Case Law Summaries

Petit-Clair v. Nelson

• Opinion Date: October 29, 2001
• Real Property Law
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ATTORNEYS; MORTGAGES—An attorney may not obtain a mortgage from a client to secure a fee unless the client is advised of the desirability of obtaining independent counsel and is given a reasonable opportunity to do so.

During the course of litigation involving their corporation, an attorney representing a couple in an unrelated litigation obtained a mortgage on his client’s personal residence to secure payment of his legal fees. After the couple defaulted, the attorney filed a foreclosure complaint and the Chancery Division concluded that the mortgage was invalid. “It held that since the mortgage was a ‘business transaction,’ [the attorney] had an affirmative duty to advise [his clients] of the desirability to seek independent counsel, but failed to do so,” citing RPC 1.8(a). Further, the lower court concluded that there was no consideration given for the mortgage. The Appellate Division agreed. “An attorney’s freedom to contract with a client is subject to constraints of ethical considerations and the Supreme Court’s supervision.” Therefore, “[a]ny transaction between an attorney and client is ‘subject to close scrutiny and the burden of establishing fairness and equity of the transaction rests upon the attorney.’” Specifically, such a transaction requires that the client be “advised of the desirability of seeking and [must be] given a reasonable opportunity to seek the advice [sic] of independent counsel of the client’s choice on the transaction.” This rule is mandatory and provides that a lawyer “shall not” knowingly “acquire a security or pecuniary interest adverse to the client unless the client is advised of the desirability of seeking independent counsel.” It was clear that the mortgage given to the attorney was “a security ... interest adverse to” his clients. Although the attorney argued that because he represented their corporations only he did not represent the couple personally. The Court was unmoved. “[A]ll that is necessary is that the parties relate ‘to each other’ generally as attorney and client. It is also clear that it is the substance of the relationship, involving as it does a heightened aspect of reliance, that triggers the need for the rule’s prescriptions of full disclosure and informed consent.”

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