Can a lawyer take a contingent fee in a quiet-title action that is paid as a partial ownership interest in the very land being litigated?

Plain-English summary

A client, without solicitation by the lawyer, proposed that the lawyer handle title litigation over real property most akin to a quiet-title action, with the lawyer to be compensated by a 33 1/3 percent ownership interest in the land if the litigation succeeds and no fee if it does not. The inquiry asked whether a lawyer may ethically provide for a contingent fee in a quiet-title action where the contingency is a partial ownership of the land at issue.

The committee concluded that such a contingent fee may be permissible, subject to several rules. Rule 1.8(i) generally bars a lawyer from acquiring a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting, but it excepts a lien authorized by law to secure the fee and a contract for a reasonable contingent fee in a civil case. The committee read the proposed contingent ownership interest as consistent with the Rule 1.8(i)(2) exception, and noted Rule 1.5, comment 4's statement that a lawyer may accept property such as an ownership interest in payment for services so long as it does not involve acquiring a proprietary interest contrary to Rule 1.8(i).

The committee then explained that comment 4 also provides that a fee paid in property rather than money may be subject to Rule 1.8(a) because such fees often have the essential qualities of a business transaction with a client. Here, success would leave the lawyer and client as joint owners of the property, with the rights incident to joint ownership such as partition and transfer, so the committee advised compliance with Rule 1.8(a)'s requirements governing business transactions with clients. The lawyer must also comply with Rule 1.5(c)'s written contingent-fee agreement requirement, and all fee agreements, including this one, are subject to Rule 1.5(a)'s reasonableness requirement.

In practice

The opinion holds that, under South Carolina Rule 1.8(i)(2), a lawyer may contract for a contingent fee in a civil quiet-title action that is paid as a partial ownership interest in the disputed land, because that interest fits the contingent-fee exception to the bar on acquiring a proprietary interest in the subject of litigation. The opinion conditions the arrangement on compliance with Rule 1.8(a), because a fee paid in property has the qualities of a business transaction with a client and would leave lawyer and client as joint owners; on Rule 1.5(c)'s written-agreement requirement; and on Rule 1.5(a)'s reasonableness standard.

Common questions

Q: Can a lawyer be paid a contingent fee in land instead of money?

A: Yes, potentially. The committee said a contingent fee may be paid as a partial ownership interest in real property, relying on Rule 1.5 comment 4 (a lawyer may accept property such as an ownership interest in payment) and the Rule 1.8(i)(2) contingent-fee exception.

Q: Doesn't Rule 1.8(i) bar a lawyer from acquiring an interest in the subject of the litigation?

A: Generally yes, but it has exceptions. The committee noted Rule 1.8(i) excepts a lien authorized by law to secure the fee and a contract for a reasonable contingent fee in a civil case, and read the proposed land interest as within the contingent-fee exception.

Q: Why does Rule 1.8(a) apply to a fee paid in property?

A: Because such a fee has the qualities of a business transaction with the client. The committee said success would leave lawyer and client as joint owners with rights like partition and transfer, so the lawyer is advised to comply with Rule 1.8(a)'s business-transaction requirements.

Q: What other requirements apply?

A: A written agreement and reasonableness. The committee said the lawyer must comply with Rule 1.5(c)'s written contingent-fee agreement requirement, and the fee remains subject to Rule 1.5(a)'s reasonableness requirement.

Background and rules framework

The opinion interprets South Carolina Rule 1.8(i) (no acquiring a proprietary interest in the cause of action or subject of litigation, excepting a lien to secure the fee and a reasonable contingent fee in a civil case), Rule 1.8(a) (business transactions with a client), Rule 1.5(c) (written contingent-fee agreements), and Rule 1.5(a) (reasonableness), which correspond to the like-numbered Model Rules. The analysis turns on treating a contingent ownership interest in the disputed land as a Rule 1.8(i)(2) contingent fee while recognizing that paying a fee in property triggers Rule 1.8(a) because of the resulting joint ownership.

