Rule 1.8. Conflict of Interest: Prohibited Transactions

Alabama Rules of Professional Conduct

Client-Lawyer Relationship

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 that can be reasonably understood by the client;

(2)

the client is given a reasonable opportunity to seek the advice of

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.

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)

A lawyer shall not provide financial assistance to a client in connection with

pending or contemplated litigation, except that:

(1)

a lawyer may advance court costs and expenses of litigation, the

repayment of which may be contingent on the outcome of the matter;

(2)

a lawyer representing an indigent client may pay court costs and

expenses of litigation on behalf of the client;

(3)

a lawyer may advance or guarantee emergency financial assistance

to the client, the repayment of which may not be contingent on the outcome of the

matter, provided that no promise or assurance of financial assistance was made

to the client by the lawyer, or on the lawyer's behalf, prior to the employment of the

lawyer; and

(4)

in an action in which an attorney's fee is expressed and payable, in

whole or in part, as a percentage of the recovery in the action, a lawyer may pay,

from his own account, court costs and expenses of litigation. The fee paid to the

attorney from the proceeds of the action may include an amount equal to such

costs and expenses incurred.

(f)

A lawyer shall not accept compensation for representing a client from one

other than the client unless:

(1)

the client consents after consultation or the lawyer is appointed

pursuant to an insurance contract;

(2)

there is no interference with the lawyer's independence of

professional judgment or with the client-lawyer relationship; and

(3)

information relating to the representation of a client is protected as

required by Rule 1.6.

ting a client from one

other than the client unless:

(1)

the client consents after consultation or the lawyer is appointed

pursuant to an insurance contract;

(2)

there is no interference with the lawyer's independence of

professional judgment or with the client-lawyer relationship; and

(3)

information relating to the 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 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 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 a 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.

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 a 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.

(k)

In no event shall a lawyer represent both parties in a divorce or domestic

relations proceeding, or in matters involving custody of children, alimony, or child support,

whether or not contested. In an uncontested proceeding of this nature a lawyer may have

contact with the nonrepresented party and shall be deemed to have complied with this

prohibition if the nonrepresented party knowingly executes a document that is filed in such

proceeding acknowledging:

(1)

that the lawyer does not and cannot appear to serve as the lawyer

for the nonrepresented party;

(2)

that the lawyer represents only the client and will use the lawyer's

best efforts to protect the client's best interests;

(3)

that the nonrepresented party has the right to employ counsel of the

party's own choosing and has been advised that it may be in the party's best

interest to do so; and

(4)

that having been advised of the foregoing, the nonrepresented party

has requested the lawyer to prepare an answer and waiver under which the cause

may be submitted without notice and as may be appropriate.

sts;

(3)

that the nonrepresented party has the right to employ counsel of the

party's own choosing and has been advised that it may be in the party's best

interest to do so; and

(4)

that having been advised of the foregoing, the nonrepresented party

has requested the lawyer to prepare an answer and waiver under which the cause

may be submitted without notice and as may be appropriate.

(l)

A lawyer shall not engage in sexual conduct with a client or representative

of a client that exploits or adversely affects the interests of the client or the lawyer-client

relationship, including, but not limited to:

(1)

requiring or demanding sexual relations with a client or a

representative of a client incident to or as a condition of legal representation;

(2)

continuing to represent a client if the lawyer's sexual relations with

the client or the representative of the client cause the lawyer to render incompetent

representation.

(m)

Except for a spousal relationship or a sexual relationship that existed at the

commencement of the lawyer-client relationship, sexual relations between the lawyer and

the client shall be presumed to be exploitive. This presumption is rebuttable.

(n)

While lawyers are associated in a firm, a prohibition in the foregoing

paragraphs (a) through (h) and in paragraphs (j) and (k) that applies to one of them shall

apply to all of them.

[Amended eff. 1-9-95; Amended eff. 6-23-2008.]

Comment (As Amended Effective June 23, 2008)

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

Amended Effective June 23, 2008)

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 as a 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.

Emergency Financial Assistance

On occasion, a client of a lawyer may suffer a financial emergency. The client

may be totally unable to turn to traditional sources of emergency financial assistance

such as banks, families, or neighbors to obtain necessary assistance in meeting such

a financial emergency

n exception where the client is a relative of the donee or the gift is not substantial.

Emergency Financial Assistance

On occasion, a client of a lawyer may suffer a financial emergency. The client

may be totally unable to turn to traditional sources of emergency financial assistance

such as banks, families, or neighbors to obtain necessary assistance in meeting such

a financial emergency. While the client may have an expectation that a recovery in a

pending lawsuit would provide ample funds from which to repay a loan, the

collateralization of a loan with the anticipated proceeds of litigation is not generally

accepted as a good business practice. In these circumstances, the only alternative to

whom the client may realistically be able to turn is the lawyer handling the lawsuit. For

true financial emergencies, arising from circumstances beyond the control of the client,

the Rule permits the lawyer either to advance a loan to the client or to guarantee the

repayment of a loan by a third party to the client.

