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In re Neville

Supreme Court of Arizona, En Banc
147 Ariz. 106, 708 P.2d 1297 (1985) (1985)
ELI5:

Rule of Law:

Under DR 5-104(A), an attorney entering into a business transaction with a client with whom they have differing interests must provide 'full disclosure,' which requires not only advising the client to seek independent counsel but also providing a detailed explanation of all the risks and disadvantages the transaction poses to the client.


Facts:

  • Respondent Neville, an attorney, had an ongoing professional relationship with Floyd Bly, a real estate investor, from 1971 to 1981.
  • Neville and Bly entered into a complex real estate transaction where Bly sold a property (Chandler Heights) to Neville in exchange for Neville's promissory note for $257,774.
  • Neville drafted the contract for all parties, which contained terms highly disadvantageous to Bly, including a lack of default remedies and ambiguous terms for the repayment of principal.
  • Bly's participation in the larger transaction was conditioned upon Neville's purchase of the Chandler Heights property from him.
  • Neville later sold the Chandler Heights property to a third party, receiving at least $42,000 in cash, none of which he paid to Bly as his pro rata share, initially claiming none was due.
  • In a separate matter, Neville represented a debtor, Cummings, in a bankruptcy proceeding where Bly was the primary unsecured creditor, after obtaining what Bly described as reluctant verbal consent.

Procedural Posture:

  • The State Bar of Arizona filed a formal complaint against Respondent Neville.
  • The State Bar Local Administrative Committee held a hearing, found violations, and recommended a 90-day suspension.
  • Neville objected, and the case was reviewed by the Disciplinary Board.
  • The Disciplinary Board accepted the Committee's findings and recommended a reduced 60-day suspension.
  • Neville filed objections to the Disciplinary Board's report, bringing the matter for final review before the Supreme Court of Arizona.

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Issue:

Does an attorney's duty of 'full disclosure' under DR 5-104(A) require more than merely advising a client that the attorney is not representing them in a transaction and that they should seek independent counsel?


Opinions:

Majority - Feldman, Justice

Yes. An attorney's duty of 'full disclosure' under DR 5-104(A) when entering a business transaction with a client requires more than merely stating they are not representing the client in that matter and requires a detailed explanation of the risks involved. The fiduciary duty an attorney owes a client is not transactional; it extends as long as the influence from the attorney-client relationship continues. 'Full disclosure' means the attorney must explain every circumstance and fact the client needs to make an intelligent decision, including all risks and disadvantages of the agreement. The lawyer must give the client the same information they would have been obliged to give if they were acting as counsel, and the transaction must be as beneficial to the client as if the client were dealing with a stranger. Here, Neville drafted a one-sided agreement with terms detrimental to Bly and failed to explain these specific deficiencies, thereby violating his duty. The rule applies regardless of whether the attorney had fraudulent intent, as its purpose is to protect the client from the attorney's position of influence.



Analysis:

This decision significantly expands the definition of an attorney's fiduciary duty in business dealings with clients, establishing that the duty is not confined to formal representation in a specific transaction but persists as long as the attorney's influence over the client continues. It sets a high standard for 'full disclosure,' requiring an affirmative, detailed explanation of all risks and adverse terms, effectively preventing lawyers from treating a client as a typical counterparty in a negotiation. This precedent makes it ethically perilous for attorneys to do business with clients unless they take comprehensive steps to ensure the client is fully informed and protected, likely mandating the use of independent counsel and extensive written disclosures for such transactions.

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