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End-of-life notice: American Legal Ethics Library

As of March 1, 2013, the Legal Information Institute is no longer maintaining the information in the American Legal Ethics Library. It is no longer possible for us to maintain it at a level of completeness and accuracy given its staffing needs. It is very possible that we will revive it at a future time. At this point, it is in need of a complete technological renovation and reworking of the "correspondent firm" model which successfully sustained it for many years.

Many people have contributed time and effort to the project over the years, and we would like to thank them. In particular, Roger Cramton and Peter Martin not only conceived ALEL but gave much of their own labor to it. We are also grateful to Brad Wendel for his editorial contributions, to Brian Toohey and all at Jones Day for their efforts, and to all of our correspondents and contributors. Thank you.

We regret any inconvenience.

Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


Arizona Legal Ethics

1.8   Rule 1.8 Conflict of Interest: Prohibited Transactions

1.8:100   Comparative Analysis of Arizona Rule

1.8:101      Model Rule Comparison

In 2003, AZ-ER 1.8(e) was amended to eliminate the requirement that a client remain ultimately liable for costs and expenses of litigation advanced by the lawyer, and a lawyer is now permitted to make repayment contingent on the outcome of the matter. A provision was added to paragraph (h) to prohibit agreements in which a client agrees not to report a lawyer to appropriate professional authorities.

Existing paragraph (i), regarding lawyers in different firms who are married or related by blood, was moved to paragraph (l), and expanded to apply to "cohabitants." This provision was eliminated from MR 1.8, and made the subject of a paragraph in the Comment to MR 1.7. Arizona determined to retain it as part of AZ-ER 1.8 due to the frequency of inquiries regarding conflicts between related lawyers.

A new paragraph (j), prohibiting sexual relations between attorneys and clients unless there was a pre-existing sexual relationship between them, was added. (Such conduct had previously been held to violate AZ-ER 1.7.) Finally, a new paragraph (k) specifies that all of the specific prohibitions of AZ-ER 1.8, except those contained in paragraphs (j) and (l), are imputed to all lawyers in the affected lawyer's firm and specifies that the imputation of conflicts covered in AZ-ER 1.8(a)-(i) is governed by this new Rule rather than AZ-ER 1.10.

AZ-ER 1.8(a), (b), (c), (d), (e), (f), (g), (i), (j) and (k) are identical to those paragraphs in MR 1.8. AZ-ER 1.8(h) contains a subparagraph (2) not contained in the Model Rule, and has minor editorial differences in subparagraph (3). AZ-ER 1.8(l) does not appear in MR 1.8.

The Comment to AZ-ER 1.8 is substantially similar to the Comment to MR 1.8, with some minor differences. Paragraph 6 of the Comment to AZ-ER 1.8 specifies that the coverage of AZ-ER 1.8(c) extends to gifts to a person related to the lawyer, and contains a final sentence explaining that AZ-ER 1.8(c) is not intended to interfere with a lawyer's efforts on behalf of charitable institutions in which the lawyer does not have a financial interest.

Paragraph 15 of the Comment to AZ-ER 1.8 contains a final sentence not contained in the corresponding paragraph of the Comment to MR 1.8. The sentence explains the prohibition on agreements limiting a client's ability to report a lawyer to professional authorities, which is unique to the Arizona Rule. Paragraph 20 of the Comment to AZ-ER adds the prohibitions of paragraph (l) to those that are personal to the lawyer and not imputed to others in the lawyer's firm. Paragraph 21 of the Comment to AZ-ER 1.8 does not appear in the Comment to MR 1.8, because it explains AZ-ER 1.8(l), which was retained in AZ-ER 1.8, but eliminated from MR 1.8.

1.8:102      Model Code Comparison

AZ-ER 1.8(a) contains restrictions on a lawyer entering into a business transaction with a client that are substantially similar to those contained in DR 5-104(A) and EC 5-3 of the former Model Code of Professional Responsibility.

AZ-ER 1.8(b) is substantially similar to DR 4-101(B)(3) of the former Model Code.

There was no counterpart in the former Model Code to AZ-ER 1.8(c), although former EC 5-5 provided that a lawyer should not suggest to a client that the client make a gift to the lawyer or for the lawyer's benefit, and also provided that a lawyer should insist that any instrument in which a client desired to name the lawyer beneficially be prepared by another lawyer selected by the client.

AZ-ER 1.8(d) is substantially similar to former DR 5-104(B), except that its coverage has been expanded to include "literary or media" rights, rather than simply "publication" rights.

AZ-ER 1.8(e)(1) is substantially similar to DR 5-103(B) of the former Model Code and, as noted earlier, Arizona has retained the requirement that the client remain ultimately liable for any advanced litigation costs and expenses. There was no counterpart in the Model Code to AZ-ER 1.8(e)(2).

AZ-ER 1.8(f) is substantially identical to DR 5-107(A)(1) of the former Model Code, and AZ-ER 1.8(g) is substantially identical to former DR 5-106.

Both the first clause of AZ-ER 1.8(h) and former DR 6-102(A) deal with the subject of a lawyer seeking an agreement from a client limiting the lawyer's potential prospective liability to the client. There was no counterpart in the former Model Code to the second clause of AZ-ER 1.8(h).

AZ-ER 1.8(j) is substantially identical to former DR 5-103(A).

There was no counterpart in the former Model Code to AZ-ER 1.8(l).

1.8:200   Lawyer's Personal Interest Affecting Relationship

AZ-ER 1.7(a)(2) contains a general prohibition on representation of a client where that representation may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests. As the portion of the Comment to AZ-ER 1.7 which discusses this aspect of the Rule explains:

Even where there is no direct adverseness, a conflict of interest exists if there is a significant risk that the 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 conflict in effect forecloses alternatives that would otherwise be available to the client. The mere possibility of subsequent harm does not itself preclude the representation. 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 of foreclose courses of action that reasonably should be pursued on behalf of the client.

Comment, AZ-ER 1.7, 8.

AZ-ER 1.8 addresses situations which would represent conflicts of interest covered by AZ-ER 1.7, but with more specificity. AZ-ER 1.8 also addresses other situations involving lawyer self-dealing that would arguably not fall within the reach of AZ-ER 1.7. Under both Rules, a conflict of interest is presented if representation of a client might be materially limited by the lawyer's own interests.

Under both Rules, a conflict of interest is presented if representation of a client might be materially limited by the lawyer's own interests. Thus, it was found to be an impermissible conflict of interest for an attorney to be an investor in an enterprise while that attorney's firm represented other investors with respect to the same enterprise. Matter of Murphy, 188 Ariz. 375, 936 P.2d 1269 (1997). Similarly, the Committee on the Rules of Professional Conduct ("the Committee") recently ruled that a lawyer cannot ethically enter into an arrangement pursuant to which the lawyer was to receive a referral fee for referring clients of the lawyer to an investment adviser. Arizona Ethics Opinion No. 98-09. In an earlier opinion, the Committee had held that, while it was permissible for a lawyer who was also an accountant to engage in both professions simultaneously, the businesses had to be kept separate and clients that were referred to the lawyer's accounting business had to be advised of the lawyer's interest in it. Arizona Ethics Opinion No. 97-08. See also Arizona Ethics Opinion No. 85-05, where the Committee held that it was generally permissible for a lawyer to simultaneously pursue a second career, provided ethical standards applicable to the legal profession are observed.

Consistently with these Opinions, the Committee has held that it is impermissible, under former AZ-ER 1.7(b), for a lawyer to refer clients to a chiropractic clinic in which the lawyer has an ownership interest, and for a lawyer to accept referral fees from medical providers for referring clients to them. Arizona Ethics Opinions Nos. 96-05, 95-10. On the other hand, in an Opinion applying the comparable provisions of the former Model Code of Professional Responsibility, Arizona Ethics Opinion No. 84-16, the Committee ruled that it was ethically permissible for an attorney to recommend that the attorney's client invest in particular securities, even if the attorney would receive a sales commission for handling the investment transaction, so long as all of the compensation arrangements were fully disclosed.

In Arizona Ethics Opinion No. 99-12, the Committee ruled that a lawyer employed by an architectural firm could not provide legal services to the architectural firm's clients, where the architectural firm paid the attorney a salary but charged its clients an hourly rate for the lawyer's services, not only because the arrangement would constitute impermissible fee-sharing with non-lawyers, but also because of possible conflicts of interest between the clients and the architectural firm.

In Arizona Ethics Opinion No. 96-04, the Committee considered the issues presented when a law firm initially represents both a driver and a passenger in a personal injury case against another driver, and eventually refers the passenger to another firm for separate representation. The Committee concluded that if, in that situation, the firm continues to represent the driver but retains an interest in recovering, as its fee, a portion of any award in favor of the passenger, a conflict is presented which cannot be cured by client consent.

In Arizona Ethics Opinion No. 90-15, the Committee held that an attorney who represents a client in a personal injury action proceeding on both strict liability and negligence theories, and who failed to file the strict liability claim within the applicable statute of limitations, may not continue with the representation of the client unless the client consults after consultation. In Arizona Ethics Opinion No. 87-09, the Committee ruled that an attorney who has represented a trustee in the course of preparing for a trustee's sale under a Deed of Trust may not bid on the property that is the subject of the sale, unless all the requirements of both AZ-ER 1.7(b) and AZ-ER 1.8(a) have been satisfied.

The Committee has also held that an attorney may not act as a special city prosecutor and simultaneously handle criminal cases in the same city's court. Arizona Ethics Opinion No. 87-20. In that same Opinion, however, the Committee held that an attorney who represents a judge in a civil matter may appear as criminal defense counsel before that same judge, provided the representation of the judge is disclosed to opposing counsel, and the client's permission is obtained before proceeding.

In Arizona Ethics Opinion No. 88-03, the Committee held that, although there is a potential conflict of interest presented when an attorney representing a criminal defendant simultaneously seeks the office of County Attorney, the potential conflict does not automatically disqualify the attorney from the representation of the criminal defendant. The Committee concluded that the representation may be permitted if the attorney has reason to believe that the defendant's case will not be adversely affected and the defendant client consents after consultation.

Under the prior Code of Professional Responsibility, the Committee held, in Arizona Ethics Opinion No. 81-24, that an attorney could not ethically represent a collection agency which the attorney's wife owned as sole proprietor, because the use of community funds as capital for the business gave the attorney a financial interest in the agency.

In Arizona Ethics Opinion No. 2001-12, the Committee addressed the issue of what ethical guidelines should be applied in a situation where an Assistant Public Defender was involved in a romantic relationship with a law enforcement officer who was frequently an arresting or investigating officer in cases involving clients of the Public Defender's Office. The Committee held that, in cases where the officer was a testifying witness, it would probably constitute a non-waivable conflict of interest for the Assistant Public Defender to represent the defendant, and disclosure of the relationship was mandatory. In cases where the officer was a testifying witness, but a different Public Defender was conducting the defense, whether the relationship would represent a material limitation on the ability to conduct the client's defense, and whether the relationship need be disclosed to the client would have to be evaluated on a case-by-case basis.

A similar question was addressed by the Committee in Arizona Ethics Opinion No. 2001-10, which involved a member of a prosecutor's office and a member of the public defender's office who were cohabiting and/or married. Again, the Committee concluded that, where the individuals involved in the relationship were working opposite each other on the same case, that would be permissible only if both attorneys believed that their respective representations would not be materially limited and both obtained informed consent from the clients involved. Where the individuals involved in the relationship were not opposite each other on the same case, whether the relationship should be disclosed, and whether it would have a material adverse effect on another lawyer's ability to represent a client, would have to be evaluated on a case-by-case basis.

1.8:210      Sexual Relations with Clients

AZ-ER 1.8 (j), added by the 2003 amendments, contains a flat prohibition on a lawyer having "sexual relations with a client unless a consensual sexual relationship existed between them when the lawyer-client relationship commenced." Where the client is an organization, the Rule "prohibits a lawyer for the organization from having a sexual relationship with a constituent of the organization who supervises, directs or regularly consults with that lawyer concerning the organization's legal matters." Comment, AZ-ER 1.8, 19. This "conflict" is personal to the lawyer, and is not imputed to others in the affected lawyer's firm. AZ-ER 1.8(k). The rationale for the Rule is explained in the Comment concerning it:

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

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

Comment, AZ-ER 1.8, 17, 18.

