ABA-AMRPC Rule 1

ABA-AMRPC Rule 1.5

Ann. Mod. Rules Prof. Cond. Rule 1.5

(Cite as: ABA-AMRPC Rule 1.5)

American Bar AssociationAnnotated Model Rules of Professional Conduct, Sixth Edition

CLIENT-LAWYER RELATIONSHIP

Rule 1.5 Fees

(a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

(3) the fee customarily charged in the locality for similar legal services;

(4) the amount involved and the results obtained; (5) the time limitations imposed by the client or by the circumstances;

(6) the nature and length of the professional relationship with the client;

(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and

(8) whether the fee is fixed or contingent.

(b) The scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation, except when the lawyer will charge a regularly represented client on the same basis or rate. Any changes in the basis or rate of the fee or expenses shall also be communicated to the client.

(c) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by paragraph (d) or other law. A contingent fee agreement shall be in a writing signed by the client and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal; litigation and other expenses to be deducted from the recovery; and whether such expenses are to be deducted before or after the contingent fee is calculated. The agreement must clearly notify the client of any expenses for which the client will be liable whether or not the client is the prevailing party. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.

(d) A lawyer shall not enter into an arrangement for, charge, or collect:

(1) any fee in a domestic relations matter, the payment or amount of which

(2) a contingent fee for representing a defendant in a criminal case.

(e) A division of a fee between lawyers who are not in the same firm may be made only if:

(1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;

(2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and

(3) the total fee is reasonable.

Comment

Reasonableness of Fee and Expenses [1] Paragraph (a) requires that lawyers charge fees that are reasonable under the circumstances. The factors specified in (1) through (8) are not exclusive. Nor will each factor be relevant in each instance. Paragraph (a) also requires that expenses for which the client will be charged must be reasonable. A lawyer may seek reimbursement for the cost of services performed in- house, such as copying, or for other expenses incurred in-house, such as telephone charges, either by charging a reasonable amount to which the client has agreed in advance or by charging an amount that reasonably reflects the cost incurred by the lawyer.

Basis or Rate of Fee

[2] When the lawyer has regularly represented a client, they ordinarily will have evolved an understanding concerning the basis or rate of the fee and the expenses for which the client will be responsible. In a new client-lawyer relationship, however, an understanding as to fees and expenses must be promptly established. Generally, it is desirable to furnish the client with at least a simple memorandum or copy of the lawyer's customary fee arrangements that states the general nature of the legal services to be provided, the basis, rate or total amount of the fee and whether and to what extent the client will be responsible for any costs, expenses or disbursements in the course of the representation. A written statement concerning the terms of the engagement reduces the possibility of misunderstanding.

[3] Contingent fees, like any other fees, are subject to the reasonableness standard of paragraph (a) of this Rule. In determining whether a particular contingent fee is reasonable, or whether it is reasonable to charge any form of contingent fee, a lawyer must consider the factors that are relevant under the circumstances. Applicable law may impose limitations on contingent fees, such as a ceiling on the percentage allowable, or may require a lawyer to offer clients an alternative basis for the fee. Applicable law also may apply to situations other than a contingent fee, for example, government regulations regarding fees in certain tax matters.

Terms of Payment

[4] A lawyer may require advance payment of a fee, but is obliged to return any unearned portion. See Rule 1.16(d). A lawyer may accept property in payment for services, such as an ownership interest in an enterprise, providing this does not involve acquisition of a proprietary interest in the cause of action or subject matter of the litigation contrary to Rule 1.8(i). However, a fee paid in property instead of money may be subject to the requirements of Rule 1.8(a) because such fees often have the essential qualities of a business transaction with the client.

[5] An agreement may not be made whose terms might induce the lawyer improperly to curtail services for the client or perform them in a way contrary to the client's interest. For example, a lawyer should not enter into an agreement whereby services are to be provided only up to a stated amount when it is foreseeable that more extensive services probably will be required, unless the situation is adequately explained to the client. Otherwise, the client might have to bargain for further assistance in the midst of a proceeding or transaction. However, it is proper to define the extent of services in light of the client's ability to pay. A lawyer should not exploit a fee arrangement based primarily on hourly charges by using wasteful procedures.

Prohibited Contingent Fees

[6] Paragraph (d) prohibits a lawyer from charging a contingent fee in a domestic relations matter when payment is contingent upon the securing of a divorce or upon the amount of alimony or support or property settlement to be obtained. This provision does not preclude a contract for a contingent fee for legal representation in connection with the recovery of post- judgment balances due under support, alimony or other financial orders because such contracts do not implicate the same policy concerns.

Division of Fee

[7] A division of fee is a single billing to a client covering the fee of two or more lawyers who are not in the same firm. A division of fee facilitates association of more than one lawyer in a matter in which neither alone could serve the client as well, and most often is used when the fee is contingent and the division is between a referring lawyer and a trial specialist. Paragraph (e) permits the lawyers to divide a fee either on the basis of the proportion of services they render or if each lawyer assumes responsibility for the representation as a whole. In addition, the client must agree to the arrangement, including the share that each lawyer is to receive, and the agreement must be confirmed in writing. Contingent fee agreements must be in a writing signed by the client and must otherwise comply with paragraph (c) of this Rule. Joint responsibility for the representation entails financial and ethical responsibility for the representation as if the lawyers were associated in a partnership. A lawyer should only refer a matter to a lawyer whom the referring lawyer reasonably believes is competent to handle the matter. See Rule 1.1.

[8] Paragraph (e) does not prohibit or regulate division of fees to be received in the future for work done when lawyers were previously associated in a law firm.

Disputes over Fees

[9] If a procedure has been established for resolution of fee disputes, such as an arbitration or mediation procedure established by the bar, the lawyer must comply with the procedure when it is mandatory, and, even when it is voluntary, the lawyer should conscientiously consider submitting to it. Law may prescribe a procedure for determining a lawyer's fee, for example, in representation of an executor or administrator, a class or a person entitled to a reasonable fee as part of the measure of damages. The lawyer entitled to such a fee and a lawyer representing another party concerned with the fee should comply with the prescribed procedure.

Annotation

Subsection (a): Reasonable Fees and Expenses

Model Rule 1.5(a) as initially promulgated in 1983 affirmatively required that a lawyer's fee be "reasonable." The current phrasing, prohibiting "unreasonable" fees, harks back to the predecessor Model Code. It was restored in 2002 on the theory that the affirmative phrasing had been making it "harder than necessary to impose discipline for excessive fees." American Bar Association, A Legislative History: The Development of the ABA Model Rules of Professional Conduct, 1982-2005, at 91 (2006) (rephrasing not intended as substantive change); see also Restatement (Third) of the Law Governing Lawyers s 34 (2000) (prohibiting lawyer from charging fee "larger than is reasonable under the circumstances"). See generally Chin & Wells, Can a Reasonable Doubt Have an Unreasonable Price? Limitations on Attorneys' Fees in Criminal Cases, 41 B.C. L. Rev. 1 (1999) (finding total of two cases imposing discipline based solely upon size of fee and concluding that "virtually all" applications of Rule 1.5(a) also involve dishonesty or misconduct; authors propose disclosure standard instead); Parekh & Pelkofer, Lawyers, Ethics, and Fees: Getting Paid Under Model Rule 1.5, 16 Geo. J. Legal Ethics 767 (2003).

The 2002 amendment also prohibits unreasonable expenses. See American Bar Association, A Legislative History: The Development of the ABA Model Rules of Professional Conduct, 1982-2005, at 91 (2006).

For a survey of state rules that differ significantly from the 2002 version of Model Rule 1.5, see the chapter entitled "Fees: Amount of Fee" in ABA/BNA Lawyers' Manual on Professional Conduct, pp. 41:301 et seq.

Multifactorial

Subsection (a) lists eight factors that may be considered in determining the reasonableness of a fee. Comment [1] emphasizes that these factors "are not exclusive. Nor will each factor be relevant in each instance." For discussion of other possible factors, see In re Estate of Johnson, 119 P.3d 425 (Alaska 2005) (in estate context, trial court may also consider size of estate, because lawyer's exposure to liability depends in part upon amounts involved); Shaffer v. Superior Court, 39 Cal. Rptr. 2d 506 (Ct. App. 1995) (though factors listed in Rule not exhaustive, size of lawyer's profit margin not appropriate factor in evaluating fee); Nat'l Info. Servs. v. Gottsegen, 737 So. 2d 909 (La. Ct. App. 1999) (lists ten factors "derived from" Rule 1.5: result obtained, responsibility incurred, importance of litigation, amount of money involved, extent and character of work performed, number of appearances made, intricacies of facts involved, counsel's diligence and skill, court's own knowledge, and counsel's legal knowledge, attainment, and skill); Johnson v. Westhoff Sand Co., Inc., 135 P.3d 1127 (Kan. 2006) (looking to parties' contingent-fee agreement as one factor in determining reasonableness, court upheld award of approximately one-third of $4 million judgment in garnishment dispute arising out of motor vehicle accident); Mani v. Mani, 869 A.2d 904 (N.J. 2005) (in addition to mandatory affidavit of reasonableness under Rule 1.5(a), court awarding fees in divorce will also consider parties' relative financial status and their good or bad faith in conduct of action; court may not, however, consider underlying issue of marital fault); In re Disciplinary Proceeding against Egger, 98 P.3d 477 (Wash. 2004) (additional factor is "[w]hether the fee agreement or confirming writing demonstrates that the client had received a reasonable and fair disclosure of material elements of the fee agreement and of the lawyer's billing practices"). See also ABA Section of Bus. Law, Comm. on Lawyer Bus. Ethics, Report, Business and Ethics Implications of Alternative Billing Practices, 54 Bus. Law. 175 (1998) (recommending two additional factors: size and complexity of matter, and client's sophistication and extent of experience in business matters).

