Rule 1.8.Conflict of Interest: Prohibited Transactions
(a)A lawyer shall not enter into a business transaction with a
client or knowingly acquire an ownership, possessory, security or other
pecuniary interest adverse to a client unless:
(1)the transaction and terms on which the lawyer acquires the
interest are fair and reasonable to the client and are fully disclosed
and transmitted in writing to the client in a manner which can be
reasonably understood by the client;
(2)the client is informed that use of independent counsel may
be advisable and is given a reasonable opportunity to seek the advice of
such independent counsel in the transaction; and
(3)the client consents in writing thereto.
(b)A lawyer shall not use information relating to
representation of a client to the disadvantage of the client unless the
client consents after consultation, except as permitted or required by
Rule 1.6 or Rule 3.3.
(c)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.
(d)Prior to the conclusion of representation of a client, a
lawyer shall not make or negotiate an agreement giving the lawyer
literary or media rights to a portrayal or account based in substantial
part on information relating to the representation.
(e)While representing a client in connection with contemplated
or pending litigation, a lawyer shall not advance or guarantee financial
assistance to the lawyer's client, except that a lawyer may advance or
guarantee the expenses of litigation, including court costs, expenses of
investigation, expenses of medical examination, and costs of obtaining
and presenting evidence, provided the client remains ultimately liable
for such expenses. A lawyer may forego reimbursement of some or all of
the expenses of litigation if it is or becomes apparent that the client
is unable to pay such expenses without suffering substantial financial
hardship.
(f)A lawyer shall not accept compensation for representing a
client from one other than the client unless:
(1)the client consents after consultation;
(2)there is no interference with the lawyer's independence of
professional judgment or with the client-lawyer relationship; and
(3)information relating to representation of a client is
protected as required by Rule 1.6.
(g)A lawyer who represents two or more clients shall not
participate in making an aggregate settlement of the claims of or
against the clients, or in a criminal case an aggregated agreement as to
guilty or nolo contendere pleas, unless each client consents after
consultation, including disclosure of the existence and nature of all
the claims or pleas involved and of the participation of each person in
the settlement.
(h)A lawyer shall not make an agreement prospectively limiting
the lawyer's liability to a client for malpractice unless permitted by
law and the client is independently represented in making the agreement,
or settle a claim for such liability with an unrepresented client or former
client without first advising that person in writing that
independent representation is appropriate in connection therewith.
(i)A lawyer related to another lawyer as parent, child,
sibling, or spouse or as one who has a cohabiting relationship shall not
represent a client in a representation directly adverse to a person who
the lawyer knows is represented by the other lawyer except upon consent
by the client after consultation regarding the relationship.
(j)A lawyer shall not acquire a proprietary interest in the
cause of action or subject matter of litigation the lawyer is conducting
for a client, except that the lawyer may:
(1)acquire a lien granted by law to secure the lawyer's fee or
expenses; and
(2)contract with a client for a reasonable contingent fee in a
civil case.
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ANNOTATIONSCOMMENT
Transactions Between Client and Lawyer
As a general principle, all transactions between client and lawyer
should be fair and reasonable to the client. In such transactions a
review by independent counsel on behalf of the client is often
advisable. Furthermore, a lawyer may not exploit information relating
to the representation to the client's disadvantage. For example, a
lawyer who has learned that the client is investing in specific real
estate may not, without the client's consent, seek to acquire nearby
property where doing so would adversely affect the client's plan for
investment. Paragraph (a) does not, however, 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. In such
transactions, the lawyer has no advantage in dealing with the client,
and the restrictions in paragraph (a) are unnecessary and impracticable.
A lawyer 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 token of appreciation is permitted. If
effectuation of a substantial gift requires preparing a legal instrument
such as a will or conveyance, however, the client should have the
detached advice that another lawyer can provide. Paragraph (c) recognizes an
exception where the client is a relative of the donee or the gift is not
substantial.
Literary Rights
An agreement by which a lawyer acquires literary or media rights
concerning the conduct of the representation creates a conflict between
the interests of the client and the personal interests of the lawyer.
Measures suitable in the representation of the client may detract from
the publication value of an account of the representation. Paragraph
(d) does not prohibit a lawyer representing a client in a transaction
concerning literary property from agreeing that the lawyer's fee shall
consist of a share in ownership in the property, if the arrangement
conforms to Rule 1.5 and paragraph (j).
