No lawyer should charge a reasonable fee “by accident.” But,
that is surely what happens when a p/i firm applies a “standard”
or customary percentage rate contingency fee to virtually all of
its clients — with the corresponding “accidental” charging of un-
reasonable and excessive fees in the remaining cases.
After using some rhetorical barbs and adopting a bit of
an editorial attitude in the first three parts of this series, I would
like to state in plain English the duties that I believe are called
for whenever a lawyer enters into a contingency fee agreement
with a client. The goal is to assure that the agreement is appropriate
and the fee reasonable, and that the client’s ethical and fiducial rights
are preserved. My primary source in constructing these guidelines
American Bar Association’s Standing Committee on Ethics & Prof-
essional Responsibility.
I choose Op. 94-389, because it persuasively —
with no apparent philosophical or political axe
to grind, nor finanical conflicts of interest – takes
into account the ethics history of contingency fee
regulation (in Model Codes and Rules, as well as
ABA ethics opinions, and legal scholarship), and
the modern utilization and economic role of contin-
gency fee arrangements. The result is a balancing
of client and lawyer rights that is, nonetheless, true
to the profession’s obligation to put the interests of
the client first.
The authors of Op. 94-389 refused to condemn all
contingency fees merely because the related ethical
obligations might often be “honored in the breach.”
Instead, the Opinion set as its goal: “reminding the
profession of important client safeguards that come into
play in the contingent fee area,” with the hope that the
incorporation of those client rights in everyday law practice
might make use of contingency fees less controversial.
It also advised that:
“[A]ny lapse from the applicable requirements
by some members of the profession simply sug-
gests that the profession should redouble its efforts
to assure that the ethical obligations associated
with entering into a contingent fee arrangement are
fully understood and observed.”
Asked to address “the circumstances under which the charging
of contingent fees could violate either the ABA Model Rules of Pro-
fessional Conduct (1983, as amended) or the ABA Model Code of
Professional Responsibility (1980),” and to apply the principles to
several particular situations and fee arrangements, Op. 94-389
appears to be the most comprehensive treatment of the ethics of
contingency fees by any modern advisory committee.
Of course, no ethics opinion is of itself binding. But, Op. 94-389, with its
uniquely comprehensive scope and respected source, is surely one of the
most authoritative sources available. If nothing else, it deserves to be ad-
dressed on its merits, rather than ignored, mis-stated, or scoured for sup-
posed loopholes that might justify adherence to financially rewarding practices
that seem (to many inside and outside the legal profession) to unfairly enrich
lawyers at the expense of their clients.
Op. 94-389, and its predecessors (e.g., ABA Formal Opinion 93-373 and
ABA Informal Opinion 86-1521), set forth two basic requirements for the
ethical use of contingency fee arrangements: The lawyer must:
(1) fully inform the client of all relevant factors, so that agreements
can be entered into knowingly and intelligently; and
(2) treat each case and client separately, when deciding on the
appropriateness of the arrangement and the reasonableness of
the agreed-upon fee.
The expectation is that the lawyer will make a good faith, professionally-
informed estimate of anticipated effort and risk (of non–recovery or inade-
quate compensation), and explain that evaluation to the client, prior to their
coming to an agreement on a contingency fee.
Op. 94-389 looks at two major issues: (1) when is it appropriate to use a
contingency fee, and (2) when is a particular fee arrangement reasonable.
- Appropriateness -
To the dismay of some of those who brought the issue to the Ethics Com-
mittee, Op. 94-389 basically says that a contingency fee may be used in
virtually any situation (absent a direct ban, such as for criminal matters,
or divorce cases), if the client is fully informed by the lawyer and desires
to use a contingency arrangement. We think that makes perfect sense,
respecting both the fiduciary relationship and the right of both lawyer and
client to enter into contractual relations. In a section of the Opinion titled
“C. The Decision by the Client to Enter Into a Contingent Fee Agree-
ment Must Be an Informed One,” Op. 94-389 makes it clear that:
“[R]egardless of whether the lawyer, the prospective client, or
both, are initially inclined towards a contingent fee, the nature
(and details) of the compensation arrangement should be fully
discussed by the lawyer and client before any final agreement
is reached.”
