MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2006-8
Whether proposed fee arrangement of attorney receiving greater of percentage of recovery or hourly rates and other relevant parts of fee agreement are permissible under the Rules of Professional Conduct
The Committee on Ethics of the Maryland State Bar Association (the “Committee”) has considered your recent inquiry and I have been designated to respond to you on the behalf of the Committee.
In your letter of inquiry, you have posed the following questions: Is it proper to have a contingency fee arrangement which provides that the attorney will receive the greater of one-third of the amount recovered, or the attorney’s customary hourly rate of $300 per hour times the number of hours worked. You enclosed your firm’s “Contingency Fee Retainer Agreement.” The Contingency Fee Retainer Agreement provides “I understand that I do not have to pay my attorneys any fee unless my attorneys recover a judgment or settlement for me in this case.” The Contingency Fee Retainer Agreement further provides that “[a]t the conclusion of my case, my attorneys will review the fee to be sure it is reasonable under Rule 1.5 of the Maryland Rules of Professional Conduct.”
The Committee will comment on the propriety under the Maryland Rules of Professional Conduct (the “Rules”) of the fee arrangement proposed. At the outset, the guidelines for the Committee in rendering formal opinions do not permit the approval of specific language proposed in inquiries. Thus, the specific language of the agreement you have submitted is neither approved nor disapproved in light of this opinion. Furthermore, the Committee does not render opinions on legal issues. To the extent that your inquiry requests a legal opinion, we decline to give one. However, in your inquiry letter you stated that many of your cases are brought under fee-shifting statutes, and we note that some fee-shifting statutes do not permit an attorney to charge the client an attorney’s fee that is greater than that approved by the Court.
Maryland Rule of Professional Conduct1.5(a) requires that all fee agreements between an attorney and a client must be reasonable. Rule 1.5(a) sets forth eight factors to be considered in determining whether a fee is reasonable:
(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.
Although a consideration, whether a fee is reasonable does not necessarily turn on how the fee arrangement is structured, whether on an hourly rate, contingency fee, flat fee or some combination thereof, but whether the ultimate fee is reasonable. Thus, whatever the structure, the proposed fee arrangement is only permissible if the ultimate fee does not amount to an unreasonable fee for the work performed.
The Rules allow an attorney to enter into contingent fee arrangements with clients, subject to certain exceptions and procedural safeguards (including that all such arrangements be in writing). See Rule 1.5 (c) and (d). Contingent fee agreements, like all fee agreements between an attorney and a client, must be reasonable. Rule 1.5(a).
Whether a contingent fee is reasonable is determined using two tests of fairness, both of which must be met. First, the agreement must have been reasonable in principle when the parties entered into it. Second, after the contingency has been met and the fee quantified, the agreement must be reasonable in operation, as tested against the factors set forth in Rule of Professional Conduct Rule 1.5(a). Attorney Griev. Comm’n v. Pennington, 355 Md. 61, 74 (1999); Brown & Sturm v. Frederick Rd. Ltd. Pshp., 137 Md. App. 150, 181 (2001). Thus, the question of the reasonableness of a contingent fee agreement, or one with contingent features, must be revisited after the fee is quantified or quantifiable and tested by the factors enumerated in Rule 1.5(a). In Re Merry-Go-Round Ents. Inc., 244 B.R. 327, 339 (Bankr. D. Md 2000); Attorney Grievance Commission v. Pennington, 355 Md. at 74; Attorney Grievance Commission v. Korotki, 318 Md. 646, 664 (1990). If, after consideration of the factors set forth in Rule 1.5(a), an attorney’s fee that appeared reasonable at the outset becomes excessive, the attorney must reduce the fee. Attorney Griev. Comm’n v. Korotki, 318 Md. at 664-65.
