MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2010-05
Does an attorney’s agreement that he or she will only be compensated if fees are awarded by a court under a fee shifting statute constitute a “contingent fee” that must be in writing?
You have asked whether an attorney must enter into a written fee agreement with a client, where an attorney represents a client in a matter to which a fee shifting statute applies, and collects no attorney fees other than any recovery that may be awarded by the Court under the fee shifting statute. We believe that such an arrangement is not a contingent fee arrangement that must be in writing under Maryland Rule of Professional Conduct 1.5(c). At the same time, however, Rule 1.5(b) requires that the attorney explain the fee arrangement and any liability for expenses to the client, and it would be advisable for the lawyer to provide this information in writing.
Your question implicates subsections (b) and (c) of Maryland Rule of Professional Conduct 1.5, which state as follows:
(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 responsible 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.
Under this rule, a contingent fee agreement must be in writing under Rule 1.5(c), and contain a number of specified provisions. Otherwise, Rule 1.5(b) requires the attorney to communicate the scope of the representation and the basis or rate of any fees or expenses within a reasonable time after representation begins, and Rule 1.5(b) states that it is preferable, but not required, that such communication be made in writing.
Statutory fee shifting provisions are generally created where a legislature has identified a need for such fees to ensure that plaintiffs may be heard. As we stated in Opinion 85-74, with respect to fee-shifting under federal civil rights statutes, “Congress, in providing for attorney’s fees in civil rights actions, has acknowledged the need to provide for attorney’s fees where potential plaintiffs are either unwilling or unable to bear the cost of enforcing their civil rights.” In that opinion we concluded that “the creation of such statutes is essential to the administration of justice,” and expressed the view that the Code of Professional Responsibility (which was in effect at that time) should not impose burdens on the exercise of the rights set forth in those statutes. Id. Like several other jurisdictions, we held that a defense attorney could not, under DR5-101(a), propose to settle a case conditioned upon a plaintiff’s waiver of a right to seek such fees.
Shortly after Opinion 85-74, however, the Supreme Court in Evans v. Jeff D., 475 U.S. 717, 732 & n.19 (1986), affirmed a District Court’s decision to approve a settlement conditioned upon such a waiver. The Supreme Court did so because the right to seek attorneys fees under 42 U.S.C. § 1988 belongs to the plaintiff, not the plaintiff’s attorney, and the plaintiff may therefore waive this right if the plaintiff chooses to do so. After Evans, a number of State ethics committees that previously had found it unethical to condition a settlement on waiver of a plaintiff’s statutory attorneys fees reversed their prior opinions. See Connecticut Ethics Op. 97-31 (Nov. 3, 1997); N.Y.C. Ethics Opinion 1987-4 (May 13, 1987). We have not addressed the ethicality of such waivers since Evans or under Maryland Rule of Professional Conduct Rule 1.5, and that specific issue is beyond the scope of this opinion.
We do, however, begin with the premise, applied by the Supreme Court in Evans, that a claim for attorneys fees or expenses belongs-under at least some statutes-to the prevailing party and not to the lawyer. In this sense, a client’s recovery of fees or expenses is a recovery to the client that is contingent on the outcome of the case. At the same time, there are significant differences between a traditional contingent fee and a statutory fee award. The terms of any statutory fee award will be governed by statute and court procedure, and any statutory fee award will be made on the basis of a judge’s determination of a fair fee, under those procedures. In addition, an award of attorneys fees will not reduce the amount that a client may otherwise recover, in the same manner as a traditional contingent fee. Given these distinctions, and our reluctance to impose burdens upon or discourage attorneys who represent clients in cases brought under fee-shifting statutes, we do not believe that an attorney who agrees to represent a client and whose sole compensation comes under a fee-shifting statute needs to enter into a contingent fee agreement under Rule 1.5(c).
At the same time, however, the attorney needs to fully explain to the client the basis for any potential fees and expenses at the outset of the representation, as required by Rule 1.5(b). In addition, Rule 1.5(b) expressly encourages attorneys to do this in writing to ensure that clients understand the fee arrangement at the outset.
The Committee hopes it has addressed your inquiry and thanks you for your interest. Our opinions are available on line at www.msba.org.
REFERENCES:
Maryland Rules of Professional Conduct for Lawyers
Rule 1.5
ASSIGNED TO: Randolph Stuart Sergent, Esquire
DATE ASSIGNED: June 2, 2010