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. 06-02

June 2, 2006
Issue:
Is an unexecuted trust or will or an unfiled extraordinary writ prepared by a lawyer for a client part of the “client’s file” within the meaning of Rule 1.16 which must be delivered to the client at the termination of the representation.

Opinion: An unexecuted legal instrument such as a trust or will, or an unfiled pleading, such as an extraordinary writ, is not part of the “client’s file” within the meaning of Rule 1.16(d). The lawyer is not required by Rule 1.16 to deliver these documents to the client at the termination of the representation.
Facts: An attorney accepted a fixed fee engagement to prepare for a client a trust, a will and a petition for extraordinary writ. The lawyer sent a retainer agreement to the client reflecting the fixed fee engagement, but the client did not sign the retainer agreement. The lawyer prepared the trust, will and petition for extraordinary writ, but the client refused to pay the lawyer for the services, and the client terminated the attorney-client relationship. The client is now demanding that the lawyer deliver to the client as part of the “client’s file” the unexecuted trust and will, and the unfiled extraordinary writ.
Analysis: Rule 1.16(d) of the Utah Rules of Professional Conduct differs from the ABA Model Rule 1.16(d) in that the Model Rule permits the lawyer to retain the “client’s file” following the termination of the attorney-client relationship if state law affords the lawyer a retaining lien against the client’s file for purposes of securing the lawyer’s fee. Model Rule 1.16(d) states: “The lawyer may retain papers relating to the client to the extent permitted by other laws.”
Utah Rule 1.16(d) was amended to delete from Rule 1.16(d) the right of the lawyer to assert a retaining lien against the “client’s file”. Utah Rule 1.16(d) states: “The lawyer must provide, upon request, the client’s file to the client. The lawyer may reproduce and retain copies of the client file at the lawyer’s expense.”
Comment 9 to Rule 1.16(d) explains the amendment to Utah Rule 1.16(d) as follows: “The Utah Rule differs from the ABA Model Rule in requiring that papers and property considered to be part of the client’s file be returned to the client notwithstanding any other laws or fees or expenses owing to the lawyer.”
The amendment of Utah Rule 1.16(d) followed the Utah Supreme Court’s decision in Jones Waldo Holbrook & McDonough v. Dawson, 923 P.2d 1366 (Utah 1996). In Dawson the plaintiff law firm sued its client for payment of its attorney’s fees. In a “postscript” to its decision, the Utah Supreme Court stated that it disapproved of the plaintiff law firm’s assertion of a retaining lien in the defendant’s file during on-going litigation following the termination of the attorney-client relationship. Although the Court affirmed in part a judgment in favor of the plaintiff law firm for unpaid fees and costs, the Court stated that the plaintiff law firm had failed to “take steps to the extent reasonably practicible to protect the client’s interest, such as surrendering papers and property to which the client is entitled (quoting from Rule 1.16(d))” when the law firm refused to surrender to defendant her file during the course of on-going litigation. 1
It is noteworthy that the plaintiff law firm’s conduct in Dawson was consistent with Ethics Advisory Opinion Committee Opinion No. 91 (May 17, 1989). This Opinion concluded that the use of the common law attorney’s retaining lien recognized by the Utah Supreme Court in several cases was not per se improper under Rule 1.14 (currently, Rule 1.16). Relying on decisions of the Utah Supreme Court, Opinion No. 91 permitted use of a retaining lien even in the course of on-going litigation if (i) the lawyer was wrongfully discharged or withdrew for good cause; and (ii) during the representation, the lawyer represented the client with reasonable diligence.
In adopting Opinion No. 91, the Board of Bar Commissioners recommended a Petition for Amendment of Rule 1.14 (currently Rule 1.16) be filed with the Utah Supreme Court “to clarify the attorney’s duty to the client in returned documents and papers upon termination of representation”.
With Utah’s amended Rule 1.16(d), it is clear that if the unexecuted trust and will or the unfiled petition for extraordinary writ are part of the “client’s file”, then the lawyer is required by Rule 1.16(d) to turn over to the client the trust, will and petition for extraordinary writ upon the termination of the representation, regardless of whether the lawyer has been wrongfully discharged and regardless of whether the lawyer has been paid for these services. It is therefore critical to determine what is the “client’s file” within the meaning of Rule 1.16(d).
Comment 9 of Rule 1.16 states: “It is impossible to set forth one all encompassing definition of what constitutes the client’s file. However, the client file generally would include the following: all papers and property the client provides to the lawyer; litigation material such as pleadings, motions, discovery, and legal memoranda; all correspondence; depositions; expert opinions; business records; exhibits or potential evidence; and witness statements. The client file generally would not include the following: the lawyer’s work product such as recorded mental impressions; research notes; legal theories; internal memoranda; and unfiled pleadings.”
