State Bar of Arizona Ethics Opinions
93-04: Contingent Fees; Domestic Relations Cases
Lawyer may charge a contingent fee to collect the arrearages of child support and spousal maintenance. Revision of Opinion 91-20.
March 17, 1993
On September 10, 1992, the Committee on Rules of Professional Conduct withdrew its Opinion No. 91-20 (June 17, 1991) and directed that a new opinion be issued which clarifies the committee's view on the scope of ER 1.5 (d). This is the committee's new opinion, supplanting former Opinion No. 91-20.
ER 1.5(d) provides in part that:
"(d) A lawyer shall not enter into an arrangement for, charge, or collect:
"(1) any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or upon the amount of alimony or support, or property settlement in lieu thereof; or
"*****” (emphasis supplied)
The inquiring attorney desires to represent clients on a contingent fee basis in actions to collect arrearages in child support and spousal maintenance and to enforce current orders for child support and spousal maintenance.
1. May an attorney ethically charge a client a contingent fee to collect arrearages in child support or spousal maintenance after the entry of a divorce decree?
2. May an attorney ethically charge a client a contingent fee to enforce current orders for the payment of child support and spousal maintenance after the entry of a divorce decree?
RELEVANT PRIOR ARIZONA ETHICS OPINIONS
In Opinion No. 77-18 (August 17, 1977), the committee reaffirmed the prohibition under the former Code of Professional Responsibility against charging a contingent fee with regard to either property disposition or future spousal maintenance in an Arizona dissolution proceeding which had changed from a "fault" to a "no-fault" divorce concept.
In Opinion No. 82-9 (May 28, 1982), the committee approved the contingent fee arrangement where the services to be performed involved an attempt to set aside a prior divorce decree and settlement agreement on the basis of fraud and duress. The attorney had a different fee arrangement for negotiating or litigating a new settlement agreement.
In Opinion No. 87-6 (July 27, 1987), the committee reaffirmed the prohibition against charging a contingent fee computed on the value of any property the client was to receive as a result of the division of marital property in the divorce proceeding under the present Rules of Professional Conduct adopted by the Supreme Court of Arizona, effective February 1, 1985.
In Opinion No. 89-02 (April 18, 1989), the committee approved a contingent fee arrangement in a post-decree action to claim a share of an allegedly undisclosed community asset which was not considered by the court at the time of the dissolution proceeding.
ETHICAL RULES INVOLVED
ER 1.5. Fees
(a) A lawyer's fee shall be reasonable. 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 particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar 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.
(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 other law. A contingent fee agreement shall be in writing and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation and other expenses to be deducted, from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.
It is clear from the summary of prior relevant Arizona ethics opinions shown above that this committee has consistently disapproved of contingent fee arrangements for representation of a client in matrimonial litigation prior to the entry of a decree of dissolution. It is also clear that ER 1.5(d)(1) prohibits a contingent fee arrangement between attorney and client in any post-decree proceedings for modification of an award of spousal maintenance or child support or a property settlement in lieu thereof. We have, however, approved contingent fee arrangements for post-decree actions to set aside a decree of dissolution based on fraud or duress or to claim a share in allegedly undisclosed assets.
The inquiries here involve post-decree efforts to enforce or collect preexisting child support or spousal maintenance awards.
We believe that ER 1.5(d)(1) is inapplicable to an agreement between attorney and client for a contingent fee for the collection or enforcement of child support or spousal maintenance after entry of a decree of dissolution. The subject matter of the action in such a case involves neither the "securing of a divorce" nor a determination of the "amount of alimony or support." The only applicable ethical rules in such case are ER 1.5(a) and (c).
We also believe that the policy concerns prohibiting the charging of a contingent fee in certain domestic relations matters are not present in an action to collect or enforce the payment of spousal maintenance or child support arrearages. As was the case in our Opinions Nos. 82-9 and 89-02, supra, the divorce is final and the inquiring attorney will have no incentive to encourage divorce. Additionally, since the inquiring attorney will only be retained to collect or enforce spousal maintenance or child support -- which is an amount already fixed -- he will have no personal interest in disrupting the court's fact-sensitive determination of the child support or spousal maintenance award, which is carefully based upon the parties' living conditions and ability to pay.1
Although ER 1.5(d)(1) is not applicable to fee arrangements for the post-decree collection of child support or spousal maintenance, there still exist a number of problems which can only be addressed by a clear understanding between the attorney and client at the inception of the fee arrangement.
