as described above is a business transaction and thus falls within the scope of Rule 1.8 (a).
Our analysis of Rule 1.8 (a) in Opinion 99-07 cited favorably to the lawyer’s “to do list” set forth in a Connecticut Bar Association opinion that conditionally approved such relationships. The Connecticut Bar’s requirements were that the lawyer should:
(a) determin[e] that the obligations to the client would not be compromised in any way; (b) assur[e] that the terms of the transaction under which the lawyer acquires the interest are fair and reasonable to the client; (c) mak[e] full disclosure to the client in writing to consider seeking the advice of an independent counsel; and (e) giv[e] the client a reasonable opportunity to do so. The lawyer must also clarify in writing whether she is performing legal services in making the referral.9
Our analysis of Opinion 99-07 is important here because the Co-op arrangement described above is less likely to produce a non consentable conflict of interest under Rule 1.7(b) or 1.8(a) than direct compensation to a lawyer for referrals to investment advisors. This is because the lawyer’s compensation from the Co-op is indirect and generated from the Co-op’s general profits—not from an identifiable and direct single referral. For example, the referring lawyer’s compensation will not have a direct connection with the particular non legal professional who provides the Co-op services and products when (a) the referral to the Co-op does not involve a particular named professional10 or (b) the net profit payouts to the Co-op11 member are not directly associated with the particular clients that the lawyer had referred to the Co-op. Hence, compliance with our admonitions in Opinion 99-07 would necessarily satisfy ethical concerns in the Co-op arrangement.
A final ethical consideration relates to the direct services that may be provided to clients by Co-op personnel. To the extent that such services would be “law-related,” as that term is defined in ABA Model Rule of Professional Conduct 5.7, Utah Ethics Advisory Opinion 98-08 concluded that “a law firm [may] wholly own an accounting practice subsidiary for the lawyer’s clients and others,” with the caveat that “the law firm will be subject to the Utah Rules of Professional Conduct with respect to the provision of these law-related services in certain circumstances.”12
The requesting party here assumed that Co-op services would not be law-related within the meaning of Opinion 98-08. However, we assume that they are law-related, because the Co-op services, such as trust administration, “might reasonably be performed in conjunction with and in substance are related to the provision of legal services.”13 Our conclusion, however, does not turn on this assumption.
Summary: It is not per se unethical for a lawyer to refer a client to a cooperative organization formed by the lawyer and other lawyers to provide non-legal services and for the lawyer to participate in the organization’s profit sharing. However, compliance with Rule 1.7 and Rule 1.8 will be ensured if the Co-op lawyer making the referral is certain that the following itemized check-list is satisfied:
(1) Objectively conclude that any identifiable conflicts between the lawyer and the cooperative organization would not materially affect the representation of that client;
(2) Affirm in writing to the client that the referral will not compromise the client’s interests in any way;
(3) Conclude that the services provided by the cooperative organization are being provided at fair and reasonable fees;
(4) Disclose that the lawyer will receive remuneration based on the profitability of the cooperative organization;
(5) Advise the client to seek independent counsel as to the referral;14 and
(6) Secure the client’s consent.15
Footnotes
1. Utah has not yet adopted ABA Model Rule 5.7, although two Utah ethics opinions have favorably cited that rule. Utah Ethics Advisory Op. 98-08, 1998 WL 716635 (Utah St. Bar); Utah Ethics Advisory Op. 02-04, nn. 6-7, 2004 WL 448569 (Utah St. Bar).
2. Utah Rules of Professional Conduct 1.7 (b) (2004).
3. Utah Rules of Professional Conduct 1.8 (a) (2004). We note that the current ABA Model Rule of Professional Conduct 1.8(a) requires that notice to the client to seek advice of independent counsel must be in writing and that the client must sign any informed consent. Utah has not yet adopted the new Model Rules, but the process of considering their adoption, including ABA Model Rule 1.8, is currently under way. Lawyers are advised to check the current version of the rule.
4. Annotated Model Rules of Professional Conduct 5.7 (ABA 5th ed. 2003).
5. Utah Ethics Advisory Op. 99-07, 1999 WL 1167097 (Utah St. Bar).
6. Id.
7. N.Y. Comm. on Prof. Ethics Op. 682, 1996 WL 74860 (N.Y. State Bar Ass’n); Ky. Bar Ass’n Ethics Comm. Formal Op. E-390 (July 1996); Ariz. Jud. Advisory Op. 98-02, 1999, WL 667267 (Ariz. Sup. Ct. Jud. Ethics Advisory Comm.).
8. Conn. Ethics Op. 94-25, 1994 WL 780842 (Conn. Bar Ass’n); Mo. Bar Office of Chief Disciplinary Counsel, Informal Adv. Op. 960124 (1996).
9. Conn. Ethics Op. 97-16, 1997 WL 700650 (Conn. Bar Ass’n).
10. Where the referring lawyer would not specify a particular investment advisor, for example, but the Co-op would provide a list of investment advisors from which the client chooses.
11. That is, once the lawyer sends the client to the Co-op, the amount of revenue to the Co-op from the client would not generally be known to the individual referring lawyer.
12. Utah Ethics Advisory Op. 98-08, 1998 WL 716635 (Utah St. Bar).
13. Annotated Model Rules of Professional Conduct 5.7 (ABA 5th ed. 2003). We note here, as we did in Opinion 98-08, that certain aspects of this opinion are consonant with the provisions of Model Rule 5.7. However, the conclusions of this opinion are drawn from our analysis of the existing Utah Rules of Professional Conduct. We do not necessarily endorse Model Rule 5.7; adoption of any such rule is within the purview of the Utah Supreme Court.
14. See note 3, supra.
15. See note 3, supra.

Ethics Advisory Opinion No. 02-03

(Issued February 27, 2002)
¶ 1 Issue:
What are the ethical obligations of an insurance defense lawyer with respect to insurance company guidelines and flat-fee arrangements?

