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Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


Ohio Legal Ethics Narrative

I. CLIENT-LAWYER RELATIONSHIP

1.8 RULE 1.8 CONFLICT OF INTEREST: PROHIBITED TRANSACTIONS

1.8:100 Comparative Analysis of Ohio Rule

1.8:101 Model Rule Comparison

Ohio Rule 1.8(a) is identical to the Model Rule, with the following exception:

In division (a)(1), the words "and transmitted" following "disclosed" have been deleted and the words "to the client" have been added.

Ohio Rule 1.8(b) is identical to the Model Rule, except that the "Except as permitted or required by these rules" language is placed at the beginning, rather than the end of the division.

Ohio Rule 1.8(c) differs significantly from the Model Rule. Unlike the Model Rule, Ohio division (c) contains an absolute prohibition against the lawyer's preparation on behalf of a client of an instrument giving, not only to the lawyer or a person related to the lawyer, but also to "the lawyer's partner, associate, paralegal, law clerk, or other employee of the lawyer's firm, [or] a lawyer acting 'of counsel' in the lawyer's firm . . . any gift" (the MR refers to "substantial gift"), unless the lawyer or other recipient is related to the client. (The rule against soliciting a substantial gift from a client tracks the Model Rule except that it deletes the words "including a testamentary gift,".)

Subdivision (c)(1) is substantially the same as the text of the Model Rule, except that "related persons include" has been replaced with "'person related to the lawyer' includes", and the word "sibling," has been added after "grandparent,".

Subdivision (c)(2) adds the language "'gift' includes a testamentary gift."

Ohio Rule 1.8(d) is identical to the Model Rule.

Ohio Rule 1.8(e) is substantively identical to the Model Rule.

Ohio Rule 1.8(f) is substantively identical to the Model Rule, except that a new subdivision (4) has been added, dealing with lawyers compensated by an insurer to represent an insured; such a lawyer must deliver a copy of the Statement of Insured's Rights to the client, which Statement is set forth in full as part of subdivision (4).

Ohio Rule 1.8(g) is substantively identical to the Model Rule, with the exception of the addition, after "unless", of the following language: "the settlement or agreement is subject to court approval or".

Ohio Rule 1.8(h) is substantively identical to the Model Rule, with the following exceptions:

In subdivision (h)(2), the words "with an unrepresented client or former client" after "liability" and the words "that person" after "unless" have been deleted. The remainder of the subdivision has been broken into subparts; subpart (h)(2)(i) is new and states "the settlement is not unconscionable, inequitable, or unfair". Subpart (h)(2)(ii) retains the language from MR 1.8(h)(2), except that the words "the client or former client" have been added prior to the words "is advised". Finally, new subpart (h)(2)(iii) (requiring informed consent by the client or former client) has been added.

Ohio Rule 1.8(i) is substantively identical to the Model Rule.

Ohio Rule 1.8(j) differs from the Model Rule, in that the word "have" after "not" has been deleted and the words "solicit or engage in" have been inserted at the same point, and, more significantly, the word "relations" has been deleted after "sexual" and "activity" substituted therefor.

Ohio Rule 1.8(k) is substantively identical to the Model Rule.

1.8:102 Ohio Code Comparison

The following are listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 1.8(a): DR 5-104(A), Cincinnati Bar Ass'n v. Hartke (1993), 67 Ohio St.3d 65.

The following section of the Ohio Code of Professional Responsibility is listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 1.8(b): DR 4-101(B)(2).

The following sections of the Ohio Code of Professional Responsibility are listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 1.8(c): DR 5-101(A)(2) & (3).

The following section of the Ohio Code of Professional Responsibility is listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 1.8(d): DR 5-104(B).

The following section of the Ohio Code of Professional Responsibility is listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 1.8(e): DR 5-103(B).

The following sections of the Ohio Code of Professional Responsibility are listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 1.8(f)(1), (2) & (3): DR 5-107(A) & (B).

The following sections of the Ohio Code of Professional Responsibility are listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 1.8(f)(4). None.

The following section of the Ohio Code of Professional Responsibility is listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 1.8(g): DR 5-106.

The following are listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 1.8(h): DR 6-102, Disciplinary Counsel v. Clavner (1997), 77 Ohio St.3d 431.

The following section of the Ohio Code of Professional Responsibility is listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 1.8(i): DR 5-103(A).

The following are listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 1.8(j): Cleveland Bar Ass'n v. Feneli (1996), 86 Ohio St.3d 102 & Disciplinary Counsel v. Moore (2004), 101 Ohio St.3d 261.

The following section of the Ohio Code of Professional Responsibility is listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 1.8(k): DR 5-105(D).

1.8:200 Lawyer's Personal Interest Affecting Relationship

  • Primary Ohio References: Ohio Rule 1.8(a), (j)
  • Background References: ABA Model Rule 1.8(a), (j)
  • Ohio Commentary: Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility §§ 5.21, 5.43-5.49
  • Commentary: ABA/BNA § 51:501 et seq.; ALI-LGL § 126; Wolfram § 8.11

 

1.8:210 Sexual Relations With Clients

The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.21 (1996).

Ohio Rule 1.8(j) provides that a

lawyer shall not solicit or engage in sexual activity with a client unless a consensual sexual relationship existed between them when the client-lawyer relationship commenced.

Rule 1.8 cmt. [17] makes a number of important points with respect to this prohibition. First, the comment emphasizes the fiduciary relationship between lawyer and client: "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." Second, the emotional involvement of such a relationship runs the risk of the lawyer being unable to carry out the representation without impairment of independent professional judgment. Third, it impacts negatively on attorney-client confidences, since the "blurred line between the professional and personal relationships" may result in client confidences being imparted in other than the attorney-client relationship, in which case they are unprotected. Fourth, the prohibition applies irrespective of consent and regardless of absence of prejudice to the client.

Comment [19] further notes that if the client is an organization, division (j) prohibits an inside or outside lawyer for the organization "from having a sexual relationship with a constituent . . . who supervises, directs or regularly consults with that lawyer concerning the organization's legal matters." Rule 1.8 cmt. [19]. (A pre-Rule case that fits the Comment 19 template is Cleveland Bar Ass'n v. Kodish, 110 Ohio St.3d 162, 2006 Ohio 4090, 852 N.E.2d 160, where the respondent entered into a consensual sexual relationship with "Edwards, the clients' representative and a principal of both corporations, while representing Triangle and T.D.I." Id. at para. 65. The Court found violations of former DR 1-102(A)(6) and 5-101(A)(1).

As the language of the Rule and the comments indicate, Ohio makes sexual "activity," in the context of a sexual "relationship" that did not exist prior to the lawyer-client relationship, a violation. The Model Rule (along with every other Model Rule state of which we are aware except Florida ("sexual conduct")) makes sexual "relations," not activity, the trigger. The Ohio Code Comparison to Rule 1.8 notes that division (j) is "consistent with" authority under the OHCPR.

Much more important, and informative, is the statement in the Summary of Post-Comment Revisions to the Proposed Ohio Rules of Professional Conduct. The Summary states, at p. 3, that the change from "sexual relations" to "sexual activity" was made "since the latter term is defined in R.C. 2907.01(C)."

ORC 2907.01(C) provides a detailed (and graphic) definition of "sexual activity." (This is, incidentally, a textbook illustration of "bright-line" criminal provisions.) Pursuant to division (c), "'[s]exual activity' means sexual conduct or sexual contact, or both." These terms are defined in ORC 2907.01(A) & (B). At the risk of offending some readers, they are set forth here in full:

(A) "Sexual conduct" means vaginal intercourse between a male and a female; and intercourse, fellatio, and cunniliugus between persons regardless of sex; and, without privilege to do so, the insertion, however slight, of any part of the body or any instrument, apparatus, or other object into the vaginal or anal cavity of another. Penetration, however slight, is sufficient to complete vaginal or anal intercourse.

(B) "Sexual contact" means any touching of an erogenous zone of another, including without limitation the thigh, genitals, buttock, pubic region, or, if the person is a female, a breast, for the purpose of sexually arousing or gratifying either person.

ORC 2709.01(A) & (B) leave little to the imagination and also leave at least some of the former OHCRP "sex" cases as beyond the pale of the new Rule. (Needless to say, such conduct, even though not included within 1.8(j), may well violate other provisions of the Rules.) Thus, in Disciplinary Counsel v. Freeman, 106 Ohio St.3d 334, 2005 Ohio 5142, 835 N.E.2d 26, the respondent had his client pose for nude photographs; he also bought her a bra-and-panty set on the way home from a court hearing. He solicited the same person to perform sex for money, after the attorney-client relationship had terminated. Such conduct clearly would not violate Rule 1.8(j). In Freeman, the respondent was found to have violated former OH DR 1-102(A)(6) (fitness to practice) and 5-101(A)(1) (professional judgment affected by personal interests); those findings would likely be replicated under Rules 8.4(h) and 1.7(a)(2). Another pre-Rule case that would be outside the pale of Rule 1.8(j) (with the exception of occasional "touching") is Columbus Bar Ass'n v. Linnen, 111 Ohio St.3d 507, 2006 Ohio 5480, 857 N.E.2d 539, where the respondent, dubbed the "Naked Photographer" for his penchant for surprising women and photographing their reaction to his appearing in the buff, was found to have violated OH DR 1-102(A)(3) and (A)(6); it is likely that under the Rules those same provisions (8.4(b) & (h)) would be invoked on comparable facts.

Although involving outlandish unprofessional conduct of a sexual nature (for which the lawyer received no actual suspension), one aspect of Office of Disciplinary Counsel v. Moore, 101 Ohio St.3d 261, 2004 Ohio 734, 804 N.E.2d 423, would likewise not transgress Rule 1.8(j). In Moore, there were two counts of misconduct, the second of which involved a consensual sexual relationship with a married twenty-two year old while representing her in child custody matters. This aspect would, of course, violate Rule 1.8(j). As to the first count, respondent was appointed to represent a woman charged with various traffic offenses. At their first meeting, on the day of the client's arraignment, respondent commented on the size of his penis and various sexual positions that he said women preferred. Not surprisingly, the "client felt shocked and violated by respondent's unsolicited sexual remarks." Id. at para. 4. Their next meeting was recorded, and "respondent again persisted in asking about his client's sexual experiences and preferences . . . ." Id. at para. 5. The panel found that respondent had violated OH DR 5-101(A)(1) (as well as DR 1-102(A)(6)) as to both counts, but because of mitigating circumstances, particularly his "own expressions of sorrow and regret," id. at para. 8, recommended a stayed one-year suspension with conditions, plus one year of probation after the stayed suspension. The Board recommended that respondent be suspended for six months, with no stay. Before the Supreme Court, respondent argued that a public reprimand was the appropriate sanction, citing various consensual sexual relation cases, such as DiPietro, discussed below. The Court found this unpersuasive, since only count two was consensual. Nevertheless, despite "denounc[ing] the misconduct in which he engaged," id. at para. 18, the Court proceeded to find that the mitigating circumstances -- respondent's remorse, his assurances that it would never happen again, and testimonials from judges and prosecuting attorneys -- justified a stayed one-year suspension. Chief Justice Moyer was not convinced. In dissent, he agreed with the Board that respondent's conduct toward the client in count one constituted sexual harassment and noted that the record reflected that this was not an isolated incident. Despite Chief Justice Moyer's persuasive dissent as to sanctions, it is clear that Moore's indiscretions in count one, as noted, would not violate Ohio Rule 1.8(j).

Numerous pre-Rule cases other than Moore found violations of the OHCPR resulting from sexual relationships with clients. The most recent is Butler County Bar Ass'n v. Williamson, 117 Ohio St.3d 399, 2008 Ohio 1196, 884 N.E.2d 55, finding a violation of DR 1-102(A)(5) & (6); because of significant aggravating factors, as well as a separate violation of Gov Bar R V 4(G), respondent was given an indefinite suspension. In Office of Disciplinary Counsel v. Paxton, 66 Ohio St.3d 163, 610 N.E.2d 979 (1993), a lawyer received a public reprimand for engaging in a consensual romantic relationship with a client while representing her in a divorce action. The lawyer conceded that his personal and financial interests stemming from this relationship may have affected his exercise of professional judgment on the client's behalf in violation of former OH DR 5-101(A). Accord Office of Disciplinary Counsel v. DePietro, 71 Ohio St.3d 391, 391, 643 N.E.2d 1145, 1145 (1994) (public reprimand issued for two instances of entering into "consenting, romantic relationship[s]" with clients, which in each instance led to OH DR 5-101(A) conflict of interest and DR 1-102(A)(6) violations); Disciplinary Counsel v. Engler, 110 Ohio St.3d 138, 2006 Ohio 3824, 851 N.E.2d 502 (same; citing Moore, Depietro, and Paxton). In Office of Disciplinary Counsel v. Booher, 75 Ohio St.3d 509, 664 N.E.2d 522 (1996), however, a court-appointed criminal-defense counsel received a one-year suspension for having sexual relations with his incarcerated client. Several factors influenced the Court in imposing this harsher punishment. First, the Court recognized that the lawyer-client relationship in a criminal matter is inherently unequal, with the lawyer dominant and the client dependent and vulnerable, thus heightening the lawyer's responsibility:

The more vulnerable the client, the heavier is the obligation upon the attorney not to exploit the situation for his own advantage. Whether a client consents to or initiates sexual activity with the lawyer, the burden is on the lawyer to ensure that all attorney-client dealings remain on a professional level.

Id. at 510, 664 N.E.2d at 522. Second, the Court was affected by the fact that the sexual act took place in the jail under the guise of a private lawyer-client conference. Exploiting one's position as an officer of the court to secure access to a private place for illicit sexual activity clearly offended the Court.

Citing Booher, the Supreme Court in 1999 imposed an 18-month suspension (with the final six months stayed) on a lawyer who engaged in sex with his client and subsequently proposed to reduce the fees owing in exchange for sexual acts. Cleveland Bar Ass'n v. Feneli, 86 Ohio St.3d 102, 712 N.E.2d 119 (1999) (violation of OH DR 1-102(A)(6)). Accord Disciplinary Counsel v. Krieger, 108 Ohio St.3d 319, 2006 Ohio 1062, 843 N.E.2d 765 (two-year suspension with one year stayed; citing Booher and Feneli precedents, among others). See Dayton Bar Ass'n v. Sams, 41 Ohio St.3d 11, 535 N.E.2d 298 (1989) (six-month suspension; solicitation of sexual favors in payment of fee). It should be noted that in Sams it was the client who first suggested this arrangement, which the lawyer was "interested in." Id. at 11, 535 N.E.2d at 299. Nor was the client in Feneli exactly uncooperative: "According to respondent, the client suggested to him several times that she had certain 'other methods of payment that [he] would certainly enjoy more than money.'" 86 Ohio St.3d at 102, 712 N.E.2d at 120. But, as the Court made clear, in situations such as this "[w]hether the client or [the lawyer] initiated the discussion that resulted in the . . . meeting [at which the lawyer proposed the reduction in fees] is immaterial." Id. at 103, 712 N.E.2d at 121.

In Akron Bar Ass'n v. Williams, 104 Ohio St.3d 317, 2004 Ohio 6588, 819 N.E.2d 677, the Court found respondent's misconduct "more egregious" than that in Moore: "Not only did respondent take [sexual] advantage of a vulnerable client, he lied under oath to hide his misdeeds." Id. at ¶ 15. As a result, Williams was suspended for two years with the last 18 months stayed on condition. Again, Chief Justice Moyer in dissent found the sanction inadequate, as he had in Moore: Citing Feneli, where the sexual misconduct resulted in an 18-month suspension with only six months stayed, the Chief Justice noted that

[t]he lawyer in Fenili did not lie to conceal his misconduct and still he received a more severe sanction than the one the majority imposes upon respondent in this case.

I would sanction respondent's exploitive and deceitful behavior by suspending him from the practice of law for two years with only one year stayed on the conditions imposed by the majority.

Id. at ¶¶ 20-21. A more severe sanction for similar conduct was imposed in Disciplinary Counsel v. Sturgeon, 111 Ohio St.3d 285, 2006 Ohio 5708, 855 N.E.2d 1221. Respondent Sturgeon engaged in numerous sexual encounters with clients and then "lied repeatedly" about his misdeeds during the disciplinary process. Id. at para. 27. Because the aggravating factors "'outweigh if not overwhelm' the mitigating factors, the Court imposed disbarment (rather than indefinite suspension, as recommended by relators, the panel, and the Board) for multiple violations of former OH DR 1-102(A)(5) and 5-101(A)(1). The Court's displeasure is reflected in the following comments:

Respondent preyed on women who were in vulnerable legal and financial circumstances, and he tried to seduce them for his own selfish gratification.

