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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.

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Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


Kentucky Legal Ethics

1.8  Rule 1.8 Conflict of Interest: Prohibited Transactions

1.8:100 Comparative Analysis of Kentucky Rule

1.8:101 Model Rule Comparison

In 1989, the Kentucky Supreme Court adopted KRPC 1.8KRPC 1.8(a)(1) contains the same language as MR 1.8 (a)(1).  KRPC(a)(2) explains that a client need only be "given a reasonable opportunity to seek the advice of independent counsel" regarding a business transaction with a lawyer.  MR 1.8(a)(2) includes the requirement that "the client be advised in writing" of the importance of doing so.  KRPC 1.8(a)(3) requires only that the "client consent[] in writing," whereas MR 1.8(a)(3) requires "informed consent" and includes specific requirements as to what should be included in the writing. 

KRCP 1.8(b) is different only in that the last few words require "client consent[] after consultation," whereas MR 1.8(b) requires "informed consent, except as permitted or required by these Rules." 

MR 1.8(c) goes beyond the requirements of KRPC 1.8(c) by adding the prohibition against "solicit[ing] any substantial gift from a client, including a testamentary gift."  MR 1.8(c) also contains a more broad definition of relative which includes any "other relative or individual with whom the lawyer or the client maintains a close, familial relationship." 

KRPC 1.8(d), (e) and MR 1.8(d), (e) contain the same language. 

Subsection(f)(1) of KRPC 1.8 requires that when a lawyer is paid by a third party, the payment be "in accordance with an agreement between the client and the third party" or that the "client consents after consultation."  MR 1.8(f)(1) requires simply that the client must give "informed consent."  The rest of subsection (f) {KRPC 1.8(f)(2), (3); MR 1.8(f)(2), (3)} is the same in both Rules.

KRPC 1.8(g) contains the words "consents after consultation," whereas the MR 1.8(g) says "gives informed consent, in a writing signed by the client."

KRPC 1.8(h) contains the words "permitted by law" to describe allowable prospective liability waivers, whereas MR 1.8(h)(1) does not.  Further, MR 1.8(h)(2) applies to "potential claim[s]" which are not mentioned in KRCP 1.8(h).

KRPC 1.8(i) regarding related lawyers is not in MR 1.8.  See MR 1.7, Comment [11].

KRPC 1.8(j) corresponds to MR 1.8(i).  The word "granted" appears in KRPC 1.8(j), while the MR 1.8(i) uses the word "authorized."

MR 1.8(j) and (k) do not have counterparts in the Kentucky Rules.

The commentaries of these two rules contain much the same information, with the Model Rules commentary being quite a bit more detailed.  MR 1.8, Comments [1]-[4] and [6]-[8], covering business transactions between lawyer and client, refer the reader to Rule 1.7, whereas KRPC 1.8, Comments [1]-[2] covering the same material, do not.  [See Rule 1.7 Conflict of Interest:  General Rule, 1.7:100]  MR 1.8, Comment [13] contains information about handling conflicts of interest in aggregate suits, whereas KRPC 1.8, Comment [4] contains a short illustration.  Similarly, KRPC 1.8, Comment [5] provides a brief guideline for dealing with limiting liability prospectively, whereas MR 1.8, Comments [14]-[15] go into more depth of illustration of the problem. 

MR 1.8, Comments [17] (regarding sex between lawyer and client) and [20] {MR 1.8, Comment [20]}(imputing all of the conflicts to members of the firm) are not part of the Kentucky Rules.

1.8:102 Model Code Comparison

With regard to KRPC 1.8(a), DR 5-104(A) provided that a lawyer "shall not enter into a business transaction with a client if they have differing interests therein and if the client expects the lawyer to exercise his professional judgment therein for the protection of the client, unless the client has consented after full disclosure." EC 5-3 stated that a lawyer "should not seek to persuade his client to permit him to invest in an undertaking of his client nor make improper use of his professional relationship to influence his client to invest in an enterprise in which the lawyer is interested."

With regard to paragraph (b){KRPC 1.8(b)}, DR 4-101(B)(3) provided that a lawyer should not use "a confidence or secret of his client for the advantage of himself, or of a third person, unless the client consents after full disclosure."