Adoption of this new specific Rule was, in a very real sense, merely a codification of existing law on the subject. In Matter of Piatt, 191 Ariz. 24, 951 P.2d 889 (1997), the Court held that it was a violation of AZ-ER 1.7(b), and grounds for the imposition of discipline, for a lawyer to make sexual advances and/or propositions to a client. In its Opinion, the Court noted that it had previously denied a Petition seeking the adoption of an ethical rule that would have specifically prohibited lawyers from requesting, requiring or demanding sexual relations with a client as a condition of professional representation on the grounds that the particular problem being addressed was adequately covered by existing Rules. Id., 191 Ariz. at 26, 951 P.2d at 891. In Piatt, the Court found adequate authority to sanction the conduct before it under AZ-ER 1.7(b). See also In re Walker, 200 Ariz. 155, 24 P.3d 602 (2001).

In Arizona Ethics Opinion No. 2001-10, the Committee on the Rules of Professional Conduct ("the Committee") addressed the question of what ethical guidelines must be followed where a member of a prosecutor's office and a ember of the public defender's office are either married or cohabiting. The Committee held that, where the individuals involved in the relationship are working opposite each other on the same case, that would be proper only if both attorneys believe that their respective representations will not be materially limited and both obtain informed consent from the clients involved. Where the individuals involved in the relationship are not opposite each other on the same case, whether the relationship needs to be disclosed, and whether the relationship will have a material adverse effect on another lawyer's ability to represent a client, are questions to be assessed on a case-by-case basis.

1.8:220      Business Transactions with Clients

While not prohibited absolutely, business dealings with clients are disfavored, stringently regulated and viewed with a degree of suspicion. Thus, AZ-ER 1.8(a) prohibits a lawyer from entering into a business transaction with a client unless at least the following requirements are met:

a. The transaction must be objectively fair and reasonable for the client;

b. The transaction and its terms must be fully disclosed to the client in writing;

c. The written disclosure must be in a form which is comprehensible to the client;

d. The client must be given a reasonable opportunity to consult with independent counsel; and

e. The client must consent to the transaction and its terms in writing.

The Rule does not apply to standard commercial transactions between the lawyer and the client for products and services which the client generally markets to others. Comment to AZ-ER 1.8. On the other hand, the Rule is not limited to situations in which the lawyer is representing the client with respect to the very transaction in which their interests differ. In re Neville, 147 Ariz. 106, 708 P.2d 1297 (1985).

The most extensive articulation of the rationale for, and ramifications of, the Rule is found in two cases which concerned the application of DR 5-104(A), the predecessor of AZ-ER 1.8(a): In re Neville, 147 Ariz. 106, 708 P.2d 1297 (1985) ("Neville") and Matter of Wade, 168 Ariz. 412, 814 P.2d 753 (1991) ("Wade I"). In Neville, the Court identified three separate bases or policy objectives of the Rule. First, the Rule is grounded in the fiduciary duty owed by an attorney to the client, which arises when the attorney-client relationship is established and continues until it is terminated. Second, the policy expressed by the Rule is based upon the realization that those who consider themselves clients come to depend upon the confidentiality and fairness arising from their relationship with their attorneys. It is natural and proper for a client with a longstanding professional relationship with a lawyer to feel that the lawyer is to be trusted, will not act unfairly, and will protect the client's interests. Clients then can be expected to assume that one whom they have come to look upon as "their lawyer" will protect them, or at least not harm them. Finally, a third objective served by the Rule is the hope that clients will obtain full disclosure on which to base their decisions in all transactions with their lawyers. Accordingly, the Court in Neville held that application of the Rule was not properly limited to those situations in which the lawyer is acting as counsel in the very transaction in which the lawyer's interests are adverse to those of the client, but extends to any transaction in which it may fairly be said that an ordinary person would look to the lawyer as protector rather than as an adversary.

The Neville Court went on to point out that the Rule's requirement of full disclosure means much more than advising the client that the lawyer is not representing the client in the transaction. Full disclosure requires not only that the lawyer make proper disclosures of non-representation, but that the lawyer also disclose every circumstance and fact which the client should know to make an intelligent decision concerning the wisdom of entering into the transaction. The lawyer must give the client that information which the lawyer would have been obliged to give if the lawyer had been counsel rather than an interested party, and the transaction must be as beneficial to the client as it would have been had the client been dealing with a stranger rather than the client's lawyer.

In Wade I, the Court reiterated that, when an attorney enters into a business transaction with a client, the lawyer must put the client's interests ahead of the lawyer's own interest in making a profit and insure that the transaction is objectively fair to the client. The lawyer must also fully disclose all conflicts inherent in such dealings and all pertinent facts. The lawyer's duty to disclose is not obviated by a showing that the outcome of a transaction was fair to the client. In an earlier decision, the Court had stated that, in such a situation, the lawyer must disclose "every interest that will adversely affect either the judgment or loyalty of a lawyer to a client, whether it be a conflicting, inconsistent, diverse or other interest." In re Spear, 160 Ariz. 545, 553, 774 P.2d 1335, 1343 (1989). See also Matter of Miranda, 170 Ariz. 270, 823 P.2d 1278 (1992); In re Weiner, 120 Ariz. 349, 586 P.2d 194 (1978). In a subsequent decision involving the same respondent as in Wade I, the Court held that, before entering into a real estate transaction with a client, the lawyer was obligated at a minimum to disclose the divergence of the lawyer's and the client's interests, and the risks and disadvantages to the client flowing from the agreement drafted by the lawyer. Matter of Wade, 174 Ariz. 13, 846 P.2d 826 (1993) ("Wade II").

In both Wade I and Wade II, and in several other decisions, the Court has stressed that the lawyer must make certain that the client knows to seek the advice of independent counsel before entering into a business transaction with the lawyer, but has generally stopped short of requiring a lawyer to make the client obtain independent legal advice. In In re Spear, 160 Ariz. 545, 774 P.2d 1335 (1989), however, the Court stated that "no lawyer should allow a client to invest or otherwise participate in the lawyer's business ventures unless the client obtains independent legal advice." Id., 160 Ariz. at 554, 774 P.2d at 1344.

In In re Kali, 124 Ariz. 592, 606 P.2d 808 (1980), a lawyer was suspended indefinitely for entering into an improper business relationship with a client. The lawyer convinced the client to loan the lawyer the sum of $100,000. The lawyer then drafted the note that was to represent the obligation, which structured the transaction as a hybrid loan/sale agreement. The lawyer never disclosed to the client the risks of the transaction and that the transaction was structured in a fashion that favored the lawyer's interests, and the client was never advised to seek independent counsel.

In In re Murray, 147 Ariz. 173, 709 P.2d 530 (1985), a lawyer entered into a business enterprise with clients without explaining the lawyer's conflicting interests, without disclosing all of the risks involved, and without suggesting that the clients consult with independent counsel. The clients suffered significant financial losses from the venture, and entering into this business venture was one of several ethical violations that resulted in the lawyer's disbarment.

In In re Pappas, 159 Ariz. 516, 768 P.2d 1161 (1988), a lawyer convinced two unsophisticated clients to invest in a car rental company in which the lawyer was a general partner. The lawyer did have an outside law firm draft the agreement between the lawyer and the clients, but according to the lawyer's instructions. The agreement was not prepared until a month after the clients had invested their money. The business eventually failed. The lawyer had never fully disclosed his interest in the business to the clients, and never suggested to the clients that they should seek independent counsel. The Court approved the suspension of the lawyer for a period of five years.

In In re Spear, 160 Ariz. 545, 774 P.2d 1335 (1989), a lawyer entered into a business transaction which involved selling to a client two duplexes located in Tucson. The lawyer never advised the clients that the properties had been unsuccessfully listed for sale with a realtor. In addition, the lawyer backdated the land contracts, which allowed the lawyer to take further depreciation on the properties, but caused the clients to owe back taxes and penalties to the state and federal governments. The lawyer never informed the client that backdating the contract benefitted the lawyer but was adverse to the client's interests, and never advised the client to seek independent counsel. The lawyer was suspended by the Court for a period of five years.

In Matter of Redondo, 176 Ariz. 334, 861 P.2d 619 (1993), the lawyer respondent had borrowed $10,000 from a client without giving the client advice or the opportunity to seek the advice of independent counsel. The respondent had also purchased wedding rings from a client he had represented in a divorce and who needed cash and had been unable to obtain a satisfactory offer from a pawn shop. In both instances, both the Disciplinary Commission and the Court found that the respondent had violated the provisions of AZ-ER 1.8(a) and should be disciplined.

In Arizona Ethics Opinion No. 87-09, the Committee ruled that an attorney who had rendered legal services to a trustee in the course of preparing for an upcoming sale of property at a trustee's sale could not bid on the trust property at the sale unless all of the requirements of both AZ-ER 1.8(a) and AZ-ER 1.7(b) were satisfied.

Finally, in Matter of Gamble, 122 Ariz. 2, 592 P.2d 1268 (1979), which involved application of the Model Code of Professional Responsibility, the Supreme Court approved the suspension for three months of a lawyer who, while serving as a trustee of a trust created by a client, invested funds of the trust in second mortgages acquired from the lawyer's step-daughter, without disclosing his personal interest in the transactions.

In Arizona Ethics Opinion No. 99-09, the Committee held that an estate planning lawyer could offer securities brokerage and insurance services to clients if (1) the legal representation would not be adversely affected by the other services, (2) the terms of the ancillary business transactions were "fair and reasonable" to the client, (3) the terms of the transactions were fully disclosed in writing to the client, and (4) the client gave informed consent in writing. The Committee cautioned that compliance with the disclosure and consent requirements could, as a practical matter, prove difficult to accomplish and the lawyer would have a substantial burden of showing that the lawyer's independent professional judgment had not been compromised by the lawyer's financial interest in the securities and insurance transactions. Each individual transaction must be fair and reasonable to the client, and the disclosure must include the amount of commission the lawyer will earn, whether the same insurance or securities brokerage services can be obtained elsewhere at lower cost, the nature of the lawyer's contractual and financial arrangements with the firms whose products the lawyer sells, and the fact that the lawyer has a financial interest in the transaction that might interfere with the lawyer's independent professional judgment. In addition, the lawyer must affirmatively encourage clients to secure the advice of independent counsel, and not simply casually suggest that the client might want to consult with another lawyer.

1.8:300   Lawyer's Use of Client Information

AZ-ER 1.8(b) provides explicitly that, absent the fully informed consent of the client, a lawyer may not use information relating to the representation of a client to that client's disadvantage. (AZ-ER 1.9(c) contains a nearly identical proscription concerning the use of information relating to the representation of former clients. See discussion in Section 1.9:400, infra.) In Matter of Murphy, 188 Ariz. 375, 936 P.2d 1269 (1997), the Court upheld the imposition of discipline on an associate in a firm who was an investor in commercial ventures in which other lawyers in the firm represented other investors and who apparently used information acquired by the firm from the other investors to his own advantage. The Court concluded that the lawyer-investor had breached both AZ-ER 1.6 and AZ-ER 1.8(b). Similarly, in In re Spear, 160 Ariz. 545, 774 P.2d 1335 (1989), the Court held that a lawyer may not use information protected by AZ-ER 1.6 to structure a land transaction in a fashion that advanced the lawyer's interests to the detriment of the client's.

In In re Nulle, 127 Ariz. 299, 620 P.2d 214 (1980), clients of the respondent Nulle asked him to draw up an agreement for their purchase of stock in a restaurant. The lawyer persuaded the clients to give him an interest in the investment in exchange for the legal services involved. The agreement drafted by the lawyer gave the seller an option to buy back 50% of the stock in the corporation. After the transaction closed, the lawyer purchased the "buy back" option from the seller, without disclosing to his clients that he had done so. The lawyer and another individual formed a corporation, to which the lawyer contributed, inter alia, his option to purchase a 50% interest in his clients' corporation. The lawyer then informed the clients that he was exercising the purchase option. The clients refused to acknowledge the option, and the lawyer filed suit against his former clients to enforce it. The lawyer was subsequently suspended for six months for using information relating to the representation to his advantage and to the disadvantage of his clients.

