In a major victory for p/i clients and foes of the standard contingency fee, the Arizona Supreme Court adopted new Rules of Professional Conduct earlier this month that include fee provisions significantly different from those recommended by the ABA’s Ethics 2000 Commission and incorporated in the ABA’s New Model Rules of Professional Conduct. The new AZ Rules, were adopted on June 6, 2003, and will be effective as of December 01, 2003.
As I have argued here, the Ethics 2000 process constituted concerted action to restrain competition over contingency fee levels. The changes made by the ABA and Ethics 2000 in Rule 1.5 of the Model Rules “make it clear that the ABA has capitulated to defenders of the ‘standard’ contingency fee. The approved Rule changes reverse recent attempts within the ABA, and by client advocates across the nation, to apply traditional ethical and fiduciary duties to the use of contingency fees.”
The most dramatic improvement in the new Arizona version of Rule 1.5 is its change to the traditional 8th factor to be considered in determining the reasonableness of a fee. Rule 1.5(a)(8) no longer has the cryptic phrase “whether the fee is fixed or contingent.” As of Dec. 1, 2003, the factor to be considered is “the degree of risk assumed by the lawyer.” Combined with factor (1)’s consideration of “the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly,” it is now clear in Arizona that the reasonableness of a contingency fee will depend on how much risk the lawyer assumed of working extensive hours without adequate pay, and how much skill and exertion it will take to perform the task. That makes applying a “standard” fee to each client unethical.
In addition, the new AZ Rule restores the clause “including consideration of the degree of risk assumed by the lawyer at the outset of the representation” to a new Commentary section [3], which discusses the reasonableness standard as applied to contingency fees. The final version of Ethics 2000’s proposal removed the clause, which had been part of previous drafts.
- Arizona also refused to follow Ethics 2000’s gutting of the current Commentary section [3] — which is now renumbered as section [5]. The ABA deleted the statement that “When there is doubt whether a contingent fee is consistent with the client’s best interest, the lawyer should offer the client alternative bases for the fee and explain their implications.” The Arizona version keeps the sentence, which supported the obigations outlined in the landmark ABA Formal Ethics Opinion 94-389 [described here], except for changing the word “offer” to “discuss with.”
Thanks to the example of the Arizona Supreme Court, States that are “uncomfortable” with the ABA’s changes to Model Rule 1.5 now have a model to use to spur competition and client choice over the level and use of contingency fees. Lawyers, clients and consumer advocates who were disappointed and appalled by the Ethics 2000 conspiracy to defend the standard contingency fee should let the rule-making bodies in their own states know about the Arizona alternative.
The Arizona choice is in stark contrast to the path taken by North Carolina’s Supreme Court earlier this year, when it became the first state to consider the Ethics 2000 model rules and act upon the proposals. A black-line version of the North Carolina Rules (effective as of March 1, 2003) can be found here. NC seems to have joined the contingency fee conspiracy.
from Jackie Cliente: The ABA showed its disdain for the average client, when the House of Delegates rejected a proposal by Ethics 2000 that clients be given a written statement of the hourly or flat fee that would be charged by their lawyer (despite an exemption for fees likely to total less than $500). The new Arizona Rule 1.5 (b) does include the requirement of a written statement of the basis or rate of the fee to be charged.
Two Cents
David: Thanks for the tip on the AZ rule, I linked to it at myshingle.com below
http://myshingle.com/article.pl?sid=03/07/01/0238230&mode=thread. Generally, I have no objection to requiring that clients be advised of alternative fee arrangements in contingency cases. The risk assessment makes me a little more hesitant because risk can be subjective and also varies depending on whether there’s a forward looking or hindsight analysis (for instance, I might take a longshot case and come up with a novel legal theorgy that lets me resolve the case in 3 months. Another lawyer might take a case w/slam dunk liability but a defendant who won’t settle and a client who turns out to be unlikeable, so the case drags on for years. Both cases are risky, but at different points – mine was risky when the client walked in the door; the slam dunk is risky as time passes. I’d be concerned that the AZ rule might require a risk reduction for my case due to quick settlement thereby making me a victim of my own success.
Comment by Carolyn Elefant — July 1, 2003 @ 8:37 am
Every lawyer does a risk assessment on every p/i case she or he accepts — and it’s always a gamble. The AZ rule helps make the risk assessment more in the open and more likely to be fair to the client.
It seems clear, as Sec. 3 of the Commentary to Rule 1.5 states, that the ethics focus will be on the perceived risk at the “outset of the representation.” But, the ability to review the actual fee and to compare it to the actual effort and risk, factoring in the novelty and the skill needed to achieve the result, seems fair to both lawyer and client, and fits in with the century-old Factor #1 of Rule 1.5 (a). Deciding whether the final fee was reasonable would take all that into account, giving the original good faith risk assessment a lot of weight.
Thinking of the situation as you “being a victim of your own success” is a rather lawyer-oriented way to look at the fairness of the fee and the question of who gets to keep the damages (which are, after all, supposed to compensate the client for the client’s injuries). If you thought a case would take 3000 hours and it actually took 300, you have saved yourself a lot of work (and received the money much sooner), while opening up the ability to work on other matters and make other income. Since you had originally thought the case was highly risky, you should not have been already assuming the big paycheck. In reality, you have “earned” less, if the verb “earn” has any normative content to it, and if your fiduciary obligation not to unfairly enrich yourself at your client’s expense has any real meaning.
Surely, the lawyer will be better able than the client to assess the risk up front. And, “risk” means just that — exposing yourself to a chance of loss, with uncertainty as to the outcome. Those lawyers who are risk averse should perhaps stick to hourly rates. Those who only think about the giant lottery jackpot that will result from the contingency fee (and not the fairness of the final split of the recovered damages with their client) perhaps need to brush up on their ethical and fiduciary duties not to overreach.
Thanks for giving this posting a mention and a link. I want to point out that the obligation to discuss/offer alternative fee arrangements when a contingency fee might not be in a client’s interests is NOT NEW — that has been part of the Commentary to Rule 1.5 ever since the Model Rules were first promulgated. It has just been ignored. And, of course, lawyers who say that contingency fees are always in their client’s best interests because there is no fee if there are no damages recovered are fooling themselves or trying to make fools of their clients.
Comment by David Giacalone — July 1, 2003 @ 9:43 am
Thank you for the info!
Comment by Mond — September 17, 2005 @ 2:06 am
[…] Note: as discussed here, the Arizona ethical rule on lawyer fees now states that “the degree of risk assumed by the lawyer” is a factor to be considered when determining the reasonableness of a contingency fee. […]
Comment by shlep: the Self-Help Law ExPress » Blog Archive » personal injury self-help (and fee negotiation) — February 8, 2007 @ 12:01 am