Can a lawyer charge a guaranteed reasonable fee plus a higher bonus fee contingent on successfully obtaining the client's commercial development permits?

Plain-English summary

A client retained a lawyer to obtain the permits needed for a commercial development. The fee called for a predetermined amount the parties agreed was reasonable, payable regardless of outcome, plus a higher fee (fixed or formula-based) if the lawyer succeeded in obtaining the permits. The inquiry asked whether this violated Bar Rule 3.7(c) (acquiring a proprietary interest in the cause of action or subject matter of litigation) or Rule 8 (contingent fees).

The Commission concluded the arrangement violated neither rule. It read the phrase "cause of action or subject matter of litigation" in Rule 3.7(c) broadly enough to include the administrative issuance of permits, noting the modern rationale for the proprietary-interest restriction is protecting the lawyer's objectivity rather than discouraging litigation, and citing ABA Opinion #279 (1979), which construed "subject matter of the litigation" to reach an FCC license-transfer application before an administrative agency. The Commission also observed that the permit request could itself result in a judicial proceeding if the permits were denied.

Turning to Rule 8, the Commission held the arrangement qualified as a permitted contingent fee. Although the lawyer was assured a fee the parties agreed was reasonable even if the permits were denied, a majority held the exclusion in the last sentence of Rule 8(a) (for open-ended "reasonable value of services" agreements) did not apply; that sentence was meant only to assure that a lawyer billing on a reasonable-value basis could take the degree of success into account under Rule 3.3(a)(4) without meeting Rule 8's formalities. Because Rule 8(a) expressly contemplates fees contingent "in part," the guaranteed base did not disqualify the agreement. The Commission found this consistent with New York State Bar Opinion #412 (1975). One member dissented, reading the second sentence of Rule 8(a) to prohibit a reasonable base fee plus a success bonus, which would place the arrangement outside the Rule 3.7(c)(2) exception.

Currency note

This opinion was issued in 1985, before Maine's replacement of the former Maine Bar Rules with the Maine Rules of Professional Conduct (effective August 1, 2009). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Does charging a success bonus give the lawyer a forbidden proprietary interest in the matter?

A: The opinion concluded no. The Commission read "cause of action or subject matter of litigation" in Rule 3.7(c) broadly enough to include administrative permit work, and Rule 3.7(c)(2) permits a reasonable contingent fee under Rule 8.

Q: Does a guaranteed base fee disqualify the bonus from being a contingent fee?

A: The opinion concluded no. A majority held Rule 8(a) expressly contemplates fees contingent "in part," so a guaranteed reasonable base plus a success-contingent bonus still qualifies as a permitted contingent fee.

Q: Does the contingent-fee rule apply to non-litigation matters like permit applications?

A: The opinion treated the permit work as within Rule 8 and Rule 3.7(c), noting the broad definition of "contingent fee agreement" and that a denial could lead to a judicial proceeding.

Q: Was the Commission unanimous?

A: No. One member would have concluded the arrangement was not a Rule 8 contingent fee and therefore an impermissible acquisition of a proprietary interest under Rule 3.7(c).

Background and rules framework

The opinion interprets former Maine Bar Rule 3.7(c) (a lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation, except a reasonable contingent fee under Rule 8), Rule 8 and its definition of "contingent fee agreement" in Rule 8(a), and Rule 3.3(a)(4). These correspond to ABA Model Rule 1.5 (fees, including contingent fees) and Model Rule 1.8(i) (proprietary interest in the cause of action). The opinion quotes ABA Model Code EC 5-7 on the rationale for the proprietary-interest restriction.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.5 (fees and contingent fees); Model Rule 1.8(i) (proprietary interest in litigation)
• Maine Bar Rules 3.7(c), 8, 8(a), 3.3(a)(4)
• ABA Model Code of Professional Responsibility EC 5-7

Cases:

• Manning v. Perkins, 85 Me. 172, 26 Atl. 1015 (1893), contingent fee on a claim against the United States held not champertous

Other opinions cited:

• ABA Opinion #279 (1979): "subject matter of the litigation" includes an FCC license-transfer application before an administrative agency
• New York State Bar Association Opinion #412 (1975): contingent fees in criminal matters and partial-contingency arrangements

See also

• Maine Ethics Op. 64: Contingent Fee Paid in Land
• Maine Ethics Op. 160: Forms of Contingent Fees
• Maine Ethics Op. 113: Lawyer-Witness Contingent Fee

Source

• Landing page: https://mebaroverseers.org/attorney_services/opinion.html?id=91046

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Issued by the Professional Ethics Commission

Date Issued: July 1, 1985

Facts

Client C has retained Attorney A for the purpose of obtaining the necessary permits to proceed with a commercial development. The fee arrangement calls for A to be compensated by C in a predetermined amount, which A and C agree is reasonable, regardless of the outcome. In the event that A is successful in obtaining the permits, C is to pay him a higher fee (either an amount which is fixed or which is determined by a formula) than the basic fee which has been guaranteed by C.

Question

Does this arrangement violate the provisions of either Bar Rules 3.7 or 8?

Opinion

Rule 3.7(c) states that:

A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation he is conducting for a client, except that he may:

(2) Contract with a client for a reasonable contingent fee as provided in Rule 8.