Citations and references

Rules of Professional Conduct:

• MR 1.8 / SC Rule 1.8(i), 1.8(i)(2), Comment 17 (proprietary interest in litigation; contingent-fee exception)
• MR 1.8 / SC Rule 1.8(a) (business transactions with a client)
• MR 1.5 / SC Rule 1.5(c) (written contingent-fee agreement)
• MR 1.5 / SC Rule 1.5(a), Comments 3 and 4 (reasonableness; accepting property in payment)

See also

• TX Ethics Op. 610: Security Interest in a Client's Cause of Action
• ABA Formal Op. 02-427: Security Interest to Secure a Fee
• SC Bar Ethics Op. 12-01: Trust Surplus on Another Matter

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-12-02/
• Original PDF: https://www.scbar.org/media/0mvhiu12/12-02.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 12-02

Facts

A client has approached attorney, and without solicitation on attorney's part, has

proposed that attorney take on certain title litigation over real property for him. The nature of the litigation is most akin to a quiet title action. In return, he wishes to compensate attorney with an ownership portion of the land (33/1/3 percent) if the litigation is successful. If the litigation is not successful, there will be no legal fees.

Question Presented

May an attorney ethically provide for a contingent fee in a quiet title action in which the contingency consists of a partial ownership of the piece of land at issue in the action?

Summary of Opinion

A contingent fee payable to the lawyer as a partial ownership interest in real property with the client may be permissible subject to the contingency fee arrangement complying with the requirements of : Rule 1.8(a), regarding entering into business transactions with a client; Rule 1.8(i), regarding acquisition of a proprietary interest in the subject matter of litigation; Rule 1.5(c), regarding contingency fees; and Rule 1.5’s reasonableness requirement. Contingent fees are allowed because they provide a means for individuals to gain access to justice regardless of their economic status. Money and real property both constitute property.

Opinion

Rule 1.8(i) states:

“(i) A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client, except that the lawyer may: (1) Acquire a lien authorized by law to secure the lawyer’s fee or expenses; and (2) Contract with a client for a reasonable contingent fee in a civil case.”

Comment [17] provides in pertinent part:

“In addition, when the lawyer acquires an ownership interest in the subject of the representation, it will be more difficult for a client to discharge the lawyer if the client so desires. The Rule is subject to specific exceptions developed in decisional law and continued in these Rules. The exceptions for certain advances in the costs of litigation is set forth in paragraph (e). In addition, paragraph (i) sets forth exceptions for liens authorized by law to secure the lawyer’s fees or expenses and contracts for reasonable contingent fees.”

Rule 1.5, cmt. 4 specifically states that “[a] lawyer may accept property in payment for services, such as an ownership interest in an enterprise, providing it does not involve acquisition of a proprietary interest in the cause of action or subject matter of the litigation contrary to Rule 1.8(i).” As noted above, a contingent fee – in this particular case, a contingent ownership interest in property – is consistent with the exception set forth in Rule 1.8(i)(2).

Comment 4 goes on to say, however, that “a fee paid in property instead of money may be subject to the requirements of Rule 1.8(a) because such fees often have the essential qualities of a business transaction with a client.” Here, if the action is successful, the result will be that the lawyer and his client remain in relationship as joint owners of the property with all the potential rights and privileges incident to such joint ownership, such as partition and transfer of the interest to others. Consequently, in entering into a contingent fee arrangement involving the acquisition of a joint interest in real property, a lawyer is advised to comply with the requirements specified in Rule 1.8(a) governing business transactions with clients.

The Lawyer must also comply with the written fee agreement requirements of Rule 1.5(c).

Finally, all fee agreements, including a contingent fee agreement involving the acquisition of a co-ownership interest with the client in real property, are subject to Rule 1.5(a)’s requirement of reasonableness under the circumstances. See also Rule 1.5, cmt. 3.