In determining a fee's reasonableness, all relevant factors must be considered. See, e.g., Rodriguez v. Ancona, 868 A.2d 807 (Conn. App. Ct. 2005) (by looking solely to amount involved and results obtained in fixing fees as percentage of damage award, court abused discretion by "seizing from the full panoply of relevant factors merely one factor, to the exclusion and disregard of the others"); Heng v. Rotech Med. Corp., 720 N.W.2d 54 (N.D. 2006) (all reasonableness factors must be considered; no single factor controls); see also Microtek Med., Inc. v. 3M Co., 942 So. 2d 122 (Miss. 2006) (upholding fee award of more than $223,000; trial court had not given "blanket endorsement" of fee petition but had painstakingly addressed factors listed in Rule 1.5(a) before concluding that lawyer's rate was reasonable in light of her skill, difficulty of case, and her lost opportunity costs).

Illegality

* Fees Exceeding Legislative Cap

A contract calling for fees in excess of a legislative cap violates Rule 1.5(a). See, e.g., In re Wimmershoff, 3 P.3d 417 (Colo. 2000) (lawyer's fee in workers' compensation case exceeded 20 percent statutory maximum); In re Stephens, 851 N.E.2d 1256 (Ind. 2006) (public reprimand for fee agreement designed to circumvent statutory cap in medical malpractice case); Comm. on Legal Ethics of W. Va. State Bar v. Burdette, 445 S.E.2d 733 (W. Va. 1994) (workers' compensation claimant cannot waive statutory limit on attorneys' fees, nor may lawyer request waiver); In re Estate of Konopka, 498 N.W.2d 853 (Wis. Ct. App. 1993) (contract granting probate lawyer 4 percent of gross value of estate's inventory contravened fee statute declaring that estate's value shall not be controlling factor); cf. In re Amendment to Rules Regulating Fla. Bar--Rule 4-1.5(f)(4)(B) of Rules of Prof'l Conduct, 939 So. 2d 1032 (Fla. 2006) (approving amendment that permits lawyers to condition medical malpractice representation upon client's willingness to waive fee caps set by state constitution).

* Fees Involving Illegal Conduct

Illegal conduct in setting or seeking a fee results in a violation of Rule 1.5(a). See, e.g., In re Travers, 764 A.2d 242 (D.C. 2000) (accepting fees from estate without filing petition required by probate court constituted collection of illegal fee); Iowa Supreme Court Bd. of Prof'l Ethics & Conduct v. McKittrick, 683 N.W.2d 554 (Iowa 2004) (compounding interest and imposing interest on charges for services before charges billed or due); In re DeFrancesch, 877 So. 2d 71 (La. 2004) (attempting to coerce sex from client as late-payment fee); Attorney Grievance Comm'n of Md. v. Somerville, 842 A.2d 811 (Md. 2004) (taking $1,000 from estate checking account amounted to collection of unreasonable fee, in addition to crime); cf. Iowa Supreme Court Bd. of Prof'l Ethics & Conduct v. Tofflemire, 689 N.W.2d 83 (Iowa 2004) (full-time employee of state's labor division violated Code prohibition against excessive fees by abusing sick leave policy so she could also work as contract lawyer for state public defender, submitting false bills and altering checks in support of reimbursement claims).

* Bill-Padding; Double-Billing

Padding bills and billing the same work to more than one client violate Rule 1.5(a) (among other provisions). See, e.g., People v. Espinoza, 35 P.3d 552 (Colo. O.P.D.J. 2001) (lawyer inflated billing entries and charged for phantom time expenditures); In re Dyer, 750 So. 2d 942 (La. 1999) (lawyer padded legitimate expenses and invented others; court rejected lawyer's suggestion that charges were "mistakes": "it defies belief that so many 'mistakes' could occur in favor of respondent, and none in favor of his client"); Attorney Grievance Comm'n of Md. v. Hess, 722 A.2d 905 (Md. 1999) (lawyer gave client 15 percent fee discount but then inflated client's bills to make up for it); In re Disciplinary Proceeding against Vanderbeek, 101 P.3d 88 (Wash. 2004) (disbarment for habitually inflating client bills, charging excessive fees for simple form pleadings, withdrawal notices, and short letters demanding payment of fees); In re Glesner, 606 N.W.2d 173 (Wis. 2000) (lawyer padded bill to recover fees he lost when client successfully challenged his previous billing); see also Iowa Supreme Court Bd. of Prof'l Ethics & Conduct v. Lane, 642 N.W.2d 296 (Iowa 2002) (lawyer charged $9,000 to prepare bill and claimed eighty hours of work when in fact he plagiarized entire portion of legal argument from treatise; violation of Code's prohibition against excessive fees); Chan, ABA Formal Opinion 93-379: Double-Billing, Padding, and Other Forms of Overbilling, 9 Geo. J. Legal Ethics 611 (1996); Hopkins, Law Firms, Technology, and the Double-Billing Dilemma, 12 Geo. J. Legal Ethics 93 (1998) ("modified hourly billing," as alternative to traditional hourly billing arrangement, itself often results in double-billing); Lerman, A Double Standard for Lawyer Dishonesty: Billing Fraud versus Misappropriation, 34 Hofstra L. Rev. 847 (2006). See generally Lerman, Blue-Chip Bilking: Regulation of Billing and Expense Fraud by Lawyers, 12 Geo. J. Legal Ethics 205 (1999); Richmond, The New Law Firm Economy, Billable Hours, and Professional Responsibility, 29 Hofstra L. Rev. 207 (2000).

Unreasonable Fees * Fees for Doing Nothing

It is by definition unreasonable to charge for work not done. In re Cleaver-Bascombe, 892 A.2d 396 (D.C. 2006) (submission of false Criminal Justice Act voucher for work not actually performed by counsel appointed for indigent criminal defendant violates Rule 1.5(a) regardless of whether lawyer actually collects on voucher); In re Ifill, 878 A.2d 465 (D.C. 2005) (lawyer charged $10,000 to pursue frivolous claims and then did not pursue them); In re Schneider, 710 N.E.2d 178 (Ind. 1999) (collection lawyer's bills for time spent drafting letter explaining lawyer's collection practices and for generating demand letter to collect lawyer's disputed fee were unreasonable; lawyer never actually contacted client's debtor); Attorney Grievance Comm'n of Md. v. Guida, 891 A.2d 1085 (Md. 2006) ($750 fixed fee to represent client in adoption proceeding would have been reasonable had lawyer performed services); In re O'Brien, 29 P.3d 1044 (N.M. 2001) (lawyer charged $5,000 fee without work product to justify it; "any fee is excessive when absolutely no services are provided"); In re McKechnie, 708 N.W.2d 310 (N.D. 2006) (failure to commence federal Civil Rights Act action or refund unearned portion of $2,500 up-front payment); State ex rel. Okla. Bar Ass'n v. Sheridan, 84 P.3d 710 (Okla. 2003) ($750 fee violated Rule 1.5; lawyer could produce no tangible evidence of any work).

* Fees for Doing Very Little

Charging a lot for doing very little, as opposed to nothing, is also likely to violate Rule 1.5(a). See, e.g., Budget Rent-A-Car Sys., Inc. v. Consol. Equity LLC, 428 F.3d 717 (7th Cir. 2005) (appellee's lawyer filed petition seeking $4,626 to produce four-page jurisdictional memo citing five cases and $4,354 to prepare sanctions motions and statement of fees and costs: "[i]t is inconceivable that this is the going market price for such exiguous submissions"; request "so exorbitant as to constitute an abuse of the process of the court asked to make the award"); In re Calahan, 930 So. 2d 916 (La. 2006) (unreasonable to charge $12,500, or 40 percent of recovery, to write one-page demand letter to another lawyer who charged client excessive legal fee); Attorney Grievance Comm'n of Md. v. Monfried, 794 A.2d 92 (Md. 2002) (hearing judge's failure to find violation of Rule 1.5 was clear error; lawyer received flat fee of $1,000 to represent client in parole revocation but did nothing beyond making few phone calls to get hearing date scheduled); Commonwealth v. Ennis, 808 N.E.2d 783 (Mass. 2004) (unreasonable for defense counsel to claim sixty-four hours for short response to interlocutory appeal of suppression order in which he repeated his arguments from motion to suppress); In re Wyllie, 19 P.3d 338 (Or. 2001) (lawyer violated DR 2-106(A) ban on excessive fees by charging $1,850 and collecting $750 after agreeing to work for hourly fee of $150, working for two and one-half hours, and charging additional $50 for missed appointment); cf. In re Brothers, 70 P.3d 940 (Wash. 2003) (lawyer normally charged $50 to prepare quitclaim deeds but took fee based upon one-third of value of property transferred, or $36,663, instead).