¶ 2 Opinion: An insurance defense lawyer’s agreement to abide by insurance company guidelines or to perform insurance defense work for a flat fee is not per se unethical. The ethical implications of insurance company guidelines must be evaluated on a case by case basis. An insurance defense lawyer must not permit compliance with guidelines and other directives of an insurer relating to the lawyer’s services to impair materially the lawyer’s independent professional judgment in representing an insured. If compliance with the guidelines will be inconsistent with the lawyer’s professional obligations, and if the insurer is unwilling to modify the guidelines, the lawyer must not undertake the representation. Flat-fee arrangements for insurance defense cases are unethical if they would induce the lawyer improperly to curtail services for the client or perform them in any way contrary to the client’s interests. Obligations of lawyers under the Utah Rules of Professional Conduct, including the duty zealously to represent the insured, cannot be diminished or modified by agreement.
Insurance Company Guidelines
¶ 3 Opinion Request Concerning Insurers’ Guidelines. The Ethics Advisory Opinion Committee has received a request for an ethics advisory opinion concerning insurance company guidelines for counsel who are employed to defend litigation brought by a third party against an insured. The requestors state that insurance companies doing business in Utah have incorporated in their defense-counsel retainer agreements certain billing protocols or guidelines governing attorneys’ procedures and payments that raise ethical issues.
¶ 4 Prior Opinions. Although issues pertaining to insurance company guidelines have been the subject of considerable discussion elsewhere,1 they have not been addressed directly by this Committee.2 When ethical concerns about insurance company guidelines have been raised in ethics opinions from other jurisdictions, the opinions are generally consistent with the summary set forth in ABA Opinion No. 01-421:
A lawyer must not permit compliance with “guidelines” and other directives of an insurer relating to the lawyer’s services to impair materially the lawyer’s independent professional judgment in representing an insured.
Although most of the ethics opinions on insurance company guidelines take a general approach, a few—while acknowledging that certain guidelines may be appropriate—have taken issue with particular guidelines. For purposes of illustration, portions of selected ethics opinions from other jurisdictions are set forth in Appendix A. We do not intend to imply agreement with the conclusions of these opinions. Rather, we wish to describe more fully the kinds of concerns that have been raised elsewhere, many of which are raised directly in the request before us.
¶ 5 Montana Supreme Court Decision. The Montana Supreme Court has issued an opinion that addresses these topics, but only after having determined that the insured is the sole client of the defense lawyer. Under that structure, the court noted that defense counsel (a) does not have a “blank check” to escalate litigation costs, (b) should consult with the insurer, (c) must charge reasonable fees, and (c) can be held accountable for its work. The Montana court then held that “defense counsel in Montana who submit to the requirement of prior approval [obtaining consent of the insurer prior to taking certain actions] violate their duties under the Rules of Professional Conduct to exercise their independent judgment and to give their undivided loyalty to insureds.”3
¶ 6 The Insurer-Defense Attorney Relationship. We do not decide whether, under Utah law, the insurer may or may not be a co-client of defense counsel. This is a legal question about which the Committee is not authorized to issue an opinion.4Courts in other jurisdictions have addressed the issue,5but the Utah Supreme Court has not determined whether a lawyer employed to represent an insured party in the defense of litigation also represents the insurer. We recognize not only that the Utah Supreme Court has not addressed this matter but that, even if it is assumed that the insurer is not a client, there are significant legal issues pertaining to the relationship between defense counsel and insurer.6The formation of an attorney-client relationship is a matter of substantive law external to the Utah Rules of Professional Conduct and in Utah, as in other states, depends upon the facts of the particular case including the intent and conduct of the parties.7As noted in the Scope comment to the Utah Rules of Professional Conduct:
[F]or purposes of determining the lawyer’s authority and responsibility, principles of substantive law external to these Rules determine whether a clientlawyer relationship exists. Most of the duties flowing from the clientlawyer relationship attach only after the client has requested that the lawyer render legal services and the lawyer has agreed to do so. But there are some duties, such as that of confidentiality under Rule 1.6, that may attach when the lawyer agrees to consider whether a clientlawyer relationship shall be established. Whether a clientlawyer relationship exists for any specific purpose can depend on the circumstances and may be a question of fact.
¶ 7 Our authority does not extend to the determination of legal question.8 Issuance of an opinion on the matters before us does not require that there be a determination of the legal question of whether a lawyer employed as defense counsel represents both insured and insurer. Accordingly, in this opinion, we address the lawyer’s ethical obligations in the event both the insurer and the insured are clients. We also address the lawyer’s ethical obligations in the event only the insured is a client. In the absence of controlling law to the contrary, who the lawyer represents may be determined at the outset by agreement of the insured, the insurer and the lawyer.
¶ 8 Insurance Company Guidelines. The requestors did not provide the Committee with copies of particular guidelines. Instead, they inquired generally about the ethical implications of guidelines, stating that certain tasks will only be paid at specified rates (e.g., written discovery will only be paid at paralegal rates) and that unless preapproval from an adjuster is obtained for certain tasks, defense counsel will not be paid (e.g., pleadings and motions, written discovery, retention of experts, legal research, travel, trial preparation, jury instructions, posttrial motions, appeals).9
¶ 9 The extensive scholarly literature on insurance company guidelines reveals a number of points that are relevant background for our consideration of ethical issues with respect to insurance company guidelines:
* Insurance company guidelines are not identical.
* Insurance companies may not use the same guidelines for every type of insurance defense.
* Considerations of freedom of contract, cost control in the interest of policyholders (including avoidance of unreasonable defense costs), and improving coordination and communications with defense counsel are important motivating factors for insurance companies in promulgating guidelines.
* Insurance company guidelines are similar in some respects to litigation management guidelines established by numerous corporate or governmental entities seeking to control litigation costs.
* There may be a degree of unobvious flexibility in insurance company guidelines, in that insurance companies may permit variance from written guidelines or may reconsider and reverse an initial decision against a particular action upon receiving a satisfactory justification from the defense attorney.
* Insurance company guidelines may include provisions that are unobjectionable from virtually any standpoint, such as:
(a) defining the financial relationship between the insurer and defense counsel (including hourly rates or other fees and permitted charges for expenses);
(b) coordinating the roles of defense counsel and employees of the insurer;
(c) establishing communications procedures between defense counsel and the insurer;
(d) stating the insurer’s objectives, both strategic and financial, with respect to litigation defense;
(e) outlining standard procedures the insurer prefers to follow in handling lawsuits;
(f) identifying which lawyers and nonlawyers will be responsible for the matter;
(g) requiring analysis of the case as a whole and of the need for particular services; and
(h) billing procedures, including frequency of billing and billing format, such as requirements that billings include sufficient information to permit an evaluation of the reasonableness of fees and costs.
On the other hand, many believe that insurance company guidelines may in practice result in an inadequate defense of the insured by requiring or inducing defense lawyers to curtail services for the insured improperly.
¶ 10 The Insurer-Insured Relationship. The insurer and the insured have significant rights and obligations pertaining to the defense of litigation brought against the insured by a third party. For example, in Ellis v. Gilbert,10the Utah Supreme Court stated:
The bare facts of life may as well be faced and reckoned with. If we look behind the facade it is to be seen that where there is insurance, the company actually takes over, employs counsel, investigates the case, interviews the witnesses, controls offers of settlement, and in fact, handles the entire matter.
In Peterson v. Western Casualty and Surety Co.,11while addressing the standard for showing diligence by insurer relying on alleged breach of cooperation clause by the insured, the Utah court noted that an insurance policy providing for interest on judgment “seems to be a recognition of the fact that the delay in payment of the judgment is chargeable to the insurance company, since it controls in the litigation.” In Berlant v. McAllister,12the Court described the insurerinsured relationship as follows:
To begin with we must know that the insurance carrier is obligated by its contract to pay all sums (up to the limits of the policy) which [the insured] may be, or shall become, liable to pay. This means that the carrier cannot be made to pay money until a judgment has been rendered against the insured []. However, this does not prevent the carrier from making a settlement of all claims against its insured before a judgment is rendered. The likelihood of losing the suit, the cost of defending it, and the possibility of settling for a sum less than the foreseeable costs and expenses are all matters which a carrier will consider in determining whether to settle a case or to defend it. The insurance contract provides that the insurer will, at its own expense, investigate, defend or settle any claims against the insured. It does not provide for any representation of its insured in an action against another party. Separate counsel always represents an insured plaintiff when he sues or an insured defendant when he counterclaims. The insurance attorney only represents the insured insofar as any claim is made against him for which the insurance company might be liable.
In Beck v. Farmers Insurance Exchange,13 the Court addressed obligations of the insurer as follows:
In a third-party situation [where the insurer contracts to defend the insured], the insurer controls the disposition of claims against its insured, who relinquishes any right to negotiate on his own behalf. . . . An insurer’s failure to act in good faith exposes its insured to a judgment and personal liability in excess of the policy limits. . . . In essence, the contract itself creates a fiduciary relationship because of the trust and reliance placed in the insurer by its insured. . . . The insured is wholly dependent upon the insurer to see that, in dealing with claims by third parties, the insured’s best interests are protected. In addition, when dealing with third parties, the insurer acts as agent for the insured with respect to the disputed claim. Wholly apart from the contractual obligations undertaken by the parties, the law imposes upon all agents a fiduciary obligation to their principals with respect to matters falling within the scope of their agency.
The Utah Rules of Professional Conduct do not in any way diminish or modify the rights or obligations of the insured or the insurer.
¶ 11 Ethical Obligations Cannot Be Modified by Agreement. A lawyer’s ethical duties under the Utah Rules of Professional Conduct cannot be diminished or modified by an agreement between the attorney and the attorney’s client or between the attorney and a third party. This principle applies equally to agreements concerning insurance company guidelines and fee agreements with insurance companies. For example, an attorney’s obligations to provide competent representation to a client,14to act with reasonable diligence and promptness in representing a client,15to exercise independent professional judgment and render candid advice,16and to supervise properly subordinate lawyers and nonlawyer assistants17cannot be limited by agreement. With respect to attorneys’ fee agreements, the comment to Rule 1.5 states: “An agreement may not be made whose terms might induce the lawyer improperly to curtail services for the client or perform them in any way contrary to the client’s interests.” Accordingly, notwithstanding any agreement pertaining to fees or pertaining to the manner in which litigation may be conducted, lawyers subject to the Utah Rules of Professional Conduct must at all times comply with them.
¶ 12 Consent For Third-Party Payment. Rule 1.8(f) provides:
A lawyer shall not accept compensation for representing a client from one other than the client unless:
(1) The client consents after consultation;
(2) There is no interference with the lawyer’s independence of professional judgment or with the clientlawyer relationship; and
(3) Information relating to representation of a client is protected by Rule 1.6.
Rule 1.8(f) applies by its terms to a lawyer employed to defend litigation brought by a third party against an insured, whether or not the insurer is a client. Accordingly, an insured must consent to an insurer’s paying a lawyer employed to defend litigation brought by a third party against an insured. For purposes of Rule 1.8(f), the insured manifests this consent by entering into the insurance contract and accepting the representation offered. No new or separate consent is necessary.
