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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.

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Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


New Mexico Legal Ethics

1.8 Rule 1.8 Conflict of Interest: Prohibited Transactions

1.8:100 Comparative Analysis of New Mexico Rule

“A.      Business transactions with or adverse to client.  A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:

            (1)        the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client;

            (2)        the client is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent counsel on the transaction; and

            (3)        the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and the lawyer’s role in the transaction, including whether the lawyer is representing the client in the transaction.

B.        Use of information limited.  A lawyer shall not use information relating to representation of a client to the disadvantage of the client unless the client gives informed consent, except as permitted or required by these rules.

C.        Client gifts.  A lawyer shall not solicit any substantial gift from a client, including a testamentary gift, or prepare on behalf of a client an instrument giving the lawyer or a person related to the lawyer any substantial gift unless the lawyer or other recipient of the gift is related to the client. For purposes of this paragraph, related persons include a spouse, child, grandchild, parent, grandparent or other relative or individual with whom the lawyer or the client maintains a close, familial relationship.

D.        Literary or media rights.  Prior to the conclusion of representation of a client, a lawyer shall not make or negotiate an agreement giving the lawyer literary or media rights to a portrayal or account based in substantial part on information relating to the representation.

E.         Financial assistance.  A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that:

            (1)        a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter; and

            (2)        a lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client.

F.         Compensation from third party.  A lawyer shall not accept compensation for representing a client from one 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 client-lawyer relationship; and

            (3)        information relating to representation of a client is protected as required by Rule 16-106 NMRA of the Rules of Professional Conduct.

G.        Representation of two or more clients.  A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients, or in a criminal case an aggregated agreement as to guilty or nolo contendere pleas, unless each client gives informed consent, in a writing signed by the client.  The lawyer’s disclosure shall include the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement.

H.        Prospective malpractice liability limitation.  A lawyer shall not:

(1)        make an agreement prospectively limiting the lawyer's liability to a client for malpractice unless the client is independently represented in making the agreement; or

(2)        settle a claim or potential claim for such liability with an unrepresented client or former client unless that person is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel in connection therewith.

I.          Proprietary interest in cause of action.  A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client, except that the lawyer may:

            (1)        acquire a lien authorized by law to secure the lawyer's fee or expenses; and

            (2)        contract with a client for a reasonable contingent fee in a civil case.

J.          Lawyer association.  While lawyers are associated in a firm, a prohibition in the foregoing Paragraphs A through I that applies to any one of them shall apply to all of them.”

 

1.8:101   Model Rule Comparison

New Mexico's version of MR 1.8, NMR 16-108, contains a few slight differences from the ABA Model Rule adopted in 1983. First, New Mexico's rule inserts "UNLESS otherwise provided by these rules" at the beginning of paragraph (B). Additionally, in paragraph (E)(1), the language "provided the client remains ultimately liable for such costs and expenses" is substituted for the language "the repayment of which may be contingent on the outcome of the matter." New Mexico adopted the ABA commentary on the 1983 version of MR 1.8 in its entirety.

New Mexico has not adopted the addition to MR 1.8(b), adopted by the ABA in 1987. Also, in August 2002, the ABA adopted several additional changes in the language and commentary to MR 1.8. Those changes have created further differences between the model rule and NMR 16-108. In paragraph (a), for example, the model rule now requires that a client be advised in writing regarding the desirability of seeking independent counsel for the business transaction contemplated. Also in that paragraph, the model rule now requires that certain details of the business transaction between the lawyer and the client, and the lawyer's role (i.e. as lawyer for the client, or as party to the transaction) in the transaction, be documented in writing. In paragraph (c), regarding gifts, the new model rule adds a prohibition on the lawyer soliciting substantial gifts from the client, including testamentary gifts. That paragraph also now contains a more definitive definition of related persons, to include spouses, children, grandchildren, parent, grandparent, or other relative with which the lawyer maintains a close relationship. New paragraph (g) requires certain communications or agreements with regard to aggregate settlements to be documented in writing. Finally, the new rule deletes previous paragraph (i), regarding family relationships between lawyers, and adds a new paragraph making most sexual relationships between clients and lawyers per se prohibited conduct. These new items are not reflected in the current New Mexico rule. Additionally, the official ABA commentary has been altered to reflect the 2002 changes in the model rule.

