When representing a client in a property dispute, can a lawyer take an ownership interest in the disputed property as security for the fee?

Plain-English summary

The Committee considered whether an attorney representing a client in a property dispute may acquire an undivided fee simple interest in the disputed property as security for the payment of his fee. It analyzed the question under DR 5-103 of the former Texas Code of Professional Responsibility, which prohibits a lawyer from acquiring a proprietary interest in the cause of action or subject matter of litigation he is conducting for a client, while allowing a lawyer to acquire a lien granted by law to secure a fee or expenses, or to contract for a reasonable contingent fee in a civil case.

The opinion reasoned that taking an undivided fee simple interest in the property is not the acquisition of a lien, but it may amount to a contract for a reasonable contingent fee. The Committee drew on State v. Baker, 539 S.W.2d 367 (Tex.Civ.App.--Austin, 1976, writ ref'd n.r.e.), where an attorney violated DR 5-103 by using title to property purchased for a client to secure compensation without the client's consent; the court there explained that the prohibition exists to avoid adverse influence on the attorney and harm to the client, and that an attorney acting in good faith and with an honest belief that his acts serve the client's best interest is not liable for an error in judgment. The Committee read Baker to imply that the acquisition would not have violated DR 5-103 had the attorney acted in good faith and notified the client.

The opinion also noted older authority that a deed from a client to an attorney is voidable rather than void, and that when the attorney-client relationship exists at the time of the deed, the transaction is presumed unfair unless the attorney shows utmost good faith, a full and fair price, the absence of pressure or influence from the confidential relationship, and that no advantage was taken of the client (citing Lesikar v. Lesikar and Plummer v. Bradford). The Committee concluded that acquiring the interest in good faith and with the client's consent does not violate DR 5-103, because it is equivalent to contracting for a contingent fee allowed by DR 5-103(A)(2).

Currency note

This opinion was issued in 1987, under the former Texas Code of Professional Responsibility, which the Texas Disciplinary Rules of Professional Conduct replaced effective January 1, 1990. The Disciplinary Rules have since been amended, and Texas never adopted the ABA's Ethics 2000 framework. The current Texas rules on a lawyer acquiring an interest in litigation and on business transactions with clients are Rules 1.08(h) and 1.08(a), and the closest ABA analogs are Model Rules 1.8(i) and 1.8(a); contingent fees are governed by Texas Rule 1.04 and Model Rule 1.5(c). Subsequent rule changes 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.

Common questions

Q: Can a lawyer take an ownership interest in disputed property to secure the fee?

A: Per the opinion, yes, if it is done in good faith and with the client's consent. The Committee treated such an interest as the equivalent of a contingent fee permitted by DR 5-103(A)(2) rather than a prohibited proprietary interest.

Q: What made the difference in State v. Baker?

A: In Baker the attorney used title to the property to secure his compensation without the client's consent and was found to violate DR 5-103. The Committee read the case to imply that good faith plus notice to the client would have avoided the violation.

Q: What standard applies to a deed from client to attorney?

A: The opinion noted that such a transaction is presumed unfair unless the attorney shows utmost good faith, a full and fair price, the absence of pressure or influence from the confidential relationship, and that no advantage was taken of the client.

Background and rules framework

The opinion interprets DR 5-103 of the former Texas Code of Professional Responsibility, which bars acquiring a proprietary interest in the subject of litigation but permits a fee lien and a reasonable contingent fee (DR 5-103(A)(2)). The closest current concepts are Texas Rules 1.08(h) (interest in litigation) and 1.08(a) (business transactions with a client), with ABA analogs Model Rules 1.8(i) and 1.8(a), and the contingent-fee provisions of Texas Rule 1.04 and Model Rule 1.5(c). The analysis turns on whether the attorney acted in good faith with the client's consent, recasting the interest as a permissible contingent fee.

Citations and references

Rules of Professional Conduct:

• MR 1.8 (acquiring a proprietary interest in litigation; business transactions with clients)
• MR 1.5 (contingent fees)
• DR 5-103, DR 5-103(A)(2), Texas Code of Professional Responsibility

Cases:

• State v. Baker, 539 S.W.2d 367 (Tex. Civ. App. 1976, writ ref'd n.r.e.), attorney's acquisition of a proprietary interest without client consent violated DR 5-103
• Lesikar v. Lesikar, 251 S.W.2d 555 (Tex. Civ. App. 1952, writ ref'd n.r.e.), deed from client to attorney is voidable, not void
• Plummer v. Bradford, 395 S.W.2d 856 (Tex. Civ. App. 1965, no writ), presumption of unfairness in attorney-client transactions

See also

• TX Ethics Op. 465: Lawyer-Owned Lender, Client Case Loans
• TX Ethics Op. 485: Contingent Fee for Child Support

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-449/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_449.pdf

Original opinion text

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

QUESTION PRESENTED

When representing a client in a property dispute, may an attorney acquire an undivided fee simple interest in the property as security for the payment of his fee?

DISCUSSION

Disciplinary Rule 5-103 prohibits a lawyer from acquiring "a proprietary interest in the cause of action or subject matter of litigation he is conducting for a client." However, DR 5-103 provides that a lawyer may "acquire a lien granted by law to secure his fee or expenses: or may "contract with a client for a reasonable contingent fee in a civil case." The acquisition of an undivided fee simple interest in the property is certainly not the acquisition of a lien, but it may constitute a contract for a reasonable contingent fee in the case.

In State v. Baker, 539 S.W.2d 367 (Tex.Civ.App.--Austin, 1976, writ ref'd n.r.e.), an attorney purchased property on behalf of his client at a sheriff's sale, but then he used the title on the property to secure compensation for himself without the consent of his client. In deciding that the attorney violated DR 5-103, the Court said that because of the nature of the relationship between an attorney and client, the attorney is prohibited "from acquiring proprietary interests in the subject matter of litigation in order to avoid the possibility of adverse influence upon the attorney and harm to the client." Id. at 373. The attorney-client relationship requires that the attorney act in good faith. The attorney will not be liable for an error in judgment if he acts in good faith and with an honest belief that his acts are in the best interest of the client. Id. at 375. This case implies that the acquisition of the property would not have been a violation of DR 5-103 if the attorney had acted in good faith and notified the client.

In cases predating DR 5-103, a deed conveying land from a client to his attorney was not void but voidable. Lesikar v. Lesikar, 251 S.W.2d 555 (Tex.Civ.App.--Galveston 1952, writ ref'd n.r.e.). When the attorney and client relationship exists at the time of the execution of the deed, the question of constructive fraud is raised. Plummer v. Bradford, 395 S.W.2d 856 (Tex. Civ. App.--Houston 1965, no writ). The transaction is presumed unfair unless the attorney satisfies his burden of showing "utmost good faith, a full and fair price, absence of pressure or influence by virtue of the confidential relationship, and that no advantage was taken of his client." Id.

CONCLUSION

If an attorney, when representing a client in a property dispute, acquires an undivided fee simple interest in the disputed property in good faith and with the client's consent, then there is no violation of DR 5-103. The attorney's acquisition of an interest in the property is equivalent to contracting for a contingent fee which is allowed by DR 5-103(A)(2).

Tex. Comm. On Professional Ethics, Op. 449 (1987)