¶ 13 Information Under Rule 1.4(b). Under Rule 1.4(b), the insurance defense lawyer must “explain a matter to the extent reasonably necessary to enable the client to make informed decisions regarding the representation.” With respect to the insured as a client, the lawyer must inform the insured sufficiently to enable the insured to make informed decisions regarding the representation. The lawyer could accomplish this by sending the insured a letter at the outset of the representation informing the insured of relevant information. Although doing so would be a prudent practice, we do not hold that a lawyer must provide a written explanation. In ¶ 17 of this Opinion, we discuss the kinds of information that might be included in a letter to the insured at the outset of the representation.
¶ 14 Limitation of Scope Under Rule 1.2. Many perceived issues concerning insurance company guidelines can be resolved with proper attention to limitations on the scope of the representation under Rule 1.2. Under that rule, the scope of the attorney’s representation may be limited by agreement.18The comments to Rule 1.2 specifically refer to the retention of a lawyer by an insurance company to represent an insured:
The objectives or scope of services provided by a lawyer may be limited by agreement with the client or by the terms under which the lawyer’s services are made available to the client. For example, a retainer may be for a specifically defined purpose. Representation provided through a legal aid agency may be subject to limitations on the types of cases the agency handles. When a lawyer has been retained by an insurer to represent an insured, the representation may be limited to matters related to the insurance coverage. The terms upon which representation is undertaken may exclude specific objectives or means.19
Limitations on the objectives or scope of an attorney’s services should be determined jointly by the attorney and the client. The comment to Rule 1.2 states:
Both lawyer and client have authority and responsibility in the objectives and means of representation. The client has ultimate authority to determine the purposes to be served by legal representation, within the limits imposed by law and the lawyer’s professional obligations. Within those limits, a client also has a right to consult with the lawyer about the means to be used in pursuing those objectives. At the same time, a lawyer is not required to pursue objectives or employ means simply because a client may wish that the lawyer do so. A clear distinction between objectives and means sometimes cannot be drawn, and in many cases the client-lawyer relationship partakes of a joint undertaking. In questions of means, the lawyer should assume responsibility for technical and legal tactical issues but should defer to the client regarding such questions as the expense to be incurred and concern for third persons who might be adversely affected.20
¶ 15 If both insurer and insured are clients, both must agree to limitations on the objectives or scope of an attorney’s services. If only the insured is the client, the insured must agree. The lawyer could obtain the insured’s consent at the outset of the representation by sending the insured a letter informing the insured of the relevant limitations. For example, the claims asserted against the insured may include claims that exceed insurance policy limits, claims that are not covered by insurance, or interests of the insured (such as reputation) that the insurer has no obligation to protect. In these situations, special care should be taken to provide information necessary for the insured to understand and agree to any appropriate limitations and to implement means to provide additional representation the insured may desire.
¶ 16 Although doing so would be a prudent practice, we do not hold that a lawyer must provide a written explanation or obtain the client’s consent in writing. In the next paragraph, we discuss the kinds of information that might be included in a letter to the insured at the outset of the representation. The lawyer could inform the insured in the letter that the insured’s consent to the limitations on the objectives or scope of the lawyer’s services will be presumed unless the insured objects within a specified time period. The insured could manifest consent to the limitations by accepting the defense without objection.
¶ 17 Information That Could Be Provided at the Outset. Subject to any limitations on confidential information under Rule 1.6(a),21which may apply if the insurer is also a client, the insurance defense lawyer could provide the insured with information such as the following:
(1) the fact of the lawyer’s selection by the insurer to defend against the claim and appropriate information concerning the lawyer;
(2) the identity of the insurer;
(3) the identity of the lawyer’s client or clients (i.e., whether or not there are multiple insureds who will be clients and whether or not the insurance company will be the lawyer’s client);
(4) relevant policy information, including facts pertaining to the lawyer’s compensation by the insurer;
(5) to the extent they are not disputed by the parties, the insurer’s rights and obligations under the insurance policy with respect to defense and settlement of the litigation;
(6) to the extent they are not disputed by the parties, the insured’s rights and obligations under the insurance policy with respect to defense and settlement of the litigation;
(7) how the representation will be conducted, including any limitations on the objectives or scope of the representation22and the insurer’s normal practices in directing representations including by way of litigation or billing guidelines;
(8) how settlement proposals will be handled;
(9) that, unless the insured objects and subject to the requirements of the Utah Rules of Professional Conduct, the lawyer intends to proceed in accordance with the directions of the insurer;
(10) issues pertaining to confidential information and obtaining consents to convey confidential information between insured and insurer;23
(11) issues pertaining to avoidance and resolution of conflicts of interest;24
(12) risks to the insured, including the implications of the insurer’s rights, obligations, and procedures and any other relevant risks, such as an excess judgment or noncovered claims; and
(13) the insured’s right to hire a lawyer at the insured’s expense, including for purposes other than defense of the claim.25
While the foregoing items are provided as non-exhaustive illustrations, we do not hold that a defense lawyer must address every item in every case. Under Rule 1.4(b), the insurance defense lawyer must explain the matter to the extent reasonably necessary to enable the client to make informed decisions regarding the representation.
¶ 18 Professional Independence Under Rules 1.8(f) and 5.4(c). Rule 1.8(f)(2) requires that a lawyer accepting compensation for representing a client from one other than that client assure that “there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship.” This rule applies to a lawyer employed to defend litigation brought by a third party against an insured, whether or not the insurer is also a client.
¶ 19 Rule 5.4(c) provides: “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 lawyer’s professional judgment in rendering such legal services.” Rule 5.4(c) applies to a lawyer employed to defend litigation brought by a third party against an insured, whether or not the insurer is a client. Rule 5.4(c) expressly prohibits a lawyer from permitting a person who employs or pays the lawyer to render legal services for another to direct or regulate the lawyer’s professional judgment in rendering the legal services. Rule 5.4(c) draws no distinction between advice and action and speaks directly to professional judgment in rendering legal services. This is not to say, however, that the scope of the lawyer’s representation may not properly be limited as provided in Rule 1.2. To the extent the scope of the lawyer’s representation properly is limited, the lawyer is not authorized to render services outside the scope of the representation. But agreements respecting insurance company guidelines or flat-fee arrangements with insurance companies cannot free the lawyer from the obligation to exercise independent professional judgment both in setting limits on the representation and in rendering services within the scope of the representation.
¶ 20 Summary of Analysis of Insurance Company Guidelines. With these principles in mind, we conclude that an insurance defense lawyer’s agreement to abide by insurance company guidelines is not per se unethical and that the ethical implications of insurance company guidelines must be evaluated on a case-by-case basis. An insurance defense lawyer must not permit compliance with guidelines and other directives of an insurer relating to the lawyer’s services to impair materially the lawyer’s independent professional judgment in representing an insured.26Obligations of attorneys under the Utah Rules of Professional Conduct cannot be diminished or modified by an agreement between the attorney and the attorney’s client or by an agreement between the attorney and an insurer. Before accepting a representation of an insured party that will be governed in part by insurance company guidelines, a defense lawyer must determine that compliance with the guidelines will not be inconsistent with the lawyer’s professional obligations. If compliance with the guidelines will be inconsistent with the lawyer’s professional obligations, and if the insurer is unwilling to modify the guidelines, the lawyer must not undertake the representation.
¶ 21 After accepting a representation of an insured party that is governed in part by insurance company guidelines, a defense lawyer must at all times comply with the Utah Rules of Professional Conduct, including Rules 1.1 (competent representation), 1.2 (limitation of scope of representation), 1.3 (diligence and promptness), 1.4 (communication requirements), 1.8(f) (consent), and 5.4(c) (no direction or regulation of the lawyer’s professional judgment). If the lawyer determines that the insurer’s interpretation or application of the guidelines in particular circumstances is in any way inconsistent with the lawyer’s professional obligations under the Utah Rules of Professional Conduct, and if the insurer will not withdraw its interpretation or application of the guidelines, the lawyer must still act in conformity with the Rules.27
¶ 22 In any case where an insurer’s refusal to authorize services that the lawyer, in her independent professional judgment, believes are necessary to comply with the Utah Rules of Professional Conduct, the lawyer should consider the following options:
(1) communicating with the insurer and the insured in an attempt to resolve the matter,28
(2) obtaining the agreement of the insured to pay for the services (perhaps with a reservation of rights to seek payment from the insurer at a later time);
(3) agreeing to provide the services without compensation (and perhaps reserving the right to seek compensation from the insurer at a later time); or
(4) withdrawing from the representation.
If withdrawal is necessary because of an irreconcilable conflict between the insured and the insurer, the lawyer should comply with all applicable provisions of Rules 1.7 and 1.16 and any applicable rules of court.
Flat-fee Arrangements
¶ 23 A Request on Flat-Fee Arrangements. The Committee has also received a separate request for an advisory opinion concerning ethical issues raised by flat-fee arrangements with insurance companies under which counsel is employed to defend a case or a group of cases for a flat fee. Because this request raises some of the same issues and analysis discussed in connection with insurance company guidelines for defense attorneys, we consolidate the two requests to issue a single opinion.
¶ 24 Applicable Rules and Prior Opinion 136. Rule 1.5 of the Utah Rules of Professional Conduct addresses ethical issues relating to attorneys’ fees. As we wrote in Opinion No. 136, “Fixedfee contracts . . . are not prohibited by Rule 1.5 of the Utah Rules of Professional Conduct” and, further, “The only specific types of fees expressly prohibited by Rule 1.5 are contingent fees in divorce and criminal defense cases.”29
¶ 25 In Opinion No. 136, we addressed the question of whether a client’s advance payment made as a “fixed fee” or “nonrefundable retainer” could be considered to be earned by the lawyer when received and, therefore, not required to be deposited in a trust account. We stated that fixedfee contracts or nonrefundable retainers are not expressly prohibited by Rule 1.5, and that the issue became whether such arrangements should be considered per se unreasonable under the Rule. We adopt a similar analysis here. Rule 1.5 does not expressly prohibit flat-fee arrangements. We conclude, therefore, that flat-fee arrangements, including flat-fee arrangements with liability insurance carriers, are not per se unethical. It does not follow, of course, that all flat-fee agreements are in compliance with the Utah Rules of Professional Conduct.
¶ 26 Improper Curtailment of Services. The comment to Rule 1.5 provides:
An agreement may not be made whose terms might induce the lawyer improperly to curtail services for the client or perform them in any way contrary to the client’s interest. For example, a lawyer should not enter into an agreement whereby services are to be provided only up to a stated amount when it is foreseeable that more extensive services probably will be required, unless the situation is adequately explained to the client.
