June 14, 1996
A lawyer may charge a contingent fee for representation in proceedings instituted under the state statute permitting forfeiture or seizure of certain property by state and local units of government.
The contingent fee may exceed the one-third of the net proceeds, provided that the fee is reasonable under the circumstances and otherwise in conformity with rules governing lawyers fees.
References: MRPC 1.5(a), (b), (c) and (d), 1.8(j); R-11; RI-17, RI-162, RI-193; MCR 8.121; MCL 600.407 et seq.; George v. Gelman, 201 Mich App 474 (1993).
A lawyer asks whether it is ethically permissible to enter into contingent fee agreement in excess of one-third of the value of property which is the subject of a governmental forfeiture and seizure action.
Actions seeking forfeiture or seizure of property that is an "instrumentality" or the "proceeds" of a crime are authorized under MCL 600.407 and, in cases involving controlled substances, MCL 333.7521. Such forfeiture and seizure actions are considered "in rem civil" proceedings. In re Forfeiture of $1,159,420, 194 Mich App 134, 486 NW2d 439 (1992), app den 503 NW2d 439, cert den 114 SCt 189; Director, Bureau Worker's Disability Comp. v. BMC Mfg. 200 Mich App 478, 504 NW2d 695 (1993), appeal denied 531 NW2d 611; In Re Forfeiture of $18,000, 189 Mich App 1, 471 NW2d 628 (1991); In re Forfeiture of 719 N. Main, 175 Mich App 107, 437 NW2d 332 (1989).
MRPC 1.5(d), which prohibits contingent fee arrangements in domestic relations and criminal matters is not applicable to representation of parties in the property forfeiture and seizure proceedings referenced here. However, lawyers are cautioned that these proceedings may have at the onset, or may develop, a close relationship to criminal prosecutions against the client or to persons other than the client who may claim or have a legal or equitable interest in the subject property. Should the seizure and forfeiture result in double jeopardy or excessive fine issues in the criminal proceeding, the civil and criminal cases may be overlapped and MRPC 1.5(d) might be triggered in a particular case.
The Committee has not been asked to anticipate precisely how such an overlap might occur or how the contingent fee might be tainted by the raising of double jeopardy or excessive fine arguments at sentencing or appellate stages of a related criminal matter. Suffice it to say that if the contingent fee arrangement is challenged due to unexpected effects of the criminal proceedings upon the disposition of the subject property, an alternate fee arrangement in the written agreement, and/or a request for guidance from the court regarding the fee, would be appropriate.
MCR 8.121(A) and (B) limit the amount chargeable under contingent fee agreements to one-third of the recovery in personal injury and wrongful death cases. The percentage limitation does not apply to forfeiture and seizure actions created by MCL 600.4702 et seq or MCL 333.7521 et seq; therefore, other criteria must be applied to determine the reasonableness of fees in such cases, RI-162, RI-193.
The lawyer contemplating such fee arrangements must remain cognizant of other requirements applicable to contingent fees, and lawyer fees in general. Specifically, the client must be advised that lawyers generally may offer other fee arrangements, MCR 8.121(E), and the contingency fee agreement must be in writing, with a copy provided to the client, MCR 8.121(F). These rules state:
"(E) Advice to Client. An attorney must advise a client, before entering into a contingent fee arrangement, that attorneys may be employed under other fee arrangements in which the attorney is compensated for the reasonable value of the services performed, such as on an hourly or per diem basis. The method of compensation used by an individual attorney remains the attorney's option, and this rule does not require an attorney to accept compensation in a manner other than that chosen by the attorney.
"(F) Agreements to Be in Writing. Contingent fee arrangements made by an attorney with a client must be in writing and a copy provided to the client."
MCR 8.121 is entitled "Contingent Fees in Claims or Actions for Personal Injury and Wrongful Death." However, contingency fee agreements must be in writing pursuant to MRPC 1.5(c), and prior opinions issued by this Committee have determined that MCR 8.121(E) and (F) have been deemed applicable to all contingent fee agreements. R-11; RI-17. RI-17 states in pertinent part:
"MCR 8.121 also contains restrictions on the maximum fees that may be charged in certain circumstances; by its terms, however, this portion of the rule applies only to personal injury and wrongful death cases. MCR 8.121(A), and subrule (E) is not so limited. The title of this rule, provided by the publisher, is irrelevant to its construction. See MCR 1.106. In contrast to MCR 8.121(A), MCR 8.121(E) applies on its terms to all contingent contracts, not just those arising in personal injury and wrongful death cases." Emphasis added.
Prosecutors commonly pursue seizure of real property in forfeiture proceedings. A lawyer cannot exercise a charging lien against a client's real property as a means of securing his or her fee, and a lawyer may not obtain a security interest in real property unless the client has agreed ". . . in an express written contract between [lawyer and client] providing for such a lien or unless special equitable circumstances [exist]." George v. Gelman, 201 Mich App 474 (1993).
Whenever a lawyer seeks to secure fees, caution should be taken to avoid violation of MRPC 1.8(j) which prohibits acquisition of a "proprietary interest in the cause of action or subject matter of the litigation the lawyer is conducting for a client." MRPC 1.8(j)(2) permits "a reasonable contingent fee in a civil case, as permitted by Rule 1.5 and MCR 8.121."
It is difficult to address, within the limited facts of the question before us, what constitutes a "reasonable" contingent fee in crime related forfeiture cases. Many variations on the theme of contingency might be considered. A fixed amount of remuneration might be paid upon successful defense of the forfeiture action, or a percentage of the value of the client's property. All of the subject property, or just the part successfully protected might be included in the percentage computation; we do not have before us any specific formula or terms. However, whether the contingent fee is a sum certain for successful defense of part or all of the client's property, or a percentage of part or all of the value of the subject property, the potential of the total fee should be proportionate to the risk and consistent with the criteria of "reasonableness" set forth in MRPC 1.5(a).
Given that the Michigan Supreme Court has determined that a fee limit of one-third of the net recovery is appropriate in certain cases, lawyers should be sensitive as to the extent to which a percentage limitation might be exceeded in any case. Whether a fixed or percentage fee is charged, careful attention should always be given to MRPC 1.5(a) which states:
"(a) A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee. 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. The factors to be considered in determining the reasonableness of a fee include the following:
"(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
"(2) the likelihood, if apparent to the client, that the acceptance of the articular employment will preclude other employment by the lawyer;
"(3) the fee customarily charged in the locality for similarly legal services;
"(4) the amount involved and the results obtained;
"(5) the time limitations imposed by the client, or by the circumstances;
"(6) the nature and length of the professional relationship with the client;
"(7) the experience, reputation, and ability of the lawyer or lawyers performing the services, and
"(8) whether the fee is fixed or contingent."
Consistent with paragraph (3), it is common practice for a lawyer to be guided, in part, by commonly accepted practice in the legal community; therefore, especially when novel questions arise, it is important that the lawyer make a good faith effort to determine fee practices utilized by a representative sampling of other lawyers in his or her locality.
MRPC 1.5(b) specifically distinguishes between "fixed" and "contingent" fees; unfortunately, the rule does so without elaboration. It is obvious that contingent fees involve greater risk on the part of the lawyer, hence the justification for contingent fees which often exceed a retrospective "quantum meruit" calculation of the actual value of the services rendered in a particular case.
Finally, the lawyer must remain mindful of the requirements of specific notice and accounting owed to the client. Not only must the agreement be in writing and copy given to the client, but 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. See MCR 8.121; MRPC 1.5(c).