Opinion #57. Fee Bonus Contingent on Successfully Obtaining Commercial Permits

Issued by the Professional Ethics Commission

Date Issued: July 1, 1985

Facts

Client C has retained Attorney A for the purpose of obtaining the necessary permits to proceed with a commercial development. The fee arrangement calls for A to be compensated by C in a predetermined amount, which A and C agree is reasonable, regardless of the outcome. In the event that A is successful in obtaining the permits, C is to pay him a higher fee (either an amount which is fixed or which is determined by a formula) than the basic fee which has been guaranteed by C.

Question

Does this arrangement violate the provisions of either Bar Rules 3.7 or 8?

Opinion

Rule 3.7(c) states that:

A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation he is conducting for a client, except that he may:


(2) Contract with a client for a reasonable contingent fee as provided in Rule 8.

The Commission concludes that the fee arrangement in question does not violate either Rule 3.7(c) or Rule 8.

Arguably the fee arrangement in question would be beyond the scope of Rule 3.7(c) if the process of obtaining the necessary permits to allow the proposed development to proceed were not considered to be a “cause of action” or “the subject matter of litigation.” In Manning v. Perkins, 85 Me. 172, 26 Atl. 1015 (1893), an attorney had been promised a percentage of his client’s claim against the United States if he were successful in obtaining a share of an award received from Great Britain representing reparations for damage to American shipping. The Court held that the fee arrangement was not champertous. The Court reasoned that although Congress could be petitioned for relief, the claim would not “foment litigation” since suit could not be brought directly against the United States. Id. p. 174 of 85 Me.

We think that the reference in Rule 3.7(c) to “cause of action or subject matter of litigation” is broad enough to include the administrative issuance of the permits in the present instance. The modern view is that the restrictions prohibiting an attorney from acquiring a proprietary interest in his client’s claim are based more on protecting his objectivity in pursuing the case than upon protecting the courts against increased litigation. A.B.A. Code of Professional Responsibility, E. C. 5‑7 (1975). In A.B.A. Opinion #279 (1979), the words “subject matter of the litigation” were construed to include an application to the F.C.C. to transfer a license even though the proceeding was before an administrative agency rather than a court.

It has also been suggested that

. . . (T)he broad definition of “contingent fee agreement” in Rule 88(a)[1] and other provisions of the rule (such as the broad reference of subdivision (e) to “matters with reference to which the services are to be performed,” which matters must be identified in the written agreement) indicate that the Court intended to regulate all contingent fee arrangements whether or not involving litigation. 2 Field, McKusick & Wroth, Maine Civil Practice 361 (2d ed. 1970).

Moreover the permit request in the present case could result in a judicial proceeding if the permits were denied by the administrative agencies involved.

Although the fee arrangement contemplated here involves the acquisition of a proprietary interest in the subject matter of the litigation, it would not be improper if it qualified as a contingent fee contract permitted by Rule 8. That rule defines contingent fee agreements in the following terms.

(a) Definition. In this rule, the term “contingent fee agreement” means an agreement, express or implied, for legal services of an attorney or attorneys (including any associated counsel), 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. The term “contingent fee agreement” shall not include an arrangement with a client, express or implied, that the client in any event is to pay to the attorney the reasonable value of his services and his reasonable expenses and disbursements.

It might be argued that the fee arrangement between A and C is not a contingent fee agreement permitted by Rule 8. In this case, A is assured of receiving a fee which the parties have agreed is “reasonable” even if the permits are denied. Thus, it could be contended that this is an agreement to pay an attorney “the reasonable value of his services” and is therefore excluded from the definition of a permitted “contingent fee agreement” by the last sentence of Rule 8(a).

A majority of the Commission is of the view that the last sentence of Bar Rule 8(a) was not intended to apply to the fee arrangement presented here.[2] The reference in that sentence to open‑ended agreements under which a client agrees to pay his attorney “the reasonable value of his services” when the case is closed was simply intended to provide assurance that an attorney computing his fee in such a case could properly take into account the degree of success achieved, as permitted by Rule 3.3(a)(4), even though he had not complied with the formal requirements of Rule 8. Moreover, C’s commitment to pay a basic fee regardless of the outcome does not take the agreement out of the definition of a contingent fee since fee arrangements under which the attorney’s compensation is contingent “in part” are expressly contemplated. See Rule 8(a).

This conclusion is consistent with that reached by the Committee on Professional Ethics of the New York State Bar Association in Opinion #412 (1975). In the course of its discussion of the propriety of charging a contingent fee in a criminal case, the Committee stated that:

We hold that the Code prohibition of DR 2‑106 (c) encompasses, in addition to wholly contingent fees, agreements which provide in addition to a fixed basic fee, a further fixed fee contingent upon some specified result, such as acquittal, probation, fine or minimum term of punishment. The Committee distinguished the situation in which an attorney is to be paid a “reasonable fee” for criminal defense work even though he takes into account the results obtained in figuring his bill provided such results are not given “excessive weight.”

One member of the Commission would conclude that the fee arrangement between A and C is not a contingent fee agreement as defined by Rule 8 and thus constitutes the acquisition of a proprietary interest in the subject matter of the litigation falling outside the exception set forth in Rule 3.7(c)(2). That member would read the second sentence in Rule 8(a) as prohibiting fee agreements in which a basic reasonable fee is to be paid regardless of outcome, and a bonus is to be paid contingent upon success in the matter.


Footnotes

[1] Abrogated No. 1, 1978 and re‑enacted as Bar Rule 8(a).

[2] There is no helpful legislative history. Rule 8 was taken from former Rule 88 of the Maine Rules of Civil Procedure. That rule was derived from General Rule 14 promulgated by the Massachusetts Supreme Court. 2 Field, McKusick & Wroth, Maine Civil Practice 358 (2d ed. 1970).


Enduring Ethics Opinion