Can a contingent fee be computed on costs, attorney fees, and interest recovered, not just damages?

Plain-English summary

A firm handling plaintiff-side personal injury and insurance bad-faith litigation used a contingent fee contract entitling it to a percentage of "all amounts ultimately recovered" from the defendant. Recoveries sometimes included court-awarded attorneys' fees and costs (some taxed under A.R.S. Section 12-341 and Rule 54(f)), interest, and special damages such as medical bills or lost wages. The firm asked whether it was appropriate to include costs, attorneys' fees, interest, and all other sums in the total against which the contingent percentage is calculated.

The committee concluded the question presented was solely one of law: how to interpret the contractual fee arrangement between attorney and client. Under its Statement of Jurisdictional Policies, the committee does not render opinions on questions solely of law, so it declined to answer whether a contingent percentage may be charged against recovered costs. The opinion stated that what any particular fee arrangement means depends on the particular facts and the language the attorney and client chose, which is a matter of contract interpretation beyond the committee's jurisdiction.

The committee nonetheless responded formally to remind the inquiring attorney and the Bar of ER 1.5(c), which requires a contingent fee agreement to be in writing and to state the method of determining the fee, including the percentages applying at settlement, trial, or appeal, the litigation and other expenses to be deducted, and whether those expenses are deducted before or after the contingent fee is calculated; the rule also requires a written statement of outcome and remittance at the conclusion of the matter. The opinion concluded the written agreement must make clear against what fund the contingent fee is calculated, and that whether expenses are deducted before or after the fee may not be left open for later interpretation.

The opinion commented that the firm's apparent agreement applying the percentage to "all amounts ultimately recovered," without more, may not comply with ER 1.5(c), and suggested redrafting it if it contained no more than that phrase. The committee again declined to opine on whether a percentage may be charged against recovered costs, treating that as contract interpretation outside its jurisdiction.

Currency note

This opinion was issued in 1987, before the State Bar of Arizona's adoption of the 2003 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, deadline, or requirement mentioned here.

Common questions

Q: Did the committee decide whether a contingent fee can be charged on recovered costs and fees?

A: No; the opinion concluded that is a question of contract interpretation, which is a question of law outside the committee's jurisdiction, and it declined to opine.

Q: What does ER 1.5(c) require of a contingent fee agreement?

A: The opinion noted it must be in writing and state the method of computing the fee, including the percentages at settlement, trial, or appeal, the expenses deducted, and whether they are deducted before or after the fee is calculated.

Q: Was the firm's "all amounts ultimately recovered" language enough?

A: The committee commented that, without more, that phrase may not comply with ER 1.5(c) because it does not make clear what fund the fee is calculated against, and suggested redrafting.

Background and rules framework

The opinion applied ER 1.5(c) (Model Rule 1.5), which governs contingent fee agreements and requires a writing stating the method of computing the fee and the treatment of expenses, plus an end-of-matter written statement. The committee invoked its Statement of Jurisdictional Policies in declining to resolve the underlying contract-interpretation question, which it treated as a question of law.

Citations and references

Rules of Professional Conduct:

• ER 1.5(c) / Model Rule 1.5 (contingent fee agreements)

Statutes and rules:

• A.R.S. Section 12-341 (taxable costs)
• Rule 54(f), Arizona Rules of Civil Procedure (costs)

See also

• AZ Ethics Op. 87-06: Contingent Fee in Domestic Relations
• AZ Ethics Op. 87-03: Reporting Cash Fees
• AZ Ethics Op. 87-09: Conflicts

Source

• Landing page: https://tools.dev.azbar.org/RulesofProfessionalConduct/ViewEthicsOpinion.aspx?id=565

Original opinion text

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

7/1987

Law firm including the amount of money recovered for costs, attorney fees, interest, and all other sums recovered for purposes of computing contingent fee.

FACTS

The inquiring attorney advises that his firm is involved in representation of plaintiffs in personal injury and insurance bad faith litigation. The firm is retained by the clients pursuant to a contingent fee contract which provides that the client agrees to pay the law firm, as and for its attorneys' fees, a certain percentage of "all amounts ultimately recovered” from the defendant.

The attorney advises that sometimes the recovery on behalf of the client includes specific amounts awarded by the court as and for attorneys' fees and costs. Presumably, some of the costs are costs taxed pursuant to A.R.S. 5 12-341, Rule 54(f) of the Arizona Rules of Civil Procedure (16 A.R.S.), and other statutes authorizing the recovery of costs. He also advises that the recovery may include items of special damages, such as medical bills or lost wages.

QUESTION

The inquiring attorney seeks advice from the committee as to whether it is appropriate for his firm to include the amount of money recovered for costs, attorney’s fees, interest and all other sums recovered in the total recovery for purposes of computing the contingent fee. As an example, the inquiring attorney suggests that, if the plaintiff is awarded $11,500.00 by a jury at trial and is entitled to an additional $500.00 in taxable costs, and if the attorneys have been retained pursuant to a written contingent fee agreement authorizing a fee of one-third of the recovery, would the attorney not have made a recovery of $12,000.00 and, thus, earned a fee of $4,000.00?

ETHICAL RULE INVOLVED

ER 1.5(c). Fees

OPINION

The question presented to us is solely one of law, a question of interpretation of the contractual arrangement between the attorney and the client. As the question is solely one of law, it is beyond the purview of this committee's jurisdiction in that our Statement of Jurisdictional Policies prohibits us from rendering opinions on questions solely of law. The question is, after all, one which inquires as to the appropriate interpretation of the contractual relationship between the attorney and his client.

However, we choose to respond formally so as to remind the inquiring attorney and the Bar of the existence of ER 1.5(c) which provides in part:

A contingent fee agreement shall be in writing and shall state 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.

What any particular fee arrangement means is a question of law to be determined under the particular facts and the particular language chosen for the fee agreement by the attorney and the client. What is clear, however, is that the written fee agreement must include a provision that makes clear against what fund the contingent fee is to be calculated. Whether expenses are to be deducted before or after the contingent fee is calculated is not a matter which may be left open for discussion or interpretation after the fee is earned.

We do comment that it would seem that the written fee agreement apparently being utilized by the inquiring attorney, which applies a contingent fee percentage to "allamounts ultimately recovered", without more, may not be in compliance with ER 1.5(c). We suggest that this fee agreement be redrafted, if it contains no more than this phrase, so as to bring it into compliance with ER 1.5(c).

The committee declines to render an opinion on the question of whether a contingent fee percentage may be charged against the recovery of costs as, assuming the written contingent fee agreement is in compliance with ER 1.5(c), what any particular contractual arrangement means is a question of interpretation of the particular provisions of that agreement and, thus, beyond the jurisdictional capabilities of this committee.

© State Bar of Arizona 1987