Person Paying for a Lawyer's Services
Paragraph (f) requires disclosure of the fact that the lawyer's
services are being paid for by a third party. Such an arrangement must
also conform to the requirements of Rule 1.6 concerning confidentiality
and Rule 1.7 concerning conflict of interest. Where the client is a
class, consent may be obtained on behalf of the class by
court-supervised procedure.
Acquisition of Interest in Litigation
Paragraph (j) states the traditional general rule that lawyers are
prohibited from acquiring a proprietary interest in litigation. This
general rule, which has its basis in common law champerty and
maintenance, is subject to specific exceptions developed in decisional
law and continued in these Rules, such as the exception for reasonable
contingent fees set forth in Rule 1.5 and the exception for certain
advances of the costs of litigation set forth in paragraph (e).
Relationships Between Lawyers
Paragraph (i) applies to related and cohabiting lawyers who are in
different firms. Such lawyers in the same firm are governed by Rules
1.7, 1.9, and 1.10. The disqualification stated in paragraph (i) is
personal and is not imputed to members of firms with whom the lawyers
are associated.
Limiting Liability
This Rule is not intended to apply to customary qualifications and
limitations in legal opinions and memoranda.
COMMITTEE COMMENT
Section (a)(2) of the Model Rule was amended by the Committee
because it was felt that the Model Rule was not clear enough when it
stated simply that a client should be given "reasonable opportunity" to
consult with independent counsel in a conflict situation such as (a)
contemplates. The Committee version adds the clarifying precaution that a
client in such a situation should be told that "the use of independent
counsel may be advisable."
Section (h) allows a lawyer to limit liability where such
limitation is lawful and has been negotiated with a client who is
independently represented.
Finally, both the rule (section i) and the comment thereto were
amended to add "a cohabiting relationship" to the list of familial
relationships in which disclosure and consent are needed prior to
representation.
ANNOTATION
Law reviews. For formal opinion of the Colorado Bar Association on
Ethical Duties of Attorney Selected by Insurer to Represent Its Insured, see
22 Colo. Law. 497 (1993).
Annotator's note.
Rule 1.8 is similar to
DR 4-101, DR 5-103, DR 5-104, DR 5-106, DR 5-107, and DR 6-102 as they
existed prior to the 1992 repeal and reenactment of the Code of
Professional Responsibility.
Relevant cases construing DR 5-103, DR 5-106, and DR 5-602 have
been included in the annotations to this rule.
Cases construing DR 4-101 have been included under Rule 1.6 and cases
construing DR 5-104 and DR 5-107 have been included under Rule 1.7.
Although the basis of this rule is to deter common law champerty and
maintenance, the scope of the rule is not limited to conduct that would
constitute
champerty and maintenance. People v. Mason, 938 P.2d 133 (Colo. 1997).
A violation of this rule is per se a false representation under 11
U.S.C. §
523(a)(2)(A) of the federal bankruptcy code. In re Waller, 210 Bankr.
370 (Bankr. D. Colo. 1997).
Suspension for 60 days appropriate for lawyer who entered into an
agreement with a client and failed to fully inform the client of the terms
of the agreement in writing or obtain the client's consent to the transaction.
People v. Foreman, 966 P.2d 1062 (Colo. 1998).
The presumed sanction of suspension is appropriate where the attorney
knew of a conflict of interest and did not fully disclose to a client the possible effect of
that conflict even though such action caused no actual harm. In re Cimino, 3 P.3d 398
(Colo. 2000).
Whether an attorney expects to be paid or not is insignificant to the issue of whether
an attorney-client relationship existed. In re Cimino, 3 P.3d 398 (Colo. 2000).
The hearing panel of the former grievance committee committed harmless error by
failing to consider the personal and emotional problems that an attorney was experiencing
at the time of the attorney's misconduct as mitigating in determining sanctions because no
medical or psychological proof of emotional problems was brought forward. In re
Cimino, 3 P.3d 398 (Colo. 2000).
Conduct violating this rule in conjuntion with other disciplinary rules is
sufficient to justify suspension.
People v. Robinson, 853 P.2d 1145 (Colo. 1993);
People v. Silver, 924 P.2d 159 (Colo. 1996);
People v. Ginsberg, 967 P.2d 151 (Colo. 1998);
In re Tolley, 975 P.2d 1115 (Colo. 1999).
