§ 17.2 - Attorney/Client Relations: Duty to Nonclients; Fees and Trust Funds

• Jurisdiction: Washington

§17.2 ATTORNEY/CLIENT RELATIONS: DUTY TO NONCLIENTS; FEES AND TRUST FUNDS

This section discusses creation of the client relationship and scope of representation, duties to nonclients and the rules governing relationships with nonclients, and rules governing fees and client trust funds.

(1) Creation of and scope of representation

Because it is not necessarily obvious who the client is in a real estate transaction, it is worthwhile to spend some time identifying the client at the outset.

Example: A clear example of this problem is a situation in which one of two neighbors approaches the lawyer, asking the lawyer to draft an easement agreement. From the lawyer's perspective, Neighbor A who originally approached the lawyer, is the client. However Neighbor B is unrepresented, and has had direct contact with the lawyer. Without some express written statement that only Neighbor A is the lawyer's client, Neighbor B may have reasonable grounds for believing that he or she is represented by the lawyer. The situation is further complicated when, in addition to the above-stated facts, the two neighbors have, unbeknownst to the lawyer, agreed to split the lawyer's fees.

The lawyer's perspective on who the client is does not control that determination. Equally, if not more, important is whether the parties to a transaction believe or have reasonable grounds to believe that they are represented by the attorney in question. Who pays the fee is not important.

Any time one of the parties to a transaction is unrepresented, the potential exists for that party to believe that he or she is represented by the lawyer for another party. Although case law requires that the party have reasonable grounds for this belief, Bohn v. Cody, 119 Wn.2d 357, 832 P.2d 71 (1992), it is always wise to set forth in writing the party or parties who are represented by a given attorney. When all parties are represented, the possibility for misunderstanding is significantly reduced, but not nonexistent, particularly when one attorney serves both as counsel to a party and as escrow or closing agent. See Hurlbert v. Gordon, 64 Wn.App. 386, 824 P.2d 1238, review denied, 119 Wn.2d 1015 (1992) (acting as closing agent does not cause the attorney to represent all parties). When the subject of the lawyer's representation may be adversarial, as real estate transactions arguably are, policy considerations do not favor imposing a duty to nonclients on the part of the lawyer. Trask v. Butler, 123 Wn.2d 835, 844, 872 P.2d 1080 (1994) (estate proceedings may be adversarial and lawyer for personal representative does not owe duty to estate beneficiaries).

Courts in several real estate cases have discussed whether an attorney-client relationship is created in certain transactional settings. In Bohn, the Washington Supreme Court was asked to determine whether an attorney represented the parents of his clients, the parents' children. The attorney prepared loan documents relating to a loan that the parents made to their children to bail the children out of a real estate contract under which they were purchasers. The attorney met with the parents on several occasions, discussed documentary options, received the loan funds in trust for his clients, tendered the parents' money to the contract seller, and sent demand letters to the contract seller to revise assignment documentation. His billing to the children clients for services rendered fell past due. After several requests, the lawyer relented and allowed the parents to pay him a small sum, which was applied against the children clients' bills. After the parents made the loan it was discovered that there were several prior Internal Revenue Service (IRS) liens against the clients' fee and the parents' mortgage lien interest in the property. Ultimately, the IRS sold the property and the parents lost their collateral. The parents were not paid by the clients.

In holding that no attorney-client relationship was formed between the attorney and the parents of his clients, the court reasoned as follows:

(1)	The determination involves questions of fact.
(2)	The essence of the attorney/client relationship is whether the attorney's advice or assistance is sought and received on legal matters.
(3)	The relationship can be either created by written contract or implied from the parties' conduct.
(4)	Whether there is a payment of the fee is not dispositive.
(5)	The existence of the relationship turns largely on the client's subjective belief that it exists. This subjective belief, however, does not control the issue unless it is reasonably formed based upon the circumstances, including the attorney's words or actions.
(6)	The court will look at the entirety of the relationship to determine whether an attorney/client relationship is created at any time during the relationship.
(7)	An attorney/client relationship is not created merely because an attorney discusses the subject matter of a transaction with a nonclient.
(8)	An attorney for one party to a transaction does not become the other party's attorney merely because he or she prepared the documents formalizing the transaction.
(9)	Disclaimers of an attorney/client relationship are critical.

Bohn, 119 Wn.2d at 363-67.

RPC 1.2 discusses other aspects of the scope of the relationship between an attorney and a client. The creation of an attorney-client relationship does not mean that the attorney accepts or endorses the client's nonlegal views. Specific limitations apply in the event that the client intends or the lawyer learns of the client's intent to engage in criminal or fraudulent conduct. Under RPC 1.16, if a client decides to pursue a course of action and representation would violate the RPC, the attorney must withdraw. RPC 1.16(a)(1). A lawyer can limit the objectives of the representation of the client if the client consents after consultation. The lawyer and the client must discuss the objectives of the representation and the means by which they are pursued. The client ultimately decides whether to accept offers of settlement. It is the client's decision with respect to criminal pleas and the use of a jury for trial. In the usual course of practice of a real property lawyer, landlords will want to remove tenants, tenants will want to retaliate against landlords, and clients may wish to develop property in a manner that avoids disclosure or compliance with regulatory law. In recent years, there has been fluctuation in the laws of disclosure between parties to a sales transaction. These and other aspects of real estate practice will inevitably give rise to an occasion when an attorney must refer to RPC 1.2 to properly advise a client of the boundaries of the law and the boundaries of effective advocacy.

RPC 1.2, like all sections of the RPC, is implicitly subject to, and acts together with, other provisions in the RPC. Of course, in dealing with the "scope of representation," RPC 1.2 assumes there is an attorney-client relationship, there is no...