State Bar of Arizona Ethics Opinions

94-09: Reporting Misconduct; Excessive Fees
5/1994

Discussion of attorney's obligation and duties of confidentiality when he believes another attorney has charged an excessive fee.



FACTS

This opinion concerns an attorney's obligation under ER 8.3(a) to report another attorney to the Bar's disciplinary authorities for charging a fee that the first attorney regards as clearly excessive. Because the answer to such a question necessarily is fact-intensive and will vary from situation to situation, we address general principles. 

The inquiring attorney, whom we shall refer to as Attorney A, has indicated that he has substantial experience practicing trust and estate law in' an Arizona county. He calls into question the conduct of another attorney, Attorney X, who also practices trust and estate law in the same county. Attorney A has provided the committee with the following facts:

A charitable individual died and left a substantial amount of money to four charities. The money included $1,400,000 that the decedent had placed in an irrevocable trust before his death, naming the four charities as equal beneficiaries. In addition, the decedent's estate contained another $200,000 which was to be divided equally among the four charities under the terms of the decedent's will. 

Attorney X handled the legal aspects of an informal probate of decedent's estate, with Attorney X and another individual being named personal representatives of the decedent. Attorney x thus played a direct role in the disposition of the $200,000 estate.

The irrevocable trust was not handled by Attorney X. Rather, the trust was administered by a bank, with the $1,400,000 in trust funds being disbursed to the four charities following decedent's death. Attorney X was not responsible for, and had no involvement with, the trust or the distribution of $1,400,000 to the charities.

The question in this matter arises from the manner in which Attorney X calculated the fee he charged for handling the informal probate of the estate. Attorney X apparently added the value of the estate ($200,000) to the value of the trust ($1,400,000) and multiplied the sum by 4%, producing a total fee of $64,000. The fee was then allocated as follows: $32, 000 for Attorney X's legal work in completing the informal probate of the estate, $16,000 for Attorney X's fee as personal representative of the decedent, and $16,000 for the fee charged by the other personal representative. Attorney X informed the four charities of the $64,000 charge, stating that 25% of the fee, or $16,000, would be charged against the amount to be distributed to each of the four charities.

Attorney A represented one of the four charities. Upon receiving Attorney X's statement of the fees to be charged against distribution to the four charities, Attorney A reviewed the legal work performed by Attorney X and concluded that the fee was clearly excessive. On the basis 6f his experience as a trust and estate lawyer, Attorney A states that a total fee of $6,400 would have been generous compensation for both Attorney X's legal work and the personal representative fees. An amount equal to ten times that figure was, in Attorney A's view, grossly excessive.

Attorney A advised his client that it had been overcharged by a factor of ten and should pay no more than $1,600 in total fees to Attorney X and his co-personal representative. Attorney X and the other personal representative accepted this reduced fee from Attorney A's client, but apparently collected $16,000 from each of the other three charities.

 

QUESTION

Does Attorney A have an ethical obligation under ER 8.3(a) to report Attorney X's conduct to the State Bar?

 

ETHICAL RULES INVOLVED

 

ER 8.3.                   Reporting Professional Misconduct

(a) A lawyer having knowledge that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer's honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority, except as otherwise provided in these rules or by law.

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(c) This rule does not require disclosure of information otherwise protected by ER 1.6.

 

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.

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OPINION

ER 8.3(a) states in part that: "A lawyer having knowledge that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer's honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority,...." The rule is mandatory; attorneys with the requisite knowledge must report the violation, provided doing so will not compromise confidential information protected by ER 1.6. This committee's Opinion No. 90-13 ( October 16, 1990 ) interpreted this rule to mean that a member of the bar must report an ethical violation by another attorney when (1) the reporting attorney has actual knowledge that a violation has occurred, (2) the violation raises substantial questions regarding the other attorney's honesty, trustworthiness, or fitness to practice law, and (3) revealing the violation would not cause the reporting attorney to disclose confidential information protected by ER 1.6. For a complete discussion of these factors, the reader should review Opinion No. 90-13 and the authorities cited therein. We will not duplicate that discussion in this opinion, but will address separately each of the three factors identified above.

(1) Does Attorney A have actual knowledge of an ethical violation?

Some contend that fee relationships between attorneys and clients are merely matters of contract -- that they present no ethical issues. If the attorney and the client agree upon a fee to be paid for the attorney's services and the client willingly pays the fee, the argument goes, then no ethical violation has occurred.

This view of the attorney-client relationship is incorrect. ER 1.5 provides the ethical mandate: "A lawyer's fee shall be reasonable." The rule then identifies eight factors to be considered in determining the reasonableness of a fee. While the client's understanding of and assent to the fee clearly are relevant, see C. Wolfram, Modern Legal Ethics, 520-521 (1986), ER 1.5 does not state that the fee becomes reasonable and the eight factors irrelevant merely because the client pays the fee. As the Arizona Supreme Court has explained:

"...a fee agreement between lawyer and client is not an ordinary business contract. The profession has both an obligation of public service and duties to clients which transcend ordinary business relationships and prohibit the lawyer from taking advantage of the client. Thus, in fixing and collecting fees the profession must remember that it is %a branch of the administration of justice and not a mere money getting trade.'"