There was no counterpart to paragraph (c) {KRPC 1.8(c)} in the Disciplinary Rules of the Model Code. EC 5-5 stated that a lawyer "should not suggest to his client that a gift be made to himself or for his benefit. If a lawyer accepts a gift from his client, he is peculiarly susceptible to the charge that he unduly influenced or overreached the client. If a client voluntarily offers to make a gift to his lawyer, the lawyer may accept the gift, but before doing so, he should urge that the client secure disinterested advice from an independent, competent person who is cognizant of all the circumstances. Other than in exceptional circumstances, a lawyer should insist that an instrument in which his client desires to name him beneficially be prepared by another lawyer selected by the client."

Paragraph (d) {KRPC 1.8(d)} is substantially similar to DR 5-104(B), but refers to "literary or media" rights, a more generally inclusive term that "publication" rights.

Paragraph (e)(1) {KRPC 1.8(e)(1)} is similar to DR 5-103(B), but eliminates the requirement that "the client remains ultimately liable for such expenses." Paragraph (e)(2) {KRPC 1.8(e)(2)} has no counterpart in the Model Code.

Paragraph (f) {KRPC 1.8(f)} is substantially identical to DR 5-107(A)(1).

Paragraph (g) {KRPC 1.8(g)} is substantially identical to DR 5-106.

The first clause of paragraph (h) {KRPC 1.8(h)} is similar to DR 6-102(A). There was no counterpart in the Model Code to the second clause of paragraph (h) {KRPC 1.8(h)}.

Paragraph (i) {KRPC 1.8(i)} has no counterpart in the Model Code. 

Paragraph (j) {KRPC 1.8(j)} is substantially identical to DR 5-103(A).

1.8:200 Lawyer&'s Personal Interest Affecting Relationship

1.8:210 Sexual Relations with Clients

While Kentucky&'s Rule 1.8 and commentary do not mention sexual relations between lawyer and client, Model Rule 1.8(j) expressly provides that a lawyer "shall not have sexual relations with a client unless a consensual sexual relationship existed between them when the client-lawyer relationship commenced."  Comments [17], [18], and [19] provide policy reasons for the rule, including the sanctity of the trust relationship between client and lawyer, and the ethical obligation of a lawyer not to use his or her position of power to the disadvantage of the client.

1.8:220 Business Transactions with Clients

KRPC 1.7(b) requires that a lawyer must not allow his or her own interests to materially affect the representation of a client.  See also KRPC 1.7, Comment [5] (illustrating that a lawyer&'s business interest must not affect representation of a client).

KRPC 1.8(a) requires that a "lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client."  However, the rule also provides an exception.  The lawyer may enter into a business transaction with a client if  (1) the terms are fair, (2) the client has the terms in writing in a form that can be "reasonably understood by the client," (3) the client has "reasonable opportunity to seek the advice of independent counsel," and (4) the client "consents in writing."  See Underhill v. Kentucky Bar Ass&'n, 937 S.W.2d 193 (Ky. 1997) (handing down a public reprimand where a lawyer entered into a business transaction with a client without giving that client reasonable opportunity to seek independent counsel, and without obtaining written consent); Kentucky Bar Ass&'n v. Smith, 878 S.W.2d 6 (Ky. 1984) (handing down an 18-month suspension where a lawyer was involved in a transaction in which the lawyer&'s client loaned money to a company in which the lawyer held an interest).  Comment [1] provides a further exception.  If the transaction is a "standard commercial transaction" of the kind normally performed by the client, the general rule does not apply.  Further, the rule implies one other exception.  There is no specific directive that a lawyer may not use information gained in representation to perform a business transaction, assuming the use of that information does not violate Rule 1.6, and is not used to the client&'s disadvantage.  KRPC 1.8, Comment [1].

In 1988, the Kentucky Supreme Court handed down a one-year suspension to an attorney who filed a divorce settlement in which he had a personal economic interest without disclosing that interest to the clients.  He also failed to obtain consent after consultation from the clients.  Kentucky Bar Ass&'n v. Hibberd, 753 S.W.2d 547 (Ky. 1988).

