State Bar of Arizona Ethics Opinions

05-07: Non-client spouse; Indemnity; Conflict; Joint Representation
7/2005

An attorney representing a client in settlement of a lawsuit may not give the client’s spouse legal advice about waiving any right in a release unless the client and spouse both agree to joint representation and waive the potential conflict. Absent joint representation, the attorney may not provide legal advice to the spouse, even if the release requires the spouse’s signature and the spouse’s rights are affected by the release. If the spouse is unaware of the lawsuit or the settlement and release, the lawyer must take care to avoid any implied false statement by the client to the spouse, as well as any failure by the client to disclose material facts to the spouse.

FACTS[1]

A lawyer represents a client (Client) in a personal injury claim, but not the Client's spouse (Spouse).  Client has agreed to a settlement of the claim, which will involve a payment to Client in consideration of a release.  The defendant requires the signature of both Client and Spouse on the release.  The lawyer is concerned about the lawyer's obligations to the Spouse.

QUESTION PRESENTED

1.     When only one spouse is retained as a personal injury client but both are asked to sign a general release by the settling defendant, does the lawyer have a duty to explain the legal implications of the release to the spouse? 

2.     If the lawyer does not agree to represent the Spouse jointly with the Client, what information, if any, must the lawyer provide the non-client concerning the release?

RELEVANT ETHICAL RULES

ER 1.2     Scope of Representation and Allocation of Authority between Client and Lawyer

(d)     A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.

ER 1.6     Confidentiality of Information

(a)     A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation, or the disclosure is permitted or required by paragraphs (b), (c) or (d) or ER 3.3(a)(3).

(d)     A lawyer may reveal such information relating to the representation of a client to the extent the lawyer reasonably believes necessary:

(1)     to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property or another and in furtherance of which the client has used or is using the lawyer's services;

(2)     to mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services;

ER 1.7     Conflict of Interest: Current Clients

(a)     Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest.  A concurrent conflict of interest exists if:

(1)     the representation of one client will be directly adverse to another client; or

(2)     there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer

(b)     Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if each affected client gives informed consent, confirmed in writing, and:

(1)     the lawyer reasonable believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2)     the representation is not prohibited by law; and the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal.

ER 1.8     Conflict of Interest: Prohibited Transactions

(f)     A lawyer shall not accept compensation for representing a client from one other than the client unless:

(1)     the client gives informed consent;

(2)     there is no interference with the lawyer's independence of professional judgment or with the client-lawyer relationship; and

(3)     information relating to representation of a client is protected as required by ER 1.6.

(g)     A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients, or in a criminal case an aggregated agreement as to guilty or nolo contendere pleas, unless each client gives informed consent, in a writing signed by the client.  The lawyer's disclosure shall include the existence and nature of all the claims of pleas involved and of the participation of each person in the settlement.

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ER 4.1.     Truthfulness in Statements to Others

In the course of representing a client a lawyer shall not knowingly:

(a)     make a false statement of material fact or law to a third person; or

(b)     fail to disclose a material fact when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by ER 1.6.

ER 4.3     Dealing with Unrepresented Person

In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested.  When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer's role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding.  The lawyer shall not give legal advice to an unrepresented person, other than the advice to secure counsel, if the lawyer knows or reasonably should know that the interests of such a person are or have a reasonable possibility of being in conflict with the interests of the client.

ER 8.4.     Misconduct

It is professional misconduct for a lawyer to:

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(c)     engage in conduct involving dishonesty, fraud, deceit or misrepresentation;

OPINION

Alternatives When Attorney Does Not Represent Spouse

Attorney is faced with the apparent dilemma that in order for Client to obtain the benefit of a settlement, Spouse must sign a release.  Attorney knows that the release may affect Spouse's rights.  The obligations of Attorney to Client, and the parameters of dealing with Spouse, a non-client, limit Attorney's conduct.

Attorney has two options for obtaining Spouse's release - Attorney's communication with Spouse or Attorney forwarding the release to Spouse through Client.  Either presents ethical issues.

Attorney's Communications With Spouse Must Be Limited

If Attorney wishes to communicate with Spouse, Attorney must obtain Client's consent.  ER 1.6 requires Attorney to keep information about Client's representation confidential, including terms of a proposed settlement.  If Attorney is to communicate with Spouse, Client must consent to Attorney's disclosure of the information necessary to accomplish the task.