1.8:101            Model Rule Comparison

New Mexico’s version of MR 1.8, NMR 16-108, contains one difference from the current ABA Model Rule.  MR 1.8(j) makes most sexual relationships between clients and lawyers per se prohibited conduct.  However, the prohibition on sexual relations with clients unless a sexual relationship existed between them when the client-lawyer relationship commenced, is not set forth in NMR 16-108.  The 2008 Committee Commentary to NMR 16-108 likewise excludes the ABA Commentary on sexual relations with clients.

In the course of generally conforming the New Mexico rule to the Model Rule, the 2008 amendments made several important changes to NMR 16-108.  Among them were the addition of new Paragraph (J), which imputes to all lawyers in a firm all prohibitions which any individual lawyer has under the rule.

1.8:102            Model Code Comparison

Where the Model Code contains a counterpart to NMR 16-108, the requirements are substantially similar.  However, the Model Code contains no direct counterparts to NMR 16-108(C), (E)(2), and (I), as the official comments to ABA MR 1.8 indicate.  It should be noted that NMR 16-108(E)(1) retains the requirement in DR 5-103(B) that “the client remains ultimately liable for such expenses.”  MR 1.8 dropped this language.

Regarding NMR 16-108(A), see EC 5-3, EC 5-5, and DR 5-104(A).  Regarding NMR 16-108(B), see EC 4-5 and DR 4-101(B).  Regarding NMR 16-108(C), see EC 5-1, EC 5-2, EC 5-5, and EC 5-6.  Regarding NMR 16-108(D), see EC 5-1, EC 5-3, EC 5-4, and DR 5-104(B).  Regarding NMR 16-108(E), see EC 5-1, EC 5-3, EC 5-7, EC 5-8, and DR 5-103(B).  Regarding NMR 16-108(F), see EC 2-21, EC 5-1, and DR 5-107(A)&(B).  Regarding NMR 16-108(G), see EC 5-1 and DR 5-106(A).  Regarding NMR 16-108(H), see EC 6-6 and DR 6-102(A).  There is no counterpart to NMR 16-108(I) in the Code.  Regarding NMR 16-108(J), see EC 5-1, EC 5-7, DR 5-101(A), and DR 5-103(A).

1.8:200 Lawyer's Personal Interest Affecting Relationship

 

1.8:210            Sexual Relations with Clients

The New Mexico authorities provide no direct guidance on this issue.  As noted in section 1.8:101 supra, new MR 1.8, adopted by the ABA in August 2002, provides an express per se prohibition against most sexual relationships between lawyers and clients.

1.8:220            Business Transactions with Clients

Business transactions with clients are regulated by NMR 16-108(A).  Many of the reported cases dealing with this section of NMR 16-108 concern loan transactions between lawyers and clients.  The New Mexico Supreme Court has looked unfavorably upon lawyers borrowing money from clients.  See Matter of Moore, 129 N.M. 217, 220, 4 P.3d 664, 667 (2000) (“borrowing money from clients is not condoned by this Court”).  The court has noted that “the relationship between a debtor and a lender is inherently adversarial in nature.”  Matter of Evans, 119 N.M. 305, 307, 889 P.2d 1227, 1229 (1995).  “Attorneys should, therefore, avoid such adversarial relationships with their clients.”  Matter of Darnell, 123 N.M. 323, 327, 940 P.2d 171, 175 (1997) (attorney violated professional responsibility rules where he entered into loan transaction with client, the terms of which were not fair and reasonable, and he failed to fully disclose or transmit terms of transaction to client, failed to give client reasonable opportunity to seek advice of independent counsel in transaction, commingled loan money borrowed from his client into his trust account, and issued trust account check to client knowing that there were nonexistent funds in trust account to cover check).

As a result of the inherently adversarial nature of loan transactions, any lawyer who seeks to enter into a loan relationship with a client must fully advise the client of their differing interests as debtor and lender, and comply with the three requirements articulated in NMR 16-108(A) for business transactions with clients; see also NMR 16-108 Comments [1] to [4].