Of significance to the issue before the Committee is the statement in Comment 9 to Rule 1.16 that the client file would not include the attorney’s work product and would not include unfiled pleadings. This would exclude the unfiled petition for extraordinary writ from the “client’s file” within the meaning of Rule 1.16(d). We interpret Comment 9 to also exclude from the “client’s file” unsigned legal instruments such as agreements, trusts and wills. Unsigned legal instruments such as agreements, trusts and wills are the transactional lawyer’s equivalent of the litigation lawyer’s unfiled pleadings. 2 This interpretation is not at odds with the Rule 1.16(d) requirement that upon the termination of representation the lawyer takes steps “to the extent reasonably practicible to protect the client’s interest”. Unlike the pleadings and correspondence files withheld from the client in Dawson during on-going litigation, depriving the client of unexecuted legal instruments (such as agreements, trusts and wills) will not normally prejudice the client’s interests. The same is true of withholding from the client unfiled legal pleadings. The client is entitled to the client’s own papers and property and the “client’s file”, and the client may deliver these to new counsel for the purpose of preparing the legal instruments and the legal pleadings in accordance with the instructions of the client.
Our interpretation of Comment 9 also is consistent with public policy on two fronts: (i) lawyers should not be exposed to liabilities arising from a requirement that the lawyer deliver to the client upon termination of the representation legal instruments that are neither executed nor filed as such instruments may be incomplete drafts or unchecked final documents not appropriate for execution or filing by the client or the client’s new counsel; and (ii) the Utah Rules of Professional Conduct should not be interpreted in a manner to encourage and facilitate unscrupulous clients in defrauding lawyers by requesting the preparation of legal instruments, then terminating the attorney-client relationship after the legal instruments are prepared, for the purpose of obtaining the lawyer’s services without payment.
Footnotes
1 Jones Waldo Holbrook & McDonough v. Dawson, 923 P.2d 1366, 1376 (Utah 1996).
2 The punctuation of Comment 9 quoted above is interpreted by the Committee to exclude from the client file unfiled pleadings, whether or not they constitute lawyer’s “work product”. The Committee interprets the Comment to include as lawyer’s “work product” documents containing the lawyer’s recorded mental impressions. Unexecuted legal instruments and unfiled legal pleadings are often incomplete or non-final drafts. As such, these documents contain the lawyer’s mental impressions (not the lawyer’s finalized legal services), and constitute the lawyer’s “work product”.

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. 06-04

Issued December 8, 2006
1. Issue
: May a current or former client’s access to information in his client file in a criminal matter be restricted by his attorney?

2. Opinion: Absent prosecutorial or court-ordered restrictions, a former client’s access to his client file may not be restricted. In limited circumstances, a lawyer may delay transmission of certain information in a current client’s file.
3. Facts: In the course of representation, a public defender may develop client files that contain crime-scene photos, autopsy photos, victim body photos (such as in criminal or physical-abuse cases), third-party medical reports, victim-identification information (social security numbers, addresses and telephone numbers), psychological and psychosexual evaluations and reports regarding the client and others. Some of these documents in the client file may have been obtained through discovery or be subject to court-ordered or other prosecutorial restrictions on dissemination to the client. Not infrequently, current and former clients in criminal matters request all or portions of their files that may contain restricted materials.
Analysis:
A. As to Current Clients.
4. Rule 1.4 sets out the general rule:
(a) A lawyer shall:
(1) promptly inform the client of any decision or circumstance with respect to which the client’s informed consent, as defined in Rule 1.0(e), is required by these Rules;
(2) reasonably consult with the client about the means by which the client’s objectives are to be accomplished;
(3) keep the client reasonably informed about the status of the matter;
(4) promptly comply with reasonable requests for information; and
(5) consult with the client about any relevant limitation on the lawyer’s conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law.
(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.1
5. The obligation of a lawyer to keep the client “reasonably informed” and “promptly comply with reasonable requests for information” contained in Rules 1.4(a)(3), and (a)(4), implies that the lawyer may, under some circumstances, withhold information from a client whose request may be viewed as “unreasonable.” This is supported in comment [7] to Rule 1.4:
Withholding Information
[7] In some circumstances, a lawyer may be justified in delaying transmission of information when the client would be likely to react imprudently to an immediate communication. Thus, a lawyer might withhold a psychiatric diagnosis of a client when the examining psychiatrist indicates that disclosure would harm the client. A lawyer may not withhold information to serve the lawyer’s own interest or convenience or the interests or convenience of another person. Rules or court orders governing litigation may provide that information supplied to a lawyer may not be disclosed to the client. Rule 3.4(c) directs compliance with such rules or orders.2
Comment [7] makes clear that rules and court orders restricting disclosure of information that may become part of the client file cannot be disclosed to the client.
