Can a New Jersey lawyer charge a 50 percent contingent fee in a consumer-protection case where the recovery includes statutory attorneys' fees?

Plain-English summary

The inquiring lawyer represents debtors against creditors in consumer-protection actions that statutorily provide for recovery of attorneys' fees. The proposed arrangement would give the client 50 percent of the net sum recovered (after disbursements) and treat the other 50 percent as a contingent legal fee. The lawyer noted that Court Rule 1:21-7(c) generally caps a contingency fee at 33 1/3 percent in certain cases and asked whether a 50 percent fee on a recovery that includes a statutory fee award is consistent with the Rules of Professional Conduct.

The Committee began with the governing principle that, under RPC 1.5, attorney fees must be reasonable, judged on the particular circumstances of each case. It found a fixed 50 percent fee "questionable," unrelated or unresponsive to several RPC 1.5 factors, particularly (a)(1) (time, labor, novelty, and skill required) and (a)(3) (the fee customarily charged in the locality for similar services). A 50 percent contingency, much higher than what is permitted in tort matters, "cannot per se be deemed to be 'reasonable.'"

The Committee distinguished the Court Rule 1:21-7(c) cap, which applies to tort claims and caps the fee at 33 1/3 percent of the first $500,000 (with lesser percentages above that), from consumer actions, which fall outside that cap. It reasoned that many consumer matters carry statutory fees and costs awarded under statute and decisional law, and that a private contingency agreement is "unlikely to supervene or justify higher fees than permitted by such statutory, regulatory or decisional law principles." It therefore could not broadly approve a contingency arrangement that, as a general rule, might exceed that framework; where a recovery includes both tort and statutory components, the allowable fee must be apportioned to the source of each portion of the recovery.

On the structure of splitting the awarded fee with the client, the Committee noted that equally splitting amounts awarded as attorneys' fees with the client "may raise concerns under RPC 5.4(a)," which bars sharing fees with a non-lawyer, but concluded that, on the specific facts presented, RPC 5.4(a) did not prohibit the proposed arrangement.

In practice

The opinion holds that, under RPC 1.5 as it stood at the time, a fixed 50 percent contingent fee in a consumer-protection matter is not reasonable per se and cannot be broadly approved where it would exceed the statutory, regulatory, or decisional fee framework that governs the particular claim. Per the opinion, the Court Rule 1:21-7(c) tort cap does not by its terms apply to consumer claims, but that does not make a 50 percent fee permissible; reasonableness under RPC 1.5 still controls, and where a recovery mixes tort and statutory components the fee must be apportioned. The opinion treats the proposed even split of the awarded fee with the client as permissible on its facts under RPC 5.4(a).

Common questions

Q: Does the 33 1/3 percent contingency cap in Rule 1:21-7(c) apply to consumer-protection cases?

A: No. The Committee explained that the Rule 1:21-7(c) cap applies to tort claims (including products-liability claims) where the client is not a subrogee, and not to non-tort actions such as consumer claims. But the opinion concluded that the absence of the cap does not authorize a 50 percent fee; reasonableness under RPC 1.5 governs.

Q: Is a flat 50 percent contingency fee reasonable in a consumer case?

A: The opinion concluded it cannot be deemed reasonable per se. The Committee found a fixed 50 percent fee questionable under several RPC 1.5 factors, including the time and skill involved and the fee customarily charged locally, and noted it is much higher than what tort matters permit.

Q: How does a statutory fee award affect what the lawyer can charge?

A: Per the opinion, many consumer matters carry statutory fees and costs awarded under statute and decisional law, and a private contingency agreement is unlikely to justify a fee higher than that framework allows. Where a recovery includes both tort and statutory victories, the allowable fee must be determined in proportion to the recovery attributable to each source.

Q: Can the lawyer split the awarded attorneys' fee evenly with the client?

A: The Committee noted that equally splitting awarded attorneys' fees with the client may raise concerns under RPC 5.4(a) (sharing fees with a non-lawyer), but found that, on the specific facts presented, RPC 5.4(a) did not prohibit the proposed arrangement.

Background and rules framework

The opinion interprets RPC 1.5 (fees, including the reasonableness factors in 1.5(a) and the permissibility of contingent fees under 1.5(c); cf. Model Rule 1.5) and RPC 5.4(a) (sharing legal fees with a non-lawyer; cf. Model Rule 5.4). It also applies New Jersey Court Rule 1:21-7, which defines contingent-fee agreements (1:21-7(a)), caps tort-claim contingency fees (1:21-7(c)), and allows a higher fee on application to the Assignment Judge (1:21-7(f)).

