Can a Texas lawyer take a contractual security interest in the client's cause of action to make sure the lawyer's contingent fee gets paid?

Plain-English summary

The opinion addresses a contingent fee agreement in which the client also grants the lawyer a security interest in the cause of action (a personal-injury claim) to secure payment of the contingent fee in that same litigation.

The Committee applies Rule 1.08(h), which bars a lawyer from acquiring a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting, with two exceptions: a lien granted by law to secure the fee or expenses, and a contingent fee permissible under Rule 1.04. Comment 7 traces the rule to the common-law doctrines of champerty and maintenance. The Committee reasons that although the contingent fee itself is permitted, a security interest is a different kind of proprietary interest; it is not an essential part of a contingent fee, so its permissibility must be tested on its own under Rule 1.08(h).

Because the security interest is not itself a contingent fee, it is allowed only if it qualifies as "a lien granted by law." The Committee notes Texas has no general statutory attorney's lien, only a common-law possessory lien on a client's property and papers (citing Opinions 395 and 411 and Thomson v. Findlater Hardware Co.), and that lien is limited by Rule 1.15(d). The proposed security interest is created by contract, not granted by law, so it does not fit either exception; under Rule 1.08(h), acquiring it is prohibited.

In practice

Under this opinion, and under the Texas rules as they stood at the time, a lawyer cannot bolster collection of a contingent fee by taking a contractual security interest in the client's cause of action. The Committee treats the security interest as a proprietary interest in the litigation that is separate from the contingent fee and must independently satisfy Rule 1.08(h). Because Rule 1.08(h)'s only proprietary-interest exceptions are a contingent fee under Rule 1.04 and a lien granted by law, and a contract-created security interest is neither, the Committee concludes that acquiring it is prohibited. The opinion notes Texas recognizes a common-law possessory attorney's lien on a client's papers, subject to Rule 1.15(d)'s no-prejudice limit, but that is not the contractual security interest proposed here.

Common questions

Q: Can I take a security interest in my client's lawsuit to make sure my contingent fee gets paid?

A: No. Per Opinion 610, Rule 1.08(h) bars acquiring a proprietary interest in the subject matter of litigation except a contingent fee under Rule 1.04 or a lien granted by law, and a contractual security interest is neither.

Q: The contingent fee is allowed, so why isn't a security interest to secure it also allowed?

A: Because the Committee treats them as two different proprietary interests. A security interest is not an essential part of a contingent fee, so its permissibility is judged separately under Rule 1.08(h), which the proposed contractual security interest does not satisfy.

Q: Does Texas give lawyers any lien on a client's matter?

A: There is no general statutory attorney's lien. The Committee notes Texas recognizes a common-law possessory lien on a client's property, money, and papers, citing Thomson v. Findlater Hardware Co., but that lien is limited by Rule 1.15(d) and is not the contractual security interest at issue.

Background and rules framework

The opinion interprets Texas Disciplinary Rule 1.08(h) (acquiring a proprietary interest in litigation), which corresponds to ABA Model Rule 1.8(i), and its exceptions referencing Rule 1.04 (contingent fees). It also discusses Rule 1.15(d) (limit on retaining client papers) and the common-law attorney's lien. Comment 7 to Rule 1.08 ties the prohibition to the common-law doctrines of champerty and maintenance.

Citations and references

Rules of Professional Conduct:

• MR 1.8 (current clients: specific rules, including the proprietary-interest prohibition at MR 1.8(i))
• Texas Disciplinary Rule 1.08(h) and Comment 7
• Texas Disciplinary Rule 1.04 (contingent fees)
• Texas Disciplinary Rule 1.15(d)

Cases:

• Thomson v. Findlater Hardware Co., 205 S.W. 831, 109 Tex. 235 (Tex. 1918), recognizing a common-law general attorney's lien on a client's papers and documents

Other opinions cited:

• Texas Professional Ethics Committee Opinion 395 (May 1979, corrected June 1980) and Opinion 411 (January 1984): the common-law possessory attorney's lien for fees and expenses

See also

No sibling opinions yet indexed.

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-610/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_610.pdf

Original opinion text

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

QUESTION PRESENTED

Under the Texas Disciplinary Rules of Professional Conduct, is a lawyer permitted to acquire, by agreement with his client, a security interest in the subject matter of litigation that the lawyer is conducting for the client in order to secure payment of the lawyer’s fee with respect to the litigation?

