Ethics Opinion 111: Communicating With Represented Person for the Purpose of Providing a Second Opin

The Colorado Bar Association Ethics Committee (the "Committee") has received inquiries from members of the bar regarding the ethical conduct of a lawyer ("Lawyer No. 2") who is contacted by a person (the "Client") Lawyer No. 2 knows is represented by counsel ("Lawyer No. 1"), when the Client requests a second legal opinion.

The issues stated below will be discussed within the context of the ethical questions raised in the following circumstance: The Client, who is currently represented by Lawyer No. 1 in connection with a pending or contemplated legal proceeding, transaction or other situation involving legal representation (the "Matter") initiates communication with other counsel, Lawyer No. 2, in order to obtain advice or a second opinion concerning the Matter or a review of Lawyer No. 1's representation of the Client in the Matter (collectively, the "Second Opinion").

(1) Whether Lawyer No. 2 is ethically required to obtain the consent of Lawyer No. 1 before communicating with the Client about the Matter or before providing the Client with a Second Opinion; and

(2) Whether Lawyer No. 2 is ethically required to decline (or discontinue) representation of the Client regarding the Matter if the Client refuses to authorize Lawyer No. 2 to contact Lawyer No. 1 to discuss Lawyer No. 1's representation of the Matter.

The purpose of this Opinion is to provide guidance to attorneys in evaluating the ethical propriety of communications with the Client where the communications are initiated by the Client for the purpose of obtaining a Second Opinion, and to identify the ethical issues that may confront Lawyer No. 2. This opinion does not purport to address considerations of professionalism or professional standards that may or may not apply to the circumstances presented in the Introduction noted above.

Rule 4.2 of the Colorado Rules of Professional Conduct ("Colo. RPC") does not require Lawyer No. 2 to obtain the consent of Lawyer No. 1 in order to communicate with the Client concerning the Matter where the Client initiates the communication for the purpose of obtaining a Second Opinion. Colo. RPC Rule 4.2 does not apply to the circumstances presented in the Introduction of this Opinion. Lawyer No. 2, however, must take measures required to (i) avoid any conflicts of interest, and (ii) provide competent representation to the Client in extending a Second Opinion, considering any limitations on his knowledge of relevant facts.

Rule 4.2 of the Colo. RPC governs attorneys' communications with persons represented by counsel. Colo. RPC 4.2, "Communications with Person Represented by Counsel" provides:

Colo. RPC 4.2 prohibits a lawyer, in the course of representing a client, from communicating about the subject of the representation with a party the lawyer knows to be represented by another lawyer in the matter, without the consent of the other lawyer. The essential purpose of the Rule is to prohibit ex parte contacts or communications between lawyers representing clients and persons or parties known to be represented in the matter by counsel unless such counsel consents. The Rule does not apply to the circumstance described in the Introduction. The Committee believes that Colo. RPC 4.2, by its terms, does not apply to the situation presented by the Client's request for a Second Opinion, because the party protected by Colo. RPC 4.2 is a person other than the Client.

The Committee further believes that an extension of the prohibitions of Colo. RPC 4.2 to the Second Opinion situations would infringe upon the Client's inherent right to seek advice or representation from counsel of the Client's choosing. The Committee believes the Client should be free to seek other or additional advice or opinions on the Matter, including opinions on the merit of previous advice or the competency of Lawyer No. 1's representation. Thus, it is the opinion of the Committee that it is not necessary for Lawyer No. 2 to obtain the consent of Lawyer No. 1 to communicate or consult with the Client for the purpose of providing a Second Opinion.

In accepting employment by the Client for the purposes of rendering a Second Opinion, Lawyer No. 2 must, as in all cases, comply with the proscriptions of Colo. RPC 1.7 relating to conflicts of interest. In particular, Lawyer No. 2 must be careful to maintain his or her professional independence such that Lawyer No. 2's own interests in the possible representation of the Client in the Matter do not influence the nature of the advice or the Second Opinion.

