Opinion #160. Permissible Forms of Contingent Fee Agreements

Issued by the Professional Ethics Commission

Date Issued: November 26, 1997

Facts and Questions

An attorney has submitted to the Commission for its review a continent fee agreement which the attorney proposes to use when representing plaintiffs in employment law matters. The attorney represents that in employment disputes and employment litigation, a successful plaintiff may not receive a monetary recovery, but may instead simply be reinstated. In light of this possibility, the attorney proposes that the fee agreement provide that the fee be the greater of either (1) a predetermined percentage of any monetary recovery or (2) a fee based on an hourly fee for service. In either case the fee will be paid only if the attorney is successful in achieving a predetermined result. In addition, the attorney proposes to compute the percentage fee as a percentage of the total recovery to the client, including any court award of costs, pre-and post-judgment interest, attorneys fees and the present value of any award or benefits to be paid in the future. The attorney has inquired of the commission as to whether the fee agreement may include the above elements.

Discussion

The question is governed by Bar Rule 8, which Rule defines contingent fees and establishes the standards for their use. Rule 8(a) defines a contingent fee as an agreement for legal services

under which compensation, contingent in whole or in part upon the successful accomplishment or disposition of the subject matter of the agreement, is to be in an amount which either is fixed or is to be determined under a formula.

We have had occasion to apply this rule to a variation of these facts in Opinion 57 (7/1/85). In that opinion we concluded that it was permissible to have a fee arrangement under which the client agreed to pay a predetermined fee regardless of the outcome of a matter and to also pay an agreed upon bonus fee contingent on the lawyer achieving a specifically defined successful result.

Although Rule 8 does not specifically address a fee agreement such as proposed in this case, we see nothing in that rule which prohibits alternate methods of contingent fee computation. In the ordinary contingent fee case, the fee arrangement contemplates a monetary recovery for their client. In this, case, however, it is possible that a successful result might not recover any money for the client. We see nothing in the rule that would prohibit a contingent fee based on hourly rates in such circumstances. Indeed, given the possibility of alternate successful results for the client, it is entirely appropriate to set an alternate contingent fee arrangement. Further, Rule 8(e)(4) appears to contemplate that a contingent fee may be paid even with no monetary recovery, since that Rule requires the fee agreement to state “whether and the extent to which the client is to be liable to pay compensation otherwise that from amounts collected for that client by the attorney.”

Nor do the rules require a particular method be used to calculate contingent fees. All that Rule 8 requires with respect to computation of the fee is that the payment of the fee be tied to “the successful accomplishment or disposition of the subject matter of the agreement” and that the fee be either “fixed” or “determined under a formula.” While it is customary to use a contingent fee formula that is expressed as a percentage of the monetary recovery, the rule does not limit the type of permissible formula that may be used in contingent fee agreements. A fee defined as an hourly fee for service is equally permissible as a “formula.” It is sensible and logical to permit the use of an hourly fee for service when the successful result might not result in the payment of money to the plaintiff. We conclude, therefore, that it is permissible to make a contingent fee agreement that provides for a fee computation in the alternative.

The attorney also inquires as to whether a percentage contingent fee may be computed based on the total amount awarded to the client including pre- and post-judgment interest, costs, attorneys fees and the present value of any award or benefits to be paid in the future. Rule 8 does not provide an express answer to the question. However, to the extent that the fee is computed as a percentage, the Rule does require that the percentage be applied to the “amount collected” for the client. An award as a result of a court judgment ordinarily includes interest and costs and may, where authorized by statute, include reimbursement for attorneys fees. All those funds belong to the client and constitute “amounts collected for the client.” Similarly, a settlement which provides payment of monies in the future, such as a structured settlement in a personal injury case, also belongs to the client and are amounts collected for the client by the attorney. It is, therefore, permissible under Rule 8 to calculate a percentage contingent fee based on all those funds paid to the client. However, the attorney may not calculate his percentage recovery on any court awarded costs for which the client has separately reimbursed the attorney, since to do so would result in a double payment to the attorney for those out of pocket expenses for which the attorney had already been reimbursed.


Enduring Ethics Opinion