The extent of the discussion will depend on several factors, most important
of which is “the experience and sophistication of the client with respect to liti-
gation and other legal matters.” For each case, then:
“Among the factors that should be considered and discussed are the
following:
a. The likelihood of success;
b. The likely amount of recovery or savings, if the case is successful;
c. The possibility of an award of exemplary or multiple damages and
how that will affect the fee;
d. The attitude and prior practices of the other side with respect to
settlement;
e. The likelihood of, or any anticipated difficulties in, collecting any judge-
ment;
f. The availability of alternative dispute resolution as a means of achieving
an earlier conclusion to the matter;
g. The amount of time that is likely to be invested by the lawyer;
h. The likely amount of the fee if the matter is handled on a non–contingent
basis;
i. The client’s ability and willingness to pay a non–contingent fee;
j. The percentage of any recovery that the lawyer would receive as a contingent
fee and whether that percentage will be fixed or on a sliding scale;
k. Whether the lawyer’s fees would be recoverable by the client by reason of
statute or common law rule;
l. Whether the jurisdiction in which the claim will be pursued has any rules or
guidelines for contingent fees; and
m. How expenses of the litigation are to be handled.”
It is no surprise that the enumerated factors go to the extent of a true contin-
gency or risk — how likely is the claim to be successful; how much money is
likely to be rewarded (or saved) and actually collected; and how much effort
and resources is the lawyer likely to expend on the matter.
Like Opinion 86-1521, Op. 94-389 concludes that the choice is the client’s as to
whether to use a contingency fee arrangement, after being informed of the above
factors, including the likely range of cost on a flat fee or hourly basis. If the fully-
informed client wants a contingent fee arrangement, the lawyer and client must
come to an agreement on a fee that is reasonable. This topic is mainly covered
in Sec. H. of Op. 94-389, but an earlier section gives an important indication of
the relationship between reasonableness and risk.
In Sec. E, of Op. 94-389, the Committee concludes that “as a general
proposition contingent fees are appropriate and ethical in situations where
liability is certain and some recovery is likely.” However, the Opinion goes
on to caution that in situations where the lawyer is likely to add little value
to the client’s claim, because an acceptable offer is expected quickly,
“the fee arrangement should recognize the likelihood of an early favorable
result by providing for a significantly smaller percentage recovery if the
anticipated offer is received and accepted than if the case must go forward
through discovery, trial and appeal.”
- Reasonableness of the Fee -
In Section H. The Contingent Fee Arrangement Must Be Reasonable, Op. 94-
389 clarifies that the reasonableness of the contingent fee depends on the facts
of the particular case “judged at the time it is entered into.” Not only are the usual
“Additionally, the lawyer must look again at, and discuss with the client, the
factors that were considered in reviewing the appropriateness of the fee,
discussed in Section C above.”
“We stress that the lawyer should take all these factors into account in eval-
uating every case. See ABA Formal Opinion 329 (1972).
Therefore, reasonableness must be based on the lawyer’s good-faith assessment
of risk, which can be broken into the factors listed above — mainly the likelihood and
size of a recovery and the amount of time and money “that is likely to be invested by
the lawyer.” Although being diplomatic, the Committee made it clear that the obliga-
tion to evaluate each case separately makes the use of a standard fee ethically
problematic:
“For this reason, a lawyer who always charges the same percentage of
recovery regardless of the particulars of a case should consider whether
he is charging a fee that is, in an ethical context, a reasonable one.”
[Ed. note: It is clearly not good enough to look at the Rule 1.5(a) factors,
and conclude that the standard contingency fee is reasonable because
it is "the fee customarily charged in the locality for similar legal services."
Similarly, ill-conceived is the notion that the lawyer must consider and
discuss a long list of relevant factors, but can then simply use the standard
fee. Op. 94-389 doesn't merely state that a contingency fee must be
reasonable -- it explains how to achieve such a fee.]
Only when the client is brought into the discussion and fully informed of the lawyer’s
good-faith evaluation of the case, can we begin to rely on the reasonableness of the
resulting contingency fee. However, when the lawyer makes a good faith effort to
evaluate a case and fully discuss it with the client, he or she can be confident that
the bargain struck will be deemed to be reasonable.
- parting thoughts -
Although we talk about the client’s right to negotiate a fee, we should expect the
conscientiously ethical lawyer to suggest a fee that is in line with his or her risk
assessment — rather than expecting the client to suddenly become an accomplished
negotiator, when faced with the usual standard fee. At a minimum, though, the “dis-
cussion” prescribed in Op. 94-389 must encompass fully informing the client and
allowing him or her to bargain over the fee rate(s).
It has often been suggested that p/i lawyers can and do make up for the deficien-
cies of the standard contingency fee by basically rebating or discounting the fee
at the backend of a case. Op. 94-389 (like Model Rule 1.5(a), which says ”A
lawyer shall not make an agreement for, charge, or collect an unreasonable fee”),
correctly assumes that the fee will be structured to be reasonable when the
contingency arrangement is entered. No client should have to beg for a discount,
attack a signed retainer contract, or be at the mercy of the lawyer’s notion of post-
recovery fairness in order to achieve a reasonable fee.