In addition, that communication must be truthful.  ER 4.1 requires that in dealing with Spouse, or any other third person, Attorney may not knowingly make a false statement of material fact or law, or fail to disclose a material fact in order to avoid assisting a client's crime or fraud, unless disclosure is prohibited by ER 1.6.  Further, Attorney may not engage in conduct involving dishonesty, fraud, deceit or misrepresentation.

Accordingly, Attorney's communication about the settlement and release with Spouse must be truthful, and not dishonest, fraudulent, or involve a misrepresentation.  Client may not use Attorney as a surrogate with Spouse to avoid disclosing the cause of action, settlement and proposed settlement payment to Spouse.

Attorney must further avoid Spouse's misunderstanding as to Attorney's role.  ER 4.3 requires that Attorney not state or imply that Attorney is disinterested, and Attorney must correct any misunderstanding by Spouse about whether Attorney represents Spouse's interests.  Further, Attorney must avoid giving Spouse legal advice, other than the advice to obtain counsel.  If Attorney knows or reasonably should know that the interests of Client and Spouse may be in conflict, then compliance with ER 4.3 limits Attorney's role in communicating about the settlement and release with Spouse.  It appears reasonably possible that the interests of Spouse and Client may be in conflict, such as if Spouse is asked to release claims in order for Client to obtain a settlement payment, and also in regard to sharing of the settlement proceeds.  Attorney's ability to persuade Spouse to sign the release will be limited.

Attorney May Not Allow Client To Defraud Spouse

Attorney and Client may elect to have Client request Spouse's execution of the release.  Even so, Attorney's role must be limited.  ER 1.2(d) requires Attorney to avoid counseling Client to engage in criminal or fraudulent conduct.  Under ER 8.4(a) and (c), Attorney's directions to Client may not include Client engaging in dishonesty, fraud, deceit or misrepresentation to Spouse.  If Client's communication with Spouse about the release results in substantial injury to Spouse's financial interests resulting from Client's fraud or crime, ER 1.6 provides that Attorney may reveal Client confidential information to the extent necessary to mitigate or rectify the harm, including disclosure to Spouse.  Nor may Attorney provide Spouse legal advice through Client and violate ER 4.3. 

Attorney May Provide Legal Advice To Spouse Only By Representing Both Parties

The limitations on Attorney, and Spouse's reaction to the proposed release, may cause Spouse to ask Attorney for legal advice before signing the release.  At a minimum, Spouse may want Attorney to explain Spouse's rights and how the release impacts those rights.  Attorney can provide that advice only if Spouse is a client.

Representing both parties may create a conflict of interest.  ER 1.7 provides that a lawyer may not represent a client if the representation of that client will be directly adverse to another client.  The comment to ER 1.7 further emphasizes the duty of loyalty:

As a general proposition, loyalty to a client prohibits undertaking representation directly adverse to that client without that client's consent.  Paragraph (a) expresses that general rule.  Thus, a lawyer ordinarily may not act as advocate against a person the lawyer represents in some other matter, even if it is wholly unrelated.

Joint representation in light of a conflict is possible only if, among other things, the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to both clients, and both clients provide informed consent, confirmed in writing.  ER 1.7(b).  To the extent that Client, and not spouse, has paid the fee for the representation, ER 1.8(f) imposes additional requirements.

Further, under ER 1.8(g) a lawyer who represents two or more clients shall not participate in a settlement of claim unless each client gives informed consent.  If the attorney finds no adverse effect, the attorney would have to advise both prospective clients of the implications of the common representation and risks involved.  Only then can the clients consent and sign a written release with knowledge of the consequences. 

If Attorney properly advises both Client and Spouse, and obtains informed consent, Attorney may then advise Spouse about the release, as a client.  Attorney may also represent both clients in obtaining the settlement.

CONCLUSION
 
An attorney may obtain a non-client's execution of settlement papers directly or indirectly, only with care, either by limited and honest communication with the non-client spouse, or after properly entering into joint representation of both spouses.

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[1] Formal Opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceedings.  © State Bar of Arizona 2003