If the Client contacts Lawyer No. 2 to discuss the Client's concerns about the competence of Lawyer No. 1's representation, Lawyer No. 2 may discuss these concerns with the Client without first obtaining the consent of Lawyer No. 1. Lawyer No. 2 should be careful to clarify the analyses and conclusions of the Client pertaining to Lawyer No. 1's conduct. Lawyer No. 2 should be familiar with the facts of the underlying matter as a means for clarifying analyses and conclusions reached by the Client regarding Lawyer No. 1's conduct and representation.

Lawyer No. 2 also should be cognizant of, and give deference to, the requirements of Colo. RPC 1.1 that require Lawyer No. 2 to provide competent representation to the Client in providing the Second Opinion. Competent representation requires Lawyer No. 2 to possess the requisite legal knowledge and skill, and to employ the thoroughness and preparation reasonably necessary to extend the Second Opinion to the Client. Thus, Lawyer No. 2 must consider and evaluate the nature of the Second Opinion sought by the Client and whether, or to what extent, communication with Lawyer No. 1 concerning the Matter may be necessary or advisable in order to render a Second Opinion competently, pursuant to Colo. RPC 1.1.

For example, where Lawyer No. 2 is asked to provide a Second Opinion on the merits of a settlement offer made in pending litigation, or the soundness of the advice Lawyer No. 1 has given with respect to a settlement offer, Lawyer No. 2 must consider issues of liability, applicable defenses to liability, availability and admissibility of evidence, credibility of witnesses, recoverable damages and costs of trial, as well as other factors in rendering an opinion. It would be extremely difficult, if not impossible, to make such an evaluation and render a competent Second Opinion without communication and consultation with Lawyer No. 1 concerning the Matter and the basis for Lawyer No. 1's advice relating to the settlement offer. Likewise, Lawyer No. 2 may be unable to render a Second Opinion competently regarding a transaction such as the merger of two businesses or the acquisition of a business or real property without first discussing with Lawyer No. 1 the facts and support for decisions made by Lawyer No. 1 prior to the Client contacting Lawyer No. 2. When the Client, for whatever reason, refuses to authorize Lawyer No. 2's contact or communication with Lawyer No. 1 concerning the Matter for which the Second Opinion is sought, it may be impossible for Lawyer No. 2 to consider fully all relevant facts and circumstances necessary to render competent representation required by Colo. RPC 1.1 in providing a Second Opinion. In such a case Lawyer No. 2 must either refrain from extending a Second Opinion, or clearly limit the scope of the Second Opinion to the facts and circumstances Lawyer No. 2 was able to obtain.

On the other hand, when the Second Opinion requested by a Client relates to a review of the legal issues involved in the Matter, Lawyer No. 2 may competently discuss the Matter with the Client and render a Second Opinion without obtaining the prior consent of Lawyer No. 1. For example, if Lawyer No. 1 told the Client that the law governing a particular tort action or business transaction allows or disallows a particular cause of action or course of conduct, and the Client does not like the governing law, Lawyer No. 2 may render an opinion regarding the existence and scope of such law. Such an opinion may not require extensive knowledge of the facts related to the underlying case when the issue presented is sufficiently objective and related to the existence of governing law.

*As a result of the Colorado Court of Appeals opinion in In re the Marriage of Mitchell, annc'd 2/14/02, and printed on page 153 of this issue of The Colorado Lawyer, the CBA Ethics Committee issued an Addendum to Formal Opinion 110 on March 16, 2002. This Addendum will be printed in the May 2002 issue of The Colorado Lawyer.

This opinion discusses the situations when it is permissible to assert a charging lien, the limitations on asserting such liens, and the ethical requirements for taking a security interest in client property.¹

A lawyer may ethically assert a charging lien for payment of legal services the lawyer has rendered, against property or funds the lawyer has assisted or is assisting the client to obtain. Colo. RPC 1.8(j) and C.R.S. § 12-15-119(2001). A lawyer may take a security interest in client property for payment of fees so long as the lawyer complies with Colo. RPC 1.8(a).