In Arizona Ethics Opinion No. 92-07, the Committee addressed an inquiry from a Public Defender who had been appointed to represent defendant A on charges of burglary and theft, which A intended to claim had been committed by B. The Public Defender's Office was currently representing B with respect to a burglary that had been committed in a fashion that was nearly identical to the one with which A was charged. The Office had previously represented C and D, who were both juveniles, in connection with the same burglary with which B was charged. Finally, the Office had also represented an individual identified as E on wholly unrelated burglary and theft charges, and a subsequent probation violation charge. The inquiry was prompted by the fact that the prosecutor in A's case had recently disclosed to the inquiring Public Defender, that he intended to call B, C, D and E as witnesses against A in the prosecution's case in chief.

The Committee initially ruled that, because of the conflict between the interests of current clients A and B, the Public Defender was required to withdraw from the representation of A, which would operate to make A a "former client." Consequently, because A and B had material adverse interests in the same matter which the Office had handled for A, the Office was required to resign from the representation of B as well. With respect to C, D and E, the Committee stated that the issue was whether the subject matter of the representation of those individuals was "substantially related" to the defense of A, and offered the following test for determining that:

. . . two cases are substantially related if they arise from a "common nucleus of operative facts," or where the two representations present a "substantial danger" of the former client's confidences being used against that client in the subsequent representation.

The issue of the use of information relating to the representation of a client to that client's potential disadvantage has arisen on several occasions in connection with efforts to finance a law practice. In Arizona Ethics Opinion No. 92-04, the Committee ruled that a lawyer may not furnish to a bank a list of the lawyer's accounts receivable which identifies the names of the clients and the amount each client owes, unless the clients involved consent after consultation. In Arizona Ethics Opinion No. 94-11, the Committee ruled that an attorney must have the fully informed consent of the clients involved before disclosing information relating to the representation of clients to a credit reporting agency, or to a collection agency that uses a credit reporting agency. Finally, in Arizona Ethics Opinion No. 98-05, the Committee concluded that a law firm may not ethically sell its accounts receivable to a factor because (1) it would require the disclosure of information relating to the representation of clients beyond that permitted by AZ-ER 1.6, and (2) it would involve the sharing of legal fees with a non-lawyer.

1.8:400   Client Gifts to Lawyer

AZ-ER 1.8(c) prohibits a lawyer from preparing an instrument that gives the lawyer or a close relative a substantial gift, unless the client is related to the donee. This prohibition specifically extends to the preparation of a will that gives a substantial gift to the lawyer or a close member of the lawyer's family. The concern that underlies these prohibitions is that such a gift is the product of the exercise of undue influence by a lawyer in whom a client has both trust and confidence.

In Arizona Ethics Opinion No. 96-07, the Committee held that it is ethically permissible for a lawyer to draft a revocable living trust with a pour-over will for a client and to be named as the trustee and/or personal representative. The Committee concluded that such an arrangement would not constitute a gift under AZ-ER 1.8(c), but cautioned that the lawyer could not recover trustee fees in addition to legal fees for the same work, and that the lawyer must be able to exercise independent professional judgment when acting as both trustee and counsel to the estate.

In Arizona Ethics Opinion No. 95-05, the Committee ruled that an attorney in a personal injury case who has already received the full fee agreed upon may accept the client's portion of the settlement of the personal injury action, as a gift from the client, if (1) the attorney fully complies with the requirements of AZ-ER 1.8(a) regarding business transactions with clients, (2) the attorney does not attempt to prepare a legal instrument to perfect the gift, and (3) the client is competent to make an informed decision concerning the matter.

1.8:500   Literary or Media Rights Relating to Representation

During the course of representation, a lawyer may not enter into or negotiate an agreement that would give the lawyer literary or media rights "to a portrayal or account based in substantial part on information relating to the representation." AZ-ER 1.8(d). As the Comment to this portion of the Rule points out, such an arrangement creates a conflict between the interests of the client and the personal interests of the lawyer, because "[M]easures suitable in the representation of the client may detract from the publication value of an account of the representation." Comment, AZ-ER 1.8, 9.

The Comment goes on to note that AZ-ER 1.8(d) "does not prohibit a lawyer representing a client in a transaction involving literary property from agreeing that the lawyer's fee shall consist of a share in ownership in the property," provided the fee is reasonable under the standards of AZ-ER 1.5, and the arrangement does not result in the lawyer acquiring a proprietary interest in the subject matter of litigation. In Arizona Ethics Opinion No. 94-15, the Committee held that an attorney could properly take a contingent fee in the form of a partial patent registration assignment for prosecution of a patent application at the United States Patent and Trademark Office, so long as the attorney complied with the requirements of AZ-ER 1.8(a) with respect to entering into business transactions with a client.

1.8:600   Financing Litigation

As a general rule, a lawyer is prohibited from giving financial assistance to a client if litigation is pending or contemplated, subject to two exceptions: (1) a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent upon the outcome of the matter, and (2) a lawyer may pay court costs and expenses of litigation on behalf of a client who is indigent. AZ-ER 1.8(e). The 2003 amendment to AZ-ER 1.8(e)(1) eliminated the requirement, carried forward from former DR 5-103(B) of the Code of Professional Responsibility, that the non-indigent client must remain ultimately responsible for any costs and expenses which the lawyer advances. In In re Carroll, 124 Ariz. 80, 602 P.2d 461 (1979), one of the grounds which the Supreme Court found warranted suspension of the lawyer respondent was the fact that the lawyer had entered into contingent fee arrangements with clients which relieved the clients of the obligation to pay costs and expenses of litigation unless there was a recovery.

"Costs" are those charges a party may recover in litigation. They include filing fees, fees for service of process, and other costs that are taxed and included in a judgment. "Expenses" are nontaxable items such as the costs of investigation, expenses of required medical examinations, and costs of obtaining and presenting evidence.

A lawyer is prohibited from loaning or advancing money to a client, except in the situations permitted by AZ-ER 1.8(e). Similarly, a lawyer may not guarantee a third party's loan to a client. Arizona Ethics Opinion No. 91-19. An attorney may, however, assist a client in locating a third party "personal injury loan service" which will make a loan to the client, provided the attorney has no interest in the lender's business, does not guarantee repayment of the loan, and maintains client confidentiality. Arizona Ethics Opinion No. 91-22.

In Arizona Ethics Opinion No. 03-05, the Committee on the Rules of Professional Conduct ("the Committee") concluded that an attorney for a plaintiff or claimant could not ethically enter into any settlement agreement that would require the attorney to indemnify the settling parties from any lien claims against the settlement proceeds. The principal basis for this conclusion was that AZ-ER 1.8 precludes attorneys from providing financial assistance to a client by paying or advancing medical expenses, and would similarly preclude the attorney from guaranteeing, or accepting ultimate liability for, the payment of such expenses. The Committee went on to note that, while AZ-ER 1.2 generally requires an attorney to abide by a client's decision whether to accept an offer of settlement, a settlement that would require the attorney to hold settling parties harmless violates AZ-ER 1.8, and the attorney cannot agree to such a condition. If the client insists that the attorney do so, then the attorney would be required to withdraw.

Although Arizona cases and Ethics Opinions have consistently concluded that loans to clients, other than advancements for costs and expenses of litigation, are prohibited by AZ-ER 1.8(e), the Committee on the Rules of Professional Conduct ("the Committee"), and its predecessors, have determined that in certain situations, a lawyer may make a gift to a client. In Arizona Ethics Opinion No. 89-03, the Committee concluded that it was ethically proper for a lawyer to make a gift to a client of money for the payment of utility and food bills, unrelated to the litigation being handled for the client. The Committee stressed that such gifts must result from a charitable motive and be made with no expectation of repayment. The Committee extended the rationale of this Opinion to non-indigent clients in Arizona Ethics Opinion No. 91-14, when it concluded that an attorney could make a cash gift to an impecunious client whose child was in dire need of emergency medical treatment, as long as the gift, or any discussion of the gift, was made after the client had retained the lawyer, the gift resulted from a "truly charitable motive" with no expectation of repayment, and the transfer of money was not accompanied by any "business, proprietary or pecuniary overtures."

The Committee's Ethics Opinions are advisory in nature and are not binding on the Discipline Department of the State Bar of Arizona. Although the State Bar normally encourages attorneys to rely on the Opinions issued by the Committee, the Discipline Department has previously indicated that it does not agree with Opinions Nos. 89-03 and 91-14. Undaunted, the Committee subsequently ruled, in Arizona Ethics Opinion No. 95-09, that an attorney could make a gift to a client of all or a portion of the attorney's fees in a matter, where the attorney's motive was charitable, unless a medical provider had specifically agreed to accept a reduced amount on the condition that the client not receive any money.

In Arizona Ethics Opinion No. 93-05, the Committee held that it was proper to employ a non-testifying trial consultant under arrangements which called for the payment to the consultant of a bonus fee, if the case resulted in a judgment or settlement satisfying certain conditions. In Arizona Ethics Opinion No. 97-07, the Committee ruled that a lawyer may properly pay a fact witness reasonable compensation for time spent by the witness in preparing to testify, as long as the compensation is not based upon the outcome of the litigation, and the client remains ultimately responsible for such costs. The Committee added that the reasonableness of the compensation paid the witness would have to be determined on a case-by-case basis.

In Arizona Ethics Opinion No. 2001-07, the Committee noted that AZ-ER 1.8(e) permits a lawyer to advance court costs and litigation expenses under specified circumstances. The Committee also held that it is permissible for a lawyer to secure a line of credit for those advanced costs and expenses, and to pass on to the client any interest charges the lawyer incurs, provided (1) the lawyer does not have any financial interest in the lender, (2) the interest charged to the client does not exceed the interest charges actually incurred by the lawyer, (3) the arrangement is explained clearly to the client in writing and the client agrees in writing, and (4) information concerning the lawyer's representation of the client is not disclosed to the lender without the client's consent.

1.8:610      Litigation Expenses

As earlier noted, a lawyer is generally prohibited from giving financial assistance to a client if litigation is pending or contemplated, subject to two exceptions: (1) a lawyer may advance court costs and expenses of litigation, and (2) a lawyer may pay court costs and expenses of litigation on behalf of a client who is indigent. AZ-ER 1.8(e). The 2003 amendment to AZ-ER 1.8(e)(1) eliminated the requirement, carried forward from former DR 5-103(B) of the Code of Professional Responsibility, that the non-indigent client must remain ultimately responsible for any costs and expenses which the lawyer advances. In In re Carroll, 124 Ariz. 80, 602 P.2d 461 (1979), one of the grounds which the Supreme Court found warranted suspension of the lawyer respondent was the fact that the lawyer had entered into contingent fee arrangements with clients which relieved the clients of the obligation to pay costs and expenses of litigation unless there was a recovery. This would now be permissible under amended AZ-ER 1.8(e)(1).

Confirming this general rule, the Committee indicated, in Arizona Ethics Opinion No. 87-07, that an attorney representing an indigent client in either a civil or criminal matter may pay the costs and expenses of litigation on behalf of the client, but must ask the client to pay as much of the costs and expenses of the litigation as possible. Similarly, the Committee ruled, in Arizona Ethics Opinion No. 87-18, that an attorney could not run advertisements containing the statement "no recovery, no fee" or its equivalent, unless it was also disclosed that client, unless indigent, was responsible for the payment of court costs and litigation expenses.

In a case that arose under the former Model Code of Professional Responsibility, In re Carroll, 124 Ariz. 80, 602 P.2d 461 (1979), the Supreme Court approved the suspension of the respondent lawyer for, among other things, entering into contingent fees with clients which relieved the clients of the obligation to pay the costs and expenses of litigation unless there was a recovery. Subsequently, in Arizona Ethics Opinion No. 91-13, the Committee held that it was permissible for a lawyer, at the conclusion of a case, to waive the client's obligation to pay court costs and litigation expenses. The Committee's Ethics Opinions are advisory in nature and are not binding on the Discipline Department of the State Bar of Arizona. Although the State Bar normally encourages attorneys to rely on the Opinions issued by the Committee, the Discipline Department has previously indicated that it does not agree with Opinion No. 91-13.

