Utah Sup. Ct. R. Prof'l. Prac. 1.8
Utah. Sup. Ct. R. Prof'l. Prac. 1.8
Comment
Business Transactions Between Client and Licensed Paralegal Practitioner
[1] A licensed paralegal practitioner's legal skill and training, together with the relationship of trust and confidence between licensed paralegal practitioner and client, create the possibility of overreaching when the licensed paralegal practitioner participates in a business, property or financial transaction with a client, for example, a loan or sales transaction or a licensed paralegal practitioner investment on behalf of a client. The requirements of paragraph (a) must be met even when the transaction is not closely related to the subject matter of the representation, as when a licensed paralegal practitioner drafting a will for a client learns that the client needs money for unrelated expenses and offers to make a loan to the client. The Rule applies to licensed paralegal practitioners engaged in the sale of goods or services related to the practice of law, for example, the sale of title insurance or investment services to existing clients of the licensed paralegal practitioner's legal practice. It does not apply to ordinary fee arrangements between client and licensed paralegal practitioner, which are governed by Rule 1.5, although its requirements must be met when the licensed paralegal practitioner 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 licensed paralegal practitioner 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 licensed paralegal practitioner has no advantage in dealing with the client, and the restrictions in paragraph (a) are unnecessary and impracticable.
[2] Paragraph (a)(1) 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. Paragraph (a)(2) requires that the client also be advised, in writing, of the desirability of seeking the advice of independent legal counsel. It also requires that the client be given a reasonable opportunity to obtain such advice. Paragraph (a)(3) requires that the licensed paralegal practitioner obtain the client's informed consent, in a writing signed by the client, both to the essential terms of the transaction and to the licensed paralegal practitioner's role. When necessary, the licensed paralegal practitioner should discuss both the material risks of the proposed transaction, including any risk presented by the licensed paralegal practitioner's involvement, and the existence of reasonably available alternatives and should explain why the advice of independent legal counsel is desirable. See Rule 1.0(f) (definition of informed consent).
[3] The risk to a client is greatest when the client expects the licensed paralegal practitioner to represent the client in the transaction itself or when the licensed paralegal practitioner's financial interest otherwise poses a significant risk that the licensed paralegal practitioner's representation of the client will be materially limited by the licensed paralegal practitioner's financial interest in the transaction. Here the licensed paralegal practitioner's role requires that the licensed paralegal practitioner must comply, not only with the requirements of paragraph (a), but also with the requirements of Rule 1.7. Under that Rule, the licensed paralegal practitioner must disclose the risks associated with the licensed paralegal practitioner's dual role as both legal adviser and participant in the transaction, such as the risk that the licensed paralegal practitioner will structure the transaction or give legal advice in a way that favors the licensed paralegal practitioner's interests at the expense of the client. Moreover, the licensed paralegal practitioner must obtain the client's informed consent. In some cases, the licensed paralegal practitioner's interest may be such that Rule 1.7 will preclude the licensed paralegal practitioner from seeking the client's consent to the transaction.
[4] If the client is independently represented in the transaction, paragraph (a)(2) of this Rule is inapplicable, and the paragraph (a)(1) requirement for full disclosure is satisfied either by a written disclosure by the licensed paralegal practitioner involved in the transaction or by the client's independent counsel. 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 paragraph (a)(1) further requires.
Use of Information Related to Representation
[5] Use of information relating to the representation to the disadvantage of the client violates the licensed paralegal practitioner's duty of loyalty. Paragraph (b) applies when the information is used to benefit either the licensed paralegal practitioner or a third person, such as another client or business associate of the licensed paralegal practitioner. For example, if a licensed paralegal practitioner learns that a client intends to purchase and develop several parcels of land, the licensed paralegal practitioner 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. Paragraph (b) prohibits disadvantageous use of client information unless the client gives informed consent, except as permitted or required by these Rules. See Rules 1.6, 1.9(c), 3.3, 4.1(b), 8.1 and 8.3.
Gifts to Licensed Paralegal Practitioners
[6] A licensed paralegal practitioner 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 licensed paralegal practitioner a more substantial gift, paragraph (c) does not prohibit the licensed paralegal practitioner 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, a licensed paralegal practitioner may not suggest that a substantial gift be made to the licensed paralegal practitioner or for the licensed paralegal practitioner's benefit.
[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 licensed paralegal practitioner or a lawyer can provide.
[8] This Rule does not prohibit a licensed paralegal practitioner from seeking to have the licensed paralegal practitioner or a partner or associate of the licensed paralegal practitioner 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 1.7. In obtaining the client's informed consent to the conflict, the licensed paralegal practitioner should advise the client concerning the nature and extent of the licensed paralegal practitioner's financial interest in the appointment, as well as the availability of alternative candidates for the position.
Literary Rights
[9] An agreement by which a licensed paralegal practitioner 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 licensed paralegal practitioner. Measures suitable in the representation of the client may detract from the publication value of an account of the representation.
Financial Assistance
[10] Licensed paralegal practitioners may not subsidize lawsuits 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 licensed paralegal practitioners too great a financial stake in the litigation. These dangers do not warrant a prohibition on a licensed paralegal practitioner lending a client court costs and litigation expenses.
