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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.

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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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