Thus, Rule 1.5 prohibits flat-fee arrangements with insurers if the proposed arrangement would improperly curtail services to be provided to the client that would normally be within the scope of the representation. For example, a flat-fee agreement that is so low as to induce the lawyer to shirk his duties to the insured would be unethical. A lawyer may, of course, provide the necessary services for little or no additional fee, but the lack of further funding (from the insurer, for example) will not justify cutting corners on the lawyer’s ethical obligation to the client. Such situations should be fully explained to the insured. On the other hand, a flat-fee arrangement that is so high as to result in a clearly excessive fee would also violate Rule 1.5(a).
¶ 27 Compliance with the Rules. Our conclusion that flat-fee arrangements with insurance carriers are not per se unethical does not free a lawyer from strict compliance with the applicable rules or standards of professional behavior. To provide some guidance to members of the Utah Bar, we will address some of the ethical considerations.
¶ 28 Rule 1.1 requires a lawyer to provide “competent representation to a client.” This includes the “thoroughness” and “preparation reasonably necessary for the representation.” A lawyer is also required to act with “reasonable diligence and promptness” under Rule 1.3. It is often stated that a lawyer is to represent her client “zealously.”30A lawyer should strictly adhere to these ethical standards, regardless of the nature of the fee arrangement or remuneration paid to the lawyer. Lawyers entering into flat-fee arrangements with insurance companies must use extra caution to assure that the representation they provide to the insured complies with these ethical obligations. Lawyers may not compromise these standards even if the financial arrangement to which they agreed with the insurance company results in a more-than-expected time commitment or worse-than-expected financial result for the lawyer. This also means, of course, that the lawyer should avoid entering into any flat-fee arrangement if there is reasonable cause to believe that future time and financial pressures may prevent the lawyer from providing competent, thorough, diligent and prompt representation to the insured.
¶ 29 Under Rule 1.2, the lawyer must abide by the client’s decisions concerning the objectives of the representation (subject to certain guidelines) and must consult with the client regarding the means by which the objectives of the litigation will be pursued. A lawyer should not enter into a flat-fee agreement with an insurer that would prevent meaningful participation by the insured in determining the objectives of the representation and the means of pursuing them. This may require, as a matter of prudence, consultation with the insured prior to entering into the flat-fee arrangement.
¶ 30 The comment to Rule 1.5 provides, “Where someone other than the client pays the lawyer’s fee or salary . . . , that arrangement does not modify the lawyer’s obligation to the client. . . . [S]uch arrangements should not interfere with the lawyer’s professional judgment.” Rule 1.8(f) expressly requires the lawyer to maintain her “independence of professional judgment” when someone other than the client pays the lawyer’s fee. These rules apply to a lawyer’s representation of an insured, just as they do in all other relevant cases. A lawyer who enters into any type of flat-fee arrangement with an insurer must use caution to assure that she exercises independent professional judgment on behalf of the insured. This is particularly important in situations where the scope of the case has unexpectedly increased beyond the attorney’s original expectations in agreeing to a fixed fee.
¶ 31 It has been suggested that flat-fee arrangements should be prohibited to protect the interests of lawyers in maintaining profitable fee arrangements with insurance companies. It is not this Committee’s role to regulate the competing economic interests of lawyers and insurance companies. Rather, it is our role to interpret the Utah Rules of Professional Conduct and to encourage ethical behavior for the protection of those who receive legal representation. Nothing in the Utah Rules of Professional Conduct prohibits flat-fee arrangements, and it would be improper for us to impose such a restriction where the Utah Supreme Court has chosen not to do so. Our discussion of some of the relevant concerns will provide guidance to lawyers and should promote competent representation for insureds who receive legal representation. As in any other case, the disciplinary procedures of the Utah State Bar and other legal proceedings are available to insureds who believe their lawyers have compromised their ethical duties because of a flat-fee arrangement with the insurer.31
¶ 32 In rendering this opinion, this Committee is aware of the arguments concerning economic and market factors vigorously promoted in the literature by both the insurance industry and the insurance defense bar. We are also mindful of our limited role, which is to interpret the Utah Rules of Professional Conduct and provide guidance to the members of Bar. Our role is not to regulate the market for legal services or to influence the economics of purchasing or providing legal services. Lawyers and insurance companies are free to negotiate fee arrangements that suit their respective economic interests so long as no lawyer on either side violates the Utah Rules of Professional Conduct. Insurance companies and lawyers may enter into fee arrangements that limit the amount of compensation the lawyer will be paid. We emphasize, however, that lawyers entering into such arrangements must use care to assure that their representation complies with all applicable ethical standards, even if the fee arrangement requires the lawyer to perform services for a reduced rate or even without compensation.
¶ 33 Conclusion: An insurance defense lawyer’s agreement to abide by insurance company guidelines or to perform insurance defense work for a flat fee is not per se unethical. The ethical implications of insurance company guidelines must be evaluated on a case by case basis. An insurance defense lawyer must not permit compliance with guidelines and other directives of an insurer relating to the lawyer’s services to impair materially the lawyer’s independent professional judgment in representing an insured. If compliance with the guidelines will be inconsistent with the lawyer’s professional obligations, and if the insurer is unwilling to modify the guidelines, the lawyer must not undertake the representation. Flat-fee arrangements for insurance defense cases are unethical if they would induce the lawyer to improperly curtail services for the client or perform them in any way contrary to the client’s interests. Obligations of lawyers under the Utah Rules of Professional Conduct, including the duty zealously to represent the insured, cannot be diminished or modified by agreement.
Footnotes
1.See ABA Comm. on Ethics and Professional Responsibility, Formal Op. 99-413; Ala. Ethics Op. RO-98-02; Colo. Bar Assoc. Ethics Comm. Formal Op. 107 (Sept. 18, 1999); Disciplinary Bd., Haw. Sup. Ct., Formal Op. 37 (Mar. 27, 1999); Ind. State Bar Assoc. Legal Ethics Op. 3 of 1998; Iowa Sup. Ct. Bd. of Professional Ethics & Conduct, Op. 99-01 (Sept. 8, 1999); Mass. Bar Op. 00-4; Miss. Bar, Op. 246 (1999); Neb. Advisory Comm., Advisory Op. 00-1; Ohio Op. 2000-3 (June 1, 2000); Penn. Bar Assoc. Comm. on Legal Ethics and Professional Responsibility, Formal Op. 2001-200 (June 28, 2001); R.I. Sup. Ct. Ethics Advisory Panel Op. 99-18 (Oct. 27, 1999); Tenn. Bd. of Professional Responsibility, Sup. Ct. of Tenn., Formal Ethics Op. 2000-F-145; Tex. Ethics Op. 533 (Sept. 2000); Vt. Bar Op. 98-07; Va. Leo 1723 (Nov. 23, 1998); Wash. State Bar Assoc. Formal Op. 195 (1999); Wis. State Bar Comm. on Professional Ethics, Formal Op. E-99-1 (Sept. 10, 1999);In re Rules of Professional Conduct and Insurer Imposed Billing Rules and Procedures, 2 P.3d 806 (Mont. 2000). We have been advised that proposed ethics opinions critical of insurance company billing guidelines were rejected by the Florida Bar Association’s Board of Governors at its December 2000 meeting (proposed opinions 99-2, 99-3 and 99-4) and the Supreme Court of Georgia (proposed opinion 99-R2) (unpublished order Sept. 17, 2001).
2.Utah Ethics Adv. Op. 98-11, 1998 WL 779176 (Utah St. Bar), addressed the ethics of a retainer agreement proposed by the Utah State Office of Recovery Services (ORS) for an attorney who would represent both ORS, as statutory lien claimant with prior rights on recoveries, and individual claimants in recovering medical claims. In that context, the Committee held that the State of Utah could propose a retainer agreement, but cautioned that it was not holding that attorneys representing the State may draft retainer agreements that violate the Utah Rules of Professional Conduct, noting that it would be unethical for the retainer agreement to (1) require the individual claimants to surrender the right to terminate the lawyer or (2) otherwise cause the attorney executing it to violate the Utah Rules of Professional Conduct. The Committee found that the attorney could not agree to conditions that would violate Rule 1.7(b).
3.In re Rules of Professional Conduct and Insurer Imposed Billing Rules and Procedures, 2 P.3d 806, 817 (Mont. 2000).
4.Utah Ethics Advisory Op. Comm. R. Procedure § I(b)(1) (2001) (“Committee opinions shall interpret the Rules of Professional Conduct adopted by the Utah Supreme Court but, except as necessary to the opinion, shall not interpret other law.”) and id. § I(b)(2) (“The following requests are outside the Committee’s authority: . . . (iii) Requests for legal, rather than ethics opinions.”).
5.See, e.g., Cincinnati Insurance Co. v. Willis, 717 N.E.2d 151, 161 (Ind. 1999); In re Rules of Professional Conduct and Insurer Imposed Billing Rules and Procedures, 2 P.3d 806 (Mont. 2000).
6.See, e.g., Paradigm Insurance Co. v. The Langerman Law Offices, 24 P.3d 593 (Ariz. 2001) (express agreement was not a prerequisite to the formation of an attorney-client relationship; when insurer has assigned attorney to represent an insured, lawyer had a duty to the insurer to benefit both the insurer and the insured when their interests coincided; lawyer had duty to a non-client and could be liable for negligent breach).
7.See generally Breuer-Harrison, Inc. v. Combe, 799 P.2d 716, 727 (Utah App. 1990) (a legal malpractice action):
In general, except where an attorney is appointed by a court, the attorney-client relationship is created by contract. . . . The contract may be express or implied from the conduct of the parties. . . . The relationship is proved by showing that a party seeks and receives the advice of an attorney in matters pertinent to the lawyer’s profession. . . . Such a showing is subjective in that a factor in evaluating the relationship is whether the client thought an attorney-client relationship existed. . . . However, a party’s belief that an attorney-client relationship exists, unless reasonably induced by representations or conduct of the attorney, is not sufficient to create a confidential attorney-client relationship. . . . In sum, “[i]t is the intent and conduct of the parties which is critical to the formation of the attorney-client relationship.”
(Citations omitted.)
8.See note 4, supra.
9.We do not, however, assume that the foregoing summary is a complete statement of insurance company guidelines.
10.429 P.2d 39, 42 (Utah 1967).
11.425 P.2d 769, 77172 (Utah 1967).
12.480 P.2d 126, 127 (Utah 1971).
13.701 P.2d 795, 799-800 (Utah 1985) (citations omitted).
14.Utah Rules of Professional Conduct 1.1 & cmt; Rule 1.2 cmt. Refer to Appendix B.
15.Id. 1.3. Refer to Appendix B.
16.Id. 2.1 (“In representing a client, a lawyer shall exercise independent professional judgment and render candid advice”).
17.Id. 5.1; 5.3. Refer to Appendix B.
18.Rule 1.2 provides, in pertinent part: “(a) A lawyer shall abide by a client’s decisions concerning the objectives of representation, subject to paragraphs (b), (c), (d), and shall consult with the client as to the means by which they are to be pursued. (b) A lawyer may limit the objectives of the representation if the client consents after consultation.”
19.Utah Rules of Professional Conduct 1.2 cmt. (2002).
20.The client has the ultimate authority to determine the expense to be incurred. In some situations, the client may determine that no expense will be incurred by designating certain actions that will not be taken.
21.Rule 1.6(a) provides: “A lawyer shall not reveal information relating to the representation of a client except as stated in paragraph (b), unless the client consents after consultation.”
22.For example, the defense lawyer could not represent both insured and insurer as to matters such as insurance coverage. In cases where the claim exceeds policy limits or includes non-covered claims, or where the insured desires services outside the scope of the representation to be paid for by the insurer, the defense lawyer should provide the insured with information concerning limits on the representation and available means of addressing such matters.
23.For example, the letter might include information necessary to inform the insured as to issues pertaining to submission of bills to the insurer or to outside auditing services. See Utah Ethics Advisory Op. 98-03, 1998 WL 199533 (Utah St. Bar).
24.For example, if both insured and insurer are clients, Rule 1.8(g) provides, in pertinent part: “A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients . . . unless each client consents after consultation, including disclosure of the existence and nature of all the claims . . . involved and of the participation of each person in the settlement.” If both insured and insurer are clients, or if representation of a sole client insured may be materially limited by the lawyer’s responsibilities to the insurer, conflicts must be addressed as provided in Rule 1.7.
25.For example, unless the policy provides otherwise, the insurer will likely have no obligation to pay the defense lawyer to assert counterclaims or claims insureds may have against third parties, to protect interests of the insured other than defending against the amount of the claim (such as reputation or other interests), or to defend the insured against criminal charges.