A lawyer departs from the role of advocate when the lawyer becomes a lender

to the client. The lawyer as lender is placed in a position adverse to the client,

particularly if the client refuses to repay. Since the repayment by the client may not be

contingent on the outcome of a matter, the client is always responsible for repayment

of any loan, whether the client wins or loses the pending lawsuit.

Rule 1.8(e)(3) permits the lawyer to act as both advocate for and lender to the

client under only the narrowest and most compelling of circumstances. The lawyer

must not, prior to employment, directly or indirectly, have assured the client of the

availability of emergency financial assistance. The assistance must meet a true

emergency. Emergency financial assistance does not include the regular provision of

income and support to a client. Rather, the Rule is intended to permit the lawyer to

help in those few cases which rise to the level of an emergency

st not, prior to employment, directly or indirectly, have assured the client of the

availability of emergency financial assistance. The assistance must meet a true

emergency. Emergency financial assistance does not include the regular provision of

income and support to a client. Rather, the Rule is intended to permit the lawyer to

help in those few cases which rise to the level of an emergency. The lawyer is never

obligated to provide such assistance, and he is obligated to attempt collection from

the client regardless of the outcome of the matter.

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 Lawyer's Services

Paragraph (f) requires disclosure of the fact that the lawyer's services are being

paid for by a third party. Subsection (1) in this paragraph expressly recognizes that in

the insurance defense practice, attorneys are appointed by insurers to represent

insureds as clients. The insurer's authority to appoint counsel springs from its contract

with the insured. In the normal insurance defense relationship where, for example,

there are no coverage issues, appointed counsel has two clients, the insured and the

insurer. Hence, the insurer is not a third party. Additionally, all arrangements pursuant

to paragraph (f) must also conform to the requirements of Rule 1.6 concerning

confidentiality and Rule 1.7 concerning conflict of interest

with the insured. In the normal insurance defense relationship where, for example,

there are no coverage issues, appointed counsel has two clients, the insured and the

insurer. Hence, the insurer is not a third party. Additionally, all arrangements pursuant

to paragraph (f) 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 courtsupervised procedure.

Limiting Liability

Paragraph (h) is not intended to apply to customary qualifications and limitations

in legal opinions and memoranda.

Family Relationships Between Lawyers

Paragraph (i) applies to related lawyers who are in different firms. Related

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.

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).

Representation of Both Parties in Domestic Cases

In domestic relations cases, the lawyer is prohibited from representing both of

the opposing parties, who generally are spouses or former spouses. This prohibition

is applicable in a broad range of domestic relations cases, including divorce, child

custody, child support, alimony, or other proceedings which generally fall under this

category

Representation of Both Parties in Domestic Cases

In domestic relations cases, the lawyer is prohibited from representing both of

the opposing parties, who generally are spouses or former spouses. This prohibition

is applicable in a broad range of domestic relations cases, including divorce, child

custody, child support, alimony, or other proceedings which generally fall under this

category. The prohibition applies even in uncontested matters; thus, representation of

both parties is not allowed even if the lawyer concludes that he could conduct the

representation in a manner consistent with Rule 1.7, concerning conflicts of interest

generally, or Rule 2.2, concerning intermediation between clients. This Rule is

grounded in the view that, in domestic relations matters, the appropriate policy is a

broad-based proscription not subject to waiver by the parties or the lawyer.

Often a lawyer is confronted with a situation in which the opposing parties in a

divorce case have agreed, or can agree, on the terms of the divorce concerning

such matters as alimony, child custody, and child support. In such a situation,

paragraphs (k)(1)-(4) permit a lawyer representing one of the parties to provide an

answer and waiver to the unrepresented party if the unrepresented party knowingly

executes a specified form of document, which must be filed in the proceeding. The

document contains disclosures and disclaimers directed towards the unrepresented

party. Having complied with paragraphs (k)(1)-(4), the lawyer may have contact with

the unrepresented party. Upon request of the unrepresented party, the lawyer may

prepare an answer to a petition or complaint, as well as other appropriate pleadings

and agreements, for the signature of the unrepresented party. This Rule thus permits

sclosures and disclaimers directed towards the unrepresented

party. Having complied with paragraphs (k)(1)-(4), the lawyer may have contact with

the unrepresented party. Upon request of the unrepresented party, the lawyer may

prepare an answer to a petition or complaint, as well as other appropriate pleadings

and agreements, for the signature of the unrepresented party. This Rule thus permits

a lawyer to facilitate his representation of one party by preparing documents for the

unrepresented party to sign. If these activities are performed in accordance with the

specified procedure, the lawyer is not in violation of the prohibition upon representation

of opposing parties in domestic proceedings.

Sexual Relations Between Lawyer and Client

The relationship between lawyer and client is a fiduciary one in which the lawyer

occupies the highest position of trust and confidence. The relationship is almost

always unequal; thus, a sexual relationship between the lawyer and the client can

involve unfair exploitation of the lawyer's fiduciary role in violation of the lawyer'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 lawyer's

emotional involvement, the lawyer will be unable to represent the client without the

exercise of independent professional judgment being impaired.

