Can a North Carolina lawyer collect both a contingent fee and a separate court-awarded attorney fee from the same personal injury case?

Plain-English summary

A lawyer represents a plaintiff under a one-third contingent fee agreement that is silent on what happens to a court-awarded fee. The jury awards $3,000, and the court awards a separate $6,000 attorney fee under N.C. Gen. Stat. §6-21.1, which lets a trial judge award a fee when a personal-injury or property-damage judgment is $10,000 or less. The opinion answers four questions about collecting and allocating those fees.

On whether the lawyer may collect both fees, the opinion concludes the lawyer may collect both, or some portion, provided the total is consistent with the fee agreement and not clearly excessive. It cautions that, unless the results were extremely favorable and the work substantial, collecting the entire contingent fee plus the entire court-awarded fee would ordinarily be clearly excessive under Rule 1.5(a), citing Rule 1.5(b)(4) (the amount involved and results obtained) and Ethics Decision 97-3. On whether it matters that the lawyer might net more than the client, the opinion concludes the statute's purpose is to allow a reasonable fee where a plaintiff otherwise could not feasibly sue; reasonableness of the award is for the court, and as a matter of professional responsibility it is irrelevant that the awarded fee exceeds the verdict so long as the lawyer's fee is not clearly excessive or illegal and is consistent with the agreement.

On adding the court-awarded fee to the judgment and taking a contingent share of the total, the opinion concludes the lawyer may share some or all of the fee award with the client because that benefits the client and may avoid a Rule 1.5 violation; whether the client ends up with more than the verdict is a matter of private agreement. Sharing the award with the client is not prohibited fee sharing under Rule 5.4(a), because that rule's concern (protecting the lawyer's independent judgment from a nonlawyer with a pecuniary interest) is not implicated by sharing with the lawyer's own client. On the fee agreement, the opinion concludes it should explain the potential availability of a §6-21.1 award and, if the fee is contingent on damages, set out how the total fee is determined when the court also awards a fee (for example, specifying the greater of the contingent amount or the court-awarded fee).

In practice

Under the North Carolina rules as they stood at the time of the opinion, the analysis turns on the clearly-excessive standard of Rule 1.5(a) and on the terms of the fee agreement. The opinion holds a lawyer may collect both a contingent fee and a court-awarded fee where the total is consistent with the agreement and not clearly excessive, while warning that taking both in full is ordinarily excessive absent extremely favorable results and substantial work.

Per the opinion, sharing a fee award with the client is permitted and is not prohibited fee sharing under Rule 5.4(a), and the fee agreement should disclose the possibility of a court-awarded fee under §6-21.1 and specify how the two fees combine.

Common questions

Q: Can a lawyer keep both the contingent fee and a court-awarded fee?

A: Yes, in whole or part, if the total is consistent with the fee agreement and not clearly excessive. The opinion concludes taking both in full is ordinarily clearly excessive under Rule 1.5(a) unless the results were extremely favorable and the work substantial.

Q: Does it matter if the lawyer ends up with more than the client's verdict?

A: As a matter of professional responsibility, no. The opinion concludes that if the fee is not clearly excessive or illegal and is consistent with the agreement, it is irrelevant that the awarded fee exceeds the verdict; reasonableness of the award is for the court.

Q: Is sharing the court-awarded fee with the client improper fee sharing?

A: No. The opinion concludes Rule 5.4(a) protects against a nonlawyer with a pecuniary interest interfering with the lawyer's judgment, and sharing the award with the lawyer's own client does not implicate that concern.

Q: What should the fee agreement say about court-awarded fees?

A: The opinion concludes the agreement should explain the potential availability of a §6-21.1 fee and, where the fee is contingent on damages, specify how the total fee is set when the court also awards a fee (for example, the greater of the two).

Background and rules framework

The opinion interprets Rule 1.5(a) (a lawyer's fee may not be clearly excessive) and Rule 1.5(b)(4) (the amount involved and results obtained as factors), corresponding to Model Rule 1.5, together with Rule 5.4(a) (no fee sharing with a nonlawyer, corresponding to Model Rule 5.4) and Rule 1.4(b) (explaining a matter so the client can make informed decisions, corresponding to Model Rule 1.4). It applies N.C. Gen. Stat. §6-21.1 (discretionary attorney-fee award in small personal-injury and property-damage judgments).

Citations and references

Rules of Professional Conduct:

• MR 1.5 / NC Rule 1.5(a) (fee not clearly excessive), Rule 1.5(b)(4) (amount and results factors)
• MR 5.4 / NC Rule 5.4(a) (no fee sharing with a nonlawyer), cmt. [1]
• MR 1.4 / NC Rule 1.4(b) (informing the client)

Statutes:

• N.C. Gen. Stat. §6-21.1 (discretionary attorney-fee award in judgments of $10,000 or less)

Cases:

• Martin v. Hartford Accident & Indemnity Co., 68 N.C. App. 534, 316 S.E.2d 126, cert. denied, 311 N.C. 760, 321 S.E.2d 140 (1984), purpose of the §6-21.1 fee award.
• Washington v. Horton, 132 N.C. App. 347, 515 S.E.2d 331 (1994), factors for awarding a §6-21.1 fee.

