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132 N.J.L.J. 210
October 5, 1992
1 N.J.L. 1589
October 12, 1992
ADVISORY COMMITTEE ON PROFESSIONAL ETHICS
COMMITTEE ON ATTORNEY ADVERTISING
Appointed by the New Jersey Supreme Court
JOINT OPINION
Opinion 666 - Advisory Committee on Professional Ethics
Opinion 14 - Committee on Attorney Advertising
Targeted Direct-Mail Solicitation
Letters: Improper Terms and
Conditions of Representation in
Property Tax Appeals
This opinion arises from the Committee on Attorney
Advertising's consideration of two grievances that were filed
against law firms in unrelated matters. The grievances concerned
targeted direct-mail solicitation letters the firms sent to real
property owners inviting them to consider appealing their 1992
property tax assessments.
The solicitation letters in question fully complied with the
requirements of RPC 7.3(b)(4), but contained terms and conditions
that were violative of other Rules of Professional Conduct, Rules
of Court, case law and prior opinions of the Advisory Committee on
Professional Ethics. Therefore, the letters also perforce violated
RPC 7.1(a)(1) and were actionable under the Committee's dual
grievance jurisdiction. R. 1:19A-4(h).
Upon being contacted by the Committee, respondents asserted
that the terms and conditions complained of are commonly employed
by, if not standard for, attorneys practicing in this area of the
law. In fact, they provided the Committee with solicitation
letters and retainer agreements utilized by five other law firms
which contain language similar to that which is here under review.
Given the pervasiveness of the problem, the Committee concluded
that rather than proceed against respondents, it would be better to
issue an advisory opinion placing this segment of the bar on notice
that several of the terms included in their solicitation letters
and retainer agreements are improper. Since the opinion required
interpretation of Rules of Professional Conduct and other
authorities not ordinarily within its jurisdiction, the Committee
enlisted the assistance of the Advisory Committee on Professional
Ethics which joins in its issuance.
The following terms and conditions were found by the
Committees to be improper:
1. Should you decide to retain our firm, we
will represent you for a contingent fee equal
to thirty percent (30%)See footnote 1
1
of the tax savings
produced as a result of our appeal ....There
is absolutely no obligation on your part to
pay any fee whatsoever to this firm unless we
are able to recover tax savings for you.
This term may not be included in a solicitation letter
because, without additional language concerning alternative fee
options, it is violative of R. 1:21-7(b) which provides that
An attorney shall not enter into a contingent
fee arrangement without first having advised
the client of the right and afforded the
client an opportunity to retain him under an
arrangement whereby he would be compensated on
the basis of the reasonable value of his
services.
Respondents contend that in matters such as these, strict
compliance with this rule would result in "hollow recitation[s] of
an absurd option." More specifically, they claim that since the
typical residential tax appeal will, if successful, yield savings
of $200 to $400, clients will assume that any conceivable savings
will be offset or exceeded by attorneys fees.
This is not necessarily true in every case. In matters such
as these, an individual attorney may represent most, if not all, of
the property owners in a given development or condominium complex.
The individual tax appeals are similar and in some instances
identical. The attorney usually has the basic forms and related
paperwork on his or her word processing equipment and need only
make individuating changes. The appeals are filed simultaneously
and ultimately settled as a group with the execution of a
stipulation. Therefore, depending upon the number of clients, the
actual amount of time spent by the attorney on an individual
client's appeal may be minimal. In such instances, it might be
more cost efficient for the client to retain the attorney on an
hourly fee basis. Even if true in the typical residential tax
appeal, the fact that compensation on an hourly basis may be an
"absurd option" does not relieve an attorney of his or her
obligations under R. 1:21-7(b). A client must be advised of the
right and afforded an opportunity to retain the attorney on an
hourly basis.
2. Because of the large number of property
owners involved, it will be impossible to
present for your review and approval any
proposed settlement of your case. Therefore,
by signing this agreement, you authorize us
to settle your case upon such terms and
conditions as we, in our professional
judgment, deem to be in your best interests.
This term may not be included in a solicitation letter or
retainer agreement as it would violate RPC 1.8(g) which provides
that
A lawyer who represents two or more clients
shall not participate in making an aggregate
settlement of the claims of or against the
clients...unless each client consents after
consultation, including disclosure of the
existence and nature of all the
claims...involved and of the participation of
each person in the settlement.
Respondents argue that employment of this term is not just a
matter of convenience, but one of necessity. They contend that in
the typical case, settlements are not offered by the taxing
authority until right before the hearing, and it is virtually
impossible to contact every client within the time allotted for a
decision. They also contend that it would not be possible to
provide quality representation at such a low cost if client
conferences could not be limited.