. . . By repeatedly initiating sexual conduct with clients, respondent called into serious doubt his commitment to a profession in which the clients' interests must always come first.

* * *

. . . Respondent's dishonesty about his misconduct and his willingness to blame his clients rather than accept responsibility for his own actions demonstrates that he is no longer fit to practice a profession grounded on candor, integrity, loyalty, and fairness.

Id. at ¶¶ 24, 25, 27.

Another Supreme Court case underscored the fact that under the Code the personal interest affecting the lawyer's judgment was not dependent on there being an ongoing sexual relationship with the client. In Disciplinary Counsel v. Cirincione, 102 Ohio St.3d 117, 2004 Ohio 1810, 807 N.E.2d 320, respondent had sex once with a woman who thereafter became his client and as to whom "respondent developed a romantic obsession . . . although they did not continue any sexual relationship." Id. at ¶ 3. For violation of OH DR 1-102(A)(6), 5-101(A)(1) and other OHCPR provisions, respondent was suspended for one year, with six months stayed. The Cirincione case is further discussed in sections 1.8:620, 3.3:310, and 3.3:610. Cirincione would present no ethical violation under Rule 1.8(j), inasmuch as the sexual relationship predated the commencement of the attorney-client relationship. It would, however, in all likelihood implicate Rules 1.7(a)(2) and 8.4(h).

For an extensive look at this issue, see Abed Awad, Attorney-Client Sexual Relations, 22 J. Legal Prof. 131 (1998) (stating the case for a per se rule prohibiting attorney-client sex and canvassing the jurisdictions, ten of which at that time had adopted ethics rules expressly dealing with attorney-client sexual relations, id. at 137-48. See also section 1.7:240.

1.8:220 Business Transactions with Clients

The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility §§ 5.43-5.49 (1996).

In general: Lawyers and their clients often engage in mutually beneficial business transactions. Nevertheless, this is an area where the threat of lawyer overreaching is real. In many instances the lawyer's training and skill may give the lawyer an advantage in any dealing with the client in which each has an independent financial interest. Further, the existence of the client-lawyer relationship may have created a bond of trust and confidence between them that could lead the client to be less protective of his or her own interests than the client would be in an arms-length transaction. Ohio Rule 1.8 cmt. [1]. Ohio Rule 1.8(a) strikes a compromise in this regard. The Rule, which addresses the propriety of a lawyer entering into a business transaction with a client or "knowingly acquiring an ownership, possessory, security or other pecuniary interest adverse to the client," does not ban such practices outright. Rather it allows them, if three conditions are met: First, the transaction and terms must be "fair and reasonable" to the client and fully disclosed in writing; second, the client must be advised in writing of the desirability of seeking independent legal advice; and third, the client must give informed consent, in a writing signed by the client. Rule 1.8(a)(1)-(3).  Each of these requisites is discussed more fully later in this section.

As the comments make clear, the Rule extends to a wide range of business transactions between attorney and client, such as loans, sales, investments, or purchasing property from an estate the lawyer represents. It includes fee agreements, otherwise governed by Rule 1.5, if the fee involves the lawyer's acceptance of an interest in the client's business or receipt of other nonmonetary payment. The Rule must be complied with when the lawyer offers collateral services, such as title insurance or investment services, to existing clients of the lawyer's legal services. Ohio Rule 1.8 cmt. [1].

The Rule applies whenever a lawyer enters into a business transaction with a current client, even if the subject of the representation is completely separate from and unrelated to the business transaction. Cf. Ohio Rule 1.8 cmt. [1]. Where the client expects the lawyer to represent the client's interests in the transaction itself, the risks to the client are greatest. While the same rule applies, more may be required to meet its terms, such as greater disclosure as to the lawyer's role, and the heightened risk of the lawyer's subordinating the client's interests to those of the lawyer. Ohio Rule 1.8 cmt. [3].

Excluded from the Rule are standard business transactions that the client enters into with a lawyer in which the lawyer is just another customer. Ohio Rule 1.8 cmt. [1]. As there stated, "the rule does not apply to standard commercial transactions between the lawyer and the client for products or services that the client generally markets to others, for example, banking or brokerage services, medical services, products manufactured or distributed by the client, and utilities' services." See Petersen Painting & Home Improvement, Inc. v. Znidarsic, 75 Ohio App.3d 265, 599 N.E.2d 360 (Geauga 1991) (in home renovation company's action against lawyer arising out of contact to remodel lawyer's home and resulting dispute as to balance due on job, fact that lawyer had occasionally represented company and its president insufficient to create attorney-client relationship with respect to remodeling job, which was "outside their attorney-client relationship," id. at 269, 599 N.E.2d at 362). That job, to use the language of Rule 1.8 cmt. [1], was a classic example of "standard commercial transaction[]" in which the home owner/lawyer clearly was not acting as a lawyer for the remodeler/sometimes client and to which the new Rule would be inapplicable. Rule 1.8 cmt. [1].

It also should be noted that the concerns of the Rule are not limited to transactions between lawyer and client. Any transaction in which the lawyer acquires "an ownership, possessory, security or other pecuniary interest adverse to a client" also is covered. Ohio Rule 1.8(a). So, for example, if a third-party holds the mortgage on the client's home and the lawyer seeks to purchase the mortgage from the third party, compliance with Ohio Rule 1.8(a) would be required.

Finally, the Rule significantly broadens the transactions subject to special control. OH DR 5-504(A), which formerly governed this issue, applied only when the lawyer and client had "differing interests" in the business transaction and the client expected the lawyer to exercise professional judgment for the client's protection in the matter. Neither of these limitations is retained in the new Rule.

If the business transaction would involve the lawyer's accepting employment by the client and if the lawyer's personal interest may then affect his ability to exercise independent judgment on behalf of the client, the conduct could violate Ohio Rule 1.7(a)(2) as well. Cf. Ohio Rule 1.8 cmt. [3]. See generally section 1.7:500. To the extent multiple clients are involved in the matter, a separate basis for violation of Ohio Rule 1.7(a)(2) may exist. See generally section 1.7:330.

The Rule's application is largely self-explanatory. As a threshold requirement the transaction and its terms must be objectively fair and reasonable. Ohio Rule 1.8(a)(1). To minimize the possibility that inadvertent misunderstanding might arise about these points, the Rule requires that the transaction and its terms must be fully disclosed to the client in writing in a manner that can be reasonably understood by the client. Id.

Because of the risks of lawyer overreaching in business transactions with the client, it may well be appropriate for the client to obtain independent counsel in the matter. While independent counsel is not required, it is encouraged. To this end the lawyer involved in the transaction must advise the client in writing of the "desirability" of seeking the advice of independent counsel and provide the client a reasonable opportunity to do so. Ohio Rule 1.8(a)(2).

Securing outside counsel will, in turn, alter the application of the Rule in several respects, as outlined in Ohio Rule 1.8 cmt. [4]. First, it is relevant in subsequent evaluations whether the transaction and its terms were fair and reasonable. If independent counsel advised the client on the matter, we are more likely to believe the deal met this standard. Second, the full-disclosure requirement concerning the transaction and its terms can be satisfied either by the lawyer who is the party to the transaction or by the independent attorney representing the client in the matter. (Should the client be represented in the matter, the duty in division (a)(2) suggesting such representation obviously no longer applies.)

Finally, the representation is proper only if 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." Ohio Rule 1.8(a)(3).

Cases decided under the Code analog to Rule 1.8(a) (OH DR 5-104(A)), may be instructive as to how the Supreme Court and ethics opinions will approach the Rule. A discussion of these authorities follows.

Attorney involvement in business ventures with client: Lawyers often are involved in the day-to-day operations of the business clients they represent. At times, however, the lawyer's conduct goes beyond mere representation to that of participation in the business venture itself. As the lawyer's conduct shifted into the latter mode, OH DR 5-104(A) problems were more likely to arise. If the shift occurred without conscious planning by the parties, unanticipated conflicts could surface without the lawyer having secured the necessary client consent after full disclosure as the former rule required. Cincinnati Bar Ass'n v. Warren, 66 Ohio St.3d 334, 612 N.E.2d 1223 (1993).

At other times, the lawyer quite consciously entered into a business transaction with a client. Such transactions often were facilitated by the previous professional and possibly personal relationships of the parties. Those ties, coupled with the client's reliance on the lawyer for advice on the transaction itself, presented significant opportunities for lawyer overreaching and resulting violation of OH DR 5-104(A).  Stark County Bar Ass'n v. Osborne, 1 Ohio St.3d 140, 438 N.E.2d 114 (1982) (attorney, social friend, and confidant of his incompetent client, violated OH DR 5-104(A), among other provisions, by entering series of unfair business transactions with client, involving sale of client's business and home to attorney or attorney's significant other). Accord Medina County Bar Ass'n v. Carlson, 100 Ohio St.3d 134, 2003 Ohio 5073, 797 N.E.2d 55 (respondent, who was hired to represent mentally-ill client concerning litigation involving client's property, bought property at fraction of its value and then attempted to cover up self-dealing with affidavit for client's signature that gave appearance that client consented after full disclosure: "When an attorney enters into a business transaction with a client in violation of the [OHCPR], the closer the attorney's misconduct is to deliberate deceit and misrepresentation, the more severe the sanction it requires," id. at para. 31; two-year suspension imposed rather than Board's recommended six months).

The business venture in Stark County Bar Ass’n v. Marosan, 119 Ohio St.3d 113, 2008 Ohio 3882, 892 N.E.2d 447, was a real estate trust created by respondent. The two other partners in the venture were clients of the respondent; one of those clients, Martin, put up all of the capital to purchase property in Pennsylvania for the trust. Respondent, who continued to represent Martin as well as the trust, did not suggest that Martin seek independent counsel or advise him of the risks attendant to this dual representation. Instead, respondent and the other client took excessive profit distributions on sale of the trust parcels and failed to reimburse Martin therefor. As a result, “[i]nstead of receiving one-third of the profits, Martin was the only one of three beneficiaries of the 3M Land Trust who lost money on the Pennsylvania property.” Id. at para. 9. “With respect to the above misconduct that allowed respondent to profit at the expense of Martin, the Board found that respondent had violated DR 5-104(A) . . . ,” id. at para. 10, and, given the presence of significant aggravating factors (including having been disciplined twice before) and the absence of mitigating factors, respondent was disbarred.

Another conflict-of-interest case decided the same day as Marosan is Disciplinary Counsel v. McNamee, 119 Ohio St.3d 269, 2008 Ohio 3883, 893 N.E.2d 490, where respondent first entered into a joint venture with a client and then prevailed upon other clients to enter into a joint venture with the first client, without recommending that the second clients retain independent counsel or advising them of the potential conflicts such a simultaneous representation arrangement entailed, all in connection with a real estate development project in which respondent had “a significant financial interest.” Id. at para. 33. As in Marosan, respondent violated DR 5-104(A) (transacting business with a client if they have differing interests, without obtaining informed client consent), but was also found to have violated 5-101(A)(1) and 5-105(B), which prohibit, other than with informed client consent, entering into employment where professional judgment may be affected by the lawyer’s own interest, or continuing to represent two or more clients who themselves have conflicting interests. In the words of the Court, “[r]espondent continued to represent all sides to the Summer Brooke development despite obvious conflicts of interest which he never disclosed to his clients and which they never waived, despite repeated calls for his disqualification . . . .” Id. at para. 32.

The seeming ultimate in horror stories of this sort is found in Toledo Bar Ass’n v. Cook, 114 Ohio St.3d 108, 2007 Ohio 3253, 868 N.E.2d 973. The Cook case involved one client, a 90-year old woman who lived alone on her $275,000 farm and had no relatives.  Respondent prepared and had the client execute a series of estate-related documents (living trust, will, durable power of attorney, etc.) that put respondent in the driver’s seat in each instance.  Without going into the lurid detail contained in the Court’s opinion (altering and misdating deeds, forging signatures and so on), respondent became by gift the grantee, first as trustee and then unilaterally changed by respondent to herself individually, of the farm, which she then deeded to the client’s church (allegedly pursuant to her client’s wishes), for which respondent took, for five years commencing in tax year 2000, charitable deductions on her individual tax return in the total amount of $225,000.  One of the many problems in respondent’s executing this scheme was that, in the words of the Court,

respondent took advantage of her client’s assets by claiming deductions for the year 2000 and afterward for a charitable contribution that we can only conclude occurred sometime after May 8, 2001 [when respondent opened the case file for this client].

Id. at para. 31.  Respondent claimed that the gift actually occurred on Christmas Day 2000, but as the Court notes, “[o]ddly, however, that date precedes the July 12 and September 10, 2001 recording dates of Deeds A and B, the deeds from which respondent supposedly obtained her personal interest in the farm.”  Id. at para. 23.  Among the many instances exposing respondent’s duplicity, we think this one particularly telling:

Respondent eventually admitted that May 20, 1998, was not the date on which Deed A was actually executed.  She had no alternative.  The notary public who authenticated the deed did not receive her commission until 2000.

Id. at para. 13.  As the Court succinctly summed it all up, “she gamed the system," id. at para. 32, and for doing so was disbarred.

This sort of overreaching and unfairness was not required to find a violation, however. All that was required was that lawyer and client had "differing interests" in the business transaction, the client expected the lawyer to exercise professional judgment for the client's protection in the matter, and the lawyer failed to receive the client's consent to proceed after full disclosure. See Akron Bar Ass'n v. Markovich, 117 Ohio St.3d 313, 2008 Ohio 862, 883 N.E.2d 104, at para. 15. Thus a violation of DR 5-104(A) could occur even though "'[t]here was no evidence of deceit or misrepresentation by Respondent [or] that the client *** suffered any resulting harm.'" Dayton Bar Ass'n v. Corbin, 109 Ohio St.3d 241, 2006 Ohio 2289, 846 N.E.2d 1249, at para. 22 (quoting panel) (purchase of real estate from client at client's request, with payment to be made by respondent's proceeds from mortgaging property; unbeknownst to respondent, client had mental-health problems at time of deal and, later, criminal-law problems; respondent decided to go through with transactions because of client's financial distress, exacerbated by legal representation expenses arising from the criminal charges; because of extraordinary mitigating circumstances, particularly his entering into the transactions in order to help his client, public reprimand imposed instead of six-month suspension agreed to by parties). In Dayton Bar Ass'n v. Gunnoe, 64 Ohio St.2d 172, 413 N.E.2d 842 (1980), a lawyer was sanctioned for arranging the sale of a client's business to a corporation of which the lawyer was the majority shareholder, where the lawyer did not disclose his interest in the transaction until the closing. By delaying the disclosure, the lawyer represented a client with differing interests than his own, without consent after full disclosure, in violation of OH DR 5-104(A). Accord Office of Disciplinary Counsel v. Allen, 91 Ohio St.3d 27, 740 N.E.2d 1094 (2001), discussed at section 1.7:500.

Client investment in attorney-owned enterprises: Clients often seek investment advice from their attorneys. Sometimes this involves investment of the client's existing capital; other times it involves funds recently received, such as proceeds from settled estates or concluded litigation. Clients who have recently received money to invest may be particularly likely to rely on the attorney for advice, either because of the stress of the underlying matter now resolved, or because of their often comparative unfamiliarity with financial matters.

In this setting, the lawyer may wish to direct the client's investment to an enterprise in which the lawyer has an interest. In such circumstances, the lawyer as owner and the client as investor may have the same desired outcome. But pursuant to Rule 1.8(a), such a business transaction with a client is prohibited, unless all of the provisions of Ohio Rule 1.8(a)(1)-(3) are met.

While former OH DR 5-104(A) technically was violated whenever a transaction, involving differing interests and client expectation that the lawyer was acting to protect the client's interest, proceeded without the required disclosure and consent, the reported cases typically involved more, such as a client loss on the investment, Stark County Bar Ass'n v. Ramsayer, 50 Ohio St.3d 129, 552 N.E.2d 932 (1990) (attorney persuaded client to invest settlement money in corporation of which attorney was sole stockholder; corporation ultimately ceased operations, resulting in loss of client's investment), or a broader pattern of attorney wrongdoing in handling the investment and related matters.  Columbus Bar Ass'n v. McCoy, 28 Ohio St.3d 96, 502 N.E.2d 642 (1986) (attorney, without disclosure of his own interests, induced several clients to invest in company in which lawyer was involved, and then failed to provide to clients expected return or to answer client inquiries about their investments); Dayton Bar Ass'n v. Zarka, 24 Ohio St.3d 157, 493 N.E.2d 1363 (1986) (one-year suspension of attorney who convinced clients to invest funds in various corporations and partnerships with him; degree of disclosure of the lawyer's interest was unclear, and he failed to provide full documentation of the investment or to return funds upon request; lying and deceit also involved). This pattern of damage to the client being a typical, but not required, element in such cases will probably continue under Rule 1.8(a).