If a current order for support or maintenance is in existence and the contingent fee arrangement is entered into for the collection of an arrearage, the most apparent problem is one of allocation of the monies collected, i.e., whether they are to be credited to current support or to the arrearage. These issues are subject to the rules of law applicable to allocation of monies received in payment of a debt. See Chudzinski v. Chudzinski, 26 Ariz. App. 130, 546 P.2d 1139 (1976), and Westberry v. Reynolds, 134 Ariz. 29, 653 P.2d 379 (App. 1982). It is essential that a clear understanding of the allocation of any monies collected be spelled out in the fee arrangement to avoid a potential conflict between the attorney and client. It is also important in order for the attorney to be able to account to the debtor.
When a contingent fee arrangement is entered into for the enforcement of a current child support or spousal maintenance order, it is essential that the length of time the contingency fee will apply to future payments be spelled out and that the agreement be in all respects fair and reasonable.2
It would be impossible for this committee to predetermine the reasonableness of an attorney's fee contract to enforce or collect support or maintenance. Many factors would need to be considered including the prospects of collection, the amount of money involved, the length of time the parties believe the services would be needed, and a determination of whether the collection would involve interstate proceedings which might require the assistance of other professionals.
There presently exists a crisis in child support collection and enforcement. Although there are public assistance programs available, the public resources have not proven adequate to deal adequately with the enforcement and collection of support orders. A great many non-public assistance cases could be and should be handled by the private bar, but for the inability of persons needing support being financially unable to retain a lawyer.
The committee hopes that, with careful consideration of the ethical rules in the area which is the subject of this opinion, it will not become necessary for limitations or restrictions to be placed on the lawyer-client relationship and that the private bar will serve the public need. Should restrictions or limitations on the lawyer-client relationship be warranted with respect to contingent fee arrangements in these matters, they would be beyond the jurisdictional scope of this committee. Such determinations would be within the province of the Arizona State Legislature or the Supreme Court of Arizona.
“We hold, therefore, that if at the conclusion of a lawyer's services it appears that a fee, which seemed reasonable when agreed upon, has become excessive, the attorney may not stand upon the contract; he must reduce the fee. What is reasonable and within permissible limits will be determined by the circumstances, including the factors listed in DR 2-106." (141 Ariz. at 272-273)
Formal Opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceedings.
©State Bar of Arizona 1993
1 The ethics committees of many other states have addressed the issue of whether an attorney may properly charge a contingent fee to collect past-due child support or spousal maintenance amounts. With only one exception, every ethics committee that has considered the issue has permitted an attorney to charge a contingent fee. See, e.g., Alabama State Bar Ethics Opinion 83-22 (February 25, 1983) (ABA/BNA Lawyers' Manual on Professional Conduct, p. 801:1048); Colorado Bar Association Ethics Opinion 67 (undated) (ABA/BNA Lawyers' Manual, supra, p. 801:1905); Maryland State Bar Ethics Opinion 80-34 (undated) (ABA/BNA Lawyers' Manual, supra, p. 801:4302); and New Hampshire Bar Association Ethics Opinion 1983-4/2 (September 20, 1983) (ABA/BNA Lawyers' Manual, supra p. 801:5704). Cf. Indianapolis Bar Association Ethics Opinion 1988-2 (undated) (ABA/BNA Lawyers' Manual, supra, p. 901: 3401) (lawyer may not charge a contingent fee in an action to collect child support arrearages).
2 In Matter of Swartz, 141 Ariz. 266, 686 P.2d 1236· (1984), the Court· imposed disciplinary sanctions on an attorney for charging an excessive contingent fee. The Court stated:
"Contrary to respondent's suggestion, DR 2-106 may be violated even though no court in this State has set any particular percentage as appropriate for contingent fees. It is no more possible to set such percentages in advance than it would be to set a single fixed fee for all divorce cases or all real estate litigation. We hold, therefore, that contingent fees are subject to regulation by this court. Excessive fees should not be charged (ABA Canons of Professional Ethics, Canon 12) and "clearly excessive fees" will constitute grounds for disciplinary action, whether the fee is fixed or contingent. DR 2-106.
Call the State Bar of Arizona Ethics Department at (602) 340-7236 for a copy of this Opinion.