Does a New Mexico lawyer have to report another lawyer's unreasonable fee?

Plain-English summary

The Ethics Advisory Committee considered whether a lawyer must report what the lawyer believes to be an unreasonable fee charged by another lawyer. The opinion arose from a contingent-fee example: a lawyer requested policy limits of one million dollars, the insurer disclosed (through no work of the lawyer) that limits were actually three million and immediately paid, and the lawyer charged a one-million-dollar contingent fee for work the inquiring lawyer believed was mostly phone calls in an uncontested matter.

The opinion concluded the answer was yes. It read Rule 16-803 to impose a mandatory duty: a lawyer with knowledge that another lawyer has committed a violation raising a substantial question as to honesty, trustworthiness, or fitness must inform the appropriate professional authority. Relying on the ABA comment and the Committee's earlier Formal Opinion 1988-8, it explained that "substantial" referred to the seriousness of the offense, not the quantum of evidence, and that the report could go to the disciplinary board or the court in which the matter was pending.

The opinion concluded that charging an unreasonable fee rose to reportable misconduct in New Mexico, citing In re Roberts-Hohl, 116 N.M. 700 (1994), and that Rule 16-105 created the duty to charge a reasonable fee. It added that a lawyer's duty of diligence under Rule 16-103 to protect a settlement from unraveling, especially one involving a minor or incapacitated person, might require reporting a potentially unreasonable fee to the court approving it.

Common questions

Q: Did a New Mexico lawyer have to report another lawyer's excessive fee?

A: Yes. The opinion concluded that Rule 16-803 imposed a mandatory duty to report a violation raising a substantial question as to a lawyer's honesty, trustworthiness, or fitness, and that an unreasonable fee qualified.

Q: Was charging an unreasonable fee itself misconduct?

A: Yes. The opinion concluded that charging an unreasonable fee violated the Rules (Rule 16-105) and rose to the level of reportable conduct, citing In re Roberts-Hohl.

Q: Where should the report go?

A: The opinion, relying on Formal Opinion 1988-8, concluded the appropriate authority could be either the disciplinary board or the court in which the matter was pending.

Q: Did diligence add a separate reason to act?

A: Yes. The opinion concluded that a lawyer's duty of diligence under Rule 16-103 to protect against the unraveling of a settlement, particularly one involving minor children or incapacitated persons, could require reporting a potentially unreasonable fee to the court approving it.

Background and rules framework

The opinion interpreted the New Mexico Rules of Professional Conduct: Rule 16-803 (reporting professional misconduct; Model Rule 8.3), Rule 16-105 (reasonable fees; Model Rule 1.5), and Rule 16-103 (diligence; Model Rule 1.3). It relied on the ABA comment to Rule 16-803 and the Committee's earlier Formal Opinion 1988-8 for the meaning of "knowledge" and "substantial question" and for the appropriate reporting authority.

Citations and references

Rules of Professional Conduct:

• Model Rule 8.3 / NM Rule 16-803 (reporting professional misconduct)
• Model Rule 1.5 / NM Rule 16-105 (reasonable fees)
• Model Rule 1.3 / NM Rule 16-103 (diligence)

Cases:

• In re Roberts-Hohl, 116 N.M. 700, 866 P.2d 1167 (1994).
• Van Orman v. Nelson, 78 N.M. 11, 427 P.2d 896 (1967), rev'd on other grounds, 80 N.M. 119 (1969).
• In re Jones, 119 N.M. 229, 889 P.2d 837 (1995) (any fee is excessive when no services are provided).
• Matter of Swartz, 141 Ariz. 266, 686 P.2d 1236 (1984).

Other opinions cited:

• NM Formal Opinion 1988-8 (mandatory duty to report; meaning of "knowledge" and "substantial question").

See also

• ABA Formal Op. 04-433: Reporting Misconduct of a Non-Practicing Lawyer
• NM Ethics Op. 2013-01: Contingent Fees and Interest on Costs
• NM Ethics Op. 2021-001: Fee Splitting When One Lawyer Provides No Services

Source

• Landing page: https://www.sbnm.org/Leadership/Committees/Ethics-Advisory-Committee/Ethics-Advisory-Opinions
• Original PDF: https://www.sbnm.org/Portals/NMBAR/AboutUs/committees/Ethics/2005-2006/2005-2.pdf

Currency note

This opinion was issued in 2005, before the State Bar of New Mexico's November 3, 2008 revisions to the Rules of Professional Conduct (the New Mexico adoption of the ABA Ethics 2000 changes). 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.

Original opinion text

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

Advisory Opinion 2005-2
May 30, 2005

Application Of The Rules Of Professional Conduct Pursuant To A Lawyer's Duty To Report An Unreasonable Fee

Factual Background

In recent years, questions have arisen as to the reasonableness of contingent fees, including but not limited to, automobile accident cases where insurance coverage will cover some if not all of the resulting settlement or judgment.

Prior to filing lawsuits, lawyers often engage in settlement discussions with the adverse party or their insurance company. Questions arise when lawyers negotiate settlements with little expense of time or talent but still charge the client the same contingent fee they would have had the case gone to trial. A specific example presented to the committee with respect to a contingent fee case is as follows:

Two minor members of a family are injured in a motor vehicle accident. The lawyer representing the two injured parties requests from the insurance carrier immediate payment of one million dollars ($1,000,000.00) based on the lawyer's understanding of the insurance policy limits. The insurance carrier, through no work of the lawyer representing the injured parties, informs the lawyer that the policy limit is actually three million dollars ($3,000,000.00), which the carrier immediately agrees to pay.