Loans between attorney and client: Unauthorized taking of client funds as a loan clearly violated not only 5-104(A), but also various other provisions of the former OHCPRBar Ass'n of Greater Cleveland v. Cook, 18 Ohio St.3d 149, 480 N.E.2d 436 (1985) (borrowing $10,000 from estate and placing it in personal bank account where it was attached by creditors violated numerous disciplinary rules, including OH DR 5-104(A)); cf. Office of Disciplinary Counsel v. Hock, 36 Ohio St.3d 177, 522 N.E.2d 543 (1988) (unauthorized withdrawal of funds from estate's bank account or use of guardian's funds as collateral for personal loan violated, inter alia, OH DR 5-104(A)). See also sections 8.4:400 and 1.15:200.

The special role of OH DR 5-104(A), however, was in the regulation of consensual loan arrangements between attorney and client. It did not matter whether the loan was from the client to the lawyer, Columbus Bar Ass'n v. Luginbuhl, 65 Ohio St.3d 146, 602 N.E.2d 603 (1992), or from the lawyer to the client.  Columbus Bar Ass'n v. Herrold, 61 Ohio St.3d 542, 575 N.E.2d 796 (1991) (attorney, as trustee for investment company for which he controlled all stock by power of attorney, arranged for company to make loans and engage in property transfers with other unsophisticated clients of attorney without complying with OH DR 5-104(A)). In either situation, their positions as lender and borrower constituted "differing interests," as set forth in the rule. If the client expected the lawyer to be acting on its behalf, then full disclosure by the lawyer and consent by the client were required.

See Disciplinary Counsel v. Robertson, 113 Ohio St.3d 360, 2007 Ohio 2075, 865 N.E.2d 886 (DR 5-104(A) violated by obtaining loans from elderly, nursing-home client without urging client to seek independent counsel or obtaining client consent after full disclosure; indefinite suspension imposed, even though misappropriation did not involve DR 1-102(A)(4) violation. "We have not tolerated such self-dealing from this profession." Id. at para. 14.); Cincinnati Bar Ass'n v. Rothermel, 112 Ohio St.3d 443, 2007 Ohio 258, 860 N.E.2d 754 (persuading brain-damaged client to loan respondent $15,000, "ostensibly to finance expansion of his practice," id. at para. 6, without collateral and without paying off loan by due date, violated 5-104(A); given extensive prior history of violations and other aggravating circumstances, respondent disbarred); Office of Disciplinary Counsel v. Dillon, 28 Ohio St.3d 114, 502 N.E.2d 637 (1986) (obtaining loan for purchase of law-office building from elderly client's passbook savings; transaction in which client had differing interests violated 5-104(A); "there is no credible evidence that client consented to the relationship after full disclosure," id. at 117, 502 N.E.2d at 639.).

Even if the initial loan was permissible, any restructuring or compromise of the loan again invoked OH DR 5-104(A) concerns. Cincinnati Bar Ass'n v. Hartke, 67 Ohio St.3d 65, 616 N.E.2d 186 (1993) (applying 5-104(A) to transaction involving compromise of loan).

In Hartke, the Ohio Supreme Court addressed the nature of the full-disclosure requirement. An attorney who had received a loan from a client in 1976 contacted the client in 1989 to compromise the loan, in a context where the client clearly considered him to be her attorney. The compromise was highly favorable to the lawyer and was done in part to shield assets from the Ohio Department of Mental Health, which was seeking payment for treatment provided the client during a period of involuntary commitment, for which the client did not want to pay. Under these circumstances, "respondent could not comply with the full disclosure requirement in former OH DR 5-104(A) without insisting [the client] receive independent legal advice about the compromise" and "without sufficiently explaining that he would represent his own, rather than [the client's], interests." Id. at 68, 616 N.E.2d at 187 (violations of OH DR 1-102(A)(4) and 7-102(A)(7) also found).

See also Bd. of Comm'rs on Grievances & Discipline Op. 2004-8, 2004 Ohio Griev. Discip. LEXIS 12 (Oct. 8, 2004) (acquiring mortgage on client's home to secure legal fee is business transaction involving differing interests governed by OH DR 5-104(A), as to which transaction full disclosure and consent were required).

Attorney provision of nonlegal services: Some lawyers practice multiple professions, serving not only as lawyers but as real estate agents, insurance agents, and the like. If the lawyer plays multiple roles for a client, the lawyer's provision of nonlegal services may be considered a business transaction with the client, in which they have differing interests. If the client expected the lawyer to exercise his professional judgment as a lawyer on the client's behalf in the provision of these nonlegal services, OH DR 5-104(A) applied, and full disclosure and consent were required. (This conduct more often was regulated as a OH DR 5-101(A) concern. See section 1.7:500.)

The mere fact that conduct is permissible, with full disclosure and consent, does not make it advisable. For example, the Ohio State Bar Association addressed the question whether a lawyer involved in estate planning could also become a registered salesperson for a company selling securities and commodities and sell those products to his clients. Ohio State Bar Ass'n Informal Op. 79-6 (Sept. 20, 1979). While acknowledging that the conduct would be permissible with consent after full disclosure, the OSBA warned "nonetheless, we are of the opinion that such transactions between lawyer and client are so risky and so fraught with the danger of overreaching the client by the lawyer either intentionally or unintentionally that such transactions should be avoided." Id. at 6. See also Ethics Opinion, Cincinnati Bar Rep., Dec. 1986/Jan. 1987, at 7, 10 ("[W]hile the receipt of income from the sale of commodities or services to legal clients by an attorney engaged in a second occupation is not expressly prohibited, the dual practitioner bears a very high burden, and the concomitant risk, of complying with the Code of Professional Responsibility in such circumstances, and in particular of maintaining the requisite independence of judgment.").

Attorney referrals for nonlegal services to enterprises in which the attorney has an interest: While seemingly not directly on point, OH DR 5-104(A) was cited in a number of cases addressing whether a lawyer could invest in a nonlegal enterprise and refer clients to that enterprise. A lawyer who had a financial interest in a real-estate brokerage business, for example, might refer clients who needed such services to that business. Ohio State Bar Ass'n Informal Op. 80-2 (Feb. 13, 1980) (referrals to real-estate agent spouse or employment of spouse to make appraisals needed for lawyer's clients); Ohio State Bar Ass'n Informal Op. 76-7 (July 16, 1976) (referrals to real-estate brokerage company in which lawyer had financial interest). Representing a client and making such referrals was permitted as long as the lawyer fully disclosed his financial interest in the enterprise. Should a dispute arise between the client and the brokerage firm, however, the lawyer would have to withdraw as counsel to the client on that matter. Id.

General business dealings with a client - Other: Not all business transactions neatly fall within the categories outlined above. Nevertheless, they still could come within the ambit of former OH DR 5-104(A).

The Board of Commissioners, for example, opined that it would be improper under a number of OHCPR provisions, including OH DR 5-104(A) (and OH DR 5-101(A)(1), see section 1.7:500), for a law firm to enter into a business agreement to pay an annual fee to a real estate agency and offer discounted legal services to the agency's customers, in exchange for the agency's promoting the firm as a service provider. Bd. of Comm'rs on Grievances & Discipline Op. 2002-1, 2002 Ohio Griev. Discip. LEXIS 15 (Feb. 1, 2002). The Board found this arrangement to be "[c]ircuitously, . . . entering into a business relationship with clients." Id. at *11.

The Toledo Bar Association addressed whether a lawyer could purchase a judgment lien that the client could not presently satisfy and through which a third party threatened to foreclose on the client's home. Toledo Bar Ass'n Op. 91-9 (n.d.). This act, while benefiting the client by preventing immediate foreclosure, would place the lawyer and client in adversary positions in the long run. The opinion approved the conduct as long as the client consented after full disclosure. It described the necessary disclosure in the following terms:

The disclosure should be in writing and should encompass all aspects of the transaction. The client should be advised whether she is signing a cognovit, and if so, the connotation of such an act. She should be advised that the property may deteriorate and that later a deficiency judgment, if any, would be greater than that at the present time. All other aspects of the transaction should be fully and clearly disclosed in writing by the attorney to the client.

Id. at 1.

In Bar Ass'n of Greater Cleveland v. Nesbitt, 69 Ohio St.2d 108, 431 N.E.2d 323 (1982), the Supreme Court found that a lawyer violated OH DR 5-104(A) by arranging for a client to make a loan to a third party without advising the client that the lawyer was to be paid a finder's fee by the third party.

And in Bd. of Comm'rs on Grievances & Discipline Op. 2003-1, 2003 Ohio Griev. Discip. LEXIS 1 (Apr. 11, 2003), the Board opined that it would be improper for a law firm to accept a fee, based on the size of the transaction, from a lender for introducing the seller of a business entity to the lender:

The agreement between the lawyer and lender for such a referral fee compromises the lawyer's exercise of independent professional judgment and involves the lawyer and law firm in improper business relationships with the lender, the buyer, and the seller.

Id. at *1 (syllabus).

Finally, the Board issued an opinion stating that it was ethically improper for a lawyer to accept a fee from a financial services group for referring to the group clients in need of financial services. Bd. of Comm'rs on Grievance & Discipline Op. 2000-1, 2000 Ohio Griev. Discip. LEXIS 1 (Feb. 11, 2000) (syllabus). In its ruling, the Board found that such an arrangement involved an improper business relationship with clients and nonlawyers under former OH DR 3-103(A) and 5-104(A). Further, the referral fee agreement created a financial interest that could affect the professional judgment of the lawyer under OH DR 5-101(A)(1) and 5-107(A)(1)-(2). Because of the joint application of these rules and because OH DR 3-103(A) did not contain a full disclosure and consent exception (even though the other applicable rules did), the full disclosure and consent exception did not apply.

In the course of its opinion, the Board reasoned as follows:

If during the legal representation, a lawyer ascertains that a client needs financial services, the lawyer has a fiduciary duty to refer a client to appropriate resources. These referrals are part of the attorney's practice of law. The lawyer's duty of loyalty demands that the referral be made in the client's best interest, free of compromise and conflict. A lawyer should not make these referral decisions based on financial incentives that a particular company may offer the lawyer.

* * *

. . . A referral fee is a financial interest that will or reasonably may affect a lawyer's professional judgment under DR 5-101(A). The more referrals, the more money made.

Op. 2000-1, 2000 Ohio Griev. Discip. LEXIS 1, at *7.

1.8:300 Lawyer's Use of Client Information

  • Primary Ohio References: Ohio Rule 1.8(b)
  • Background References: ABA Model Rule 1.8(b)
  • Commentary: ABA/BNA § 55:2001; ALI-LGL § 60; Wolfram § 6.7

Ohio Rule 1.8(b) precludes a lawyer from using information relating to the representation "to the disadvantage of the client unless the client gives informed consent," "[e]xcept as permitted or required by these rules." For example, if a lawyer learns that a client wants to acquire certain property, and that information relates to the representation of the client, the lawyer cannot use that information to purchase the land in competition with the client or to recommend that another client make such a purchase, absent the client's consent. Ohio Rule 1.8 cmt. [5].

A number of important points should be noted: While use of such information to benefit the lawyer or a third party often goes hand-in-hand with disadvantage to the client (as in Comment 5 above), the exclusive trigger is client disadvantage. If use of such information benefits the lawyer or another without disadvantage to the client, there is no violation of Rule 1.8(b), as there was a violation of former OH DR 4-101(B)(3), absent client consent.  See Rule 1.8 cmt. [5] (division (b) "does not prohibit uses that do not disadvantage the client," "whether or not the information is used to benefit either the lawyer or a third person"). And unlike former OH DR 4-101(B)(2) (which, read literally, imposed an absolute prohibition against use to the client's disadvantage, irrespective of client consent), the Rule 1.8(b) prohibition against such use does not apply if the client gives informed consent.

Further, the opening clause of division (b) ("Except as permitted or required by these rules") refers to instances in which a lawyer may or must use information relating to the representation to the disadvantage of the client irrespective of the Rule 1.8(b) prohibition.  See Rule 1.8 cmt. [5], which, with reference to the "permitted or required" exceptions, lists "Rules 1.2(d), 1.6, 1.9(c), 3.3, 4.1(b), 8.1 and 8.3."  We believe this list to be both erroneous and confusing.  First, as a general matter, the subject here is use of information relating to the representation to the disadvantage of the client; a number of the listed rules (1.6, 3.3, 4.1(b), 8.1, 8.3) deal with permissive or mandatory disclosure of such information, not use.  (Admittedly, disclosure would often seem to be a "use" as well, but the Rules distinguish between the two.  Compare Rule 1.6 ("revealing" such information) with 1.8(b) ("using" such information).)  Second, even if both use and disclosure provisions are considered, Rule 1.2(d) deals with neither.  Third, with respect to Rule 8.3, it imposes a reporting duty regarding "unprivileged knowledge."  According to the Board of Commissioners, this means that some, but not all, information relating to the representation must be reported; such information protected by the attorney-client privilege need not be.  Bd. of Comm'rs on Grievances & Discipline Op. 2007-1, 2007 Ohio Griev Discip LEXIS 1 (Feb. 9, 2007).  There is no indication in the Board’s opinion that presence or absence of detriment to the client is a relevant factor.  Opinion 2007-1 is also discussed in section 8.3:400.

The former disciplinary rule addressed the problem of misuse of client information in two respects: (1) read literally, it prohibited using the information "to the disadvantage of the client," irrespective of client consent, OH DR 4-101(B)(2), and (2) it also prohibited the use of the information for the advantage of the lawyer, or a third person other than the client, unless the client consented after full disclosure. OH DR 4-101(B)(3). See, e.g., Disciplinary Counsel v. Robertson, 113 Ohio St.3d 360, 2007 Ohio 2075, 865 N.E.2d 886 (violation of former OH DR 4-101(B)(3)); Office of Disciplinary Counsel v. Baumgartner, 100 Ohio St.3d 41, 2003 Ohio 4756, 796 N.E.2d 495 (violation of both DR 4-101(B)(2) & (3) where respondent threatened to reveal client trade secrets to competitors if her demands for payment for nonexistent professional services were not met); Office of Disciplinary Counsel v. Yurich, 78 Ohio St.3d 315, 677 N.E.2d 1190 (1997) (OH DR 4-101(B)(3) violation found where lawyer prepared living trust for client and then solicited business from successor trustee named in trust -- such name constituted client confidence or secret, which the lawyer used to his advantage without obtaining client consent after full disclosure).

At least one court declined to apply 4-101(B)(2) as written, which made it a violation to use client information to the client's disadvantage even if the client consented to such use. See Spivey v. Bender, 77 Ohio App.3d 17, 601 N.E.2d 56 (Lucas 1991) (reversing disqualification where former client, after full disclosure, agreed to "use" by the lawyer of confidential information that may have been to former client's disadvantage in subsequent litigation against him). And in Dietz-Britton v. Smythe, Cramer Co., 139 Ohio App.3d 337, 743 N.E.2d 960 (Cuyahoga 2000), the Eighth District Court of Appeals used former OH EC 4-5 to the same end. Even though EC 4-5, like DR 4-101(B), drew a clear distinction between use of information to the disadvantage of the client (no provision for client consent) and use for the lawyer's own purposes (provision for consent) --

A lawyer should not use information acquired in the course of the representation of a client to the disadvantage of the client and a lawyer should not use, except with the consent of his client after full disclosure, such information for his own purposes.

-- the court quoted EC 4-5 as if it made provision for client consent in instances of use to the client's disadvantage. In the Dietz-Britton court's "revised version," EC 4-5 looked like this:

"A lawyer should not use information acquired in the course of the representation of a client to the disadvantage of the client, except with the consent of his client after full disclosure, * * *"

Id at 353, 743 N.E.2d at 972 (ellipsis in original). See also Charles W. Wolfram, Modern Legal Ethics §  6.7.6, at 305 & n.88 (1986) (strongly disapproving of literal reading and agreeing with result in cases such as Spivey and Dietz-Britton).

This issue has now been resolved by Rule 1.8(b), which expressly provides that a lawyer can use information relating to the representation to the disadvantage of the client, so long as the client gives informed consent.

