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Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.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

II. COUNSELOR

2.1   Rule 2.1 Advisor

2.1:100   Comparative Analysis of Arizona Rule

2.1:101      Model Rule Comparison

The 2003 amendments made no changes to the text of this Rule. A sentence was added to paragraph 5 of the accompanying Comment, indicating that when a lawyer is engaged to handle a matter that may involve litigation, the lawyer may have a responsibility to inform the client of reasonable alternatives to litigation for resolving the dispute.

AZ-ER 2.1 and its accompanying Comment are identical to MR 2.1 and its accompanying Comment.

2.1:102      Model Code Comparison

The former Code of Professional Responsibility had no direct counterpart to Rule ER 2.1. DR 5-107(B) provided, in effect, that a lawyer could not permit the exercise of the lawyer's independent professional judgment on behalf of a client to be controlled by persons who might have recommended, employed or paid the lawyer to render the legal services for that client. EC 7-8 provided that a lawyer's advice to a client need not be confined to purely legal considerations, and could take other factors and considerations, including moral considerations, into account, but that the decision whether to forego legally available objectives or methods because of nonlegal factors was one for the client to make.

2.1:200   Exercise of Independent Judgment

The first sentence of AZ-ER 2.1 expresses a principle that is the foundation for many of the other ethical rules, and particularly those dealing with conflicts of interest -- that the client is entitled to the independent professional judgment, unconstrained by influences and considerations extraneous to the attorney-client relationship, of the lawyer the client engages. Thus, the Comment to the Rule points out:

A client is entitled to straightforward advice expressing the lawyer's honest assessment. Legal advice often involves unpleasant facts and alternatives that a client may be disinclined to confront. In presenting advice, a lawyer endeavors to sustain the client's morale and may put advice in as acceptable form as honesty permits. However, a lawyer should not be deterred from giving candid advice by the prospect that the advice will be unpalatable to the client.

Comment, AZ-ER 2.1, 1.

In Arizona Ethics Opinion No. 96-07, the Committee on the Rules of Professional Conduct (hereinafter "the Committee") ruled that an attorney could properly draft a revocable living trust with a pour-over will for a client, and be named as a trustee and/or personal representative, and such an arrangement would not constitute a gift under AZ-ER 1.8(c). The Committee went on to point out, however, that the attorney could not recover trustee's fees in addition to legal fees for the same work, because the lawyer must be able to exercise independent professional judgment when acting as both trustee and counsel to the estate.

Part and parcel of the lawyer's obligation to exercise the lawyer's independent professional judgment on behalf of the client is a duty to establish a direct relationship with the client, and not to permit third parties or intermediaries to dictate or influence what is done for the client. Thus, in Arizona Ethics Opinion No. 83-19, the Committee stressed that, when an attorney accepts a case that is referred by a third party, there must be a direct and personal relationship between the attorney and the client such that the client directs and controls the legal services rendered. In Arizona Ethics Opinion No. 84-04, the Committee ruled that an attorney may not supervise lay representatives of a corporate client which represents employers at hearings before the Unemployment Compensation Division of the Department of Economic Security, if the attorney has no direct relationship with the employers, or if the attorney's client is a for-profit entity.

In Arizona Ethics Opinion No. 87-13, the Committee held that an attorney who is 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. Similarly, in Arizona Ethics Opinion No. 81-23, the Committee held that an attorney may not assist a collection agency if the attorney retains tactical control of contested actions, but allows direct contact between the collection agency and the defendant debtors for purposes of settlement.

2.1:300   Non-Legal Factors in Giving Advice

AZ-ER 2.1 also makes clear that a lawyer, when acting as advisor to a client, need not, and in certain circumstances should not, limit the counsel provided to "technical legal advice." As the Comment to the Rule points out:

Advice couched in narrowly legal terms may be of little value to a client, especially where practical considerations, such as costs or effects on other people, are predominant. Purely technical legal advice, therefore, can sometimes be inadequate. It is proper for a lawyer to refer to relevant moral and ethical considerations in giving advice. Although a lawyer is not a moral advisor as such, moral and ethical considerations impinge upon most legal questions and may decisively influence how the law will be applied.

