Daily Development for Thursday, February 28, 2002

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

ATTORNEY-CLIENT; FEE COLLECTION; MORTGAGES: An attorney may not obtain a mortgage from a client to secure a fee unless the client is advised of the desirability of obtaining independent counsel and is given a reasonable opportunity to do so.

Petit-Clair v. Nelson, 344 N.J. Super. 538, 782 A.2d 960 (App. Div. 2001).

During the course of litigation involving their corporation, a couple's attorney in an unrelated litigation obtained a mortgage from his clients on their personal residence to secure payment of his legal fees. After the couple defaulted, the attorney filed a foreclosure complaint and the Chancery Division concluded that the mortgage was invalid. "It held that since the mortgage was a 'business transaction,' [the attorney] had an affirmative duty to advise [his clients] of the desirability to seek independent counsel, but failed to do so," citing RPC 1.8(a). Further, the lower court concluded that there was no consideration given for the mortgage. The Appellate Division agreed. "'An attorney's freedom to contract with a client is subject to constraints of ethical considerations and the Supreme Court's supervision." As such, "[a]ny transaction between an attorney and client is 'subject to close scrutiny and the burden of establishing fairness and equity of the transaction rests upon the attorney.'" Specifically, such a transaction requires that the client be "advised of the desirability of seeking and [must be] given a reasonable opportunity to seek the advice [sic] of independent counsel of the client's choice on the transaction." According to the Court, this rule is mandatory and provides that a lawyer "shall not" knowingly "acquire a security or pecuniary interest adverse to the client unless the client is advised of the desirability of seeking independent counsel."

It was clear that the mortgage given to the attorney was "a security ... interest adverse to" his clients. The attorney argued that because he represented the couple's corporations and not them individually, they were not his clients, but the Court was unmoved. According to the Court, "[a]ll that is necessary is that the parties relate 'to each other' generally as attorney and client. It is also clear that it is the substance of the relationship, involving as it does a heightened aspect of reliance, that triggers the need for the rule's prescriptions of full disclosure and informed consent."

Comment: Although, arguably, ABA ethics mavens are softening up ethical rules in a number of areas, the rules concerning disclosure and consent are, if anything getting tighter. This case is consistent with that trend. The court did not evaluate whether the lawyer had adequately disclosed dangers to his clients, the court held that he was obligated to tell his clients that they really ought to consult independent counsel. In the editor's view, that requirement is fundamental to any business relationship with a client that has a whiff of conflict.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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