Fees Paid in Property

A client without cash may offer property in place of a fee, and two provisions of Model Rule 1.8 decide whether the lawyer can accept it. Rule 1.8(i) forbids a lawyer to acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client.¹ Rule 1.8(a) governs the other cases, in which a lawyer enters a business transaction with a client or knowingly acquires an ownership, possessory, security, or other pecuniary interest adverse to a client.² Which rule controls turns on one fact about the property: whether it is the thing the lawsuit is about. Florida's comment on terms of payment draws the same line. A lawyer may accept property for services, such as an ownership interest in an enterprise, so long as the arrangement does not give the lawyer a proprietary interest in the cause of action or subject matter of the litigation, and a fee paid in property may be subject to special scrutiny.³

Property payment carries two distinct risks, and each rule answers one of them. A lawyer paid with part of the disputed land has a stake in who ends up with the land, and Rule 1.8(i) treats that stake as a threat to the lawyer's independent judgment. As the earlier discussion of waiver explained, the client's consent does not cure it. When the property is unrelated to the case, the lawyer's interest no longer rides on the lawsuit, but a different danger appears: the lawyer knows more than the client about what the services are worth and about what the property is worth, so a property fee raises questions about both.⁴ Rule 1.8(a) meets that danger with fairness, disclosure, and consent instead of a prohibition. The order of the questions matters. A lawyer who skipped the first could relabel an interest in the disputed property as a business deal and claim the consent route that Rule 1.8(i) does not offer.

Exam Analysis Steps

Because the first question decides which rule applies at all, the analysis runs in a fixed sequence:

Identify the property offered as payment and ask whether it is the cause of action or the subject matter of litigation the lawyer is conducting for the client.
If it is, stop at Rule 1.8(i). The exceptions covered earlier, a lien authorized by law and a reasonable contingent fee, do not reach an ownership share in the disputed property itself.
If the property is unrelated to the litigation, turn to Rule 1.8(a). It requires terms that are fair and reasonable to the client and fully disclosed in writing, written advice about independent counsel with a reasonable opportunity to obtain it, and the client's informed consent in a signed writing.⁵
Test the fairness of the deal again in light of events after signing, because a property fee can look acceptable at the outset and become unreasonable later.

Careful paperwork tempts the analysis to start at step three. Written disclosure, advice to seek independent counsel, and a signed consent are all beside the point if the property is the subject matter of the case.

Unrelated property sends the analysis to Rule 1.8(a), and that rule can still defeat the deal. In Cotton v. Kronenberg, the lawyer, Kronenberg, estimated that taking the matter through trial would cost $30,000. Shortly after the fee agreement, he sold the property for $42,000, which was 40 percent more than was reasonable under his own estimate. He was also disqualified before trial. The court held that, in light of the unreasonable fee and the disqualification, the transaction was not "fair and reasonable" under Rule 1.8(a)(1). Kronenberg therefore breached his fiduciary duty to the client, and the fee agreement violated the rule as a matter of law.⁶ The court stressed that compliance requires all three subparts of Rule 1.8(a). It decided the case on the first and did not reach the other two.⁷

The lawyer in Cotton could have answered that the deal looked fair when the parties signed it. The court found that argument too narrow. Nothing in Rule 1.8(a)(1) confines the fairness inquiry to the moment of signing, and a fee agreement that seems fair when made must be reevaluated when later events change the circumstances of the relationship. The court's example was a lawyer who takes an interest in a fledgling company whose value then rises sharply, so that the fee becomes unreasonably large in proportion to the work performed.⁸ A fee fixed in dollars stays where it was set. A fee paid in an asset moves with the asset's value, and the lawyer, who understands that asset better than the client, collects the gain.

Rule 1.8(a) reaches more than outright transfers, because it names security interests alongside ownership. Hawk v. State Bar of California shows why a security interest matters to the client. A note secured by a deed of trust in real property can be used to summarily extinguish the client's interest in the property, because it gives the attorney the power of sale in a nonjudicial foreclosure proceeding.⁹ Hawk speaks to the danger of security interests in a client's property, not to the subject-matter bar of Rule 1.8(i).

The kind of property does not settle which rule applies. A lawyer who represents a start-up company in exchange for some of its shares must comply with Rule 1.8(a), which applies whenever a lawyer knowingly acquires an ownership, possessory, security, or other pecuniary interest adverse to a client.¹⁰ Yet the same shares fall under Rule 1.8(i) when the lawsuit concerns them.

Fees Paid in Property

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