Other opinions cited:

• NC Ethics Decision 97-3.

See also

• ABA Formal Op. 93-374: Sharing Court-Awarded Fees With Pro Bono Organizations
• NC State Bar 2004 FEO 8: Advertising Contingent Fees and Costs
• NC State Bar 2003 FEO 10: Fee Sharing With a Nonlawyer in a Social Security Case

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2002-formal-ethics-opinion-4/

Original opinion text

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

Inquiry #1:

Attorney has a contingent fee contract for representation of Plaintiff on injuries arising out of an automobile accident. The contract provides for the payment to Attorney of one-third of any amount recovered for Plaintiff. There is no provision in the contract on what will be done with any court-awarded legal fee. The case is tried and the jury awards the Plaintiff $3,000 in damages. Attorney petitions the court for an attorney fee pursuant to N.C. Gen. Stat. §6-21.1. The statute gives the trial judge the discretion to award an attorney fee when a judgment in a personal injury or property damage suit is $10,000 or less. After examining the time Attorney spent representing Plaintiff, the court awards a $6,000 attorney fee to be taxed as a part of the court costs.

May Attorney collect both the contingent fee and the attorney fee awarded by the court?

Opinion #1:

A lawyer may collect both the contingent fee and the court-awarded fee, or some portion thereof, provided the total amount received by the lawyer is consistent with the fee agreement with the client and is not clearly excessive. See Opinion #2 and #3. However, unless results obtained for the client are extremely favorable and the work required by the representation was substantial, ordinarily collecting the entire contingent fee and the entire court-awarded fee would be clearly excessive in violation of Rule 1.5(a). See Rule 1.5(b)(4) (whether a fee is clearly excessive depends, in part, on the amount involved and the results obtained); see also Ethics Decision 97-3.

Inquiry #2:

If Attorney keeps the fee awarded by the court, he will receive more from the representation than the Plaintiff will receive from the damage award. Is this unethical?

Opinion #2:

The purpose of N.C. Gen. Stat. §6-21.1 is to allow the judge to award a "reasonable attorney fee" in cases where it might not be feasible for the injured party to bring suit if the injured party must pay a lawyer out of the damage award. See, e.g. Martin v. Hartford Accident & Indemnity Company , 68 N.C. App. 534, 316 S.E. 2d 126, cert. denied , 311 N.C. 760, 321 S.E. 2d 140 (1984). The courts have set out the factors that trial judges must consider in deciding whether to award an attorney fee under N.C. Gen. Stat. §6-21.1. See, e.g. Washington v. Horton , 132, N.C. App. 347, 515 S.E. 2d 331 (1994).

The "reasonableness" of the fee award is determined by the court pursuant to the statute and the appellate opinions interpreting the statute. The Ethics Committee has no authority to interpret the law. As a matter of professional responsibility, however, if the fee received by the lawyer is not "clearly excessive" or illegal in violation of Rule 1.5(a), and it complies with or is consistent with the fee agreement with the client, it is irrelevant whether the fee awarded by the judge exceeds the amount of the verdict.

Inquiry #3:

May Attorney add the court-awarded attorney fee ($6,000) to the judgment ($3,000) and take a one-third contingent fee from the total? Is this prohibited fee sharing with a nonlawyer? Does it matter that this will give Plaintiff twice as much ($6,000) as the amount awarded by the jury?

Opinion #3:

The lawyer may share some or the entire attorney fee award with the client since this will clearly benefit the client and may, in some instances, avoid a violation of Rule 1.5. Unless otherwise prohibited by law, whether the client receives more than the jury award as a result of this arrangement is a matter of private agreement between the client and the lawyer.

Rule 5.4(a) prohibits a lawyer from sharing legal fees with a nonlawyer. As noted in comment [1] to the rule, the prohibition is meant to protect the exercise of a lawyer's independent professional judgment on behalf of a client from interference by a nonlawyer with a pecuniary interest in the outcome of the representation. Sharing an attorney fee award with the client will not interfere with the lawyer's professional judgment on behalf of the same client and, therefore, is not prohibited.

Inquiry #4:

What provisions should be included in Attorney's fee agreement with Plaintiff to address this situation?

Opinion #4:

To help the client make informed decisions about the representation and to avoid a fee dispute, the fee agreement should explain the potential availability of a court awarded attorney fee under N.C. Gen. Stat. §6-21.1. See Rule 1.4(b) and Rule 1.5. If the agreement provides that the lawyer will be paid an amount that is contingent upon the amount of damages awarded to the client in a judgment, the agreement should also set forth the basis for determining the total fee to be paid to the lawyer if the court awards a legal fee in addition to the damage award. For example, if the lawyer intends to take either the contingent fee amount or the court awarded fee, whichever is greater, the fee agreement should so specify.