26.In addition, a lawyer governed by the Utah Rules of Professional Conduct (such as a lawyer employed by an insurer) must not propose that a defense lawyer enter into an agreement if compliance with the agreement, including guidelines and other directives of an insurer relating to the lawyer’s services, would impair materially the defense lawyer’s independent professional judgment in representing an insured.
27.We believe that, in many cases, perceived conflicts may be resolved by consultation.
28.Under Rule 1.4(a), the insurance defense lawyer must keep the client or clients “reasonably informed about the status of a matter and promptly comply with reasonable requests for information.”
29. Utah Ethics Adv. Op. 136, 1993 WL 755253 (Utah St. Bar) (citing Rule 1.5(d)).
30.See, e.g., Utah Rules of Professional Conduct, Preamble.
31.See Fla. Bar Professional Ethics Comm., Op. 982 (1998) (a lawyer may accept a set fee per case from an insurance company to defend all of the insurer’s third party insurance defense work unless the lawyer concludes that her independent professional judgment will be affected by the arrangement); Conn. Bar, Professional Ethics Comm., Op. 9720 (1997) (flat-fee arrangement with insurer permissible; lawyer’s obligations to client remain); Ohio Ethics Op. 977 (1997) (flat-fee arrangement with insurer permissible if agreement is reasonable and adequate, not excessive or so inadequate that it compromises professional judgment; representation must be competent and zealous); Ore. Ethics Op. 199198 (1991) (flat-fee arrangement with insurer permissible provided lawyer fulfills ethical duties to insured); contra, American Insurance Assoc. v. Kentucky Bar Assoc., 917 S.W.2d 568 (Ky. 1996)
APPENDIX A & B
APPENDIX A
Hawaii:
[P]rovisions which prohibit activity which, in the lawyer’s professional judgment, are necessary in the representation of the client or provisions which provide a [disincentive] to perform those tasks are ethically unacceptable. As an example, unreasonable restrictions on preparation and discovery, and the limitation on compensable communication among attorneys in an office regarding a legal matter would, in all likelihood, affect an attorney’s independent judgment on behalf of the client.1
Indiana:
[I]f the negotiated financial terms result in a material disincentive to perform those tasks which, in the lawyer’s professional judgment, are reasonable and necessary to the defense of the insured, such provisions are ethically unacceptable. Especially troublesome are those provisions of the subject agreement which tend to curtail reasonable discussion between members of the defense team on a daytoday basis, and which seek to dictate the use of personnel within the lawyer’s office. Another example of a provision resulting in a material disincentive provides that if the senior litigator performs a particular service, e.g., argument of motions and other court appearances, conduct of depositions, or review of medical records or legal research, which could have been performed ‘suitably’ (in the carrier’s view) by an associate or paralegal, the service may be billed only at the hourly rate for the associate or paralegal. Similarly, the contract provides that once an associate attorney is assigned to a given matter, another associate may not be substituted without prior approval of the carrier. Such impairments of the responsible attorney’s exercise of professional judgment as to the assignment of the most effective member of the litigation team to a given task is ethically impermissible. Lastly, to require, or even permit, counsel to rely upon legal research by an unsupervised paralegal invites legal malpractice—a breach of counsel’s duty to the insured—and is intolerable. Such provisions, even though intended merely to achieve cost efficiency, infringe upon the independent judgment of counsel, and tend to induce violations of our ethical rules.2
Massachusetts:
For example, an insurer’s litigation guidelines may mandate that all deposition notices be drafted by paralegals, although the precise content of some deposition notices may require significant substantive and strategic legal input. If the lawyer has a reasonable basis to believe that the creation of a particular deposition notice presents too complicated a task for a paralegal to perform competently, then the lawyer’s ethical obligations, as described above, compel the lawyer not to delegate that task. In the event that the lawyer’s decision subsequently is challenged by the insurer who is paying his or her fees, then the Committee believes that the lawyer must consider whether the issue is significant enough to warrant withdrawing from the representation under Rule 1.16(a)(1).3
Ohio:
It is improper under DR 5107(B) [Avoiding Influence By Others Than The Client] for an insurance defense attorney to abide by an insurance company’s litigation management guidelines in the representation of an insured when the guidelines directly interfere with the professional judgment of the attorney. Attorneys must not yield professional control of their legal work to an insurer. Guidelines that restrict or require prior approval before performing computerized or other legal research are an interference with the professional judgment of an attorney. Legal research improves the competence of an attorney and increases the quality of legal services. Attorneys must be able to research legal issues when they deem necessary without interference by nonattorneys. Guidelines that dictate how work is to be allocated among defense team members by designating what tasks are to be performed by a paralegal, associate, or senior attorney are an interference with an attorney’s professional judgment. Under the facts and circumstances of a particular case, an attorney may deem it necessary or more expedient to perform a research task or other task, rather than designate the task to a paralegal. This is not a decision for others to make. The attorney is professionally responsible for the legal services. Attorneys must be able to exercise professional judgment and discretion. Guidelines that require approval before conducting discovery, taking a deposition, or consulting with an expert witness are an interference with an attorney’s professional judgment. These are professional decisions that competent attorneys make on a daily basis. Guidelines that require an insurer’s approval before filing a motion or other pleading are an interference with an attorney’s professional judgment. Motion by motion evaluation by an insurer of an attorney’s legal work is an inappropriate interference with professional judgment and is demeaning to the legal profession. If an insurer is unsatisfied with the overall legal services performed, the insurer has the opportunity in the future to retain different counsel.4
Rhode Island:
[Provisions] that require the insurer’s preapproval for specified legal services, extend beyond the financial and working relationship between the insurer and defense counsel, and infringe upon the attorneyclient relationship between the insured and the inquiring attorney. For example, the insurer’s prior approval is required before defense counsel engages in the following: conducting legal research in excess of three hours; filing counterclaims, crossclaims or thirdparty actions; visiting the accident scene; preparing substantive dispositive motions or briefs; customizing interrogatories or document requests; and scheduling depositions. The insurer’s prior approval is also required before defense counsel incurs expenses related to any of the following: retaining expert witnesses; scheduling independent medical examinations or peer reviews; instituting surveillance; and conducting additional investigations. To the extent that the insurer reserves unto itself the right to withhold approval for reasonable and necessary legal services to be provided to an insured, these provisions of the guidelines impermissibly interfere with the independent professional judgment of the inquiring attorney. By agreeing to abide by the preauthorization provisions, an attorney impermissibly abdicates the obligations imposed by Rule 2.1 and Rule 5.4(c). Therefore, the inquiring attorney may not agree to them. Furthermore, such provisions result in a material disincentive to provide legal services that are reasonable and necessary to the defense of the insured. See Indiana Bar Assoc. Op. 3 (1998). A material disincentive creates a conflict of interest pursuant to Rule 1.7.5
Washington:
A billing guideline that arbitrarily and unreasonably limits or restricts compensation for the time spent by counsel performing services which counsel considers necessary to adequate representation, such as periodic review of pleadings, conducting depositions, or in preparing or defending against a summary judgment motion, endeavors to direct or regulate the lawyer’s professional judgment in violation of RPC 5.4(c). A billing guideline that imposes ‘defacto’ or arbitrary rates for certain services performed by a lawyer, such as compensating a lawyer at prevailing paralegal rates when the firm does not employ paralegals, operates as a disincentive to performance of those services on violation of RPC 5.4(c).6
APPENDIX B
Relevant Portions of the Utah Rules of Professional Conduct
Rule 1.1—Competence
A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation.
The comment to Rule 1.1 provides, with respect to thoroughness and preparation:
Competent handling of a particular matter includes inquiry into and analysis of the factual and legal elements of the problem, and use of methods and procedures meeting the standards of competent practitioners. It also includes adequate preparation. The required attention and preparation are determined in part by what is at stake; major litigation and complex transactions ordinarily require more elaborate treatment than matters of lesser consequence.
The comment to Rule 1.2—Scope of Representation provides, with respect to agreements limiting the scope of representation:
The client has ultimate authority to determine the purposes to be served by legal representation, within the limits imposed by law and the lawyer’s professional obligations. . . An agreement concerning the scope of representation must accord with the Rules of Professional Conduct and other law. Thus, the client may not be asked to agree to representation so limited in scope as to violate Rule 1.1 or to surrender the right to terminate the lawyer’s services or the right to settle litigation that the lawyer might wish to continue.”
(Emphasis added.)
____________________________________________________________________________
Rule 1.3—Diligence
A lawyer shall act with reasonable diligence and promptness in representing a client.
The comment to Rule 1.3 notes, however, that: “A lawyer has professional discretion in determining the means by which a matter should be pursued. See Rule 1.2.”
____________________________________________________________________________
Rule 1.4—Communication
(a) A lawyer shall keep a client reasonably informed about the status of a matter and promptly comply with reasonable requests for information.
(b) A lawyer shall explain a matter to the extent reasonably necessary to enable the client to make informed decisions regarding the representation.
____________________________________________________________________________
Rule 1.8—Conflict of interest: prohibited transactions.
. . . .
(f) A lawyer shall not accept compensation for representing a client from one other than the client unless:
(1) The client consents after consultation;
(2) There is no interference with the lawyer’s independence of professional judgment or with the clientlawyer relationship; and
(3) Information relating to representation of a client is protected 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 consents after consultation, including disclosure of the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement.
____________________________________________________________________________
Rule 5.1—Responsibilities of a partner or supervisory lawyer
(a) A partner in a law firm shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers in the firm conform to the Rules of Professional Conduct.
(b) A lawyer having direct supervisory authority over another lawyer shall make reasonable efforts to ensure that the other lawyer conforms to the Rules of Professional Conduct.
(c) A lawyer shall be responsible for another lawyer’s violation of the Rules of Professional Conduct if:
(1) The lawyer orders or, with knowledge of the specific conduct, ratifies the conduct involved; or
(2) The lawyer is a partner in the law firm in which the other lawyer practices, or has direct supervisory authority over the other lawyer, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.
____________________________________________________________________________
Rule 5.3—Responsibilities regarding nonlawyer assistants
With respect to a nonlawyer employed or retained by or associated with a lawyer:
(a) A partner in a law firm shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the person’s conduct is compatible with the professional obligations of the lawyer;
(b) A lawyer having direct supervisory authority over the nonlawyer shall make reasonable efforts to ensure that the person’s conduct is compatible with the professional obligations of the lawyer.
(c) A lawyer shall be responsible for conduct of such a person that would be a violation of the Rules of Professional Conduct if engaged in by a lawyer if:
(1) The lawyer orders or, with knowledge of the specific conduct, ratifies the conduct involved; or
(2) The lawyer is a partner in the law firm in which the person is employed, or has direct supervisory authority over the person, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.
Appendix A Footnotes
1.Disciplinary Bd., Haw. Sup. Ct., Formal Op. 37 (Mar. 27, 1999).
2.Ind. State Bar Assoc. Legal Ethics Op. 3 of 1998.
3.Mass. Bar Op. 00-4.
4.Sup. Ct. of Ohio, Bd. of Commissioners on Grievances and Discipline, Op. 2000-3 (June 1, 2000).
5.R.I. Sup. Ct. Ethics Advisory Panel Op. 99-18 (Oct. 27, 1999).
6.Wash State Bar Assoc., Formal Op. 195 (1999).

