Ethics Opinions

 
NASSAU COUNTY BAR ASSOCIATION
COMMITTEE ON PROFESSIONAL ETHICS
Archive of Ethics Opinions
Opinion No.: 1999-4
Topics: Validity of hybrid minimum and contingent fee retainer for employment - law matters - Application of court rules on certain contingent fee matters -- required specification for deducting expenses in contingent -Fee matters-Invalidity of agreement
Digest: (1) The Professional Ethics Committee has no competence or jurisdiction to opine on the application to or legality of a proposed retainer agreement under the N.Y.. court rules setting limits on contingent fees and requiring filing of statements for prescribed contingent-fee cases. Therefore, the Committee will not rule on the application of these court rules to employment law cases to be filed with various administrative agencies.

 

(2) There is judicial and ethics opinion authority that, if the Court Rules apply, then a hybrid arrangement combining a minimum hourly rate retainer and an alternative contingency fee would be illegal and therefore unethical under DR 2-106(A) in providing for payment to the attorney of a minimum retainer based on an hourly rate in the event of no recovery; if the court rules do not apply, the question of the excessiveness of the fee tinder DR 2-106(A) depends on the circumstances of each case tinder the criteria set forth in DR 2-106(B).

 

(3) DR 2-106(D) requires in any contingency fee matter that the written agreement state whether litigation and other expenses are deducted before or after the contingent fee is calculated; If the court rules apply to these matters, the written agreement must provide for deduction of expenses only before the contingent fee is calculated; if not, the written agreement must state whether expenses are deducted before or after the contingent fee is calculated, but either would be permissible.

 

(4) A retainer agreement may not provide for an attorney's withdrawal from representation ?without any further notice" in the event the client fails to accept a settlement offer ?deemed fair and reasonable" by the attorney. Disciplinary Rule 2-110(A)(2) requires that ,m attorney, before withdrawing from a matter, take "reasonably practicable" steps to avoid foreseeable prejudice to the client's rights, including due notice, allowing time to retain other counsel, delivery of the client's papers, and permission of the court or other tribunal, if required.
Code Provisions: DR 2-106(A), (B), (D)
DR 2-110(A), (B), (C)
Facts Presented: The Inquiring Attorney requested the Grievance Committee of the Nassau County Bar Association to review a proposed Retainer Agreement to be presented to clients. The Grievance Committee referred this request to the Professional Ethics Committee. The proposed agreement applies only to matters of alleged discrimination in employment under federal and state laws, which are to be filed and prosecuted solely before the N.Y.S. Division of Human Rights and the U.S. Equal Employment Opportunity Commission. It further provides that any judicial proceeding must proceed under another subsequent agreement.

 

The proposed agreement provides for a retainer fee of a specified amount (to be agreed upon and inserted) to be earned by the Inquiring Attorney in performing specified services in prosecuting this matter through these administrative agencies at a $200 hourly rate. This is to be applied to the specified retainer fee, but if the time expended exceeds the time contemplated under the retainer, the matter proceeds under a contingency fee arrangement. If there is any recovery, the retainer fee is to be repaid to the client from any amount recovered from the defendant, and the remainder, if any, paid two-thirds to the client and one-third to the Inquiring Attorney. The client is also required to pay all expenses incurred and, in some cases, must pay same in advance upon billing by the attorney. These may include, but are not limited to, the usual customary expenses that are out-of-pocket or easily attributed to the matter.
If the proposed respondent/defendant makes a settlement offer "deemed fair and reasonable" by the Inquiring Attorney which is not accepted by the client, the proposed agreement provides that "it is hereby understood that the Inquiring Attorney may withdraw from this matter without any further notice." In other cases wherein the Inquiring Attorney may wish to withdraw or be discharged, the agreement provides he may commence proceedings to do so in the appropriate court or forum to be relieved of this matter.
Inquiry: 1. Is the proposed Retainer Agreement for the representation of aggrieved employees or claimants in employment discrimination matters before state and federal administrative agencies covered by the N.Y.S. Appellate Divisions court rules (22 NYCRR º (-)91.20 in the Second Department) regulating contingency fee agreements in certain types of personal injury, property damage and certain malpractice cases?
2. Assuming the App. Div. Rules do not apply, does the proposed Retainer Agreement violate DR 2-106(A) and (B) barring "illegal or excessive fees" and setting forth the criteria of a reasonable fee?

 

3. Should the proposed Retainer Agreement contain a provision stating specifically whether expenses should be deducted from any gross recovery before or after calculating any contingency fee as required by DR 2-106(D), and, if so, may it provide that expenses may be deducted from the client's recovery either before or after calculating the contingent fee?

