Can a Utah lawyer represent a homeowners association against a property manager who refers business to the lawyer?

Plain-English summary

Opinion 09-02 addresses a lawyer who represents many homeowners associations, some of which were referred by the professional managers the associations hire. Because a manager can steer present and future business to the lawyer, the lawyer has a personal and financial interest in staying on good terms with the manager. The Committee answers five questions about how Rule 1.7 applies when the lawyer's representation of an association touches the manager.

When the association's matter is not adversarial to the manager, the Committee finds no conflict and no disclosure obligation (Issue 1). But when the lawyer represents an association in a lawsuit against the manager (Issue 2), a conflict clearly exists under Rule 1.7(a)(2), because there is a significant risk that the lawyer's personal interest in preserving the referral relationship will materially limit the representation. Whether the association can consent depends on the facts: the conflict is consentable only if all four requirements of Rule 1.7(b) are met, including the lawyer's reasonable belief that the representation will be competent and diligent and the client's informed consent confirmed in writing. The Committee stresses that informed consent requires the lawyer to disclose not just that the manager refers other clients, but the lawyer's financial stake in keeping the manager's business and the specific implications for the representation.

The same analysis governs contract negotiations between the association and the manager (Issue 3): the lawyer may proceed, but disclosure is required and the conflict must be waived under Rule 1.7(b), with the duty of confidentiality under Rule 1.6 remaining in effect. The Committee confirms a lawyer may simply decline to represent an association in any matter adverse to the manager (Issue 4), and that to take on a matter adverse to the manager short of an actual lawsuit, the lawyer must still satisfy all four elements of Rule 1.7(b) (Issue 5). It closes by noting the lawyer must also weigh the effect of suing one manager on other association clients who use the same manager.

In practice

Under this opinion, a Utah lawyer who takes referrals from property managers may represent the referred associations in ordinary, non-adversarial matters without disclosure, because no Rule 1.7 conflict arises. The opinion holds that representing an association against the manager (a lawsuit or contract negotiation) is a personal-interest conflict under Rule 1.7(a)(2) that the client may waive only if the lawyer reasonably believes the representation will be competent and diligent and the client gives informed consent confirmed in writing under Rule 1.7(b). Per the opinion, adequate informed consent means disclosing the lawyer's financial interest in keeping the manager's referrals and the specific ways that interest could affect the matter, not merely noting that the manager refers other clients. The opinion also states the lawyer may decline any matter adverse to the manager, and must consider the effect on other association clients who use the same manager. This opinion was issued in 2009; confirm the current text of Utah Rules 1.7, 1.6, and 1.0 before relying on the specifics here.

Common questions

Q: Do I need to disclose a manager's referrals when I handle routine association work?

A: No. The opinion concludes that when the association's matter is not adversarial to the manager, there is no Rule 1.7 conflict and no disclosure is required.

Q: Can I sue a property manager on behalf of an association the manager referred to me?

A: Only with a valid conflict waiver. The opinion finds a clear conflict under Rule 1.7(a)(2) because the lawyer's interest in future referrals could materially limit the representation; the lawyer may proceed only if all four conditions of Rule 1.7(b) are met, including the client's informed consent confirmed in writing.

Q: Is telling the association that the manager refers other clients enough for informed consent?

A: No. The opinion states the lawyer must disclose not only the relationship with the manager but also the lawyer's financial interest in keeping the manager's business and the specific implications of that interest for the representation.

Q: Can I just refuse to represent an association in matters adverse to its manager?

A: Yes. The opinion confirms a lawyer may decline to represent a client on any given matter, including matters adverse to the manager, assuming compliance with Rule 1.2(c) on limiting the scope of representation.

Q: Does suing one manager affect my other association clients?

A: It can. The opinion notes that representing one association against a manager could impact other association clients that use the same manager, and the same conflict principles would apply to those clients.

Background and rules framework

The opinion interprets Utah Rule of Professional Conduct 1.7 (concurrent conflicts of interest), which corresponds to ABA Model Rule 1.7. Rule 1.7(a)(2) defines a concurrent conflict where a personal interest of the lawyer creates a significant risk of materially limiting the representation; Rule 1.7(b) sets the four conditions for waiver, including the lawyer's reasonable belief in competent and diligent representation and the client's informed consent confirmed in writing. The opinion draws on Rule 1.0's definitions of "informed consent," "reasonable," and "substantial," keeps Rule 1.6's duty of confidentiality in effect, and references Rule 1.2(c) on limited-scope representation. It treats the manager as a non-client (citing Rule 1.13 on organizations as clients and Rule 1.18 on prospective clients).

