99-05: Fees; Retainer Agreements; Contingent Fees; Domestic Relations

A County Bar Association wants to operate a Reduced Fee Panel comprised of local lawyers who agree to represent clients in one or more of eight categories of cases for a scheduled fee. The fees are considerably less than what lawyers generally charge for such work. The clients are screened and must meet income guidelines at the local Legal Aid organization. Clients generally have some money with which to pay a lawyer, but not enough to pay customary rates. Many new lawyers serve on the panel to begin establishing a practice. Other more experienced lawyers serve on the panel as a form of pro bono service.

The County Bar Association has adopted a schedule of fees for the Reduced Fee Panel for specific types of cases. For contested divorce cases, the client pays a modest retainer at an hourly rate which is significantly reduced from normal rates. If the retainer is exhausted, the participating attorney simply continues to bill the client at the reduced hourly rate provided in the Reduced Fee Panel Schedule. A written fee agreement is executed between the client and the attorney.

May a fee agreement used by a member of a County Bar Reduced Fee Panel in a domestic relations matter provide that in the event a certain value of assets are awarded to the client, a higher hourly rate would be applicable for all work performed in the case?

(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 writing 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. 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.

(1) any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or upon the amount of alimony or support, or property settlement in lieu thereof; or

In Opinion No. 77-18 (August 17, 1997), the Committee reaffirmed the prohibition under the former Code of Professional Responsibility against charging a contingent fee with regard to either property disposition or future spousal maintenance in an Arizona dissolution proceeding which had changed from a "fault" to a "no-fault" divorce concept.

In Opinion No. 82-9 (May 28, 1982), the Committee approved the contingent fee arrangement where the services to be performed involved an attempt to set aside a prior divorce decree and settlement agreement on the basis of fraud and duress. The attorney had a different fee arrangement for negotiating or litigating a new settlement agreement.

In Opinion No. 87-6 (July 27, 1987), the Committee reaffirmed the prohibition against charging a contingent fee computed on the value of any property the client was to receive as a result of the division of marital property in the divorce proceeding under the present Rules of Professional Conduct adopted by the Supreme Court of Arizona, effective February 1, 1985.

In Opinion No. 89-02 (April 18, 1989), the Committee approved a contingent fee arrangement in a post-decree action to claim a share of an allegedly undisclosed community asset which was not considered by the court at the time of the dissolution proceeding.

In Opinion No. 91-20 (June 17, 1991), the Committee held that public policy concerns prohibiting the charging of a contingent fee in a domestic relations matter do not apply in an action to collect spousal maintenance or child support arrearages. When an attorney is retained solely to collect child support or spousal maintenance arrearages, the amount of which has already been fixed, a contingent fee is not based on the "amount" of spousal maintenance or child support for purposes of ER 1.5(d)(1). To the extent that the contingent fee is charged against and collected from current or future child support or spousal maintenance payments, it is ethically improper.

In Opinion No. 93-04 (March 17, 1993), the Committee withdrew Opinion 91-20 and held that ER 1.5(d)(1) is inapplicable to an agreement between attorney and client for a contingent fee for the collection or enforcement of child support or spousal maintenance after entry of a decree of dissolution. The Committee noted that policy concerns prohibiting the charging of a contingent fee in certain domestic relations matters are not present in an action to collect or enforce the payment of spousal maintenance or child support arrearages since the divorce is final and the inquiring attorney will have no incentive to encourage divorce. Further, since the inquiring attorney will only be retained to collect or enforce spousal maintenance or child support which has already been fixed in amount, he will have no personal interest in disrupting the court's fact-sensitive determination of the child support or spousal maintenance award.

Maine Ethics Opinion 75 (1986) held that an attorney undertaking pro bono representation in a divorce case may not enter into an arrangement with his client that provides that the attorney, if successful in obtaining for his client a share of a salable marital asset, is entitled to a specified fee. Inasmuch as the attorney's fee is dependent on the successful outcome of the litigation, the arrangement is improper since it constitutes a contingent fee arrangement.

Wisconsin Ethics Opinion E-89-2 (3) (March 23, 1989) held that a lawyer under Rule 1.5(d)(1) may not accept an appeal in a divorce case on a contingent fee basis unless the matter is other than the securing of the divorce, the determination of alimony or support, or a property settlement in lieu of alimony or support.

Kansas Ethics Opinion 91-4 (October 22, 1991) held that a lawyer may not charge a contingent fee for handling a qualified domestic relations order that relates to the provision of alimony, support or property settlement (unless the lawyer is undertaking an independent tort action ancillary to asserting, obtaining or defending a qualified domestic relations order).

A number of jurisdictions have modified ER 1.5 of the Model Rules to allow a contingent fee in some domestic relations matters. See ABA/BNA Lawyer's Manual on Professional Conduct, 14:903. Arizona has not modified ER 1.5(d), but as set forth in Opinion 93-04, does allow an attorney to utilize a contingent fee to collect arrearages or enforce current orders for child support or spousal maintenance after the entry of a divorce decree.

Although it is apparent that the purposes of the Reduced Fee Panel are laudable, namely providing legal services to low income persons who might otherwise go unserved, the proposed fee arrangement violates the provisions of ER 1.5(d). The language of ER 1.5(d)(1) is explicit: A lawyer in a domestic relations matter shall not arrange for a fee which is contingent on the securing of a divorce or on the amount of alimony, support or property settlement received.

The proposed fee agreements here would authorize an attorney to charge a specific hourly fee, but to increase the hourly fee contingent upon the amount of assets secured for the client. Such a fee clearly would constitute a contingent fee since, under ER 1.5(d)(1), the amount of the fee is contingent upon the amount of the property settlement obtained. The proposed fee agreement therefore would violate ER 1.5(d)(1). See Opinion 87-6.

[1] Formal Opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceedings. © State Bar of Arizona 1999