A lawyer is also prohibited from loaning or advancing money to a client, except in the situations permitted by AZ-ER 1.8(e). Similarly, a lawyer may not guarantee a third party's loan to a client. Arizona Ethics Opinion No. 91-19. An attorney may, however, assist a client in locating a third party "personal injury loan service" which will make a loan to the client, provided the attorney has no interest in the lender's business, does not guarantee repayment of the loan, and maintains client confidentiality. Arizona Ethics Opinion No. 91-22.

In Arizona Ethics Opinion No. 2001-07, the Committee noted that AZ-ER 1.8(e) permits a lawyer to advance court costs and litigation expenses under specified circumstances. The Committee also held that it is permissible for a lawyer to secure a line of credit for those advanced costs and expenses, and to pass on to the client any interest charges the lawyer incurs, provided (1) the lawyer does not have any financial interest in the lender, (2) the interest charged to the client does not exceed the interest charges actually incurred by the lawyer, (3) the arrangement is explained clearly to the client in writing and the client agrees in writing, and (4) information concerning the lawyer's representation of the client is not disclosed to the lender without the client's consent.

1.8:620      Living and Medical Expenses

A lawyer is generally prohibited from giving financial assistance to a client if litigation is pending or contemplated, subject to two exceptions: (1) a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent upon the outcome of the matter, and (2) a lawyer may pay court costs and expenses of litigation on behalf of a client who is indigent. AZ-ER 1.8(e). "Court costs" and "expenses of litigation" do not include general living expenses which the client may incur during the course of the representation. Thus, in Arizona Ethics Opinion No. 95-01, the Committee on the Rules of Professional Conduct ("the Committee") concluded that a lawyer could not properly advance rental car or car repair costs, or pay an insurance deductible to or for a client, in connection with pending or contemplated litigation, because these were ordinary living expenses and not "court costs and expenses of litigation" the advancement of which was permitted by AZ-ER 1.8(e). On the other hand, in Arizona Ethics Opinion No. 81-03, the Committee concluded that, if a client had authorized the attorney to pay all unpaid medical bills from the proceeds of the settlement of the client's claim, and the attorney discovers, subsequent to the disbursement of all of the settlement finds, an unpaid medical bill which the client is unlikely to pay, the attorney may pay the bill.

In Arizona Ethics Opinion No. 03-05, the Committee on the Rules of Professional Conduct ("the Committee") concluded that an attorney for a plaintiff or claimant could not ethically enter into any settlement agreement that would require the attorney to indemnify the settling parties from any lien claims against the settlement proceeds. The principal basis for this conclusion was that AZ-ER 1.8 precludes attorneys from providing financial assistance to a client by paying or advancing medical expenses, and would similarly preclude the attorney from guaranteeing, or accepting ultimate liability for, the payment of such expenses. The Committee went on to note that, while AZ-ER 1.2 generally requires an attorney to abide by a client's decision whether to accept an offer of settlement, a settlement that would require the attorney to hold settling parties harmless violates AZ-ER 1.8, and the attorney cannot agree to such a condition. If the client insists that the attorney do so, then the attorney would be required to withdraw.

Essentially the same restrictions pertained under the former Code of Professional Responsibility. Thus, in In re Bowen, 144 Ariz. 92, 695 P.2d 1130 (1985), a lawyer was censured for advancing a client $25,000 in order to prevent forfeiture of the client's trailer park. In In re Carroll, 124 Ariz. 80, 602 P.2d 461 (1979), the Court approved the suspension of the respondent lawyer for, among other things, advancing to clients ordinary living expenses. Finally, in Matter of Stewart, 121 Ariz. 243, 589 P.2d 886 (1979), the Court approved the one-year suspension of a lawyer for, among other things, advancing living expenses to a disabled client. The Court articulated the following dangers that can flow from such arrangements, even when the advance is in the form of a loan:

... because if an attorney acquires an interest in the outcome of a suit in addition to his fees, it can lead to the attorney placing his own recovery ahead of his client. For example, he might urge a settlement which would be to his best interest but not to the best interest of the client ... Moreover, the practice of making loans to clients, if publicized, would constitute an improper inducement for clients to employ an attorney.

Id., 121 Ariz. at 245, 589 P.2d at 888 (citations omitted).

A lawyer is prohibited from loaning or advancing money to a client, except in the situations permitted by AZ-ER 1.8(e), which do not include loans or advances to cover ordinary living expenses. Thus, in Arizona Ethics Opinion No. 75-17, the Committee ruled that a lawyer may not make a personal loan to a client for living expenses to be repaid out of the proceeds of a judgment, even when the matter is on appeal, and the trial court had awarded a sizable judgment in the client's favor. The Committee subsequently confirmed, in Arizona Ethics Opinion No. 76-26, that a lawyer may not advance money to a client for living expenses during the pendency of litigation.

Similarly, a lawyer may not guarantee a third party's loan to a client. Arizona Ethics Opinion No. 91-19. An attorney may, however, assist a client in locating a third party "personal injury loan service" which will make a loan to the client, provided the attorney has no interest in the lender's business, does not guarantee repayment of the loan, and maintains client confidentiality. Arizona Ethics Opinion No. 91-22.

Although Arizona cases and Ethics Opinions have consistently concluded that loans to clients, other than advancements for costs and expenses of litigation, are prohibited by AZ-ER 1.8(e), the Committee on the Rules of Professional Conduct ("the Committee"), and its predecessors, have determined that in certain situations, a lawyer may make a gift to a client. In Arizona Ethics Opinion No. 89-03, the Committee concluded that it was ethically proper for a lawyer to make a gift to a client of money for the payment of utility and food bills, unrelated to the litigation being handled for the client. The Committee stressed that such gifts must result from a charitable motive and be made with no expectation of repayment. The Committee extended the rationale of this Opinion to non-indigent clients in Arizona Ethics Opinion No. 91-14, when it concluded that an attorney could make a cash gift to an impecunious client in dire need of emergency medical treatment, as long as the gift, or any discussion of the gift, was made after the client had retained the lawyer, the gift resulted from a "truly charitable motive" with no expectation of repayment, and the transfer of money was not accompanied by any "business, proprietary or pecuniary overtures."

The Committee's Ethics Opinions are advisory in nature and are not binding on the Discipline Department of the State Bar of Arizona. Although the State Bar normally encourages attorneys to rely on the Opinions issued by the Committee, the Discipline Department has previously indicated that it does not agree with Opinions Nos. 89-03 and 91-14. Undaunted, the Committee subsequently ruled, in Arizona Ethics Opinion No. 95-09, that an attorney could make a gift to a client of all or a portion of the attorney's fees in a matter, where the attorney's motive was charitable, unless a medical provider had specifically agreed to accept a reduced amount on the condition that the client not receive any money.

1.8:700   Payment of Lawyer's Fee by Third Person

Where a third party is paying the lawyer's fees for representing a client, the potential for conflict arises if and when the third party attempts to control or dictate the actions that the lawyer takes on behalf of the client involved. AZ-ER 1.8(f) addresses this situation specifically. That Rule provides that a lawyer must not accept compensation for representing a client from someone other than the client unless: " (1) the client gives informed consent; (2) there is no interference with the lawyer's independence of professional judgment or with the lawyer-client relationship; and (3) information relating to representation of a client is protected as required by ER 1.6." The rationale for the Rule is explained more extensively in the Comment, where it is stated:

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

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

Comment, AZ-ER 1.8, 11, 12.

1.8:710      Compensation and Direction by Third Person

See the discussion in Section 1.8:700, supra. In Arizona Ethics Opinion No. 90-18, the Committee held that a County Attorney may not enter into a contract with the Department of Economic Security ("DES") to provide legal services in child support or paternity matters if the clients will be the individuals involved rather than the DES, and the provisions in the proposed contract direct the County Attorney to take certain actions on the individuals' behalf that may not be in their best interests. Similarly, in Arizona Ethics Opinion No. 87-13, the Committee held that the acting director of a public defender agency may not follow the directives of the manager of the governing body which funds the agency, if doing so would violate any of the Rules of Professional Conduct. In Arizona Ethics Opinion No. 96-11, the Committee ruled that a lawyer may not ethically have legal fees paid for a client through a referring business, and the lawyer may not be employed, part-time, by the nonlawyer referring business to provide legal services to clients of the business. Finally, in Arizona Ethics Opinion No. 97-01, the Committee held that lawyers who were employed full-time as salaried in-house lawyers for an insurance company should not hold themselves out as a separate and independent law firm under one or more of their surnames.

In Arizona Ethics Opinion No. 89-10, the Committee ruled that an attorney is not deemed to be receiving payment of the attorney's fees through a third party if the attorney accepts a credit card for payment of fees, provided that the lender who issued the card has no control over the client's selection of an attorney and has no interest in or control over the matter for which the attorney was retained. On the other hand, in Arizona Ethics Opinion No. 98-05, the Committee ruled that it was not ethically proper for a law firm to sell its accounts receivable to a factor because it would require disclosure of confidential information beyond that permitted by Rule ER 1.6, and it would involve the sharing of legal fees with a non-lawyer. The Committee's principal concern was that the arrangement might violate the provisions of AZ-ER 1.6, rather than the requirements of AZ-ER 1.8(f).

In Arizona Ethics Opinion No. 2001-06, the Committee held that a lawyer may not enter into a criminal defense contract to provide legal services paid by a third party if the contract might induce the lawyer to curtail necessary services or to perform them in a way contrary to the client's interests because of insufficient funding and/or the need to secure authorization from non-lawyer third parties.

Similarly, in Arizona Ethics Opinion No. 2001-01, the Committee held that an attorney could not ethically enter into a contract with a county to provide representation to indigent criminal defendants which contained a provision that precluded the attorney from undertaking certain types of civil matters against the county on behalf of clients the attorney would represent under the agreement. The Committee concluded that the provision was an impermissible restriction on the lawyer's right to practice, under AZ-ER 5.6, because it applied after the contract terminated, and impermissibly allowed a third-party payor to control the lawyer's independent professional judgment, in violation of AZ-ER 1.8.

1.8:720      Insured-Insurer Conflicts [see also 1.7:315]

Where an insurance carrier retains a lawyer to defend its insured pursuant to its obligation to provide a defense to claims asserted against the insured which are covered by a liability insurance policy issued by the carrier, difficult conflict of interest issues may, and frequently do, arise. (Where the carrier at the outset denies coverage for all claims asserted, ordinarily no conflict issues arise, because it is the insured who retains and pays counsel in that circumstance.) Even where the insurance carrier accepts coverage for all claims that are asserted against its insured, conflicts can arise where the carrier attempts to place limitations on the activities that the retained lawyer may undertake in the defense of the insured. Conflict of interest issues arise more frequently, and obviously, where the insurer accepts coverage for certain claims that have been made against the insured but denies coverage as to others, or where the carrier provides the insured with a defense subject to a reservation of its rights to subsequently deny coverage for some or all of the claims asserted. In either of those circumstances, the insured, whom the lawyer represents, has an interest in having any resultant liability that is imposed be with respect to one of the claims for which there is insurance coverage, while the insurance carrier, which has selected and is paying defense counsel, has an interest in having any resultant liability of the insured be based on one of the claims for which the carrier has denied, or can deny, coverage.

In Paradigm Insurance Co. v. Langerman Law Offices, P.A., 200 Ariz. 146, 24 P.3d 593 (2001), the Supreme Court noted that the potential conflict between insurer and insured exists in every case in which the insurer retains counsel to represent the insured, but the interests of insurer and insured also frequently coincide. If at the time of the engagement, the potential for future conflict is great, or an actual conflict subsequently arises, then this might restrict the ability of the lawyer to serve the interests of both. Regardless, the Court held, the lawyer's primary allegiance and obligation must be to the insured. Id. See also State Farm Mutual Automobile Ins. Co. v. Federal Ins. Co., 72 Cal.App.4th 1422, 86 Cal.Rptr.2d 20 (1999). In Arizona, it is also established that, where a liability insurer retains a lawyer to defend its insured, and there is an actual or potential divergence between the interests of the insurer and the insured, it is the insured to whom the lawyer owes a duty of loyalty. Parsons v. Continental National American Group, 113 Ariz. 223, 550 P.2d 94 (1976); Arizona Ethics Opinion No. 94-03. In that setting, the attorney owes the insured undeviating and single allegiance, whether compensated by the insurer or the insured. Id. In the course of representing an insured, a lawyer must be careful not to reveal to the insurer information obtained during the defense of the insured-client which might lead to a denial of insurance coverage, without the client-insured's fully informed consent.