6. There are several rules and statutes that permit or impose dissemination restrictions on sensitive materials. Rule 16(e) of the Utah Rules of Criminal Procedure allows limits to be imposed on the use of information provided through discovery. Rule 16(f) further provides for the entry of court orders limiting dissemination of sensitive discovery.3 Information obtained from a governmental entity may be subject to court orders restricting dissemination under the Governmental Records Access and Management Act.4
7. Discovery that has been provided with restrictions on dissemination to a client in a criminal law case under Rule 16(e) or is subject to a court order limiting its release to the client may not be released to the client by the client’s lawyer, notwithstanding a specific request by the client or former client. It should be noted, however, that material in the client file that may have been submitted by third parties to defense counsel under restrictions imposed by law on the third party, but not defense counsel, may be subject to release to the client on request.5
8. If the client file contains information that is not subject to restrictions, comment [7] to Rule 1.4 gives the lawyer limited ability to withhold information in the client file on her own determination.6 Comment [7] makes explicit what has been left implicit in Rule 1.4—that a lawyer under some circumstances may delay transmission of information to a current client to which he “would be likely to react imprudently.” This phrase is remarkably broad, particularly in this instance where the text of the rule contains no explicit exception in this regard. The term “imprudently” is not defined in the comment or the Rules. However, the example provided in the comment [7] gives context for interpreting the scope of this implicit duty to a client. The example approves a lawyer’s withholding a report of a client’s psychiatric diagnosis when the examining psychiatrist indicates that disclosure would harm the client. The example is representative of the level of certainty that the lawyer needs to reach before invoking this exception on behalf of a current client.
9. In cases where it is clear that the client may be harmed by an immediate disclosure or, in other cases where the client might take reasonably anticipated “imprudent” action that would harm his interest or freedom, delayed communication of information may be justified.
10. The phrase “react imprudently” is limited further by comment [7], which provides that a lawyer cannot withhold information to serve his or another person’s interest or convenience. Based on the example in comment [7], we believe the lawyer is not justified in withholding information to spare a client from unpleasantness or shock or to serve a third party’s interest where a client makes a request for such material.7
11. Hazard and Hodes argue for a narrow reading of the comment:
The final paragraph of the comment to Model Rule 1.4 contains a statement respecting communication that might be misunderstood and perhaps would have been better left unsaid. Comment [7] permits a delay in communicating information if the client might “react imprudently to an immediate communication.” The examples given (of disturbing psychiatric diagnosis or of information embargoed by court order) are unusual, and the Comment must be understood to be limited to similarly unusual situations. In particular, the Comment should not be interpreted to mean that a lawyer may withhold information simply because he fears the client will make an “imprudent” decision about the subject of the representation, such as accepting an inadequate settlement offer. See Illustration 7 3. Such conduct would be paternalistic, and would fly in the face of Rule 1.2(a) which requires the lawyer to abide by the client’s decision as to settlement.8
12. Given that there is no explicit exception in Rule 1.4 and understanding that the comment to Rule 1.4 is not “authoritative,” a lawyer needs to proceed cautiously in this area with the perceived harm to the client being clearly identified and reasonably certain.
13. If a lawyer determines to withhold information from a current client, it is incumbent on the lawyer to make a full disclosure to the client of the materials withheld, the basis for withholding the information and the harm avoided or client interest being protected or advanced. If a client disagrees with the lawyer’s judgment, the client can consult further with the lawyer or other professionals or terminate the representation and request the full client file in the possession of the lawyer.
14. Rule 1.14, Client with Diminished Capacity, also may apply to restrict dissemination of information in the client file. The lawyer under this rule is charged to take “reasonably necessary protective action.” Comment [6] to Rule 1.4 acknowledges this possibility:
Ordinarily, the information to be provided is that appropriate for a client who is a comprehending and responsible adult. However, fully informing the client according to this standard may be impracticable, for example, where the client is a child or suffers from diminished capacity. See Rule 1.14. When the client is an organization or group, it is often impossible or inappropriate to inform every one of its members about its legal affairs; ordinarily, the lawyer should address communications to the appropriate officials of the organization. See Rule 1.13. Where many routine matters are involved, a system of limited or occasional reporting may be arranged with the client.