One excellent example case is Matter of Evans, 119 N.M. 305, 889 P.2d 1227 (1995).  In that case, the lawyer entered into three separate agreements to obtain loans from a client, during the course of their attorney client relationship.  Each of the loans was secured by properties which the lawyer represented were free and clear of all liens, even though the properties were actually both mortgaged.  The lawyer then failed to advise the client of the necessity that her mortgages on the property, resulting from the loan in question, be recorded promptly.  The court held that these loan agreements violated NMR 16-108(A), because the terms of the loans were not fair and reasonable to the client, the terms and conditions of the loans were not fully disclosed to the client in writing, the client was not given a reasonable opportunity to seek independent counsel, and the client did not consent in writing to the loans.  In addition, it was determined that these violations were “further aggravated” by the lawyer’s knowing deception of the client with regard to the mortgages already attached to the properties, the necessity that the new mortgages be recorded, and the client’s relative lack of sophistication in loan matters.  As a result of this and other conduct, the lawyer was disbarred and ordered to repay the loans.

A lawyer’s engagement in other types of business transactions with a client can also violate NMR 16-108(A), unless the dictates of the rule are followed closely.  The Comment to the rule notes that as a general rule, “all transactions between client and lawyer should be fair and reasonable to the client[,]” and “review by independent counsel on behalf of the client is often advisable.”  It is specifically noted by the Comment that the restrictions of paragraph (A) do not apply to services the client “generally markets to others,” such as banking, medical services or utility service, because in those cases “the lawyer has no advantage in dealing with the client.”

In Matter of Schmidt, 118 N.M. 213, 880 P.2d 310 (1994), the lawyer in question claimed that he was promised an ownership stake in a corporation as payment for legal services he rendered for the corporation.  The lawyer also claimed to be an officer of the corporation.  Acting in this alleged capacity, the lawyer deeded the property of the corporation to a third person, and transferred the property pursuant to the deed, all without the knowledge of the two principals of the corporation.  The court held that the lawyer’s conduct violated NMR 16-108(A).  Specifically, the court reasoned that even if the lawyer had an ownership stake in the corporation, he still failed to comply with the requirements in NMR 16-108(A), because he failed to obtain the client’s written consent to the alleged transaction making him an owner in the corporation. 

See also Matter of Young, 91 F.3d 1367 (10th Cir. 1996) (New Mexico professional conduct rule governing business transactions between lawyer and his or her client, requires attorney, before entering into business transaction with client, to disclose terms of transaction in writing to client; further, Chapter 7 debtor attorney’s “exchange of services agreement” with judgment creditor client was not “standard commercial transaction” under exception to New Mexico professional conduct rule requiring disclosure of terms of business transaction in writing; unlike other clients of creditor’s, debtor received creditor’s construction work at a reduced rate, and debtor’s payments were often deferred); Matter of Moore, 129 N.M. 217, 4 P.3d 664 (2000) (if an attorney determines to borrow money from a client, he or she is well advised to do so on an arm’s length basis, and this would include execution of customary loan documents, and the payment of a reasonable amount of interest; further, once money has been loaned to the attorney by the client, it should be removed from the client trust fund, to avoid commingling trust funds with the attorney’s funds); Matter of Benavidez, 107 N.M. 520, 760 P.2d 1286 (1988) (discussing violation of NMR 16-108(A)); Matter of Archuleta, 122 N.M. 52, 920 P.2d 517 (1996) (attorney’s failure to report to bankruptcy court he was creditor of client amounted to violation of rules requiring candor toward tribunal, prohibiting conduct prejudicial to administration of justice, and conflicts of interest); and State Bar Advisory Opinion 1986-2 (regarding guaranteeing loan for client).

In Guest v. Allstate Ins., 145 N.M. 797, 2009-NMCA-037, 205 P.3d 844 (2009), an insurance company argued that contract to defend and indemnify an attorney who formerly represented the company in an uninsured motorists claim was not enforceable because it violated NMR 16-108 of the New Mexico Rules of Professional Conduct.  The court held that a contract between a client and an attorney is not, as a matter of law, rendered unenforceable by NMR 16-108.  The Code of Professional Responsibility was established to discipline attorneys, not to provide a cause of action.  While a violation of the business transaction rule does not render a contract unenforceable, a contract between an attorney and a client may be unenforceable because it is not fair, the client did not have the opportunity to make a meaningful choice, or it was unconscionable.

