Petition to Court for Attorney's Fee When Client is Member of Legal Services Plan
Opinion rules that, in a petition to a court for an award of an attorney's fee, a lawyer must disclose that the client paid a discounted hourly rate for legal services as a result of the client's membership in a prepaid or group legal services plan.
Attorney represented the plaintiffs in a dispute involving the interpretation of restrictive covenants for a subdivision. Suit was filed and the plaintiffs ultimately prevailed in an appeal to the North Carolina Supreme Court. The restrictive covenants provide that in the event of a litigated dispute, the prevailing party is entitled to recover costs and reasonable attorney's fees.
Attorney's fee agreement with the plaintiffs provides that Attorney's hourly rate will be $59.00 per hour. This rate is one-half of Attorney's customary rate at the time the representation commenced in 1995. A discount was given to the plaintiffs because they subscribe to a prepaid or group legal services plan that benefits enrollees who pay a monthly premium. Attorney is one of the lawyers for the plan. As such, his firm receives a monthly payment from the plan administrator of $1.50 to $2.00 per client enrolled in the plan. This provides the firm with about $1,200.00 to $1,400.00 in income per month.
Attorney's usual fee petition to a court includes an affidavit with the following information: a breakdown of the time expended and the legal services rendered for the client; a summary of the client's costs; a statement on Attorney's expertise in the area of practice; and a description of the difficulty of the matter. It does not usually include a description of the fee arrangement with the client.
Attorney believes that disclosure of his fee arrangement with the plaintiffs in this case would violate the duty of confidentiality he owes to the plaintiffs. He also believes that the opposing party should not benefit from the plaintiffs' foresight in subscribing to a legal services plan. May Attorney file a petition for legal fees in the current case that does not disclose the discounted hourly rate charged to the plaintiffs but instead recites Attorney's full hourly rate at the time the representation of the plaintiffs commenced?
Rule 3.3(a)(2) requires a lawyer to disclose material facts to a court when necessary to avoid assisting in a fraudulent act by the client. Although Attorney and the plaintiffs may have no intent to defraud the opposing party, the effect may be the same if the court does not have all of the facts necessary to make a fair and informed decision about an award of legal fees. See, e.g., 98 Formal Ethics Opinion 5 (to petition court for a limited driving privilege, prior driving record must be disclosed even if disclosure is adverse to client). The fee petition must recite the discounted hourly rate actually charged to the clients but it may also explain to the court that the clients purchased a prepaid or group legal services plan in order to obtain the discount. Attorney may then argue to the court that the opposing party should not reap the benefit of the plaintiffs' foresight and that Attorney's usual hourly rate is a reasonable amount upon which to calculate the award of legal fees. If the plaintiffs do not consent to the disclosure of this information about the fee arrangement in the petition, Attorney may disclose only that the plaintiffs were charged $59.00 per hour for his services. He may not imply or infer that the plaintiffs were charged more.