* Doing Very Little, and Doing It Badly

In assessing a fee's reasonableness, what is ultimately at issue is "the reasonable value of the services rendered and value received by the client." Regions Bank v. Automax USA, L.L.C., 858 So. 2d 593 (La. Ct. App. 2003); see People v. Woodford, 81 P.3d 370 (Colo. O.P.D.J. 2003) (though $2,500 fee may be reasonable for preparation of trust, when documents did not address client's objectives, and work was incompetent and completely lacked value of any kind to client, fee was excessive); In re McCann, 894 A.2d 1087 (Del. 2005) (charging $25,249 for taking more than fifteen years to complete work on estate was unreasonable, as was charging $25,000 for work on different estate in which lawyer failed to file inventory or accounting and was removed as personal representative by court); Idaho State Bar v. Frazier, 28 P.3d 363 (Idaho 2001) (lawyer charged more than $100,000 for mismanaging estate he said he could resolve for $5,500, and which another lawyer had to close); In re Sinnott, 845 A.2d 373 (Vt. 2004) (lawyer charged for representing client negotiating debt with credit card company even though client ended up doing negotiating himself).

* Doing Way Too Much

Fees for excessive lawyering violate Rule 1.5(a). See In re Comstock, 664 N.E.2d 1165 (Ind. 1996) (after receiving $7,500 retainer, lawyer billed client for traveling to and from unnecessarily distant law libraries, making brief telephone calls, and reading letter terminating representation); In re Estate of Langland, Nos. 255287, 256134, 258476, 2006 WL 1752261 (Mich. Ct. App. June 27, 2006) (probate court did not err in awarding attorneys' fees as sanction against lawyer who failed to distinguish "preserving a record for appellate review from merely beating a dead horse," unnecessarily incurring exorbitant fee through repeated objections and demands for evidentiary hearings); In re Coffey's Case, 880 A.2d 403 (N.H. 2005) (both estimated fee of $30,000 and actual fee of $64,242.89 charged to prosecute appeal from probate proceedings were clearly excessive when lawyer billed 225 hours to write brief and 85 hours to prepare oral argument; lawyer was already familiar with case, there was no transcript to review, and typical appeal would require between 30 and 75 hours); see also In re Dorothy, 605 N.W.2d 493 (S.D. 2000) (lawyer attempted to charge almost $60,000 and did charge more than $47,000 for uncomplicated child custody and support representation; overly extensive briefing cost clients several thousand dollars and was of little or no value; when client ran out of gas while traveling to meet with lawyer, lawyer offered to drive to deliver gas and then charged client $100 per hour to do so).

* Doing Remedial Work

Lawyers are expected to provide competent representation (see Model Rule 1.1) and therefore may not charge clients for time necessitated by their own inexperience. See, e.g., Heavener v. Meyers, 158 F. Supp. 2d 1278 (E.D. Okla. 2001) (claim for fees for more than five hundred hours unreasonable in straightforward Fourth Amendment excessive-force claim; nineteen hours for research on Eleventh Amendment defense indicative of excessive billing due to counsel's inexperience; forty-nine invoice entries for "discussion" with co-counsel constituted "prime example of fee-padding" in case that did not require joint effort on specific tasks); In re Poseidon Pools of Am., Inc., 180 B.R. 718 (Bankr. E.D.N.Y. 1995) (denying compensation for various document revisions; "we note that given the numerous times throughout the Final Application that Applicant requests fees for revising various documents, Applicant fails to negate the obvious possibility that such a plethora of revisions was necessitated by a level of competency less than that reflected by the Applicant's billing rates"); In re Disciplinary Action against Hellerud, 714 N.W.2d 38 (N.D. 2006) (reduction in hours, fee refund of $5,651.24, and reprimand for lawyer unfamiliar with North Dakota probate work who charged too many hours at too high a rate for simple administration of cash estate; "it is counterintuitive to charge a higher hourly rate for knowing less about North Dakota law"); In re Guardianship of Hallauer, 723 P.2d 1161 (Wash. Ct. App. 1986) ("no reason or excuse for charging a client ... for one's own inefficiencies").

* Too Many Lawyers Working on Matter

Participation by too many lawyers is another form of overlawyering that can result in a violation of Rule 1.5(a). See Carr v. Fort Morgan Sch. Dist., 4 F. Supp. 2d 998 (D. Colo. 1998) (reducing fee request when lawyers "engaged in constant collaboration, discussion and review of work of one by the other," including conferences about even mundane matters; reasoning that "[i]f the attorneys possess the skill required to charge the rates they are charging for their legal services, which this Court has determined they do, such constant collaboration, review, preparation and consultation is not necessary"); Richmont Capital Partners I, L.P. v. J.R. Invs. Corp., No. CIV.A. 20281, 2004 WL 1152295 (Del. Ch. May 20, 2004) (rejecting amount requested; three lawyers worked total of 59 hours to answer complaints and prepare motions for admissions pro hac vice, and four lawyers worked total of 223 hours drafting responses to motions to dismiss that raised no novel issues of law or fact).

* Charging "Lawyer Rates" for Nonlawyer Work

A lawyer may not bill nonlawyer services at lawyer rates, no matter who performs those services. See In re Green, 11 P.3d 1078 (Colo. 2000) (charging lawyer's hourly rate for faxing documents, calling court clerk's office, and delivering documents to opposing counsel unreasonable as matter of law; such services generally performed by nonlawyers, and lawyer's professional skill and knowledge add no value to them); Comm. on Prof'l Ethics & Conduct of Iowa State Bar v. Zimmerman, 465 N.W.2d 288 (Iowa 1991) (lawyer charged full hourly rate for attending ward's birthday party and discussing ward's toiletry needs); Goeldner v. Miss. Bar, 891 So. 2d 130 (Miss. 2004) (unreasonable to bill law clerk's services at $175 per hour right after he graduated from law school; "[u]ntil admittance to the bar, a person with a J.D. is no more than a 'law clerk"'); Cincinnati Bar Ass'n v. Alsfelder, 816 N.E.2d 218 (Ohio 2004) (one-year stayed suspension on condition of $30,000 restitution by lawyer who charged "attorney's time" to unsophisticated client whom he befriended with advice about "anything and everything" in client's life, including boyfriends, vehicles, and restaurants; "[the lawyer] attempted to charge for his counsel in the manner that a therapist might, overlooking that an attorney, unless a qualified therapist, may no more engage in that profession than a therapist may practice law without a license").

Review for Reasonableness

* Review Always Available

No matter what the client has agreed to, an unreasonable fee subjects the lawyer to disciplinary proceedings. Attorney Grievance Comm'n of Md. v. Braskey , 836 A.2d 605 (Md. 2003) (lawyer disbursing $9,000 of remaining settlement to himself after taking one-fourth of gross settlement proceeds pursuant to contingent fee "went beyond collecting an unreasonable fee" and was "fee gouging," even if client agreed); In re Sinnott, 845 A.2d 373 (Vt. 2004) (lawyers cannot charge unreasonable fees even if they can find clients who will pay them). Outside the disciplinary context, however, see Paul, Weiss, Rifkind, Wharton & Garrison v. Koons, 780 N.Y.S.2d 710 (Sup. Ct. 2004) (granting summary judgment to law firm seeking $3.9 million in fees for work in hotly contested custody fight between wealthy artist and politically prominent wife; noting that artist instructed his lawyers to "leave no stone unturned," court declared it would not "police the conduct of wealthy litigants who choose to share their wealth with counsel through extravagant litigation").

* Investment in Client as Fee

Comment [4], added in 2002, notes that fees paid in property instead of money "often have the essential qualities of a business transaction with the client," and therefore "may" be subject to the requirements of Rule 1.8(a), which governs lawyer/client business transactions. American Bar Association, A Legislative History: The Development of the ABA Model Rules of Professional Conduct, 1982-2005, at 93 (2006); see ABA Formal Ethics Op. 00- 418 (2000) (lawyer who acquires ownership interest in client in exchange for legal services, either in lieu of cash fee or as investment opportunity, must comply with Rule 1.8(a)); see also In re Richmond's Case, 904 A.2d 684 (N.H. 2006) (no inherent conflict between Rule 1.5 and Rule 1.8(a); though Rule 1.5 permits lawyer to accept property as fee, lawyer must still comply with requirements of Rule 1.8(a)). See generally Puri, Taking Stock of Taking Stock, 87 Cornell L. Rev. 99 (2001).