Colo. RPC 1.8(j) prohibits a lawyer from acquiring a proprietary interest in a cause of action or the subject matter of litigation except that the lawyer may have a lien permitted by law in order to secure the lawyer's fees or expenses. In Colorado, the right to a charging lien arises by statute only, C.R.S. § 12-5-119 (2001), since no common law right to a lien exists. People v. Brown, 840 P.2d 1085 (Colo. 1992). The right to a lien accrues when the lawyer begins the representation, In re Marriage of Berkand, 762 P.2d 779 (Colo. App. 1988). A lawyer may ethically assert a charging lien for payment of legal services the lawyer has rendered, provided the lawyer complies with the statute.

A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client, except that the lawyer may:

(1) acquire a lien granted by law to secure the lawyer's fee or expenses; and

(2) contract with a client for a reasonable contingent fee in a civil case.

All attorneys and counselors-at-law shall have a lien on any money, property, choses in action, or claims and demands in their hands, on any judgment they may have obtained or assisted in obtaining, in whole or in part, and on any and all claims and demands in suit for any fees or balance of fees due or to become due from any client. In the case of demands in suit and in the case of judgments obtained in whole or in part by any attorney, such attorney may file, with the clerk of the court wherein such cause is pending, notice of his client as lienor, setting forth specifically the agreement of compensation between such attorney and his client, which notice, duly entered of record, shall be noticed to all persons and to all parties, including the judgment creditor. . . . Such lien may be enforced by the proper civil action.

The purpose of the charging lien statute is to enable a lawyer to preserve the lawyer's right to payment and to place others on notice that the attorney is asserting an interest in property or in a judgment that is subject to the lien. Since this right arises from statute, strict compliance is required. Telluride Real Estate Co. v. Penthouse Affiliates LLC, 996 P.2d 151, 154 (Colo. App. 1999) (statute in derogation of common law strictly construed); Ross v. Scannell, 97 Wash. 2d 598, 647 P.2d 1004 (Wash. 1982) (statute must be strictly construed, and therefore cannot be expanded to filing a lien against real property).

The lien is notice to third parties that the lawyer has a claim in some or all of the property that is the subject of the litigation. Once the lien is reduced to judgment, the attorney is then entitled to enforce it. In re Marriage of Weydert, 703 P.2d 1336 (Colo. App. 1985); In re The Marriage of Smith, 687 P.2d 519 (Colo. App. 1994). Until the lien is reduced to judgment, funds held by a lawyer remain the property of the client. See People v. Gray, 2001 Colo. Discipl. Lexis 49 (June 6, 2001). When a lawyer enforces the lien can become important to determine whether the conduct is ethical. If, for example, the lawyer attempts to enforce the lien during the pendency of the litigation, it may be necessary that the lawyer withdraw from the representation pursuant to Colo. RPC 1.16.

In the situation where a lawyer holds funds subject to a claim of a charging lien by another lawyer, it is unethical to disburse the funds without making appropriate provision for the charging lien. People v. Egbune, 28 Colo. Law. 129 (Colo. PDJ 1999) (lawyer suspended for disbursing funds subject to a charging lien and then failing to disclose information about the settlement to the lawyer claiming the lien). See also Colo. RPC 1.15, which requires an attorney to hold property separate from the attorney's property if a third party claims an interest in such property.

Although lawyers are permitted to assert a charging lien pursuant to Colo. RPC 1.8(j), that right is limited by ethical considerations. An unfounded claim of a lien or an improper assertion violates the professional responsibility rules. See People v. Razatos, 636 P.2d 666 (Colo. 1981), appeal dismissed, 455 U.S. 930, 102 S.Ct. 1415, 71 L.Ed. 2d. 639 (1982) (lawyer cannot assert charging lien against proceeds from a sale that was not the basis of the cause of action); People v. Smith, 830 P.2d 1003 (Colo. 1992); and People v. Mills, 861 P.2d 708 (Colo. 1993) (decided under DR-102(A)(5)) (lawyer cannot ethically assert a charging lien for services unrelated to the case in which the attorney is representing the client); see also Pennsylvania Bar Association Committee on Legal Ethics and Professional Responsibility, Ethical Considerations in Attorney Liens, Formal Opinion 94-35 (Charging liens are permitted but there are ethical limitations such as not asserting a lien for more than the judgment or property obtained). Colorado courts in non disciplinary cases have held that child support is generally exempt from imposition of an attorney's lien as a matter of public policy, see Marriage of Etcheverry and Pratt, 921 P.2d 82 (Colo. App. 1996), which construes C.R.S. §13-54-102.5(1).