Ethics Advisory Opinion No. 02-09

Issued September 24, 2002
¶ 1 Issue:
Is it ethical for an attorney to enter into a contingency-fee agreement, under which all fees, expenses and costs of litigation are unconditionally assumed by the attorney?

¶ 2 Opinion: Within broad limitations, the Utah Rules of Professional Conduct permit an attorney and a client to determine the terms of the lawyer’s compensation, and there is no per se restriction prohibiting the attorney from assuming all litigation costs and expenses under a contingency-fee agreement. Such fee agreements, however, must comply with all other applicable provisions of the Utah Rules of Professional Conduct concerning fees.
¶ 3 Analysis: We have received a request for an opinion as to the propriety of a lawyer’s entering into a contingent-fee agreement with a commercial client on collection matters that contains the following paragraph:
All fees, expenses and costs, such as filing fees, court disbursements, photocopy costs, telephone expenses, travel, postage, storage, office supplies, and miscellaneous expenses associated with the collection shall be the sole responsibility of the attorney and will not be billed or reimbursed by client.
The issue requires a determination of whether a fee arrangement of this kind is consistent with Rules1.5, 1.7, and 1.8(e) of the Utah Rules of Professional Conduct (“The Rules”).1
¶ 4 Lawyers are generally free to determine the terms of their representation with their clients, consistent with the Rules. The Ethics Advisory Opinion Committee has recently addressed this issue in Opinion No.02-03, reaching a conclusion that a flat-fee agreement between a defense lawyer and an insurance company is not per se unethical and cautioning:
A lawyer who enters into any type of flat-fee arrangement with an insurer must use caution to assure that she exercises independent professional judgment on behalf of the insured. This is particularly important in situations where the scope of the case has unexpectedly increased beyond the attorney’s original expectations in agreeing to a fixed fee.2
¶ 6 Our Opinion No.136 also addressed the issue of whether a client’s advance payment, made as a fixed fee or non-refundable retainer, was unethical. The opinion concluded that fixed-fee contracts or non-refundable retainers are not expressly prohibited by Rule1.5. 3
¶ 7 Rule1.5(c) addresses certain requirements related to contingent-fee arrangements, including the requirement that the fee agreement must be in writing, and it must state the method by which the fee is to be determined and how expenses are to be handled.4While Rule1.5(c) anticipates that expenses will be deducted either before or after the contingent fee is calculated, nothing in the rule prohibits the attorney from agreeing to assume those costs and expenses within her contingent fee, or, if no judgment or settlement is obtained, to assume responsibility for those costs and expenses.
¶ 8 As was extensively addressed in Opinion 02-03, a lawyer must ensure that her agreement relating to fees will not require her improperly to curtail services provided to the client that would normally be within the scope of the representation.
¶ 9 Rule 1.7(b) requires a lawyer to decline representation if the representation of the client may be limited, among other things, by the lawyer’s own interest. As we pointed out in Opinion No. 02-03, the economics of any agreement between the lawyer and her client is not the Committee’s business. In the context of our discussion of fee arrangements between lawyers and insurers, we noted:
Lawyers and insurance companies are free to negotiate fee arrangements that suit their respective economic interests so long as no lawyer on either side violates the Utah Rules of Professional Conduct. . . . We emphasize, however, that lawyers entering into such arrangements must use care to assure that their representation complies with all applicable ethical standards, even if the fee arrangement requires the lawyer to perform services for reduced rate or even without compensation.5
¶ 10 We conclude that there is no material difference between the proposed arrangement and a “standard” contingency fee-arrangement under which the attorney essentially “advances” her own services with the potential that she will not be “reimbursed” for her costs of operation (office, overhead, staff, library, etc.). We can see no distinction between a lawyer’s providing all the ancillary services that make up her normal operations in connection with a contingent-fee agreement and the lawyer’s undertaking to pay the costs and expenses directly connected to the representation as part of the bargained-for quid pro quo of the contingent-fee agreement.
¶ 11 An argument has been advanced that the lawyer who undertakes to pay all costs associated with the pursuit of the case is providing financial assistance to the client in connection with pending or contemplated litigation, which is prohibited under Rule1.8(e). This argument fails because it is subject to the exception under Rule1.8(e)(1). The exception states: “[E]xcept [a] lawyer may advance court casts and expenses of litigation the repayment of which may be contingent on the outcome of the matter.” In the proposed arrangement the lawyer is simply advancing court costs and expenses of litigation. If the lawyer is unsuccessful with a case, she is not compensated for costs and expenses; if successful, she is compensated for the costs and expenses as an implicit part of the percentage-fee retained from the recovery. That is, the lawyer’s right to recover costs can be made as contingent as her right to a fee.”6
¶ 12 Additionally, some have argued that the proposed arrangement may create a prohibited “proprietary interest” under Rule1.8(j). Even if it does, we conclude that it falls under the contingent-fee exclusion of Rule1.8(j)(2).7
¶ 13 Finally, we observe that there have been decisions in other jurisdictions that find the arrangement we address here to be an ethical violation.8Those decisions can generally be distinguished as having been decided under more stringent versions of a rule similar to Utah’s Rule1.8(e). In any event, we decline to adopt such a result, as we can identify no substantial public policy that is served by prohibiting this kind of arm’s-length agreement between attorney and client,9so long as it otherwise complies with the our Rules of Professional Conduct concerning fees.10
Footnotes
1.Our opinion here is not limited to contingent fees in commercial collection situations, but has general applicability to contingent-fee arrangements.
2.Utah Ethics Advisory Op. 02-03, at ¶ 30, 2002 WL 340262 (Utah St. Bar).
3.Utah Ethics Advisory Op. 136, 1993 WL 755253 (Utah St. Bar).
4. “A contingent fee agreement shall be in writing and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated.” Rule1.5(c).
5.Opinion No.02-03, at ¶ 32 (emphasis added).
6.We also note that we obtain no guidance from the official comment to Rule1.8, as it does not address Rule1.8(e). However, the ABA’s Annotated Model Rules of Professional Conduct (4th ed. 1999), citing Charles W. Wolfram, Model Legal Ethics § 9.2.3 (1986), states: “Rule 1.8 does not require that the client guarantee repayment of the advances; repayment may be made contingent on the outcome of the matter.”
7.“[T]he lawyer may [c]ontract with a client for a reasonable contingent fee in a civil case.”
8.See, e.g., Arizona Comm. on the Rules of Professional Conduct, Op. 95-01, decided under a version of1.8(e) that reads: “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, provided the client remains ultimately liable for such costs and expenses . . . .”
9.Indeed, there are the same beneficial public-policy attributes of the proposed arrangement as are often articulated for “standard” contingent-fee arrangements—namely, that it provides access to the judicial system for aggrieved persons for whom access would otherwise not be economic or practicable.
10.For example: “A lawyer shall not enter into an agreement for, charge or collect an illegal or clearly excessive fee. A fee is clearly excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee,” Rule1.5(a).

Ethics Advisory Opinion No. 01-01

Issued January 26, 2001
¶ 1 Issue:
Under the Utah Rules of Professional Conduct, may an attorney representing a client in a divorce case assert a statutory attorney’s lien under Utah Code Ann. § 78-54-41 against property awarded to the client in the divorce settlement?