15. The presumption under Rule 1.4 is that all information in a client file is the client’s unless restricted by a statute, discovery rule or court order, and, however unpleasant the information, unless the anticipated harm to the client is reasonably certain, the client is entitled to receive the information in his client file. This is not to say that the lawyer is required to copy and forward to a client all reports and information in his file without request, if the information is not necessary to the representation. However, if the client requests a full copy of the file or certain reports or information, unless otherwise restricted, it must be provided to the client, unless exceptional circumstances apply.
16. The Restatement of the Law Governing Lawyers provides:
On request, a lawyer must allow a client or former client to inspect and copy any document possessed by the lawyer relating to their representation unless substantial grounds exist to refuse.
Unless a client or former client consents to non delivery or substantial grounds exist for refusing to make delivery, a lawyer must deliver to the client or former client, at an appropriate time and in any event promptly after the representation ends, such originals and copies of other documents possessed by the lawyer relating to the representation as the client or former reasonably needs.10
17. Comment c of § 46 of the Restatement provides, in part:
Under conditions of extreme necessity, a lawyer may properly refuse for a client’s own benefit to disclose documents to the client unless a tribunal has required disclosure. Thus, a lawyer who reasonably concludes that showing a psychiatric report to a mentally ill client is likely to cause serious harm, may deny the client access to the report (see § 20, Comments c and d; and § 24, Comment c). Ordinarily, however, what will be useful to the client is for the client to decide.11
We believe that this commentary is consistent with the Utah Rules of Professional Conduct and accordingly adopt its conclusion.
B. As to Former Clients.
18. Rule 1.16(d), Declining or Terminating Representation, provides, in part: “The lawyer must provide, upon request, the client’s file to the client.” Comment [9] to Rule 1.16 states:
Upon termination of representation, a lawyer shall provide, upon request, the client’s file to the client notwithstanding any other law, including attorney lien laws. It is impossible to set forth one all-encompassing definition of what constitutes the client file. However, the client file generally would include the following: all papers and property the client provides to the lawyer, litigation materials such as pleadings, motions, discovery, and legal memoranda; all correspondence; depositions; expert opinions, business records; exhibits or potential evidence; and witness statements. The client file generally would not include the following: the lawyer’s work product such as recorded mental impressions; research notes; legal theories; internal memoranda; and unfiled pleadings.
19. A former client’s right to material that constitutes the client file is almost always unrestricted, notwithstanding a concern over a client’s reaction to or subsequent use of expert’s evaluations or reports, discovery, correspondence, crime scene photos and other papers. However, information or material received by the client’s lawyer that is restricted by statute, court rule or court order is not a part of the “client file” that the client or former client has a right to receive.
C. An Exception.
20. An exception to unrestricted access that applies to both current and former clients making requests for information in their client file is found in Rule 1.2(d):
A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any professional conduct with the client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.
If the lawyer knows that material in a client file will be used in conduct that is criminal or fraudulent, she may decline to assist the client by withholding the material, but she must so inform the client of her belief and reasons for withholding information in the client file that the client would otherwise have unrestricted right to receive. The unrestricted right of a former client to his client file was confirmed in our recent Opinion No. 06 02. 12 Other jurisdictions have reached similar conclusions.13
Conclusion:
21. Other than material subject to restrictions imposed pursuant to Rule 16 of the Utah Rules of Criminal Procedure, court order or by a statute 14 (which do not become part of the “client file”), the client or former client, if competent and not engaging in fraudulent or criminal conduct, has a right to all material in the client file under Rule 1.16 and our Opinion No. 06 02. However, in the exceptional circumstance where harm to a current client is reasonably certain if the information is given to the client, delayed transmission of information under Rule 1.4 may be justified to protect the client. For either current or former clients, material that is part of the client file may be withheld to prevent fraudulent or criminal conduct.
Footnotes
1. Utah R. Prof. Conduct 1.4 (2006). Subsequent references to the Rules are to the Utah Rules of Professional Conduct, effective November 1, 2006.
2. Id., cmt. [7] (emphasis added). Rule 3.4(c) provides that a lawyer shall not “knowingly disobey an obligation under the rules of a tribunal, except for an open refusal based on an assertion that no valid obligation exists.”
3. Rules 16(e), (f) and (g) of the Utah Rules of Criminal Procedure provide:
(e) When convenience reasonably requires, the prosecutor or defense may make disclosure by notifying the opposing party that material and information may be inspected, tested or copied at specified reasonable times and places. The prosecutor or defense may impose reasonable limitations on the further dissemination of sensitive information or to protect victims and witnesses from harassment, abuse or undue invasion of privacy, including limitations on the further dissemination of videotaped interviews, photographs, or psychological or medical reports.