Citations and references

Rules of Professional Conduct:

• MR 1.7 / Utah RPC 1.7(a)(2), (b) (personal-interest concurrent conflict; conditions for waiver)
• MR 1.0 / Utah RPC 1.0(e) (definitions of informed consent, reasonable, reasonable belief, substantial)
• MR 1.6 / Utah RPC 1.6 (confidentiality continues during a consented conflict)
• MR 1.2 / Utah RPC 1.2(c) (limited-scope representation)
• MR 1.18 / Utah RPC 1.18 (duties to prospective clients)

Cases:

• In re Mid-America Living Trust Ass'n, Inc., 927 S.W.2d 855 (Mo. 1996) (en banc), conflict from desire to keep referrals from a marketing company

Other opinions cited:

• Georgia Formal Advisory Opinion 05-11, 284 Ga. 283 (2008): conflict from financial interest in a good relationship with a non-client referral source
• Utah Ethics Opinion 06-03: dual loyalties impair objective advice where the lawyer has a personal financial interest adverse to the client

See also

• Utah Ethics Op. 13-02: Paying for Referrals and Owning Referral Sources
• ABA Formal Op. 474: Referral Fees and Conflicts of Interest
• CA COPRAC Op. 2002-159: Referral to a Broker for Loan-Funded Fees

Source

• Landing page: https://www.utahbar.org/ethics-opinions/2009-02/
• Original PDF: https://www.utahbar.org/wp-content/uploads/2022/12/2009-02.pdf

Original opinion text

Best-effort transcription from a two-column PDF, reassembled in the opinion's own paragraph order. The Opinion line for Issue 5 trails off in the source PDF; minor errors may remain and the linked PDF is authoritative.

UTAH STATE BAR ETHICS ADVISORY OPINION COMMITTEE: OPINION NO. 09-02

OPINION NO. 09-02

MAIN OPINION:

Issued August 11, 2009

The five issues addressed in this Opinion are based upon the following general scenario:

A lawyer represents many homeowner's associations (both condominium and PUD) in various matters, at various times. Many of these associations are nonprofit corporations and others are common law associations. They are all operated through elected volunteer owner representatives who are organized into boards of directors (although they sometimes use different names for the representatives such as the management committee or board of trustees). Many of these boards hire professional managers, as they lack the experience, skills, and time to properly manage the associations. Some associations that the lawyer represents were referred through managers of the associations. Some of these managers work for management companies that manage many associations, thus providing an incentive for the lawyer to develop a good relationship with the manager to hopefully facilitate future referrals of other associations that the manager manages. It is also important for the lawyer to maintain a reasonably good relationship with the manager related to the lawyer's clients managed by that manager, because it is common in the industry for the manager to act as the point of contact with the attorney on legal matters involving an association. The lawyer does not represent or work directly for the manager or management companies.

1. Issue 1: Given the general circumstances described above, can the lawyer ethically represent associations in matters that do not include adversarial situations with the manager, and is any disclosure required?

Opinion: The lawyer may represent the associations, and no disclosure is required.

Analysis: Under the circumstances summarized in the Introduction, there does not appear to be a conflict of interest in the scenario described in Issue 1. Assuming compliance with the Rules of Professional Conduct generally, the representation does not appear to implicate Rule 1.7, and it does not appear that disclosure would be required.

2. Issue 2: Given the general circumstances described above, can the lawyer represent the association in a lawsuit against the manager, and is any disclosure required?

Opinion: A conflict of interest exists under this scenario. Whether the clients may consent to the representation will depend upon the circumstances of the representation.

Analysis: This scenario clearly creates a conflict under Rule 1.7(a), as "there is a significant risk that the representation of (the homeowner's association ('HOA')) will be materially limited by. . . a personal interest of the lawyer." Lawyer has a personal and financial interest in preserving a friendly relationship with Manager, both to enhance the likelihood of future business referrals, and to preserve existing business relationships with other HOAs with which the manager is affiliated.

"Ordinarily, clients may consent to representation notwithstanding a conflict. However, as indicated in [Rule 1.7] paragraph (b), some conflicts are nonconsentable, meaning that the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client's consent." A conflict of interest is consentable if each of the four provisions of Rule 1.7(b) is satisfied:

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

(b)(2) the representation is not prohibited by law;

(b)(3) 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; and

(b)(4) each affected client gives informed consent, confirmed in writing.

In this case, the scenario described does not involve the representation of adverse "clients" "in the same litigation or other proceeding before a tribunal." Unless Manager has some other basis for reasonably believing that an attorney-client relationship exists between Manager and Lawyer, Manager is not a client. Additionally, the Issue assumes the absence of pending litigation or similar proceeding, and the representation of Manager by Lawyer also does not appear to be otherwise prohibited by law.

Although the inquiry "(a)ssume(s) for each question that the attorney believes that he or she will be able to provide competent and diligent representation to the association," such belief must be reasonable in order for a conflict to be waivable. In this case, the Committee lacks sufficient facts to make a determination as to whether such belief would be reasonable. Although Lawyer may not technically owe duties to Manager, Manager's apparent ability to direct present and future business on its face appears to pose a significant threat to Lawyer's ability to provide unfettered loyalty and independent judgment to HOA. Other factors would include the nature of the lawsuit (e.g., a claim that is essentially uncontested, such as for indemnification, versus a claim of fraud).

However, it is possible that Lawyer might reasonably believe that his or her representation of HOA would be unimpaired by assuming an adversarial relationship with Manager. For example, Lawyer might learn that Manager has no actual ability to affect an association's choice of counsel, or the HOA line of business might reflect a relatively minor portion of Lawyer's practice. Lawyer has an obligation to determine whether Rule 1.7(b)(1) is satisfied, based upon the facts actually and constructively known to Lawyer.

