April 16, 1992
A lawyer may charge a contingent fee in an action to set aside the property settlement portion of a divorce decree previously entered based upon the fraud of the client's spouse, provided that the contingent fee is the only practical means by which the prospective client can pursue the claim, the contingent fee is reasonable, and any court-awarded fees are credited against the contingent fee.
References: MRPC 1.5(c) and (d); RI-28; CI-620, CI-712, CI-828, CI-901.
After a prospective client's final divorce decree has been entered, a lawyer consulted by the client concludes that the client's former spouse fraudulently concealed assets during the divorce proceeding. The prospective client does not have the financial ability to retain counsel on a routine hourly basis. The lawyer inquires, whether under these circumstances, it is unethical to enter into a contingent fee agreement with the client to set aside the property settlement.
MRPC1.5(c) and (d) state:
"(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.
"(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." Emphasis added.
RI-28 opined that a lawyer may charge a contingent fee to collect past due alimony provided it is the only practical means by which the prospective client can pursue the claim, the contingent fee is reasonable, and any court-awarded fees are credited against the contingent fee.
MCPR DR 2-106(C), the predecessor to MRPC 1.5(d), prohibited a lawyer from charging a contingent fee in a divorce case. Interpretting MCPR DR 2-106(C), CI-620 determined a contingent fee was not unethical in a proceeding to modify a judgment of divorce, where the basis for the representation was fraud or misrepresentation perpetrated by the client's spouse. In that opinion the lawyer intended to file a motion for relief from a judgment of divorce based on the spouse's misrepresentation of the outstanding balance of mortgages against the marital real estate; the spouse represented that the mortgages had significantly lower balances than was in fact the case.
A contingent fee agreement was permitted in a post-judgment proceeding to enforce a client's property right established in a divorce judgment in CI-712. The divorce decree gave the client a one-half interest in the proceeds of a lawsuit involving the former spouse. The proposed representation was to enforce the client's interest in that lawsuit.
A contingent fee was also permitted in a post-judgment proceeding to collect alimony, child support and the property settlement previously established in a divorce decree in CI-828.
In CI-901 a contingent fee arrangement was permitted on the appeal of a trial court's award of attorney fees and alimony in a divorce case.
We note the Michigan Supreme Court's language in MCPR DR 2-106(C) prohibiting contingent fees in divorce cases was broadened in MRPC 1.5(d) to "domestic relations matters." The Michigan language also differs from ABA Model Rule 1.5(d) language, which prohibits fees "contingent upon the securing of a divorce or upon the amount of alimony or support, or property settlement in lieu thereof."It is clear therefore, that contingency fees should be permitted only in rare cases.
The rationale behind MRPC 1.5(d) is that if a lawyer is permitted to charge a contingent fee on the amount recovered for a client in a divorce proceeding, the lawyer would be less inclined to counsel the client regarding reconciliation. In each of the situations presented in the above opinions, it was reasoned that once a judgment of divorce had been entered, reconciliation became less significant and a contingent fee was not unethical.
Other states have allowed contingent fee arrangements in post-judgment proceedings in domestic relations matters. Several of those states point out that the contingent fee arrangement should only be used when that fee arrangement is the only practical means by which a claim can be pursued. Virginia Op 1062 (4-8-88); Alabama Op 86-75 (8-1-86); Arizona Op 91-20(6-17-91); Nassau County Op 90-18 (5-16-90). This rationale mirrors the concern expressed in MCR 8.121(E) that the client be advised that other fee arrangements may be available.
Therefore, when a divorce case has been completed, and it is subsequently learned that the divorce decree was based on fraudulent conduct, is not unethical for a lawyer to undertake representation to set aside the property settlement on a contingent fee basis, where a contingent fee arrangement is the only practical means by which the prospective client can pursue the claim, the contingent fee is reasonable and any court-awarded fees are credited against the contingent fee.