(f) Upon a sufficient showing the court may at any time order that discovery or inspection be denied, restricted, or deferred, that limitations on the further dissemination of discovery be modified or make such other order as is appropriate. Upon motion by a party, the court may permit the party to make such showing in whole or in part, in the form of a written statement to be inspected by the judge alone. If the court enters an order granting relief following such an ex parte showing, the entire text of the party’s statement shall be sealed and preserved in the records of the court to be made available to the appellate court in the event of an appeal.
(g) If at any time during the course of the proceedings it is brought to the attention of the court that a party has failed to comply with this rule, the court may order such party to permit the discovery or inspection, grant a continuance, or prohibit the party from introducing evidence not disclosed or it may enter such other order as it deems just under the circumstances.
4. Utah Code Ann. §§ 63 2 202, -206 (2006).
5. See, e.g., S. Car. Ethics Op 98 10, http://www.scbar.org/member/opinion.asp?opinionID= 499 (client mental health records delivered by physician marked “not to be shown to the patient” and held by the lawyer to be turned over to client upon his request after representation ends, notwithstanding that, under an applicable state statute, a physician can withhold from a patient a patient’s medical information).
6. Although comments to the Rules of Professional Conduct are not authoritative, they provide guidance in applying our Rules: “The comment accompanying each rule explains and illustrates the meaning and purpose of the rule. The Preamble and this note on Scope provide general orientation. The comments are intended as guides to interpretation, but the text of each rule is authoritative.” Utah R. Prof. Conduct, Preamble [21].
7. At least one state has modified comment [7] to Rule 1.4 to foreclose the possibility of any broad reading that would erode the mandate of Rule 1.4. North Dakota has adopted the following comment to Rule 1.4 as it applies to withholding information:
When a lawyer reasonably believes the disclosure of certain information to a client would have a high probability of resulting in substantial harm to a client or others, the lawyer may withhold or delay the transmission of the information, but only to the extent reasonably necessary to avoid the harm. For example, a lawyer might withhold a psychiatric diagnosis of a client when the examining psychiatrist indicates that disclosure would harm the client. A lawyer may not withhold or delay the transmission of information to serve the lawyer’s own interest or convenience. Rules or court orders governing litigation may provide that information supplied to a lawyer may not be disclosed to the client. Rule 3.4(c) directs compliance with such rules or orders.
N. Dak. R. Prof. Conduct 1.4, cmt. [4].
8. GEOFFREY C. HAZARD, JR. & W. WILLIAM HODES, THE LAW OF LAWYERING § 7.4, at 7-8 to 7-9 (3d ed. 2001).
9. The “client file” does not necessarily refer to all information that is in the physical file the lawyer maintains and develops for the client. It does not include, for example, lawyer work product or unfiled pleadings. Rule 1.16, cmt. [9].
10. RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS §§ 46(2) & 46(3) (2000).
11. Id. cmt. c.
12. Utah Ethics Adv. Op. 06-02, 2006 WL 7134886 (Utah St. Bar).
13. See S.Car. Ethics Op. 98-10, n.3.
14. E.g., Utah Government Records Access and Management Act, Utah Code Ann. §§ 63-2-101 et seq. (2006).

Ethics Advisory Opinion No. 06-05

Issued December 30, 2006
1 Issue:
Do the Utah Rules of Professional Conduct1 preclude a lawyer from participating in an ad hoc legal advisory group to a private, nonprofit, public interest legal organization, if the persons served by the legal services organization have interests adverse to the interests of a client of the lawyer or the lawyer’s law firm?

2 Conclusion: Generally, no. Rule 6.3, with respect to legal services organizations, and Rule 6.4, with respect to organizations involved in the reform of law or its administration, provide that service as an officer or director of such organizations or membership in such organizations does not by itself create an attorney-client relationship with the organization or the organization’s clients. These rules do require that a lawyer be observant of the lawyer’s duties under Rule 1.7 to the lawyer’s clients and to the clients of the lawyer’s firm. Rule 6.3 requires that the lawyer not knowingly participate in a decision of the organization that are incompatible with the lawyer’s obligations under Rule 1.7 or that could have a material adverse effect on the representation of a client of the organization whose interests are adverse to a client of the lawyer or on the representation of a client of the lawyer or the lawyer’s firm. Rule 6.4 requires that when the lawyer knows a client of the lawyer may be materially benefited by a decision of the law reform organization, that the lawyer-member disclose this fact to the organization. Under some circumstances, a lawyer’s participation on an ad hoc litigation advisory group may create an attorney-client relationship with the organization or the organization’s clients requiring the lawyer to comply with Rules 1.6, 1.7 and 1.9 before representing or continuing to represent clients adverse to the interests of the organization or the organization’s clients in such matters.