Lawyers who do not assist in obtaining proceeds or property for a client may not assert a charging lien. For example, a charging lien would be inappropriate if asserted by a special advocate, guardian ad litem or a criminal defense attorney and the matter that is the subject of the representation does not involve obtaining property or proceeds for the client. Accordingly, lawyers in these situations may not ethically assert a charging lien.

Assuming an agreement for compensation between the attorney and the client exists and an action is pending, the Ethics Committee believes that it is unnecessary to comply with Colo. RPC 1.8(a) when filing a lien because the mere filing of a lien in the litigation is neither a business transaction with a client nor acquiring a security interest in the subject matter. Two other jurisdictions that have addressed this issue also concluded that Rule 1.8(a) does not apply. See Utah State Bar Ethics Advisory Opinion Committee Opinion No. 01-01 approved January 26, 2001 (Utah Ethics Committee concluded that Utah's Rule 1.8(a) is not applicable to the statutory lien situation); Shapiro, Lifschitz & Schram, P.C. v. Hazard, 24 F. Supp. 2d. 66 (D.C. 1998) (the court concludes that Rule 1.8 does not apply to the creation of an attorney's lien); but see Pennsylvania Bar Association Committee on Legal Ethics and Professional Responsibility, Ethical Considerations in Attorney Liens, Formal Opinion 94-35 (lawyers must advise the client to obtain independent counsel and give the client the opportunity to obtain counsel before enforcing the lien).

A charging lien may entitle an attorney to fees for legal services rendered to the client in that particular matter, and may be enforced in that matter or in a separate lawsuit, see Gee v. Crabtree, 192 Colo. 550, 560 P.2d 835 (1997). However, mere assertion of the lien is not sufficient to give the attorney the right to record the notice of lien against real property. The lawyer must first obtain a judgment. People v. Smith, supra (Colo. 1992) (attorney represented a client in a dissolution of marriage action, and after his services were terminated, he filed a notice of lien and recorded it in the real estate records against the marital property. He refused to remove the recorded lien, and the court held that the charging lien statute did not authorize such recording. Smith violated the prior Code of Professional Responsibility, disciplinary rules, DR-102(A)(5), DR-102(A)(6) and DR5-103(A)(1)).

The amount of an attorney's lien should comply with the requirements for fees as established by Colo. RPC 1.5.

Colo. RPC 1.8(a) allows lawyers to take a security interest in client property for payment of fees if the conditions set forth in the rule are met: the terms of the transaction must be fair and disclosed in writing; the client must be informed that independent counsel may be advisable; and the lawyer must obtain written consent from the client.

There are three common situations in which lawyers require security for payment of fees. The first involves the situation where a client is in need of legal services and owns property, including real property, that could be used as security for payment of legal services. The second scenario involves a client providing security for payment of the retainer. The third scenario involves a client who has failed to pay fully the outstanding bills for the legal services rendered as the matter progresses and the lawyer wishes to secure the payment of the past due legal fees by a promissory note and a deed of trust or some other security instrument.

A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to the client unless:

(1) The transaction terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which can be reasonably understood by the client;

(2) The client is informed that the use of independent counsel may be advisable and is given a reasonable opportunity to seek the advice of such independent counsel and the transaction; and

(3) The client consents in writing thereto.

