Opinion ID: 2060789
Heading Depth: 1
Heading Rank: 11

Heading: dividing contingent fees

Text: Pursuant to Rule 1.5(e), a proper contract to divide a contingent fee among lawyers who work on a contingent fee case should be a division in approximate proportion to the work each lawyer did or expects to do on the case. The reasonableness of contingent fee contracts with the client and contracts dividing a contingent fee among the attorneys normally should be judged on the reasonableness of the percentage agreed on at the time of contracting, not on whether the attorneys put in more or less work than anticipated to win the case and not whether the recovery was more or less than anticipated. Courts have generally stated that the reasonableness of a contingency fee contract should be looked at in light of the factors as they existed at the time the contract was entered into, but this must be qualified by the inherent power of a court to review fees in the case before it. 1 ROBERT L. ROSSI, ATTORNEYS' FEES § 2:9, at 111-12 (2d ed.1995). A contingent fee contract is by its nature something of a gamble on the strength of the client's case and the skill of the attorneys. If there is no recovery for the client the attorney gets no fee regardless of the amount of work he or she performed on behalf of the client. If the client has to compromise and receives only a small recovery the attorney gets only the agreed on percentage regardless of the efforts expended. On the other hand, if the case settles for a great deal of money shortly after the attorney is retained, the attorney receives the agreed on contingent fee even though relatively little work was done on the case. As long as the contingent fee division contract was not proven to be unreasonable or unethical when entered into, each attorney ordinarily should get the agreed contractual division. Merely speculating that the fee division might be unreasonable or unethical by recomputing the proportionate division of efforts after the client's case is settled should not be a defense to a suit on the contract. This contract initiated by Post promised Bregman 13% (40% of one-third) of any fee recovered. It was not shown to be an unreasonable or unethical division of the potential fee when it was entered into. There was no suggestion by Post that the contract was coercive, improper or unethical when entered into. Post obviously thought at the time of contracting that Bregman deserved 13% of any fee since Post was the one who proposed that division. Our ethical focus should be on whether the contract was proper and ethical when entered into, not through hindsight based on fortuitous events that occurred later. In an analogous situation, let us assume that an attorney agrees to represent a client in a difficult personal injury action and does considerable work on the client's case. As the case gets close to trial, the attorney, with the full agreement of the client, decides to bring in a much more skillful and experienced trial attorney. The two attorneys carefully compare the amount of work the referring attorney has already done and the work the new attorney can reasonably be expected to do and mutually agree it would be reasonable and proportionate to divide the one-third contingency fee equally between them. That agreement to equally divide the fee ought to be enforceable as long as both attorneys do everything they are supposed to do on behalf of the client. It should not matter whether the case settles shortly after the being turned over to new the trial attorney and the original attorney has done the majority of the work or whether the new trial attorney in preparing for and trying the case and its appeal expends more effort than either party thought would be necessary. Like the original contingent fee contract with the client, normally the validity of the fee sharing contract should be judged on the facts at the time the contract was made. This is in accord with what this Court held in Mortgage Inv. v. Citizens Bank, 278 Md. 505, 510, 366 A.2d 47, 50 (1976), a case where a note provided for an attorney's fee of 15% of recovery. When the note was not paid, suit was filed and judgment was entered for the amount due on the note as well as over $150,000 in attorneys' fees representing 15% of the amount judgment. On appeal the primary contention was that the judgment for attorneys' fees was grossly excessive based on the amount of legal work necessary to file suit on the note. This Court recognized that it had to reconcile several doctrines including first, the inherent power of a court to oversee the activities of members of its bar ... [and] second, the rights of parties to make such contracts as they please, so long as they are consistent with law. 278 Md. at 508-09, 366 A.2d at 49 (citations omitted). This Court upheld the fee because the agreement was one entered into by informed and sophisticated contracting parties, and it should be enforceable even though ultimately the amount due at the time of suit made the 15% attorneys' fee unreasonably high. We stated: While the amount of the collection fee may be regarded as grossly disproportionate to the amount of work involved, it must be remembered that [the defendant] was an informed and sophisticated borrower, entirely familiar with banking practices. 278 Md. at 510, 366 A.2d at 50. The single dissenting judge made an argument similar to that made by Post in the instant case. The dissenting judge, although perhaps not accurately characterizing the majority opinion, complained that: The Court tacitly concludes that a contract provision providing for an attorney's fee should be treated in the same manner as any other provision in a contract; for example, an attorney's fee provision is void only if there is clear evidence of overreaching. I believe, however, that provisions for attorneys' fees fall in a separate category because of our supervisory role over attorneys, who are, after all, officers of the Court. The majority, of course, recognizes that because attorneys are officers of the Court, the Court possesses the power to uphold the highest standards of professional conduct and to protect the public from imposition by the practitioner. This power should be exercised when necessary to merit `the respect and confidence of ... the society which (an attorney) serves.' American Bar Association, Code of Professional Responsibility, Preamble (1975). Achievement of this objective compels, in circumstances such as are present here, special treatment for contracts for attorneys' fees. The Code of Professional Responsibility provides the touchstone against which we should measure an attorney's conduct: '(A) A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee. (B) A fee is clearly 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 ....' Code of Professional Responsibility, Disciplinary Rule 2-106(A), (B), Maryland Rules App. F (emphasis added). These rules are mandatory in character and state the minimum level of conduct below which no lawyer can fall without being subject to disciplinary action. American Bar Association, Code of Professional Responsibility, Preliminary Statement (1975). The majority apparently would permit attorneys to collect excessive fees, while not permitting them to enter into unconscionable agreements for excessive fees. I doubt that the public will draw such fine distinctions in assessing its confidence in attorneys. (Emphasis added). Mortgage Inv., 278 Md. at 511-12, 366 A.2d at 50-51. In Mortgage Inv., we recognized that ordinarily when a question is raised about the reasonableness of a contingent fee contract the relevant period is the time of contracting. The contract initiated by Post to give Bregman 13% (40% on one-third) of any fee recovered was not shown to be other than a reasonable attempt to ethically divide the contingent fee. Absent special circumstances not present in the instant case, our ethical evaluation of a fee division contract should be based on whether the contract was proper and ethical when entered into, not based on fortuitous events that occurred after the contract. There was no claim that Bregman breached his contract, and he should not be required to ethically justify his contractual claim by proving the percentage of the work he actually performed equaled his percentage of the fee. Many of the cases cited by the majority in support of its position are referral fee cases where a fee was claimed by an attorney who did nothing more than refer a case. States are not in agreement about whether there should be a public policy against charging a fee for doing nothing more than referring a case to another attorney. See Caroll J. Miller, Annotation, Validity and Enforceability of Referral Fee Agreement Between Attorneys, 28 A.L.R.4th 665 (1984). Had this been a contract to pay Bregman a substantial portion of the contingent fee for merely referring the case, the contract itself might have been unethical and thus unenforceable. That issue, however, need not be decided in the instant case. Where a lawyer who has worked on a case gets permission from the client to refer the case to another lawyer to handle the trial and the two attorneys agree on a reasonable division of the contingent fee, normally the agreement should be enforceable unless at the time the agreement was entered into it contemplated an unethical split. That is what we held in Vogelhut, and it is what we should hold in the instant case. Referral of cases can often benefit the client and referral agreements should not be considered improper where the referring attorney has performed work on the client's case and the contracting attorneys agree that the fee division approximates the proportion the work done by the referring attorney bears to the work anticipated to be done by the trial attorney. When a client comes to an attorney with a case that will potentially generate a very large fee, most attorneys will be reluctant to turn down the case. Cases that potentially can result in very large contingent fees generally will be vigorously opposed by highly competent counsel and often require extraordinary skill and expertise. An attorney who takes such a case and comes to realize the client might be better served by another attorney with greater skill or experience should be not be discouraged from referring the case to another attorney better able to champion the client's cause. Common sense tells us that attorneys would be reluctant to refer cases that will potentially result in contingent fees amounting to hundreds of thousands of dollars in exchange for quantum meruit payments for services rendered at an hourly rate. Public policy should permit a referring attorney to share in the risk of no recovery or the reward of a very large recovery as long as the fee sharing agreement is reasonable when entered into and does not adversely affect the client. That is not to suggest that highly disproportionate division of contingent fees would be permitted merely because one attorney referred the case to another. It does suggest, however, that where the referring attorney has done some work and the referring attorney as well as the new lead counsel have come to an agreement on division of a contingent fee, courts should assume both attorneys have acted ethically and arrived at a proportionate division of fees, recognizing that at the time of agreement no one is able to accurately predict how much work will be done by the new attorney or even if there will be any fee at all. Furthermore, the attorney seeking to set aside a contingent fee sharing agreement should have the burden of proving that the agreement was unreasonable or unethical when entered into. See 2 ROBERT L. ROSSI, ATTORNEYS' FEES § 13:12, at 309 (2d ed.1995). Unquestionably, Post did not and could not meet such a burden of proof, even if we assume that ultimately the division might not be the precisely proportionate division that the ethical rules seem to require. Other courts permit attorneys in Bregman's position to recover contractual fee divisions even if the fee is not exactly in proportion to the services performed. When faced with an agreement between attorneys to share a legal fee in a situation where the applicable rule required that the division of fees between attorneys be in proportion to the services performed by each, many courts have given a liberal construction to that requirement. Some courts have held that such an agreement is enforceable according to its terms provided that the attorney who seeks his or her share of the fee contributed some work, labor or service toward the earning of the fee. Other courts have taken only a slightly less liberal position, stating that the respective fees need not precisely correlate with the work performed by each attorney, and that the agreed fee division should be enforced where there is a substantial division of services or responsibility. (Footnotes omitted). 1 ROBERT L. ROSSI, ATTORNEYS' FEES § 4:1, at 218-19 (2d ed.1995). See, e.g., Schniederjon v. Krupa, 130 Ill.App.3d 656, 85 Ill.Dec. 845, 849, 474 N.E.2d 805, 809 (1985)(noting that where attorney performed some work, labor, or service, fee sharing agreement may be enforced despite fact that actual participation in case may not have been in proportion to amount of fee claimed); Fitzgibbon v. Carey, 70 Or.App. 127, 688 P.2d 1367, 1374 (1984)(noting that agreement between attorneys to divide a contingency fee may be enforced even though it is claimed that the division is not directly proportional to the work performed by each attorney), review denied, 298 Or. 553, 695 P.2d 49 (1985).