Concept
The Basic Prohibition
Acquiring an interest in litigation
Proprietary Interests in Litigation
The Basic Prohibition
Model 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 Four elements carry the prohibition: a lawyer, an act of acquiring, a stake in the claim or in the thing the claim is about, and a lawsuit the lawyer is running for the client. Each element narrows the rule. The subsections below ask what makes a stake proprietary, what the stake must attach to, and when the lawyer's role brings the rule into play.
Rule 1.8(i) addresses a personal-interest conflict, because the lawyer's own money comes to depend on how the client's matter ends. It works as a flat bar. Its exceptions concern the lawyer's fee, a lien authorized by law and a reasonable contingent fee in a civil case,2 and none turns on the client's consent. The concern behind the rule runs through this chapter. A lawyer who owns part of the claim has a motive to favor the resolution that pays the lawyer best, and a client can hardly detect that motive inside the many judgment calls a lawsuit involves. The sections on champerty and on waiver develop the point.
The rule separates two things that can look alike on a fee agreement. A fee pays for work done on the client's behalf. A proprietary interest gives the lawyer a share of ownership in the client's matter. Only the second falls within the bar, which is why a reasonable contingent fee, itself a payment for services, appears among the exceptions.3
Proprietary Interest
A proprietary interest is an ownership-type stake: the lawyer holds a piece of something, and the piece gains or loses value with the outcome of the matter. That description separates being paid for work from owning part of what the work is about. A lawyer paid by the hour earns a charge for time spent, whatever the result. A lawyer who owns a slice of the disputed thing collects only if the thing is secured for the client, and collects in proportion to how much is secured.
The 5% interest shows the danger at its plainest. The lawyer is now a co-owner as well as an adviser, and the advice a client most needs concerns settlement, timing, and how much risk to run. Each of those decisions carries a financial consequence for the lawyer personally. Suppose the other side offers to keep the land and pay the client a generous sum. The client may reasonably want to accept, but the offer would wipe out the lawyer's 5%, so the lawyer has a reason to advise holding out. Clients rarely see that pull operating inside a recommendation. The rule therefore removes the stake at the outset instead of asking later whether it bent anyone's judgment.
Because the stake itself creates the pull, the violation is complete when the lawyer acquires the interest. The rule requires no showing of harm to the client and none of bad intent, and a lawyer whose advice was careful and whose motives were honest has still violated it. Size does not matter, since 5% suffices. The question that decides the case is whether the lawyer's payment depends on owning a piece of what is being fought over. A lawyer who handles the same title dispute for an hourly fee has not run into the rule at all.
The fee agreements in Dahl v. Dahl show that a clause can create the prohibited interest even when nobody calls it an ownership stake. A divorce client signed two fee agreements, and each contained a paragraph purporting to give her lawyer's firm a lien on the entire award she might recover. The earlier agreement also had her grant an immediate lien on her portion of the marital home, and it stated that the lien would attach whether or not the statute cited in the agreement allowed it.4 The Utah Supreme Court invalidated the fee arrangement as prohibited under Utah Code section 38-2-7(9) and Rules 1.8 and 1.5 of the Utah Rules of Professional Conduct, holding that the lawyer had acquired a prohibited interest in the subject matter of his representation. It found no need to decide whether the arrangement was also a forbidden contingency fee in a domestic matter.5
The lien clauses crossed the line for the same reason the 5% stake does. A lien on the whole award and on the client's share of the home attaches to the very property the divorce was dividing, so what the lawyer collects depends on what the client walks away with. The clause also claimed that security whether or not the statute permitted it, which is more than the law gave the lawyer. A fee agreement's label therefore does not control. What matters is whether a clause gives the lawyer a claim on, or security in, the thing being litigated beyond what the law itself authorizes. A lien the law does authorize is one of the two places where the rule yields, and the section on permitted exceptions develops that point.
Cause of Action or Subject Matter
Rule 1.8(i) names two things a lawyer's stake may not attach to: the cause of action and the subject matter of the litigation the lawyer is conducting.7 The cause of action is the client's claim, the legal right to sue and to recover. The subject matter is the thing the claim is about, such as the 22 acres in the title dispute. The two often travel together. The rule names both because a lawyer can reach the same financial position through either: an owner of part of the claim collects if the claim succeeds, and an owner of part of the disputed land collects if the land is secured.