Matter of Swartz, 141 Ariz. 266, 273, 686 P.2d 1236, 1243 (1984). Thus, the fact that three of the charities apparently agreed to pay Attorney X's fee does not end the inquiry.[1] 

To determine the reasonableness of the fee charged by Attorney X, one must examine each of the eight factors identified in ER 1.5(a):

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal services 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.

Attorney A informs the committee that he personally has reviewed Attorney X's file concerning the informal probate of the decedent's estate, that he has talked to Attorney X's partner about the work actually performed for the estate, and that the informal probate of the estate required only minimal time and effort. Attorney A states that he is an experienced trusts and estates lawyer and that a fee equal to 10% of the amount actually charged by Attorney X would have been generous compensation for the services rendered. Attorney A states that he "has no doubt that the fee is clearly excessive."

We do not question Attorney A's sincerity in these statements nor his competence to opine on the reasonableness of the fee, but we cannot sit in judgment of Attorney X. Our committee is not charged with the responsibility of ruling on the alleged ethical violation of one attorney which is raised by another. The State Bar disciplinary arm fulfills that function.

Furthermore, we have neither the facts nor the expertise necessary to determine whether Attorney X's fee was excessive. We have been provided with no information concerning the complexity of the informal probate, the legal issues that were addressed and resolved during the work, the time invested by Attorney X, the level of Attorney X's skill, his reputation in the community, or any of the other factors enumerated in ER 1.5(a). While it is true that an attorney may commit an ethical violation when the fee charged for probate of a simple estate clearly exceeds the value of the legal work performed, see Matter of Douglas, 158 Ariz. 516, 519-520, 764 P.2d 1, 4-5, (1988), such a determination requires a fact-intensive examination of the services rendered by the attorney and each of the factors set forth in ER 1.5(a). This committee has been provided no information with which to conduct such an inquiry.[2]

What, then, do we advise Attorney A? If, after reviewing all of the factors set forth in ER 1.5(a), Attorney A concludes that he has actual knowledge that Attorney X charged an unreasonable fee, Attorney A should move on to the two remaining factors identified in our Opinion No. 90-13, supra, both of which are discussed below, to decide whether he is required to report Attorney X to the State Bar under ER 8.3. We recognize that this advice is not conclusive, but ER 1.5(a) establishes no brightline test and neither can we. The rule identifies a series of factors that must be applied to the facts of each case. Attorney A must apply those factors to the facts of this case in deciding whether ER 8.3 imposes on him an obligation to report the conduct of Attorney X.

(2) Does the violation raise substantial questions regarding the other attorney's honesty, trustworthiness, or fitness to practice law?

As long ago as 1939, the Arizona Supreme Court recognized that charging an excessive fee reflects adversely on an attorney's fitness to practice law:

"It is proper to say that it is not a part of the province of the state bar to take note of or to investigate the ordinary disputes and controversies between an attorney and client upon complaint of the client that the fee is too large for the services rendered. ... but, where the fee is so excessive and unconscionable as to indicate that it could not have been charged in good faith, the rule is different.

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"It can make no difference what the actuating cause was for the excessive charge, whether want, greed, or an exaggerated idea of the value of his services, for it all goes to show that respondent's sense of balance and proportion disqualify him for the duties of an attorney."

In re Myrland, 54 Ariz. 284, 291-292, 95 P.2d 56, 59-60 (1939).

More recently, the Arizona Supreme Court has held that the charging of "'clearly excessive fees' will constitute grounds for disciplinary action, whether the fee is fixed or contingent." Matter of Swartz, 141 Ariz. 266, 273, 686 P.2d 1236, 1243 (1984); Matter of Douglas, 158 Ariz. 516, 764 P.2d 1 (1988); Matter of Zang, 154 Ariz. 134, 741 P.2d 267 (1987); Matter of Mercer, 126 Ariz. 274, 614 P.2d 816 (1980).

Thus, there can be little doubt that the charging of an excessive fee can raise substantial questions about a lawyer's honesty, trustworthiness, or fitness to practice law. There undoubtedly is a gray area in which rational minds could differ on whether a fee is reasonable. But where a lawyer charges a fee so excessive that it could not have been charged in good faith, the act suggests a lawyer willing to take advantage of his position of trust for his own personal gain.

Because we do not have facts sufficient to determine whether Attorney X charged an excessive fee in this case, we express no opinion on whether this portion of ER 8.3 has been satisfied. Again, Attorney A will need to make this determination after a careful application of ER 1.5(a) to the facts of this case.