Examples of the unauthorized use of client information by lawyers arise in numerous contexts. Some involve business dealings with the client. See, e.g., under the former OHCPR, Stark County Bar Ass'n v. Osborne, 1 Ohio St.3d 140, 438 N.E.2d 114 (1982) (lawyer misused client confidences for his own advantage (and disadvantage of client) in business dealings with client). See generally Rule 1.8(a) (limiting business transactions with client). See also section 1.8:220. As the Court stated in Findlay/Hancock County Bar Ass'n v. Filkins, 90 Ohio St.3d 1, 11, 734 N.E.2d 764, 772 (2000): "It is virtually axiomatic that where an attorney who represents himself and his client in a business deal, and the client loses money on the deal, a presumption arises that the attorney used client confidences to his client's disadvantage." In other instances the lawyer exploits client confidences to obtain leverage in disputes with the client. See, e.g., Bar Ass'n of Greater Cleveland v. Watkins, 68 Ohio St.2d 11, 427 N.E.2d 516 (1981) (attorney disciplined for threatening to disclose confidential information to taxing authorities as part of attempt to coerce client to drop disciplinary complaint). Each of these three cases would run afoul of Rule 1.8(b).

With respect to unauthorized use of confidential information and secrets in litigation, see Lightbody v. Rush, 137 Ohio App.3d 658, 665, 739 N.E.2d 840, 845 (Cuyahoga 2000) (reversing order granting law firm's motion to compel deposition answers of former co-counsel; order "effectively allowed [law firm], for the purpose of procuring discovery for its own advantage and without evidence of full disclosure to [client], to waive both [client's] testimonial privilege and each attorney's ethical obligation to safeguard his confidences and secrets," citing former OH 4-101(B)(3)). The Lightbody case is discussed in greater detail at section 1.6:500.

For a discussion of prohibitions on a lawyer's use of protected client information in the context of conflict of interests, see sections 1.6:230 (lawyer self-dealing in confidential information); 1.6:240 (abuse of confidential information in multiple-client settings); 1.6:390 (confidentiality and conflicts of interest generally); and 1.9:400 (use or disclosure of former client's confidences).

1.8:400 Client Gifts to Lawyer

  • Primary Ohio References: Ohio Rule 1.8(c)
  • Ohio Commentary: Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.18
  • Background References: ABA Model Rule 1.8(c)
  • Commentary: ABA/BNA § 51:601; ALI-LGL § 127; Wolfram § 8.12

The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.18 (1996).

In general: Because lawyers and clients often develop close relationships, it is not uncommon for a client to want to make a gift to a lawyer. Yet, given their fiduciary relationship, the fear is that such a gift may be the product of lawyer overreaching, or at least that it may appear to be so.

In response to these concerns, Ohio Rule 1.8(c) does not prohibit all client gift-giving to lawyers, but it does place limits on the process. Thus, division (c) provides that a lawyer "shall not solicit any substantial gift from a client." Comment [6] makes clear that the lawyer may accept an unsolicited gift from a client, even a substantial one, "although such a gift may be voidable by the client under the doctrine of undue influence, which treats client gifts as presumptively fraudulent." Ohio Rule 1.8 cmt. [6]. Soliciting, as opposed to accepting, a substantial gift is precluded, unless the lawyer is related to the client. Id. Ohio's rewrite of the Model Rule language in the introductory paragraph of division (c) makes this related-to-the-client exception with respect to solicitation less than clear, but the comment's interpretation seems a reasonable one. With respect to drafting of instruments making gifts to the lawyer, see below.

Lawyer-beneficiary prohibitions: One area where this problem frequently arises concerns the client who wants to have his or her lawyer, or one closely associated with the lawyer, named as a beneficiary in the client’s will or in some other instrument, such as a trust. This conduct has implications both for lawyer discipline and for the validity of the instrument itself.

Until amended in 1996, former OH DR 5-101(A) did not speak to this issue directly, but only through the general prohibition against allowing the lawyer's personal interests to interfere with representation of the client. Former OH EC 5-5 admonished the lawyer that absent "exceptional circumstances [the] lawyer should insist that an instrument in which his client desires to name him beneficially be prepared by another lawyer selected by the client." Even these protections were subject to waiver by client consent after full disclosure.

Effective May 1, 1996, OH DR 5-101(A) was amended both to make explicit and to strengthen the prohibition in this area. Amended subsection OH DR 5-101(A)(2) provided that "a lawyer shall not knowingly prepare, draft, or supervise the preparation or execution of a will, codicil, or inter vivos trust for a client" in which the lawyer, an affiliated lawyer or employee, or a close relation of any of the above was named as a beneficiary. With but one exception (gifts made by relatives), the prohibition was absolute and could not be cured by client consent.

Ohio Rule 1.8(c) largely continues these absolute prohibitions with respect to lawyer-beneficiary gifts. In the words of the Rule:

A lawyer shall not prepare on behalf of a client an instrument giving the lawyer, the lawyer's partner, associate, paralegal, law clerk, or other employee of the lawyer's firm, a lawyer acting as "of counsel" in the lawyer's firm, or a person related to the lawyer any gift [including a testamentary gift, see subdivision (c)(2)] unless the lawyer or other recipient of the gift is related to the client.

Although implicit in division (c), Comment [7] expressly states that with respect to such gifts by an instrument such as a will or conveyance, "the client should have the detached advice that another lawyer can provide. The sole exception to this rule is where the client is a relative of the donee." Ohio Rule 1.8 cmt. [7]. Consistent with division (c), this must be read as requiring that "the detached advice that another lawyer can provide" includes the preparation of such instruments.

For purposes of division (c), a related person includes a spouse, child, grandchild, parent, grandparent, sibling "or other relative or individual with whom the lawyer or the client maintains a close, familial relationship." Ohio Rule 1.8(c)(1).

Under the OHCPR, even gifts from relatives were not beyond the reach of the disciplinary authorities, if the lawyer's conduct smacked of overreaching. In Akron Bar Ass'n v. Parker, 52 Ohio St.3d 262, 557 N.E.2d 116 (1990), for example, an attorney drafted a will and trust agreement for his failing 98-year-old father and named himself as trustee of the estate's assets with unfettered discretion in their use. This superseded a will drafted six months earlier by independent counsel. The earlier will had made specific bequests to the testator's four children. In a 4-3 opinion, the Ohio Supreme Court found that this conduct violated former OH DR 5-101(A) and suspended the respondent for one year. While such a gift would pass muster under a literal reading of Rule 1.8(c), it is highly likely that such behavior would run afoul of other provisions, such as Ohio Rule 1.7(a)(2).

In the first Supreme Court decision discussing amended OH DR 5-101(A), Toledo Bar Ass'n v. Cook, 97 Ohio St.3d 225, 2002 Ohio 5787, 778 N.E.2d 40, respondent in 1998 prepared a will for her client giving most of the marital trust assets to a corporation owned by respondent's siblings. "This transaction effectively donated approximately $300,000 to respondent's siblings' corporation." Id. at ¶ 4. After the testator's children retained counsel to contest the will, respondent resigned as trustee of the trust, and the corporation disclaimed any interest in the estate. The Court noted that the panel had found a number of mitigating factors, including the resignation and the fact that "all of the assets that were bequested to Advanced Living [the siblings' corporation] were given to the client's children." Id. at ¶ 8. The Court further noted, interestingly, that:

As an aggravating factor, the panel was concerned that respondent, a prominent attorney in estate planning, had not been aware of applicable ethical standards, particularly the absolute prohibition in DR 5-101(A)(2)(e) against preparing a will or trust naming the attorney's siblings.

Id. Respondent was given a one-year suspension with six months stayed. The sanction aspect is more fully discussed this section infra, at "Sanctions for violation of lawyer-beneficiary prohibitions." A subsequent case, following Cook and meting out the same sanction for similar conduct, is Disciplinary Counsel v. Kelleher, 102 Ohio St.3d 105, 2004 Ohio 1802, 807 N.E.2d 310. (The further adventures of lawyer Cook, resulting in disbarment, are recounted in section 1.8:220; see Toledo Bar Ass’n v. Cook, 114 Ohio St.3d 108, 2007 Ohio 3253, 868 N.E.2d 973.)

In the only ethics opinion found that applied the amended version of OH DR 5-101(A), the Ohio State Bar Association opined that an attorney/stepson could prepare for his stepmother legal documents, including a trust, in which he was named a beneficiary, without violating the OHCPR. Ohio State Bar Ass'n Informal Op. 97-6 (Oct. 10, 1997).

Sanctions for violation of lawyer-beneficiary prohibitions: Prior to the 1996 amendment, typical sanctions imposed for misconduct in this area involved suspensions ranging from one year to indefinite duration, where overreaching was involved, e.g., Cincinnati Bar Ass'n v. Clark, 71 Ohio St.3d 145, 642 N.E.2d 611 (1994), with a public reprimand possible where it was not. See Cincinnati Bar Ass'n v. Bortz, 74 Ohio St.3d 207, 658 N.E.2d 252 (1996). Heightened sanctions were thought particulary appropriate where the lawyer acted with full knowledge that the conduct was wrong but proceeded because he calculated that the risk of detection and substantial sanction was sufficiently small compared to the economic benefit the testamentary bequest would afford.  Office of Disciplinary Counsel v. Galinas, 76 Ohio St.3d 87, 666 N.E.2d 1083 (1996).

After the amendment to the disciplinary rule made the prohibition clear and absolute, an actual suspension was warranted even where signs of overreaching were absent. The Cook case, 97 Ohio St.3d 225, 2002 Ohio 5787, 778 N.E.2d 40, bears this out. In Cook, the respondent was given a one-year suspension, with six months stayed, where there was no evidence of overreaching:

[E]ven with the best of intentions, an attorney risks the possibility of exploiting his client when their interests become so intertwined. We therefore reconsidered the ethical propriety of the situation and resolved that these risks are untenable. Thus, effective May 1, 1996 we amended the Code of Professional Responsibility to specify that there are no circumstances under which an attorney may prepare a will or trust in which the attorney, the attorney's family, or the attorney's affiliates are named beneficiaries, unless the beneficiary is related to the client. . . . Today we hold that a violation of DR 5-101(A)(2) requires an attorney's actual suspension from the practice of law.

Id. at ¶ 11 (emphasis by the Court). Accord Disciplinary Counsel v. Kelleher, 102 Ohio St.3d 105, 2004 Ohio 1802, 807 N.E.2d 310; Toledo Bar Ass'n v. Dzienny, 96 Ohio St.3d 144, 2002 Ohio 3611, 772 N.E.2d 627 (eighteen-month suspension with one year stayed).

Effect in will-contest proceeding of violation of lawyer-beneficiary prohibitions: In Krischbaum v. Dillon, 58 Ohio St.3d 58, 567 N.E.2d 1291 (1991), the Ohio Supreme Court addressed the impact, in a will-contest proceeding, of a lawyer drafting for a client a will naming the lawyer as a beneficiary:

A presumption of undue influence, rebuttable by a preponderance of the evidence, arises when (i) the relationship of attorney and client exists between a testator and an attorney, (ii) the attorney is named as a beneficiary in the will, (iii) the attorney/beneficiary is not related by blood or marriage to the testator, and (iv) the attorney/beneficiary actively participates in the preparation of the will.

Id. at 58, 567 N.E.2d at 1292 (syllabus one).

The rebuttable presumption applies only to the bequest to the lawyer and does not affect the validity of other portions of the will. Id. at 65, 567 N.E.2d at 1298. The Krischbaum Court identified several reasons for this presumption — primary among them the special fiduciary relationship of attorney and client and the heightened need for trust in the estate context. First, a client is particularly in need of privacy and is especially vulnerable when contemplating his or her own mortality. Second, because the discussions are so inherently private and because the testator, by definition, will not be available after death to assure that his or her wishes are met, the client is unusually dependent on the lawyer. Id. at 62-63, 567 N.E.2d at 1296.

Finally, the Court addressed the role of the former OHCPR in the will-contest proceeding. While the OHCPR, by its terms, was intended only as a source of controlling conduct through the disciplinary process, it was relevant here as well. Ultimately, the question was not simply whether the lawyer influenced the testator in making the bequest, but rather, whether the influence was "undue." This turned on what conduct was reasonable under the circumstances, and the standards in the OHCPR helped to establish what a reasonable attorney would have done. Id. at 68-69, 567 N.E.2d at 1300-01. (For the disciplinary proceeding arising out of the attorney's conduct in Krischbaum, see Office of Disciplinary Counsel v. Dillon, 28 Ohio St.3d 114, 502 N.E.2d 637 (1986).)

In a cogent opinion premised on facts predating the 1996 amendment to OH DR 5-101(A), the Eleventh District Court of Appeals, in a nondisciplinary context, analyzed Krischbaum with respect to inter vivos trust agreement amendments drafted by a lawyer/grandson who had previously been named trustee by the grantor and who, by virtue of the amendments, was given a slightly larger remainder interest in fee simple.  Lah v. Rogers, 125 Ohio App.3d 164, 707 N.E.2d 1208 (Lake 2000) (declaratory-judgment action by the lawyer-relative to determine rights of trust beneficiaries). In Lah, the trial court imposed the Krischbaum rebuttable presumption of undue influence on the lawyer/grandson, who then rebutted it by a preponderance of the evidence. The trial court further concluded that the appellant (another grandchild of the grantor) had failed to prove undue influence by the clear and convincing evidence required. In affirming, the court of appeals held: 1) that the trial court erred in imposing the rebuttable presumption of undue influence on the lawyer/grandson, 2) that the error was non-prejudicial, inasmuch as the lower court had found the presumption rebutted, and 3) the trial court correctly found that appellant failed to provide clear and convincing evidence of undue influence. The appellate court specifically held that the Krischbaum presumption rule is limited to situations in which the attorney/beneficiary is not related to the testator (or, here, grantor) by blood or marriage. The court of appeals further noted and repeated the Krischbaum holding that the norms of behavior expressed in the OHCPR were directly relevant to the issue of undue influence by an attorney.  125 Ohio App.3d at 173 n.5, 707 N.E.2d at 1213 n.5. Under Ohio Rule 1.8(c), the lawyer in Lah, because of his blood relationship to the grantor, would not be prohibited from drafting the trust and in all likelihood his conduct would pass muster under the other Rules of Professional Conduct as well, given the absence of evidence of undue influence or overreaching in the case.

1.8:500 Literary or Media Rights Relating to Representation

  • Primary Ohio References: Ohio Rule 1.8(d)
  • Ohio Commentary: Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.50
  • Background References: ABA Model Rule 1.8(d)
  • Commentary: ABA/BNA § 51:701; ALI-LGL § 36; Wolfram § 9.3.3

The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.50 (1996).

Ohio Rule 1.8(d) prohibits a lawyer, prior to conclusion of the representation, from "mak[ing] or negotiat[ing] an agreement giving the lawyer literary or media rights to a portrayal or account based in substantial part on information relating to the representation."

Several aspects of Rule 1.8(d) merit discussion. First, unlike the former disciplinary rule (OH DR 5-104(B)), which was phrased in terms of prohibiting a lawyer from entering into "any arrangement or understanding with a client or prospective client," division (d) prohibits the lawyer from making or negotiating an agreement; there is no limitation stated concerning with whom such agreement can be made or negotiated. In one respect the prohibition seems narrower than the former rule -- from its context ("[p]rior to the conclusion of representation of a client"), it appears not to cover agreements with prospective clients, although this is by no means clear. On the other hand, the prohibition, read literally, would encompass agreements with a publisher or other media representative, as well as with clients. Second, from a temporal standpoint, the prohibition is applicable only during the representation, whereas the former rule covered agreements made "[p]rior to the conclusion of all aspects of the matter giving rise to . . . employment," even if the employment had ended. Third, it applies only to portrayals or accounts "based in substantial part on information relating to the representation." Fourth, unlike the former rule, it applies not just to publication rights, but more broadly to "literary or media rights." Fifth, the ban applies to "mak[ing] or negotiat[ing]" a media-rights agreement; the former entering into an "arrangement or understanding" language has been deleted. Thus, under the new Rule, negotiating with respect to such an agreement during the representation, even if the transaction is not consummated until after the representation ends (or is not consummated at all), would be improper.

The rationale for this provision is set forth in Comment [9]. The basic concern is that if the lawyer has a pre-established media or literary rights agreement, the lawyer may conduct the representation in a way that would enhance the story -- and hence, the value of the agreement -- rather than in a way that best serves the client's interests. Ohio Rule 1.8 cmt. [9].

1.8:600 Financing Litigation

  • Primary Ohio References: Ohio Rule 1.8(e)
  • Ohio Commentary: Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility §§ 5.35-5.37
  • Background References: ABA Model Rule 1.8(e)
  • Commentary: ABA/BNA § 51:801; ALI/LGL § 36; Wolfram § 9.2.3

The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.35 (1996).

