Can a law firm represent a client in litigation when the firm already owns a small ownership stake in that client?

Plain-English summary

A law firm held a less-than-two-percent limited-partnership interest in a client that was itself a partnership, and asked whether Maine Bar Rule 3.7(c) prohibited the firm from representing that client as a plaintiff in litigation whose outcome would increase the value of that interest. The firm told the Commission it had already satisfied itself that it complied with Rules 3.6(i) and 3.4(f), so the Commission addressed only Rule 3.7(c), which prohibited a lawyer from acquiring a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting (subject to exceptions for liens granted by law and reasonable contingent fees).

The Commission concluded that the answer turned on why the interest was acquired. It reasoned that if a lawyer acquired an interest in a client with a view toward contemplated litigation, for the purpose of benefitting from the enhanced value the litigation would produce, Rule 3.7(c) would be implicated. But where the interest was acquired for reasons independent of and apart from any consideration of litigation that might later be contemplated, the Commission concluded the rule does not extend so far as to prohibit the representation. The Commission cautioned that the particular circumstances of any specific case would be determinative, and it underscored the necessity, in the permitted situation, of scrupulous compliance with the "full disclosure" and "informed written consent of the client" requirements of Rule 3.4(f). It expressly left the implications of Rules 3.6(i) and 3.4(f), and of 31 M.R.S.A. section 154, beyond the scope of the opinion.

Currency note

This opinion was issued in 1988, before Maine's replacement of the former Maine Bar Rules with the Maine Rules of Professional Conduct (effective August 1, 2009). Subsequent rule amendments 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 Treat this page as historical context, not current guidance.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: Does owning a stake in a client always bar a firm from litigating for that client?

A: No. The opinion concluded Rule 3.7(c) does not extend so broadly; the rule turns on whether the interest was acquired in contemplation of the litigation or independently of it.

Q: When would the firm's interest violate Rule 3.7(c)?

A: The opinion concluded the rule would be implicated if the lawyer acquired the interest with a view toward contemplated litigation, for the purpose of benefitting from the enhanced value the litigation would create.

Q: If the interest was acquired independently, are there still conditions?

A: Yes. The opinion underscored the necessity of scrupulous compliance with the "full disclosure" and "informed written consent of the client" requirements of Rule 3.4(f).

Background and rules framework

The opinion interprets former Maine Bar Rule 3.7(c) (Interest in Litigation), which barred a lawyer from acquiring a proprietary interest in the cause of action or subject matter of litigation, except for a lien granted by law to secure a fee or expenses and a reasonable contingent fee under Rule 8. That prohibition corresponds to ABA Model Rule 1.8(i) (acquiring a proprietary interest in the cause of action or subject matter of litigation). The opinion also references Maine Bar Rule 3.4(f) (full disclosure and informed written consent for conflicts of interest) and Rule 3.6(i), and notes 31 M.R.S.A. section 154, without resolving the latter provisions.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.8 (specific conflicts, including 1.8(i) proprietary interest in litigation)
• Maine Bar Rule 3.7(c); Rule 3.4(f); Rule 3.6(i)

Statutes:

• 31 M.R.S.A. section 154 (referenced; not resolved by the opinion)

See also

• ABA Formal Op. 00-418: Acquiring Ownership in a Client for Legal Services
• ABA Formal Op. 02-427: Security Interest to Secure Payment of a Fee
• Maine Ethics Op. 95: Negotiating Statutory Fee Claims

Source

• Landing page: https://mebaroverseers.org/attorney_services/opinion.html?id=91481

Original opinion text

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

Issued by the Professional Ethics Commission

Date Issued: December 22, 1988

Question

A law firm that has a limited partnership interest in its client (a partnership) inquires if Maine Bar Rule 3.7(c) prohibits the law firm from representing that client as a plaintiff in litigation, the outcome of which would impact the value of that interest positively. The law firm's limited partnership interest in the client is a less than two percent interest.

Opinion

The law firm has informed the Commission that it has independently satisfied itself that it has complied with the requirements of Rules 3.6(i) and 3.4(f). The question presented therefore concerns only the applicability of Rule 3.7(c). The implications of the provisions of Rules 3.6(i) and 3.4(f) as well as the implications of the provisions of 31 M.R.S.A. §154 are beyond the scope of this advisory opinion. Rule 3.7(c) provides:

(c) Interest in Litigation. A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation he is conducting for a client, except that he may:

(1) Assert a lien granted by law against the proceeds of such action or litigation to secure his fee or expenses. This paragraph does not authorize an attorney to assert a lien on a client's file in order to secure payment of his fee. The assertion of such a lien (if any exists) is improper; and

(2) Contract with a client for a reasonable contingent fee as provided in Rule 8.

While the particular circumstances of this or any other specific case will be determinative, the Commission generally construes Rule 3.7(c) in the context of the question presented as follows. It seems clear that under certain circumstances, a lawyer's acquisition of an interest in his client would come within the scope of Rule 3.7(c). For example, if a lawyer, with a view towards contemplated litigation on behalf of his client were to acquire an interest in the client for the purpose of benefitting from the enhanced value of that interest as the result of that litigation, the provisions of Rule 3.7(c) would be implicated. On the other hand, the Commission believes that Rule 3.7(c) does not extend so broadly as to prohibit a lawyer who has an interest in his client from representing that client in litigation provided the lawyer's interest was acquired for reasons independent of and apart from any consideration of litigation which might thereafter be contemplated.

While the Commission believes that the latter situation is beyond the scope of Rule 3.7(c), the Commission underscores the necessity in that situation for scrupulous compliance with the "full disclosure" and "informed written consent of the client" requirements of Rule 3.4(f).