RI-394
February 12, 2026
SYLLABUS
A lawyer may enter into a reverse contingent fee arrangement whereby the lawyer’s compensation is based on the amount by which the client’s liability is reduced if there is:
- A written fee agreement, specifying the method of calculation;
- Full disclosure and informed consent;
- A reasonably-assessed baseline;
- A fee that is not clearly excessive when agreed to, charged, or collected; and
- Written disclosure of the method of calculation at the conclusion of the matter.
References: MRPC 1.5; ABA Formal Opinion 93-373; DC Bar Ethics Opinion 347.
TEXT
“Reverse contingent fee” agreements are those under which the fee is calculated on the reduction in a client’s liability, i.e., the savings to the client, and which are generally used in civil defense matters, tax controversies, debt resolution, or other situations where the client’s exposure is to pay a sum of money rather than to recover one.
Under a reverse contingent fee arrangement, the lawyer and client agree that the lawyer will receive a percentage of the amount by which the client’s liability is reduced. For example, suppose a tax authority asserts that a client owes $1 million. If the lawyer negotiates a settlement for $400,000, the savings to the client is $600,000. If the fee agreement calls for a one-third reverse contingent fee, the lawyer would be entitled to $200,000.
Both the American Bar Association1 and the District of Columbia Bar2 have concluded that reverse contingent fees are permissible, subject to the conditions of reasonableness, independent baseline determination, written disclosure, and informed consent.
Michigan Rule of Professional Conduct (MRPC) 1.5
MRPC 1.5(a) prohibits a lawyer from entering into an agreement for, charging, or collecting an excessive fee. Therefore, it requires that the lawyer review the fee for excessiveness at the time of engagement, at the time the fee is calculated, and before collection. MRPC 1.5(c) provides that contingent fee agreements must be in writing and must state the method by which the fee is determined.3 Further, at the conclusion of the representation, the lawyer must provide a written statement showing the outcome of the matter and how the fee was calculated, often referred to as the settlement statement. Additionally, if there is any doubt regarding whether the reverse contingent fee is consistent with the best interest of the client, the lawyer should explain the material risks and alternatives associated with any proposed fee arrangement so that the client may make an informed decision.4
Reasonableness at the Outset and at the Conclusion of the Representation
The analysis that a fee is reasonable, thus not excessive, is complicated in the reverse contingent fee context because outcomes can produce disproportionate results relative to the effort involved.
For example, if a creditor asserts a claim for $200,000 and accepts $20,000 after a single letter from counsel, a 40% reverse contingent fee would yield $72,000. That figure may appear disproportionate to the lawyer’s investment of time and labor and the risk undertaken.5 Conversely, a lawyer may devote hundreds of hours to defending a claim initially set at $5 million, ultimately settling for $4.2 million. The savings is $800,000, and a one-third reverse contingent fee would produce $266,000, potentially less than the value of the services rendered or the risk undertaken.
The Rules do not require proportionality between effort and compensation. They require that the fee not be excessive in light of all circumstances, including risk, market practice, and the nature of the representation.6 Nevertheless, because reverse contingencies lack widespread custom to guide the analysis, lawyers must exercise caution in evaluating whether the arrangement is fair to both lawyer and client both at the outset of the representation and when the fee is being calculated.
Establishing a Reasonable Baseline
The most distinctive feature of a reverse contingent fee is the selection of the baseline amount from which “savings” are measured. Reliance on the adversary’s initial demand is problematic because such figures may be inflated or unrealistic. A lawyer who simply adopts that demand risks charging a fee that never represented the client’s genuine exposure.
For instance, in a property tax valuation context, an Internal Revenue Service notice of deficiency may assert liability based on an appraisal far greater than the amount that would reasonably be expected after negotiation or litigation. If a lawyer bases the fee on the inflated figure without disclosing its unreliability, the client may be misled, and the resulting fee may be deemed unreasonable.7
Ethical practice requires that the lawyer make a reasonable assessment of the client’s realistic exposure. That assessment should be explained to the client so that the baseline is not a matter of assumption but of informed agreement. Without such disclosure, the risk of overreaching is high. Both the ABA8 and the D.C.9 Bar emphasize that the baseline must be “reasonably determinable” and not merely adopted from an adversary’s position.
