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?
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.
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).