Although fee agreements are subject to continued review for reasonableness as circumstances change, the reasonableness of a fee that takes the form of an investment or an interest in the client is looked at prospectively, not retrospectively. See Bauermeister v. McReynolds, 571 N.W.2d 79 (Neb. 1997) ($4 million potential fee not excessive under "lean forward" fee agreement wherein "if successful, everyone profits; if not, then they all lose together"; recovery based upon 5 to 10 percent likelihood of success of private landfill business venture), modified on denial of reh'g, 575 N.W.2d 354 (Neb. 1998); N.Y. City Ethics Op. 2000-3 (2000) (determination of whether fee taken as client securities is excessive depends upon value at time agreement reached; though this may create "spectacular windfalls in relation to the compensation that would normally be received on a cash basis," reward stems from investment risk accepted); Pa. Formal Ethics Op. 01-100 (2001) (determination "should be made based on the information available at the time of the transaction and not with the benefit of hindsight"). But see Holmes v. Loveless, 94 P.3d 338 (Wash. Ct. App. 2004) (error to continue to enforce thirty-year-old contingent-fee agreement under which law firm to receive indefinitely 5 percent of cash distributions from joint venture--a successful shopping center-- in exchange for initial two and one-half years of discounted legal services; discount valued at $8,000 already generated income of $380,000; "we agree with the joint venture's contention that the time has been reached when making additional distributions under the agreement would result in an excessive fee").

Expenses

* Overhead

General office overhead is included in a lawyer's fee and may not be billed separately. See Spicer v. Chi. Bd. Options Exch., 844 F. Supp. 1226 (N.D. Ill. 1993) (cost of special ventilation of office in days after major flood was part of firm's general overhead, as was expense of keeping track of filings, deadlines, and other docketing matters); see also Conn. Ethics Op. 03-08 (2003) (cost of paying outside firm to collect medical records is considered overhead built into lawyer's fee; cost cannot be passed on to client).

Costs may be billed separately, but they may not be used as a profit center. Comment [1] to Rule 1.5 states that "[a] lawyer may seek reimbursement for the cost of services performed in-house, such as copying, or for other expenses incurred in-house, such as telephone charges, either by charging a reasonable amount to which the client has agreed in advance or by charging an amount that reasonably reflects the cost incurred by the lawyer." This is consistent with an ABA ethics opinion that held that unless the client agrees otherwise, the lawyer must limit bills for disbursements and in-house activities--such as photocopying--to the lawyer's actual cost:

In the absence of an agreement to the contrary, it is impermissible for a lawyer to create an additional source of profit for the law firm beyond that which is contained in the provision of professional services themselves. The lawyer's stock in trade is the sale of legal services, not photocopy paper, tuna fish sandwiches, computer time or messenger services.

ABA Formal Ethics Op. 93-379 (1993). Compare Heng v. Rotech Med. Corp., 720 N.W.2d 54 (N.D. 2006) (canvassing caselaw and adopting majority view that fees for electronic legal research not recoverable as costs), with Pa. Ethics Op. 2006-30 (2006) (law firm may recoup cost of computerized legal research by billing clients pro rata percentage of monthly access fee, provided clients give informed consent); cf. N.C. Formal Ethics Op. 2005-11 (2006) (when lender requires real estate buyer's lawyer to submit estimate of anticipated recording and courier costs before lender will issue loan package, lawyer may, with full disclosure, inflate estimate and keep any excess, provided charges not clearly excessive).

* Contract Lawyers

According to an ABA ethics opinion, if a contract lawyer's services are billed as a cost or an expense, the amount must not exceed the actual cost; however, if the contract lawyer's services are billed as legal services, the billing lawyer may--subject to the reasonableness requirement-- add a surcharge. ABA Formal Ethics Op. 00-420 (2000) (collecting authorities); see also Md. Ethics Op. 2001-31 (2001) (surcharge permissible if contract lawyer's services billed as "legal services"--rather than "costs"--and revealed in retainer agreement). But see Haw. Ethics Op. 47 (2004) (firm must disclose to client rate at which contract lawyer will be billed, preferably in writing; rate must be same as rate paid by firm, absent client consent); L.A. Ethics Op. 518 (2006) (lawyer who contracts with brief-drafting company must disclose basis upon which any charges will be passed on to client).

Contingent-Fee Cases and Fee Awards

A lawyer who takes a case on a contingent-fee basis must reveal the agreement to the court if the court is considering awarding fees. Accepting a court-awarded fee in addition to a contingent fee will normally be deemed improper. See Warnell v. Ford Motor Co., 205 F. Supp. 2d 956 (N.D. Ill. 2002) (class counsel in sex discrimination class action "double-dipped" by taking $2.75 million fee award on $12 million settlement in addition to contingent-fee agreement, yielding total award of more than $3.4 million; ordered to disgorge contingent fee); Jenkins v. McCoy, 882 F. Supp. 549 (S.D. W. Va. 1995) (a year after awarding statutory fees, court learned that plaintiff's lawyer had also taken percentage pursuant to contingent-fee agreement; court ordered it repaid to plaintiff and criticized lawyer for violating court's trust); In re Struthers, 877 P.2d 789 (Ariz. 1994) (en banc) (agreement in collection cases granting lawyer contingent fee and any court-awarded fee is facially invalid and misleads court; court would not award fees if it knew award would provide double recovery for lawyer and no benefit to client); see also Burrell v. Yale Univ., No. X02 CV 00-0159421-S, 2005 WL 1670613 (Conn. Super. Ct. May 26, 2005) (condemning civil rights plaintiffs' lawyers for seeking to calculate statutory fee award as one-third of jury award, which already included fees; "[W]hen fully exposed for what it is, [this formula] represents the type of matter that makes the public cynical about the legal profession. The court has examined the factors governing the reasonableness of an attorney's fee in Rule 1.5(a) of the Rules of Professional Conduct and finds nothing there to justify such exorbitant rates."); Restatement (Third) of the Law Governing Lawyers s 38 cmt. f (2000) (agreement permitting lawyer to receive both contractual fee and fee award, without crediting award against contract fee, is presumptively unreasonable). But see N.C. Formal Ethics Op. 2002-4 (2003) (lawyer not per se barred from collecting contingent fee in addition to portion of court-awarded fee if total consistent with fee agreement and not clearly excessive, but collecting full amount of both "ordinarily" violates Rule 1.5(a)).

The Supreme Court has held that in civil rights cases in which fees are awarded pursuant to 42 U.S.C. s 1988, the statute controls what the losing defendant must pay rather than what the prevailing plaintiff must pay his or her lawyer. Therefore, if the court awards less than the amount in the contingent-fee agreement, the plaintiff remains obligated for the difference. Venegas v. Mitchell, 495 U.S. 82 (1990).

Simultaneous Negotiation of Settlement and Attorneys' Fees

Whenever a lawyer negotiates attorneys' fees as part of the settlement of a case, there is a potential conflict of interest. A plaintiff's lawyer has an interest in securing the best possible fee award, but is duty- bound to negotiate the best possible settlement for the client.

In Evans v. Jeff D., 475 U.S. 717 (1986), the Court unanimously declined to prohibit the simultaneous negotiation of fees and settlement and, by a six-to-three vote, also declined to ban settlements conditioned upon the waiver of fees. A statutory fee award, at least under 42 U.S.C. s 1988, belongs to the client and may be waived or compromised by the client. Id.; cf. Ramirez v. Sturdevant, 26 Cal. Rptr. 2d 554 (Ct. App. 1994) (any settlement resulting from simultaneous negotiation of fees and merits is presumed tainted by conflict of interest between lawyer and client, and will not be approved by trial court unless lawyer establishes that in protecting own interests he or she did not slight those of client). For a detailed analysis of the impact of Evans, see the chapter entitled "Simultaneous Negotiation of Fees and Merits" in ABA/BNA Lawyers' Manual on Professional Conduct. See generally Nazer, Conflict and Solidarity: The Legacy of Evans v. Jeff D., 17 Geo. J. Legal Ethics 499 (2004).

Lawyers have attempted to avoid the conflict with a retainer provision transferring the right to a fee award from the client to the lawyer, or prohibiting the client from waiving the right. See Pony v. County of L.A., 433 F.3d 1138 (9th Cir.) (provision in retainer agreement assigning right to apply for attorneys' fees void as matter of law; right to seek statutory attorneys' fees in civil rights action under 42 U.S.C. s 1983 is substantive cause of action and thus cannot be contractually transferred), cert. denied, 126 S. Ct. 2864 (2006); Babcock v. Rezak, No. 96-CV-0394E(SC), 2004 WL 1574623 (W.D.N.Y. June 23, 2004) (construing ambiguous assignment in fee agreement against firm, and refusing to let firm seek fees in face of client's desire to waive them to facilitate settlement: "[The law firm's] interest in section 1988 fees is diametrically opposed to that of [the client]. This Court finds that preservation of an attorney's undivided loyalty is a special circumstance justifying denial of section 1988 fees."). See generally L. A. Formal Ethics Op. 515 (2006) (discussing ethics issues arising when lawyer and client agree to split award of statutory attorneys' fees).

