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End-of-life notice: American Legal Ethics Library

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

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

We regret any inconvenience.

Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


Oregon Legal Ethics

1.8   Rule 1.8 Conflict of Interest: Prohibited Transactions [see also 1.7:500]

1.8:100   Comparative Analysis of Oregon Rule

Primary OR References: DR 4-101, 5-101(A)(2), 5-103, 5-104, 5-107, 5-108(A)(1), 6-102(A)
Background References: ABA Model Rule 1.8, Other Jurisdictions
Commentary:
OR Commentary:

1.8:101      Model Rule Comparison

With regard to MR 1.8(a), DR 5-104(A) prohibits a lawyer from entering “into a business transaction with a client if they have differing interests therein and if the client expects the lawyer to exercise the lawyer’s professional judgment therein for the protection of the client, unless the client has consented after full disclosure.”

With regard to MR 1.8(b), DR 4-101(B)(3) prohibits a lawyer from “knowingly” using “a confidence or secret of the lawyer’s client for the advantage of the lawyer or of a third person, unless the client consents after full disclosure.”

DR 5-101(B) and 5-104(B) are identical to MR 1.8(c) and (d), respectively.

DR 5-103(A)(2) and (B) are substantively similar to MR 1.8(e)(1), except that MR 1.8(e)(1) eliminates the language in DR 5-103(B) requiring that “the client remains ultimately liable for such expenses.”

There is no counterpart in the Oregon rules to MR 1.8(e)(2).

DR 5-108(A)(1) and 5-107 are substantively similar to MR 1.8(f) and (g), respectively. DR 6-102(A) is similar to the first clause of MR 1.8(h) but does not include a counterpart for the second clause of MR 1.8(h).

DR 5-101(A)(2) and 5-103(A) are similar to MR 1.8(i) and (j), respectively.

1.8:102      Model Code Comparison

DR 5-103, 5-104(A), 5-106, 6-102(A), 4-101(B)(3), and 5-108(A)(1) track the ABA Model Code language. The DRs also integrate portions of the ABA Model Rules, as described in 1.8:101, and for which there are no counterparts in the ABA Model Code. See, e.g., DR 5-101(A)(2), (B).

1.8:200   Lawyer's Personal Interest Affecting Relationship

Primary OR References: DR 5-101(A), 5-110, 5-104(A), 10-101(B)
Background References: ABA Model Rule 1.8(a), Other Jurisdictions
Commentary: ABA/BNA § 51:501 et seq., ALI-LGL § 126, Wolfram §§ 7.6, 8.11
OR Commentary: EOL §§ 11.5, 11.10-.12, 11.14-.15

1.8:210      Sexual Relations with Clients

Unless a consensual sexual relationship existed between the lawyer and a person before that person became a client, the lawyer must not have sexual relations with a current client or should resign as lawyer if such relations commence. DR 5-110(A); see, e.g., OSB Legal Ethics Op No 1995-140. If sexual relations with a representative of a current client would, or would likely, damage or prejudice the client in the representation, the lawyer must not have sexual relations with the representative or should resign as lawyer if such relations commence. DR 5-110(B). These prohibitions extend only to a lawyer assisting in the client’s representation, not to other firm members who provide no such assistance; there is no vicarious disqualification of the law firm in whole. DR 5-110(D), 5-105(G). Unlike for other conflict-of-interest rules, disclosure and consent are not available for DR 5-110 conflicts.

Even if a romantic relationship does not include sexual conduct that violates DR 5-110, it may nevertheless be a personal interest that violates DR 5-101(A), and the lawyer must give the required disclosure and obtain consent in that situation. See In re Wolf, 312 Or 655, 665, 826 P2d 628 (1992).

1.8:220      Business Transactions with Clients

(A) Generally

A DR 5-104(A) conflict arises when a lawyer and a client entering into a business transaction have different interests in that transaction, the client expects the lawyer to exercise the lawyer’s professional judgment on the client’s behalf in the transaction, and the client has not consented after full disclosure. A lawyer-client relationship must be in existence at the time of the business transaction to give rise to such a conflict.

As with DR 5-101(A) conflicts, a DR 5-104(A) conflict does not prevent the lawyer from continuing to represent the client or from entering into a business transaction with the client, as long as the lawyer obtains the client’s consent after full disclosure, as defined in DR 10-101(B), before entering into the transaction.

