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Furthermore, the court stated that
there is but one cause of action. Our decisions uphold
an agreement to assign a part of the recovery on the
cause of action to the attorney. But we have never
held that the cause of action is divisible and may be
tried for only a percentage of the cause of action.
[Id.; emphasis added.]
An attorney with a contingent fee contract is not so
directly interested in the subject matter of a lawsuit as to make
him a party; thus, Texas attorneys operating under a contingent
fee contract do not have the same rights as their clients in the
cause of action.7
We conclude, therefore, that under the facts and
circumstances of this case, Branton & Hall and Spears had no
ownership interest in petitioner's claim before settlement.
Consequently, in analyzing this issue, we consider petitioner's
contingent fee agreement an agreement to assign a part of the
recovery on the cause of action to his attorneys.8
State law determines what property rights and interests a
taxpayer has, but Federal law determines the consequences of such
rights and interests for tax purposes. Lyeth v. Hoey, 305 U.S.
7 The court clarified that its holding does not necessarily
apply to the case where a plaintiff has assigned a portion of his
cause of action to an independent third party.
8 See Brenan v. LaMotte, 441 S.W.2d 626, 629 (Tex. Civ.
App. 1969) (contract of employment which stated "we do hereby
sell, transfer, * * * assign and convey unto * * *, our attorney,
an undivided interest" in whatever plaintiffs may realize out of
decedent's estate, held executory contract for contingent fee;
contract did not convey interest in estate).
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