In the course of representing a client in litigation, the lawyer may be asked to provide financial assistance to the client. Such assistance might be necessary to underwrite the living expenses of a client while the client awaits the outcome of litigation, or it might be required to subsidize expenses directly related to the conduct of the litigation itself.

Two concerns arise from such assistance. First is a fear that lawyers might stir up frivolous litigation if they were allowed to offer financial inducements, such as the payment of expenses, to secure clients. See Rule 1.8 cmt. [10]. Second is a fear that the more financially involved a lawyer becomes in the litigation, the more the lawyer will feel pressed to pursue what is in his own financial interest, rather than that which is in best interests of the client. Id. For example, a lawyer might settle a claim prematurely in order to guarantee the recovery of expenses.

In response to these concerns, Ohio Rule 1.8(e) prohibits financial assistance to a client unless the assistance involves payments for matters properly treated as litigation expenses, and limitations are placed on this practice as well.

The limitations of Rule 1.8(e) apply when the lawyer is representing "a client in connection with pending or contemplated litigation." Hence, a lawsuit need not have been filed for the prohibitions to apply; contemplated litigation is sufficient. Rule 1.8 cmt. [10] further makes clear that the prohibition applies to subsidizing expenses relating to "administrative proceedings" as well as lawsuits in court. Query whether it extends to arbitration or other ADR procedures.

An innovation in the marketplace, involving financing by other than a lawyer for his client and supposedly designed to help parties fund litigation, is the appearance of litigation-financing companies. An Ohio Supreme Court opinion that examines the activities of such companies under the former OHCPR is Rancman v. Interim Settlement Funding Corp., 99 Ohio St.3d 121, 2003 Ohio 2721, 789 N.E.2d 217, at syllabus ("Except as otherwise permitted by legislative enactment or the Code of Professional Responsibility, a contract making the repayment of funds advanced to a party to a pending case contingent upon the outcome of that case is void as champerty and maintenance."). The Court, noting a rate of return in excess of 180% per annum, was not impressed by the language in the agreement that the company "may, will, and should make a substantial profit" on the contract: "a lawsuit is not an investment vehicle. Speculating in lawsuits is prohibited by Ohio law. An intermeddler is not permitted to gorge upon the fruits of litigation." Id. at para. 18. See also Bd. of Comm'rs on Grievances & Discipline Op. 2004-2, 2004 Ohio Griev. Discip. LEXIS 2 (June 3, 2004) (improper for lawyer to sell his or her share of settlement proceeds to funding company in exchange for discounted immediate cash). Opinion 2004-2 is discussed in more detail in section 5.4:200 at "Fee sharing - Impermissible structural arrangements."

1.8:610 Litigation Expenses

The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.37 (1996).

Legal responsibility for litigation expenses: Former OH DR 5-103(B) permitted a lawyer to advance or guarantee litigation expenses, defined as including "court costs, expenses of investigation, expenses of medical examination, and the costs of obtaining and presenting evidence." While the disciplinary rule originally stated that the client remained ultimately liable for such expenses (see Bd. of Comm'rs on Grievances & Discipline Op. 94-8, 1994 Ohio Griev. Discip. LEXIS 7 (June 17, 1994)), it was amended, effective June 14, 1999, to provide that the repayment of such expenses "may be contingent on the outcome of the matter." I.e., if the litigation is successful, the client must repay the expenses; if it is not, the client is not liable for them. See Ohio State Bar Ass'n Informal Op. 01-01 (Jan. 3, 2001), discussed this section infra.

This provision has been carried over, in slightly different language, into the Ohio Rules. Rule 1.8(e)(1) allows a lawyer to "advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter." Comment [10] makes clear that, as was spelled out in the Code rule, expenses of litigation "includ[e] the expenses of medical examination and the costs of obtaining and presenting evidence." Ohio Rule 1.8 cmt. [10]. The "expenses of investigation" language was not brought forward from the former disciplinary rule, but there is no reason to think that this litigation expense is not covered as well.

In a related development under the former OHCPR, not specifically covered by the amended OH DR 5-103(B), the Board of Commissioners opined that a law firm could finance such contingent-fee litigation expenses through borrowing, provided that various conditions were met. See Bd. of Comm'rs on Grievances & Discipline Op. 2001-3, 2001 Ohio Griev. Discip. LEXIS 9 (June 7, 2001). In addition to the various writings, disclosures, and client consent required by ORC 4705.15 (B) & (C), former OH DR 2-102(E)(1)(c) and 5-104(A), a factor essential to such an arrangement was that the loan obtained by the law firm be secured by the firm, not by the client's settlement or judgment. See 2001 Ohio Griev. Discip. LEXIS 9, at *5. Opinion 2001-3 also stated, in a separate part of the opinion, that "[i]nterest fees and costs of a loan obtained by a law firm are a client's 'expenses of litigation.' . . . not the law firm's 'costs of doing business.'" Id. at *8.

If there is no contingency arrangement with respect to litigation expenses, the client remains legally responsible for them, except in the indigent-client circumstances set forth in subdivision (e)(2) (as to which see this section infra at "Indigent client"), irrespective of the outcome of the litigation. See Bd. of Comm'rs Op. 94-8 (lawyer may not co-sign for loan for client to cover litigation expenses because lawyer became ultimately responsible for debt, along with client). The degree to which the lawyer attempts to seek reimbursement where the client remains ultimately liable, however, is "a legal or business decision for the individual lawyer to make." Bd. of Comm'rs on Grievance & Discipline Op. 87-001, 1987 Ohio Griev. Discip. LEXIS 28, at *9 (Oct. 16, 1987). Accord Bd. of Comm'rs Op. 94-8. In Opinion 87-001, the Board found some indirect support for this position in former OH EC 2-22, which provided that lawyers should avoid fee controversies and "not sue a client for a fee unless necessary to prevent fraud or gross imposition by the client." The Board indicated that the provision should apply to costs and expenses as well as fees. Nevertheless, absent a contingency arrangement, telling clients at the outset that the lawyer never seeks reimbursement might violate the rule. Bd. of Comm'rs Op. 87-001 (citing  In re Mid-Atlantic Toyota Antitrust Litig., 93 F.R.D. 485, 490 (D. Md. 1982), to this effect).

If a lawyer attempted to collect litigation expenses owed by the client, the lawyer could settle for an amount less than that actually owed without violating former OH DR 5-103(B), as long as the representation had ended at the time of settlement. Bd. of Comm'rs on Grievances & Discipline Op. 94-5, 1994 Ohio Griev. Discip. LEXIS 14 (Apr. 15, 1994). In reaching this conclusion, the Board reasoned that 5-103(B) sought to assure that the lawyer would exercise professional judgment on behalf of the client, unaffected by a proprietary interest in the litigation. After the conclusion of the representation, this concern was no longer present, so post-representation assumption of responsibility for such expenses was permissible.

These basic rules apply regardless of the nature of the litigation or the client. The need for lawyer advancement of litigation expenses, however, is greatest in class-action litigation and cases in which the client is poor. The Board had suggested that the former disciplinary rule should be interpreted in these settings to facilitate the provision of legal services. Bd. of Comm'rs on Grievance & Discipline Op. 87-001, 1987 Ohio Griev. Discip. LEXIS 28 (Oct. 16, 1987). Both the 1999 amendment to DR 5-103(B) and new Rule 1.8(e)(1), allowing repayment to be contingent on the outcome of the litigation, facilitated and facilitates the provision of legal services in these contexts, as does Rule 1.8(e)(2) with respect to indigent clients.

The disciplinary rule was in any event subject to a de minimis exception. A lawyer could participate, for example, in a validation program for transportation expenses whereby the parking, taxi, or bus expenses of client coming to the firm were paid by the lawyer without violating OH DR 5-103(B), see Cleveland Bar Ass'n Op. 108 (Nov. 20, 1973), irrespective of the absence of a contingency arrangement.

At this writing, we are unaware of any judicial opinions dealing with Rule 1.8(e) or with the provision in former DR 5-103(B), as amended, allowing arrangements whereby the client’s obligation to repay litigation expenses is contingent on the successful outcome of the matter. The Ohio State Bar Association, however, issued an opinion that dealt with the amended version of the disciplinary rule. In Ohio State Bar Ass'n Informal Op. 01-01 (Jan. 3, 2001), the OSBA was asked whether a lawyer may be ultimately responsible for litigation costs. In response, the Association opined that under the amended disciplinary rule, an attorney could provide that repayment of litigation expenses by the client is contingent on the successful outcome of the case -- in other words, "a successful outcome of the case should result in the client being responsible for these expenses . . . ." Id. at 2. (Just as, in answer to the question posed, an unsuccessful outcome under such an agreement pursuant to amended OH DR 5-103(B) (and new Rule 1.8(e)(1)) should result in the lawyer being ultimately responsible for them.)

Attorney liability to third parties for litigation expenses when client refuses to pay them: A related problem arises when the client refuses to pay litigation expenses owed a third party. To what extent is the lawyer obligated to pay those expenses? Would doing so violate Rule 1.8(e)? Under the OHCPR, in numerous pre-amendment cases, lawyers were held liable to third parties for litigation expenses incurred on behalf of a client. See, e.g., Janet's Reporting & Video Serv. v. Rauchmann, No. CA89-10-150, 1990 Ohio App. LEXIS 2142 (Butler May 20, 1990) (attorney liable for court-reporting services provided at depositions ordered by attorney on behalf of client); Blake v. Ingraham, 44 Ohio App.3d 38, 540 N.E.2d 759 (Medina 1989) (attorney liable for trial transcript attorney ordered on behalf of client). While most of the cases involve attorney liability for court reporting services, the attorney's liability was not limited to costs of this kind. As the Sixth District Court of Appeals commented, in Vascular Surgery of Northwest Ohio, Inc. v. Jacobs, No. L-86-197, 1987 Ohio App. LEXIS 6085, at *3 (Lucas Mar. 13, 1987):

Appellee argues that cases involving costs relative to court reporting services or stenographic services are distinguishable from other expenses, such as a physician's deposition fee. We disagree. The rule does not fluctuate depending upon the nature of the expense.

The basic argument for imposing liability on the lawyer appears to be that, because of the lawyer's responsibility for making tactical decisions in the context of litigation, including decisions such as ordering trial transcripts and the like, third parties assumed, even under the old rule, that they were dealing with the lawyer, not the client, and could turn to the lawyer for payment.  Sommer v. French, 115 Ohio App.3d 101, 104, 684 N.E.2d 739, 741 (1996) (expert-witness fee; "'We consider it equitable that, in the absence of an express agreement to the contrary, court officials and persons connected with the progress of the litigation may safely regard themselves as dealing with the attorney'" (quoting from Blake v. Ingraham supra). If anything, this assumption has even more validity under Rule 1.8(e), since now (as was the case under the amended disciplinary rule) the client may or may not be ultimately liable, whereas under the pre-amendment disciplinary rule the client was always primarily liable for such expenses.

There were two exceptions to the imposition of liability on the attorney for third-party expenses, which exceptions presumably will be available under 1.8(e) as well. First, if the lawyer clearly indicated to the third party at the outset that responsibility for payment lies solely with the client rather than the lawyer, the lawyer was not bound, John E. Foster & Assocs. v. La Cour, No. 93 APG10-1408, 1994 Ohio App. LEXIS 2470 (Franklin June 9, 1994) (expert fee; notice that client is responsible was sufficient; express agreement by the parties not required); if the lawyer failed to do so, he was bound. Allen v. Donlin, No. 95- T-5194, 1996 Ohio App. LEXIS 508 (Trumbull Feb. 16, 1996) (absent express agreement or express notice that client responsible, attorney liable for expert-witness fee). Second, to the extent that the expenses arose in the context of court-appointed indigent representation, and the provider was aware that funds to cover the services in question were to be paid out of a limited court authorization, the provider could not seek recourse from the lawyer involved for expenses incurred in excess of court limits.  D.R.P. Sec., Inc. v. Kane, No. 65688, 1994 Ohio App. LEXIS 3107, at *3 (Cuyahoga July 14, 1994) ("Implicit in contracts for services for an indigent defendant is the understanding that funding for the indigent's defense will be provided by the state and subject to court limits and approval.").

Indigent client: There is a new, express exception to the general Rule 1.8(e) prohibition; it too deals with indigent clients, but cuts the other way from the second circumstance discussed in the previous paragraph. Under subdivision (e)(2), the lawyer now "may" pay court costs and expenses of litigation for indigent clients, presumably including amounts owing to third parties, without any repayment obligation on the part of the client, irrespective of the outcome of the case or the nature of the fee. Ohio Rule 1.8(e)(2). This exception had no antecedent in prior Ohio ethics rules. As restated in Comment [10], "an exception allowing lawyers representing indigent clients to pay court costs and litigation expenses regardless of whether these funds will be repaid is warranted." Rule 1.8 cmt. [10].

1.8:620 Living and Medical Expenses

The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.36 (1996).

With respect to expenses other than court costs and expenses of litigation, Ohio Rule 1.8(e) prohibits a lawyer from providing financial assistance to a client in connection with contemplated or pending litigation. This includes "making or guaranteeing loans for living expenses." Rule 1.8 cmt. [10]. Cases applying the comparable OHCPR predecessor rule (DR 5-103(B)) include: Cleveland Bar Ass'n v. Berk, 114 Ohio St.3d 478, 2007 Ohio 4264, 873 N.E.2d 285 (providing modest financial assistance to help with housing costs and other personal expenses); Toledo Bar Ass'n v. Crossmock, 111 Ohio St.3d 278, 2006 Ohio 5706, 855 N.E.2d 1215 (respondent violated 5-103(B) in paying client's medical and health-insurance expenses); Disciplinary Counsel v. Krieger, 108 Ohio St.3d 319, 2006 Ohio 1062, 843 N.E.2d 765 (respondent became client's primary source of financial support during representation); Disciplinary Counsel v. Ross, 107 Ohio St.3d 191, 2005 Ohio 6179, 837 N.E.2d 773 (advancing cash to client and writing check to cover cost of client's purchase of new car); Disciplinary Counsel v. Cirincione, 102 Ohio St.3d 117, 2004 Ohio 1810, 807 N.E.2d 320 (respondent violated rule by spending several thousand dollars to cover his client's living expenses); Stark County Bar Ass'n v. Hare, 99 Ohio St.3d 310, 2003 Ohio 3651, 791 N.E.2d 966 (violation when, in connection with adoption proceeding, respondent had paid birth mother's personal expenses and given her a car; this also violated OH DR 5-103(A)); Office of Disciplinary Counsel v. Furth, 93 Ohio St.3d 173, 176, 754 N.E.2d 219, 224 (2001) (advancement of $ 6,000 to client; client testified funds could be used "in any way he chose"; respondent testified funds were for living expenses; either way, violation of OH DR 5-103(B)). The OSBA opined that it would be improper to guarantee the payment of medical treatment expenses of a client being represented in a suit arising from her injuries. Ohio State Bar Ass'n Informal Op. 86-6 (July 23, 1986).

The Ohio Supreme Court's most extensive discussion of this issue came in Toledo Bar Ass'n v. McGill, 64 Ohio St.3d 669, 597 N.E.2d 1104 (1992). In McGill, the Court addressed the propriety of guaranteeing loans from a local bank to personal-injury clients in connection with contemplated or pending litigation. The loans were made only to existing clients who needed the funds to withstand delays in litigation, and the ultimate responsibility for the loan repayment was that of the client. In none of the cases was the lawyer's independent professional judgment affected by the arrangement. While every member of the Court agreed that the conduct violated OH DR 5-103(B), which clearly prohibited guaranteeing financial assistance other than litigation expenses to a client, the Court imposed only a public reprimand and suggested a willingness to re-examine the propriety of the rule itself. The Court stated: "[W]e find some merit in respondents' assertion that DR 5-103(B) should perhaps be re-examined." 64 Ohio St.3d at 671, 597 N.E.2d at 1106. As an example of a possible alternative course, the Court cited a Minnesota provision allowing loans to clients if (1) the client demonstrates financial hardship that would result in being forced to accept an inadequate settlement without the loan; and (2) the lawyer does not advertise loan availability. Three members of the Court dissented, finding that a willingness on the Court's part to reconsider the propriety of the rule in the future did not justify reducing the penalty on the two lawyers involved for their clear violation of an extant rule.

Subsequently, in Cleveland Bar Ass'n v. Mineff, 73 Ohio St.3d 281, 652 N.E.2d 968 (1995), the Court issued a public reprimand to a lawyer who, over a period of time, gave his client $5,300 for living expenses while the client — hungry, disheveled, and unable to pay his rent — awaited the outcome of his workers' compensation claim and related personal-injury action. The majority of the Court termed the violation "technical and not willful" in justifying the public reprimand, while two dissenting justices argued for a six-month stayed suspension.

