Md. R. Att'y 19-301.8
Md. R. Att'y 19-301.8
COMMENT
Business Transactions Between Client and Attorney--[1] An attorney's legal skill and training, together with the relationship of trust and confidence between attorney and client, create the possibility of overreaching when the attorney participates in a business, property or financial transaction with a client, for example, a loan or sales transaction or an attorney investment on behalf of a client. The requirements of section (a) of this Rule must be met even when the transaction is not closely related to the subject matter of the representation, as when an attorney drafting a will for a client learns that the client needs money for unrelated expenses and offers to make a loan to the client. Section (a) of this Rule also applies to attorneys purchasing property from estates they represent. It does not apply to ordinary fee arrangements between client and attorney, which are governed by Rule 19-301.5 (1.5), although its requirements must be met when the attorney accepts an interest in the client's business or other nonmonetary property as payment of all or part of a fee. In addition, the Rule does not apply to standard commercial transactions between the attorney 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. In such transactions, the attorney has no advantage in dealing with the client, and the restrictions in section (a) of this Rule are unnecessary and impracticable. For restrictions regarding attorneys engaged in the sale of goods or services related to the practice of law, see Rule 19-305.7 (5.7).
[2] Subsection (a)(1) of this Rule requires that the transaction itself be fair to the client and that its essential terms be communicated to the client, in writing, in a manner that can be reasonably understood. Subsection (a)(2) of this Rule requires that the client also be advised, in writing, of the desirability of seeking independent legal advice. It also requires that the client be given a reasonable opportunity to obtain such advice. Subsection (a)(3) of this Rule requires that the attorney obtain the client's informed consent, in a writing signed by the client, both to the essential terms of the transaction and to the attorney's role. When necessary, the attorney should discuss both the material risks of the proposed transaction, including any risk presented by the attorney's involvement, and the existence of reasonably available alternatives and should explain why independent legal advice is desirable. See Rule 19-301.0(g) (1.0) (definition of informed consent).
[3] The risk to a client is greatest when the client expects the attorney to represent the client in the transaction itself or when the attorney's financial interest otherwise poses a significant risk that the attorney's representation of the client will be materially limited by the attorney's financial interest in the transaction. Here the attorney's role requires that the attorney must comply, not only with the requirements of section (a) of this Rule, but also with the requirements of Rule 19-301.7 (1.7). Under that Rule, the attorney must disclose the risks associated with the attorney's dual role as both legal adviser and participant in the transaction, such as the risk that the attorney will structure the transaction or give legal advice in a way that favors the attorney's interests at the expense of the client. Moreover, the attorney must obtain the client's informed consent. In some cases, the attorney's interest may be such that Rule 19-301.7 (1.7) will preclude the attorney from seeking the client's consent to the transaction.
[4] If the client is independently represented in the transaction, subsection (a)(2) of this Rule is inapplicable, and the subsection (a)(1) of this Rule requirement for full disclosure is satisfied either by a written disclosure by the attorney involved in the transaction or by the client's independent attorney. The fact that the client was independently represented in the transaction is relevant in determining whether the agreement was fair and reasonable to the client as subsection (a)(1) of this Rule further requires.
Use of Information Related to Representation--[5] Use of information relating to the representation to the disadvantage of the client violates the attorney's duty of loyalty. Section (b) of this Rule applies when the information is used to benefit either the attorney or a third person, such as another client or business associate of the attorney. For example, if an attorney learns that a client intends to purchase and develop several parcels of land, the attorney may not use that information to purchase one of the parcels in competition with the client or to recommend that another client make such a purchase. The Rule does not prohibit uses that do not disadvantage the client. For example, an attorney who learns a government agency's interpretation of trade legislation during the representation of one client may properly use that information to benefit other clients. Section (b) of this Rule prohibits disadvantageous use of client information unless the client gives informed consent, except as permitted or required by these Rules. See Rules 19-301.2(d) (1.2), 19-301.6 (1.6), 19-301.9 (c) (1.9), 19-303.3 (3.3), 19-304.1 (b) (4.1), 19-308.1 (8.1) and 19-308.3 (8.3).
