Ethics Opinion 1976-14

November 24, 1976

SUBJECT: TRANSACTIONS BETWEEN ATTORNEY AND ADVERSE PARTY AFTER JUDGMENT

I
QUESTION PRESENTED

An attorney has obtained a money judgment on behalf of his client against another party who was represented by counsel at trial. The successful attorney has learned certain facts concerning the rental property owned by the adverse party during the course of the litigation; more particularly, he has learned that there are defects in the condition of the premises, that no income has been generated from the property for one year, and that the property has been listed for some time with a real estate broker who has been unable to sell or rent the property.

The successful attorney has received an assignment of the judgment from his client and desires to enter into direct negotiations with the losing party for the purchase of the property in question. He intends to offer as part consideration for the purchase a forgiveness of the judgment which he has received by way of assignment. He further intends to write a letter to this effect to the owner of the property, and to inform his former adversary counsel by way of letter of his intention to enter into negotiations with the owner of the property.

Can the attorney in this case ethically enter into direct negotiations with the adverse party who had been represented by counsel, and can he ethically purchase property from him under the conditions set forth herein?

II
SUMMARY

No unethical or unlawful practice would be committed by the attorney seeking to enter into direct negotiations with a formerly adverse party, who had been represented by counsel, for the purchase of property owned by the adverse party where a judgment had been entered against the adverse party and the attorney had received an assignment of the same.

III
STATUTES AND RULES OF ETHICS

California Rules of Professional Conduct, Rule 7-103, provides in part:

A member of the State Bar shall not communicate directly or indirectly with a party whom he knows to be represented by counsel upon the subject of controversy without the express consent of such counsel.

Canon 7 of the American Bar Association Code of Professional Responsibility provides in part:

ETHICAL CONSIDERATION 7-18 The legal system in its broadest sense functions best when persons in need of legal advice or assistance are represented by their own counsel. For this reason a lawyer should not communicate on the subject matter of the representation of his client with a person he knows to be represented in the matter by a lawyer, unless pursuant to law or rule of court or unless he has the consent of the lawyer for that person. If one is not represented by counsel, a lawyer representing another may have to deal directly with the unrepresented person; in such an instance, a lawyer should not undertake to give advice to the person who is attempting to represent himself, except that he may advise him to obtain a lawyer.

DISCIPLINARY RULE 7-104 Communicating With One of Adverse Interest.

(A) During the course of his representation of a client a lawyer shall not:

(1) Communicate or cause another to communicate on the subject of the representation with a party he knows to be represented by a lawyer in that matter unless he has the prior consent of the lawyer representing such other party or is authorized by law to do so.

(2) Give advice to a person who is not represented by a lawyer, other than the advice to secure counsel, if the interests of such person are or have a reasonable possibility of being in conflict with the interests of his client.

Canon 4 of the American Bar Association Code of Professional Responsibility provides:

A lawyer should preserve the confidences and secrets of a client.

IV
ETHICAL OPINIONS

American Bar Association Informal Opinion number 827 held that when litigation is over and the subject of controversy has been reduced to final judgment, it is not improper for the plaintiff's attorney to deal directly with the defendant to collect the final judgment, even in face of the prohibition of Canon 9 of the former Canons of Professional Ethics (no superseded by Disciplinary Rule 7-104 of the Code of Professional Responsibility) which it was said was designated to prevent "overreaching" and unfairness during the pendency of litigation. Under this ruling the decision to contact opposing counsel or to obtain the consent of opposing counsel in the previous litigation would not be an ethical problem, but a matter of judgment as to professional courtesy.

V
DISCUSSION

It would appear that the purposes of Rule 7-103 of the California Rules of Professional Conduct are to some extent similar to the purposes of Disciplinary Rule 7-104 of the Code of Professional Responsibility, in that both seem to be designed to prevent "overreaching". With respect to Rule 7-103, an important condition of its application is the clause "upon a subject of controversy"; and as to Disciplinary Rule 7-104 the condition is expressed as "the subject of representation." So far as the application of Rule 7-103 and Disciplinary Rule 7-104 are concerned, the issues presented by the hypothetical situation considered in this memorandum distill down to whether the lawyer is seeking to deal with his adversary "upon a subject of controversy" and whether this constitutes "overreaching".

The hypothetical situation seems analytically to present two general "subjects of controversy". The first one is the original lawsuit in which the attorney has obtained a judgment for his client, and the other is the purchase of the real property which was the subject of the original controversy. With respect to the first "subject of controversy" it would appear that this matter has been resolved by judgment. To the extent that collection of the judgment involves a subject of controversy, it is arguably a different subject of controversy from the original controversy in which the adverse party was represented by counsel. The opportunities for "overreaching" are less, and of a different nature as implied in ABA Informal Opinion 827 referred to hereinabove. Furthermore, the information obtained by the attorney in this case during the course of litigation would not appear to give the attorney any particular advantage in the execution of the judgment which has been assigned to him.

With respect to the second general "subject of controversy"--that is the purchase of property--this does not appear to be the type of controversy referred to in Rule 7-103, but is merely the type of adversary situation that any two parties seeking to contract with one another would find themselves in. Furthermore, as to this second "subject of controversy" it seems clear that the adverse party has not been represented by counsel, and therefore Rule 7-103 would not apply literally to this situation. While the information received by the attorney during the course of litigation may put the attorney in a better position to negotiate for the purchase of the property, the information could probably have been obtained by any potential purchaser sufficiently diligent to do the research. In any event, it seems difficult to characterize the use of this information by the attorney negotiating for the purchase of property of the adverse party as "overreaching" because it is information which legitimately should be considered to affect the value of the property, in the supply and demand approach to evaluation.

Whether Canon 4 of the Code of Professional Responsibility has any application in this case might depend to some degree upon the source of the information which the attorney received. However, the information received by the attorney in this case is not likely to be confidential information and is most certainly known by the adverse party who is the owner of the property up for sale unsuccessfully. In any event, this issue concerns the relationship of the attorney to his original client and the hypothetical does not present sufficient information to fully resolve this issue.

With respect to Rule 5-101 of the California State Bar Rules of Professional Conduct, this memorandum offers no opinion regarding the transaction whereby the lawyer took an assignment from his client of his claim against the adverse party since there are insufficient facts to render such an opinion.

The committee believes that although the attorney is not required to contact the attorney for the former adverse party and obtain his consent to the negotiations, he should do so as a matter of professional courtesy and as a demonstration of good faith.

This opinion is advisory only and is not binding upon the State Bar, the Board of Governors, its agents or employees.

Disclaimer: This opinion was issued by the Legal Ethics Committee of the San Diego County Bar Association. It is advisory only and is not binding upon any member of the SDCBA, any other member of the State Bar of California, the State Bar of California or its Board of Governors, or any persons or tribunals charged with regulatory responsibilities. The SDCBA, its officers, directors, agents, and the Legal Ethics Committee members assume no responsibility or liability in rendering this opinion.