LEGAL ETHICS OPINION 1705 CONTINGENCY FEE IN LITIGATION;
HOURLY RATES PLUS LUMP SUM TO BE
PAID BY CLIENT FOR ATTORNEY'S
AGREEMENT TO CARRY FEES
INDEFINITELY
You have presented a hypothetical situation in which Client
engaged Lawyer to represent his interests in acquiring certain
real estate, which acquisition was complicated by a cloud on
title, created by an unperformed contract of sale between the
original owner and a developer. Lawyer filed a declaratory
judgment action on behalf of Client seeking to have the contract
declared null and void, to remove the cloud on title. Lawyer
drafted an option agreement with Client for the acquisition of
the property in which it was made clear that the acquisition was
subject to the clearing of the cloud on title.
Client agreed to pay the costs advanced and hourly fees as
billed. Litigation in this matter, including an appeal to the
Supreme Court of Virginia, continued for five years. In
addition, Lawyer had to make several appearances before county
boards concerning zoning issues. Midway through the litigation,
Client advised Lawyer of his inability to continue to finance the
litigation as originally agreed. Client requested that Lawyer
defer all fees until conclusion of the case, at which time the
balance would be due in full. In addition, contingent upon
Client's acquisition of the property after the cloud on title was
removed, Client would pay an additional $25,000 to Lawyer in
consideration of payment not being made as originally agreed, and
such an agreement was drafted and executed at Client's request.
The litigation was ultimately resolved in Client's favor, and
Client retained Attorney B to close on the acquisition of the
property. Attorney B then advised Lawyer that the fee agreement
was unethical and unconscionable and would not be paid. Attorney
B has provided no explanation as to the unreasonableness of the
fee or why it might be considered unethical.
Under the facts you have presented, you have asked the committee
to opine as to the propriety of charging a contingent fee in
litigation involving clearing a cloud on the title to real
property, and whether it is proper to charge a lump sum in
addition to hourly rates in return for carrying fees
indefinitely. Also, you inquire whether the agreement in
question gives rise to a client's obligation to pay a
contingent/lump sum fee based on both results and carrying fees
for an indefinite period of time.
The appropriate and controlling disciplinary rule relative to
your inquiry is DR 2-105 (A) which requires that a lawyer's fee
be reasonable and adequately explained to the client. Also
relevant to your inquiry are Ethical Considerations 2-19 through
2-22.
The central issue raised by your inquiry is whether it is
ethically permissible for client and attorney to modify their
original fee agreement. The committee has previously opined that
all fee arrangements must be reasonable. LEO #1606. Moreover,
the committee has observed:
[b]ecause of the unique nature of the legal contract, a
determination of the reasonableness of the fee is not
necessarily limited to the circumstances which existed
at the time of the agreement. The occurrence of
unusual or extraordinary events not contemplated by the
parties at the outset of the representation may affect
the ultimate reasonableness of the agreed upon fee.
Id. Thus, the committee has recognized that circumstances may
change after the inception of the attorney-client relationship,
necessitating changes to the fee contract. Such changes are
permitted so long as they reflect a fairly negotiated agreement
by the client and lawyer to modify or supplant their original
understanding on fees, and are not the result of any undue
influence or coercion by the lawyer. Some authorities recognize
that the client may feel pressure to accept changes proposed by
the lawyer to the fee arrangement, fearing that the lawyer may
withdraw or render substandard services unless the client accepts
the modification. See, e.g., McConwell v. FMG of Kansas City,
Inc., 861 P.2d 830 (Kan. Ct. App. 1993)(lawyer's threat to
withdraw on eve of trial was sufficient evidence that
modification of fee agreement was coerced and therefore
unenforceable). Cf., North Carolina Ethics Op. 166 (1994)(firm
may seek renegotiation of fee agreement so long as firm does not
abandon or threaten to abandon client in order to coerce higher
fee).
In the facts you present, the committee believes it noteworthy
that Client X approached the lawyer and proposed the terms for
modifying the fee arrangement, citing the inability to finance
the protracted litigation under the original agreement. This
fact militates against a suspicion that the modification was the
product of undue influence. See Tidball v. Hetrick, 363 N.W.2d
414 (S.D. 1985)(modification approved because client herself
proposed that hourly fee contract be changed to contingent fee
arrangement that would absorb client's outstanding debt to
lawyer).
In addition, the conversion from an hourly based contract to a
contingent fee agreement was not improper since: (1) it became
the only practical means by which the client could continue to
finance this protracted and complex litigation; (2) there existed
an uncertainty as to the outcome of the legal matter; and (3)
successful prosecution of the client's declaratory judgement and
the removal of the cloud on title would produce a "res" out of
which a contingent fee could be paid. EC 2-22.
Finally, the modification was reduced to writing and signed by
the attorney and client. EC 2-21. The consideration supporting
the additional $25,000 fee was the lawyer's agreement to delay
indefinitely the collection of the existing outstanding legal
fees owed until the conclusion of the case, nearly four years
later.
Based on the foregoing, the committee believes that the written
modification agreement presented in your hypothetical does not
violate the Virginia Code of Professional Responsibility.
[DR 2-105(A); ECs 2-19, 2-21, 2-22; LEO 1606]
Committee Opinion
November 21, 1997
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