 

4. May a retainer agreement provide that an attorney may withdraw "without any further notice" from the client's representation if the client fails to accept a settlement offer "deemed fair and reasonable" by the attorney?
Determination: 1. The Professional Ethics Committee cannot opine upon or advise as to the application of the Appellate Division's court miles on contingency fee matters (22 NYCRR º 691.20) as applied to federal or state employment-law matters brought before administrative agencies.

2. We cannot opine on the facts as given to us; this depends on the circumstances of any particular case and the test of "excessiveness" and "reasonableness" and the presence or absence of permissible fee factors as provided in DR 2-106(B).

3. Yes; under DR 2-106(D) the agreement must specify the method of calculating the continent fee before or after deducting the client's litigation expenses. In the event the court rules do not apply, the agreement may provide for either method of calculating a contingency fee, either before or after deducting- expenses, and in the event the court rules apply, then the agreement must state that litigation expenses are to be deducted before calculating the contingent fee.

4. No; an attorney must comply with DR 2-110(A)(2) and give prior reasonable notice to the client of the attorney's proposed withdrawal, upon sufficient grounds as set forth in DR 2- 110(B) and (C), and subject to the rules for withdrawal and approval of the tribunal, if necessary.

Analysis: (1) Application of the Appellate Divisions' Court Rules on Certain Contingency Fee Matters: Our views are necessarily limited to the ethical rules and guidelines which are established by the New York Lawyers Code of Professional Responsibility, more particularly, the Disciplinary Rules promulgated by joint action of the Appellate Divisions, as last amended effective June 30, 1999,22 NYCRR Part 1200, and the Ethical Considerations adopted by the New York State Bar Association prior thereto and which are published with the amended DRs in the 1999 pamphlet edition of the NYSBA.

 

We do not opine on the legality of the proposed Retainer Agreement under the various court rules of the Appellate Divisions regarding retainer agreements and opening and closing statements, which may or may not be applicable to these federal and state administrative agency employment- law matters, seeking either restoration of employment or back pay, or both. That may depend on whether these matters involve claims "for personal injury, or for property damages, or for death or loss of services resulting from personal injuries, due to negligence or any type of malpractice," etc., under- the Appellate Divisions rules, e.g., 691.20(a)(1), (e)(1) (2d Dept.), see N.Y. Gen. Construction Law 37-a (defining "personal injury"), 25-b (defining "injury to property"). Compare 22 NYCRR .603.7(a)(1), (e)(1) (1st Dept.). Since these are questions of law beyond our jurisdiction and competence, not professional ethics, we normally do not opine or give advice, unless tile issue is reasonably clear or already established by the courts on similar facts. See NCBA Op. #93-24 (1993).

(2) Legality or Excessiveness of the Proposed Fee Arrangement: On the assumption that the Inquiring Attorney's proposed Retainer Agreement is covered by the Appellate Divisions' rules, N.Y. State Bar Assn. Op. # 697 (1997) addresses the professional ethics of utilizing a "modified contingent fee" or "hybrid fee" arrangement. In the Described Facts under inquiry, there is a minimum retainer based on hourly rates (left blank to be specified) and if the retainer is exhausted ,and a settlement is obtained, an alternative 33-1/3% contingency fee. The N.Y. State Committee concluded that, "[A]ny combination of an hourly fee and a contingent fee in such a case [covered by the Appellate Division rules on personal injury and wrongful death and property damages] would have to conform to the maximum fee schedules in the court rules." The Committee also opined that otherwise such a "hybrid or modified contingent fee is permissible as a matter of ethics as long as tile total fee is not excessive." We note that in this case, if the retainer is exhausted and the settlement results in a contingency fee greater than the hourly-rate retainer, the client is given credit against the contingency fee for the amount of the retainer; on the other hand, if there is no recovery or one-third of the settlement is less than the retainer, the client would have already paid the higher retainer amount, beyond the fee permitted under the miles. Thus, the legality of this fee would depend essentially on whether- the Appellate Division (First or Second Dept.) Court Rules º 603.7(a) through (g) or º 691.20 (a) through (h)), apply to the employment discrimination matters in which the Inquiring Attorney uses this form Retainer Agreement. We may also note that these employment discrimination matters often involve related "personal injury" claims based on the same factual circumstances, which claims would normally be subject to the Appellate Divisions' rules. The settlement of such claims often involve apportionments of compensation as between the statutory claims and ?personal injury" claims. These related "personal injury" claims and their settlement may bring these matters within the purview of the Appellate Divisions' rules.