Comment, AZ-ER 2.1, 2. Thus, in Arizona Ethics Opinion No. 97-06, the Committee held that a lawyer representing a client who was considering entering into a cooperation agreement with a law enforcement agency has an ethical obligation to determine all relevant facts that should be weighed in making such a decision, including the availability of protection for the client, and must provide the client with candid advice concerning the risks associated with the client's proposed cooperation. Similarly, in Arizona Ethics Opinion No. 87-05, the Committee held that an attorney may advise a client who has been arrested for driving while intoxicated to refuse to undergo blood, urine or breath tests, but the attorney must also fully advise the client about the consequences of refusing to submit to the tests and permit the client to make the decision whether or not to do so.

2.2   Rule 2.2 Intermediary

2.2:100   Comparative Analysis of Arizona Rule

Former AZ-ER 2.2, which governed a lawyer's obligations when undertaking to mediate the actual or potential conflicting interests of present or former clients, was abrogated as unnecessary as part of the 2003 amendments. Former MR 2.2 was also removed from the Model Rules of Professional Conduct.

To the extent a lawyer undertakes to arbitrate or mediate a dispute between parties whom the lawyer does not represent, new AZ-ER 2.4 controls. To the extent a lawyer undertakes to resolve differences between two or more clients, this was considered a species of joint representation and the strictures of AZ-ER 1.7 apply See Comment, AZ-ER 1.7, 31.

2.2:101      Model Rule Comparison

Former MR 2.2 was also removed from the Model Rules of Professional Conduct.

2.2:102      Model Code Comparison

The Model Code Disciplinary Rules had no direct counterpart to ER 2.2. EC 5-20 recognized that "A lawyer is often asked to serve as an impartial arbitrator or mediator in matters which involve present or former clients. He may serve in either capacity if he first discloses such present or former relationships." DR 5-105(B) states that "A lawyer shall not continue multiple employment if the exercise of his independent judgment in behalf of a client will be or is likely to be adversely affected by his representation of another client, or if it would involve him in representation of differing interests, except to the extent permitted under DR 5-105(C)." DR 5-105(C) provided that "a lawyer may represent multiple clients if it is obvious that he can adequately represent the interests of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of his independent professional judgment on behalf of each."

2.2:200   Relationship of Intermediation to Joint Representation

2.2:300   Preconditions to Becoming an Intermediary

2.2:400   Communication During Intermediation

2.2:500   Consequences of a Failed Intermediation

2.3   Rule 2.3 Evaluation for Use by Third Persons

2.3:100   Comparative Analysis of Arizona Rule

2.3:101      Model Rule Comparison

The Rule was amended in 2003 to reduce the number of situations where a lawyer must secure client consent to provide a third party with an evaluation of a matter being handled for that client. If the lawyer reasonably believes that providing such an evaluation is compatible with other aspects of the relationship with the client, then consent is not required. Where the lawyer knows or should know, however, that the evaluation is likely to have a material adverse effect on the client's interests, the evaluation may not be provided without the client's informed consent. Corresponding changes were also made to the Comment accompanying the Rule.

AZ-ER 2.3 is identical to MR 2.3. The Comments accompanying the two Rules differ only in that paragraph 2 of the Comment to AZ-ER 2.3, which deals with opinions by government lawyers on the legality of contemplated government agency action, is not contained in the Comment to MR 2.3.

and its accompanying Comment are identical to and its accompanying Comment.

2.3:102      Model Code Comparison

There was no counterpart to AZ-ER in the former Code of Professional Responsibility.