See also Del O&'Roark, "The New Economy or the Same Old Moral Hazard?  Investing in Client.Com," 64 Ky. Bench & Bar 34 (2000) (investigating the ethical questions surrounding lawyers who invest in their clients&' companies); William H. Fortune, Professional Responsibility, 86 Kentucky Law Journal 849 (1997-8).

1.8:300 Lawyer&'s Use of Client Information

KRPC 1.8(b) provides that "[a] lawyer shall not use information relating to representation of a client to the disadvantage of the client unless the client consents in writing."  There is no specific directive that a lawyer may not use information gained in representation to perform a business transaction, assuming the use of that information does not violate Rule 1.6, and is not used to the client&'s disadvantage.  KRPC 1.8, Comment [1].

1.8:400 Client Gifts to Lawyer

KRPC 1.8(c) provides that unless the client is a relative of the lawyer, the lawyer shall not "prepare an instrument giving the lawyer or a person related to the lawyer as parent, child, sibling, or spouse any substantial gift from a client, including a testamentary gift." 

In Clements v. Kentucky Bar Ass&'n, 983 S.W.2d 512 (Ky. 1999), the Kentucky Supreme Court suspended a lawyer for 59 days because that lawyer drafted a will including a $50,000 gift to the lawyer.  The lawyer was not related to the testator.

1.8:500 Literary or Media Rights Relating to Representation

KRPC 1.8(d) forbids a lawyer from making or negotiating a contract "giving the lawyer literary or media rights to a portrayal or account based in substantial part on information relating to the representation."  However, a lawyer may enter into such a contract after the representation ends.  KRPC 1.8, Comment [3] makes clear that a lawyer may agree that his or her fee will include a share of a literary work that is the subject of the representation.

1.8:600 Financing Litigation

KRPC 1.8(e) forbids a lawyer from giving money to clients in connection with litigation.  The rule allows for two exceptions.  First, a lawyer may make such advances if the amount will be repaid contingent on the outcome of the case.  KRPC 1.8(e)(1).  Second, where the client is indigent, the rule does not apply.  KRPC 1.8(e)(2).

1.8:610 Litigation Expenses

[See Financing Litigation, supra, at 1.8:600].

The Kentucky Supreme Court has imposed suspensions and public reprimands for advancing money to clients outside of the bounds of the rules.  Curtis v. Kentucky Bar Ass&'n, 969 S.W.2d 213 (Ky. 1998); Hanish v. Kentucky Bar Ass&'n, 875 S.W.2d 95 (Ky. 1994) (holding that a public reprimand is appropriate where an attorney advances money to clients for litigation and for personal reasons); Kentucky Bar Ass&'n v. Mills, 808 S.W.2d 804 (Ky. 1991).

1.8:620 Living and Medical Expenses

KRPC 1.8(e) leaves no room for a lawyer to give money or make loans to a client for personal use.  Ethics opinion KBA E-375 (1995) points out that while at first blush it seems quite humanitarian to loan money to a client in need, the precedent could lead to abuses such as "bidding" for clients.

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

1.8:710 Compensation and Direction by Third Person

KRPC 1.8(f) allows for a fee to be paid by a party other than the client if three requirements are met:  first, the arrangement must be in accordance with an agreement between the client and the third party, or the client must give his consent; second, there must be no interference by the third party in the lawyer-client relationship; third, the client&'s confidential information must be protected.  KRPC 1.8, Comment [4] notes that any such arrangement must meet the requirements of KRPC 1.7. KBA E-264 (1982) supports this rule, but notes that payments that could be construed as referral fees may have the appearance of impropriety and are presumptively unethical without careful explanation.

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

[See Insured-Insurer Conflicts, supra, at 1.7:315].

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

[See Lawyer with Fiduciary Obligation to Third Persons, supra, at 1.7:420].

1.8:800 Aggregate Settlements

KRPC 1.8(g) governs conflicts that arise in aggregate settlements.  An attorney may not participate in an aggregate settlement of the claims of two or more clients unless each client consents after consultation to disclosure of information sufficient to inform all of the clients of the nature of all of the claims involved in the settlement.