Gifts to Attorneys--[6] An attorney may accept a gift from a client, if the transaction meets general standards of fairness. For example, a simple gift such as a present given at a holiday or as a token of appreciation is permitted. If a client offers the attorney a more substantial gift, section (c) of this Rule does not prohibit the attorney from accepting it, although such a gift may be voidable by the client under the doctrine of undue influence, which treats client gifts as presumptively fraudulent. In any event, due to concerns about overreaching and imposition on clients, an attorney may not suggest that a substantial gift be made to the attorney or for the attorney's benefit, except where the attorney is related to the client as set forth in section (c) of this Rule.
[7] If effectuation of a substantial gift requires preparing a legal instrument such as a will or conveyance, the client should have the detached advice that another attorney can provide. The sole exception to this Rule is where the client is a relative of the donee.
[8] This Rule does not prohibit an attorney from seeking to have the attorney or a partner or associate of the attorney named as executor of the client's estate or to another potentially lucrative fiduciary position. Nevertheless, such appointments will be subject to the general conflict of interest provision in Rule 19-301.7 (1.7) when there is a significant risk that the attorney's interest in obtaining the appointment will materially limit the attorney's independent professional judgment in advising the client concerning the choice of an executor or other fiduciary. In obtaining the client's informed consent to the conflict, the attorney should advise the client concerning the nature and extent of the attorney's financial interest in the appointment, as well as the availability of alternative candidates for the position.
Literary Rights--[9] An agreement by which an attorney acquires literary or media rights concerning the conduct of the representation creates a conflict between the interests of the client and the personal interests of the attorney. Measures suitable in the representation of the client may detract from the publication value of an account of the representation. Section (d) of this Rule does not prohibit an attorney representing a client in a transaction concerning literary property from agreeing that the attorney's fee shall consist of a share in ownership in the property, if the arrangement conforms to Rule 19-301.5 (1.5) and sections (a) and (i) of this Rule.
Financial Assistance--[10] Attorneys may not subsidize lawsuits or administrative proceedings brought on behalf of their clients, including making or guaranteeing loans to their clients for living expenses, because to do so would encourage clients to pursue lawsuits that might not otherwise be brought and because such assistance gives attorneys too great a financial stake in the litigation. These dangers do not warrant a prohibition on an attorney lending a client court costs and litigation expenses, including the expenses of medical examination and the costs of obtaining and presenting evidence, because these advances are virtually indistinguishable from contingent fees and help ensure access to the courts. Similarly, an exception allowing attorneys representing indigent clients to pay court costs and litigation expenses regardless of whether these funds will be repaid is warranted.
Person Paying for an Attorney's Services--[11] Attorneys are frequently asked to represent a client under circumstances in which a third person will compensate the attorney, in whole or in part. The third person might be a relative or friend, an indemnitor (such as a liability insurance company) or a co-client (such as a corporation sued along with one or more of its employees). Because third-party payers frequently have interests that differ from those of the client, including interests in minimizing the amount spent on the representation and in learning how the representation is progressing, attorneys are prohibited from accepting or continuing such representations unless the attorney determines that there will be no interference with the attorney's independent professional judgment and there is informed consent from the client. See also Rule 19-305.4(c) (5.4) (prohibiting interference with a attorney's professional judgment by one who recommends, employs or pays the attorney to render legal services for another).
[12] Sometimes, it will be sufficient for the attorney to obtain the client's informed consent regarding the fact of the payment and the identity of the third-party payer. If, however, the fee arrangement creates a conflict of interest for the attorney, then the attorney must comply with Rule 19-301.7 (1.7). The attorney must also conform to the requirements of Rule 19-301.6 (1.6) concerning confidentiality. Under Rule 19-301.7(a) (1.7), a conflict of interest exists if there is significant risk that the attorney's representation of the client will be materially limited by the attorney's own interest in the fee arrangement or by the attorney's responsibilities to the third-party payer (for example, when the third-party payer is a co-client). Under Rule 19-301.7(b) (1.7), the attorney may accept or continue the representation with the informed consent of each affected client, unless the conflict is nonconsentable under that section. Under Rule 19-301.7(b) (1.7), the informed consent must be confirmed in writing.