3 Background: The legal services entity requesting this opinion defines itself as a private, nonprofit, public interest organization. The organization’s mission is to enforce and strengthen laws that protect the opportunities, choices and legal rights of certain disadvantaged people in Utah. The organization provides free legal services to such individuals.
4 In an effort to improve services and provide the best legal representation possible, the organization’s board of trustees proposes to establish an ad hoc litigation advisory group consisting of experienced and knowledgeable private attorneys. This advisory group of pro bono attorneys would be called upon from time to time to answer questions and provide advice on various issues that arise as the organization represents various clients. The organization anticipates most questions would be procedural in nature or would involve general litigation strategy issues.
5 In the process of establishing the litigation advisory group, questions have arisen about possible conflicts between the interests of clients of advisory group members or their law firms and the organization and/or the organization’s clients. Specifically, the organization has asked whether Rules 6.3 or 6.4 of the Utah Rules of Professional Conduct apply to members of a litigation advisory group, and if so, under what circumstances the lawyer-members who represent clients or whose law firms represent clients with interests adverse to the organization’s clients could nonetheless serve on the advisory group.
6 Analysis: The most relevant rules at issue are Rule 6.3 and Rule 6.4. Rule 6.3 provides:
A lawyer may serve as a director, officer or member of a legal services organization, apart from the law firm in which the lawyer practices, notwithstanding that the organization serves persons having interests adverse to a client of the lawyer. The lawyer shall not knowingly participate in a decision or action of the organization:
(a) If participation in the decision would be incompatible with the lawyer’s obligations to a client under Rule 1.7; or
(b) Where the decision could have a material adverse effect on the representation of a client of the organization whose interests are adverse to a client of the lawyer or on the representation of a client of the lawyer or the lawyer’s firm.
Rule 6.4 provides:
A lawyer may serve as a director, officer or member of an organization involved in reform of the law or its administration notwithstanding that the reform may affect the interests of a client of the lawyer. When the lawyer knows that the interests of a client may be materially benefited by a decision in which the lawyer participates, the lawyer shall disclose that fact but need not identify the client.
7 The term “legal services organization” in Rule 6.3 is undefined. Rule 7.5(a) is the only other rule to use the phrase “legal services organization,” and the word “charitable” is added in that rule as a preceding adjective. From this choice of language, we conclude that a “legal services organization” may include entities other than pro bono organizations, but it certainly includes the organization requesting this opinion and similar organizations that provide legal services for indigents.2
8 The phrase “organization involved in reform of the law or its administration” in Rule 6.4, like the phrase “legal services organization” in Rule 6.3, is not defined. Yet, the ABA annotations to both rules make it clear that the entities the rules cover include those that participate in activities for improving the law, the legal system or the legal profession. “What Rule 6.3 does for lawyers serving on boards of legal services organizations, Rule 6.4 does for lawyers serving on the board of ‘law reform organizations’.”3
9 Both Rules 6.3 and 6.4 use the phrase “director, officer or member” to describe those participating lawyers expressly covered under the rule. The official comments to these rules are similarly focused on “lawyers serving on boards.” Because the terms “director, officer or member” and “board” are not defined, the question arises whether a member of a litigation advisory group, such as that described by the legal services organization requesting this opinion, falls within the ambit of the rules’ protection for directors, officers or members. From the ABA annotation and commentary on each rule, we conclude that, consistent with the intent of both rules, litigation advisory group members have the same status as a “director, officer or member.”
10 For example, comment [1] of Rule 6.3 states that, “Lawyers should be encouraged to support and participate in legal service organizations.”4 The ABA annotations to the Rules further stress that the Rules should be construed “to promote this kind of service.”5 Encouragement of lawyer participation would be undermined if the protections afforded lawyers serving on boards or afforded to officers and members were not likewise inclusive of members of advisory groups, including litigation advisory groups.
11 Rule 6.3 contemplates that the legal services organizations to which it pertains serve persons whose interests may be adverse to the interests of clients served by the lawyer-member or the lawyer-member’s law firm. The rule and its comments make clear that the lawyer’s membership in the organization or service as an officer or director of the organization does not itself create an attorney-client relationship between the lawyer and the organization or between the lawyer and those persons served by the organization. To encourage lawyer participation in legal services organizations, the rule limits the circumstances under which such participation will disqualify a lawyer or the lawyer’s firm from representation of clients with interests adverse to the interests of the organization or adverse to the interests of the persons served by the organization.6
12 Rule 6.3 provides, however, that a lawyer may not knowingly participate in a decision or action of the organization (a) if such participation “would be incompatible with the lawyer’s obligations to a client under Rule 1.7,” or (b) if the decision would have a material adverse affect (i) “on the representation of a client of the organization whose interests are adverse to a client of the lawyer” or (ii) the representation of a client of the lawyer.7 Rule 6.3 teaches that a lawyer-member of a legal services organization may avoid the potential conflicts of interest that may arise from these circumstances by not participating in such decisions or actions.
