Can a lawyer defending a civil case charge a contingent fee based on the amount of money the defense saves the client, rather than on a plaintiff's recovery?

Plain-English summary

The committee was asked whether a lawyer may charge a "reverse" contingent fee, a fee based on the amount of money saved a client rather than the amount recovered for a client. The illustrative situation involved a lawyer defending a client sued for damages, who proposed to charge a fee measured as a stated portion of the difference between the amount originally demanded and the amount the client was ultimately required to pay. The committee concluded the Model Rules do not bar such an arrangement.

The committee explained that fees in general, and contingent fees in particular, are governed by Rule 1.5, and that "[t]he only instances in which a contingent fee arrangement as such is prohibited are those specified in Model Rule 1.5(d)," which forbids contingent fees in domestic-relations and criminal matters. Because reverse contingent fees in civil damages cases between private parties raise no comparable public-policy concern, the committee found "there is no similar basis in public policy for prohibiting a fee arrangement based on a percentage of the amount saved a defendant, so long as the reasonableness and informed consent requirements of Rule 1.5 are satisfied."

The committee cautioned that the reasonableness of a reverse contingent fee "will not be so readily determinable" as a conventional contingent fee, because the profession lacks long experience setting a fair percentage and because the benefit to the defendant (the amount saved) may be hard to calculate. It observed that the amount a plaintiff demands "cannot automatically be the number from which the savings resulting from a judgment or settlement can reasonably be calculated," citing Wunschel Law Firm, P.C. v. Clabaugh, in which a fee keyed solely to the prayer of an unliquidated tort complaint was held void as against public policy. The committee held that propriety must be judged on the facts of each case, with no per se rule, and that the lawyer should follow Informal Opinion 86-1521 by offering the client a reasonable fixed-fee alternative where doubt exists about the client's best interest.

Currency note

This opinion was issued in 1993, before the American Bar Association's adoption of the 2002 (Ethics 2000) revisions to the Model Rules of Professional Conduct, which amended Rule 1.5 (including the writing requirements and reasonableness factors). Subsequent rule amendments and 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.

Common questions

Q: Are reverse contingent fees permitted under the Model Rules?

A: The opinion concluded they are not prohibited, provided the amount saved is reasonably determinable, the fee is reasonable, and the client gives fully informed consent.

Q: Which matters bar contingent fees entirely?

A: The opinion noted that under Rule 1.5(d) the only outright prohibitions are contingent fees in domestic-relations matters and in criminal cases.

Q: How is the "amount saved" supposed to be measured?

A: The committee held the benchmark cannot automatically be the amount demanded in the complaint; the defense lawyer must fairly evaluate the plaintiff's claim and set a reasonable figure from which the actual outcome is subtracted, and that figure's reasonableness is judged as of when the arrangement was set.

Q: Does the lawyer have to offer a fixed-fee alternative?

A: The opinion held that, consistent with Informal Opinion 86-1521, when there is doubt whether a contingent fee is in the client's best interest the lawyer should offer the client the opportunity to engage counsel on a reasonable fixed-fee basis before entering the contingent arrangement.

Background and rules framework

The opinion interpreted Rule 1.5, which requires that a lawyer's fee be reasonable and lists the reasonableness factors in Rule 1.5(a), permits contingent fees under Rule 1.5(c), and prohibits them in domestic-relations and criminal matters under Rule 1.5(d). The committee compared these provisions with the predecessor Model Code's DR 2-106. Because the ABA interprets the Model Rules directly, there is no state-rule analogue.

Citations and references

Rules of Professional Conduct:

• MR 1.5 (fees; (a) reasonableness factors, (c) contingent fees, (d) prohibited contingent fees)

Cases:

• Wunschel Law Firm, P.C. v. Clabaugh, 291 N.W.2d 331 (Iowa 1980), reverse contingent fee keyed solely to an unliquidated tort prayer is void as against public policy

Other opinions cited:

• ABA Informal Op. 86-1521 (1986): offering clients fixed-fee alternatives to contingent fees

See also

• ABA Formal Op. 93-379: Billing for professional fees, disbursements and other expenses
• ABA Formal Op. 00-420: Surcharge to a client for use of a contract lawyer

Source

• Landing page: ABA Formal Ethics Opinions index
• Original PDF: 93-373.pdf