Can a lawyer take a contingent fee paid from the proceeds of selling material excavated under a permit the lawyer obtained for the client?

Plain-English summary

The inquiry concerned whether a contingent fee agreement for legal services rendered in obtaining an excavation permit would create a conflict of interest, because the fee would be paid from the proceeds of the sale of the sand to be excavated under the permit. The committee was of the opinion that such an agreement does not violate RPC 1.8(j) and that there is no conflict of interest, because the interest obtained by the lawyer is only an additional incentive to obtain a favorable result for the client.

The committee added a limit. If, after the excavation permit were granted, the attorney were given authority to make decisions with the client as to contracts for the sale of the sand, then the attorney would become involved with the client in a business transaction and would have to meet the requirements of RPC 1.8(a). The committee directed attention to In re McGlothlen, 99 Wn.2d 515, 663 P.2d 1330 (1983).

The committee was further of the opinion that such an agreement would not violate RPC 1.5(c) nor create an impermissible partnership with a nonlawyer.

Currency note

This opinion was issued in 1988, before the 2006 revisions to the Washington Rules of Professional Conduct. The rules then numbered RPC 1.5(c) (contingent fees), RPC 1.8(a) (business transactions with a client), and RPC 1.8(j) (proprietary interest in the subject of litigation) correspond to Model Rules 1.5 and 1.8 and have since been renumbered and amended; what was RPC 1.8(j) corresponds to current Model Rule 1.8(i). Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule or requirement mentioned here.

Common questions

Q: Can a lawyer be paid a contingent fee out of the sale of material excavated under a permit the lawyer obtained?

A: Per the opinion, yes. The committee was of the opinion that such an agreement does not violate RPC 1.8(j) and that there is no conflict of interest, because the lawyer's interest is only an additional incentive to obtain a favorable result for the client.

Q: When does the arrangement become a business transaction with the client?

A: The committee was of the opinion that if, after the permit is granted, the attorney is given authority to make decisions with the client about contracts for the sale of the sand, the attorney becomes involved in a business transaction with the client and must meet RPC 1.8(a).

Q: Does this kind of contingent fee violate the contingent-fee rule or create a partnership with a nonlawyer?

A: No. The committee was further of the opinion that the agreement would not violate RPC 1.5(c) and would not create an impermissible partnership with a nonlawyer.

Background and rules framework

The opinion applies the rules then numbered Washington RPC 1.5(c), RPC 1.8(a), and RPC 1.8(j), corresponding to Model Rules 1.5 and 1.8 (RPC 1.8(j) corresponding to current Model Rule 1.8(i)). The committee distinguished between a contingent fee tied to the result, which it treated as a permissible added incentive rather than a prohibited proprietary interest or conflict, and the lawyer's later participation in sale decisions, which it treated as a business transaction with the client governed by RPC 1.8(a). It cited In re McGlothlen for that distinction.

Citations and references

Rules of Professional Conduct:

• Washington RPC 1.5(c) (contingent fees), corresponding to Model Rule 1.5.
• Washington RPC 1.8(a) (business transactions with a client), corresponding to Model Rule 1.8(a).
• Washington RPC 1.8(j) (proprietary interest in the subject of litigation), corresponding to current Model Rule 1.8(i).

Cases:

• In re McGlothlen, 99 Wn.2d 515, 663 P.2d 1330 (Wash. 1983), cited on a lawyer entering a business transaction with a client.

See also

• WSBA Ethics Op. 1191: a fee paid in the client corporation's stock (business transaction)
• WSBA Ethics Op. 1045: taking part of corporate-counsel pay in company stock
• WSBA Ethics Op. 978: a contingent fee exceeding a court-awarded statutory fee

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=278

Original opinion text

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

Advisory Opinion: 1198
Year Issued: 1988
RPC(s): RPC 1.5; 1.8(a); 1.8(j)
Subject: Contingent fee for excavation permit based on proceeds from excavation; business transaction with client

The Committee considered your inquiry concerning whether a contingent fee agreement for legal services rendered in obtaining an excavation permit would create a conflict of interest with the client because the fee would be paid from the proceeds of sale of the sand to be excavated under the permit. The Committee was of the opinion that such an agreement does not violate RPC 1.8(j) and that there is no conflict of interest because the interest obtained by the lawyer is only an additional incentive to obtain a favorable result for the client. However, if after the excavation permit were granted, the attorney were given authority to make decisions with the client as to contracts for the sale of the sand, then the attorney would become involved with the client in a business transaction and would have to meet the requirements of RPC 1.8(a). In that regard, the Committee suggested that I direct your attention to In re McGlothlen, 99 Wn.2d. 515, 663 P.2d. 1330 (1983). The Committee was further of the opinion that such an agreement would not violate RPC 1.5(c) nor create an impermissible partnership with a non-lawyer.