In Arizona Ethics Opinion No. 99-08, the Committee held that insurance defense lawyers could not participate in an audit review program conducted by an insurance company's outside auditor where the program requires (1) the disclosure of confidential information about the client/insured (without the client's informed consent), (2) restricts the lawyer's independent professional judgment by limiting the services the lawyer may perform, and (3) grants the auditor permission to review client files. The Committee stressed that, when an insurer engages a lawyer to defend an insured, the insured is the lawyer's client to whom the lawyer owes a duty of undeviating allegiance and loyalty. The lawyer is prohibited from revealing, without the client/insured's consent, information relating to the representation, and the disclosures which would occur during the course of an audit of the attorney's client files cannot be justified as being impliedly authorized to carry out the objectives of the representation. The Committee also cautioned insurance defense practitioners to be careful in submitting bills to carriers not to make unnecessary disclosures of information relating to the representation, and not to disclose at all information which could prove detrimental to the insured/client.

The potential for difficult conflict issues where counsel is retained by an insurance carrier is heightened in Arizona by the line of cases concerning options available to the insured where the carrier denies coverage or defends under a reservation of rights, that originated with the Supreme Court's decision in Damron v. Sledge, 105 Ariz. 151, 460 P.2d 997 (1969). That case initially arose out of a personal injury claim resulting from an automobile accident against both the driver and the owner of the vehicle, who had separate insurance coverage. The carriers involved retained separate counsel to represent both the driver and the owner. The carrier for the driver subsequently determined that there was no coverage for the claim under its policy and withdrew coverage. The attorneys whom the carrier had retained to defend the driver withdrew, and the driver was thereafter represented by personal counsel at the driver's expense. Eventually, the driver entered into a settlement with the plaintiff pursuant to which the driver agreed to assign to the plaintiff whatever claim the driver had against the insurance companies involved, and the plaintiff agreed not to execute against the driver's personal assets for any judgment the plaintiff might obtain, but to look only to the assigned claim against the insurers to satisfy any such judgment. The Supreme Court essentially held that an arrangement of this nature was neither in bad faith nor collusive. There was no conflict of interest issue confronting the attorney who negotiated this settlement arrangement for the driver, however, because that attorney had been retained and paid from the outset by the driver, and not the insurance carriers involved.

The Supreme Court, however, subsequently extended the "Damron doctrine" to situations where the carrier had not denied coverage of the insured, but had rather advised the insured that it would provide the insured with a defense, while reserving its rights to subsequently deny that there was coverage for some or all of the claims asserted against the insured, thereby creating the possibility of thorny conflict of interest questions for carrier-appointed defense counsel. United Services Auto. Ass'n v. Morris, 154 Ariz. 113, 741 P.2d 246 (1987). In Morris, the carrier elected to defend two of its insureds for claims arising out of a shooting incident, subject to a reservation of its right to determine that the incident fell within the "intentional acts" exclusion of its policy, and retained counsel to conduct the defense. During the course of discovery, that defense counsel came into possession of information indicating that the shooting was in fact intentional, and requested that the carrier retain separate counsel to represent its interests, which it apparently did. Counsel retained to represent the insured defendants then advised counsel retained by the carrier that he was negotiating a settlement with the plaintiff, and was warned that the carrier would consider any such settlement a violation of the policy's "cooperation clause," and thereby release the carrier of any obligation to indemnify. Notwithstanding this warning, counsel proceeded to negotiate and agree to a settlement pursuant to which the insured defendants assigned to the plaintiff their rights as against the insurance carrier and agreed to stipulate to the entry of a judgment, in the amount of the policy limits, against them. In return, the plaintiff agreed to seek to collect that judgment only from the insurance carrier, and not to execute on any personal assets of the defendants. The Supreme Court held that such a settlement did not violate the insureds' duty to cooperate with their insurer, and was not necessarily collusive.

The Morris Court itself noted that, where an insurance carrier defends under a "reservation of rights," defense counsel appointed to conduct the defense is faced with a conflict between the interests of the carrier and the insureds the attorney has been retained to defend. As the Comment to AZ-ER 1.7 makes clear, "when an insurer and its insured have conflicting interests in a matter arising from a liability insurance agreement, and the insurer is required to provide special counsel for the insured, the arrangement should assure the special counsel's professional independence." That approach - the appointment of special counsel for the insured - has been followed in California, but not in Arizona.

Under established Arizona law, where there is an actual or potential divergence between the interests of the carrier and its insured, the insured is considered the client of the lawyer, and it is to the insured that the retained lawyer owes a duty of loyalty. Paradigm Insurance Company v. The Langerman Law Offices, P.A., 200 Ariz. 146, 24 P.3d 593 (2001); Parsons v. Continental National American Group, 113 Ariz. 223, 550 P.2d 94 (1976); Arizona Ethics Opinion No. 94-03. Where defense counsel is appointed to defend subject to a reservation of the carrier's rights to subsequently deny coverage, the insured has a clear interest in entering into a settlement, if possible, similar to that sanctioned in the Morris decision, that protects the personal assets of the insured against a subsequent adverse judgment and denial of coverage. Defense counsel at least has an obligation to advise the insured-client that such a settlement might be possible, and to pursue that possibility if the insured instructs counsel to do so. On the other hand, having the insured enter into such a settlement is clearly adverse to the interests of the carrier involved, whose preference normally is that the matter be litigated to judgment. If that judgment is in favor of the insured, the carrier has simply incurred defense costs; if the judgment is against the insured, the carrier still has the option to deny coverage and litigate that issue with the insured.

It is frequently the case that defense counsel appointed in such situations have an ongoing business relationship with the carrier involved pursuant to which that counsel is regularly retained to defend the carrier's insureds. Where that is the case, there is an understandable reluctance on the part of that lawyer to advised the insured of the possible availability of what is called a "Damron-Morris"settlement, and then to negotiate it if instructed to do so, which is adverse to the interests of the carrier with whom the lawyer has an ongoing business relationship. There is no Arizona authority which specifically addresses how that conflict ought to be resolved. Many lawyers follow the approach taken by defense counsel in Morris, and advise the carrier that it ought to retain separate counsel to protect its interests; other lawyers simply advise the insured to retain separate counsel at the insured's expense to negotiate the terms of such a settlement. The former approach seems to be the one more consistent with the Rules of Professional Conduct.

1.8:730      Lawyer with Fiduciary Obligation to Third Persons [see 1.13:520]

There are some circumstances in which lawyers may appropriately serve in fiduciary roles, such as an executor or trustee. In Arizona Ethics Opinion No. 96-07, the Committee held that it was not a violation of AZ-ER 1.8(c) for a lawyer to draft a revocable living trust with a pour-over will for a client, and to be named as a trustee or the client's personal representative, but the lawyer may not recover trustee fees in addition to legal fees for the same work, and the lawyer must be able to exercise independent professional judgment when acting as both trustee and counsel to the estate. A lawyer may also, under certain conditions, acquire obligations to third parties by representing clients in their capacities as fiduciaries. In either instance, i.e., where the lawyer serves as a fiduciary, or represents a client who is a fiduciary, there is a potential for conflict between the lawyer's fiduciary obligations to others, and the lawyer's obligations to the client.

Situations in which an attorney may have fiduciary obligations to third parties that conflict with the interests of the attorney's client arise frequently in the estate administration area. As the Comment to AZ-ER 1.7 explains:

For example, conflict questions may arise in estate planning and estate administration. A lawyer may be called upon to prepare wills for several family members, such as husband and wife, and, depending upon the circumstances, a conflict of interest may be present, as when one spouse owns significantly more property than the other or has children by a prior marriage. In estate administration the identity of the client may be unclear under the law of a particular jurisdiction. Under one view, the client is the fiduciary; under another view, the client is the estate or trust, including its beneficiaries. In order to comply with conflict of interest rules, the lawyer should make clear the lawyer's relationship to the parties involved.

Comment, AZ-ER 1.7, 26.

In Matter of Estate of Shano, 177 Ariz. 550, 869 P.2d 1203 (App. 1993), the Court approved the disqualification of an attorney who was simultaneously acting as co-counsel for the appointed special administrator of an estate, and the proponent of and beneficiary under a holographic will of the decedent which was being contested in the proceedings involved. The Court noted that the attorney for a special administrator of an estate, or a personal representative, has a derivative fiduciary duty to the successors to the estate, including the surviving spouse. Id. The Court concluded that the attorney's simultaneous representation of a personal representative and of the beneficiary under a separate, and contested, will violated that derivative fiduciary duty, and was a conflict of interest that impaired the attorney's ability to represent the beneficiary client, because the latter representation would be materially limited by the attorney's fiduciary responsibilities to the other prospective beneficiaries. Id.

The Court of Appeals recently had the opportunity to clarify the apparent breadth of the holding in Shano, in its decision in In the Matter of the Estate of Fogelman, 197 Ariz. 252, 3 P.3d 1172 (App. 2000). In Fogelman, the Court reiterated that the attorney representing the personal representative or administrator of an estate owes a "derivative fiduciary duty" of fairness and impartiality to beneficiaries and successors, but explained that such duty was one imposed by Arizona's Probate Code, and not the Arizona Rules of Professional Conduct. The Court specifically held that successors and beneficiaries of an estate are not clients of the lawyer representing the personal representative. This "derivative fiduciary duty," however, may impose a "material limitation" on the lawyer's ability to represent, on unrelated matters, clients who are also involved in the probate proceedings, and thereby create a conflict of interest as defined by AZ-ER 1.7.

A somewhat related situation is where the attorney is aware that a third party has an interest in, or claim to, funds which the attorney is holding for, or expects to receive on behalf of, a client. In Arizona Ethics Opinion No. 98-06, the Committee considered the issue of how lawyers should deal with claims from medical providers who seek compensation from the proceeds of personal injury settlements or recoveries obtained by the lawyer for clients. The Committee concluded that lawyers have an obligation to notify such providers of the receipt of funds when the lawyers have actual knowledge of a provider's matured legal or equitable claim to all or part of the proceeds. In an earlier Opinion, Arizona Ethics Opinion No. 97-02, the Committee had addressed the issue of a lawyer's obligations both to a client and to third parties when faced with a federal health insurance contract that had a right of recovery and/or subrogation against a personal injury settlement. The Committee reasoned that the policy's right of subrogation created an "interest" in the proceeds within the meaning of Arizona ER 1.15(b), so that the lawyer could not counsel the client to sign a release that might extinguish the insurer's claim unless the attorney intended to honor that claim. The Committee also held that the lawyer could not disburse the settlement proceeds to the client, without first notifying the health insurance plan and delivering to the insurer any portion of the proceeds to which it was entitled. In Arizona Ethics Opinion No. 88-02, the Committee ruled that, when a health care provider requests an attorney to sign a medical lien against the proceeds of a client's personal injury claim, the attorney must first determine whether the imposition of the lien will impose upon the attorney any obligation to the provider. If so, the attorney may only sign the lien if the attorney reasonably believes that the representation of the personal injury claimant will not be adversely affected, and that client consents after consultation.

In Arizona Ethics Opinion No. 93-09, the Committee addressed the issue whether it represented a conflict of interest for a lawyer who was also a legislator, or members of that lawyer-legislator's firm, to engage in lobbying activities on behalf of clients before the legislature. The Committee held that there was no per se prohibition on a lawyer-legislator also engaging in lobbying activities on behalf of clients, but noted that the lawyer-legislator's duties to the public or to constituents might in certain circumstances represent a responsibility that might materially limit the lawyer's ability to lobby for a client. If the lawyer-lobbyist concludes that representation of a client for lobbying purposes will be adversely affected by the fact that the lawyer is also a legislator, then neither the lawyer involved nor any member of the firm with which that lawyer is associated may accept that engagement.