Charging to Respond to Client's Disciplinary Complaint

It is unreasonable for a lawyer to charge a client for time spent responding to the client's disciplinary complaint. See, e.g., In re Lawyers Responsibility Bd. Panel No. 94-17, 546 N.W.2d 744 (Minn. 1996) (charging client for time spent responding to client's ethics complaint violates Rule 1.5(a) as well as Rule 8.4(d)); In re Napolitano, 662 N.Y.S.2d 56 (App. Div. 1997) (charging client for time spent responding to client's complaint constituted attempt to collect illegal fee); In re Kitchen, 682 N.W.2d 780 (Wis. 2004) (lawyer charged clients $175 to retrieve their file to answer inquiries when they filed grievance against him); Me. Ethics Op. 139 (1994) ( "We are struck at the outset by the novelty of the suggestion that the [a]ttorney's personal defense against a complaint of professional misconduct could be construed, under any circumstances, as the rendition of legal services to a client."); cf. Conn. Informal Ethics Op. 03-05 (2003) (lawyer may not bill client for defending grievance brought by opposing party unless original agreement so provides, or lawyer and client reach new agreement).

Subsection (b): Communicating Basis for Legal Fees

Explaining Fee Agreement

Rule 1.5(b) requires a lawyer to "communicate" to a client who is not a regular client (and to a regular client, if the terms are changing) the basis upon which the lawyer will charge the client, and any later modifications to that basis. See, e.g., In re Freeman, 835 N.E.2d 494 (Ind. 2005) (failure to establish in fee agreements how hourly rate would apply against retainers violated Rule 1.5(b)); In re Salwowski, 819 N.E.2d 823 (Ind. 2004) (lawyer failed to explain clearly how fee would be calculated; lawyer agreed to represent client in bankruptcy for $1,500, but billed at $125 per hour; partner ordered outstanding bills transferred to client's bankruptcy billing statement, though pre-petition debt to firm was protected from collection upon final discharge in bankruptcy); Attorney Grievance Comm'n of Md. v. Culver, 849 A.2d 423 (Md. 2004) (lawyer failed to state hourly rate in engagement letter, retainer, or first bill, but indicated hourly rate of $125 on invoice eight months later and then increased it to $150 two months after); In re Disciplinary Action against Hellerud, 714 N.W.2d 38 (N.D. 2006) (requiring lawyer to refund $820 charged for legal assistant's time when lawyer had not communicated his intent to charge significant rate--$275 per hour--for assistant's work); ABA Formal Ethics Op. 94-389 (1994) (lawyers should discuss different fee arrangements with prospective clients); see also In re Ifill, 878 A.2d 465 (D.C. 2005) (violation of Rule 1.5(b); lawyer failed to honor client's request for retainer agreement or written confirmation of amounts paid).

* Writing "Preferred" but Not Required for Non-Contingent-Fee Agreements

In 2002, a proposed amendment to Rule 1.5 that would have required all fee agreements (not just contingent-fee agreements) to be in writing was rejected by the ABA House of Delegates; the Rule as adopted provides only that notice be given "preferably in writing." American Bar Association, A Legislative History: The Development of the ABA Model Rules of Professional Conduct, 1982-2005, at 92-95 (2006). Regulations in some states, however, do require written agreements. (If the fee is contingent, the agreement must be in writing and signed by the client; see the discussion of Model Rule 1.5(c), below.)

Modification of Agreements

Modification of a fee agreement to a lawyer's benefit during a representation is generally unenforceable. See Severson, Werson, Berke & Melchior v. Bolinger, 1 Cal. Rptr. 2d 531 (Ct. App. 1991) (written fee agreement in which law firm charges client its "regular hourly rates" does not permit firm unilaterally to raise rates beyond those informally quoted to client when representation began); In re Thayer, 745 N.E.2d 207 (Ind. 2001) (lawyer negotiated 40 percent contingent-fee agreement but after settlement presented client with new written agreement raising percentage to 50 percent, stating that additional 10 percent was "to prevent the medical provider or others from attaching the proceeds"); Ky. Bar Ass'n v. Basinger, 53 S.W.3d 92 (Ky. 2001) (lawyer attempted to charge contingent fee after indicating he would charge hourly fee); In re Light, 615 N.W.2d 164 (S.D. 2000) (lawyer presented client with agreement increasing contingent fee from 30 percent to 331/3 percent, without explaining change); see also In re Hefron, 771 N.E.2d 1157 (Ind. 2002) (lawyer agreed to represent client on hourly basis to recover estate assets, but upon learning substantial assets were easily recoverable, insisted client sign new agreement giving lawyer percentage). But see Pezold, Richey, Caruso & Barker v. Cherokee Nation Indus., Inc., 46 P.3d 161 (Okla. Civ. App. 2001) (client having trouble paying hourly rate bills negotiated switch to contingent-fee agreement; case settled at conference that evening; court properly awarded almost $800,000 in fees pursuant to new agreement). See generally Richmond, Changing Fee Agreements During Representations: What Are the Rules?, 15 Prof. Law., no. 3, at 2 (2004).

Advances versus Retainers

A lawyer may require a client to advance money for legal fees. Model Rule 1.5, cmt. [4]. The advance is not, however, the property of the lawyer; it is drawn down as the lawyer does the work to earn it. Pursuant to Rule 1.16(d), any unearned portion must be returned to the client. See, e.g., In re Sather, 3 P.3d 403 (Colo. 2000) (designating advance fee as "nonrefundable retainer" is misleading and interferes with lawyer-client relationship); In re Stephens, 851 N.E.2d 1256 (Ind. 2006) (nonrefundable retainer locks client to lawyer and chills client's right to terminate relationship); In re Kendall, 804 N.E.2d 1152 (Ind. 2004) (advance payments for future services are by definition refundable; therefore, agreement characterizing advance payment as nonrefundable violated reasonableness requirement of Rule 1.5(a)); In re Dawson , 8 P.3d 856 (N.M. 2000) (unearned nonrefundable fees are unreasonable); In re Cooperman, 591 N.Y.S.2d 855 (App. Div. 1993) (lawyer suspended for two years for charging nonrefundable retainers in divorce actions), aff'd, 633 N.E.2d 1069 (N.Y. 1994); Columbus Bar Ass'n v. Halliburton-Cohen, 832 N.E.2d 42 (Ohio 2005) (lawyer violated correlative Code provision by charging divorce client spurious "lost opportunity" fee that amounted to impermissible nonrefundable retainer); Ala. Ethics Op. RO-93-21 (1993) (lawyers may not call fees nonrefundable or use any other language in fee agreement suggesting that fees paid before services rendered are not subject to refund or adjustment); Conn. Ethics Op. 00-02 (2000) (concept of retainer's nonrefundability is "slippery as a watermelon seed"); N.C. Formal Ethics Op. 13 (2006) (minimum fee billed against lawyer's hourly rate is client money, unearned portion of which must be returned to client to avoid collecting excessive fee); Okla. Ethics Op. 317 (2002) (any advance payment should be held in trust account until earned, with unearned portion refunded to client at end of representation). See generally Rothrock, The Forgotten Flat Fee: Whose Money Is It and Where Should It Be Deposited?, 1 Fla. Coastal L.J. 293 (1999) (flat fees are like fee advances; they should be held in trust account until earned).

At the other extreme is a general retainer. Because it buys the lawyer's availability for a particular representation or a particular time period, it may be considered earned when paid. See, e.g., Ryan v. Butera, 193 F.3d 210 (3d Cir. 1999) (general nonrefundable retainer of $1 million for only ten weeks of work enforceable when client offered initial, one-time payment as "carrot" to attract counsel with "specific capability" despite client's history of nonpayment of legal fees); In re Lochow, 469 N.W.2d 91 (Minn. 1991) (nonrefundable retainer may be appropriate if lawyer must forego representation of other clients and lose business as result of engagement; if retainer reasonable, it may be immediately earned, but agreement must be in writing and approved by client); Mass. Ethics Op. 95-2 (1995) (prohibition on nonrefundable retainers does not apply to general retainers, in which payment made solely to insure lawyer's availability for specific time period); see also Wong v. Michael Kennedy, P.C., 853 F. Supp. 73 (E.D.N.Y. 1994) (only when retainer paid solely for lawyer's availability may it be called "general retainer" and made nonrefundable; when client contracts for specified services, agreement is "special retainer" and must be refundable); Brickman & Cunningham, Nonrefundable Retainers Revisited, 72 N.C. L. Rev. 1 (1993) (explaining fee structures and discussing policy issues). See generally Brickman & Cunningham, Nonrefundable Retainers: A Response to Critics of the Absolute Ban, 64 U. Cin. L. Rev. 11 (1995); Lubet, The Rush to Remedies: Some Conceptual Questions about Nonrefundable Retainers, 73 N.C. L. Rev. 271 (1994) (questioning whether blanket ban justified); McKinnon, Note, Analytical Approaches to the Nonrefundable Retainer, 9 Geo. J. Legal Ethics 583 (1996).