The fourth requirement of Rule 1.7(b) is informed consent. Rule 1.0(e) of the Utah Rules of Professional Conduct provides:

(f) "Informed consent" denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.

(i) "Reasonable" or "reasonably" when used in relation to conduct by a lawyer denotes the conduct of a reasonably prudent and competent lawyer.

(j) "Reasonable belief" or "reasonably believes" when used in reference to a lawyer denotes that the lawyer believes the matter in question and that the circumstances are such that the belief is reasonable.

(m) "Substantial" when used in reference to degree or extent denotes a material matter of clear and weighty importance.

"Informed consent requires that each affected client be aware of the relevant circumstances and of the material and reasonably foreseeable ways that the conflict could have adverse effects on the interests of that client." Merely advising HOA that Manager manages other HOA clients of Lawyer's would not be sufficient to meet this requirement. Rather, Lawyer must disclose not only his or her relationship with Manager, but explain the implications of that relationship, including Lawyer's financial interest in maintaining a good business relationship with Manager in order to keep existing business and/or obtain future referrals.

3. Issue 3: Given the general circumstances described above, can the lawyer represent the association in contract negotiations with manager, and is any disclosure required?

Opinion: The lawyer may represent the association, but disclosure is required.

Analysis: As stated earlier, "there is a significant risk that the representation of (HOA) will be materially limited by. . . a personal interest of the lawyer," because lawyer has a financial interest in preserving a friendly relationship with Manager. The conflict of interest appears to be consentable, assuming that the four requirements of Rule 1.7(b) are met. See also Rule 1.7, cmt. 28, 29, and 32 (addressing nonlitigation conflicts between clients). The lawyer's duty of confidentiality remains in effect. See Rule 1.6.

4. Issue 4: Given the general circumstances described above, can the lawyer represent associations in matters that are not adversarial to the manager, and simply refuse when the association asks the attorney to represent the association in a matter that is adversarial to the manager?

Opinion: Yes.

Analysis: A conflict arises only when Lawyer represents HOA in matters in which Lawyer's personal interest (keeping Manager amenable to continued and future business) might negatively impact Lawyer's representation of HOA. There would appear to be no such impact when HOA's and Manager's interests are non-adversarial.

In general, a lawyer may refuse to represent a client (and a client may refuse to retain a lawyer) on any given matter. That principle would appear to apply to matters in which HOA and Manager are adversarial. This answer assumes compliance with Rule 1.2(c) (Scope of Representation).

5. Issue 5: Given the general circumstances described above, can the lawyer represent associations in matters that are adverse to the manager, but limit that representation by refusing to engage in an actual lawsuit, and, is any disclosure required?

Opinion: The lawyer can represent associations in such matters only if the . . .

Analysis: As indicated in response to Issue 2, a clear conflict of interest exists in representing HOA in matters adverse to Manager. Accordingly, representation would be permitted only if all four of the elements of Rule 1.7(b) are present. Those requirements include Informed Consent, which requires complete disclosure of pertinent facts, including the nature of Lawyer's personal interest and its specific implications. This answer assumes compliance with Rule 1.2(c) (Scope of Representation).

Note: In the scenarios presented in the letter of inquiry, Lawyer would have to consider the impact of his or her representation on other existing clients. For example, if Lawyer is representing HOA1 in a dispute against Manager, such representation could impact other HOA clients that employ the same Manager. In the event of a conflict, the same principles set forth above would apply to these other clients.

Footnotes:

1. Rule 1.7 of the Utah Rules of Professional Conduct provides: (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.

2. See, e.g., Formal Advisory Opinion 05-11, 284 Ga. 283 (Ga. 2008) ("the attorney might have a conflict with the attorney's own interests under Rule 1.7(a), since the attorney would have a financial interest in maintaining a good business relationship with the non-client insurance company"); In re Mid-America Living Trust Assoc., Inc., 927 S.W.2d 855, 862 (Mo. 1996, En Banc) ("attorneys who regularly receive referrals from trust marketing companies, without being directly employed by them, also have been found to suffer from a conflict of interest. An attorney's advice may be tainted by his desire to continue receiving referrals."), and cases cited.

3. Rule 1.7, cmt. 14.

4. See, e.g., D.R.Prof.Conduct 1.13 (Organization as a Client). The letter of inquiry assumes that Manager is not a client. These opinions further assume that Manager has not sought Lawyer's advice on matters adverse to the HOA in such a manner as to become a "prospective client," to whom Lawyer would owe duties under Utah Rule of Professional Conduct 1.18 (Duties to Prospective Client).

5. See, e.g., UT Eth. Op. 06-03 (where lawyer proposed to operate entity that would lend litigation expenses to lawyer's client, "Lawyer's dual loyalties make it difficult, if not impossible, for Lawyer to provide objective, unbiased advice and representation to the client where, by doing so, the interests of Affiliated Lending might be impaired, or the personal interests of Lawyer in Affiliated Lending might be adversely affected.")

6. Rule 1.7, cmt. 19.