2.3:200   Undertaking an Evaluation for a Client

As amended in 2003, AZ-ER 2.3 now distinguishes between two categories of situations where a lawyer may provide an evaluation of a client matter to a third party: (1) those where client consent is not required, and (2) those where the client's informed consent is required. If the lawyer reasonably believes that providing such an evaluation is compatible with other aspects of the relationship with the client, then consent is not required. AZ-ER 2.3(a). Where the lawyer knows or should know, however, that the evaluation is likely to have a material adverse effect on the client's interests, the evaluation may not be provided without the client's informed consent. AZ-ER 2.3(b). In either situation, however, information relating to the evaluation is protected by AZ-ER 1.6, except as disclosure is authorized in connection with a report of an evaluation. AZ-ER 2.3(c). The Comment cites several common examples of where such evaluations are regularly undertaken:

An evaluation may be performed at the client's direction or when impliedly authorized to carry out the representation. See ER 1.2. Such an evaluation may be for the primary purpose of establishing information for the benefit of third parties; for example, an opinion concerning the title of property rendered at the behest of a vendor for the information of a prospective purchaser, or at the behest of a borrower for the information of a prospective lender. In some situations, the evaluation may be required by a government agency; for example, an opinion concerning the legality of the securities registered for sale under the securities laws. In other instances, the evaluation may be required by a third person, such as a purchaser of a business.

Comment, AZ-ER 2.3, 1.

The fact that there many situations where such evaluations are requested or performed does not signify that a lawyer should agree to perform one simply as a matter of course. As the Comment points out, in its discussion of the possibility that a lawyer undertaking such an evaluation may be assuming a duty to the third party for whose use it is performed [see Section 2.3:300, infra.]:

. . . since such an evaluation involves a departure from the normal lawyer-client relationship, careful analysis of the situation is required. The lawyer must be satisfied as a matter of professional judgment that making the evaluation is compatible with other functions undertaken in behalf of the client. For example, if the lawyer is acting as advocate in defending the client against charges of fraud, it would normally be incompatible with that responsibility for the lawyer to perform an evaluation for others concerning the same or a related transaction. Assuming no such impediment is apparent, however, the lawyer should advise the client of the implications of the evaluation, particularly the lawyer's responsibilities to third persons and the duty to disseminate the findings.

Comment, AZ-ER 2.3, 4. There are no other Arizona authorities that elaborate upon these principles or apply them to specific situations.

2.3:300   Duty to Third Persons Who Rely on Lawyer's Opinion [see also 1.1:420]

The Comment to AZ-ER 2.3 itself observes that: "When the evaluation is intended for the information or use of a third person, a legal duty to that person may or may not arise.", Comment, AZ-ER 2.3, 4, but states that legal question is beyond the scope of the Rule. Whether the performance of an evaluation for the use of a third party will expose that attorney to potential liability to that third party if the evaluation is negligently prepared raises squarely the issue of the circumstances under which an attorney can be subjected to malpractice liability in favor of a person or entity who was not the attorney's client. There are a number of Arizona decisions discussing that issue.

The issue of the circumstances under which a third party, not the attorney's client, may sue an attorney for malpractice has had an involved history. The issue was first addressed by Division 1 of the Arizona Court of Appeals in Chalpin v. Brennan, 114 Ariz. 124, 559 P.2d 680 (App. 1976), which involved a malpractice claim brought against Brennan, whose client was Mobile Gardens Incorporated, by a purchaser of stock in that corporation who claimed that the attorney had prepared, on behalf of the corporation, certain documents which contained material misrepresentations of fact upon which Chalpin had relied in making the stock purchases. Although the Court distinguished several California cases which had imposed a requirement or privity between the malpractice plaintiff and the defendant attorney, the Court went on to hold that such a limitation on malpractice claims was appropriate under the circumstances in the case before it:

To impose upon counsel the responsibility of fully representing his client's interests in a contractual situation and at the same time making him liable to a third party to the transaction for fraud and misrepresentations under a malpractice theory we believe to be unreasonable and unwise. A holding to the contrary could conceivably encourage a party to contractual negotiations to forego personal legal representation and then sue counsel representing the other contracting party for legal malpractice if the resulting contract later proves disfavorable in some respect.

We believe the soundest rule to be applied to the facts of this case is set forth in a line of cases which refuses to grant a cause of action for malpractice to an individual who is not a client or in privity with the attorney.