STATEMENT OF FACTS

A lawyer and the lawyer’s client enter into a contingent fee agreement with respect to a litigation matter being handled by the lawyer which provides for the client to grant to the lawyer, as a means of securing payment of the fee due to the lawyer in the matter, a security interest in the cause of action that is the subject of the litigation. The cause of action relates to a claim for damages arising from an injury sustained by the client.

DISCUSSION

The facts considered in this case relate to a lawyer’s acquisition of one type of proprietary interest – a security interest – in a matter that the lawyer is handling for his client. Rule 1.08(h) of the Texas Disciplinary Rules of Professional Conduct prohibits a lawyer from acquiring a proprietary interest in a cause of action or subject matter of litigation that the lawyer is handling for a client, with two limited exceptions:
“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 granted by law to secure the lawyer’s fee or expenses; and
(2) contract in a civil case with a client for a contingent fee that is permissible under Rule 1.04.”
Thus under Rule 1.08(h), a lawyer may not acquire a security interest or other proprietary interest in a matter being handled by the lawyer unless the particular proprietary interest is either a contingent fee permitted under Rule 1.04 or “a lien granted by law to secure the lawyer’s fee or expenses.”
Comment 7 to Rule 1.08 explains the underlying philosophy of Rule 1.08 as follows:

“This Rule embodies the traditional general precept that lawyers are prohibited from acquiring a proprietary interest in the subject matter of litigation. This general precept, which has its basis in common law champerty and maintenance, is subject to specific exceptions developed in decisional law and continued in these Rules, such as the exception for contingent fees set forth in Rule 1.04 and the exception for certain advances of the costs of litigation set forth in paragraph (d) [of Rule 1.08].”
Although the fee agreement between the lawyer and the client provides for a contingent fee for the services to be provided in the litigation matter, the contingent fee and the security interest are two different types of proprietary interest in the client’s litigation matter. A security interest in a litigation matter is not an essential part of a contingent fee agreement that is permitted under Rule 1.04, and the fact that a contingent fee is permissible does not make a security interest to secure such a fee also permissible. The security interest must itself satisfy the requirements of Rule 1.08(h).

Since a security interest to secure a contingent fee is not itself a contingent fee, the security interest here considered will be permissible under Rule 1.08(h) only if the security interest qualifies as “a lien granted by law to secure the lawyer’s fee or expenses.” Under Texas law, there is no general statutory attorney’s lien but a lawyer has a right to claim a common law possessory lien against a client’s property, money and papers for the payment of amounts due the lawyer for services and expenses. See Professional Ethics Committee Opinion 395 (May 1979, corrected June 1980) and Opinion 411 (January 1984). A leading Texas case on the attorney’s lien under Texas common law is the decision of the Supreme Court of Texas in Thomson v. Findlater Hardware Co., 205 S.W. 831, 109 Tex. 235 (Tex. 1918), which recognized (quoting Mechem on Agency) that “[a]n attorney has a general lien upon all the papers, deeds, vouchers, and other documents of his client, which come into the possession of the attorney while he is acting for his client in a professional capacity.” 205 S.W. at 832, 109 Tex. at 237. It should be noted that this lien on a client’s documents is subject to the important limitation set forth in Rule 1.15(d) of the Texas Disciplinary Rules of Professional Conduct that a lawyer “may retain papers relating to the client to the extent permitted by other law only if such retention will not prejudice the client in the subject matter of the representation.”

In the circumstances considered in this opinion, the proposed security interest is not an attorney’s lien granted under Texas law within the meaning of Rule 1.08(h)(1). Instead the proposed security interest is to be created by contractual agreement between the lawyer and his client. The proposed security interest is thus a proprietary interest in a litigation matter being handled by the lawyer who is seeking to acquire the security interest, but this security interest is not within the scope of the exceptions stated in Rule 1.08(h). Accordingly, under Rule 1.08(h), acquisition by the lawyer of the proposed security interest is prohibited.

CONCLUSION

Under the Texas Disciplinary Rules of Professional Conduct, a lawyer representing a client in litigation may not acquire, by agreement with his client, a lien upon the subject matter of the litigation as a means of securing payment of the lawyer’s fee with respect to the litigation.

Tex. Comm. On Professional Ethics, Op. 610 (2011)