Citations and references

Rules of Professional Conduct:

• RPC 1.5 (reasonableness of fees; contingent fees under 1.5(c)); cf. Model Rule 1.5
• RPC 5.4(a) (sharing fees with a non-lawyer); cf. Model Rule 5.4

Court Rules:

• N.J. Court Rule 1:21-7(a), (c), (f) (contingent-fee agreements and the tort-claim fee cap)

Cases:

• H. Rosenblum, Inc. v. Adler, 221 N.J. Super. 507 (App. Div. 1987), Rule 1:21-7(c) cap does not apply to an accountant-malpractice "business tort" case

Other authorities cited:

• Notice to the Bar, 95 N.J.L.J. 341 (April 13, 1972): the 1:21-7(c) limit applies to "negligence cases" but not "business torts"

See also

• NJ ACPE Op. 717: No Contingent Fees in Muni Court
• NJ ACPE Op. 402: Excessive Contingent Fee, Local Counsel
• CA COPRAC Op. 2026-210: Flat Fees and Termination

Source

• Landing page: https://www.njcourts.gov/sites/default/files/notices/2008/10/n081017b.pdf
• Original PDF: https://www.njcourts.gov/sites/default/files/notices/2008/10/n081017b.pdf

Original opinion text

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

Advisory Committee on Professional Ethics

Appointed by the Supreme Court of New Jersey

OPINION 715

Contingency Fees In Consumer Protection Cases

Inquirer represents debtors against creditors in consumer protection actions that statutorily provide for recovery of attorneys' fees, and asks about an arrangement under which 50 percent of the net sum recovered after deduction of disbursements would be provided to the client and the other 50 percent would be payable as contingent legal fees. Inquirer notes that R. 1:21-7(c) generally permits a maximum contingency fee of 33 1/3 percent in certain cases, and inquires whether the proposed arrangement of a 50 percent contingency fee on a recovery that includes an award of attorneys' fees would be consistent with the Rules of Professional Conduct.

As a first principle, attorney fees must be reasonable, under the factors set forth in RPC 1.5. This judgment must be made in the particular circumstances of each case. We note, however, that a fixed 50 percent fee would appear to be questionable, unrelated or unresponsive to several of the factors in RPC 1.5, particularly (a)(1) (time and labor involved, novelty of question and required skill involved) and (a)(3) (fee customarily charged in the locality for similar legal services). A 50 percent contingency, which is much higher than that permitted in tort matters, cannot per se be deemed to be "reasonable."

A contingency fee arrangement is defined as an agreement for legal services the payment of which is "contingent in whole or in part upon the successful accomplishment or disposition of the subject matter of the agreement, . . . in an amount which either is fixed or is to be determined under a formula." R. 1:21-7(a). Contingent fee agreements are generally permissible in many types of cases. RPC 1.5(c).

Rule 1:21-7(c) provides that a contingency fee in a matter "where a client's claim for damages is based upon the alleged tortious conduct of another, including products liability claims," and where the client is not a subrogee, is capped at 33 1/3 percent of the first $500,000 recovered, with lesser percentages for each additional $500,000 recovered. A higher percentage contingency fee may be permitted on application to the Assignment Judge. R. 1:21-7(f). The 33 1/3 percent cap does not apply to statutorily-based discrimination and employment claims, business torts, or non-tort actions such as consumer claims. R. 1:21-7(c). See Notice to the Bar, 95 N.J.L.J. 341 (April 13, 1972) (RPC 1:21-7(c) limitation on contingency fee percentage applies to "negligence cases" but not "business torts"); H. Rosenblum, Inc. v. Adler, 221 N.J. Super. 507, 511-12 (App. Div. 1987) (R. 1:21-7(c) cap does not apply to accountant malpractice "business tort" case).

While contingency fees in tort actions are capped under R. 1:21-7(c), contingency fees as high as 50 percent in purely consumer actions require a different analysis. Many consumer matters carry statutory fees and costs, which are considered and awarded pursuant to both the statutory terms and many years of decisional law. Although ultimately a question of substantive law in each case, we note generally that private contingency fee agreements generally are unlikely to supervene or justify higher fees than permitted by such statutory, regulatory or decisional law principles. This Committee therefore cannot broadly approve a contingency arrangement that, as a general rule, may exceed such a statutory, regulatory or decisional framework. Where a recovery includes both tort and statutory victories, allowable fees will have to be determined in proportion to the amount of the recovery attributable to each source.

Equally splitting amounts awarded as attorneys' fees with the client also may raise concerns under RPC 5.4(a), which prohibits an attorney from sharing fees with a non-attorney. Under the specific facts presented, however, the Committee does not view this RPC as prohibiting the proposed fee arrangement.