The Commission concludes that the fee arrangement in question does not violate either Rule 3.7(c) or Rule 8.

Arguably the fee arrangement in question would be beyond the scope of Rule 3.7(c) if the process of obtaining the necessary permits to allow the proposed development to proceed were not considered to be a "cause of action" or "the subject matter of litigation." In Manning v. Perkins, 85 Me. 172, 26 Atl. 1015 (1893), an attorney had been promised a percentage of his client's claim against the United States if he were successful in obtaining a share of an award received from Great Britain representing reparations for damage to American shipping. The Court held that the fee arrangement was not champertous. The Court reasoned that although Congress could be petitioned for relief, the claim would not "foment litigation" since suit could not be brought directly against the United States. Id. p. 174 of 85 Me.

We think that the reference in Rule 3.7(c) to "cause of action or subject matter of litigation" is broad enough to include the administrative issuance of the permits in the present instance. The modern view is that the restrictions prohibiting an attorney from acquiring a proprietary interest in his client's claim are based more on protecting his objectivity in pursuing the case than upon protecting the courts against increased litigation. A.B.A. Code of Professional Responsibility, E. C. 5-7 (1975). In A.B.A. Opinion #279 (1979), the words "subject matter of the litigation" were construed to include an application to the F.C.C. to transfer a license even though the proceeding was before an administrative agency rather than a court.

It has also been suggested that

. . . (T)he broad definition of "contingent fee agreement" in Rule 88(a)[1] and other provisions of the rule (such as the broad reference of subdivision (e) to "matters with reference to which the services are to be performed," which matters must be identified in the written agreement) indicate that the Court intended to regulate all contingent fee arrangements whether or not involving litigation. 2 Field, McKusick & Wroth, Maine Civil Practice 361 (2d ed. 1970).

Moreover the permit request in the present case could result in a judicial proceeding if the permits were denied by the administrative agencies involved.

Although the fee arrangement contemplated here involves the acquisition of a proprietary interest in the subject matter of the litigation, it would not be improper if it qualified as a contingent fee contract permitted by Rule 8. That rule defines contingent fee agreements in the following terms.

(a) Definition. In this rule, the term "contingent fee agreement" means an agreement, express or implied, for legal services of an attorney or attorneys (including any associated counsel), under which compensation, contingent in whole or in part upon the successful accomplishment or disposition of the subject matter of the agreement, is to be in an amount which either is fixed or is to be determined under a formula. The term "contingent fee agreement" shall not include an arrangement with a client, express or implied, that the client in any event is to pay to the attorney the reasonable value of his services and his reasonable expenses and disbursements.

It might be argued that the fee arrangement between A and C is not a contingent fee agreement permitted by Rule 8. In this case, A is assured of receiving a fee which the parties have agreed is "reasonable" even if the permits are denied. Thus, it could be contended that this is an agreement to pay an attorney "the reasonable value of his services" and is therefore excluded from the definition of a permitted "contingent fee agreement" by the last sentence of Rule 8(a).

A majority of the Commission is of the view that the last sentence of Bar Rule 8(a) was not intended to apply to the fee arrangement presented here.[2] The reference in that sentence to open-ended agreements under which a client agrees to pay his attorney "the reasonable value of his services" when the case is closed was simply intended to provide assurance that an attorney computing his fee in such a case could properly take into account the degree of success achieved, as permitted by Rule 3.3(a)(4), even though he had not complied with the formal requirements of Rule 8. Moreover, C's commitment to pay a basic fee regardless of the outcome does not take the agreement out of the definition of a contingent fee since fee arrangements under which the attorney's compensation is contingent "in part" are expressly contemplated. See Rule 8(a).

This conclusion is consistent with that reached by the Committee on Professional Ethics of the New York State Bar Association in Opinion #412 (1975). In the course of its discussion of the propriety of charging a contingent fee in a criminal case, the Committee stated that:

We hold that the Code prohibition of DR 2-106 (c) encompasses, in addition to wholly contingent fees, agreements which provide in addition to a fixed basic fee, a further fixed fee contingent upon some specified result, such as acquittal, probation, fine or minimum term of punishment. The Committee distinguished the situation in which an attorney is to be paid a "reasonable fee" for criminal defense work even though he takes into account the results obtained in figuring his bill provided such results are not given "excessive weight."

One member of the Commission would conclude that the fee arrangement between A and C is not a contingent fee agreement as defined by Rule 8 and thus constitutes the acquisition of a proprietary interest in the subject matter of the litigation falling outside the exception set forth in Rule 3.7(c)(2). That member would read the second sentence in Rule 8(a) as prohibiting fee agreements in which a basic reasonable fee is to be paid regardless of outcome, and a bonus is to be paid contingent upon success in the matter.

Footnotes

[1] Abrogated No. 1, 1978 and re-enacted as Bar Rule 8(a).

[2] There is no helpful legislative history. Rule 8 was taken from former Rule 88 of the Maine Rules of Civil Procedure. That rule was derived from General Rule 14 promulgated by the Massachusetts Supreme Court. 2 Field, McKusick & Wroth, Maine Civil Practice 358 (2d ed. 1970).