In Attorney Griev. Comm’n v. Korotki, the leading Maryland case on the reasonableness of attorneys’ fees, the attorney was disciplined for demanding a contingency fee that, after the attorney obtained increases for handling an appeal, reached 75 percent of the recovery. In reaching this result, the Court opined that Korotki “crossed the fifty percent line and acquired a greater interest in the outcome of the litigation than his clients.” While reserving on whether “there can ever be circumstances justifying a contingent fee in excess of fifty percent,” the Court concluded that “it is generally a violation of the rule for the attorney’s stake in the result to exceed the client’s stake.” See also Attorney Griev. Comm’n v. Roberson, 373 Md. 328 (2003)(fee excessive where initial contingent fee was increased from 40% to 50% of all amounts recovered and, with the inclusion of future medical services’ valuation, which were not yet provided, the attorneys’ fee share of actual cash was 72 percent).
Whether the ultimate fee is reasonable must be decided on a case-by-case basis. Thus it is the opinion of the Committee that the attorney must review the facts and circumstances of each representation in light of Rule 1.5(a). In this regard, a review of Korotki and its progeny is helpful. See, e.g., In Re Merry-Go-Round Ents. Inc., 244 B.R. 327 (Bankr. D. Md 2000)(contingency fee of $71,200,000 reasonable under the circumstances after considering factors set forth in Rule 1.5); Attorney Griev. Comm’n v. Pennington, 355 Md. 61 (1999)(fee arrangement in employment discrimination case that had both fixed and contingent fee features was reasonable in light of the circumstances even though the arrangement resulted in a fee of greater than 50 percent; client not only recovered monetary damages but also realized her main objective of obtaining a promotion); Fraidin v. Weitzman, 93 Md. App. 168 (1992)(fifty percent contingent fee “not excessive, or invalid, based on the facts of this case”); see also, Attorney Griev. Comm’n v. Kemp, 303 Md. 664 (1985)(contingent fee improper for recovery of Med. Pay benefits because attorney bears little risk of nonrecovery; benefits are automatically payable upon the filing of a completed benefit form and medical report without regard to fault); Maryland Committee on Ethics, Opinions 02-78, 92-31 and 76-1 (contingency fees are an improper measure of legal compensation in collecting PIP funds because of the lack of risk and lack of uncertainty in obtaining these funds).
The Committee notes that “the fact that the client agreed to the [amount of the fee] does not relieve the attorney from the burden of showing that the amount agreed upon was fair and reasonable.” Attorney Griev. Comm’n v. Pennington, 355 Md. at 72 (citing Tucker v. Dudley, 223 Md. 467, 473 (1960)). The fact that the client agreed to the fee arrangement does not relieve the attorney from analyzing the reasonableness of the fee in light of Rule 1.5(a).
Thus, it is the opinion of this Committee that the fee arrangement which you have described is not per se unethical. The fee will be permissible, whether calculated on an hourly or contingency fee basis, if the fee is reasonable when considered in light of the factors identified in Rule 1.5 and provided the procedural safeguards set forth in Rule 1.5 are satisfied. Some members of this Committee are concerned and believe that the fee agreement which you have described would create a conflict when the hourly billings exceed the contingency.
For members of the Maryland State Bar Association, Opinions of the Committee may be obtained from the Committee’s website: www.msba.org.
We hope the foregoing is responsive to your inquiry and we thank you for consulting the Committee on this matter.
COMMITTEE ON ETHICS
By:
Charles S. Winner
Member of Committee
REFERENCES:
- Maryland Rule of Professional Conduct 1.5
- Ethics Opinions:
- Maryland Committee on Ethics Opinions 02-78, 92-31 and 76-1
- Case Law:
- Attorney Griev. Comm’n v. Pennington, 355 Md. 61 (1999)
- Tucker v. Dudley, 223 Md. 467, 473 (1960)
- Brown & Sturm v. Frederick Rd. Ltd. Pshp., 137 Md. App. 150 (2001)
- In Re Merry-Go-Round Ents. Inc., 244 B.R. 327, 339 (Bankr. D. Md 2000)
- Attorney Griev. Comm’n v. Korotki, 318 Md. 646, 664 (1990)
- Attorney Griev. Comm’n v. Kemp, 303 Md. 664 (1985)
- Fraidin v. Weitzman, 93 Md. App. 168 (1992)
- Attorney Griev. Comm’n v. Roberson, 373 Md. 328 (2003)