Moreover, a blurred line between the professional and personal relationships may

make it difficult to predict to what extent client confidences will be protected by the

attorney-client evidentiary privilege, because client confidences are protected by

privilege only when they are imparted in the context of the lawyer-client relationship

cise of independent professional judgment being impaired.

Moreover, a blurred line between the professional and personal relationships may

make it difficult to predict to what extent client confidences will be protected by the

attorney-client evidentiary privilege, because client confidences are protected by

privilege only when they are imparted in the context of the lawyer-client relationship.

Because of the significant danger of harm to the client's interests and because the

client's own emotional involvement renders it unlikely that the client could give

adequate informed consent, this rule prohibits the lawyer from having sexual relations

with a client regardless of whether the relationship is consensual and regardless of

the absence of prejudice to the client.

Spousal relationships and sexual relationships that predate the lawyer-client

relationship, however, are not prohibited. Issues relating to the exploitation of the

fiduciary relationship and client dependency are diminished when the sexual

relationship existed before the commencement of the lawyer-client relationship.

However, before proceeding with the representation in these circumstances, the

lawyer should consider whether the lawyer's ability to represent the client will be

materially limited by the relationship.

Imputation of Prohibitions

Under paragraph (n), a prohibition on conduct by an individual lawyer in

paragraphs (a) through (h) and in paragraphs (j) and (k) also applies to all lawyers

associated in a firm with the lawyer who is personally prohibited from representing the

client. For example, one lawyer 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 lawyer is not personally involved in the representation of the client. The

prohibition set forth in paragraphs (l) and (m) are personal and are not imputed to

associated lawyers.

hibited from representing the

client. For example, one lawyer 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 lawyer is not personally involved in the representation of the client. The

prohibition set forth in paragraphs (l) and (m) are personal and are not imputed to

associated lawyers.

Comparison with former Alabama Code of Professional Responsibility

With regard to paragraph (a), DR 5-104(A) provided that a lawyer “shall not

enter into a business transaction with a client if they have differing interests therein

and if the client expects the lawyer to exercise his professional judgment therein for

the protection of the client, unless the client has consented after full disclosure.” EC

5-3 stated that a lawyer “should not seek to persuade his client to permit him to invest

in an undertaking of his client nor make improper use of his professional relationship

to influence his client to invest in an enterprise in which the lawyer is interested.”

With regard to paragraph (b), DR 4-101(B)(3) provided that a lawyer should not

use “a confidence or secret of his client for the advantage of himself, or of a third

person, unless the client consents after full disclosure.”

There was no counterpart to paragraph (c) in the Disciplinary Rules. EC 5-5 stated

that a lawyer “should not suggest to his client that a gift be made to himself or for his

benefit. If a lawyer accepts a gift from his client, he is peculiarly susceptible to the charge

that he unduly influenced or overreached the client. If a client voluntarily offers to make a

gift to his lawyer, the lawyer may accept the gift, but before doing so, he should urge that

the client secure disinterested advice from an independent, competent person who is

cognizant of all the circumstances

it. If a lawyer accepts a gift from his client, he is peculiarly susceptible to the charge

that he unduly influenced or overreached the client. If a client voluntarily offers to make a

gift to his lawyer, the lawyer may accept the gift, but before doing so, he should urge that

the client secure disinterested advice from an independent, competent person who is

cognizant of all the circumstances. Other than in exceptional circumstances, a lawyer

should insist that an instrument in which his client desires to name him beneficially be

prepared by another lawyer selected by the client.”

Paragraph (d) is substantially similar to DR 5-104(B), but refers to “literary or

media” rights, a more generally inclusive term than “publication” rights.

Paragraph (e)(1), permitting the lawyer to advance costs which are repayable

contingent on the outcome of the litigation, is a change from the accepted

interpretation of DR 5-103(B). See Morrow, “Opinions of the General Counsel,” 44 Ala.

Law 168 (1983).

Paragraph (e)(2) has no counterpart in the former Code.

Paragraph (e)(3) is substantially identical to DR 5-103(B).

Paragraph (f) is substantially identical to DR 5-107(A).

Paragraph (g) is substantially identical to DR 5-106.

The first clause of paragraph (h) is similar to DR 6-102(A). There was no

counterpart in the former Code to the second clause of paragraph (h).

Paragraph (i) has no counterpart in the former Code.

Paragraph (j) is substantially identical to DR 5-103(A).

Paragraph (k) is substantially identical to the last part of DR 5-105(C). This

provision is unique to Alabama and is carried forward into the Rules.

Note from the reporter of decisions: The order amending Rule 1.8, the Comment

to Rule 1.8, Rule 1.10(a), the Comment to Rule 1.10, Rule 1.12, Rule 1.14, the Comment

to Rule 1.14, the Comment to Rule 3.2, Rule 3.6, the Comment to Rule 3.7, Rule 3.9, and

Rule 4.4 is published in that volume of Alabama Reporter that contains Alabama cases

from 983 So.2d.