TLIE Top Tip: Rule 1.08 Doing Business with a Client
TLIE Top TipsToday’s Top Tip continues our series discussing the new and amended Texas Disciplinary Rules of Professional Conduct. Rule 1.08 received a substantial rewrite while retaining its primary mission–to provide guidelines for when and how a lawyer can enter into a business relationship with a client. This rule recognizes the position of influence a lawyer has, and the risk of overreaching, and seeks to ensure that the lawyer obtains informed consent in writing from the client as to the terms of a business transaction with the client or when the lawyer is acquiring an interest adverse to a client.
Revised Rule 1.08 establishes three mandatory requirements before an attorney can enter into a transaction with, or knowingly acquire an interest adverse to, a client. The lawyer must, in writing:
- Fully disclose the terms of the transaction or acquisition in a way that the client can understand;
- Advise the client to seek independent counsel and provide reasonable time to do so; and
- Obtain written consent to the transaction and to the lawyer’s role in it.
When the client is not represented by independent counsel, the lawyer should disclose the risks and possible alternatives, including risks arising because of the lawyer’s involvement, and the lawyer should also explain why obtaining independent counsel is desirable. See, Cmt. 2 to Rule 1.08. And when the lawyer is representing the client in the transaction, the lawyer is required to comply, not only with 1.08(a), but with Rule 1.06’s disclosure and informed consent requirements. Under Rule 1.06, the lawyer must disclose the risks associated with the lawyer’s dual role as both legal adviser and participant in the transaction, such as the risk that the lawyer will structure the transaction or give legal advice in a way that favors the lawyer’s interests at the expense of the client. See, Cmt. 3 to Rule 1.08.
Complying with Rule 1.08 will help avoid the swearing matches that often arise after these kinds of transactions occur. TLIE insureds can email rskmgmt@tlie.org for forms to comply with the new Rule 1.08(a) requirements. Additionally, TLIE has a one-hour ethics CLE available that discusses all of the new Rules.