1.8:800   Aggregate Settlements

AZ-ER 1.8(g) provides that, where a lawyer undertakes representation of multiple parties in a civil matter, or multiple defendants in a criminal matter, the lawyer may not participate in concluding an aggregate settlement of the claims of or against the clients in the civil matter, or an aggregate agreement as to guilty or nolo contendere pleas in the criminal matter, unless each of the clients involved consents after consultation, which must involve a disclosure to the clients involved of at least (1) the existence and nature of all claims and pleas involved, (2) the total amount of the settlement and (3) the participation of each client in the settlement. There are no Arizona authorities that elaborate on these principles.

1.8:900   Agreements Involving Lawyer's Malpractice Liability

AZ-ER 1.8(h) in a sense represents the application of the principle codified in AZ-ER 1.8(a), that business transactions between the lawyer and the lawyer's client must be fair and reasonable to the client, to two specific situations: (1) agreements prospectively limiting the lawyer's malpractice liability, and (2) agreements settling malpractice claims against the lawyer. The 2003 amendments added a third limitation applicable to agreements limiting the client's right to report a lawyer to professional authorities. See discussion in Section 1.8:910, infra.

With respect to agreements prospectively limiting a lawyer's liability to a client for malpractice, two separate requirements are imposed: (1) the agreement must be permitted by law, and (2) the client must be represented by independent counsel in entering into the agreement. With respect to agreements settling a client's malpractice claim against a lawyer, they are improper unless the lawyer advises an unrepresented client or former client in writing that he or she should seek independent representation in connection with the settlement.

1.8:910      Prospective Limitation of Malpractice Liability

With respect to agreements prospectively limiting a lawyer's liability to a client for malpractice, AZ-ER 1.8(h) imposes two separate requirements: (1) the agreement must be permitted by law, and (2) the client must be represented by independent counsel in entering into the agreement. It is not a violation of this provision of the Rule for a lawyer to include a mandatory arbitration provision, provided: (1) the clause is fair and reasonable to the client, (2) the clause or agreement fully discloses the advantages and disadvantages of arbitration, (3) the attorney affords the client a reasonable opportunity to seek the advice of independent counsel, and (4) the client consents to the arbitration agreement in writing. Arizona Ethics Opinion No. 94-05. A prosecutor and defense counsel may enter into a plea agreement in which the defendant waives any future claim of ineffective assistance of counsel without prospectively limiting defense counsel's malpractice liability. Arizona Ethics Opinion No. 95-08.

Limiting Client's Right to File Disciplinary Complaint

The 2003 amendments added to AZ-ER a new subparagraph (h)(2) which prohibits lawyer from making "an agreement prospectively limiting the client's right to report the lawyer to appropriate professional authorities . . ." Unlike agreements settling malpractice claims against the lawyer and agreements prospectively limiting the lawyer's liability to a client, agreements which limit the client's right to file a disciplinary complaint against the lawyer cannot be saved by having the client represented by independent counsel or providing the client the opportunity for such independent representation. This new Rule is consistent with the rule that an attorney may not settle a fee dispute with a client on the condition that the client agree not to file a complaint against the attorney with the disciplinary authorities. Arizona Ethics Opinion No. 91-23.

1.8:920      Settlement of Legal Malpractice Claim

AZ-ER 1.8(h)(3) makes agreements settling a client's malpractice claim against a lawyer improper unless the lawyer advises an unrepresented client or former client in writing that he or she should seek independent representation in connection with the settlement. It is not a violation of this provision of the Rule for a lawyer to include a mandatory arbitration provision, provided: (1) the clause is fair and reasonable to the client, (2) the clause or agreement fully discloses the advantages and disadvantages of arbitration, (3) the attorney affords the client a reasonable opportunity to seek the advice of independent counsel, and (4) the client consents to the arbitration agreement in writing. Arizona Ethics Opinion No. 94-05.

1.8:1000   Opposing a Lawyer Relative

Under what is now AZ-ER 1.8(l), a lawyer may not represent a client where a lawyer to whom the lawyer is related as parent, child, sibling, spouse or cohabitant represents the adverse party, unless the client consents after consultation. Conflicts arising through application of the provisions of this subpart of the Rule are not imputed to other lawyers with whom the affected lawyers are associated in a firm. AZ-ER 1.8(k). Accordingly, it is not unethical for a firm with which a wife practices to handle a matter adverse to the interests of a client of the husband's firm, so long as neither the husband nor the wife work directly on the matter.

Spousal relationships between opposing counsel pose a threat of inadvertent breach of confidences and the potential interest in the income derived from the legal matter by the other spouse. Thus, in Arizona Ethics Opinion No. 82-15, the Committee concluded that a public lawyer must decline representation whenever a spousal relationship creates a reasonable risk of potential personal or financial conflicts of interest.

In Arizona Ethics Opinion No. 75-28, the Committee addressed the question whether a lawyer could participate in a legal matter in which the lawyer's father, a physician, was a medical witness for or against the lawyer's client. The Committee reasoned that the lawyer must question whether the lawyer can loyally represent the client if the lawyer's father is testifying for the adverse party, and must be sensitive to the appearance of impropriety if the lawyer's father is to testify on behalf of the lawyer's client. If the lawyer concludes that the father's involvement in the case on either side will not affect the representation, the lawyer must then obtain the client's consent after full consultation

Finally, in In re Wetzel, 143 Ariz. 35, 691 P.2d 1063 (1984), cert. denied 469 U.S. 1213 (1985), a lawyer who was the respondent in a disciplinary proceeding claimed that bar counsel had a conflict of interest because bar counsel's brother was a partner in a firm which had previously represented the lawyer in a civil matter. The brother had no involvement in the disciplinary proceeding, and the Court concluded that the sibling relationship was too remote to create a conflict of interest.

In Arizona Ethics Opinion No. 2001-12, the Committee addressed the issue of what ethical guidelines should be applied in a situation where an Assistant Public Defender was involved in a romantic relationship with a law enforcement officer who was frequently an arresting or investigating officer in cases involving clients of the Public Defender's Office. The Committee held that, in cases where the officer was a testifying witness, it would probably constitute a non-waivable conflict of interest for the Assistant Public Defender to represent the defendant, and disclosure of the relationship was mandatory. In cases where the officer was a testifying witness, but a different Public Defender was conducting the defense, whether the relationship would represent a material limitation on the ability to conduct the client's defense, and whether the relationship need be disclosed to the client would have to be evaluated on a case-by-case basis.

A similar question was addressed by the Committee in Arizona Ethics Opinion No. 2001-10, which involved a member of a prosecutor's office and a member of the public defender's office who were cohabiting and/or married. Again, the Committee concluded that, where the individuals involved in the relationship were working opposite each other on the same case, that would be permissible only if both attorneys believed that their respective representations would not be materially limited and both obtained informed consent from the clients involved. Where the individuals involved in the relationship were not opposite each other on the same case, whether the relationship should be disclosed, and whether it would have a material adverse effect on another lawyer's ability to represent a client, would have to be evaluated on a case-by-case basis.

1.8:1100   Lawyer's Proprietary Interest in Subject Matter of Representation

Under AZ-ER 1.8(i), a lawyer is not permitted to acquire an ownership or proprietary interest in a cause of action or the subject of litigation, except that the lawyer may acquire a lien which is "granted by law" to secure the lawyer's fees or expenses, and the lawyer may enter into a reasonable contingent fee in a civil matter. As the Comment to this paragraph of the Rule explains:

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

Comment, AZ-ER 1.8, 16.

1.8:1110      Acquiring an Interest in Subject Matter of Representation

Under AZ-ER 1.8(i), a lawyer is not permitted to acquire an ownership or proprietary interest in a cause of action or the subject of litigation, except that the lawyer may acquire a lien which is "authorized by law" to secure the lawyer's fees or expenses, and the lawyer may enter into a reasonable contingent fee in a civil matter. The Arizona Supreme Court articulated some of the dangers that can flow from a lawyer having an interest in the subject matter of an engagement, above and beyond the lawyer's fee in the matter, in Matter of Stewart, 121 Ariz. 243, 589 P.2d 886 (1979), which concerned the advance or loan to a client of living expenses during the pendency of litigation:

... because if an attorney acquires an interest in the outcome of a suit in addition to his fees, it can lead to the attorney placing his own recovery ahead of his client. For example, he might urge a settlement which would be to his best interest but not to the best interest of the client ... Moreover, the practice of making loans to clients, if publicized, would constitute an improper inducement for clients to employ an attorney.

Id., 121 Ariz. at 245, 589 P.2d at 888 (citations omitted).

AZ-ER 1.8(i)(1) provides that, notwithstanding the general prohibition on a lawyer acquiring a proprietary interest in the subject matter of litigation, a lawyer may "acquire a lien authorized by law to secure the lawyer's fees or expenses ..." In Skarecky & Horenstein, P.A. v. 3605 North 36th Street Co., 170 Ariz. 424, 825 P.2d 949 (App. 1991), a law firm had accepted, as security for payment of its fees, the assignment of its clients' beneficial interest in a deed of trust. The Court of Appeals agreed with the firm's contention, on an appeal from a Superior Court's determination that the assignment was void and unenforceable, that it did not operate to give the firm an improper proprietary interest in a cause of action, but was rather a legally and ethically permissible lien acquired as security for the payment of the firm's fees.

1.8:1120      Contingent Fees [see also 1.5:600]

The other specific exception to the general prohibition of AZ-ER 1.8(i) upon a lawyer acquiring a proprietary interest in the cause of action or subject matter of litigation which the lawyer is conducting for a client is that a lawyer may "contract with a client for a reasonable contingency fee in a civil case." The Rule which generally governs the subject of lawyers' fees is AZ-ER 1.5. The overriding requirement of AZ-ER 1.5(a), replicated in AZ-ER 1.8(i)(2), is that a lawyer's fee, whether fixed or contingent or calculated on some other basis, must be "reasonable." AZ-ER 1.5(a) sets out the following factors that are to be considered in gauging the reasonableness of a lawyer's fee:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill required to perform the legal service properly;

(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

(3) the fee customarily charged in the locality for similar legal services;

(4) the amount involved and the results obtained;

(5) the time limitations imposed by the client or by the circumstances;

(6) the nature and length of the professional relationship with the client;

(7) the experience, reputation, and ability of the lawyer or lawyers performing the service; and

(8) the degree of risk assumed by the lawyer.

In addition, AZ-ER 1.5 contains certain provisions specifically applicable to contingent fee arrangements. AZ-ER 1.5(c) requires not only that a contingent fee agreement be in writing, but also that it be actually signed by the client. See AZ-ER 1.5(c). In addition, under AZ-ER 1.5(c), the contingent fee agreement "shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated." Finally, AZ-ER 1.5(c) requires the lawyer, upon the conclusion of a contingent fee matter, to furnish the client with a written statement showing the outcome of the matter and, if there has been a recovery, showing the remittance to the client and the manner in which it was calculated.

AZ-ER 1.5(d) specifies two situations where a contingent fee will never be permissible. The Rule prohibits lawyers from entering into agreements for, or collecting:

(1) any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or upon the amount of alimony or support, or property settlement in lieu thereof; or

(2)    a contingent fee for representing a defendant in a criminal case.

The Arizona authorities have given cautious recognition to, and somewhat begrudging acceptance of, contingency fees in civil matters, viewing them as almost a necessary evil. The leading case in Arizona concerning the enforceability and ethical propriety of contingency fees in civil case remains the decision of the Arizona Supreme Court in Matter of Swartz, 141 Ariz. 266, 686 P.2d 1236 (1984). That case arose under DR 2-106 of the former Code of Professional Responsibility, and concerned an agreement by respondent Swartz to represent an accident victim for one-third of all sums recovered on the client's behalf, either from the workmen's compensation carrier for the client's employer or from third-party claims. The client did receive a recovery from the industrial carrier, which was the State Compensation Fund, and Swartz did institute claims on the client's behalf against the driver of the vehicle in which the client had been a passenger when the accident that produced the client's injuries took place.

It appeared undisputed that the driver was intoxicated at the time of the incident in question, and the two liability carriers for the driver very shortly offered their policy limits of $100,000 and $50,000 respectively to settle the claim. In fact, the Court estimated that Swartz could not have spent more than twenty or thirty hours in handling and settling the claims. The problem was that the State Compensation Fund had a statutory lien, in the amount of approximately $100,000, on any recovery the client secured from third parties. Discharge of that lien, and payment to respondent of the one-third contingency fee virtually exhausted the recovery on behalf of the client. As the Court observed: "From a practical standpoint, the net result of the settlement was that the Fund got $100,000, respondent received the $50,000 fee, and Sarge [the client] received nothing." Id., 141 Ariz. at 270, 686 P.2d at 1240.