A lawyer may require security for payment of past or future fees or for a retainer.2 However, because of differing interests, conflicts between the lawyer and client can exist. Although the client is certainly interested in having the legal services rendered, the client may not understand the ramifications of providing a security interest in property the client owns or in which the client has an interest. It is the lawyer's responsibility to be certain the client has been made aware of the protections of Colo. RPC 1.8(a). Courts in other states have also required that the lawyer explain the transaction to the client and that the terms of such transaction are fair. See Read v. State Bar, 53 Cal.3d 394, 410, 807 P.2d 1047, 1052 (Cal. 1991), modified at 53 Cal.3d 1009a; and Hawk v. State Bar, 45 Cal.3d 589, 754 P.2d 1096, 247 Cal. Rpt. 599 (1988); see also The Restatement of the Law Governing Lawyers, 3rd, § 43(4). Therefore, before a lawyer enters into such an arrangement, the lawyer must comply with Colo. RPC 1.8(a).

Other ethics committees have concluded that an attorney may accept a security interest for payment of fees upon compliance with Rule 1.8(a).3 See Connecticut Bar Association Committee on Professional Ethics, Informal Opinion 97-4, March 4, 1997 (Rule 1.8(a) is applicable to a lawyer's acquisition of a security interest taken in client property for security of a payment for fees); Los Angeles County Bar Association Professional Responsibility in Ethics Committee, Opinion No. 492 (January 26, 1998) (lawyer is required to comply with Rule 3-300 of the California Rules of Professional Conduct when accepting a security interest in real property to ensure the payment of the lawyer's fees, whether the client owns or has an interest in the property).

If a lawyer takes a security interest in property for more than the fees actually earned, e.g., for a retainer, the lawyer must take steps to release that portion of the security that is in excess of the earned fees. For example, when a lawyer takes a security interest against the client's real property for $100,000 because she believes the fees for the commercial litigation matter will be that amount, the lawyer must file a partial satisfaction or otherwise credit the amounts not earned when the case is concluded or the representation is terminated, so the property is not encumbered for more than the fees actually earned.

Even if the lawyer complies with Colo. RPC 1.8(a) when taking a security interest, or Colo. RPC 1.8(j) when filing a charging lien, the lawyer must also comply with the provisions of Colo. RPC 1.7. The lawyer must ensure that his or her own interest in getting paid does not have an adverse effect on the representation of the client. Colo. RPC 1.7(b). This is especially true if the attorney attempts to enforce the lien or foreclose on the security interest while the attorney is representing the client. If the lawyer's responsibilities to that client are materially limited by the lawyer's own interest, because the lawyer wants to ensure that he or she is paid, then the lawyer may have to withdraw pursuant to Colo. RPC 1.16. Lawyers have been disciplined for violating Colo. RPC 1.7(b) when a lawyer has taken property in lieu of fees. See, People v. Mason, 938 P.2d 133 (Colo. 1997) (Obtaining a transfer of property from a client in lieu of a previously earned legal fee and then representing the client in a suit by the holder of the security interest in the transferred property violates Colo. RPC 1.8(j) and Colo. RPC 1.7(b)).

1. This Opinion does not address attorneys' liens on property held in the name of multiple owners, some of whom are not the clients of the lawyer.

2. Normally, when a lawyer is taking a security interest, the lawyer is not taking title to or actual possession of the client's property. In those circumstances where the lawyer actually takes possession of the security, e.g., stocks and bonds, then the attorney must comply with Colo. RPC 1.15 by safeguarding the property.

3. This section of the Opinion applies to security interests only; it does not apply to charging liens as permitted by C.R.S. § 12-5-119 (2001).

Formal Opinion 111: Communicating With
Represented Person for the Purpose of
Providing a "Second Opinion"

(1) Whether Lawyer No. 2 is ethically required to obtain the consent of Lawyer No. 1 before communicating with the Client about the Matter or before providing the Client with a Second Opinion; and

Rule 4.2 of the Colo. RPC governs attorneys' communications with persons represented by counsel. Colo. RPC 4.2, "Communications with Person Represented by Counsel" provides:

Ethics Opinion 111: Communicating With Represented Person for the Purpose of Providing a Second Opinion, 01/19/02