1.8:220 BUSINESS TRANSACTIONS WITH CLIENTS

• Jurisdiction: Arizona

1.8:220 Business Transactions with Clients

While not prohibited absolutely, business dealings with clients are disfavored, stringently regulated and viewed with a degree of suspicion. Thus, ER 1.8(a) prohibits a lawyer from entering into a business transaction with a client unless at least the following requirements are met:

(1) The transaction must be objectively fair and reasonable for the client;

(2) The transaction and its terms must be fully disclosed to the client in writing;

(3) The written disclosure must be in a form that is comprehensible to the client;

(4) The client must be given a reasonable opportunity to consult with independent counsel; and

(5) The client must consent to the transaction and its terms in writing.

ER 1.8(a) does not apply to standard commercial transactions between the lawyer and the client for products and services, which the client generally markets to others. ER 1.8 cmt. [1]. On the other hand, the Rule is not limited to situations in which the lawyer is representing the client with respect to the very transaction in which their interests differ. In re Neville, 147 Ariz. 106, 708 P.2d 1297 (1985).

The most extensive articulation of the rationale for the ethical rule limiting business transactions with clients is found in two cases which concerned the application of DR 5-104(A), the predecessor of ER 1.8(a): In re Neville, 147 Ariz. 106, 708 P.2d 1297 (1985), and In re Wade, 168 Ariz. 412, 814 P.2d 753 (1991) ("Wade I"). In Neville, the Arizona Supreme Court identified three separate bases or policy objectives of the rule. First, it is grounded in the fiduciary duty owed by an attorney to the client, which arises when the attorney-client relationship is established and continues until it is abandoned. Second, the rule's policy is based on the realization that clients depend on the confidentiality and fairness arising from their relationship with their attorneys. It is natural and proper for a client with a longstanding business relationship with a lawyer to feel that the lawyer is to be trusted, will not act unfairly, and will protect the client's interests. Clients then can be expected to assume that one whom they have come to look on as "their lawyer" will protect them, or at least not harm them. Finally, the rule serves a third objective of encouraging full disclosure to clients in connection with business transactions with their lawyers. Accordingly, the court in Neville held that application of the rule was not properly limited to those situations in which the lawyer is acting as counsel in the very transaction in which the lawyer's interests are adverse to those of the client, but extends to any transaction in which it may fairly be said that an ordinary person would look to the lawyer as protector rather than as an adversary.

The Neville court went on to point out that the rule's requirement of full disclosure means much more than advising the client that the lawyer is not...