Collecting Contingent Fee and Court-Awarded Attorney Fee
Adopted: April 18, 2003
Opinion rules that a lawyer may collect a contingent fee and/or a court-awarded attorney fee if consistent with the fee agreement with the client but may not collect a clearly excessive total fee under any circumstance.
Inquiry #1:
Attorney has a contingent fee contract for representation of Plaintiff on injuries arising out of an automobile accident. The contract provides for the payment to Attorney of one-third of any amount recovered for Plaintiff. There is no provision in the contract on what will be done with any court-awarded legal fee. The case is tried and the jury awards the Plaintiff $3,000 in damages. Attorney petitions the court for an attorney fee pursuant to N.C. Gen. Stat. §6-21.1. The statute gives the trial judge the discretion to award an attorney fee when a judgment in a personal injury or property damage suit is $10,000 or less. After examining the time Attorney spent representing Plaintiff, the court awards a $6,000 attorney fee to be taxed as a part of the court costs.
May Attorney collect both the contingent fee and the attorney fee awarded by the court?
Opinion #1:
A lawyer may collect both the contingent fee and the court-awarded fee, or some portion thereof, provided the total amount received by the lawyer is consistent with the fee agreement with the client and is not clearly excessive. See Opinion #2 and #3. However, unless results obtained for the client are extremely favorable and the work required by the representation was substantial, ordinarily collecting the entire contingent fee and the entire court-awarded fee would be clearly excessive in violation of Rule 1.5(a). See Rule 1.5(b)(4) (whether a fee is clearly excessive depends, in part, on the amount involved and the results obtained); see also Ethics Decision 97-3.
Inquiry #2:
If Attorney keeps the fee awarded by the court, he will receive more from the representation than the Plaintiff will receive from the damage award. Is this unethical?
Opinion #2:
The purpose of N.C. Gen. Stat. §6-21.1 is to allow the judge to award a "reasonable attorney fee" in cases where it might not be feasible for the injured party to bring suit if the injured party must pay a lawyer out of the damage award. See, e.g. Martin v. Hartford Accident & Indemnity Company , 68 N.C. App. 534, 316 S.E. 2d 126, cert. denied , 311 N.C. 760, 321 S.E. 2d 140 (1984). The courts have set out the factors that trial judges must consider in deciding whether to award an attorney fee under N.C. Gen. Stat. §6-21.1. See, e.g. Washington v. Horton , 132, N.C. App. 347, 515 S.E. 2d 331 (1994).
The "reasonableness" of the fee award is determined by the court pursuant to the statute and the appellate opinions interpreting the statute. The Ethics Committee has no authority to interpret the law. As a matter of professional responsibility, however, if the fee received by the lawyer is not "clearly excessive" or illegal in violation of Rule 1.5(a), and it complies with or is consistent with the fee agreement with the client, it is irrelevant whether the fee awarded by the judge exceeds the amount of the verdict.
Inquiry #3:
May Attorney add the court-awarded attorney fee ($6,000) to the judgment ($3,000) and take a one-third contingent fee from the total? Is this prohibited fee sharing with a nonlawyer? Does it matter that this will give Plaintiff twice as much ($6,000) as the amount awarded by the jury?
Opinion #3:
The lawyer may share some or the entire attorney fee award with the client since this will clearly benefit the client and may, in some instances, avoid a violation of Rule 1.5. Unless otherwise prohibited by law, whether the client receives more than the jury award as a result of this arrangement is a matter of private agreement between the client and the lawyer.
Rule 5.4(a) prohibits a lawyer from sharing legal fees with a nonlawyer. As noted in comment [1] to the rule, the prohibition is meant to protect the exercise of a lawyer's independent professional judgment on behalf of a client from interference by a nonlawyer with a pecuniary interest in the outcome of the representation. Sharing an attorney fee award with the client will not interfere with the lawyer's professional judgment on behalf of the same client and, therefore, is not prohibited.
Inquiry #4:
What provisions should be included in Attorney's fee agreement with Plaintiff to address this situation?
Opinion #4:
To help the client make informed decisions about the representation and to avoid a fee dispute, the fee agreement should explain the potential availability of a court awarded attorney fee under N.C. Gen. Stat. §6-21.1. See Rule 1.4(b) and Rule 1.5. If the agreement provides that the lawyer will be paid an amount that is contingent upon the amount of damages awarded to the client in a judgment, the agreement should also set forth the basis for determining the total fee to be paid to the lawyer if the court awards a legal fee in addition to the damage award. For example, if the lawyer intends to take either the contingent fee amount or the court awarded fee, whichever is greater, the fee agreement should so specify.