In its discussion of the ethical propriety of this arrangement, in light of the results achieved, the Court initially noted that the contingent fee had originally been considered unethical and illegal as a form of champerty, but had gradually been accepted and approved in virtually all American jurisdictions, albeit that the acceptance was "grudging," and the contingent fee was approved because it was considered a "necessary evil." Id., 141 Ariz. at 272, 686 P.2d at 1242. (citations omitted). See also Richfield Oil Corporation v. LaPrade, 56 Ariz. 100, 105 P.2d 1115 (1940). The initially perceived dangers of such arrangements were that lawyers with a pecuniary interest in the outcome of a case would have an incentive to twist or manufacture favorable evidence, or would overreach in the prosecution of claims because of their own pecuniary interest, and that such arrangements might increase the filing of vexatious and frivolous actions. After noting these initial concerns, the Court concluded:

Whatever the dangers, it is now generally accepted that the contingent fee is proper and has substantial social utility because such arrangements are "often the only method by which a person of ordinary means may prosecute a just claim to judgment." . . . Properly used, therefore, we believe the contingent fee is a necessary method of insuring the availability of legal services.

Id., 141 Ariz. at 272, 686 P.2d at 1242 (citations omitted).

Notwithstanding their potential social utility, however, contingent fees are still subject to the proscription that a lawyer's fee be reasonable and are subject to scrutiny and regulation by the disciplinary authorities and, ultimately, the Arizona Supreme Court. The Court then pointed out that it was erroneous to conclude that "recognition of the propriety of the initial fee arrangement gives the lawyer carte blanche to charge the agreed percentage regardless of the circumstances which eventually develop.", id., 141 Ariz. at 273, 686 P.2d at 1243, and announced the following rule concerning contingency fee arrangements:

We hold, therefore, that if at the conclusion of a lawyer's services it appears that a fee, which seemed reasonable when agreed upon, has become excessive, the attorney may not stand upon the contract; he must reduce the fee. What is reasonable and within permissible limits will be determined by the circumstances, including the factors listed in DR 2-106.

Id., 141 Ariz. at 273, 686 P. 2d at 1243. Among the factors to be considered in assessing, whether prospectively or retroactively, the reasonableness of a contingency fee, the Court cited the following: "1) the degree of uncertainty or contingency with respect to liability, amount of damages which may be recovered, or the funds available from which to collect any judgment; 2) the difficulty of the case and the skill required to handle it; 3) the time expended in pursuing it; and, 4) the results obtained. Id. Applying those factors to the case before it, the Court concluded that Swartz had charged an excessive fee, and ordered that he be suspended from the practice of law for a period of six months.

That the standards enunciated in Swartz survived the adoption of the Arizona Rules of Professional Conduct in full force, and would be applied in determining whether a contingency fee arrangement satisfied the standards of AZ-ER 1.5(a), was confirmed by the Arizona Court of Appeals in Matter of Conservatorship of Fallers, 181 Ariz. 227, 889 P.2d 20 (App. 1994). That case involved a contingency fee arrangement between a deceased father's former wife and a lawyer, which granted the lawyer a one-third interest, as the lawyer's fee, in the proceeds of a wrongful death action to be brought on behalf of the father's four minor children. The Court held that, under Swartz, a court should analyze the propriety of a contingency fee, both prospectively and retroactively, using the eight factors listed in AZ-ER 1.8(a), and that a contingent fee could be found excessive where liability in the matter is clear, there are no novel or difficult legal or factual issues presented, the the client may receive little of the recovery if the contingency fee is honored, and the lawyer did not have to devote much time to the matter.

Swartz and its progeny dictate that the reasonableness of a contingent fee is to be assessed both prospectively, at the inception of the attorney-client relationship, and retroactively, at the conclusion of the engagement and in light of the results achieved and/or the efforts required of the lawyer. Thus, in Matter of Zang, 158 Ariz. 251, 762 P.2d 538 (1988), the Court approved the disbarment of the respondent Zang for, among other things, entering into contingency fee agreements that called for a 50% contingency fee. In an earlier proceeding involving the same respondent, Matter of Zang, 154 Ariz. 134, 741 P.2d 267 (1987), the Court found that Zang had charged an excessive fee by taking a one-third contingent fee out of a property damage settlement for a client which Zang and his firm had done nothing to secure, and for taking a one-third contingency fee from a medical payments check that had been sent in error to the client by the client's insurer, and which Zang and his firm also had done nothing to secure. See also Matter of Mercer, 126 Ariz. 274, 614 P.2d 816 (1980), where the Court approved the suspension of Mercer for a period of two months for, among other things, charging a client an excessive fee by taking a contingent fee share of an award to the client by the Employment Securities Division, which Mercer had not obtained for the client, and which was in excess of what the Industrial Commission hearing officer had determined was an appropriate fee. See also In re Barth, 46 Ariz. 281, 50 P.2d 564 (1935), where the Court held that it was improper for an attorney, who had a fee agreement calling for the attorney to receive 25% of any sums recovered, to treat a promissory note received as part of a settlement as cash, and collect 25% of that from the cash proceeds received.

Contingent fee arrangements have been subjected to particularly close scrutiny in domestic relations matters. AZ-ER 1.5(d)(1) itself prohibits "any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or upon the amount of alimony or support, or property settlement in lieu thereof." In Arizona Ethics Opinion No. 77-18, the Committee ruled that Arizona's change from a "fault" divorce to a "no-fault" dissolution concept did not operate to dilute the prohibition against charging a contingent fee with regard to either the disposition of marital property or future spousal maintenance.

In Arizona Ethics Opinion No. 82-09, the Committee approved a contingent fee arrangement where the services to be performed involved an attempt to set aside a prior divorce decree and settlement agreement on the grounds of fraud and duress, and the inquiring attorney had a different fee arrangement for negotiating or litigating a new property settlement agreement. In Arizona Ethics Opinion No. 86-12, the Committee held that it was proper for an attorney representing a client in a marital dissolution proceeding to take a lien on community funds to secure the payment of the attorney's fees and costs, after the issuance of the preliminary injunction contemplated by A.R.S. § 25-315.

In Arizona Ethics Opinion No. 87-06, the Committee reaffirmed, after the adoption of the Arizona Rules of Professional Conduct, the continuing vitality of the prohibition upon charging a client a contingent fee computed on the value of any property the client was to receive as a result of the division of marital property in the divorce proceeding. In Arizona Ethics Opinion No. 89-02, however, the Committee approved a contingent fee arrangement in a post-dissolution action to claim a share of an allegedly undisclosed community asset which had not been considered by the court at the time of the dissolution proceeding. In Arizona Ethics Opinion No. 93-04, the Committee ruled that AZ-ER 1.5(d)(1) was inapplicable to a contingency fee agreement between a lawyer and client for the collection or enforcement of child support or spousal maintenance after entry of the decree of dissolution, but cautioned that the length of time the contingency fee would be applied to future payments be specified, and that the agreement be in all respects fair and reasonable.

Subsequently, the Arizona Supreme Court issued its decision in Matter of Struthers, 179 Ariz. 216, 877 P.2d 789 (1994), which was a disciplinary proceeding against an attorney who specialized in collecting overdue child support payments from divorced parents, generally on a 25% contingency fee basis. Many of the respondent's fee agreements, moreover, purported to allow him to keep one hundred percent of all payments he collected until 25% of the total arrearages had been paid in full. The Court identified two problems with the fee agreements being used by respondent.

The first was a provision that respondent was entitled to retain any court-awarded fees in addition to the contingency fee. The Court found that this would result in a double recovery of fees, and would mislead the court to which an application for the award of fees was made. Although respondent claimed that he never invoked the provision, the Court found that it was facially unreasonable and improper and a violation of AZ-ER 1.5(a).

The second improper aspect was that the agreements could be interpreted as allowing Struthers to keep all funds collected on a client's behalf until his pre-set fee was paid in full. The Court noted that a provision of this nature was inherently suspect in child support cases, and improper unless both parties fully understood and freely agreed to the arrangement. The Court also criticized the agreements as ambiguous, and summed up its holding as follows:

Insofar as they allowed double payment of fees, the fees were unreasonable and thus in violation of ER 1.5(a). Insofar as they purported to allow Struthers to retain all monies until his fee was paid in full, the agreements did not state the method by which the fees would be calculated with sufficient clarity to satisfy ER 1.5(c).

Id., 179 Ariz. at 223, 877 P.2d at 796. The Court went on to observe that, given the financial situation of many of Struthers' clients, a provision allowing him to keep for himself all of the initial monies collected when, in many of the cases, it was to be expected that there would be no further recoveries for some time, if ever, was so clearly unfair to the clients as to be overreaching as a matter of law. For these, and other, transgressions, Struthers was disbarred.

Slightly different considerations may come into play where the attorney's contingency fee is not applied to a monetary recovery obtained, but to the value of property or assets that may or may not be the subject of the engagement. In Arizona Ethics Opinion No. 80-05, the Committee held that an attorney representing a client in a land dispute may accept a portion of the land as a contingent fee. In Arizona Ethics Opinion No. 94-15, however, the Committee ruled that an attorney may take a contingent fee in the form of a partial patent registration assignment for handling the prosecution of a patent application at the U.S. Patent and Trademark Office, but pointed out that the fee must be reasonable under AZ-ER 1.5(a), and the attorney was also required to comply with the requirements of AZ-ER 1.8(a) applicable to entering into a business transaction with a client.

In Matter of Cain, 174 Ariz. 592, 852 P.2d 407 (1993), Cain had been retained to represent clients in a quiet title proceeding to clear certain trust property of a long-term lease with an option to purchase. Cain's written retainer agreement called for a non-refundable retainer of $5,000, and a contingency fee equal to 10% of the gross value of the entire nine-acre property involved. The Court found the agreement improper because it did not specify the nature of the contingency, because it failed to state the time at which the property would be valued for purposes of calculating the contingency, and because it did not clarify whether costs and expenses would be deducted from the recovery before or after the 10% of gross value calculation was to be made. For this and other ethical violations, Cain was suspended from the practice of law for a period of two years.

Contingency fee arrangements have also not been given favorable treatment in cases involving fee applications where a governing statute, such as A.R.S. § 12-341.01, permits the shifting of fees incurred by the prevailing party. In Betancourt v. Arizona Property & Casualty Insurance Fund, 150 Ariz. 296, 823 P.2d 1304 (App. 1991), the Court held that, where an application for an award of attorneys' fees is made under A.R.S. § 12-341.01, the applicant must still submit an affidavit establishing the reasonableness of the award of fees sought, which satisfies the standards of Schweiger v. China Doll Restaurant, Inc., 138 Ariz. 183, 673 P.2d 927 (App. 1983), even though a contingency fee agreement is involved. In Chavarria v. State Farm Mutual Automobile Insurance Company, 165 Ariz. 334, 798 P.2d 1343 (App. 1990), the Court held that, while A.R.S. § 12-341.01(A) gives the trial court discretion to award attorneys' fees in a contested action arising out of a contract, A.R.S. § 12-341.01(B) provides that "such award may not exceed the amount paid or agreed to be paid." Accordingly, in the Court's view, where the applicant was engaged under a contingency fee arrangement, the award cannot exceed the amount payable under that contingency agreement, even if the reasonable value of the services is much higher.

A client who enters into a contingency fee agreement with an attorney may settle, compromise or release the client's claims on any terms the client finds acceptable, without the attorney's consent, and even against the attorney's advice. Richfield Oil Corporation v. LaPrade, 56 Ariz. 100, 105 P.2d 1115 (1940). Moreover,:

Our law does not bind a person to one attorney merely because he has entered into a contingent fee relationship. If the client in the exercise of this power discharges the attorney under a contingent fee contract before his lien arises, that attorney generally has a remedy only against the client for the value of his services.