Naming both keeps the rule from being avoided by a change of form. If the rule reached only the claim, a lawyer could take title to part of the disputed asset, hold exactly the position the rule exists to prevent, and point out that no piece of the claim was ever assigned. The Restatement (Third) of the Law Governing Lawyers provides for a limited survival of the ban on champerty, and it too forbids a lawyer to acquire a proprietary interest in the client's cause of action.8 Whatever shape the stake takes, the lawyer's wealth comes to depend on how the matter ends.
What decides whether the rule applies is what the interest attaches to. Two other variables tempt students: who sells the interest to the lawyer, and whether the stake looks helpful or harmful to the client. The rule's text mentions neither. It asks only whether the lawyer has acquired a proprietary interest in the claim or in the subject matter of litigation the lawyer is conducting.
The seller's identity cannot cure the problem, because the rule looks at what the lawyer holds, and a fair price does not change where the lawyer's money sits. A stake bought from the opposing side places the lawyer's wealth against the client, a sharper conflict than a share of the client's own recovery would create. A stake conveyed by the client receives the same treatment. Suppose the client conveys 5% of the land to the lawyer. The stake then points the same way as the client's goals, and that alignment may look like a reason to allow it. The alignment is partial at best. The lawyer's stake pays off in land, while the client may be better served by cash, and a settlement that gives the client money and leaves the other side the land would help the client while wiping out the lawyer's share. The rule bars the stake all the same.
An exam stem that probes the edge of the rule will move the stake to different property.
That result does not leave the arrangement unregulated, and the section on fees paid in property takes up payment of that kind. The fee side of the line also deserves one mention here. A fee measured by the recovery stands on the permitted side when it fits the exception for a reasonable contingent fee in a civil case, so a lawyer paid one-third of a damages award has contracted for a fee the rule allows by its own terms.9 The prohibition targets ownership of the claim or of the thing in dispute, and the limits on the contingent-fee exception come later in this chapter.
One variable remains, the lawyer's relation to the case. The next subsection takes it up.
Litigation the Lawyer Is Conducting
The third component of Model Rule 1.8(i) limits the bar to a stake acquired in litigation the lawyer is conducting for a client.11 The first two components described what kind of stake is forbidden and what it must attach to. This one describes the lawyer's position, and it matters because the danger has two ingredients. A financial stake in the claim gives the lawyer a reason to prefer one outcome over another. Control over the representation gives the lawyer the means to act on that preference, since the lawyer shapes how the case is pleaded, how hard it is pursued, and what the client hears about settling. Together the two let the lawyer's own payoff steer the client's case, and a client who relies on the lawyer because the client cannot second-guess the lawyer's judgment is poorly placed to notice.
The rule bars the interest at the moment the lawyer acquires it, so the client need not wait for a settlement recommendation to go wrong before the arrangement is improper. The exam question is whether the lawyer taking the stake is the lawyer running the client's case, and the facts that answer it concern the lawyer's role, not the size of the stake or the fairness of its terms.
The Restatement (Third) of the Law Governing Lawyers draws a corresponding line from the other direction. It forbids a lawyer to acquire a proprietary interest in the client's cause of action, yet it does not forbid a client's assignment of a cause of action to a lawyer who had not represented the client in asserting the claim.12 That second statement belongs to the Restatement. The Model Rule's own words reach only litigation the lawyer is conducting, and the Restatement's permission for assignments to a lawyer who is a stranger to the case should be attributed to the Restatement, not read back into the rule.
The Restatement's line fits the two ingredients described above. A lawyer who has never represented the client in asserting the claim does not control how the claim is pursued and does not advise the client about it, so the means of steering the case that makes a stake dangerous is absent.
In the contractor case and the tenant case alike, a lawyer ends up owning part or all of a claim. What moved the answer is whether the lawyer was the client's counsel in asserting the claim, the element that supplies control over the representation.