Id., 114 Ariz. at 126, 559 P.2d at 682 (citations omitted). Very shortly thereafter, Division 2 of the Court of Appeals reached what seemed to be the precisely opposite result, in Fickett v. Superior Court of Pima County, 27 Ariz.App. 793, 558 P.2d 988 (1976).

Fickett involved an action filed by the present conservator of an incompetent's estate against the former guardian and that guardian's attorneys, claiming that Fickett, as the attorney for the former guardian, had been negligent in failing to discover that the guardian had embarked upon a scheme to liquidate the guardianship estate by misappropriation and conversion of funds to his own use, and by making improper investments. The Pima County Superior Court denied summary judgment in favor of Fickett, rejecting the argument that absent a showing of fraud or collusion, the attorney owed no duty to the ward and a cause of action for malpractice could not be maintained. The Court of Appeals affirmed that determination, holding:

The general rule for many years has been that an attorney could not be liable to one other than his client in an action arising out of his professional duties, in the absence of fraud or collusion . . . In denying liability of the attorney to one not in privity of contract for the consequences of professional negligence, the courts have relied principally on two arguments: (1) that to allow such liability would deprive the parties to the contract of control of their own agreement; and (2) that a duty to the general public would impose a huge potential burden of liability on the contracting parties.

* * * * * *

We cannot agree with petitioners that they owed no duty to the ward and that her conservator could not maintain an action because of lack of privity of contract. We are of the opinion that the better view is that the determination of whether, in a specific case, the attorney will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant's conduct and the injuries suffered, the moral blame attached to the defendant's conduct, and the policy of preventing future harm.

Id., 27 Ariz. App. at 794-95, 558 P.2d at 989-90. The Court, rather than abolishing a privity requirement entirely, however, allowed the action by the successor conservator to proceed on the basis that when an attorney undertakes to represent the guardian of an incompetent, that attorney assumes a relationship not only with the guardian but also with the ward. That rationale is consistent with a later holding that an attorney for the Special Administrator of an estate has a "derivative fiduciary duty" to the successors of the estate. Matter of Estate of Shano, 177 Ariz. 550, 869 P.2d 1203 (App. 1993). The so-called "Fickett test" was subsequently applied, however, to deny standing to a workmen's compensation carrier to pursue a malpractice claim against the attorney for parties to whom it was paying benefits for his failure to file an action against a potentially liable third party before the expiration of the statute of limitations. Travelers Insurance Company v. Breese, 138 Ariz. 508, 675 P.2d 1327 (App. 1983). The Court's rationale was that the carrier, Travelers, was not intended to be the prime beneficiary of the attorney-client relationship between the attorney and the compensation claimants, and it was not foreseeable that the attorney's failure to file the third-party action on time would prejudice any rights of Travelers.

Subsequently, in Donnelly Construction Co. v. Oberg/Hunt/Gilleland, 139 Ariz. 184, 677 P.2d 1292 (1984), the Supreme Court expressly rejected the imposition of any requirement of privity to maintain an action for professional negligence, and had disapproved prior decisions, including Chalpin v. Brennan, supra, which had purported to impose one. The only appellate decision dealing with the impact of Donnelly on legal malpractice claims is Franko v. Mitchell, 158 Ariz. 391, 762 P.2d 1345 (App. 1988), which was an appeal from a summary judgment entered in favor of a lawyer, Mitchell, on breach of contract and legal malpractice claims brought by a Ms. Franko. Franko had agreed to loan her boyfriend, Markoff, a sum of money, and Markoff had asked Mitchell to draw up the promissory note evidencing the obligation to Franko. Both Markoff and Franko went to Mitchell's office to review and sign the note. Markoff subsequently defaulted and disappeared. The Court held that there was a genuine issue of material fact as to whether an attorney-client relationship had been formed between Mitchell and Franko, which required the reversal of the summary judgment entered below.