Resolution of Fee Disputes

Comment [9] notes that a lawyer should "conscientiously consider" submitting to an established procedure for resolution of a fee dispute. The procedure may be one upon which the parties agree before representation or one established by the bar, including arbitration or mediation procedures. See ABA Formal Ethics Op. 02-425 (2002) (retainer agreement requiring arbitration of fee disputes and malpractice claims permissible, provided client fully apprised of advantages and disadvantages of arbitration and gives informed consent); cf. N.C. Ethics Op. 2000-7 (2000) (lawyer may not charge client legal fee for time required to participate in state bar's fee dispute resolution program).

In 1995, the ABA House of Delegates adopted Model Fee Arbitration Rules; they are reprinted in ABA/BNA Lawyers' Manual on Professional Conduct, behind the Model Standards tab, at 01:4001. See generally Brickman, Attorney-Client Fee Arbitration: A Dissenting View, 1990 Utah L. Rev. 227.

Subsection (c): Contingent Fees

Types of Contingent-Fee Arrangements

The most common form of contingent-fee agreement gives the lawyer a specified percentage of any recovery, whether obtained by settlement or judgment after trial. Another form is the "reverse" contingent fee, based upon the amount of money the lawyer's services save the client. Also possible is a percentage of expected profits. See ABA Formal Ethics Op. 94-389 (1994) (fee agreement may provide for "higher percentage fee as the amount of the recovery goes up or the amount of savings increases," such as 15 percent of first $100,000 recovered or saved, 20 percent on next $25,000, and 25 percent on anything thereafter); Ky. Ethics Op. E-359 (1993) (lawyer using reverse contingency should expect to bear burden of proving that amount and method of computing it are reasonable under circumstances); L.A. Ethics Op. 507 (2001) (as fee for preparing and prosecuting patent application, lawyer may accept 5 percent of any proceeds; agreement must comply with contingent-fee agreement rules); Pa. Ethics Op. 92-76 (1992) (approving contingent fee based upon amount client saves in tax appeal); see also Brown & Sturm v. Frederick Rd. Ltd. P'ship, 768 A.2d 62 (Md. Ct. Spec. App. 2001) (reverse contingent-fee agreement by which lawyers claimed almost $5 million for reduction of IRS tax liability was unreasonable at inception because based upon inflated valuation of property, and bore little relation to time, labor, novelty, and risk involved). But see Holmes v. Loveless, 94 P.3d 338 (Wash. Ct. App. 2004) (error to continue to enforce thirty-year-old contingent-fee agreement under which law firm to receive indefinitely 5 percent of cash distributions from joint venture-- a successful shopping center--in exchange for initial two and one-half years of discounted legal services; discount valued at $8,000 already generated income of $380,000; "we agree with the joint venture's contention that the time has been reached when making additional distributions under the agreement would result in an excessive fee"). See generally Brickman, Contingent Fee Abuses, Ethical Mandates, and the Disciplinary System: The Case against Case-by- Case Enforcement, 53 Wash. & Lee L. Rev. 1339 (1996); Phillips, Contingency Fees: Rules and Ethical Guidelines, 11 Geo. J. Legal Ethics 233 (1998); Stuckey, "Reverse Contingency Fees": A Potentially Profitable and Professional Solution to the Billable Hour Trap, 17 Prof. Law., no. 3, at 25 (2005).

The 2002 amendments to Comment [3] deleted the requirement that a lawyer offer a client alternative arrangements if there is doubt about whether a contingent fee is in the client's best interest. For criticism of this deletion, and argument that the 2002 amendments to Rule 1.5 facilitate abuse of contingent fees, see The Continuing Assault on the Citadel of Fiduciary Protection: Ethics 2000's Revision of Model Rule 1.5, by Lester Brickman, at 2003 U. Ill. L. Rev. 1181 (Symposium Issue).

Interfering with Client's Control of Case

A contingent-fee agreement that impinges upon the client's control over settlement decisions is prohibited. See, e.g., Neb. Ethics Op. 95-1 (1995) (may not include provision in contingent-fee agreement preventing client from settling case without lawyer's approval; may not include provision giving lawyer either percentage fee or customary hourly fee, whichever is greater, if client settles without lawyer's approval); N.Y. County Ethics Op. 736 (2006) (contingent-fee agreement may not give lawyer authority to convert to hourly fee if client refuses "reasonable" settlement offer); Or. Ethics Op. 2005-54 (2005) (fee agreement may not provide that if client rejects "reasonable" settlement offer, lawyer entitled to agreed-upon percentage of rejected amount plus hourly fee from point of rejection forward); Phila. Ethics Op. 2001-1 (2002) (contingent-fee agreement may not authorize payment on hourly or quantum meruit basis if client rejects lawyer's settlement advice; however, fee-conversion clause triggered by client's decision to depart from agreement's clearly articulated objectives--for example, equitable versus monetary relief-- may be permissible); cf. L.A. Ethics Op. 505 (2001) (plaintiffs' lawyer may offer fee waiver or very advantageous fee structure in return for client's promise not to enter any settlement that includes confidentiality clause; if client does agree to confidentiality clause, client agrees to pay reasonable value of lawyer's services).

A contingent-fee agreement that penalizes the client for discharging the lawyer (or protects the lawyer's fee in the event of withdrawal) also violates the Rules. See, e.g., Fla. Bar v. Hollander, 607 So. 2d 412 (Fla. 1992) (contingent-fee agreement requiring client to pay for all services, fees, charges, and expenses if law firm withdraws or is discharged, as well as percentage of any future recovery, violates proscription on clearly excessive fees); In re Lansky, 678 N.E.2d 1114 (Ind. 1997) (agreement guaranteeing lawyer 40 percent of gross recovery in event client discharges him before resolution of case was unreasonable); Hoover Slovacek LLP v. Walton, 206 S.W.3d 557 (Tex. 2006) (retainer provision entitling firm to present value of its contingent fee if discharged before contingency occurs is unenforceable as against public policy); Va. Ethics Op. 1812 (2005) (although contingent-fee agreement may provide for quantum meruit recovery upon early termination, the following provisions, without more, are impermissible: "In the event Client terminates this agreement, the reasonable value of Attorney's services shall be valued at $200 per hour" and "In the alternative, the Attorney may, where permitted by law, elect compensation based on the agreed contingent fee for any settlement offer made to Client prior to termination.").

Risk of Nonrecovery

In determining whether a contingent fee is permissible, the focus is upon the risk of nonrecovery. See, e.g., In re Sulzer Hip Prosthesis & Knee Prosthesis Liab. Litig., 290 F. Supp. 2d 840 (N.D. Ohio 2003) (contingent- fee agreements entered with plaintiff class members after both sides already signed memorandum outlining full settlement was unethical; no significant risk of nonrecovery); Ky. Bar Ass'n v. Newberg, 839 S.W.2d 280 (Ky. 1992) (45 percent fee for recovering basic reparation benefits from insurer clearly excessive); Md.

Attorney Grievance Comm'n v. Kemp, 496 A.2d 672 (Md. 1985) (one- third contingent fee to collect no-fault benefits clearly excessive); In re Hogan Trust, No. 242530, 2004 WL 1178192 (Mich. Ct. App. May 24, 2004) (affirming probate court's reduction of attorneys' fees of nearly $400,000 under contingent-fee agreement to $75,000 plus costs and requiring lawyer to return rest to trust; fees unreasonable in light of $45,000 "engagement fee" that "altered the risk-shifting effect" of contingent-fee agreement); Or. Ethics Op. 2005-124 (2005) (although personal injury lawyer may use fee agreement based upon recovery of personal injury protection benefits as well as disputed portion of any award, if only claim is uncontested personal injury protection claim without separate personal injury case, anything other than de minimis contingent fee is clearly excessive). But see Attorney Grievance Comm'n of Md. v. Ashworth, 851 A.2d 527 (Md. 2004) (25 percent contingent-fee agreement for representing plaintiff in dispute with former employer not unreasonable even though matter settled within days and without litigation; "attorneys with excellent skills and reputations often can obtain satisfactory settlements with the expenditure of less effort than those lawyers without such reputation and skill"); State ex rel. Okla. Bar Ass'n v. Flaniken, 85 P.3d 824 (Okla. 2004) (rejecting "upon reflection" test by which reasonableness of fee determined in hindsight, court declined to find violation when lawyer lawfully contracted for one-third of client's recovery in probate matter, even though probate took less time and did not involve anticipated will contest).

