State Bar of South Dakota

Ethics Opinion 90-2

February 20, 1990

FACTS

In recent years, you, along with other individuals invested in the publication and marketing of a book. Your investment contract provides that 33% of all gross proceeds received by the seller from the book would be paid to the investors. Thereafter, the publisher permitted nearly the entire book to be reprinted in a magazine. This conduct is viewed by the investors as a violation of their contract with the publisher as well as a copyright violation. The other investors desire that you be co-counsel in an action to enforce the contract and recover damages on whatever theory. A lawsuit would be handled on a contingent fee basis. In the event of recovery you as one of the investors would receive a pro rata distribution of the recovery under your investment contract. In addition, you would receive your attorney fee. You have associated with another law firm to assist in the lawsuit.

OPINION

The Committee generally views the situation as presenting a conflict under Rule 1.8(j). The conflict may avoid disqualification if you irrevocably assign your interest in the investment contract to another person. It s is strongly suggested that an assignment to a relative is tainted with the attributes of the original ownership and would most like y not cure the conflict situation.

A very strong minority of the Committee very cogently identified the language of the Rule which states that “[a] lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation .” The minority view is that since the interest in the investment contract was not acquired with a view toward litigation, no conflict is presented.

The majority analyzes the situation that because of the personal financial interest in the subject matter of the litigation your judgment may not be the independent legal judgment that the other investors and plaintiffs (clients) expect and are entitled to.

Donald E. Covey
Chair, Ethics Committee