Even when a lawyer has complied with DR 5-104(A), the lawyer must be careful not to violate any other DRs. For example, the Oregon Supreme Court has applied what commentators have identified as the “fairness test,” defining a fair business transaction as one that a reasonable and independent lawyer would advise a client to enter into with a stranger. In re Bartlett, 283 Or 487, 497-98, 584 P2d 296 (1978). A DR 5-104(A) conflict can also constitute a DR 5-101(A) conflict.

(B) Business Transactions Between Lawyer and Client

The most common type of business transactions between lawyer and client giving rise to DR 5-104(A) conflicts are loans from the client to the lawyer. Other examples of business transactions include a lawyer selling property to a client; a lawyer and a client entering a partnership, lease, or joint venture; a lawyer and a client forming a corporation; and a lawyer personally guaranteeing a client’s payment of a bank loan in exchange for consideration.

Unless a corporation in which the lawyer is a shareholder is closely tied to or is the “alter ego” of the lawyer, a business transaction between the lawyer’s client and such a corporation is not considered to be a business transaction between the lawyer and the client. In re Griffith, 304 Or 575, 620, 748 P2d 86 (1987).

(C) Differing Interests Between Lawyer and Client

A lawyer and a client have differing interests in a business transaction when their interests are not identical. In re Drake, 292 Or 704, 713, 642 P2d 296 (1982). Differing interests have been found when the parties contributed properties with uncertain values to a legal entity, the lawyer made promises of future financial contributions to the transaction, the client provided the money for the transaction, and the lawyer provided services but no money or property for the lawyer’s interest in the transaction. In re Erlandson, 290 Or 465, 468, 622 P2d 727 (1981); In re Brown, 277 Or 121, 128, 559 P2d 884 (1977).

Identical interests have been found when, “in the peculiar circumstances of this investment transaction,” a lawyer and clients entered into a joint venture to acquire real estate and the terms of the lawyer’s investment were the same as the terms of the clients’ investments. In re Samuels/Weiner, 296 Or 224, 233, 674 P2d 1166 (1983). Even if the interests of the lawyer and client are identical at the outset of the transaction, the lawyer must discontinue the lawyer-client relationship or give the necessary disclosure and obtain consent if the interests change over time and are no longer identical. In re Griffith, 304 Or at 630-34; OSB Legal Ethics Op No 1991-32.

(D) Client’s Expectation that Lawyer Will Exercise Professional Judgment on Client’s Behalf

Whether the client expects the lawyer to exercise the lawyer’s professional judgment on the client’s behalf in the transaction depends on the facts in each case. The client’s sophistication and knowledge concerning the transaction may be a consideration. On the other hand, the lawyer must assume, in those DR 5-104(A) conflicts involving loans from a client to a lawyer, that the client is relying upon the lawyer to exercise the lawyer’s professional judgment on behalf of the client if the client is not in the business of lending money. The client’s expectation can also be inferred from the client’s testimony that the client believed the lawyer was acting on the client’s behalf in connection with the business transaction.

1.8:300   Lawyer's Use of Client Information [see also 1.6:230-:360]

Primary OR References: DR 4-101(B)(3)
Background References: ABA Model Rule 1.8(b), Other Jurisdictions
Commentary: ABA/BNA §§ 55:501-55:2001 , ALI-LGL §§ 61-66, Wolfram § 6.7
OR Commentary: EOL § 12.15

Subject to exceptions discussed at 1.6:230-360, DR 4-101(B)(3) provides that a lawyer may not use “a confidence or secret of the lawyer’s client for the advantage of the lawyer or of a third person, unless the client consents after full disclosure.”

For example, if an attorney is already representing a secured creditor in a bankruptcy proceeding but has substantial reason to doubt that the security interest is properly perfected, that attorney may not represent an unsecured creditor who subsequently approaches the attorney. It is conceivable that the attorney could condition a willingness to represent the unsecured creditor on that creditor’s advance consent not to challenge the priority of the secured creditor. However, the attorney could not obtain any meaningful consent from the unsecured creditor to limit representation without disclosing to the unsecured creditor the very doubts about the sufficiency of the secured creditor’s position that the secured creditor would necessarily want to keep secret.

1.8:400   Client Gifts to Lawyer

Primary OR References: DR 5-101(B)
Background References: ABA Model Rule 1.8(c), Other Jurisdictions
Commentary: ABA/BNA § 51:601, ALI-LGL § 127, Wolfram § 8.12
OR Commentary: EOL §§ 11.2-.3, 11.8

DR 5-101(B) provides: “A lawyer shall not prepare an instrument giving the lawyer or a person related to the lawyer as parent, child, sibling, or spouse, any substantial gift from a client, including a testamentary gift, except where the client is related to the donee.”

