Can a New York lawyer represent one regular client lending money to another regular client, take an advance waiver to sue the borrower later, and accept stock in the lender as a fee?
NY State Bar Ethics Opinion 990: Representing one regular client lending money to another
Short answer: A lawyer who regularly represents both a prospective lender and a prospective borrower may represent the lender in the loan with both clients' informed consent under Rule 1.7(b), may seek a sufficiently specific advance waiver to sue the borrower if it defaults, may use the borrower's confidential collateral information only with that client's consent, and may take stock in the lender as a fee if the Rule 1.8(a) and Rule 1.5(a) conditions are met.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.
Plain-English summary
A lawyer regularly represented a sophisticated individual and his wholly-owned entities (together "Client A") in both transactional and litigation matters. Client A wanted to borrow money, and the lawyer also represented one or more other clients ("Client B") who might lend it. The opinion answers six questions about representing the lender side in the loan, taking an advance waiver, using the borrower's confidential information, and taking stock as a fee.
On representing the lender, the opinion concludes that the loan negotiation involves "differing interests" under Rule 1.0(f) because what is best for the lender is not necessarily best for the borrower, citing N.Y. State 952 (2012). The representation is permissible under Rule 1.7(b) only if the lawyer reasonably believes he can provide competent and diligent representation to each client and both give informed consent confirmed in writing. The opinion flags a second, personal conflict under Rule 1.7(a)(2): because the lawyer regularly represents the lender and wants to keep that income, his judgment for the borrower could be affected, so that conflict must be evaluated and consented to as well.
On an advance waiver letting the lawyer sue the borrower if the loan goes bad, the opinion explains that validity depends on how fully the lawyer explains the material risks and on the client's sophistication, citing Comments [22] and [22A] to Rule 1.7 and N.Y. City 2006-1. Here the anticipated conflict (suing Client A on a default) is specific rather than open-ended, and Client A is a sophisticated business client, which makes a waiver more likely to hold, especially if Client A is independently advised. If both clients validly consent, the lawyer need not withdraw from unrelated matters for Client A. The opinion cautions that a client may consent today and view it as disloyalty later, and may challenge the waiver or revoke consent, citing N.Y. State 902.
On confidential collateral information, the opinion concludes that what the lawyer learned about the value of Client A's collateral is confidential under Rule 1.6, so the lawyer may share it with Client B only with Client A's informed consent; a sophisticated client may well consent, and the conflict is not inherently non-consentable. On a stock fee, the opinion applies Rule 1.5(a) (the fee may not be excessive) and Rule 1.8(a) (business transactions with a client), drawing on N.Y. State 913 (2012), and concludes the lawyer may accept stock in Client B if the fee is not excessive, the terms are fair and reasonable, Client B is advised in writing to seek independent counsel and given a chance to do so, and Client B signs a writing describing the deal and the lawyer's role. Mere ownership of stock would not by itself require withdrawal from unrelated matters for Client A, though the lawyer must assess whether the stock's value creates a significant risk to his judgment.
In practice
The opinion holds that, under the New York rules as they stood at the time, a lawyer who regularly represents two clients may represent the lender side of a loan between them if both clients give informed consent confirmed in writing and the lawyer reasonably believes he can serve each competently, per Rule 1.7(b). Per the opinion, an advance waiver to sue the borrower on default can be effective when it is specific rather than open-ended and the client is sophisticated, and independent advice strengthens it. The opinion makes clear that the borrower's confidential collateral information may be shared with the lender only with the borrower's informed consent, and that a stock fee is permissible only if it satisfies both the Rule 1.5(a) reasonableness test and the Rule 1.8(a) business-transaction safeguards.
Common questions
Q: Can a lawyer represent one client making a loan to another client the lawyer also represents?
A: Yes, with consent. The opinion concludes the loan involves "differing interests" but that Rule 1.7(b) permits the representation if the lawyer reasonably believes he can serve each client competently and both give informed consent confirmed in writing.
Q: Is an advance waiver to sue the borrower later enforceable?
A: It can be. The opinion explains that validity turns on the completeness of the lawyer's disclosure and the client's sophistication; a specific, non-open-ended waiver from a sophisticated client, ideally independently advised, is more likely to be effective, citing Comments [22] and [22A] to Rule 1.7.
Q: May the lawyer tell the lender what he knows about the borrower's collateral?
A: Only with the borrower's informed consent. The opinion treats the lawyer's knowledge of the collateral's value as confidential under Rule 1.6, so it may be disclosed to the lender only if Client A consents after being advised of the material risks.
Q: Can the lawyer take stock in the lender instead of a cash fee?
A: Yes, if the Rule 1.8(a) and Rule 1.5(a) conditions are met: the fee is not excessive, the terms are fair and reasonable, the client is advised in writing to seek independent counsel and given a chance to do so, and the client signs a writing describing the transaction and the lawyer's role.
Q: Does taking stock in the lender force the lawyer to drop the borrower's other cases?
A: The opinion concludes it is unlikely to. Mere stock ownership does not involve representing differing interests; the lawyer must still assess whether the stock's value creates a significant risk to his judgment for the borrower.
Background and rules framework
The opinion interprets New York Rule 1.7 (concurrent conflicts and the consent conditions in Rule 1.7(b), the analog of Model Rule 1.7), Rule 1.0(f) (definition of "differing interests") and Rule 1.0(j) (informed consent), Rule 1.6 (confidential information, Model Rule 1.6), Rule 1.5(a) (reasonableness of fees, Model Rule 1.5), and Rule 1.8(a) (business transactions with a client, Model Rule 1.8(a)). The advance-waiver analysis rests on Comments [22] and [22A] to Rule 1.7; the stock-fee analysis follows N.Y. State 913 (2012).
Citations and references
Rules of Professional Conduct:
- MR 1.7 / NY Rule 1.7, 1.7(b) (concurrent conflicts; consent confirmed in writing)
- NY Rule 1.0(f) ("differing interests"); NY Rule 1.0(j) (informed consent)
- MR 1.6 / NY Rule 1.6 (confidential information)
- MR 1.5 / NY Rule 1.5(a) (reasonableness of fees)
- MR 1.8(a) / NY Rule 1.8(a) (business transactions with a client)
Cases:
- Spector v. Mermelstein, 361 F. Supp. 30 (S.D.N.Y. 1972), aff'd in part and remanded, 485 F.2d 474 (2d Cir. 1973), attorney's fiduciary duty to disclose facts bearing on advisability of a client loan
Other opinions cited:
- N.Y. State 952 (2012): representing buyer and lender involves differing interests
- N.Y. State 913 (2012): a lawyer paid with client stock; Rule 1.8(a) applies
- N.Y. State 902: effect of revoking consent on continued representation
- N.Y. State 600 (1989): no per se bar on a lawyer lending a client funds in a non-litigated matter
- N.Y. City 2006-1: advance waivers of future conflicts
See also
- NY State Bar Op. 991: confidential foreclosure information and a lawyer's real estate venture
- NY State Bar Op. 1000: fees paid by a third party with adverse interests
- NY State Bar Op. 1066: guaranteeing a client's loan for legal fees
Source
- Landing page: https://nysba.org/ethics-opinion-990/