RI-354
February 7, 2012
SYLLABUS
A lawyer proposing to represent a client in a contested divorce may not ethically acquire an interest in the marital home to secure payment of attorney's fees when the home is the subject matter of the litigation.
References: MRPC 1.8(a), 1.8(j); RI-40; RI-182; George v. Sandor M. Gelman PC, 201 Mich App 474, 506 NW2d 583 (1993).
TEXT
A Michigan lawyer has asked whether he is permitted, under the Rules of Professional Conduct, to secure payment of his fees and court costs by taking a lien against the marital home in a contested divorce case to be filed. The lawyer proposes to accomplish this by having his divorce client execute a warranty deed conveying the client's interest in the marital home to his law firm.
The equity in the marital home is the only asset in the marital estate. Title to the home is held as tenants by the entireties. The lawyer assumes his client will, following the divorce, receive an interest in the home that is either fee simple or in common with the then-former spouse, and that the lawyer will return to his client whatever title his client is awarded in exchange for a promissory note and mortgage against the property.[1]
The lawyer seeks an opinion regarding two ethical issues:
1. Is it permissible for a lawyer to acquire a lien on a marital home to secure payment of his fees through transfer of title to his law firm, which will not take effect until the bonds of matrimony are dissolved?
2. Does this arrangement violate "public policy" by giving the lawyer incentive to hasten the dissolution of the bonds of matrimony?
Our first consideration is whether the Michigan Rules of Professional Conduct permit a lawyer to acquire a lien on real estate to secure payment of fees and costs. Rule 1.8 considers conflicts of interest that may be created by prohibited transactions. Rule 1.8(a) provides:
(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to a client unless:
(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner that can be reasonably understood by the client;
(2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and
(3) the client consents in writing thereto.
In RI-40, the Committee was asked whether a lawyer may obtain a mortgage on a client's property to secure payment of the lawyer's fee. The Committee concluded that obtaining such a lien is permissible, so long as the lawyer complies with Rule 1.8(a) and the property that the mortgage secures is not the subject matter of the litigation that the lawyer is conducting for the client. This conclusion was buttressed by the Court of Appeals in George v. Sandor M. Gelman, PC, 201 Mich App 474, 506 NW2d 583 (1993), which held that a lawyer may claim a charging lien against a client's real property if an express agreement for the lien exists.
Accordingly, assuming that the requirements of Rule 1.8(a) are satisfied, such a lien is permissible, subject to the proscriptions of Rule 1.8(j), which provide, in relevant part:
A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client, except that the lawyer may:
(1) acquire a lien granted by law to secure the lawyer's fee or expenses; and
(2) contract with a client for a reasonable contingent fee in a civil case, as permitted by Rule 1.5 and MCR 8.121. Emphasis added.
The question at hand does not involve a contingent fee. Nor is the lawyer being granted a lien by law in a homestead to secure his or her fees or expenses.
The lawyer notes in his inquiry that the marital home is the only asset in the marital estate. Hence, it is within the jurisdiction of the court. The court may order the home conveyed to the husband, to the wife, or to each of them in some sort of co-tenancy arrangement.
In RI-182, the Committee considered whether a lawyer, after complying with the provisions of Rule 1.8(a), could ethically acquire an interest in certain construction liens, which were the subject matter of litigation the lawyer was retained to conduct, with hopes of the lawyer's being the high bidder at the lien foreclosure sale and thereby obtaining title to the properties. The Committee concluded that it would be unethical for the lawyer to proceed as proposed and to acquire construction liens on the subject matter of the litigation, whether or not title to the properties were ultimately obtained. Here, under the logic and rationale of RI-182, the marital home is, quite obviously, the subject matter of the litigation and, hence, the lawyer may not ethically seek to obtain any interest, including a lien to secure payment of his fees, in it. Accordingly, it would be unethical for the lawyer to obtain the lien he proposes.
By reason of the Committee's answer to the inquirer's first question, the second question is rendered moot and, therefore, no answer is necessary.
[1] The inquiry makes two assumptions—that a lien can be obtained on entireties property without the consent of both spouses and that his client will, in fact, be awarded an interest in the home. Without agreeing with these points, the Committee accepts these assumptions, but only for purposes of this opinion.