This prohibition is absolute; a client’s consent after full disclosure will not make such an instrument permissible. Yet a lawyer is not prohibited from receiving a gift or bequest if a client makes the gift or bequest with the assistance of another lawyer (though the lawyer may be vulnerable to allegations of exerting undue influence over the client).

1.8:500   Literary or Media Rights Relating to Representation

Primary OR References: DR 5-104(B)
Background References: ABA Model Rule 1.8(d), Other Jurisdictions
Commentary: ABA/BNA § 51:701, ALI-LGL § 36, Wolfram § 9.3.3
OR Commentary: EOL § 11.13

DR 5-104(B) prohibits a lawyer from, during the course of representation, making or negotiating “an agreement giving literary or media rights to a portrayal or account based in substantial part on information relating to the representation.” There is no language that would allow the client to waive this prohibition during representation. A lawyer may, however, obtain literary or media rights concerning a matter upon which the lawyer represented the client when the lawyer is no longer representing the client in the matter, even if the matter is still pending.

1.8:600   Financing Litigation

Primary OR References: DR 5-103(B)
Background References: ABA Model Rule 1.8(e), Other Jurisdictions
Commentary: ABA/BNA § 51:801, ALI-LGL § 36, Wolfram § 9.2.3
OR Commentary: EOL §§ 4.44-.45

1.8:610      Litigation Expenses

DR 5-103(B) permits a lawyer to advance or guarantee the expenses of litigation, “provided the client remains ultimately liable for such expenses to the extent of the client’s ability to pay.” An attorney may ethically post bail or security for a client from the attorney’s own funds, because bail is more analogous to the expense of litigation than to an offer of proscribed financial assistance. OSB Legal Ethics Op No 1991-4. An attorney must not advance to a bankruptcy client funds to settle the disputed claim. In re Baker, 7 DB Rptr 145 (1993).

An attorney may pay, from the attorney’s own funds, his or her own travel and investigation expenses incurred on the client’s behalf. OSB Legal Ethics Op No 1991-4.

1.8:620      Living and Medical Expenses

An attorney cannot ethically lend money to a client for personal living or medical expenses, to be repaid out of settlement proceeds or judgment. In re Brown, 298 Or 285, 692 P2d 107 (1984); In re Murphy, 9 DB Rptr 93 (1995); OSB Legal Ethics Op No 1991-4.

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

Primary OR References: DR 5-108(A)-(B)
Background References: ABA Model Rule 1.8(f), EC 5-23, Other Jurisdictions
Commentary: ABA/BNA § 51:901, ALI-LGL §§ 134, 135, Wolfram § 8.8
OR Commentary: EOL §§ 4.37, 6.1

1.8:710      Compensation and Direction by Third Person

Except with the client’s consent after full disclosure, DR 5-108(A)(1) prohibits a lawyer from accepting “compensation for the lawyer’s legal services from one other than the lawyer’s client.” Similarly, the lawyer must not accept from a third party “anything of value related to the lawyer’s representation of or the lawyer’s employment by the lawyer’s client.” DR 5-108(A)(2). An attorney must not permit one who recommends, employs, or pays the attorney to render legal service to another to “direct or regulate” the attorney’s professional judgment with respect to such legal representation. DR 5-108(B); see, e.g., In re Richards, 8 DB Rptr 71 (1994) (attorney disciplined for being paid and directed by person other than his client when client could not be located and therefore could not consent); In re Benson, 12 DB Rptr 167 (1998) (attorney disciplined for giving advice to customers of living-trust company while being paid by company for his services and directed by company, without disclosure of potential adverse impact to his clients). Information from a client must not be disclosed to a nonclient who employs the attorney; the nonclient who employs the attorney must not interfere with the attorney-client relationship. DR 5-108(B).

DR 5-108 does not proscribe the payment of attorney fees by a client’s friends or relatives. The fact that a person pays a fee to an attorney is not necessarily enough to make that person a client. The purpose of the rule, as clearly stated in EC 5-23, is simply to prevent a lawyer from dividing his or her loyalty between the client and the one who made the referral or who pays the bills. OSB Legal Ethics Op No 1991-115 (attorney cannot ethically permit representation of client to be controlled by others).