State Farm Mutual Insurance Company v. St. Joseph's Hospital, 107 Ariz. 498, 502, 489 P.2d 837, 841 (1971) (citing Walker v. Wright, 28 Ariz. 235, 236 P. 710 (1925)).

1.8:1130      Lawyer Liens

AZ-ER 1.8(i)(2) provides that, notwithstanding the general prohibition on a lawyer acquiring a proprietary interest in the subject matter of litigation, a lawyer may "acquire a lien granted by law to secure the lawyer's fees or expenses ..." In Skarecky & Horenstein, P.A. v. 3605 North 36th Street Co., 170 Ariz. 424, 825 P.2d 949 (App. 1991), a law firm had accepted, as security for payment of its fees, the assignment of its clients' beneficial interest in a deed of trust. The Court of Appeals agreed with the firm's contention, on an appeal from a Superior Court's determination that the assignment was void and unenforceable, that it did not operate to give the firm an improper proprietary interest in a cause of action, but was rather a legally and ethically permissible lien acquired as security for the payment of the firm's fees. Similarly, in Arizona Ethics Opinion No. 86-12, the Committee ruled that a lawyer representing a client in a marital dissolution proceeding may secure the payment of the lawyer's fees and costs by taking a lien on community funds after the preliminary injunction contemplated by A.R.S. § 25-315 is issued.

The two principal categories of lawyer liens that have been recognized in Arizona are "charging liens" and "retaining liens." National Sales & Service Co., Inc. v. Superior Court of Maricopa County, 136 Ariz. 544, 667 P.2d 738 (1983). "Charging liens" attach to the funds or other property created or obtained by the attorney's efforts. Id. The Supreme Court has held that a "charging lien" arises only when it appears that the parties agreed to look to the fund itself for the payment of the attorney's fees. Linder v. Lewis, Roca, Scoville & Beauchamp, 85 Ariz. 118, 333 P.2d 286 (1958). "Retaining liens," which attach to the files, books and records that come into an attorney's possession, or are generated by the attorney, during the course of an engagement, are discussed in Section 1.8:1140, infra.

1.8:1140      Retention of Files to Collect Fees

The issue of the propriety of an attorney asserting a "retaining lien" as security for the payment of fees was first addressed in Arizona Ethics Opinion No. 81-32. The Committee essentially avoided the issue, ruling that if an attorney had a retaining lien "as a matter of law," the attorney could assert the lien, as security for the payment of fees, on client property in the attorney's possession.

The issue of whether Arizona would recognize the existence and propriety of a "retaining lien" "as a matter of law" was first (and finally) addressed in National Sales & Service Co., Inc. v. Superior Court of Maricopa County, 136 Ariz. 544, 667 P.2d 738 (1983). The Court initially pointed out that no Arizona appellate court had previously addressed the issue of whether such liens were valid, but noted that such liens were contemplated by DR 5-103(A)(1) of the Code of Professional Responsibility, which was then in effect in Arizona. The Court also noted that, in the absence of prior decisional or legislative authority to the contrary, Arizona courts were usually inclined to follow the principles of the Restatement of the Law, and that both § 62 of the Restatement of Security and § 464(b) of the Restatement (Second) of Agency recognized retaining liens in favor of an attorney as security for the payment of fees and recovery of advances. Accordingly, the Court determined:

We therefore hold that an attorney has a retaining lien as security for the general balance due him for professional services and disbursements upon the papers and other chattels of his client which come into his possession in his professional capacity.

Id., 136 Ariz. at 546, 667 P.2d at 740.

After encouraging attorneys and clients to negotiate and resolve fee disputes without resorting to the assertion of liens and/or litigation, the Court noted that there would clearly be circumstances where it would be inconsistent with the lawyer's duties to the client to assert a lien right with respect to portions of the client's file. Laboring without a detailed record that would permit it to give definitive guidance on this issue, the Court could only announce general guidelines as to when the assertion of a lien would be proper. Thus, it pointed out that it would be proper for the lien to attach to the lawyer's, and the lawyer's staff's, research notes and internal memoranda concerning the engagement. Such work product was, in the Court's view, the lawyer's property and remained the lawyer's property at least until the lawyer was paid. The Court then observed:

On the other hand, we believe it is improper for the lien to attach to a document given by the client to the lawyer for a purpose inconsistent with the fixing of a lien upon it. If, for example, a client brings an original document or instrument to a lawyer for delivery to another, then the client's purpose is inconsistent with the fixing of a lien upon the document or instrument ... Likewise, if a client brings some book, document or other chattel to his lawyer for use as an exhibit at an impending trial, the client's purpose is inconsistent with the fixing of a lien upon the document. In either of the above cases the lawyer's duty to seek his client's lawful objectives and to avoid prejudice or damage to his client are inconsistent with his assertion of a retaining lien.

Id., 136 Ariz. at 546, 667 P.2d 740 (citations omitted). Briefly summarized, the rule which emanates from the National Sales decision is that an attorney has, and may assert, a "retaining lien" with respect to work product generated by the lawyer or the lawyer's staff during the course of an engagement. With respect to other papers received and retained by the lawyer during the course of an engagement as part of the client's "file," the attorney may assert a "charging lien" as security for the payment of fees, but not if to do so would be inconsistent with the lawyer's obligations to accomplish the client's objectives or if the assertion of a lien with respect to all or any portion of the file would damage or prejudice the client's interests.

The Court in National Sales based its decision upon two separate grounds: (1) the fact that former DR 5-103(A)(1) of the Rules of Professional Responsibility (which is no longer in effect in Arizona) seemed to contemplate "retaining liens," and (2) the fact that sections of two separate Restatements, which Arizona courts are inclined to follow in the absence of contrary Arizona authority, but neither of which specifically addressed the obligations of lawyers, also seemed to recognize them.

In that regard, it is interesting to note that § 43 of the American Law Institute's Restatement of the Law Governing Lawyers takes a somewhat different approach to the issue of retaining liens. Section 43(1) does permit a lawyer to retain documents prepared by the lawyer or at the lawyer's expense as security for the payment of fees if retaining such materials would not unreasonably harm the client's or former client's interests, which is consistent with National Sales. That Section also provides, however, that a lawyer may not retain possession of, or assert a lien with respect to, a client's property, unless a statute or rule authorizes that, or the client has agreed to such an arrangement. This seems more restrictive than the rule announced in National Sales, but the issue has not been considered by the Supreme Court since the promulgation of the Restatement.

With respect to a somewhat related issue, the Committee on the Rules of Professional Conduct recently issued Arizona Ethics Opinion No. 98-07 , which addressed, albeit in a limited fashion, the issue of what the Rules of Professional Conduct require with respect to the retention and/or destruction of client files after representation of that client has terminated. The Committee was responding to inquiries from three disparate sources: (a) an attorney who had recently moved from a sole private practice to employment with a government agency, (2) a County Public Defender's Office, and (3) an attorney with a predominantly domestic relations practice. The latter included a paragraph in retainer agreements which essentially provided that, upon the full payment of applicable fees, materials provided by clients would be returned to the client, that the client was expected to retain copies of relevant documents concerning the representation provided to the client during the course of the engagement, that the client's file (with the exception, apparently, of materials provided by the client) remained the property of the attorney and that copies of such materials would subsequently be provided, either to the client or to successor counsel, only at the client's expense. The other exception was that copies of personal notes of the attorney and the attorney's paralegals and secretaries would not be copied. The paragraph concluded by advising the client that the attorney would not be responsible for maintaining any file materials for longer than five years following the end of the case or the termination of the representation, whichever first occurred. The Committee noted that the Public Defender's Office was subject to the Records and Retention Disposition Schedule published by the State's Department of Library, Archives & Public Records, pursuant to A.R.S. § 41-1351.

The Committee announced that it would address three questions, which it stated as follows:

1. What are the ethical guidelines as to client file retention and destruction of a client's file after representation of the client on a matter has terminated?

2. May an attorney ethically refuse to copy or turn over to a client internal documents such as personal notes of attorneys, or other parts of a file?

3. Must a County Public Defender's Office, or any lawyer, give a prior client the client's file upon request or in lieu of destruction?

The Committee then noted the issues that it considered not to be subsumed within the three it stated it was addressing and/or that it was not addressing in any event. In particular, the Committee made clear that it was not addressing, nor purporting to override, whatever requirements might be imposed by statutes and/or rules other than the Rules of Professional Conduct, such as Rule 43 of the Rules of the Arizona Supreme Court concerning trust account verification. It also stressed that it was not offering an opinion concerning "the legal issue of a client's entitlement to some or all of the documents in any file, whether in an attorney's lien situation or otherwise," nor one concerning "the legal ownership of all or any portions of the office files of past clients."

In the Opinion, the Committee assumed that representation of a client on a matter had ended, either by the matter having been concluded or through withdrawal by the attorney involved. At that point, under Rule ER 1.15(b), the lawyer is under an obligation to return to a clients any funds or other property which the client is entitled to receive. Similarly, under Rule ER 1.16(d), a lawyer is required to surrender papers and property to which a client is entitled at the conclusion of the representation, and has a continuing obligation to minimize harm to the former client after either withdrawal from or termination of a matter. Accordingly, the first rule or guideline which the Committee announced was that: "any document retention and destruction policy must provide a reasonable method of identifying that property to which a client is entitled and returning that property to the client. Depending upon the circumstances, that may or may not include the entire file."

The Committee then reviewed other Ethics Opinions, both from Arizona and other jurisdictions, which addressed, to varying degrees, the issue of the retention and/or destruction of a client file after the termination of the representation and after all property otherwise belonging to the client has been returned, noting that in many of these Opinions the issue had been treated as one of the appropriate characterization of ownership of the documents in question. The Committee then noted that the apparent logic of the Proposed Final Draft of the Restatement of the Law Governing Lawyers was that clients had a reasonable expectation, and lawyers have a reasonable duty, to preserve and make available to the client not only documents and things that were clearly the client's property, but also all documents in a lawyer's file that the client has a reasonable need for, subject only to any valid "attorney's lien" or other justifiable grounds, and that the lawyer has the burden of identifying and demonstrating such "other justifiable grounds."

Following a review of several other Ethics Opinions on the subject, the Arizona Committee announced the following rules and/or guidelines concerning the retention of client files:

1. Materials in a client's file which are obtained from the client are generally owned by the client, and a lawyer is under an ethical obligation to use reasonable efforts to return all client property, including such materials, upon termination of the representation. Materials owned by the client may not be destroyed until, and if, a reasonable effort to return such property has been made and a reasonable notice of destruction has been given. After reasonable notice, such materials must be safeguarded for a period of time equal to that under Arizona law for the abandonment of personal property, which is currently five (5) years. See A.R.S. § 44-301 et seq.

2. The balance of the client's file belongs to the lawyer, but subject to the client's interest in and right to access to it, based upon the client's reasonable expectation that the lawyer will act to minimize possible harm to the client's interests. Consequently, the lawyer has an ethical duty to allow former clients access to their files, including internal memoranda and "work product" relating to the representation, unless there is substantial justification for denying such access. The burden is on the lawyer to demonstrate justification for denying access.

3. Lawyers and law firms should establish a written client file retention and destruction policy, which complies with all case law, rule and statutory restrictions, and takes into consideration the client's foreseeable interests in securing access to the file materials.

4. The client file retention and destruction policy should include an individual file review at the conclusion of a matter for a client.

5. Written notice of the lawyer's or law firm's client file retention and destruction policies should be given to the client at or before the termination of the representation, or if not given at that point, prior to the destruction of the client's file.

6. In some circumstances, the lawyer may fulfill ethical obligations by simply tendering the entire file to the client at the termination of representation. If that is not done, then for probate and estate matters and certain types of criminal cases, retention of the file for an indefinite period is appropriate. For most other matters, a file retention period of five (5) years will be appropriate, but that period may vary depending upon the lawyer's judgment as to the client's reasonable need for the file materials.

7. Specified portions of a client's file may be withheld only upon a showing of a valid attorney's lien or other substantial justification.

8. If the client requests the entire file, the lawyer may deliver it or provide a full copy. In the latter event, or if the lawyer delivers to the client the original file and elects to retain a copy, the client should not be charged any copying costs.

9. The client may be charged for any additional copying costs incurred in responding to client requests after the original or one full copy of the file has been given to the client.