December 16, 1997
The matter of court awarded sanctions and/or attorney fees is a matter of contract between attorney and client. Where such fees and/or sanctions are addressed in the written contingent fee agreement between attorney and client, then such matter becomes a question of contract. Those portions of the disputed fee or sanction should be segregated in the lawyer's trust account and the lawyer should seek direction from the court that awarded the sanction.
References: MRPC 1.5; RI-150; MCR 8.121
The inquirer is a lawyer who was retained by an individual on a contingent fee basis. Opposing party and counsel failed to appear at several depositions and failed to comply with a court order compelling attendance at said depositions. Opposing counsel also failed to appear for two court-ordered scheduling conferences. As a result, the judge ordered the opposing party and counsel to pay sanctions. The presiding judge stated, off the record, that the lawyer did not need to disburse the funds to the client.
The inquirer poses this question: is the money received from opposing counsel as a court-ordered sanction the sole property of counsel or must it be disbursed to the client pursuant to the contingent fee agreement.
There are a number of Rules of Professional Conduct which provide guidance in answering this question. The subject of fees is covered by MRPC1.5 and the lawyer is bound by 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 question involved, and the skill requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar 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 service;
(8) whether the fee is fixed or contingent."
The lawyer must take each of these factors into account in determining whether the fee in question is reasonable and, therefore, ethical. The lawyer has the obligation to review these criteria when making the fee agreement prior to representation, and again before charging or collecting the fee. RI-150.
With regard to contingent fees, MRPC 1.5(c)states:
"(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. See MCR 8.121"
Prudence dictates that in a written contingent fee agreement for personal injury cases the issue of court-awarded sanctions should be spelled out in advance of undertaking representation. In the instant case, that was not done and the Subcommittee on Professional Ethics must be careful not to enter into areas that truly do not present an ethical question.
Clearly, the issue of court-awarded sanctions is a matter of contract between the attorney and client once they have been ordered by a judge or tribunal. Absent an agreement in the contingent fee agreement as to how they are to be divided, the attorney should segregate the funds in his/her trust account and attempt to resolve the matter with the client.
Because the interests of the lawyer and the client are potentially adverse in how the sanction award is allocated, and because this situation has arisen well after the formation of the attorney client relationship (unlike the initial fee agreement), the lawyer's conduct in discussions with the client will be measured by the standards set for fiduciaries. Thus, it would be prudent for the lawyer to undertake this effort at consensual resolution with the client in conformity with the protocols established in MRPC 1.8(a).
Absent an agreement with the client, the attorney should return to the court or tribunal which awarded the sanction and seek its direction as to how the funds should be dispersed between the attorney and the client.