¶ 2 Discussion: Rule 1.8(a). We first address a threshold question: Does the invocation of a statutory attorney’s lien require the attorney to meet the requirements of Rule 1.8(a) of the Utah Rules of Professional Conduct, which generally governs business transactions between lawyers and their clients?
¶ 3 Pursuant to Rule 1.8(a), a lawyer may 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 of the transaction are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client, (2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction, and (3) the client consents in writing to the transaction.
¶ 4 Rule 1.8(j) provides that “[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 . . . acquire a lien granted by law to secure the lawyer’s fee or expenses . . . .”1
¶ 5 Utah statute provides for an attorney to be granted an attorney’s lien on the proceeds of a cause of action in which a lawyer represents a client:
The compensation of an attorney and counselor for services is governed by agreement, express or implied, which is not restrained by law. From the commencement of an action, or the service of an answer containing a counterclaim or at the time that the attorney and client enter into a written or oral employment agreement, the attorney who is so employed has a lien upon the client’s cause of action or counterclaim, which attaches to any settlement, verdict, report, decision, or judgment in the client’s favor and to the proceeds thereof in whosoever2hands they may come, and cannot be affected by any settlement between the parties before or after judgment. Any written employment agreement shall contain a statement that the attorney has a lien upon the client’s cause of action or counterclaim.3
¶ 6 The threshold question is, therefore, whether a lawyer may assert a lien under § 78-51-41 only if she satisfies the conditions of Rule 1.8(a), which govern a “business transaction” with a client and the knowing acquisition of an interest adverse to a client.
¶ 7 We conclude that Rule 1.8(a) is not applicable to the statutory lien situation. It is not reasonable to read this rule so narrowly that a statutory lien becomes a “business transaction” subject to Rule 1.8(a)’s conditions.4The statutory lien in question is a right of public record granted by the Legislature and is not the kind of adverse interest contemplated by Rule 1.8(a). Additionally, statutory attorney liens are specifically authorized by Rule 1.8(j)(1). Therefore, a lawyer does not violate Rule 1.8(a) by entering into a fee agreement with a client and subsequently enforcing that agreement by asserting a claim under § 78-51-41.5
¶ 8 Proceeds in Divorce Cases. Attorneys are granted a lien by statute for their compensation on any settlement, verdict, report, decision or judgment in the client’s favor. Acquiring such a lien to secure the lawyer’s fee or expenses is expressly authorized by Rule 1.8(j)(1). It is, therefore, generally ethical to assert such lien rights under applicable law.
¶ 9 Does the analysis or conclusion change when the attorney’s services are rendered in the context of a family law cause of action? On the one hand, in the 1935 case of Hampton v. Hampton,6the Utah Supreme Court has specifically held that the lien under § 78-51-41 applies to all cases, including divorce actions. The Utah Court of Appeals has recently followed the Hampton result in upholding an attorney’s lien to collect his one-third contingency fee for representing a parent in recovering delinquent child support.7On the other hand, in a non-divorce case, Transamerica Cash Reserves, Inc. v. Dixie Power & Water Co.,8the Utah Supreme Court has held that property already belonging to a client in advance of the litigation may not be subject to an attorney’s lien, as it is not part of the “proceeds” of the litigation.
¶ 10 If Transamerica is applicable to divorce proceedings, it can be argued in good faith that persons who marry own each other’s property and that, therefore, an award of property pursuant to a divorce decree does not confer a new property interest to which a lien may attach. Conversely, it might also be argued in good faith that such an analysis ignores the very nature of divorce proceedings, where the divorce decree extinguishes pre-existing property interests and replaces them with new property interests to which an attorney’s lien may properly attach.
9
¶ 11 So far as we can tell, the Utah courts have not squarely addressed this question, and this Committee does not have the jurisdiction nor the authority to interpret the applicable statute or the various holdings of the Utah appellate courts on related issues.10
¶ 12 In cases where property is awarded to one or both parties in a family law proceeding, then it is unclear to us as a matter of law whether an attorney may assert a lien under § 78-51-41 against that portion of the property awarded to her own client in the legal proceeding. For example, if the parties to a divorce or common law marriage proceeding were each to be awarded a 50% interest in a parcel of real property, it appears unsettled whether Utah law allows the husband’s lawyer to assert a lien under § 78-51-41 against that 50% of the property awarded to the husband, under whatever terms or conditions and time limits or restrictions govern the husband’s interest in the property. To decide this issue, one must have a judicial interpretation of § 78-51-41. The Committee can locate no such interpretation, and we cannot provide it.
¶ 13 A lawyer does not violate the Utah Rules of Professional Conduct to assert a statutory lien under Utah Code Ann. § 78-51-41 so long as there continues to be a good-faith basis for the assertion under existing law. The Committee believes that, under these circumstances, it would not be proper for the Utah State Bar to bring an action against an attorney on the basis that the attorney was violating the law and, therefore, was in violation of Rule 8.4(b), (c) or (d). The lawyer’s discretion—and, often, her obligation—to advance vigorously on behalf of a client a legal argument that is within the boundary of Rule 3.111should apply as well to the lawyer when seeking to recover fees under Utah Code Ann. § 78-51-41. For the Bar to undertake disciplinary action against a lawyer for doing so in a circumstance where the underlying law is susceptible of a reasonable interpretation different form the Bar’s would deprive the lawyer of the right to represent herself effectively in the recovery of fees.
¶ 14 Other Considerations. Obviously, a lawyer in a family law matter is obligated to abide by other provisions of the Utah Rules of Professional Conduct in establishing and collecting attorneys’ fees pursuant to any lien provision. For example, her fees must be reasonable under Rule 1.5, and the attorney’s lien may be asserted only after a final judgment and decree or order is entered in a divorce case.12
¶ 15 Further, an attorney may not attempt to assert a lien under § 78-51-41 against any portion of property awarded to someone other than her own client in the family law proceeding, as this would violate the lawyer’s obligation to avoid engaging in conduct prejudicial to the administration of justice under Rule 8.4(d) of the Utah Rules of Professional Conduct. Nor may a lawyer assert a lien under § 78-51-41 in a divorce proceeding against any portion of property not awarded to the lawyer’s client, because a lawyer may not assert such a lien where the judgment is against the lawyer’s client.13
¶ 16 Finally, the lawyer should be aware of the written requirement of Rule 1.5(b) (for fees expected to exceed $750 (the basis or rate is to be communicated to the client in writing) and § 78-51-41 (“[a]ny written employment agreement shall contain a statement that the attorney has a lien upon the client’s cause of action or counterclaim”).
¶ 17 Conclusion: First, the invocation of an attorney’s lien under Utah Code Ann. § 78-51-41 does not require the attorney to meet the requirements of Rule 1.8(a) of the Utah Rules of Professional Conduct, which generally governs business transactions between lawyers and their clients. Second, where the Utah courts have not squarely addressed issues concerning the applicability of an attorney’s lien on particular types of property awards in domestic-law cases, this Committee does not have the jurisdiction nor the authority to interpret the applicable statute or the holdings of the Utah appellate courts on related issues. Nevertheless, a lawyer is not subject to discipline if she attempts to assert the statutory attorney’s lien in a domestic-law situation so long as there continues to be a supportable, good-faith legal basis to do so.
Footnotes
1.Utah Rules of Professional Conduct 1.8(j)(1) (2000) (emphasis added).
2.Use of “whosover” appears to be the Utah Code compiler’s error; older versions of this statute uses the term “whosesoever.” Utah Rev. Stat. § 6-0-40 (1933).
3.Utah Code Ann. § 78-51-41 (1996).
4.Arguably, if Rule 1.8(a) were read this narrowly, it could also be read to apply to a fee agreement between an attorney and a client. This reading is not reasonable, as it would require the lawyer to prepare a written fee agreement in every case and to suggest that the client seek advice of independent counsel about it—a reading that is not consistent with Rule 1.5.
5.Note: The statute requires that a “written agreement shall contain a statement that the attorney has a lien upon the client’s cause of action or counterclaim.” Utah Code Ann. § 78-51-41 (1996).
6.39 P.2d 703 (Utah 1935) (interpreting Utah Rev. Stat. § 6-0-40 (1933), which is, in relevant part, identical to the current Utah Code Ann. § 78-51-41).
7.Eastmond v. Earl, 912 P.2d 994 (Utah Ct. App. 1996).
8.789 P.2d 24 (Utah 1990).
9.See Farrey v. Sanderfoot, 500 U.S. 291 (1991) (Wisconsin divorce decree extinguished undivided interests and created new interests in their place.)
10.E.g., Ethics Advisory Opinion Com. R. Proc. § III(b)(3).
11.Meritorious Claims and Contentions.
A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of existing law. A lawyer for the defendant in a criminal proceeding, or the respondent in a proceeding that could result in incarceration, may nevertheless so defend the proceeding as to require that every element of the case be established.
Utah Rules of Professional Conduct 3.1
12.Consensual contractual creation of a lien on marital property prior to entry of a final decree or order raises separate ethical issues that we do not address in this opinion. See, e.g., Maine Ethics Comm’n Op. 97 (May 3, 1989).
13.Flake v. Frandsen, 578 P.2d 516 (Utah 1978).

Ethics Advisory Opinion No. 98-03

(Approved April 17, 1998)
Issue:
May a lawyer hired by an insurance company to defend an insured in a lawsuit submit billing statements to an outside audit service?

Opinion: Before a lawyer may submit billing statements to an outside audit service, the lawyer must have the client’s consent. If the lawyer is relying on an insurance agreement for consent, the lawyer must review the agreement with the client to renew the client’s consent before sending any billing statements to the outside audit service.
Facts: An insurance company hires a lawyer to represent an insured client. The lawyer routinely bills the insurance company for the representation. The lawyer’s billing statements, as required by the insurance company, are detailed and specific as to the services done by the lawyer on behalf of the client. The insurance company requests that the lawyer submit the billing statements directly to an outside audit service.
Analysis: Rules 1.6, 1.7, and 1.8 of the Utah Rules of Professional Conduct govern the relationship among a lawyer, a client, and third party paying for the lawyer’s services on behalf of the client.1Rule 1.8(f) states:
A lawyer shall not accept compensation for representing a client from one other than the client unless:
(1) The client consents after consultation;
(2) There is no interference with the lawyer’s independence of professional judgement or with the client-lawyer relationship; and
(3) Information relating to representation is protected as required by Rule 1.6.
Rule 1.8(f) applies whenever an insurance company pays a lawyer to represent a client.2The client’s consent is usually included in the agreement between the client and the insurance company. However, because Rule 1.8(f) requires that the “client consents after consultation,” the lawyer must consult with the client to make sure that the client understands and renews the consent.
Rule 1.6(a) states: “A lawyer shall not reveal information relating to representation of a client except as stated in paragraph (b), unless the client consents after disclosure.”3A lawyer’s billing statement is “information relating to the representation of a client.” This is especially true where the billing statement is detailed and specific as to the services done by the lawyer on behalf of the client. Therefore, unless one of the exceptions under Rule 1.6(a) applies, the lawyer may not reveal a billing statement to anyone other than the client “unless the client consents after disclosure.”
The client’s consent to release the billing statement to the insurance company is usually included in the agreement between the client and the insurance company. However, because the client must consent “after disclosure,” the lawyer should review the insurance agreement with the client and renew the client’s consent before sending any billing statements to the insurance company.4Whether the lawyer has an attorney-client duty to the insurance company in addition to the insured client is immaterial. Except as Rule 1.6(b) provides, a lawyer may not release information relating to the representation of a client to anyone, even another client, unless the first client consents after disclosure.
Likewise, before a lawyer may release any billing information to an outside audit service, the lawyer must have the client’s consent.5However, if the lawyer relies upon an insurance agreement for consent, the lawyer must review the agreement with the client and renew the client’s consent before sending any billing statements to the audit service.
Even where the lawyer has a consent from the client to release billing statements to an audit service, the lawyer should be careful about what information is included. For example, the lawyer may not want to include information that the client took and failed a lie detector test. The lawyer should make sure that no confidential information revealed by the client is in the billing statement.
Rule 1.6(a) is broader than the attorney-client privilege described in Utah Code Ann. § 78-24-8 and Utah Rules of Evidence 504. The attorney-client privilege protects only information revealed by the client to the lawyer in confidence. The Utah Supreme Court, holding that the attorney-client privilege did not protect a retainer agreement from discovery, noted:
The United States Supreme Court has stated that the purpose of the privilege is to “encourage clients to make full disclosure to their attorneys.” Fisher v. United States, 425 U.S. 391, 403, 96 S. Ct. 1569, 1577, 48 L. Ed. 2d 39 (1976). The Court cautioned, however, that “since the privilege has the effect of withholding relevant information from the factfinder, it applies only where necessary to achieve its purpose. Accordingly it protects only those disclosures—necessary to obtain informed legal advice—which might not have been made absent the privilege.” Id. This court has taken a similar view of the privilege, describing it as “necessary in the interest and administration of justice,” but noting that the privilege should be “strictly construed in accordance with its object.”6
However, Rule 1.6(a) protects all information relating to the representation of a client. The comment to Rule 1.6 notes:
The principle of confidentiality is given effect in two related bodies of law, the attorney-client privilege in the law of evidence and the rule of confidentiality established in professional ethics. The attorney-client privilege applies in judicial and other proceedings in which a lawyer may be called as a witness or otherwise required to produce evidence concerning a client. The rule of client-lawyer confidentiality applies in situations other than those where evidence is sought from lawyer through the compulsion of law. The confidentiality rule applies not merely to matters communicated in confidence by the client but also to all information relating to the representation, whatever the source. A lawyer may not disclose such information except as authorized or required by the Rules of Professional Conduct or other law.
Thus, a Utah case ordering the release of a retainer agreement in a discovery dispute does not allow a lawyer to send billing statements to an insurance company or an outside audit service without the client’s consent.
Conclusion: A lawyer may submit billing statements to an insurance carrier’s outside auditors only with the informed consent of the client.
Footnotes
1.Person Paying for Lawyer’s Services. Rule 1.8(f) requires disclosure of the fact that the lawyer’s services are being paid for by a third party. Such an arrangement must also conform to the requirements of Rule 1.6 concerning confidentiality and Rule 1.7 concerning conflict of interest.
Utah Rules of Professional Conduct 1.8, cmt.
2.Interest of Person Paying for Lawyer’s Service. A lawyer may be paid from a source other than the client if the client is informed of that fact and consents and the arrangement does not compromise the lawyer’s duty of loyalty to the client. See Rule 1.8(f). For example, when an insurer and its insured have conflicting interests in a matter arising from a liability insurance agreement and the insurer is required to provide separate counsel for the insured, the arrangement should assure the separate counsel’s professional independence.
Utah Rules of Professional Conduct 1.7, cmt.
3.None of the exceptions in paragraph (b) apply.
4.This does not require a separate, affirmative assent for each occasion—only that there be direct confirmation in connection with the particular case or incident.
5.See S. Car. Bar Assoc., Ethics Op. 97-22, “Upon receipt of informed consent from the insurer as well as the insured, a lawyer would not be ethically prohibited from submitting his bill directly to a third-party auditing firm, unless the lawyer believes that doing so would substantially affect the representation.”
6.Gold Standard, Inc. v. American Barrick Resources Corp., 801 P.2d 909.

