June 11, 1981
A lawyer may ethically enter into a contingent fee agreement with a divorced client for the modification of the judgment of divorce wherein the basis of such undertaking is fraud or misrepresentation perpetrated by the former husband and wherein the property right of the client, established by the judgment of divorce, is the single issue involved.
References: DR 2-106(A) (B) and (C).
The question posed is whether a lawyer may ethically enter into a contingent fee agreement with a client who was divorced from her husband, wherein the subject matter of the representation involves modification of the property settlement rights of the parties established by the judgment of divorce, without violating DR 2-106(C).
The represented factual circumstances include that the judgement of divorce was entered on August 4, 1980 which awarded the wife $200,000 as a first claim against the marital home which she owned with her husband. The home had a market vale of $700,000. During the negotiations the husband represented, and the judgment provided, that there were two outstanding mortgages against the marital home totaling $369,000.
After entry of the judgment, the wife learned there were actually three mortgages against the marital home, instead of the two as represented by the husband, and that they totaled $696,000.
The lawyer proposes to file a motion for relief from the judgment alleging fraud or misrepresentation pursuant to GCR 528.3. In James v James, 57 Mich App 452 (1975) authorization for "setting aside a judgement of divorce" where the responding party was found to have misrepresented the amount of a mortgage on marital real estate is cited.
DR 2-106(C) provides:
"A lawyer shall not enter into an agreement for, charge, or collect a contingent fee in a divorce case or for representing a defendant in a criminal case."
In CI-72, this committee opined that percentage agreements based upon the property settlement involved in a divorce case was not sanctioned by law, on the Michigan Supreme Court case of Jordan v Westerman, 62 Mich 1 70 (1886). The Jordan case was followed by McCurdy v Dillon, 135 Mich 678 (1904) and Wells v Brown, 226 Mich 657 (1924).
The underlying reasoning of these cases holding the contingent contract in divorce cases to be against public policy was that in the interests of society reconciliation should b encouraged, whereas a contingent fee contract arms the lawyer with a strong inducement to thwart or prevent reconciliation.
The reasoning discussed in Jordan which is involved in the present question is also found in the text of Stuart M. Speiser on "Attorney's Fees" (1973) (§2.6 Contract relating to divorce or alimony proceedings; Vol 1, P. 89,90). "Because of the human relationships involved and the unique character of the proceedings, contingent fee arrangements in domestic relation cases are rarely justified." EC 2-20.
An application to modify the alimony or child support provisions of a divorce judgment is not considered to be a re-hearing of the original case nor a review of the equities. (Fischer v Fischer, 320 Mich 176 (1948). However, a motion for modification of the judgment based upon fraud relates back to the original case insofar as it involves property rights. Allen v Allen, 341 Mich 543, 548 (1954).
With the foregoing in mind, we must consider the following question:
Should the judgment be set aside exclusively as to the property rights involved, would the case be a "divorce case" within the intent of DR 2-106(C)? It is believed the answer to this question should be no.
The reasoning of those cases wherein the contingents fee contract was held to be contrary to public policy involved the encouragement of reconciliation. So long as the proposed modification proceedings relate solely to the wife's property rights, i.e., her $200,000 claim, the rationale of Jordan would not apply. The divorce has been effected and no attempt to have that part of the judgment vacated is contemplated on the facts submitted.
Proceeding under GCR 528.3, the wife should be able to address her pleadings to the single question. The rule includes the following:
"On motion and upon such terms as are just, the court may relieve a party from a final judgment, for the following reasons: "(3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; . . . ." Emphasis added.
Although dealing with the question of alimony, the Michigan Court of Appeals in Kaleal v Kaleal, 73 Mich App 181, 191 (1977), discussed GCR 528.3, holding that partial relief from a judgment of divorce can be given, stating: "The literal language of the rule supports our conclusion. The rule reads in part that relief can be granted 'upon such terms as are just'. It is therefore readily apparent that this rule did envision flexibility in the power of the court to modify judgments, thereby allowing courts to further the aims of substantial justice. By a niggardly construction of this provision, by holding only total relief can be granted, we would neutralize the entire purpose for which the provision was granted."
In addition the New York County Lawyers' Association, the Oregon State Bar and the Washington State Bar have held contingent fee contracts for the recovery of past due alimony and/or child support payments to be proper. Without intending to sanction these opinions, they do add credibility to the position that it is proper for a lawyer to charge a contingent fee for services in attempting to obtain a modification of a divorce judgment, based upon alleged fraud or misrepresentation, limited solely to the client's property right.
In conclusion, a contingent fee agreement applied to the facts presented would not violate DR 2-106(C) so long as the admonitions of DR 2-106 (A) and (B) are carefully considered and applied to the proposed attorney/client relationship. Special attention should be given to DR 2-106(B)(1)(3)(4) and (6).