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

Provided that the client consents after full disclosure, an attorney may ethically accept payment from an insurer for the provision of legal representation to an insured, as long as the attorney fulfills the attorney’s obligations to the client (insured). See, e.g., OSB Legal Ethics Op Nos 1991-30 (attorney may represent both insurer and insured in action against third-party tortfeasor to recover both damages paid to insured by insurer and damages to insured that were not reimbursed by insurer, unless it appears that interests of insurer and insured are in conflict; if insurer pays attorney to bring such action, insured must consent thereto), 1991-98 (attorney may be paid flat rate per case by insurer to handle cases for insurer so long as overall fee is not clearly excessive and attorney does not permit existence of such fee to limit work attorney would otherwise do for particular client).

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

[The discussion of this topic has not yet been written.]

1.8:800   Aggregate Settlements

Primary OR References: DR 5-107(A)
Background References: ABA Model Rule 1.8(g), Other Jurisdictions
Commentary: ABA/BNA § 51:375, ALI-LGL § 128, Wolfram § 8.15
OR Commentary: EOL § 10.22

DR 5-107(A) prohibits a lawyer representing multiple clients from obtaining an aggregate settlement of the claims of or against the clients unless each client has consented after being advised of the existence and nature of all claims, the total amount of the settlement, and the participation of each person in the settlement.

However, in representing multiple claimants, the lawyer should consider whether the “participation of each person in the settlement” is a secret or confidence of a client. If so, client consent to disclose the information to other clients should be obtained. If the parties do not want such information exchanged, there may be a disqualifying conflict of interest.

1.8:900   Agreements Involving Lawyer's Malpractice Liability

Primary OR References: DR 6-102
Background References: ABA Model Rule 1.8(h), Other Jurisdictions
Commentary: ABA/BNA § 51:110l, ALI-LGL § 54, Wolfram § 5.6.7
OR Commentary: EOL § 11.7

1.8:910      Prospective Limitation of Malpractice Liability

DR 6-102(A) permits a lawyer to make a prospective agreement limiting the lawyer’s liability to a client for future malpractice only if the client is in fact independently represented. See In re Smith, 9 DB Rptr 79 (1995) (attorney violated rule by requiring clients to sign agreement that included language purporting to limit liability of attorney with respect to clients’ use of documents prepared or reviewed and approved by attorney).

1.8:920      Settlement of Legal Malpractice Claim

Under DR 6-102(A), a lawyer cannot settle a malpractice claim that the client has against the lawyer unless the client is represented by another lawyer or, if the client is not represented, the lawyer advises the client in writing that independent representation is appropriate. See also OSB Legal Ethics Op No 1991-61.

DR 6-102(B) provides that without full disclosure, a lawyer cannot enter into an agreement with a client to arbitrate malpractice claims. “Full disclosure” means “an explanation sufficient to apprise the [client] of the potential adverse impact on the [client].” DR 10-101(B)(1).

1.8:1000   Opposing a Lawyer-Relative

Primary OR References: DR 5-101(A)(2)
Background References: ABA Model Rule 1.8(i), Other Jurisdictions
Commentary: ABA/BNA § 51:1301, ALI-LGL § 123, Wolfram § 7.6.6
OR Commentary:

DR 5-101(A)(2) provides that a lawyer related to another lawyer (parent, child, sibling, spouse, or domestic partner) “shall not represent a client in a matter adverse to a person who the lawyer knows is represented by the other lawyer on the same matter,” except with consent of the lawyer’s client after full disclosure.

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

Primary OR References: DR 2-106, 5-103(A)
Background References: ABA Model Rule 1.8(j), Other Jurisdictions
Commentary: ABA/BNA § , ALI-LGL §§ 35, 41, 43, Wolfram §§ 8.13, 9.6.3
OR Commentary: EOL ch 4, §§ 5.6, 15.12

1.8:1110      Acquiring an Interest in Subject Matter of Representation

DR 5-103(A) prohibits a lawyer from acquiring a proprietary interest in either a cause of action or subject matter of litigation the lawyer is conducting for a client, except that the lawyer may (1) acquire a lien to secure payment of fees or expenses due or to become due and (2) contract for a reasonable contingent fee in a civil case, subject to DR 2-106.

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

1.8:1130      Lawyer Liens

[The discussion of this topic has not yet been written.]

1.8:1140      Retention of Files to Collect Fees

[The discussion of this topic has not yet been written.]