Can a D.C. lawyer charge a reverse contingent fee based on how much money the lawyer saves the client from a claim against the client?

Plain-English summary

Opinion 347 addresses reverse contingent fees. The opinion defines a reverse contingent fee as a fee based on the difference between the amount a third party demands from the lawyer's client and the amount ultimately obtained from the client, whether by settlement or judgment. In other words, where a conventional contingent fee is a percentage of what the client recovers, a reverse contingent fee is a percentage of what the lawyer saves the client from a claim.

The opinion concludes that the D.C. Rules do not prohibit reverse contingent fees, and that, in an appropriate case, such an arrangement may align the lawyer's and the client's interests more closely than an hourly or fixed-fee arrangement, since the lawyer could receive no fee if she is not successful in saving the client money. Consistent with ABA Formal Opinion 93-373, the opinion concludes such arrangements are not unethical.

The opinion concludes that, like all fees, a reverse contingent fee must be reasonable under Rule 1.5, judged both at the outset and at the conclusion of the representation. Beyond reasonableness, it concludes the arrangement places increased disclosure burdens on the lawyer to obtain the client's informed consent. Because the lawyer is in a better position than the client to assess the likely outcome of the dispute, the lawyer must fully and fairly communicate that assessment in any discussion of the fee. The lawyer should take particular care in setting the percentage, because, unlike contingent fees based on a client's recovery, there is little established practice to draw on. The opinion also concludes that the degree and nature of the required disclosure, and the scrutiny the fee will receive, may vary with the client's experience and sophistication, and that the arrangement must be reflected in a written fee agreement.

In practice

Under the D.C. rules as they stood at the time of the opinion, a lawyer may use a reverse contingent fee, calculated on the amount the lawyer saves the client from a third party's claim, so long as the fee is reasonable. The opinion concludes reasonableness is assessed both when the agreement is made and when the representation ends, and that the arrangement may better align the lawyer's and client's interests than an hourly or fixed fee.

The opinion concludes the arrangement carries heightened disclosure duties: the lawyer must fully and fairly communicate her assessment of the likely outcome so the client can give informed consent, should set the percentage with particular care given the lack of established practice, and must put the fee in a written agreement. It concludes the required disclosure and the scrutiny applied may vary with the client's sophistication. Because the opinion interprets the fee rules as they stood at the time, verify the current D.C. rules before relying on specific requirements.

Common questions

Q: Are reverse contingent fees allowed in the District of Columbia?

A: The opinion concludes yes. The D.C. Rules do not prohibit reverse contingent fees, and, consistent with ABA Formal Opinion 93-373, such arrangements are not unethical.

Q: How is a reverse contingent fee tested for reasonableness?

A: The opinion concludes that, like any fee, a reverse contingent fee must be reasonable under Rule 1.5, and that reasonableness is judged both at the outset and at the conclusion of the representation.

Q: What extra disclosure does a reverse contingent fee require?

A: The opinion concludes the lawyer, who is better positioned to assess the likely outcome, must fully and fairly communicate that assessment to the client to obtain informed consent, and should take particular care in setting the percentage because there is little established practice.

Q: Does the arrangement need to be in writing?

A: The opinion concludes a reverse contingent fee arrangement must be reflected in a written fee agreement.

Background and rules framework

The opinion interprets D.C. Rule 1.5 (fees), including the requirement that every fee be reasonable and that contingent fee arrangements be set out in a written agreement. It applies these requirements to reverse contingent fees, drawing on ABA Formal Opinion 93-373, which reached a similar conclusion under the Model Rules.

Citations and references

Rules of Professional Conduct:

• D.C. RPC 1.5, 1.5(a), 1.5(b) / Model Rule 1.5 (fees; reasonableness; written fee agreements)

Cases:

• Brown & Sturm v. Frederick Road L.P., 768 A.2d 62 (Md. Ct. Spec. App. 2001), reasonableness of a contingent fee

Other opinions cited:

• ABA Formal Op. 93-373 (1993): reverse contingent fees are not unethical

See also

• ABA Formal Op. 93-373: Reverse Contingent Fees
• ABA Formal Op. 94-389: Contingent Fees
• DC Ethics Op. 389: Flat Fees, Subscription Fees, and Disbarment

Source

• Landing page: https://www.dcbar.org/for-lawyers/legal-ethics/ethics-opinions-210-present/ethics-opinion-347