Conflict of Interest Implicated When Attorney Enters Into Business Transaction With Client

    attorneyThis case involves a couple who hired an attorney to represent two of their corporations. There was a subsequent litigation involving the corporations. During the litigation, the couple agreed to give the attorney a mortgage on their home in order to pay the legal fees they owed as the result of the litigation. When the litigation was over, the couple executed a mortgage with the attorney in the amount of $41,300 to secure payment of the legal fees. The couple later defaulted on the mortgage and the attorney filed a foreclosure complaint against them. The attorney never advised the couple to seek the advice of another lawyer about entering into this type of agreement with their attorney.

    Question(s) For Expert Witness

    • 1. Does a mortgage agreement with an attorney to secure payment for legal fees constitute a “business relationship” with a client and is this forbidden by the rules of professional conduct?

    Expert Witness Response

    A mortgage agreement between an attorney and a client where the purpose of the agreement is to secure payment for legal fees probably constitutes a “business transaction” between the attorney and the client. This type of agreement probably violates the Rules of Professional Conduct for the attorney since it represents a conflict of interest for the attorney. Under RPC 1.8, an attorney is prohibited from entering into a business transaction with a client or acquiring a pecuniary interest that may adversely affect the attorney’s representation of the client. Under RPC 1.8, an attorney entering into this kind of transaction must also advise the client about the opportunity of seeking independent counsel about the client’s choice of transaction. This type of agreement with a client is only allowed where the attorney reasonably believes it wound not adversely affect the representation of the client and the attorney gets the client’s informed consent in writing. The agreement in this case probably violated the Rules of Professional Conduct because the agreement was not fair and reasonable to the client. Also, the attorney failed to follow the rule that required him to advise the couple to seek the advice of another lawyer before they entered into the agreement. Under the Rules of Professional Conduct, an attorney has a duty to deal with clients in good faith and with the highest degree of fidelity. The agreement in this case is probably invalid since it violates the ethical rules governing the attorney-client relationship.

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