91-20: Fees
6/1991

Attorney may charge a contingent fee to collect arrearages of child support and spousal maintenance.



FACTS

The inquiring attorney wishes to represent clients on a contingent fee basis in actions to collect arrearages of child support or spousal maintenance, after the entry of the divorce decree.

 

QUESTIONS 

1. May an attorney ethically charge a contingent fee to collect arrearages of child support or spousal maintenance after the entry of a divorce decree?

2. May an attorney ethically charge a contingent fee based on a percentage of arrearages, but collected out of any monies received without distinction between current or future child support or maintenance and arrearages thereof?

3. May an attorney ethically charge a contingent fee without regard to whether the fee is based upon current or past due child support or spousal maintenance?

 

ETHICAL RULES INVOLVED

 

ER 1.5.           Fees

(a) A lawyer’s fee shall be reasonable. The factors to be considered in determining the reasonableness of a fee include the following:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

(3) the fee customarily charged in the locality for similar legal services;

(4) the amount involved and the results obtained;

(5) the time limitations imposed by the client or by the circumstances;

(6) the nature and length of the professional relationship with the client;

(7) the experience, reputation and ability of the lawyer or lawyers performing the services; and

(8) whether the fee is fixed or contingent.

*****

(d) A lawyer shall not enter into an arrangement for, charge, or collect:

(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

*****

 

ER 1.7.           Conflict of Interest: General Rule

*****

(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person, or by the lawyer’s own interests, unless:

(1) the lawyer reasonably believes the representation will not be adversely affected; and

(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.

 

RELEVANT PRIOR ETHICS OPINIONS

Opinions No. 77-18 (August 17, 1977), 82-9 (May 28, 1982), 87-6 (July 27, 1987), and 89-02 (April 18, 1989).

 

OPINION 

In Arizona, as in most other states, an attorney may not charge a contingent fee in a domestic relations matter where payment of the fee is contingent upon the securing of a divorce or upon the amount of spousal maintenance or child support. ER 1.5 (d) (1). The basis of this rule was originally set forth in Ethical Consideration 2-20 of the former Code of Professional Responsibility: “[b]ecause of the human relationships involved and the unique character of the proceedings, contingent fee agreements in domestic relations cases are rarely justified." Specifically, charging a contingent fee in a divorce case gives an attorney a financial incentive to oppose the public policy favoring the preservation and reconciliation of marriages. See our Opinion No. 87-6 (July 27, 1987). It has also been suggested that contingent fees should be charged only from a "res" created by the litigation, not from a fixed amount of property already in existence which would leave less for the parties to divide. See our Opinion No. 77-18 (August 17, 1977). Moreover, we have noted that A.R.S. § 25-324 provides for court-ordered attorney's fees in domestic relations actions, thus rendering contingent fee agreements unnecessary in many cases. Id.

However, this committee has previously determined that an attorney may charge a contingent fee in a post-decree action where the policy reasons prohibiting a contingent fee are not present. For example, in our Opinion No. 82-9 (May 28, 1982), we opined that, under the unusual facts before us, an attorney could charge a contingent fee to institute a post-decree action to set aside a previously rendered property settlement. We reasoned that: (1) the divorce was final, and the public policy favoring the preservation of marriage was not threatened; (2) a "res" was created by the litigation; and (3) the concern with human relationships was less present months after the divorce decree was entered. In our Opinion No. 89-02 (April 18, 1989), we determined that an attorney could properly charge a contingent fee in a post-decree action to collect property not divided in the dissolution proceeding. The rationale for our decision in that opinion was that: (1) the divorce decree had already been entered, and (2) the dispute did not involve a claim for spousal maintenance or child support, or a property settlement in lieu thereof.

We believe that the policy concerns prohibiting the charging of a contingent fee in a domestic relations matter are also not applicable in an action to collect spousal maintenance or child support arrearages. As was the case in our Opinions Nos. 82-9 and 89-02, supra, the divorce is final and the inquiring attorney will have no incentive to encourage divorce. Additionally, and importantly, the inquiring attorney states that he will be retained to collect only past due spousal maintenance or child support, the amount of which has already been fixed, either by the court or by settlement between the parties. Thus, he will have no personal interest in disrupting the court’s fact sensitive determination of the child support or spousal maintenance award, which is carefully based on the parties living conditions and ability to pay. We therefore believe that, when an attorney is retained solely to collect child support or spousal maintenance arrearages, the amount of which has already been fixed, his contingent fee is not based on the "amount" of spousal maintenance or child support for purposes of ER 1.5 (d) (1), and is therefore not prohibited.