Professors Fortune, Underwood, and Imwinkelried suggest that individual representation is the best policy, but recognize that at times cost dictates that multiple representation is the most practical approach.  A lawyer&'s duty as representative of several different clients is to keep all of them informed, and to reflect the wishes of each individual client.  Therefore, "[s]hortcut solutions, such as majority vote by multiple clients, are clearly unethical."  Fortune, Underwood & Imwinkelried, Modern Litigation and Professional Responsibility Handbook:  The Limits of Zealous Advocacy § 17.8.3 (2nd Ed. 2001).

1.8:900 Agreements Involving Lawyer&'s Malpractice Liability

1.8:910 Prospective Limitation of Malpractice Liability

KRPC 1.8(h) forbids a lawyer from making an agreement that "prospectively limit[s] the lawyer&'s liability to a client for malpractice unless permitted by law and the client is independently represented in making the agreement."  See Kentucky Bar Ass&'n v. Vincent, 819 S.W.2d 313 (Ky. 1991) (disbarring an attorney for, inter alia, attempting to limit malpractice liability).

KRPC 1.8, Comment [5] clarifies that "[p]aragraph (h) is not intended to apply to customary qualifications and limitations in legal opinions and memoranda."

1.8:920 Settlement of Legal Malpractice Claim

KRPC 1.8(h) forbids a lawyer from settling a legal malpractice claim in the two following situations:  first, where a current client is unrepresented; second, where the lawyer has not informed a former client that he needs independent representation.

1.8:1000  Opposing a Lawyer Relative

KRPC 1.8(i) provides that a lawyer may not represent a client where the attorney directly adverse is "related…as parent, child, sibling, or spouse," unless the client consents after consultation.  The rule applies only where the lawyer "knows" of the conflict.  Comment [6] notes that this rule applies "to related lawyers who are in different firms," and is not imputed to other members of the firm.

Ethics opinion KBA E-323 (1987) addresses several questions concerning conflicts involving spouses working at different law firms.  The opinion suggests that the best course is for a firm to disclose all potential conflicts to clients for their consent.  This suggestion applies where wife and husband will be directly adverse, and when only one spouse will be working on the matter at hand and the other spouse merely works at the adverse firm.  See also KBA E-386 (1995) (finding that the spouse of a prosecutor may practice criminal law in the same jurisdiction as long as they do not appear in the same cases and the clients consent after consultation).

While the Rules do not expressly address the issue, where an intimate relationship, other than a spousal relationship, occurs between lawyers, the same loyalty issues arise.  In one case, a lawyer was disqualified from representation when it was discovered that he had an intimate relationship with the secretary of a partner in the law firm opposing him in the case.  In addition, the American Academy of Matrimonial Lawyers forbids sexual relationships between lawyers and clients or opposing lawyers during the representation. Fortune, Underwood & Imwinkelried, Modern Litigation and Professional Responsibility Handbook:  The Limits of Zealous Advocacy § 3.8.6 (2nd Ed. 2001).

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

1.8:1110   Acquiring an Interest in Subject Matter of Representation

KRPC 1.8(j) forbids a lawyer from acquiring an interest in the subject matter of the representation, except where the lawyer puts a lien on client property to ensure that the client will pay the fees, or where the lawyer and client contract for a contingent fee arrangement.  Another exception, according to Comment [7], is the permission granted in Rule 1.8(e) to advance money to clients in certain situations.

According to ethics opinion KBA E-217 (1979), a lawyer who is an executor, administrator or attorney for an estate may not purchase real or personal property from that estate.  However, where the property is not the subject of the representation, a lawyer may "obtain a proprietary interest in real estate as compensation for his legal services."

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

KRPC 1.8(j)(2) provides that contingent fees are a permissible exception to the rule that a lawyer not acquire a proprietary interest in a cause of action.

1.8:1130   Lawyer Liens

KRPC 1.8(j)(1) permits a lawyer to acquire a lien on client property to ensure that his or her fees or expenses will be reimbursed.

1.8:1140   Retention of Files to Collect Fees

KBA E-395 (1997) explains that in most situations, a lawyer may not retain a client&'s file in order to collect a fee.  Citing KRPC 1.16(d) and KRPC 1.16, Comment [10], the opinion notes that the Rules give the lawyer the right to hold a client&'s file only to the extent local law permits.  Kentucky law recognizes a "charging lien" but not a "retaining lien."