1.8:300 Lawyer's Use of Client Information

NMR 16-108(B) limits a lawyer’s use of information relating to representation of a client.  Specifically, the rule prohibits a lawyer from using “information relating to representation of a client to the disadvantage of the client unless the client gives informed consent, except as permitted or required by these rules.”  Comment [5] provides, as a possible example, that a lawyer who has learned that the client is investing in specific real estate may not seek to purchase property in competition with the client or recommend that another client do so.

1.8:400 Client Gifts to Lawyer

NMR 16-108(C) prohibits a lawyer from preparing an instrument giving the lawyer or a person related to the lawyer any substantial gift from a client.  In Comments [6] to [8] to NMR 16-108(C) the Committee states that a lawyer may accept a gift from a client if the general standards of fairness are met. 

1.8:500 Literary or Media Rights Relating to Representation

NMR 16-108(D) expressly prohibits a lawyer from either negotiating or entering into an agreement “giving the lawyer literary or media rights to a portrayal or account based in substantial part on information relating to the representation.”  The prohibition exists during the representation.  Comment [9] to NMR 16-108(C) points out that “[a]n agreement by which a lawyer acquires literary or media rights concerning the conduct of the representation creates a conflict between the interests of the client and the personal interests of the lawyer.”  According to the Comment, this conflict arises because conduct that is “suitable in the representation of the client” may in fact “detract from the publication value” of any account written about the representation.  It is explicitly provided, however, that the rule does not prevent a lawyer, when representing a client in a literary property matter, “from agreeing that the lawyer’s fee shall consist of a share in ownership in the property, if the arrangement conforms” to the requirements of NMR 16-105 and NMR 16-108(A) & (I).

1.8:600 Financing Litigation

NMR 16-108(E) provides, as a general rule, that a “lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation.”  The rule sets forth two exceptions, however.  First, a lawyer is permitted to advance court costs and litigation expenses, and repayment may be contingent on results.  Second, a lawyer who is representing an indigent client is allowed to pay for court costs and litigation expenses on the client’s behalf.  See also NMR 16-108 Comment [10].

1.8:610            Litigation Expenses

Under the 2008 amendments, the repayment of advanced expenses may be “contingent on the outcome of the matter.” 

In Matter of Cannain, 122 N.M. 710, 930 P.2d 1162 (1997), the New Mexico Supreme Court considered a lawyer’s commingling of personal funds with client funds in a trust account.  The lawyer also advanced costs to clients from his trust account when those clients did not have funds in the account.  The court noted that under NMR 16-108, any costs that are advanced must come from the lawyer’s own funds.  While the lawyer in the case had enough of his own money commingled in the trust account to cover the costs which he advanced, the court stated that “the fact that respondent’s commingling saved him from disbursing funds that did not belong to him does not mean it was proper for him to make cost advances from trust.”  The court specifically held that “the cost advances should have been made from his business or personal account.”

In another case, Trambley v. Wyman, 125 N.M. 13, 956 P.2d 144 (Ct. App. 1998), the New Mexico Court of Appeals considered whether a statute making attorneys and their clients jointly liable for the costs of court reporting services engaged by the attorney, was an unconstitutional regulation of the practice of law.  The defendant argued that the statute conflicted with NMR 16-108(E)(1), which prior to the 2008 amendments made the client ultimately responsible for the costs and expenses of litigation.  The court initially noted that “Rule 16-108(E)(1) by its terms operates to ensure against conflicts of interest between lawyers and their clients in connection with pending or contemplated litigation.”  The court ultimately held that the statute was not in conflict with the rule, because the statute “create[d] no economic incentive to subordinate a client’s interest in the related litigation,” and because the rule “makes no attempt to govern later disputes between lawyers and their clients and does not ethically require counsel to protect a client’s interest in any subsequent litigation between them.”

1.8:620            Living and Medical Expenses

It does not appear any New Mexico authorities have specifically considered this issue.

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

Under NMR 16-108(F), a lawyer is prohibited from accepting payment for the representation of a client from someone other than the client unless three conditions are met. First, the client must consent to the payment arrangement after consultation. Second, there must be no interference with the attorney's independence of professional judgment or with the client lawyer relationship. Third, information relating to the representation of the client must be protected according to the requirements of NMR 16-106. The Comment to NMR 16-108 notes that not only must confidentiality be protected under NMR 16-106, but the conflict of interest requirements in NMR 16-107 must also be met. With regard to clients who comprise a class, the Comment notes that consent may be obtained from the class via "court supervised procedure."