Costs
Just as with any contingent fee, costs should first be deducted from the baseline amount before calculation of the attorney fee.
Written Agreement
Contingent fee agreements must be in writing, and reverse contingencies are no exception. MRPC 1.5(c) requires a contingent fee agreement to be in writing and to state the method by which the fee is determined. This requirement applies fully to reverse contingent arrangements. A valid agreement must identify the baseline, the percentage to be applied, and how costs will be addressed. A mere statement that the lawyer will receive a certain percentage of the amount saved is insufficient if it fails to specify the baseline from which savings will be measured. The prudent lawyer will also explain how the baseline was chosen, both to ensure the client’s understanding and to safeguard against later challenges.
Informed Consent
A client cannot meaningfully consent to a reverse contingent fee without understanding its mechanics, risks, and alternatives. Informed consent requires disclosure of more than the formula. If there is any doubt about whether a reverse contingent fee serves the client’s best interests, the lawyer should present alternative fee structures, such as hourly billing or flat fees.10
The level of disclosure will depend on the sophistication of the client. A corporate client with in-house counsel may readily evaluate the merits of a reverse contingency. An individual facing debt collection or tax liability may not. In the latter case, the lawyer must take additional steps to ensure comprehension, such as providing written explanations or comparative illustrations of possible outcomes under different fee arrangements.11
Risks of Excessive Fees
Reverse contingencies invite scrutiny because they can create the appearance of an excessive fee. A lawyer who adopts an inflated baseline without disclosure may appear to manipulating the fee structure for personal advantage.
Courts and disciplinary authorities have scrutinized such arrangements closely, and at least one has invalidated a reverse contingent fee based on an inflated government demand that the lawyer knew was unrealistic.12
For this reason, lawyers should document the arithmetic of the arrangement and the rationale behind it. Transparency is the best safeguard against later allegations of excessiveness.
In assessing “excessiveness,” it should be noted that by the very nature of a reverse contingent fee, compensation is not measured by an hourly rate or salary template. Rather, the risks the attorney takes and the uncertain nature of the recovery are among the factors underlying a reverse contingent fee.
CONCLUSION
A lawyer may enter into a reverse contingent fee arrangement whereby the lawyer’s compensation is based on the amount by which the client’s liability is reduced if there is:
- A written fee agreement, specifying the method of calculation;
- Full disclosure and informed consent;
- A reasonably-assessed baseline;
- A fee that is not clearly excessive when agreed to, charged, or collected; and
- Written disclosure of the method of calculation at the conclusion of the matter.
1. ABA Formal Opinion 93-373 (93-373.QXD).
2. DC Bar Ethics Opinion 347 (March 2009); See also Iowa Supreme Court Board of Professional Ethics and Conduct, Op. 98-03 (1998); Kentucky Bar Ass'n Ethics Op. E-359 (1993).
3. Further, MRPC 1.5(d) prohibits the use of contingent fees in domestic relations and criminal matters. This opinion is not intended to comment on, replace, or interfere with that prohibition.
4. See Comment to MRPC 1.5. Terms of Payment. “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.”
5. See Risk of Excessive Fees below.
6. MRPC 1.5.
7. Brown & Strum v Frederick Road LP, 768 A2d 62 (Md. Ct. Spec. App. 2001)
8. ABA Formal Opinion 93-373.
9. DC Bar Ethics Opinion 347 (March 2009)
10. ABA Formal Opinion 93-373 and MRPC 1.5 comments.
11. ABA Formal Opinion 93-373, DC.
12. Brown & Strum v Frederick Road LP, 768 A2d 62 (Md. Ct. Spec. App. 2001).