October 23, 2009
The use of a "results obtained" or "value added" clause in the charge or calculation of fees in a divorce case makes the fee contingent and thus is prohibited by MRPC 1.5(d).
A Michigan lawyer seeks an opinion as to whether a divorce fee agreement or fee calculation containing a "results obtained" or "value added" factor is ethically permissible. In this situation, the client agrees to pay his/her divorce lawyer: 1) the hourly fee charged by the lawyer for any/all work performed in the case; and 2) an additional amount unilaterally determined by the lawyer which is based on the lawyer's view of the final result and other factors such as the time involved and skill and expertise brought to the case by the lawyer.
We find the conclusion inescapable that a fee based on the lawyer's evaluation of the success, skill, and effort at the conclusion of a matter is a contingent fee.
MRPC 1.5(c) provides:
(c) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by paragraph (d) or by other law. A contingent-fee agreement shall be in writing and shall state the method by which the fee is to be determined. Upon conclusion of a contingent-fee matter, the lawyer shall provide the client with a written statement of the outcome of the matter and, if there is a recovery, show the remittance to the client and the method of its determination. Emphasis added.
MRPC 1.5(d) broadly prohibits the use of a contingent fee billing practice in a divorce matter as it states:
(d) A lawyer shall not enter into an arrangement for, charge, or collect a contingent fee in a domestic relations matter or in a criminal matter.
Combining these two rules, a lawyer in a divorce case shall not enter into arrangements for, charge or collect a fee that is contingent on the outcome of the matter for which the service is rendered. A fee agreement that permits a lawyer in a divorce case to calculate a portion of the fee based on "results obtained" or "value added", a unilaterally determined additional amount based on the attorney's view of the final result, is contingent and is ethically impermissible.
Other states have found such clauses to be unethical. See, e.g., State ex rel Oklahoma Bar Ass'n v Fagin, 848 P2d 11 (Okla 1992) ("results obtained" fee agreement really disguised contingent fee agreement and, therefore, void as a matter of public policy); Salerno v Salerno, 241 NJ Super 536, 575 A2d 532 (1990). See also Sheresky, Aronson & Mayefsky, LLP v Whitmore, 17 Misc3d 1108(A), 2007 WL 2894237 (NY Super 2007) ("results obtained" fee violated state court rule; such a fee could also "be viewed as a contingent fee, which is clearly prohibited by" New York's counterpart to Rule 1.5(d)).
While no Michigan case or ethics opinion has specifically addressed these questions, the Michigan Court of Appeals addressed in dicta a "value added" clause in a fee dispute in the domestic relations case of Olson v Olson, 256 Mich App 619, 637 (2003). In affirming the trial court award of attorney fees, the panel noted that the trial judge based its award on a variety of factors including a "value added" enhancement. In a footnote, the court commented that "Defendant's own expert and attorneys for both parties established that a value added enhancement clause is a common and necessary feature of retainer contracts in 'high end' divorce actions." However, in light of the fact that neither side challenged the propriety of a "value added" or "results obtained" clause, the court did not address the ethical propriety of such a clause.
Under the facts presented by the inquirer, the use of a "results obtained" or "value added" factor in the charge or calculation of fees in a divorce case makes the fee contingent and thus is prohibited by MRPC 1.5(d).