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Succession of Cloud

Supreme Court of Louisiana
1988 La. LEXIS 1605, 530 So. 2d 1146, 1988 WL 94404 (1988)
ELI5:

Sections

Rule of Law:

Attorneys are prohibited from acquiring a proprietary interest in the cause of action or subject matter of litigation they are conducting for a client; this prohibition applies to rights that are genuinely disputed and likely to become the subject of litigation, even if no lawsuit has yet been filed, and any contract violating this rule is null and void.


Facts:

  • Noah Cloud executed a deed purporting to transfer a twenty-acre tract of land to his son-in-law, B.M. Hatch, for a nominal fee, a transaction later determined to be a simulation (fake sale).
  • Years later, Hatch transferred the property to his ex-wife, Mrs. Hatch (Cloud's daughter), as part of a community property settlement handled by attorney Martin Sanders.
  • Following the death of Mrs. Hatch's mother, a dispute arose between Mrs. Hatch and her four siblings, who claimed the land and accumulated mineral royalties belonged to the family succession rather than Mrs. Hatch individually.
  • Mrs. Hatch hired Sanders to represent her in this dispute against her siblings but lacked the funds to pay for his services.
  • Sanders advised Mrs. Hatch that she was the record owner and, in exchange for legal services rendered and to be rendered, accepted deeds transferring mineral interests in the disputed tract to himself.
  • Sanders subsequently provided the oil company with copies of the deeds and began receiving royalty payments, eventually collecting over $108,000.
  • At the time Sanders acquired these interests, he knew the siblings were contesting Mrs. Hatch's ownership, although they had not yet filed a specific lawsuit to set aside the land transfer.

Procedural Posture:

  • The siblings filed a rule in the district court to remove Mrs. Hatch as administratrix and later a full action to set aside the land transfers and mineral deeds.
  • The district court dismissed the siblings' action, finding the original sale was valid.
  • The Court of Appeal reversed the district court regarding the land sale (finding it was a simulation) but, on rehearing, upheld the validity of Sanders' mineral interest.
  • The siblings applied for a writ of certiorari to the Supreme Court of Louisiana to review the ruling regarding Sanders' mineral interest.

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Issue:

Does an attorney violate Disciplinary Rule 5-103(A), rendering the transaction null, by acquiring a mineral interest in a client's property as payment for legal services when the client's ownership of that property is genuinely disputed, even if no formal lawsuit is pending at the time of the transfer?


Opinions:

Majority - Lemmon

Yes, an attorney is prohibited from acquiring a proprietary interest in a client's genuinely disputed claim, regardless of whether a suit is officially pending. The Court reasoned that the Code of Professional Responsibility (specifically DR 5-103(A)) has the force of substantive law, designed to prevent lawyers from speculating on the outcome of lawsuits and to avoid conflicts of interest where a lawyer might prioritize protecting their own asset over the client's best interests. While the Court of Appeal relied on the fact that no suit was pending at the moment of transfer, the Supreme Court held that the prohibition applies whenever a right is genuinely disputed and likely to be litigated. Because Sanders acquired an ownership interest in the very subject matter of the dispute he was hired to resolve, the contracts are in direct violation of the disciplinary rules and are therefore null and void.


Concurring - Cole

Justice Cole concurred in the result without providing a written opinion.



Analysis:

This decision is significant because it elevates the Code of Professional Responsibility (now Rules of Professional Conduct) to the level of substantive law in Louisiana, meaning a violation can invalidate private contracts, not just result in bar discipline. The Court closed a potential loophole by clarifying that 'litigious rights' protections apply to genuinely disputed claims even before a lawsuit is stamped by a clerk. This prevents attorneys from buying into a client's lawsuit (other than through standard contingency fees) and protects the integrity of the legal profession by removing the financial temptation for a lawyer to settle or litigate based on their own property interests rather than the client's needs.

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