- That does not mean that a p/i lawyer whose case
is successfully concluded much sooner than antici-
pated, or for a lot more money, shouldn’t use his or
her own standard of ethics or fairness in deciding to
take a smaller fee than called for in a retainer contract.
Codes and Rules are minimums, they never stop any
lawyer from treating the client better than is required
to avoid discipline or a guilty conscience.
“tinyredcheck” Since I first wrote about Op. 94-389 (when I had all my hair, and
none of it was gray), I have believed that a well-informed public was the most likely
cure for the market and ethical failures we see in the use of contingency fees.
“Until a legislative or regulatory solution arises, consumers will
have to educate themselves and each other to assert their rights.
It may only take a few price-oriented or rights-oriented ads for real
competition to break out among personal injury lawyers.
“Maybe those TV or Internet ads will finally promise, ‘We get you
everything you deserve and take only what we deserve’.”
This website is my attempt to educate both the public and the bar on the 
issues presented by the standard contingency fee. It would be great if consumers
when interviewing personal injury lawyers. Even better, of course, would be p/i firms
handing out the forms to prospective clients.
In a post advising the p/i bar on how to avoid imposition of rules such as the Common
Good Early Settlement proposal, ethicalEsq stated back in 2003:
Because the requirements are almost universally ignored by lawyers and
their watchdogs, it’s time to follow Op. 940389’s recommendation that
the profession:
“redouble its efforts to assure that the ethical obligations associated
with entering into a contingent fee arrangement are fully understood
and observed.”
This means creating CLE seminars, articles and brochures, and imposing some
actual attorney discipline. Also, it should mean going to the public to let consumers
know their rights, because that knowledge will allow clients to protect themselves
and spur fee competition among p/i lawyers. To show good faith and effort, mandatory
statements of client rights should be promulgated, to ensure that each prospective
client has enough information to make a smart choice in bargaining for a fair contin-
gency fee or another arrangement, such as paying by the hour.
The Inquirers who had prompted the issuance of Op. 94-389 made a large tactical error,
I believe, after they failed to get an Opinion that would bar the use of contingency agreements
in several situations. Like the p/i bar, which ignored the Opinion rather than face the implemen-
tation of the required clients safeguards, the Inquirers ignored the Opinion in order to continue
their own battles. Had they taken up the Opinion’s challenge to inform the profession and the
the public of the requirement to fully inform each client and to evaluate the circumstances of each
case, before entering into a fee agreement, it is very likely that far fewer of the kinds of agree-
ments that they dislike would ever be desired by clients. And, the terms of any such arrange-
ments would have been far more favorable to the client. In addition, a better-informed public would
have been able, in general, to both better protect themselves in individual cases and to better spur
price and quality competition among p/i lawyers.
When lawyers worry about the image of the Bar or the profession, I hope they remember
that the public is very likely to react positively to true educational programs (not PR hype
telling them how wonderful lawyers are) — information that proves we put the client’s
interests first — even when our financial interests are involved.
“tinyredcheck” Previously in this four-part mini-series
AKC: American Staffordshire Terrier a/k/a: American Pit Bull Terrier [UKC]
Please click this link for the actual banned banner masterhead, which contains the “demeaning,” “misleading,” “vicious” pit bull image condemned by the Florida legal establishment, including its Supreme Court. The pitbull image appeared as P&C’s ampersand, and in the tv ads, too.
The P&C pitbull image doesn’t look fierce or vicious to us. Perhaps, it was the motorcycle-riding, suitless lawyers who the Florida Bar really thought looked overly-combative and “demeaning.” Click for the larger, full-color tv image.
We’re not sure whether we’d say Bob Montgomery’s lion “suggests combativeness,” but we will point out that his website opens with the lion’s head and the words:
PANTER PANTER & SAMPREDO
No lawyer should charge a reasonable fee “by accident.” But, that is surely what happens when a p/i firm applies a “standard” or customary percentage rate contingency fee to virtually all of its clients — with the corresponding “accidental” charging of un-reasonable and excessive fees in the remaining cases.
Since I first wrote about Op. 94-389 (in my Advocate This! column for the now-defunct Prairie Law website, when I had all my hair, and none of it was gray), I have believed that a well-informed public was the most likely cure for the market and ethical failures we see in the use of contingency fees. Back then, I said:
It almost makes you want to throw your hands up in confusion, or maybe join your hands in prayer for the plight of the misguided p/i bar — if not offer a sympathetic hug. Instead, though, I thought – with the help of an online thesaurus – that I would help clarify the actual situation out in the real world:
