May a Texas lawyer-defendant settle a malpractice case by assigning future contingent fees to a non-lawyer plaintiff, and does the plaintiff's lawyer violate the Rules by proposing such a settlement that is rejected?
Texas Ethics Opinion 698: Malpractice Settlement by Future Contingent-Fee Assignment, and Whether a Rejected Proposal Violates Rule 8.04(a)(1)
Short answer: Per the Committee, a Texas lawyer-defendant in a legal malpractice case may not settle by assigning a non-lawyer plaintiff a portion of future contingent fees the lawyer may earn in unrelated cases; that arrangement is fee sharing prohibited by Rule 5.04(a), and the lawyer-defendant in the assumed facts properly rejected it. Per the Committee, a plaintiff's lawyer who merely proposes such an arrangement that is rejected does not violate Rule 8.04(a)(1): the words "assist" and "induce" require an underlying Rule violation, and Texas's Rule 8.04(a)(1) materially differs from the Model Rule by omitting "attempt."
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the Texas Disciplinary Rules of Professional Conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. The opinion text is reproduced at the bottom; the official source (linked) controls.
Plain-English summary
The opinion responds to a fact pattern in which Lawyer 1 represented a non-lawyer client in a lawsuit dismissed by the court, after which the client retained Lawyer 2 to pursue a legal malpractice claim against Lawyer 1. Lawyer 2 proposed a settlement under which the client would release Lawyer 1 in exchange for an assignment of a portion of contingent fees Lawyer 1 may earn in unrelated future cases. Lawyer 1 rejected the proposal.
On the substantive fee-sharing question, the Committee reads Rule 5.04(a) (no sharing or promising to share legal fees with a non-lawyer) to reach the proposed arrangement, which would have committed Lawyer 1 to share future fees with a non-lawyer. Because Lawyer 1 rejected the proposal, no Rule 5.04(a) violation occurred.
On the second question, the Committee parses Rule 8.04(a)(1), which prohibits violating, "knowingly assist[ing] or induc[ing] another" to violate, or violating "through the acts of another." The Committee concludes that "assist" and "induce" both require an underlying violation to have occurred; a rejected proposal does not satisfy either term. The Committee distinguishes Texas's Rule 8.04(a)(1) from ABA Model Rule 8.04(a)(1), which expressly reaches "attempts," and notes that other Texas Rules expressly reach mere offers or encouragement (Rule 5.06(a), 4.02(a), 5.03(b)(1)). The Committee characterizes the practice of knowingly proposing a prohibited fee-sharing arrangement as one the Committee "disapproves," but disapproval is not the disciplinary test.
The Committee draws supporting analogies to Texas court decisions on "induce" (Cerda v. RJL Entertainment, Inc., 443 S.W.3d 221 (Tex. App.-Corpus Christi-Edinburg 2013, pet. denied); Scott v. State, 868 S.W.2d 430 (Tex. App.-Waco 1994, pet. ref'd)) to anchor the plain-English meaning of the word.
In practice
Under this opinion, conduct in which a Texas lawyer-defendant settles a legal malpractice case by assigning a non-lawyer plaintiff future contingent fees in unrelated matters is prohibited by Rule 5.04(a). Per the opinion, the act of proposing such an arrangement, standing alone and ending in rejection, is not itself a Rule 8.04(a)(1) violation, although the Committee disapproves of the practice.
Common questions
Q: Does the rejected proposal subject Lawyer 2 to discipline under any other Rule?
A: The opinion analyzes Rule 8.04(a)(1) only and concludes no violation occurs from a rejected proposal. The opinion does not address whether other Rules (for example, candor or honesty rules) could reach the conduct on different facts.
Q: How is Texas Rule 8.04(a)(1) different from the Model Rule on this point?
A: Per the opinion, ABA Model Rule 8.04(a)(1) reaches "violate or attempt to violate" the Rules; Texas Rule 8.04(a)(1) omits "attempt." The Committee treats that drafting choice as material, distinguishing rejected proposals from completed violations.
Q: Could the Committee discipline conduct that is "disapproved" but not a Rule violation?
A: No. Per the opinion, "[a] Texas lawyer is subject to disciplinary sanction only for conduct that violates one or more of the Rules." Disapproval is not the disciplinary test.
Q: Are there Rules that DO reach mere offers or encouragement?
A: Yes. Per the opinion, Rule 5.06(a) ("offering or making"), Rule 4.02(a) ("cause or encourage"), and Rule 5.03(b)(1) (encouragement of nonlawyer-employee misconduct) expressly reach offers or encouragement. Rule 8.04(a)(1) does not.
Background and rules framework
The opinion interprets Texas Disciplinary Rule 5.04(a) (fee sharing with nonlawyers) and Rule 8.04(a)(1) (violation, assistance, inducement, or violation through another). Rule 5.04 corresponds to ABA Model Rule 5.4; Rule 8.04 corresponds to Model Rule 8.4. The Committee draws comparative authority from Texas court decisions construing "induce" and from other Texas Rules that expressly reach offers or encouragement.
Citations and references
Rules of Professional Conduct:
- Texas Disciplinary Rule 5.04(a) (fee sharing with nonlawyers)
- Texas Disciplinary Rule 5.06(a) (employment/partnership restrictions on post-termination practice)
- Texas Disciplinary Rule 4.02(a) (communications with represented persons)
- Texas Disciplinary Rule 5.03(b)(1) (responsibilities for nonlawyer assistants)
- Texas Disciplinary Rule 8.04(a)(1) (misconduct)
- ABA Model Rule 8.04(a)(1) (compared)
Cases:
- Cerda v. RJL Entertainment, Inc., 443 S.W.3d 221, 230 (Tex. App.-Corpus Christi-Edinburg 2013, pet. denied)
- Scott v. State, 868 S.W.2d 430, 432 (Tex. App.-Waco 1994, pet. ref'd)
See also
- TX Ethics Op. 706: Vendor Revenue Share and Lawyer Equity - parallel Rule 5.04(a) analysis
- TX Ethics Op. 707: In-House Counsel for Company Customers - related Rule 5.04 / Rule 5.05 framework
Source
- Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-698/
- Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_698.pdf
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
QUESTION PRESENTED
Under Texas Disciplinary Rules of Professional Conduct, may a lawyer-defendant in a legal malpractice case enter into a settlement agreement in which the lawyer-defendant assigns to a non-lawyer plaintiff a portion of contingent fees the lawyer-defendant may earn in unrelated cases?
Does the lawyer representing the non-lawyer plaintiff in the legal malpractice case violate the Rules merely by proposing such a settlement, if the lawyer-defendant rejects the proposal?
STATEMENT OF FACTS
Lawyer 1 represented a non-lawyer client (Client) in a lawsuit. After the court dismissed Client's claims, Client retained Lawyer 2 to pursue a legal malpractice claim against Lawyer 1. Lawyer 2 made a settlement demand whereby Client would release Lawyer 1 from the legal malpractice claim in exchange for an assignment of a portion of future contingency fees that Lawyer 1 earns on certain unrelated cases. Lawyer 1 rejected the settlement demand.
DISCUSSION
A lawyer-defendant may not settle a legal malpractice case by assigning the non-lawyer plaintiff future contingent fees that the lawyer may earn in unrelated matters. Rule 5.04(a) of the Texas Disciplinary Rules of Professional Conduct provides that "a lawyer or law firm shall not share or promise to share legal fees with a non-lawyer," subject to exceptions not applicable here. The proposed settlement agreement is prohibited by Rule 5.04(a), and Lawyer 1 properly rejected it. As a result, no violation of Rule 5.04(a) occurred.
The second question is whether Lawyer 2 violated Rule 8.04(a) by making a settlement proposal that, if accepted, would have resulted in an impermissible fee-sharing arrangement in violation of Rule 5.04(a). Rule 8.04(a)(1) provides that a lawyer shall not "violate these rules, knowingly assist or induce another to do so, or do so through the acts of another, whether or not such violation occurred in the course of a client-lawyer relationship" (emphasis added). The question is whether Lawyer 2 violated Rule 8.04(a)(1) by "assist[ing] or induc[ing] another" to violate Rule 5.04(a).
The Rules do not define the word "assist." In the Committee's view, however, a violation of the Rules must have occurred before it can be found that a lawyer "assisted" in that violation. In other words, a mere proposal of impermissible conduct does not "assist" in a Rules violation if the proposal is rejected. The term "assist" is not synonymous with the term "attempt." Accordingly, the Committee concludes that a lawyer has not "assisted" the violation of a Rule when no violation of that Rule has occurred.
The Rules also do not define the word "induce." In other contexts, Texas courts have held that the word "induce" means bringing about an event or course of conduct by influence or persuasion, as opposed to a mere suggestion of prohibited conduct. See, e.g., Cerda v. RJL Entm't, Inc., 443 S.W.3d 221, 230 (Tex. App.—Corpus Christi-Edinburg 2013, pet. denied) ("'induce' means to 'move by persuasion or influence' or 'to bring about by influence'"); Scott v. State, 868 S.W.2d 430, 432 (Tex. App.—Waco 1994, pet. ref'd) ("The legal definition of 'induce' is 'to influence to an act or course of conduct.'") (citing Black's Law Dictionary 697 (5th ed. 1979)). Accordingly, the Committee concludes that a lawyer has not "induced" the violation of a Rule when no violation of that Rule has occurred.
The Committee's interpretation of Rule 8.04(a)(1) is further supported by the fact that several Rules expressly prohibit mere offers or encouragement, whereas Rule 8.04(a)(1) does not. See Rule 5.06(a) ("A lawyer shall not participate in offering or making" an employment or partnership agreement that restricts the rights of a lawyer to practice after termination of the relationship) (emphasis added); Rule 4.02(a) (a lawyer shall not "communicate or cause or encourage another to communicate" with a person known to be represented by another lawyer on the matter) (emphasis added); Rule 5.03(b)(1) (subjecting a lawyer to discipline for encouraging conduct of a nonlawyer employee that would violate the Rules if committed by a lawyer). The Committee also notes that Rule 8.04(a)(1) differs materially from ABA Model Rules of Prof'l Cond. R. 8.04(a)(1), which provides it is professional misconduct for a lawyer "to violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another" (emphasis added).
To be sure, the Committee disapproves of the practice of knowingly proposing a prohibited fee-sharing arrangement, but disapproval is not the test. A Texas lawyer is subject to disciplinary sanction only for conduct that violates one or more of the Rules. In the Committee's opinion, the mere proposal of a prohibited fee-sharing arrangement with a non-lawyer, which proposal is rejected, does not violate the Rules.
CONCLUSION
Under the Texas Disciplinary Rules of Professional Conduct, a lawyer-defendant may not agree to settle a legal malpractice case by assigning to a non-lawyer plaintiff a portion of contingent fees the lawyer may earn in unrelated matters. A plaintiff's lawyer who proposes such an agreement is subject to disciplinary sanction for doing so if the lawyer knowingly "assists" or "induces" another lawyer to violate Rule 5.04(a). A lawyer has not "assisted" or "induced" another lawyer to violate Rule 5.04(a) if the second lawyer has not violated that Rule.
Tex. Comm. On Professional Ethics, Op. 698 (2023)