No matter how laudable the intentions or seemingly exigent the
circumstances, a lawyer must abide by the client's decision whether
to accept an offer of settlement. RPC 1.2(a). This is so even if
the lawyer receives a "tie-in" offer from the defendant. Opinion
616, 122 N.J.L.J. 764 (1988). The lawyer simply may not supplant
a client's judgement with his or her own. Therefore, a lawyer may
not, particularly at the inception of representation, ask or
require a client to authorize settlement of a case upon such terms
and conditions as the lawyer, in his or her professional judgment,
deems to be in the client's best interests.
3. The undersigned does hereby authorize the
Law Firm to sign and file tax appeal
petitions, complaints, appeals, tax refund
vouchers and refund checks, if any, in the
undersigned's name and on its behalf.
The presence of this term in a solicitation letter or retainer
agreement would give rise to yet another ethical violation. The
Supreme Court has held that employment by a lawyer of a retainer
agreement granting power of attorney to execute any draft or check
in the client's behalf is highly improper. In re Conroy, 56 N.J.
279 (1970). The Court later extended its holding to the routine
use of any form that extends power of attorney to a lawyer in
endorsing a client's name to a settlement draft. Matter of ACPE
Opinion 635, 125 N.J. 181 (1991). Consequently, authorization to
endorse provisions ought not be included in solicitation letters
outlining terms of employment.
Respondents argue that In re Conroy, supra, 56 N.J. 279, and
Matter of ACPE Opinion 635, supra, 125 N.J. 181, dealt exclusively
with the use of authorization to endorse provisions in personal
injury matters. The Court, they allege, left open the issue of
employing such provisions in matters involving real property
conveyances, mortgage financing, administration of estates, debt
collection and real property tax appeals where the risk of a lawyer
victimizing a client is comparatively smaller.
Respondents also point out that the phenomenon of a refund in
tax appeal matters may be extinct. Only in rare circumstances
where the taxpayer has actually paid more in taxes before
settlement or judgment, and the relief granted is greater than the
balance of taxes due, will a refund be available.
Finally, respondents contend that unlike personal injury
matters, real property tax appeals are not without safeguards.
Taxpayers receive quarterly notices when taxes have been underpaid,
paid late, or not paid at all. They also receive new tax bills
annually. If a refund was due as a result of an assessment
reduction, the taxpayer would know immediately upon examining the
new tax bill or deficiency notice. In any event, it is argued, the
refund is likely to be relatively small.
The fact remains that use of authorization to endorse
provisions increases the opportunity for an attorney who is so
inclined to misappropriate client funds by depriving clients of
actual notice of the amount of settlement or judgment and of the
time the funds were received. Although individual refunds may be
small, the attorney representing a large number of property owners
in a given development or complex will have a substantial amount of
money entirely within his or her control. The temptation and
opportunity for manipulation of those funds may unduly influence
such an attorney.
Only a small number of attorneys would be tempted to take
advantage of the opportunity presented by authorization to endorse
provisions. Nevertheless, the advantage to be gained in client and
attorney convenience does not outweigh the increased risk for these
attorneys to victimize their clients. Matter of ACPE Opinion 635,
supra, 125 N.J. at 187.
4. The Law Firm is authorized to deduct its
contingent fee from refund checks, if any, and
if sufficient.
This term may not be included in a solicitation letter or
retainer agreement as it would violate RPC 1.15(c) which provides:
When in the course of representation a lawyer
is in possession of property in which both the
lawyer and another person claim interests, the
property shall be kept separate by the lawyer
until there is an accounting and severance of
their interests. If a dispute arises
concerning their respective interests, the
portion in dispute shall be keep separate by
the lawyer until the dispute is resolved.
An attorney cannot possibly know whether there is or will be
a dispute unless and until the client has been provided with the
following information: (1) that the matter has been settled or
proceeded to judgment; (2) the amount of the settlement or
judgment; and (3) the amount of the fee to be deducted and
withdrawn by the attorney. Therefore, a client must be given
notice before a fee can be taken from the attorney's trust account.
Matter of Stein, 97 N.J. 550,564 (1984).
Respondents contend that obtaining a client's prior
authorization to deduct an agreed upon fee is not improper because
the client knows from the outset the formula to be employed in
determining the amount of the attorney's fee. However, the fact
remains that the precise amount of the attorney's fee will not be
known until the matter is settled or proceeds to judgment.
Additionally, the attorney will not know whether the client is
dissatisfied with his or her handling of the case or the results
obtained, and therefore refuses to pay the agreed upon fee, until
the client is provided with complete information concerning the
resolution of the matter. Consequently, an attorney may not
withdraw his or her fee absent the client's consent after full
disclosure.
In light of the foregoing, we hold that the second, third and
fourth of the above-recited provisions may not be included in
targeted direct-mail solicitation letters, retainer agreements or
subsequently executed documents and that the first provision may be
included only if the additional language concerning alternative fee
options is present.
* * *
Footnote: 1 1 The contingent fees to be charged by the various law firms
range from a low of 25% to a high of 40%.
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