ABA Formal Ethics Opinion 94-389 (1994) holds that it is not per se unethical to charge a contingent fee even though liability is clear and recovery certain, and the amount is the only real issue. But see Brickman, ABA Regulation of Contingency Fees: Money Talks, Ethics Walks, 65 Fordham L. Rev. 247 (1996) (scathingly criticizing ABA Formal Ethics Opinion 94-389).

Contingent-Fee Agreements Must Be in Writing

Rule 1.5(c) requires that a contingent-fee agreement be in writing. Pursuant to an amendment adopted in 2002, this writing must be signed by the client. Another amendment made in 2002 requires that the agreement explain the costs and expenses the client is expected to bear. American Bar Association, A Legislative History: The Development of the ABA Model Rules of Professional Conduct, 1982-2005, at 92 (2006); see, e.g., Statewide Grievance Comm. v. Timbers, 796 A.2d 565 (Conn. App. Ct. 2002) (failure to secure written contingent-fee agreement or communicate with client about fee); In re Anonymous , 657 N.E.2d 394 (Ind. 1995) (workers' compensation board's fee schedule did not obviate need for compliance with ethics requirement of written contingent-fee agreement); Rasner v. Ky. Bar Ass'n, 57 S.W.3d 826 (Ky. 2001) (failure to memorialize agreement with client for one-third contingent fee to recover insurance proceeds); Brown v. Whitaker, 926 S.W.2d 1 (Mo. Ct. App. 1996) (fee contract in which eighty-one-year-old severely injured client promised to pay her lawyers half the "amounts paid to me" in judgment or settlement required lawyers to deduct client's large medical expenses--paid by opponent's insurer--in addition to litigation expenses before calculating their 50 percent contingent fee; court observed, without more, that fee appeared unconscionable); Ill. Ethics Op. 98-03 (1999) (law firm functioning as business broker between intellectual property clients who are inventors and promoters must reduce fee agreement to writing if fee contingent upon success of contemplated venture); see also Guerrant v. Roth, 777 N.E.2d 499 (Ill. App. Ct. 2002) (contingent-fee lawyer cannot recover computer-aided research expenses unless agreement expressly so provides).

Although failure to reduce the contingent-fee agreement to writing violates Model Rule 1.5(c), it does not necessarily deprive the lawyer of all fees. See, e.g., Mullens v. Hansel-Henderson, 65 P.3d 992 (Colo. 2002) (quantum meruit recovery permitted in face of noncomplying contingent-fee agreement; lawyer performed all contracted services); In re Williams, 693 A.2d 327 (D.C. 1997) (lawyer sued client in small-claims court for his contingent fee; client then filed complaint against lawyer for never reducing fee agreement to writing; small-claims suit settled, but lawyer admonished in disciplinary proceeding for violating Rules 1.5(b) and 1.5(c)); Partee v. Compton, 653 N.E.2d 454 (Ill. App. Ct. 1995) (even though lawyer had not signed contingent-fee agreement, and agreement had not specified whether expenses were to be deducted before or after calculating fee, clients would not be permitted to avoid paying on contract after they "reap[ed] the benefits of its execution"; summary judgment granted for lawyer, without prejudice to clients' "other remedies available to them under the Code of Professional Responsibility"); Starkey, Kelly, Blaney & White v. Estate of Nicolaysen, 796 A.2d 238 (N.J. 2002) (though oral contingent-fee agreement unenforceable, lawyer entitled to recover reasonable value of legal services under quantum meruit theory).

Calculation of Fees upon Premature Termination of Contingent-Fee Relationship

A contingent-fee lawyer who is discharged without cause may seek recovery on a quantum meruit basis. See Baker v. Shapero, 203 S.W.3d 697 (Ky. 2006) (abandoning Kentucky's unusual policy of permitting recovery on contract when contingent-fee lawyer discharged without cause, and announcing state would join majority of jurisdictions limiting lawyer to quantum meruit recovery); see also In re Harris, 934 P.2d 965 (Kan. 1997) (even if client discharged lawyer without cause, $4,000 for ten hours of work before discharge was unreasonable and would be reduced to quantum meruit recovery of $900; without hiring second lawyer or filing suit, client successfully negotiated settlement of claim for $10,000 more than lawyer thought it worth); cf. Keck & Assocs., P.C. v. Vasey, 834 N.E.2d 486 (Ill. App. Ct. 2005) (dismissing quantum meruit claim when contingent-fee client discharged lawyer with cause after final adverse judgment and rejected lawyer's advice to appeal). See generally Brickman, Setting the Fee When the Client Discharges a Contingent Fee Attorney, 41 Emory L.J. 367 (1992).

Subsection (d): Contingent Fees in Criminal and Domestic Relations Cases

Criminal Cases

Rule 1.5(d) forbids contingent-fee arrangements in criminal cases. A fee based upon acquittal creates a conflict of interest because it may tempt a defense lawyer to push for trial rather than a plea bargain, or to forego mitigating evidence if it could lead to conviction of a lesser- included offense. See generally Godfrey, Rethinking the Ethical Ban on Criminal Contingent Fees: A Common Sense Approach to Asset Forfeiture, 79 Tex. L. Rev. 1699 (2001); Silberlight, Gambling with Ethics and Constitutional Rights: A Look at Issues Involved with Contingent Fee Arrangements in Criminal Defense Practice, 27 Seattle U. L. Rev. 805 (2004). The prohibition makes no distinction between corporate and individual criminal defendants. See N.Y. County Ethics Op. 714 (1986) (because state's ban, like Model Rule, explicitly refers to representing "a defendant in a criminal case," it must be applied to corporate criminal defendants as well as individuals even though fines, rather than incarceration, at stake).

Use of a contingent-fee agreement in representing a criminal defen dant does not in itself constitute ineffective assistance of counsel. See Winkler v. Keane, 7 F.3d 304 (2d Cir. 1993) (trial court's finding that representation would have been no different if proper fee arrangement used was supported by record indicating it had been defendant's insistence upon pleading not guilty that led counsel not to seek conviction on lesser charges; fact that counsel stood to receive additional $25,000 if defendant acquitted did not deny defendant effective assistance of counsel); Commonwealth v. Facella, 679 N.E.2d 221 (Mass. App. Ct. 1996) (unethical agreement with criminal defendant to negotiate change of plea to guilty, charging $10,000 initially and additional $15,000 if lawyer could negotiate sentence of under ten years, did not entitle defendant to evidentiary hearing on his claim of ineffective assistance of counsel).

* Related Civil Action

The prohibition does not necessarily apply to fee agreements for defending a client who plans a civil action arising out of the arrest. See Landsman v. Moss , 579 N.Y.S.2d 450 (App. Div. 1992) (contingent-fee arrangement that gave lawyer first $12,000 recovered in client's malicious prosecution action, as compensation for lawyer's work defending client in criminal action, did not violate prohibition against contingent fees in criminal cases, but did violate rule against acquiring proprietary interest in client's cause of action); Ind. Ethics Op. 4 (1991) (lawyer may agree that criminal defense fee will be paid from recovery in client's planned civil action for false arrest, or by client if no recovery in civil action; fee not contingent upon successful criminal defense but upon success in civil case); Pa. Ethics Op. 2004-17 (2004) (prohibition of Rule 1.5(d)(2) does not preclude contingent-fee arrangement with bank fraud defendant whereby lawyer's fee in federal criminal case to be paid out of defendant's recovery as relator in related civil qui tam action).

Domestic Relations Cases

Rule 1.5(d) also prohibits contingent-fee agreements in certain domestic relations matters, reflecting public policies to promote reconciliation and protect against overreaching in highly emotional situations.

The 2002 amendments to Rule 1.5 included the addition of Comment [6], explaining that the prohibition does not extend to collecting arrearages that have been reduced to judgment; these do not raise the same policy concerns as contingent fees for securing a divorce or for obtaining a certain amount of alimony, support, or property. American Bar Association, A Legislative History: The Development of the ABA Model Rules of Professional Conduct, 1982-2005, at 93 (2006); see Doe v. Doe, 34 P.3d 1059 (Haw. Ct. App. 2001) (vacating family court order that excluded post-judgment interest on child support arrearage and limited attorneys' fees to lodestar amount with no consideration of contingent-fee contract between lawyer and ex-wife; court cited Comment as express authorization of contingent fees in agreements to enforce judgments for past-due child support); Marquis & Aurbach v. Eighth Judicial Dist. Court, 146 P.3d 1130 (Nev. 2006) (contingent-fee agreement that depended upon modification of property settlement agreement that disposed of both alimony and community property violated state's version of Rule 1.5(d) and was unenforceable); N.Y. State Ethics Op. 747 (2001) (recommending review of state's rule in light of other states' favorable treatment of contingent-fee agreements to collect maintenance, child support, or alimony after final judgment); R.I. Ethics Op. 2006-03 (2006) (lawyer may represent wife on contingent-fee basis in dispute with husband about value of stock to which she is entitled under marital settlement agreement).