 

This Committee also ruled in its Opinion 4 93-24 that since the Appellate Division, Second Department Rules, º 691.20(e)(1), would apply to a legal malpractice case or "negligence" matter, tells Rule would bar a hybrid arrangement in a legal malpractice matter in which the attorney may receive a minimum retainer fee (based on agreed hourly rates and hours worked) and if the recovery was zero. Use of such hybrid fees in a personal injury case was condemned by Justice Greenfield in a case covered by the Appellate Division rules in Belzer v. Bollea (?Hulk Hogan?), 150 Mise.2d 925, 71 N.Y.S.2d 365 (Stip. Ct. N.Y.Co. 1990).

 

On the assumption that the proposed Retainer Agreement is not covered by the Appellate Divisions' rules, whether a fee would be otherwise "excessive" under DR 2-106(A) depends upon the circumstances of the individual case under the test set forth in DR 2-106(B):

 

"A fee is excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee."
This Disciplinary Rule sets forth various factors to be considered as guides in determining the reasonableness of any fee, including "time and labor required.... novelty and difficulty of the questions involved....,skill requisite to perform the legal service properly," likelihood of the employment precluding other employment (if apparent or made known to the client), "the fee Customarily charged in the locality for similar legal services," the amount involved and results obtained, "time limitations imposed by the client or by circumstances.... nature and length or the professional relationship with the client.... experience, reputation and ability of the lawyer or lawyers performing the services, . . .[and) whether the fee is fixed or contingent." It is impossible and inappropriate for us to opine on the "excessiveness" or "reasonableness" of any particular fee for any particular case without knowing the facts and circumstances.

(3) Calculation of Contingency Fee: In any event, the Inquiring Attorney's proposed arrangement is also regulated by DR 2-106(D) requiring in the case of any contingent fee matter (emphasis added):

 

"a writing stating the method by which the fee is to be deten-nined, including the percentage ... that shall accrue to the lawyer in the event of settlement. . . , litigation and other expenses to be deducted from the recovery and whether such expenses are to be deducted before, or, If not prohibited by statute or court rule, 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 with method of its determination."

 

The above rule was specifically amended by the joint action of the Appellate Divisions to refer to the fact that some contingency fee agreements may be covered by the Court Rules (and similar statutes governing medical, dental and podiatric malpractice claims) mandating the deduction of expenses before calculating a contingent fee. The proposed agreement of the Inquiring Attorney does not make clear whether the attorney's expenses are to be deducted from the gross settlement amount before or after calculating the contingency fee. DR 2-106(D) requires that this must be specified in the written agreement. If the arrangement is also covered by the Appellate Division Rules, ºº 603.71 and 691.20, subdivisions (e)(3) require that any percentage contingent fee be computed after deducting-chargeable expenses from the gross settlement. If these Appellate Division rules do not apply, then the proposed agreement may provide that the percentage fee be computed on the gross settlement amount either before or after deducting chargeable litigation expenses, and one or the other must be specified in the agreement.

(4) Withdrawal Without Notice:

The last issue is whether the provision of the proposed Retainer Agreement permitting the Inquiring Attorney's withdrawal from the representation "without any further notice" meets the applicable ethical standards when the client fails to accept a settlement offer "which is deemed fair and reasonable" by the Inquiring Attorney. Disciplinary Rule 2- 110(A)(1) requires the attorney to obtain an applicable court's or tribunal's permission of the attorney's withdrawal if required by its rules. For example, the N.Y.S. Division of Human Rights I)ei-mits an attorney to withdraw when "the attorney files with the division a written statement of' Nvittidrawat from the case," as well as when the party represented files "a written revocation of the attorney's authority ...... 9 N.Y.C.R.R. º º 465.13(a)(1) and (2). Nevertheless, DR 2-1 1 O(A)(2) requires, in any event, that

 

"[A] lawyer shall not withdraw from employment until the lawyer has taken steps to the extent reasonably practicable to avoid foreseeable prejudice to the rights of the client, including due notice to the client, allowing time for employment of other counsel, delivering to the client all papers and property to which the client is entitled mid complying with applicable laws and rules."

The grounds for mandatory withdrawal are not applicable here when a client fails to accept a settlement offer that the attoniey believes fair and reasonable; however, a serious difference of opinion between client and attorney as to the value of the client's claim of employment discrimination and the reasonableness of a settlement offer may lead to grounds for permissive withdrawal under DR 2-1 1 O(C)(1), particularly when the claim is being explored by the attorney preliminarily and tentatively in an administrative agency context. Of course, if the attorney explains to the client the facts and judgement upon which the attorney determined the settlement offer to be "fair and reasonable" and why the attorney believes it unwise to pursue the matter to trial, in most cases the client may either agree or decide to change attorneys voluntarily. In any event, the attorney may not withdraw unilaterally without further notice, without complying with DR 2-110(A)(2) quoted above.

 

[Approved by the Executive Committee on November 23, 1999; approved by the Full Committee on December 1, 1999.]
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