The Court then went on to discuss Franko's contention that she was entitled to bring a legal malpractice action against Mitchell even if she was not his client. Noting that the Supreme Court had in Donnelly abolished any requirement of privity in professional negligence cases, the Court ruled that Franko's ability to pursue malpractice claims against Mitchell would turn on the application of the test announced in Fickett v. Superior Court, supra. The Court then offered the following explanatory comment concerning the "Fickett test":

We are of the opinion, however, that the test utilized in Fickett does not create a distinct duty of care towards a third party, as Franko suggests, but instead allows a third party in certain situations to sue an attorney for negligence to his client. That is, under the Fickett test any duty owed by an attorney to a third party is derivative of the duty owed by that attorney to his client.

* * * * * *

In essence, the Fickett test is merely a framework for determining the particular circumstances under which a third party may sue an attorney for malpractice in the place of the client. That is, in some situations, an attorney owes a duty to a third party to use ordinary skill, care and diligence in rendering professional services to his client. Absent even an allegation of negligence between Mitchell and Markoff, Franko's reliance on Fickett to extend liability to Mitchell is inappropriate.

Id., 158 Ariz. at 400-01, 762 P.2d at 1354-56. Application of the "Fickett test," as the Franko v. Mitchell decision suggests is now required could lead to the imposition of liability for professional negligence upon an attorney for the negligent preparation of an evaluation, in favor of the third party for whose use it was prepared.

Another potential basis for liability to a third party for the negligent preparation of an evaluation could be provided by the decision in Standard Chartered PLC v. Price Waterhouse, 190 Ariz. 6, 945 P.2d 317 (App. 1996). Among the many issues raised and discussed in that appeal was whether a third party, who was not a client of an auditor, could maintain a cause of action for professional negligence against the auditor, on the basis of a claim that the third party plaintiff had received and relied upon the auditor's audit opinion. Noting that the Supreme Court in the Donnelly decision had abolished privity requirements for professional negligence claims, the Court of Appeals nevertheless expressed the view that it did not view the Donnelly decision as extending potential professional liability to include all foreseeable injuries to foreseeable victims which proximately result from negligent performance of their professional services.

The Court went on to conclude that, where the claim is that a third party relied on an audit opinion that was the product of a negligently conducted audit, the essence of the cause of action was not one for negligence, but rather for negligent misrepresentation, recognized in Section 552 of the Restatement (Second) of Torts, and in an earlier Arizona case. The Court pointed that, in the Comments to Section 552, the Restatement had rejected pure foreseeability as the proper range of an auditor's liability, but had instead stated that liability could only be imposed where the maker of the alleged negligent misrepresentation intended it to reach and influence a particular person or persons, known to the professional, or a group or class of persons, distinct from the much larger class who might reasonably be expected sooner or later to have access to the information and foreseeably to take some action in reliance upon it.

In the case where an attorney agrees to and does perform an evaluation of a client matter for the use of a third party, and commits negligence during the course of doing so with the result that the evaluation is inaccurate, that attorney may, if the Court follows the teachings of Franko v. Mitchell, have malpractice exposure to the recipient of the evaluation for whose use it was prepared, if that person suffered damages as a consequence. Alternatively, if the Court applies the rationale of the Standard Chartered decision to that situation, then the attorney may have exposure to a claim for negligent misrepresentation brought by the third party recipient, which would require proof that the third party in fact reasonably relied upon it.

2.3:400   Confidentiality of an Evaluation

AZ-ER 2.3(c) provides that: "Except as disclosure is authorized in connection with a report of an evaluation, information relating to the evaluation is otherwise protected by ER 1.6." The Comment to the Rule provides the following explanation concerning this somewhat less than crystal clear provision:

Information relating to an evaluation is protected by ER 1.6. In many situations, providing an evaluation to a third party poses no significant risk to the client; thus, the lawyer may be impliedly authorized to disclose information to carry out the representation. See ER 1.6(a). Where, however, it is reasonably likely that providing the evaluation will affect the client's interests materially and adversely, the lawyer must first obtain the client's consent after the client has been adequately informed concerning the important possible effects on the client's interests. See ERs 1.6(a) and 1.0(e).

Comment, AZ-ER 2.3, 6.