1.8:710   Compensation and Direction by Third Person

Under NMR 16-108(F), a lawyer is prohibited from accepting payment for the representation of a client from someone other than the client unless three conditions are met.  First, the client must give informed consent to the payment arrangement.  Second, there must be no interference with the attorney’s independence of professional judgment or with the client lawyer relationship.  Third, information relating to the representation of the client must be protected according to the requirements of NMR 16-106.  Comment [12] to NMR 16-108 notes that not only must confidentiality be protected under NMR 16-106, but the conflict of interest requirements in NMR 16-107 must also be met; see also Comment [11].

1.8:710            Compensation and Direction by Third Person

See discussion in 1.8:700 supraSee also State Bar Advisory Opinion 1998-7 (when a lawyer hires a commercial collection agency to collect unpaid and earned fees, there must be no division of fees with the collection agency for any legal services rendered to collect fee, and the agency may not exercise any control over the litigation to collect the fee); and State Bar Advisory Opinion 1988-10 (it does not violate NMR 16-108 for an attorney to seek a fee out of his client’s recovery from the employer in a worker’s compensation matter, even where the client indicates she does not consent; the prior written agreement between the client and the attorney, providing a fee will be based on the Worker’s Compensation Act, constitutes consent).  

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

The New Mexico authorities have considered this issue under NMR 16-107, but not NMR 16-108See section 1.7.315 supra.

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

No New Mexico cases or advisory opinions have considered this under NMR 16-108.  See section 1.7:420 supra for a discussion of the New Mexico approach to this problem under NMR 16-107.

1.8:800 Aggregate Settlements

Under NMR 16-108(G), a lawyer may not, in the course of representing two or more clients, participate in making an aggregate settlement, or an aggregated agreement as to pleas in a criminal matter, without the informed consent of each client confirmed in a writing signed by him or her.  The rule also requires that the lawyer provide a disclosure to each client “of the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement.”  Except in Comment [13] to NMR 16-108, the New Mexico authorities have not elaborated on these basic rules.

1.8:900 Agreements Involving Lawyer's Malpractice Liability

NMR 16-108(H) allows a lawyer to make an agreement which prospectively limits his or her malpractice liability to a client, provided the client obtains independent counsel in making the agreement.  The rule also prohibits a lawyer from settling a claim for malpractice liability “with an unrepresented client or former client unless that person is advised in writing” that independent representation is appropriate and the person has a reasonable opportunity to obtain the advice of independent counsel.  See also NMR 16-108 Comments [14] to [15].therewith."

1.8:1000 Opposing a Lawyer Relative

The 2008 amendments deleted former Paragraph (I), which prohibited representation adverse to the representation of a related lawyer.

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

Under NMR 16-108(J), a lawyer is generally prohibited from “acquir[ing] a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client.”  There are two exceptions to this general rule.  A lawyer may “(1) acquire a lien authorized by law to secure the lawyer’s fee or expenses; and (2) contract with a client for a reasonable contingent fee in a civil case.”  Comment [16] provides guidance concerning these rules.  Further regarding attorney charging liens, see section 1.5:240 infra.

1.8:1110          Acquiring an Interest in Subject Matter of Representation

No New Mexico authorities have elaborated on the general rules described above

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

No New Mexico authorities have further elaborated on the general rules described above.  For further information concerning contingent fees, see sections 1.5:600 et seq. and 1.5:600 et seq., infra.

1.8:1130          Lawyer Liens

Regarding attorney charging liens, see section 1.5:240 infra.

1.8:1140          Retention of Files to Collect Fees

As held in Thompson v. Montgomery & Andrews, P.A., 112 N.M. 463, 816 P.2d 532 (Ct. App. 1991), a “general lien” or “retaining lien” gives an attorney the right to retain papers or other property that comes into his possession, or money that he has collected in course of his professional employment, until all his costs and charges against his client have been paid.

According to Matter of Grand Jury Proceedings, 727 F.2d 941 (10th Cir. 1984) (New Mexico law), client files belong to the client, and the court may order them surrendered to the client or the attorney on the request of the client, subject only to the attorney’s right to be protected in receiving compensation from the client for work done; the attorney’s interest is only that of a retaining lien and his interest at best is a pecuniary one, not an interest of ownership of property.