OH DR 5-103(B) was also applied in Cleveland Bar Ass'n v. Nusbaum, 93 Ohio St.3d 150, 753 N.E.2d 183 (2001), where the lawyer advanced funds to his client during personal-injury litigation, because the severity of the client's injuries rendered him unable to work. The lawyer was publicly reprimanded. In addition to the usual items offered in mitigation (no prior violations, laudatory letters), the panel further noted that the client was not harmed but helped by the loans (he paid them back in full after his case was settled) and that the grievance was filed by respondent's ex-wife. One of the letters submitted was by the client, who stated that his injuries required twenty operations and that he would not have been able to survive without the help provided by the loans in obtaining the basic necessities of life. He also claimed that without respondent's assistance, he would have been forced to settle earlier for a lesser amount, a fact picked up on by Justice Lundberg Stratton, "reluctantly" concurring separately, who surmised that the loan's enabling the client to hold out for a larger settlement "is perhaps one of the justifications for the rule." Id. at 151, 753 N.E.2d at 184.

Despite the majority's reference to possible reexamination of the rule in McGill, the result in these hardship cases remains unchanged under Ohio Rule 1.8(e) -- the only exceptions to the prohibition against providing financial assistance to a client in connection with pending or contemplated litigation relate to court costs and expenses of litigation. See section 1.8:610.

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

  • Primary Ohio References: Ohio Rule 1.8(f)
  • Background References: ABA Model Rule 1.8(f)
  • Ohio Commentary: Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility §§ 5.138-5.139, 5.145
  • Commentary: ABA/BNA § 51:901; ALI-LGL § 134; Wolfram § 8.8

 

1.8:710 Compensation and Direction by Third Person [see also 1.7:410]

The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility §§ 5.138-5.139, 5.145 (1996).

In general: The lawyer's duty to exercise independent professional judgment on behalf of the client is at the heart of the attorney-client relationship. To the extent the lawyer receives compensation from anyone other than the client, in connection with representation of the client, there is a chance that the lawyer's undivided loyalty to the client may be compromised.

Additional problems may arise where the lawyer is employed by an organization to provide legal representation to others. The concern is that the organization may attempt to influence the lawyer's conduct in ways that would interfere with the lawyer's exercise of independent professional judgment on the client's behalf. This problem is exacerbated to the extent that laypersons, who may not be as sensitive to the lawyer's ethical responsibilities as lawyers are, have some input in the decision-making process.

Third-party compensation: In numerous situations, attorney compensation is provided by a third party rather than directly by the client. See Rule 1.8 cmt. [11]. Thus, a parent may cover the legal expenses of a child. An employer may cover the legal expenses of an employee. An insurer may cover the legal expenses of an insured.

Ohio Rule 1.8(f) controls the attorney's acceptance from a third party of "compensation" for legal services. Rule 1.8(f)(1)-(3) recognizes this practice and condones it, as long as (1) the client gives informed consent, (2) there is no interference with the lawyer's independent professional judgment or the attorney-client relationship, and (3) information related to the representation is protected as required by Rule 1.6. If a lawyer representing an insured is compensated by the insurer, the provisions of Rule 1.8(f)(4) also must be satisfied. See section 1.8:720.

The operative language under the former OHCPR was "consent after full disclosure," OH DR 5-107(A). This translates to the "informed consent" requirement under Rule 1.8(f)(1). See Ohio Rule 1.0(f). Many decisions and ethics opinions under the former rule can be cited, including  In re Adoption of Infant Girl Banda, 53 Ohio App.3d 104, 559 N.E.2d 1373 (Franklin 1988) (payment by adoptive parents of birth mother's legal fees in adoption proceeding may be permitted under ORC 3107.10 and OH DR 5-107(A) when accompanied by full disclosure to and consent by birth mother); Bd. of Comm'rs on Grievances & Discipline Op. 90-22, 1990 Ohio Griev. Discip. LEXIS 3 (Oct. 12, 1990) (attorney who provided advice to client in connection with bank's small-trust program could, with client consent after full disclosure, be paid by bank a percentage of trustee fee client pays to bank). An attorney who received payment from a title company for services rendered for a client had to fully disclose the situation to the client. Merely crediting the client's bill with the amount received from the third party was not sufficient. Cleveland Bar Ass'n Op. 112 (Dec. 17, 1974).

If the arrangement took place without the client's knowledge and consent, disciplinary action was warranted. Office of Disciplinary Counsel v. Williams, 51 Ohio St.3d 36, 553 N.E.2d 1082 (1990) (lawyer sanctioned for accepting compensation from collection agency, without disclosing to referred clients for whom he filed collection actions that agency was paying for representation). See also Lillback v. Metro. Life Ins. Co., 94 Ohio App.3d 100, 640 N.E.2d 250 (Montgomery 1994) (attorney/life insurance agent sold life insurance and investments for insurance company to his clients and offered those clients free will and trust drafting; since he was compensated for his legal services, if at all, by his insurance company employer, his conduct may have violated OH DR 5-107(A)).

While third-party payment requires informed consent under subdivision (f)(1), the lawyer must also be sure that he is providing independent professional judgment to the client, uncompromised by the lawyer's relationship to the third party payor. Ohio Rule 1.8(f)(2). At the least, the prospect of undue influence suggests that the lawyer exercise caution before entering into a third-party payment arrangement. Ohio State Bar Ass'n Informal Op. 87-8 (July 16, 1987) (recognizing threats to independent judgment arising from lawyer's provision of wills as part of funeral director's prepaid funeral services, where lawyer was compensated by funeral director rather than clients whose wills he drafted).

Although the typical disciplinary case involved payment of some or all of the lawyer's fee by a third party, OH DR 5-107(A) was not limited to those situations. In addition to accepting "compensation" for legal services, DR 5-107(A)(1), it also applied if the lawyer accepted from a third party "any thing of value related to [the] representation." OH DR 5-107(A)(2). Thus, where a collection agency provided clerical services for a lawyer to assist the lawyer's collection efforts on behalf of creditor clients of the agency, the lawyer had accepted a thing of value related to the representation from a third party and could do so only with client consent after full disclosure. Cincinnati Bar Ass'n Op. 90-91-10 (n.d.).

Former OH DR 5-107(A)(2) was applied in Office of Disciplinary Counsel v. Linick, 84 Ohio St.3d 489, 705 N.E.2d 667 (1999), where the Supreme Court imposed a one-year suspension on the respondent lawyer. In Linick, respondent was a senior corporate counsel. In that capacity, he referred eight cases for the corporation to outside counsel A and three cases to outside counsel B. Counsel A made a gift to respondent of one-half of his fees billed to and paid by the corporation; counsel B gave respondent gifts constituting slightly more than one-quarter of the fees he collected from the corporation. The corporation was unaware of these gifts. The Supreme Court adopted the Board of Commissioners on Grievances and Discipline's findings and conclusions, which determined that this conduct violated OH DR 5-107(A)(2) (acceptance of any thing of value from other than the client without client's informed consent). For further discussion of the Linick decision in the context of fee-splitting, where both the lawyer making the gift and the recipient were held to have violated OH DR 2-107(A), see section 1.5:800.

While it may be a bit of a stretch to call the Linick gifts "compensation" under Rule 1.8(f), the Ohio Code Comparison to Rule 1.8 states that subdivisions "(f)(1), (2), and (3) use different terms, but are virtually identical to DR 5-107(A) and (B)." At a minimum, one can conclude from this statement that the term "compensation" is to be read broadly. Whether it encompasses what were two separate categories under the former rule ("compensation" and "accept[ing] any thing of value," OH DR 5-107(A)(1)&(2)) is not entirely clear; we suspect that it does.

The third aspect of division (f), Rule 1.8(f)(3), requires protection of information relating to the representation pursuant to Rule 1.6. While the protection of confidences and secrets was not an express part of DR 5-107(A), it was required by former OH DR 4-101.

Finally, Ohio Rule 1.8 cmt. [12] reminds that if the third-party-payment arrangement creates a conflict of interest for the lawyer, the lawyer must comply with Rule 1.7.

Third-party direction of the lawyer's legal judgment: See section 5.4:400.

Practice with a nonlawyer: See sections 5.4:300 & :500.

Membership in an employee organization: See section 5.4:520.

1.8:720 Insured-Insurer Conflicts [see also 1.7:410]

Ohio has added a new subdivision, 1.8(f)(4), dealing specifically with third-party payment situations involving a lawyer compensated by an insurer to represent an insured. Subdivision (f)(4) requires such a lawyer to deliver to the client (the insured) the "Statement of Insured Client's Rights" that is set out in full as a part of the subdivision. Comment [12A] speaks further to the insured-defense situation -- an "[i]nsurance defense counsel may not permit an insurer's right to control the defense to compromise the lawyer's independent judgment, for example, regarding the legal research or factual investigation necessary to support the defense." Ohio Rule 1.8 cmt. [12A]. Nor may the lawyer permit the insurer's right to receive information "to result in the disclosure to the insurer, or its agent, of confidences of the insured." Id.

The insured/insurer situation is further discussed at section 1.7:410.

1.8:730 Lawyer with Fiduciary Obligation to Third Person [see 1.13:210]

1.8:800 Aggregate Settlements

  • Primary Ohio References: Ohio Rule 1.8(g)
  • Ohio Commentary: Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.128
  • Background References: ABA Model Rule 1.8(g)
  • Commentary: ABA/BNA § 51:375; ALI-LGL § 128; Wolfram § 8.15

The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.128 (1996).

Ohio Rule 1.8(g) addresses the lawyer's involvement in the aggregate settlement of claims or pleas involving multiple clients. The provision focuses on a "lawyer who represents two or more clients" participating in 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." Thus, if the lawyer for a single defendant offers an aggregate settlement to multiple plaintiffs represented by the same attorney, the Rule has no effect on the conduct of the defendant's lawyer, since he is not representing multiple clients, but it does apply to the plaintiff's lawyer, since he has multiple clients. See Ohio State Bar Ass'n Informal Op. 87-6 (July 2, 1987). The concern is that an aggregate settlement may be to the advantage of some of the clients and to the disadvantage of others. In such circumstances, the lawyer's independent duty of loyalty to each individual client would be jeopardized because he should encourage some clients to accept the proposed settlement, but he should counsel others to reject it.

The Rule nevertheless recognizes that aggregate settlements are a fact of life in complex matters. As a result, division (g) does not ban them entirely. Aggregate settlements are permitted if the settlement or agreement is subject to court approval or if the lawyer secures the informed consent of each client, in a writing signed by the client, to the arrangement. To do so, the lawyer first must advise each client of two things: (1) the existence and nature of all claims or pleas involved in the proposed settlement, and (2) the participation of each person in the settlement or agreement. Ohio Rule 1.8(g). As Comment [13] explains, this means that each client must be informed of all material terms, including "what the other clients will receive or pay if the settlement or plea offer is accepted." Rule 1.8 cmt. [13]. Accord, under the former OHCPR, Ohio State Bar Ass'n Informal Op. 87-6 (July 2, 1987). Second, after the disclosure, the lawyer must secure the written consent of each client to the settlement or agreement. Ohio Rule 1.8(g). Failure to complete both steps will subject the lawyer to discipline. See, e.g., under the former OHCPR, Office of Disciplinary Counsel v. Mazer, 86 Ohio St.3d 185, 712 N.E.2d 1246 (1999) (neither of the consents obtained by lawyer with respect to other aspects of representation of two clients "applied to the state court litigation's $900,000 settlement option."  Id. at 188, 712 N.E.2d at 1248); Butler County Bar Ass'n v. Barr, 64 Ohio St.3d 20, 591 N.E.2d 1200 (1992) (lawyer disciplined for securing aggregate settlement of personal-injury claims of husband and wife in traffic accident without full disclosure to wife). (A comprehensive list of information that, "at a minimum," must be disclosed in order to satisfy the comparable informed-consent requirement of MR 1.8(g) is set forth in ABA Formal Op. 06-438, at 4-5 (Feb. 10, 2006)).

Regarding the court-approved exception (not found in the Model Rule), Comment [13] notes that "where a settlement is subject to court approval, as in a class action, the interests of multiple clients are protected when the lawyer complies with applicable rules of civil procedure and orders of the court concerning review of the settlement." Ohio Rule 1.8 cmt. [13]. The Summary of Post-Comment Revisions to the Proposed Ohio Rules of Professional Conduct adds that "[b]ecause prompt client consent may be impossible to obtain where a lawyer is representing several clients in a class action matter, Rule 1.8(g) is modified to exclude from application of the rule those situations where settlement is subject to court approval." Summary at 2.

Misconduct involving aggregate settlements often gave rise to multiple violations under the OHCPR. In Cleveland Bar Ass'n v. Kaigler, 57 Ohio St.3d 197, 566 N.E.2d 673 (1991), for example, an attorney's insistence that he would negotiate only an aggregate settlement of his clients' claims arising out of a traffic accident violated former OH DR 5-105(B) (continuing multiple employment if doing so will likely adversely affect the representation of another client); 5-106(A) (entering into an aggregate settlement of claims without the clients' consent); and 7-101(A)(3) (causing prejudice or damage to a client).

Violation of former OH DR 5-106(A) also could have consequences outside the disciplinary context. In Black v. Bell, 20 Ohio App.3d 84, 484 N.E.2d 739 (Cuyahoga 1984), the lawyer's insistence on an aggregate settlement eliminated his clients' statutory right to prejudgment interest, because good-faith settlement negotiation by the parties prior to judgment was a condition to receiving prejudgment interest. As the court explained:

In this case, our disagreement with the necessary findings for prejudgment interest under R.C. 1343.03(C) is heightened by plaintiffs' counsel's insistence on a joint settlement. Counsel representing multiple parties should seldom, if ever, condition settlement with one client on negotiations with another. Cf. DR 5-105(B) and 5-106(A) of the Code of Professional Responsibility. Insistence on a "package settlement" obstructs good faith settlement negotiations on any claim individually. It also confuses any determination whether individual plaintiffs made good faith settlement efforts or whether the defense failed to do so for individual claims.

Id. at 89, 484 N.E.2d at 744. See also Hanratty v. Huron Rd. Hosp., No. 52525, 1987 Ohio App. LEXIS 8329 (Cuyahoga Aug. 13, 1987) (agreeing that insistence on joint settlement for multiple unrelated parties constitutes failure to negotiate in good faith (citing Black v. Bell), but finding no evidence of counsel's insistence on joint settlement). With these two cases, compare Berdyck v. Shinde, 128 Ohio App.3d 68, 713 N.E.2d 1098 (Ottawa 1998), in which the court held that plaintiff's request for a package settlement involving both defendant physician and defendant hospital did not demonstrate a lack of good faith effort to settle, where defendant physician, more so than plaintiff, insisted on a joint settlement and plaintiff did in fact separately settle with the physician prior to trial. The Berdyck court distinguished Black as being a case in which the court was concerned with ethical considerations -- specifically conflict of interest -- where a single lawyer is representing multiple plaintiffs and demands an aggregate settlement. In contrast, in Berdyck plaintiff's counsel did not represent multiple plaintiffs; "to the extent he did request a joint settlement, Berdyck's counsel did not have a conflict of interest, but engaged in a reasonable tactic to protect his client's interest." 128 Ohio App.3d at 85, 713 N.E.2d at 1109.

1.8:900 Agreements Involving Lawyer's Malpractice Liability

  • Primary Ohio References: Ohio Rule 1.8(h)
  • Background References: ABA Model Rule 1.8(h)
  • Ohio Commentary: Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 6.21
  • Commentary: ABA/BNA § 51:1101; ALI-LGL § 54; Wolfram § 5.6.7

1.8:910 Prospective Limitation of Malpractice Liability

The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 6.21 (1996).

As Ohio Rule 1.8(h)(1) declares, a lawyer shall not "make an agreement prospectively limiting the lawyer's liability to a client for malpractice or requiring arbitration of a claim against the lawyer unless the client is independently represented in making the agreement."

The concern underlying the rule regarding prospective limitation of malpractice liability is twofold. First, as a general matter, lawyers should avoid malpractice and be subject to liability if they do not. Second, there is the fear that naïve clients might be convinced to waive malpractice liability prospectively when it would be against their interests to do so. See Ohio Rule 1.8 cmt. [14]. Nevertheless, there may be instances, such as representation in a particularly complex and uncharted area, where the risk of possible malpractice exposure might dissuade lawyers from undertaking representation in the area absent some check on that exposure. Thus, the Rule reaches a compromise, permitting prospective limitation of malpractice exposure, but only when the client is independently represented in making the agreement.