Ethics Advisory Opinion No. 98-13

(Approved December 4, 1998)
Issue:
What are the ethical obligations and considerations that govern a law firm’s acceptance of a financial interest such as stock in a client company in return for performing legal services for that company?

Opinion: A law firm’s acquisition of a financial interest such as stock ownership in a client, whether the investment is made directly by the law firm or through a blind trust, holding company, investment partnership or other investment vehicle, and whether the interest is acquired in exchange for legal services or whether the client’s primary attorney is involved in investment decisions concerning the client’s stock, is not per se unethical. However, in all such arrangements, counsel must comply with the requirements of Rules 1.5, 1.7(b) and 1.8(a) of the Utah Rules of Professional Conduct.

Factual background:
It is reportedly common for a law firm for example, those representing high-tech, start-up companies in California to acquire financial interests in its clients in connection with legal services rendered to those firms. This may take the form of the client company’s payment of common stock to a law firm for its legal services. Payment arrangements might also be structured as formal purchases of the client company’s stock by the law firm, with an agreement that the cash paid for the purchase price be used by the company to pay legal fees charged by the law firm as services are rendered over time.
There are other variations on this general approach, including the use of mechanisms such as blind trusts, investment partnerships and other vehicles that operate in such a way that the client’s primary attorney is not involved in the firm’s decision on whether to invest in a client.
Analysis: Utah Rules of Professional Conduct 1.5 provides that a lawyer shall not enter into an agreement for, charge or collect an illegal or clearly excessive fee. A fee is clearly excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee.
This Committee has previously issued Opinion 97-05,1in which it reached the conclusion that accepting payment for legal services in a form other than money is not per se unethical. Nothing in the rules requires that payment be in money. The fundamental requirement is that the fee be reasonable.
We reach the same conclusion with regard to the application of Rule 1.5 to the present question. However, in addition to the factors specifically listed in Rule 1.5 that must be considered to determine the reasonableness of the fee,2the Committee believes that other factors should be considered by the lawyer in determining whether a fee in the form of equity ownership of a client is reasonable. These other factors include: (a) the liquidity of the client’s stock, including whether the client’s stock trades publicly at the time of the fee agreement and, if the stock is not publicly traded, the risk that the client’s stock will not be publicly traded in the future; (b) the present and anticipated value of the client’s stock, including the risks that a proposed patent or trademark may not be granted, that necessary government approvals (such as FDA approvals) may not be received; (c) whether the stock is subject to restrictions after the law firm receives it, and which affect the value of the stock to the lawyer; (d) the quantity of stock owned by the lawyer and whether the lawyer may exercise voting control over the client after receipt of the stock; and (e) any restrictions placed by the lawyer on the consideration paid for the stock.
Certainly, the analysis of whether the fee is reasonable will be more easily made when the client is a corporation whose stock is publicly traded, because the value of the consideration paid by the client can be readily determined. However, it is likely that most instances where the law firm takes the client’s stock in payment of fees will occur with corporations whose stock is not publicly traded. In these instances, determining the value of the consideration paid by the client for the legal fees will be more difficult.
The lawyer and his firm should take steps to avoid confusion about whether the firm is acting as an independent legal advisor or as a business partner. Of course, the law firm must abide by any applicable securities regulations and requirements. In addition, the law firm should consider whether the client should be advised to seek independent counsel concerning the terms of the proposed arrangement for the payment of legal fees to the firm.
It is also true that a simple trade of stock for legal services is more easily assessed for reasonableness than is a purchase of stock with a restriction that the client purchase an equivalent value of legal services. In the latter case, the lawyer receives both the stock and payment for legal services.
The law firm must also take care that any such arrangement does not run afoul of Rule 1.7(b), which provides in pertinent part: “A lawyer shall not represent a client if the representation of that client may be materially limited . . . by the lawyer’s own interest, unless: (1) The lawyer reasonably believes the representation will not be adversely affected; and (2) Each client consents after consultation.”
A lawyer holding stock in a client may be asked to advise the client on matters that may affect the value of the lawyer’s own stock. The official comment to Rule 1.7(b) advises a cautious approach under such circumstances:
Loyalty to a client is also impaired when a lawyer cannot consider, recommend or carry out an appropriate course of action for the client because of the lawyer’s other responsibilities or interests. The conflict in effect forecloses alternatives that would otherwise be available to the client. Paragraph (b) addresses such situations. A possible conflict does not itself preclude the representation. The critical questions are the likelihood that a conflict will eventuate and, if it does, whether it will materially interfere with the lawyer’s independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client. Consideration should be give to whether the client wishes to accommodate the other interest involved.
If the lawyer’s representation of a corporate client may be materially limited by the lawyer’s interest as a shareholder of the client, the lawyer must not undertake the representation or provide legal advice, unless the lawyer reasonably believes the representation or advice will not be adversely affected, and the client consents after a full disclosure to the client of the possibly adverse consequences of the lawyer’s ownership of the client’s stock. The lawyer should consider whether stock ownership would disqualify the lawyer from representing the client in any existing matters.
Whether the law firm accepts stock in payment of legal fees or actually buys stock in the client, with the funds paid to the client for the purchase earmarked for the payment of legal fees to the client, the law firm must also comply with Rule 1.8(a), which provides:
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 to the client in a manner which can be reasonably understood by the client; and
2. The client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and
3. The client consents in writing thereto.
The Comment to Rule 1.8 states that “Paragraph (a) does not, however, 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 utility services.”
It could be argued that the acquisition of a client’s stock for cash, or in exchange for legal services valued at the customary and reasonable hourly rates of the lawyer, for the stock price the client generally sells the stock to others is a “standard commercial transaction” not requiring compliance with Rule 1.8(a). However, the Committee believes that Rule 1.8(a) was intended to apply to any transaction with a client in which the lawyer acquires an ownership interest in the client.
Rule 1.8(a) requires that: the transaction be fair and reasonable to the client; the terms of the transaction be fully discussed with the client and transmitted in writing to the client in understandable terms; the client be given a reasonable opportunity to obtain the advice of independent counsel in the transaction; and the client consent to the transaction in writing.
The Committee believes that the same factors discussed above with regard to Rule 1.5 would also apply in determining whether the law firm’s purchase of stock in a client comports with the requirement of Rule 1.8(a) that the terms of the transaction be reasonable and fair.
While owning the stock in a blind trust, holding company, investment partnership or other investment vehicle results in the law firm’s being one step removed from its client, the same analysis must be applied under Rules 1.5, 1.7(b) and 1.8(a). The fee charged must still be reasonable. The lawyer must reasonably believe that the representation of the client will not be adversely affected by the firm’s stock ownership through an investment vehicle, and the client must consent after consultation to the representation. A transaction under which the firm obtains ownership in the client through the firm’s investment vehicle must still be fair and reasonable to the client; the client must be given a reasonable opportunity to seek the advice of independent counsel in the transaction; and the client must consent in writing to the transaction. Furthermore, whether the client’s primary attorney is involved in the investment decision and whether the funds paid for the stock are earmarked for payment of the firm’s fees, while factors in any Rule 1.5, 1.7 and 1.8 analysis, will not be determinative of whether the fee is reasonable, whether there is an impermissible conflict, or whether the transaction between the law firm and client is fair and reasonable to the client.
In other words, the law firm must comply with Rules 1.5, 1.7(b) and 1.8(a), regardless of whether the firm owns the stock outright or through an investment vehicle, whether the client’s primary attorney is involved in the law firm’s investment decision, or whether the firm receives stock directly in payment of fees or buys the stock with the purchase funds earmarked for payment of fees.
Footnotes
1.Utah Ethics Advisory Op. No. 97-05, 1997 WL 223851 (Utah State Bar).
2.
(1) The time and labor required, the novelty and difficulty of the questions involved and the skill requisite to perform the legal service properly; (2) The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (3) The fee customarily charged in the locality for similar legal services; (4) The amount involved and the results obtained; (5) The time limitations imposed by the client or by the circumstances; (6) The nature and length of the professional relationship with the client; (7) The experience, reputation and ability of the lawyer or lawyers performing the services; and (8) Whether the fee is fixed or contingent.
Utah Rules of Professional Conduct 1.5(a).