Bar Exam prep question - see description

Question

An experienced oil and gas developer asked an attorney to represent him in a suit to establish the developer’s owner-ship of certain oil and gas royalties. The developer did not have available the necessary funds to pay the attorney’s reasonable hourly rate for undertaking the case and pro-posed instead that, if he prevailed in the lawsuit, he would pay the attorney 20% of the first year’s royalties recovered in the suit. Twenty percent of the first year’s royalties would likely exceed the amount that the attorney would have received from charging his regular hourly rate. The attorney accepted the proposal. Is the attorney subject to discipline?

Answer 1

How I approached this Professional Responsibility question:

This fact pattern immediately raises red flags regarding fee arrangements, so I began by identifying the key legal issue:

Is this contingency-like fee agreement ethically permissible under the rules of professional conduct, particularly when representing a client in a property interest dispute?

The question centers on Rule 1.5(c) of the ABA Model Rules of Professional Conduct, which governs contingent fee agreements, and Rule 1.8(a), which addresses situations where a lawyer acquires a proprietary interest in the subject matter of litigation.

Step-by-step legal reasoning:



1. Identify the type of fee:
2. The developer cannot afford the attorney’s hourly rate, so he proposes that if he wins, the attorney will receive 20% of the first year’s royalties — a fee contingent on the outcome of the case.
3. Is a contingency fee permissible in this type of case?
4. Contingency fees are generally permitted in civil cases, but not in certain types of proceedings (e.g., criminal or domestic relations).
5. Here, the matter is a civil claim over property rights (royalties) — not a prohibited category — so a contingent fee is permissible in principle.
6. Is there an improper acquisition of a proprietary interest?
7. Under Rule 1.8(i), a lawyer shall not acquire a proprietary interest in the cause of action or subject of litigation, except:
8. A lien to secure fees or expenses, and
9. A reasonable contingency fee in a civil case
10. The key here is that the attorney is not taking a direct ownership stake in the royalties; instead, the agreement is for payment from the proceeds, which is typical of a contingency fee.
11. Is the fee reasonable?
12. Rule 1.5(a) requires all legal fees — contingent or otherwise — to be reasonable. The fact that the 20% share might exceed the attorney’s regular hourly rate does not automatically make it unreasonable, especially since the developer proposed the arrangement and it aligns with the risk-reward nature of contingency agreements.

Conclusion as a tutor:

The attorney is not subject to discipline, assuming the contingency fee arrangement complies with:

1. Being in writing,
2. Clearly outlining the terms,
3. Explaining the percentage, and
4. Specifying what happens if the client does not prevail — all requirements under Rule 1.5(c).

In tutoring sessions, I would guide the student to recognize:

1. The distinction between a permissible contingency fee and an impermissible proprietary interest
2. How the ABA rules provide exceptions for contingent fees in civil cases
3. The importance of client consent, documentation, and reasonableness in any fee agreement

This question is a classic example of how the bar exam tests overlapping ethics rules, and I help students break it down with IRAC-based reasoning and rule citations, so they not only get the question right but also understand why.