Subsection (e): Fee Division across Firms

Rule 1.5(e) provides that lawyers not in the same firm may share fees only if the division is proportionate to the work performed or each lawyer assumes joint responsibility, if the client agrees in writing, and if the total fee is reasonable. Subsection (e) applies when one lawyer refers a case to another lawyer, when a client's initial lawyer is replaced by successor counsel, or when lawyers affiliate as co-counsel or local counsel. See, e.g., Statewide Grievance Comm. v. Dixon, 772 A.2d 160 (Conn. App. Ct. 2001) (Rule 1.5(e) violated when division of fees between client's current and previous lawyers made without client's knowledge or consent); Corcoran v. Ne. Ill. Reg'l Commuter R.R. Corp., 803 N.E.2d 87 (Ill. App. Ct. 2003) (lawyer who referred wrongful-death case entitled to recover referral fee of $140,000 from client, notwithstanding that receiving firm waived its own fee because client's settlement ended up no better than what client had already been offered; referring lawyer complied with written disclosure requirement and assumed same responsibility as receiving firm).

For a comprehensive review of the history of the regulation of referral fees and a comparison of approaches taken in different jurisdictions, see In re Supreme Court of Tex. Misc. Docket No. 03-9207, Proposed Rule 8A of Tex. Rules of Civil Procedure, published at 67 Tex. B.J. 116 (2004).

Departing Lawyers

Comment [8] was added in 2002 to explain that Rule 1.5(e) does not apply if the fee is being divided between lawyers who used to be associated in a firm but have gone their separate ways. See Norton Frickey, P.C. v. James B. Turner, P.C., 94 P.3d 1266 (Colo. Ct. App. 2004) (agreement to share fees with departing lawyer enforceable and not void as against public policy; court found Comment [8] persuasive: "[Model Rule 1.5(d)] does not prohibit or regulate division of fees to be received in the future for work done when lawyers were previously associated in a law firm"); Fox v. Heisler, 874 So. 2d 932 (La. Ct. App. 2004) (affirming oral 50/50 fee division agreement made between lawyers when one lawyer left other's employment; public policy behind fee-division rule not contravened when parties had thirteen-year history of adherence to agreement); Frasier, Frasier & Hickman, L.L.P. v. Flynn, 114 P.3d 1095 (Okla. Civ. App. 2005) (Rule 1.5(e) does not prohibit law firm from sharing fees with former partner under separation agreement when matters entrusted to firm before partner's departure); Piaskoski & Assocs. v. Ricciardi, 686 N.W.2d 675 (Wis. Ct. App. 2004) (upholding equal division of fees between law firm and departing associate; Rule 1.5(e) does not apply when lawyers were in same firm when representation began); Ill. Ethics Op. 03-06 (2004) (partner who left firm to become state's attorney may share fees for cases he brought to firm before departure; lawyer need not retain responsibility for cases, take fee in proportion to services rendered, or obtain client consent when division of fee pursuant to separation agreement); cf. Walker v. Gribble, 689 N.W.2d 104 (Iowa 2004) (agreement between lawyer and former partner about division of lucrative contingent-fee permissible as part of overall separation from firm).

Joint Responsibility

Rule 1.5(e) accords with what New York County Ethics Opinion 715 (undated) called "the modern trend that permits a lawyer to receive a portion of the fees generated by a matter solely in consideration for a referral if the lawyer assumes joint responsibility." But while the referring lawyer is not required to perform any legal services, the meaning of "joint responsibility" is not always clear. See Evans & Luptak, PLC v. Lizza, 650 N.W.2d 364 (Mich. Ct. App. 2002) (agreement that allows firm to receive payment for referring client with which it had conflict is unenforceable); Ariz. Ethics Op. 04-02 (2004) (requirement of joint responsibility satisfied if referring lawyer assumes financial responsibility for any malpractice during representation; referring lawyer not necessarily required to have "substantive involvement"); N.Y. State Ethics Op. 745 (2001) (lawyer disqualified due to conflict of interest cannot assume joint responsibility and thus may not be paid referral fee); Wis. Formal Ethics Op. E00-01 (2000) (though referring lawyer need not be involved in day-to-day tactical decisions or provide legal services, duty of joint responsibility is "not a mere hand-off of the case"; referring lawyer must maintain "active concern" as would supervising partner in law firm). Compare Elane v. St. Bernard Hosp., 672 N.E.2d 820 (Ill. App. Ct. 1996) (referral agreement providing that lawyer would "remain legally responsible for the performance of services to the extent required under Rule 1.5" did not involve improper practice of law by referring lawyer after she became judge; directed finding in favor of receiving law firm on lawyer's petition for adjudication of her entitlement to attorneys' fees reversed), with In re Babies, 315 B.R. 785 (Bankr. N.D. Ga. 2004) (absent pro hac vice admission, fee- sharing arrangement between Georgia lawyer and Illinois lawyers did not satisfy Georgia's Rule 1.5(e), which requires that lawyers who share fees assume joint responsibility if fee not shared in proportion to work performed; distinguishing Elane and concluding that joint responsibility requires more than financial responsibility; Illinois lawyers could not lawfully assume joint responsibility without pro hac vice admission to Georgia bar). For a scathing critique of Elane, see Rotunda, Judges as Ambulance Chasers, 8 Prof. Law., no. 3, at 14 (1997) (opinion's logic "should allow a disbarred lawyer" or even lay corporation to collect referral fees, if referrer's only purpose is to serve as "back-up malpractice insurer").

Written Consent to Fee Division Required

The 2002 amendments to Model Rule 1.5 add a requirement that the client agree in writing to the participation of each lawyer, including the share each will receive. See In re Storment, 786 N.E.2d 963 (Ill. 2002) (failure to obtain written client consent to fee division not "mere technical violation"; imposing suspension); In re Stochel, 792 N.E.2d 874 (Ind. 2003) (without client consent, lawyer paid $16,000 to referring lawyer whose only contact with client had been initial consultation, for which he already received fee of $250); In re Hart, 605 S.E.2d 532 (S.C. 2004) (lawyer disciplined for, inter alia, not putting his standard 50/50 fee split with referring lawyers in writing in seventy cases; no client complained, all clients consented, and lawyer self- reported); see also Saggese v. Kelley, 837 N.E.2d 699 (Mass. 2005) (Rule 1.5(e)'s requirements of disclosure and written client consent must be met before lawyer makes any referral); cf. Rudnick & Mulvey, Splitting Hairs in Fee Splitting, 50 B.B.J., Mar./Apr. 2006, at 14 (criticizing Saggese and noting that Rule 1.5(e) itself is silent about method and timing of disclosure).

Enforceability of Fee-Sharing Agreement That Violates Rule 1.5(e)

The enforceability of fee-division agreements that do not comply with Rule 1.5 varies among jurisdictions. The different approaches are thoroughly analyzed in Daynard v. Ness, Motley, Loadholt, Richardson & Poole, P.A., 178 F. Supp. 2d 9 (D. Mass. 2001), which notes that courts in Alaska, California, Illinois, Minnesota, Missouri, New Hampshire, and Texas have refused to enforce oral fee-splitting agreements as a matter of public policy, but courts in Delaware, Florida, Georgia, Indiana, New York, and West Virginia have enforced them. In a subsequent decision in Daynard, the court found a distinction between contracts that are illegal and contracts that are void on public policy grounds. Crafting its own test, the court concluded that a law professor seeking to enforce a handshake agreement for a 5 percent cut of millions of dollars in attorneys' fees in tobacco litigation could recover in quantum meruit, even if the agreement was unenforceable as a matter of public policy. Daynard v. Ness, Motley, Loadholt, Richardson & Poole, P.A., 188 F. Supp. 2d 115 (D. Mass. 2002); see also Potter v. Pierce, 688 A.2d 894 (Del. 1997) (Delaware lawyer made oral fee-sharing agreement with lawyer in Pennsylvania, whose Rule 1.5 does not require a writing; when Pennsylvania lawyer sued for his share, Delaware lawyer based his defense upon lack of a writing, which Delaware's Rule 1.5 does require; answering question certified to it by federal district court, state court refused to "allow a Delaware lawyer to be rewarded for violating Delaware's Rule 1.5(e) by using it to avoid a contractual obligation"); Thompson v. Hiter, 826 N.E.2d 503 (Ill. App. Ct. 2005) (law firm discharged by client before settlement of wrongful-death case not entitled to share fee with lawyer who originally brought matter to firm and subsequently handled case; firm failed to comply with rule requiring written agreement to fee division); Post v. Bregman, 707 A.2d 806 (Md. 1998) (rule on fee-splitting is "supervening statement of public policy" to which fee-sharing agreements are subject in extradisciplinary contexts as well; fee-sharing agreements in "clear and flagrant" violation of rule are unenforceable); Saggese v. Kelley, 837 N.E.2d 699 (Mass. 2005) (oral fee-sharing agreement not unenforceable for failure to comply with fee-sharing rule before client referral; failure to comply with Rule 1.5(e) may, however, be basis of disciplinary action).

ABA-AMRPC Rule 1.5

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