Opinion ID: 1930509
Heading Depth: 1
Heading Rank: 3

Heading: state of mind requisite to a violation of dr 5-104(a)

Text: Respondent's only challenge relating to the Scott case involves the finding that he violated DR 5-104(A), which provides: A lawyer shall not enter into a business transaction with a client if they have differing interests therein and if the client expects the lawyer to exercise his professional judgment therein for the protection of his client, unless the client has consented after full disclosure. The principal issue is a question of law: whether an improper intent is an element of a violation of this rule. It is not disputed that respondent entered into the land transaction in good faith, without intending to defraud or overreach his clients, and that the transaction may have been in the client's best interest. Respondent argues that his misdeeds, if any, were unwitting and at most negligent. He argues that the rule must be applied on the basis of his subjective understanding and that, accordingly, his good faith is a defense. We reject that contention. The Rule creates an unqualified obligation to provide full disclosure before entering a business transaction like that involved in the Scott case. The rule contains no words indicating that discipline may not be imposed except when scienter is shown. This contrasts with other Disciplinary Rules, which contain explicit scienter standards. See, e.g., DR 4-101(B) ([A] lawyer shall not knowingly ....). The evident intent of DR 5-104(A) is not merely to deter and punish actual fraud against clients. That is already proscribed by other rules. Rather it is to ensure that clients get full disclosure on which to base their decisions in every case involving differing interests, including those in which the attorney is acting in good faith. Accordingly, we hold that failure to provide the full disclosure required by DR 4-101(B) constitutes a violation of that rule regardless of whether the attorney intended to defraud the client or acted with other improper motives. This conclusion is in accord with those reached in numerous other jurisdictions. In re Weiner, 120 Ariz. 349, 586 P.2d 194, 197 (1978); People v. Denious, 118 Colo. 342, 196 P.2d 257, 263, 266-67 (1948); Committee on Professional Ethics v. Baker, 269 N.W.2d 463, 466 (Iowa 1978); In re Brown, 277 Or. 121, 559 P.2d 884, 887-91 (1977); In re Boivin, 271 Or. 419, 533 P.2d 171, 175-76 (1975). Full disclosure includes a clear explanation of the differing interests involved in the transaction and the advantages of seeking independent legal advice. It also requires a detailed explanation of the risks and disadvantages to the client entailed in the agreement, including any liabilities that will or may foreseeably accrue to him. However, in this case, the Board found that respondent failed to review in adequate detail both the nature of the proposed agreement and the nature of the potential conflict of interest. The record is adequate to support the conclusion that the disclosure provided by respondent, including both the documents and the discussion of them, was inadequate to permit the clients to make a fully informed decision.