Conduct violating this rule in conjunction with other
disciplinary rules is sufficient to justify disbarment. People v.
Walsh, 880 P.2d 766 (Colo. 1994);
In re Tolley, 975 P.2d 1115 (Colo. 1999).
Cases Decided Under Former DR 5-103.
Law reviews.
For article, "Conflicts of Interest",
see 15 Colo. Law. 2001 (1986).
The effect of Canon 5 is that whenever a contingent fee
contract becomes a subject of litigation in the courts, the
lawyer, by reason of the canon, understands that the court, under
its general supervisory powers over attorneys as officers of the
courts, will determine the reasonableness of the amount and will
subject it to the test of quantum meruit. Brillhart v. Hudson,
169 Colo. 329, 455 P.2d 878 (1969).
However, this does not mean that the court can or should
remake the contract, but rather that it should determine from
all the facts and circumstances the amount of time spent, the
novelty of the questions of law, and the risks of nonreturn to
the client as well as to the attorney in the situation. Brillhart
v. Hudson, 169 Colo. 329, 455 P.2d 878 (1969).
Where the "legal services" rendered were for the most part
those which are ordinarily performed by a business chance broker,
the established commission payable to such broker at the time
would be considered to determine reasonableness. Brillhart v.
Hudson, 169 Colo. 329, 455 P.2d 878 (1969) (shown to be 10
percent of purchase price).
Court cannot approve commission of 25 percent. In the
exercise of supervisory powers over attorneys as officers of this
court, the supreme court cannot approve -- under the guise of a
"contingent fee" contract for legal services -- the payment of
what in fact amounts to a broker's commission of 25 percent of the
purchase price of the leasehold interest. Brillhart v. Hudson,
169 Colo. 329, 455 P.2d 878 (1969).
Attorney fees secured by a note which was secured by a deed of trust
on property to be sold violated this rule when, upon receipt of a check at
closing, the attorney was aware that he had
encumbered the property in excess of his client's share of the equity.
People v. Franco, 698 P.2d 230 (Colo. 1985).
Arrangement of counsel and clients in written fee agreement which
assigned alleged interest in oil and gas properties in order to secure
payment of legal fees did not endanger a fair trial. Trial court abused
its discretion in granting a mistrial, disqualifying counsel, and assessing
attorney fees. Gold Rush Invs. v. Ferrell, 778 P.2d 297
(Colo. App. 1989).
Public censure warranted where attorney kept the first lump sum check
obtained in settlement as a lump sum payment of his contingency fee and
reimbursement of costs even though he knew the settlement might later be
reduced
by the social security disability award and the client's union award. People
v. Maceau, 910 P.2d 692 (Colo. 1996).
Conduct violating this rule in conjunction with other
disciplinary rules is sufficient to justify suspension. People v. Smith,
830 P.2d 1003 (Colo. 1992);
In re Polevoy, 980 P.2d 985 (Colo. 1999).
Evidence sufficient to justify suspension from the practice of law.
People v. Belfor, 197 Colo. 223, 591 P.2d 585 (1979).
Cases Decided Under Former DR 5-106.
Law reviews. For article, "Conflicts in Settlement of Personal Injury
Cases", see 11 Colo. Law. 399 (1982).
Cases Decided Under Former DR 6-102.
Law reviews.
For article, "Limiting Liability to the Client", see 11 Colo. Law. 2389 (1982).
For article, "Potential Liability for Lawyers Employing Law Clerks", see 12
Colo. Law. 1243 (1983).
For article, "The Ethical Obligation to Disclose Attorney Negligence", see
13 Colo. Law 232 (1984).
For article, "A Proposal on Opinion Letters in Colorado Real Estate
Mortgage Loan Transactions Parts I and II", see 18 Colo. Law. 2283
(1989) and 19 Colo. Law. 1 (1990).
For formal opinion of the Colorado Bar Association Ethics Committee
on Release and Settlement of Legal Malpractice Claims, see 19 Colo. Law.
1553 (1990).
Conduct violating this rule sufficient to justify suspension.
People v. Foster, 716 P.2d 1069 (Colo. 1986).
Conduct violating this rule sufficient to justify disbarment.
People v. Dwyer, 652 P.2d 1074 (Colo. 1982).
Applied in
People v. Good, 195 Colo. 177, 576 P.2d 1020 (1978).
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