It is important to recognize that the test is not that the client be encouraged to seek outside counsel and be given the opportunity to do so, as some other rules (e.g., Rule 1.8(h)(2), see section 1.8:920) provide. Rather, such independent representation must actually take place, both as to prospective agreements to limit malpractice liability and prospective agreements to arbitrate any claim against the lawyer. Ohio Rule 1.8 cmt. [14]. The Summary of Post-Comment Revisions to the Ohio Rules of Professional Conduct muddies the waters just a bit – while it emphasizes that, "unless the client has been represented independently in making the agreement," a lawyer cannot "forc[e]" a client to agree to arbitrate, it states the restriction in terms of arbitration of "a malpractice claim." Id. at 3. Comment [14] however, makes clear that the restriction applies to prospective agreements to arbitrate "any" claim, malpractice or otherwise. (The Rule itself refers merely to "a claim"; presumably the comment's gloss will control.)

With respect to prospective agreements to arbitrate, compare, under the former OHCPR, Thornton v. Haggins, 2003 Ohio 7078, 2003 Ohio App. LEXIS 6440 (App. Cuyahoga) (prospective agreement to arbitrate malpractice claims, without providing for advice of independent counsel with respect to advisability of entering into such agreement, unenforceable), with Bd. of Comm'rs on Grievances & Discipline Op. 96-9, 1996 WL 734408 (Dec. 6, 1996) (disapproving prospective agreements to arbitrate such disputes; client should have opportunity to consider facts and circumstances of dispute after it arises and to consult, if desired, independent counsel at that time).

Attorneys may organize their practices as limited-liability companies or partnerships, but this does not limit a lawyer's liability for his own malpractice. Gov Bar R III 3(C). See Ohio Rule 1.8 cmt. [14]. Finally, Comment [14] advises that agreements under Rule 1.2 limiting the scope of the representation are not prohibited by this division, "although a definition of scope that makes the obligations of representation illusory will amount to an attempt to limit liability." Id.

Agreements directly limiting liability: As noted, under Rule 1.8(h)(1) a lawyer may prospectively limit malpractice exposure by securing from the client an agreement that the lawyer will not be held liable for negligent work, if the client is independently represented in making the agreement.

In contrast, former OH DR 6-102 made no provision for independent advice, and the bar on such attempts at exoneration or limitation of liability was absolute, "except as permitted by DR 2-111(C)" (sale of law practice). [No such permission existed in 2-111(C) (now Rule 1.17(d)), which listed items that had to be or could be included in the sales agreement, including terms that "reasonably limit the ability of the selling lawyer to reenter the practice of law . . . ." DR 2-111(C)(3) (now Rule 1.17(d)(3)). OH DR 2-111(E) (now Rule 1.17(i)), however, did repeat the no-exoneration rule and required that the sales agreement incorporate the DR 6-102 prohibition, but allowed provision for indemnification or other contribution arising from a malpractice claim. A review of the "legislative history" of 2-111 reveals that, as originally proposed, what became division (E) was indeed once division (C). As relettering occurred within 2-111, the revisers neglected to change the reference in the DR 6-102 introductory language from 2-111(C) to 2-111(E). It thus would appear that the "except as permitted" language in 6-102 was intended to be a reference to the sentence in DR 2-111(E) allowing indemnification or contribution.]

Cases under former DR 6-102 can be divided into three categories:  Those that involve attempted avoidance of malpractice liability; those that apply the disciplinary rule more broadly to other instances where a lawyer attempted to limit or avoid other exposure; and those that seek to evade disciplinary exposure.  These categories will be examined below.

Attempts to avoid malpractice exposure: Like Rule 1.8(h)(1), former DR 6-102 spoke in terms of limiting prospective exposure to “malpractice.” Cases under the Code in which respondents tried to extricate themselves from potential liability for malpractice include Cleveland Bar Ass’n v. Berk, 114 Ohio St.3d 478, 2007 Ohio 4264, 873 N.E.2d 285 (paying clients to enter into settlement agreement including waiver of rights clients might have had arising out of respondent’s neglect), and Office of Disciplinary Counsel v. Clavner, 77 Ohio St.3d 431, 674 N.E.2d 1369 (6-102 violated by negotiating release with clients, who agreed they would “refrain from taking legal action against” respondent, whose neglect had resulted in default judgment against clients; Court stressed adversarial context and need of lawyer to advise clients of adversity and right to independent counsel before signing releases of potential claims against lawyer). And in Columbus Bar Ass'n v. Willette, 117 Ohio St.3d 433, 2008 Ohio 1198, 884 N.E.2d 581, the Court found that respondent had violated 6-102 when he offered a partial refund of fees paid "in exchange for a full release . . . .' The board found that respondent's request for a 'full release' constituted a request by respondent that the Trotts release all potential claims – including malpractice claims – against him in exchange for a partial refund." Id. at para. 34. Compare Disciplinary Counsel v. Beeler, 105 Ohio St.3d 188, 2005 Ohio 1143, 824 N.E.2d 78, where the respondent negotiated an agreement in which the clients/heirs in a probate matter agreed to execute a release in favor of respondent with respect to any malpractice claims arising from his representation of the estate; strangely, DR 6-102 was neither charged nor found.  See also Montali v. Day, 2002 Ohio 2715, 2002 Ohio App. LEXIS 2812 (Cuyahoga) (summary judgment for lawyer in malpractice case reversed; question of fact existed as to whether prior release barred future claims that were basis of malpractice action; Clavner rule applied; failure to advise client to seek independent counsel before signing release).

Attempts to avoid other exposure: DR 6-102, however, was applied to attempts of exoneration from liability other than malpractice per se.  Thus, in Cleveland Bar Ass’n v. Kodish, 110 Ohio St.3d 162, 2006 Ohio 4090, 852 N.E.2d 160, proposing a confidential settlement agreement in which payments to the client were contingent on client’s promise, inter alia, not to initiate criminal proceedings against respondent violated DR 6-102.  Likewise in Toledo Bar Ass’n v. Dzienny, 96 Ohio St.3d 144, 2002 Ohio 3611, 772 N.E.2d 627, the respondent was found to have violated 6-102 when he drafted inter vivos trusts in which he was named as a beneficiary and included in the agreements a provision that the client-trustor “would hold respondent harmless as to any further claims arising out of the arrangement,” id. at para. 4.  And in Cuyahoga County Bar Ass’n v. Rockmael, 92 Ohio St.3d 20, 748 N.E.2d 27 (2001), 6-102 was violated by requiring the client to release the respondent from any liability with regard to his misappropriation of client funds as a condition of returning the funds.  See Bd. of Comm’rs on Grievances & Discipline Op. 2001-6, 2001 Ohio Griev. Discip. LEXIS 7 (Dec. 7, 2001) (unethical under 6-102 for prosecutor to negotiate, and criminal defense attorney to advise his client to enter into, plea agreement that waived defendant’s appellate or post-conviction claims of prosecutorial misconduct or ineffective assistance of counsel).  It is unclear whether such expansive readings will continue under Rule 1.8(h), although the Code provision (DR 6-102) applied in these opinions also talked only in terms of “malpractice” liability.

Attempts to avoid disciplinary exposure: With respect to attempts to evade disciplinary proceedings, see Cleveland Bar Ass'n v. Kates, 78 Ohio St.3d 69, 676 N.E.2d 512 (1997), finding no violation of OH DR 6-102 where the lawyer, as part of settlement of a malpractice case, sought to insulate himself from disciplinary proceedings. "Disciplinary proceedings are not actions for malpractice."  Id. at 70, 676 N.E.2d at 514. (The Court pointed out that the conduct may have violated former OH DR 1-102(A)(2) (circumvention of disciplinary rule through actions of another), but the lawyer was not so charged.  Id. at 70-71, 676 N.E.2d at 514.) But more recent precedent appears to go the other way.  In the Kodish case, 110 Ohio St.3d 162, cited above, the respondent had the client promise to forgo, not only criminal proceedings, but also any grievance asserting professional misconduct.  This violated DR 6-102 (as well as 1-102(A)(5) & (6)). And in Columbus Bar Ass'n v. Smith, 108 Ohio St.3d 146, 2006 Ohio 413, 841 N.E.2d 773, the Court found that 6-102 had been violated when the respondent offered to represent the client at no charge if the client would withdraw the grievance she had filed. Accord Akron Bar Ass'n v. Markovich, 117 Ohio St.3d 313, 2008 Ohio 862, 883 N.E.2d 1046 (respondent's offer to refund filing fee to client if client would drop grievance violated rule). There was no mention of Kates in any of these decisions. Whether Kodish, Smith, and Markovich continue to be good law under Rule 1.8(h), which, like 6-102, speaks in terms of making agreements limiting the lawyer's liability for "malpractice," also remains to be seen, but we are unware of anything in the “legislative history” indicating a desire to change this more expansive interpretation.

Indirect attempts to limit liability: Decisions under the former OHCPR often found that indirect attempts to limit liability violated DR 6-102. Unless the client is independently represented, these decisions in all likelihood will survive under 1.8(h)(1). Such misconduct typically transgressed other provisions as well. For example, a lawyer who filed suit after the statute of limitations ran and then lied to the client about the reason for the suit's dismissal, in order to avoid a malpractice action, violated not only OH DR 6-102, but 1-102(A)(4) (now Ohio Rule 8.4(c)) as well.  Cleveland Bar Ass'n v. Droe, 84 Ohio St.3d 143, 702 N.E.2d 407 (1998). Accord Disciplinary Counsel v. Manning, 111 Ohio St.3d 349, 2006 Ohio 5794, 856 N.E.2d 259 (both of these Code provisions (among others) violated when respondent fabricated a settlement agreement purportedly in favor of his client and in connection therewith had them sign a "Release and Confidentiality Agreement"; respondent admitted that these documents were created "to avoid being sued by them for legal malpractice," id. at para. 7, after he had failed to file medical malpractice action on their behalf); Disciplinary Counsel v. Keller, 110 Ohio St.3d 240, 2006 Ohio 4354, 852 N.E.2d 1195 (similar attempt to avoid liability by inventing nonexistent settlement favorable to client after falsely telling client that lawsuit had been filed on her behalf).

It was also held under the former rule that a lawyer could not file for bankruptcy to avoid repaying client funds converted to his own use or to avoid a judgment for malpractice. E.g., Columbus Bar Ass'n v. Blankenship, 74 Ohio St.3d 586, 660 N.E.2d 1141 (1996) (attorney's repeated attempts to file for bankruptcy to avoid and delay malpractice judgment against him violated OH DR 6-102, among other rules).

And in Columbus Bar Ass'n v. Ewing, 75 Ohio St.3d 244, 661 N.E.2d 1109 (1996), a lawyer, seeking to purchase clients' property, used coercive tactics in an attempt to secure the clients' consent to the purchase, and to obtain a promise from the client not to denigrate the lawyer's conduct. (The lawyer attempted to get the clients to agree that "[they] have carefully considered these facts and after considerable thought do not believe that [respondent] is 'taking their farm' and represent that they will not make any such statements to anybody period."  Id. at 249, 661 N.E.2d at 1113. The Court treated this as a violation of 6-102).

1.8:920 Settlement of Legal Malpractice Claim

Ohio Rule 1.8(h) does not prevent an attorney from attempting to settle a malpractice action. It does, however, impose limitations on the lawyer's doing so. Thus, any malpractice settlement must satisfy three conditions -- (1) it must not be "unconscionable, inequitable, or unfair," (2) the client or former client must be advised in writing of the desirability of seeking the advice of independent legal counsel and must be given a reasonable opportunity to do so, and (3) the client or former client must give informed consent. Ohio Rule 1.8(h)(2)(i)-(iii) (incorporating conditions set forth in Clavner, below). See also Rule 1.8 cmt. [15].

Entering into settlement negotiations with a client who, inter alia, has not been advised to retain independent representation would violate Rule 1.8(h)(2), just as it violated former OH DR 6-102. Office of Disciplinary Counsel v. Clavner, 77 Ohio St.3d 431, 674 N.E.2d 1369 (1997) (citing non-Ohio courts and ethics committees to the effect that "a potential malpractice claim may be settled only if the client consents after full disclosure, the settlement is not unconscionable, inequitable, or unfair, and, most important, the client is advised to seek independent counsel before signing the agreement." Id. at 432, 674 N.E.2d at 1370). In Barnes v. Ricotta, 142 Ohio App.3d 560, 756 N.E.2d 218 (Cuyahoga 2001), the appellate court reversed a summary judgment for defendant attorneys where the attorneys, as part of the settlement of their client's claim and after admitting malpractice in missing the statute of limitations, had procured a release from liability predicated on the payment made by the insurance company to the client in settlement of the underlying tort case. Thus, the release violated the second prong of the Clavner test – that the settlement not be unconscionable, inequitable, or unfair – even though the seeking-independent-counsel prong was found satisfied. While no mention was made of OH DR 6-102 in the Barnes opinion, which was decided on contract grounds (failure of consideration), it seems that on these facts, in a disciplinary context, the disciplinary rule would have been violated.

Although not citing the Clavner language on settlement of malpractice claims, the Supreme Court reached the same result in Cleveland Bar Ass'n v. Smith, 102 Ohio St.3d 10, 2004 Ohio 1582, 806 N.E.2d 495 (6-102 violated where, in conducting "the settlement negotiation . . . with her own client" with respect to conceded malpractice, respondent "did not advise her client prior to their negotiations to seek independent counsel." Id. at ¶¶ 12, 3.).

1.8:930 Recapitulation of DR 6-102 and Rule 1.8(h)

Ohio Rule 1.8(h) clarifies the lawyer's obligations with respect to prospective limitation of malpractice liability and prospective agreements to arbitrate (1.8(h)(1)) and settlement of claims or potential claims of malpractice liability (1.8(h)(2)). Other than the exception relating to sale of a law practice, OH DR 6-102 was couched in absolute terms, and some cases (e.g., Rockmael) so applied it. Others (e.g., Clavner) added a gloss permitting settlement or releases if the lawyer advised the client to seek independent counsel and if certain other conditions were satisfied. Still other cases (e.g., Dzienny) referred to the need to advise the client to consult independent counsel with respect to the overall document(s) (here trust agreements), but did not directly tie this obligation to the hold-harmless aspect of the trusts. Moreover, since the disciplinary rule made no apparent distinction between prospective exoneration/limitation and settlement, these two situations were often conflated in the decisions (see, e.g., Clavner, Montali, Barnes). This potentially confusing case law has been superseded by a rule that clearly states the independent representation prerequisite for attempts prospectively to limit malpractice liability (and to arbitrate claims against the lawyer) (1.8(h)(1)) and the three steps that must be taken in settlement of any claim or potential claim of malpractice. Rule 1.8(h)(2)(i)-(iii).

1.8:1000 Opposing A Lawyer Relative

  • Primary Ohio References: Ohio Rule 1.7 cmt. [21]
  • Background References: ABA Model Rule 1.7 cmt. [11] (Comment [11] was formerly MR 1.8(i), which was deleted by the 2002 amendments.)
  • Ohio Commentary: Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.21
  • Commentary: ABA/BNA § 51:1301; ALI-LGL § 123; Wolfram § 7.6.6

Since this provision was moved from MR 1.8(i) to MR 1.7 cmt. [11] during the 2002 Model Rule amendment process (the same Ohio Rule 1.7 comment is numbered [21]), this subject is now treated in section 1.7:500 at "Conflicting interests of lawyer and client – Lawyer relatives opposing one another."

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

  • Primary Ohio References: Ohio Rule 1.8(i)
  • Background References: ABA Model Rule 1.8(i)
  • Ohio Commentary: Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility §§ 5.32-5.34
  • Commentary: ABA/BNA §§ 41:901, 41:2101; ALA-LGL §§ 43, 125; Wolfram §§ 8.13, 9.6.3

 

1.8:1110 Acquiring an Interest in Subject Matter of Representation

The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.32 (1996).

