If a foreign attorney collects a contingent fee above New Jersey's limit, calling the excess 'nonlitigation services,' what must the New Jersey local counsel of record do?

Plain-English summary

An out-of-state attorney agreed to represent a New Jersey client (himself an attorney) on a personal-injury claim in New Jersey court under a contingent fee both knew exceeded the R. 1:21-7(c) limits. The foreign attorney retained the inquirer as local counsel; the inquirer entered an appearance as attorney of record, and the foreign attorney was admitted pro hac vice on the inquirer's motion. After a favorable settlement was disbursed by the foreign attorney, the inquirer learned of the improper fee and demanded either a court application under R. 1:21-7(f) or a refund. A conference produced a partial refund, but the foreign attorney retained an amount still over the limit, characterizing the excess as payment "for nonlitigation services," which the inquirer doubted.

The Committee answered a series of questions. Assuming the fees were over the limit, the initial contingent-fee agreement violated R. 1:21-7(c), DR 2-106(A), and DR 1-102(A), notwithstanding that the client was a New Jersey attorney who knew the rule; R. 1:21-7(c) flatly bars contracting for, charging, or collecting a contingent fee above its limits, and exceeding them without the court approval required by R. 1:21-7(f) is improper. Under the pro hac vice rule (R. 1:21-2), the attorney of record is responsible for the conduct of the cause and of the admitted attorney, so when an excessive contingent fee is sought it is the attorney's duty to make the R. 1:21-7(f) application, even if the foreign attorney and client oppose it.

The Committee further held that the share paid to producer counsel was irrelevant where the foreign attorney's retained portion still exceeded the limit; that the inquirer's participation in the negotiation and settlement that let the foreign attorney keep the excess violated the rules in answer (1); and that the inquirer's late discovery did not change the result, because after learning of it he still participated in collecting an excessive fee without court approval. Nor did the parties' informed agreement to the improper settlement negate the conclusion. On the final question, whether labeling the excess "nonlitigation services" avoids R. 1:21-7 is a fact question the Committee would not decide: if the fees were charged in good faith for nonlitigation services there is no problem, but if they were really for litigation services, the misdescription does not help and underlines an essentially fraudulent character. The Committee stated that, if the inquirer has serious doubts about the bona fides of the arrangement, the prudent course is to present the entire matter to the court under R. 1:21-7(f).

Currency note

This opinion was issued in 1978, before New Jersey's 1984 replacement of the Disciplinary Rules by the Rules of Professional Conduct and the later revisions to those rules. It applied R. 1:21-7 (contingent-fee limits), DR 2-106(A) (fees), and DR 1-102(A) (misconduct); in current New Jersey terms the fee analysis corresponds to RPC 1.5 and the misconduct provision to RPC 8.4, while the R. 1:21-7 contingent-fee limits and procedure remain a Court Rule. 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: Is an over-limit contingent fee improper even if the client is a lawyer who agreed to it?

A: Yes. The opinion held the agreement violates R. 1:21-7(c), DR 2-106(A), and DR 1-102(A) notwithstanding that the client was a New Jersey attorney who knew the rule.

Q: What must the local New Jersey attorney of record do?

A: As attorney of record responsible for the cause under the pro hac vice rule, he must apply to the court under R. 1:21-7(f) for approval of any excess fee, even if the foreign attorney and client oppose the application.

Q: Does calling the excess "nonlitigation services" cure the problem?

A: The opinion treated that as a fact question: if charged in good faith for nonlitigation services there is no problem, but if the work was really litigation, the relabeling does not help and underlines an essentially fraudulent character.

Background and rules framework

The opinion applied R. 1:21-7, which sets and limits reasonable contingent fees in New Jersey personal-injury tort actions and requires court approval (R. 1:21-7(f)) for any excess, together with the pro hac vice responsibility rule (R. 1:21-2), DR 2-106(A) (reasonable fees), and DR 1-102(A) (misconduct). In current New Jersey terms the analysis corresponds to RPC 1.5 (fees) and RPC 8.4 (misconduct).

Citations and references

Rules of Professional Conduct:

• MR 1.5 / NJ RPC 1.5 (fees)
• MR 8.4 / NJ RPC 8.4 (misconduct)
• R. 1:21-7(c), R. 1:21-7(f), R. 1:21-2; DR 2-106(A), DR 1-102(A) (as in effect 1978)

Cases:

• McMullen v. Conforti & Eisele, 67 N.J. 416 (1975)

See also

• NJ ACPE Op. 562: Contingent Fee Paid to a Medical Expert or Consulting Service
• NJ ACPE Op. 549: Division of Fees With a Referring Attorney Who Represented an Adverse Party

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp402-1.html
• Issuing authority: New Jersey Supreme Court Advisory Committee on Professional Ethics, via the NJ Courts Supreme Court Committees page

Original opinion text

Reproduced from a full-text mirror of the official opinion for research purposes. The linked official source controls.