(3) Would reporting of the conduct disclose confidential information protected by ER 1.6?

ER 1.6 is broader than the attorney-client privilege and forbids the disclosure of any "information relating to the representation of a client." ER 1.6(a). Because Attorney A acquired the information about Attorney X's fee as part of his representation of one of the charities, the information would appear to be protected by ER 1.6. The exceptions found in ER 1.6 (b)-(d) concerning potential criminal activity and an attorney's right to defend himself would appear to have no application to these facts. Thus, if Attorney A is to reveal this information to the State Bar, it would appear that he must first obtain the consent of his client.

Attorney A has stated that he no longer represents the charity, but this fact is of no significance. The restrictions of ER 1.6 survive the termination of the attorney-client relationship. See ER 1.6 Comment ("The duty of confidentiality continues after the client-lawyer relationship has terminated").

We must address one final question. Attorney A asks whether Attorney X remedied any ethical violation, at least with respect to Attorney A's client, when Attorney X agreed to accept a reduced fee. We think not. The ethical violation that arises from charging an excessive fee does not occur merely when money changes hands. The violation occurs in the overreaching and dishonesty present when an attorney attempts to collect a fee that clearly exceeds a reasonable charge for his services.

This fact is demonstrated by the Arizona Supreme Court's decision in Matter of Larson, 121 Ariz. 199, 589 P.2d 442 (1979). The attorney in Larson charged a clearly excessive fee to his client, reducing the fee to a promissory note to be paid by the client at the rate of $400 per month. When the fee later was challenged as unethical, the attorney canceled the promissory note and forgave the fee. The Arizona Supreme Court nonetheless censured the attorney for "charging and attempting to collect an excessive fee," even though the fee had never actually been paid. Id., 121 Ariz. at 202, 589 P.2d at 445. See also Matter of Mercer, 126 Ariz. 274, 278, 614 P.2d 816, 820 (1980) (attorney suspended for "attempting to charge" excessive fee).

The former Code of Professional Responsibility (as in effect in Arizona) was more explicit on this point: "A lawyer shall not [1] enter into an agreement for, [2] charge, or [3] collect an illegal or clearly excessive fee." DR 2-106(A) (numbers added for emphasis). Although this language was not carried forward into the Model Rules, each of the factors used to determine the reasonableness of a fee was carried forward. Compare DR 2-106(B) with ER 1.5(a). We have found nothing to suggest that the drafters of the Model Rules intended by this change to limit these ethical requirements to situations where fees actually are collected. Indeed, in proscribing certain fee arrangements in domestic relations and criminal cases, the Model Rules continue to state that lawyers shall not "enter into an arrangement for, charge, or collect" the improper fees. ER 1.5(d). We thus conclude that the Model Rules, like the holdings of the Arizona Supreme Court, find the ethical violation in the act of seeking to charge an excessive fee, not solely in the act of collecting such a fee. The mere fact that Attorney X accepted a reduced payment from Attorney A’s client does not eliminate any ethical Violations that might have occurred in charging the fee.

In conclusion, we are of the opinion that Attorney A must decide (a) whether he has actual knowledge that an excessive fee has been charged, and (b) whether the charging of the fee raises substantial questions regarding Attorney X's honesty, trustworthiness, or fitness to practice law.' If so, and if Attorney A can reveal the conduct of Attorney X without breaching his own duties to his former client under ER 1.6, ER 8.3 requires that Attorney A disclose Attorney X's conduct to the State Bar.

NOTE: This formal ethics opinion was issued by the Committee on the Rules of Professional Conduct. The Committee is not part of the Discipline Department of the State Bar of Arizona, and asserts no disciplinary function. This opinion is advisory in nature only, and is not binding in disciplinary proceedings or any other legal proceeding.

 

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 1994



[1] Nor is the question resolved merely because Attorney X's client was the estate, and not the charities that ultimately were charged the fee. The Supreme Court of Arizona has stated:

"The profession's ethical requirements do not permit an attorney to extract unreasonable fees simply because those who must bear the ultimate loss are not in a lawyer/client relationship with the attorney. The axiom that a lawyer's duty is owed to his client does not support the corollary that all others are fair game."

Matter of Swartz, 141 Ariz. 266, 274, 686 P.2d 1236, 1244 (1984).

[2] It does seem questionable that Attorney X calculated his fee by taking into account the amount contained in the irrevocable trust -- a trust for which he was not responsible and as to which he performed no legal services. To be reasonable under ER 1.5, a fee must bear a reasonable relationship to the work actually performed by the attorney as enumerated in the eight factors of ER 1.5(a). It is difficult to imagine that such a fee can be calculated by taking a percentage of a sum of money unrelated to the attorney's work. See Matter of Mercer, 126 Ariz. 274, 614 P.2d 816 (1980). But, as noted above, we have neither the facts nor the jurisdiction to make such a determination in this instance.

 




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