When a California lawyer takes a security interest (a deed of trust) in real property to secure fees, does former Rule 3-300 apply if the record title is held by a third party but the client claims an interest in the property?

Currency note

This opinion was issued in 1998, before California's November 1, 2018 adoption of the renumbered Rules of Professional Conduct. Former Rule 3-300 corresponds to current Rule 1.8.1 (business transactions with and acquisitions of pecuniary interests adverse to a client); former Rule 3-310(F) (fees from a non-client) corresponds to current Rule 1.8.6. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

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Plain-English summary

The committee considered an attorney whose retainer agreement stated that client and client's wife "owned" certain real property securing fees, while the record title was held exclusively in the name of the client's brother. The attorney prepared and recorded a deed of trust executed by the brother. Later, title transferred to the client's wife (reportedly to benefit the client), and the wife executed a new deed of trust securing fees. Throughout, the attorney understood the client had an interest in the property.

The committee identified former Rule 3-300 as prohibiting a member from knowingly acquiring "an ownership, possessory, security, or other pecuniary interest adverse to a client" absent the rule's disclosure, independent-advice, and written-consent requirements. The question was whether the attorney's deed-of-trust interest in property where the client lacked record title could be "adverse" to the client.

Citing Hawk v. State Bar, the committee identified an "adverse" interest as one the attorney can summarily extinguish. It identified longstanding authority that a deed of trust securing attorney's fees is an "adverse interest" for Rule 3-300 purposes (Read v. State Bar; Hawk).

The committee analyzed the two title configurations. In the first, the retainer agreement itself acknowledged the client's "ownership," and California Civil Code section 654 defines ownership broadly as the right to possess and use to the exclusion of others; action against the property could be adverse to the client's possessory rights. The committee concluded that the attorney's acquisition of a security interest empowered the attorney to unilaterally extinguish the client's interest; if it was reasonably foreseeable that the attorney's interest could result in some detriment to the client, Rule 3-300 applied.

Quoting Magee v. State Bar and Eschwig v. State Bar, the committee identified the judiciary's particular wariness of attorney-client transactions and the underlying fiduciary responsibilities. Citing COPRAC Formal Opinion 1995-141, the committee identified Rule 3-300 as intended to apply to transactions arising out of the lawyer-client relationship or the trust reposed by the client.

In the second title configuration (wife as record holder), the committee identified that even though Client's ownership interest in the subject property became "less clear" and no modified retainer was signed, the facts indicated Client still asserted an interest and the transfer was made to "benefit Client." The committee concluded that if the attorney fully satisfied Rule 3-300 at the outset, compliance need not ordinarily be repeated when the attorney received a new deed of trust on the same property; if not, or if additional or other security was obtained, further Rule 3-300 compliance was mandated.

The committee further identified that an attorney accepting a lien on property "owned" by another may, alternatively, procure written declarations from both client and record owner that the client has no interest in the property. The committee identified that this approach does not relieve the attorney from Rule 3-310(F), and Rule 3-300 may still apply if a client interest later becomes apparent.

Common questions

Q: When does former Rule 3-300 apply to an attorney's security interest in real property securing fees?

A: Per the opinion, whenever the attorney knows the client has any interest in the property pledged. The committee identified that Rule 3-300 is not limited to property the client owns of record.

Q: What if record title is held by a third party (a relative)?

A: Per the opinion, the client's asserted interest in the property may still trigger Rule 3-300. The committee identified the test as whether it is reasonably foreseeable that the attorney's interest in the property could result in some detriment to the client.

Q: Must the attorney repeat Rule 3-300 compliance each time the security is restructured?

A: Per the opinion, ordinarily not, if Rule 3-300 was fully satisfied at the outset and the attorney is taking new security only on the same property. If Rule 3-300 was not satisfied initially, or the attorney obtains additional or other security, further compliance is required.

Q: Can the attorney avoid Rule 3-300 by getting written statements that the client has no interest in the property?

A: Per the opinion, written declarations from both the client and the record owner that the client has no interest may serve that purpose, but Rule 3-310(F) still applies and Rule 3-300 may still apply if a client interest later becomes apparent.

Background and rules framework

The opinion interprets former California Rule of Professional Conduct 3-300 (acquisition of interests adverse to client), with reference to former Rule 5-101 (its predecessor), former Rule 3-310(F) (fees from a non-client), California Civil Code section 654 (definition of ownership), and COPRAC Formal Opinion 1989-116. The committee discussed the disclosure-in-writing, independent-counsel-advice, and written-consent requirements of Rule 3-300(A), (B), and (C).

Citations and references

Rules of Professional Conduct (former):

• California Rule 3-300 (acquisitions adverse to client)
• California Rule 3-310(F) (fees from a non-client)

Statutes:

• California Civil Code section 654 (ownership)

Cases:

• Brockway v. State Bar of California, 53 Cal.3d 51 (Cal. 1991)
• Connor v. State Bar of California, 50 Cal.3d 1047 (Cal. 1990)
• Eschwig v. State Bar, 1 Cal.3d 8 (Cal. 1969), wariness of attorney-client transactions
• Hawk v. State Bar, 45 Cal.3d 589 (Cal. 1988), "adverse" turns on summary extinguishment
• Hunniecutt v. State Bar, 44 Cal.3d 362 (Cal. 1988), fiduciary duty
• Magee v. State Bar, 58 Cal.2d 423 (Cal. 1962)
• Read v. State Bar, 53 Cal.3d 394 (Cal. 1991), deed of trust securing fees is adverse
• Rodgers v. State Bar, 48 Cal.3d 300 (Cal. 1989), fiduciary duty

Other opinions cited:

• COPRAC Formal Opinion 1989-116
• COPRAC Formal Opinion 1995-141
• LACBA Formal Opinion 398

See also

• LACBA Opinion 496: Liens on Recovery in Unrelated Case
• LACBA Opinion 499: Interest on Costs Advanced Requires Written Fee Agreement
• LACBA Opinion 489: Limitation of Liability and Right to Counsel in Retainer Agreements

Source

• Landing page: https://lacba.org/?pg=ethics-opinions
• Original PDF: https://lacba.org/docDownload/2010618