Acquiring a Financial Interest Adverse to a Client May Be OK

The requirements for when an attorney may enter into a transaction with a client in which the attorney will acquire a pecuniary interest adverse to the client have been slightly modified by Cal Rules of Prof Cond 1.8.1. Here’s what you need to know.

An attorney can’t enter into a transaction with a client in which the attorney or another attorney in his or her law firm acquires an “ownership, possessory, security, or other pecuniary interest adverse to a client” unless the following requirements are met (Cal Rules of Prof Cond 1.8.1 (former Rule 3-300), 1.8.11):

  • The terms of the transaction are fair and reasonable to the client, and the terms and the attorney’s role in the transaction or acquisition are fully disclosed in writing and set out in a way that the client should reasonably understand (Rule 1.8.1(a));

  • The client is represented in the transaction by an independent attorney of the client’s choice or the attorney advises the client in writing that the client may seek advice from an independent attorney (Rule 1.8.1(b)); and

  • After compliance with the terms in Rules 1.8.1(a) and (b), the client consents in writing to the terms of the transaction and to the attorney’s role in it (Rule 1.8.1(c)).

See Fair v Bakhtiari (2011) 195 CA4th 1135 (attorney who entered into business transactions with client and failed to comply with all three of former Rule 3-300’s requirements was found to have breached his fiduciary duties in sufficiently serious way as to warrant denial of quantum meruit recovery).

Keep in mind that a later agreement or modification of a fee agreement may create an adversity of interest between attorney and client that requires the attorney to comply with Rule 1.8.1.

For all of your questions about fee agreements, turn to CEB’s Fee Agreement Forms Manual and get sample provisions and commentary throughout.

Other CEBblog™ posts on fee agreement provisions:

© The Regents of the University of California, 2019. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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