13 The words “participate in an action or decision” as used in Rule 6.3 are also undefined, but, in context, we conclude that they mean the lawyer cannot knowingly discuss, recommend, advocate or vote upon any matter that conflicts with the lawyer’s duty of loyalty under Rule 1.7 or duty of confidentiality under Rule 1.6 to the clients of the lawyer and the lawyer’s firm. Rule 6.3(a) uses the words “would be incompatible.” Rule 6.3(b) uses the words “could have a material adverse effect.” The rule thus applies to potential conflicts of interest as well as actual conflicts. Therefore, when the lawyer knows that an actual or potential conflict exists between the interests of the organization or the organization’s clients and the interests of the clients of the lawyer or the lawyer’s firm, the litigation advisory group member should recuse himself from any discussion of the matter.8
14 Legal services organizations and the person served by legal services organizations frequently engage legal counsel. Such legal counsel may also be members, officers or directors of the organization. Rule 6.3 does not preclude the formation of an attorney-client relationship between such a lawyer and the organization or between such a lawyer and the organization’s clients. In these circumstances, the lawyer may not represent the organization’s interests or the interests of the person served by the organization adverse to the interests of the clients of the lawyer or the lawyer’s firm without complying with Rules 1.6, 1.7 and 1.9.
15 A lawyer in the capacity of a member of a litigation advisory group to a legal services organization consulted by the organization regarding legal advice and strategy in specific legal matters may be reasonably perceived by the organization as being its lawyer with respect to the matter. Rule 6.3’s protections against disqualification of the lawyer and the lawyer’s firm from representing clients with interests adverse to the organization’s interests in such matters or adverse to the interests of the persons served by the organization in such matters would no longer be applicable. The lawyer will, in such circumstances, establish an attorney-client relationship with the organization or the organizations clients.9
16 Participation by the lawyer in the litigation advisory group that is in the nature of recommending general policies or procedures for the conduct or administration of litigation by the organization or recommending general strategy for the organization’s use of litigation to accomplish the goals of the organization or its clients would not reasonably appear to create an attorney-client relationship between the organization and the lawyer or between the organization’s clients and the lawyer. To the extent that the litigation advisory group is intended to (a) review the facts and pleadings in specific legal matters and to advise the organization or its clients regarding the legal rights of those clients in such specific matters, and (b) recommend legal strategy to advance those rights in such specific legal matters, the lawyer’s participation will likely exceed the participation of a director, officer or member intended for protection by Rule 6.3. Members of a litigation advisory group providing such services may create an attorney-client relationship with the organization or its clients that would require that the lawyer comply with Rules 1.6, 1.7 and 1.9 before the lawyer or the lawyer’s firm could represent clients with interests adverse to the interests of the organization or the interests of the organization’s clients in such matters.10
17 Comment [2] to Rule 6.3 cautions legal services organizations that in appropriate cases it may be necessary that the organization’s clients be assured that their representation will not be adversely affected by conflicting loyalties of a member, officer or director of the organization.11 The comment encourages legal services organizations to adopt written policies to enhance the credibility of such assurances.
18 The comments to Rule 6.3 do not suggest specific appropriate client assurances or policies the organization could implement. The ABA commentary on Rule 6.3 of the Model Rules of Professional Conduct provides:
When a lawyer who serves on an organization’s board is representing a client, and finds that a particular organizational action or decision would be incompatible with the lawyer’s obligations to the client under Rule 1.7 [Conflict of Interest: Current Clients] the lawyer simply is not allowed to participate in that action or decision.12
It would be appropriate for the legal services organization to adopt written policies requiring the organization’s advisory group members to identify those decisions or actions coming before the group that would or could conflict with the lawyer’s duties to an existing client. In such circumstances, it would be appropriate for the organization’s written policies to require that the lawyer disqualify himself from participation in the appropriate organization action or decision.
19 From the facts submitted to us, the legal services organization may also constitute “an organization involved in the reform of the law or its administration” under Rule 6.4. Unlike Rule 6.3, which contemplates the organization will have clients served by the organization, Rule 6.4 does not contemplate that the organization serves clients. Rule 6.4 does not address the concern that the interests of the persons served by the organization may conflict with the interests of a client of the lawyer. Rather, Rule 6.4 addresses the concern that the interests of the lawyer’s clients may be affected by the law reform activities of the organization.