Aggregate Settlements--[13] Differences in willingness to make or accept an offer of settlement are among the risks of common representation of multiple clients by a single attorney. Under Rule 19-301.7 (1.7), this is one of the risks that should be discussed before undertaking the representation, as part of the process of obtaining the clients' informed consent. In addition, Rule 19-301.2(a) (1.2) protects each client's right to have the final say in deciding whether to accept or reject an offer of settlement and in deciding whether to enter a guilty or nolo contendere plea in a criminal case. The rule stated in this section is a corollary of both these Rules and provides that, before any settlement offer or plea bargain is made or accepted on behalf of multiple clients, the attorney must inform each of them about all the material terms of the settlement, including what the other clients will receive or pay if the settlement or plea offer is accepted. See also Rule 19-301.0(g) (1.0) (definition of informed consent). Attorneys representing a class of plaintiffs or defendants, or those proceeding derivatively, may not have a full client-attorney relationship with each member of the class; nevertheless, such attorneys must comply with applicable rules regulating notification of class members and other procedural requirements designed to ensure adequate protection of the entire class.
Limiting Liability and Settling Malpractice Claims--[14] Agreements prospectively limiting an attorney's liability for malpractice are prohibited unless the client is independently represented in making the agreement because they are likely to undermine competent and diligent representation. Also, many clients are unable to evaluate the desirability of making such an agreement before a dispute has arisen, particularly if they are then represented by the attorney seeking the agreement. This section does not, however, prohibit an attorney from entering into an agreement with the client to arbitrate existing legal malpractice claims, provided the client is fully informed of the scope and effect of the agreement. Nor does this section limit the ability of attorneys to practice in the form of a limited-liability entity, where permitted by law, provided that each attorney remains personally liable to the client for the attorney's own conduct and the firm complies with any conditions required by law, such as provisions requiring client notification or maintenance of adequate liability insurance. Nor does it prohibit an agreement in accordance with Rule 19-301.2 (1.2) that defines the scope of the representation, although a definition of scope that makes the obligations of representation illusory will amount to an attempt to limit liability.
[15] Agreements settling a claim or a potential claim for malpractice are not prohibited by this Rule. Nevertheless, in view of the danger that an attorney will take unfair advantage of an unrepresented client or former client, the attorney must first advise such a person in writing of the appropriateness of independent representation in connection with such a settlement. In addition, the attorney must give the client or former client a reasonable opportunity to find and consult independent attorney.
Acquiring Proprietary Interest in Litigation--[16] Section (i) of this Rule states the traditional general rule that attorneys are prohibited from acquiring a proprietary interest in litigation. Like section (e) of this Rule, the general rule has its basis in common law champerty and maintenance and is designed to avoid giving the attorney too great an interest in the representation. In addition, when the attorney acquires an ownership interest in the subject of the representation, it will be more difficult for a client to discharge the attorney if the client so desires. The Rule is subject to specific exceptions developed in decisional law and continued in these Rules. The exception for certain advances of the costs of litigation is set forth in section (e) of this Rule. In addition, section (i) of this Rule sets forth exceptions for liens authorized by law to secure the attorney's fees or expenses and contracts for reasonable contingent fees. The law of each jurisdiction determines which liens are authorized by law. These may include liens granted by statute, liens originating in common law and liens acquired by contract with the client. When an attorney acquires by contract a security interest in property other than that recovered through the attorney's efforts in the litigation, such an acquisition is a business or financial transaction with a client and is governed by the requirements of section (a) of this Rule. Contracts for contingent fees in civil cases are governed by Rule 19-301.5 (1.5).
Imputation of Prohibitions--[17] Under section (i) of this Rule, a prohibition on conduct by an individual attorney in sections (a) through (i) of this Rule also applies to all attorneys associated in a firm with the personally prohibited attorney. For example, one attorney in a firm may not enter into a business transaction with a client of another member of the firm without complying with section (a) of this Rule, even if the first attorney is not personally involved in the representation of the client.
Model Rules Comparison: Rule 19-301.8 (1.8) is substantially similar to the language of the Ethics 2000 Amendments to the ABA Model Rules of Professional Conduct, except for wording changes to Rule 19-301.8 (1.8) (a), (g), (i)(2) and Comments [1], [14] and [17], and the omission of Model Rule 1.8(j) with appropriate redesignation of subsections.