As a general rule, a lawyer may not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is handling for a client. Ohio Rule 1.8(i). (The two exceptions, set forth in subdivisions (i)(1) (liens authorized by law) and (i)(2) (reasonable contingent fees), are discussed below in sections 1.8:1120 and :1130.) See, under the former OHCPR, Bd. of Comm'rs on Grievances & Discipline Op. 2003-2, 2003 Ohio Griev. Discip. LEXIS 2 (Apr. 11, 2003) (offer of money-back guarantee in intellectual property matter gives lawyer proprietary interest in cause of action). A primary concern underlying this limitation is the potential for a conflict of interest to arise. If the lawyer has an ownership interest in the claim itself, the lawyer might cease to exercise independent professional judgment in the client's interest if their personal desires diverge. The provision is intended as a preventive measure, to guard against the possibility of conflict inherent in such arrangements. It also recognizes that as a practical matter such ownership interests might compromise the client's absolute right to discharge the attorney. Ohio Rule 1.8 cmt. [16]. Under the former OHCPR, lawyers were sanctioned for violating the provision even where the client ultimately benefited from the arrangement, Office of Disciplinary Counsel v. Baldwin, 74 Ohio St.3d 592, 660 N.E.2d 1145 (1996), and, of course, where the client did not so benefit. Medina County Bar Ass'n v. Carlson, 100 Ohio St.3d 134, 2003 Ohio 5073, 797 N.E.2d 55 ("flagrant" violation of OH DR 5-103(A) (and 5-104(A), see section 1.8:220), where respondent "unabashedly arranged to buy the farm of his mentally ill client, which was the subject matter of the litigation for which the client had hired respondent, for a small fraction of its worth," id. at ¶ 27).

Rule 1.8(i) expressly restricts (as did former OH DR 5-103(A)) the lawyer only from acquiring an interest in a matter that is the subject of litigation. Acquiring an interest in a client's business, for example, where the lawyer represents the business, is not prohibited by this Rule; other provisions regulate such conduct. See section 1.7:500.

Nevertheless, this litigation limitation was often ignored in cases under the former OHCPR. In Bar Ass'n of Greater Cleveland v. Nesbitt, 69 Ohio St.2d 108, 431 N.E.2d 323 (1982), for example, the Ohio Supreme Court found that a lawyer violated DR 5-103(A) by arranging for a client to make a loan to a third party without advising the client that the lawyer was to be paid a finder's fee by the third party. Applying the same provision, the Court found that borrowing money from an estate when the lawyer represented the executor of the estate violated DR 5-103(A)’s prohibition against acquiring a proprietary interest in a cause of action.  Bar Ass'n of Greater Cleveland v. Cook, 18 Ohio St.3d 149, 480 N.E.2d 436 (1985). Acquiring an interest in the uncollected debts owed to a client also violated this provision.  Office of Disciplinary Counsel v. Williams, 51 Ohio St.3d 36, 553 N.E.2d 1082 (1990). See also Cleveland Bar Ass'n Op. 90-3 (1991) (relying on this provision to advise lawyer that it would be impermissible to acquire either part or full interest in uncollected debts owned by client, which lawyer would then attempt to collect). So too did purchasing at auction client property that was the subject of partition litigation in which the lawyer was playing a minor role as co-counsel. Office of Disciplinary Counsel v. Baldwin, 74 Ohio St.3d 592, 660 N.E.2d 1145 (1996).

In Sauer v. Greene, 62 Ohio App.3d 22, 574 N.E.2d 542 (Montgomery 1989), the Second District Court of Appeals upheld the disqualification of an attorney representing tenants in an eviction action where the attorney was also a resident of the property involved. The court concluded that the lawyer's interest in continued residence created a sufficient proprietary interest in the subject matter of the action to constitute a violation of OH DR 5-103(A).

1.8:1120 Contingent Fees

The material in this section is excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.34 (1996).

Ohio Rule 1.8(i)(2), as did OH DR 5-103(A)(2), expressly provides that a lawyer may contract with a client to handle a civil case on a reasonable contingent-fee basis, even though this, in effect, gives the lawyer an ownership interest in the litigation. The benefits of this type of fee arrangement, which, as a practical matter, oftentimes allows individuals to bring claims they otherwise could not afford, simply outweigh the risks. See generally section 1.5:600.

1.8:1130 Lawyer Liens

The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.33 (1996).

As one of the two exceptions to the general restriction against acquiring a property interest in a client's litigation, Ohio Rule 1.8(i)(1), like OH DR 5-103(A)(1) before it, permits a lawyer to "acquire a lien authorized by law to secure the lawyer's fees or expenses." As stated in Comment [16], lawyer liens authorized by law "may include liens granted by statute, liens originating in common law and liens acquired by contract with the client." Rule 1.8 cmt. [16].

Case law in Ohio recognizes two types of liens available to lawyers for this purpose, the retaining (general) lien and the charging (special) lien. The retaining lien lies against all papers, property, documents, and monies of the client coming into the attorney's possession during the course of the representation as security for fees and expenses due the attorney in connection with the representation.  Foor v. Huntington Nat'l Bank, 27 Ohio App.3d 76, 499 N.E.2d 1297 (Franklin 1986); accord McGuire v. Draper, Hollenbaugh & Brisco Co., L.P.A., 2002 Ohio 6170, 2002 Ohio App. LEXIS 6003 (Highland) (relying on Foor) . The charging lien, on the other hand, lies against judicially-recognized monetary judgments obtained by the attorney. See Goldauskas v. Elyria Foundry Co., 145 Ohio App.3d 490, 494, 763 N.E.2d 645, 648 (Lorain 2001); Fire Prot. Res., Inc. v. Johnson Fire Prot. Co., 70 Ohio App.3d 205, 594 N.E.2d 146 (Lucas 1991). Essential to the assertion of a charging lien is the existence of a "fund-creating" event, whether it be judgment, settlement or otherwise. See, e.g., Petty v. Kroger Food & Pharmacy, 165 Ohio App.3d 16, 2005 Ohio 6641, 844 N.E.2d 869. While older decisions use language that could be read as limiting charging liens to judgments, see Cohen v. Goldberger, 109 Ohio St. 22, 141 N.E. 656 (1923) (syllabus) (referring to the "right of an attorney to payment of fees earned in the prosecution of litigation to judgment,"  id. at 23, 141 N.E. at 656), it now seems settled that such a lien may be asserted against a settlement amount as well, or any other fund-creating event. See Petty supra, citing other modern decisions to the same effect, including Mancino v. City of Lakewood, 36 Ohio App.3d 219, 523 N.E.2d 332 (Cuyahoga 1987). In construing former OH DR 5-103(A)(1), the Cleveland Bar Association determined that the language of the Disciplinary Rule permitting acquisition "of a lien granted by law" should be interpreted broadly. Cleveland Bar Ass'n Op. 151, at 5 (May 11, 1983). Thus, under the former OHCPR, a lawyer representing a client in a property dispute could secure payment of the fee by obtaining from the client a mortgage on the property that is the subject of the litigation.  Jamestown Village Condo. Owners Ass'n v. Market Media Research, Inc., 96 Ohio App.3d 678, 645 N.E.2d 1265 (Cuyahoga 1994) (OH DR 5-103(A)(1) exception applicable). Accord Bd. of Comm'rs on Grievances & Discipline Op. 2004-8, 2004 Ohio Griev. Discip. LEXIS 12 (Oct. 8, 2004). The Jamestown Village opinion cautioned that given the possible ethical difficulties that might arise, such an arrangement should be entered into only after exhausting all other alternatives, and further, the court in which the underlying action is pending should be informed of the arrangement. Note, however, with respect to mortgages and other security interests acquired by contract in property other than that recovered through litigation, "such an acquisition is a business or financial transaction with a client and is governed by the requirements of division (a)." Ohio Rule 1.8 cmt. [16].

While Ohio Rule 1.8(i)(1) approves of the use of retaining and charging liens by attorneys, other provisions of the Rules can be seen as being in conflict, to the extent they require a lawyer to return to a client during the representation (Ohio Rule 1.15(d)) or upon withdrawal from it (Ohio Rule 1.16(d)) the funds, papers, and other property in the attorney's possession to which the client is "entitled." This conflict may be more apparent than real. Because the duty of return applies only to items to which the client is entitled, it can be argued that, in the face of an outstanding lien, the client is no longer entitled to the items; thus, exercising a lien would create no conflict. See Cleveland Bar Ass'n Op. 104 (Nov. 12, 1973). Even if this argument is rejected, Rule 1.8(i)(1) can still be read as trumping Rules 1.15(d) and 1.16(d) by providing a limited exception to the duties to return property to clients.

Another approach to the problem under the former OHCPR posited that the lawyer, confronted with conflicting obligations, must balance these competing concerns. This approach was clearly the thrust of the Board and bar association opinions available on the subject. See Bd. of Comm'rs on Grievances & Discipline Op. 92-8, 1992 Ohio Griev. Discip. LEXIS 13 (Apr. 10, 1992); Toledo Bar Ass'n Op. 92-16, at 1 (n.d.) (describing provisions in Canon 2 and 9 as "impos[ing] obligations that can restrict the use of retaining and charging liens" and finding that permissibility of exercising attorney's lien turns on balancing of interests); Cleveland Bar Ass'n Op. 104, at 4 (Nov. 12, 1973) ("fine line" between non-prejudice to client by returning client papers and preservation of lawyer's lien rights by withholding papers; issue is one of balancing prejudice to client from withholding with preservation of lien rights). These opinions discouraged the use of such liens because of the potential harm to the client and suggested that if exercising the lien would be sufficiently prejudicial to the client, then exercising that legal right might constitute a violation of former OH DR 2-110(A)(2). Bd. of Comm'rs on Grievances & Discipline Op. 92-8, 1992 Ohio Griev. Discip. LEXIS 13 (Apr. 10, 1992). [It seems strange indeed that the exercise of a "legal right" could violate a disciplinary rule, but that's what the opinion said.] These sources advised that attorney's liens should be used only as a last resort. Id. Compare Bd. of Comm'rs on Grievances & Discipline Op. 2004-8, 2004 Ohio Griev. Discip. LEXIS 12, at *9 (Oct. 8, 2004): "The assertion of a legally permissible lien is ethical under the Ohio Code of Professional Responsibility."

It should be noted that at least with respect to the retaining lien, any harm to the client can be mitigated by the client's own actions. A court may require the lawyer to turn over the client's papers to the client in response to a subpoena duces tecum, as long as the client puts up alternative security for the disputed fees or expenses.  Foor v. Huntington Nat'l Bank, 27 Ohio App. 3d 76, 499 N.E.2d 1297 (Franklin 1986). See also Tracy v. Selley, No. 93 AP-326, 1993 Ohio App. LEXIS 3098 (Franklin June 17, 1993) (requiring attorney to turn over documents, without client posting security, found to be reversible error). In this way, both the need of the lawyer for security with respect to the disputed fees owed and the need of the client for his papers and other items are protected. If the client is unable to provide security, this attempt to accommodate competing interests will not be available, and the chance for undue prejudice to the client is more likely to arise, although the court might provide a summary proceeding to resolve the underlying fee dispute.  Foor, 27 Ohio App. 3d 76, 499 N.E.2d 1297. At the other end of the spectrum, a former client cannot complain of prejudice where its own action (or inaction) has exacerbated any prejudice caused by a retaining lien. See Liberte Capital Group, LLC v. Capwill, No. 5:99 CV 818 (N.D. Ohio Mar. 14, 2000) (former client's motion to require law firm to return files denied, where movant owed law firm unpaid fees and movant's new counsel refused offer of law firm to permit inspection of the files).

Even in instances in which attorney's liens are available, they still must be properly invoked. In a 1995 case, a lawyer was held subject to a suit for conversion for summarily converting, to cover outstanding legal fees, a settlement check received on the client's behalf without first contacting the client in an attempt to secure payment of the debt. The court was not persuaded by the lawyer's assertion that by this conduct he was simply invoking the right to an equitable attorney's lien.  Okocha v. Fehrenbacher, 101 Ohio App.3d 309, 655 N.E.2d 744 (Cuyahoga 1995). (For a related disciplinary case, in which Okocha was indefinitely suspended from the practice of law, based in part on his treatment of the Fehrenbachers, see Cuyahoga County Bar Ass'n v. Okocha, 69 Ohio St.3d 398, 632 N.E.2d 1284 (1994)). See also Putnam v. Hogan, 122 Ohio App.3d 351, 701 N.E.2d 774 (Franklin 1997) (lawyer's notice of lien against assets of estate, in effort to recover fees allegedly owing from former client, was neither retaining lien nor charging lien; further, lawyer released his lien in exchange for former client's placing disputed amount in escrow pending resolution of fee dispute, which trial court had erroneously referred to binding arbitration under former OH DR 2-107(B); 2-107(B) applicable to fee disputes between two or more attorneys, not fee disputes between client and lawyer).

In Charles Greenspan Co., L.P.A. v. Thompson, 2003 Ohio 3641 (App. Cuyahoga), an attorney sought recovery pursuant to an attorney's lien against an amount that accountants had agreed to pay his former clients in settlement of an accounting malpractice case. The court of appeals agreed that the lawyer had an equitable lien against his former clients for unpaid fees for work performed before the clients terminated him, "but he could not hold [the accountants] liable for paying settlement proceeds to the [former clients]." Id. at 53. Accord Meros v. Rorapaugh, No. 77611, 2000 Ohio App. LEXIS 5477 (Cuyahoga Nov. 22, 2000) (lawyer's remedy in enforcing equitable lien is through his client, not through parties releasing funds to client). Compare McGuire v. Draper, Hollenbaugh & Briscoe Co., L.P.A., 2002 Ohio 6170, 2002 Ohio App. LEXIS 6003 (Highland), where law firm A had represented McGuire, a former K-Mart employee, in a wrongful-discharge case. Firm A missed the statute of limitations, and its malpractice carrier referred the defense of the potential claim against firm A to law firm B. A malpractice suit was filed by McGuire, first against firm A and, in an amended complaint, against firm B as well. One of the contentions on appeal was that firm B had wrongfully withheld McGuire's file. The court of appeals held that firm B (appellees) had "possessed a good faith belief that an attorney's retaining lien existed on the file that entitled them to withhold appellant's file until the outstanding fees [owing to firm A] were paid." Id. at 78. Not surprisingly, McGuire claimed that the assertion of an attorney's lien was not valid (presumably because firm B did not represent McGuire, but rather firm A). Nevertheless, the court held that "whether appellees' assertion of an attorney's retaining lien was valid according to law is not the question. Rather, the question is whether appellees possessed a good faith belief that such a lien existed." Id. at 79.

Finally, with respect to a charging lien the amount of which is in dispute, a hearing must be held so that the disputants can submit evidence to support their claims. Thus, in First Bank of Marietta v. Roslovic & Partners, Inc., 138 Ohio App.3d 533, 741 N.E.2d 917 (Franklin 2000), the court of appeals reversed a trial court's granting of a lawyer's charging lien against a judgment awarded a former client in a case in which the lawyer (Holliker) had been involved. The trial court did so without holding a hearing or taking any evidence, even though the former client disputed the amount allegedly owing. In such circumstances, the appellate court held that the lower court abused its discretion:

When a former client challenges the right to attorney fees or disputes the amount of fees claimed, a trial court cannot summarily award attorney fees. The trial court must first make a determination that the attorney fees are reasonable and such determination can only be made through the evidentiary process. . . . Under the facts presented here, the trial court's summary award of attorney fees was tantamount to denying First Bank an opportunity to present evidence opposing Holliker's claims. It was an abuse of discretion for the trial court to grant a judgment lien to Holliker for attorney fees without conducting a hearing to determine the reasonableness of those fees.

Id. at 545, 741 N.E.2d at 926-27.

For the latest chapter in the Roslovic litigation, see First Bank of Marietta v. Roslovic, 2004 Ohio 2717, 2004 Ohio App. LEXIS 2401 (Franklin) (holding trial court erred in finding charging lien in favor of lawyer because lawyer's efforts could not be said to have "created fund" from which lien to be paid, as required by syllabus rule in Cohen v. Goldberger, 109 Ohio St. 22, 141 N.E. 656 (1923)). This most recent Roslovic decision contains a thoughtful mini-treatise on the subject of charging liens, and is well worth consulting if you have a charging lien issue. See, in particular, ¶¶ 39-52 of the opinion.

1.8:1140 Retention of Files to Collect Fees [see 1.8:1130]

1.8:1200 Imputation of (a) through (i) Prohibitions to Other Members of Firm

  • Primary Ohio References: Ohio Rule 1.8(k)
  • Background References: ABA Model Rule 1.8(k)

Ohio Rule 1.8(k) (substantively identical to MR 1.8(k), newly added to the Model Rules in 2002) imputes conduct by a lawyer in a firm violative of divisions (a)-(i) to all other members of the firm. As stated in Comment [20]:

Under division (k), a prohibition on conduct by an individual lawyer in divisions (a) to (i) also applies to all lawyers associated in a firm with the personally prohibited lawyer. For example, one lawyer in a firm may not enter into a business transaction with a client of another member of the firm without complying with division (a), even if the first lawyer is not personally involved in the representation of the client. The prohibition set forth in division (j) [sexual relationship with client] is personal and is not applied to associated lawyers.

Ohio Rule 1.8 cmt. [20].