102 N.J.L.J. 89, July 27, 1978

OPINION 402

Excessive Contingent Fees - Excess Claim for Nonlitigation Services

An out-of-state attorney agreed to represent a New Jersey client (also an attorney) on a personal injury claim in New Jersey court on the basis of a contingent fee which both parties knew was in excess of the limits set forth in R. 1:21-7(c). The foreign attorney then retained the inquirer as a local counsel. Inquirer entered his appearance in the litigation as attorney of record, and the foreign attorney was thereafter admitted pro hac vice on the inquirer's motion.

After the case was settled on a favorable basis, and the proceeds were disbursed by the foreign attorney, the inquirer learned for the first time of the improper fee arrangement. Thereafter, inquirer protested and demanded that application be made to the court, pursuant to R. 1:21-7(f), or that the excess fee be refunded. Instead, a conference was held by both attorneys with the client, which resulted in the foreign attorney refunding a portion of the fees, but still retaining an amount in excess of that permitted by R. 1:21-7(c), on the ground that the excess was payment "for nonlitigation services." Inquirer questions the good faith of that description in stating that "the fee paid far exceeded the time value of those [nonlitigation] services."

The fee paid to the foreign attorney himself exceeded the limits set by the rule, even without considering the fact that fees were also paid to the inquirer and to an attorney who had previously represented the client in the initial stages of the litigation, but had since been discharged. Concerning the fees paid to inquirer in the matter, he states they were "in an amount in excess of the time value of inquirer's services, but were conditioned upon the inquirer agreeing to represent the client in certain continuing legal controversies."

In context of the above, the inquirer asks several questions which will be evident from the following answers. The assumption in the first five questions is that in fact the fees paid to the foreign attorney were in excess of those permitted by R. 1:21-7(c). The question as to whether that assumption is factual is dealt within question 6.

(1) The initial contingent fee agreement is violative of R. 1:21-7(c), DR 2-106(A) and, therefore, DR 1-102(A), including several subsections thereof notwithstanding that the client was a New Jersey attorney with knowledge of the rule. DR 2-106(A) prohibits charges of more than a reasonable fee and R. 1:21-7(c) enumerates and defines a reasonable contingent fee in a New Jersey personal injury tort action. R. 1:21-7(c) is clear and states that "an attorney shall not contract for, charge, or collect a contingent fee in excess of the following limits" (emphasis added). See McMullen v. Conforti & Eisele, 67 N.J. 416 (1975). If such limits are exceeded in the initial contingent fee arrangement, without the court approval required by R. 1:21-7(f), then such agreement is improper and constitutes conduct violating not only that rule, but also DR 2-106(A) (fees) and DR 1-102(A) (misconduct). Under the pro hac vice rule, R. 1:21-2, the attorney of record in litigation in New Jersey is responsible "for the conduct of the cause and of the admitted attorney therein." When an excessive contingent fee is sought it is the duty of the attorney to make the application to the court required by R. 1:21-7(f), even if neither the foreign attorney nor the client wishes such application to be made, and in fact, opposes it. If this were not so, it would be difficult to see how the rule could retain its force.

(2) The fact that some part of the total fees which were in excess of those permitted by R. 1:21-7(c) was paid to the producer counsel appears irrelevant, since inquirer assumes that the portion of the fees retained by the foreign attorney, both under the original agreement and under the settlement, is still in excess of the amount permitted.

(3) The inquirer's participation in the negotiations and settlement resulting in the retention of the excessive fee by the foreign attorney is violative of the rule and Disciplinary Rules cited in answer (1) above.

(4) The fact that the inquirer did not learn of the excessive fee until after the litigation was terminated, does not affect this opinion, for after learning of it, the inquirer still participated in the "contracting," "charging for" and "collecting" of an excessive fee, and could not do so without court approval, as required by R. 1:21-7(f).

(5) The fact that the parties (including the client, who is himself an attorney) agreed to and desire to effectuate the improper settlement with full knowledge of their rights, does not negate our conclusion for the reasons set forth in (1) above.

(6) Whether or not the effect of R. 1:21-7 is avoided by the description of the amount of excessive fees as being compensation for "nonlitigation services" involves a question of fact which is not for this Committee to decide. If the fees were charged in good faith for "nonlitigation services," then there is no problem. If, however, the fees were in fact for services in the litigation, then the misdescription of such fees does not help the proponents of the arrangements but merely underlines its character as essentially fraudulent. If the inquirer has serious doubts concerning the bona fides of the arrangement, the prudent course would be to present the entire matter to the court pursuant to R. 1:21-7(f).