However, an attorney may not collect any part of his contingent fee from child support or spousal maintenance amounts awarded in the future. Although ER 1.5(d) (1) would not operate to prohibit charging a contingent fee against future child support or spousal maintenance amounts (since those amounts have already been fixed), we believe that such a contingent fee agreement would almost certainly result in an unreasonable fee in violation of ER 1.5(a). A review of the eight factors listed in ER 1.5(a) demonstrates that an attorney could not reasonably charge a client a contingent fee computed against funds already required to be paid by court order which had not been secured through the attorney's efforts.

With respect to current child support or spousal maintenance, we recognize that some attorneys will represent clients in cases in which both past and current spousal maintenance and/or child support will be at issue. For example, in many cases, current child support obligations continue to accrue while the opposing party attempts to pay off the arrearages. In such situations, the attorney must allocate any payments received from the opposing party to current payments first, to ensure that the attorney’s contingent fee is calculated strictly upon the amounts representing arrearages of child support or spousal maintenance. The committee believes that it would rarely be in the client’s best interests for him or her to agree to have child support payments allocated to past payments first, because such an arrangement would effectively extend the length of time over which the attorney would be collecting a contingent fee from the monthly payments. On the other hand, allocating monies received to past payments first may actually benefit the attorney by increasing the number of payments from which he or she can collect the agreed contingent fee. This potential conflict between the interests of the lawyer and the interests of the client must be alleviated by allocating monies received to current payments first. See ER 1.7(b).

The other policy considerations against charging a contingent fee in a domestic relations matter are also not applicable to actions to collect past-due child support or spousal maintenance amounts. A collection matter will produce a "res" from which an attorney may collect his or her contingent fee. Additionally, since recovering child support or spousal maintenance arrearages is more in the nature of a collection matter than a domestic relations matter, there is some question as to whether attorney’s fees are awardable by the court pursuant to A.R.S. § 25-324.[1] However, this is a question of law beyond the committee’s jurisdiction. See Committee on Rules of Professional Conduct Statement of Jurisdictional Policies, paragraph 6(a). Any attorney's fees awarded pursuant to the statute would, of course, need to be deducted from the attorney's contingent fee.

Many other states’ ethics committees have addressed the issue of whether an attorney may properly charge a contingent fee to collect past-due child support or spousal maintenance amounts.

With only one exception, every ethics committee that has considered the issue has permitted an attorney to charge a contingent fee. See, e.g., Alabama State Bar Ethics Opinion 83-22 (February 25, 1983) (ABA/BNA Lawyers' Manual on Professional Conduct, p. 801:1048); Colorado Bar Association Ethics Opinion 67 (undated) (ABA/BNA Lawyers' Manual, supra, p. 801:1905); Maryland State Bar Ethics Opinion 80-34 (undated) (ABA/BNA Lawyers’ Manual, supra, p. 801:4302); Michigan State Bar Ethics Opinion CI-1050 (October 30, 1984) (ABA/BNA Lawyers’ Manual, supra, pp. 801:4888-4889); and New Hampshire Bar Association Ethics Opinion 1983-4/2 (September 20, 1983) (ABA/BNA Lawyers' Manual, supra, p. 801:5704). Cf. Indianapolis Bar Association Ethics Opinion 1988-2 (undated) (ABA/BNA Lawyers’ Manual, supra, p. 901; 3401) (lawyer may not charge a contingent fee in an action to collect child support arrearages).

Finally, we remind the inquiring attorney that the total fee must be fair and reasonable to the client, as required by ER 1.5(a).

In conclusion, we hold that the inquiring attorney may ethically charge a contingent fee when he is retained solely to collect past-due child support or spousal maintenance amounts. 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.

 

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 1991

-------------------------------------------------------------------------------------------------

[1] A.R.S. § 25-324 provides, in part: "The court from time to time, after considering the financial resources of both parties, may order a party to pay a reasonable amount to the other party for the costs and expenses of maintaining or defending any proceeding under this chapter." The chapter referred to is entitled "Dissolution of Marriage," and contains no provision specifically dealing with collection of past-due child support or spousal maintenance.