20 As under Rule 6.3, Rule 6.4 and its comment make clear that the lawyer’s participation in the law reform organization as a director, officer or member does not by itself create an attorney-client relationship with the organization.13 Therefore, even though the law reform activities may adversely impact a client, the lawyer’s participation will not normally violate Rule 1.7. However, the Comment [1] to Rule 6.4 makes clear that under certain circumstances the lawyer’s participation in the law reform organization may violate Rule 1.7: “In determining the nature and scope of participation in such activities, a lawyer should be mindful of obligations to clients under other rules, particularly Rule 1.7.”
21 Under Rule 1.7(a)(2), a lawyer may have a conflict of interest arising from participation in a law reform organization where the lawyer does not represent the organization, if the lawyer’s duties to the organization as a “third party” or the lawyer’s “personal interest” creates a significant risk that the lawyer’s representation of his or her clients may be materially limited. Rule 6.4 also requires a lawyer participating in a law reform organization to disclose to the organization if the lawyer knows that the interests of a client of the lawyer may be materially benefited by a decision of the organization in which the lawyer participates. Such disclosures are required to protect the integrity of the law reform program.14
22 Service on a litigation advisory group to a law reform organization may also involve specific legal advice to the organization about specific litigation, for example, legal advice in a lawsuit challenging the constitutionality of a statute. Such participation in a law reform organization may result in an attorney-client relationship between the lawyer and the organization. Under such circumstances, the lawyer could not represent clients with interests adverse to the organization’s interests in such matters without complying with Rules 1.6, 1.7 and 1.9.
Footnotes
1. Unless otherwise indicated, all references to the “Rules” in this opinion are to the Utah Rules of Professional Conduct, effective November 1, 2006.
2. See ABA, ANN. R. PROF. CONDUCT 520 (5th ed.) (2003).
3. Id. at 523.
4. Rule 6.3, cmt. [1].
5. ABA, ANN. R. PROF. CONDUCT 520.
6. Comment [1] to Rule 6.3 states: “A lawyer who is an officer or a member of such an organization does not thereby have a client-lawyer relationship with persons served by the organization. However, there is potential conflict between the interests of such persons and the interests of the lawyer’s clients. If the possibility of such conflict disqualified a lawyer from serving on the board of a legal services organization, the profession’s involvement in such organizations would be severely curtailed.”
7. Under Rule 1.10, a lawyer should not participate in a decision that could have a material adverse effect on the representation of a client by the lawyer’s firm.
8. In such instances the lawyer’s obligation to recuse himself is a personal conflict of interest.
9. The lawyer’s participation on the litigation advisory group may also under limited circumstances create an attorney-client relationship with the persons served by the organization. If a litigation advisory group member met with the organization’s clients and offered legal advice or recommended legal strategies with respect to a specific legal matter, the lawyer may reasonably be perceived by the organization’s clients as their lawyer with respect to the matter. Normally, however, direct contact between the litigation advisory group member and the organization’s client would be required to form an attorney-client relationship.
10. We assume for purposes of this Opinion that the members of the litigation advisory group are not subject to the protections of Rule 6.5 of the Utah Rules of Professional Conduct, which applies to short-term limited legal services provided under the auspices of programs sponsored by a nonprofit organization or a court.
11. “It may be necessary in appropriate cases to reassure a client of the organization that the representation will not be affected by conflicting loyalties of a member of the Board. Established, written policies in this respect can enhance the credibility of such assurances.” Rule 6.3, cmt. [2].
12. ABA, ANN. R. PROF. CONDUCT 520.
13. The comment to Rule 6.4 provides:
Lawyers involved in organizations seeking law reform generally do not have a client-lawyer relationship with the organization. Otherwise, it might follow that a lawyer could not be involved in a bar association law reform program that might indirectly affect a client. For example, a lawyer specializing in antitrust litigation might be regarded as disqualified from participating in drafting revisions of rules governing that subject. In determining the nature and scope of participation in such activities, a lawyer should be mindful of obligations to clients under other rules, particularly Rule 1.7. A lawyer is professionally obligated to protect the integrity of the program by making an appropriate disclosure within the organization when the lawyer knows a private client might be materially benefited.
14. It is noteworthy that Rule 6.3 requires the lawyer to be recused and not participate in certain decisions and actions of the legal services organization. Rule 6.4 permits a lawyer to participate in a decision of the law reform organization that benefits the lawyer’s client, if the lawyer discloses this fact.