THE ASSOCIATION OF THE BAR OF THE CITY OF NEW YORK
FORMAL OPINION 1993-2
COMMITTEE ON PROFESSIONAL AND JUDICIAL ETHICS
December 15, 1993
ACTION: FORMAL OPINION
TOPIC: Contingent fees; will contests; compensation of private investigators.
DIGEST: Lawyer may accept contingent fee in will contest; private investigator may not be compensated on a contingent fee basis.
CODE: DRs 1-102(A)(3), 2-106(A), 2-106(B), 2-106(D), 5-103(B), 7-102(A)(7), 7-109(C), EC 2-20.
1. May an attorney undertake the representation of a client in a dispute concerning a will and charge a fee contingent upon the outcome of the proceeding?
2. May an attorney retain and compensate a private investigator in connection with a proceeding on a contingency fee basis?
An attorney has been asked to represent a client in connection with a dispute over a will, and asks whether it would be appropriate to enter into a 33-1/3% contingency fee agreement in connection with such representation. The attorney also asks whether it would be proper to enter into a joint fee agreement among the inquiring attorney, his potential clients and a private investigator, and to compensate the investigator on a 16-2/3% contingency fee basis.
For the reasons that follow, we answer the first question the affirmative, subject to certain caveats, and we answer the second question in the negative.
As explained in EC 2-20, "[c]ontingent fee arrangements in civil cases have long been commonly accepted in the United States in proceedings to enforce claims." The rule continues:
The historical bases of their acceptance are that (1) they often, and in a variety of circumstances, provide the only practical means by which one having a claim against another can economically afford, finance and obtain the services of a competent lawyer to prosecute a claim, and (2) a successful prosecution of the claim produces a fund out of which the fee can be paid. Although a lawyer generally should decline to accept employment on a contingent fee basis by one who is able to pay a reasonable fixed fee, it is not necessarily improper for a lawyer, where justified by the particular circumstances of a case, to enter into a contingent fee contract in a civil case with any client who, after being fully informed of all relevant factors, desires that arrangement.
In this case, the potential client may not be able to afford to pay a reasonable, fixed fee, and a fund would potentially be created from which the inquirer's fee can be taken. Under these circumstances, the proposed contingency fee agreement is proper, subject to the following caveats.
Contingent fee agreements for services are not enforced on the same basis as ordinary, commercial contracts. They are in many cases subject to review by the courts for reasonableness. Cf. Matter of Potts, 213 App. Div. 59 (4th Dep't), aff'd mem., 241 N.Y. 593 (1925) (Surrogate's Court oversees fee applications relating to will disputes). Among other things, this means that the amount of the contingent fee cannot be excessive. n1 Courts have modified consensual contingency fee arrangements if they result in the payment of an exorbitant percentage of a client's recovery, if they are used in simple cases involving no real difficulty or risk, or if their enforcement would be unfair to the client in light of events occurring after the agreement.
n1 DR 2-106(A) provides that: "A lawyer shall not enter into an agreement for, charge or collect an illegal or excessive fee." DR 2-106(B) states that: "A fee is 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." See generally Gair v. Peck, 6 N.Y.2d 97 (1959), cert. denied and appeal dismissed, 361 U.S. 374 (1960) (discussing schedule of contingency fees).
The inquiring attorney expresses the belief that a 33-1/3% contingency fee is fair in amount because the attorney "may either spend a short time overturning the Probate or many years and never receive payment." While a 33-1/3% contingency fee may be fair under some circumstances, a court might consider it excessive or exorbitant depending upon the actual dollar amount of the fee and the amount of time and effort the attorney expended on the matter. In this regard, we note that the inquirer, himself, speculated that he might be successful in obtaining a recovery after only a "short time."
In addition, the inquirer must satisfy the requirements of DR 2-106(D), which provides that:
Promptly after a lawyer has been employed in a contingent fee matter, the lawyer shall provide the client with a writing stating 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.
While there is no ethical requirement that the retainer agreement itself be in writing, the inquirer prudently contemplates entering into a written agreement with the clients. If the information required by DR 2-106(D) is contained in the written retainer agreement, no additional writing is required.
The proposed relationship with the private investigator, however, presents significant problems. First, the private investigator may not be compensated on a contingent fee basis because, under General Business Law § 84(1), it is unlawful for a licensed investigator n2 to accept such a fee. It would therefore be unethical for the inquiring attorney to participate in an agreement to compensate the investigator on a contingent fee basis under either DR 1-102(A)(3), if the investigator is viewed as the attorney's agent, or DR 7-102(A)(7), if the investigator is viewed as the client's agent. n3 Second, the arrangement is potentially prohibited by DR 7-109(C), which states that "[a] lawyer shall not pay, offer to pay, or acquiesce in the payment of compensation to a witness contingent upon . . . the outcome of the case." Thus, if the investigator is to be a witness in the proceeding, payment of a contingent fee would be improper.
n2 All private investigators must be licensed. See Gen. Bus. Law § 70(2).
n3 All expenses of the investigation must be borne by the client (assuming that the client is not indigent) and not the attorney, in accordance with DR 5-103(B).
For the reasons stated above and subject to the qualifications noted above, the first question is answered in the affirmative and the second question is answered in the negative.