Can a contingent fee be calculated on both the client's recovery and the statutory attorney-fee award in a fee-shifting case?

Plain-English summary

An attorney handling contingency-fee employment cases in which statutes provide for fee awards observed that the principal recovery is often significantly less than the statutory attorney fees. He asked whether he could prepare a fee agreement applying a contingency percentage to both the principal amount and the statutory fee amount, with the remaining principal and statutory fees going to the client, for example a fee of one-third of the principal and two-thirds of the statutory fees, with the balance remitted to the client. His stated purpose was to benefit the client, who would share in a statutory fee recovery that might be much larger than the recovery on the principal claim.

The committee said that so long as the contingency fee agreement is reasonable, it does not appear to violate the RPCs, and the client can determine how to split the fees awarded to it by statute. It noted that contingency fee agreements are subject to review under the reasonableness standard of RPC 1.5 regardless of the terms of the agreement, and that RPC 3.3, candor toward the tribunal, may in some circumstances require the attorney to disclose the contingency fee agreement, or the existence of the agreement, to the court. The committee pointed to Published Informal Opinion 88-1, to the United States Supreme Court's decision in C.I.R. v. Banks, and to an A.L.R. annotation for further discussion.

Currency note

This opinion was issued in 2005, before the Washington State Bar Association's adoption of the 2006 revisions to the Rules of Professional Conduct. 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 Treat this page as historical context, not current guidance.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 mentioned here.

In practice

Under the Washington rules as they stood at the time of the opinion, the committee allowed a fee agreement to reach the statutory fee award as well as the principal recovery, provided the overall fee is reasonable. It anchored that conclusion in RPC 1.5, which subjects every contingent fee to a reasonableness review regardless of how the agreement is written, and it flagged that RPC 3.3 may, in some circumstances, require disclosing the agreement or its existence to the court. The committee framed the structure as one the client may choose because the client controls how the statutory fee award is split.

Common questions

Q: Can a contingent fee apply to the statutory attorney-fee award, not just the client's recovery?

A: The committee said yes, so long as the agreement is reasonable, and the client can decide how to split the statutorily awarded fees.

Q: Is the agreement still subject to review?

A: The committee said contingent fee agreements are always subject to the reasonableness standard of RPC 1.5, regardless of the terms of the agreement.

Q: Does the court have to be told about the fee agreement?

A: The committee said RPC 3.3 (candor toward the tribunal) may in some circumstances require the attorney to disclose the agreement, or its existence, to the court.

Background and rules framework

The opinion interprets RPC 1.5 (Model Rule 1.5, fees, including the reasonableness standard for contingent fees) and RPC 3.3 (Model Rule 3.3, candor toward the tribunal). The committee treated the allocation of a statutory fee award as something the client may agree to, subject always to RPC 1.5's reasonableness limit, with a possible RPC 3.3 disclosure obligation. The analysis turns on the overall reasonableness of the fee, not on the label given to each component.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.5 / Washington RPC 1.5 (fees; reasonableness of contingent fees)
• Model Rule 3.3 / Washington RPC 3.3 (candor toward the tribunal)

Cases:

• C.I.R. v. Banks, 125 S. Ct. 826 (2005), taxpayer liable for taxes on contingent attorney fees paid to the lawyer

Other authority:

• WSBA Published Informal Opinion 88-1, "Contingent Fee Agreements in Cases Where the Court Sets a Reasonable Attorney's Fee"
• 76 A.L.R. Fed. 347, effect of a contingent fee contract on a fee award authorized by federal statute

See also

• WSBA Ethics Op. 1103: Contingent Fee Plus Hourly Support-Staff Costs
• WSBA Ethics Op. 1074: Contingent Fee in a Domestic-Partnership Matter
• WSBA Ethics Op. 1024: Contingent Fee for a Collection-Agency Client

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1335

Original opinion text

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

Advisory Opinion: 2094
Year Issued: 2005
RPC(s): RPC 1.5, 3.3, Published Informal Opinion 88-1, 76 A.L.R. Fed. 347
Subject: Continency fee agreement

Factual Background: This inquiry involves an attorney who represents a number of plaintiffs in contingency-fee employment cases where statutes provide for an award of attorneys fees. In many cases the principal amount that may be awarded is significantly less than the amount of statutory attorney fees that may be awarded. For that reason, the inquirer wants to know if it would be ethically improper for him to prepare a fee agreement that provides for a contingency fee on both the principal amount and on the statutory fee amount, with the remaining principal and statutorily awarded attorney`s fees going to the client?

For example – would it be improper for the fee agreement to provide that the attorney receive 1/3 of the principal sum and 2/3 of the statutory attorneys fees with the remaining amounts remitted to the client? The attorney states the purpose of this fee arrangement would be to benefit the client who receives a "windfall" since the client would share in the statutory attorney fee recovery that may be significantly more than what he or she actually would be entitled to on the principal sum.

Answer: So long as the contingency fee agreement is reasonable, it does not appear to violate the RPCs. The client can determine how to split the fees awarded to it by statute.

Contingency fee agreements are subject to review and to a reasonableness standard under RPC 1.5 "Fees" (regardless of the terms of the agreement). At the very least we believe that RPC 3.3 "Candor Toward the Tribunal" may in some circumstances require the attorney to disclose the contingency fee agreement, or the existence of the agreement, to the court.

Contingency fee agreements and statutory fee awards are also discussed in: Published Informal Opinion 88-1 "Contingent Fee Agreements in Cases Where the Court Sets a Reasonable Attorney`s Fee". See also, US Supreme Court opinion C.I.R. v. Banks et al, 125 S.Ct. 826 (US 2005) (for a case finding the taxpayer liable for taxes on contingent attorney fees paid to his or her lawyer). Additionally, 76 A.L.R. Fed. 347 contains an overview of contingency fee agreements in cases where fees are awarded by statute entitled, "Effect of Contingent Fee Contract on Fee Award Authorized by Federal Statute."