2.4   Rule 2.4 Lawyer Serving as a Third-Party Neutral

2.4:100   Comparative Analysis of Rhode Island Rule

MR 2.4 was added in February 2002. The Reporter's explanation of the change reads as follows:

The role of third-party neutral is not unique to lawyers, but the Commission recognizes that lawyers are increasingly serving in these roles. Unlike nonlawyers who serve as neutrals, lawyers may experience unique ethical problems, for example, those arising from possible confusion about the nature of the lawyer's role. The Commission notes that there have been a number of attempts by various organizations to promulgate codes of ethics for neutrals (e.g., aspirational codes for arbitrators or mediators or court enacted rules governing court-sponsored mediators), but such codes do not typically address the special problems of lawyers. The Commission's proposed approach is designed to promote dispute resolution parties' understanding of the lawyer-neutral's role.

AZ-ER 2.4 is a new Rule added to the Arizona Rules of Professional Conduct by the 2003 amendments.

2.4:101      Model Rule Comparison

AZ-ER 2.4 and its accompanying Comment are identical to MR 2.4 and its accompanying Comment.

2.4:200   Definition of "Third-Party Neutral"

AZ-ER 2.4 was adopted in recognition of the increasing involvement of lawyers in alternative dispute resolution proceedings and addresses the principal ethical issues raised when lawyers serve either as neutrals or advocates in such proceedings. Under AZ-ER 2.4(a), a "lawyer serves as a third-party neutral when a lawyer assists two or more persons who are not clients of the lawyer to reach a resolution of a dispute or other matter that has arisen between them." That includes service as an arbitrator, a mediator, or in any other capacity that fits that description.

2.4:300   Duty to Inform Parties of Nature of Lawyer's Role

The principal ethical obligation of the lawyer serving as a third-party neutral is to make the lawyer's status to all parties to the proceedings. Thus, AZ-ER 2.4(b) provides that: "A lawyer serving as a third-party neutral shall inform unrepresented parties that the lawyer is not representing them. When the lawyer knows or reasonably should know that a party does not understand the lawyer's role in the matter, the lawyer should explain the difference between the lawyer's role as a third-party neutral and a lawyer's role as one who represents a client." As the relevant portion of the accompanying Comment explains:

Unlike nonlawyers who serve as third-party neutrals, lawyers serving in this role may experience unique problems as a result of differences between the role of a third-party neutral and a lawyer's service as a client representative. The potential for confusion is significant when the parties are unrepresented in the process. Thus, paragraph (b) requires a lawyer-neutral to inform unrepresented parties that the lawyer is not representing them. For some parties, particularly parties who frequently use dispute-resolution processes, this information will be sufficient. For others, particularly those who are using the process for the first time, more information will be required. Where appropriate, the lawyer should inform unrepresented parties of the important differences between the lawyer's role as third-party neutral and a lawyer's role as client representative, including the inapplicability of the attorney-client evidentiary privilege. The extent of disclosure required under this paragraph will depend on the particular parties involved and the subject matter of the proceeding, as well as the particular features of the dispute-resolution process selected.

Comment, AZ-ER 2.4, 3.

Subsequent Disqualification of Lawyer and Partners

Paragraph 4 of the Comment to AZ-ER 2.4 notes that: "A lawyer who serves as a third-party neutral may be asked to serve as a lawyer representing a client in the same matter.", and points out that the issue whether that is permissible, and under what circumstances, is controlled by AZ-ER 1.12. Under that Rule, a lawyer who has served as a third-party neutral in an alternative dispute resolution proceeding may not subsequently represent any of the parties to that proceeding in the matter unless "all parties to the proceeding give informed consent confirmed in writing." AZ-ER 1.12(a).

That disqualification of the lawyer who served as the third-party neutral will also be imputed to all lawyers in the firm with which the lawyer is associates unless "(1) the disqualified lawyer is timely screened from any participation in the matter and is apportioned no part of the fee therefrom; and (2) written notice is promptly given to the parties and any appropriate tribunal to enable them to ascertain compliance with the provisions of this Rule." AZ-ER 1.12(c).