. Legal ethics

More on contingent fees and the overall requirement of “reasonableness”

In my last post of 2015, in the context of a discussion of a slightly different fee topic (nonrefundable fees), I made reference to the overarching “reasonableness” requirement under the ethics rules for attorney fees of any flavor, including contingency fees.  The example I grabbed for at the time was how a 60% contingency fee could be subject to attack as unethical even if a client had agreed to it in a signed writing that would otherwise meet all of the requirements to comply with RPC 1.5(c).

The Eye on Ethics column in the January 2016 issue of the online YourABA has a good, overview-style article worth reading for lawyers who use contingent fee agreements as their stock in trade.  The article lays out the traditional issues that lawyers are expected to wrestle with before deciding to enter into a contingency agreement, as well as the different approaches used by jurisdictions in evaluating whether a particular contingency agreement was reasonable.  It helpfully highlights the variance among jurisdictions with the biggest impact in such disputes — whether the reasonableness of a contingency fee agreement will be judged only on a prospective basis looking at the case as it appeared at the outset or whether such an arrangement is fairly scrutinized with the benefit of hindsight.  If a contingency arrangement is permitted to be scrutinized only after the litigation has played out, you can expect the results to be harsher for attorneys seeking to enforce such an agreement over a client’s objection.

And, to be clear, I keep saying that the evaluation of a contingent fee under RPC 1.5(a) involves a determination of reasonableness, but that is not, strictly speaking, true.  The evaluation actually involves determining whether the contingent fee can be said to be unreasonable.  In most instances, reasonable versus unreasonable can be thought of as a binary concept, like an on and off switch.   When it comes to interpreting a rule prohibiting the charging of an unreasonable fee rather than mandating lawyers charge only a reasonable fee, there is room for more nuance at the margins.  The “not unreasonable” fee, if you will.  And, in the world of determinations of reasonableness. it still remains true that “whether the fee is fixed or contingent” is just one of many factors under RPC 1.5(a) for determining reasonableness (here in Tennessee it is just 1 of 10; under the ABA Model Rules approach it is 1 of 8).

The ABA Eye on Ethics article does an admirable job of surveying the landscape in terms of some of the case law scrutinizing contingent fee arrangements.  The article also reminds readers about some of the guidance provided by the ABA more than 20 years ago in Formal Opinion 94-389.  The article picks these four of the thirteen factors listed in 94-389 to stress:

What is likelihood of, or any anticipated difficulties in, collecting any judgment?  What is the amount of time that is likely to be invested by the lawyer?  What is the client’s ability and willingness to pay a noncontingent fee?

But there are two others listed in Formal Opinion 94-389 that really should not be overlooked:  “The attitude and prior practices of the other side with respect to settlement,” and “The likely amount of the fee if the matter is handled on a non-contingent basis.”

My strong suspicion has long been, and continues to be, that plaintiffs’ lawyers who routinely have the kind of conversation with a client about whether something other than a contingency fee might be in their best financial interest contemplated by 94-389 are the exception and not the rule.  To some extent, I think it is because many lawyers are not aware that the ethics rules can be construed in a fashion that contemplates such a conversation occur.  For example, Tennessee’s rule doesn’t give a tremendous level of detailed guidance when it says: “Contingent fees, like any other fees, are subject to the reasonableness standard of paragraph (a) of this Rule.  In determining whether a particular form of 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.”  A lawyer has to dig into ethics opinion, like 94-389, and case law to get a better sense of the standard to which s/he might ultimately be held.  In Tennessee, a lawyer who digs in may be surprised to find case law support for the idea that the lawyer’s fiduciary duty extends so far as to cover initial negotiations over fees with a potential client.  See Alexander v. Inman, 974 S.W.2d 689, 694 (Tenn. 1998).

My instinct though is that the larger explanation for why these conversations don’t often occur is because the business model of a plaintiffs’ contingency fee practice involves having to balance out losses with recoveries and that need for balance makes it very difficult for lawyers to give clients whose cases look like lucrative, low-hanging fruit on the front end the chance to negotiate a flat fee or to arrange an hourly fee structure for work performed.  (And, in some shops, hourly billing is not even in the realm of the possible because the firm’s lawyers don’t keep time records as a matter of course.)