Under the above fact pattern, the lawyer representing the insurance carrier questioned the reasonableness and potential misconduct based on a $1,000,000.00 contingent fee for work that the lawyer believed mostly involved phone calls, was not novel or difficult, was in an uncontested matter, and was not time-consuming.

Question Presented

Does a lawyer have an obligation to report what the lawyer believes to be an unreasonable fee charged by another lawyer?

Brief Answer

Yes. A lawyer has a mandatory duty pursuant to Rule 16-803 to report professional misconduct. Charging an unreasonable fee is misconduct under the New Mexico Rules of Professional Conduct. Lawyers also have a duty to diligently represent their client, which includes challenging an unreasonable fee.

Analysis

The core issue in this opinion is not whether a one million dollar ($1,000,000.00) contingent fee is reasonable under the circumstances set forth in the Factual Background, but whether a lawyer has a duty to report an ethical violation based upon the possibility of an unreasonable fee of another lawyer. Three factors must be examined in answering this question. First, under the New Mexico Rules of Professional Conduct, what are the duties a lawyer has for reporting a potential violation of the Rules of Professional Conduct? Second, does charging an unreasonable fee, contingent or hourly, constitute misconduct under the Rules? And third, does a lawyer's duty to diligently represent a client require the lawyer to report a potentially unreasonable fee?

Mandatory Reporting: Rule 16-803 NMRA provides the following mandatory duty to report:

A lawyer having knowledge that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer's honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority.

This Rule follows the recommendation by the American Bar Association with respect to a lawyer's mandatory duty to report misconduct of another lawyer. See Formal Opinion 1988-8 Committee on Ethics of the New Mexico State Bar Association. This mandatory duty extends to the knowledge of a lawyer about another lawyer's breach of the Rules of Professional Conduct.

Further, the ABA comment to Rule 16-803 provides:

This Rule limits the reporting obligation to those offenses that a self-regulating profession must vigorously endeavor to prevent... The term "substantial" refers to the seriousness of the possible offense and not the quantum of evidence of which the lawyer is aware. A report should be made to the Bar disciplinary agency unless some other agency, such as a peer review agency, is more appropriate under the circumstances.

Although lawyers have a mandatory duty to report misconduct, there appears to be no guidance in New Mexico for actions against lawyers who fail to fulfill the mandatory duty of reporting. The Committee recognizes that a good deal of uneasiness exists with a mandatory duty of reporting. However, it should be noted that this duty is imposed on lawyers by the Rules of Professional Conduct because the profession is self-regulating. Very rarely will lawyers report their own misconduct, although they are required to do so. Failure to fulfill the mandatory duty to report misconduct not only is a breach of a mandatory duty identified in the rules, but also violates the public trust.

Unreasonable Fee: The Committee finds that charging an unreasonable fee rises to the level of reportable conduct in New Mexico. See, In re Roberts-Hohl, 116 N.M. 700, 866 P.2d 1167 (1994). Further, lawyers have the burden to establish the value of their services. Van Orman v. Nelson, 78 N.M. 11, 427 P.2d 896 (1967), rev'd on other grounds, 80 N.M. 119, 452 P.2d 188 (1969). We refer to our Formal Opinion 1988-8 for a further explanation of "knowledge," and "substantial question." Also, Formal Opinion 1988-8 provides that the appropriate professional authority to which the reporting should occur can be either the disciplinary board or the court in which the matter is pending.

Rule 16-105 creates a duty of a lawyer to charge a reasonable fee. The Committee refers to Rule 16-105, the case law cited in the annotations to that rule, and case law herein cited to evaluate whether any particular fee should be considered unreasonable. The Committee notes that although the example cited above concerns a contingent fee, all other types of fees are subject to the same scrutiny and analysis.

Diligence: Rule 16-103 NMRA provides: "A lawyer shall act with reasonable diligence and promptness in representing a client." Every lawyer has a duty of diligence to protect against the unraveling of a settlement, especially where that settlement involves a minor or otherwise incapacitated person. An unreasonable fee may be a basis for unraveling of a settlement, thereby exposing the client to the risk of continued litigation. Therefore, a lawyer representing a client in the settlement of the claims of minor children should consider reporting a potentially unreasonable fee to the court in which the action is pending.

Conclusion

A lawyer has a mandatory duty of reporting misconduct. A lawyer charging an unreasonable fee has committed a violation of the Rules of Professional Conduct. If such a breach occurs, any lawyer with knowledge of the breach has a mandatory duty to report the misconduct. Finally, a lawyer's duty of diligence to his or her client may also require reporting the unreasonable fee to the court approving the fee, especially in circumstances involving minor children or otherwise incapacitated persons.

[Footnote 1: In Re Jones, 119 N.M. 229, 889 P.2d 837 (1995) (Any fee is excessive when absolutely no services are provided.); See also Lester Brickman, Contingent Fees without Contingencies: Hamlet without the Prince of Denmark?, 38 UCLA L. Rev. 29 (1989) (Arguing that where the possibility of a zero recovery is small or nonexistent, much of the justification for a contingent fee is removed.); Eich v. Gregory A. Maceau P.C., 14 Law. Man. Prof. Conduct 20 (Colo. App. 1997) (not officially published) (Lawyer who deducted a standard one third contingent fee for recovering the full amount of his clients uninsured motorist policy, which the company paid upon demand, was found to have charged an excessive and unreasonable fee.); Matter of Swartz, 141 Ariz. 266, 686 P.2d 1236 (1984).]