Person Paying for a Licensed Paralegal Practitioner's Services
[11] Licensed paralegal practitioners are frequently asked to represent a client under circumstances in which a third person will compensate the licensed paralegal practitioner, in whole or in part. The third person might be a relative or friend. 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, licensed paralegal practitioners are prohibited from accepting or continuing such representations unless the licensed paralegal practitioner determines that there will be no interference with the licensed paralegal practitioner's independent professional judgment and there is informed consent from the client. See also Rule 5.4(c) (prohibiting interference with a licensed paralegal practitioner's professional judgment by one who recommends, employs or pays the licensed paralegal practitioner to render legal services for another).
[12] Sometimes, it will be sufficient for the licensed paralegal practitioner 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 licensed paralegal practitioner, then the licensed paralegal practitioner must comply with Rule. 1.7. The licensed paralegal practitioner must also conform to the requirements of Rule 1.6 concerning confidentiality. Under Rule 1.7(a), a conflict of interest exists if there is significant risk that the licensed paralegal practitioner's representation of the client will be materially limited by the licensed paralegal practitioner's own interest in the fee arrangement or by the licensed paralegal practitioner's responsibilities to the third-party payer (for example, when the third-party payer is a co-client). Under Rule 1.7(b), the licensed paralegal practitioner may accept or continue the representation with the informed consent of each affected client, unless the conflict is nonconsentable under that paragraph. Under Rule 1.7(b), 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 licensed paralegal practitioner. Under Rule 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 1.2(a) protects each client's right to have the final say in deciding whether to accept or reject an offer of settlement.
Limiting Liability and Settling Malpractice Claims
[14] Agreements prospectively limiting a licensed paralegal practitioner'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 licensed paralegal practitioner seeking the agreement. This paragraph does not, however, prohibit a licensed paralegal practitioner from entering into an agreement with the client to arbitrate legal malpractice claims, provided such agreements are enforceable and the client is fully informed of the scope and effect of the agreement. Nor does this paragraph limit the ability of licensed paralegal practitioners to practice in the form of a limited-liability entity, where permitted by law, provided that each licensed paralegal practitioner remains personally liable to the client for his or her 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 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 a licensed paralegal practitioner will take unfair advantage of an unrepresented client or former client, the licensed paralegal practitioner must first advise such a person in writing of the appropriateness of independent representation in connection with such a settlement. In addition, the licensed paralegal practitioner must give the client or former client a reasonable opportunity to find and consult independent counsel.
Acquiring Proprietary Interest in Litigation
[16] Paragraph (i) states the traditional general rule that licensed paralegal practitioners are prohibited from acquiring a proprietary interest in litigation. Like paragraph (e), the general rule has its basis in common law champerty and maintenance and is designed to avoid giving the licensed paralegal practitioner too great an interest in the representation. In addition, when the licensed paralegal practitioner acquires an ownership interest in the subject of the representation, it will be more difficult for a client to discharge the licensed paralegal practitioner 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 paragraph (e). In addition, paragraph (i) sets forth exceptions for liens authorized by law to secure the licensed paralegal practitioner'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 a licensed paralegal practitioner acquires by contract a security interest in property other than that recovered through the licensed paralegal practitioner's efforts in the litigation, such an acquisition is a business or financial transaction with a client and is governed by the requirements of paragraph (a). Contracts for contingent fees in civil cases are prohibited by Rule 1.5.
Client-Licensed Paralegal Practitioner Sexual Relationships
[17] The relationship between licensed paralegal practitioner and client is a fiduciary one in which the licensed paralegal practitioner occupies the highest position of trust and confidence. The relationship is almost always unequal; thus, a sexual relationship between licensed paralegal practitioner and client can involve unfair exploitation of the licensed paralegal practitioner's fiduciary role, in violation of the licensed paralegal practitioner's basic ethical obligation not to use the trust of the client to the client's disadvantage. In addition, such a relationship presents a significant danger that, because of the licensed paralegal practitioner's emotional involvement, the licensed paralegal practitioner will be unable to represent the client without impairment of the exercise of independent professional judgment. Because of the significant danger of harm to client interests and because the client's own emotional involvement renders it unlikely that the client could give adequate informed consent, this Rule creates a rebuttable prohibition on the licensed paralegal practitioner's having sexual relations with a client regardless of whether the relationship is consensual and regardless of the absence of prejudice to the client.
[18] Spousal relationships and sexual relationships that predate the licensed paralegal practitioner-client relationship are not prohibited. Issues relating to the exploitation of the fiduciary relationship and client dependency are diminished when the sexual relationship existed prior to the commencement of the licensed paralegal practitioner-client relationship. However, before proceeding with the representation in these circumstances, the licensed paralegal practitioner should consider whether the licensed paralegal practitioner's ability to represent the client will be materially limited by the relationship. See Rule 1.7(a)(2).
[19] Reserved.
Imputation of Prohibitions
[20] Under paragraph (k), a prohibition on conduct by an individual licensed paralegal practitioner in paragraphs (a) through (i) also applies to all licensed paralegal practitioners associated in a firm with the personally prohibited licensed paralegal practitioner. For example, one licensed paralegal practitioner in a firm may not enter into a business transaction with a client of another member of the firm without complying with paragraph (a), even if the first licensed paralegal practitioner is not personally involved in the representation of the client. The prohibition set forth in paragraph (j) is personal and is not applied to associated licensed paralegal practitioners.